ML20084P352
| ML20084P352 | |
| Person / Time | |
|---|---|
| Site: | Davis Besse  |
| Issue date: | 12/31/1994 |
| From: | TOLEDO EDISON CO. |
| To: | |
| Shared Package | |
| ML20084P268 | List: |
| References | |
| NUDOCS 9506080269 | |
| Download: ML20084P352 (171) | |
Text
- .
The 1bledo Edison Company A subsidiary of Centerior IMergy Corporation 4
lli s
Annual Report 1994 9506080269 950601 PDR ADOCK 05000346 I PDR
Contonts -
About Toiodo edison 1 Management's Financial The Company, a * "y owned subsidiary of Centerior Energy Corporation, Analysis, Financial provides electric s; e to about 620,000 people in a 2,500-square mile -
area of northwestern Ohio, including the City of Toledo. The Company also Statements and Notes provides electric energy at wholesale to 13 municipally owned distribution 21 Report of Independent systems and one rural electric cooperative distribution system in its service Public Accountants area. The Company's 1,887 employees serve about 287,000 customers.
22 Financial and Statistical Review 24 investor Information Executive ottices ,
The Toledo Edison Company 300 Madison Avenue Toledo, OH 43652-0001 (419)249-5000 Directors Robert J. Farline, Chairman and Chief Executive OfGeer of the Company and The Cleveland Electric illuminating Company and Chainnan, President and Chief Executive Officer of Centerior Energy Corporation and Centerior Service Company.
Afurray R. Edelman. Vice Chairman of the Company, President of The Cleveland Electric illuminating Company and Executive Vice President of Centerior Energy Corporation and Centerior Service Company.
FredJ. Lange, Jr., President of the Company, Vice President of The Cleveland Electric Illuminating Company and Senior Vice President of Centerior Energy Corporation and Centerior Service Company. ,
_Otticers Chainnan and Chief Executive Officer. .. Robert J. Farling Vice Chairman . .. Afurray R. Edelman President.. . Fred J. Lange, Jr.
Vice President & Chief Financial Officer.. .. Gary R. Leidich Vice President . . Terrence G. Linnert ,
Treasurer . . David Af. Blank Controller.. . E. Lyle Pepin +
Secretary . ..Janis T. Percio i
?
h PnmM m tv.pkd paper
(PUCO) to be efTective in 1996. Meaningful cost control
, Management,s Financial Analys,s i and marketing strategies will mitigate the need for addi-ti n rate incre su and help us meet competidon.
l Outlook Strategic Plan Competition We made significant strides in achieving the objectives of We are implementing strategies designed to create and the comprehensive strategic action plan announced in enhance our competitive advantages and to overcome the January 1994. Centerior Energy Corporation (Centerior c mpetitive disadvantages that we face due to regulatory Energy), along with The Toledo Edison Company and tax constraints and our high retail cost structure.
(Company) and The Cleveland Electric illuminating Currently our most pressing competition comes from Company (Cleveland Electric), created the strategic plan municipal electric systems in our service area. Our rates to strengthen their financial and competitive position are generally higher than those of municipal systems due through the year 2001. The Company and Cleveland largely to their exemption from taxation, the lower cost l Electric are the two wholly owned electric utility subsidi- financing available to them, the continued availability to aries of Centerior Energy. The plan's objectives relate to them of lower cost power through short-term power the combined operations of all three companies. The purchases and their access to cheaper governmental objectives are to achieve profitable revenue growth, be- power. We are seeking to address the tax disparity come an industry leader in customer satisfaction, build a through the legislative process. In 1994, the Ohio Gover-winning employee team, attain increasingly competitive nor's Tax Commission recommended the replacement of power supply costs and maximize share owner return on the gross receipts and personal property taxes currently Centerior Energy common stock. To achieve these levied only on investor-owned utilities and collected objectives, we will continue to control expenditures and through rates with a different tax collected from custom-reduce our outstanding debt and preferred stock. In addi- ers of all electric utilities, including municipal systems.
tion, we will increase revenues by finding new uses for investor-owned utilities would reduce rates upon repeal existing assets and resources, implementing new market- of the existing taxes. We are now working to submit this ing programs and restructuring rates when appropriate. proposal to the Ohio legislature.
We will also improve the operating performance of our ..
generating plants and take other appropriate actions. We face the threat that murucipalities in our service area could establish new systems and continue expanding During 1994, we made progress toward most of our long- existing systems. We are responding with aggressive mar-term objectives. The Company and Cleveland Electric keting programs and by emphasizing the value of our initiated a marketing plan designed to increase total retail senice and the risks of a municipal system: substantial, revenues (exclusive of fuel cost recovery revenues and long-term debt; no guarantee of low-cost wholesale elec-weather influences) by 2-3% annually through 2001. Our tricity; the dimculty of forecasting costs; and the uncer-new customer service activities are intended to raise our tainty of market share as a result of our aggressive customer satisfaction rating. Our employees achieved competition. Generally, these municipalities have deter-enough of their established objectives for the year to mined that developing a system is not feasible or have receive a $500 per eligible employee incentive compensa- agreed with us not to pursue development of a system at tion award. The work undertaken during refueling out- this time. Although some communities continue to be ages at the Davis-Hesse Nuclear Power Station (Davis- interested in municipalization, we believe that we offer Besse) and Perry Nuclear Power Plant Unit 1 (Perry the best value and most reliable source of electric service Unit 1) as well as the outage work at our fossil-fueled in our territory.
, plants should help us achieve our long-term objective of
.The E,nergy Poh.ey Act of 1992 will increase competition reducing variable power costs to a more competitive . .
m the electne utih. .
ty mdustry by allowm.g broader access level. Strong cash flow continued m. 1994 and the Com- . .
, to a utility's transmission system. It should not sigmfi-pany s f.acd-income obligations were reduced by $66 cantly increase the competitive threat to us since we have million. Also, the C,ompany's total operation and mainte-nance expenses dech.ned $22 million, exclus.ive of one-been required to wheel electricity to municipal systems time charges .m 1993.
in our service area since 1977 under operating licenses for our nuclear generatmg units. Further, the government We are taking aggressive steps to increase revenues could eventually require utilities to deliver power from through our enhanced marketing plan and to control other utilities or generation sources to their retail custom-costs. The full impact of these efforts will take time. In ers. To combat this threat, we are olTering incentives the meantime, the Company and Cleveland Electric must such as energy efheiency improvements and reductions in raise revenues by restructuring rates. Accordingly, the demand charges for increased electricity usage to our Company and Cleveland Electric are preparing to file a industrial and commercial customers in return for long-request with The Public Utilitics Commission of Ohio term commitments. Most of our large industrial and 1
commercial customers have ntered into sole-supplier that projected revenues for the 1994-1998 period would contracts with us. More than 80% of our industrial reve- not provide for recovery of such deferrals as scheduled by nues under contract will not be up for renewal until 1997 the PUCO order. This short time frame for recovery of or later. As these contracts expire, we expect to renego- the phase-in deferrals is a requirement under the account-tiate them and retain the customers. ing standard for phase-in plans of regulated enterprises, SFAS 92. The remaining recovery periods for all remain-Rate Matters ing regulatory assets are between 17 and 34 years. We believe the Company's rates will provide for recovery of -
Under the Rate Stabilization Program discussed in Note these assets over the relevant periods and SFAS 71 7, we agreed to freeze base rates until 1996 and limit rate continues to apply.
increases through 1998. In exchange, we are permitted to defer through 1995 and subsequently recover certain Nuclear Operations costs not currently recovered in rates and to accelerate the amortization of certain benefits. Amortization and The Company has interests in three nuclear generating &
recovery of the deferrals are expected to begin in 1996 units- Davis-Besse, Perry Unit I and Beaver Valley with future rate recognition and will continue over the Power Station Unit 2 (Beaver Valley Unit 2)-and average life of the related assets, or between 17 and 30 operates the first one. Cleveland Electric operates Perry years. The continued use of these regulatory accounting Unit 1. Davis-Besse and Beaver Valley Unit 2 have been measures in 1995 will be dependent upon our continu- operating extremely well, with each unit having a three-ing assessment and conclusion that there will be probable year availability average at year-end 1994 that exceeded recovery of such deferrals in future rates. Our analysis the three-year industry average of 80% for similar reac-leading to certain year-end 1993 financial actions and the tors. Ilowever, the three-year availability average of Perry strategic plan also included an evaluation of our regula- Unit I was below the three-year industry availability tory accounting measures. See Ibgulatory Accounting average for that reactor type.
below and Note 7. We decided that, once the deferral of expenses and acceleration of benefits under the Rate in 1994, Davis-Besse had an availability factor of 88%.
Stabilization Program are completed in 1995, we should Further, Davis-Besse completed the shortest refueling no longer plan to use these measures to the extent we and maintenance outage in its history in 1994, returning have in the past. to service just 46 days after shutting down. Cleveland Electric is in the process of upgrading Perry Unit I to the s me level. For seven months in 1994, Perry Unit I was Regulatory Accounting out of service for its fourth refueling and maintenance As described in Notes 1(a) and 7, the Company complies outage. Work was also performed in connection with the with the provisions of Statement of Financial Accounting comprehensive course of action developed in 1993 to Standards (SFAS) 71. We continually monitor changes improve the operating performance of Perry Unit 1.
in market and regulatory conditions and consider the Work in connection with that course of action is ongoing.
etTects of such changes in assessing the continuing appli-cability of SFAS 71. Criteria that could give rise to We externally fund the estimated costs for the future discontinuation of the application of SFAS 71 include: decommissioning of our nuclear units. In 1993 and 1994, (1) increasing competition which significantly restricts we increased our decommissioning expense accruals be-the Company's ability to establish rates to recover operat. cause of revisions in our cost estimates. See Note 1(e),
ing costs, return requirements and the amortization of Our nuclear units may be impacted by activities or events regulatory assets and (2) a sigmficant change m th beyond our control. Operating nuclear units have exper-manner in which rates are set by the PUCO from cost- . .
ienced unplanned outages or extensions of scheduled based regulations to some other form of regulations. In outages because of equipment problems or new regula- -
the event we determine that the L,ompany no longer tory requirements. A major accident at a nuclear facility meets the en,tena for followmg SFAS 71, the Company
- anywhere in the world could cause the Nuclear Regula-would be required to record a before-tax charge to writ tory Commission to limit or prohibit the operation or oft the regulatory assets shown m Note 7. In addition, we .
licensing of any domestic nuclear um.t. If one of our would be required to evaluate whether the changes m. th nuclear units is taken out of service for an extended period competitive and regulatory environment which led t for any reason, including an accident at such unit or any discontinuing the application of SFAS 71 would als other nuclear facility, we cannot predict whether regula-result in an impairment of the net book value of th ry authorities would impose unfavorable rate treat-Company's property, plant and equipment.
ment. Such treatment could include taking our afTected ,
The Company's write-offin 1993 of the phase-in deferred unit out of rate base, thereby not permitting us to recover ,
our investment in and earn a return on it, or disallowing
~
operating expenses and carrying charges (phase-in defer-rals) discussed in Note 7 resulted from our conclusion certain construction or maintenance costs. An extended [
2 !
outage coupled with unfavorable rate treatment could Inflation have a material adverse efTect on our financial condition and results of operations. Although the rate of inflation has eased in recent years, we are still affected by even modest inflation which causes incre ses in the unit cost of labor, materials and services.
Ilazardous Waste Disposal Sites The Comprehensive Environmental Response, Compen.
, sation and Liability Act of 1980 as amended Capital Resources and Liquidity (Superfund) established programs addressing the cleanup 1992-1994 Cash Requirements of hazardous waste disposal sites, emergency prepared-We need cash for normal corporate operations, the ness and other issues. The Company is aware of its potential involvement in the cleanup of several sites. m ndatory retirement of securities and constructing and Although these sites are not on the Superfund National m difying facilities. Construction is needed to meet antic-ipated demand for electric service, comply w,th i govern-Priorities List, they are generally being administered by ment regulations and protect the environment. Over the various governmental entities in the same manner as three-year period 1992-1994, construction and mandatory they would be administered if they were on such list.
Allegations that the Company disposed of hazardous retirement needs totaled approximately $370 million. In waste at these sites, and the amounts involved, are often addition, we exercised options to redeem approximately unsubstantiated and subject to dispute. Superfund pro- $460 million of our securities.
vides that all "potentially responsible parties" (PRPs) We raised $603 million through security issues and term for a particular site can be held liable on a joint and bank loans during the 1992-1994 period. The Company several basis. If the Company were held liable for 100% of also utilized short-term borrowings to help meet its cash the cleanup costs of all of the sites referred to above, the needs. Although write-ofTs of the Company's Perry cost could be as high as $150 million. Ilowever, we Nuclear Power Plant Unit 2 (Perry Unit 2) investment believe that the actual cleanup costs will be substantially and phase-in deferrals in 1993 negatively afTected earn-lower than $150 million, that the Company's share of ings, they did not adversely affect cash flow. See Notes any cleanup costs will be substantially less than 100% 4(b) and 7.
and that most of the other PRPs are financially able to contribute their share. The Company has accrued a liabil- 1995 and Beyond Cash Requirements ity totaling $5 million at December 31,1994 based on estimates of the costs of cleanup and its proportionate Estimated cash requirements for 1995-1999 for the Com-responsibility for such costs. We believe that the ultimate pany are $288 million for construction and $378 million outcome of these matters will not have a material for the mandatory redemption of debt and preferred adverse effect on our financial condition or results of stock. The Company expects to meet nearly all ofits 1995 operations. and 1996 cash requirements of approximately $145 mil-lion and $154 million, respectively, through internal Common Stock Diiidends cash generation and current cash resources. The Com-pany expects to meet nearly all of its 1997-1999 require-In recent years, the Company has retained all of its ments through internal cash generation and current cash earnings available for common stock. The Company has resources. If economical, additional securities may be not paid a common stock dividend to Centerior Energy redeemed under optional redemption provisions. We ex-since February 1991. The Company is currently prohib- pect that the Company's continued strong cash flow will ited from paying a common stock dividend by a provision reduce borrowing requirements and outstanding debt in its mortgage (see Note 11(b)). The Company does and preferred stock during this period.
not expect to pay any common stock dividends prior to its merger into Cleveland Electric, as discussed below. Cash expenditures to comply with the Clean Air Act
, Amendments of 1990 (Clean Air Act) are estimated to Merger of the Company into Cleieland Electric be approximately $22 million over the 1995-1999 period.
See Note 4(a).
We continue to seek the necessary regulatory approvals to complete the merger of the Company into Cleveland I iquidity Electric which was announced in 1994. The Company and Cleveland Electric plan to seek preferred stock share Additional first mortgage bonds may be issued by the owner approval in mid-1995. The merger is expected to Company under its mortgage on the basis of property be effective in 1995. See Note 15. additions. cash or refundable first mortgage bonds. If the applicable interest coverage test is met, the Company may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable 3
o bonds. At December 31,1994, the Company would have fuel cost recovery revenues. Weather reduced base rate >
been permitted to issue approximately $525 million of revenues approximately $7 million from the 1993 ,
additional first mortgage bonds. amount. Total sales increased 7.8% Industrial sales in-creased 8.6% on the strength of increased sales to large
. The Company also is able to raise funds through the sale automotive manufacturers and the broad-based, smaller of subordinated debt and preferred and preference stock. industrial customer group. This growth substantiated an Under its articles of incorporation, the Company cannot economic resurgence in Northwestern Ohio. Residential issue preferred stock unless certain earnings coverage and commercial sales increased 0.8% and 2.3%, respec- -
requirements are met. At December 31,1994, the Com- tively. Other sales increased 16% because of increased pany would have been permitted to issue approximately sales to wholesale customers, although the softer whole- ,
$28 million of additional preferred stock at an assumed sale market conditions in 1994 resulted in lower whole- !
dividend rate of 12% There are no restrictions on the sale revenues. Lower 1994 fuel cost recovery revenues Company's ability to issue preference stock. resulted from favorable changes in the fuel cost factors. .;
. The weighted average of these factors dropped by 6% !
In 1995, the Company plans to raise funds through the j collateralization of accounts receivable. In addition, the For 1994, operating revenues were 26% residential,21% '
Company expects to issue first mortgage bonds as collat- commercial,29% industrial and 24% other and kilowatt-cral security for the sale by a public authority of tax- hour sales were 19% residential,16% commercial, 37%
cxempt bonds. industrial and 28% other. The average prices per kilo-watt-hour for residential, commercial and industrial cus-The Company is a party to a $205 million revolving credit tomers were $.11, $.1I and 5.06, respectively, facility which runs through mid-1996. See Note 12. The Opnating expenses wue 12% lower in 1994. Operation '
Company had $88 million of cash and temporary cash and maintenance expenses for 1993 included $88 million investments at the end of 1994. The Company is unable of net benefit expenses related to an early retirement to issue commercial paper because of its below invest-program, called the Voluntary Transition Program ment grade commercial paper ratings.
(VTP), and other charges totaling $19 million. The VTP ,
The foregoing financing resources are expected to be benefit expenses in 1993 consisted of $75 million of costs suflicient for the Company's needs over the next several for the Company plus $13 million for the Company's years. Ilowever, the availability and cost of capital to pro rata share of the costs for its atliliate, Centerior meet the Company's external financing needs also depend Service Company (Service Company). Two other signifi- i upon such factors as financial market conditions and its cant reasons for lower operation and maintenance ex- !
credit ratings. Current credit ratings for the Company penses in 1994 were a smaller work force and ongoing are as follows: cost reduction measures. Lower purchased power costs helped reduce fuel and purchased power expenses in 1994
[","M D([, despite an increase in the amount of power purchased.
Geration service. tne. More nuclear generation and less coal-fired generation nrst mortgage honds un ud also accounted for a part of the lower fuel and purchased erbre si p wer expenses. Depreciation and amortization ex-penses increased primarily because of higher nuclear plant decommissioning expenses as discussed in Note Results of Operations i(e). Deferred operating expenses were greater crimarily ,
g994 g993 because of the write-oft of $55 million of phase-in deferred operating expenses in 1993 as discussed in Note Factors contributing to the 0.7% decrease in 1994 operat. 7. The 1993 deferrals also included $32 million of -
i ing revenues are as follows: postretirement benefit curtailment cost deferrals related u;ii;ons to the VTP. See Note 9(b), Federal income taxes in-Increase (tiecremet in oneranne Revenues or twn.m creased as a result of higher pretax operating income.
KWil Sales Volume and W $8 Wholesale Revenues (5) As discussed in Note 4(b), $232 million of our Perry Unit i uel cost Recovery Revenues _LU 2 investment was written off in 1993. Also, as discussed ,
ha' 1W in Note 7, phase-in deferred carrying charges of $186 million were written oft in 1993. The change in the i The Company experienced good retail kilowatt-hour sales federal income tax credit amounts for nonoperating in- !
gmwth m the mdustnal and commercial categories in come was attributable to these write-offs. .
1994; the sales growth for the residential category was l' lessened by weather conditions, particularly during the summer. The revenue decrease resulted from milder :
weather conditions in 1994 and both lower wholesale and [
4 l
1993 vs.1992 primarily from lower revenues under contracts having reduced rates with certain large customers and a declining Factors contributing to the 3.1% increase in 1993 operat- rate structure tied to usage. The contracts have been ing revenues are as follows: negotiated to meet competition and encourage economic Increase mccrease) in Operatine Revenues o II.Ss growth. The increase in 1993 fuel cost recovery revenues j KwH sales volume and Mix s 38 resulted from changes in the fuel cost factors. The Wholesale Sales (11) weighted average of these factors increased about 2%.
. Base Rates and Misec11aneous (3) f uel Cost Recovery Revenues _2 For 1993, operating revenues were 26% residential,21%
, Total L2d commercial,28% industrial and 25% other and kilowatt-hour sales were 20% residential,17% commercial, 37%
The revenue increase resulted primarily from the different industrial and 26% other. The average prices per kilo-weather conditions and the changes in the composition of watt-hour for residential, commercial and industrial cus-the sales mix among customer categories. Weather ac- tomers were $.11, $.1I and $.06, respectively. The counted for approximately $15 million of higher 1993 changes from 1992 were not significant.
base rate revenues. Ilot summer weather in 1993 boosted Operating expenses increased 13% in 1993. The increase residential and commercial kilowatt-hour sales. In con-in total operation and maintenance expenses resulted trast, the 1992 summer was the coolest in 56 years for
, from the $88 million of net benefit expenses related to Northwestern Ohio. Residential and commercial sales the VTP, other charges totaling $19 million ind a slight also increased as a result of colder late-winter tempera-increase in other operation and maintenance expenses.
tures m 1993 which increased electric heating-related I)eferred operating expenses decreased because of the demand. Residential and commercial sales increased .
wnte-off of the phase .in deferred operating expenses in 5.1% and 3.2%, respectively, in 1993. Industrial sales 1993. Federalincome taxes decreased as a result of lower increased 6% as a result of increased sales to large pretax operating income.
automotive manufacturers, petroleum refiners and the broad-based, smaller industrial customer group. Other As mentioned above, $232 million of our Perry Unit 2 sales decreased 18% because of fewer sales to wholesale investment was written off in 1993. Credits for carrying customers. Generating plant outages and retail customer charges recorded in nonoperating income decreased be-demand limited power availability for bulk power transac- cause of the write-off of the phase-in deferred carrying tions. As a result, total sales decreased 2.2% in 1993. charges in 1993. The federal income tax credit for nonop-Base rates and miscellaneous revenues decreased in 1993 erating income in 1993 resulted from the write-offs.
I 5
g
- 1ncome Statement rs, r<scs, esison co-vany -
For the years ended December 31.
I994 1993 j992 (millions of dollars) .
Operating Re+cnues (1) $M1 $ 871 $341 j Operating Expenses ,
Fuel and purchased power 167 173 169 Other operation and maintenance 229 245 236 Generation facilities sental expense, net 104 104 106 Early retirement program expenses and other -
107 -
Total operation and maintenance 500 629 511 Depreciation and amortization 83 76 77 Taxes, other than federal income taxes 90 91 91 Deferred operating expenses, net (21) (4) (17)
Federal income taxes (credit) _JJ _(10) _JJ
_631 782 695 Operating Income 180 89 150 Nonoperating Income (less)
Allowance for equity funds used during construction i 1 1 Other income and deductions, net 3 --
I Write-off of Perry Unit 2 -
(232) -
Deferred carrying charges, net 15 (161) ~41 Federal income taxes - credit (expense) _.L2) 129 (1) 17 (263) 42 Income (Ims) Before Interest Charges 197 (174) .,_192 Interest Charges Debt interest 116 116 -122 Allowance for borrowed funds used during construction (1) (1) (1) 111 ._.. l 15 _121 Net income (loss) 82 (289) 71 Preferred Diiidend Requirements ,_ 2Q ___2] _ 24 Earnings (Ims) Asailabic for Common Stock M E) M (I) includes revenuesfrom all bulk power sales to Cleveland Electric of $11i million, $120 million and $130 million in i994,1993 and 1992, respectively.
Retained Earnings
' For the years ended December 31.
1994 1993 1992 (miHions of dollars)
Retained Earnings (Deficit) at Beginning of Year $(175) $ 137 $_.90 .
Additions Net income (loss) 82 (289) 71 Deductions Preferred stock dividends declared (20) (23) _(24)
Net increase (Decrease) 62 (312) 47 Retained Earnings (Deficit) at End of Year S(113) 5(175) $137 The accompanying notes are an integralpart of these statements..
6
Cash Flows n, r.i,s. esi c.-o..,
For the years ended December 31.
1994 1993 1992 (millions of dottars)
Cosh Flows from Operating Actisities (1)
Net Income (Loss) % 82 $(289) $ 71 Adjustments to Reconcile Net Income (Loss) to Cash from Operating Activities:
Depreciation and amortization 83 76 77 l Deferred federal income taxes 46 (160) 28 I Investment tax credits, net - -
(5)
Unbilled revenues 3 (4) 1 Deferred fuel 3 -
(4)
Deferred carrying charges, net (15) 161 (41)
Leased nuclear fuel amortization 44 38 56 Deferred operating expenses, net (21) (4) (17)
Allowance for equity funds used during construction (1) (1) (1)
Noncash early retirement program expenses, net -
83 -
Write-off of Perry Unit 2 -
232 -
Changes in amounts due from customers and others, net 1 (3) -
Changes in inventories (2) 10 (9)
Changes in accounts payable (15) 16 (8)
Changes in working capital afTecting operations (16) 21 7 Other noncash items 10 14 13 Total Adjustments 120 479 97 Net Cash from Operating Activities 202 190 168 Cash Flows from Financing Actisities (2)
Ilank loans, commercial paper and other short-term debt -
(40) 40 Notes payable to affiliates - -
(30)
First mortgage bond issues 31 20 276 Secured medium-term note issues -
93 48 Debenture issue - -
135 Maturities, redemptions and sinking funds (98) (89) (531)
Nuclear fuel lease obligations (49) (47) (52)
Dividends paid (20) (23) (24)
Premiums, discounts and expenses -
(1) (8)
Net Cash frorn Financing Activities (136) (87) (146)
Cash Flows from Imesting Actbities (2)
Cash applied to construction (41) (42) (48)
Interest capitalized as allowance for borrowed funds used during construction (1) (1) (1)
Loans to afliliates - -
12 Sale and leaseback restructuring fees - -
(43)
Contributions to nuclear plant decommissioning trusts (12) (4) (4)
Other cash received (applied) (6) 10 (1)
Net Cash from Investing Activities (60) (37) (85)
Net Change in Cash and Temporary Cash Insestments 6 66 (63)
Cash and Temporary Cash intestments at lleginning of Year 82 16 79 Cash and Temporary Cash iniestments at Fnd of Year 5 R8 $ R2 5 16 (1) Interest paid (net of amounts capitali:ed) was $94 million. $92 million and $95 million in 1994.1993 and 1992, respectively. Income taxes paid were $5 million $7 million and $3 million in 1994.1993 and 1992, respectively. l (2) Increases in Nuclear Fuel and Nuclear FuelI. case obligations in the Balance Sheet resultingfrom the noncash capitali:ations under nuclearfuel agreements are excluded _from this statement.
The accompanying notes are an integral part of this statement.
7
_ Balance Sheet December 31.
1994 1993 (millkms of dollars)
ASSE15 Property, I'lant and Equipment Utility plant in senice $2,899 $2.837 Less: accumulated depreciation and amortization 892 788 2,007 2,049 Construction work in progress _ JO 40 2,037 2,089 Nuclear fuel, net of amortization 119 142 Other property, less accumulated depreciation 6 -
2.162 2.231 Current Assets Cash and temporary cash investments 88 82 Amounts due from customers and others, net . _ _
62 63 Amounts due from afliliates 19 16 Unbilled revenues 22 25 Materials and supplies, at average cost 45 43 170ssil fuel inventory, at average cost 12 12 Taxes applicable to succeeding years 72 71 Other 2 2 322 314 Deferred Charges and Other Assets Amounts due from customers for future federal income taxes 405 382 Unamortized loss from lleaver Valley Unit 2 sale 101 105 Unamortized loss on reacquired debt 28 32 Carrying charges and operating expenses 379 343 Nuclear plant decommissioning trusts 38 26 Other 67 77 1.018 965 Total Assets $1.502 $3.510 The accompanying notes are an integralpart of this statentent.
8
The Toledo Edison Company December 31.
1994 1993 f (millions of dollars)
CAPIDtLIZATION AND LIABILITIES Capitalliation Common shares, $5 par value: 60 million authorized; l 39.1 million outstanding in 1994 and 1993 $ 196 $ 196 Premium on capital stock 481 481 Other paid-in capital 121 121 Retained earnings (deficit) (113) (175)
Common stock equity 685 623 Preferred stock With mandatory redemption provisions 7 28 Without mandatory redemption provisions 210 210 Long-term debt 1.154 1.225 2,056 2,08(>
Current Liabilities ,
Current portion of long-term debt and preferred stock 83 57 Current portion of nuclear fuel lease obligations 36 49 ;
Accounts payable 48 63 Accounts payable to afIlliates 31 27 Accrued taxes 75 90 Accrued interest 27 27 l Other 16 16 l 316 329 Deferred Credits and Other Liabilities Unamortized investment tax credits 87 94 Accumulated deferred federal income taxes $41 471 Unamortized gain from Bruce Mansfield Plant sale 198 208 l Accumulated deferred rents for llruce Mansfield Plant and lleaver Valley Unit 2 54 50 l Nuclear fuel lease obligations 87 103 Retirement benefits 103 98 Other 60 71 1.130 1,09,5 I Total Capitalization and Liabilities 53.502 $3.510 I
9
r Statement of ereterred stock rsc r.ics. esi . c.-v..,
Current Call Price 1994 Shares Per December 31.
Outstandine Share 1994 J 99),
9 (millions of dollars)
$100 par value,3,(XX),000 preferred shares authorized and
$25 par value, 12,000,000 preferred shares authorized Subject to mandatory redemption:
$100 par $9.375 83,500 $101.98 $ 8 $ 10 25 par 2.81 400,000 25.62 10 30 18 40 Less: Current maturities J J Total l' referred Stock, with Mandatory Redemption l'rosisions $ 7 $ 28 Not subject to mandatory redemption:
$100 par S 4.25 160,000 104.625 $ 16 $ 16 4.56 50,000 101.00 5 5 4.25 100,000 102.00 10 10 8.32 100,000 102.46 10 10 7.76 150,000 102.437 15 15 7.80 150.000 101.65 15 15 10.00 190,000 101.00 19 19 25 par 2.21 1,000,000 25.25 25 25 2.'65 1,400,000 27.75 35 35 Series A Adjustable __ 1,200,000 25.75 30 30 Series 11 Adjustable __ 1,200,000 25.75 30 30 Total 1* referred Stock, without Mandatory Redemption l'rosisions . $210 g The accompanying notes are an integral part of this statement.
b 1
10
(d) Fuel Expense Notes to the Financial Statements The cost of fossil fuel is charged to fuel expense based on (D Summary of Signifcant inventory usage. The cost of nuclear fuel, including an interest component, is charged to fuel expense based on Accounting Policies the rate of consumption. Estimated future nuclear fuel (a) Gennal disposal costs are being recovered through base rates.
~
The Company is an electric utility and a wholly owned The Company defers the differences between actual fuel subsidiary of Centerior Energy. The Company follows the costs and estimated fuel costs currently being recovered Uniform System of Accounts prescribed by the Federal from customers through the fuel factor. This matches Energy Regulatory Commission (FERC) and adopted fuel expenses with fuel-related revenues.
by the PUCO. Rate-regulated utilities are subject to SFAS 71 which governs accounting for the effects of Owners of nuckar genuau.ng plants am assessd h th federal government for the cost of decontamination and certain types of rate regulation. Pursuant to SFAS 71, ,
certain incurred costs are deferred for recovery in future decommissionmg of nuclear enrichment facilities oper-rates. See Note 7. ated by the United States Department of Energy. The assessments are based upon the amount of enrichment The Company is a member of the Central Area Power services used in prior years and cannot be imposed for Coordination Group (CAPCO). Other members are more than 15 years (to 2007). The Company has accrued Cleveland Electric, Duquesne Light Company, Ohio a liability for its share of the total assessments. These Edison Company and its wholly owned subsidiary, Penn- costs have been recorded in a deferred charge account sylvania Power Company. The members have con- since the PUCO is allowing the Company to recover the structed and operate generation and transmission assessments through its fuel cost factors.
facilities for their use.
(b) Related Party Transactions
- * "#" ^"* "
The cost of property, plant and equipment is depreciated Operating revenues, operating expenses and interest over their estimated useful lives on a straight-line basis. >
charges include those amounts for transactions with affili-The annual straight-line depreciation provision for non-ated companics in the ordinary course of business nuclear property expressed as a percent of average depre.
P" " "
ciable utility plant in service was 3.5% in 1994 and 3.6%
The Company's transactions with Cleveland Electric are in both 1993 and 1992. The annual straight-line depreci-primarily for firm power, interchange power, transmis. ation rate for nuclear property is 2.5%
sion line rentals and jointly owned power plant operations The Company accrues the estimated costs of decommis-and construction. See Notes 2 and 3.
sioning its three nuclear generating units. The accruals The Service Company provides management, financial, are required to be funded in an external trust. The PUCO administrative, engineering. legal and other services at requires that the expense and payments to the external cost to the Company and other afliliated companies. The trusts be determined on a levelized basis by dividing the Service Company billed the Company $59 million, $71 unrecovered decommissioning costs in current dollars by million and $60 million in 1994,1993 and 1992, respec. the remaining years in the licensing period of each unit.
tively, for such services. This methodology requires that the net earnings on the trusts be reinvested therein with the intent of allowing net (c) Reiennes earnings to offset inflation. The PUCO requires that the estimated costs of decommissioning and the funding Customers are billed on a monthly cycle basis for their level be reviewed at least every five years.
energy consumption based on rate schedules or contracts authorized by the PUCO or on ordinances of individual in 1994, the Company increased its annual decommis-municipalities. An accrual is made at the end of each si ning expense accruals to $11 million from the $4 month to record the estimated amount of unbilled reve- milli n level in 1992. The accruals are reflected in current nues for kilowatt-hours sold in the current month but not rates. The increased accruals were derived from recently billed by the end of that month. updated, site-specific studies for each of the units. The revised estimates reflect the DECON method of decom-A fuel factor is added to the base rates for electric service. missioning (prompt decontamination), and the locations This factor is designed to recover from customers the and cost characteristics specific to the units, and include costs of fuel and most purchased power. It is reviewed costs associated with decontamination, dismantlement and adjusted semiannually in a PUCO proceeding. and site restoration.
11
I The revised estimates for the units in 1993 and 1992 come. The AFUDC rate was 9.87% in 1994,10.22% in i dollars and in dollars at the time of license expiration, 1993 and 10.96% in 1992, !
assuming a 4% annual inflation rate, are as follows:
License Maintenance and repa. irs for plant and equipment are iration ruivre charged to expense as incurred. The cost of replacing .
flensrmine tinit Exhear Amount &nad (millions of plant and equipment is charged to the utility plant ac-dollars) counts. The cost of property retired plus removal costs, Davis Hesse 2017 $t68(1) $419 after deducting any salvage value, is charged to the -
Perry Unit i 2026 100(t) 354 Ileaver Valley Unit 2 2027 ,,_,.M ( 2 ) ,,.00 accumulated provision for deprec.iation.
Total UI4 MM
~
(g) Deferred Gain and Loss from '
(i) Douar amounis in 1993 donars. Sales of Utility Plant (2) Dollar amounts in 1992 donars.
The sale and leaseback transactions discussed in Note 2 The updated estimates reflect substantial increases from resulted in a net gain for the sale of the Bruce Mansfield the prior PUCO-recognized aggregate estimates of $115 Generating Plant (Mansfield Plant) and a net loss for the million in 1987 and 1986 dollars, sale of Beaver Valley Unit 2. The net gain and net loss ,
were deferred and are being amortized over the terms of The classification, Accumulated Depreciation and Amor- leases. See Note 7 These amortizations and the lease tization, in the Balance Sheet at December 31,1994 expense amounts are reported in the income Statement as includes $44 million of decommissioning costs previously Generation Facilities Rental Expense, Net.
expensed and the earnings on the external trust funding.
This amount exceeds the Balance Sheet amount of the (h) Interest Charges external Nuclear Plant Decommissioning Trusts because the reserve began prior to the external trust funding. The Debt Interest reported in the income Statement does not trust earnings are recorded as an increase to the trust include interest on obligations for nuclear fuel under assets and the related component of the decommissioning c nstruction. That interest is capitalized. See Note 6.
reserve (included in Accumulated Depreciation and Losses and gains realized upon the reacquisition or re-Amortization), demption of long-term debt are deferred, consistent with The staff or the Securities and Exchange Commission has the regulatory rate treatment. See Note 7. Such losses L
""d gains are either amortized over the remainder of the questioned certain of the current accounting practices of the electric utility industry, including those of the Com- nginal life of the debt issue retired or amortized over pany, regarding the recognition, measurement and clas- the life of the new debt issue when the proceeds of a new sification of decommissioning costs for nuclear generating issue are used for the debt redemption. The amortiza-stations in the financial statements. In response to these tions are included in debt interest expense.
questions, the Financial Accounting Standards Board is reviewmg the accountmg for removal costs, mcluding (i) Federal Income Taxes decommissioning, if such current accounting practices The Company uses the liability method of accounting for are changed, the annual provision for decommissioning income taxes in accordance with SFAS 109. See Note 8. '
could increase; the estimated cost for decommissioning This method requires that deferred taxes be recorded for I could be recorded as a liability rather than as accumu- all temporary differences between the book and tax bases lated depreciation; and trust fund income from the exter- of assets and habilities. The majority of these temporary nal decommissioning trusts could be reported as difTerences are attributable to property-related basis dif-investment income rather than as a reduction to decom- ferences. Included in these basis differences is the equity missioning expense. component of AFUDC, which will increase future tax expense when it is recovered through rates. Since this (f) Property, Plant and Equipment component is not recognized for tax purposes, the Com-
., pany must record a liability for its tax obligation. The Property, plant and equipment are stated at ongmal cost PUCO permits recovery of such taxes from customers i less amounts ordered by the PUCO to be wntten oft. i
. . when they become payable. Therefore, the net amount 1 Construction costs nelude related payroll taxes, retire-due from customers through rates has been recorded as a l ment benefits, fringe benefits, management and general deferred charge and will be recovered over the lives of i overheads and allowance for funds used during construc-the related assets. See Note 7. !
tion ( AFUDC). AFUDC represents the estimated com-posite debt and equity cost of funds used to finance Investment tax credits are deferred and amortized over construction. This noncash allowance is credited to in- the lives of the applicable property as a reduction of !
12
' depreciation expense. See Note 7 for a discussion of the through a tender offer and the sale of new bonds having a amortization of certain unrestricted excess deferred taxes lower interest rate. As part of the refinancing transac-and unrestricted investment tax credits under the Rate tion, the Company paid $43 million as supplemental rent Stabilization Program. to fund transaction expenses and part of the tender premium. This amount has been deferred and is being am rtized ver the remaining lease term. The refinancing (2) Utility I'lant Sale anti transaction reduced the annual rental expense for the Leaseback Transactwns Beaver valley Unit 2 lease by $9 million.
The Company and Cleveland Electric are co-Isssees of 13.26% (150 megawatts) of Beaver Valley Unit 2 and Future minimum lease payments under the operating 6.5% (51 megawatts), 45.9% (358 megawatts) and leases at December 31,1994 are summarized as follows:
44.38% (355 megawatts) of Units I,2 and 3 of the For for Mansfield Plant, respectively, all for terms of about 29% y,,, co$p*,ny Sj,N;nd c
~
years. These leases are the result of sale and leaseback (mittions or dollars) transactions completed in 1987. 1995 s 103 5 63 I 1996 125 63 Under these leases, the Company and Cleveland Electric 1997 102 63 are responsible for paying all taxes, insurance premiums, 1998 102 63 operation and maintenance expenses and all other simi- 1999 108 70 lar costs for their interc.,ts in the units sold and leased Later Ycan 1818 1.321 back. They may incur additional costs in connection with Toiat ruture Minimum Lene capital improvements to the units. The Company and P') * * '"' " #
Cleveland Electric have options to buy the interests back at the end of the leases for the fair market value at that Rental expense is accrued on a straight-line basis over the time or renew the leases. Additional lease provisions terms of the leases. The amount recorded in 1994,1993 provide other purchase options along with conditions for and 1992 as annual rental expense for the Mansfield mandatory termination of the leases (and possible re- Plant leases was $45 million. The amounts recorded in l
purchase of the leasehold interests) for events of default. 1994,1993 and 1992 as annual rental expense for the l These events include noncompliance with any of several Beaver Valley Unit 2 lease were $64 million, $63 million financial covenants discussed in Note ll(d), and $66 million, respectively. Amounts charged to ex-
. . pense in excess of the lease payments are classified as As co-lessee with Cleveland Electn.c, the Company is als Accumulated Deferred Rents in the Balance Sheet.
obligated for Cleveland Electric's lease payments. If Cleveland Electric is unable to make its payments under The Company is selling 150 megawatts of its Beaver the Mansfield Plant leases the Company would be Valley Unit 2 leased capacity entitlement to Cleveland obligated to make such payments. No such payments Electric. Revenues recorded for this transaction were have been made on behalf of Cleveland Electnc.
$108 million, $103 million and $108 million in 1994,1993 In April 1992, nearly all of the outstanding Secured Lease and 1992, respectively. We anticipate that this sale will l
l Obligation Bonds (SLOBS) issued by a special purpose continue indefinitely. The future minimum lease pay-corporation in connection with financing the sale and ments through the year 2017 associated with Beaver i leaseback of Beaver Valley Unit 2 were refinanced Valley Unit 2 aggregate $1.413 billion. l l
13 l
-~
'(3) Property Owned with Other Utilities and Investors l
The Company owns, as a tenant in common with other utilities and those investors who are owner-participants in various sale and leaseback transactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership i share. Each utility owner is obligated to pay for only its respective share of the construction costs and operating expenses.
.Each Lessor has leased its capacity rights to a utility which is obligated to pay for such Lessor's share of the construction ,
. costs and operating expenses. The Company's share of the operating expenses of these generating units is included in the i Income Statement. The Balance Sheet classification of Property, Plant and Equipment at December 31,1994 includes the ,
following facilities owned by the Company as a tenant in common with other utilities and Lessors:
in- Plant Construction Scavice Ownership Ownership Power in Work in Accumulated Generating Unit Date Share Megawatts Source Service Progress Depreciation t' (millions of dollars)
Davis-Besse 1977 4L62% 429 Nuclear $ 642 $4 $179 Perry Unit i 1987 19.91 238 Nuclear I,043 4 197 Beaver Valley Unit 2 and Common Facilitics (Noic 2) 1987 1.65 13 Nuclear 204 _,] ,,3 Total $1 RR9 $11 $41R (4) Construction and Contingencies Company has accrued a liability totaling $5 million at December 31,1994 based on estimates of the costs of (a) Construction Program cleanup and its proportionate responsibility for such costs.
The estimated cost of the Company's construction pro- We believe that the ultimate outcome of these matters gram for the 1995-1999 period is $303 million, including will not have a material adverse elTect on our financial AFUDC of $15 million and excluding nuclear fuel. condition or results of operations. See Management's Financial Analysis-Outlook-llazardous Waste Dispo-The Clean Air Act requires, among other things, signifi.
si es.
cant reductions in the emission of sulfur dioxide and nitrogen oxides by fossil-fueled generating units. Our strategy provides for compliance primarily through (5) Nuclear Operations and greater use of low-sulfur coal at some of our units and the Contingencies 4 use of emission allowances. Total capital expenditures .
from 1991 through 1994 in connection with Clean Air (a) Operating Nuclear Units Act compliance amounted to $1 million. The plan will The Company's three nuclear units may be impacted by require additional capital expenditures over the 1995* activities or events beyond our control. An extended 2004 period of approximately $32 million for nitrogen outage of one of our nuclear units for any reason, oxide control equipment and plant modifications. In addi- coupled with any unfavorable rate treatment, could tion, higher fuel and other operation and maintenance have a material adverse effect on our fmancial condition expenses may be incurred. The anticipated rate increase and results of operations. See the discussion of these associated with the capital expenditures and higher ex- risks in Management's Financial Analysis- Outlook-penses would he less than 2% over the ten-year period. Nuclear Operations.
(b) Perry Unit 2 (b) Nuclear Insurance Perry Unit 2, including its share of the facilities common with Perry Unit I, was approximately 50% complete The Price-Anderson Act limits the public liability of the when construction was suspended in 1985 pending con. owners of a nuclear power plant to the amount provided -
sideration of various options. We wrote off our investment by private insurance and an industry assessment plan. In in Perry Unit 2 at December 31,1993 after we deter. the event of a nuclear incident at any unit in the United mined that it would not be completed w sold. The write. States resulting in losses in excess of the level of private insurance (currently $200 million), the Company's max-off totaled $232 million ($167 million after taxes) for the Company's 19.91% ownership share of the unit. See imum potential assessment under that plan would be $70 l Note 14. million (plus any inflation adjustment) per incident. The '
assessment is limited to $9 million per year for each (c) liaiardous Waste Disposal Sites nuclear incident. These assessment limits assume the ;
The Company is aware of its potential involvement in the other CAPCO companies contribute their proportionate cleanup of several hazardous waste disposal sites. The share of any asessment.
14
The utility owners and lessees of Davis-Besse, Perry and (7) Regulatory Matters Beaver Valley also have insurance coverage for damage to property at these sites (including leased fuel and The Company is subject to the provisions of SFAS 71.
cleanup costs). Coverage amounted to $2.75 billion for Regulatory assets represent probable future revenues to each site as of January 1,1995. Damage to property could the Company associated with certain incurred costs, exceed the insurance coverage by a substantial amount. which it will recover from customers through the If it does, the Company's share of such excess tmount ratemaking process. Regulatory assets in the Balance could have i material adverse effect on its fmancial Sheet are as follows:
condition and results of operations. Under these policies, .Pecember R the Company can be assessed a maximum of $10 million during a policy year if the reserves available to the Q3] dollars) insurer are inadequate to pay claims arising out of an Amounts due from customers for ruture rederal accident at any nuclear facility covered by the insurer. inwme taxes se $382 Unamortired loss from Heaver Valley Unit 2 sale._ 101 105 The Company also has extra expense insurance coverage. Unamortized loss on reacquired debt 28 32 It includes the incremental cost of any repl; cement pre. phase-in deferrals
- 229 236 power purchased (over the costs which would have been Rate stabilization Program deferrais ,J Lo _jjo2 incurred had the units been operating) and other inci- Total 59n SW dental expenses after the occurrence of certain types of
- Represent deferrals of operating expenses and carrying charges for accidents at our nuclear units. The amounts of the cover- Perry Unit I and Beaver Valley Unit 2 in 1987 and 1988 which are age are 100% of the estimated extra expense per week being amortized over the lives of the related property.
during the $2-week period starting 21 weeks after an As of December 31,1994, customer rates provide for accident and 80% of such estimate per week for the next recovery of all the above regulatory assets, ex apt those 104 weeks. The amount and duration of extra expense related to the Rate Stabilization Program discussed be-could substantially exceed the insurance coverage. low. The remaining recovery periods for all of the regulatory assets listed above range from 17 to 34 years.
(6) Niiclear 1'tiel We continually assess the effects of competition and the Nuclear fuel is financed for the Company and Clevelar.d c ng g u$y a reg atoy ensamem on opem tions and the Company's ability to recover the regula-Electne through leases with a special-purpose corpora- 4
. tory assets. In the event that we determine that future '
l tion. At December 31,1994, $307 milh.on ($125 milh.on
- ""**" # # '###U ""#
for the Company and $182 million for Cleveland Elec-regulatory asset, such asset would be required to be tric) of nuclear fuel was financed ($157 milh.on from written oft. See Management's Financial Analys.is -
intermediate-term notes and $150 m.llion i from bank .
Outlook-Regulatory Accounting.
cred.it arrangements). The m.termediate-term notes ma-ture in 1996 and 1997. The Company and Cleveland The Company will file a request with the PUCO to Electric severally lease their respective portions of the restructure rates to increase revenues to be effective in I nuclear fuel and are obligated to pay for the fuel as it is 1996 which willinclude provision for recovery of the Rate consumed in a reactor. The lease rates are based on Stabilization Program deferrals. We believe that rates various intermediate-term note rates, bank rates and will be set at a level consistent with cost-based regula-commercial paper rates. tions and will provide revenues to recover the then-current operating costs, return requirements and amorti-The amounts financed include nuclear fuel in the Davis-
- zation of all regulatory assets listed above.
Ilesse, Perry Unit I and Seaver Valley Unit 2 reactors with remaining lease payments for the Company of $61 The Rate Stabilization Program that the PUCO approved
, million, $34 million and $10 million, respectively, at in October 1992 was designed to encourage economic December 31, 1994. The naclear fuel amounts financed growth in the Company's service area by freezing the and capitalized also included interest charges incurred Company's base rates until 1996 and limiting subsequent by the lessors amounting to $4 million in 1994 and $6 rate increases to specified annual amounts not to exceed million in both 1993 and 1902. The estimated future lease $89 million over the 1996-1998 period.
amortization payments based on projected consumption As part of the Rate Stabilization Program, during the are $43 million in 1995, $38 million in 1996, $34 million 1992-1995 period the Company is allowed to defer and in 1997, $31 million in 1998 and $27 million in 1999. subsequently recover certain costs not currently recovered in rates and to accelerate amortization of certain benefits.
The continued use of these regulatory accounting mea-sures will be dependent upon our co'"inuing assess-15
ment and conclusion that there will be probable recovery [8) FederalIncome Tax of such deferrals in future rates.
The components of federal income tax expense (credit)
The regulatory accounting measures we are eligibic to rec rded in the Income Statement were as follows:
record through December 31,1995 include the deferral of
.! 3 post-in-service interest carrying charges, depreciation ex-pense and property taxes on assets placed in senice after I9{
g ;y g 3 February 29,1988 and the deferral of operating ex- current six s 36 $26 -
penses equivalent to an accumulated excess rent reserve percrred 13 (46) J for Beaver Valley Unit 2 (which resulted from the April Total Expense (credit) io operating 1992 refinancing of SLOlls as discussed in Note 2).The E xpenses 2 00) 2 Nonoperating income.
cost deferrals recorded in 1994,1993 and 1992 pursuant to these provisions were $40 million, $39 million and I I rred i
$32 million, respectively. The regulatory accounting mea- Total Expense (Credit) to Nonoperat.ng sures also provide for the accelerated amortization of income _2 J 23) _1.
certain unrestricted excess deferred tax and unrestricted Total I'ederal income Tax Expense (credit) . E sotm g investment tax credit balances and interim spent fuel The deferred federal income tax expense results from the storage accrual balances for Dan.s-Ilesse. The total temporary differences that arise from the difTerent years amount of such regulatory benefits recognized pursuant to these provisions was $18 million in both 1994 ad 1993
- "" " #*P#"S#5 "* '## E" "* I " E '#5 "*
pp sed to financial reporting purposes. Such temporary and $5 million in 1992.
difTerences afTecting operating expenses relate principally The Rate Stabilization Program also athorized the Com- to depreciation and deferred operating expenses whereas pany to defer and subsequently recover the incremental those alTecting nonoperating income principally relate to expenses associated with the adoption of the accounting deferred carrying charges and the 1993 write-ofTs.
standard for postretirement benefits other than pensions . l edemi income tax, computed by multiply.mg income j (SFAS 106). In 1994 and 1993, we deferred $2 million '
before taxes by the statutory rate (35% m 1994 and 1993 and $37 million, respectively, pursuant to this provision.
and 34% in 1992),is reconciled to the amount of federal Amortization and recovery of these deferrals are expected l' inc me tax recorded on the books as follows:
to commence in 1996 and to be completed by no later than 2012. See Note 9(b). yg,;,,'s]dotta l In 1993, upon completing a comprehensive study which luk income (Loss) liefore l'cderal income I"' 5* * " " '
led to our current strategic plan, we concluded that Ta rc t) IM Incorne (Lm) at projected revenues would not provide for recovery of , s 41 $(150) $ 36 deferrals recorded pursuant to a phase-in plan approved increase (Decrease) in Tat by the PUCO in 1989. Such deferrals were scheduled to wnte.orr or Perry Unit 2 -
16 -
be recovered over the 1994 through 1998 period. The total write.orr or hase-in c acrerrais - 8 -
DcP'ccid'io" (3) (12) (6) phase-in deferred operating expenses and canying Itaic stabavation Program (9) (10) (2) charges written oft at December 31,1993 by the Com-Sale and leaseback transactions and pany were $55 nu.lh.on and $186 m.lh.i on, respectively amortsation 5 5 5 (totaling $165 million after taxes). See Note 14. Addi- other items i 4 i tionally, based on our assessment of business conditions, Total l ederal income Tax Expense (credit) . $u smo y we concluded that, once the deferral of expenses and .
. The C,ompany joins in the filing of a consolidated federal accelerat. ion of benefits under our Rate Stabilization Pro-
"*" " '
- I"" #
gram are completed in 1995, we should no longer plan to " # * # I * '# " " " . .
method of tax allocation reflects the benefits and burdens use regulatory accounting measures to the extent we . .
realized by each company's participation in the consoh..
have in the past.
dated tax return, approximating a separate return result for each company.
For tax reporting purposes, the Perry Unit 2 abandonment was recognized in 1994 and resulted in a $120 million loss with a corresponding $42 million reduction in federal income tax liability. llecause of the alternative minimum tax ( AMT), $24 million of the $42 million was realized in 1994. The remaining $18 million will not be realized until 1999.
16
l In August 1993, the Revenue Reconciliation Act of 1993 resulting from a settlement of pension obligations through was enacted. Retroactive to January 1,1993, the top lump sum payments to almost all the VTP retirees marginal corporate income tax rate increased to 35%. partially offset the VTP expenses.
The change in tax rate did not materially impact the
~
results of operations for 1993, but increased Accumulated Pension and VTP costs (credits) for Centerior Energy l Deferred Federal Income Taxes for the future tax obliga- nd its subsidiaries for 1992 through 1994 were comprised tion by approximately $29 million. Since the PUCO has f the following components:
historically permitted recovery of such taxes from cus- E tomers when they become payable, the deferred charge, Pension costs (credits):
Amounts Due from Customers for Future Federal In- service cost for benefits carned during tbc come Taxes, also was increased by $29 million. period s 13 $ 15 s 15 Interest cost on projected benefit obligation _ 26 37 38 Under SFAS 109, temporary ditTerences and carryfor- Actual return on plan assets (2) (65) (24) wards resulted in deferred tax assets of $178 million and Net amonization and deferral (14) _,4 t41) 1 deferred tax liabilities of $719 million at December 31, Net pension costs (credits) _
3 (9) (16)
VTP cost -
205 -
1994 and deferred tax assets of $178 million and deferred tax liabilities of $649 million at December 31,1993.
These are summarized as follows:
g,fc',[,"s (credits) N
- b)
Decembs_r 3.J.,
Lt4 Pension and VTP costs (credits) for the Company and its
("$."l)D21 r pro rata share of the Service Company's costs were $1 Properiy, plant and equirment 5606 5534 million and $53 million for 1994 and 1993, respectively.
Dercrred carrying charges and operating expenses._, 83 79 The costs for 1992 were negligible.
Net operating loss carryrorwards (54) (39)
Investment tax credits (51) (55) The following table presents a reconciliation of the funded Sale and Icaschack transactions (3) status of the Centerior Pension Plan. The Company's other _L40) _(4_8) share of the Centerior Pension Plan's total projected Net dcrcrred tax liability $s41 $47: benefit obligation approximates 30%.
December 31.
