<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
[ ] OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
------------------------
<TABLE>
<CAPTION>
COMMISSION REGISTRANT; STATE OF INCORPORATION; I.R.S. EMPLOYER
FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
- ----------- ------------------------------------ ------------------
<C> <S> <C>
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
</TABLE>
------------------------
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 III 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-affiliates 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.
===============================================================================
<PAGE> 2
The aggregate market value of Centerior Energy Corporation Common Stock, with-
out par value, held by non-affiliates 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.
<PAGE> 3
<TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<CAPTION>
Name of Each Exchange
Registrant Title of Each Class on Which Registered
- ---------- ------------------- ---------------------
<S> <C> <C>
Centerior Energy Common Stock,
Corporation without par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
The Cleveland Electric Cumulative Serial Preferred
Illuminating Company Stock, without par 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
</TABLE>
<PAGE> 4
<TABLE>
Securities registered pursuant to Section 12(g) of the Act:
<CAPTION>
Registrant Title of Each Class
- ---------- -------------------
<S> <C>
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
_____________________
</TABLE>
<TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
<CAPTION>
Part of Form 10-K
Into Which Document
Description Is Incorporated
- ----------- -------------------
<S> <C>
Portions of Proxy Statement of Centerior Energy
Corporation, dated March 14, 1995 Part III
</TABLE>
<PAGE> 5
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
Number
------
<S> <C>
Glossary of Terms iv
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 1
The Centerior System . . . . . . . . . . . . . . . . . . . . . . 1
Merger of the Operating Companies . . . . . . . . . . . . . . . 2
CAPCO Group . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Construction and Financing Programs . . . . . . . . . . . . . . 3
Construction Program . . . . . . . . . . . . . . . . . . . . . 3
Financing Program . . . . . . . . . . . . . . . . . . . . . . 5
General Regulation . . . . . . . . . . . . . . . . . . . . . . . 5
Holding Company Regulation . . . . . . . . . . . . . . . . . . 5
State Utility Commissions . . . . . . . . . . . . . . . . . . 6
Ohio Power Siting Board . . . . . . . . . . . . . . . . . . . 7
Federal Energy Regulatory Commission . . . . . . . . . . . . . 7
Nuclear Regulatory Commission . . . . . . . . . . . . . . . . 7
Other Regulation . . . . . . . . . . . . . . . . . . . . . . . 7
Environmental Regulation . . . . . . . . . . . . . . . . . . . . 8
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Air Quality Control . . . . . . . . . . . . . . . . . . . . . 8
Water Quality Control . . . . . . . . . . . . . . . . . . . . 9
Waste Disposal . . . . . . . . . . . . . . . . . . . . . . . . 10
Electric Rates . . . . . . . . . . . . . . . . . . . . . . . . . 10
General . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1995 Rate Requests . . . . . . . . . . . . . . . . . . . . . . 11
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Sales of Electricity . . . . . . . . . . . . . . . . . . . . . 11
Operating Statistics . . . . . . . . . . . . . . . . . . . . . 12
Nuclear Units . . . . . . . . . . . . . . . . . . . . . . . . 12
Competitive Conditions . . . . . . . . . . . . . . . . . . . . 14
General . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Cleveland Electric . . . . . . . . . . . . . . . . . . . . . 14
Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
-i-
<PAGE> 6
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Fuel Supply . . . . . . . . . . . . . . . . . . . . . . . . . 17
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Nuclear . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Executive Officers of the Registrants and the Service Company . 19
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Centerior System . . . . . . . . . . . . . . . . . . . . . 25
Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . 25
Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . . 26
Title to Property . . . . . . . . . . . . . . . . . . . . . . . 27
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 28
Item 4. Submission of Matters to a Vote of Security Holders . . . 29
PART II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . 29
Market Information . . . . . . . . . . . . . . . . . . . . . . 29
Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . 30
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 30
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
</TABLE>
- ii -
<PAGE> 7
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Item 8. Financial Statements and Supplementary Data . . . . . . . 31
Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 31
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; Management'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
</TABLE>
- iii -
<PAGE> 8
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.
<TABLE>
GLOSSARY OF TERMS
-----------------
The following terms and abbreviations used in the text of this report are
defined as indicated:
<CAPTION>
Term Definition
- ---- ----------
<S> <C>
AFUDC Allowance for Funds Used During Construction.
AMP-Ohio American Municipal Power-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
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 Water Act Federal Water Pollution Control Act as
amended.
Cleveland Electric The Cleveland Electric Illuminating Company,
an electric utility subsidiary of Centerior
Energy and a member of the CAPCO Group.
Consol Consolidation Coal Company.
CPP Cleveland Public Power, a municipal electric
system operated by the City of Cleveland.
Davis-Besse Davis-Besse Nuclear Power Station.
</TABLE>
- iv -
<PAGE> 9
<TABLE>
<CAPTION>
Term Definition
- ---- ----------
<S> <C>
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
CAPCO Group.
ECAR East Central Area Reliability Coordination
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.
Mansfield Plant Bruce Mansfield 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).
NPDES National Pollutant Discharge Elimination
System.
NRC United States Nuclear Regulatory Commission.
Ohio Edison Ohio Edison Company, an electric utility and
a member of the CAPCO Group.
Ohio EPA Ohio Environmental Protection Agency.
Ohio Power Ohio Power Company, an electric utility sub-
sidiary of American Electric Power Company,
Inc.
</TABLE>
- v -
<PAGE> 10
<TABLE>
<CAPTION>
Term Definition
- ---- ----------
<S> <C>
Ohio Valley The Ohio Valley Coal Company, the successor
corporation to The Nacco Mining Company and a
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.
Penelec 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 CAPCO Group.
Perry Plant Perry Nuclear Power Plant.
Perry Unit 1 Unit 1 of the Perry Plant, in which the
Operating Companies have ownership interests.
Perry Unit 2 Unit 2 of the Perry Plant, in which the
Operating Companies had ownership interests
which were written off at December 31, 1993.
PUCO 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.
</TABLE>
- vi -
<PAGE> 11
<TABLE>
<CAPTION>
Term Definition
- ---- ----------
<S> <C>
Superfund Comprehensive Environmental Response, Com-
pensation and Liability Act of 1980 and the
Superfund Amendments and Reauthorization Act
of 1986.
Toledo Edison The Toledo Edison Company, an electric
utility subsidiary of Centerior Energy and a
member of the CAPCO Group.
USEC United States Enrichment Corporation,
formerly a part of the DOE.
U.S. EPA United States Environmental Protection
Agency.
Westinghouse Westinghouse Electric Corporation.
</TABLE>
- viii -
<PAGE> 12
PART 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
effective 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-
sion, distribution and sale of electric energy in an area of approximately
1,700 square miles in northeastern Ohio, including 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-
mately 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 having 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.
- 1 -
<PAGE> 13
The Service Company, which was incorporated in 1986 under the laws of the
State of Ohio, is also a wholly owned 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.
MERGER 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 PUCO
intervened as the state commission having jurisdiction, but has not opposed
the Cleveland Electric and Toledo Edison application. On December 1, 1994,
the PUCO 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 would 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
owners. 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
will 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 CAPCO Group, a power
pool created in 1967 with Duquesne, Ohio Edison and Pennsylvania Power. This
pool affords greater reliability and lower cost of providing electric service
through coordinated generating unit operations and maintenance and generating
reserve back-up among the five companies. In addition, the CAPCO Group has
completed programs to construct larger, more efficient electric generating
units and to strengthen interconnections within the pool.
- 2 -
<PAGE> 14
The CAPCO Group companies have placed in service nine major generating units,
of which the Operating Companies have ownership or leasehold interests in
seven (three nuclear and four coal-fired). Each CAPCO 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 ownership 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
obligations of Cleveland Electric and Toledo Edison are joint and several.
(See "Operations--Fuel Supply".) For all plants but one, the company in whose
service area a generating unit is located is responsible for the operation of
that unit for all the owners, except for the procurement of nuclear fuel for a
nuclear generating unit. The Mansfield Plant, which is located in Duquesne's
service area, is operated by Pennsylvania Power. Each company owns the
necessary interconnecting transmission facilities within its service area, and
the other CAPCO Group companies contribute toward fixed charges and operating
costs of those transmission facilities.
All of the CAPCO 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 environment. The Operating
Companies' 1994 long-term (20-year) forecast, as filed with the PUCO (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 integrated resource plan, the next
increment of new generating capacity that the Centerior System plans to put
into service will be two 150,000-kilowatt units and one 80,000-kilowatt unit
in 2008.
The following tables show, categorized by major components, the construction
expenditures by Cleveland Electric and Toledo Edison and, by aggregating them,
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:
- 3 -
<PAGE> 15
<TABLE>
<CAPTION>
Actual Estimated
---------------- ----------------------------
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
Cleveland Electric (Millions of Dollars)
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transmission, Distribution
and General Facilities $ 73 $ 85 $ 53 $ 86 $ 94 $ 97 $ 79 $ 88
Renovation and Modification
of Generating Units
Nuclear 26 16 18 17 18 16 13 14
Nonnuclear 56 65 61 53 35 53 54 60
Clean Air Act Amendments
Compliance 1 9 24 20 2 11 23 17
---- ---- ---- ---- ---- ---- ---- ----
Total $156 $175 $156 $176 $149 $177 $169 $179
==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
Actual Estimated
---------------- ----------------------------
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
Toledo Edison (Millions of Dollars)
-------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
Actual Estimated
---------------- ----------------------------
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
Centerior System (Millions of Dollars)
----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transmission, Distribution
and General Facilities $ 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
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Each company in the CAPCO Group 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 will 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 follows:
- 4 -
<PAGE> 16
<TABLE>
<CAPTION>
Actual Estimated
---------------- ----------------------------
1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cleveland Electric $ 30 $ 26 $ 26 $ 18 $ 27 $ 33 $ 28 $ 29
Toledo Edison $ 22 $ 20 $ 21 $ 12 $ 27 $ 27 $ 21 $ 26
Centerior System $ 52 $ 46 $ 47 $ 30 $ 54 $ 60 $ 49 $ 55
</TABLE>
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
and to Notes 11 and 12 for discussions of the Centerior System's financing
activity 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 will 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 will 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
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
power licensing and related regulations, energy efficiency standards and
incentives for the use of alternative transportation fuels. Amendments to the
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.
- 5 -
<PAGE> 17
State Utility Commissions
- -------------------------
The Operating Companies are subject to the jurisdiction of the PUCO with re-
spect to rates, service, accounting, issuance of securities and other matters.
Under Ohio law, municipalities may regulate rates, subject to appeal to the
PUCO if not acceptable to the utility. See "Electric Rates" for a description
of certain aspects of Ohio rate-making law. 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 PUCO is composed of five commissioners appointed by the Governor of Ohio
from nominees recommended by a Public Utility Commission Nominating Council.
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.
Under Ohio law, a public utility must file annually with the PUCO 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,
before and after the effects of demand-side management programs.
(2) Integrated Resource Plan (required biennially)--the utility's projected
mix of resource options to meet the projected demand.
(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 PUCO must hold a public hearing on the long-term forecast at least once
every five years to determine the reasonableness of the forecast. The PUCO
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 law also permits electric
utilities under PUCO jurisdiction to submit environmental compliance plans for
PUCO review and approval. Ohio law requires that the PUCO 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 PUCO approved the Operating
Companies' 1992 long-term forecast and environmental compliance plan. The
PUCO 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 PUCO 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 PUCO
- 6 -
<PAGE> 18
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 PUCO 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 PUCO has a reserve capacity policy for electric utilities in Ohio stating
that (i) 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) will be determined by the PUCO on a case-by-case basis.
Ohio Power Siting Board
- -----------------------
The OPSB has state-wide jurisdiction, except to the extent pre-empted by
Federal law, 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 Regulatory 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.
Owners 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.
- 7 -
<PAGE> 19
ENVIRONMENTAL REGULATION
------------------------
General
- -------
The Operating Companies are subject to regulation with respect to air quality,
water quality and waste 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 Water Act,
Superfund, and the Resource Conservation and Recovery Act. The requirements
of these statutes and related state and local laws 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 schedules. 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 results, 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 limitation. 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 PUCO 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
which could lead to additional restrictions.
- 8 -
<PAGE> 20
Global warming, or the "greenhouse effect", has been the subject of scientific
study and debate within the United States and internationally. One area of
study 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 warming to 1990
levels by the year 2000. The Operating Companies will work with the DOE and
other utilities to develop a plan for limiting such emissions.
Water Quality Control
- ---------------------
The Clean Water 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
effluent 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 Water Act subject to the penalty discussed above.
The Clean Water 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 wildlife 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
Lake, Lake Shore, Eastlake, Acme and Bay Shore plants. The Ohio EPA has taken
no action on the submittals.
In 1990, the Ohio EPA issued revised water quality standards applicable to
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 of additional pollution control
equipment and increased operating expenses. The Operating Companies are
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 would 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
- 9 -
<PAGE> 21
these rules will have on their operations until such rules are issued in final
form and are incorporated into Ohio regulations.
Waste Disposal
- --------------
See "Outlook--Hazardous Waste Disposal Sites" in Management's Financial
Analysis contained under Item 7 of this Report and Note 4(c) for a discussion
of the Operating Companies' potential involvement in certain hazardous waste
disposal sites, including those subject to Superfund. See "Operations--
Nuclear Units" for a discussion concerning the disposal of nuclear waste.
The Resource Conservation and Recovery Act exempts certain fossil fuel com-
bustion waste products, such as fly ash, from hazardous waste 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 waste is unnecessary.
ELECTRIC RATES
--------------
General
- -------
Under Ohio law, 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 work 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 PUCO does not make a decision within
275 days after the rate request application is filed. If the PUCO 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 law, electric rates are adjusted every six months to reflect
changes in fuel costs. The PUCO 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 PUCO 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.
- 10 -
<PAGE> 22
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
approved by the PUCO for the Operating Companies in October 1992 and other
rate matters.
1995 Rate Requests
- ------------------
On March 17, 1995, the Operating Companies each notified the PUCO of their
intent to file a request for a rate increase to be effective in 1996.
Cleveland Electric's requested increase will be $82,800,000 in annual revenues
and Toledo Edison's requested increase will be $34,800,000. The requested
rates would result in an average increase of 4.9% in Cleveland Electric's
existing rates and an average increase of 4.7% in Toledo Edison's existing
rates.
The Operating Companies plan to freeze rates until at least 2002 if their rate
requests are approved, although they are not precluded from requesting
additional rate increases. This plan is premised on the Operating Companies
obtaining full recovery of all costs including an acceptable rate of return on
equity in order to continue to apply Statement of Financial Accounting
Standard 71 ("SFAS 71") for financial reporting purposes. The Operating
Companies plan to avoid the need for further rate increases through additional
cost reductions, an enhanced marketing program and other efforts. The
Operating Companies will 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
will 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 will 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
the winter for heating. Historically, Cleveland Electric has experienced its
heaviest demand for electric service during the summer months because of a
significant air conditioning load on its system and a relatively low amount of
electric heating load in the winter. 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.
- 11 -
<PAGE> 23
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 would 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 would 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 CAPCO 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 were placed in
commercial operation in 1987, and their operating licenses expire in 2026 and
2027, respectively.
In January 1989, the PUCO 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
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
- 12 -
<PAGE> 24
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,
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
estimated to be between $20,000,000 and $22,000,000.
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
meet regulatory requirements and that NRC attention may be maintained at
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:
<TABLE>
<CAPTION>
Beaver Valley Unit 2 Perry Unit 1 Davis-Besse
-------------------- ------------ -----------
<S> <C> <C> <C>
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
Maintenance 2 2 1
Plant Support 1 2 1
</TABLE>
In 1980, Congress passed the Low-Level Radioactive Waste Policy Act which
requires that the disposal site for low-level radioactive waste will be within
the boundaries of the state where such waste 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 waste. Ohio is part of the Midwest Compact
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 waste
produced at their nuclear plants to offsite disposal facilities. The
Operating Companies' ability to ship offsite in the future depends on whether
the State of Ohio develops a low-level radioactive waste disposal facility
within the next several years. As an interim solution, the Operating
Companies have constructed storage facilities to house the waste at each
nuclear site.