For tax purposes, net operating loss (NOL) carryforwards 3 94 y93 of approximately $154 million are available to reduce (millions or dollars) future taxable income and will expire in 2003 through Actuarial present value or benefit obligations:
2009. The 35% tax effect of the NOLs is $54 million. Vested benefits $278 5333 Additionally AMT credits of $69 million that may be Nonvested benefits __2 _n ;
carried forward indefinitely are available to reduce future Accumulaicd benefit obligation 280 370 g Lfrect or future compensation levels _),7 _j] ,
Total projected benefit obligation 317 423 Plan usets at fair market value _1@ _lKf2 (9) Retirement Benc/its runded status 45 (37)
(a) Retirement income I lan between assumptions and experience (79) I1 Centerior Energy sponsors jointly with its subsidiaries a U"' 8"id Pd ' "I '* ' *
- noncontributing pension plan (Centerior Pension Plan) D"j,""c'["'3""""O I ' "87 ""8 "*""Id g g w hich covers all employee groups. The amount of retire- Net accrued pension liability smt) s(sw i ment benefits eenerally depends upon the length of sersice. Under certain circumstances, benefits can begin A September 30,1994 measurement date was used for
. as early as age 55. The funding policy is to comply with 1994 reporting. At December 31, 1994, the settlement the Employee Retirement income Security Act of 1974 (discount) rate and long-term rate of return on plan guidelines.
assets assumptions were 8.5% and 10%, respectively. The ,
in 1993, eligible employees were oiTered the VTP, an long-term rate of annual compensation increase assump-early retirement program. Operating expenses for Center- tion was 3.5% for 1995 and 1996 and 4% thereafter. At "
ior Energy and its subsidiaries in 1993 included $205 December 31, 1993, the settlement rate and long-term million of pension plan accruals to cover enhanced VTP rate of return on plan assets assumptions were 7.25%
benefits and an additional $10 million of pension costs and 8.75%, respectively. The long-term rate of annual for VTP benefits paid to retirees from corporate funds. compensation increase assumption was 4.25%. At Decem-The $10 million is not included in the pension data ber 31,1994 and 1993, the Company's net accrued reported in the following table. A credit of $81 million pension liability included in Retirement Benefits in the 17
Balance Sheet was $66 million and $65 million, Company's portion since the Service Company's total respectively. accrued cost is carried on its books. I Plan assets consist primarily of investments in common A September 30,1994 measurement date was used for !
stock, bonds, guaranteed investment contracts, cash 1994 reporting. At December 31,1994 and 1993, the ,
I equivalent securities and real estate. settlement rate and the long-term rate of annual compen-satmn increase assumptions were the same as those (b) Other Postretirement Benefits discussed for pension reporting in Note 9(a). At Decem- ,
)
Centerior Energy sponsors jointly with its subsidiaries a ber 31,1994, the assumed annual health care cost trend 1 postretirement benefit plan which provides all employee rates (applicable to gross eligible charges) are 8.5% for groups certain health care, death and other postretirement medical and 8% for dental in 1995. Both rates reduce benefits other than pensions. The plan is contributory, gradually to a fixed rate of 4.75% by 2003. Elements of with retiree contributions adjusted annually. The plan is the obligation affected by contribution caps are signifi-not funded. The Company adopted SFAS 106, the cantly less sensitive to the health care cost trend rate than i accounting standard for postretirement benefits other than other elements. If the assumed health care cost trend pensions, etTective January 1,1993. The standard re- rates were increased by one percentage point in each quires the accrual of the expected costs of such benefits future year, the accumulated postretirement benefit obli-during the employees' years of service. Prior to 1993, the gation as of December 31, 1994 would increase by $3 costs of these benefits were expensed as paid, which was million and the aggregate of the service and interest cost consistent with ratemaking practices. components of the annual postretirement benefit cost The components of the total postretirement benefit costs "ould increase by $0.3 million.
for 1994 and 1993 were as follows:
mw (10) Guarantees (mdlions of dollars) The Company has guaranteed certain loan and lease Service cost for benc61s carned during the period $I 5I obligations of a coal supplier under a long-term coal Interest cost on accumulated postrctirement benc61 obligation 7 6 supply contract. At December 31,1994, the principal Amortiration of tranution obligation at January 1.1993 amount of the loan and lease obligations guaranteed by or 563 misn over 20 years 3 3 the Company was $17 million. The prices under the IIgaYiN"$1" s Nnt) _.-. .22 e ntract which includes certain minimum payments are 1otal cosis J,,il yg suflicient to satisfy the loan and lease obligations and mine closing costs over the life of the contract. If the ese mnounts included costs for the Company and its contract is terminated early for any reason, the Company pro rata share of the Service Company's costs.
would attempt to reduce the termination charges and in 1994 and 1993, the Company deferred incremental would ask the PUCO to allow recovery of such charges ,
SFAS 106 expenses (in excess of the amounts paid) of $2 from customers through the fuel factor.
million and $37 million, respectively, pursuant to a provi-sion of the Rate Stabilization Program. See Note 7. (/l) Capitalitalian l The accumulated postretirement benefit obligation and (a) Capital Stock Transactions accrued postretirement benefit cost for the Company and Preferred stock shares retired during the three years ;
its share of the Service Company's obligation are as ended December 31,1994 are listed in the following table.
December 31. O g ,993 (thousands of shares)
- Subject to Mandatory Redemption:
(millions of ;
dollars) ilu0 par $ll 00 - -
(25)
Accumulated pntretnement benc61 obbration 9375 (17) (17) (37) utinbutable to- 25 par 2.81 LNW) M!)) _ --
Renred participanis $t79) 5(88) Total INI7) fxt7) g)
Other active plan participants _H) ._d )
Accumulated postrctircment benc61 obligation _, uity DiMribution blIIctioM Unrecogm/cd net loss (gsun) from variance between (86) (97) assumrtums and espenence (7) 5 Federallaw prohibits the Company from paying dividends Unamortired transition obliphon J J out of Capital accounts. Ilo%ever, the Company may pay Accrued postrctirement bencht cost $42) $f h)
The Halance Sheet classification of Retirement I enefits current earnings. At December 31,1994, the Company at December 31,1994 and 1993 includes only the Com- had $104 million of appropriated retained earnings for the pany's accrued postretirement benefit cost of $37 million payment of preferred stock dividends. The Company is and $33 million, respectively, and excludes the Service prohibited from paying a common stock dividend by a 18 l
l
provision in its mortgage that essentially requites such Long-term debt matures during the next five years as dividends to be paid out of the total balance of retained follows: $71 million in 1995,$91 million in 1996,540 earnings, which currently is a deficit. million in 1997,$39 million in 1998 and $119 million in 1999.
. (c) Preferred and Preference Stock The Company issued $141 million aggregate principal Amounts o be paid for preferred stock which must be amount of secured medium-term notes in 1992 and 1993.
redeemed during the next five years are $11 million in The notes are secured by first mortgage bonds.
1995 and $2 million in each year 1996 through 1999.
The Company's mortgage constitutes a direct first lien on The annual preferred stock mandatory redemption provi- substantially all property owned and franchbes held by sions are as follows:
Price the Company. Excluded from the lien, among other 15e liegi.nning Per things, are cash, securities, accounts receivable, fuel, Redeemed n Share "E "
$100 par $9.375 16.650 1985 $100 25 rar 211 e0.000 1993 25 Certain unsecured loan agreements of the Company con-tain covenants relating to capitalization ratios, fixed The annualiicd preferred dividend requirement at De-charge coverage ratios and limitations on secured financ-cember 31,1994 was $19 million.
ing other than through first mortgage bonds or certain
~~ ~
The preferred dividend rates on the Company's Series A other transactions. Two reimbursement agreements relat-l and H fluctuate based on prevailing interest rates and ing to separate letters of credit issued in connection with market conditions. The dividend rates for these issues the sale and leaseback of Beaver Valley Unit 2 contain averaged 7.66% and 8.44%, respectively, in 1994. several financial covenants affecting the Company, Cleve-land Electric and Centerior Energy. Among these are Preference stock authorized for the Company is 5,000,000 covenants relating to fixed charge coverage ratios and shares with a $25 par value. No preference shares are capitalization ratios. The write-offs recorded at December currently outstandmg.
31,1993 caused the Company, Cleveland Electric and With respect to dividend and liquidation rights, the Com- Centerior Energy to violate certain covenants contained pany's preferred stock is prior to its preference stock and in the two reimbursement agreements. The affected cred-common stock, and its preference stock is prior to its itors waived those violations in exchange for a comrnon stock, subordinate mortgage security interest on the propertie.4 of the Company and Cleveland Electric. The Company (d) long-Term Debt and Other provided the same security interest to certain other credi-llorrowing Arrangements tors because their agreements require equal treatment.
At December 31, 1994, the Company provided Long-term debt, less current maturities, was as follows:
subordinate mortgage collateral for $152 million of un-Actual or Average secured debt, $228 million of bank letters of credit and a
("L'c;' $205 million revolving credit facility. The bank letters of necember 31 December R credit are joint and several obligations of the Company yfar or wug 1994 iu 1993 and Cleveland Electric and the revolving credit facility is donars) an obligation of Centerior Energy that is jointly and brst mortgage bondt severally guaranteed by the Company and Cleveland 1997 6.125"E $ 31 $ 31 El trk 1998 10 00 i l 1999 _ 7.25 100 100 2000-2004 7SS 207 207 (l2) Short-Term Borrowing 2010-2014 3A5 hNMMTB 31 31 20i3 20i9 it00 67 67 2020 2023 7.74 148 I48 g 3g3 Centerior Energy has a $205 million :volving credit ,
Secured medium term notes due facility through May 1996. Centerior Energy and the 1996 2021 8.44 250 250 Service Company may borrow under the facility, with all N ei 1997 j borrowings jointly and severally guaranteed by the Com-pany and Cleseland Electric. Centerior Energy plans to
! Debentures due 2002 8.70 135 135 Pollunon connoi notes due 1996, transfer any of its borrowed funds to the Company and 2015 12. i t 99 105 Cleveland Electric. The facility agreement as amended other - net -
(2) (2) .provides the participating banks with a subordinate mort- -
Total t ongJerm nebt ni s4 si ?" gage security interest on the properties of the Company 19
l l
and Cleveland Electric. The banks' fee is 0.625% per (14) Quarterly Results of Operations 1 annum payable quarterly in addition to interest on any [gggggjggg; borrowings. There were no borrowings under the facility at December 31,1994. The facility agreement contains The following is a tabulation of the unaudited quarterly covenants relating to capitalization and fixed charge cov-results of operations for the two years ended December crage ratios for the Company, Cleveland Electric and 31.1994.
Centerior Energy. ouarters Ended March 31. June 30. Sept 30, ticq. 31,
- Short-term borrowing capacity authorized by the PUCO (millions or dollars) annually is $150 million for the Company. The Company 1994 and Cleveland Electric are authorized by the PUCO to Operating Revenues $217 5216 $227 $204 Orcranns income 43 43 53 40 borrow from each other on a short term basis.
Net income 19 20 29 15 Larnings Available for (13) FinancialInstrurnents commonsua n3 \4 24 n 1993 Except for the Nuclear Plant Decommissioning Trusts at g g g December 31 1994, as discussed below, the estimated operating income (t oss) ~ 39 42 17 (to) fair values at December 31.1994 and 1993 of financial Net income (less) 18 20 (5) (323) instruments that do not approximate their carrying Lamings (Loss) Available amounts in the llalance Sheet are as follows: for common suu 12 14 (10) (328) ;
I December 3L 1994 iw3 Earnings for the quarter ended September 30,1993 were decreased by $35 million as a result of the recording of IN"n! $[t E*mI"n! N[e (nuinons or donars) $54 million of VTP pension-related benefits.
A ssets:
Nuclear Plant t)ccommissioning Earnings for the quarter ended December 31,1993 were Trusts $ 38 5 38 s 2e s 27 decreased as a result of year-end adjustments for the capaanution and Liabinnet $232 million write-oft of Perry Unit 2 (see Note 4(b)),
Preferred stock. with Mandatory the $241 million write-off of the phase-in deferrals (see Redempnon Pmusions Note 7) and $19 million of other charges. These adjust-(includmg current portion)-- IN 19 40 42 ments decreased quarterly earnings by $345 million, tong. Term Debt (intiud,ng current portion) 1.227 1.! ! 6 t.271 t.314
~I.he Nuclear I,lant Decomm.issiomng Trusts at Decem-
. . . (15) Pending Merger of the Cornpany her 3i,1994 included $2i million of federal governmental into Clercland Electric securities and $14 million of municinal securities. The in March 1994, Centerior Energy announced a plan to securities had the following maturi.ies: 59 million due merge the Company into Cleveiand Electric. Since the within one year; $7 million due in one to five years; $7 Company and Cleveland Elect 6c affiliated in 1986, efforts i million due in six to 10 years and $12 million due after 10 have been made to consolidate operations and adminis-j years. The fair value of these trusts is estimated based on tration as much as possible to achieve maximum cost the quoted market prices for the investment securities.
savings. Various aspects of the merger are subject to the As a result of adopting the new accounting standard for approval of the FERC and other regulatory authorities.
certain investments in debt and equity securities, SFAS The PUCO and the Pennsylvania Public Utility Com- "
115, in 1994, the carrying amount of these trusts is equal mission have approved the merger. In addition, the to the fair value. The fair value of the Company's pre-merger must be approved by share owners of the Com-ferred stock, with mandatory redemption provisions' pany's preferred stock. Share owners of Cleveland Elec- .
and long-term debt is estimated based on the quoted nic's preferred stock must approve the authorization of market prices for the respective or similar issues or on the additional shares of preferred stock. When the merger basis of the discounted value of future cash flows. The becomes effective, share owners of the Company's pre-discounted value used current dividend or interest rates ferred stock will exchange their shares for preferred stock (or other appropriate rates) for similar issues and loans shares of Cleveland Electric having substantially the with the same remaining maturitics*
same terms. Debt holders of the merging companies will The estimated fair values of all other f nancial instru. become debt holders of Cleveland Electric. The merging ments approximate their carrying amounts in the 11alance companies plan to seek preferred stock share owner ap-Sheet at December 31,1994 and 1993 because of their proval in mid-1995. The merger is expected to be short-term nature. effective in 1995.
20
For the merging companies, the combined pro forma data is not necessarily indicative of the results of opera-operating revenues were $2.422 billion, $2.475 billion and tions which would hase been reported had the merger
$2.439 billion and the combined pro forma net income been in effect during those years or which may be re- i (loss) was $268 million, $(876) million and $276 million ported in the future. The pro forma data should be read in for the years 1994,1993 and 1992, respectisely. The pro conjunction with the audited financial statements of both l forma data is based on accounting for the merger on a the Company and Cleveland Electric.
. method similar to a pooling of interests. The pro forma l l
l i
i l
l Report of Independent .
meludes assessing the accounting principles used and Public Accountants significant estimates made by management, as weil as evaluating the overall fim.ncial statement presentation.
To the Share Owners and We believe that our audits provide a reasonable basis for floard of Directors of our opinion.
The Toledo Edison Company:
In our opinion, the financial statements referred to above We have audited the accompanying balance sheet and present fairly, in all material respects, the financial posi-statement of preferred stock of The Toledo Edison Com-tion of The Toledo Edison Company as of December 31, pany (a wholly owned subsidiary of Centerior Energy '
1994 and 1993, and the results of its operations and its Corporation) as of December 31,1994 and 1993, and the cash flows for each of the three years in the period
. related statements of income, retained earnings and cash ended December 31,1994, in conformity with generally flows for each of the three years in the period ended accepted accounting principles.
December 31, 1994. These fmancial statements are the responsibility of the Company's management. Our re- As discussed further in Note 9, a change was made in the sponsibility is to express an opinion on these financial method of accounting for postretirement benefits other statements based on our audits. than pensions in 1993.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit meludes examining, ggf on a test basis, evidence supporting the amounts and Cleveland Ohio disclosures in the financial statements. An audit also February 17,1995 21
1 l
Financial and Statistical Review l Operating Resenues (millions of dollars) .
Steam Total Total Total lleating Operateris Year Reddential Commercial Industrial Ot her itet.eil Whoicule ! lectric & Gas Resenues ,
1994 $227 181 251 64 723 142 865 -
$865 1993 229 180 244 71 724 147 871 -
871 1992__ 215 175 236 61 687 158 845 -
845 1991 230 184 236 90 740 147 887 -
887 1990 224 175 236 78 713 150 EA3 - 863 1984 173 115 195 45 528 20 548 9 557 l
Operating Expenses (millions of dollars)
Other Gerieration Deferred I ederal fuela Operation f aciht.cs Depreciati.m Tases. Operating income Total Purthased & Rental & Other Than I.mpensen, Taues Operaimg Year Power M.untenance I spense. Net A mortoation IIT Net (Cresiit ) I spenws 1994 5167 229 104 83 90 (21) 33 5685 1
l 1993 173 352(a) 104 76 91 (4)(b) (10) 782 1992 169 236 106 77 91 (17) 33 695 1991 178 243 113 72(c) N9 1 32 728 1990 174 262 Ill 73 79 (10) 21 710 1984 145 125 -
50 47 -
66 433 Income (I.oss) (millions of dollars)
I ederal Income Other Deferred income (Imu) income & Carrying Ta ses- liefore Operatmg Al U DC- Deduelions. Charges. Credit Interest Year income I units Net Net (1 ipense ) Ch arges 1994 $180 1 3 15 (2) $ 197 1993 89 I (232)(d) (161)(b) 129 (174) l 1992 150 1 1 41 (1) 192 1991 159 1 5 22 (6) 181 1
1990 153 3 5 43 9 213 1 1984 124 83 7 -
34 248 Income (Ims) (millions of dollars) 1.arnings
( Loss)
Net Preferred Available for Debt Al UDC- Income Simk Common Ye.4r interess Debt (I oss) Dividends Nt.s k 1994 $116 (1) 82 20 $ 62 1993 116 (1) (289) 23 (312) 1992 122 (l) 71 24 47 1991 132 (1) 50 25 25 1990 56
- 135 (3) 81 25 1984 129 (35) 154 35 119 la) includes early retirrment program espenses and other charges of $107 millwn in 1993.
(b) includes m rite off ofphase in deferrals of $NI mollum in i993. consisting of $$$ mdlion of deferred operating evenses and $IM million ofdeferred carrying < harges
{ci in I991, a change in accot stingfor nuclear plant depreciation m as adopted. < hangungfrom the units-of-productnan methat to the straight line method -
at a 2.5% rate.
22
l The Toledo Edison Company
. Electric Sales (millions of KWII) Electric Customers (year end) Residential Usage Average Average Average Price Revenue industrial AWil Per Per Per
, Year Residential Commercial Indusicial Wholesale Other Total Residential Commercial & Other T otal Customer KWil Customer 1994 _ 2 056 1 711 4 099 2 548 499 10 913 256 998 25 921 3 965 286 884 8 044 11.04c $888.30 1993 _ 2 039 1672 3 776 2 146 490 10 123 255 109 26 049 4 076 285 234 7 997 11.23 897.65 1992 __ I 941 1 619 3 563 2 753 478 10 354 255 299 25 870 4 372 285 541 7 632 11.08 845.99 1991_,_ 2 041 1683 3 543 2 587 482 10 336 254 500 26 044 4 444 284 988 7 990 11.26 897.41 1990__._ l 950 1 614 3 617 2 333 496 to 010 253 965 25 822 4 555 284 342 7 692 11.48 882.99 1986 _ _ 1958 1 398 3 444 473 440 7 713 243 912 23 891 3 920 271 723 8 045 8.81 709.09 Load (MW & %) Energy (millions of KWII) Fuel Net Efficiency-Company Generated Purchased l'uci Cost BTU Per Seawnal Peak Capacity Load Year Capability Lead M arrin f actor f ouil N ucicar Total Power Total Per KWil KWil 19N i729 1 620 6.3% 64.7 % 5 160 5 419 10 579 773 II 352 1.35c 10 298 1993 1729 1 568 9.3 64.3 5 548 4 791 10 339 196 10 535 1.42 10 146 1792 1 762 1 514 14.1 63.2 4 656 6 293 10 949 (82) 10 867 1.41 10 284 1991 1759 1 510 14.2 64.5 4 848 6 003 10 851 95 10 946 1.44 10 327 19'A> 1 75I I 516 13.4 63.0 5 535 4 219 9 754 902 10 656 1.50 10 220 1984 1 688 1 327 21.4 68.2 5 181 2 091 7 272 888 8 160 1.73 10 193 1
Insestment (millions of dollars) ,
Construction Work in Total Utihty Accumulated Progress Nuclear Property. Utility Plant in Deprcciation & Net & Perry f uel and Plant and Plant Total Year Nervice Amortiratkin Plant Unit 2 Other l'quipment Additisms Ancit 1994 $2 899 892 2 007 30 125 $2162 $ 41 $3 502 1993 2 837 788 2 049 40 142 2 231 43 3 510 1991 2 847 760 2 087 280 164 2 531 44 3 939 1991 2 692 709 1983 308 198 2 489 54 3 926 1990 2 604 640 1 964 349 224 2 537 87 3 913 1934 1 373 365 1 008 1413 197 (e) 2 618 356 2 936 Capitalliation (millions of dollars & %)
l Preferred Stock. Preferred Stuck, with Mandatory without Mandatory Year Common Stock I'austy Redempthm Provisms Redemptwin Prom. ions Long. Term Debi Total 1994 $685 34 % 7 -% 210 10% 1 154 56% $2 056 7993 623 30 28 1 210 10 1 225 59 2 086 1992 935 39 50 2 210 9 1178 50 2 373 1991 888 38 64 3 210 9 I158 50 2 320 c1990 881 39 66 3 210 9 1 097 49 2 254 1984 814 36 158 7 200 9 1110 48 2 282
~ (d) includes write-off of Perry Unit 2 of $232 million in IV93.
(e) RestatrJJar effects of capstali:ation of nuclearfuellease andfinancing arrtmgements pursuant to Statement of Financial Anounting Standards 71.
1 i
! 23 l
. - _ - _ _ - _ _ - _ _ - _ _ _ _ - - _ _ - _ - _ _ = _ _ _ _ _ _ _ _ - _ _ _ _ _ ._- -__- _____ -____--- __ ____ _____=________ ______-_ _-____-_ _ _ _______-___-_______
, INVESTOR INFORMATION )
SHARE OWNER INFORMATION Dividend Reinvestinent and Stock Purchase ',
Plan andIndividualRetirement Account
- Share Owner Services (CX IRA)
Communications regarding stock transfer requirements, Centerior Energy Corporation has a Dividend Reinvestment .
lost certificates, dividends and changes of address should and Stock Purchase Plan which provides Toledo Edison be directed to Share Owner Services at Centerior Energy share ow ners of record and other investors a convenient Corporation. Correspondence should be sent to the means of purchasing shares of Centerior common stock by address indicated below for the Stock Transfer Agent. nsesting all or a part of their quarterly dividends as well'as j To reach Share Ow ner Services by phone, call: making cash investments. In addition, individuals. may in Cleveland area 642-6900 or 447-2400 establish an Individual Retirement Account (IR A) w hich invests in Centerior common stock through the Plan.
Outside Cleveland area 1-800-433-7794 Information relating to the Plan and the CX lRA may be Please have your account number ready when calling. obtained from Share Owner Services.
Stock Transfer Agent Independent Accountants Centerior Energy Corporation Arthur Andersen LLP Share Owner Services 1717 East Ninth Street P.O. Ilox 94661 Cleveland, Oli 44114 j Cleveland, Oil 44101-4661 J inrironmental Report Stock transfers may he presented at Society Trust Company of New York The Company will furnish to share owners, without )
5 Ilanover Square, loth Floor charge, a copy of a report on its environmental performance. J New York, NY 10004 Requests should be directed to Share Owner Services.
Stock Registrar Form 10-K l The Company will fumish to share ow ners, without charge, !
l Society National llank Corporate Trust Division a copy of its most recent annual report to the Securities P.O. Itos 6477 and Exchange Commission. Requests should be directed Cleveland, Oil 44101 to Share Ow ner Services.
Investor Relations inquiries from security analysts and instiiutional BOND AND DEBENTURE INFORMATION ,
investors should be directed to Terrence R. Moran, Manager-Insestor Relations, at the address of the Stock Bond Trustee and Paying Agent Transfer Agent or by telephone at (216) 447-2882. The Chase Manhattan llank, N.A.
institutional Trust Group lixchange Listin#1 4 Chase Metrotech Center,3rd Floor Preferred-525 par value-8.844, $2.365 and $2.8) Ilrooklyn, NY 11245 series. Adjustable Series A and Adjustable Series 11- (718)242-7287 New York Stock Exchange.
Preferred-5100 par value-4W4,8.329,7.769 and e nture hstee and Papng Agent 109 series-American Stock Exchange. Fifth Third llank .
Corporate Trust Administration l 38 Fountain Square Plaza l Cincinnati. 01145263 (513)579-5132 l
l l
24
The Toledo Edison Company acts arte 300 Madison Avenue U.S. M) STAGE Toledo, Oil 436524XX)I PAID CLEVELAND,01110 PERMIT NO. 409 j
i I
i 4
1 1
I l
2 l
l
, - I l
l l
I l
I l
l I
i i
i
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASlilNGTON, D.C. 20549 Form 10-K (Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF TIIE SECURITIES EXCIIANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31,1994 OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF TIIE SECURITIES EXCIIANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No.
1-9130 CENTERIOR ENERGY CORPORATION 34-1479083 (An Ohio Corporation) 6200 Oak Tree Boulevard Independence, Ohio 44131 Telephone (216) 447-3100 1 2323 THE CLEVELAND ELECTRIC ILLUMINATING 34-0150020 COMPANY (An Ohio Corporation) 55 Public Square Cleveland, Ohio 44113 Telephone (216) 622-9800 1-3583 THE TOLEDO EDISON COMPANY 34-4375005 (An Ohio Corporation) 300 Madison Avenue Toledo, Ohio 43652 Telephone (419) 249-5000 Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were
, required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X. No
'. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part 111 of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Centerior Energy Corporation Common Stock, without par value, held by non-afEliates was
$1,443,307,154 on February 28, 1995 based on the closing sale price of $9.75 as quoted for that date on a composite transactions basis in The Wall Street Journal and on the 148,031,503 shares of Common Stock outstanding on that date.
Centerior Energy Corporation is the sole holder of the 79,590,689 shares and 39,133,887 shares of the outstanding common stock of The Cleveland Electric illuminating Company and The Toledo Edison Company, respectively.
~
S;curities rsgistarcd pursu nt to S:;ction 12(b) of tha Act Name of Each Exchange Registrant Title of Each Class on Which Registered Centerior Energy Common Stock, Corporation without par value New York Stock Exchange Chicago Stock Exchange l
Pacific Stock Exchange
. The Cleveland Electric Cumulative Serial Pr ferred Illuminating Company Stock, without per value:
$7.40 Series A New York Stock Exchange
$7.56 Series B New York Stock Exchange Adjustable Rate, Series L New York Stock Exchange Depository Shares:
1993 Series A, each share representing 1/20 of a share of Serial Preferred Stock, $42.40 Series T (without par value) New York Stock Exchange First Mortgage Bonds:
8-3/4% Series due 2005 New York Stock Exchange 9-1/4% Series due 2009 New York Stock Exchange 8-3/8% Series due 2011 New York Stock Exchange 8-3/8% Series due 2012 New York Stock Exchange The Toledo Edison Cumulative Preferred Stock, Company par value $100 per share:
4-1/4% Series American Stock Exchange 8.32% Series American Stock Exchange 7.76% Series American Stock Exchange ,
10% Series American Stock Exchange Cumulative Preferred Stock, par value $25 per share:
8.84% Series New York Stock Exchange
$2.365 Series New York Stock Exchange Adjustable Rate, Series A New York Stock Exchange Adjustable Rate, Series B New York Stock Exchange
$2.81 Series New York Stock Exchange First Mortgage Bonds: ,
~
7-1/2% Series due 2002 New York Stock Exchange 8% Series due 2003 New York Stock Exchange
u Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Each Class Centerior Energy None Corporation The Cleveland Electric None Illuminating Company The Toledo Edison Cumulative Preferred Stock, Company par value $100 per share:
4.56% Series and 4.25% Series DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Into Which Document Description Is Incorporated )
Portions of Proxy Statement of Centerior Energy Corporation, dated March 14, 1995 Part III l O
TABLE OF CONTENTS j Page Number Glossary of Terms iv PART I Item 1. Business ........................ 1 ,
The Centerior System . . . . . . . . . . . . . . . . . . . . . . 1 ,
Merger of the Operating Companies ............... 2 7
CAPCO Group .......................... 2 Construction and Financing Programs ........ ...... 3 Construction Program . .............. ...... 3 -
Financing Program ...................... 5 j General Regulation . . . . . . . . . . . . . . . . . ...... 5 Holding Company Regulation . ........... ...... 5 !
State Utility Commissions .................. 6 e Ohio Power Siting Board ................... 7 L Federal Energy Regulatory Commission . . . . . . . ...... 7 Nuclear Regulatory Commission ................ 7 Other Regulation . . . ... . . . . . . . . . . . . . . . . . . 7 Environmental Regulation . . . . . . . . . . . . . . ...... 8 ;
General ......................... . . 8 Air Quality Control ................... .. 8 Vater Quality Control ........... ......... 9 Vaste Disposal . . . . . . . . . . . . . . . . . . . . . . . . 10 l Electric Rates . . . . . . . . . . . . . . . . . . . . . . . . . 10 i
General .. ...... .......... ......... 10 1995 Rate Requests . . . . ............ ...... 11 Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Sales of Electricity . . . . . . . . . . . . . . . . . . . . . 11 Operating Statistics . . . . . . . . . . ...... ... .. 12 Nuclear Units .. ... .... ...... .... ..... 12 ;
Competitive Conditions . . . . . . . . . . . . . . . . . . . . 14 r
General . ................... .. .... 14 Cleveland Electric . . . . . . . . . . . . . . . ... . . . 14 '
Toledo Edison . ............. ..... .. .. 16 i
-i-
. .. =. - . . .. - -. . - . . _ _
Page I Number I i
i Fuel Supply ......................... 17 Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Nuclear .......................... 18 ,
Oil ............................ 18 Executive Officers of the Registrants and the Service Company . 19 i
l Item 2. Properties ....................... 25 i General ............................ 25 The Centerior System . ....................
. 25 ;
Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . 25 j Toledo Edison ........................ 26 Title to Projerty ....................... 27 I
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 28 i Item 4. Submission of Matters to a Vote of Security Holders . . . 29 :
PART II I
Item 5. Market for Registrants' Common Equity and Related l Stockholder Matters . . . . . . . . . . . . . . . . . . . 29 '
Market Information . . . . . . . . . . . . . . . ....... '29 Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . 30 ;
Dividends ............ ............. 30 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 30 i
Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 30 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 30 Toledo Edison ......................... 30 Item 7. Management's Discussion and Analysis of Financial '
Condition and Results of Operations . . . . . . . . . . . 30 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 30 Cleveland Electric . . . .................... 30 Toledo Edison ......................... 31
.~, .- - , - . - -- -
i Peg 2 Number Item 8. Financial Statements and Supplementary Data . . . . . . . 31 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . ?1 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 31 Toledo Edison ......................... 31 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 31 PART III Item 10. Directors and Executive Officers of the Registrants .. 31 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 31 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 31 Toledo Edison ......................... 32 Item 11. Executive Compensation . ................ 32 Item 12. Security Ownership of Certain Beneficial Owners and Management . ...................... 33 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 33 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 34 Toledo Edison ......................... 34 Item 13. Certain Relationships and Related Transactions . . . . . 35 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports -
on Form 8-K ...................... 35 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Index to Selected Financial Data; Hanagement's Discussion and Analysis of Financial Condition and Results of Operations; and Financial Statements . . ................... F-1 Index to Schedules . ........................ S-1 The Cleveland Electric Illuminating Company and Subsidiaries and The Toledo Edison Company Combined Pro Forma Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-1 Exhibit Index ........................... E-1
- 111 -
I This combined Form 10-K is separately filed by Centerior Energy Corporation, The Cleveland Electric Illuminating Company and The Toledo Edison Company.
Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to either or both of the Operating Companies is also attributed to Centerior Energy.
GLOSSARY OF TERMS The following terms and abbreviations used in the text of this report are defined as indicated:
Term Definition AFUDC Allowance for Funds Used During Construction.
AMP-Ohio American Municipal Pover-Ohio, Inc., an Ohio not-for-profit corporation, the members of which are certain Ohio municipal electric systems.
Beaver Valley Unit 2 Unit 2 of the Beaver Valley Power Station, in which the Operating Companies have ownership and leasehold interests.
CAPCO Group Central Area Power Coordination Group.
Centerior Energy or Centerior Centerior Energy Corporation.
Centerior System Centerior Energy, the Operating Companies and I the Service Company.
Clean Air Act Federal Clean Air Act of 1970 as amended.
Clean Air Act Amendments November 1990 Amendments to the Clean Air Act.
Clean Vater Act Federal Vater Pollution Control Act as amended.
Cleveland Electric The Cleveland Electric Illuminating Company, an electric utility subsidiary of Centerior Energy and a member of the CAPC0 Group.
Consol Consolidation Coal Company.
CPP Cleveland Public Pover, a municipal electric system operated by the City of Cleveland.
Davis-Besse Davis-Besse Nuclear Power Station.
- iv -
1 l
Term D2finition Detroit-Edison Detroit Edison Company, an electric utility. ,
District of Columbia United States Court of' Appeals for the Dis- ,
Circuit Appeals Court trict of Columbia Circuit.
DOE United States Department of Energy.
- Duquesne Duquesne Light Company, an electric utility subsidiary of DQE, Inc. and a member of the CAPC0 Group.
ECAR East Central Area Reliability Coordination fr Group.
Energy Act Energy Policy Act of 1992. !
Federal Power Act Federal Power Act, as amended, codified in ;
Chapter 12 of Title 16 of the United States
- Code.
FERC Federal Energy Regulatory Commission.
Holding Company Act Public Utility Holding Company Act of 1935. ,
Hansfield Plant Bruce Hansfield Generating Plant, a coal-fired power plant, in which the Operating Companies have leasehold interests as joint and several lessees.
Note or Notes Note or Notes to the Financial Statements in the Centerior Energy, Cleveland Electric and Toledo Edison Annual Reports for 1994 (Note or Notes, where used, refers to all three ;
companies unless otherwise specified).
l NPDES National Pollutant Discharge Elimination System. I l'
NRC United States Nuclear Regulatory Commission.
Ohio Edison Ohio Edison Company, an electric utility and a member of the CAPC0 Group.
Ohio EPA Ohio Environmental Protection Agency.
Ohio Power Ohio Power Company, an electric utility sub-sidiary of American Electric Power Company, ,
Inc. l 1
l l
-v-
1 Term :
Definition Ohio Valley- The Ohio Valley Coal Company, the successor corporation to The Nacco Mining Company and a j
subsidiary of Ohio Valley Resources, Inc.
Operating Companies Cleveland Electric and Toledo Edison.
(individually, Operating Company)
OPSB Ohio Power Siting Board.
PaPUC Pennsylvania Public Utility Commission.
Ponelec Pennsylvania Electric Company, an electric utility subsidiary of General Public Utilities Corporation.
Pennsylvania Power Pennsylvania Power Company, an electric utility subsidiary of Ohio Edison and a member of the CAPC0 Group.
Perry Plant Perry Nuclear Power Plant. '
' Perry Unit 1 Unit 1 of the Perry Plant, in which the Operating Companies have ownership interests.
Ferry Unit 2 Unit 2 of the Perry Plant, in which the Operating Companies had ownership interests which were written off at December 31, 1993.
PUC0 The Public Utilities Commission of Ohio.
Quarto Quarto Mining Company, a subsidiary of '
Consol.
SALP Systematic Assessment of Licensee Performance - the NRC's performance evaluation of a nuclear unit.
SEC United States Securities and Exchange Commission.
Seneca Plant Seneca Power Plant, a pumped-storage, hydro-electric generating station jointly owned by Cleveland Electric and Penelec.
Service Company Centerior Service Company, a service sub-sidiary of Centerior Energy.
- vi -
f i
-i Tern D:finitien Superfund Comprehensive Environmental Response, Con-pensation and Liability Act of 1980 and the Superfund Amendments and Reauthorization Act of 1986.
Toledo Edison The Toledo Edison Company, an electric l utility subsidiary of Centerior Energy and a member of the CAPC0 Group. (
USEC United States Enrichment Corporation,
'formerly a part of the DOE.
U.S. EPA United States Environmental Protection Agency. ;
I Vestinghouse Vestinghouse Electric Corporation.
l i
i h
e P
i l
t
- vii - ,
L :
FART I Item 1. Business THE CENTERIOR SYSTEM Centerior Energy is a public utility holding company and the parent company of the Operating Companies and the Service Company. Centerior was incorporated under the laws of the State of Ohio in 1985 for the purpose of enabling Cleveland Electric and Toledo Edison to affiliate by becoming wholly owned subsidiaries of Centerior. The affiliation of the Operating Companies became sffective in April 1986. Nearly all of the consolidated operating revenues of the Centerior System are derived from the sale of electric energy by Cleveland ,
Electric and Toledo Edison.
The Operating Companies' combined service areas encompass approximately 4,200 square miles in northeastern and northwestern Ohio with an estimated popula-tion of about 2,450,000. At December 31, 1994, the Centerior System had 6,767 employees. Centerior Energy has no employees.
Cleveland Electric, which was incorporated under the laws of the State of Ohio in 1892, is a public utility engaged in the generation, purchase, transmis- l sion, distribution and sale of electric energy in an area of approximately 1,700 square miles in northeastern Ohio, inc1rding the City of Cleveland.
Cleveland Electric also provides electric energy at wholesale to other elec-tric utility companies and to two municipal electric systems (directly and through AMP-Ohio) in its service area. Cleveland Electric serves approxi-cately 747,000 customers and derives approximately 77% of its total electric retail revenue from customers outside the City of Cleveland. Principal industries served by Cleveland Electric include those producing steel and other primary metals; automotive and other transportation equipment; chemicals; electrical and nonelectrical machinery; fabricated metal products; and rubber and plastic products. Nearly all of Cleveland Electric's operating ,
revenues are derived from the sale of electric energy. At December 31, 1994, Cleveland Electric had 3,547 employees of which about 54% were represented by one union hav$ng a collective bargaining agreement with Cleveland Electric.
Toledo Edison, which was incorporated under the laws of the State of Ohio in 1901, is a public utility engaged in the generation, purchase, transmission, distribution and sale of electric energy in an area of approximately 2,500 square miles in northwestern Ohio, including the City of Toledo. Toledo Edison also provides electric energy at wholesale to other electric utility companies and to 13 municipally owned distribution systems (through AMP-Ohio) and one rural electric cooperative distribution system in its service area. .
Toledo Edison serves approximately 287,000 customers and derives approximately 57% of its total electric retail revenue from customers outside the City of Toledo. Principal industries served by Toledo Edison include metal casting, forming and fabricating; petroleum refining; automotive equipment and assembly; food processing; and glass. Nearly all of Toledo Edison's operating revenues are derived from the sale of electric energy. At December 31, 1994, Toledo Edison had 1,887 employees of which about 56% were represented by three unions having collective bargaining agreements with Toledo Edison.
l
i l
l The Service Company, which was incorporated in 1986 under the laws of the State of Ohio, is also a wholly ovned subsidiary of Centerior Energy. It pro-vides management, financial, administrative, engineering, legal, governmental and public relations and other services to Centerior Energy and the Operating ;
Companies. At December 31, 1994, the Service Company had 1,333 employees.
HERGER OF THE OPERATING COMPANIES In March 1994, Centerior Energy announced a plan to merge Toledo Edison into Cleveland Electric. Since Cleveland Electric and Toledo Edison affiliated in 1986, efforts have been made to consolidate operations and administration as much as possible to achieve maximum cost savings. On May 2, 1994, the Operating Companies filed a joint application for authorization and approval of the merger with the FERC. The PUCO, AMP-Ohio and the cities of Cleveland, Clyde and Bryan, Ohio have intervened in the FERC proceedings. The PUC0 intervened as the state commission having jurisdiction, but has not opposed the Cleveland Electric and Toledo Edison application. On December 1, 1994, the PUC0 approved the merger. (Approval of the merger was previously obtained from the PaPUC on July 7, 1994.) The other intervenors have opposed the merger citing concerns primarily relating to the merger's impact on competi-tion. On December 8, 1994, the FERC advised Cleveland Electric and Toledo Edison by letter that the application to merge vould be rejected unless the companies provide additional information and file a single system open-access transmission tariff offering comparable service. Cleveland Electric and Toledo Edison have advised the FERC that they intend to provide the additional information required in the December 8, 1994 letter, and that they intend to file an open-access transmission tariff offering comparable service.
The merger also must be approved by Toledo Edison preferred stock share evners. Preferred stock share owners of Cleveland Electric must approve the authorization of additional shares of preferred stock. When the merger becomes effective, the outstanding shares of Toledo Edison preferred stock vill be exchanged for shares of Cleveland Electric preferred stock having sub-stantially the same terms. Cleveland Electric and Toledo Edison plan to seek preferred share owner approval in mid-1995. The merger is expected to be -
effective in late 1995.
See Note 15 to the Operating Companies' Financial Statements for further discussion of this matter and "3. Combined Pro Forma Condensed Financial Statements (Unaudited)" contained under Item 14. of this Report for selected historical and combined pro forma financial information of Cleveland Electric and Toledo Edison.
CAPCO GROUP Cleveland Electric and Toledo Edison are members of the CAPC0 Group, a power pool created in 1967 with Duquesne, Ohio Edison and Pennsylvania Power. This pool affords greater reliability and lover cost of providing electric service through coordinated generating unit operations and maintenance and generating reserve back-up among the five companies. In addition, the CAPC0 Group has completed programs to construct larger, more efficient electric generating units and to strengthen interconnections within the pool.
l The CAPC0 Group companies have placed in service nine major generating units, cf which the Operating Companies have ownership or leasehold interests in seven (three nuclear and four coal-fired). Each CAPC0 Group company owns, as a tenant-in-common, or leases a portion of certain of these generating units.
Each company has the right to the net capability and associated energy of its respective ovnership and leasehold portions of the units and is, severally and not jointly, obligated for the capital and operating costs equivalent to its respective ownership and leasehold portions of the units and the required fuel, except that the obligations of Pennsylvania Power are the joint and several obligations of that company and Ohio Edison and the leasehold cbligations of Cleveland Electric and Toledo Edison are joint and several.
(See " Operations--Fuel Supply".) For all plants but one, the company in whose l
service area a generating unit is located is responsible for the operation of I that unit for all the owners, except for the procurement of nuclear fuel for a nuclear generating unit. The Hansfield Plant, which is located in Duquesne's service area, is operated by Pennsylvania Power. Each company owns the l
necessary interconnecting transmission facilities within its service area, and l
the other CAPC0 Group companies contribute toward fixed charges and operating l costs of those transmission facilities.
All of the CAPC0 Group companies are members of ECAR, which is comprised of 32 electric companies located in nine contiguous states. ECAR's purpose is to improve reliability of bulk power supply through coordination of planning and operation of member companies' generation and transmission facilities.
CONSTRUCTION AND FINANCING PROGRAMS Construction Program The Centerior System carries on a continuous program of constructing trans-mission, distribution and general facilities and modifying existing generating facilities to meet anticipated demand for electric service, to comply with governmental regulations and to protect the environinent. The Operating Companies' 1994 long-term (20-year) forecast, as filed with the PUC0 (see
" General Regulation--State Utility Commissions"), projects long-term annual growth rates in peak demand and kilowatt-hour sales for the Operating Companies of 0.5% and 1.0%, respectively, after demand-side management con-siderations. The Centerior System's integrated resource plan for the 1990s (which is included in the long-term forecast) combines peak clipping demand-side management programs with maximum utilization of existing generating capacity to postpone the need for new generating units until the next decade.
Lake Shore Unit 18, a 245,000-kilowatt unit which was placed on cold standby status in October 1993, is scheduled to resume active status in 1998.
According to the current long-term integr:ted resource plan, the next increment of new generating capacity that the Centerior System plans to put into service vill be two 150,000-kilowatt units and one 80,000-kilowatt unit in 2008.
The following tables shov, categorized by major components, the construction ,
j expenditures by Cleveland Electric and Toledo Edison and, by aggregating them, I for the Centerior System during 1992, 1993 and 1994 and the estimated cost of their construction programs for 1995 through 1999, in each case including AFUDC and excluding nuclear fuel:
1 4
Actual Estimated 1992 1993 1994 1995 1996 1997 1998 1999 Cleveland Electric (Millions of Dollars) l l
Transmission, Distribution and General Facilities S 73 $ 85 $ 53 $ 86 $ 94 $ 97 $ 79 $ 88 1 Renovation and Modification !
of Generating Units Nuclear 26 16 18 17 18 16 13 14 Nonnuclear 56 65 61 53 35 53 54 60 I Clean Air Act Amendments Compliance 1 9 24 20 2 11 23 17 Total $156 $175 $156 $176 $149 $177 $169 $179 Actual Estimated 1992 1993 1994 1995 1996 1997 1998 1999 Toledo Edison (MillionsofDollarsi~~~
Transmission, Distribution and General Facilities $ 25 $ 22 $ 18 $ 32 $ 33 $ 29 $ 26 $ 24 Renovation and Modification of Generating Units Nuclear 12 15 10 13 14 12 10 11 Nonnuclear 7 6 12 13 15 5 17 26 Clean Air Act Amendments Compliance 0 0 1 6 3 7 2 7 Total $ 44 $ 43 $ 41 $ 64 $ 65 $ 53 $ 55 $ 68 Actual Estimated 1992 1993 1994 1995 1996 1997 1998 1999 Centerior System (Millions of Dollars)
Transmission, Distribution and General Facilities S 98 $107 $ 71 $118 $127 $126 $105 $112 Renovation and Modification of Generating Units Nuclear 38 31 28 30 32 28 23 25 Nonnuclear 63 71 73 66 50 58 71 86 Clean Air Act Amendments Compliance 1 9 25 26 5 18 25 24 Total $200 $218 $197 $240 $214 $230 $224 $247 Each company in the CAPC0 Grotp is responsible for financing the portion of the capital costs of nuclear fuel equivalent to its ownership and leased interest in the unit in which the fuel vill be utilized. See " Operations--
Fuel Supply,-Nuclear" for information regarding nuclear fuel supplies and Note 6 regarding leasing arrangements to finance nuclear fuel capital costs.
Nuclear fuel capital costs incurred by Cleveland Electric, Toledo Edison and the Centerior System during 1992, 1993 and 1994 and their estimated nuclear fuel capital costs for 1995 through 1999 are as follovs: ;
l
Actual Estimated 1992 1993 1994 1995 1996 1997 1998 1999 (Millions of Dollars)
Cleveland Electric $ 30 $ 26 S 26 $ 18 $ 27 $ 33 $ 28 $ 29 Toledo Edison S 22 S 20 $ 21 S 12 S 27 $ 27 $ 21 $ 26 centerior System S 52 S 46 S 47 $ 30 $ 54 S 60 $ 49 S 55 Financing Program Reference is made to Centerior Energy's, Cleveland Electric's and Toledo Edison's Management's Financial Analysis contained under Item 7 of this Report cnd to Notes 11 and 12 for discussions of the Centerior System's financing cctivity in 1994; debt and preferred stock redemption requirements during the 1995-1999 period; expected external financing needs during such period; re-strictions on the issuance of additional debt securities and preferred stock; short-term and long-term financing capability; and securities ratings for the Operating Companies.
In the second quarter of 1995, Cleveland Electric and Toledo Edison expect to issue $53,900,000 and $45,000,000, respectively, of first mortgage bonds as collateral security for the sale by a public authority of corresponding principal amounts of tax-exempt bonds. The proceeds from the sales of the public authority's bonds vill be used to refund like amounts of tax-exempt bonds that were issued in 1984. In addition, Cleveland Electric expects to issue $150,000,000 of first mortgage bonds in the second quarter of 1995. The proceeds of this issue vill be used to reimburse Cleveland Electric for cash expended in the optional redemption of $26,000,000 principal amount of First Mortgage Bonds, 13-3/4% Series due 2005-A and to help fund the payment of required sinking fund obligations and maturing securities in 1995 and for general corporate purposes. Cleveland Electric and Toledo Edison also plan to raise funds through the collateralization of their accounts receivable in l 1995. If cost effective, the Operating Companies may redeem additional securities under optional redemption provisions.
GENERAL REGULATION Holding Company Regulation Centerior Energy is currently exempt from regulation under the Holding Company Act.
The Energy Act contains, among other provisions, amendments to the Holding !
Company Act and the Federal Power Act. The Energy Act also adopted nuclear j power licensing and related regulations, energy efficiency standards and i incentives for the use of alternative transportation fuels. Amendments to the J Holding Company Act create a new class of independent power producers known as (
" Exempt Wholesale Generators", which are exempt from the Holding Company Act !
corporate structure regulations and operate without SEC approval or regulation. Exempt Wholesale Generators may be owned by holding companies, electric utility companies or any other person.
State Utility Commissions The Operating Companies are subject to the jurisdiction of the PUC0 with re-spect to rates, service, accounting, issuance of securities and other matters. j Under Ohio law, municipalities may regulate rates, subject to appeal to the PUC0 if not acceptable to the utility. See " Electric Rates" for a description of certain aspects of Ohio rate-making lav. The Operating Companies are also subject to the jurisdiction of the PaPUC in certain respects relating to their ownership interests in generating facilities located in Pennsylvania.
The PUC0 is composed of five commissioners appointed by the Governor of Ohio from nominees recommended by a Public Utility Commission Nominating Council. l Nominees must have at least three years' experience in one of several disci- -
plines. Not more than three commissioners may belong to the same political party.
1 Under Ohio lav, a public utility must file annually with the PUC0 a long-term forecast of customer loads, facilities needed to serve those loads and prospective sites for those facilities. This forecast must include the following:
(1) Demand Forecast--the utility's 20-year forecast of sales and peak demand, i before and after the effects of demand-side management programs. l l
i (2) Integrated Resource Plan (required biennially)--the utility's projected l mix of resource options to meet the projected demand. i (3) Short-Term Implementation Plan and Status Report (required biennially)--
the utility's discussion of how it plans to implement its integrated resource plan over the next four years. Estimates of annual expenditures and security issuances associated with the integrated resource plan over the four-year period must also be provided.
The PUC0 must hold a public hearing on the long-term forecast at least once every five years to determine the reasonableness of the forecast. The PUC0 and the OPSB are required to consider the record of such hearings in proceed-ings for approving facility sites, changing rates, approving security issues
, and initiating energy conservation programs. Ohio lav also permits electric l utilities under PUC0 jurisdiction to submit environmental compliance plans for PUC0 review and approval. Ohio law requires that the PUC0 make certain statutory findings prior to approving the environmental compliance plan, which includes that the plan is a reasonable least cost strategy for compliance with air quality requirements. In February 1993, the PUC0 approved the Operating Companies' 1992 long-term forecast and environmental compliance plan. The PUC0 held hearings in January 1995 on the Operating Companies' 1994 long-term forecast and has scheduled hearings in April 1995 on the Operating Companies' updated environmental compliance plan which was filed in January 1995.
The PUC0 has jurisdiction over certain transactions by companies in an elec-
- tric utility holding company system if it includes at least one Ohio electric utility and is exempt from regulation under Section 3(a)(1) or (2) of the Holding Company Act. Consequently, the Operating Companies must obtain PUC0
l l
l approval to invest in, lend funds to, guarantee the obligations of or otherwise finance or transfer assets to any nonutility company in the Centerior System, unless the transaction is in the ordinary course of business operations in which one company acts for or with respect to another company.
Also, Centerior must obtain PUC0 approval to make any investment in any nonutility subsidiaries, affiliates or associates if such investment would cause all such capital investments to exceed 15% of Centerior's consolidated capitalization unless such funds were provided by nonutility subsidiaries, affiliates or associates.
The PUC0 has a reserve capacity policy for electric utilities in Ohio stating that (1) 20% of service area peak load excluding interruptible load is an appropriate generic benchmark for an electric utility's reserve margin; (ii) a reserve margin exceeding 20% gives rise to a presumption of excess capacity, but may be appropriate if it confers a positive net present benefit to cus-tomers or is justified by unique system characteristics; and (iii) appropriate remedies for excess capacity (possibly including disallowance of costs in rates) vill be determined by the PUC0 on a case-by-case basis.
Ohio Power Siting Board The OPSB has state-vide jurisdiction, except to the extent pre-empted by Federal lav, over the location, need for and certain environmental aspects of electric generating units with a capacity of 50,000 kilowatts or more and transmission lines with a rating of at least 125 kV.
Federal Energy Regulatory Commission The Operating Companies are each subject to the jurisdiction of the FERC with respect to the transmission and sale of power at wholesale in interstate com-merce, interconnections with other utilities, accounting and certain other matters. Cleveland Electric is also subject to FERC jurisdiction with respect to its ownership and operation of the Seneca Plant.
Nuclear hegulatory Commission The nuclear generating units in which the Operating Companies have an interest are subject to regulation by the NRC. The NRC's jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust considera-tions and environmental impacts.
Ovners of nuclear units are required to purchase the full amount of nuclear liability insurance available. See Note 5(b) for a description of nuclear in-surance coverages.
Other Regulation The Operating Companies are subject to regulation by Federal, state and local authorities with regard to the location, construction and operation of certain facilities. The Operating Companies are also subject to regulation by local authorities with respect to certain zoning and planning matters.
l l
ENVIRONMENTAL REGULATION General The Operating Companies are subject to regulation with respect to air quality, water quality and vaste disposal matters. Federal environmental legislation affecting the operations and properties of the Operating Companies includes the Clean Air Act, the Clean Air Act Amendments, the Clean Vater Act, Superfund, and the Resource Conservation and Recovery Act. The requirements of these statutes and related state and local lavs are continually changing due to the promulgation of new or revised laws and regulations and the results of judicial and agency proceedings. Compliance with such laws and regulations may require the Operating Companies to modify, supplement, abandon or replace facilities and may delay or impede construction and operation of facilities, all at costs which could be substantial. The Operating Companies expect that the impact of such costs would eventually be reflected in their respective rate scheduler. Cleveland Electric and Toledo Edison plan to spend, during the period 1995-1999, $98,900,000 and $29,200,000, respectively, for pollution control facilities, including Clean Air Act Amendments compliance costs.
The Operating Companies believe that they are currently in compliance in all material respects with all applicable environmental laws and regulations, or to the extent that one or both of the Operating Companies may dispute the applicability or interpretation of a particular environmental law or regula-tion, the affected company has filed an appeal or has applied for permits, revisions to requirements, variances or extensions of deadlines.
Concerns have been raised regarding the possible health effects associated with electric and magnetic fields. Although scientific research as to such effects has yielded inconclusive resalts, additional studies are being con-ducted. If electric and magnetic fields are ultimately found to pose a health risk, the Operating Companies may be required to modify transmission and distribution lines or other facilities.
Air Quality Control Under the Clean Air Act, the Ohio EPA has adopted emission limitations for particulate matter and sulfur dioxide for each of the Operating Companies' plants. The Clean Air Act provides for civil penalties of up to $25,000 per day for each violation of an emission limication. The U.S. EPA has approved the Ohio EPA's emission limitations and the related state implementation plan except for some particulate matter emissions and certain sulfur dioxide emissions.
In November 1990, the Clean Air Act Amendments imposed more stringent restrictions on nitrogen oxide emissions and sulfur dioxide emissions beginning in 1995. See Note 4(a) for a description of the Operating Companies' compliance strategy, which was included in the agreement approved by the PUC0 in February 1993 in connection with the Operating Companies' 1992 long-term forecast. The Clean Air Act Amendments also require studies to be ;
conducted on the emission of certain potentially hazardous air pollutants l vhich could lead to additional restrictions. 1 1
Global.varming,'or the " greenhouse effect", has been the subject of scientific study and debate within the United States and internationally. One area of-istudy involves the effect on global warming of the emissions of gases such as those resulting from the burning of coal. Based on a 1992 United Nations treaty,'the United States has developed a voluntary plan to reduce the emissions of certain gases thought to contribute to global varming to 1990 levels by the year 2000. The Operating Companies vill work with the DOE and other utilities to develop a plan for limiting such emissions.
Vater Quality Control The Clean Vater Act requires that power plants obtain permits under the NPDES
. program that contain certain effluent limitations (that is, limits on discharges of pollutants into bodies of water). It also requires the states to establish water quality standards which could result in more stringent
'offluent limitations. Violators of effluent limitations and water quality standards are subject to a civil penalty of up to $25,000 per day for each such violation.
The Operating Companies have received NPDES permit renewals from the Ohio EPA or have applied for such renewals for all of their power plants. In those situations in which a permit application is pending, the affected plant may continue to operate under the expired permit while such application is pending. Any violation of an NPDES permit is considered to be a violation of the Clean Vater Act subject to the-penalty discussed above.
The Clean Vater Act permits thermal effluent limitations to be established for a facility which are less stringent than those which otherwise would apply if the owner can demonstrate that such less stringent limitations are sufficient to assure the protection and propagation of aquatic and other vildlife in the affected body of water. By 1978, the Operating Companies had submitted to the ;
Ohio EPA such demonstrations for review with respect to their Ashtabula, Avon l Lake, Lake Shore, Eastlake, Acme and Bay Shore plants. The Ohio EPA has taken i no action on the submittals.
In 1990, the Ohio EPA issued revised water quality standards applicable to l Lake Erie and waters of the State of Ohio. Based upon these revised water <
quality standards, the Ohio EPA placed additional effluent limitations in their most recent NPDES permits. The revised standards also may serve as the basis for more stringent effluent limitations in future NPDES permits. Such limitations could result in the installation cf Additional pollution control equipment'and increased operating expenses. The Operating Companies are j monitoring discharges at their plants to support their position that addi-tional effluent limitations are not justified.