- 13 -
<PAGE> 25
Off-site disposal of spent nuclear fuel is unavailable, but the CAPCO Group
companies have contracts with the DOE which provide for the future acceptance
of spent fuel for disposal by the Federal government. Pursuant to the Nuclear
Waste Policy Act of 1982, the Federal government has indicated it will begin
accepting spent fuel from utilities by the year 2010. On-site storage
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
storage facility is being constructed at Davis-Besse to provide storage
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
can, likewise, be provided by constructing an additional on-site storage
facility.
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.
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
competition to a lesser extent with suppliers of oil and liquefied natural gas
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.
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
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.
- 14 -
<PAGE> 26
One of those systems, CPP, is operated by the City of Cleveland in competition
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
approximately 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. Much 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
availability to CPP of lower cost power through short-term power purchases and
CPP's access to cheaper governmental power.
Cleveland Electric makes power 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
adequately 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 western 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 will 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 Cleveland Electric's industrial revenues under contract will 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 will continue. In
March 1995, one of Cleveland Electric's large commercial customers, comprising
medical and educational institutions, indicated that it intends to transfer to
CPP service when its contract with Cleveland Electric terminates in 1996. The
loss of this customer to CPP would 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
- 15 -
<PAGE> 27
Electric's customers in that city. Cleveland Electric appealed that ordinance
to the PUCO. On January 23, 1995, the staff of the PUCO issued its report on
the matter concluding that a rate reduction for Garfield Heights is not
warranted. The PUCO will 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.
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.
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
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
Edison. The City subsequently asked the PUCO 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 Miller Act proceeding before the PUCO 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.
- 16 -
<PAGE> 28
Fuel Supply
- -----------
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.
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
Toledo Edison and 50 days for the Mansfield Plant, which is operated by
Pennsylvania Power.
In 1994, about 49% of Cleveland Electric's coal requirements were purchased
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
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
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
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
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
principal amount of debt and termination 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
will continue to be sufficient for Ohio Valley to meet its debt and lease
obligations and mine closing costs over the life of the contract.
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 Mansfield Plant. The contract is scheduled to run through
at least the end of 1999, and the price of coal is adjustable to reflect
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
- 17 -
<PAGE> 29
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 CAPCO Group companies will 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 PUCO 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 will 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 CAPCO Group companies have a 30-year contract with the USEC
which will 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 will 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.
- 18 -
<PAGE> 30
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANTS AND THE SERVICE COMPANY
-------------------------------------------------------------
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 (*).
<CAPTION>
Business Experience
---------------------------------------------------------------------------------
Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison
- ---- ---------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C>
Robert J. Farling *Chairman of the *Chairman of the *Chairman of the *Chairman of the
(58) Board and Chief Board and Chief Board and Chief Board and Chief
Executive Officer Executive Executive Officer Executive Officer
(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)
Murray R. Edelman *Executive Vice *Executive Vice *President *Vice Chairman
(55) President President- (November 1993) (November 1993)
(July 1988) Operations & President (July 1988)
Engineering
(July 1993)
Executive Vice
President-Power
Generation
(April 1990)
</TABLE>
- 19 -
<PAGE> 31
<TABLE>
<CAPTION>
Business Experience
---------------------------------------------------------------------------------
Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison
- ---- ---------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C>
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
Senior Director of
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)
</TABLE>
- 20 -
<PAGE> 32
<TABLE>
<CAPTION>
Business Experience
---------------------------------------------------------------------------------
Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison
- ---- ---------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C>
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.
(August 1991)
Director-System
Planning
Engineering
Dept. (December
1987)
</TABLE>
- 21 -
<PAGE> 33
<TABLE>
<CAPTION>
Business Experience
---------------------------------------------------------------------------------
Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison
- ---- ---------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C>
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
(July 1989)
David L. Monseau *Vice President- Vice President-
(54) Transmission & Customer
Distribution Operations
Operations (September 1987)
(April 1990)
</TABLE>
- 22 -
<PAGE> 34
<TABLE>
<CAPTION>
Business Experience
---------------------------------------------------------------------------------
Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison
- ---- ---------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C>
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-
(49) Sales & Marketing
(February 1994)
WMX Technologies, Inc.:
Alliance Executive
(July 1992)
Vice President/
General Manager,
Midwest Region
(April 1991)
Director of
Marketing,
Chemical Waste
Management
(June 1989)
</TABLE>
- 23 -
<PAGE> 35
<TABLE>
<CAPTION>
Business Experience
---------------------------------------------------------------------------------
Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison
- ---- ---------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C>
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 M. 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 &
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)
</TABLE>
- 24 -
<PAGE> 36
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 winter. 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-
watt 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 kilowatts) 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 for
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 kilowatts during the winter. These
- 25 -
<PAGE> 37
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 kilowatts 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
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 CAPCO 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 winter. 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
- 26 -
<PAGE> 38
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-
mitting 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 CAPCO Group companies and for transmission of power from the
tenant-in-common owned or leased CAPCO Group generating units as well as for
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.
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 Mansfield 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 facilities of Cleveland Electric's Lake Shore Plant are
situated on artificially filled land, extending beyond the natural shore-
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 owners 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
- 27 -
<PAGE> 39
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 owner of the land above the shoreline adjacent to the
filled land. Cleveland Electric holds permits, under Federal statutes
relating to navigation, to occupy such artificially filled land.
(3) The facilities of Cleveland Electric's Seneca Plant in Warren 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 Maumee 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 Mansfield 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.
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
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 PUCO REGARDING ACTIONS BY THE CITY OF GARFIELD HEIGHTS,
OHIO TO REDUCE CLEVELAND ELECTRIC'S RATES WITHIN THE CITY. See "Item 1.
Business--Operations--Competitive Conditions--Cleveland Electric".
- 28 -
<PAGE> 40
PROCEEDINGS BEFORE THE FERC REGARDING THE PROPOSED MERGER OF THE OPERATING
COMPANIES. See "Item 1. Business--Merger of the Operating Companies".
PROCEEDINGS BEFORE THE PUCO REGARDING THE REQUESTS FOR RATE INCREASES TO BE
FILED BY THE OPERATING COMPANIES. See "Item 1. Business--Electric Rates--
1995 Rate Requests".
WESTINGHOUSE LAWSUIT. In April 1991, the CAPCO Group companies filed a
lawsuit against Westinghouse in the United States District Court for the
Western District of Pennsylvania. The suit alleges that six steam generators
supplied by Westinghouse 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 will
likely continue to increase. The condition of the steam generators is being
monitored closely. If the corrosion and cracking continue, replacement of the
steam generators could be required earlier than their 40-year design life.
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
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 will 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, CLEVELAND ELECTRIC AND TOLEDO EDISON
------------------------------------------------------
None.
PART II
-------
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
The information regarding common stock prices and number of share owners
required by this Item is not applicable to Cleveland Electric or Toledo Edison
because all of their common stock is held solely by Centerior Energy.
<TABLE>
Market Information
- ------------------
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 were as follows:
<CAPTION>
1993 1994
---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st 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
</TABLE>
- 29 -
<PAGE> 41
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
Directors will continue to be decided on a quarter-to-quarter basis after the
evaluation of financial results, potential earning capacity and cash flow.
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 will 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 were fully taxable.
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.
- 30 -
<PAGE> 42
TOLEDO EDISON
-------------
The information required by this Item is contained on Pages F-52 through F-56
attached hereto.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
CENTERIOR ENERGY
----------------
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.
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
Centerior's definitive proxy statement dated March 14, 1995. Reference is
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
directors and executive officers of Cleveland Electric. The directors
received no remuneration in their capacity as directors.
- 31 -
<PAGE> 43
Robert J. Farling*
- -----------------
Mr. Farling is a director of National City Bank. (1986)
Murray 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)
*Also a director of Centerior Energy and the Service Company.
Item 11. Executive Compensation
- --------------------------------
CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON
------------------------------------------------------
The information required by this Item for Centerior is incorporated herein by
reference to the information concerning compensation of directors on Page 9
and the information concerning compensation of executive officers, stock
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.
- 32 -
<PAGE> 44
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
<TABLE>
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:
<CAPTION>
Name of Beneficial Number of Common
Owner Shares Owned (1)
- ------------------ ----------------
<S> <C>
Richard P. Anderson 2,071
Albert C. Bersticker 1,509
Leigh Carter 2,766
Thomas A. Commes 5,509
William F. Conway 1,000
Wayne R. Embry 1,509
Robert J. Farling 36,879 (2)
George H. Kaull 5,551
Richard A. Miller 12,536
Frank E. Mosier 2,230
Sister Mary Marthe Reinhard, SND 1,506 (3)
Robert C. Savage 1,509
William J. Williams 2,293
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 139,179 (2)
</TABLE>
(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) Owned by the Sisters of Notre Dame.
- 33 -
<PAGE> 45
<TABLE>
CLEVELAND ELECTRIC
------------------
Individual directors of Cleveland Electric, the named executive officers and
all directors and executive officers of Cleveland Electric as a group
beneficially owned the following number of shares of Centerior common stock as
of February 28, 1995:
<CAPTION>
Name of Beneficial Number of Common
Owner Shares Owned (1)
- ------------------ ----------------
<S> <C>
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)
<FN>
(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 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.
</TABLE>
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:
- 34 -
<PAGE> 46
<TABLE>
<CAPTION>
Name of Beneficial Number of Common
Owner Shares Owned (1)
- ------------------ ----------------
<S> <C>
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 80,398 (2)
<FN>
(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 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.
</TABLE>
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON
------------------------------------------------------
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;
Management'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 Energy, Cleveland
Electric and Toledo Edison are listed in the Index to Schedules. See
Page S-1.
- 35 -
<PAGE> 47
3. Combined Pro Forma Condensed Financial Statements (Unaudited):
-------------------------------------------------------------
Combined Pro Forma Condensed Financial Statements (unaudited) for
Cleveland Electric and Toledo Edison related to their pending
merger. See Pages P-1 to P-4.
4. Exhibits:
--------
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.
- 36 -
<PAGE> 48
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.
CENTERIOR ENERGY CORPORATION
----------------------------
Registrant
March 21, 1995 By J. T. PERCIO
-----------------------
J. T. Percio, Secretary
<TABLE>
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:
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer: )
*ROBERT J. FARLING Chairman of the Board, )
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 )
*THOMAS A. COMMES Director ) March 21, 1995
*WILLIAM F. CONWAY Director )
*WAYNE R. EMBRY Director )
*ROBERT J. FARLING Director )
*GEORGE H. KAULL Director )
*RICHARD A. MILLER Director )
*FRANK E. MOSIER Director )
*SR. MARY MARTHE REINHARD, SND Director )
*ROBERT C. SAVAGE Director )
*WILLIAM J. WILLIAMS Director )
*By J. T. PERCIO
------------------------------
J. T. Percio, Attorney-in-Fact
</TABLE>
- 37 -
<PAGE> 49
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.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
-------------------------------------------
Registrant
March 21, 1995 By J. T. PERCIO
-----------------------
J. T. Percio, Secretary
<TABLE>
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:
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
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
</TABLE>
- 38 -
<PAGE> 50
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.
THE TOLEDO EDISON COMPANY
-------------------------
Registrant
March 21, 1995 By J. T. PERCIO
-----------------------
J. T. Percio, Secretary
<TABLE>
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:
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
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 )
Officer )
Principal Accounting Officer: ) March 21, 1995
*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
</TABLE>
- 39 -
<PAGE> 51
<TABLE>
INDEX TO
--------
SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION
------------------------------------------------
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------
OPERATIONS; AND FINANCIAL STATEMENTS
------------------------------------
<CAPTION>
Page
----
<S> <C>
Centerior Energy Corporation and Subsidiaries:
- ---------------------------------------------
Report of Independent Public Accountants . . . . . . . . . . . . . F-2
Management's Financial Analysis . . . . . . . . . . . . . . . . . F-3
Income Statement for the Years Ended December 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
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 Financial Statements . . . . . . . . . . . . . . . . F-14
Financial and Statistical Review . . . . . . . . . . . . . . . . . F-25
The Cleveland Electric Illuminating Company and Subsidiaries:
- ------------------------------------------------------------
Report of Independent Public Accountants . . . . . . . . . . . . . F-27
Management'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 Review . . . . . . . . . . . . . . . . . F-49
The Toledo Edison Company:
- -------------------------
Report of Independent Public Accountants . . . . . . . . . . . . . F-51
Management'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
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 Review . . . . . . . . . . . . . . . . . F-73
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Share Owners and
Board of Directors of
Centerior Energy Corporation:
We have audited the accompanying consolidated balance sheet and consolidated
statement of preferred stock of Centerior Energy Corporation (an Ohio
corporation) and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1994. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
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 includes examining, 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 evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Centerior Energy Corporation
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed further in Note 9, a change was made in the method of accounting
for postretirement benefits other than pensions in 1993.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Centerior Energy
Corporation and subsidiaries listed in the Index to Schedules is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Cleveland, Ohio
February 17, 1995
(Centerior Energy) F-2 (Centerior Energy)
<PAGE> 53
MANAGEMENT'S FINANCIAL ANALYSIS
OUTLOOK
STRATEGIC PLAN
We made significant strides in achieving the objectives of our comprehensive
strategic action plan announced in January 1994. The strategic plan was created
to strengthen our financial and competitive position through the year 2001. Its
objectives are to maximize share owner return, achieve profitable revenue
growth, become an industry leader in customer satisfaction, build a winning
employee team and attain increasingly competitive power supply costs. To achieve
these objectives, we will continue to control expenditures and reduce our
outstanding debt and preferred stock. In addition, we will increase revenues by
finding new uses for existing assets and resources, implementing new marketing
programs and restructuring rates when appropriate. We will also improve the
operating performance of our generating plants and take other appropriate
actions.
During 1994, we made progress toward most of our long-term objectives. We
initiated a marketing plan designed to increase our retail revenues (exclusive
of fuel cost recovery revenues and weather influences) by 2-3% annually through
2001. Our new customer service activities are intended to raise our customer
satisfaction rating. Our employees achieved enough of their established
objectives for the year to receive a $500 per eligible employee incentive
compensation award. The work undertaken during refueling outages at the
Davis-Besse Nuclear Power Station (Davis-Besse) and Perry Nuclear Power Plant
Unit 1 (Perry Unit 1) as well as the outage work at our fossil-fueled plants
should help us achieve our long-term objective of reducing variable power costs
to a more competitive level. Another long-term objective to be achieved over the
planning period is to provide share owners a total annual return greater than
the Standard & Poor's Corporation (S&P) 500 Index. While there was a slight gain
in the S&P 500 Index in 1994, electric utility stocks in general, and Centerior
Energy Corporation (Centerior Energy) common stock in particular, declined
sharply. The climb in interest rates and increased investor concern about the
competitiveness of the electric utility industry caused the Dow Jones Utility
Average to drop 21% in 1994. The total return on our common stock in 1994,
including dividends, was -27%. Investors placed a lower valuation on our stock
principally because of our high retail cost structure relative to certain
neighboring utilities and municipal electric systems.
As discussed below, we are taking steps to improve our competitiveness. As these
efforts unfold and if interest rates decline and investor concerns about the
electric utility industry diminish, the total annual return for our common stock
should improve. Further improvement in several key financial measures should
lead to a higher investor valuation of Centerior Energy. Substantial progress in
these areas was made in 1994. Strong cash flow continued in 1994 and
fixed-income obligations were reduced by $136 million. Also, total operation and
maintenance expenses declined $88 million, exclusive of one-time charges in
1993.
We are taking aggressive steps to increase revenues through our enhanced
marketing plan and to control costs. The full impact of these efforts will take
time. In the meantime, to increase share owner value, we must raise revenues by
restructuring rates. Accordingly, we are preparing to file a request with The
Public Utilities Commission of Ohio (PUCO) for our two utility subsidiaries, The
Cleveland Electric Illuminating Company (Cleveland Electric) and The Toledo
Edison Company (Toledo Edison) (collectively, the Operating Companies) to be
effective in 1996. Meaningful cost control and marketing strategies will
mitigate the need for additional rate increases and help us meet competition.
COMPETITION
We are implementing strategies designed to create and enhance our competitive
advantages and to overcome the competitive disadvantages that we face due to
regulatory and tax constraints and our high retail cost structure.
Currently our most pressing competition comes from municipal electric systems in
our service area. Our rates are generally higher than those of municipal systems
due largely to their exemption from taxation, the lower cost financing available
to them, the continued availability to them of lower cost power through
short-term power purchases and their access to cheaper governmental power. We
are seeking to address the tax disparity through the legislative process. In
1994, the Ohio Governor's Tax Commission recommended the replacement of the
gross receipts and personal property taxes currently levied only on
investor-owned utilities and collected through rates with a different tax
collected from customers of all electric utilities, including municipal systems.
Investor-owned utilities would reduce rates upon repeal of the existing taxes.
We are now working to submit this proposal to the Ohio legislature.
We face the threat that municipalities in our service area could establish new
systems and continue expanding existing systems. We are responding with
aggressive marketing programs and by emphasizing the value of our service and
the risks of a municipal system: substantial, long-term debt; no guarantee of
low-cost wholesale electricity; the difficulty of forecasting costs; and the
uncertainty of market share as a result of our aggressive competition.
Generally, these municipalities have determined that developing a system is not
feasible or have agreed with us not to pursue development of a system at
(Centerior Energy) F-3 (Centerior Energy)
<PAGE> 54
this time. Although some communities continue to be interested in
municipalization, we believe that we offer the best value and most reliable
source of electric service in our territory.
The largest municipal system in our service area, Cleveland Public Power (CPP),
is constructing new transmission and distribution facilities extending into
eastern portions of Cleveland. CPP also plans to expand to western portions of
Cleveland. CPP's expansion reduced our annual net income by about $4 million in
1993 and an additional $3 million in 1994. We estimate our net income will
continue to be reduced by an additional $4 million to $5 million each year in
the 1995-1999 period because of CPP's expansion. Despite CPP's expansion
efforts, we have 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. We have similar contracts with customers
in other parts of our service area. More than 80% of our industrial revenues
under contract will not be up for renewal until 1997 or later. As these
contracts expire, we expect to renegotiate them and retain the customers. In
addition, an increasing number of CPP customers are converting back to our
service.
The Energy Policy Act of 1992 will increase competition in the electric utility
industry by allowing broader access to a utility's transmission system. It
should not significantly increase the competitive threat to us since we have
been required to wheel electricity to municipal systems in our service area
since 1977 under operating licenses for our nuclear generating units. Further,
the government could eventually require utilities to deliver power from other
utilities or generation sources to their retail customers. To combat this
threat, we are offering incentives such as energy-efficiency improvements and
reductions in demand charges for increased electricity usage to our industrial
and commercial customers in return for long-term commitments.
RATE MATTERS
Under the Rate Stabilization Program discussed in Note 7, we agreed to freeze
base rates until 1996 and limit rate 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 the amortization of certain
benefits. Amortization and recovery of the deferrals are expected to begin in
1996 with future rate recognition and will continue over the average life of the
related assets, or between 17 and 30 years. The continued use of these
regulatory accounting measures in 1995 will be dependent upon our continuing
assessment and conclusion that there will be probable recovery of such deferrals
in future rates. Our analysis leading to certain year-end 1993 financial actions
and our strategic plan also included an evaluation of our regulatory accounting
measures. See Regulatory Accounting below and Note 7. We decided that, once the
deferral of expenses and acceleration of benefits under the Rate Stabilization
Program are completed in 1995, we should no longer plan to use these measures to
the extent we have in the past.
REGULATORY ACCOUNTING
As described in Notes 1(a) and 7, the Operating Companies comply with the
provisions of Statement of Financial Accounting Standards (SFAS) 71. We
continually monitor changes in market and regulatory conditions and consider the
effects of such changes in assessing the continuing applicability of SFAS 71.
Criteria that could give rise to discontinuation of the application of SFAS 71
include: (1) increasing competition which significantly restricts the Operating
Companies' ability to establish rates to recover operating costs, return
requirements and the amortization of regulatory assets and (2) a significant
change in the manner in which rates are set by the PUCO from cost-based
regulations to some other form of regulations. In the event we determine that
the Operating Companies no longer meet the criteria for following SFAS 71, we
would be required to record a before-tax charge to write off the regulatory
assets shown in Note 7. In addition, the Operating Companies would be required
to evaluate whether the changes in the competitive and regulatory environment
which led to discontinuing the application of SFAS 71 would also result in an
impairment of the net book value of their property, plant and equipment.
The write-off in 1993 of the phase-in deferred operating expenses and carrying
charges (phase-in deferrals) discussed in Note 7 resulted from our conclusion
that projected revenues for the 1994-1998 period would not provide for recovery
of such deferrals as scheduled by the PUCO orders. This short time frame for
recovery of the phase-in deferrals is a requirement under the accounting
standard for phase-in plans of regulated enterprises, SFAS 92. The remaining
recovery periods for all remaining regulatory assets are between 17 and 34
years. We believe the Operating Companies' rates will provide for recovery of
these assets over the relevant periods and SFAS 71 continues to apply.
NUCLEAR OPERATIONS
We have interests in three nuclear generating units -- Davis-Besse, Perry Unit 1
and Beaver Valley Power Station Unit 2 (Beaver Valley Unit 2) -- and operate the
first two. Davis-Besse and Beaver Valley Unit 2 have been operating extremely
well, with each unit having a three-year availability average at year-end 1994
that exceeded the three-year industry average of 80% for similar reactors.
However, the three-year availability av-
(Centerior Energy) F-4 (Centerior Energy)
<PAGE> 55
erage of Perry Unit 1 was below the three-year industry availability average for
that reactor type.
In 1994, Davis-Besse had an availability factor of 88%. Further, Davis-Besse
completed the shortest refueling and maintenance outage in its history in 1994,
returning to service just 46 days after shutting down. We are in the process of
upgrading Perry Unit 1 to the same level. For seven months in 1994, Perry Unit 1
was out of service for its fourth refueling and maintenance outage. Work was
also performed in connection with the comprehensive course of action developed
in 1993 to improve the operating performance of Perry Unit 1. Work in connection
with that course of action is ongoing.
We externally fund the estimated costs for the future decommissioning of our
nuclear units. In 1993 and 1994, we increased our decommissioning expense
accruals because of revisions in our cost estimates. See Note 1(d).
Our nuclear units may be impacted by activities or events beyond our control.
Operating nuclear units have experienced unplanned outages or extensions of
scheduled outages because of equipment problems or new regulatory requirements.
A major accident at a nuclear facility anywhere in the world could cause the
Nuclear Regulatory Commission to limit or prohibit the operation or licensing of
any domestic nuclear unit. If one of our nuclear units is taken out of service
for an extended period for any reason, including an accident at such unit or any
other nuclear facility, we cannot predict whether regulatory authorities would
impose unfavorable rate treatment. Such treatment could include taking our
affected unit out of rate base, thereby not permitting us to recover our
investment in and earn a return on it, or disallowing certain construction or
maintenance costs. An extended outage coupled with unfavorable rate treatment
could have a material adverse effect on our financial condition and results of
operations.
HAZARDOUS WASTE DISPOSAL SITES
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
as amended (Superfund) established programs addressing the cleanup of hazardous
waste disposal sites, emergency preparedness and other issues. The Operating
Companies have been named as "potentially responsible parties" (PRPs) for three
sites listed on the Superfund National Priorities List (Superfund List) and are
aware of their potential involvement in the cleanup of several other sites.
Allegations that the Operating Companies disposed of hazardous waste at these
sites, and the amounts involved, are often unsubstantiated and subject to
dispute. Superfund provides that all PRPs for a particular site can be held
liable on a joint and several basis. If the Operating Companies were held liable
for 100% of the cleanup costs of all of the sites referred to above, the cost
could be as high as $500 million. However, we believe that the actual cleanup
costs will be substantially lower than $500 million, that the Operating
Companies' share of any cleanup costs will be substantially less than 100% and
that most of the other PRPs are financially able to contribute their share. The
Operating Companies have accrued a liability totaling $13 million at December
31, 1994 based on estimates of the costs of cleanup and their proportionate
responsibility for such costs. We believe that the ultimate outcome of these
matters will not have a material adverse effect on our financial condition or
results of operations.
MERGER OF THE OPERATING COMPANIES
We continue to seek the necessary regulatory approvals to complete the merger of
the Operating Companies which we announced in 1994. The Operating Companies plan
to seek preferred stock share owner approval in mid-1995. The merger is expected
to be effective in 1995.
INFLATION
Although the rate of inflation has eased in recent years, we are still affected
by even modest inflation which causes increases in the unit cost of labor,
materials and services.
CAPITAL RESOURCES AND LIQUIDITY
1992-1994 CASH REQUIREMENTS
We need cash for normal corporate operations, the mandatory retirement of
securities and constructing and modifying facilities. Construction is needed to
meet anticipated demand for electric service, comply with government regulations
and protect the environment. Over the three-year period 1992-1994, construction
and mandatory retirement needs totaled approximately $1.3 billion. In addition,
we exercised options to redeem and purchase approximately $900 million of our
securities.
We raised $1.7 billion through security issues and term bank loans during the
1992-1994 period. The Operating Companies also utilized short-term borrowings to
help meet cash needs. Although write-offs of our Perry Nuclear Power Plant Unit
2 (Perry Unit 2) investment and phase-in deferrals in 1993 negatively affected
earnings, they did not adversely affect cash flow. See Notes 4(b) and 7.
1995 AND BEYOND CASH REQUIREMENTS
Estimated cash requirements for 1995-1999 for Cleveland Electric and Toledo
Edison, respectively, are $802 million and $288 million for construction and
$832 million and $378 million for the mandatory redemption of debt and preferred
stock. Cleveland Electric expects to finance externally about two-thirds of its
1995 cash requirements of approximately $451 million and about one-third of its
(Centerior Energy) F-5 (Centerior Energy)
<PAGE> 56
1996 cash requirements of approximately $320 million. Toledo Edison expects to
meet nearly all of its 1995 and 1996 cash requirements of approximately $145
million and $154 million, respectively, through internal cash generation and
current cash resources. The Operating Companies expect to meet nearly all of
their 1997-1999 requirements through internal cash generation and current cash
resources. If economical, additional securities may be redeemed under optional
redemption provisions. We expect that our continued strong cash flow will reduce
borrowing requirements and outstanding debt and preferred stock during this
period.
Cash expenditures to comply with the Clean Air Act Amendments of 1990 (Clean Air
Act) are estimated to be approximately $87 million over the 1995-1999 period.
See Note 4(a).
LIQUIDITY
Additional first mortgage bonds may be issued by the Operating Companies under
their respective mortgages 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 bonds on the basis of
property additions and, under certain circumstances, refundable bonds. At
December 31, 1994, Cleveland Electric and Toledo Edison would have been
permitted to issue approximately $487 million and $525 million of additional
first mortgage bonds, respectively.
The Operating Companies also are able to raise funds through the sale of
subordinated debt and preferred and preference stock. Under its articles of
incorporation, Toledo Edison cannot issue preferred stock unless certain
earnings coverage requirements are met. At December 31, 1994, Toledo Edison
would have been permitted to issue approximately $28 million of additional
preferred stock at an assumed dividend rate of 12%. There are no restrictions on
Cleveland Electric's ability to issue preferred or preference stock or Toledo
Edison's ability to issue preference stock.
Centerior Energy may raise funds through the sale of common stock under various
employee and share owner plans. In 1995, the Operating Companies plan to raise
funds through the sale of first mortgage bonds and the collateralization of
accounts receivable.
We have a $205 million revolving credit facility which runs through mid-1996.
See Note 12. We had $186 million of cash and temporary cash investments at the
end of 1994. The Operating Companies are unable to issue commercial paper
because of their below investment grade commercial paper ratings.
<TABLE>
The foregoing financing resources are expected to be sufficient for the
Operating Companies' needs over the next several years. However, the
availability and cost of capital to meet their external financing needs also
depend upon such factors as financial market conditions and their credit
ratings. Current credit ratings for the Operating Companies are as follows:
<CAPTION>
Moody's
Investors
S&P Service, Inc.
--- -------------
<S> <C> <C>
First mortgage bonds BB Ba2
Unsecured notes for Cleveland Electric B+ Ba3
Unsecured notes for Toledo Edison B+ B1
Preferred stock B b2
</TABLE>
In 1994, the common stock dividend was lowered which reduced our cash outflow by
over $110 million annually. We are using the cash to redeem debt and preferred
stock more quickly than would otherwise be the case. This has helped improve our
capitalization structure and fixed charge coverage ratios, both of which are key
measures considered by securities rating agencies in determining credit ratings.
Improved credit ratings and less outstanding debt and preferred stock, in turn,
will lower our interest costs and preferred dividends.
RESULTS OF OPERATIONS
1994 VS. 1993
<TABLE>
Factors contributing to the 2.1% decrease in 1994 operating revenues are as
follows:
<CAPTION>
Millions
Increase (Decrease) in Operating Revenues of Dollars
- ------------------------------------------------ -----------
<S> <C>
KWH Sales Volume and Mix $ 10
Wholesale Revenues (47)
Fuel Cost Recovery Revenues (22)
Miscellaneous Revenues 6
----
Total $(53)
====
</TABLE>
Centerior Energy experienced good retail kilowatt-hour sales growth in the
industrial and commercial categories in 1994; the sales growth for the
residential category was lessened by weather conditions, particularly during the
summer. The revenue decrease resulted primarily from milder weather conditions
in 1994 and 39% lower wholesale sales. Weather reduced base rate revenues
approximately $15 million from the 1993 amount. Although total sales decreased
by 1.9%, industrial sales increased 3.3% on the strength of increased sales to
large automotive manufacturers and the broad-based, smaller industrial customer
group. This growth substantiated an economic resurgence in our service area,
particularly in Northwestern Ohio. Residential and commercial sales increased
0.1% and 2.4%, respectively. Other sales decreased by 28% because of the lower
sales to wholesale customers attributable to expiration of a wholesale power
agreement, softer wholesale market conditions and limited power availability for
bulk power transactions at certain times because of generating plant outages.
Lower 1994 fuel cost recovery revenues resulted from favorable changes in the
fuel cost factors. The weighted averages
(Centerior Energy) F-6 (Centerior Energy)
<PAGE> 57
of these factors dropped by 5% and 6% for Cleveland Electric and Toledo Edison,
respectively.
For 1994, operating revenues were 31% residential, 30% commercial, 31%
industrial and 8% other and kilowatt-hour sales were 24% residential, 25%
commercial, 41% industrial and 10% other. The average prices per kilowatt-hour
for residential, commercial and industrial customers were $.11, $.10 and $.06,
respectively.
Operating expenses were 15% lower in 1994. Operation and maintenance expenses
for 1993 included $218 million of net benefit expenses related to an early
retirement program, called the Voluntary Transition Program (VTP), and other
charges totaling $54 million. Two other significant reasons for lower operation
and maintenance expenses in 1994 were a smaller work force and ongoing cost
reduction measures. More nuclear generation and less coal-fired generation
accounted for a large part of the lower fuel and purchased power expenses in
1994. Depreciation and amortization expenses increased primarily because of
higher nuclear plant decommissioning expenses as discussed in Note 1(d).
Deferred operating expenses were greater primarily because of the write-off of
$172 million of phase-in deferred operating expenses in 1993 as discussed in
Note 7. The 1993 deferrals also included $84 million of postretirement benefit
curtailment cost deferrals related to the VTP. See Note 9(b). Federal income
taxes increased as a result of higher pretax operating income.
As discussed in Note 4(b), $583 million of our Perry Unit 2 investment was
written off in 1993. Also, as discussed in Note 7, phase-in deferred carrying
charges of $705 million were written off in 1993. The change in the federal
income tax credit amounts for nonoperating income was attributable to these
write-offs.
1993 VS. 1992
<TABLE>
Factors contributing to the 1.5% increase in 1993 operating revenues are as
follows:
<CAPTION>
Millions
Increase (Decrease) in Operating Revenues of Dollars
- ------------------------------------------------ -----------
<S> <C>
KWH Sales Volume and Mix $ 65
Base Rates and Miscellaneous (18)
Fuel Cost Recovery Revenues (11)
----
Total $ 36
====
</TABLE>
The revenue increase resulted primarily from the different weather conditions
and the changes in the composition of the sales mix among customer categories.
Weather accounted for approximately $47 million of higher 1993 base rate
revenues. Hot summer weather in 1993 boosted residential, commercial and
wholesale kilowatt-hour sales. In contrast, the 1992 summer was the coolest in
56 years for Northern Ohio. Residential and commercial sales also increased as a
result of colder late-winter temperatures in 1993 which increased electric
heating-related demand. As a result, total sales increased 3.1% in 1993.