In April 1993, the U.S. EPA issued proposed rules for water quality standards applicable to all states abutting the Great Lakes, including Ohio. These states vould be required to adopt state water quality standards and procedures consistent with the rules within two years of final publication. Preliminary reviews indicate that the cost of complying with these rules could be significant. However, the Operating Companies cannot determine what impact l
l i
these rules will have on their operations until such rules are issued in final form and are incorporated into Ohio regulations.
Vaste Disposal See " Outlook--Hazardous Vaste Disposal Sites" in Management's Financial l Analysis contained under Item 7 of this Report and Note 4(c) for a discussion of the Operating Companies' potential involvement in certain hazardous vaste disposal sites, including those subject to Superfund. See " Operations-- !
Nuclear Units" for a discussion concerning the disposal of nuclear vaste.
The Resource Conservation and Recovery Act exempts certain fossil fuel com- !
bustion vaste products, such as fly ash, from hazardous'vaste disposal re-quirements and requires the U.S. EPA to evaluate the need for future regulation. On August 9, 1994, the U.S. EPA issued its final regulatory determination that regulation of coal ash as a hazardous vaste is unnecessary.
ELECTRIC RATES General r
Under Ohio lav, rate base is the original cost less depreciation of a utility's total plant adjusted for certain items. The law permits the PUCO, in its discretion, to include construction vork in progress in rate base under certain conditions.
Current Ohio law further provides that requested rates can be collected by a '
public utility, subject to refund, if the PUC0 does not make a decision within 275 days after the rate request application is filed. If the PUC0 does not make its final decision within 545 days, revenues collected thereafter are not subject to refund. A notice of intent to file an application for a rate in- ,
crease cannot be filed before the issuance of a final order in any prior pend-ing application for a rate increase or until 275 days after the filing of the prior application, whichever is earlier. The minimum period by which the notice of intent to file must precede the actual filing is 30 days. The test '
year for determining rates may not end more than nine months after the date the application for a rate increase is filed.
Under Ohio lav, electric rates are adjusted every six months to reflect changes in fuel costs. The PUC0 reviews such adjustments annually. Any difference between actual fuel costs during a six-month period and the fuel revenues recovered in that period is deferred and is taken into account in setting the fuel recovery factor for a subsequent six-month period.
Also, under Ohio law, municipalities may regulate rates charged by a utility, subject to appeal to the PUC0 if not acceptable to the utility. If municipally fixed rates are accepted by the utility, such rates are binding on both parties for the specified term and cannot be changed by the PUCO. See
" Operations--Competitive Conditions--Cleveland Electric" for information on a 1994 rate reduction ordinance in Garfield Heights.
l i
See Note 7 and Management's Financial Analysis contained under Item 7 of this Report for information relating to'the Rate Stabilization Program that was cpproved by the PUC0 for the Operating Companies in October 1992 and other rate matters.
1995 Rate Requests
'On March 17, 1995, the Operating Companies each notified the PUC0 of their intent to file a request for a rate increase to be effective in 1996. i Cleveland Electric's requested increase vill be $82,800,000 in annual revenues I cnd Toledo Edison's requested increase vill be $34,800,000. The requested '
rates vould result in an average increase of 4.9% in Cleveland Electric's cxisting rates and an average increase of 4.7% in Toledo Edison's existing rates.
i The Operating Companies plan to freeze rates until at least 2002 if their rate :
requests are approved, although they are not precluded from requesting edditional rate increases. This plan is premised on the Operating Companies obtaining full recovery of all costs including an acceptable rate of return on ,
i equity in order to continue to apply Statement of Financial Accounting Standard 71 ("SFAS 71") for financial reporting purposes. The Operating l Companies plan to avoid the need for further rate increases through additional cost reductions, an enhanced marketing program and other efforts. The Operating Companies vill periodically assess their continued compliance with SFAS 71 criteria and the appropriateness of continuing to record additional deferrals pursuant to the Rate Stabilization Program referred to above. They vill modify their intended course of action as necessary to maintain compliance.
The rate increases are necessary to recover capital investment and increases in costs incurred since the Operating Companies' last rate cases, which were decided in January 1989, and to recover certain costs deferred since 1992.
The amounts of the requested rate increases are lower than the authorized limits set forth in the Rate Stabilization Program. The additional cash resulting from the rate increases vill strengthen Centerior's and the . ;
Operating Companies' financial and competitive positions.
OPERATIONS Sales of Electricity Kilowatt-hour sales by the Operating Companies follow a seasonal pattern marked by increased customer usage in the summer for air conditioning and in I the vinter for heating. Historically, Cleveland Electric has experienced its heaviest demand for electric service during the summer months because of a i significant air conditioning load on its system and a relatively lov amount of electric heating load in the vinter. Toledo Edison, although having a significant electric heating load, has experienced in recent years its heaviest demand for electric service during the summer months because of heavy ;
air conditioning usage.
i
The Centerior System's largest customer is a steel manufacturer which has two major steel producing facilities served by Cleveland Electric. Sales to these facilities accounted for 2.6% and 3.7% of the 1994 total electric operating revenues of Centerior Energy and Cleveland Electric, respectively. The loss of these facilities vould reduce Centerior Energy's and Cleveland Electric's net income by about $27,000,000 based on 1994 sales levels.
The largest customer served by Toledo Edison is a major automobile manufac-turer. Sales to this customer accounted for 1.6% and 4.4% of the 1994 total electric operating revenues of Centerior Energy and Toledo Edison, re-spectively. The loss of this customer vould reduce Centerior Energy's and Toledo Edison's net income by about $17,000,000 based on 1994 sales levels.
Operating Statistics For data on operating revenues by service category, electric sales by service category, customers by service category and electric energy generation for 1984 and 1990 through 1994, see the attached Pages F-25 and F-26 for Centerior Energy, F-49 and F-50 for Cleveland Electric and F-73 and F-74 for Toledo Edison.
Nuclear Units The Operating Companies' generating facilities include, among others, three nuclear units owned or leased by the CAPC0 Group--Perry Unit 1, Beaver Valley Unit 2 and Davis-Besse. These three units are in commercial operation.
Cleveland Electric has responsibility for operating Perry Unit 1, Duquesne has responsibility for operating Beaver Valley Unit 2 and Toledo Edison has re-sponsibility for operating Davis-Besse. Cleveland Electric and Toledo Edison own, respectively, 31.11% and 19.91% of Perry Unit 1, 24.47% and 1.65% of Beaver Valley Unit 2 and 51.38% and 48.62% of Davis-Besse. Cleveland Electric and Toledo Edison also lease, as joint lessees, an additional 18.26% of Beaver Valley Unit 2 as a result of a September 1987 sale and leaseback transaction (see Note 2). ,
Davis-Besse was placed in commercial operation in 1977, and its operating license expires in 2017. Perry Unit 1 and Beaver Valley Unit 2 vere placed in commercial operation in 1987, and their operating licenses expire in 2026 and 2027, respectively.
In January 1989, the PUC0 approved nuclear plant performance standards for the Operating Companies based on rolling three-year industry averages of availability for pressurized water reactors and for boiling water reactors over the 1988-1998 period. Availability is the ratio of the number of hours a unit is available to generate electricity (whether or not the unit is operated) to the number of hours in the period, expressed as a percentage.
The three-year availability averages of the Operating Companies' nuclear units !
are compared against the industry averages for the same three-year period with j a resultant penalty or banked benefit. If the industry performance standards are not met, a penalty would be incurred which would require the Operating ;
Companies to refund incremental replacement power costs to customers through '
e i
l the semiannual fuel cost rate adjustment. However, if the performance of the Operating Companies' nuclear units exceeds the industry standards, a banked benefit results which can be used to offset disallowances of incremental replacement power costs should future performance be below industry standards.
The relevant industry standards for the 1992-1994 period (as of November 30, l 1994) are 79.6% for pressurized water reactors such as Davis-Besse and Beaver {
Valley Unit 2 and 73% for boiling water reactors such as Perry Unit 1. The :
1992-1994 combined availability average for Davis-Besse and Beaver Valley Unit ,
2 was 89.5% and the availability average for Perry Unit 1 was 57.1%. At !
December 31, 1994, the total banked benefit for the Operating Companies is !
cstimated to be between $20,000,000 and $22,000,000. l t
All three nuclear units have received generally favorable evaluations from the NRC in their most recent SALP reviews, with Davis-Besse receiving the best '
possible scores. Each of the functional areas evaluated is rated according to three performance categories, with category 1 indicating performance !
substantially exceeding regulatory requirements and that reduced NRC attention may be appropriate; category 2 indicating performance above that needed to ,
neet regulatory requirements and that NRC attention may be maintained at i normal levels; and category 3 indicating performance does not significantly -
exceed that needed to meet minimal regulatory requirements and that NRC attention should be increased above normal levels. ,
The most recent review periods and SALP review scores for Beaver Valley Unit 2, Perry Unit 1 and Davis-Besse are:
Beaver Valley Unit 2 Perry Unit 1 Davis-Besse SALP Review Period 6/14/92-11/27/93 2/1/93-1/7/95 7/1/93-1/21/95 Operations 1 2 1 Engineering 2 2 1 2 1 Maintenance 2 Plant Support 1 2 1 In 1980, Congress passed the Low-Level Radioactive Waste Policy Act which '
requires that the disposal site for low-level radioactive vaste vill be within the boundaries of the state where such vaste was generated. The Act encourages states to form compacts among themselves to develop regional disposal facilities. Failure by a state or compact to begin implementation of a program could result in access denial to the two facilities currently accepting low-level radioactive vaste. Ohio is part of the Midwest Compact i and has responsibility for siting and constructing a disposal facility, but, to date, has made little progress. Therefore, effective July 1994, the ,
Operating Companies are no longer able to ship low-level radioactive vaste produced at their nuclear plants to offsite disposal facilities. The f Operating Companies' ability to ship offsite in the future depends on whether the State of Ohio develops a low-level radioactive vaste disposal facility within the next several years. As an interim solution, the Operating Companies have constructed storage facilities to house the vaste at each nuclear site.
q Off-site disposal of spent nuclear fuel is unavailable, but the CAPCO Group !
, companies have contracts with the DOE vhich provide for the future acceptance ,
of spent fuel for disposal by the Federal government. Pursuant to the Nuclear :
.Vaste Policy Act of 1982, the Federal government has indicated it will begin .j accepting spent fuel from utilities by the year 2010. On-site str. rage ,
capacity at Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2 should be !
sufficient through 1996, 2013 and 2011, respectively. An additional'on-site l storage facility is being constructed at Davis-Besse to provide storage i capacity through 2017. Any additional storage capacity needed at Perry Unit 1 [
and Beaver Valley Unit 2 for the period until the government accepts the fuel j can, likewise, be.provided by constructing an additional on-site storage :
facility.
l See Note 4(b) for a discussion of the write-off of Perry Unit 2, and see
" Outlook--Nuclear Operations" in Management's Financial Analysis contained !'
under Item 7 of this Report for a discussion of potential risks facing Centerior and the Operating Companies as owners of nuclear generating units. l Competitive Conditions General. The Operating Companies compete in their respective service areas '
with suppliers of natural gas to satisfy customers' energy needs with regard to heating and appliance usage. The Operating Companies also are engaged in i competition to a lesser extent with suppliers of oil and liquefied natural gas i for heating purposes and with suppliers of cogeneration equipment. One .
competitor provides steam for heating purposes and provides chilled water for !
cooling purposes in certain areas of downtown Cleveland.
4 The Operating Companies also compete with municipally owned electric systems within their respective service areas. Several communities have evaluated municipalization of electric service and decided to continue service from the.
Operating Companies. Officials in other communities have indicated an interest in evaluating the municipalization issue. .
The Operating Companies face continuing competition from locations outside their service areas which are promoted by governmental and private agencies in attempts to influence potential and existing commercial and industrial cus-tomers to locate in their respective areas.
The Operating Companies also periodically compete with other producers of i electricity for sales to electric utilities which are in the market for bulk power purchases. The Operating Companies have interconnections with other electric utilities (see " Item 2. Properties--General") and have a transmission system capable of transmitting (" wheeling") power between the Midwest and the East.
Cleveland Electric. Located within Cleveland Electric's service area are two municipally owned electric systems. Cleveland Electric supplies a small portion of those systems' power needs at wholesale rates.
l l
One of those systems, CPP, is operated by th3 City of Clcveland in comp 2tition with Cleveland Electric. CPP is primarily an electric distribution system which currently supplies electric power in approximately 50% of the City's geographical area (expected to increase to 100% by the end of 1999) and to rpproximately 30% (about 66,000) of the electric consumers in the City--equal to about 9% of all customers served by Cleveland Electric. CPP's kilowatt-hour sales and revenues are equal to about 5% of Cleveland Electric's kilowatt-hour sales and revenues. Huch of the area served by CPP overlaps that of Cleveland Electric. For all classes of customers, Cleveland Electric's rates are higher than CPP's rates due largely to CPP's exemption from taxation, the lower-cost financing available to CPP, the continued cvailability to CPP of lover cost power through short-term power purchases and CPP's access to cheaper governmental power.
Cleveland Electric makes pover available to CPP on a wholesale basis, subject to FERC regulation. In 1994, Cleveland Electric directly and through AMP-Ohio provided about 1% of CPP's energy requirements. The balance of CPP's power is purchased from other sources and wheeled over Cleveland Electric's transmission system. In cases currently pending, the FERC has been asked to determine whether Cleveland Electric is obligated to provide an additional interconnection with CPP and to rule on Cleveland Electric's request for an increase in rates for power and services provided to CPP. Cleveland Electric believes that it is entitled to a higher level of compensation for the power and the services it provides because the rates currently paid by CPP do not tdequately cover the cost of providing such power and services.
CPP is constructing new transmission and distribution facilities extending into eastern portions of Cleveland and plans to expand to vestern portions of Cleveland, both of which now are served exclusively by Cleveland Electric.
CPP's expansion has resulted in a reduction in Cleveland Electric's annual net income by about $4,000,000 in 1993 and an additional $3,000,000 in 1994.
Cleveland Electric estimates that its net income vill continue to be reduced by an additional $4,000,000-$5,000,000 each year in the 1995-1999 period because of CPP's expansion. Despite CPP's expansion efforts, Cleveland Electric has been successful in retaining most of the large industrial and
- commercial customers in the expansion areas by providing economic incentives in exchange for sole-supplier contracts. Cleveland Electric has similar contracts with customers in other parts of its service area. Approximately 90% of C.1.eveland Electric's industrial revenues under contract vill not be up for renewal until 1997 or later. As these contracts expire. Cleveland Electric expects to renegotiate them and retain the customers. In addition, :
an increasing number of CPP customers are converting back to Cleveland Electric service. However, competition for such customers vill continue. In March 1995, one of Cleveland Electric's large commercial customers, comorising medical and educational institutions, indicated that it intends to transfer to l
CPP service when its contract with Cleveland Electric terminates in 1996. The loss of this customer to CPP vould reduce Centerior's and Cleveland Electric's net income by about $5,000,000 based on 1994 sales levels.
In March 1994, the City Council of Garfield Heights, a suburb of Cleveland, passed an ordinance calling for a 30% reduction in rates for Cleveland l
j ;
7 Electric's customers in.that city. Cleveland Electric appealed that ordinance. !
to the PUCO. On January 23, 1995, the staff of the PUC0 issued its report on the matter concluding that a rate reduction for Garfield Heights is not ,
warranted. ~The PUC0 vill hold public hearings in March 1995 prior _to ruling- '
on the matter. The potential impact of the rate reduction on Cleveland '
Electric's annual revenues is $5,500,000. !
- Currently, one commercial customer and one industrial customer of Cleveland !
Electric have cogeneration installations. ,
i I.
Toledo Edison. Located wholly or partly within Toledo Edison's service area are six rural electric cooperatives, five of which are supplied with power, !
transmitted in some cases over Toledo Edison's facilities, by Buckeye Power, Inc. (an affiliate of a number of Ohio rural electric cooperatives) and the sixth is supplied by Toledo Edison. ,
i s
Also located within Toledo Edison's service area are 16 municipally owned
~
electric distribution systems, three of which are supplied by other electric systems.. Toledo Edison provides a portion of the power purchased by the other 13 municipalities at wholesale rates through a contract with AMP-Ohio that ;
expires in 2009. Rates under this agreement are permitted to increase !
annually to compensate for increased costs of operation. Less than 2% of Toledo Edison's total electric operating revenues in 1994 were derived from sales under the AMP-Ohio contract. {
In October 1989, the City of Toledo established an Electric Franchise Review Committee to (i) study Toledo Edison's franchise agreement with the City to determine whether alternate energy sources may be utilized and (ii) investigate the feasibility of establishing a municipal electric system within the City of Toledo. In November 1993, the City approved a non-exclusive franchise with Toledo Edison which runs through the end of 1998. Although the Electric Franchise Review Committee is not currently actively investigating the formation of a municipal system, the City could renew such efforts at any .
i time.
On January 3, 1995, the City of Clyde, which operates its own municipal :
electric system, passed ordinances to force Toledo Edison to remove most
)
equipment from within the City's borders and to prevent any residential and !
commercial customers within the City from obtaining service from Toledo l Edison. The City subsequently asked the PUC0 to authorize the removal of !
Toledo Edison equipment under the Miller Act. The Miller Act is an Ohio #
statute which provides that a municipality cannot force a utility to vacate a ;
city without demonstrating that such action is in the public interest and ;
- obtaining the approval of the PUCO. Toledo Edison has challenged the City of Clyde's Hiller Act proceeding before the PUC0 and has filed an action in the Court of Appeals in Sandusky County, Ohio to challenge the City's ordinance !
prohibiting customers from using Toledo Edison service. Toledo Edison !
currently serves approximately 400 customers within the City of Clyde. ;
No commercial customer of Toledo Edison now operates a cogeneration unit. !
I t
~ .. . . - -
1 Fuel Supply 1
-Generation by type of fuel for 1994 was 67% coal-fired and 33% nuclear for Cleveland Electric; 49% coal-fired and 51% nuclear for Toledo Edison; and 61%
coal-fired and 39% nuclear for the Centerior System. j Coal. In 1994, Cleveland Electric and Toledo Edison burned 5,304,000 tons and 1,990,000 tons of coal, respectively, for electric generation. Each utility normally maintains a reserve supply of coal sufficient for about 30 days of normal operations. On February 1, 1995, this reserve was about 24 days for plants operated by Cleveland Electric, 31 days for the plant operated by l Toledo Edison and 50 days for the Hansfield Plant, which is operated by l Pennsylvania Power.
i In 1994, about 49% of Cleveland Electric's coal requirements were purchased j under long-term contracts, with the longest remaining term being almost nine years. In most cases, these contracts provide for adjusting the price of the coal on the basis of changes in coal quality and mining costs. The sulfur j content of the coal purchased under these contracts ranges from less than 1%
to about 4%. The balance of Cleveland Electric's coal was purchased on the j
spot market with sulfur content ranging from less than 1% to 3.5%. !
In 1994, about 61% of Toledo Edison's coal requirements were purchased under i long-term contracts, with the longest remaining term being almost six-years. .
In most cases, these contracts provide for adjusting the price of the coal on !
the basis of changes in coal quality and mining costs. The sulfur content of :
the coal purchased under these contracts ranges from less than 1% to 4%.
One of Cleveland Electric's long-term coal supply contracts is with Ohio Valley. Cleveland Electric has agreed to pay Ohio Valley certain amounts to ;
cover Ohio Valley's costs regardless of the amount of coal actually delivered. .
Included in those costs are amounts sufficient to service certain long-term l debt and lease obligations incurred by Ohio Valley. If the coal sales agree- :
ment is terminated for any reason, Cleveland Electric must assume certain of Ohio Valley's debt and lease obligations and may incur other expenses including mine closing costs, if necessary. At December 31, 1994, the l principal amount of debt and te nination values of leased property covered by Cleveland Electric's agreement was $21,309,000, while the unfunded costs of closing this mine, as estimated by Ohio Valley, were $54,000,000. The coal ,
supply agreement with Ohio Valley is scheduled to continue until September 1997. Cleveland Electric expects that Ohio Valley revenues from sales of coal vill continue to be sufficient for Ohio Valley to meet its debt and lease obligations and mine closing costs over the life of the contract. i The CAPCO Group companies, including the Operating Companies, have a long-term ;
contract with Quarto and Consol for the supply of about 75%-85% of the annual coal needs of the Hansfield Plant. The contract is scheduled to run through at least the end of 1999, and the price of coal is adjustable to reflect i changes in labor, materials, transportation and other costs. The CAPCO Group ;
companies have guaranteed, severally and not jointly, the debt and lease obligations incurred by Quarto to develop, equip and operate two of the mines ]
which supply the Mansfield Plant. At December 31, 1994, the total dollar l
)
l 1
- ~_ __,
amount of Quarto's debt and lease obligations guaranteed by Cleveland Electric was $28,698,000 and by Toledo Edison was $16,772,000. Centerior, Cleveland Electric and Toledo Edison expect that Quarto revenues from sales of coal to the CAPC0 Group companies vill continue to be sufficient for Quarto to meet its debt and lease obligations.
The Operating Companies' least cost plan for complying with the Clean Air Act Amendments, which was included in the agreement approved by the PUC0 in February 1993 in connection with the Operating Companies' 1992 long-term forecast, calls for greater use of low-sulfur coal and less use of high-sulfur coal. Some of the low-sulfur coal required to comply with Phase 1 of the Clean Air Act Amendments was contracted for in 1992. Additional supplies of low-sulfur coal vill be purchased in 1997.
Nuclear. The acquisition and utilization of nuclear fuel involves six dis-tinct steps: (i) supply of uranium oxide raw material, (ii) conversion to uranium hexafluoride, (iii) enrichment, (iv) fabrication into fuel assemblies, (v) utilization as fuel in a nuclear reactor and (vi) storing or disposing of spent fuel. The Operating Companies have inventories of raw material sufficient to provide nuclear fuel through 1996 for the operation of their nuclear generating units and have contracts for fabrication services for all of that fuel. The CAPC0 Group companies have a 30-year contract with the USEC which vill supply all of the needed enrichment services for their nuclear units' fuel supply through 1995. Beyond 1995, the amount of enrichment services under the USEC contract varies by CAPCO Group company, with Cleveland Electric's and Toledo Edison's enrichment services reduced to 70% in 1996-1999 and reduced to 0% in 2000 and beyond. The additional required enrichment services are available. Substantial additional fuel vill have to be obtained in the future over the remaining useful lives of the units. There is a plentiful supply of uranium oxide raw material to meet the industry's nuclear fuel needs.
Oil. The Operating Companies each have adequate supplies of oil and fuel for .
their oil-fired electric generating units which are used primarily as reserve and peaking capacity. '
l l
l l
l I
l EXECUTIVE OFFICERS OF THE REGISTRANTS AND THE SERVICE COEFANY-Set forth below are the names, ages as of March 15, 1995, and business experience during the past'five years (effective dates of positions in parentheses) of the executive officers of Centerior Energy, the Service Company, Cleveland Electric and Toledo Edison. Positions currently held are designated with an asterisk (*).
Business Experience Centerior Energy Service Company Cleveland Electric- Toledo Edison Name (Age)
Robert J. Farling
- Chairman of the
- Chairman of the
- Chairman of the
- Chairman of the Board and Chief ' Board and Chief Board and Chief' Board and Chief (58) Executive Officer Executive Officer Executive Officer Executive (March 1992) Officer (March (February 1989 to (October.1988 to
- President 1992) April 1990; July April 1990; July (October 1988)
- President (July 1993) 1993) 1988)
- Executive Vice
- Executive Vice
- President *Vice Chairman Murray R. Edelman President President- (November 1393) (November 1993)
(55) President (July 1988)
' (July 1988) Operations &
G Engineering (July 1993)
Executive Vice President-Power Generation (April 1990) l
,, ,-m_w.4%,-, --,- . . . - . ,--..s -, a m*. ~ w me.-me -e.. v e e,,-r,, e- <we--e.,-e. .re, . w~,< _ =e - - - - - - - - - - - - - - - - - - - - - - - - - _a _
Business Experience Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison Fred J. Lange, Jr.
- Senior Vice
- Senior Vice *Vice President
- President (November (45) President President- (April 1990) 1993)
(July 1993) Fossil & Vice President (April Senior Vice Transmission 1990)
President-Legal, and Distribution Human & Corporate Operations Affairs (March (July 1993) 1992) Senior Vice Vice President- President-Legal, Legal & Corporate Human &
Affairs (April Corporate Affairs 1990) (March 1992)
Vice President-Legal & Corporate Affairs (April'
' 1990)
General Attorney and E$ Senior Director of i
Governmental Affairs (July 1989)
Donald C. Shelton
- Senior Vice Vice President-(61) President-Nuclear Nuclear (August and Vice President- 1986)
Nuclear-Perry (January 1995)
Senior Vice President-Nuclear (July 1993)
Vice President-Nuclear-Davis-Besse (April 1990)
_ - - - - - - - . _ - - - . _ . - _ - - - - - - - . _ _ _ . . . - _ _ _ - - _ _ - - _ . - - - - _ - . _ - - - - - . _ _ - - - - -, - - - - , - , , - . , , - r ---n . , , , , + , - . - - ,.r, , , me w
Business Experience Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison Jacquita K. Hauserman *Vice President- *Vice President (52) Customer Support (November 1993)
(July 1993) Vice President-Vice President- Administration Customer Service (October 1988)
& Community-Affairs (April 1990)
Gary R. Leidich *Vice President *Vice President- *Vice President & *Vice President &
(44) (July 1993) Finance & Chief Financial Chief Financial Administration Officer (July Officer (July (July 1993) 1993)' 1993)
Director-Human Resources Dept.
f (August 1991)
' Director-System M Planning Engineering Dept. (December 1987)
m
. Business Experience Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison Terrence G. Linnert *Vice President *Vice President- *Vice President '* Vice President (48) (July 1993) Legal & (July 1993) (July 1993)
Governmental Affairs and General Counsel (July 1993)
Vice President-Legal and General Counsel (March 1992)
General Counsel and Director-Legal Services Dept. (May 1990)
General Counsel f
(July 1989)
U David L. Monseau *Vice President- Vice President -
i (54) Transmission & Customer Distribution Operations Operations (September 1987)
(April 1990) i 2
a
____.,a --
.n. --,, , - - - _,nw.,wwe,--_, a ~ ,,,,,c.---,w-,w,. ,,c-,- ,,.. , - - -,-, n,, . - - - -,,,,..,ma,.r.~.+.,,,, ,, _ . - - ,e
s Businnss Expsrience Centerior Energy Service Company Cleveland Electric Toledo Edison.
, Name (Age)
I John P. Stetz *Vice President-(49) Nuclear-Davis-Besse (July 1994)
Northeast Utilities:
Vice President-Connecticut Yankee ;
Nuclear Power Station (October 1993)
Station Director-Connecticut Yankee Nuclear Power Station (September 1990)
Superintendent-Unit 1 Millstone Power Station (May 1985)
' Al R. Temple *Vice President-Sales & Marketing U (49) (February 1994)
VMX Technologies, Inc.:
Alliance Executive (July 1992)
Vice President /
General Manager, Midwest Region (April 1991)
Director of Marketing, Chemical Vaste Nanagement (June 1989)
._ _ __. _ mm ___ _ __.-____.-_-m.__ . m__, .m_-m_ .-m.m.m._ m. . _ _ _ -_
Business Experience Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison-E. Lyle Pepin
- Controller and
- Controller and.
- Controller and
- Controller-and (53) Assistant Assistant Assistant Assistant Secretary Secretary Secretary Secretary '
(November 1994) (November 1994) (November 1994) (November 1994)
Secretary Secretary Secretary Secretary (February 1986) (April 1986) (October 1988) (October 1988)
David H. Blank
- Treasurer
- Treasurer
- Treasurer
- Treasurer (46) (November 1994) (November 1994) (November 1994) (November 1994)
- Director of Strategic Planning (October 1993)
Director of Rates &
Corporate Planning (May 1990)
' Director of Rates Administration &
Z Economic Analysis
. (May 1986)
Janis T. Percio
- Secretary
- Secretary
- Secretary
- Secretary '
(42) (November 1994) (November 1994) (November 1994) (November 1994)
Assistant Assistant Assistant Assistant Secretary Secretary Secretary Secretary (April 1986)_ (April 1986) (October 1982) (April 1986)
~
h
_ _ _ _ _ _ .__ _ _ ,_ ~ . - , - . _ - ~ . - - -- - - - - - - - - - ~ '~~ - " ' ' - * ~ - ' - * " " " " " " ' ' * " - ' ' " ~ " ~ ~ ' ' ~ " ~~~" ^~
- ' ' ~ ~ ~
All of the executive officers of Centerior Energy, the Service Company, Cleveland Electric and Toledo Edison are elected annually for a one-year term by the Board of Directors of Centerior, the Service Company, Cleveland Electric or Toledo Edison, as the case may be.
No family relationship exists among any of the executive officers and direc-tors of any of the Centerior System companies.
Item 2. Properties GENERAL The Centerior System The wholly owned, jointly owned and leased electric generating facilities of the Operating Companies in commercial operation as of February 28, 1995 pro-vide the Centerior System with a net demonstrated capability of 5,980,000 kilowatts during the vinter. These facilities include 20 generating units (3,634,000 kilowatts) at seven fossil-fired steam electric generation sta-tions; three nuclear generating units (1,856,000 kilowatts); a 351,000 kilo-vatt share of the Seneca Plant; seven combustion turbine generating units (135,000 kilowatts) and one diesel generator (4,000 kilowatts). Two fossil-fired generating units (320,000 kilovatts) were placed on cold standby status in 1993. All of the Centerior System's generating facilities are located in Ohio and Pennsylvania.
The Centerior System's net 60-minute peak load of its service area for 1994 was 5,291,000 kilowatts and occurred on July 20. The net seasonal capability at the time of the 1994 peak load was 6,226,000 kilowatts. The Centerior System's 1995 native peak load is forecasted to be 5,180,000 kilowatts, after demand-side management considerations. The net seasonal capability expected to be available to serve the Centerior System's 1995 peak is 5,924,000 kilowatts. Over the 1995-1997 period, Centerior Energy forecasts its capacity margins at the time of the projected Centerior System peak loads to range from 11% to 13%, excluding the capacity on cold standby. .
Each Operating Company owns the electric transmission and distribution facili-ties located in its respective service area. Cleveland Electric and Toledo Edison are interconnected by 345 kV transmission facilities, some portions of which are owned and used by Ohio Edison. The Operating Companies have a long-term contract with the CAPCO Group companies, including Ohio Edison, relating to the use of these facilities. These interconnection facilities provide fcr the interchange of power between the two Operating Companies. The Centerior System is interconnected with Ohio Edison, Ohio Power, Penelec and Detroit Edison.
Cleveland Electric The wholly owned, jointly owned and leased electric generating facilities of Cleveland Electric in commercial operation as of February 28, 1995 provide a net demonstrated capability of 4,148,000 kilovatts during the vinter. These
facilities include 16 generating units (2,709,000 kilowatts) at five fossil-fired steam electric generation stations; its share of three nuclear generat-ing units (1,026,000 kilowatts); a 351,000 kilowatt share of the Seneca Plant; two combustion turbine generating units (58,000 kilowatts) and one diesel gen-erator (4,000 kilowatts). One fossil-fired generating unit (245,000 kilowatts) was placed on cold standby status in 1993. All of Cleveland Electric's generating facilities are located in Ohio and Pennsylvania.
The net 60-minute peak load of Cleveland Electric's service area for 1994 was 3,740,000 kilovatts and occurred on July 20. The net seasonal capability at the time of the 1994 peak was 4,497,000 kilowatts. Cleveland Electric's 1995 native peak load is forecasted to be 3,700,000 kilowatts, after demand-side
- management considerations. The net seasonal capability expected to be i available to serve Cleveland Electric's 1995 peak is 4,273,000 kilowatts.
Over the 1995-1997 period, Cleveland Electric forecasts its capacity margins at the time of its projected peak loads to range from 12% to 13%, excluding the capacity on cold standby.
Cleveland Electric owns the facilities located in the area it serves for transmitting and distributing power to all its customers. Cleveland Electric has interconnections with Ohio Edison, Ohio Power and Penelec. The intercon-nections with Ohio Edison provide for the interchange of electric power with the other CAPCO Group companies and for transmission of power from the tenant-in-common owned or leased CAPC0 Group generating units as well as for the interchange of power with Toledo Edison. The interconnection with Penelec provides for transmission of power from Cleveland Electric's share of the Seneca Plant. In addition, these interconnections provide the means for the interchange of electric power with other utilities.
Cleveland Electric has interconnections with each of the municipal systems operating within its service area.
Toledo Edison .
The wholly owned, jointly owned and leased electric generating facilities of '
Toledo Edison in commercial operation as of February 28, 1994 provide a net demonstrated capability of 1,832,000 kilowatts during the vinter. These facilities include six generating units (925,000 kilowatts) at three fossil-fired steam electric generation stations; its share of three nuclear generating units (830,000 kilowatts) and five combustion turbine generating units (77,000 kilowatts). One fossil-fired generating unit (75,000 kilowatts) was placed on cold standby status in 1993. All of Toledo Edison's generating facilities are located in Ohio and Pennsylvania.
The net 60-minute peak load of Toledo Edison's service area for 1994 was 1,620,000 kilowatts and occurred on June 16. The net seasonal capability at the time of the 1994 peak was 1,729,000 kilowatts. Toledo Edison's 1995 native peak load is forecasted to be 1,510,000 kilowatts, after demand-side management considerations. The net seasonal capability expected to be available to serve Toledo Edison's 1995 peak is 1,651,000 kilowatts. Over the 1995-1997 period, Toledo Edison forecasts its capacity margins at the time of i
its projected peak loads to range from 5% to 9%, excluding the capacity on cold standby.
Toledo Edison owns the facilities located in the area it serves for trans-citting and distributing power to all its customers. Toledo Edison has interconnections with Ohio Edison, Ohio Power and Detroit Edison. The in-terconnection with Ohio Edison provides for the interchange of electric power with the other CAPC0 Group companies and for transmission of power from the tenant-in-common ovned or leased CAPCO Group generating units as well as fer the interchange of power with Cleveland Electric. In addition, these inter-connections provide the means for the interchange of electric power with other utilities.
Toledo Edison has interconnections with each of the municipal systems operating within its service area.
l TITLE TO PROPERTY The generating plants and other principal facilities of the Operating Companies are located on land owned in fee by them, except as follows:
(1) Cleveland Electric and Toledo Edison lease from others for a term of about 29-1/2 years starting on October 1, 1987 undivided 6.5%, 45.9% and 44.38% tenant-in-common interests in Units 1, 2 and 3, respectively, of the Mansfield Plant located in Shippingport, Pennsylvania. Cleveland Electric and Toledo Edison lease from others for a term of about 29-1/2 years starting on October 1, 1987 an 18.26% undivided tenant-in-common interest in Beaver Valley Unit 2 located in Shippingport, Pennsylvania.
Cleveland Electric and Toledo Edison own another 24.47% interest and 1.65% interest, respectively, in Beaver Valley Unit 2 as a tenant-in-common. Cleveland Electric and Toledo Edison continue to own as a tenant-in-common the land upon which the Hansfield Plant and Beaver Valley Unit 2 are located, but have leased to others certain portions of that land relating to the above-mentioned generating unit leases.
(2) Most of the situated onfacilities artificially of Cleveland filled land, Electric's extendingLake beyond Shore thePlant areshore-natural line of Lake Erie as it existed in 1910. As of December 31, 1994, the cost of Cleveland Electric's facilities, other than water intake and discharge facilities, located on such artificially filled land aggregated approximately $107,221,000. Title to land under the water of Lake Erie within the territorial limits of Ohio (including artificially filled land) is in the State of Ohio in trust for the people of the State for the public uses to which it may be adapted, subject to the powers of the United States, the public rights of navigation, water commerce and fishery and the rights of upland ovners to wharf out or fill to make use of the water. The State is required by statute, after appropriate pro-ceedings, to grant a lease to an upland owner, such as Cleveland Elec-tric, which erected and maintained facilities on such filled land prior to October 13, 1955. Cleveland Electric does not have such a lease from the State with respect to the artificially filled land on which its Lake f
l t
f Shore Plant facilities are located, but Cleveland Electric's position, on ;
advice of counsel for Cleveland Electric, is that its facilities and occupancy may not be disturbed because they do not interfere with the !
free flow of commerce in navigable channels and constitute (at least in part) and are on land filled pursuant to the exercise by it of its ;
property rights as ovner of the land above the shoreline adjacent to the 4 filled land. Cleveland Electric holds permits, under Federal statutes ;
relating to navigation, to occupy such artificially filled land. i (3) The facilities of Cleveland Electric's Seneca Plant in Varren County, Pennsylvania, are located on land owned by the United States and occupied by Cleveland Electric and Penelec pursuant to a license issued by the FERC for a 50-year period starting December 1, 1965 for the construction, !
operation and maintenance of a pumped-storage hydroelectric plant. '
(4) The water intake and discharge facilities at the electric generating plants of Cleveland Electric and Toledo Edison located along Lake Erie, the Haumee River and the Ohio River are extended into the lake and rivers under their property rights as owners of the land above the water line and pursuant to permits under Federal statutes relating to navigation.
(5) The transmission systems of the Operating Companies are located on land, !
easements or rights-of-way owned by them. Their distribution systems also are located, in part, on interests in land owned by them, but, for the most part, their distribution systems are located on lands owned by others and on streets and highways. In most cases, permission has been obtained from the apparent owner of the property or, if the distribution system is located on streets and highways, from the apparent owner of the abutting property. Their electric underground transmission and distri-bution systems are located, for the most part, in public streets. The Pennsylvania portions of the main transmission lines from the Seneca Plant, the Hansfield Plant and Beaver Valley Unit 2 are not owned by ,
Cleveland Electric or Toledo Edison. *
{
All Cleveland Electric and Toledo Edison properties, with certain exceptions, )
are subject to the lien of their respective mortgages. !
1 The fee titles which Cleveland Electric and Toledo Edison acquire as tenant- '
in-common owners, and the leasehold interests they have as joint lessees, of certain generating units do not include the right to require a partition or sale for division of proceeds of the units without the concurrence of all the I other owners and their respective mortgage trustees and the trustees under Cleveland Electric's and Toledo Edison's mortgages.
Item 3. Legal Proceedings Proceedings Regarding an Attempt by the City of Clyde, Ohio to Remove Toledo Edison. See " Item 1. Business--Operations--Competitive Conditions--Toledo Edison".
Proceedings before the PUC0 Regarding Actions by the City of Garfield Heights, i Ohio to Reduce Cleveland Electric's Rates within the City. See " Item 1. i Business--Operations--Competitive Conditions--Cleveland Electric".
= _ . .- __ _ ._ __ _
l Proceedings before'the FERC Regarding the Proposed Mergar of tha Opsreting i Companies. See." Item 1. Business--Merger of the Operating Companies".
3 Proceedings before the PUC0 Regarding the Requests for Rate Increases to be Filed by the Operating Companies. See " Item 1. Business--Electric Rates--
1995 Rate Requests".
Vestinghouse Lawsuit. In April 1991, the CAPC0 Group companies filed a lawsuit against Westinghouse in the United States District Court for the -
Vestern District of Pennsylvania. The suit alleges that six steam generators supplied by Vestinghouse for Beaver Valley Power Station Units 1 and 2 contain serious defects, particularly defects causing tube corrosion and cracking. ;
Steam generator maintenance costs have increased due to these defects and vill i likely continue to increase. The condition of the steam generators is being l monitored closely. If the corrosion and cracking continue, replacement of the i
steam generators could be required earlier than their 40-year design life. l' The suit seeks monetary and corrective relief. On September 12, 1994, a jury. ;
trial began. On October 24, 1994, the court dismissed four of the five claims against Westinghouse, leaving only a fraud claim. On December 6, 1994, the jury rendered a verdict in favor of Westinghouse on the fraud claim. The l CAPCO Group companies have appealed the decision to the United States Court of '
Appeals for the Third Circuit. The Operating Companies believe that the '
outcome of this lawsuit vill not have a materially adverse effect on their financial positions or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders ,
CENTERIOR ENERGY, CLEVE1AND ELECTRIC AND IT)LEDO EDISON ,
None.
l PART II i Item 5. Market for Registrants' Common Equity and Related Stockholder Matters .
l The information regarding common stock prices and number of share owners .
[
required by this Item is not applicable to Cleveland Electric or Toledo Edison l because all of their common stock is held solely by Centerior Energy.
Market Information l
Centerior Energy's common stock is traded on the New York, Chicago and Pacific Stock Exchanges. The quarterly high and low prices of Centerior common stock ;
(as reported on the composite tape) in 1993 and 1994 vere as follows:
1993 1994 Lov HM Lov HM ist Quarter $20 $18-5/8 $13-3/8 $10-5/8 2nd Quarter 19-7/8 17-3/8 11-3/4 9-7/8 3rd Quarter 18-7/8 17-3/8 10-5/8 8-7/8 ;
4th Quarter 17-7/8 12 9-1/2 8 i
l Share owners As of March 6, 1995, Centerior Energy had 147,358 common stock share owners of record.
Dividends See Note 14 to Centerior's Financial Statements for quarterly dividend pay- ,
ments in the last two years. Future dividend action by Centerior's Board of l Directors vill continue to be decided on a quarter-to-quarter basis after the l evaluation of financial results, potential earning capacity and cash flow.
l I
At December 31, 1994, Centerior Energy had a retained earnings deficit of $438 million and capital surplus of $1.963 billion, resulting in an overall surplus of $1.525 billion that was available to pay dividends under Ohio law. Any current period earnings in 1995 vill increase surplus under Ohio law. See Note 11(b) for discussions of dividend restrictions affecting Cleveland Electric and Toledo Edison.
Dividends paid in 1994 on each of the Operating Companies' outstanding series of preferred stock vere fully taxable.
I Item 6. Selected Financial Data CENTERIOR ENERGY The information required by this Item is contained on Pages F-25 and F-26 attached hereto.
CLEVELAND ELECTRIC The information required by this Item is contained on Pages F-49 and F-50 attached hereto. .
TOLEDO EDISON The information required by this Item is contained on Pages F-73 and F-74 attached hereto.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations CENTERIOR ENERGY The information required by this Item is contained on Pages F-3 through F-7 attached hereto.
CLEVELAND ELECTRIC The information required by this Item is contained on Pages F-28 through F-32 attached hereto.
1T)LEDO EDISON l
The information required by this Item is contained on Pages F-52 through F-56 cttached hereto.
Item 8. Financial Statements and Supplementary Data CENTERIOR ENERGY j
The information required by this Item is contained on Pages F-2 and F-8 through F-24 attached hereto.
CLEVELAND ELECTRIC The information required by this Item is contained on Pages F-27 and F-33 through F-48 attached hereto.
TOLEDO EDISON The information required by this Item is contained on Pages F-51 and F-57 through F-72 attached hereto.
)
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON None.
l PART III Item 10. Directors and Executive Officers of the Registrants CENTERIOR ENERGY The information required by this Item for Centerior regarding directors is incorporated herein by reference to Pages 4 through 8 and Page 23 of f Centerior's definitive proxy statement dated March 14, 1995. Reference is l also made to " Executive Officers of the Registrants and the Service Company" in Part I of this Report for information regarding the executive officers of Centerior Energy.
CLEVELAND ELECTRIC Set forth below are the name and other directorships held, if any, of each director of Cleveland Electric. The year in which the director was first elected to Cleveland Electric's Board of Directors is set forth in paren-thesis. Reference is made to " Executive Officers of the Registrants and the Service Company" in Part I of this Report for information regarding the f directors and executive officers of Cleveland Electric. The directors F
received no remuneration in their capacity as directors. J f
l 1
(
Robert J. Farling*
Mr. Farling is a director of National City Bank. (1986)
Hurray R. Edelman Mr. Edelman is a director of Society Bank & Trust and Society National Bank.
(1993)
Fred J. Lange, Jr.
(1993)
- Also a director of Centerior Energy and the Service Company.
TOLEDO EDISON Set forth below are the name and other directorships held, if any, of each director of Toledo Edison. The year in which the director was first elected to Toledo Edison's Board of Directors is set forth in parenthesis. Reference is made to " Executive Officers of the Registrants and the Service Company" in Part I of this Report for information regarding the directors and the executive officers of Toledo Edison. The directors received no remuneration !
in their capacity as directors.
Robert J. Farling*
Mr. Farling is a director of National City Bank. (1988)
Murray R. Edelman Mr. Edelman is a director of Society Bank & Trust and Society National Bank.
(1993)
Fred J. Lange, Jr.
(1993) t
- Also a director of Centerior Energy and the Service Company.
Item 11. Executive Compensation CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON ;
l The information required by this Item for Centerior is incorporated herein by I reference to the information concerning compensation of directors on Page 9 I and the information concerning compensation of executive officers, stock I option transactions, long-term incentive awards and pension benefits on Pages 29 through 32 of Centerior's definitive proxy statement dated March 14, 1995. The named executive officers for Centerior are included for Cleveland Electric and Toledo Edison regardless of whether they were officers of Cleveland Electric or Toledo Edison because they were key policymakers for the Centerior System in 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management CENTERIOR ENERGY The following table sets forth the beneficial ownership of Centerior common stock by individual directors of Centerior, the named executive officers and all directors and executive officers of Centerior Energy and the Service Company as a group as of February 28, 1995:
Number of Common l Name of Beneficial Ovner Shares Owned (1) f 2,071 l Richard P. Anderson l 1,509 l Albert C. Bersticker 2,766 l
Leigh Carter Thomas A. Commes 5,509 Villiam F. Conway 1,000 Vayne R. Embry 1,509 l Robert J. Farling 36,879 (2) l George H. Kaull 5,551 f; Richard A. Miller 12,536 Frank E. Mosier 2,230 Sister Mary Marthe Reinhard, SND 1,506 (3) ,
1,509 j Robert C. Savage Villiam J. Villiams 2,293 Murray R. Edelman 14,580 (2)
Donald C. Shelton 5,893 l Fred J. Lange, Jr. 5,606 l j
Al R. Temple 3,449 All directors and executive officers as a group 139,179 (2)
(1) Beneficially owned shares include any shares with respect to which voting or investment power is attributed to a director or executive officer because of joint or fiduciary ownership of the shares or relationship to ,
the record owner, such as a spouse, even though the director or executive officer does not consider himself or herself the beneficial owner. On February 28, 1995, all directors and executive officers of Centerior Energy and the Service Company as a group were considered to own bene-ficially 0.1% of Centerior's common stock and none of the preferred stock of Cleveland Electric and Toledo Edison except for one officer who owns 400 shares of Toledo Edison $2.81 Preferred Stock. Certain individuals disclaim beneficial ownership of some of those shares.
(2) Includes the following numbers of shares which are not owned but could have been purchased within 60 days after February 28, 1995 upon exercise of options to purchase shares of Centerior common stock: Mr. Farling -
3,330; Mr. Edelman - 5,550; and all directors and executive officers as a group - 11,655. None of those options have been exercised as of March 17, 1995.
(3) Ovned by the Sisters of Notre Dame.
,_ CLEVEIAND ELECTRIC
^ Individual directors of Cleveland Electric, the named executive officers and all directors and executive officers of Cleveland Electric as a group k- ' beneficially owned the following number'of shares of Centerior common stock as I of February 28, 1995:
Name of Beneficial Number of Common Owner Shares Owned (1)
Robert J. Farling 36,879 (2)
Murray R. Edelman 14,580 (2)
Donald C. Shelton 5,893 Fred J. Lange, Jr. 5,606 Al R. Temple 3,449 All directors and executive officers as a group 90,749 (2)
(1) Beneficially owned shares include any shares with respect co which voting or investment power is attributed to a director or executive officer because of joint or fiduciary ownership of the shares or relationship to the record owner, such as a spouse, even though the director or executive-officer does not consider himself or herself the beneficial owner. On February 28, 1995, all directors and executive officers of Cleveland Electric as a group were considered to own beneficially 0.06% of Centerior's common stock and none of Cleveland Electric's serial preferred stock. Certain individuals disclaim beneficial ownership of some of.those shares.
(2) Includes the following numbers of shares which are not owned but could have been purchased within 60 days after February 28, 1995 upon exercise of options to purchase shares of Centerior common stock: Mr. Farling -
3,330; Mr. Edelman - 5,550; and all directors and executive officers as a -
group - 9,990. None of those options have been exercised as of March 17, 1995. ,
TOLEDO EDISON Individual directors of Toledo Edison, the named executive officers and all directors and executive officers of Toledo Edison as a group beneficially owned the following number of shares of Centerior common stock as of February 28, 1995:
)
i
Name of Beneficial Number of Common Owner Shares Owned (1)
Robert J. Farling 36,879 (2)
Hurray R. Edelman 14,580 (2)
Donald C. Shelton 5,893 Fred J. Lange, Jr. 5,606 Al R. Temple 3,449 All directors and executive l officers as a group 80,398 (2) j 1
(1) Beneficially owned shares include any shares with respect to which voting )
or investment power is attributed to a director or executive officer 4
because of joint or fiduciary ownership of the shares or relationship to the record owner, such as a spouse, even though the director or executive officer does not consider himself or herself the beneficial owner. On February 28, 1995, all directors and executive officers of Toledo Edison ,
as a group were considered to own beneficially 0.05% of Centerior's common stock and none of Toledo Edison's cumulative preferred stock except for one officer who owns 400 shares of $2.81 Preferred Stock. Certain individuals disclaim beneficial ownership of some of those shares.
(2) Includes the following numbers of shares which are not owned but could have been purchased within 60 days after February 28, 1995 upon exercise of options to purchase shares of Centerior common stock: Mr. Farling -
3,330; Mr. Edelman - 5,550; and all other executive officers as a group -
9,990. None of those options have been exercised as of March 17, 1995.
Item 13. Certain Relationships and Related Transactions CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON t
None.
PART IV ,
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents Filed as a Part of the Report
- 1. Financial Statements:
Financial Statements for Centerior Energy, Cleveland Electric and Toledo Edison are listed in the Index to Selected Financial Data; Hanagement's Discussion and Analysis of Financial Condition and Re-sults of Operations; and Financial Statements. See Page F-1.
- 2. Financial Statement Schedules:
Financial Statement Schedules for Centerior Encrgy, Cleveland See Electric and Toledo Edison are listed in the Index to Schedules.
Page S-1.
3.
Combined Pro Forma Condensed Financial Statements (Unau Cleveland Electric and Toltdo Edison related to th merger. See Pages P-1 to P-4. [
- 4. Exhibits: i Exhibits for Centerior Energy, Cleveland Electric and Toledo Edison are listed in the Exhibit Index. See Page E-1.
(b) Reports on Form 8-K During the quarter ended December 31, 1994, Centerior Energy, Cleveland Electric and Toledo Edison did not file any Current Reports on Form 8-K .
i r
i i
s i
i 1
SIQiA'NRES Pursuant to the requirers/ts of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its i behalf by the undersigned, thereunto duly authorized. {
CENTERIOR ENERGY CORPORATION l
Registrant March 21, 1995 By J. T. PERCIO ,
J. T. Percio, Secretary ,
Pursuant to the requirements of the Securities Exchange Act of 1934, this re- ;
port has been signed below by the following persons on behalf of the regi-strant and in the capacities and on the date indicated:
Signature Title Date ;
Principal Executive Officer: )
- ROBERT J. FARLING Chairman of the Board, )
l President and Chief )
Executive Officer )
Principal Financial Officer: )
- GARY R. LEIDICH Vice President and )
- Chief Financial )
Officer )
Principal Accounting Officer: ,
- E. LYLE PEPIN Controller )
Directors: )
- RICHARD P. ANDERSON Director )
- ALBERT C. BERSTICKER Director )
- LEIGH CARTER Director ) F
- THOMAS A. COMMES Director ) March 21, 1995
- VILLIAM F. CONVAY Director )
- VAYNE R. EMBRY Director )
- ROBERT J. FARLING Director ) t
- GEORGE H. KAULL Director ) ,
- RICHARD A. MILLER Director ) t
- FRANK E. MOSIER Director )
- SR. MARY MARTHE REINHARD, SND Director )
- ROBERT C. SAVAGE Director )
- VILLIAM J. VILLIAMS Director )
- By J. T. PERCIO J. T. Percio, Attorney-in-Fact
+
i
-nv- - . - -
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
l f- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY l Registrant I
[' March 21, 1995 By J. T. PERCIO l J. T. Percio, Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this re-port has been signed below by the following persons on behalf of the regi-strant and in the capacities and on the date indicated:
Signature Title Date I l'
Principal Executive Officer: )
- ROBERT J. FARLING Chairman of the Board )
and Chief Executive )
Officer )
Principal Financial Officer: )
- GARY R. LEIDICH Vice President and )
Chief Financial ) March 21, 1995 Officer )
Principal Accounting Officer: )
- E. LYLE PEPIN Controller ) .
Directors: )
- ROBERT J. FARLING Director )
- MURRAY R. EDELMAN Director )
- FRED J. LANGE, JR. Director )
- By J. T. PERCIO J. T. Percio, Attorney-in-Fact
SIGNA'lVRES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
- Act of 1934, the registrant has duly caused this report to be signed on its i behalf by the undersigned, thereunto duly authorized.
l THE TOLEDO EDISON COMPANY Registrant l
March 21, 1995 By J. T. PERCIO J. T. Percio, Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this re-
- port has been signed below by the following persons on behalf of the regi-I strant and in the capacities and on the date indicated
l- Signature Title Date F
l Principal Executive Officer: )
- ROBERT J. FARLING Chairman of the Board )
and Chief Executive )
Officer )
i Principal Financial Officer: ) ]
- GARY R. LEIDICH Vice President and )
Chief Financial ) i Officer )
Principal Accounting Officer: ) March 21, 1995
- E. LYLE PEPIN Controller )
Directors: ) ,
- ROBERT J. FARLING Director )
- HURRAY R. EDELMAN Director )
- FRED J. LANGE, JR. Director )
- By J. T. PERCIO J. T. Percio, Attorney-in-Fact
INDEI TO SELECTED FINANCIAL DATA; NANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS; AND FINANCIAL STATEMENTS PaEe Centerior Energy Corporation and Subsidiaries:
Report of Independent Public Accountants . . . . . . . . . . . . . F-2 Hanagement's Financial Analysis . . . . . . . . . ........ F-3 Income Statement for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . ...... ........ F-8 ,
i Retained Earnings for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . ........... .... F-8 Balance Sheet as of December 31, 1994 and 1993 . . . . . . . . . . F-10 Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 . F-12 Statement of Preferred Stock at December 31, 1994 and 1993 . . . . F-13 .
Notes to the Firancial Statements . .... ... .... .... F-14 -
Financial and Statistical Reviev . . . . . . . . . . . . . . . . . F-25 The Cleveland Electric Illuminating Company and Subsidiaries:
Report of Independent Public Accountants . . . . . . . . . . . . . F-27 Hanagement's Financial Analysis . . .... .. . ........ F-28 Income Statement for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33 Retained Earnings for the Years Ended December 31, 1994, 1993 -
and 1992 . . . . . . . . . . . . . . .. . ......... ... F-33 Balance Sheet as of December 31, 1994 and 1993 . . . . . . . . . . F-34 Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 . F-36 Statement of Preferred Stock at December 31, 1994 and 1993 . . . . F-37 Notes to the Financial Statements . .. .. ... ........ F-38 Financial and Statistical Reviev . . . .. . ... .... .... F-49 -
The Toledo Edison Company:
Report of Independent Public Accountants . . . . . . . . . . . . . F-51 Hanagement's Financial Analysis . . . .. . ... ........ F-52 Income Statement for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-57 Retained Earnings for the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-57 i Balance Sheet as of December 31, 1994 and 1993 . . . . . . . . . . F-58 Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 . F-60 Statement of Preferred Stock at December 31, 1994 and 1993 . . . . F-61 Notes to the Financial Statements . ... . .. . ........ F-62 Financial and Statistical Reviev . . . . . ... . ........ F-73 I
i F-1
L in out opinion, the financial statements referred to above Report of Independent .
present fairly, .in all material respects, the financial posi-Publ,c i Accountants tion of Centerior Energy Corporation and subsidiaries as To the Share Owners and of December 31,1994 and 1993, and the results of their Bo:,rd of Directors of operations and their cash flows for each of the three Centerior Energy Corporation: years in the period ended December 31,1994, in con-f rmity with generally accepted accounting principles.