Residential and commercial sales increased 4.6% and 3.1%, respectively.
Industrial sales increased 1.2%. Increased sales to large automotive
manufacturers, petroleum refiners and the broad-based, smaller industrial
customer group were partially offset by lower sales to large steel industry
customers. Other sales increased 5.9% because of increased sales to wholesale
customers. Base rates and miscellaneous revenues decreased in 1993 primarily
from lower revenues under contracts having reduced rates with certain large
customers and a declining rate structure tied to usage. The contracts have been
negotiated to meet competition and encourage economic growth. The decrease in
1993 fuel cost recovery revenues resulted from changes in the fuel cost factors.
The weighted average of these factors increased slightly for Toledo Edison but
decreased 5% for Cleveland Electric.
For 1993, operating revenues were 31% residential, 29% commercial, 30%
industrial and 10% other and kilowatt-hour sales were 23% residential, 24%
commercial, 39% industrial and 14% other. The average prices per kilowatt-hour
for residential, commercial and industrial customers were $.11, $.10 and $.06,
respectively. The changes from 1992 were not significant.
Operating expenses increased 14% in 1993. The increase in total operation and
maintenance expenses resulted from the $218 million of net benefit expenses
related to the VTP, other charges totaling $54 million and an increase in other
operation and maintenance expenses. The increase in other operation and
maintenance expenses resulted from higher environmental expenses, power
restoration and repair expenses following a July 1993 storm in the Cleveland
area, and an increase in other postretirement benefit expenses. See Note 9 for
information on retirement benefits. Deferred operating expenses decreased
because of the write-off of the phase-in deferred operating expenses in 1993.
Federal income taxes decreased as a result of lower pretax operating income.
As mentioned above, $583 million of our Perry Unit 2 investment was written off
in 1993. Credits for carrying charges recorded in nonoperating income decreased
because of the write-off of the phase-in deferred carrying charges in 1993. The
federal income tax credit for nonoperating income in 1993 resulted from the
write-offs.
(Centerior Energy) F-7 (Centerior Energy)
<PAGE> 58
<TABLE>
INCOME STATEMENT Centerior Energy Corporation and Subsidiaries
<CAPTION>
For the years ended December 31,
--------------------------------
1994 1993 1992
------ ------ ------
(millions of dollars,
except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES $2,421 $2,474 $2,438
------ ------ ------
OPERATING EXPENSES
Fuel and purchased power 442 474 473
Other operation and maintenance 595 652 623
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
------ ------ ------
1,843 2,161 1,901
------ ------ ------
OPERATING INCOME 578 313 537
------ ------ ------
NONOPERATING INCOME (LOSS)
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 DIVIDENDS 625 (522) 641
------ ------ ------
INTEREST CHARGES AND PREFERRED DIVIDENDS
Debt interest 361 359 365
Allowance for borrowed funds used during construction (6) (5) (1)
Preferred dividend requirements of subsidiaries 66 67 65
------ ------ ------
421 421 429
------ ------ ------
NET INCOME (LOSS) $ 204 $ (943) $ 212
====== ====== ======
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (MILLIONS) 147.8 144.9 141.7
====== ====== ======
EARNINGS (LOSS) PER COMMON SHARE $ 1.38 $(6.51) $ 1.50
====== ====== ======
DIVIDENDS DECLARED PER COMMON SHARE $ .80 $ 1.60 $ 1.60
====== ====== ======
</TABLE>
RETAINED EARNINGS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1994 1993 1992
------ ------ ------
(millions of dollars)
<S> <C> <C> <C>
RETAINED EARNINGS (DEFICIT) AT BEGINNING OF YEAR $(523) $ 652 $ 669
----- ------- ------
ADDITIONS
Net income (loss) 204 (943) 212
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 $(438) $ (523) $ 652
===== ======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
(Centerior Energy) F-8 (Centerior Energy)
<PAGE> 59
[THIS PAGE INTENTIONALLY LEFT BLANK]
(Centerior Energy) F-9 (Centerior Energy)
<PAGE> 60
<TABLE>
BALANCE SHEET
<CAPTION>
December 31,
------------------
1994 1993
------- -------
(millions of
dollars)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility plant in service $ 9,770 $ 9,571
Less: accumulated depreciation and amortization 2,906 2,677
------- -------
6,864 6,894
Construction work in progress 129 181
------- -------
6,993 7,075
Nuclear fuel, net of amortization 293 344
Other property, less accumulated depreciation 50 41
------- -------
7,336 7,460
------- -------
CURRENT ASSETS
Cash and temporary cash investments 186 225
Amounts due from customers and others, net 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
------- -------
926 993
------- -------
DEFERRED CHARGES AND OTHER ASSETS
Amounts due from customers for future federal income taxes 1,046 968
Unamortized loss from Beaver Valley Unit 2 sale 101 105
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
------- -------
Total Assets $10,691 $10,710
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
(Centerior Energy) F-10 (Centerior Energy)
<PAGE> 61
Centerior Energy Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31,
-------------------
1994 1993
------- -------
(millions of
dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
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 3,697 4,019
------- -------
6,283 6,568
------- -------
CURRENT LIABILITIES
Current portion of long-term debt and preferred stock 373 127
Current portion of nuclear fuel lease obligations 83 111
Accounts payable 144 188
Accrued taxes 384 378
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 sale 525 551
Accumulated deferred rents for Bruce Mansfield Plant and Beaver Valley Unit 2 139 128
Nuclear fuel lease obligations 219 254
Retirement benefits 176 160
Other 143 175
------- -------
3,259 3,176
------- -------
Total Capitalization and Liabilities $10,691 $10,710
======= =======
</TABLE>
(Centerior Energy) F-11 (Centerior Energy)
<PAGE> 62
<TABLE>
CASH FLOWS Centerior Energy Corporation and Subsidiaries
<CAPTION>
For the years ended
December 31,
-----------------------------
1994 1993 1992
------ ------ -------
(millions of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (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
Investment tax credits, net -- -- (14)
Unbilled revenues 31 (10) (6)
Deferred fuel (17) 5 1
Deferred carrying charges, net (40) 649 (100)
Leased nuclear fuel amortization 98 86 126
Deferred operating expenses, net (55) 23 (52)
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
------ ------ -------
Total Adjustments 365 1,460 307
------ ------ -------
Net Cash from Operating Activities 569 517 519
------ ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES (2)
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
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)
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 INVESTING ACTIVITIES (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)
Contributions to nuclear plant decommissioning trusts (26) (9) (8)
Other cash received (applied) (17) 32 (28)
------ ------ -------
Net Cash from Investing Activities (254) (191) (280)
------ ------ -------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (39) 132 (84)
------ ------ -------
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 225 93 177
------ ------ -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 186 $ 225 $ 93
====== ====== =======
<FN>
- ---------------
(1) Interest paid (net of amounts capitalized) 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 resulting from the noncash capitalizations under nuclear fuel
agreements are excluded from this statement.
</TABLE>
The accompanying notes are an integral part of this statement.
(Centerior Energy) F-12 (Centerior Energy)
<PAGE> 63
<TABLE>
STATEMENT OF PREFERRED STOCK Centerior Energy Corporation and Subsidiaries
<CAPTION>
Current December 31,
1994 Shares Call Price -------------
Outstanding Per Share 1994 1993
----------- ---------- ---- ----
(millions of
dollars)
<S> <C> <C> <C> <C>
CLEVELAND ELECTRIC
Without par value, 4,000,000 preferred shares authorized
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
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 36 29
---- ----
246 285
---- ----
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
42.40 Series T 200,000 -- 97 97
---- ----
241 241
---- ----
TOLEDO EDISON
$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 30
---- ----
18 40
Less: Current maturities 11 12
---- ----
7 28
---- ----
Not subject to mandatory redemption:
$100 par $ 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
2.365 1,400,000 27.75 35 35
Series A Adjustable 1,200,000 25.75 30 30
Series B Adjustable 1,200,000 25.75 30 30
---- ----
210 210
---- ----
CENTERIOR ENERGY
Without par value, 5,000,000 preferred shares authorized, none outstanding -- --
---- ----
TOTAL PREFERRED STOCK, WITH MANDATORY REDEMPTION PROVISIONS $253 $313
==== ====
TOTAL PREFERRED STOCK, WITHOUT MANDATORY REDEMPTION PROVISIONS $451 $451
==== ====
</TABLE>
The accompanying notes are an integral part of this statement.
(Centerior Energy) F-13 (Centerior Energy)
<PAGE> 64
NOTES TO THE FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(a) GENERAL
Centerior Energy is a holding company with two electric utility subsidiaries,
Cleveland Electric and Toledo Edison. The consolidated financial statements also
include the accounts of Centerior Energy's wholly owned subsidiary, Centerior
Service Company (Service Company), and Centerior Energy's four other wholly
owned subsidiaries, which in the aggregate are not material. During 1994,
Cleveland Electric transferred its common stock investments in three wholly
owned subsidiaries to Centerior Energy via property dividends and Centerior
Energy formed the fourth wholly owned subsidiary. The Service Company provides
management, financial, administrative, engineering, legal and other services at
cost to Centerior Energy, the Operating Companies and the other subsidiaries.
The Operating Companies operate as separate companies, each serving the
customers in its service area. The preferred stock, first mortgage bonds and
other debt obligations of the Operating Companies are outstanding securities of
the issuing utility. All significant intercompany items have been eliminated in
consolidation.
Centerior Energy and the Operating Companies follow the Uniform System of
Accounts prescribed by the Federal Energy Regulatory Commission and adopted by
the PUCO. Rate-regulated utilities are subject to SFAS 71 which governs
accounting for the effects of certain types of rate regulation. Pursuant to SFAS
71, certain incurred costs are deferred for recovery in future rates. See Note
7. The Service Company follows the Uniform System of Accounts for Mutual Service
Companies prescribed by the Securities and Exchange Commission (SEC) under the
Public Utility Holding Company Act of 1935.
The Operating Companies are members of the Central Area Power Coordination Group
(CAPCO). Other members are Duquesne Light Company, Ohio Edison Company and its
wholly owned subsidiary, Pennsylvania Power Company. The members have
constructed and operate generation and transmission facilities for their use.
(b) REVENUES
Customers are billed on a monthly cycle basis for their energy consumption based
on rate schedules or contracts authorized by the PUCO or on ordinances of
individual municipalities. An accrual is made at the end of each month to record
the estimated amount of unbilled revenues for kilowatt-hours sold in the current
month but not billed by the end of that month.
A fuel factor is added to the base rates for electric service. This factor is
designed to recover from customers the costs of fuel and most purchased power.
It is reviewed and adjusted semiannually in a PUCO proceeding.
(c) FUEL EXPENSE
The cost of fossil fuel is charged to fuel expense based on inventory usage. The
cost of nuclear fuel, including an interest component, is charged to fuel
expense based on the rate of consumption. Estimated future nuclear fuel disposal
costs are being recovered through base rates.
The Operating Companies defer the differences between actual fuel costs and
estimated fuel costs currently being recovered from customers through the fuel
factor. This matches fuel expenses with fuel-related revenues.
Owners of nuclear generating plants are assessed by the federal government for
the cost of decontamination and decommissioning of nuclear enrichment facilities
operated by the United States Department of Energy. The assessments are based
upon the amount of enrichment services used in prior years and cannot be imposed
for more than 15 years (to 2007). The Operating Companies have accrued the
liability for their share of the total assessments. These costs have been
recorded in a deferred charge account since the PUCO is allowing the Operating
Companies to recover the assessments through their fuel cost factors.
(d) DEPRECIATION AND AMORTIZATION
The cost of property, plant and equipment is depreciated over their estimated
useful lives on a straight-line basis. The annual straight-line depreciation
provision for nonnuclear property expressed as a percent of average depreciable
utility plant in service was 3.4% in 1994, 3.5% in 1993 and 3.4% in 1992. The
annual straight-line depreciation rate for nuclear property is 2.5%.
The Operating Companies accrue the estimated costs of decommissioning their
three nuclear generating units. The accruals are required to be funded in an
external trust. The PUCO requires that the expense and payments to the external
trusts be determined on a levelized basis by dividing the unrecovered
decommissioning costs in current dollars by the remaining years in the licensing
period of each unit. This methodology requires that the net earnings on the
trusts be reinvested therein with the intent of allowing net earnings to offset
inflation. The PUCO requires that the estimated costs of decommissioning and the
funding level be reviewed at least every five years.
(Centerior Energy) F-14 (Centerior Energy)
<PAGE> 65
In 1994, the Operating Companies increased their annual decommissioning expense
accruals to $24 million from the $8 million level in 1992. The accruals are
reflected in current rates. The increased accruals were derived from recently
updated, site-specific studies for each of the units. The revised estimates
reflect the DECON method of decommissioning (prompt decontamination), and the
locations and cost characteristics specific to the units, and include costs
associated with decontamination, dismantlement and site restoration.
<TABLE>
The revised estimates for the units in 1993 and 1992 dollars and in dollars at
the time of license expiration, assuming a 4% annual inflation rate, are as
follows:
<CAPTION>
License
Expiration Future
Generating Unit Year Amount Amount
- ------------------------------- ---------- ------ ------
(millions of
dollars)
<S> <C> <C> <C>
Davis-Besse 2017 $346(1) $ 862
Perry Unit 1 2026 256(1) 908
Beaver Valley Unit 2 2027 114(2) 423
---- ------
Total $716 $2,193
==== ======
<FN>
- ---------------
(1) Dollar amounts in 1993 dollars.
(2) Dollar amounts in 1992 dollars.
</TABLE>
The updated estimates reflect substantial increases from the prior
PUCO-recognized aggregate estimates of $257 million in 1987 and 1986 dollars.
The classification, Accumulated Depreciation and Amortization, in the Balance
Sheet at December 31, 1994 includes $98 million of decommissioning costs
previously expensed and the earnings on the external trust funding. This amount
exceeds the Balance Sheet amount of the external Nuclear Plant Decommissioning
Trusts because the reserve began prior to the external trust funding. The trust
earnings are recorded as an increase to the trust assets and the related
component of the decommissioning reserve (included in Accumulated Depreciation
and Amortization).
The staff of the SEC has questioned certain of the current accounting practices
of the electric utility industry, including those of the Operating Companies,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in the financial statements. In response
to these questions, the Financial Accounting Standards Board is reviewing the
accounting for removal costs, including decommissioning. If such current
accounting practices are changed, the annual provision for decommissioning could
increase; the estimated cost for decommissioning could be recorded as a
liability rather than as accumulated depreciation; and trust fund income from
the external decommissioning trusts could be reported as investment income
rather than as a reduction to decommissioning expense.
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost less amounts ordered
by the PUCO to be written off. Construction costs include related payroll taxes,
retirement benefits, fringe benefits, management and general overheads and
allowance for funds used during construction (AFUDC). AFUDC represents the
estimated composite debt and equity cost of funds used to finance construction.
This noncash allowance is credited to income. The AFUDC rates averaged 9.8% in
1994, 9.9% in 1993 and 10.8% in 1992.
Maintenance and repairs for plant and equipment are charged to expense as
incurred. The cost of replacing plant and equipment is charged to the utility
plant accounts. The cost of property retired plus removal costs, after deducting
any salvage value, is charged to the accumulated provision for depreciation.
(f) DEFERRED GAIN AND LOSS FROM
SALES OF UTILITY PLANT
The sale and leaseback transactions discussed in Note 2 resulted in a net gain
for the sale of the Bruce Mansfield Generating Plant (Mansfield Plant) and a net
loss for the sale of Beaver Valley Unit 2. The net gain and net loss were
deferred and are being amortized over the terms of leases. See Note 7. These
amortizations and the lease expense amounts are reported in the Income Statement
as Generation Facilities Rental Expense, Net.
(g) INTEREST CHARGES
Debt Interest reported in the Income Statement does not include interest on
obligations for nuclear fuel under construction. That interest is capitalized.
See Note 6.
Losses and gains realized upon the reacquisition or redemption of long-term debt
are deferred, consistent with the regulatory rate treatment. See Note 7. Such
losses and gains are either amortized over the remainder of the original life of
the debt issue retired or amortized over the life of the new debt issue when the
proceeds of a new issue are used for the debt redemption. The amortizations are
included in debt interest expense.