We have audited the accompanying consolidated balance sheet and consolidated statement of preferred stock of As discussed further in Note 9, a change was made in the Centerior Energy Corporation (an Ohio corporation) and method of accounting for postretirement benefits other subsidiaries as of December 31,1994 and 1993, and the than pensions in 1993.
related consolidated statements of income, retained earn-Our audits were made for the purpose of forming an ings and cash flows for each of the three years in the period ended December 31,1994. These financial state- Pi nion on the basic financial statements taken as a whole.The schedule of Centerior Energy Corporation and ments and the schedule referred to below are the re-subsidiaries listed in the Index to Schedules is presented sponsibility of the Company's management. Our f r purp ses of complying with the Securities and Ex-responsibility is to express an opinion on these financial change Commission's rules and is not part of the basic statements and the schedule based on our audits.
financial statements. This schedule has been subjected to We conducted our audits in accordance with generally the auditing procedures applied in the audits of the basic accepted auditing standards. Those standards require that financial statements and, in our opinion, fairly states in we plan and perform the audit to obtain reasonable all material respects the financial data required to be set assurance about whether the financial statements are free forth therein in relation to the basic financial statements of material misstatement. An audit includes examining- taken as a whole.
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as Arthur Andersen LLP evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for Cleveland, Ohio our opinion. February 17,1995 B
(Centerior Energy) F-2 (Centerior Energy)
common stock shoukt imprme. Further imprmement m Management's Financial Analysis several key financial measures should lead to a higher !
'"'"' ' ' '""" " "d*' " """" ""' P "'
Outlook gress in these areas was m made . "1994. Strong cash Str:tegic Plan continued in 1994 and fixed-income obligations were reduced by $136 million. Also, total operation and main-We made significant strides in achieving the objectives of tenance expenses declined $88 million, exclusive of one-our comprehensive strategic action plan announced in time charges in 1993.
January 1994. The strategic plan was created to We are taking aggressive steps to increase revenues strengthen our financial and competitive position through through our enhanced marketing plan and to control the year 2001. Its objectives are to maximize share e sts. The full impact of these efTorts will take time. In owner return, achieve profitable revenue growth, become the meantime, to increase share owner value, we must an industry leader in customer satisfaction, build a raise revenues by restructuring rates. Accordingly, we are winning employee team and attain increasingly competi-preparing to file a request with The Public Utilities tive power supply costs. To achieve these objectives, we Commission of Ohio (PUCO) for our two utility subsidi-will continue to control expenditures and reduce our aries, The Cleveland Electric illuminating Company outstanding debt and preferred stock. In addition, we (Cleveland Electric) and The Toledo Edison Company will increase revenues by finding new uses for existing (Toledo Edison) (collectively, the Operating Compa-assets and resources, implementing new marketing pro-nies) to be efTective in 1996. Meaningful cost control and grams and restructuring rates when appropriate. We will marketing strategies will mitigate the need for additional also improve the operating performance of our generat-rate increases and help us meet competition.
ing plants and take other appropriate actions.
During 1994, we made progress toward most of our long- Competition term objectives. We initiated a marketing plan designed .
e are nupkmenu.ng strategies designed tc create and to increase our retail revenues (exclusive of fuel cost ,.
enhance our competitive advantages and to overcorr.e the recovery revenues and weather influences) by 2-3% annu-competinve disadvantages that we face due to replatory ally through 2001. Our new customer service activities and tax constraints and our high retail cost stru:ture.
are intended to raise our customer satisfaction rating.
Our employees achieved enough of their established Currently our most pressing competition comes from objectives for the year to receive a $500 per eligible municipal electric systems in our service area. Our rates employee incentive compensation awcrd. The work un- are generally higher than those of municipal systems due dertaken during refueling outages at the Davis-Besse largely to their exemption from taxation, the lower cost Nuclear Power Station (Davis-Besse) and Perry Nuclear financing available to them, the continued availability to Power Plant Unit I (Perry Unit 1) as well as the outage them of lower cost power through short-term power work at our fossil-fueled plants should help us achieve purchases and their access to cheaper governmental our long-term objective of reducing variable power costs power. We are seeking to address the tax disparity '
to a more competitive level. Another long-term objective through the legislative process. In 1994, the Ohio Gover-to be achieved over the planning period is to provide nor's Tax Commission recommended the replacement of share owners a total annual return greater than the the gross receipts and personal property taxes currently Standard & Poor's Corporation (S&P) 500 Index. While levied only on investor-owned utilities and collected there was a slight gain in the S&P 500 Index in 1994, through rates with a difTerent tax collected from custom-electric utility stocks in general, and Centerior Energy ers of all electric utilities, including municipal systems.
Corporation (Centerior Energy) common stock in partic- Investor-owned utilities would reduce rates upon repeal ular, declined sharply. The climb in interest rates and of the existing taxes. We are now working to submit this increased investor concern about the competitiveness of proposal to the Ohio legislature.
the electric utility industry caused t!'c Dow Jones Utility Average to drop 21% in 1994. The total return on our e an e reat Gat munWahs in our seMee area c uld establish new systems and continue expanding common stock in 1994, including dividends, was -27%.
existing systems. W e are respondmg with aggressive mar-Investors placed a lower valuation on our stock principally keting programs and by emphasizmg the value of our because of our high retail cost structure relative to service and the risks of a municipal system: substantial, certain neighboring utilities and raunicipal electric long-term debt; no guarantee of low-cost wholesale elec-tricity; the difficulty of forecasting costs; and the uncer-As discussed below, we are taking steps to improve our tainty of market share as a result of our aggressive competitiveness. As these efforts urfold and if interest competition. Generally, these municipalities have deter-rates decline and investor concerns about the electric mined that developing a system is not feasible or have utility industry diminish, the total annual return for our agreed with us not to pursue development of a system at (Centerior Energy) F-3 (Centerior Energy)
this time. Although some communities continue to be tory accounting measures. See Regulatory Accounting interested in municipalization, we believe that we ofter below and Note 7. We decided that, once the deferral of -
the best value and most reliable source of electric service expenses and acceleration of benefits under the Rate in our territory. Stabilization Program are completed in 1995, we should n I nger plan t use these measures to the extent we The largest municipal system in our service area, Cleve-
- *E*
land Public Power (CPP), is constructing new transmis-sion and distribution facilities extending into eastern portions of Cleveland. CPP also plans to expand to R@@ hW western portions of Cleveland. CPP's expansion reduced As described in Notes 1(a) and 7, the Operating Compa-our annual net income by about $4 milhon in 1993 and nies comply with the provisions of Statement of Finan-an additional $3 milhon m 1994. We estimate our net cial Accounting Standards (SFAS) 71. We continually income will continue to be reduced by an additmnal $4 monitor changes in market and regulatory conditions and milhon to $5 milhon each year in the 1995-1999 period consider the effects of such changes in assessing the because of CPP's expansion. Despite CPP's expansion continuing applicability of SFAS 71. Criteria that could efTorts, we have been successful in retammg most of the give rise to discontinuation of the application of SFAS 71 large industrial and commercial customers m the expan-include: (1) increasing competition which significantly sion areas by providing economic incentges m exchange restricts the Operating Companies' ability to establish for sole-suppher contracts. We have similar contracts rates to recover operating costs, return requirements and with customers m other parts of our service area. More the amortization of regulatory assets and (2) a signifi-than 80% of our mdustrial revenues under contract will cant change in the manner in which rates are set by the not be up for renewal until 1997 or later. As these PUCO from cost-based regulations to some other form of contracts expire, we expect to renegotiate them and retain regulations. In the event we determine that the Operat-the customers. In addition, an increasing number of CPP ing Companies no longer meet the criteria for following customers are converting back to our service.
SFAS 71, we would be required to record a before-tax The Energy Policy Act of 1992 will increase competition charge to write off the regulatory assets shown in Note 7.
in the electric utility industry by allowing broader access in addition, the Operating Companies would be required to a utility's transmission system. It should not signifi- to evaluate whether the changes in the competitive and cantly increase the competitive threat to us since we have regulatory environment which led to discontinuing the been required to wheel electricity to municipal systems application of SFAS 71 would also result in an impair-in our service area since 1977 under operating licenses ment of the net book value of their property, plant and for our nuclear generating units. Further, the government equipment.
could eventually require utilities to deliver power from other utilities or generation sources to their retail custom- The write-oft in 1993 of the phase-in deferred operating ers. To combat this threat, we are offering incentives expenses and carrying charges (phase-in deferrals) dis-such as energy-efliciency improvements and reductions in cussed in Note 7 resulted from our conclusion that '
demand charges for increased electricity usage to our projected revenues for the 1994-1998 period would not industrial and commercial customers in return for long, provide for recovery of such deferrals as scheduled by the term commitments. PUCO orders. This short time frame for recovery of the phase-in deferrals is a requiicment under the accounting St nd rd I r P ase-in h plars of regulated enterprises, Rate Matters SFAS 92. Tim remaining recovery periods for all remain-Under the Rate Stabilization Program discussed in Note ing regulate:y assets are between 17 and 34 years. We 7, we agreed to freeze base rates until 1996 and limit rate believe the Operating Companies' rates will provide for increases through 1998. In exchange, we are permitted recovery of these assets over the relevant periods and to defer through 1995 and subsequently recover certain SFAS 71 continues to apply.
costs not currently recovered in rates and to accelerate the amortization of certain benefits. Amortization and Nuclear Operations recovery of the deferrals are expected to begin in 1996 with future rate recognition and will continue over the We have interests in three nuclear generating units -
average life of the related assets, or between 17 and 30 Davis-Besse, Perry Unit I and Beaver Valley Power years. The continued use of these regulatory accounting Station Unit 2 (Beaver Valley Unit 2) - and operate the measures in 1995 uill be dependent upon our continu- first two. Davis-Besse and Beaver Valley Unit 2 have ing assessment and conclusion that there will be probable been operating extremely well, with each unit having a recovery of such deferrals in future rates. Our analysis three-year availability average at year-end 1994 that ex-leading to certain year-end 1993 financial actions and our ceeded the three-year industry average of 80% for strategic plan also included an evaluation of our regula- similar reactors, llowever, the three-year availability av-(Centerior Energy) F-4 (Centerior Energy)
, .- - ~ . . . - . . ~ _- ., - __
. etage of Perry Unit I was below the three year industry tyh as $500 million. Ilowever, we' believe that the tvritability average for that reactor type. actual cleanup costs will be substantially lower than $500 million, that the Operating Companies' share of any in 1994, Davis-Besse had an availability factor of 88%. cleanup ccats will be substantially less than 100% and ,
Further, Davis-Besse completed the shortest refueling that most of the other PRPs are financially able to I and maintenance outage in its history in 1994, returning contribute their share. The Operating Companies have !
to service just 46 days after shutting down. We arc in the accrued a liability totaling $13 million at December 31, process of upgrading Perry Unit I to the same level. For 1994 based on estimates of the costs of cleanup and their seven months in 1994, Perry Unit I was out of service for proportionate responsibility for such costs. We believe its fourth refueling and maintenance outage. Work was that the ultimate outcome of these matters will not have I also performed in connection with the comprehensive a material adverse effect on our fmancial condition or course of action developed in 1993 to improve the operat- results of operations.
ing performance of Perry Unit 1. Work in connection {
with that course of action is ongoing.
Merger of the Operating Companies i We externally fund the estimated costs for the future We continue to seek the necessary regulatory approvals to I
decommissioning of our nuclear units. In 1993 and 1994, complete the merger of the Operating Companies which ;
we increased our decommissioning expense accruals be- we announced in 1994. The Operating Companies plan cause of revisions in our cost estimates. See Note 1(d). to seek preferred stock share owner approval in mid-1995.
The merger is expected to be effective in 1995. ;
Our nuclear units may be impacted by activities or events beyond our control. Operating nuclear units have exper- ,
ienced unplanned outages or extensions of scheduled inflation outages because of equipment problems or new regula- Although the rate of inflation has cased in recent years, i tory requirements. A major accident at a nuclear facility we are still affected by even modest inflation which causes i anywhere in ll'e world could cause the Nuclear Regula- increases in the unit cost of labor, materials and services. :
tory Commission to limit or prohibit the operation or j licensing of any domestic nuclear unit. If one of our i nuclear umts is taken out of service for an extended period Capital Resources and Liquidity for any reason, including an accident at such unit or any 1992-1994 Cash Requirements other nuclear facility, we cannot predict whether regula-We need cash for normal corporate operations, the tory authorities would impose unfavorable rate treat-mandatory retirement of securities and constructing and ment. Such treatment could include taking our affected m difying facilities. Construction is needed to meet antic-unit out of rate base, thereby not permitting us to recover l our investment in and earn a return on it, or disallowing i Pated demand for electric service, comply with govern-ment regulations and protect the environment. Over the certain construction or maintenance costs. An extended three-year period 1992-1994, construction and mandatory outage coupled with unfavmble rate treatment could '
retirement needs totaled approximately $1.3 billion. In (
have a material adverse efree. on our financial condition addition, we exercised options to redeem and purchase ;
and results of operations. '
approximately $900 million of our securities.
Hazardous Waste Disposal Sites We raised $1.7 billion through security issues and term .I bank loans during the 1992-1994 period. The Operating ,
i The Comprehensive Environmental Response Compen- Companies also utilized short-term borrowings to help sation and Liability Act of 1980 as amended meet cash needs. Although write-offs of our Perry Nu-(Superfund) established programs addressing the cleanup clear Power Plant Unit 2 (Perry Unit 2) investment and :
of hazardous waste disposal sites, emergency prepared- phase-in deferrals in 1993 negatively affected earnings, ness and other issues. The Operating Companies have they did not adversely affect :: ash flow. See Notes 4(b) been named as "potentially responsible parties" (PRPs) and 7.
for three sites listed on the Superfund National Priorities List (Superfund List) and are aware of their potential 1995 and Beyond Cash Requirements i mvolvement m the cleanup of several other sites. Allega-tions that the Operating Companies disposed of hazard- Estimated cash requirements for 1995-1999 for Cleveland' i ous waste at these sites, and the amounts involved, are Electric and Toledo Edison, respectively, are 5802 mil-often unsubstantiated and subject to dispute. Superfund lion and 5288 million for construction and $832 million i provides that all PRPs for a particular site can be held and $378 million for the mandatory redemption of debt liable on a joint and several basis, if the Operating and preferred stock. Cleveland Electric expects to finance ,
Companies were held liable for 100% of the cleanup costs externally about two-thirds of its 1995 cash requirements of all of the sites referred to above, the cost could be as of approximately $451 million and about one-third ofits i
(Centerior Energy) F-5 (Centerior Energy) j
1996 cash requirements of approximately $320 million. next several years. Ilowever, the availability and cost of Toledo Edison expects to meet nearly all of its 1995 and capital to meet their external financing needs also depend 1996 cash requirements of approximately $145 million upon such factors as financial market conditions and and $154 million. respectively, through internal cash gen- their credit ratings. Current credit ratings for the Operat-eration and current cash resources. The Operating Com- ing Companies are as follows:
panies expect to meet nearly all of their 1997-1999 gg.,
requirements through internal cash generation and cur- invcsiors rent cash resources. If economical, additional securities E S *"i ' "* -
"d' may be redeemed under optional redemption provisions. [',' '" "f' Cleveland liteceric I+ 15 We expect that our continued strong cash flow will reduce Unsecured notes for Toledo Edmon B+ HI borrowing requirements and outstanding debt and pre- Preferred stock B b2 ferred stock during this period.
In 1994, the common stock dividend was lowered which Cash expenditures to comply with the Clean Air Act reduced our cash outflow by over $110 million annually.
Amendments of 1990 (Clean Air Act) are estimated to We are using the cash to redeem debt and preferred be approximately $87 million over the 1995-1999 period. stock more quickly than would otherwise be the case.This See Note 4(a). has helped improve our capitalization structure and fixed charge coverage ratios, both of which are key measures Liquidity considered by securities rating agencies in determining credit ratings. Improved credit ratings and less outstand-Additional first mortgage bonds may be issued by the ing debt and preferred stock, in turn, will lower our Operating Companies under their respective mortgages interest costs and preferred dividends.
on the basis of property additions, cash or refundable first mortgage bonds. If the applicable interest coverage test is ,
met, each Operating Company may issue first mortgage Results of Operations bonds on the basis of property additions and, under 1994 ts.1993 certain circumstances, refundable bonds. At December 31,1994, Cleveland Electric and Toledo Edison would Factors contributing to the 2.1% decrease in 1994 operat-have been permitted to issue approximately $487 million ing revenues are as follows:
and $525 million of additional first mortgage bonds, MiHions increase (Decrease) in Oneratine Revenues of fbilars
- E" Y*
KWil Sales Volume and Mix $ 10
\Vholesale Revenues (47)
The Operating Companies also are able to raise funds Fuct Cost Recovery Revenues (22) through the sale of subordinated debt and preferred and htisccilancous Revenues 6 preference stock. Under its articles of incorporation. Tout U Toledo Edison cannot issue preferred stock unless certam earnings coverage requirements are met. At December Centerior Energy experienced good retail kilowatt-hour 31,1994, Toledo Edison would have been permitted to sales growth in the industrial and commercial categories issue approximately $28 million of additional preferred in 1994; the sales growth for the residential category stock at an assumed dividend rate of 12%. There are no was lessened by weather conditions, particularly during restrictions on Cleveland Electric's ability to issue pre- the summer. The revenue decrease resulted primarily ferred or preference stock or Toledo Edison's ability to from milder weather conditions in 1994 and 39% lower issue preference stock. wholesale sales. Weather reduced base rate revenues approximately $15 million from the 1993 amount. Al-Centerior Energy may raise funds through the sale of though total sales decreased by 1.9%, industrial sales common stock under various employee and share owner increased 3.3% on the strength of increased sales to large plans. In 1995, the Operating Companies plan to raise automotive manufacturers and the broad-based, smaller funds through the sale of first mortgage bonds and the industrial customer group. This growth substantiated an collateralization of accounts receivable. economic resurgence in our service area, particularly in We have a S205 million revolving credit facility which Northwestern Ohio. Residential and commercial sales increased 0.1% and 2.4%, respectively. Other sales de-runs through mid-1996. See Note 12. We had $186 creased by 28% because of the lower sales to wholesale million of cash and temporary cash investments at the end customers attributable to expiration of a wholesale power of 1994. The Operating Companies are unable to issue commercial paper because of their below investment agreement, softer wholesale market conditions and lim-grade commercial paper ratings.
ited power availability for bulk power transactions at certain times because of generatmg plant outages. Lower The foregoing financing resources are expected to be 1994 fuel cost recovery revenues resulted from favorable sufficient for the Operating Companies' needs over the changes in the fuel cost factors. The weighted averages (Centerior Energy) F-6 (Centerior Energy)
L j of these factors dropped by 5% and 6% for Cleveland years for Northern Ohio. Residential and commercial '
Electric and Toledo Edison, respectively. sales also increased as a result of colder late-winter j temperatures in 1993 which increased electric heating- l For 1994 operating revenues were 31% residential,30%
related demand. As a result, total sales increased 3.1% in l commercial, 31% industrial and 8% other and kilowatt.
hour sales were 24% residential,25% commercial,41% 1993. Residential and commercial sales increased 4.6%
industrial and 10% other. The average prices per kilo- and 3.1%, respectively. Industrial sales increased 1.2%.
watt hour for residential, commercial and industrial cus- Increased sales to large automotive manufacturers, petro-tomers were 5.11, $.10 and 5.06, respectively. leum refmers and the broad-based, smaller industrial i Operating expenses were 15% lower in 1994. Operat. ;n customer group were partially offset by lower sales to and maintenance expenses for 1993 included $218 million large steel industry customers. Other sales increased 5.9%
of net benefit expenses related to an early retirement because of increased sales to wholesale customers. Base program, called the Voluntary Transition Program rates and miscellaneous revenues decreased in 1993 (VTP), and other charges totaling $54 million. Two other primarily from lower revenues under contracts having sigmficant reasons for lower operation and mamtenance reduced rates with certain large customers and a declining expenses m 1994 were a smaller work force and ongoing cost reduction measures. More nuclear generation and rate structure tied to usage. The contracts have been less coal-fired generation accounted for a large part of the negotiated to meet competition and encourage economic lower fuel and purchased power expenses in 1994. De- growth. The decrease in 1993 fuel cost recovery revenues preciation and amortization expenses increased primarily resulted from changes in the fuel cost factors. The because of higher nuclear plant decommissioning ex- weighted average of these factors increased slightly for i penses as discussed in Note 1(d). Deferred operating Toledo Edison but decreased 5% for Cleveland Electric. j expenses were greater primarily because of the write-off of $172 million of phase-in deferred operating expenses in For 1993, operating revenues were 31% residential,29% ;
1993 as discussed in Note 7. The 1993 deferrals also included $84 million of postretirement benefit curtail. commercial,30% industrial and 10% other and kilowatt-ment cost deferrals related to the VTP. See Note 9(b). hour sales were 23% residential,24% commercial,39%
Federal income taxes increased as a result of higher industrial and 14% other. The average prices per kilo-pretax operating income. watt-hour for residentia!, commercial and industrial cus-As discussed in Note 4(1-), $583 million of our Perry Unit t mers were $.11, $.10 and $.06, respectively. The 2 investment was written off in 1993. Also, as discussed changes from 1992 were not significant.
in Note 7, phase-in deferred carrying charges of $705 million were written off in 1993. The change in the Operating expenses ir. reased 14% in 1993. The increase federal income tax credit amounts for nonoperating in. in total operation and maintenance expenses resulted come was attributable to these write-offs. from the $218 million of net benefit expenses related to the VTP, other charges totaling $54 million and an g993 ,3,3997 increase in other operation and maintenance expenses.
The increase in other operation and maintenance ex-Factors contributing to the 1.5% increase in 1993 operat- penses resulted from higher environmental expenses, ,
ing revenues are as follows: power restoration and repair expenses following a July 1993 storm in the Cleveland area, and an increase in other increase mccrease) in Oncratine Revenues o a s 65 Postretirement benefit expenses. See Note 9 for informa-Kwll sales volume and Mix Base Rates and Miscellaneous (18) tion on retirement benefits. Deferred operating expenses Fuet Cost Recovery Revenues W) decreased because of the write-off of the phase-in de-Tmai 1M ferred operating expenses in 1993. Federal income taxes decreased as a result of lower pretax operating income.
The revenue increase resulted primarily from the different weather conditions and the changes in the composition of As mentioned above,5583 million of our Perry Unit 2 the sales mix among customer categories. Weather ac- investment was written off in 1993. Credits for carrying counted for approximately $47 million of higher 1993 charges recorded in nonoperating income decreased be-base rate revenues. Hot summer weather in 1993 boosted cause of the write-off of the phase-in deferred carrying residential, commercial and wholesale kilowatt-hour charges in 1993. The federalincome tax credit for nonop-sales. In contrast, the 1992 summer was the coolest in 56 erating income in 1993 resulted from the write-offs.
l l
l (Centerior Energy) F-7 (Centerior Energy)
' Income' Statement c cc <cria sacre rvuration ons susas, aries For the years ended December 31.
1994 1993 1992 ;
(millions of dollars, ,
except per share amounts) f Operating Resenues R4ll $2.474 RG t Operating Expenses Fuel and purchased power 442 474 473 Other operation and maintenance 5')5 652 623 Generation facilities rental expense, net 160 159 161 Early retirement program expenses and other -
272 -
Total operation and maintenance 1,197 1,557 1,257 Depreciation and amortization 278 258 256 Taxes, other than federal income taxes 309 312 318 Deferred operating expenses, net (55) 23 (52)
Federal income taxes 114 11 122 1,84) 2.161 1.901 Operating income 578 313 537 Nonoperating Income (less) ,
Allowance for equity funds used during construction 5 5 2 Other income and deductions, net. 8 (6) 9 Write-off of Perry Unit 2 -
(583) -
Deferred carrying charges, net 40 (649) 100 Federal income taxes - credit (expense) (6) 398 (7) 47 (835) 104 ,
income (Loss) Before Interest Charges and Preferred Disidends 625 (522) 641 Interest Charges and Preferred Diiidends Debt interest 361 359 365 L
Allowance for borrowed funds used during construction (6) (5) (1)
Preferred dividend requirements of subsidiaries 66 67 65 421 421 429 ,
I Net income (less) $ 204 $ (943) $ 212 ,
Ascrage Number of Common Shares Outstanding (millions) __ 147.8 144.9 141.7 Earnings (Loss) Per Common Share $ 1.3R $(6.51 ) $ 1.50 Diildends Declared Per Common Share $ R0 $ l.60 $ 1.60 Retained Earnings For the years ended December 31.
1994 1993 1992 (millions of dollars)
Retained Earnings (Deficit) at Beginning of Year S(523) $ 652 $ 669 l Additions Net income (loss) 204 (943) 212 l
Deductions Common stock dividends (118) (231) (226)
Other, primarily preferred stock redemption expenses of subsidiaries (1) (1) (3)
Net increase (Decrease) 85 (1.175) (17)
Retained Earnings (Deficit) at End of Year S(43R) $ (523) $ 652 The accompanying notes are an integralpart of these statements.
1 1
(Centerior Energy) F-8 (Centerior Energy) l
[ Tills PAGE INTENTIONALLY LEFT BLANK]
I 1
l l
I (Centerior Energy) F-9 (Centerior Energy)
Balance Sheet .
December 31.
1994 1993 (milhons of dollars) 1
- ASSETS Property, Plant and Equipment Utility plant in service $ 9.770 $ 9.571. l Less: accumulated depreciation and amortization 2.906 2.677 6,864 6,894 i Construction work in progress 129 181 6,993 7,075 l Nuclear fuel, net of amortization 293 344 Other property, less accumulated depreciation 50 41 7.336 7.460 l
Current Assets '
Cash and temporary cash investments 186 225 Amounts due from customers and others, nel 211 221 Unbilled revenues 93 124 Materials and supplies, at average cost 139 136 ,
Fossil fuel inventory, at average cost 29 32 Taxes applicable to succeeding years 252 250 Other 16 5 l 926 993
.]
Deferred Charges and Other Assets Amounts due from customers for future federal income taxes 1,046 968 i Unamortized loss from Beaver Valley Unit 2 sale 101 105 l Unamortized loss on reacquired debt 86 92 Carrying charges and operating expenses 957 862 Nuclear plant decommissioning trusts 82 56 Other 157 174 2.429 2.257 ;
t Total Assets $ 10.691 $10.7 t o The accompanying notes are an integralpart of this statement. \
l I
(Centerior Energy) F-10 (Centerior Energy)
- . ..~.~. ~ . .. . - - - ~ . _ - - . . - . - _ _ . _ . .-
l l
Centerior Energy Corporation andSubsidiaries December 31.
1994 1993 !
(millions of dollars) l cal'lTALIZAllON AND LIABil.lTIES Cepitalization :
Common shares, without par value (stated value of $357 million and $345 million for 1994 !
and 1993, respectively): 180 million authorized; 148 million (excluding 2.7 million shares in Treasury) and 147 million (excluding 2.7 million shares in Treasury) outstanding in 1994 and 1993, respectively $ 2.320 $ 2,308 Retained earnings (deficit) (438) . (523)' -
Common stock equity 1,882 1,785
- Preferred stock -
With mandatory redemption provisions 253 313 Without mandatory redemption provisions 451 451 Long term debt 3697 4.019 6.283 6 568 ,
L Current Liabilities Current portion of long-term debt and preferred stock 373 127 i Current portion of nuclear fuel lease obligations 83 111 l Accounts payable 144 188 ;
Accrued taxes ' 384 378 i Accrued interest 90 87 !
Other 75 75 1.149 966 Deferred Credits and Other Liabilities ;
Unamortized investment tax credits 279 329 Accumulated deferred federal income taxes 1,778 1,579 Unamortized gain from Bruce Mansfield Plant salc $25 551 Accumulated deferred rents for Bruce Mansfield Plant and Beaver Valley Unit 2 139 128 Nuclear fuel lease obligations 219 254 Retirement benefits 176 160 ,
143 175 l Other 3.259 3,176 l
i Total Capitalization and Liabilities $10.691 $10.7 I 0 l
t
?
k i
t l
(Centerior Energy) F-il (Centerior Energy)
Cash Flows c,.,,,i s .,ac c.,v .i ..s s.s.isi.,,.
For the years ended .
December 31. i 1994 1993 1992 ,
(millions of dollars) ['
Cash Flows from Operating Actitities (1)
Net income (Loss) $ 204 $(943) $ 212 Adjustments to Reconcile Net income (Loss) to Cash from Operating Activities:
Depreciation and amortization 278 258 256 Deferred federal income taxes 95 (452) 95 l Investment tax credits, net - -
(14) l Unbilled revenues 31 (10) (6) !
Deferred fuel (17) 5 1 i Deferred carrying charges, net (40) 649 (100) l Leased nuclear fuel amortization 98 86 126 Deferred operating expenses, net (55) 23 (52) l Allowance for equity funds used during construction (5) (5) (2)
Noncash early retirement program expenses, net -
208 -
Write-off of Perry Unit 2 -
583 - ;
Changes in amounts due from customers and others, net 10 1 7 Changes in inventories -
26 (10)
Changes in accounts payable (44) 45 (5)
Changes in working capital affecting operations - 25 8 Other noncash items 14 18 3 i Total Adjustments _Jf1 1.460 307 ,
Net Cash from Operating Activities $69 517 512 ,
Cash Flows from Financing Activities (2) i Bank loans, commercial paper and other short-term debt -
(50) 50 First mortgage bond issues 77 300 600 Secured medium-term note issues -
128 138 !
i Term bank loans and other long-term debt issues -
40 135 Preferred stock issues -
100 74 Common stock issues 12 71 53 Reacquired common stock -
1 (3) l Maturities, redemptions and sinking funds (214) (434) (1,013) ;
Nuclear fuel lease obligations (110) (106) (117)
Common stock dividends paid (118) (231) (226) ,
Premiums, discounts and expenses (1) . (13) (14)
Net Cash from Financing Activities (354) (194) (323) }
Cash Flows from Iniesting Actiiities (2) !
Cash applied to construction (205) (209) (200)
Interest capitalized as allowance for borrowed funds used during construction (6) (5) (1) ,
Sale and leaseback restructuring fees - -
(43) l Contributions to nuclear plant decommissioning trusts (26) (9) (8)
Other cash received (applied) (17) 32 (78) ,
Net Cash from Investing Activities (254) (191) (2R0) l Net Change in Cash and Temporary Cash Intestments (39) . 132 (84) !
Cash and Temporary Cash Iniestments at Beginning of Year 225 93 177 Cash and Temporary Cash iniestments at End of Year $ IR6 M $ 93 (1) Interest paid (net of amounts capitali:ed) was $300 million. $295 million and $299 million in 1994,1993 and 1992, respectively. Income taxes paid were $6 million, $50 million and $32 million in 1994,1993 and 1992, respectively.
(2) increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance Sheet resultingfrom the noncash ,
capitali:ations under nuclearfuel agreements are excludedfrom this statement. l The accompanying notes are an integralpart of this statement.
(Centerior Energy) F-12 (Centerior Energy) ,
t
Statcmsnt of Preferred Stock c c ,.,,nor t,, m e no,,o s s a u o,e, I: ,
Current 1994 Shares Call Price December 31.
Outstandine Per Share 1994 1993 (mitisons or doitars)
CLEVELAND ELECTRIC Without par value,4,000,000 preferred shares authorized ,
i Subject to mandatory redemption:
$ 7.35 Series C 140,000 $ 101.00 $ 14 $ 15 ,
88.00 Series E 18,000 1,019.13 18 21 Adjustable Series M 100,000 100.00 10 20 9.125 Series N 410,766 102.03 41 59 l' 91.50 Series Q 75,000 - 75 75 88.00 Series R 50,000 - 50 50 i 90.00 Series S 75,000 - 74 74 ,
282 314 j Less: Current maturities __3.fi 29 t
_ 2 43 _21U!
Not subject to mandatory redemption: \
$ 7.40 Series A 500,000 101.00 50 50 :
7.56 Series B 450,000 102.26 45 45 :
Adjustable Series L 500,000 100.00 49 49 i 42.40 Series T 200,000 - 97 97 ;
E _241 i
- TOLEDO EDISON l
$100 par value, 3,000,000 preferred shares authorized and $25 par value, '
12,000,000 preferred shares authorized Subject to mandatory redemption: t
$100 par $9.375 83,500 101.98 8 10 ;
25 par 2.81 400,000 25.62 10 _J.Q 18 40 i Less: Current maturities 11 __12 t 7 28 l Not subject to mandatory redemption:
$100 par S 4.25 160,000 104.625 16 16 4.56 50,000 101.00 5 5 4.25 100,000 102.00 10 10 ,
8.32 100,000 102.46 10 10 ,
150,000 102.437 15 15 i 7.76 7.80 150,000 101.65 15 15 ;
I0.00 190,000 101.00 19 19 }
25 par 2.21 1,000,000 25.25 25 25 2.365 1,400,000 27.75 35 35 !
Series A Adjustable __ 1,200,000 25.75 30 30 Series B Adjustab!c __ 1,200,000 25.75 _).D 30 210 _2.lD_
CENTERIOR ENERGY Without par value, 5,000,000 preferred shares authorized, none outstanding - ,
Total Preferred Stock, with M'andatory Redemption Pro $isions M 11!), ,
Total Preferred Stock, without Mandatory Redemption Protisions 1421 14.21 !
- I The accompanying notes are an integralpart of this statement.
(Centerior Energy) F-13 (Centerior Energy)
month to record the estimated amount of unbilled reve-Notes to the Financial Statements nues for kilowatt-hours sold in the current month but not i billed by the end of that month.
(1) Summary of Signifcant Accounting Policies i 'h' O 5' '"'*5 I ' **i S*'"iC'-
^I"*3f^*'$S"dd This factorigned is des. 'd from to recover ' customers the e sts of fuel and most purchased power. It is reviewed (a) General I and adjusted semiannually in a PUCO proceeding.
Centerior Energy is a holding company with two electric utility subsidiaries, Cleveland Electric and Toledo (c) Fuel Expense ;
Edison. The consolidated fmancial statements also in- t The cost of foss.li fuel .is charged to fuel expense based on clude the accounts of Centen.or Energy.s wholly owned subsidiary, Centerior Service Company (Service Com- jnventory usage. The cost of nuclear fuel, m, eluding an interest component, is charged to fuel expense based on pany), and Centerior Energy's four other wholly owned
. . the rate of consumption. Estimated future nuclear fuel subsidianes, which m. the aggregate are not maten.a l. ,'
disposal costs are bem.g recovered through base rates.
During 1994, Cleveland Electric transferred its common stock investments in three wholly owned subsidiaries to The Operating Companies defer the differences between Centerior Energy via property dividends and Centerior actual fuel costs and estimated fuel costs currently being +
Energy formed the fourth wholly owned subsidiary. The recovered from customers through the fuel factor. This Service Company provides management, financial, ad- matches fuel expenses with fuel-related revenues. .
ministrative, engineering, legal and other services at cost Ownus of nuclear generat.mg plants are assessed by the to Centerior Energy, the Operating Companies and the federal government for the cost of decontamination and other subsidiaries. The Operating Companies operate as decommissioning of nuclear enrichment facilities oper-separate companies, each serving the customers in its ,
ated by the United States Department of Energy. The ;
service area. The preferred stock, first mortgage bonds ssessments are based upon the amount of enrichment and other debt obligations of the Operating Companies .
services used in prior years and cannot be imposed for are outstanding securities of the issuing utility. All signifi-m re than 15 years (to 2007). The Operating Compames >
cant intercompany items have been eliminated in consolidation.
have accrued the liability for their share of the total assessments. These costs have been recorded m a de-Centerior Energy and the Operating Companies follow ferred charge account since the PUCO is allowing the i the Uniform System of Accounts prescribed by the Fed- Operating Companies to recover the assessments through cral Energy Regulatory Commission and adopted by the their fuel cost factors. .
PUCO. Rate-regulated utilities are subject to SFAS 71 :
which governs accounting for the efTects of certain (d) Depreciation and Amortization l types of rate regulation. Pursuant to SI{AS 71, certain The cost of property, plant and equipment is depreciated incurred costs are deferred for recovery m future rates. !
over their estimated useful lives on a straight-line basis.
See Note 7. The Service Company follows the Uniform The annual straight-line depreciation provision for non- i System of Accounts for Mutual Service Companies nuclear property expressed as a percent of average depre-prescribed by the Securities and Exchange Commission ciable utility plant in service was 3.4% in 1994,3.5% in (SEC) under the Public Utility 11olding Company Act 1993 and 3.4% in 1992. The annual straight-line depreci-of 1935' ation rate for nuclear property is 2.5%. l The Operating Companies are members of the Central The Operating Companies accrue the estimated costs of Area Power Coordination Group (CAPCO). Other decommissioning their three nuclear generating units.
members are Duquesne Light Company, Ohio Edison The accruals are required to be funded in an external Company and its wholly owned subsidiary, Pennsylvania trust. The PUCO requires that the expense and payments ;
Power Company. The members have constructed and to the external trusts be determined on a levelized basis operate generation and transmission facilities for their by dividing the unrecovered decommissioning costs in "5'
current dollars by the remaining years in the licensing l peri d of each unit. This methodology requires that the i (b) Reienues net earnings on the trusts be reinvested therein with the Customers are billed on a monthly cycle basis for their intent of allowing net earnings to ofTset inflation. The energy consumption based on rate schedules or contracts PUCO requires that the estimated costs of decommis-
. authorized by the PUCO or on ordinances of individual sioning and the funding lcvel be reviewed at least every municipalities. An accrual is made at the end of each five years.
]
(Centerior Energy) F 14 (Centerior Energy)
in IW4, the Operating Companies mcreased their annual (c) Propert), Plant cnd Equipment .
decommissioning expense accruals to $24 raillion from ..
Property, plant and equipment are stated at ongmal cost the 58 million level in 1992. The accruals are reflected in
. less amounts ordered by the PUCO to be wntten off.
current rates. The increased accruals were den.ved from ns e n c sts inclu recently updated, site-specific studies for each of the related payd taxa, retb units. The revised estimates reflect the DECON method man n s, nye ne s, management aW gennal overheads and allowance for funds used dun,ng construc-of decomm.issioning (prompt decontamination), and the . .
tion ( AFUDC). AFUDC represents the estimated com-locations and cost characteristics specific to the um.ts, .
and.melude costs associated with decontamination, dis-
. . posite debt and equity cost of funds used to finance construction. Th.is noncash allowance is credited to m.-
mantlement and site restoration.
come. The AFUDC rates averaged 9.8% in 1994,9.9% in The revised estimates for the units in 1993 and 1992 1993 and 10.8% in 1992.
dollars and in dollars at the time of license expiration, Maintenance and repairs for plant and equipment are assuming a 4% annual inflat,oni rate, are as follows:
charged to expense as . incurred. The cost of replacing Eniraiion ruture plant and equipment is charged to the utility plant ac-
[ineratin Umt Year Am un An unt counts. The cost of property retired plus removal costs, dollars) after deducting any salvage value, is charged to the Davioncue 20i7 534611) s 862
~
accumulated provision for depreciation.
Perry Uni: 1 2026 256(l) 908 Heaver Valley Umt 2 2027 it4 423
.g g(2)
~
gm (f) Deferred Ga,m and Loss from Sales of Utility Plant
- "**"['j The sale and leaseback transactions discussed in Note 2 resulted in a net gain for the sale of the Bruce Mansfield The updated estimates reflect substantial increases from Generating Plant (Mansfield Plant) and a net loss for the the prior PUCO-recognized aggregate estimates of $257 sale of Beaver Valley Unit 2. The net gain and net loss million in 1987 and 1986 dollars, were deferred and are being amortized over the terms of leases. See Note 7. These amortizations and the lease The classification, Accumulated Depreciation and Amor-expense amounts are reported in the income Statement as tization, in the Balance Sheet at December 31,1994 Generation Facilities Rental Expense, Net.
includes $98 million of decommissioning costs previously expensed and the earnings on the external trust funding. (g) Interest Charges This amount exceeds the Balance Sheet amount of the external Nuclear Plant Decommissioning Trusts because Debt Interest reported in the income Statement does not ,
the reserve began prior to the external trust funding. The include interest on obligations for nuclear fuel under trust earnings are recorded as an increase to the trust c nstruction. That interest is capitalized. See Note 6.
assets and the related component of the decommissioning Losses and gains realized upon the reacquisition or re-reserve (included in Accumulated Depreciation and demption of long-term debt are deferred, consistent with Amortization). the regulatory rate treatment. See Note 7. Such losses The stafT of the SEC has questioned certain of the current and gains are either amortized over the remainder of the accounting practices of the electric utility industry, in- riginal life f the debt issue retired or amortired over cluding those of the Operating Companics, regarding the the life of the new debt issue w hen the proceeds of a new recognition, measurement and classification of decom- issue are used for the debt redemption. The amortiza-missioning costs for nuclear generating stations in the tions are included in debt interest expense.
financial statements. In response to these questions, the I nnancial Accountmg Standards Board is reviewing the (h) Federal Income Taxes accounting for removal costs, including decommission- We use the liability method of accounting for income ing. If such current accounting practices are changed, taxes in accordance with SFAS 109. See Note 8. This the annual provision for decommissioning could increase; method requires that deferred taxes be recorded for all the estimated cost for decommissioning could be re- temporary ditTerences between the book and tax bases of corded as a liability rather than as accumulated deprecia- assets and liabilities. The majority of these temporary tion; and trust fund income from the external difTerences are attributable to property-related basis dif-decommissioning trusts could be reported as investment ferences. Included in these basis difTerences is the equity income rather than as a reduction to decommissioning component of AFUDC, which will increase future tax expense, expense when it is recovered through rates. Since this (Centerior Energy) F-15 (Centerior Energy) ,
component is not recognized for tax purposes, we must In April 1992, nearly all of the outstanding Secured Lease j record a liability for our tax obligation. The PUCO. Obligation Bonds (SLOBS) issued by a special purpose !
permits recovery of such taxes from customers when
~
corporation in connection with fmancing the sale and they become payable. Therefore, the net amount due leaseback of Beaver Valley Unit 2 were refmanced !
from customers through rates has been recorded as a through a tender offer and the sale of new bonds having a ;
deferred charge and will be recovered over the lives of the lower interest rate. As part of the refinancing transac. l related assets. See Note 7. tion Toledo Edison paid $43 million as supplemental !
rent to fund transaction expenses and part of the tender Investment tax credits are deferred and amortired over premium. This amount has been deferred and is being
- the lives of the applicable property as a reduction of amortized over the remaining lease term. The refinan:- l depreciation expense. See Note 7 for a discussion of the ing transaction reduced the annual rental expense for amortization of certain unrestricted excess deferred taxes the Beaver Valley Unit 2 lease by $9 million, i and unrestricted investment tax credits under the Rate Stabilization Program. Future minimum Icase payments under the operating leases at December 31,1994 are summarized as follows:
(2) Utility Plant Sale and & ^~"""' '
(millions of Leaseback Transactwns usara .
1993 5 166 <
The Operating Companies are co-lessees of 18.26% (150 1996 188 !
megawatts) of Beaver Valley Unit 2 and 6.5% (51 i,97 i63 megawatts), 45.9% (358 megawatts) and 44.38% (355 399g g3 megawatts) of Units I,2 and 3 of the Mansfield Plant, i,99 373 respectively, all for terms of about 29% years. These Laicr Years 3.239 :
leases are the result of sale and leaseback transactions :
cor'ipleted m. 1987, Total Future Minimum Lease Payments M l Under these leases, the Operating Companies are respon- Rental expense is accrued on a straight-line basis over the sible for paying all taxes, insurance premiums, operation terms of the leases. The amount recorded in 1994,1993 and maintenance expenses and all other similar costs for and 1992 as annual rental expense for the Mansfield !
their interests in the units sold and leased back. They Plant leases was $115 million. The amounts recorded in may incur additional costs in connection with capital 1994,1993 and 1992 as annual rental expense for the improvements to the units. The Operating Companies Beaver Valley Unit 2 lease were $64 million,563 million - i have options to buy the interests back at the end of the and $66 million, respectively. Amounts charged to ex- ,
leases for the fair market value at that time or renew the pense in excess of the lease payments are classified as leases. Additional lease provisions provide other Accumulated Deferred Rents in the Balance Sheet. ;
purchase options along with conditions for mandatory termination of the leases (and possible repurchase of the Toledo Edison is selling 150 megawatts of its Beaver leasehold interests) for events of default. These events Valley Unit 2 leased capacity entitlement to Cleveland include noncompliance with several financial covenants Electric. We anticipate that this sale will continue !
discussed in Note ll(d). indefinitely.
L r
i
+
1 P
F D
9 (Centerior Energy) F.16 (Centerior Energy)
(3) Property Owned with Other Utilities and investors The Operating Companies own, as tenants in common with other utilities and those investors who are owner-participants in various sale and leaseback transactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction costs and operating expenses. Each Lessor has leased its capacity rights to a utility which is obligated to pay for such Lessor's share of the construction costs and operating expenses. The Operating Companies' share of the operating expenses of these generating units is included in the Income Statement. The Balance Sheet classification of Property, Plant and Equipment at December 31,1994 includes the following facilities owned by the Operating Companies as tenants in common with other utilities and Lessors:
In. Plant Construction Service Ownership Ow nership Po.cr in Work in Accumutated Generatine Unit Datt . Share Megamatts Sourgs,, Servicq Procress Der +reciation (millions of dollars)
Seneca Pumped Storage 1970 80 00% 351 Itydro 5 66 $- 5 22 Eastlake Unit 5 1972 68.80 4:I Coal 156 I -
Perry Unit i 1987 51.02 609 Nuclear 2.817 9 511 Heaver Valley Umt 2 and /
Common Facilities (Note 2) 1987 26.12 214 Nuclear 1.4k0 _,,4 ,,292 )
Total $d 53' 13.d. E Depreciation for Eastlake Unit $ has been accumulated with all other nonnuclear depreciable property rather than by specific units of depreciable property.
1 (4) Construction and Contingencies in Perry Unit 2 ai December 31,1993 after we deter-mined that it would not be completed or sold. The write-(a) C,onstruction Program ofr totaled $583 million ($425 million after taxes) for our 64.76% ownership share of the unit. See Note 14.
The estimated cost of our construction program for the 1995-1999 period is $1.154 billion, including AFUDC of
$64 million and excluding nuclear fuel. (c) Hazardous Waste Disposal Sites The Clean Air Act requires, among other things, signifi- The Operating Companies are aware of their potential cant reductions in the emission of sulfur dioxide and involvement in the cleanup of three sites listed on the nitrogen oxides by fossil-fueled generating units. Our Superfund List and several other waste sites not on such l strategy provides for compliance primarily through list. The Operating Companies have accrued a liability -
l greater use oflow-sulfur coal at some of our units and the totaling $13 million at December 31,1994 based on l use of emission allowances. Total capual expenditures estimates of the costs of cleanup and their proportionate j from 1991 through 1994 in connection with Clean Air responsibility for such costs. We believe that the ulti-i Act compliance amounted to $35 million. The plan will mate outcome of these matters will not have a material require additional capital expenditures over the 1995- adverse efTect on our financial condition or results of 2004 period of approximately $157 million for nitrogen operations. See Management's Financial Analysis-oxide control equipment and plant modifications. In addi- Outlook-ilazardous Waste Disposal Sites.
tion, higher fuel and other operation and maintenance expenses will be incurred. The anticipated rate increase associated with the capital expenditures and higher ex- (5) Nuclear Operations and l penses would be about 1-2% in the late 1990s. Cleve- Contingencies land Electric may need to install sulfur emission control technology at one ofits generating plants after 2005 which (a) Operating Nuclear Units could require additional expenditures at that time. ..
Our three nuclear units may be impacted by activities or I
events beyond our control. An extended outage of one of (b) Perry Unit 2 our nuclear units for any reason, coupled with any Perry Unit 2, including its share of the facilities common unfavorable rate treatment, could have a material ad-with Perry Unit 1, was approximately 50% complete verse effect on our financial condition and results of when construction was suspended in 1985 pending con- operations. See discussion of these risks in Management's sideration of various options. We wrote off our investment Financial Analysis- Outlook-Nuclear Operations.
(Centerior Energy) F-17 (Centerior Energy)
(b) N ctr:r Inur nce with remaining lease payments of $128 million, $91 milli n and $24 milli n, respectively, at December 31,
- The Price Anderson Act limits the public liability of the 1994. The nuclear fuel amounts financed and capitalized owners of a nuclear power plant to the amount provided als included interest charges incurred by the lessors by private insurance and an industry assessment plan. In am unting to Sil million in 1994,$14 million in 1993 the event of a nuclear incident at any unit in the United and $15 million in 1992. The estimated future lease States resulting in losses in excess of the level of private am rtization payments based on projected consumption insurance (currently $200 million), our maximum poten-are $99 milli n in 1995,$91 million in 1996, $80 million tial assessment under that plan would be $155 million in 1997,573 milli n in 1998 and $62 million in 1999.
(plus any inflation adjustment) per incident. The assess-ment is limited to $20 million per year for each nuclear incident. These assessment limits assume the other (7) Regulatmy Matters CAPCO companies contribute their proportionate share The Operating Companies are subject to the provisions of of any assessment.
SFAS 71. Regulatory assets represent probable future The utility owners and lessees of Davis-Desse, Perry and revenues to the Operating Companies associated with Beaver Valley also have insurance coverage for damage certain incurred costs, which they will recover from to property at these sites (including leased fuel and customers through the ratemaking process. Regulatory cleanup costs). Coverage amounted to $2.75 billion for assets in the Balance Sheet are as follows:
each site as of January 1,1995. Damage to property could necember n exceed the insurance coverage by a substantial amount. '* i*
If it does, our share of such excess amount could have a ("Mr"s'[
material adVCTsc CITeCl on our financial Condition and Amounts duc from customers for future federal results of operations. Under these policies, we can be income taxes si .046 s 968 assessed a maximum of $22 million during a policy year if Unamortired loss from ncaver vancy Unit 2 saic _ 101 105 unam rtized loss on reacquired debt 86 92 the reserves available to the insurer are inadequate to pay Pre-phasc-in deferrals' 570 587 claims arising out of an accident at any nuclear facility Rate stabilization Program deferrais 387 _ 171 covered by the insurer. $2 ton $? n??
Tutai We also have extra expense insurance coverage. It in-
- Represent deferrais of operating expenses and carrying charges for cludes the incremental cost of any replacement power Percy Unit i and scaver vancy Unit 2 in 1987 and 1988 which are purchased (over the costs which would have been in- being amortirca over the lives or the relaica property.
curred had the units been operating) and other incidental As f DmmWr 31, N, customu rates provide for expenses after the occurrence of certain types of acci-r c very f all the above regulatory assets, except those dents at our nuclear units. The amounts of the coverage rel ted to the Rate Stabilization Program discussed be-are 100% of the estimated extra expense per week during I w. The remaining recovery periods for all of the the 52-week period starting 21 weeks after an accident regulatory assets listed above range from 17 to 34 years.
and 80% of such estimate per week for the next 104 The Operating Companies continually assess the effects weeks. The amount and duration of extra expense could of competition and the changing industry and regulatory substantially exceed the insurance coverage.
environment on operations and their ability to recover the regulatory assets. In the event that the Operating
[6) NHC/ Car fuff Companies determine that future revenues would not be pm f r rey e any apulatoy anet, sua anet Nuclear fuel is financed for the Operating Companies would be required to be written off. See Management's through leases w.it h a special-purpose corporation. At
..inanct I An sd - ud Eda m A ucunnng.
December 31,1994,$307 million of nuclear fuel was financed ($157 million from intermediate-term notes and The Operating Companies will file a request with the 5150 million from bank credit arrangements). The inter. PUCO to restructure rates to increase revenues to be mediate-term notes mature in 1996 and 1997. The efTective in 1996 w hich will include provision for recovery Operating Companics severally lease their respective por- of the Rate Stabilization Program deferrals. We believe ,
tions of the nuclear fuel and are obligated to pay for the that rates will be set at a level consistent with cost-based fuel as it is consumed in a reactor. The lease rates are regulations and will provide revenues to recover the then- I based on various intermediate-term note rates, bank rates current operating costs, return requirements and amor- l and commercial paper rates. tization of all regulatory assets listed above. l The amounts financed include nuclear fuel in the Davis- The Rate Stabilization Program that the PUCO approved Besse, Perry Unit I and Beaver Valley Unit 2 reactors in October 1992 was designed to encourage economic (Centerior Energy) F-IS (Centerior Energy) )
i I
growth in our service area by freezing base rates until pleted in 1995, we should no longer plan to use regulatory 1996 and limiting subsequent rate increases to specified accounting measures to the extent we have in the past.
nnual amounts not to exceed $216 million for Cleveland Electric and $89 million for Toledo Edison over the 1996-1998 period. (8) FederalIncome Tax As part of the Rate Stabilization Program, during the The components of federal income tax expense (credit) 1992-1995 period the Operating Companies are allowed recorded in the income Statement were as follows:
to defer and subsequently recover certain costs not cur- s io93 s rently recovered in rates and to accelerate amortization Ogns of of certain benefits. The continued use of these regula- opy,,,in, g,p,,,,,;
tory accounting measures will be dependent upon our Current $ 70 $ 99 $ 7:
continuing assessment and conclusion that there will be Deterred a (88) _,n probable recovery of such deferrals in future rates. Total Charged to Operating Expenses !B 11 _,122 Nonoperating income:
The regulatory accounting measures we are eligible to c,,,,,, (43) (34) g33) record through December 31,1995 include the deferral of Deterred .,,,3 (364) J post-in-service interest carrying charges, depreciation ex- Total Expense (Credit) to Nonoperating pense and property taxes on assets placed in service after income __6 0 98) _ 2 February 29,1988 and the deferral of Toledo Edison Total Federal Income Tax Expense (Credit) _,,,, lig $ nR7) M operating expenses equivalent to an accumulated excess rent reserve for Beaver Valley Unit 2 (which resulted The deferred federal income tax expense results from the from the April 1992 refmancing of SLOBS as discussed temporary differences that arise from the ditTerent years in Note 2). The cost deferrals recorded in 1994,1993 and certain expenses are recognized for tax purposes as 1992 pursuant to these provisions were $106 million, Opposed to financial reporting purposes. Such temporary 595 million and $84 million, respectively. The regulatory differences affecting operating expenses relate principally accounting measures also provide for the accelerated to depreciation and deferred operating expenses whereas amortization of certain unrestricted excess deferred tax those afTecting nonoperating income principally relate to and unrestricted investment tax credit balances and in. deferred carrying charges and the 1993 write-offs.
terim spent fuel storage accrual balances for Davis-Besse.
Federal income tax, computed by multiplying the income The total amount of such regulatory benefits recognized before taxes and preferred dividend requirements of sub-pursuant to these provisions was $46 million in both sidiaries by the statutory rate (35% in 1994 and 1993 1994 and 1993 and $12 million in 1992.
and 34% in 1992),is reconciled to the amount of federal The Rate Stabilization Program also authorized the OP - income tax recorded on the books as follows:
erating Companies to defer and subsequently recover the g ion 3 g .
incremental expenses associated with the adoption of (minions or dottars) the accounting standard for postretirement benefits other Ilmk income (Loss) Incrore Federal Income than pensions (SFAS 106). In 1994 and 1993, we Tax 3 mM3 Tax deferred $6 million and $96 million, respectively, pursu- jed Re $137 $ (442) $138 ant to this provision. Amortization and recovery of these increase (Decrease) in Tax:
deferrals are expected to commence in 1996 and to be write. oft or Perry Unit 2 - 46 -
completed by no later than 2012. See Note 9(b). write-oft or phase-in dererrais - 28 -
Depreciation 3 (6) (9) in 1993, upon completing a comprehensive study which gate stahiiizat;on Program (27) (30) (7) led to our current strategic plan, we concluded that other items 7 17 7 projected revenues would not provide for recovery of Total Federal Income Tax Expense (Credit) ., M$ MR7) M deferrals recorded pursuant to phase-in plans approved by the PUCO in 1989. Such deferrals were scheduled to be For tax reporting purposes, the Perry Unit 2 abandonment recovered over the 1994 through 1998 period. The total was recognized in 1994 and resulted in a $307 million phase-in deferred operating expenses and carrying loss with a corresponding $107 million reduction in fed-charges written oft at December 31,1993 were $172 eral income tax liability. Because of the alternative million and $705 million, respectively (totaling $$98 minimum tax (AMT),562 million of the $107 million million after taxes). See Note 14. Additionally, based on was realized in 1994. The remaining $45 million will not our assessment of business conditions, we concluded be realized until 1999. Additionally, a repayment of that, once the deferral of expenses and acceleration of approximately 532 million of previously allowed invest-benefits under our Rate Stabilization Program are com- ment tax credits was recognized in 1994.
(Centerior Energy) F-19 (Centerior Energy)
in August 1993, the Revenue Reconciliation Act of 1993 Pension and VTP costs (credits) for 1992 through 1994 was enacted. Retroactive to January 1,1993, the top were comprised of the following components:
marginal corporate income tax rate increased to 35%. iv94 1993 199.;
The change in tax rate did not materially impact the (millions of dollars) results of operations for 1993, but increased Accumulated "'[j[j,'*[c'its carned f during the Deferred Federal income Taxes for the future tax obliga- period s 13 s 15 s is tion by approximately $90 million. Since the PUCO has inicrest cost on projected benefit obligation, 26 37 38 ;
" ' (
historically permitted recovery of such taxes from cus- ^,""('{"j" Pj*d d)c ai tomers when they become payable, the deferred charge, Nei pension costs (credits) 3 3) (16)
Amounts Due from Customers for Future Federal In- VTP cost -- 205 -
come Taxes, also was increased by $90 million. seulement gain _L81) _:
Under SFAS 109, temporary difTerences and carryfor- Ncs costs (credits) $ 1 Stli Sf16) wards resulted in deferred tax assets of $596 million and The following table presents a reconciliation of the funded deferred tax liabilities of $2.374 billion at December 31, status of th plan.
1994 and deferred tax assets of $619 million and de-
"'h ferred tax liabilities of $2.198 billion at December 31, f9y4 1993. These are summarized as follows: Tn inions of December .t L dollars) 1994 1993 Actuarial present value of benefit obligations:
(millions of Vested benefits $278 $333 dollars) Nonvested henclits __2 _ 17 Property, plant and equipment $2.035 51.845 Accumulated benefit obligation 280 370 Dcferred carrying charges and operating espenses __ 215 206 Eftcet of future compensation levcis _H _ 11 Net operating loss carryforwards (144) (108) Totat projected benefit obligation 317 423 Investment tax credits (156) (183) Plan assets at fair market value _]i2 ,,,),M Sale and Icaseback transactions (128) (127) Funded status 45 (37)
Other i44) (54) Unrecognized net loss (gain) from variance between assumptions and experience (79) It Net deferred tax liability $ 1.778 $ 1.579 Unrecogniicd prior service cost 10 10 For tax purposes, net operating loss (NOL) carryforwards Transition asset at January 1,1987 being amortiica of approximately $412 million are available to reduce l ' Y5 LL9) ldl)
P Y I future taxable income and will expire in 2003 through N'[ "['"*d *}' g ,g, "*'"d',d I" g gg g9 ,
- ' ~ -
2009. The 35% tax c!Tect of the NOLs is $144 million.
Additionally, AMT credits of $168 million that may be A September 30,1994 measurement dan was used for carried forward indefinitely are available to reduce future 1994 reporting. At December 31,199t, the settlement regular tax. (discount) rate and long-term rate of return on plan assets assumptions were 8.5% and 10 fo, respectively. The (9) Retirement Benefts long-term rate of annual compensati,n increase assump-tion was 3.5% for 1995 and 1996 a .d 4% thereafter. At (a) Retirement income Plan December 31, 1993, the settlement rate and long-term We sponsor a noncontributing pension plan which covers rate of return on plan assets assu nptions were 7.25%
all employee groups. The amount of retirement benefits and 8.75%, respectively. The loneterm rate of annual generally depends upon the length of ser ice. Under compensation increase assumption was 4.25%.
certain circumstances, benefits can begin as early as age Plan assets consist primarily of investments in common
- 55. Our funding policy is to comply with the Employee stock, bonds, guaranteed investment contracts, cash Retirement income Security Act of 1974 guidelines, equivalent securities and real estate.
In 1993, we ofTered the VTP, an early retirement pro-gram. Operating expenses for 1993 included S205 million (b) Other Postretirement Benefits of pension plan accruals to cover enhanced VTP benefits We sponsor a postretirement benefit plan which provides and an additional $10 million of pension costs for VTP all employee groups certain health care, death and other benefits paid to retirees from corporate funds. The $10 postretirement benefits other than pensions. The plan is million is not included in the pension data reported in the contributory, with retiree contributions adjusted annu-following table. A credit of SSI million resulting from a ally. The plan is not funded. We adopted SFAS 106, the i settlement of pension obligations through lump sum accounting standard for postretirement benefits other l payments to almost all the VTP retirees partially ofTset than pensions, efTective January 1,1993. The standard the VTP expenses. requires the accrual of the expected costs of such benefits (Centerior Energy) F-20 (Centerior Energy)
during the employees
- years of sesvice. Prior to 1993, the (10) (suurantees costs of these benefits were expensed as paid, which was .
. Cleveland Electne has guaranteed certain loan and Icase consistent with ratemak.ing practices. .
obligations of two coal supph.ers under two long-term The components of the total postrctirement benefit costs coal supply contracts. Toledo Edison is a party to one of for 1994 and 1993 were as follows: these contracts. At December 31,1994, the principal i
[
dollars) amount of the loan and lease obligations guaranteed by the Operating Companies under both contracts was $67
)
service cost for benefits earned during the period 52 5 3 million. In addition, under the contract to which Toledo Interest cost on accumulated postretirement benefit 18 6 Edison is not a party, Cleveland Electric may be Amortization of transition obligation at January 1,1993 responsible for mine closing' costs when the contract is of si67 million over 20 years 8 8 terminated. At December 31,1994, the unfunded costs of VTP curtailment cost (includes $16 million transition . .
closing th.is mine as estimated by the supplier were $54 obligation adjustment) - g4 Total costs E ILI), million.
The prices under both contracts which include certain In 1994 and 1993, we deferred incremental SFAS 106 minimum Payments are sufficient to satisfy the loan and expenses (in excess of the amounts paid) of $6 million lease obligations and mme closing costs over the hves of and $96 million, respectively, pursuant to a provision of the c ntracts. If either contract is terminated early for the Rate Stabilization Program. See Note 7.
any reason, the Operating Companies would attempt to The cccumulated postretirement benefit obligation and reduce the termination charges and would ask the accrued postretirement benefit cost are as follows: PUCO to allow recovery of such charges from customers pecember 31. through the fuel factor of the respective Operating
'"4 W93 Company.
(millions of Accumulated postretirement benefit obligation [7l) b4f[l4[fEdl[04 citributable to:
Retired participants $(203) $(229)
(a) Capital Stock Transactions and Common I ully eligible active plan participants (1) (1) Shares Resened for Issue Other active plan participants I.H) ,, R][) Shares sold, retired and purchased for treasury during the Accumulated postrctirement benefit obligation (258)
Unrecognized net loss (gain) from variance betwecI (225) N" MU "N" N ' ON
- N *. b assumptions and experience (23) 14 following table.
Unamortized transition obligation _j.M I43 1994 .!991 1992 Accrued postretirement benefit cost included in (thousands of shares)
J Retirement Benefits in the Balance sheet _,,,,_ $ ,1 ) M Lni,) Centerior Energy Common stock:
Dividend Reinvcstment and stock ,
Purchase Plan 683 3.542 2.570 A September 30,1994 measurement date was used for Employee savings Pian 259 544 322 1994 reporting. At December 31,1994 and 1993, the Employee Purchase Plan 46 _R -
'" n St ck saics 988 4,1 settlement rate and the long-term rate of annual compen. Trb'u' sha e sation increase assumptions were the same as those Net increase 4RR 4,,$ M,J,o discussed for pension reporting in Note 9(a). At Decem- Preferred stock or subsidiaries subject ber 31,1994, the assumed annual health care cost trend to$8"p'd E ec es rates (applicable to gross eligible charges) are 8.5% for s90.00 series s - - 75 lectne Retirements medical and 8% for dental in 1995. Both rates reduce cigvgd gradually to a fixed rate of 4.75% by 2003. Elements of 88.00 Series E (3) (3) (3) the obligation afTected by contribution caps are signifi-
' M (' ]
^dd"i2$$ Is -
cantly less sensitive to the health care cost trend rate than Toledo Edison Retirements stoo par si - -
other elements. If the assumed health care cost trend ) { )
rates were increased by one percentage point in each 25 par 2.81 (800) (800) -
future year, the accumulated postrctirement benefit obli. Preferre oc of ubsid ar es t gation as of December 31,1994 would increase by $7 Cleveland Electric Sales million and the aggregate of the service and interest cost 54 40 ci,,,j,,d ctr Retirements components of the annual postretirement benefit cost Remarketed series P - -
(1) ,
would increase by 50.5 million. Net (Decrease; ti ti4) J,stn) 3 (Centerior Energy) F-21 (Centerior Energy) r - - ~ _ _m _ _ _ _ _ - - - -
Shares of common stock required for our stock plans in (c) Preferred and Preference Stock 1994 were either acquired in the open market or issued as Am unts to be paid for preferred stock which must be shres.
redeemed during the next five years are $47 million in The Board of Directors has authorized the purchase in the 1995,$31 million in both 1996 and 1997, $16 million in open market of up to 1,500,000 shares of our common 1998 and $35 million in 1999, stock until June 30.1996. As of December 31,1994, The annual mandatory redemption provisions are as 225,500 shares had been purchased at a total cost of $4 I"**
million. Such shares are being held as treasury stock. shares To Price Be Beginning Per Redeemed in shar, The number of common stock shares reserved for issue Cleveland Electric Preferred:
under the Employee Savings Plan and the Employee s 135 Senes c p p $m Purchase Plan was 1,702,849 and 423,797, respectively, at December 31,1994.
- *N*' ' *
Adjustable Series M 100.000 1991 100 5 se es i Under an Equity Compensation Plan (Plan) adopted in ,
1994, options to purchase shares of common stock and 88.00 Series R 50,000 2001' I,000 restricted common stock awards were granted to manage- 90.00 3,,;e,3 g g,73o g9g9 1.000 ment employees. Options were issued for 264,900 shares Toledo Edison Preferred:
at an exercise price of $13.20. The options expire 10 siOO par $9.375 16.650 1985 100 years from the date of the grant and vest over four years. 25 par 2.81 400.000 1993 25 The number of shares available for issuance under the
- All outstanding shares to be redeemed on December 8,2001.
Plan each year is determined by formula, generally 0.5%
of outstanding shares. The options and stock grants for In 1993, Cleveland Electric issued $100 million principal 1994 are conditioned upon the approval of the Plan by amount of Serial Preferred Stock, $42.40 Series T, The Centerior Energy common stock share owners at their Series T stock was deposited with an agent which issued April 1995 annual meeting. Shares of common stock Depositary Receipts, each representing % of a share of required for the Plan may be either issued as new shares, the Series T stock.
issued from treasury stock or acquired in the open market specifically for distribution under the Plan. The annualized preferred dividend requirement for the Operating Companies at December 31,1994 was $63 (b) Equity Distribution Restrictions million.
The Operating Companies make cash available for the The preferred dividend rates on Cleveland Electric's Se-funding of Centerior Energy's common stock dividends by ries L and M and Toledo Edison's Series A and B .
paying dividends on their respective common stock, fluctuate based on prevailing interest rates and market which are held solely by Centenor Energy. Federal law conditions. The dividend rates for these issues averaged prohibits the Operating Companies from paying divy 7.17%, 7.01%, 7.66% and 8.44%, respectively, in 1994.
dends out of capital accounts. Ilowever, the Operatmg Companies may pay preferred and common stock divi- Preference stock authorized for the Operating Companies dends out of appropriated retained earnings and current are 3,000,000 shares without par value for Cleveland earnings. At December 31,1994, Cleveland Electric and Electric and 5,000,000 shares with a $25 par value for Toledo Edison had $144 million and $104 million, Toledo Edison. No preference shares are currently out-respectively, of appropriated retained earnings for the standing for either company.
payment of dividends. liowever, Toledo Edison is prohib-ited from paying a common stock dividend by a provision With respect to dividend and liquidation rights, each in its mortgage that essentially requires such dividends Operating Company's preferred stock is prior to its prefer-to be paid out of the total balance of retained earnings, ence stock and common stock, and each Operating which currently is a deficit. Company's preference stock is prior to its common stock.
(Centerior Energy) F 22 (Centerior Energy)
1 ratios, fixed charge coverage ratios and limitations on (d) Long-Term Debt end Other
~ Berrcwing Arrangem:nts secured financing other than through first mortgage bonds r certain other transactions. Two reimbursement agree- ,
Long-term debt,less current maturities, for the Operating ments relatmg to separate letters of credit issued in Companies was as follows: connection with the sale and leaseback of Ileaver Valley or Average Unit 2 contain several financial covenants affecting -
I"),"
n ,i Centerior Energy and the Operating Companies. Among these are covenants relating to fixed charge coverage year or Maturiev ##**Y i99 4 1 j ratios and capitalization ratios. The write-offs recorded at iminions or dollars) December 31,1993 caused Centerior Energy and the a ng ga ce caen nts con-1 13.75 % $ 17 5 21 tamed m a Cleveland Electric loan agreement and the two 7.00 3 4 1996 1999 reimbursement agreements. The affected creditors 18 Ig 1997 1999 10.88 6.125 31 31 waived those violations in exchange for a subordinate 1997 1998 10.00 I mortgage security interest on the Operating Companies' 6.20 2 2 1999 properties. We provided the same security interest to certain other creditors because their agreements require 004 202 202 equal treatment. At December 31,1994, the Operating 2005 2009 8.33 8.13 3% 396 Companies provided subordinate mortgage collateral for 2010-2014 2015 2019 8.00 526 526 $197 million of unsecured debt, $228 million of bank 2020-2023 8.53 666 666 letters of credit and a $205 million revolving credit 2.565 2.574 facility.
. Secured medium term notes duc :
19 % -2021 8.60 766 963 9.07 63 154 Term bank loans duc 1996 9.49 25 43 Short-Term Borrom.ng Notes duc 1996 t997 !
ocoentures duc 2002 8a0 i35 ns Arrangements Pollution control notes duc 1996 I 2015 1030 151 158 Centerior Energy has a $205 million revolving credit 516 7 540 9 I* Y b "Y # 8Y * .
r o al ons-Term Debt Service Company may borrow under the facility, with all l borrowings jointly and severally guaranteed by the Oper-Long-term debt matures during the next five years as atmg Compames. Centerior Energy plans to transfer any follows: $326 million in 1995,$243 million in 1996,$95 f its borrowed funds to the Operating Compames. The million in 1997, $117 million in 1998 and $277 million in ,
facility agreement as amended provides the participalmg g 999, banks with a subordinate mortgage security interest on ,
The Operating Companies issued $266 million aggregate the Operating Companies' properties. The banks' fee is principal amount of secured medium-term notes in 1992 0.625% per annum payable quarterly in addition to inter-and 1993. The notes are secured by first mortgage est on any borrowings. There were no borrowings under ;
bonds. the facility at December 31,1994. The facility agree-ment contains covenants relating to capitalization and The mortgages of the Operating Companies constitute fixed charge coverage ratios.
direct first liens on substantially all property owned and franchises held by them. Excluded from the liens, among Short term borrowing capacity authorized by the PUCO other things, are cash, securities, accounts receivable, annually is $300 million for Cleveland Electric and $150 fuel, supplies and, in the case of Toledo Edison, automo- million for Toledo Edison. The Operating Companies tive equipment. are authorized by the PUCO to borrow from each other n a short-term basis. .)
Certain unsecured loan agreements of the Operating Companies contain covenants relating to capitalization l
1 I
i l
F-23 (Centerior Energy)
(Centerior Energy)
{ (13) FinancialInstruments (14) Quarterly Results of Operations I Except for the Nuclear Plaat Decommissioning Trusts at (Unaudited)
December 31 1994, as discussed below, tne estimated fair values at December 31,1994 and 1993 of financial The following is a tabulation of the unaudited quarterly instruments that do not approximate their carrying results of operations for the two years ended December amounts in the Balance Sheet are as follows: 33'I994-ny,,,g,, 3 t Ouarters Ended
,994 ,993 March 31. June 30. Sert. 30. Dec. 31.
Carrying i air Carrying Fair (millions of dollars.
A mount Value Amount ,Yit!st. CACCPt per share amounts)
(millions of dollars) I994 Assets: Operating Revenues $588 $596 $667 $ $70 Nuclear Plant Decommissioning Operating Income $129 $134 $186 $ ' 129 i Trusts $ 82 5 82 $ 56 5 59 Net Income 5 35 5 42 $ 92 3 35 Capitaliation and Liabilitics: Average Common Shares Preferred Stock, with Mandatory (millions) 147.4 147.9 148.0 148.0 Redemption Provisions Earnings Per Common (including current portion) ,, 300 264 354 349 Sharc $.24 $.28 $.62 $ .24 Long Term Debt (including Dividends Paid Per currcnt portion) 4.031 3.628 4.113 4.260 Common Share $.20 $ .20 5 .20 $ .20 3"3 The Nuclear Plant Decommissioning Trusts at Decem-
! ber 31,1994 included $46 million of federal governmental P*I"8 "***""** "'8 "8' " 3
- Operating income (Loss) ., $122 $106 $ (42) i
, , . $126 securities and $31 milh.on of mum. .cipal securities. The Nei wom s) $ 35 5 34 5 17 $(1,029) securities had the following maturities: $19 million duc 3,,,,,, com,,, 3 3,,,,
within one year; $16 million due in one to five years; $17 (miiiions) 143.4 144.4 145.3 146.4 million due in six to 10 years; and $25 million due after Earnings (Loss) Per 10 years. The fair value of these trusts is estimated Common Share $ .25 5.23 S.12 $ (7.02) based on the quoted market prices for the investment Dividends Paid Per
. Common Sharc - $ .40 $.40 $ .40 $ .40 securities. As a result of adopt,ng i the new account.ing standard for certain investments in debt and equity securi- Earnings for the quarter ended September 30,1993 were ties, SFAS 115, in 1994, the carrying amount of these decreased by $81 million, or $.56 per share, as a result of trusts is equal to the fair value. The fair value of the the recording of $125 million of VTP pension-related Operating Companies' preferred stock, with mandatory benefits.
redemption provisions, and long-term debt is estimated Earnings for the quarter ended December 31,1993 were -
based on the quoted market prices for the respective or decreased as a result of year-end adjustments for the ,
3 similar issues or on the basis of the discounted value of
$583 million write-off of Perry Unit 2 (see Note 4(b)), i future cash flows. The discounted value used current the $877 million write-off of the phase-in deferrals (see .
dividend or interest rates (or other appropriate rates) for Note 7) and $58 million of other charges. These adjust-l similar issues and loans with the same remaining ments decreased quarterly earnings by $1.06 billion, or l maturities.
$7.24 per share.
The estimated fair values of all other financialinstru-ments approximate their carrying amounts in the Balance Sheci at December 31,1994 and 1993 because of their short-term nature.
l (Centerior Energy) F-24 (Centerior Energy)
1 1 Financial and Statistical Review i 1
Operating Retenues (millions of dollars)
Steam Total Total Total lleatmg Operaung Reisil Wholesale E lectric & Gas Revenues Rendential Commercial indusmal Other Yent 758 137 2 375 46 2 421 - $2 421
$758 722 1994- I 754 143 2 381 93 2 474 - 2 474 199.! 768 716 766 143 2 347 91 2 438 - 2 438 1992 732 7%
783 188 2 471 89 2 560 - 2 560 1991 777 723 779 190 2 357 70 2 427 - 2 427 1990 719 669 636 88 1726 24 I750 24 I 774 1984 548 454 Operating Expenses (millions of dollars)
Generation Deferred Other Federal Total
' facibues Depreciation Tunes. Operaung l uel a Operation Operating
& Rental & Other Than Lapenses, iner ie f*vr6hused Net Tia L spenws Power Mainsnance Espense. Net Amanaation FIT Year 595 160 278 309 (55) 114 $l 843 1994 $442 159 258 312 23(b) 11 2 161 1993 474 924(a) 16! 256 318 (52) 122 1 901 1992 473 623 305 (6) 138 1 981 1991 500 633 168 243(c) 165 242 283 (34) 96 I 922 1990 472 698 145 179 - 198 1 389 1984 463 404 -
income (Loss) (millions of <Silars)
Federal Income Other Deferred Income (Loss) income & Carrying Tases- llerore Charges, Credit interest Debs Operaung AI UDC- Deductions.
(l'apense) Charges interest income fouity Net Net Year 8 40 (6) 625 361 1994 1578 5 (649)(b) 398 (522) 359 1993 313 5 (589)(d) ;
9 100 (7) 641 365 1992 537 2 674 381 l 1991 579 9 6 110 (30) -
205 (13) 704 384 l 1990 505 8 (1) 213 12 - 69 679 310 .
l 1984 355 l
Income (Loss) (millions of dollars) Common Stock (dollars per share & %) l j
Return on '
Average Average Preferred &
Preference Net Shares Common Outstanding Earnings Stock Dividends flook Al UDC- Stoc k Income l ouirv Declared Value Dcht Deudends d oss) I mdhons) (LosO
\ car 66 $ 204 147.8 $ 1.38 11,1 % $ .80 $12.71 199J $ (6) 1.60 12.14 I 1993 (5) 67 (943) 144.9 (6.51) (40.3) 141.7 1.50 7.4 1.60 20.22 1992 (1) 65 212 237 139.1 1.71 8.4 1.60 20.37 1991 (5) 61 264 138.9 1.90 9.4 1.60 20.30 1990 (6) 62 78 367 107.6(c) 3.41 (c) 16.4 2.29(c/ 20.64(c) 1984 (76)
\0TE IVM data is the roult of combming and ressatmg data for the Operating Companies. ,
I tat Imludes early retirement program expenses and other charges of $272 mullion in 1993. j
' bi Ins lades write ep of phase-in deferrals of $877 malli m in 1993. consisting of 5I72 million ofdeferred operating expenses and 5705 million ofdeferred
}
carrs Ing charges.
\
'c) in IV91, the Operatmg Companie.t adopted a change in accountingfor nuclear plant depreciation. changingfrom the units-of-production method to l the stratxht-line method at a 2R rate.
(Centerior Energy) F 25 (Centerior Energy)
Centreior Enero Corpomtion and Subsidwries Electric Sales (millions of KWH) Electric Customers (year end) Residential Usage Average Average A veray: Pnce Revenue '
!ndustrial A%)I Per Per Per Year H esnients.d Commercial Industrial Wholesale Other Total Residential Commercial & Other Total Customer KWH Custome:
1994 _ 6 980 7 481 12 069 1 842 1 074 29 446 925 344 97 530 1I360 1 034 234 7 556 10.86c $820.89 1993 _ 6 974 7 306 11 687 3 027 1 022 30 016 924 227 96 491 12 219 1 032 937 7 546 l 1.01 830.99 1992 _ 6 666 7 086 11 551 2 814 1 011 29 128 925 099 96 813 12 741 1 034 653 7 227 10.98 793.68 1991 _ 6 981 7 176 11 559 2 690 1 048 29 454 921 995 96 449 12 843 1 031 287 7 410 11.16 827.10 1990 _ 6 666 6 848 12 168 2 487 959 29 128 918 965 94 522 12 906 1 026 393 7 079 10.82 765.93 1934 _ 6 404 5 794 II 441 578 871 25 088 888 816 85 825 11 850 986 491 7 035 8.56 603.92 Load (MW & %) Energy (millions of KWil) Fuel Net Company Generated Efficiency ~
Scanonal reak Capacity Load Purchased Fuel Cost BTU Per Year Capability 1.nad Marrm f actor f ossil Nuclear Total Power Total Per KWH KWH 1994 6 226 5 291 15.0 % 63.9% 18 146 II 824 29 970 922 30 892 1.35c 10 454 1993 6 226 5 397 13.3 61.6 21 105 10 435 31 540 273 31 813 1.39 10 276 1992 6 463 5 091 21.2 63.4 17 371 13 814 31 185 31 063 (122) 1.45 10 395 1991 6 460 5 361 17.0 62.9 18 041 13 454 31 495 40 31 535 1.48 10 442 1990 6 437 5 261 18.3 63 6 21 114 9 481 30 595 413 31 008 1.52 10 354 1984 5 384 4 659 13.5 66.1 19 930 4 303 24 233 2 621 26 854 1.71 10 349 '
Imestment (millions of dollars)
Construction
% ork in Total Utihty Accumulated Progress Nuclear Plant in Depreciation &
Property. Utility Net & Perry Fuel and Plant and Plant Total i rat 5;cruce Amortiration Plant Unit 2 Other Eauipenent Addnions As ets 1994 59 770 2 906 6 864 129 343 $7 336 $197 $10 691 1993 9 571 2 677 6 894 181 385 7 460 218 10 710 1992 9 449 2 488 6 961 781 424 8 166 200 12 071 1991 8 888 2 274 6 614 853 503 7 970 204 11829 1990 8 636 2 039 6 597 921 568 8 086 251 11 681i 1984 4 282 1 164 3 II8 3 527 485(f) 7 130 939 8 050 Capitalization (millions of dollars & %)
Preferred & Preference Preferred Stock. without Stock, with Mandatory Mandatory Redempuon 4 car Common Riack I'auity Redemption Provi..ons Provmons Long-Term Debt Total 1996 51 882 30% 253 4% 45I 7% 3 697 $9% $6 283 1993 1 785 27 313 5 451 7 4 019 61 6 568 1992 2 889 39 364 5 354 5 3 694 51 7 301 1991 2 855 38 332 4 427 6 3 841 52 7 455 1990 2 810 39 237 3 427 6 3 729 52 7 203 19#4 2 403 39 451 7 344 6 2 994 48 6 192 ds in,ludn u rar-off of Perry Unit 2 of 5.M3 niillion in 1993.
cet Ascrage shares ournandmg and related per share computations reflect the Cleveland Electric 1.ll-for-one exchange ratio and she Toledo Edison one-for-one etchange varinfor Crnternor Enero shores at Ihr date of affiliation. April 29. IM6.
'f) Rena:rdfor offwts of carisa!r:ation of nuclearfuelicose andfmancing arrangements pursuant av Statement of Financial Accounsing Standards 71.
(Centerior Energy) F-26 (Centerior Energy)
in our opinion, the financial statements referred to above 4 j
Rcport of Independent present fairly, .m all material respects, the financ. ia l posi.
Publ,c. i Accountants tion of The Cleveland Electric illuminating Company and subsidiaries as of December 31,1994 and 1993, and To the Sharc Owners and the results of their operations and their cash flows for Bo2rd of Directors of-
~ The Cleveland Electric illuminating Company: each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting We have audited the accompanying consolidated balance . .
E"" E
sheet and consolidated statement of preferred stock of l
The Cleveland Electric illuminating Company (a wholly As discussed further in Note 9, a change was made in the owned subsidiary of Centerior Energy Corporation) and method of accounting for postretirement benefits other subsidiaries as of December 31,1994 and 1993, and the than pensions in 1993.
related consolidated statements of income, retained earn-Our audits were made for the purpose of forming an ings and cash flows for each of the three years in the pini n on the basic financial statements taken as a period ended December 31,1994. These financial state-whole. The schedule of The Cleveland Electric illuminat-ments and the schedule referred to below are the re-ing Company and subsidiaries listed in the index to sponsibility of the Company's management. Our Schedules is presented for purposes of complying with responsibility is to express an opinion on these financial the Securities and Exchange Commission's rules and is statements and the schedule based on our audits.
not part of the basic financial statements. This schedule We conducted our audits in accordance with generally has been subjected to the auditing procedures applied in accepted auditing standards. Those standards require that the audits of the basic financial statements and, in our we plan and perform the audit to obtain reasonable opinion, fairly states in all material respects the financial assurance about whether the financial statements are free data required to be set forth therein in relation to the of material misstatement. An audit includes examining, basic financial statements taken as a whole, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as Arthur Andersen LLP evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for Cleveland, Ohio our opinion. February 17, 1995 ,
I I
(Cleveland Electric) F-27 (Cleveland Electric)
(PUCO) to be efTective in 1996. Meaningful cost control Management,s Financial Analysis and marteiing strategies will mitigate the need for addi-gg. tional rate increases and help us meet competition.
Strategic Plan Competition We made significant strides in achieving the objectives of We are implementing strategies designed to create and the comprehensive strategic action plan announced in enhance our competitive advantages and to overcome the January 1994. Centerior Energy Corporation (Centerior competitive disadvantages that we face due to regulatory Energy), along with The Cleveland Electric illuminat- and tax constraints and our high retail cost structure.
ing Company (Company) and The Toledo Edison Com- Currently our most pressing competition comes from two pany (Toledo Edison), created the strategic plan to municipal electric systems in our service area. Our rates strengthen their financial and competitive position are generally higher than those of the two municipal through the year 2001. The Company and Toledo Edison systems due largely to their exemption from taxation, the are the two wholly owned electric utility subsidiaries of lower cost financing available to them, the continued Centerior Energy. The plan's objectives relate to the availability to them of lower cost power through short-combined operations of all three companies. The objec- term power purchases and their access to cheaper govern-tives are to achieve profitab!c revenue growth, become an mental power. We are seeking to address the tax dispar-industry leader in customer satisfaction, build a winning ity through the legislative process. In 1994, the Ohio employee team, attain increasingly competitive power Governor's Tax Commission recommended the replace-supply costs and maximize share owner return on Center-ment of the gross receipts and personal property taxes ior Energy common stock. To achieve these objectives, currently levied only on investor-owned utilities and we will continue to control expenditures and reduce our collected through rates with a difTerent tax collected from outstanding debt and preferred stock. In addition, we will customers of all electric utilities, including municipal increase revenues by finding new uses for existing assets systems. Investor-owned utilities would reduce rates upon and resources, implementing new marketing programs repeal of the existing taxes. We are now working to and restructuring rates when appropriate. We will also submit this proposal to the Ohio legislature.
improve the operating performance of our generating plants and take other appropriate actions. We face the threat that municipalities in our service area could establish new systems and continue expanding During 1994, we made progress toward most of our long- existing systems. We are responding with aggressive mar-term objectives. The Company and Toledo Edison initi- keting programs and by emphasizing the value of our ated a marketing plan designed to increase total retail service and the risks of a municipal system: substantial, revenues (exclusive of fuel cost recovery revenues and long-term debt; no guarantee of low-cost wholesale elec- ,
weather influences) by 2-3% annually through 2001. Our tricity; the difficulty of forecasting costs; and the uncer-new customer service activities are intended to raise our tainty of market share as a result of our aggressive customer satisfaction rating. Our employees achieved competition. Generally, these municipalities have deter-enough of their established objectives for the year to mined that developing a system is not feasible or have receive a $500 per cligible employee incentive compensa- agreed with us not to pursue development of a system at tion award. The work undertaken during refueling out- this time. Although some communities continue to be !
ages at the Davis-llesse Nuclear Power Station (Davis- interested in municipalization, we believe that we offer llesse) and Perry Nuclear Power Plant Unit I (Perry the best value and most reliable source of electric service Unit I) as well as the outage work at our fossil-fueled in our territory.
plants should help us achieve our long-term objective of reducing variable power costs to a more competitive The larger mum. .cipal system in our service area, Cleve-level. Strong cash flow continued in 1994 and the Com- land Public Power (CPP), is constructing new transmis-pany s fixed-income obligations were reduced by 577 sion and distnbution facihties extending into eastern million. Also, the Company's total operation and mainte- p rn ns f n a plan to evand m nance expenses dech. ned $71 m.dlion, exclus.ive of one- western portions of Cleveland. CPP's expansion reduced time charges m. 1993. our annual net income by about $4 milh.on m 1993 and an additional 53 m. h.d on.in 1994. We estimate our net We are taking aggressive steps to increase revenues income will continue to be reduced by an additional $4 through our enhanced marketing plan and to control million to 55 million each year in the 1995-1999 period costs. T he full impact of these elTorts will take time. In because of CPP's expansion. Despite CPP's cyansion the meantime, the Company and Toledo Edison must efforts, we have been successful in retaining most of the raise rescnues by restructuring rates. Accordingly, the large industrial and commercial customers in the expan-Company and Toledo Edison are preparing to file a sion areas by providing economic incentives in exchange request with The Public Utilities Commission of Ohio for sole-supplier contracts. We base similar contrcts (Cleveland Electric) F 28 (Cleveland Electric)
i with customers in other parts of our service area. Approxi- regulatory assets and (2) a significant change in the mat:ly 90% of our industrial revenues under contract will manner in which rates are set by the PUCO from cost-not be up for renewal until 1997 or later. As these based regulations to some other form of regulations. In {
contracts expire, we expect to renegotiate them and retain the event we determine that the Company no longer ,
the customers. In addition, an increasing number of CPP meets the criteria for following SFAS 71, the Company customers are converting back to our service. would be required to record a before tax charge to write oft the regulatory assets shown in Note 7. In addition, we The Energy Policy Act of 1992 willincrease competition would be required to evaluate whether the changes in the in the electric utility industry by allowing broader access competitive and regulatory environment which led to '
to a utility's transmission system. It should not signifi- discontinuing the application of SFAS 71 would also cantly increase the competitive threat to us since we have result in an impairment of the net book value of the been required to wheel electricity to municipal systems Company's property, plant and equipment.
in our service area since 1977 under operating licenses for our nuclear generating units. Further, the government The Company's write offin 1993 of the phase-in deferred could eventually require utilities to deliver power from operating expenses and carrying charges (phase-in defer-other utilities or generation sources to their retail custom- rals) discussed in Note 7 resulted from our conclusion ers. To combat this threat, we are ofTering incentives that projected revenues for the 1994-1998 period would such as energy-efficiency improvements and reductions in not provide for recovery of such deferrals as scheduled by demand charges for increased electricity usage to our the PUCO order. This short time frame for recovery of industrial and commercial customers in return for long- the phase-in deferrals is a requirement under the account-term commitments. ing standard for phase-in plans of regulated enterprises, SFAS 92. The remaining recovery periods for all remain-Rate Matters ing regulatory assets are between 17 and 34 years. We believe the Company's rates will provide for recovery of Under the Rate Stabilization Program discussed in Note these assets over the relevant periods and SFAS 71 7, we agreed to freeze base rates until 1996 and limit rate continues to apply, increases through 1998. In exchange, we are permitted to defer through 1995 and subsequently recover certain costs not currently recovered in rates and to accelerate Nuclear Operations the amortization of certain benefits. Amortization and recovery of the deferrals are expected to begin in 1996 The Company has interests in three nuclear generating ,
with future rate recognition and will continue over the units- Davis-Besse Perry Unit I and Beaver Valley average life of the related assets, or between 17 and 30 Power Station Unit 2 (Beaver Valley Unit 2). Toledo years. The continued use of these regulatory accounting Edison operates Davis-Besse and the Company operates measures in 1995 will be dependent upon our continu- Perry Unit 1. Davis-Besse and Beaver Valley Unit 2 ,
ing assessment and conclusion that there will be probable have been operating extremely well, with each unit having recovery of such deferrals in future rates. Our analysis a three-year availability average at year-end 1994 that leading to certain year-end 1993 financial actions and the exceeded the three-year industry average of 80% for similar reactors. Ilowever, the three-year availability av-strategic plan also included an evaluation of our regula-tory accounting measures. See Regulatory Accounting crage of Perry Unit I was below the three-year industry below and Note 7. We decided that, once the deferral of availability average for that reactor type, expenses and acceleration of benefits under the Rate in 1994. Davis-Besse had an availability factor of SSE Stabilization Program are completed in 1995, we should Further, Davis-Besse completed the shortest refueling no longer plan to use these measures to the extent we and maintenance outage in its history in 1994, returning have in the past.
to service just 46 days after shutting down. The Com-pany is in the process of upgrading Perry Unit I to the Regulatory Accounting same level. For seven months in 1994, Perry Unit I was As described in Notes 1(a) and 7, the Company complies out of service for its fourth refueling and maintenance with the provisions of Statement of Financial Accounting outage. Work was also performed in connection with the Standards (SFAS) 71. We continually monitor changes comprehensive course of action developed in 1993 to in market and regulatory conditions and consider the improve the operating performance of Perry Unit 1.
efTects of such changes in assessing the continuing appli- Work in connection with that course of action is ongoing.
cability of SFAS 71. Criteria that could give rise to discontinuation of the application of SFAS 71 include: We externally fund the estimated costs for the future (1) increasing competition which significantly restricts decommissioning of our nuclear units. In 1993 and 1994, the Company's ability to establish rates to recover operat- we increased our decommissioning expense accruals be-ing costs, return requirements and the amortization of cause of revisions in our cost estimates. See Note 1(c). <
(Cleveland Electric) F-29 (Cleveland Electric)
,Our nuclect units may be impacted by activities or events dividend demand on the Company. The Company is using beyond our control. Operating nuclear units have exper- the increased retained cash to redeem debt and preferred !
ienced unplanned outages or extensions of scheduled stock more quickly than would otherwise be the case.
outages because of equipment problems or new regula- This has helped improve the Company's capitalization tory requirements. A major accident at a nuclear facility structure and fixed charge coverage ratios. ;
anywhere in the world could cause the Nuclear Regula- '
tory Commission to limit or prohibit the operation or Merger of Toledo Edison into the Company licensing of any domestic nuclear unit. If one of our nuclear units is taken out of service for an extended period We continue to seek the necessary regulatory approvals to - ,
for any reason, including an accident at such unit or any c mplete the merger of Toledo Edison into the Company !
other nuclear facility, we cannot predict whether regula- which was announced in 1994. The Company and tory authorities would impose unfavorable rate treat- Toledo Edison plan to seek preferred stock share owner j ment. Such treatment could include taking our affected approval in mid-1995. The merger is expected to be i unit out of rate base, thereby not permitting us to recover effective in 1995. See Note 15.
our investment in and earn a return on it, or disallowing '
certain construction or maintenance costs. An extended inflation !
outage coupled with unfavorable rate treatment could Although the rate of inflation has cased in recent years, 1 have a material adverse effect on our financial condition we are still affected by even modest inflation which causes l and results of operations.
increases in the unit cost oflabor, materials and services. '
i llazardous Waste Disposal Sites . . . !
Capital Resources and Liquidity .
The Comprehensive Environmental Response, Compen- 1 sation and Liability Act of 1980 as amended 1992-1994 Cash Requirements i (Superfund) established programs addressing the cleanup We need cash for normal corporate operations, the of hazardous waste disposal sites, emergency prepared- mandatory retirement of securities and constructing and i ness and other issues. The Company has been named as a modifying facilities. Construction is needed to meet antic-
"potentially responsible party" (PRP) for three sites ipated demand for electric service, comply with govern-listed on the Superfuel National Priorities List ment regulations and protect the environment. Over the 1 (Superfund List) and is aware of its potential involve- three-year period 1992-1994, construction and mandatory I ment in the cleanup of several other sites. Allegations that retirement needs totaled approximately $940 million. In l the Company disposed of hazardous waste at these sites, addition, we exercised options to redeem and purchase l and the amounts involved, are often unsubstantiated and approximately $470 million of our securities.
subject to dispute. Superfund provides that all PRPs for a particular site can be held liable on a joint and several We raised $989 million through security issues and term basis, if the Company were held liable for 100% of the bank loans during the 1992 1994 period. The Company -
cleanup costs of all of the sites referred to above, the cost also utilized short-term borrowings to help meet its cash '
could be as high as $350 million, llowever, we believe needs. The Company had $58 million of notes payable i that the actual cleanup costs will be substantially lower to affiliates at December 31,1994. See Note 12. Although than $350 million, that the Company's share of any write-offs of the Company's Perry Nuclear Power Plant cleanup costs will be substantially less than 100% and that Unit 2 (Perry Unit 2) investment and phase-in defer-most of the other PRPs are financially able to contribute rals in 1993 negatively afTected earninEs, they did not their share. The Company has accrued a liability total. adversely affect cash flow. See Notes 4(b) and 7.
ing 58 million at December 31,1994 based on estimates of the costs of cleanup and its proportionate responsibil- 1995 and Beyond Cash Requirements ity for such costs. We believe that the ultimate outcome Estimated cash requirements for 1995-1999 for the Com-of these matters will not have a matenal adverse effect on pany are $802 million for construction and $832 million our financial condition or results of operations, for the mandatory redemption of debt and preferred st ek. The Company expects to finance externally about Common Stock Disidends two-thirds ofits 1995 cash requirements of approximately Centerior Energy's common stock dividend has been $451 million and about one-third of its 1996 cash re-funded in recent years primarily by common stock divi- quirements of approximately 5320 million. The Company dends paid by the Company. We expect this practice to expects to meet nearly all of its 1997-1999 requirements continue for the foreseeable future. In 1994, Centerior through internal cash generation and current cash re-Energy lowered its common stock dividend which re- sources. If economical, additional securities may be re-duced its cash outflow by over $110 million annually, deemed under optional redemption provisions. We This action, in turn, reduced the common stock cash expect that the Company's continued strong cash flow (Cleveland Electric) F-30 (Cleveland Electric)
%Ilions will reduce borrowing requirements and outstanding debt ine,coe < pee,e yc> s m er,,;,,e Revenues or nomes end preferred stock during this period. Kw H sales volume and wi 5 2 Wholesale Revenues (4k)
Fuel Cost Recovery Revenues (13) ,
Cash expenditures to comply with the Clean Air Act
- ccH'" "' R"cauc5 -_f Amendments of 1990 (Clean Air Act) are estimated to be approximately $65 million over the 1995-1999 period.
D"3 E9 See te y ab The Company experienced good retail kilowatt-hour sales growth in the commercial and industrial categories in Liqridity 1994; the residential category was negatively impacted by weather conditions, particularly during the summer. The Additional first mortgage bonds may be issued by the revenue decrease resulted primarily from milder weather .
Company under its mortgage on the basis of property conditions in 1994 and 53% lower wholesale sales.
additions, cap or refundable first mortgage bonds. If the Weather reduced base rate revenues approximately $8 epplicable interest coverage test is met, the Company million from the 1993 amount. Although total sales may issue first mortgage bonds on th: basis of property decreased by 4.6%, commercial sales increased 2.4%.
additions and, under certain circumstances, refundable Industrial sales increased 0.7% on the strength of in-bonds. At December 31,1994, the Company would have creased sales to large automotive manufacturers and the been permitted to issue approximately $487 million of broad-based, smaller industrial customer group. This additional first mortgage bonds. growth substantiated an economic resurgence in North-eastern Ohio. Residential sales declined 0.2% because of The Company also is able to raise funds through the sale the weather factor. Other sales decreased by 42% be-of subordinated debt and preferred and preference stock. cause of the lower sales to wholesale customers attributa-There are no restrictions on the Company's ability t ble to expiration of a wholesale power agreement, softer issue preferred or preference stock. wholesale market conditions and limited power availabil-ity for bulk power transactions at certain times because in 1995, the Company plans to rais: funds through the of generating plant outages. Lower 1994 fuel cost recov-sale of first mortgage bonds and th: collateralization of cry revenues resulted from favorable changes in the fuel accounts receivable. In addition, the Company expects cost factors. The weighted average of these factors i to issue first mortgage bonds as collateral security for th dropped by approximately 5%.
sale by a pubhc authority of tax-exempt bonds.
For 1994, operating revenues were 31% residential,32%
The Company is a party to a $205 million revolving credit commercial, 30% industrial and 7% other and kilowatt-facility which runs through mid-1996. See Note 12. The hour sales were 24% residential,29% commercial,39%
Company had $66 million of cash and temporary cash industrial and 8% other. The average prices per kilowatt- ,
investments at the end of 1994. The Company is unable hour for residential, commercial and industrial customers '
to issue commercial paper because of its below invest- were 5.11, $.09 and $.06, respectively.
ment grade commercial paper ratings.
Operating expenses were 15% lower in 1994. Operation The foregoing financing resources ne expected to be and maintenance expenses for 1993 included $130 million sufficient for the Company's needs over the next several of net benefit expenses related to an early retirement years. Ilowever, the availability and cost of capital to program, called the Voluntary Transition Program meet the Company's external financing needs also depend (VTP), and other charges totaling $35 million. The VTP upon such factors as financial market conditions and its benefit expenses in 1993 consisted of $102 million of credit ratings. Current credit ratings for the Company costs for the Company plus $28 million for the Com-are as follows: pany's pro rata share of the costs for its afliliate, Centerior standed Moodis Service Company (Service Company). Two other signif-icant reasons for lower operation and maintenance ex-dr .n serUcNc.
penses in 1994 were a smaller work force and ongoing hnt mortpre bonds HR Ha2 tinsecured noics H+ Ha3 cost reduction measures. More nuclear generation and Prefctred stock H b2 je3s co3}. fired generation accounted for a large part of the
, lower fuel and purchased power expenses in 1994. Depre-Results of Operations *i 'i " "d * i z 'i " *
- P*"S*5 i" '* 5'd P * 'iiY because of higher nuclear plant decommissioning ex- l 1994 n.1993 penses as discussed in Note 1(e). Deferred operating expenses were greater primarily because of the write-off Factors contributing to the 3% decicase in 1994 operating of $117 million of phase-in deferred operating expenses in i revenues are as follows: 1993 as discussed in Note 7. The 1993 deferrals also (Cleveland Electric) F-31 (Cleveland Electric)
included $52 million of postretirem:nt benefit curtail- increased sales to wholesale customers. The decrease in ment cost deferrals related to the VTP. See Note 9(b). 1993 fuel cost recovery revenues resulted from changes in Federal income taxes increased as a result of higher the fuel cost factors. The weighted average of these pretex operating income. factors decreased approximately 5%. Ilase rates and mis-As discussed in Note 4(b), $351 million of our Perry Unit
""'"Y""'.
lower revenues under contracts having reduced rates with 2 investment was written off in 1993. Also, as discussed certain large customers and a declining rate structure in Note 7, phase in deferred carrying charges of $519
, tied to usage. The contracts have been negotiated to meet million were written off in 1993. The change m the federal income tax credit amounts for nonoperating in- *
- P" " " " * "* " '"8 * * * " " # E **
corr.e was attributable to these write-offs.
For 1993, operating revenues were 31% residential,31%
e mmerci 1, 29% industrial and 9% other and kilowatt-1993 1992 hour0.0231 days <br />0.553 hours <br />0.00329 weeks <br />7.57956e-4 months <br /> sales were 23% residential,27% commercial,37%
Factors contributing to the 0.5% increase in 1993 operat- industrial and 13% other. The average prices per kilo-ing revenues are as follows: watt-hour for residential, commercial and industrial cus-Millions tomers were $.11, S.10 and $.06, respectively. The increase (Decrease) in Oneratine Revenueg of Dollars changes from 1992 were not significant.
KWH Sales Volume and Min 5 27 fuel Cost Recovery Revenues (l3) llac Rates and Miscellaneous (10) Operating expenses increased 12% in 1993. The increase Wholesale Sales J in total operation and maintenance expenses resulted Totat L,s. from the $130 million of net benefit expenses related to the VTP, other charges totaling $35 million and an The revenue increase resulted primarily from the different increase in other operation and maintenance expenses.
weather conditions and the changes in the composition of The increase in other operation and maintenance ex-the sales mix among customer categories. Weather ac- penses resulted from higher environmental expenses, counted for approximately $32 million of higher 1993 power restoration and repair expenses following a July base rate revenues. Ilot summer weather in 1993 boosted 1993 storm, and an increase in other postretirement residential, commercial and wholesale kilowatt-hour benefit expenses. See Note 9 for information on retire-sales. In contrast. the 1992 summer was the coolest in 56 ment benefits. Deferred operating expenses decreased years for Northeastern Ohio. Residential and commer- because of the write-off of the phase-in deferred operating cial sales also increased as a result of colder late-winter expenses in 1993. Federal income taxes decreased as a temperatures in 1993 which increased electric heating. result of lower pretax operating income.
related demand. As a result, total sales increased 2.9% in 1993. Residential and commercial sales increased 4.4% As mentioned above, $351 million of our Perry Unit 2 and 3.1%, respectively. Industrial sales decreased 1%. investment was written off in 1993. Credits for carrying Lower sales to large steel industry customers were par- charges recorded in nonoperating income decreased be-tially offset by increased sales to large automotive manu- cause of the write-off of the phase-in deferred carrying facturers and the broad-based, smaller industrial charges in 1993. The federal income tax credit for nonop-customer group. Other sales increased 12% because of crating income in 1993 resulted from the write-offs.
(Cleveland Electric) F-32 (Cleveland Electric)
The cleveland Electric illuminating Company and Subsideries
.hnCom3 StatCmGnt ,
For the years ended December 31. \
1994 1993 1992 -
(millions of dottars) f
$ 1.698 $1.751 $1.743 Operating Reienues Operating Expenses 391 423 434 ;
Fuel and purchased power (1) '
394 433 410 Other operation and maintenance Generation facilities rental expense, net 56 56 55 L
- 165 -
l Early retirement program expenses and other I 841 1,077 899 Total operation and maintenance 195 182 179 Depreciation and amortization Taxes, other than federal income taxes 218 221 226 -
F Deferred operating expenses, net (34) 27 - (35) 82 22 89 [
Federal income taxes I
1302 1.529 1.358 396 222 385 Operating Income N:noperating Income (Loss)
Allowance for equity funds used during construction 4 4 1 Other income and deductions, net 6 (5) 8 Write off of Perry Unit 2 -
(351) -
Deferred carrying charges, net 25 (487) 59 Federal income taxes - credit (expense) (4) 270 (5) 31 (569) 63 income (less) Before Interest Charges 427 (347) 448 Interest Charges Debt interest 247 244 243 Allowance for borrowed funds used during construction (5) (4) - 3,
. ... 242 240 243 l
185 (587) 205 Net income (Loss) ,
45 45 41 - 'I "
Preferred Diiidend Requirements Earnings (Loss) Available for Common Stock $ 140 $ (632) $ 164 .
(I) includes purchased power expense of $11I million. $I20 million and $130 million in i994,1993 and 1992, respectively, for allpurchasesfrom Toledo Edison.
Retained Earnings l For the years ended December 31.
1994 1993 1992 (millions of dollars)
Retained Earnings (Deficit) at Beginning of Year $DfD) S 545 5 578 Additions 185 (587) 205 Net income (loss)
Deductions Dividends declared:
Common stock (122) (189) (195)
Preferred stock (45) (4g) (43)
Other, primarily preferred stock redemption expenses -
(1) (2)
Net increase (Decrease) 18 (825) (33)
Retained Earnings (Deficit) at End of Year $(262) $(2RO) $ 545 The accompanying notes are an integralpart of these statements.
(Cleveland Electric) F-33 (Cleveland Electric) l
a . c - . -.- - .. .. - -. . -... . .. - - - -.
LBalance Shest
' December 31.
1994 1993 (millions of dollars)
ASSETS ~
Property, Plant and Equipment .'
Utility plant in service $6,871 . $6,734 Less: accumulated depreciation and amortization 2.014 1.889 4,857 4,845 ;
Construction work in progress 99 141 4,956 4,986 {
Nuclear fuel, net of amortization 174 202 .
Other property, less accumulated depreciation .. 21 41 5.151 . 5.229 Current Assets Cash and temporary cash investments 66 77 Amounts due from customers and others, net 146 156 Amounts due from affiliates 5 5 Unbilled revenues 72 99 Materials and supplies, at average cost 95 93 Fossil fuel inventory, at average cost 16 20 Taxes applicable to succeeding years 180 179 Other 4 3 584 $3; Deferred Charges and Other Assets l Amounts due from customers for future federal income taxes 641 586 Unamortized loss on reacquired debt 58 60 Carrying charges and operating expenses 578 519 Nuclear plant decommissioning trusts 44 30 Other 95 10) 1.416 1.298 j Total Assets $7.151 $7.159 The accompanying notes are an integralpart of this statement.
1 (Cleveland Electric) F-34 (Cleveland Electric) l
. - , -. . .- - . . . . - . . - . . ~ . . .-. - . . . . .
The Cleveland Electric illuminating Company and Subsidiaries
< December 31 %
1994 1993 (millions of dollars)
CAPITALIZATION AND LIABILITIES Capitalization Common shares, without par value: 105 million authorized;
$1,241 $1,241
- 79.6 million outstanding in 1994 and 1993 79 79 Other paid-in-capital Retained earnings (deficit) (262) (280) ,
1,058 1,040 Common stock equity Preferred stock With mandatory redemption provisions 246 285 241 241 Without mandatory redemption provisions 2.543 2.793 Long-term debt 4.088 4 359 Current Liabilities 282 70 i Current portion of long-term debt and preferred stock '
47 63 Current portion of nuclear fuel lease obligations 88 122 ;
Accounts payable 118 - 61 !
Accounts and notes payable to affiliates Accrued taxes 310 305 62 60 Accrued interest '
$1 52 Other 958 733 ;
Deferred Credits and Other Liabilities 192 235 !
Unamortized investment tax credits 1,234 1,105 Accumulated deferred federal income taxes Unamortized gain from Bruce Mansfield Plant sale 327 343 i 84 77 Accumulated deferred rents for Bruce Mansfield Plant Nuclear fuel lease obligations 132 151 l 59 52 l Retirement benefits 77 104 l
- Other l
2.105 _1Qfil
$7.I 51 $7,f 59 Total Capitalization and Liabilities .
i i
i (Cleveland Electric) F-35 (Cleveland Electric) j
Casn Flows n a i.,s ei, cmc izi.-...u,, c.-v. .,s s.s s .,i,,
For the years ended December 31.
1994 1993 1992 (millions of dollars)
Cash Flows from Operating Actisities (1)
Net income (Loss) . $ 185 S(587) S 205 Adjustments to Reconcile Net income (Loss) to Cash from Operating Activities:
Depreciation and amortization 195 182 179 Deferred federal income taxes 50 (292) 66 Investment tax credits, net - -
(8)
Unbilled revenues 27 (6) (7)
Deferred fuel (20) 4 6 Deferred carrying charges, net (25) 487 (59)
Leased nuclear fuel amortization 55 47 70 Deferred operating expenses, net (34) 27 (35)
Allowance for equity funds used during construction (4) (4) (1)
Noncash early retirement program expenses, net -
125 -
Write-off of Perry Unit 2 -
351 -
Changes in amounts due from customers and others, net 10 5 6 Changes in inventories 2 17 (2)
Changes in accounts payable (34) 18 7 Changes in working capital afTecting operations 3 29 (4)
Other noncash items 4 5 (11)
Total Adjustments 229 995 207 Net Cash from Operating Activities 414 408 412 Cash Flows from Financing Actisities (2)
Bank loans, commercial paper and other short-term debt -
(10) 10 Notes payable to afTiliates 58 (11) (13)
First mortgage bond issues 46 280 324 Secured medium-term note issues -
35 90 Term bank loan -
40 -
Pteferred stock issues -
100 74 Maturities, redemptions and sinking funds (116) (345) (481)
Nuclear fuel lease obligations (60) (59) (65)
Dividends paid (142) (232) (235) .
Premiums, discounts and expenses (1) (11) (7) '
Net Cash from Financing Activities (215) _(212) (303)
Cash Flows from Investing Actisities (2)
Cash applied to construction (164) (167) (152)
Interest capitalized as allowance for borrowed funds used during construction (5) (4) -
Contributions to nuclear plant decommissioning trusts (14) (5) (5)
Other cash received (applied) (27) 24 (15)
Net Cash from Investing Activities (210) (152) (172)
Net Change in Cash and Temporary Cash Imestments (1I) 43 (63)
Cash and Temporary Cash Imestments at Beginning of Year 77 34 97 Cash and Temporary Cash lmestments at End of Year S 66 $ 77 $ 34 (I) Interest paid (net of amounts capitali:ed) ,cas $208 million, $204 million and $205 million in 1994.1993 and 1992, respectively. Income taxes paid were $15 million in 1994 and $28 million in both 1993 and 1992. l l2) Increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance Sheet resulting from the noncash capitali:ations under nuclearfuel agreements are excludedfrom this statement.