(h) FEDERAL INCOME TAXES
We use the liability method of accounting for income taxes in accordance with
SFAS 109. See Note 8. This method requires that deferred taxes be recorded for
all temporary differences between the book and tax bases of assets and
liabilities. The majority of these temporary differences are attributable to
property-related basis differences. Included in these basis differences is the
equity component of AFUDC, which will increase future tax expense when it is
recovered through rates. Since this
(Centerior Energy) F-15 (Centerior Energy)
<PAGE> 66
component is not recognized for tax purposes, we must record a liability for our
tax obligation. The PUCO permits recovery of such taxes from customers when they
become payable. Therefore, the net amount due from customers through rates has
been recorded as a deferred charge and will be recovered over the lives of the
related assets. See Note 7.
Investment tax credits are deferred and amortized over the lives of the
applicable property as a reduction of depreciation expense. See Note 7 for a
discussion of the amortization of certain unrestricted excess deferred taxes and
unrestricted investment tax credits under the Rate Stabilization Program.
(2) UTILITY PLANT SALE AND
LEASEBACK TRANSACTIONS
The Operating Companies are co-lessees of 18.26% (150 megawatts) of Beaver
Valley Unit 2 and 6.5% (51 megawatts), 45.9% (358 megawatts) and 44.38% (355
megawatts) of Units 1, 2 and 3 of the Mansfield Plant, respectively, all for
terms of about 29 1/2 years. These leases are the result of sale and leaseback
transactions completed in 1987.
Under these leases, the Operating Companies are responsible for paying all
taxes, insurance premiums, operation and maintenance expenses and all other
similar costs for their interests in the units sold and leased back. They may
incur additional costs in connection with capital improvements to the units. The
Operating Companies have options to buy the interests back at the end of the
leases for the fair market value at that time or renew the leases. Additional
lease provisions provide other purchase options along with conditions for
mandatory termination of the leases (and possible repurchase of the leasehold
interests) for events of default. These events include noncompliance with
several financial covenants discussed in Note 11(d).
In April 1992, nearly all of the outstanding Secured Lease Obligation Bonds
(SLOBs) issued by a special purpose corporation in connection with financing the
sale and leaseback of Beaver Valley Unit 2 were refinanced through a tender
offer and the sale of new bonds having a lower interest rate. As part of the
refinancing transaction, Toledo Edison paid $43 million as supplemental rent to
fund transaction expenses and part of the tender premium. This amount has been
deferred and is being amortized over the remaining lease term. The refinancing
transaction reduced the annual rental expense for the Beaver Valley Unit 2 lease
by $9 million.
<TABLE>
Future minimum lease payments under the operating leases at December 31, 1994
are summarized as follows:
<CAPTION>
Year Amount
- ---- ------------
(millions of
dollars)
<S> <C>
1995 $ 166
1996 188
1997 165
1998 165
1999 178
Later Years 3,239
------
Total Future Minimum Lease Payments $4,101
======
</TABLE>
Rental expense is accrued on a straight-line basis over the terms of the leases.
The amount recorded in 1994, 1993 and 1992 as annual rental expense for the
Mansfield Plant leases was $115 million. The amounts recorded in 1994, 1993 and
1992 as annual rental expense for the Beaver Valley Unit 2 lease were $64
million, $63 million and $66 million, respectively. Amounts charged to expense
in excess of the lease payments are classified as Accumulated Deferred Rents in
the Balance Sheet.
Toledo Edison is selling 150 megawatts of its Beaver Valley Unit 2 leased
capacity entitlement to Cleveland Electric. We anticipate that this sale will
continue indefinitely.
(Centerior Energy) F-16 (Centerior Energy)
<PAGE> 67
(3) PROPERTY OWNED WITH OTHER UTILITIES AND INVESTORS
<TABLE>
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:
<CAPTION>
In- Plant Construction
Service Ownership Ownership Power in Work in Accumulated
Generating Unit Date Share Megawatts Source Service Progress Depreciation
- ------------------------------- ------- --------- --------- -------- ------- ------------ -----------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Seneca Pumped Storage 1970 80.00% 351 Hydro $ 66 $-- $ 22
Eastlake Unit 5 1972 68.80 411 Coal 156 1 --
Perry Unit 1 1987 51.02 609 Nuclear 2,817 9 511
Beaver Valley Unit 2 and
Common Facilities (Note 2) 1987 26.12 214 Nuclear 1,480 4 292
------ --- ----
Total $4,519 $14 $825
====== === ====
</TABLE>
Depreciation for Eastlake Unit 5 has been accumulated with all other nonnuclear
depreciable property rather than by specific units of depreciable property.
(4) CONSTRUCTION AND CONTINGENCIES
(a) CONSTRUCTION PROGRAM
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.
The Clean Air Act requires, among other things, significant reductions in the
emission of sulfur dioxide and nitrogen oxides by fossil-fueled generating
units. Our strategy provides for compliance primarily through greater use of
low-sulfur coal at some of our units and the use of emission allowances. Total
capital expenditures from 1991 through 1994 in connection with Clean Air Act
compliance amounted to $35 million. The plan will require additional capital
expenditures over the 1995-2004 period of approximately $157 million for
nitrogen oxide control equipment and plant modifications. In addition, higher
fuel and other operation and maintenance expenses will be incurred. The
anticipated rate increase associated with the capital expenditures and higher
expenses would be about 1-2% in the late 1990s. Cleveland Electric may need to
install sulfur emission control technology at one of its generating plants after
2005 which could require additional expenditures at that time.
(b) PERRY UNIT 2
Perry Unit 2, including its share of the facilities common with Perry Unit 1,
was approximately 50% complete when construction was suspended in 1985 pending
consideration of various options. We wrote off our investment in Perry Unit 2 at
December 31, 1993 after we determined that it would not be completed or sold.
The write-off totaled $583 million ($425 million after taxes) for our 64.76%
ownership share of the unit. See Note 14.
(c) HAZARDOUS WASTE DISPOSAL SITES
The Operating Companies are aware of their potential involvement in the cleanup
of three sites listed on the Superfund List and several other waste sites not on
such list. The Operating Companies have accrued a liability totaling $13 million
at December 31, 1994 based on estimates of the costs of cleanup and their
proportionate responsibility for such costs. We believe that the ultimate
outcome of these matters will not have a material adverse effect on our
financial condition or results of operations. See Management's Financial
Analysis -- Outlook-Hazardous Waste Disposal Sites.
(5) NUCLEAR OPERATIONS AND CONTINGENCIES
(a) OPERATING NUCLEAR UNITS
Our three nuclear units may be impacted by activities or events beyond our
control. An extended outage of one of our nuclear units for any reason, coupled
with any unfavorable rate treatment, could have a material adverse effect on our
financial condition and results of operations. See discussion of these risks in
Management's Financial Analysis -- Outlook-Nuclear Operations.
(Centerior Energy) F-17 (Centerior Energy)
<PAGE> 68
(b) NUCLEAR INSURANCE
The Price-Anderson Act limits the public liability of the owners of a nuclear
power plant to the amount provided by private insurance and an industry
assessment plan. In the event of a nuclear incident at any unit in the United
States resulting in losses in excess of the level of private insurance
(currently $200 million), our maximum potential assessment under that plan would
be $155 million (plus any inflation adjustment) per incident. The assessment is
limited to $20 million per year for each nuclear incident. These assessment
limits assume the other CAPCO companies contribute their proportionate share of
any assessment.
The utility owners and lessees of Davis-Besse, Perry and Beaver Valley also have
insurance coverage for damage to property at these sites (including leased fuel
and cleanup costs). Coverage amounted to $2.75 billion for each site as of
January 1, 1995. Damage to property could exceed the insurance coverage by a
substantial amount. If it does, our share of such excess amount could have a
material adverse effect on our financial condition and results of operations.
Under these policies, we can be assessed a maximum of $22 million during a
policy year if the reserves available to the insurer are inadequate to pay
claims arising out of an accident at any nuclear facility covered by the
insurer.
We also have extra expense insurance coverage. It includes the incremental cost
of any replacement power purchased (over the costs which would have been
incurred had the units been operating) and other incidental expenses after the
occurrence of certain types of accidents at our nuclear units. The amounts of
the coverage are 100% of the estimated extra expense per week during the 52-week
period starting 21 weeks after an accident and 80% of such estimate per week for
the next 104 weeks. The amount and duration of extra expense could substantially
exceed the insurance coverage.
(6) NUCLEAR FUEL
Nuclear fuel is financed for the Operating Companies through leases with a
special-purpose corporation. At December 31, 1994, $307 million of nuclear fuel
was financed ($157 million from intermediate-term notes and $150 million from
bank credit arrangements). The intermediate-term notes mature in 1996 and 1997.
The Operating Companies severally lease their respective portions of the nuclear
fuel and are obligated to pay for the fuel as it is consumed in a reactor. The
lease rates are based on various intermediate-term note rates, bank rates and
commercial paper rates.
The amounts financed include nuclear fuel in the Davis-Besse, Perry Unit 1 and
Beaver Valley Unit 2 reactors with remaining lease payments of $128 million, $91
million and $24 million, respectively, at December 31, 1994. The nuclear fuel
amounts financed and capitalized also included interest charges incurred by the
lessors amounting to $11 million in 1994, $14 million in 1993 and $15 million in
1992. The estimated future lease amortization payments based on projected
consumption are $99 million in 1995, $91 million in 1996, $80 million in 1997,
$73 million in 1998 and $62 million in 1999.
(7) REGULATORY MATTERS
<TABLE>
The Operating Companies are subject to the provisions of SFAS 71. Regulatory
assets represent probable future revenues to the Operating Companies associated
with certain incurred costs, which they will recover from customers through the
ratemaking process. Regulatory assets in the Balance Sheet are as follows:
<CAPTION>
December 31,
---------------
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
Amounts due from customers for future federal
income taxes $1,046 $ 968
Unamortized loss from Beaver Valley Unit 2
sale 101 105
Unamortized loss on reacquired debt 86 92
Pre-phase-in deferrals* 570 587
Rate Stabilization Program deferrals 387 275
------ ------
Total $2,190 $2,027
====== ======
<FN>
* Represent deferrals of operating expenses and carrying charges for Perry Unit
1 and Beaver Valley Unit 2 in 1987 and 1988 which are being amortized over the
lives of the related property.
</TABLE>
As of December 31, 1994, customer rates provide for recovery of all the above
regulatory assets, except those related to the Rate Stabilization Program
discussed below. The remaining recovery periods for all of the regulatory assets
listed above range from 17 to 34 years. The Operating Companies continually
assess the effects of competition and the changing industry and regulatory
environment on operations and their ability to recover the regulatory assets. In
the event that the Operating Companies determine that future revenues would not
be provided for recovery of any regulatory asset, such asset would be required
to be written off. See Management's Financial Analysis -- Outlook-Regulatory
Accounting.
The Operating Companies will file a request with the PUCO to restructure rates
to increase revenues to be effective in 1996 which will include provision for
recovery of the Rate Stabilization Program deferrals. We believe that rates will
be set at a level consistent with cost-based regulations and will provide
revenues to recover the then-current operating costs, return requirements and
amortization of all regulatory assets listed above.
The Rate Stabilization Program that the PUCO approved in October 1992 was
designed to encourage economic
(Centerior Energy) F-18 (Centerior Energy)
<PAGE> 69
growth in our service area by freezing base rates until 1996 and limiting
subsequent rate increases to specified annual amounts not to exceed $216 million
for Cleveland Electric and $89 million for Toledo Edison over the 1996-1998
period.
As part of the Rate Stabilization Program, during the 1992-1995 period the
Operating Companies are allowed to defer and subsequently recover certain costs
not currently recovered in rates and to accelerate amortization of certain
benefits. The continued use of these regulatory accounting measures will be
dependent upon our continuing assessment and conclusion that there will be
probable recovery of such deferrals in future rates.
The regulatory accounting measures we are eligible to record through December
31, 1995 include the deferral of post-in-service interest carrying charges,
depreciation expense and property taxes on assets placed in service after
February 29, 1988 and the deferral of Toledo Edison operating expenses
equivalent to an accumulated excess rent reserve for Beaver Valley Unit 2 (which
resulted from the April 1992 refinancing of SLOBs as discussed in Note 2). The
cost deferrals recorded in 1994, 1993 and 1992 pursuant to these provisions were
$106 million, $95 million and $84 million, respectively. The regulatory
accounting measures also provide for the accelerated amortization of certain
unrestricted excess deferred tax and unrestricted investment tax credit balances
and interim spent fuel storage accrual balances for Davis-Besse. The total
amount of such regulatory benefits recognized pursuant to these provisions was
$46 million in both 1994 and 1993 and $12 million in 1992.
The Rate Stabilization Program also authorized the Operating Companies to defer
and subsequently recover the incremental expenses associated with the adoption
of the accounting standard for postretirement benefits other than pensions (SFAS
106). In 1994 and 1993, we deferred $6 million and $96 million, respectively,
pursuant to this provision. Amortization and recovery of these deferrals are
expected to commence in 1996 and to be completed by no later than 2012. See Note
9(b).
In 1993, upon completing a comprehensive study which led to our current
strategic plan, we concluded that projected revenues would not provide for
recovery of deferrals recorded pursuant to phase-in plans approved by the PUCO
in 1989. Such deferrals were scheduled to be recovered over the 1994 through
1998 period. The total phase-in deferred operating expenses and carrying charges
written off at December 31, 1993 were $172 million and $705 million,
respectively (totaling $598 million after taxes). See Note 14. Additionally,
based on our assessment of business conditions, we concluded that, once the
deferral of expenses and acceleration of benefits under our Rate Stabilization
Program are completed in 1995, we should no longer plan to use regulatory
accounting measures to the extent we have in the past.
(8) FEDERAL INCOME TAX
<TABLE>
The components of federal income tax expense (credit) recorded in the Income
Statement were as follows:
<CAPTION>
1994 1993 1992
---- ----- ----
(millions of
dollars)
<S> <C> <C> <C>
Operating Expenses:
Current $ 70 $ 99 $ 71
Deferred 44 (88) 51
---- ----- ----
Total Charged to Operating Expenses 114 11 122
---- ----- ----
Nonoperating Income:
Current (45) (34) (38)
Deferred 51 (364) 45
---- ----- ----
Total Expense (Credit) to
Nonoperating Income 6 (398) 7
---- ----- ----
Total Federal Income Tax Expense (Credit) $120 $(387) $129
==== ===== ====
</TABLE>
The deferred federal income tax expense results from the temporary differences
that arise from the different years certain expenses are recognized for tax
purposes as opposed to financial reporting purposes. Such temporary differences
affecting operating expenses relate principally to depreciation and deferred
operating expenses whereas those affecting nonoperating income principally
relate to deferred carrying charges and the 1993 write-offs.
Federal income tax, computed by multiplying the income before taxes and
preferred dividend requirements of subsidiaries by the statutory rate (35% in
1994 and 1993 and 34% in 1992), is reconciled to the amount of federal income
tax recorded on the books as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ------- ----
(millions of dollars)
<S> <C> <C> <C>
Book Income (Loss) Before Federal Income
Tax $390 $(1,263) $406
==== ======= ====
Tax (Credit) on Book Income (Loss) at
Statutory Rate $137 $ (442) $138
Increase (Decrease) in Tax:
Write-off of Perry Unit 2 -- 46 --
Write-off of phase-in deferrals -- 28 --
Depreciation 3 (6) (9)
Rate Stabilization Program (27) (30) (7)
Other items 7 17 7
---- ------- ----
Total Federal Income Tax Expense
(Credit) $120 $ (387) $129
==== ======= ====
</TABLE>
For tax reporting purposes, the Perry Unit 2 abandonment was recognized in 1994
and resulted in a $307 million loss with a corresponding $107 million reduction
in federal income tax liability. Because of the alternative minimum tax (AMT),
$62 million of the $107 million was realized in 1994. The remaining $45 million
will not be realized until 1999. Additionally, a repayment of approximately $32
million of previously allowed investment tax credits was recognized in 1994.
(Centerior Energy) F-19 (Centerior Energy)
<PAGE> 70
In August 1993, the Revenue Reconciliation Act of 1993 was enacted. Retroactive
to January 1, 1993, the top marginal corporate income tax rate increased to 35%.