The accompanying notes are an integraly r! this statement.
(Cleveland Electric) F-36 (Cleveland Electric) i
i Statornnt of Preferree stock n a-u,sa caw.....i.ac n.,..ss.s.is.,i, h Current .,
1994 Shares Call Price December 31.
Outstandine Per Share 1994 1993 i
(millions of dollars) ;
Without par value,4,000,000 preferred shares authorized '
Subject to mandatory redemption:
$ 7.35 Series C 140,000 $ 101.00 $ 14 $ 15 '
i 88.00 Series E 18,000 1,019.13 18 21 Adjustable Series M 100,000 100.00 10 20 9.125 Series N 410,766 102.03 41 59 91.50 Series Q 75,000 - 75 75 88.00 Series R 50,000 - 50 - - 50 90.00 Series S 75,000 - 74 74 282 314 !
Less: Current maturities _ 26 _ 29 .
Total Preferred Stock, with Mandatory Redemption Provisions g46, 4
E !
t Not subject to mandatory redemption:
$ 7.40 Series A 500,000 101.00 $ $0 $ 50 7.56 Series B 450,000 102.26 45 45 Adjustable Series L 500,000 100.00 49 49 42.40 Series T 200,000 - 97 97 Total Preferred Stock, without Mandatory Redemption Provisions g!j, g!j, The accompanying notes are an integralpart of this statement.
l t
t i
[
t i
i i
l l
l (Cleveland Electric) F-37 (Cleveland Electric)
A fuel factor is added to the base rates for electric senice.
Notes to the Financial Statements 73;s facio,is designee to recover from customers the costs of fuel and most purchased power. It is reviewed (1) Summary ofSignifcant and adjusted semiannually in a PUCO proceeding.
Accounting Policies (a) General (d) Fuel Expense The Company is an electric utility and a wholly owned The cost of fossil fuel is charged to fuel expense based on subsidiary of Centerior Energy. The Company's fmancial jnvent ry usage. The cost of nuclear fuel, meluding an statements have historically included the accounts of the interest component, is charged to fuel expense based on Com's wholly owned subsidiaries, which in the the rate of consumption. Estimated future nuclear fuel aggregate were not material. During 1994, the Company disposal costs are bemg recovered through base rates.
transferred its investments in its three wholly owned The Company defers the differences between actual fuel subsidiaries to Centerior Energy at cost ($26 million) via costs and estimated fuel costs currently being recovered property dividends. from customers through the fuel factor. This matches The Company follows the Uniform System of Accounts fuel expenses with fuel related revenues.
prescribed by the Federal Energy Regulatory Commis- Owners of nuclear generating plants are assessed by the sion (FERC) and adopted by the PUCO. Rate-regulated federal government for the cost of decontamination and utilities are subject to SFAS 71 which governs account- decommissioning of nuclear enrichment facilities oper-ing for the efTects of certain types of rate regulation. ated by the United States Department of Energy. The Pursuant to SFAS 71, certain incurred costs are deferred assessments are based upon the amount of enrichment for recovery in future rates. See Note 7. services used in prior years and cannot be imposed for The Company is a member of the Central Area Power m re than 15 years (to 2007).The Company has accrued Coordination Group (CAPCO). Other members are To- a liability for its share of the total assessments. These ledo Edison, Duquesne Light Company, Ohio Edison c sts have been recorded m a deferred charge account Company and its wholly owned subsidiary, Pennsylvania since the PUCO is allowing the Company to recover the Power Company The members have constructed and assessments through its fuel cost factors.
operate generation and transmission facilities for their use. (c) Depreciat,on i and Amortizatm, n The cost of property, plant and equipment is depreciated (b) Related I arty Transactions over their estimated useful lives on a straight-line basis. i Operating revenues, operating expenses and interest The annual straight-line depreciation provision for non-charges include those amounts for transactions with aflili- "."CI* P.mputy expressed as a percent of average depre- , ;
ated companies in the ordinary course of business ciable utility plant m service was 3.4% ,m 1994,1993 1 operations. and 1992. The annual straight-hne depreciation rate for I nuclear property is 2.5%
The Company's transactions with Toledo Edison are pri- . .
marily for firm power, interchange power, transmission The Company accrues the estimated costs of decommis- ;
line rentals and jointly owned power plant operations and ""E '.ts hee nelcar generatmg umts. De acuuals are required to be funded in an external trust. The PUCO construction. See Notes 2 and 3.
requires that the expense and payments to the external The Service Company provides management, financial, trusts be determined on a levelized basis by dividing the administrative, engineering, legal and other services at unrecovered decommissioning costs in current dollars by cost to the Company and other affiliated companies. The the remaining years in the licensing period of each unit.
Service Company billed the Company $136 million, $167 This methodology requires that the net earnings on the million and 5150 million in 1994,1993 and 1992, respec- trusts be reinvested therein with the' intent of allowing net tively, for such services. carnings to offset inflation. The PUCO requires that the estimated costs of decommissioning and the funding '
(c) Retenues level be reviewed at least every five years.
Customers are billed on a monthly cycle basis for their In 1994, the Company increased its annual decommis-energy consumption based on rate schedules or contracts sioning expense accruals to 513 million from the $4 authorized by the PUCO. An accrualis made at the end million level in 1992. The accruals are reflected in current of each month to record the estimated amount of rates. The increased accruals were derived from recently unbilled revenues for kilowatt-hours sold in the current updated, site-specific studies for each of the units. The month but not billed by the end of that month. revised estimates reflect the DECON method of decom-(Cleveland Electric) F-38 (Cleveland Electric) ,
i
missioniag (prompt decontamination), and the locations tion ( AFUDC). AFUDC represents the estimated com-and cost characteristics specific to the units, and include posite debt and equity cost of funds used to finance costs asscciated with decontamination, dismantlement construction. This aoncash allowance is credited to in-and site restoration, come. The AFUDC rate was 9.68% in 1994,9.63% in 1993 and 10.56% in 1992.
The revised estimates for the um.ts in 1993 and 1992
- dollars and in dollars at the time of license expiration, Maintenance and repairs for plant and equipment are assuming a 4% annual inflation rate, are as follows: charFed to expense as incurred. The cost of replacing Uccme plant and equipment is charged to the utility plant ac-counts. The cost of property retired plus removal costs, Generatine Unis lr " A mount Nnt after deducting any salvage value, is charged to the (mitiions or dollars) accumulated provision for depreciation.
. Devis.Besse 2017 5178t(I) $ 443 Perry Unit i 2026 156(f) 554 233 (g) Deferred Ga.m from Beaver vattey Unii 2 2027 11(2) g smo Sale of Utility Plant Total The sale and leaseback transaction discussed in Note 2 resulted in a net gain for the sale of the Bruce Mansfield
) r ""[" ;
Generating Plant (Mansfield Plant). The net gain was deferred and is being amortized over the term of leases.
The updated estimates reflect substantial increases from The amortization and the lease expense amounts are the prior PUCO recognized aggregate estimates of $142 reported in the income Statement as Generation Facih,-
million in 1987 and 1986 dollars.
ties Rental Expense, Net.
The classification, Accumulated Depreciation and Amor-tization,in the Balance Sheet at December 31,1994 (h) Interest Charges includes $53 million of decommissioning costs previously Debt Interest reported in the income Statement does not expensed and the earnings on the external trust funding. include interest on obligations for nuclear fuel under This amount exceeds the Balance Sheet amount of the c nstruction. That interest is capitalized. See Note 6.
external Nuclear Plant Decommissioning Trusts because the reserve began prior to the external trust funding.The Losses and gains realized upon the reacquisition or re-trust earnings are recorded as an increase to the trust demption of long-term debt are deferred, consistent with assets and the related component of the decommissioning the regulatory rate treatment. See Note 7. Such losses reserve (included in Accumulated Depreciation and and gains are either amortized over the remainder of the Amortization). original life of the debt issue retired or amortized over the life of the new debt issue when the proceeds of a new The staff or the Securities and Exchange Commission has issue are used for the debt redemption. The amortiza- -
questioned certain of the current accounting practices of tions are included m debt interest expense. ,
the electric utility industry, including those of the Com-pany, regarding the recognition, measurement and clas-sification of decommissioning costs for nuclear generating (i) Federal Income Taxes stations in the financial statements. In response to these The Company uses the liability method of accounting for questions, the Financial Accounting Standards Board is income taxes in accordance with SFAS 109. See Note 8.
reviewing the accounting for removal costs, including This method requires that deferred taxes be recorded for decommissioning, if such current accounting practices all temporary differences between the book and tax bases are changed, the annual provision for decommissioning of assets and liabilities.The majority of these temporary could increase; the estimated cost for decommissioning differences are attributable to property-related basis dif-could be recorded as a liability rather than as accumu- ferences. Included in these basis differences is the equity lated depreciation; and trust fund income from the exter- component of AFUDC, which will increase future tax nal decommissioning trusts could be reported as expense when it is recovered through rates. Since this investment income rather than as a reduction to decom- component is not recognized for tax purposes, the Com-missioning expense. pany must record a liability for its tax obligation. The PUCO permits recovery of such taxes from customers (f) Property, Plant and Equipment when they become payable. Therefore, the net amount
.. due from customers through rates has been recorded as a Property, plant and equipment are stated at origmal cost deferred charge and will be recovered over the lives of less amounts ordered by the PUCO to be wntten off.
the related assets. See Note 7.
Construction costs include related payroll taxes, retire-ment benefits, fringe benefits, management and general Investment tax credits are deferred and amortized over overheads and allowance for funds used during construc- the lives of the applicable property as a reduction of (Cleveland Electric) F-39 (Cleveland Electric)
~
depreciation expense. See Note 7 for a discussion of the Valley Unit 2 and Mansfield Plant leates, the Company amortiration of certain unrestricted excess deferred taxes would be obligated to make such payments. No such and unrestricted investment tax credits under the Rate payments have been made on behalf of Toledo Edison.
~ Stabilization Program. -
leases at December 31,1994 are summarized as follows:
(2) Utility Plant Sale and Leaseback Transactions y
h*'
Company 5%
Edison The Company and Toledo Edison are co-lessees of (millions or dotiars) 18.26% (150 megawatts) of . Beaver Valley Unit 2 and 1995 s 63 s 103 6.5% (51 megawatts), 45.9% (358 megawatts) and 1996 63 125 44.38 % (355 megawatts) of Units I,2 and 3 of the 1997 63 102 Mansfield Plant, respectively, all for terms of about 29h 1998 63 102 years. These leases are the result of sale and leaseback ,999 ,g ,gg transactions completed m 1987.
Later Years 1.321 i918 Under these leases, the Company and Toledo Edison are Totai Future Minimum Lease responsible for paying all taxes, insurance premiums, Payments E g operation and maintenance expenses and all other similar costs for their interests in the units sold and leased back. Rental expense is accrued on a straight line basis over the They may incur additional costs in connection with capi- terms of the leases. The amount recorded in 1994,1993 talimprovements to the units. The Company and Toledo and 1992 as annual rental expense for the Mansfield Edison have options to buy the interests back at the end Plant leases was $70 million. Amounts charged to ex-of the leases for the fair market value at that time or pense in excess of the lease payments are classified as renew the leases. Additional lease provisions provide Accumulated Deferred Rents in the Balance Sheet.
other purchase options along with conditions for mandatory termination of the leases (and possible repur- The Company is buying 150 megawatts of Toledo Edison's Beaver Valley Unit 2 leased capacity entitle-chase of the leasehold interests) for events of default.
These evnts include noncompliance with any of several ment. Purchased power expense for this transaction was
$108 million, $103 million and $108 million in 1994,1993 financial covenants discussed in Note ll(d).
and 1992, respectively. We anticipate that this purchase As co-lessee with Toledo Edison, the Company is also will continue indefinitely. The future minimum lease obligated for Toledo Edison's lease payments. If Toledo payments through the year 2017 associated with Beaver Edison is unable to make its payments under the Beaver Valley Unit 2 aggregate $1.413 billion.
(Cleveland Electric) F-40 (Cleveland Electric)
(3) Property Owned with Other Utilities and Investors The Company owas, as a tenant in common with other utilities and those investors who are owner-participaats in various sale and leaseback transactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in j
the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership l
share. Each utility owner is obligated to pay for only its respective share of the construction costs and operating expenses.
j Each Lessor has leased its capacity rights to a utility which is obligated to pay for such lessor's share of the construction costs and operating expenses. The Company's share of the operating expenses of these generating units is included in the Income Statement. The Balance Sheet classification of Property, Plant and Equipment at December 31,1994 includes the .
following facilities owned by the Company as a tenant in common with other utilities and Lessors:
in. Plant Construction -
f Ownership Ownership Power in Work in Accumulated Service '
Share Megawatts Soureg Service Procress Dcoreciation Generanne (Init Date (millions of dollars) 1970 80.00% 351 Hydro 5 66 5- $ 22 Seneca Pumped Storage '
1972 68.80 411 Coal 156 I -
Eastlake Unit 5 4 54 Nuclear 664 2 190 ,
Dasis-Besse 1977 51.38 Perry Unit i 1987 31.11 371 Nuclear 1,774 5 314 !
j Heaver Valley Unit 2 und Common Facihtics (Noic 2) 1987 24.47 201 Nuclear _L276 j E Total M g LTh Depreciation for Eastlake Unit 5 has been accumulated with all other nonnuclear depreciabic property rather than by specific units of depreciabic property.
in Perry Unit 2 at December 31,1993 after we deter-(./) Construction and Contingencies mined that it would not be completed or sold. The write- l (a) Construction Program off totaled $351 million ($258 million after taxes) for the ,
Company's 44.85% ownership share of the unit. See '
The estimated cost of the Company's construction pro- Note 14.
gram for the 1995-1999 period is $851 million, including AFUDC of 549 million and excluding nuclear fuel. (c) Hazardous Waste Disposal Sites ,
i The Clean Air Act requires, among other things, signifi- The Company is aware of its potential involvement in the cant reductions m the emission of sulfur dioxide and cleanup of three sites listed on the Superfund List and :
nitrogen oxides by fossil-fueled generating units. Our several other waste sites not on such list. The Company strategy provides for compliance primarily through has accrued a liability totaling 58 million at December ,
greater use of low-sulfur coal at some of our units and the 31,1994 based on estimates of the costs of cleanup and its use of emission allowances. Total capital expenditures proportionate responsibility for such costs. We believe from 1991 through 1994 in connection with Clean Air that the ultimate outcome of these matters will not have Act compliance amounted to $34 milhon. The plan w.ll i I a material adverse effect on our financial condition or require additional capital expenditures over the 1995- results of operations. See Management's Financial Analy-2004 penod of approximately $125 milhon for nitrogen. sis-Outlook-Hazardous Waste Disposal Sites.
oude control equipment and plant modifications. In addi-tion, higher fuel and other operation and maintenance espenses will be incurred. The anticipated rate increase (5) Nuclear Operations and 1 associated with the capital expenditures and higher ex. Contingencies penses would be about 12% in the late 1990s. The ,
Company may need to install sulfur emission control (a) Operating Nuclear Units technology at one of its generating plants after 2005 which could require additional expenditures at that time. The Company's three nuclear units may be impacted by activities or events beyond our control. An extended ;
(b) Perry Unit 2 outage of one of our nuclear units for any reason, ;
coupled with any unfavorable rate treatment, could j Perry Unit 2, including its share of the facilities common have a material adverse effect on our financial condition with Perry Unit I, was approximately 50% complete and results of operations. See the discussion of these i when construction was suspended in 1985 pending con- risks in Management's Financial Analysis - Outlook- l sideration of various options. We wrote off our investment Nuclear Operations.
(Cleveland Electric) F-41 (Cleveland Electric) i
)
i
l (h)' Nuclerr Insurtnce with remainin,t lease payments for the Company of $67 l million. $57 million and $14 million, respectivelv, at !
The Price-Anderson Act limits the public liability of the December 31,1994 The nuclear fuel amounts fmanced
~
i owners of a nuclear power plant to the amount provided and capitalized also included interest charges incurred !
. by private insurance and an industry assessment plan. In by the lessors amounting to $7 million in 1994 and $9 f the event of a nuclear incident at any unit in the United million in both 1993 and 1992. The estimated future lease States resulting in losses in excess of the level of private '
amortization payments based on projected consumption insurance (currently $200 million), the Company's max-are $57 million in 1995, $52 million in 1996, $46 million limum potential assessment under that plan would be $85 in 1997, $43 million in 1998 and $36 million in 1999. !
million (plus any inflation adjustment) per incident. The !
assessment is limited to $11 million per year for each nuclear incident. These assessment limits assume the (7) Regulatory Matters i other CAPCO companics contribute their proportionate The Company is subject to the provisions of SFAS 71.
share of any assessment. Regulatory assets represent probable future revenues to !
The utility owners and lessees of Davis-Besse, Perry and the Company associated with certain incurred costs, ,
Beaver Valley also have insurance coverage for damage which it will recover from customers through the !
to property at these sites (including leased fuel and ratemaking process. Regulatory assets in the Balance l
cleanup costs). Coverage amounted to $2.75 oillion for Sheet are as follows:
- cach site as of January 1,1995. Damage to property could December 3L ;
exceed the insurance coverage by a substantial amount. g;,[3 i If it does, the Company's share of such excess amount doliars) I could have a material adverse effect on its financial Amounts due from customers for future federal !
condition and results of operations. Under these policies, the' Company can be assessed a maximum of $12 million income taxes Unamortired loss on reacquired debi
$ 641 5 586 58 60
'[
during a policy year if the reserves available to the Pre-phase-in deferrats* 34 351 ;
insurer are inadequate to pay claims arising out of an Rate Stabilization Program deferrals _2)2 168 l accident at any nuclear facility covered by the insurer. Total MM The Company also has extra expense insurance coverage.
- Represent deferrals of operating expenses and carrying charges for l It indudes the incremental cost of any replacement Perry Unit I and Beaver Valley Unit 2 in 1987 and 1988 which arc ;
power purchased (over the costs which would have been being amonired over the lives or the related property.
incurred had the units been operating) and other inci- As of December 31,1994, customer rates provide for l dental expenses after the occurrence of certain types of recovery of all the above regulatory assets, except those r accidents at our nuclear units. The amounts of the cover- related to the Rate Stabilization Program discussed be- .
(
age are 100% of the estimated extra expense per week low. The remaining recovery periods for all of the I during the $2-week period starting 21 weeks after an regulatory assets listed above range from 17 to 34 years.
accident and 80% of such estimate per week for the next We continually assess the effects of competition and the l 104 weeks. The amount and duration of extra expense changing industry and regulatory environment on opera. I could substantially exceed the insurance coverage. tions and the Company's ability to recover the regula- l tory assets. In the event that we determine that future ;
(6) Nuclear Fucl revenues would not be provided for recovery of any j regulatory asset, such asset would be required to be i Nuclear fuel is financed for the Company and Toledo written off. See Management's Financial Analysis- [
Edison through leases with a special-purpose corporation.
Outlook-Regulatory Accounting. !
At December 31,1994, $307 million ($182 million for ;
the Company and $125 million for Toledo Edison) of The Company will file a request with the PUCO to !
nuclear fuel was financed ($157 million from intermedi- restructure rates to increase revenues to be effective in . i aie-term notes and $150 million from bank credit 1996 which will include provision for recovery of the Rate i arrangements). The intermediate-term notes mature in Stabilization Program deferrals. We believe that rates i 1996 and 1997. The Company and Toledo Edison sever- will be set at a level consistent with cost-based regula- i ally lease their respective portions of the nuclear fuel and tions and will provide revenues to recover the then-are obligated to pay for the fuel as it is consumed in a l
current operating costs, return requirements and amorti-reactor. The lease rates are based on various intermedi. zation of all regulatory assets listed above.
ate term note rates, bank rates and commercial paper ret The Rate Stabilizat. ion Program that the PUCO approved in October 1992 was designed to encourage economic The amounts financed include nuclear fuelin the Davis- growth in the Company's service area by freezing the Besse, Perry Unit I and Beaver Valley Unit 2 reactors Company's base rates until 19% sad limiting subsequent (Cleveland Electric) F-42 (Cleveland Electric)
rate increases to specified annual amounts not to exceed (8) FederalIncome Tax )
$216 million over the 1996-1998 period.
The components of federal income tax expense (credit)
As part of the Rate Stabilization Program, during the recorded in the income Statement were as follows:
1992-1995 period the Company is allowed to defer and subsequently recover certain costs not currently recovered (mdhons or dollars)
Operating Expenses:
in rates and to accelerate amortization of certain benefits.
The continued use of these regulatory accounting mea. Current s 53 s 6.t s 47 Deterred _ 29 v 4 2 ) _4,i; sures will be dependent upon our continuing assess.
Total Charged to Operating Expenses J 2 _ ,22 _,19 ment and conclusion that there will be probable recovery Nonoperating income:
of such deferrals in future rates.
Current (17) (20) (19)
The regulatory accounting measures we are eligible to Deferred - (2s0) 21 _ 24 record through December 31,1995 include the deferral of Total Expense (Credit) to Nonoperating post-in-service interest carrying charges, deprec. ia tion ex- lacome J _(220) _ J pense and prope:1y taxes on assets placed in service after Totd Federal Income Tax Expense (Credit)- s~~' R6 5f ?4R) ~5 94 ~
February 29,1988. The cost deferrals recorded in 1994, 1993 and 1992 pursuant to these provisions were $66 The deferred federal income tax expen" a n . s from the million, $56 million and $52 million, sespectively. The temporary differences that arise from tu a Cerent years regulatory accounting measures also provide for the accel- certain expenses are recognized for tax purposes as crated amortization of certain unrestricted excess de- opposed to financial reporting purposes. Such temporary ferred tax and unrestricted investment tax credit balances differences affecting operating expenses relate principally and interim spent fuel storage accrual balances for to depreciation and deferred operating expenses whercas Davis-Besse. The total amount of such regulatory benefits those affecting nonoperating income principally relate to recognized pursuant to these provisions was $28 million deferred carrying charges and the 1993 write-offs.
in both 1994 and 1993 and $7 million in 1992. Federal income tax, computed by multiplying income The Rate Stabilization Program also authorized the Com- before ' axes by the statutory rate (35% in 1994 and 1993 pany to defer and subsequently recover the incremental and 34% in 1992),is reconciled to the amount of federal j
expenses associated with the adoption of the accounting income tax recorded on the books as follows:
standard for postretirement benefits other than pensions g ,,93 g (SFAS 106). In 1994 and 1993, we deferred $4 million (millions or doliars) and $60 million, respectively, pursuant to this provision. Bwk Income (Loss) Before Federal income Amortization and recovery of these deferrals are expected Tax 2A3 to commence in 1996 and to be completed by no later Tax (Credit) on Book income (Loss) at statutory nate sM H 2 m u 02 than 2012. See Note 9(b). increase (Decrease) in Tax: .
write-oft or Perry Unit 2 -
30 -
In 1993, upon completing a comprehensive study which '
Write-oft or phase-in dererrals -
20 -
led to our current strategic plan, we concluded that Depreciation 6 6 (3) projected revenues would not provide for recovery of deferrals recorded pursuant to a phase-in plan approved Rate Stabilization Program (18) (20) (5) by the PUCO in 1989. Such deferrals were scheduled to Otheritem8 J 8 -
be recovered over the 1994 through 1998 period. The total Total Federal income Tax Expense (Credit) _ Q $(?4R) y l phase in deferred operating expenses and carrying .
The Companyj. .oins in the filing of a consolidated federal charges written off at December 31,1993 by the Com- ine me tax return with its affiliated companies. The pany were $117 million and $519 million, respectively method of tax allocation reflects the benefits and burdens (totaling $433 million after taxes). See Note 14. Addi- realized by each company's participation in the consoh-tionally, based on our assessment of business conditions, dated tax return, approximating a separate return result we concluded that, once the deferral of expenses and f r each company.
l acceleration of benefits under our Rate Stabilization Pro-gram are completed in 1995, we should no longer plan to For tax reporting purposes, the Perry Unit 2 abandonment use regulatory accounting measures to the extent we was recognized in 1994 and resulted in a $187 million base in the past. loss with a corresponding $65 million reduction in federal income tax liability. Because of the alternative minimum tax ( AMT), $38 million of the $65 million was realized in 1994. The remaining $27 million will not be realized until 1999. Additionally, a repayment of approximately
$32 million of previously allowed investment tax credits I was recognized in 1994 l
(Cleve!and Electric) F-43 (Cleveland Electric) l {
1
In August 1993, the Revenue Reconciliation Act of 1993 resulting from a settlement of pension obligations through was enacted. Retroactive to January 1,1993, the top lump sum payments to almost all the VTP retirees marginal corporate income tax rate increased to 355 partially offset the VTP expenses.
The change in tax rate did not materially impact the results of operations for 1993, but increased Accumulated Pension and VTP costs (credits) for Centerior Energy Deferred Federal Income Taxes for the future tax obliga. and its subsidiaries for 1992 through 1994 were comprised tion by approximately $61 million. Since the PUCO has of the following components:
historically permitted recovery of such taxes from cus- g g g
' tomers when they become payable, the deferred charge, (minions of donars)
Amounts Due from Customers for Future Federal In. Pension Costs (Credits):
se j come Taxes, also was increased by $61 'million. jegmi fw knents carned during the s 13 s5 s is Interest mi n pmjected benent owgaen. 26 37 38 Under SFAS 109, temporary dilTerences and carr}for. Actual return on plan assets (2) (65) (24) wards resulted in deferred tax assets of $418 million and Net amortization and deferral _iM) J E) deferred tax liabilities of $1.652 billion at December 31 Net pension costs (credits) 3 (9) (16) 1994 and deferred tax assets of $426 million and de- YTP cost -
205 -
ferred tax liabilities of $1.531 billion at December 31, sciiicment gain _: m) _=
1993. These are summarized as follows: Net costs (credits) UM M)
December 31.
- ,,(([ Pension and VTP costs (credits) for the Company and its dollars) pro rata share of the Service Company's costs were $2 Propeny, plant and equipment $1,429 $1,31i million, $62 million and $(16) million for 1994,1993 and Deferred carrying charges and operating expenses._ 132 127 1992, respectively.
Net operating loss carryforwards (88) (69)
Investment tax credits The following table presents a reconciliation of the funded (105) (128) sale and leaseback iransactions status of the Centerior Pension Plan. The Company's (125) (126) other share of the Centerior Pension Plan's total projected I (9) (to) benefit obligation approximates 50% i Net deferred tan liability MM '
December 31.
For tax purt3oses, net operating loss (NOL) carryforwards S E i of approximately $252 million are available to reduce I'"$r"s') l future taxable income and will expire in 2003 through Actuarial present value of beneri obligations:
2009. The 35% tax effect of the NOLs is $88 million. vested benerits s278 $333 Additionally, AMT credits of $99 million that may be N n.csied benents J _n carried forward indefinitely are available to reduce future Efrect off re e nsatio cis regular tax. Total projected benefit obligation 317 423 Plan assets at fair marLet value E 26 Funded status 45 (9) Retirement Benefts (37)
, Unrecognized net loss (gain) from variance (a) Retirement income Plan between assumptions and esperience (79) 11 Centerior Energy sponsors jointly with its subsidiaries a U"'** 8"I'*d #" '*"i** "' 'O 30 Transition asset ai January 1,1987 being amoni7ed noncontributing pension plan (Centerior Pension Plan) u hich covers all employee groups. The amount of retire-over 19 years 1 19 ) E) ment benefits generally depends upon the length of Nei accrued pension liability ~)
5(63 ~)
$(59 ,
I service. Under certain circumstances, benefits can begin i as early as age 55. The funding policy is to comply with A September 30,1994 measurement date was used for the Employee Retirement income Security Act of 1974 1994 rep rting. At December 31, 1994, the settlement guidelines. (discount) rate and long-term rate of return on plan assets assumptions were 8.5% and 10%, respectively. The In 1993, cligible employees were offered the VTP, an. long-term rate of annual compensation increase assump-early retirement program. Operating expenses for Center- tion was 3.5% for 1995 and 1996 and 4% thereafter. At
]
i ior Energy and its subsidiaries in 1993 included $205 December 31, 1993, the settlement rate and long-term j million of pension plan accruals to cover enhanced VTP rate of return on plan assets assumptions were 7.25% j benefits and an additional $10 million of pension costs and 8.75%, respectively. The long-term rate of annual for VTP benefits paid to retirees from corporate funds, compensation increase assumption was 4.25% At Decem-The $10 million is not included in the pension data ber 31,1994 and 1993, the Company's net prepaid reported in the following tabic. A credit of $81 million pension cost included in Deferred Charges and Other (Cleveland Electric) F-44 (Cleveland Electric)
Assets - Other in the Balance Sheet was $7 million ad The Balance Sheet classification of Retirement Benefits at December 31,1994 and 1993 includes only the Com-
$9 million, respectively, pany's accrued postretirement benefit cost of $59 million j Plan assets consist primarily of investments in common and $52 million, respectively, and excludes the Service stock, bonds, guaranteed investment contracts, cash Company's portion since the Service Company's total equivalent securities and real estate. accrued cost is carried on its books.
A September 30,1994 measurement date was used for (h) Other Postret.irement Benefits 1994 reporting. At December 31,1994 and 1993, the settlement rate and the long-term rate of annual compen-Centerior Energy sponsors jointly with its subsidiaries a sation increase assumptions were the same as those postretirement benefit plan which provides all employee discussed for pension reporting in Note 9(a). At Decem-groups certain health care, death and other postretirement ber 31,1994, the assumed annual health care cost trend benefits other than pensions. The plan is contributory, rates (applicable to gross eligible charges) are 8.5% for with retiree contributions adjusted annually The plan is medical and 8% for dental in 1995. Both rates reduce not funded. The Company adopted SFAS 106, the gradually to a fixed rate of 4.75% by 2003. Elements of accounting standard for postretirement benefits other than the obligation affected by contribution caps are signifi-pensions, effective January 1,1993. The standard re- cantly less sensttive to the health care cost trend rate than quires the accrual of the expected costs of such benefits ther elements. If the assumed health care cost trend during the employees' years of service. Prior to 1993, the r tes were increased by one percentage point m each costs of these benefits were expensed as paid, which was future year, the accumulated postretirement benefit obli-consistent with ratemaking practices.
gation as of December 31,1994 would increase by $3 million and the aggregate of the service and interest cost Th: components of the total postretirement benefit costs components of the annual postretirement benefit cost for 1994 and 1993 were as follows:
j ME would increase by 50.3 million.
< (millions of dollars)
Service cost for benefits carned during the period $I $2 (10) Guarantees Interest cost on accumulated postretirement benefit obligation il to The Company has guaranteed certain loan and lease Amortiration of transition obligation at January 1,1993 obligations of two coal suppliers under two long-term coal or $i04 millioa over 20 years 5 5 supply contracts. At December 31,1994, the principal
- l. VTP curtailment cost (includes $10 million transition amount of the loan and lease obligations guaranteed by I
obligation adjustment) :
g Total costs g g the Company under both contracts was $50 million. In addition, the Company may be responsible for mine These amounts included costs for the Company and its closing costs when one of the contracts is terminated. At l December 31,1994, the unfunded costs of closing this -
pro rata share of the Service Company's costs.
mine as estimated by the supplier were $54 million. ,
In 1994 and 1993, the Company deferred incremental The prices under both contracts which include certain SFAS 106 expenses (in excess of the arnounts paid) of $4 minimum payments are sufficient to satisfy the loan and million and $60 million, respectively, pursuant to a provi-lease obligations and mine closing costs over the lives of sion of the Rate Stabilization Program. See Note 7.
the contracts. If either contract is terminated early for The accumulated postretirement benefit obligation and any reason, the Company would attempt to reduce the accrued postretirement benefit cost for the Company and termination charges and would ask the PUCO to allow its share of the Service Company's obligation are as recovery of such charges from customers through the fuct follows: factor.
December 31.
1994 1993 (millions of dollars)
Accumulated postretirement benefit obligation attnbutable to:
Retired participarits $(124) 5(141) l f fully chgible active plan participavits (1) (i)
Other actne plan participants (t4) (19)
Accumulated postretirement benefit obl gation _ (139) (161)
Unrecogmied net loss (gain) from variance between essumptions and espenence (16) 9 Unamortired transition obhganon f(4 89 Accrued postretirement benefit cost 5 01) 5 m)
(Cleveland Electric) F-45 (Cleveland Electric)
, _ ~_ _ _ - .. _
(1/) Capitall ation market conditions. The dividend rates for these issues averaged 7.17% and 7.01% respectively,in 1994 (a) Cap.tal i Stock 'I.ransact,ons i Preference stock authorized for the Company is 3,000,000 I Preferred stock shares sold and retired during the three shares without par value. No preference shares are cut-years ended December 31,1994 are listed in the following rently outstanding.
table.
L99.1 1993 1991 With respect to dividend and liquidation rights, the Com-(thousands of shares)
,s prefCrred stock is prior to its preference stock and Su to Mandatory Redemption:
190.00 Scrics S - -
75 common stock.
Retirements 5 7.35 Scrics C (10) (10) (10) 88.00 Series E (d) Long-Term Debt and Other (3) (3) (3) ,
Adjustable Series M (100) (100) (100) Borrow,ngi Arrangements 9.125 Series N (lii9) (150) -
Not Subject to Mandatory Redemption: I ong-term debt, less current matarities, was as follows:
Sales 542.40 Series T ^*' I
- 200 -
,7 4 ,",",,, a Retirements v Interest '
Remarketed Series P _-: -
(1) Rate at Nct (Decreanc) ~) ~) ~)
ito? #M (19 Year of Maturity December 31* December 31.
1994 1994 1993 (b) Equity Distribution Restrictions I
""$,",5 i ) l l'irst mortgage bonds:
Federal law prohibits the Company from paying dividends 999 13.m s 17 s 21 out of capital accounts, llowever, the Company may pay 1996-1999 7.00 3 4 preferred and common stock dividends out of appropri- ,997,i,99 io gg ig is ated retained earnings and current earnings. At Decem-1999 6.20 2 2 ber 31,1994, the Company had $144 million of 2000-2004 7.92 396 400 appropriated retained earnings for the payment of pre-2005-2009 s.33 202 202 ferred and common stock dividends.
2010-2014 s.50 365 365 (c) Preferred and Preference Stock 20 5-2019 sm 459 459 2020-2023 8.75 2.11 518 Amounts to be paid for preferred stock which must be i,980 i,989 redeemed during the next five years are 536 million in Secured medium ierm noics due 1995,$30 million in both 1996 and 1997,515 million in 1996-2021 s.68 316 713 -
1998 and $33 million in 1999. Term bank loans duc 1996 8.50 2 45 Pollution control notes duc 1996 l The annual preferred stock mandatory redemption provi- 2012 6.82 52 53 ;
sions are as follows: Other - net -
(7) (7)
Sha es To Price Total Long-Term Debt $ 2,541 g f Redeemed in Share
$ 7.35 Scrics C 10,000 1984 $ 100 g erm M mah during h M 6W years as ]
88.00 Series E 3.000 1981 1,000 f 11 ws: $246 million in 1995,$151 million in 1996,$55 l Adjustable Scrics M million in 1997, $78 million in 1998 and $159 million in !
100.000 1991 100 9125 Series N I999*
150.000 1993 100 91.50 Series Q 10.714 1995 1.000 The Company issued $125 million aggregate principal i 88.00 Series R 50.000 200l* 1,000 amount of secured medium-term notes in 1992 and 1993.
90.00 Series S 18.750 1999 1,000 The notes are secured by first mortgage bonds.
- All outstanding sh. ares to be redeemed on December I,2001.
The Company's mortgage constitutes a direct first lien on in 1993, the Company issued $100 million principal substantially all property owned and franchises held by the Company. Excluded from the lien, among other amount of Serial preferred Stock, $42.40 Series T. The things, are cash, securities, accounts receivable, fuel and
_l Series T stock was deposited with an agent which issued
, Depositary Receipts, each representing % of a share of supplies.
the Series T stock. An unsecured loan agreement of the Company contains The annualized preferred dividend requirement at De- c venants relating to capitalization ratios, fixed charge cember 31,1994 was $44 million. c verage rat,os i and limitations on secured financing other than through first mortgage bonds or certain other trans-The preferred dividend rates on the Company's Series L actions. Two reimbursement agreements relating to sep-and M fluctuate based on prevailing interest rates and arate letters of credit issued in connection with the sale 1 (Cleveland Electric) F-46 (Cleveland Electric) i l
f and leaseback of Beaver Valley Unit 2 contain several "" * *' ' ' 4 fin ncial covenants afTeeting the Company Toledo carrying F air carrving Fair Edison and Centerior Energy. Among these are covenants A mount value Amount value
( * "h""" "M'" O relating to fixed charge coverage ratios and capitalization
^"*
ratios. The write-offs recorded at December 31,1993 caused the Company, Toledo Edison and Centerior En.
N"*I'd' M""' D" **i"i "i"8 Trusts $ 44 5 44 $ 30 $ 32 ergy to violate certain covenants contained in the loan Capitahzation and Liabilities:
agreement and the two reimbursement agreements. The Prefe d St k. it andatory affected creditors waived those violations in exchange for a subordinate mortgage security interest on the proper- (including current portion) 282 245 3t4 307 ties of the Company and Toledo Edison. The Company tong. Term Debt (including provided the same security interest to certain other credi- current portion) 2.795 2.503 2.841 2.946 tors because their agreements require equal treatment.
At December 31, 1994, the Company provided The Nuclear Plant Decommissioning Trusts at Decem-subordinate mortgage collateral for $45 million of un. ber 31,1994 included $25 million of federal governmental secured debt, $228 million of bank letters of credit and a securities and $17 mi!! ion of municipal securities. The
$205 million revolving credit facility. The bank letters of securities had the following maturities: $11 million due credit are joint and several obligations of the Company within one year; $8 million due in one to five years: 510 and Toledo Edison and the revolving credit facility is an million due in six to 10 years; and $13 million due after obligation of Centerior Energy that is jointly and severally 10 years. The fair value of these trusts is estimated based guaranteed by the Company and Toledo Edison. on the quoted market prices for the investment securi-ties. As a result of adopting the new accounting standard for certain investments in debt and equity securities, (12) Short-Tern Borrowing SFAS 115,in 1994, the carrying amount of these trusts is Arrangernents equal to the fa.ir value. The fa.ir value of the Company,s Preferred stock, with mandatory redemption provisions, Centerior Energy has a $205 million revolving credit and long-term debt is estimated based on the quoted facility through May 1996. Centerior Energy and the market prices for the respective or similar issues or on the Service Company may borrow under the facility, with all basis of the discounted value of future cash flows. The borrowings jointly and severally guaranteed by the Com-dise unted value used current dividend or interest rates pany and Toledo Edison. Centerior Energy plans to
( r other appropriate rates) for similar issues and loans transfer any of its borrowed funds to the Company and with the same remainmg matunties, Toledo Edison. The facility agreement as amended pro-vides the participating banks with a subordinate mortgage The estimated fair values of all other financial instru-security interest on the properties of the Company and ments approximate their carrying amounts in the Balance -
Toledo Edison. The banks' fee is 0.625% per annum Sheet at December 31,1994 and 1993 because of their '
payable quarterly in addition to interest on any borrow- short-term nature.
ings. There were no borrowings under the facility at December 31,1994. The facility agreement contains cov-enants relating to capitalization and fixed charge cover- (I4) Quarterly Results of Operations age ratios for the Company, Toledo Edison and Centerior (Unaudited)
Energy.
The following is a tabulation of the unaudited quarterly Short-term borrowing capacity authorized by the PUCO results of operations for the two years ended December annually is $300 million for the Company. The Company 31,3994, and Toledo Edison are authorized by the PUCO t Ouarters Ended borrow from each other on a short-term basis. At Decem- March 31. .iune 30. sersi 30. I ec. ,11, ber 31,1994, the Company had total short-term borrow- (miinons or dollars) ings of 558 million from its afliliates with a weighted 1994 Operating Revenues $408 $415 $474 5 401 average interest rate of 6.145 k6 91 132 88 Operating income Net income 33 38 79 33 (l3) Financial Instrutnents e,rning,xvaiuwetar Common Stock 21 27 og 24 Except for the Nuclear Plant Decommissioning Trusts at 1993 December 31 1994, as discussed below, the estimated Operatmg Revenues $421 $417 $507 $ 406 fait values at December 31,1994 and 1993 of financial "' ~
Oyc(ngm '"k"N instruments that do not approximate their carrying Earnir.gs (Loss) AvaiLble amounts in the Balance She-t are as follows: for common Siock 23 19 27 t701)
(Cleveland Electric) F-47 (Cleveland Electric)
i i
Earnings for the quarter caded September 30,1993 were stock. Share owners of the Company's preferred stock decreased by $46 million as a result of the recording of must approve the authorization of additional shares of
$71 million of VTP pension related benefits. preferred stock. When the merger becomes effective,
"'" " f Toledo Edison's preferred stock will ;
Earnings for the quarter ended December 31,1993 were exchange the,r i shares for preferred stock shares of the decreased as a result of year-end adjustments for the mPany 8 8 sdstandaHy the same terms. Debt
$351 million write off of Perry Unit 2 (see Note 4(b)), l holders of the merging companies will become debt the $636 million write-off of the phase-in deferrals (see l holders of the Company. The merging companies plan to :
Note 7) and $38 million of other charges. These adjust-
- E'* *" "'"
"' "Epmyal m mid-1995.
ments decreased quarterly earnings by $716 million.
The merger is expected to be effect.ive m 1995.
(15)- Pending Merger of To/cdo Edison For the merging companies, the combined pro forma perating revenues wcre $2.422 billion, $2.475 billion and i into the Company $2.439 bilh,on and the comb.med pro forma net income ,
in March 1994 Centerior Energy announced a plan to (loss) was $268 million, $(876) million and $276 million merge Toledo Edison into the Company. Since the Com- for the years 1994,1993 and 1992, respectively. The pro [
pany and Toledo Edison affiliated in 1986, efforts have forma data is based on accounting for the merger on a been made to consolidate operations and administration method similar to a pooling ofinterests. The pro forma as much as possible to achieve maximum cost savings. data is not necessarily indicative of the results of opera- [
Various aspects of the merger are subject to the approval tions which would have been reported had the merger !
of the FERC and other regulatory authorities. The been in effect during those years or which may be re- j PUCO and the Pennsylvania Public Utility Commission ported in the future.The pro forma data should te read in have approved the merger, in addition, the merger must conjunction with the audited financial statements of both i be approved by share owners of Toledo Edison's preferred the Company and Toledo Edison.
i i
t
. l i
i i
t i
I i
(Cleveland Electric) F-48 (Cleveland Electric) )
Financial and Statistical Review Operating Revenues (millions of dollars)
Total !
Toial Total Steam Operatmg Year ReMential Commercial Industrial Other P etail Wholesale l'lectric IIcaime Revenues 1994 $$31 541 508 98 I678 20 1698 -
$1698 -
1993 539 536 510 98 1683 68 I 751 -
I 751 1991 517 531 530 101 1 679 64 1 743 - l743 1991 547 540 547 117 I 751 75 1826 - I826 4 495 494 544 123 1656 35 1 691 - 1 691 l 1990 1984 376 339 441 44 1 200 6 12% 15 1 221 Operating Expenses (millions of dollars)
Other Generation Deferred fuel & Operation facihines Depreciation Tames. Operating I'ederal Total Purchased & Rental & Other Than Lapenses, income Operating Year Power Maintenance Espenu. Net Amortiration f!T Net Tames I. apenses 1994 $391 394 56 195 218 (34) 82 $1302 1993 423 598(a) 56 182 221 27(b) 22 I $29 1992 434 410 55 179 226 (35) 89 1358 1991 455 414 56 171(c) 216 (7) 106 1 411 1990 412 460 54 170 197 (24) 75 1 344 1984 319 281 - 95 132 - 131 958 Income (Loss) (millions of dollars) fcJeral Income Other Deferred income (Loss) income & Carrying Tames-- Hefore Operating Ai UDC- Deductions, Charges, Credit interest Year income Louit, Nes Net (limpense) Charpes 1994 $396 4 6 25 (4) $ 427 1993 222 4 (356)(d) (487)(b) 270 (347) 1992 385 1 8 59 (5) 448 ,
1991 415 8 6 88 '(24) 493 1990 347 5 l 162 (20) 495 i 1984 263 130 3 -- 35 431 l
Income (Loss) (millions of dollars) j Larnings Preferred & ( Loss)
Net Preference Avail.shic for Debt AFUDC- Income Stock Common Year Interest Debt t Loss) Dividends Sinck 199J $247 (5) 185 45 $'l40 1993 244 (4) (587) 45 (632) 1992 243 - 205 41 164 1991 251 (4) 246 36 210 1990 255 (3) 243 37 2%
1904 I81 (4I) 291 43 248 (a) includes early retirement program expen<rs and other clarges of $165 million in 1993.
Ib) includes u rne ofofphase-in deferrals of $636 million in 1993. consisting of $l17 million ofdeferred operating expenses and $519 million ofdeferred l carrying charges.
(c) in IW1. a change in aavunsingfor nuclear plant depreciation w as adopted. changing) rom the units-of-prmluction methmito rhe arraight line method I
at a 2.M rate (Cleveland Electric) F-49 (Cleveland Electric)
- _ _ - _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ ._. .-_ J
-. . _ - . . _ . - - - - - - - - . - .~ - . . .-. ..
The Cleveland Electric Illuminating Company and Subsidiaries .
Electric Sales (millions of KWH) Electric Customers (year end) Residential Usage '
Average Average industrial K Wer 15cr e Year Reddenual Commercial ladustrial Wholesale Other Total Resideniial Commercial & Other Total Customer KWil Customer i 1994 _ 4 924 5 770 7 970 1 073 575 20 312 668 346 71 609 7 401 747 356 7 370 10.79c $795.11 1993 _ 4 934 5 634 7 911 2 290 532 21 301- 669 118 70 442 8 149 747 709 7 373 10.93 805.68 1992 _ 4 725 5 467 7 988 1989 533 20 702 669 800 70 943 8 375 749 118 7 071 10.94 773.77 19 91 ,,,,,,,,, 4 940 ' 5493- 8 017 2 442 565 21 457 667 495 70 405 8 398 746 298 7 170. I1.08 797.25
-1990 _ 4 716 5 234 8 551 1607 463 20 571 665 000 68 700 8 351 742 051 6 867 10.53 723.15 1984 _ 4 445 4 396 7 997 142. 431 17 412 644 904 61 934 7 930 714 768 6 646 8.48 563.60
?
' Load (MW & %) Energy (millions of KWH) Fuel Net Efliciency-Company Generated Purchased fuel Cost BTU Per Scasonal Peak Capacity Load Year Capability Load Marrin factor Fossil Nuclear Total Power Total Per KWil KWil 1994 4 497 3 740 16.8% 62.4% 12 986 6 405 19 391 2 022 21 413 1.35C 10 538 1993 4 497 3 862 14.1 59.9 15 557 5 644 21 201 1 454 22 655 1.37 10 339 i 1992 4 701 3 605 23.3 63.0 12 715 7 521 20 236 1 649 21 885 1.47 10 456 1991 4 701 3 886 17.3 61.8 13 193 7 451 20 644 2 144 22 788 1.49 10 503 1990 4 686 3 778 19.4 63.3 15 579 5 262 20 841 - 964 21 805 1.52 10 417 1984 3 696 3 371 8.8 64.5 14 749 2 212 16 961 1770 18 731 1.70 10 416 6
Investment (millions of dollars) ork I Total Uniht) Accumulated Progress Nuclear Property. Utility Plant in Depreciation & Net & Perry fuel and Plant and Plant Total Year Service Amortiration 1%nt Unit 2 Other Eauipment Additions Assets 1994 $6 871 2 014 4 857 99 195 $5151 $156 $7151 1993 6 734 I 889 4 845 141 243 5 229 175 7 159 ,
1992 6 602 1728 4 874 501 261 5 636 156 8 123 1991 6 196 1565 4 631' 545 305 5 481 150 7 942-1990 6 032 1398 4 634 572 344 5 550 165 7 821 1984 2 909 799 2 110 2 114 289(c) 4 513 582 5 120 Capitalization (millions of dollars & %) ,
Preferred & Preference Preferred Stock, without Stock with Mandatory Mandatory Redemption i car Common Stuck Luuity Redemphon Provisions Provisions Lons. Term Debi Total 1994 $1058 26% 246 6% 241 6% 2 543 62% $4 088 1993 1 040 24 285 7 241 5 2 793 64 4 359 i
1992 1 865 39 314 6 144 3 2 515 52 4 838 1991 1898 38 268 5 217 4 2 683 53 5 066 -
'1990 1 884 38 171 3 217 4 2 632 55 4 904 1934 1593 41 293 7 144 4' I 884 48 3 914 JI includes write-off ofl'erry Unit 2 of $351 rnillion in 1993. :
re) Restatedfor effects of capitali:ation of nuclearfuct lease andfinancing arrangements pursuant to Statement of Financial Accounting Standards 71.
(Cleveland Electric) F 50 (Cleveland Electric)
7 1
1
- n f Pi nion, the financial statements referred to above 1 t Of Independent present fairly, m all material respects, the financial posi-Public Accountants tion of The Toledo Edison Company as of December 3i, :
1994 and 1993, and the results of its operations and its .l
- To the Share Owners and cash flows for each of the three years in the period i Board of Directors of ended December 31,1994, in conformity with generally l The Toledo Edison Company:
accepted accounting principles.
We have audited the accompanying balance sheet and I As discussed further in Note 9, a change was made in the statement of preferred stock of The Toledo Edison Com.
method of accounting for postretirement benefits other pany (a wholly owned subsidiary of Centerior Energy than pensions in 1993.
Corporation) as of December 31,1994 and 1993, and the related statements of income, retained earnings and cash ur n 5
- TC m r e purpose of forming an flows for each of the three years in the period ended nn n e asic mancial s a ements taken as a f December 31,1994. These financial statements and the IC SC C u I n mPany )
schedule referred to below are the responsibility of the I sted in the Index to Schedules is presented for purposes !
Company's management. Our responsibility is to express I mPl ying with the Securities and Exchange Commis-an opinion on these financial statements and the sched- si n's rules and is not part of the basic financial stue-ute based on our audits. ments. This schedule has been subjected to the auditing procedures applied in the audits of the basic fmancial- )
We conducted our audits in accordance with generally statements and, in our opinion, fairly states in all material accepted auditing standards. Those standards require that respects the financial data required to be set forth therein :
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free in relation to the basic financial statements taken as a of material misstatement. An audit includes examining, whole. i on a test basis, evidence supporting the amounts and ,
disclosures in the financial statements. An audit also -l includes assessing the accounting principles used and ;
significant estimates made by management, as well as Arthur Andersen LLP l evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for Cleveland, Ohio our opinion. February 17,1995 , ,
i :
t 1
5 (Toledo Edison) F-51 (Toledo Edison) i
]
. (PUCO) to be effective in 1996. Meaningful cost control Management,s F.inancial Analys.is and marketing strategies will mitigate the need for addi-tional rate increases and help us meet competition.
Strategic Plan Competition We made significant strides in achieving the objectives of We are implementing strategies designed to create and the comprehensive strategic action plan announced in enhance our competitive advantages and to overcome the January 1994. Centerior Energy Corporation (Centerior competitive disadvantages that we face due to regulatory Energy), along with The Toledo Edison Company and tax constraints and our high retail cost structure.
(Company) and The Cleveland Electric illuminating Currently our most pressing competition comes from Company (Cleveland Electric), created the strategic plan municipal electric systems in our service area. Our rates to strengthen their financial and competitive position are generally higher than those of municipal systems due through the year 2001. The Company and Cleveland largely to their exemption from taxation, the lower cost Electric are the two wholly owned electric utility subsidi- fmancing available to them, the continued availability to aries of Centerior Energy. The plan's objectives relate to them of lower cost power through short-term power the combined operations of all three companies. The purchases and their access to cheaper governmental objectives are to achieve profitable revenue growth, be- power. We are seeking to address the tax disparity come an industry leader in customer satisfaction, build a through the legislative process. In 1994, the Ohio Gover-winning employee team, attain increasingly competitive nor's Tax Commission recommended the replacement of power supply costs and maximize share owner return on the gross receipts and personal property taxes currently Centerior Energy common stock. To achieve these levied only on investor-owned utilities and collected objectives, we will continue to control expenditures and through rates with a different tax collected from custom-reduce our outstanding debt and preferred stock. In addi- ers of all electric utilities, including municipal systems.
tion, we will increase revenues by fmding new uses for Investor-owned utilities would reduce rates upon repeal existing assets and resources, implementing new market- of the existing taxes. We are now working to submit this ing programs and restructuring rates when appropriate. proposal to the Ohio legislature.
We will also improve the operating performance of our generating plants and take other appropriate actions. We face the threat that municipalities in our service area could establish new systems and continue expandmg During 1994, we made progress toward most of our lon8- existing systems. We are responding with aggressive mar-term objectives. The Company and Cleveland Electric keting programs and by emphasizing the value of our initiated a marketing plan designed to increase total retail service and the risks of a municipal system: substantial, revenues (exclusive of fuel cost recovery revenues and long-term debt; no guarantee of low-cost wholesale elec-weather influences) by 2-3% annually through 2001. Our tricity; the difficulty of forecasting costs; and the uncer- ,
new customer service activities are intended to raise our tainty of market share as a result of our aggressive customer satisfaction rating. Our employees achieved competition. Generally, these municipalities have deter-enough of their established objectives for the year to mined that developing a system is not feasible or have receive a $500 per eligible employee incentive compensa- agreed with us not to pursue development of a system at tion award. The work undertaken during refueling out- this time. Although some communities continue to be ages at the Davis-Besse Nuclear Power Station (Davis- interested in municipalization, we believe that we offer Besse) and Perry Nuclear Power Plant Unit I (Perry the best value and most reliable source of electric service Unit 1) as well as the outage work at our fossil-fueled in our territory.
plants should help us achieve our long-term objective of ..
reducing variable power costs to a more competitive The Energy Policy Act of 1992 will increase competition level. Strong cash flow continued in 1994 and the Com- in the electric utility industiy by allowing broader access pany's fned-income obligations were reduced by 56ti t a utWt/s transmission system. It should not sigmfi-million. Also, the Company's total operation and mainte- cantly increase the competitive threat to us since we have nance expenses declined 522 million, exclusive of one- been required to wheel electricity to municipal systems time charges in 1993. in ur service area since 1977 under operating licenses for our nuclear generating units. Further, the government We are taking aggressive steps to increase revenues could eventually require utilities to deliver power from through our enhanced marketing plan and to control other utilities or generation sources to their retail custom-costs. The full impact of these efforts will take time. In ers. To combat this threat, we are ofTering incentives the meantime, the Company and Cleveland Electric must such as energy-efficiency improvements and reductions in
- raise revenues by restructuring rates. Accordingly, the demand charges for increased electricity usage to our l Company and Cleveland Electric are preparing to file a industrial and commercial customers in return for long-request with The Public Utilities Commission of Ohio term commitments. Most of our large industrial and (Toledo Edison) F-52 (Toledo Edison)
commercial customers have entered into sole-supplier that projected revenues for the 1994-1998 period would contracts with us. More than 80% of our industrial reve- not provide for recovery of such deferrals as scheduled by nues under contract will not be up for renewal until 1997 the PUCO order. This short time frame for recovery of or later. As these contracts expire, we expect to renego- the phase-in deferrals is a requirement under the account-tiate them and retain the customers. ing standard for phase-in plans of regulated enterprises, SFAS 92. The remaining recovery periods for all remain.
Rote Matters ing regulatory assets are between 17 and 34 years. We believe the Company's rates will provide for recovery of Uader the Rate Stabilization Program discussed in Note these assets over the relevant periods and SFAS 71 7, we agreed to freeze base rates until 1996 and limit rate continues to apply.
increases through 1998. In exchange, we are permitted to defer through 1995 and subsequently recover certain Nuclear Operations costs not currently recovered in rates and to accelerate the amortization of certain benefits. Amortization and The Company has interests in three nuclear generating recovery of the deferrals are expected to begin in 1996 units - Davis-Besse, Perry Unit I and Beaver Valley with future rate recognition and will continue over the Power Station Unit 2 (Beaver Valley Unit 2)-and average life of the related assets, or between 17 and 30 operates the first one. Cleveland Electric operater Perry years. The continued use of these regulatory accounting Unit 1. Davis-Besse and Beaver Valley Unit 2 have been measures in 1995 will be dependent upon our continu- operating extremely well, with each unit having a three-ing assessment and conclusion that there will be probable year availability average at year-end 1994 that exceeded recovery of such deferrals in future rates. Our analysis the three-year industry average of 80% for similar reac-leading to certain year-end 1993 financial actions and the tors. liowever, the three-year availability average of Perry strategic plan also included an evaluation of our regula- Unit I was below the three-year industry availability tory accounting measures. See Regulatory Accounting average for that reactor type, below and Note 7. We decided that, once the deferral of expenses and acceleration of benefits under the Rate In 1994. Davis-Besse had an availability factor of 88%.
Stabilization Program are completed i,1995, we should Further, Davis-Desse completed the shortest refueling no longer plan to use these measures to the extent we and maintenance outage in its history in 1994, returning have in the past. to service just 46 days after shutting down. Cleveland Electric is in the process of upgrading Perry Unit I to we same level. For seven months in 1994, Perry Unit I was Regulatory Accounting out of service for its fourth refueling and maintenance As described in Notes 1(a) and 7, the Company complies outage. Work was also performed in connection with the with the provisions of Statement of Financial Accounting comprehensive course of action developed in 1993 to '
Standards (SFAS) 71. We continually monitor changes improve the operating performance of Perry Unit 1.
in market and regulatory conditions and consider the Work in connection with that course of action is ongoing.
- effects of such changes in assessing the continuing appli-cability of SFAS 71. Criteria that could give rise to We externally fund the estimated costs for the future +
discontinuation of the application of SFAS 71 include: decommissioning of our nuclear units. In 1993 and 1994, (1) increasing competition which significantly restricts we increased our decommissioning expense acenzals be-the Company's ability to establish rates to recover operat- cause of revisions in our cost estimates. See Note 1(c).
ing costs, return requirements and the amortization of .
Our nuclear units may be impacted by activities or events regulatory assets and (2) a significant change in the beyond our control. Operating nuclear units have exper-manner in which rates are set by the PUCO from cost.
ienced unplanned outages or extensions of scheduled based regulations to some other form of regulations. In utages because of equipment problems or new regula-the event we determine that the Company no longer tory requirements. A major accident at a nuclear facility meets the criteria for following SFAS 71,'the Company anywhere in the world could cause the Nuclear Regula-would be required to record a before-tax charge to write '
t ry Commission to limit or prohibit the operation or off the regulatory assets shown in Note 7. In addition, we ,
""8 "E 0f any domestic nuclear unit. If one of our would b required to evaluate whether the changes in the .
nu&ar um.ts is taken out of service for an extended period competitive and regulatory environment which led to f r any reason, meludmg an accident at such unit or any j discontinuing the application of SFAS 71 would also ther nuclear facility, we cannot predict whether regula-result in an impairment of the net book value of the t ry authorities would impose unfavorable rate treat-Company's property, plant and equipment.
ment. Such treatment could melude taking our affected ,
The Company's write-offin 1993 of the phase-in dcferred unit out of rate base, thereby not permitting us to recover ;
operating expenses and carrying charges (phase-in defer- our investment in and earn a return on it, or disallowing i rals) discussed in Note 7 resulted from our conclusion certain construction or maintenance costs. An extended !
(Toledo Edison) F-53 (Toledo Edison)
outrge coupled with unfavorable rate treatment could Infirtion have a material adverse effect on our financial condition !
and results of c.perations. Although the rate of inflation has cased in recent years, we are still affected by even modest inflation which causes :
Hazardous Waste Disposal Sites increases in the unit cost oflabor, materials and services.
The Comprehensive Environmental Response, Compen-sation and Liability Act of 1980 as amended Capital RcSources and Liquidity (Superfund) established programs addressing the cleanup 1992-1994 Cash Requirements [
of hazardous waste disposal sites, emergency prepared-ness and other issues. The Company is aware of its We need cash for normal corporate operations, the i potential involvement in the cleanup of several sites. mandatory retirement of securities and constructing and Although these sites are not on the Superfund National m difying facilities. Construction is needed to meet antic- ;
Priorities List, they are generally being administered by ipated demand for electric service, comply with govern- ;
various governmental entities in the same manner as ment regulations and protect the environment. Over the they would be administered if they were on such list. three-year period 1992-1994, construction and mandatory ,
Allegations that the Company disposed of hazardous '*IITCment needs totaled approximately $370 million. In ,
waste at these sites, and the amounts involved, are often addit. ion, we exercised options to redeem approximately l
unsubstantiated and subject to dispute. Superfund pro- $460 million of our securities. j vides that all "potentially responsible parties" (PRPs) We raised $603 million through security issues and term f for a particular site can be held liable on a joint and bank loans during the 1992-1994 period. The Company i several basis. If the Company were held liable for 100% of also utilized short-term borrowings to help meet its cash !
the cleanup costs of all of the sites referred to above, the needs. Although write-offs of the Company's Perry I cost could be as high as $150 million. Ilowever, we Nuclear Power Plant Unit 2 (Perry Unit 2) investment i believe that the actual cleanup costs will be substantially and phase-in deferrals in 1993 negatively affected earn- !
lower than $150 million, that the Company's share of ings, they did not adversely affect cash flow. See Notes !
any cleanup costs will be substantially less than 100%
4(b) and 7. ;
and that most of the other PRPs are financially able to j contribute their share. The Company has accrued a Jiabil-1995 and Beyond Cash Requirements [
ity totaling 55 million at December 31,1994 based on estimates of the costs of cleanup and its proportionate Estimated cash requirements for 1995-1999 for the Com-responsibility for such costs. We believe that the ultimate pany are $288 million for construction and $378 million outcome of these matters will not have a material for the mandatory redemption of debt and preferred f
adverse efTect on our financial condition or results of stock. The Company expects to meet nearly all ofits 1995 -
- operations. and 1996 cash requirements of approximately $145 mil- ,
lion and $154 million, respectively, through internal l Common Stock Diiidends cash generation and current cash resources. The Com- ;
pany expects to meet nearly all of its 1997-1999 require.
In recent years, the Company has retained all of its ments through internal cash generation and current cash earnings available for common stock. The Company has resources. If economical, additional securities may be i not paid a common stock dividend to Centerior Energy redeemed under optional redemption provisions. We ex-since February 1991. The Company is currently prohib-pect that the Company's continued strong cash flow will ited from paying a common stock dividend by a provision '
reduce borrowing requirements and outstanding debt in its moryage (see Note ll(b)). The Company does and preferred stock during this period.
not expect to pay any common stock dividends prior to its t merger into Cleveland Electric, as discussed below. Cash expenditures to comply with the Clean Air Act ;
Amendments of 1990 (Clean Air Act) are estimated to Merger of the Company into Cleieland Electric be approximately $22 million over the 1995-1999 period.
We continue to seek the necessary regulatory approvals to !
complete the merger of the Company into Cleveland 1.iquidity Electric which was announced in 1994. The Company ;
and Cleveland Electric plan to seek preferred stock share Additional first mortgage bonds may be issued by the l
owner approval in mid-1995. The merger is expected to Company under its mortgage on the basis of property '
- be effective in 1995. See Note 15. additions, cash or refundable first mortgage bonds. If the
I
! applicable interest coverage test is met, the Company may issue first mortgage bonds on the basis of property L additions and, under certain circumstances, refundable (Toledo Edison) F-54 (Toledo Edison) .
o l bondo. At December 31,1994, the Company would hase fuel cost recoscry revenues. Weather reduced base rate been permitted to issue approximately $$25 million of revenues approximately $7 million from the 1993 additional first mortgage bonds. amount. Total sales increased 7.8E Industrial sales in-creased 8.6% on the strength of increased sales to large The Company also is able to raise funds through the sale automotive manufacturers and the broad-based, smaller of subordinated debt and preferred and preference stock, industrial customer grcup. This growth substantiated an Under its articles of incorporation, the Company cannot economic resurgence in )'orthwestern Ohio. Residential issue preferred stock unless certain earnings coverage and commercial sales increased 0.8% and 2.3%, respec-requirements are met. At December 31,1994, the Com- tively. Other sales increased 16% because of increased pany would have been permitted to issue approximately sales to wholesale customers, although the softer whole-
$28 million of additional preferred stock at an assumed sale market conditions in 1994 resulted in lower whole-dividend rate of 12% There are no restrictions on the sale revenues. Lower 1994 fuel cost recovery revenues Company's ability to issue preference stock. resulted from favorable changes in the fuel cost factors.
In 1995, the Company plans to raise funds through the collateralization of accounts receivable. In addition, the For 1994, operating revenues were 26% residential,21%
Company expects to issue first mortgage bonds as collat- commercial,29% industrial and 24% other and kilowatt-eral security for the sale by a public authority of tax- hour sales were 19% residential,16% commercial, 37%
exempt bonds. industrial and 28% other. The average prices per kilo-watt-hour for residential, commercial and industrial cus-The Company is a party to a $205 million revolving credit tomers were $.11, S.)I and $.06, respectively, facility which runs through mid-1996. See Note 12. The . .
Company had $88 million of cash and temporary cash Opua&g expenses uem 3 town in 1994. Operation and maintenance expenses for 1993,ncluded i $88 milh,on investments at the end of 1994. The Company is unable to issue commercial paper because of its below invest- f net benefit expenses related to an early retirement ment grade commercial paper ratings.
pr gram, called the Voluntary Transition Program (VTP), and other charges totaling $19 million. The VTP The foregoing financing resources are expected to be benefit expenses in 1993 consisted of $75 million of costs sufficient for the Company's needs over the next several for the Company plus $13 million for the Company's years. liowever, the availability and cost of capital to pro rata share of the costs for its affiliate, Centerior !
meet the Company's external financing needs also depend Service Company (Service Company). Two other signifi-upon such factors as financial market conditions and its cant reasons for lower operation and maintenance ex- l credit ratings. Current credit ratings for the Company penses in 1994 were a smaller work force and ongoing are as follows: cost reduction measures. Lower purchased power costs helped reduce fuel and purchased power expenses in 1994 '
[","M fnD', despite an increase in the amount of power purchased.
cornoration service. Inc. More nuclear generation and less coal-fired generation First mortgage bonds BB Ba2 also accounted for a part of the lower fuel and purchascd rete red p wer expenses. Depreciation and amortization ex-penses increased primarily because of higher nuclear plant decommissioning expenses as discussed in Note -
Resulfs of Operafions i(e). Deferred operating expenses were greater primarily 3994 3993 because of the write-off of $55 million of phase-in ,
deferred operating expenses in 1993 as discussed in Note Factors contributing to the 0.7% decrease in 1994 operat- 7. The 1993 deferrals also included $32 million of ing revenues are as follows: postretirement benefit curtailment cost deferrals related Mmions to the VTP. See Note 9(b). Federal income taxes in-Inerme (ncermei in Oncraine Revenues of Doiin creased as a result of higher pretax operating income.
KWH Sacs Volume and Mit 58 ,
Wholesale Revenues p) As discussed in Note 4(b), $232 million of our Perry Unit fuel Cost Recovery Revenues _LO ) 2 investment was written off in 1993. Also, as discussed D E in Note 7, phase-in deferred carrying charges of $186
- " " * " * *" in 1993. The change in the The Company experienced good retail kilowatt-hour sales federal income tax cred.it amounts for nonoperating in-growth in the industrial and commercial categories in cm was attributable to these write-ofTs.
1994; the sales growth for the residential category was lessened by w cather conditions, particularly during the summer. The revenue decrease resulted from milder weather conditions in 1994 and both lower wholesale and (Toledo Edison) F-55 (Toledo Edison)
1 I
1993 ts.1992 Primarily from lower reveaues under contracts having l reduced rates with certain large customers and a declining - i Fectors contributing to the 3.1% increase in 1993 operat- rate structure tied to usage. The contracts have been ing revenues are as follows: negotiated to meet competition and encourage economic Increne meerene) in Operatine Revenues o s growth. The increase in 1993 fuel cost recovery revenues l KWH Sales Volurne and Min $ 3g resulted from changes in the fuel cost factors. The Whoicsaic Sales (11) weighted average of these factors increased about 2%.
Bac Rates and Miscellaneous (3)
F uel Cost Recovery Revenues 2 For 1993, operating revenues were 26% residential,21%
Total LZ1 commercial. 28% industrial and 25% other and kilowatt- ,
hour sales were 20% residential,17% commercial,37%
The revenue increase resulted primarily from the different industrial and 26% other. The average prices per kilo-weather conditions and the changes in the composition of watt-hour for residential, commercial and industrial cus-the sales mix among customer categories. Weather ac- tomers were 5.11, 5.11 and $.06, respectively. The
- counted for approximately $15 million of higher 1993 changes from 1992 were not significant.
base rate revenues,1101 summer weather in 1993 boosted Operating expenses increased 13% in 1993. The increase residential and commercial kilowatt-hour sales. In con-in total operation and maintenance expenses resulted trast, the 1992 summer was the coolest m 56 years for
, from the $88 million of net benefit expenses related to Northwestern Ohio. Residential and commercial sales !
the VTP, other charges totaling $19 million and a slight also increased as a result of colder late-winter tempera- '
increase in other operation and maintenance expenses.
tures in 1993 which mcreased electnc heatmg-related Deferred operating expenses decreased because of the demand. Residential and commercial sales increased '
write-off of the phase-in deferred operating expenses in 5.1% and 3.2%, respectively, m, 1993. Industrial sales '
1993. Federal income taxes decreased as a result of lower increased 6% as a result of m, creased sales to large pretax operating income.
automotive manufacturers, petroleum refmers and the ,
broad-based, smaller industrial customer group. Other As mentioned above, $232 million of our Perry Unit 2 ;
sales decreased 18% because of fewer sales to wholesale investment was written off in 1993. Credits for carrying customers. Generating plant outages and retail customer charges recorded in nonoperating income decreased be- l' demand limited power availability for bulk power transac- cause of the write-off of the phase-in deferred carrying tions. As a result, total sales decreased 2.2% in 1993. charges in 1993. The federal income tax credit for nonop- ,
Base rates and miscellaneous revenues decreased in 1993 erating income in 1993 resulted from the write-offs. !
?
t 1
i
[
t (Toledo Edison) F-56 (Toledo Edison)
,,m. - . , . , - - ._ ,_. , _..m.,, -, -. --.. _ . , , , . , - - . . .___7,_ w
i knCom3 Statem:nt ne roicso esiso, co-pa , ;
for the years ended December 31.
.L994 1993 J.222 (millions of doHars)
Operating Reienues (I) 1.8M $ 871 $_8M Operating Expenses Fuel and purchased power 167 173 169 j Other operation and maintenance 229 245 236 Generation facilities rental expense, net 104 104 106 Early retirement program expenses and other - 107 -
Total operation and maintenance 500 629 511 Depreciation and amortization 83 76 77 Taxes, other than federal income taxes 90 91 91 Deferred operating expenses, net (21) (4) (17)
Federal income taxes (credit) _ 11 (10) _ 21 b.M 782 f Operating Ineome _ l.6.0 89 _11Q N:noperating Income (Loss)
Allowance for equity funds used during construction ! ! I Other income and deductions, net 3 - 1 Write-off of Perry Unit 2 -
(232) -
Deferred carrying charges, net 15 (161) 41 Federal income taxes - credit (expense) _12) 129 (1) 17 (263) 42 Income (Loss) liefore Interest Charges 197 (174) _].42 Interest Charges Debt interest 116 116 122 Allowance for borrowed funds used during construction (1) (1) (1)
_ln 115 121 Net income (Loss) 82 (289) 71 Preferred Diiidend Requirements 20 ,__21 24 -
Earnings (Loss) Atallable for Common Stock $ 62 $(312) $ 47 .
(1) Includes revenuesfrom all bulk power sales to Cleveland Electric of $Iii million. $I20 million and $I30 million in I994.1993 and 1992 respectively.
Retained earnings For the years ended December 31.
1994 1993 1992 (millions of dollars)
Retained Earnings (Deficit) at Beginning of Year $(175) M $_.2D Additions 82 (289) 71 Net income (loss)
Deductions Preferred stock dividends declared (20) (21) 124)
(Q (312) 47 Net increase (Decrease) ]
Retained Earnings (Deficit) at End of Year $(113) $(175) 5117 j
The accompanying notes are an integralpart of these statements. l l
1 (Toledo Edison) F-57 (Toledo Edison)
L Balanco Shset December 31.
1994 1993 (millions of dollars)
ASSETS Property, Plant and Equipment Utility plant in service $2,899 $2,837 Less: accumulated depreciation and amortization 892 788 2,007 2,049 Construction work in progress J 40 2,037 2,089 Nuclear fuel, net of amortization 119 142 Other property, less accumulated depreciation 6 -
2.162 .2.231 Current Assets Cash and temporary cash investments 88 82 Amounts due from customers and others, net 62 63 Amounts due from affiliates 19 16 Unbilled revenues 22 25 Materials and supplies, at average cost 45 43 Fossil fuel inventory, at average cost 12 12 Taxes applicable to succeeding years 72 71 Other 2 2 322 314 Deferred Charges and Other Assets Amounts due from customers for future federal income taxes 405 382 Unamortized loss from Beaver Valley Unit 2 sale 101 105 Unamortized loss on reacquired debt 28 32 Carrying charges and operating expenses 379 343 Nuclear plant decommissioning trusts 38 26 Other 67 77 1.018 _2M Total Assets M $3.510 '
The accompanying notes are an integralpart of this statement.
I i
e (Toledo Edison) F-58 (Toledo Edison)
T6e Toledo Edhoo Company December 31.
1994 1993 (millions of dollars)
CAPITALIZATION AND LIABILITIES Capitalization Common shares, $5 par value: 60 million authorized; 39.1 million outstanding in 1994 and 1993 $ 196 $ 196 Premium on capital stock 481 481 Other paid-in capital 121 121 Retained earnings (deficit) (113) (175)
Common stock equity 685 623 Preferred stock With mandatory redemption provisions 7 28 Without mandatory redemption provisions 210 210 Long-term debt 1.154 1.225 2.056 2.086 Current Liabilities Current portion of long term debt and preferred stock 83 57 Current portion of nuclear feellease obligations 36 49 Accounts payable 48 63 Accounts payable to affiliates 31 27 Accrued taxes 75 90 Accrued interest 27 27 Other 16 16 316 129 Deferred Credits and Other Li. abilities Unamortized investment tax credits 87 94 Accumulated deferred federal income taxes $41 471 Unamortized gain from Bruce Mansfield Plant sale 198 208 Accumulated deferred rents for Bruce Mansfield Plant and Beaver Valley Unit 2 54 50 Nuclear fuel lease obligations 87 103 Retirement benefits 103 98 Other 60 71 1.130 1.095 Total Capitalization and Liabilities $3.502 $3.510 1
)
(Toledo Edison) F-59 (Toledo Edison)
Casn Flows rsc r.i s. es c.-e..,
For the years ended December 31.
1994 1993 1992 (rnillions of dollars)
Ccsh Flows from Operating Actisities (1) l Net income (Loss) $ 82 $(289) S 71 l Adjustments to Reconcile Net income (Loss) to Cash from Operating Activities:
l Depreciation and amortization 83 76 77 I Deferred federal income taxes 46 (160) 28 I I investment tax credits, net - -
(5) l f Unbilled revenues 3 (4) 1 Deferred fuel 3 -
(4)
Deferred carrying charges, net (15) 161 (41)
Leased nuclear fuel amortization 44 38 56 Deferred operating expenses, net (21) (4) (17) l Allowance for equity funds used during construction (1) (1) (1) l Noncash early retirement program expenses, net -
83 -
Write-off of Perry Unit 2 -
232 -
Changes in amounts due from customers and others, net I (3) -
Changes in inventories (2) 10 (9)
Changes in accounts payable (15) 16 (8) l Changes in working capital afTecting operations (16) 21 7 Other noncash items 10 14 13 l Total Adjustments 120 479 97 Net Cash from Operating Activities 202 190 168 Ccsh Flows from Financing Activities (2)
Bank loans, commercial paper and other short-term debt -
(40) 40 l
Notes payable to affiliates - -
(30)
- First mortgage bond issues 31 20 276 Secured medium-term note issues -
93 48 Debenture issue - -
135 Maturities, redemptions and sinking funds (98) (89) (531)
Nuclear fuel lease obligations (49) (47) (52)
Dividends paid (20) (23) (24)
Premiums, discounts and expenses -
(1) (8)
Net Cash from Financing Activities .(136) (87) (146)
Cash Flows from imesting Actisities (2)
Cash applied to construction (41) (42) (48)
Interest capitalized as allowance for borrowed funds used during construction (1) (1) (1)
Loans to affiliates - -
12 Sale and leaseback restructuring fees - -
(43)
Contributions to nuclear plant decommissioning trusts (12) (4) (4)
Other cash received (applied) (6) 10 (1)
Net Cash from Investing Activities (60) (37) (85; Net Change in Cash and Temporary Cash Imestments 6 66 (63)
Cesh and Temporary Cash Imestments at Beginning of Year __,8 2 16 79 Cash and Temporary Cash Imestments at End of Year. S RR S R2 S 16 (I) Interest paid (nct of amounts capitali:cd) was $94 million. $92 million and $95 million in 1994,1993 and 1992, respectively. Income taxes paid were S$ million. 57 million and $3 million in 1994.1993 and 1992, respectively.
(2) Increases in Nuclear Fu:1 and Nuclear Fuel Lease Obligations in the Balance Sheet resultingfrom the noncash capitali:ations under nuclearfuel agreements are excludedfrom this statement.
The accompanying notes are an integralpart of this statement.
(Toledo Edison) F-60 (Toledo Edison)
. Stat:m:nt of Praterred stock n, r.1,s. cs c.-,..,
Current Call Price December 31. !
1994 Shares Per Outstandine Share 1904 1993 (millions of dollars)
$100 par value,3,000.000 preferred shares authorized and
-$25 par value, 12,000,000 preferred shares authorized Subject to mandatory redemption:
$100 par $9.375 83,500 $101.98 $ 8 $ 10 25 par 2.81 400,000 25.62 10 __lQ 18 40 i
Less: Current maturities 11 _.J.2 Tot:1 Preferred Stock, with Mandatory Redemption Protisions _ W Q Not subject to mandatory redemption:
$100 par $ 4.25 160,000 104.625 $ 16 $ 16 i
~
4.56 50,000 101.00 5 5 4.25 100,000 102.00 10 10 8.32 100,000 102.46 10 10 6 7.76 150,000 102.437 15 15 7.80 150,000 101.65 15 15 10.00 190,000 101.00 19 19 25 par 2.21 1,000,000 25.25 25 25 i 2.365 1,400,000 27.75 35 35 Series A Adjustable _ 1,200,000 25.75 30 30 i Series B Adjustable __ 1,200,000 25.75 _). O _ 20 :
Total Preferred Stock, without Mandatory Redemption Provisions $210 gjl,00 i The accompanying notes are an integralpart of this statement. ,
I i
1 i
i t
i
\
l l
l l
l (Toledo Edison) F-61 (Toledo Edison)
Notes to the Financial Statements ( d ) "" *' '**""
The cost of fossil fuel is charged to fuel expense based on (1) Surnmarj' of Signi8 cant inventory usage. The cost of nuclear fuel, including an i interest c mp nent,is charged to fuel expense based on Accounting l'olicies the rate of consumption. Estimated future nuclear fuel t (a) General disposal costs are being recovered through base rates.
l The Company is an electric utility and a wholly owned The Company defers the difTerences between actual fuel I
subsidiary of Centerior Energy. The Company follows the costs and estimated fuel costs currently being recovered Uniform System of Accounts prescribed by the Federal from customers through the fuel factor. This matches Energy Regulatory Commission (FERC) and adopted fuel expenses with fuel-related revenues. '
by the PUCO. Rate-regulated utilities are subject to SFAS 71 which governs accounting for the efTects of Owners of nuclear generating plants are assessed by the certain types of rate regulation. Pursuant to SFAS 71, federal government for the cost of decontamination and certain incurred costs are deferred for recovery in future decommissiomng of nuclear enrichment facilities oper- j rates. See Note 7. ated by the United States Department of Energy. The assessments are based upon the amount of enrichment The Company is a member of the Central Area Power services used in prior years and cannot be imposed for i Coordination Group (CAPCO). Other members are more than 15 years (to 2007). The Company has accrued Cleveland Electric, Duquesne Light Company. Ohio a liability for its share of the total assessments. These r Edison Company and its wholly owned subsidiary, Penn- costs have been recorded in a deferred charge account sylvania Power Company. The members have con- since the PUCO is allowing the Company to recover the structed and operate generation and transmission assessments through its fuel cost factors.
facilities for their use.
(c) Depreciation and Amortization (b) Related Party Transact. ions The cost of property, plant and equipment is depreciated Operating revenues, operating expenses and interest over their estimated useful lives on a straight-line basis.
charges include those amounts for transactions with affili-The annual straight-line depreciation provision for non-ated compinies in the ordinary course of business nuclear property expressed as a percent of average depre-operations. '
ciable utility plant in service was 3.5% in 1994 and 3.6%
The Company's transactions with Cleveland Electric are in both 1993 and 1992. The annual straight-line depreci- j primarily for firm power, interchange power, transmis. ation rate for nuclear property is 2.5%. ,
sion line rentals andjointly owned power plant operations The Company accrues the estimated costs of decommis-and construction. See Notes 2 and 3.
sioning its three nuclear generating units. The accruals The Service Company provides management, financial, are required to be funded in an external trust. The PUCO administrative, engineering, legal and other services at requires that the expense and payments to the external ,
cost to the Company and other afliliated companies. The trusts be determined on a levelized basis by dividing the Service Company billed the Company 559 million, S71 unrecovered decommissioning costs in current dollars by million and $60 million in 1994,1993 and 1992, respec. the remaining years in the licensing period of each unit.
tively, for such services. This methodology requires that the net earnings on the trusts be reinvested therein with the intent of allowing net (c) Reienues earnings to ofTset inflation. The PUCO requires that the -
estimated costs of decommissioning and the funding Customers are billed on a monthly cycle basis for their level be reviewed at least every five years.
energy consumption based on rate schedules or contracts authorired by the PUCO or on ordinances of individual in 1994, the Company increased its annual decommis-municipalities. An accrual is made at the end of each si ning expense accruals to $11 million from the $4 month to record the estimated amount of unbilled reve- milli n level in 1992.The accruals are reflected in current ;
nues for kilowatt-hours sold in the current month but not rates. The increased accruals were derived from recently billed by the end of that month. updated, site-specific studies for each of the units. The revised estimates reflect the DECON method of decom-A fuel factor is added to the base rates for electric senice. missioning (prompt decontamination), and the locations This factor is designed to recover from customers the and cost characteristics specific to the units, and include costs of fuel and most purchased power. It is reviewed costs associated with decontamination, dismantlement ,
and adjusted semiannually in a PUCO proceeding. and site restoration.
l (Toledo Edison) F-62 (Toledo Edison)
The resised c>timates for the units in 1993 and 1992 come. The AFUDC rate was 937% in 1994,10.221 in dollars and in dollare at the time of license expiration, 1993 and 10.96% in 1992.
assuming a 4% annual inflation rate, are as follows:
Maintenance and repairs for plant and equipment are Empiration l'uture charged to expense as incurred. The cost of replacing Generatine tinit Year _ Amount Amount plant and equipmer.t is charged to the utility plant ac-dollars) Counts. The cost of property retired plus removal costs, Dais-Besse 2017 5168(1) 5419 after deducting any salvage value, is charged to the accumulated provision for depreciation.
c)erancy Unit 2 (
Total 5119
""~
5%1
~~~'
(g) Deferred Gain and Loss from (1) Dollar amounts in 1993 dollars. Sales of Utility Plant (2) Doltar amounts in 1992 dalars.
The sale and leaseback transactions discussed in Note 2 The updated estimates reflect substantial increases from resulted in a net gain for the sale of the Bruce Mansfield the prior PUCO-recognized aggregate estimates of $115 Generating Plant (Mansfield Plant) and a net loss for the million in 1987 and 1986 dollars. sale of Beaver Valley Unit 2. The net gain and net loss were deferred and are being amortized over the terms of The classification, Accumulated Depreciation and Amor* leases. See Note 7. These amortizations and the lease tiration, in the Balance Sheet at December 31,1994 expense amounts are reported in the Income Statement as includes 544 million of decommissioning costs previously Generation Facilities Rental Expense, Net, expensed and the earnings on the external trust funding.
This amount exceeds the Balance Sheet amount of the (h) Interest Charges external Nuclear Plant Decommissioning Trusts because the reserve began prior to the external trust funding. The Debt Interest reported in the income Statement does not include interest on obligations for nuclear fuel under trust earnings are recorded as an increase to the trust construction. That interest is capitalized. See Note 6.
assets and the related component of the decommissioning reserve (included in Accumulated Depreciation and Losses and gains realized upon the reacquisition or re-Amortization). demption of long-term debt are deferred, consistent with the regulatory rate treatment. See Note 7. Such losses The stafTof the Securities and Exchange Commission has and gains are either amortized over the remahder of the questioned certain of the current accounting practices of original life f the debt issue retired or amortized over the electric utility industry, including those of the Com-the life of the new debt issue when the proceeds of a new pany, regarding the recognition, measurement and clas-issue are used for the debt redemption. The amortiza-sification of decommissioning costs for nuclear generating ,
tions are included in debt interest expense.
stations in the financial statements. In response to these questions, the Financial Accounting Standards Board is (i) Federal Income Taxes reviewing the accounting for removal costs, meluding decommissioning. If such current accounting practices The Company uses the liability method of accounting for are changed, the annual provision for decommissioning income taxes in accordance with SFAS 109. See Note 8.
could increase; the estimated cost for decommissioning This method requires that deferred taxes be recorded for could be recorded as a liability rather than as accumu- all temporary differences between the book and tax bases lated depreciation; and trust fund income from the exter- of assets and liabilities. The majority of these temporary nal decommissioning trusts could be reported as differences are attributable to property-related basis dif-investment income rather than as a reduction to decom. ferences. Included in these basis differences is the equity missioning expense. component of AFUDC, which will increase future tax expense when it is recovered through rates. Since this j (f) Property, Plant and Equipment component is not recognized for tax purposes, the Com- l
.. pany must record a liability for its tax obligation. The )
Property, plant and equipment are stated at origmal cost '
PUCO permits recovery of such taxes from customers less amounts ordered by the PUCO to be written off.
when they become payable. Therefore, the net amount Construction costs include related payroll taxes, retire-due from customers through rates has been recorded as a ment benefits, fringe benefits, management and general deferred charge and will be recovered over the lives of overheads and allowance for funds used during construc- I the related assets. See Note 7.
tion ( AFUDC). AFUDC represents the estimated com-posite debt and equity cost of funds used to finance Investment tax credits are deferred and amortized over construction. This noncash allowance is credited to in- the lives of the applicable property as a reduction of 1
(Toledo Edison) F-63 (Toledo Edison) l 1
depreciation expense. See Note 7 for a discussion of the through a tender offer and the sale of new bonds having a 1 amortization of certain unrestricted excess deferred taxes lower interest rate. As part of the refinancing transac- ,
and unrestricted investment tax credits under the Rate tion, the Company paid $43 million as supplemental rent Stabilization Program. to fund transaction expenses and part of the tender premium. This amount has been deferred and is being ;
am nized ver the remaining lease term. The refinancing (2) Utility Plant Sale and transaction reduced the annual rental expense for the Leaschack Transactions Beaver valley Unit 2 lease by $9 million. !
The Company and Cleveland Electric are co-lessees of .
18.26% (150 megawatts) of Beaver Valley Unit 2 and Future minimum lease payments under the operating i 6.5% ($1 megawatts), 45.9% (358 megawatts) and leases at December 31,1994 are summarized as follows:
44.38% (355 megawatts) of Units I,2 and 3 of the For For ad Mansfield Plant, respectively, all for terms of about 29% y,,, c,$p*,,1 jj,','y;, l
_ years. These leases are the result of sale and leaseback tminions or donaro .
transactions completed in 1987. 1995 s 103 s 63 1996 125 63 Under these leases, the Company and Cleveland Electric 1997 102 63 are responsible for paying all taxes, insurance premiums, 1998 102 63 operation and maintenance expenses and all other simi. 1999 tos 70 Later Years 1.918 1.321 lar costs for their interests in the units sold and ! cased back. They may incur additional costs in connection with Total Future Minimum Lease capital improvements to the units. The Company and P'Y**" M E Cleveland Electric have options to buy the interests back at the end of the leases for the fair market value at that Rental expense is accrued on a straight-line basis over the time or renew the leases. Additional lease provisions terms of the leases. The amount recorded in 1994,1993 provide other purchase options along with conditions for and 1992 as annual rental expense for the Mansfield mandatory termination of the leases (and possible re- Plant leases was $45 million. The amounts recorded in purchase of the ler c. old interests) for events of default. 1994,1993 and 1992 as annual rental expense for the These events include noncompliance with any of several Beaver Valley Unit 2 lease were $64 million, $63 million financial covenants discussed in Note 11(d), and $66 million, respectively. Amounts charged to ex-Pense in excess of the lease payments are classified as i As co-lessee with Cleveland Electric, the Company is also Ammutate e tre ents in ee Balance Meet.
obligated for Cleveland Electric's lease payments. If Cleveland Electric is unable to make its payments under .
- E *"I " ** ".*8 **E***** "**
the Mansfield Plant leases, the Company would be i Valley Unit 2 leased capacity entitlement to Cleveland 1 obligated to make such payments. No such payments Electric. Revenues recorded for this transaction were have been made on behalf of Cleveland Electnc. .
$108 mill. ion, $103 milh.on and $108 milh.on m 1994,1993 In April 1992, nearly all of the outstanding Secured Lease and 1992, respectively. We anticipate that this sale will Obligation Bonds (SLOBS) issued by a special purpose continue indefinitely. The future minimum lease pay- ;
corporation in connection with financing the sale and ments through the year 2017 associated with Beaver ,
leaseback of Beaver Valley Unit 2 were refinanced Valley Unit 2 aggregate $1.413 billion.
i i
t I
l (Toledo Edison) F-64 (Toledo Edison)
(3) Property Owned with Other Utilitics and Investors The Company owns, as a tenant in common with other utilities and those investors who are owner-participants in various
- sale and leaseback transactions (Lessors), certain generating units as listed below, Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction costs and operating expenses. !
Each Lessor has leased its capacity rights to a utility which is obligated to pay for such Lessor's share of the construction costs and operating expenses. The Company's share of the operating expenses of these generating units is included in the income Statement. The Balance Sheet classification of Property, Plant and Equipment at December 31,1994 includes the following facilities owned by the Company as a tenant in common with other utilities and Lessors: !
In- Plant Construction !
Service Ownership Ownership Power in Work in Accumulated i Date Share Megawatts Source Senicg Pron ess Depreciation '
Generatinc Unit (millions of dollars)
Dovis Hesse 1977 48.62% 429 Nuclear 5 642 54 5179 1987 19.91 238 Nuclear 1.043 4 197 .
Perry Unit i Beaver Valley Unit 2 and g 2o4 i Common Facilities (Note 2) 1987 1.65 13 Nuclear ,,J .,_4,52 Total g g g (4) Construction and Contingencies Company has accrued a liability totaling $5 million at December 31,1994 based on estimates of the costs of (0) Construction Program cleanup and its proportionate responsibility for such costs.
The estimated cost of the Company's construction pro- We believe that the ultimate outcome of these matters gram for the 1995-1999 period is $303 million, including will not have a material adverse effect on our financial AFUDC of $15 million and excluding nuclear fuel. condition or results of operations. See Management's Financial Analysis-Outlook Hazardous Waste Dispo-The Clean Air Act requires, among other things, signifi-sal Situ.
cant reductions in the emission of sulfur dioxide and nProgen oxides by fossil-fueled generating units. Our strategy provides for compliance primarily through (5) Nuclear Operations and greater use of low-sulfur coal at some of our units and the Contingencies ,
use of emission allowances. Total capital expenditures from 1991 through 1994 in connection with Clean Air (a) Operating Nuclear Units ,
Act compliance amounted to $1 million. The plan will The Company's three nuclear units may be impacted by .
require additional capital expenditures over the 1995- activities or events beyond our control. An extended '
2004 period of approximately $32 million for nitrogen outage of one of our nuclear units for any reason, oxide control equipment and plant modifications. In addi- coupled with any unfavorable rate treatment, could tion, higher fuel and other operation and maintenance have a material adverse effect on our financial condition y expenses may be incurred. The anticipated rate increase and results of operations. See the discussion of these associated with the capital expenditures and higher ex- risks in Management's Financial Analysis-Outlook-penses would be less than 2% over the ten-year period. Nuclear Operations.
(b) Perry Unit 2 -
(b) Nuclear Insurance Perry Unit 2, including its share of the facilities common t with Perry Unit I, was approximately 50% complete The Price-Anderson Act limits the public liability of the j when construction was suspended in 1985 pending con.
owners of a nuclear power plant to the amount provided sideration of various options. We wrote off our investment by private insurance and an industry assessment plan. In in Perry Unit 2 at December 31,1993 after we deter. the event of a nuclear incident at any unit in the United mined that it would not be completed or sold. The write. States resulting in losses in excess of the level of private insurance (currently $200 million), the Company's max.
off totaled $232 million ($167 million after taxes) for the Company's 19.91% ownership share of the unit. See imum potential assessment under that plan would be $70 Note 14. million (plus any inflation adjustment) per incident. The assessment is limited to 59 million per year for each (c) liarardous Waste Disposal Sites nuclear incident. These assessment limits assume the The Company is aware of its potential involvement in the other CAPCO companies contribute their proportionate cleanup of several hazardous waste disposal sites. The share of any assessment.
(Toledo Edison) F-65 (Toledo Edison)
J The utility owners and lessees of Davis'-Besse, Perry and (7) Regulatory Matters
- Beaver Valley also have insurance coverage for damage to property at these sites (including leased fuel and The Company is subject to the provisions of SFAS 71.
cleanup costs). Coverage amounted to $175 billion for Regulatory assets represent probable future revenues to each site as of January 1.1995. Damage to property could the Company associated with certain incurred costs, exceed the insurance coverage by a substantial amount. which it will recover from customers through the if it does, the Company's share of such excess amount ratemaking process. Regulatory assets in the Balance
- could have a material adverse effect on its financial Sheet are as follows:
condition and results of operations. Under these policies, necember 31.
the Company can be assessed a maximum of $10 million yinion during a policy year if the reserves available to the dotiars) ;
insurer are inadequate to pay claims arisinE out of an Anmunts due from customers for future rederat accident at any nuclear facility covered by the insurer. i"=ne taxes s405 5382 Unamonited kas from Heaver Valley Unit 2 sale ~ 101 105 The Company also has extra expense insurance coverage. Unamortired ions on reacquired dehi 28 32
. It includes the incremental cost of any replacement Pre-phase-in deferrato 229 236 -
power purchased (over the costs which would have been Rate Stabilization Program dererrals R R l incurred had the units been operating) and other inci- Total E E !
dental expenses after the occurrence of certain types of . Represent dererrais or operating expenses and carrying charges for accidents at our nuclear units. The amounts of the cover- Perry Unii i and scaver vancy Unii 2 in 1987 and 1988 which are age are 100% of the estimated extra expense per week being amortired over the lives or the related property.
during the 52 week period starting 21 weeks after an As of December 31,1994, customer rates provide for accident and 80% of such estimate per week for the next recovery of all the above regulatory assets, except those :
104 weeks. The amount and duration of extra expense related to the Rate Stabilization Program discussed be- !
could substantially exceed the insurance coverage, low. The remaining recovery penods for all of the !
regulatory assets listed above range from 17 to 34 years. !
(6) Nuclear Fuel We continually assess the effects of competition and the !
changing industry and regulatory environment on opera-Nuclear fuel is fmanced for the Company and Cleveland 1
. . tions and the Company's ability to recover the regula- >
Electne through leases with a special-purpose corpora-tory assets. In the event that we determine that future i tion. At December 31,1994, $307 milhon ($125 milhon revenues would not be provided for recovery of any for the Company and $182 milhon for Cleveland Elec-
. regulatory asset, such asset would be required to be i tnc) of nuclear fuel was financed ($157 milh.on from M d Su Mgm's Financial Analysis- .
intermediate-term notes and $150 milhon from bank Outlook-Regulatory Accounting.
credit arrangements). The intermediate-term notes ma- '
ture in 1996 and 1997. The Company and Cleveland The Company will file a request with the PUCO to }
Electric severally lease their respective portions of the restructure rates to increase revenues to be effective in l nuclear fuel and are obligated to pay for the fuel as it is 1996 which willinclude provision for recovery of the Rate ,
consumed in a reactor. The lease rates are based on Stabilization Program defernsis. We believe that rates l various intermediate-term note rates, bank rates and will be set at a level consistent with cost-based regula-commercial paper rates. tions and will provide revenues to recover the then- !
- ren p ra ng c , mum r qu em nts and amod- f The amounts financed include nuclear fuel in the Davis- .
z ti n f all regul tory assets listed above, Besse, Perry Unit I and Beaver Valley Unit 2 reactors with remaining lease payments for the Company of $61 The Rate Stabilization Program that the PUCO approved l million, $34 million and $10 mihion, respectively, at in October 1992 was designed to encourage economic !
December 31,1994. The nuclear fuel amounts financed growth in the Company's service area by freezing the and capitalized also included interest charges incurred Company's base rates until 1996 and limiting subsequent i by the lessors amounting to $4 million in 1994 and $6 rate increases to specified annual amounts not to exceed ,
million in both 1993 and 1992. The estimated future lease $89 million over the 1996 1998 period.
l amortization payments based on projected consumption As part of the Rate Stabilization Program, during the i are $43 million in 1995, $38 million in 1996, $34 million 1992-1995 period the Company is allowed to defer and in 1997, $31 million in 1998 and $27 million in 1999. subsequently recover certain costs not currently recovered f in rates and to accelerate amortization of certain benefits.
The continued use of these regulatory accounting mea- l sures will be dependent upon our continuing assess-(Toledo Edison) F-66 (Toledo Edison)
ment and conclusion that there will be probable recovery (8) Federal /ncome Tax .
.of such deferrals in future rates. l The components of federal income tax expense (credit) i The regulatory accounting measures we are eligible to rec rded in the income Statement were as follows:
record through December 31,1995 include the deferral of post in-service interest carrying charges, depreciation ex-E W3 M2 :
(millions of dollars) 1 pense and property taxes on assets placed in service after gp,,,,,,, g ,,,,,,,, l February 29,198'i and the deferral of operating ex- current $18 s 36 s26 i
< penses equivalent to an accumulated excess rent reserve Dererred 2 (46) _2 for Beaver Valley Unit 2 (which resulted from the April Total Expense (Credit) to Operating ,
1992 refmancing of SLOBS as discussed in Note 2). The Expenses J 00) 2 ;
N " P"6"8 I"' **; I cost deferrals recorded in 1994,1993 and 1992 pursuant -
to these provisions were $40 million, $39 million and D rcd
$32 million, respectively. The regulatory accounting mea- Total Expense (credit) io Nonoperating i sures also provide for the accelerated amortization of lacome _2 1 29) _1 (
certain unrestricted excess deferred tax and unrestricted Total Federal Income Tax Expense (Credit), g g) g i investment tax credit balances and interim spent fuel !
The deferred federalincome tax expense results from the j storage accrual balances for Davis-Besse. The total eren es at ah kom Ge Memnt years e m p rary amount of such regulatory benefits recognized pursuant to l cenain exgnses am recognized M tax purposes as I these provisions was $18 million in both 1994 and 1993 !
Pposed to fmancial reporting purposes. Such temporary
. and $5 million in 1992. differences affecting operating expenses relate prmeipally ,
The Rate Stabilization Program also authorized the Com- to depreciation and deferred operating expenses whereas pany to defer and subsequently recover the incremental those affecting nonoperating income principally relate to l expenses associated with the ad e 'the accounting deferred carrying charges and the 1993 write-offs. l standard for postretirement w#m wr than pensions - Federal income tax, computed by multiplying income l (SFAS 106). In 1994 and IW w Merred $2 million before taxes by the statutory rate (35% in 1994 and 1993 and $37 million, respectively, pursuant to this provision.
and 34% in 1992), is reconciled to the amount of federal !
Amortization. and recovery of these deferrals are expected inc me tax recorded on the books as follows:
to commence in 1996 and to be completed by no later than 2012. See Note 9(b). %nions)dolla in 1993, upon completing a comprehensive study which Book Income (Loss) Before Federal income Tax Sm Sam g led to our current strategic plan, we concluded that Ta red t) " Book Inc me (Loss) at projected revenues would not provide for recovery of Re deferrals recorded pursuant to a phase-in plan approved increase (Decrease) in Tac , i by the PUCO in 1989. Such deferrals were scheduled to write-orr of Perry Unit 2 - 16 - I be recovered over the 1994 through 1998 period. The total Write-off of phase-in deferrals - B -
f Depreciatha (3) 02) (6) l phase in deferred operating expenses and carrying Rate Stabilization Program (9) (10) (2) charges written off at December 31,1993 by the Com- Sale and leaseback transactions and pany were $55 m.lh.i on and $186 m.lh.i on, respectively amortiration 5 3 5 (totaling $165 million after taxes). See Note 14. Addi- Other items J 4 J l tionally, based on our assessment of business conditions, Total Federal Income Tax Expense (Credit) . $U $N1H $ 14 I l
we concluded that, once the deferral of expenses and .
The Company j. . oms m the filing of a consolidated federal acceleration of benefits under our Rate Stabilization Pro. inc me tax return with its afilliated companies. The gram are completed in 1995, we should no longer plan to me ax a ca n re ects 6e yep ad budens use regulatory accounting measures to the extent we realized by each company's participation in the consoh. -
have in the past.
dated tax return, approximating a separate return result for each company.
For tax reporting purposes, the Perry Unit 2 abandonment was recognized in 1994 and resulted in a $120 million loss with a corresponding S42 million reduction in federal income tax liability. Because of the alternative minimum tax ( AMT), $24 million of the $42 million was realized in l- 1994. The remaining $18 million will not be realized until 1999.
(Toledo Edison) F-67 (Toledo Edison) !
l
_ _ .._. _ _ _ _ _ - _ _ - ._ i
In August 1993, the Revenue Reconciliation Act of 1993 resulting from a settlement of pension obligations through eas enacted. Retroactive to January 1,1993, the top lump sum payments to almost all the VTP retirees !
marginal corporate income tax rate increased to 35%. partially offset the VTP expenses. j The change in tax rate did not materially impact the results of operations for 1993, but increased Accumulated Pension and VTP costs (credits) for Centerior Energy Deferred Federal income Taxes for the future tax obliga- and its subsidiaries for 1992 through 1994 were comprised tion by approximately $29 million. Since the PUCO has f the following components: i historically permitted recovery of such taxes from cus- 3"4 '"3 M (millions of dollars) tomers when they become payable, the deferred charge, Pension costs (crediis):
Amounts Due from Customers for Future Federal in- service co,i for benents carned during the come Taxes, also was increased by 529 million. period s 13 s is s 15 Interest cost on projected benef t obligation. 26 37 38 Under SFAS 109, temporary differences and carryfor- Actual return on plan assets (2) (65) (24) wards resulted in deferred tax assets of $178 million and Net amortization and deferral _(y4) .,_4 _145) 4 deferred tax liabilities of 5719 million at December 31, Net pension costs (credits) 3 (9) (16) m c st - 205 -
1994 and deferred tax assets of $178 million and deferred tax liabilities of $649 million at December 31,1993.
These are summarized as follows:
c,[,s (credits) b N
-)
December 'll.
J.9S J.292 Pension and VTP costs (credits) for the Company and its
("$rs') pro rata share of the Service Company's costs were $1 Property, plant and equipment $606 5534 million and $53 million for 1994 and 1993, respectively.
Deferred carrying charges and operating expenses _,,_ 83 79 The costs for 1992 were negligible.
Net operating loss carryforwards (54) (39)
Investment tas credits (51) (55) The following table presents a reconciliation of the funded Sale and leaseback transactions (3) _ status of the Centerior Pension Plan. The Company's Other ,,,1@) J4R) share of the Centerior Pension Plan's total projected Net deferred tax liability 5541 $411 benefit obligation approximates 30%.
December 31.
For tax purposes, net operating loss (NOL) carryforwards yng j,933 of approximately $154 million are available to reduce (miHions of dollars) future taxable income and will expire in 2003 through Actuarial present value of benefit obligations:
2009. The 35% tax efTect of the NOLs is $54 million. vested benents $278 5333 Additionally, AMT credits of $69 million that may be Nonvested benef ts _j _ 32 ,
carried forward indefinitely are available to reduce future Accumulated benefit obligation 280 370 EITect of future compensation levels '
22 22 Rgular tat Total projected benent obligation 317 423 Plan assets at fair rnarket value .,2M .)M (9) Retirement Benefits runded status 45 (3,)
Unrecognized net loss (gain) from variance (a) Ret,remerit i Iricome Plan bet.cen assumpiions and experience (79) 11 U "' 8 "I'*d P 'i ' '*"I" ' 'U 'O Centerior Energy sponsors jointly with its subsidiaries a Tran i noncontributing pension plan (Centerior Pension Plan) ,
n a j at January L 1987 Wg unioni7ed_gg) ,3 which covers all employee groups. The amount of retire-ment benefits generally depends upon the length of Net accrued pension liability E) M) service. Under certain circumstances, benefits can begin A September 30,1994 measurement date was used for as early as age 55. The funding policy is to comply with 1994 reporting. At December 31, 1994, the settlement the Employee Retirement income Security Act of 1974 (discount) rate and long-term rate of return on plan guidelines.
assets assumptions were 8.5% and 10%, respectively. The In 1993, eligible employees were ofTered the VTP, an long-term rate of annual compensation increase assump-early retirement program. Operating expenses for Center- tion was 3.5% for 1995 and 1996 and 4% thereafter. At ior Energy and its subsidiaries in 1993 included $205 December 31,1993, the settlement rate and long-term million of pension plan accruals to cover enhanced VTP rate of return on plan assets assumptions were 7.25%
benefits and an additional S10 million of pension costs and 8.75%, respectively. The long-term rate of annual for VTP benefits paid to retirees from corporate funds. compensation increase assumption was 4.25%. At Decem-The $10 million is not included in the pension data ber 31,1994 and 1993, the Company's net accrued reported in the following table. A credit of $81 million pension liability included in Retirement Benefits in the (Toledo Edison) F-68 (Toledo Edison)
, . -. =_. _ - - -.
Balance. Sheet cras $66 million and $65 million, Company's portion since the Sersice Companis total respectively, accrued cost is carried on its books. ,
. Plan assets consist primarily of investments in common A September 30.1994 measurement date was used for stock, bonds, guaranteed investment contracts, cash 1994 reporting. At December 31,1994 and 1993, the l equivalent securities and real estate, settlement rate and the long term rate of annual compen-sation increase assumptions were the same as those (b) Other Postrctirement Benefits discussed for pension reporting in Note 9(a). At Decema Ceaterior Energy sponsors jointly with its subsidiaries a ber 31,1994, the assumed annual health care cost trend postretirement benefit plan which provides all employee rates (applicable to gross eligible charges) are 8.5% for groups certain health care, death and other postretirement medical and 8% for dental in 1995. Both rates reduce ,
benefits other than pensions. The plan is contributory, gradually to a fixed rate of 4.75% by 2003. Elements of with retiree contributions adjusted annually. The plan is the obligation affected by contribution caps are signifi-
- not funded. The Company adopted SFAS 106, the cantly less sensitive to the health care cost trend rate than accounting standard for postretirement benefits other than other elements. If the assumed health care cost trend pensions, efTective January 1,1993. The standard re- rates were increased by one percentage point in each quires the accrual of the expected costs of such benefits future year, the accumulated postretirement benefit obli-during the employees' years of service. Prior to 1993, the gdon u of December 31,1994 would increase by $3 -
sosts of these benefits were expensed as paid, which was million and the aggregate of the service and interest cost consistent with ratemaking practices. camponents of the annual postrctirement benefit cost
- The components of the total postretirement benefit costs would increase by $0.3 million.
for 1994 and 1993 were as follows:
mn (10) Guarantees t
$"s') The Company has guaranteed certain loan and lease Service cost for benefits carned during the period $1 $I obligations of a coal supplier under a long-term coal- ,
Interest cost on accumulated postretirement benef' ;
obligation 7 6 supply contract. At December 31,1994, the principal Amortization of transition obligation at January 1.1993 amount of the loan and lease obligations guaranteed by 1 of $63 million over 20 years 3 3 the Company was $17 million. The prices under the 1 VTP curtailment cost (includes $6 million transition obligation adjustment) _: J contract which includes certain minimum payments are Totat cosis g g sufficient to satisfy the loan and lease obligations and mine closing costs over the life of the contract. If the These amounts included costs for the Company and its contract is terminated early for any reason, the Company pro rata share of the Service Company's costs.
would attempt to reduce the termination charges and in 1994 and 1993, the Company deferred incremental would ask the PUCO to allow recovery of such charges
- SFAS 106 expenses (in excess of the amounts paid) of $2 from customers through the fuel factor. . I million and $37 million, respectively, pursuant to a provi- ,
sion of the Rate Stabilization Program. See Note 7. (11) Capitallration The accumulated postretirement benefit obligation and (a) Capital Stock Transactions accrued postretirement benefit cost for the Company and Preferred stock shares retired during the three years .
its share of the Service Company's obligation are as '
ended December 31,1994 are listed in the following table.
follows:
g g g (thousands of shares) 3illions of Subject to Mandatory Redemption:
dollars) $100 par 5l1.00 - -
(25)
Accumulated postrctirement benefit obligation 9.375 (17) (17) (17) attributable to: 2$ par 2.81 D_ng) H00) _-.:
Retired participants $(79) $(88) Total Other metive plan participants _17,)
E) El M) ,
J)
Accumulated postretirement benef t obligation _ (86) (97)
Unrecognized net loss (gain) from variance betacen (b) Equity Distribution Restrictions assumptions and experience (7) 5 Federal law prohibits the Company from paying dividends Unamonized transition obligation J J out of capital accounts. However, the Company may pay i Accrued postretirement benef t cost g) g) d vidends out of appropriated retained earnings and i The Balance Sheet classification of Retirement Benefits current earnings. At December 31,1994, the Company l at December 31,1994 and 1993 includes only the Com- had $104 million of appropriated retained earnings for the pany's accrued postretirement benefit cost of $37 million payment of preferred stock dividends. The Company is and $33 million, respectively, and excludes the Service prohibited from paying a common stock dividend by a (Toledo Edison) F-69 (Toledo Edison)
l l
provision in its mortgage that essentially requires such Long-term debt matures during the next five years as I dividends to be paid out of the total balance of retained follows: 571 million in 1995,591 million in 1996,540 carnings, which currently is a deficit. million in 1997,$39 million in 1998 and $119 million in i999.
'(c) Preferred and Preference Stock The Company issued $141 million aggregate principal Amounts to be paid for preferred stock which must be amount of secured medium-term notes in 1992 and 1993.
redeemed during the next five years are $11 million in The notes are secured by first mortgage bonds.
1995 and $2 million in each year 1996 thre.gn I?99.
The Company's mortgage constitutes a direct first lien on The annual preferred stock mandatory redemption pnvi- substantially all property owned and franchises held by si ns are as foHows: the Company Excluded from the lien, among other Shares To Price
" Wngs, am cas, secunes, aunts recchaWe, M, RedIc*med in sha're
" * " " "
- E
- 3100 par 59.375 16.650 1985 5100 25 par 2.81 400,000 1993 25 Certain unsecured loan agreements of the Company con-tain menants reladng to capitahadon rados, hed
- The annualized preferred dividend requirement at De-charge coverage ratios and limitations on secured financ-cember 31,1994 was $19 million. l ing other than through first mortgage bonds or certain The preferred dividend rates on the Company's Series A other transactions. Two reimbursement agreements relat-and B fluctuate based on prevailing interest rates and ing to separate letters of credit issued in connection with market conditions. The dividend rates for these issues the sale and leaseback of Beaver Valley Unit 2 contain averaged 7.66% and 8.44%, respectively, in 1994. several financial covenants afTecting the Company, Cleve-land Electric and Centerior Energy. Among these are Preference stock authon. zed for the Company is 5,000,000 covenants relating to fixed charge coverage ratios and shares with a $25 par value. No preference shares are capitalization ratios. The write-ofTs recorded at December currently outstanding.