The change in tax rate did not materially impact the results of operations for
1993, but increased Accumulated Deferred Federal Income Taxes for the future tax
obligation by approximately $90 million. Since the PUCO has historically
permitted recovery of such taxes from customers when they become payable, the
deferred charge, Amounts Due from Customers for Future Federal Income Taxes,
also was increased by $90 million.
<TABLE>
Under SFAS 109, temporary differences and carryforwards resulted in deferred tax
assets of $596 million and deferred tax liabilities of $2.374 billion at
December 31, 1994 and deferred tax assets of $619 million and deferred tax
liabilities of $2.198 billion at December 31, 1993. These are summarized as
follows:
<CAPTION>
December 31,
---------------
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
Property, plant and equipment $2,035 $1,845
Deferred carrying charges and operating 215 206
expenses
Net operating loss carryforwards (144) (108)
Investment tax credits (156) (183)
Sale and leaseback transactions (128) (127)
Other (44) (54)
------ ------
Net deferred tax liability $1,778 $1,579
====== ======
</TABLE>
For tax purposes, net operating loss (NOL) carryforwards of approximately $412
million are available to reduce future taxable income and will expire in 2003
through 2009. The 35% tax effect of the NOLs is $144 million. Additionally, AMT
credits of $168 million that may be carried forward indefinitely are available
to reduce future regular tax.
(9) RETIREMENT BENEFITS
(a) RETIREMENT INCOME PLAN
We sponsor a noncontributing pension plan which covers all employee groups. The
amount of retirement benefits generally depends upon the length of service.
Under certain circumstances, benefits can begin as early as age 55. Our funding
policy is to comply with the Employee Retirement Income Security Act of 1974
guidelines.
In 1993, we offered the VTP, an early retirement program. Operating expenses for
1993 included $205 million of pension plan accruals to cover enhanced VTP
benefits and an additional $10 million of pension costs for VTP benefits paid to
retirees from corporate funds. The $10 million is not included in the pension
data reported in the following table. A credit of $81 million resulting from a
settlement of pension obligations through lump sum payments to almost all the
VTP retirees partially offset the VTP expenses.
<TABLE>
Pension and VTP costs (credits) for 1992 through 1994 were comprised of the
following components:
<CAPTION>
1994 1993 1992
---- ---- ----
(millions of
dollars)
<S> <C> <C> <C>
Pension Costs (Credits):
Service cost for benefits earned
during the period $ 13 $ 15 $ 15
Interest cost on projected benefit
obligation 26 37 38
Actual return on plan assets (2) (65) (24)
Net amortization and deferral (34) 4 (45)
---- ---- ----
Net pension costs (credits) 3 (9) (16)
VTP cost -- 205 --
Settlement gain -- (81) --
---- ---- ----
Net costs (credits) $ 3 $115 $(16)
==== ==== ====
</TABLE>
<TABLE>
The following table presents a reconciliation of the funded status of the plan.
<CAPTION>
December 31,
-------------
1994 1993
---- ----
(millions of
dollars)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $278 $333
Nonvested benefits 2 37
---- ----
Accumulated benefit obligation 280 370
Effect of future compensation levels 37 53
---- ----
Total projected benefit obligation 317 423
Plan assets at fair market value 362 386
---- ----
Funded status 45 (37)
Unrecognized net loss (gain) from variance
between assumptions and experience (79) 11
Unrecognized prior service cost 10 10
Transition asset at January 1, 1987 being
amortized over 19 years (39) (43)
---- ----
Net accrued pension liability included in
Retirement Benefits in the Balance Sheet $(63) $(59)
==== ====
</TABLE>
A September 30, 1994 measurement date was used for 1994 reporting. At December
31, 1994, the settlement (discount) rate and long-term rate of return on plan
assets assumptions were 8.5% and 10%, respectively. The long-term rate of annual
compensation increase assumption was 3.5% for 1995 and 1996 and 4% thereafter.
At December 31, 1993, the settlement rate and long-term rate of return on plan
assets assumptions were 7.25% and 8.75%, respectively. The long-term rate of
annual compensation increase assumption was 4.25%.
Plan assets consist primarily of investments in common stock, bonds, guaranteed
investment contracts, cash equivalent securities and real estate.
(b) OTHER POSTRETIREMENT BENEFITS
We sponsor a postretirement benefit plan which provides all employee groups
certain health care, death and other postretirement benefits other than
pensions. The plan is contributory, with retiree contributions adjusted
annually. The plan is not funded. We adopted SFAS 106, the accounting standard
for postretirement benefits other than pensions, effective January 1, 1993. The
standard requires the accrual of the expected costs of such benefits
(Centerior Energy) F-20 (Centerior Energy)
<PAGE> 71
during the employees' years of service. Prior to 1993, the costs of these
benefits were expensed as paid, which was consistent with ratemaking practices.
<TABLE>
The components of the total postretirement benefit costs for 1994 and 1993 were
as follows:
<CAPTION>
1994 1993
---- ----
(millions
of dollars)
<S> <C> <C>
Service cost for benefits earned during the
period $ 2 $ 3
Interest cost on accumulated postretirement
benefit obligation 18 16
Amortization of transition obligation at January
1, 1993 of $167 million over 20 years 8 8
VTP curtailment cost (includes $16 million
transition obligation adjustment) -- 84
--- ----
Total costs $28 $111
=== ====
</TABLE>
In 1994 and 1993, we deferred incremental SFAS 106 expenses (in excess of the
amounts paid) of $6 million and $96 million, respectively, pursuant to a
provision of the Rate Stabilization Program. See Note 7.
<TABLE>
The accumulated postretirement benefit obligation and accrued postretirement
benefit cost are as follows:
<CAPTION>
December 31,
-------------
1994 1993
----- -----
(millions of
dollars)
<S> <C> <C>
Accumulated postretirement benefit obligation
attributable to:
Retired participants $(203) $(229)
Fully eligible active plan participants (1) (1)
Other active plan participants (21) (28)
----- -----
Accumulated postretirement benefit
obligation (225) (258)
Unrecognized net loss (gain) from variance
between assumptions and experience (23) 14
Unamortized transition obligation 135 143
----- -----
Accrued postretirement benefit cost
included in Retirement Benefits in the
Balance Sheet $(113) $(101)
===== =====
</TABLE>
A September 30, 1994 measurement date was used for 1994 reporting. At December
31, 1994 and 1993, the settlement rate and the long-term rate of annual
compensation increase assumptions were the same as those discussed for pension
reporting in Note 9(a). At December 31, 1994, the assumed annual health care
cost trend rates (applicable to gross eligible charges) are 8.5% for medical and
8% for dental in 1995. Both rates reduce gradually to a fixed rate of 4.75% by
2003. Elements of the obligation affected by contribution caps are significantly
less sensitive to the health care cost trend rate than other elements. If the
assumed health care cost trend rates were increased by one percentage point in
each future year, the accumulated postretirement benefit obligation as of
December 31, 1994 would increase by $7 million and the aggregate of the service
and interest cost components of the annual postretirement benefit cost would
increase by $0.5 million.
(10) GUARANTEES
Cleveland Electric has guaranteed certain loan and lease obligations of two coal
suppliers under two long-term coal supply contracts. Toledo Edison is a party to
one of these contracts. At December 31, 1994, the principal amount of the loan
and lease obligations guaranteed by the Operating Companies under both contracts
was $67 million. In addition, under the contract to which Toledo Edison is not a
party, Cleveland Electric may be responsible for mine closing costs when the
contract is terminated. At December 31, 1994, the unfunded costs of closing this
mine as estimated by the supplier were $54 million.
The prices under both contracts which include certain minimum payments are
sufficient to satisfy the loan and lease obligations and mine closing costs over
the lives of the contracts. If either contract is terminated early for any
reason, the Operating Companies would attempt to reduce the termination charges
and would ask the PUCO to allow recovery of such charges from customers through
the fuel factor of the respective Operating Company.
(11) CAPITALIZATION
(a) CAPITAL STOCK TRANSACTIONS AND COMMON SHARES RESERVED FOR ISSUE
<TABLE>
Shares sold, retired and purchased for treasury during the three years ended
December 31, 1994 are listed in the following table.
<CAPTION>
1994 1993 1992
------ ----- -----
(thousands of shares)
<S> <C> <C> <C>
Centerior Energy Common Stock:
Dividend Reinvestment and Stock
Purchase Plan 683 3,542 2,570
Employee Savings Plan 259 544 322
Employee Purchase Plan 46 52 --
------ ----- -----
Total Common Stock Sales 988 4,138 2,892
Treasury Shares -- 26 (172)
------ ----- -----
Net Increase 988 4,164 2,720
====== ===== =====
Preferred Stock of Subsidiaries
Subject to Mandatory Redemption:
Cleveland Electric Sales
$90.00 Series S -- -- 75
Cleveland Electric Retirements
$ 7.35 Series C (10) (10) (10)
88.00 Series E (3) (3) (3)
Adjustable Series M (100) (100) (100)
9.125 Series N (189) (150) --
Toledo Edison Retirements
$100 par $11.00 -- -- (25)
9.375 (17) (17) (17)
25 par 2.81 (800) (800) --
Preferred Stock of Subsidiaries Not
Subject to Mandatory Redemption:
Cleveland Electric Sales
$42.40 Series T -- 200 --
Cleveland Electric Retirements
Remarketed Series P -- -- (1)
------ ----- -----
Net (Decrease) (1,119) (880) (81)
====== ===== =====
</TABLE>
(Centerior Energy) F-21 (Centerior Energy)
<PAGE> 72
Shares of common stock required for our stock plans in 1994 were either acquired
in the open market or issued as new shares.
The Board of Directors has authorized the purchase in the open market of up to
1,500,000 shares of our common stock until June 30, 1996. As of December 31,
1994, 225,500 shares had been purchased at a total cost of $4 million. Such
shares are being held as treasury stock.
The number of common stock shares reserved for issue under the Employee Savings
Plan and the Employee Purchase Plan was 1,702,849 and 423,797, respectively, at
December 31, 1994.
Under an Equity Compensation Plan (Plan) adopted in 1994, options to purchase
shares of common stock and restricted common stock awards were granted to
management employees. Options were issued for 264,900 shares at an exercise
price of $13.20. The options expire 10 years from the date of the grant and vest
over four years. The number of shares available for issuance under the Plan each
year is determined by formula, generally 0.5% of outstanding shares. The options
and stock grants for 1994 are conditioned upon the approval of the Plan by
Centerior Energy common stock share owners at their April 1995 annual meeting.
Shares of common stock required for the Plan may be either issued as new shares,
issued from treasury stock or acquired in the open market specifically for
distribution under the Plan.
(b) EQUITY DISTRIBUTION RESTRICTIONS
The Operating Companies make cash available for the funding of Centerior
Energy's common stock dividends by paying dividends on their respective common
stock, which are held solely by Centerior Energy. Federal law prohibits the
Operating Companies from paying dividends out of capital accounts. However, the
Operating Companies may pay preferred and common stock dividends out of
appropriated retained earnings and current earnings. At December 31, 1994,
Cleveland Electric and Toledo Edison had $144 million and $104 million,
respectively, of appropriated retained earnings for the payment of dividends.
However, Toledo Edison is prohibited from paying a common stock dividend by a
provision in its mortgage that essentially requires such dividends to be paid
out of the total balance of retained earnings, which currently is a deficit.
(c) PREFERRED AND PREFERENCE STOCK
Amounts to be paid for preferred stock which must be redeemed during the next
five years are $47 million in 1995, $31 million in both 1996 and 1997, $16
million in 1998 and $35 million in 1999.
<TABLE>
The annual mandatory redemption provisions are as follows:
<CAPTION>
Shares Price
To Be Beginning Per
Redeemed in Share
-------- --------- ------
<S> <C> <C> <C>
Cleveland Electric Preferred:
$ 7.35 Series C 10,000 1984 $ 100
88.00 Series E 3,000 1981 1,000
Adjustable Series M 100,000 1991 100
9.125 Series N 150,000 1993 100
91.50 Series Q 10,714 1995 1,000
88.00 Series R 50,000 2001* 1,000
90.00 Series S 18,750 1999 1,000
Toledo Edison Preferred:
$100 par $9.375 16,650 1985 100
25 par 2.81 400,000 1993 25
<FN>
* All outstanding shares to be redeemed on December 1, 2001.
</TABLE>
In 1993, Cleveland Electric issued $100 million principal amount of Serial
Preferred Stock, $42.40 Series T. The Series T stock was deposited with an agent
which issued Depositary Receipts, each representing 1/20 of a share of the
Series T stock.
The annualized preferred dividend requirement for the Operating Companies at
December 31, 1994 was $63 million.
The preferred dividend rates on Cleveland Electric's Series L and M and Toledo
Edison's Series A and B fluctuate based on prevailing interest rates and market
conditions. The dividend rates for these issues averaged 7.17%, 7.01%, 7.66% and
8.44%, respectively, in 1994.
Preference stock authorized for the Operating Companies are 3,000,000 shares
without par value for Cleveland Electric and 5,000,000 shares with a $25 par
value for Toledo Edison. No preference shares are currently outstanding for
either company.
With respect to dividend and liquidation rights, each Operating Company's
preferred stock is prior to its preference stock and common stock, and each
Operating Company's preference stock is prior to its common stock.
(Centerior Energy) F-22 (Centerior Energy)
<PAGE> 73
(d) LONG-TERM DEBT AND OTHER
BORROWING ARRANGEMENTS
<TABLE>
Long-term debt, less current maturities, for the Operating Companies was as
follows:
<CAPTION>
Actual
or Average
Interest
Rate at December 31,
December 31, ---------------
Year of Maturity 1994 1994 1993
- -------------------------------- ------------ ------ ------
(millions of
dollars)
<S> <C> <C> <C>
First mortgage bonds:
1996-1999 13.75 % $ 17 $ 21
1996-1999 7.00 3 4
1997-1999 10.88 18 18
1997 6.125 31 31
1998 10.00 1 1
1999 6.20 2 2
1999 7.25 100 100
2000-2004 7.89 603 607
2005-2009 8.33 202 202
2010-2014 8.13 396 396
2015-2019 8.00 526 526
2020-2023 8.53 666 666
------ ------
2,565 2,574
Secured medium term notes due
1996-2021 8.60 766 963
Term bank loans due 1996 9.07 63 154
Notes due 1996-1997 9.49 25 43
Debentures due 2002 8.70 135 135
Pollution control notes due
1996-2015 10.30 151 158
Other -- net -- (8) (8)
------ ------
Total Long-Term Debt $3,697 $4,019
====== ======
</TABLE>
Long-term debt matures during the next five years as follows: $326 million in
1995, $243 million in 1996, $95 million in 1997, $117 million in 1998 and $277
million in 1999.
The Operating Companies issued $266 million aggregate principal amount of
secured medium-term notes in 1992 and 1993. The notes are secured by first
mortgage bonds.
The mortgages of the Operating Companies constitute direct first liens on
substantially all property owned and franchises held by them. Excluded from the
liens, among other things, are cash, securities, accounts receivable, fuel,
supplies and, in the case of Toledo Edison, automotive equipment.
Certain unsecured loan agreements of the Operating Companies contain covenants
relating to capitalization ratios, fixed charge coverage ratios and limitations
on secured financing other than through first mortgage bonds or certain other
transactions. Two reimbursement agreements relating to separate letters of
credit issued in connection with the sale and leaseback of Beaver Valley Unit 2
contain several financial covenants affecting Centerior Energy and the Operating
Companies. Among these are covenants relating to fixed charge coverage ratios
and capitalization ratios. The write-offs recorded at December 31, 1993 caused
Centerior Energy and the Operating Companies to violate certain covenants
contained in a Cleveland Electric loan agreement and the two reimbursement
agreements. The affected creditors waived those violations in exchange for a
subordinate mortgage security interest on the Operating Companies' properties.
We provided the same security interest to certain other creditors because their
agreements require equal treatment. At December 31, 1994, the Operating
Companies provided subordinate mortgage collateral for $197 million of unsecured
debt, $228 million of bank letters of credit and a $205 million revolving credit
facility.
(12) SHORT-TERM BORROWING ARRANGEMENTS
Centerior Energy has a $205 million revolving credit facility through May 1996.
Centerior Energy and the Service Company may borrow under the facility, with all
borrowings jointly and severally guaranteed by the Operating Companies.
Centerior Energy plans to transfer any of its borrowed funds to the Operating
Companies. The facility agreement as amended provides the participating banks
with a subordinate mortgage security interest on the Operating Companies'
properties. The banks' fee is 0.625% per annum payable quarterly in addition to
interest on any borrowings. There were no borrowings under the facility at
December 31, 1994. The facility agreement contains covenants relating to
capitalization and fixed charge coverage ratios.
Short-term borrowing capacity authorized by the PUCO annually is $300 million
for Cleveland Electric and $150 million for Toledo Edison. The Operating
Companies are authorized by the PUCO to borrow from each other on a short-term
basis.
(Centerior Energy) F-23 (Centerior Energy)
<PAGE> 74
(13) FINANCIAL INSTRUMENTS
<TABLE>
Except for the Nuclear Plant Decommissioning Trusts at December 31 1994, as
discussed below, the estimated fair values at December 31, 1994 and 1993 of
financial instruments that do not approximate their carrying amounts in the
Balance Sheet are as follows:
<CAPTION>
December 31,
----------------------------------
1994 1993
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(millions of dollars)
<S> <C> <C> <C> <C>
Assets:
Nuclear Plant Decommissioning
Trusts $ 82 $ 82 $ 56 $ 59
Capitalization and Liabilities:
Preferred Stock, with
Mandatory Redemption
Provisions (including
current portion) 300 264 354 349
Long-Term Debt (including
current portion) 4,031 3,628 4,113 4,260
</TABLE>
The Nuclear Plant Decommissioning Trusts at December 31, 1994 included $46
million of federal governmental securities and $31 million of municipal
securities. The securities had the following maturities: $19 million due within
one year; $16 million due in one to five years; $17 million due in six to 10
years; and $25 million due after 10 years. The fair value of these trusts is
estimated based on the quoted market prices for the investment securities. As a
result of adopting the new accounting standard for certain investments in debt
and equity securities, SFAS 115, in 1994, the carrying amount of these trusts is
equal to the fair value. The fair value of the Operating Companies' preferred
stock, with mandatory redemption provisions, and long-term debt is estimated
based on the quoted market prices for the respective or similar issues or on the
basis of the discounted value of future cash flows. The discounted value used
current dividend or interest rates (or other appropriate rates) for similar
issues and loans with the same remaining maturities.
The estimated fair values of all other financial instruments approximate their
carrying amounts in the Balance Sheet at December 31, 1994 and 1993 because of
their short-term nature.
(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended December 31, 1994.
<CAPTION>
Quarters Ended
----------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- --------
(millions of dollars,
except per share amounts)
<S> <C> <C> <C> <C>
1994
Operating Revenues $ 588 $596 $ 667 $ 570
Operating Income $ 129 $134 $ 186 $ 129
Net Income $ 35 $ 42 $ 92 $ 35
Average Common Shares
(millions) 147.4 147.9 148.0 148.0
Earnings Per Common
Share $ .24 $.28 $ .62 $ .24
Dividends Paid Per
Common Share $ .20 $.20 $ .20 $ .20
1993
Operating Revenues $ 598 $589 $ 709 $ 578
Operating Income (Loss) $ 122 $126 $ 106 $ (42)
Net Income (Loss) $ 35 $ 34 $ 17 $(1,029)
Average Common Shares
(millions) 143.4 144.4 145.3 146.4
Earnings (Loss) Per
Common Share $ .25 $.23 $ .12 $ (7.02)
Dividends Paid Per
Common Share $ .40 $.40 $ .40 $ .40
</TABLE>
Earnings for the quarter ended September 30, 1993 were decreased by $81 million,
or $.56 per share, as a result of the recording of $125 million of VTP
pension-related benefits.
Earnings for the quarter ended December 31, 1993 were decreased as a result of
year-end adjustments for the $583 million write-off of Perry Unit 2 (see Note
4(b)), the $877 million write-off of the phase-in deferrals (see Note 7) and $58
million of other charges. These adjustments decreased quarterly earnings by
$1.06 billion, or $7.24 per share.
(Centerior Energy) F-24 (Centerior Energy)
<PAGE> 75
FINANCIAL AND STATISTICAL REVIEW
<TABLE>
OPERATING REVENUES (millions of dollars)
<CAPTION>
Steam Total
Total Total Heating Operating
Year Residential Commercial Industrial Other Retail Wholesale Electric & Gas Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 $ 758 722 758 137 2 375 46 2 421 -- $ 2 421
1993 768 716 754 143 2 381 93 2 474 -- 2 474
1992 732 706 766 143 2 347 91 2 438 -- 2 438
1991 777 723 783 188 2 471 89 2 560 -- 2 560
1990 719 669 779 190 2 357 70 2 427 -- 2 427
1984 548 454 636 88 1 726 24 1 750 24 1 774
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
OPERATING EXPENSES (millions of dollars)
<CAPTION>
Other Generation Deferred
Fuel & Operation Facilities Depreciation Taxes, Operating Federal Total
Purchased & Rental & Other Than Expenses, Income Operating
Year Power Maintenance Expense, Net Amortization FIT Net Taxes Expenses
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 $ 442 595 160 278 309 (55) 114 $ 1 843
1993 474 924(a) 159 258 312 23(b) 11 2 161
1992 473 623 161 256 318 (52) 122 1 901
1991 500 633 168 243(c) 305 (6) 138 1 981
1990 472 698 165 242 283 (34) 96 1 922
1984 463 404 -- 145 179 -- 198 1 389
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
INCOME (LOSS) (millions of dollars)
<CAPTION>
Federal Income
Other Deferred Income (Loss)
Income & Carrying Taxes-- Before
Operating AFUDC-- Deductions, Charges, Credit Interest Debt
Year Income Equity Net Net (Expense) Charges Interest
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
1994 $ 578 5 8 40 (6) 625 361
1993 313 5 (589)(d) (649)(b) 398 (522) 359
1992 537 2 9 100 (7) 641 365
1991 579 9 6 110 (30) 674 381
1990 505 8 (1) 205 (13) 704 384
1984 385 213 12 -- 69 679 310
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
INCOME (LOSS) (millions of dollars) COMMON STOCK (dollars per share & %)
<CAPTION>
Return on
Preferred & Average Average
Preference Net Shares Common
AFUDC-- Stock Income Outstanding Earnings Stock Dividends Book
Year Debt Dividends (Loss) (millions) (Loss) Equity Declared Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 $ (6) 66 $ 204 147.8 $ 1.38 11.1% $ .80 $12.71
1993 (5) 67 (943) 144.9 (6.51) (40.3) 1.60 12.14
1992 (1) 65 212 141.7 1.50 7.4 1.60 20.22
1991 (5) 61 237 139.1 1.71 8.4 1.60 20.37
1990 (6) 62 264 138.9 1.90 9.4 1.60 20.30
1984 (76) 78 367 107.6(e) 3.41(e) 16.4 2.29(e) 20.64(e)
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
NOTE: 1984 data is the result of combining and restating data for the Operating
Companies.
(a) Includes early retirement program expenses and other charges of $272 million
in 1993.
(b) Includes write-off of phase-in deferrals of $877 million in 1993, consisting
of $172 million of deferred operating expenses and $705 million of deferred
carrying charges.
(c) In 1991, the Operating Companies adopted a change in accounting for nuclear
plant depreciation, changing from the units-of-production method to the
straight-line method at a 2.5% rate.
</TABLE>
(Centerior Energy) F-25 (Centerior Energy)
<PAGE> 76
Centerior Energy Corporation and Subsidiaries
<TABLE>
<CAPTION>
ELECTRIC SALES (millions of KWH) ELECTRIC CUSTOMERS (year end)
Industrial
Year Residential Commercial Industrial Wholesale Other Total Residential Commercial & Other Total
- ------------------------------------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 6 980 7 481 12 069 1 842 1 074 29 446 925 344 97 530 11 360 1 034 234
1993 6 974 7 306 11 687 3 027 1 022 30 016 924 227 96 491 12 219 1 032 937
1992 6 666 7 086 11 551 2 814 1 011 29 128 925 099 96 813 12 741 1 034 653
1991 6 981 7 176 11 559 2 690 1 048 29 454 921 995 96 449 12 843 1 031 287
1990 6 666 6 848 12 168 2 487 959 29 128 918 965 94 522 12 906 1 026 393
1984 6 404 5 794 11 441 578 871 25 088 888 816 85 825 11 850 986 491
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RESIDENTIAL USAGE
Average Average
Average Price Revenue
KWH Per Per Per
Year Customer KWH Customer
- ------------------------------------------------------
<S> <C> <C> <C>
1994 7 556 10.86cent(s) $820.89
1993 7 546 11.01 830.99
1992 7 227 10.98 793.68
1991 7 410 11.16 827.10
1990 7 079 10.82 765.93
1984 7 035 8.56 603.92
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LOAD (MW & %) ENERGY (millions of KWH) FUEL
Net Company Generated Efficiency--
Seasonal Peak Capacity Load ----------------------------- Purchased Fuel Cost BTU Per
Year Capability Load Margin Factor Fossil Nuclear Total Power Total Per KWH KWH
- ------------------------------------------------ ----------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 6 226 5 291 15.0% 63.9% 18 146 11 824 29 970 922 30 892 1.35cent(s) 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 (122) 31 063 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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
INVESTMENT (millions of dollars)
<CAPTION>
Construction
Utility Work In Total
Plant Accumulated Progress Nuclear Property, Utility
In Depreciation & Net & Perry Fuel and Plant and Plant Total
Year Service Amortization Plant Unit 2 Other Equipment Additions Assets
- -------------------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $9 770 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 11 829
1990 8 636 2 039 6 597 921 568 8 086 251 11 681
1984 4 282 1 164 3 118 3 527 485(f) 7 130 939 8 050
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CAPITALIZATION (millions of dollars & %)
<CAPTION>
Preferred &
Preference Preferred
Stock, with Stock, without
Mandatory Mandatory
Common Stock Redemption Redemption
Year Equity Provisions Provisions Long-Term Debt Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $1 882 30% 253 4% 451 7% 3 697 59% $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
1984 2 403 39 451 7 344 6 2 994 48 6 192
- -------------------------------------------------------------------------------------------------------
<FN>
(d) Includes write-off of Perry Unit 2 of $583 million in 1993.
(e) Average shares outstanding and related per share computations reflect the
Cleveland Electric 1.11-for-one exchange ratio and the Toledo Edison
one-for-one exchange ratio for Centerior Energy shares at the date of
affiliation, April 29, 1986.
(f) Restated for effects of capitalization of nuclear fuel lease and financing
arrangements pursuant to Statement of Financial Accounting Standards 71.
</TABLE>
(Centerior Energy) F-26 (Centerior Energy)
<PAGE> 77
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Share Owners and
Board of Directors of
The Cleveland Electric Illuminating Company:
We have audited the accompanying consolidated balance sheet and consolidated
statement of preferred stock of The Cleveland Electric Illuminating Company (a
wholly owned subsidiary of Centerior Energy Corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the schedule based on our
audits.
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 includes examining, 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 evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Cleveland Electric
Illuminating Company and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed further in Note 9, a change was made in the method of accounting
for postretirement benefits other than pensions in 1993.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of The Cleveland Electric
Illuminating Company and subsidiaries listed in the Index to Schedules is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Cleveland, Ohio
February 17, 1995
(Cleveland Electric) F-27 (Cleveland Electric)
<PAGE> 78
MANAGEMENT'S FINANCIAL ANALYSIS
OUTLOOK
STRATEGIC PLAN
We made significant strides in achieving the objectives of the comprehensive
strategic action plan announced in January 1994. Centerior Energy Corporation
(Centerior Energy), along with The Cleveland Electric Illuminating Company
(Company) and The Toledo Edison Company (Toledo Edison), created the strategic
plan to strengthen their financial and competitive position through the year
2001. The Company and Toledo Edison are the two wholly owned electric utility
subsidiaries of Centerior Energy. The plan's objectives relate to the combined
operations of all three companies. The objectives are to achieve profitable
revenue growth, become an industry leader in customer satisfaction, build a
winning employee team, attain increasingly competitive power supply costs and
maximize share owner return on Centerior Energy common stock. To achieve these
objectives, we will continue to control expenditures and reduce our outstanding
debt and preferred stock. In addition, we will increase revenues by finding new
uses for existing assets and resources, implementing new marketing programs and
restructuring rates when appropriate. We will also improve the operating
performance of our generating plants and take other appropriate actions.
During 1994, we made progress toward most of our long-term objectives. The
Company and Toledo Edison initiated a marketing plan designed to increase total
retail revenues (exclusive of fuel cost recovery revenues and weather
influences) by 2-3% annually through 2001. Our new customer service activities
are intended to raise our customer satisfaction rating. Our employees achieved
enough of their established objectives for the year to receive a $500 per
eligible employee incentive compensation award. The work undertaken during
refueling outages at the Davis-Besse Nuclear Power Station (Davis-Besse) and
Perry Nuclear Power Plant Unit 1 (Perry Unit 1) as well as the outage work at
our fossil-fueled plants should help us achieve our long-term objective of
reducing variable power costs to a more competitive level. Strong cash flow
continued in 1994 and the Company's fixed-income obligations were reduced by $77
million. Also, the Company's total operation and maintenance expenses declined
$71 million, exclusive of one-time charges in 1993.
We are taking aggressive steps to increase revenues through our enhanced
marketing plan and to control costs. The full impact of these efforts will take
time. In the meantime, the Company and Toledo Edison must raise revenues by
restructuring rates. Accordingly, the Company and Toledo Edison are preparing to
file a request with The Public Utilities Commission of Ohio (PUCO) to be
effective in 1996. Meaningful cost control and marketing strategies will
mitigate the need for additional rate increases and help us meet competition.
COMPETITION
We are implementing strategies designed to create and enhance our competitive
advantages and to overcome the competitive disadvantages that we face due to
regulatory and tax constraints and our high retail cost structure.
Currently our most pressing competition comes from two municipal electric
systems in our service area. Our rates are generally higher than those of the
two municipal systems due largely to their exemption from taxation, the lower
cost financing available to them, the continued availability to them of lower
cost power through short-term power purchases and their access to cheaper
governmental power. We are seeking to address the tax disparity through the
legislative process. In 1994, the Ohio Governor's Tax Commission recommended the
replacement of the gross receipts and personal property taxes currently levied
only on investor-owned utilities and collected through rates with a different
tax collected from customers of all electric utilities, including municipal
systems. Investor-owned utilities would reduce rates upon repeal of the existing
taxes. We are now working to submit this proposal to the Ohio legislature.
We face the threat that municipalities in our service area could establish new
systems and continue expanding existing systems. We are responding with
aggressive marketing programs and by emphasizing the value of our service and
the risks of a municipal system: substantial, long-term debt; no guarantee of
low-cost wholesale electricity; the difficulty of forecasting costs; and the
uncertainty of market share as a result of our aggressive competition.
Generally, these municipalities have determined that developing a system is not
feasible or have agreed with us not to pursue development of a system at this
time. Although some communities continue to be interested in municipalization,
we believe that we offer the best value and most reliable source of electric
service in our territory.
The larger municipal system in our service area, Cleveland Public Power (CPP),
is constructing new transmission and distribution facilities extending into
eastern portions of Cleveland. CPP also plans to expand to western portions of
Cleveland. CPP's expansion reduced our annual net income by about $4 million in
1993 and an additional $3 million in 1994. We estimate our net income will
continue to be reduced by an additional $4 million to $5 million each year in
the 1995-1999 period because of CPP's expansion. Despite CPP's expansion
efforts, we have 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. We have similar contracts
(Cleveland Electric) F-28 (Cleveland Electric)
<PAGE> 79
with customers in other parts of our service area. Approximately 90% of our
industrial revenues under contract will not be up for renewal until 1997 or
later. As these contracts expire, we expect to renegotiate them and retain the
customers. In addition, an increasing number of CPP customers are converting
back to our service.
The Energy Policy Act of 1992 will increase competition in the electric utility
industry by allowing broader access to a utility's transmission system. It
should not significantly increase the competitive threat to us since we have
been required to wheel electricity to municipal systems in our service area
since 1977 under operating licenses for our nuclear generating units. Further,
the government could eventually require utilities to deliver power from other
utilities or generation sources to their retail customers. To combat this
threat, we are offering incentives such as energy-efficiency improvements and
reductions in demand charges for increased electricity usage to our industrial
and commercial customers in return for long-term commitments.