31,1993 caused the Company, Cleveland Electric and With respect to dividend and liquidation rights, the Com- Centerior Energy to violate certain covenants contained pany's preferred stock is prior to its preference stock and in the two reimbursement agreements. The affected cred-common stock, and its preference stock is prior to its itors waived those violations in exchange for a common stock. subordinate mortgage security interest on the properties -
of the Company and Cleveland Electric. The Company (d) Long-Term Debt and Other provided the same security interest to certain other credi-Borrowing Arrangements tors because their agreements require equal treatment.
At December 31, 1994, the Company provided '
Long term debt, less current maturit.ies, was as follows:
subordinate mortgage collateral for $152 million of un-Actual or Average secured debt, $228 million of bank letters of credit and a
("l",5', S205 million revolving credit facility.The bank letters of i December 31 December 31- credit are joint and several obligations of the Company )
Year or wurity 1994 to no o[ and Cleveland Electric and the revolving credit facility is an obligation of Centerior Energy that is jointly and dollars)
First mortgage bonds: severally guaranteed by the Company and Cleveland 1997 6 125% 5 11 5 31 Electric.
1998 10 00 1 I i999 7.25 100 100 20uo-2004 7.85 207 207 (12) Sitort-Term Borrowing 2010-2014 3.85 31 31 2015 2019 s 00 6, ,, Arrangernents 2020 2023 7.74 148 148 !
585 585 Centerior Energy has a $205 million revolving credit Secured medium term notes due facility through May 1996. Centerior Energy and the 1996-2021 8.44 250 250 Service Company may borrow under the facility, with all
" " 3 borrowings jeintly and severally guaranteed by the Com-d n6 i[9 Debentures due 2002 8.70 pany and Cleveland Electric. Centerior Energy plans to 135 135 Po'ludon controt notes due 1996 transfer any of its borrowed funds to the Company and 2015 12.11 99 105 Cleveland Electric. The facility agreement as amended Other - net -
J) (2) provides the participating banks with a subordinate mort-Total Long-Term Debt si n4 si m gage security interest on the properties of the Company (Toledo Edison) F-70 (Toledo Edison)
and Cleveland Electric.-The banks' fee is Oh25% per (14) Quarterly Results of Operations ennum payable quarterly in tddition to interest on any gg,,,gjggg; borrowings. There were no borrowings under the facility ,
at December 31,1994. The facility agreement contains The following is a tabulation of the unaudited quarterly covenants relating to capitalization and fixed charge cov- results of operations for the two years ended December etage ratios for the Company, Cleveland Electric and 3g,1994, ouarters Ended Centerior Energy. Marsh 31, junt 30, Sept. 30, lled Short-term borrowing capacity authorized by the PUCO (millions of dollars) 1994 annually is $150 million for the Company. The Company opcmting Revenues $217 5216 5227 5204 and Cleveland Electric are authorized by the PUCO to OPC'"'i"8I "" ** d3 #3 53 40 borrow from each other on a short-term basis. Net income 19 20 29 15 Earnings Avaitable for II (13) FinancialInstruments common stoen s3 s4 24
- 3 Except for the Nuclear Plant Decommissioning Trusts at operating Revenues $2t5 $2:0 s239 s207 December 31 1994, as discussed below, the estimated operating income (Loss)- 39 42 17 (to) fair values at December 31,1994 and 1993 of financial g,, ,,,,,, g oo,3) is 20 (5) (323) instruments that do not approximate their carrying Earnings (l.oss) Available amounts in the Balance Sheet are as follows: for common stock 12 14 (10) (328)
December 3f.
1994 1993 Earnings for the quarter ended September 30,1993 were decreased by $35 million as a result of the recording of S'E2 "n! vYu'e S"m2 "n! vYu'e (millions of dollars) 554 million of VTP pension-related benefits.
Assets:
Earnings for the quarter ended December 31,1993 were Nucica Plant Decommissioning Tru .ts 5 38 3 38 $ 26 $ 27 decreased as a result of year-end adjustments for the Capitataation und Liabilitics: $232 million write-off of Perry Unit 2 (see Note 4(b)),
Preferred stock, with Mandatory the $241 million write-off of the phase-in deferrals (see eda m 6 days. hw a@-
inc uY cu ren r ion) is 19 40 42 ments decreased quarterly earnings by $345 million.
Long Term Dcht (including current portion) 1.227 1.116 1.271 1.314 (15) Pending Aferger of the Company The Nuclear Plant Decommissioning Trusts at Decem-ber 31,1994 included $21 million of federal governmental into Cleveland Electric -
securities and $14 million of municipal securities. The in March 1994, Centerior Energy announced a plan to securities had the following maturities: $9 million due rnerge the Company into Cleveland Electric. Since the within one year; $7 million due in one to five years; $7 Company and Cleveland Electric afliliated in 1986, efforts million due in six to 10 years; and $12 million due after 10 hve been made to consolidate operations and adminis- ;
years. The fair value of these trusts is estimated based on tration as much as possible to achieve maximum cost ,
the quoted market prices for the investment securities. savings. Various aspects of the merger are subject to the As a result of adopting the new accounting standard for pmval of the FERC and other regulatory authorities. ;
certain investments in debt and equity securities SFAS The PUCO and the Pennsylvania Public Utility Com- !
115, in 1994, the carrying amount of these trusts is equal mission have approved the merger. In addition, the t to the fair value. The fair value of the Company's pre- merger must be approved by share owners of the Com- !
ferred stock, with mandatory redemption provisions, '!
pany's preferred stock. Share owners of Cleveland Elec-and long-term debt is estimated based on the quoted tric's preferred stock must approve the authorization of market prices for the respective or similar issues or on the additional shares of preferred stock. When the merger ,
basis of the discounted value of future cash flows. The becomes effective, share owners of the Company's pre-discounted value used current dividend or interest rates ferred stock will exchange their shares for preferred stock
- (or other appropriate rates) for similar issues and loans shares of Cleveland Electric having substantially the '
with the same remaining maturities. same terms. Debt holders of the merging companies will The estimated fair values of all other financial instru- become debt holders of Cleveland Electric.The merging ments approximate their carrying amounts in the Balance companies plan to seek preferred stock share owner ap-Sheet at December 31,1994 and 1993 because of their proval in mid-1995. The merger is expected to be short term nature, effective in 1995.
(Toledo Edison) F-71 (Toledo Edison)
For the mergiag companies, the combined pro forma dato is not necessarily indicative of the results of opera ' !
- operating revenues were $2.422 billion,52.475 billion and tions which would have been reported had the merger ;
' $2.439 billion and the combined pro forma net income been in effect during those years or which may be re- 3 (loss) was $268 million. $(876) million and $276 million ported in t.he future. The pro forma data should be read in
[
for the years 1994,1993 and 1992, respectively The pro . conjunction with the audited financial statements of both '
forma data is based on accounting for the merger on a the Company and Cleveland Electric. ;
method similar to a pooling of interests. The pro forma i
i b
i i
1
?
\
e b
I i
i
.I s
(Toledo Edison) F-72 (Toledo Edison) i
. , _ _ , _ , p , , eese **~+*c- -h -
Financial and statistical Review !
Operating Resenues (millions of dollars)
Steam Total Total Total licutmg Operatmg Residential Commercial ladostnal Ot her Retail Wholesalc I lectne & Gas Revenues Yeer 1994 $227 181 251 64 723 142 865 - $865 229 180 244 71 724 147 871 -- 871 1993 215 175 236 61 687 158 845 - 845 1993 230 184 236 90 740 147 887 - 887 1991 1990 224 175 236 78 713 150 863 - 863 173 i15 195 45 528 20 548 9 557 1984 Operating Expenses (millions of dollars)
Other Generation Dcierred Federal I uti & Operaton I acilitics Depreciaten Tames, Operatmg Income Total 1
Purchased & Rental & Other Than Lapenses, Tames Operating Espense. Net Amortiration Net (Credit ) L apennes Year twer Mainienance I'lT 1994 $167 229 104 83 90 (21) 33 $685 .
i 173 352(a) 104 76 91 (4)(b) (10) 782 1993_
1992 169 236 106 77 91 (17) 33 695 1991 178 243 113 72(c) 89 1 32 728 1990 174 262 111 73 79 (10) 21 710 1984 145 125 - 50 47 - 66 433 Income (Loss) (millions of dollars)
I ederal Ineome Other Dcferred income ( Loss)
Income & Carrying Tancs- liefore Operating AFUDC- Deductions. Charges. Credit Interest lacome I auitv Net Net (Empense ) Charges Year 1994 $180 1 3 15 (2) $ 197 1993 89 I (232)(d) (161)(b) 129 (174) 1992 150 1 1 41 (1) 192 1991 159 I 5 22 (6) 181 .
1990 153 3 5 43 9 213 1984 124 83 7 -- 34 248 income (Loss) (millions of dollars)
Earnmgs (Loss)
Net Preferred Available for Dcht AI UDC- Income Stock Common Year Inscrest Dchi t Loss) t h dends Stock 1994 5116 (1) 82 20 $ 62 1993 116 (1) (289) 23 (312) 1992 122 (1) 71 24 47 1991 132 (1) 50 25 25 1990 135 (3) 81 25 56 1984 129 (35) 154 35 119 lal includes early retirement progrant e.spenses and other charges of $107 million in 1993.
Ibl includes write oj oj phase-in dcjerrals of $NI million in 1V93, consistong of $55 million of deferred operating expenses and $l86 million ofdeferred carrying charges.
tct in 1991, a change un acwuntmgfor nuclear plant depreciation ss as adopted, changing from she units-of-production method to the straight line method at a .!5% rate.
(Toledo Edison) F-73 (Toledo Edison)
h The Toledo Ediwn Company $
i Electric Sales (millions of KWil) Electric Customers (year end) Residential Usage ;
Average Average Average Pnce Revenue !
Industrial KWH Per Per Per i Year Residential Commercial industrial Whalesale Other Total Residentist Commercial & Other Total Customer KWil Customer l
1994 _ .2 056 1 711 4 099 2 548 499 10 913 256 998 25 921 3 965 286 884 8 044 ll.04c $888.30 1993 _ 2 039 I 672 3 776 2 146 490 10 123 255 109 26 049 4 076 285 234 7 997 11.23 897.65 1992 _ l 941 1 619 3 563 2 753 478 10 354 255 299 25 870 4 372 285 541 7 632 11.08 845.99 .
1991 _ 2 041 1683 3 543 2 587 482 10 336 254 500 26 044 4 444 284 988 7 990 11.26 897.4I !
1990 _ l950 1 614 3 617 2 333 496 to 010 253 965 25 822 4 555 284 342 7 692 11.48 882.99 1984 _ i958 1398 3 444 473 440 7 713 243 912 23 891 3 920 271 723 8 045 8.81 709.09 i
Load (MW & %) Energy (millions of KWH) Fuel l Net Company Generated Efficency- I Scanonal Peak Capacity Loud Purchased fuel Cost BTU Per Year Capabihty Lead M arpn factor Fossil Nuclear Total Power Total Per KWH KWH 1994 1 729 1620 6.3% M.7% 5160 5 419 10 579 773 11352 1.35c 10 298 1993 1 729 I 568 9.3 64.3 5 548 4 791 10 339 196 10 535 1.42 10 146 i 1991 1762 1 514 14.1 63.2 4 656 6 293 10 949 (82) 10 867 1.41 10 284 l 1991 1759 I 510 I4.2 64.5 4 848 6 003 10 851 95 10 946 1.44 10 327 ;
1990 1 751 1 516 13.4 63.0 5 535 4 219 9 754 902 10 656 1.50 10 220 1984 1 688 1 327 21.4 68.2 5 181 2 091 7 272 888 8 160 1.73 10 193 l
r Insestment (millions of dollars) f t
orYin Total f Utility Accumulated Progress Nuclear Property. Utility i Plant in Depreciation & Net & Perry fuel and Plant and Plant Total t Year Service Amortuation Plant Unit 2 Other Ecuipment Additions Assets ;
1994 $2 899 892 2 007 30 125 $2162 $ 41 $3 502 !
i 1993 2 837 788 2 049 40 142 J 231 43 3 510 l 1992 2 847 760 2 087 280 164 't 44 3 939 1991 2 692 709 I983 308 198 2 54 3 926 [
1990 2 604 640 1 964 349 224 2 53r 87 3 913' (
1984 1373 365 1 008 1 413 197(e) 2 618 356 2 936 [
l Capitalization (millions of dollars & %) l I
Preferred Stock. Preferred Stock, i with Mandatory siihout Mandatory i car Common Stock Equity Redemption Provisions Redempiion Provaions Loeg. Term Debt Total .
1994 $685 34 % 7 -% 210 10% 1 154 $6% $2 056 1993 623 30 28 1 210 10 1 225 59 2 086 ,
1992 935 39 50 2 210 9 1 178 50 2 373 -
1991 888 38 64 3 210 9 l158 50 2 320 i 1990 881 39 66 3 210 9 1 097 49 2 254 i 1984 814 36 158 7 200 9 1 110 48 2 282 i d) Includes mrite-op of Perry Unit 2 of $232 million in 1993.
et Restatedfor efects of capitali:ation of nuclearfuellease andpnancing arrangements pursuant to Statement of Financial Accounting Standards 11. I i
I i
(Toledo Edison) F-74 (Toledo Edison) l
- . - . - . ~ . - .- - - .-
l l
INDEI TO SCHEDULES
]
- f. age _ l Centerior Energy Corporation and Subsidiaries:
f Schedule II Valuation and Qualifying Accounts for the S-2 Years Ended December 31, 1994, 1993 and 1992 The Cleveland Electric Illuminating Company and Subsidiaries: !
i Schedule II Valuation and Qualifying Accounts for the S-3 i Years Ended December 31, 1994, 1993 and 1992 l l
The Toledo Edison Company: !
Schedule II Valuation and Qualifying Accounts for the S-4 Years Ended De: ember 31, 1994, 1993 and 1992 t
Schedules other than those listed above are omitted for the reason that they !
are not required or are not applicable.
1
.h i
l
- l i
I
't i
l i
l l
l 1
CENtERIOR ENERGY CORPORATION AND SUBSIDIARIES l
)
SCHEDULE !! VALUAfl0N AND OUALIFTING ACCOUNTS FOR TV*. YEAR $ ENDED DECEMBER 31, 1994, 1993 AND 1992 I i
(Thousands of Dotters) l Additions Deduetions Balance at Charged to Deductions Balance at ,
Beginning income from End of i Dxcription of Period Statement Other Reserves Other Period Raflected as Reductions i to the Related Assets:
Accumulated Provision for Uncottectible Accounts i (Deduction f rom Amounts Due [
from Customers and Others) f r
1994 53,703 512,779 (a) 56,047 (b) $19,010 (a)(c) 50 53,519 1993 3,723 14,139 (a) 3,516 (b) 17,675 (a)(c) 0 3,703 l 1992 3,703 19,673 (a) 2,376 (b) 22,029 (a)(c) 0 3,723 ,
R$ssrve for Perry Unit 2 i Attowance for Funds Used During Construction
(
(Deduction from Perry ,
Unit 2) ,
1994 50 50 $0 SD $0 50 1993 212,693 0 0 212,693 (d) 0 0 1992 212,693 0 0 0 0 212,693 (a) Includes a provision and corresponding write-of f of uncollectible accounts of 54,695,000, $4,550,000 and 55,968,000 in 1994,1993 and 1992, respectively, relating to customers which qualify for the PUCO mandated Percentage of Income Payment Plan (PIPP). Such uncollectible accounts are recovered through a separate PUC0 [
approved surcharge tariff.
(b) Includes amounts for collection of accounts previously written of f and deferrat of PIPP uncollectibles in excess of the amounts included in the last base rate cases. The amounts deferred for future recovery were 52,382,000, 5971,000 and $37,000 tri 1994,1993 and 1992, respectively. I (c) Uncottectible accounts written off.
(d) Write-off of Perry Unit 2 investment.
i l
l l
s2 I
.~ _
,__ .l
.l 4
1 i
i THE CLEVELAND ELECTRIC ILLUNINATING COMPANY AND SUBSIDI ARIES l
SCHEDULE II - VALUATION AND QUALIFYlWG ACCOUNTS i FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 ~j
- (Thousands of Dollars) ,
Additions Deductions Balance at Charged to Leductions Balance at j Beginning Income from End of Dearrlption of Period Statement Other Reserves- Other Period .
........... ............ ............ ............ ............ ......... ............ l R3flected as Reductions i to the Related Assets: -j Accumulated Provision :
far uncollectible Accounts ;
(D2duetion from Amounts Due {
from Customers and Others) i 1994 S2,313 $8,354 (a) S4,508 (b) S13,046 (a)(c) S0 _
S2,129 ;
1993 2,333 9,280 (a) 1,813 (b) 11,113 (a)(c) 0 2,313 i 1992 2,313 16,359 (a) 1,309 (b) 17,648 (a)(c) 0 2,333 'I r
?
Rsserve for Perry Unit 2 i Attswance for Funds Used During Construction (Deduction from Perry ?
Unit 2) . !
i i )
1993 124,398 0 0 124,398 (d) 0 0 l 1992 124,398 0 0 0 0 124,398 j
.t (a) Includes a provision and corresponding write.off of uncollectible accounts of $2,499,000, $2,447,000 and f S5,269,000 in 1994,1993 and 1992, respectively, relating to customers which qualify for the PUC0 mandated ;
Parcentage of Income Payment Plan (PIPP). Such uncottectible accounts are recovered through a separate PUC0 l cpproved surcharge tariff. .f (b) Includes amounts for collection of accounts previously written off and deferral of PIPP uncollectibles in f excess of the amount included in the last base rate case. The amounts deferred for future recovery were l
$1,971,000 and $507,000 in 1994 and 1993, respectively. l (c) Uncollectible accounts written off. t
('d) Write off of Perry Unit 2 investment.
i l
S-3
.l J
,_ =_. . ,__ -_ , _ .- _ _ . . . _ _ _ _ _ . _ - -
THE TOLEDO EDISON COMPANY SCHEDULE 11 - VALUATION ANO QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Thousands of Dollars)
Additiuns Deduetions Balance at Charged to Deductions Balance at Beginning Income from End of Description of Period Statement Other Reserves Other Period R3ftected as Reductions to the Related Assets:
Accumulated Provision for Uncollectible Accounts (Deduction from Amounts Due from Customers and Others) 1994 51,390 $4,425 (a) 11,539 (b) $5,964 (a)(c) $0 $1,390 1993 1,390 4,859 (a) 1,703 (b) 6,562 (a)(c) 0 1,390 1992 1,390 3,314 (a) 1,067 (b) 4,381 (a)(c) 0 1,390 R3 serve for Perry Unit 2 ,
Allowance for Funds Used During Construction (Deduction from Perry Unit 2) 1994 SO SD S0 50 $0 $0 1993 88,295 0 0 88,295 (d) 0 0 1992 88,295 0 0 0 0 88,295 (a) Includes a provision and corresponding write off of uncollectible accounts of $2,196,000, $2,103,000 and 1699,000 in 1994, 1993 and 1992, respectively, relating to customers which qualify for the PUC0 mandated Percentage of Income Payment Plan (PIPP). Such uncollectible accounts are recovered through a separate PUCO-approved surcharge tariff.
(b) Includes amounts for collection of accounts previously written off and deferral of PIPP uncollectibles in excess of the amount included in the last base rate case. The amounts deferred for future recovery were S411,000, S464,000 and $37,000 in 1994, 1993 and 1992, respectively.
(c) Uncollectible accounts written off.
-(d) Wr;te iff of Perry Unit 2 investment.
c a:' i
[
l l
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES AND THE TOLEDO EDISON COMPANY COMBINED PRO FORMA CONDENSED FINANCIAL STATEMENTS The.following pro forma condensed balance sheets and income statements give effect to the agreement between Cleveland Electric and Toledo Edison to merge Toledo Edison into Cleveland Electric. These statements are unaudited and based on accounting for the merger on a method similar to a pooling of l interests. These statements combine the two companies' historical balance !
sheets at December 31, 1994 and December 31, 1993 and their historical income l I
statements for each of the three years ended December 31, 1994.
The following pro forma data is not necessarily indicative of the results of operations or the financial condition which would have been reported had the merger been in-effect during those periods or which may be reported in the future. The statements should be read in conjunction with the accompanying notes and with the audited financial statements of both Cleveland Electric and Toledo Edison.
COMBINED PRO FORMA CONDENSED BALANCE SHEETS OF CLEVELAND ELECTRIC AND TOLEDO EDISON (Unaudited)
(Millions of Dollars)
At December 31, 1994 Historical Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals ;
Assets Property, Plant and Equipment $7,637 $3,435 $ - $11,072 Less: Accumulated Depreciation ,
2,486 1,273 3,759 and Amortization l Net Property, Plant and Equipment 5,151 2,162 - 7,313 i Current Assets 584 322 (22)(A) 884 Deferred Charges and 1,416 1,018 ( 7)(B) 2,427 Other Assets
$7,151 $3,502 $10,624 Total Assets ${29)
Capitalization and Liabilities Capitalization: $ 1,743 Common Stock Equity $1,058 $ 685 $ -
Preferred Stock: l Vith Mandatory Redemption )
l Provisions 246 7 - 253 Vithout Mandatory Redemption Provisions 241 210 - 451 i Long-Term Debt 2,543 1,154 - 3,697 Total Capitalization 4,088 2,056 - 6,144 ,
Current Liabilities 958 316 (24)(A) 1,250 j Deferred Credits and Other 3,230 Liabilities 2,105 1,130 ( 5)(A,B)
Total Capitalization and
$7,151 $3,502 $10,624 Liabilities $129)
P-1
At December 31, 1993 Historical
. Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals Assets Proper?f, Plant and Equipment $7,538 $3,402 $ -
$10,940 Less: Accumulated Depreciation and Amortization 2,309 1,171 - 3,480 Net Property, Plant and
. Equipment 5,229 2,231 - 7,460 Current Assets 632 314 (20)(A) 926 Deferred Charges and Other Assets 1,298 965 (9)(B) 2,254 Total Assets $7,159 $3,510 $g) $10,640 Capitalization and Liabilities Capitalization:
Common Stock Equity $1,040 $ 623 $ (1)(R) $ 1,662 Preferred Stock:
Vith Mandatory Redemption Provisions 285 28 -
313 Vithout Mandatory Redemption Provisions 241 210 -
451 Long-Term Debt 2,793 1,225 1(R) 4,019 i Total Capitalization 4,359 2,086 -
6,445 Current Liabilities 733 329 (21)(A) 1,041 Deferred Credits and Other Liabilities 2,067 1,095 (8)(A,B) 3,154 Total Capitalization and Liabilities $7,159 $3,510 $Q) $10,640 1
d i
P-2
_ . _ _ _ .. . _ _~_ _ _ _ __ _ _ .._ _
THE CLEVELAND' ELECTRIC ILLUMINATING' COMPANY AND SUBSIDIARIES -l
'AND THE TOLEDO EDISON COMPANY- i COMBINED PRO FORMA CONDENSED FINANCIAL STATEMENTS The following pro' forma condensed balance sheets and income statements give j
'effect to the agreement between Cleveland Electric and Toledo Edison to merge i
. Toledo Edison into Cleveland Electric. These statements are unaudited and I based on accounting for the merger on a method similar to a pooling of interests.- These statements combine the two companies' historical balance sheets at December 31, 1994 and December 31, 1993 and their historical income ;
statements for each of the three years ended December 31, 1994. j
~The following pro forma data is not necessarily indicative of the results of l operations or the financial condition which would have been reported had the l merger.been in effect during those periods or which may be reported in the j future. The statements should be read in conjunction with the accompanying i notes and with the audited financial statements of both Cleveland Electric and l Toledo Edison. ;
COMBINED PRO FOR:tA CONDENSED BALANCE SHEETS j OF CLEVELAND ELECTRIC AND TOLEDO EDISON j (Unaudited) !
(Millions of Dollars) {
At December 31, 1994 i Historical l Cleveland Toledo Adjust - Pro Forma Electric Edison ments Totals
' Assets Property, Plant and Equipment $7,637 $3,435 S - $11,072 l Less: . Accumulated Depreciation l and Amortization 2,486 1,273 - 3,759 ,
j Net Property, Plant and ;
Equipment 5,151 2,162 - 7,313 +
Current Assets 584 322 (22)(A) 884 f Deferred Charges and !
Other Assets 12 416 1,018 ( 7)(B) 2,427 j Total Assets $7,151 $3,502 $g) $10,624 i
Capitalization and Liabilities ;
Capitalization: 1 Common Stock Equity $1,058 $ 685 S - $ 1,743 j Preferred Stock: i l
Vith Mandatory Redemption Provisions 246 7 - 253 Vithout Mandatory Redemption Provisions 241 210 - 451 Long-Term Debt 2,543 1,154 - 3,697 Total Capitalization 4,088 2,056 - 6,144 ,
Current Liabilities 958 316 (24)(A) 1,250 Deferred Credits and Other Liabilities 2,105 1,130 ( 5)(A,B) 3 230 Total Capitalization and Liabilities $7.151 $3,502 Sg) $10,624 P-1 1
t At December 31, 1993 ;
Historical Cleveland Toledo Adjust- Pro Forma !
Electric Edison ments Totals Assets Property, Plant and Equipment $7,538 $3,402 $ -
$10,940 Less: Accumulated Depreciation and Amortization 2,309 1,171 -
3,480 Net Property, Plant and Equipment 5,229 2,231 -
7,460 Current Assets 632 314 (20)(A) 926 Deferred Charges and Other Assets 1,298 965 (9)(B) 2,254 Total Assets $7,159 $3,510 $129) $10,640 f
Capitalization and Liabilities Capitalization: ,
Common Stock Equity $1,040 $ 623 $ (1)(R) $ 1,662 Preferred Stock:
Vith Handatory Redemption Provisions 285 28 -
313 Vithout Handatory Redemption ,
Provisions 241 210 -
451 Long-Term Debt 2,793 1,225 1(R) 4,019 Total Capitalization 4,359 2,086 -
6,445 Current Liabilities 733 329 (21)(A) 1,041 Deferred Credits and Other Liabilities 2,067 1,095 (8)(A,B) 3,154 Total Capitalization and Liabilities $7,159 $3,510 $129) $10,640 t
I P-2
COMBINED PRO FORMA CONDENSED INCOME STATEMENTS OF CLEVELAND ELECTRIC AND TOLEDO EDISON (Unaudited)
(Millions of Dollars) ,
Year Ended December 31, 1994 Historical Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals Operating Revenues $1,698 $ 865 $(141)(c) S2,422 Operating Expenses 1,302 685 (143)(C,D) 1,844 .
Operating Income 396 180 2 578 t Nonoperating Income 31 17 (2)(D,E,R) 46 :
Income Before Interest Charges 427 197 -
624 ;
Interest Charges 242 115 (1)(E) 356 Net Income 185 82 1 268 Preferred Dividend Requirements 45 20 1(R) 66 Earnings Available for Common Stock $ 140 $ 62 S -
$ 202 Year Ended December 31, 1993 Historical Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals !
Operating Revenues $1,751 S 871 $(147)(C) $2,475 Operating Expenses 1,529 782 (148)(C,D) 2,163 operating Income 222 89 1 312 Nonoperating (Loss) (569) (263) (1)(D) (833)
(Loss) Before Interest Charges (347) (174) -
(521)
Interest Charges 240 115 - 355 Net (Less) (587) (289) -
(876)
Preferred Dividend Requirements 45 23 - 68 (Loss) Available for Common Stock $ (632) $(312) $ -
S (944)
Year Ended December 31, 1992 Historical Cleveland Toledo Adjust- Pro Forma >
Electric Edison ments Totals Operating Revenues $1,743 S 845 S(149)(C) $2,439 Operating Expenses 1,358 695 (150)(C,D) 1,903 Operating Income 385 150 1 536 Nonoperating Income 63 42 (1)(D) 104 Income Before Interest Charges 448 192 - 640 Interest Charges 243 121 - 364 Net Income 205 71 - 276 Preferred Dividend Requirements 41 24 - 65 Earnings Available for Common '
Stock $__1_6_4 S 47 $ -
S 211 ,
P-3
i NOTES TO COMBINED PRO FORMA CONDENSED BALANCE SHEETS AND INCOME STATEMENTS !
(Unaudited) ,
l t
The Pro Forma Financial Statements include the following adjustments: ;
(A) Elimination of intercompany accounts and notes receivable and accounts and notes payable. ;
(B) Reclassification of prepaid pension costs. l (C) Elimination of intercompany operating revenues and operating expenses. l (D) Elimination of intercompany working capital transactions. !
(E) Elimination of intercompany interest income and interest expense.
(R) Rounding adjustments. .
i i
h l
F l
P-4
-= - -
EIBIBIT INDEI The exhibits designated with an asterisk (*) are filed herewith. The exhibits not so designated have previously been filed with the SEC in the file indi-cated in parenthesis following the description of such exhibits and are in-corporated herein by reference. An exhibit designated with a pound sign (f) is a management contract or compensatory plan or arrangement.
C0KNON EIHIBITS (The following documents are exhibits to the reports of Centerior Energy, Cleveland Electric and Toledo Edison.)
Exhibit Number Document 10b(1)(a) CAPCO Administration Agreement dated November 1, 1971, as of September 14, 1967, among the CAPC0 Group members re-garding the organization and procedures for implementing the objectives of the CAPCO Group (Exhibit 5(p), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric).
10b(1)(b) Amendment No.1, dated January 4,1974, to CAPCO Adminis-tration Agreement among the CAPC0 Group members (Exhibit 5(c)(3), File No. 2-68906, filed by Ohio Edison).
10b(2) CAPC0 Transmission Facilities Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the installation, operation and mainte-nance of transmission facilities to carry out the objec-tives of the CAPCO Group (Exhibit 5(q), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric).
10b(2)(1) Amendment No. 1 to CAPC0 Transmission Facilities Agree-ment, dated December 23, 1993 and effective as of January 1, 1993, among the CAPC0 Group memberc regarding requirements for payment of invoices at specified times, for payment of interest on non-timely paid invoices, for
- restricting adjustment of invoices after a four-year period, and for revising the method for computing the - i Investment Responsibility charge for use of a member's l transmission facilities (Exhibit 10b(2)(1), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583).
10b(3) CAPCO Basic Operating Agreement As Amended January 1, 1993 !'
among the CAPC0 Group members regarding coordinated operation of the members' systems (Exhibit 10b(3), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583).
10b(4) Agreement for the Termination or Construction of Certain Agreements By and Among the CAPC0 Group members, dated December 23, 1993 and effective as of September 1, 1980 l (Exhibit 10b(4), 1993 Form 10-K, File Nos. 1-9130, 1-2323 l l
and 1-3583).
10b(5) Construction Agreement, dated July 22, 1974, among the CAPC0 Group members and relating to the Perry Nuclear Plant (Exhibit 5(yy), File No. 2-52251, filed by Toledo Edison).
E-1 i
Exhibit Number D:cument 10b(6) Contract, dated as of December 5, 1975, among the CAPCO Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5(g), File No. 2-52996, filed by Cleveland Electric).
10b(7) Amendment No. 1, dated May 1, 1977, to Contract, dated as of December 5, 1975, among the CAPC0 Group members for the l construction of Beaver Valley Unit No. 2 (Exhibit 5(d)(4), l File No. 2-60109, filed by Ohio Edison).
10d(1)(a) Form of Collateral Trust Indenture among CTC Beaver Valley !
Funding Corporation, Cleveland Electric, Toledo Edison and i Irving Trust Company, as Trustee (Exhibit 4(a), File No. :
33-18755, filed by Cleveland Electric and Toledo Edison). ;
10d(1)(b) Form of Supplemental Indenture to Collateral Trust In-denture constituting Exhibit 10d(1)(a) above, including '
form of Secured Lease Obligation Bond (Exhibit 4(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison).
10d(1)(c) Form of Collateral Trust Indenture among Beaver Valley II ,
Funding Corporation, The Cleveland Electric Illuminating ;
Company and The Toledo Edison Company and The Bank of New York, as Trustee (Exhibit (4)(a), File No. 33-46665, filed ;
by Cleveland Electric and Toledo Edison). i 10d(1)(d) Form of Supplemental Indenture to Collateral Trust '
Indenture constituting Exhibit 10d(1)(c) above, including !
form of Secured Lease Obligation Bond (Exhibit (4)(b), ;
File No. 33-46665, filed by Cleveland Electric and Toledo -
Edison).
10d(2)(a) Form of Collateral Trust Indenture among CTC Hansfield '
Funding Corporation, Cleveland Electric, Toledo Edison and i IBJ Schroder Bank & Trust Company, as Trustee (Exhibit i 4(a), File No. 33-20128, filed by Cleveland Electric and ;
Toledo Edison).
10d(2)(b) Form of Supplemental Indenture to Collateral Trust In- . i denture constituting Exhibit 10d(2)(a) above, including ;
forms of Secured Lease Obligation Bonds (Exhibit 4(b), ,
File No. 33-20128, filed by Cleveland Electric and Toledo Edison).
10d(3)(a) Form of Facility Lease dated as of September 15, 1987 be- ;
tween The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 l vith the limited partnership Owner Participant named l therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison).
10d(3)(b) Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(3)(a) above (Exhibit 4(e), File No. 33-18755, ;
filed by Cleveland Electric and Toledo Edison).
l 1
E-2
i Exhibit' Number >
Document _
10d(4)(a) Form of Facility Lease dated as of September 15, 1987 l between The First National Bank of-Boston, as Owner
- Trustee under a Trust Agreement dated as of September 15, !
. 1987 with the corporate Owner Participant named therein, ,
Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(d), File No. 33-18755, filed by Cleveland i Electric and Toledo Edison). !
10d(4)(b) Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(4)(a) above (Exhibit 4(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). l Form of Facility Lease dated as of September 30, 1987 be- ,
10d(5)(a) 7 tween Meridian Trust Company, as Owner Trustee under a ,
Trust Agreement dated as of September 30, 1987 with the !
Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison,' Lessees (Exhibit 4(c), File !
,- No. 33-20128,. filed by Cleveland Electric'and Toledo !
Edison). -
10d(5)(b) Form of Amendment No. I to the Facility Lease constituting !
Exhibit.10d(5)(a) above (Exhibit 4(f), File No. 33-20128, ;
filed by Cleveland Electric and Toledo Edison). l 10d(6)(a) Fons of Participation Agreement dated' as of September 15, !
1987 among the limited partnership Owner Participant named )
< 1 therein, the Original Loan Participants listed in Schedule !'
^ l'thereto, as Original Loan Participants, CTC Beaver '
Valley Funding Corporation, as Funding Corporation, The
. First National Bank of Boston, as Owner Trustee, Irving +
c Trus.t Company, as Indenture Trustee, and Cleveland !
Electric and Toledo Edison, as Lessees (Exhibit 28(a), !
File No. 33-18755, filed by Cleveland Electric and Toledo Edison).
10d(6)(b) Form of Amendment No. I to Participation Agreement consti-
. tuting Exhibit 10d(6)(a) above (Exhibit 28(c), File No.
33-18755, filed by Cleveland Electric and Toledo Edison). .
10d(7)(a) t Form of Participation Agreement dated'as of September 15, u 1987 among the corporate Owner Participant named therein, n: -
the Original Loan Participants listed in Schedule 1
. thereto, as Original Loan Participants, CTC Beaver Valley
? Funding Corporation, as Funding Corporation, The First c National Bank of Boston, as Owner Trustee, Irving Trust 1 Company, as Indenture Trustee, a'nd Cleveland Electric'and Toledo Edison, as Lessees (Exhibit 28(b), File No.
33-18755, filed by Cleveland Electric and Toledo Edison).
10d(7)(b) Form of Amendment No. 1 to Participation Agreement consti-tuting Exhibit 10d(7)(a) above (Exhibit 28(d), File No.
33-18755, filed by Cleveland Electric and Toledo Edison).
E-3
Exhibit Number ,
Document 10d(8)(a) Form of Participation Agreement dated as of September 30, 1987 among the owner Participant named therein, the Origi-nal Loan Participants listed in Schedule II thereto, as Original Loan Participants, CTC Hansfield Funding Corpora-tion, Meridian Trust Company, as Owner Trustee, IBJ Schroder Bank & Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). g . .
10d(8)(b) Form of Amendment No. 1.to the Participation Agreement constituting Exhibit 10d(8)(a) above (Exhibit 28(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). ,
10d(9) Form.of Ground Lease dated as of September 15, 1987 be-tween Toledo Ediscn, Ground Lessor, and The First National Bank of Boston, as Ovner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(e),. File No. 33-18755, filed by Cleveland Electric and Toledo Edison).
10d(10) Form of Site Lease dated as of , September 30, 1987 between Toledo Edison, Lessor, and Heridian Trust Company, as i Owner Trustee under a Trust Agreement dated as of September 30, 1987 vith the Ovner Participant named therein, Tenant (Exhibit 28(c),, File No. 33-20128, filed by Cleveland Electric and Toledo Edison).
10d(11) Form of Site Lease dated as of September 30, 1987 between Cleveland Electric, Lessor, and Heridian Trust Company, as Owner. Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(d), File No. 33-20128, filed by Cleveland Electric and Toledo Edison).
10d(12) Form.of Amendment No. I to the Site Leases constituting Exhibits 10d(10) and 10d(11) above (Exhibit 4(f), File No.
33-20128, filed by Cleveland Electric and Toledo Edison).
10d(13) Form of; Assignment, Assumption and Further Agreement dated '
as of September. 15,.1987. among The First National Bank of Boston,.as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein; Cleveland. Electric, Duquesne, Ohio Edison, Pennsylvania Power and Toledo Edison- (Exhibit 28(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). . .
10d(14) Form of Additional Support Agreement dated as of September 15, 1987 between The First-National Bank o.f.
Boston, as Owner Trustee under a Trust Agreement dated as ,
of September 15, 1987 with the Owner Participant named therein, and Toledo Edison (Exhibit 28(g), File No.
33-18755, filed by Cleveland Electric and Toledo Edison).
E-4
Exhibit Number Dscument 10d(15) Form of Support Agreement dated as of September 30, 1987 ,
between Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named there, Toledo Edison, Cleveland Electric, Duquesne, Ohio Edison and Pennsylvania Power ,
(Exhibit 28(e), File No. 33-20128, filed by Cleveland Electric and Toledo Edison).
10d(16) Form of Indenture, Bill of Sale, Instrument of Transfer.
and Severance Agreement dated as of September 30, 1987 7 between Toledo Edison, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated ,
as of September 15, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(h), File No. 33-18755, filed by ,
Cleveland Electric and Toledo Edison).
10d(17) Form of Bill of Sale, Instrument of Transfer and Severance '
Agreement dated as of September 30, 1987 between Toledo Edison, Seller, and Heridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30,
- 1987 with the Ovner Participant named therein, Buyer (Exhibit 28(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison).
10d(18) Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Cleveland Electric, Seller, and Heridian Trust Company, as Owner '
Trustee under a Trust Agreement dated as of September 30, 1987 with the owner Participant named therein, Buyer (Exhibit 28(g), File No. 33-20128, filed by Cleveland Electric and Toledo Edison).
10d(19) Forms of Refinancing Agreement, including exhibits thereto, among the Owner Participant named therein, as :
Owner Participant, CTC Beaver Valley Funding Corporation, as Funding Corporation, Beaver Valley II Funding -
Corporation, as New Funding Corporation, The Bank of New York, as Indenture Trustee, The Bank of New York, as .
Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee, and The Cleveland Electric Illuminating Company and The Toledo Edison Company, as Lessees (Exhibit (28)(e)(i), File No. 33-46665, filed by Cleveland Electric and Toledo Edison).
10e(1) # Employment agreement, dated May 25, 1993, between Centerior Service Company and Donald C. Shelton effective j June 4, 1993 and extending until June 30, 1995 (Exhibit ,
10e(1), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583).
10e(2) # Employment agreement, dated February 2, 1994 and accepted on February 8, 1994, between Centerior Energy and Al R.
Temple effective through December 1996 (Exhibit 10e(2),
1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583).
i l
E-5 j i
' Exhibit Number Document 18a Letter regarding change in accounting principles (Exhibit 18, June 30, 1991 Form 10-Q, File Nos. 1-9130, 1-2323 and ,
1-3583).
99a Financial Statements of the Centerior Energy Corporation '
Employee Savings Plan for the fiscal year ended December 31, 1994 (to be filed by amendment).
CENTERIOR ENERGY EHIBITS i
Exhibit Number Document 3a Amended Articles of Incorporation of Centerior Energy ef-fective April 29, 1986 (Exhibit 4(a), File No. 33-4790).
3b Regulations of Centerior Energy effective April 28, 1987 '
(Exhibit 3b, 1987 Form 10-K, File No. 1-9130).
10a (CEC)
- Indemnity Agrr.ements between Centerior and certain of its ;
current directors and officers.
21 (CEC)
- List of subsidiaries.
23a (CEC)
- Consent of Independent Accountants. ,
i 23b (CEC)
- Consent of Counsel for Centerior Energy. l 24 (CEC)
- Powers of Attorney of Centerior Energy directors and '
I officers required to sign the Report.
27 (CEC)
- Financial Data Schedule for the period ended December 31, 1994. -
l CLEVELAND ELECTRIC EH IBITS Exhibit Number Document 3a Amended Articles of Incorporation of Cleveland Electric, as amended, effective May 28, 1993 (Exhibit 3a, 1993 Form 10-K, File No. 1-2323).
3b Regulations of Cleveland Electric, dated April 29, 1981, j as amended effective October 1, 1988 and April 24, 1990 1 (Exhibit 3b, 1990 Form 10-K, File No. 1-2323). '
4b(1) Hortgage and Deed of Trust between Cleveland Electric and Guaranty Trust Company of New York (now Horgan Guaranty Trust Company of New York), as Trustee, dated July 1, 1940 (Exhibit 7(a), File No. 2-4450).
Supplemental Indentures between Cleveland Electric and the Trustee, supplemental to Exhibit 4b(1), dated as follows:
E-6
Exhibit Number Document 4b(2) July 1, 1940 (Exhibit 7(b), File No. 2-4450).
4b(3) August 18, 1944 (Exhibit 4(c), File No. 2-9887).
4b(4) December 1, 1947 (Exhibit 7(d), File No. 2-7306).
4b(5) September 1, 1950 (Exhibit 7(c), File No. 2-8587).
4b(6) June 1, 1951 (Exhibit 7(f), File No. 2-8994).
Ab(7) May 1, 1954 (Exhibit 4(d), File No. 2-10830).
4b(8) March 1, 1958 (Exhibit 2(a)(4), File No. 2-13839).
Ab(9) April 1, 1959 (Exhibit 2(a)(4), File No. 2-14753).
4b(10) December 20, 1967 (Exhibit 2(a)(4), File No. 2-30759).
Ab(11) January 15, 1969 (Exhibit 2(a)(5), File No. 2-30759).
4b(12) November 1, 1969 (Exhibit 2(a)(4), File No. 2-35008).
4b(13) June 1, 1970 (Exhibit 2(a)(4), File No. 2-37235).
Ab(14) November 15, 1970 (Exhibit 2(a)(4), File No. 2-38460).
4b(15) May 1, 1974 (Exhibit 2(a)(4), File No. 2-50537).
4b(16) April 15, 1975 (Exhibit 2(a)(4), File No. 2-52995).
4b(17) April 16, 1975 (Exhibit 2(a)(4), File No. 2-53309).
4b(18) May 28, 1975 (Exhibit 2(c), June 5, 1975 Form 8-A, File No. 1-2323).
4b(19) February 1, 1976 (Exhibit 3(d)(6), 1975 Form 10-K, File No. 1-2323).
4b(20) November 23, 1976 (Exhibit 2(a)(4), File No. 2-57375).
4b(21) July 26, 1977 (Exhibit 2(a)(4), File No. 2-59401).
4b(22) September 27, 1977 (Exhibit 2(a)(5), File No. 2-67221).
4b(23) May 1, 1978 (Exhibit 2(b), June 30, 1978 Form 10-Q, File No. 1-2323).
4b(24) September 1, 1979 (Exhibit 2(a), September 30, 1979 Form 10-Q, File No. 1-2323).
4b(25) April 1, 1980 (Exhibit 4(a)(2), September 30, 1980 Form 10-Q, File No. 1-2323).
4b(26) April 15, 1980 (Exhibit 4(b), September 30, 1980 Form 10-Q, File No. 1-2323).
4b(27) Hay 28, 1980 (Exhibit 2(a)(4), Amendment No. 1, File No.
2-67221). .
4b(28) June 9, 1980 (Exhibit 4(d), September 30, 1980 Form 10-0, '
File No. 1-2323).
4b(29) December 1, 1980 (Exhibit 4(b)(29), 1980 Form 10-K, File No. 1-2323).
4b(30) July 28. 1981 (Exhibit 4(a), September 30, 1981, Form 10-0, File No. 1-2323).
4b(31) August 1, 1981 (Exhibit 4(b), September 30, 1981, Form 10-Q, File No. 1-2323).
4b(32) March 1, 1982 (Exhibit 4(b)(3), Amendment No. 1, File No.
2-76029).
Ab(33) July 15, 1982 (Exhibit 4(a), September 30, 1982 Form 10-Q, File No. 1-2323).
4b(34) September 1, 1982 (Exhibit 4(a)(1), September 30, 1982 Form 10-0, File No. 1-2323).
4b(35) November 1, 1982 (Exhibit 4(a)(2), September 30, 1982 Form 10-Q, File No. 1-2323).
Ab(36) November 15, 1982 (Exhibit 4(b)(36), 1982 Form 10-K, File No. 1-2323).
E-7
Exhibit Number Document 4b(37) May 24, 1983 (Exhibit 4(a), June 30, 1983 Form 10-Q, File No. 1-2323).
4b(38) May 1, 1984 (Exhibit 4, June 30, 1984 Form 10-Q, File No.
1-2323).
4b(39) May 23, 1984 (Exhibit 4, May 22, 1984 Form 8-K, File No. i 1-2323).
4b(40) June 27, 1984 (Exhibit 4, June 11, 1984 Forn 8-K, File No.
1-2323). l 4b(41) September 4, 1984 (Exhibit 4b(41), 1984 Form 10-K, File '
No. 1-2323). i 4b(42) November 14, 1984 (Exhibit 4b(42), 1984 Form 10-K, File No. 1-2323).
4b(43) November 15, 1984 (Exhibit 4b(43), 1984 Form 10-K, File No. 1-2323). ]
4b(44) April 15, 1985 (Exhibit 4(a), May 8, 1985 Form 8-K, File :
No. 1-2323). l May 28, 1985 (Exhibit 4(b), May 8, 1985 Form 8-K, File No.
Ab(45) 1-2323).
4b(46) August 1, 1985 (Exhibit 4, September 30, 1985 Form 10-Q, File No. 1-2323).
4b(47) September 1, 1985 (Exhibit 4, September 30, 1985 Form 8-K, File No. 1-2323).
4b(48) November 1, 1985 (Exhibit 4, January 31, 1986 Form 8-K, File No. 1-2323).
4b(49) April 15, 1986 (Exhibit 4, March 31, 1986 Form 10-Q, File No. 1-2323).
4b(50) May 14, 1986 (Exhibit 4(a), June 30, 1986 Form 10-Q, File No. 1-2323).
4b(51) May 15, 1986 (Exhibit 4(b), June 30, 1986 Form 10-Q, File No. 1-2323).
4b(52) February 25, 1987 (Exhibit 4b(52), 1986 Form 10-K, File No. 1-2323). .
4b(53) October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q, File No. 1-2323). l 4b(54) February 24, 1988 (Exhibit 4b(54), 1987 Form 10-K, File No. 1-2323).
4b(55) September 15, 1988 (Exhibit 4b(55), 1988 Form 10-K, File No. 1-2323).
4b(56) May 15, 1989 (Exhibit 4(a)(2)(i), File No. 33-32724).
4b(57) June 13, 1989 (Exhibit 4(a)(2)(ii), File No. 33-32724).
4b(58) October 15, 1989 (Exhibit 4(a)(2)(iii), File No.
33-32724),
4b(59) January 1, 1990 (Exhibit 4b(59), 1989 Form 10-K, File No.
1-2323).
4b(60) June 1, 1990 (Exhibit 4(a), September 30, 1990 Form 10-Q, File No. 1-2323).
4b(61) August 1, 1990 (Exhibit 4(b), September 30, 1990 Form j 10-0, File No. 1-2323). l 4b(62) May 1, 1991 (Exhibit 4(a), June 30, 1991 Form 10-Q, File No. 1-2323).
l l
l l
E-8
I Document l Exhibit Number
,4b(63) May 1, 1992 (Exhibit 4(a)(3), File No. 33-48845).
4b(64) July 31, 1992 (Exhibit 4(a)(3), File No. 33-57292).
4b(65) January 1, 1993 (Exhibit 4b(65), 1992 Form 10-K, File No.
1-2323).
4b(66) February 1, 1993 (Exhibit 4b(66), 1992 Form 10-K, File No.
1-2323).
- 4b(67) May 20, 1993 (Exhibit 4(a), July 14, 1993 Form 8-K, File i I
No. 1-2323).
4b(68)
June 1, 1993 (Exhibit 4(b), July 14, 1993 Form 8-K, File No. 1-2323).
4b(69) September 15, 1994 (Exhibit 4(a), September 30, 1994 1 J
Form 10-Q, File No. 1-2323).
l 4c Open-End Subordinate Indenture of Mortgage between The 4 Cleveland Electric Illuminating Company and Bank One, l Columbus, N.A., as Trustee, Dated as of June 1, 1994 !
(Exhibit 4(a), August 26, 1994 Forn 8-K, File No. 1-2323).
10 #1978 Key Employee Stock Option Plan (Exhibit 1, File No.
2-61712).
23a (CEI)
- Consent of Independent Accountants.
23b (CEI)
- Consent of Counsel for Cleveland Electric. ,
24 (CEI)
- Powers of Attorney of Cleveland Electric directors and officers required to sign the Report. ;
27 (CEI)
- Financial Data Schedule for the period ended December 31, 1994.
1T)LEDO EDISON EZHIBITS Exhibit Number Document t 3a Amended Articles of Incorporation of Toledo Edison, as amended effective October 2, 1992 (Exhibit 3a, 1992 Form 10-K, File No. 1-3583). ,
3b Code of Regulations of Toledo Edison dated January 28, 1987, as amended effective July 1 and October 1, 1988 and April 24, 1990 (Exhibit 3b, 1990 Form 10-K, File No.
1-3583).
4b(1) Indenture, dated as of April 1, 1947, between the Company and The Chase National Bank of the City of New York (now The Chase Manhattan Bank (National Association)) '(Exhibit 2(b), File No. 2-26908).
Supplemental Indentures between Toledo Edison and the Trustee, Supplemental to Exhibit 4b(1), dated as follows:
P E-9
Exhibit Number Documint 4b(2) September 1, 1948 (Exhibit 2(d), File No. 2-26908).
4b(3) April 1, 1949 (Exhibit 2(e), File No. 2-26908).
4b(4) December 1, 1950 (Exhibit 2(f), File No. 2-26908).
4b(5) March 1, 1954 (Exhibit 2(g), File No. 2-26908).
4b(6) February 1, 1956 (Exhibit 2(h), File No. 2-26908).
4b(7) May 1, 1958 (Exhibit 5(g), File No. 2-59794).
4b(8) August 1, 1967 (Exhibit 2(c), File No. 2-26908).
4b(9) November 1, 1970 (Exhibit 2(c), File No. 2-38569).
4b(10) August 1, 1972 (Exhibit 2(c), File No. 2-44873).
4b(11) November 1, 1973 (Exhibit 2(c), File No. 2-49428).
4b(12) July 1, 1974 (Exhibit 2(c), File No. 2-51429).
4b(13) October 1, 1975 (Exhibit 2(c), File No. 2-54627).
4b(14) June 1,1976 (Exhibit 2(c), File No. 2-56396).
4b(15) October 1, 1978 (Exhibit 2(c), File No. 2-62568).
4b(16) September 1, 1979 (Exhibit 2(c), File No. 2-65350).
4b(17) September 1, 1980 (Exhibit 4(s), File No. 2-69190).
4b(18) October 1, 1980 (Exhibit 4(c), File No. 2-69190).
4b(19) April 1, 1981 (Exhibit 4(c), File No. 2-71580).
4b(20) November 1, 1981 (Exhibit 4(c), File No. 2-74485).
4b(21) June 1,1982 (Exhibit 4(c), File No. 2-77763).
4b(22) September 1, 1982 (Exhibit 4(x), File No. 2-87323).
4b(23) April 1, 1983 (Exhibit 4(c), March 31, 1983 Form 10-Q, File No. 1-3583).
4b(24) December 1, 1983 (Exhibit 4(x), 1983 Form 10-K, File No.
1-3583).
4b(25) April 1, 1984 (Exhibit 4(c), File No. 2-90059).
4b(26) October 15, 1984 (Exhibit 4(z), 1984 Form 10-K, File No.
1-3583).
4b(27) October 15, 1984 (Exhibit 4(aa), 1984 Form 10-K, File No.
1-3583).
4b(28) August 1, 1985 (Exhibit 4(dd), File No. 33-1689).
4b(29) August 1, 1985 (Exhibit 4(ee), File No. 33-1689). .
4b(30) December 1, 1985 (Exhibit 4(c), File No. 33-1689). '
4b(31) March 1, 1986 (Exhibit 4b(31), 1986 Form 10-K, File No. '
1-3583). l 4b(32) October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q, File No. 1-3583).
4b(33) September 15, 1988 (Exhibit 4b(33), 1988 Form 10-K, File No. 1-3583). l 4b(34) June 15, 1989 (Exhibit 4b(34), 1989 Form 10-K, File No. !
1-3583). ;
4b(35) October 15, 1989 (Exhibit 4b(35), 1989 Form 10-K, File No. l 1-3583). l 4b(36) May 15, 1990 (Exhibit 4, June 30, 1990 Form 10-Q, File No.
1-3583).
4b(37) March 1, 1991 (Exhibit 4(b), June 30, 1991 Form 10-Q, File No. 1-3583).
4b(38) May 1, 1992 (Exhibit 4(a)(3), File No. 33-48844).
4b(39) August 1, 1992 (Exhibit 4b(39), 1992 Form 10-K, File No.
1-3583).
i E-10
Exhibit Number Docum:nt 4b(40)
October 1, 1992 (Exhibit 4b(40), 1992 Form 10-K, File No.
,. 1-3583).
4b(41) January 1, 1993 (Exhibit 4b(41), 1992 Form 10-K, File No.
1-3583).
L 4b(42) September 15, 1994 (Exhibit 4(b), September 30, 1994 Form 10-0, File No. 1-3583).
4c Open-End Subordinate Indenture of Mortgage between The Toledo Edison Company and Bank One, Columbus, N.A., as-Trustee, Dated as of June 1, 1994 (Exhibit 4(b),-
August 26,1994 Form 8-K, File No.1-3583).
24 (TE) *Povers of Attorney of Toledo Edison directors and officers required to sign the Report.
27 (TE)
- Financial Data Schedule for the period ended December 31, 1994.
Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Regis-
' trants have not filed as an exhibit to this Form 10-K any instrument with respect to long-term debt if the total amount of securities authorized there-under does not exceed 10% of the total assets of the applicable Registrant and its subsidiaries on a consolidated basis, but each hereby agrees to furnish to the Securities and Exchange Commission on request any such instruments.
Pursuant to Rule 14a-3(b)(10) under the Securities Exchange Act of 1934, copies of exhibits filed by the Registrants with this Form 10-K vill be fur-nished by the Registrants to share owners upon written request and upon re-ceipt in advance of the aggregate fee for preparation of such exhibits at a rate of $.25 per page, plus any postage or shipping expenses which would be incurred by the Registrants.
t i
E-11