RATE MATTERS
Under the Rate Stabilization Program discussed in Note 7, we agreed to freeze
base rates until 1996 and limit rate 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 the amortization of certain
benefits. Amortization and recovery of the deferrals are expected to begin in
1996 with future rate recognition and will continue over the average life of the
related assets, or between 17 and 30 years. The continued use of these
regulatory accounting measures in 1995 will be dependent upon our continuing
assessment and conclusion that there will be probable recovery of such deferrals
in future rates. Our analysis leading to certain year-end 1993 financial actions
and the strategic plan also included an evaluation of our regulatory accounting
measures. See Regulatory Accounting below and Note 7. We decided that, once the
deferral of expenses and acceleration of benefits under the Rate Stabilization
Program are completed in 1995, we should no longer plan to use these measures to
the extent we have in the past.
REGULATORY ACCOUNTING
As described in Notes 1(a) and 7, the Company complies with the provisions of
Statement of Financial Accounting Standards (SFAS) 71. We continually monitor
changes in market and regulatory conditions and consider the effects of such
changes in assessing the continuing applicability of SFAS 71. Criteria that
could give rise to discontinuation of the application of SFAS 71 include: (1)
increasing competition which significantly restricts the Company's ability to
establish rates to recover operating costs, return requirements and the
amortization of regulatory assets and (2) a significant change in the manner in
which rates are set by the PUCO from cost-based regulations to some other form
of regulations. In the event we determine that the Company no longer meets the
criteria for following SFAS 71, the Company would be required to record a
before-tax charge to write off the regulatory assets shown in Note 7. In
addition, we would be required to evaluate whether the changes in the
competitive and regulatory environment which led to discontinuing the
application of SFAS 71 would also result in an impairment of the net book value
of the Company's property, plant and equipment.
The Company's write-off in 1993 of the phase-in deferred operating expenses and
carrying charges (phase-in deferrals) discussed in Note 7 resulted from our
conclusion that projected revenues for the 1994-1998 period would not provide
for recovery of such deferrals as scheduled by the PUCO order. This short time
frame for recovery of the phase-in deferrals is a requirement under the
accounting standard for phase-in plans of regulated enterprises, SFAS 92. The
remaining recovery periods for all remaining regulatory assets are between 17
and 34 years. We believe the Company's rates will provide for recovery of these
assets over the relevant periods and SFAS 71 continues to apply.
NUCLEAR OPERATIONS
The Company has interests in three nuclear generating units -- Davis-Besse,
Perry Unit 1 and Beaver Valley Power Station Unit 2 (Beaver Valley Unit 2).
Toledo Edison operates Davis-Besse and the Company operates Perry Unit 1.
Davis-Besse and Beaver Valley Unit 2 have been operating extremely well, with
each unit having a three-year availability average at year-end 1994 that
exceeded the three-year industry average of 80% for similar reactors. However,
the three-year availability average of Perry Unit 1 was below the three-year
industry availability average for that reactor type.
In 1994, Davis-Besse had an availability factor of 88%. Further, Davis-Besse
completed the shortest refueling and maintenance outage in its history in 1994,
returning to service just 46 days after shutting down. The Company is in the
process of upgrading Perry Unit 1 to the same level. For seven months in 1994,
Perry Unit 1 was out of service for its fourth refueling and maintenance outage.
Work was also performed in connection with the comprehensive course of action
developed in 1993 to improve the operating performance of Perry Unit 1. Work in
connection with that course of action is ongoing.
We externally fund the estimated costs for the future decommissioning of our
nuclear units. In 1993 and 1994, we increased our decommissioning expense
accruals because of revisions in our cost estimates. See Note 1(e).
(Cleveland Electric) F-29 (Cleveland Electric)
<PAGE> 80
Our nuclear units may be impacted by activities or events beyond our control.
Operating nuclear units have experienced unplanned outages or extensions of
scheduled outages because of equipment problems or new regulatory requirements.
A major accident at a nuclear facility anywhere in the world could cause the
Nuclear Regulatory Commission to limit or prohibit the operation or licensing of
any domestic nuclear unit. If one of our nuclear units is taken out of service
for an extended period for any reason, including an accident at such unit or any
other nuclear facility, we cannot predict whether regulatory authorities would
impose unfavorable rate treatment. Such treatment could include taking our
affected unit out of rate base, thereby not permitting us to recover our
investment in and earn a return on it, or disallowing certain construction or
maintenance costs. An extended outage coupled with unfavorable rate treatment
could have a material adverse effect on our financial condition and results of
operations.
HAZARDOUS WASTE DISPOSAL SITES
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
as amended (Superfund) established programs addressing the cleanup of hazardous
waste disposal sites, emergency preparedness and other issues. The Company has
been named as a "potentially responsible party" (PRP) for three sites listed on
the Superfund National Priorities List (Superfund List) and is aware of its
potential involvement in the cleanup of several other sites. Allegations that
the Company disposed of hazardous waste at these sites, and the amounts
involved, are often unsubstantiated and subject to dispute. Superfund provides
that all PRPs for a particular site can be held liable on a joint and several
basis. If the Company were held liable for 100% of the cleanup costs of all of
the sites referred to above, the cost could be as high as $350 million. However,
we believe that the actual cleanup costs will be substantially lower than $350
million, that the Company's share of any cleanup costs will be substantially
less than 100% and that most of the other PRPs are financially able to
contribute their share. The Company has accrued a liability totaling $8 million
at December 31, 1994 based on estimates of the costs of cleanup and its
proportionate responsibility for such costs. We believe that the ultimate
outcome of these matters will not have a material adverse effect on our
financial condition or results of operations.
COMMON STOCK DIVIDENDS
Centerior Energy's common stock dividend has been funded in recent years
primarily by common stock dividends paid by the Company. We expect this practice
to continue for the foreseeable future. In 1994, Centerior Energy lowered its
common stock dividend which reduced its cash outflow by over $110 million
annually. This action, in turn, reduced the common stock cash dividend demand on
the Company. The Company is using the increased retained cash to redeem debt and
preferred stock more quickly than would otherwise be the case. This has helped
improve the Company's capitalization structure and fixed charge coverage ratios.
MERGER OF TOLEDO EDISON INTO THE COMPANY
We continue to seek the necessary regulatory approvals to complete the merger of
Toledo Edison into the Company which was announced in 1994. The Company and
Toledo Edison plan to seek preferred stock share owner approval in mid-1995. The
merger is expected to be effective in 1995. See Note 15.
INFLATION
Although the rate of inflation has eased in recent years, we are still affected
by even modest inflation which causes increases in the unit cost of labor,
materials and services.
CAPITAL RESOURCES AND LIQUIDITY
1992-1994 CASH REQUIREMENTS
We need cash for normal corporate operations, the mandatory retirement of
securities and constructing and modifying facilities. Construction is needed to
meet anticipated demand for electric service, comply with government regulations
and protect the environment. Over the three-year period 1992-1994, construction
and mandatory retirement needs totaled approximately $940 million. In addition,
we exercised options to redeem and purchase approximately $470 million of our
securities.
We raised $989 million through security issues and term bank loans during the
1992-1994 period. The Company also utilized short-term borrowings to help meet
its cash needs. The Company had $58 million of notes payable to affiliates at
December 31, 1994. See Note 12. Although write-offs of the Company's Perry
Nuclear Power Plant Unit 2 (Perry Unit 2) investment and phase-in deferrals in
1993 negatively affected earnings, they did not adversely affect cash flow. See
Notes 4(b) and 7.
1995 AND BEYOND CASH REQUIREMENTS
Estimated cash requirements for 1995-1999 for the Company are $802 million for
construction and $832 million for the mandatory redemption of debt and preferred
stock. The Company expects to finance externally about two-thirds of its 1995
cash requirements of approximately $451 million and about one-third of its 1996
cash requirements of approximately $320 million. The Company expects to meet
nearly all of its 1997-1999 requirements through internal cash generation and
current cash resources. If economical, additional securities may be redeemed
under optional redemption provisions. We expect that the Company's continued
strong cash flow
(Cleveland Electric) F-30 (Cleveland Electric)
<PAGE> 81
will reduce borrowing requirements and outstanding debt and preferred stock
during this period.
Cash expenditures to comply with the Clean Air Act Amendments of 1990 (Clean Air
Act) are estimated to be approximately $65 million over the 1995-1999 period.
See Note 4(a).
LIQUIDITY
Additional first mortgage bonds may be issued by the Company under its mortgage
on the basis of property 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 bonds. At December 31, 1994, the Company would have
been permitted to issue approximately $487 million of additional first mortgage
bonds.
The Company also is able to raise funds through the sale of subordinated debt
and preferred and preference stock. There are no restrictions on the Company's
ability to issue preferred or preference stock.
In 1995, the Company plans to raise funds through the sale of first mortgage
bonds and the collateralization of accounts receivable. In addition, the Company
expects to issue first mortgage bonds as collateral security for the sale by a
public authority of tax-exempt bonds.
The Company is a party to a $205 million revolving credit facility which runs
through mid-1996. See Note 12. The Company had $66 million of cash and temporary
cash investments at the end of 1994. The Company is unable to issue commercial
paper because of its below investment grade commercial paper ratings.
<TABLE>
The foregoing financing resources are expected to be sufficient for the
Company's needs over the next several years. However, the availability and cost
of capital to meet the Company's external financing needs also depend upon such
factors as financial market conditions and its credit ratings. Current credit
ratings for the Company are as follows:
<CAPTION>
Standard Moody's
& Poor's Investors
Corporation Service, Inc.
----------- -------------
<S> <C> <C>
First mortgage bonds BB Ba2
Unsecured notes B+ Ba3
Preferred stock B b2
</TABLE>
RESULTS OF OPERATIONS
1994 VS. 1993
<TABLE>
Factors contributing to the 3% decrease in 1994 operating revenues are as
follows:
<CAPTION>
Millions
Increase (Decrease) in Operating Revenues of Dollars
- ------------------------------------------------ -----------
<S> <C>
KWH Sales Volume and Mix $ 2
Wholesale Revenues (48)
Fuel Cost Recovery Revenues (13)
Miscellaneous Revenues 6
----
Total $(53)
====
</TABLE>
The Company experienced good retail kilowatt-hour sales growth in the commercial
and industrial categories in 1994; the residential category was negatively
impacted by weather conditions, particularly during the summer. The revenue
decrease resulted primarily from milder weather conditions in 1994 and 53% lower
wholesale sales. Weather reduced base rate revenues approximately $8 million
from the 1993 amount. Although total sales decreased by 4.6%, commercial sales
increased 2.4%. Industrial sales increased 0.7% on the strength of increased
sales to large automotive manufacturers and the broad-based, smaller industrial
customer group. This growth substantiated an economic resurgence in Northeastern
Ohio. Residential sales declined 0.2% because of the weather factor. Other sales
decreased by 42% because of the lower sales to wholesale customers attributable
to expiration of a wholesale power agreement, softer wholesale market conditions
and limited power availability for bulk power transactions at certain times
because of generating plant outages. Lower 1994 fuel cost recovery revenues
resulted from favorable changes in the fuel cost factors. The weighted average
of these factors dropped by approximately 5%.
For 1994, operating revenues were 31% residential, 32% commercial, 30%
industrial and 7% other and kilowatt-hour sales were 24% residential, 29%
commercial, 39% industrial and 8% other. The average prices per kilowatt-hour
for residential, commercial and industrial customers were $.11, $.09 and $.06,
respectively.
Operating expenses were 15% lower in 1994. Operation and maintenance expenses
for 1993 included $130 million of net benefit expenses related to an early
retirement program, called the Voluntary Transition Program (VTP), and other
charges totaling $35 million. The VTP benefit expenses in 1993 consisted of $102
million of costs for the Company plus $28 million for the Company's pro rata
share of the costs for its affiliate, Centerior Service Company (Service
Company). Two other significant reasons for lower operation and maintenance
expenses in 1994 were a smaller work force and ongoing cost reduction measures.
More nuclear generation and less coal-fired generation accounted for a large
part of the lower fuel and purchased power expenses in 1994. Depreciation and
amortization expenses increased primarily because of higher nuclear plant
decommissioning expenses as discussed in Note 1(e). Deferred operating expenses
were greater primarily because of the write-off of $117 million of phase-in
deferred operating expenses in 1993 as discussed in Note 7. The 1993 deferrals
also
(Cleveland Electric) F-31 (Cleveland Electric)
<PAGE> 82
included $52 million of postretirement benefit curtailment cost deferrals
related to the VTP. See Note 9(b). Federal income taxes increased as a result of
higher pretax operating income.
As discussed in Note 4(b), $351 million of our Perry Unit 2 investment was
written off in 1993. Also, as discussed in Note 7, phase-in deferred carrying
charges of $519 million were written off in 1993. The change in the federal
income tax credit amounts for nonoperating income was attributable to these
write-offs.
1993 VS. 1992
<TABLE>
Factors contributing to the 0.5% increase in 1993 operating revenues are as
follows:
<CAPTION>
Millions
Increase (Decrease) in Operating Revenues of Dollars
- ------------------------------------------------ -----------
<S> <C>
KWH Sales Volume and Mix $ 27
Fuel Cost Recovery Revenues (13)
Base Rates and Miscellaneous (10)
Wholesale Sales 4
----
Total $ 8
====
</TABLE>
The revenue increase resulted primarily from the different weather conditions
and the changes in the composition of the sales mix among customer categories.
Weather accounted for approximately $32 million of higher 1993 base rate
revenues. Hot summer weather in 1993 boosted residential, commercial and
wholesale kilowatt-hour sales. In contrast, the 1992 summer was the coolest in
56 years for Northeastern Ohio. Residential and commercial sales also increased
as a result of colder late-winter temperatures in 1993 which increased electric
heating-related demand. As a result, total sales increased 2.9% in 1993.
Residential and commercial sales increased 4.4% and 3.1%, respectively.
Industrial sales decreased 1%. Lower sales to large steel industry customers
were partially offset by increased sales to large automotive manufacturers and
the broad-based, smaller industrial customer group. Other sales increased 12%
because of increased sales to wholesale customers. The decrease in 1993 fuel
cost recovery revenues resulted from changes in the fuel cost factors. The
weighted average of these factors decreased approximately 5%. Base rates and
miscellaneous revenues decreased in 1993 primarily from lower revenues under
contracts having reduced rates with certain large customers and a declining rate
structure tied to usage. The contracts have been negotiated to meet competition
and encourage economic growth.
For 1993, operating revenues were 31% residential, 31% commercial, 29%
industrial and 9% other and kilowatt-hour sales were 23% residential, 27%
commercial, 37% industrial and 13% other. The average prices per kilowatt-hour
for residential, commercial and industrial customers were $.11, $.10 and $.06,
respectively. The changes from 1992 were not significant.
Operating expenses increased 12% in 1993. The increase in total operation and
maintenance expenses resulted from the $130 million of net benefit expenses
related to the VTP, other charges totaling $35 million and an increase in other
operation and maintenance expenses. The increase in other operation and
maintenance expenses resulted from higher environmental expenses, power
restoration and repair expenses following a July 1993 storm, and an increase in
other postretirement benefit expenses. See Note 9 for information on retirement
benefits. Deferred operating expenses decreased because of the write-off of the
phase-in deferred operating expenses in 1993. Federal income taxes decreased as
a result of lower pretax operating income.
As mentioned above, $351 million of our Perry Unit 2 investment was written off
in 1993. Credits for carrying charges recorded in nonoperating income decreased
because of the write-off of the phase-in deferred carrying charges in 1993. The
federal income tax credit for nonoperating income in 1993 resulted from the
write-offs.
(Cleveland Electric) F-32 (Cleveland Electric)
<PAGE> 83
<TABLE>
INCOME STATEMENT The Cleveland Electric Illuminating Company and Subsidiaries
<CAPTION>
For the years ended December 31,
--------------------------------
1994 1993 1992
------ ------ ------
(millions of dollars)
<S> <C> <C> <C>
OPERATING REVENUES $1,698 $1,751 $1,743
------ ------ ------
OPERATING EXPENSES
Fuel and purchased power (1) 391 423 434
Other operation and maintenance 394 433 410
Generation facilities rental expense, net 56 56 55
Early retirement program expenses and other -- 165 --
------ ------ ------
Total operation and maintenance 841 1,077 899
Depreciation and amortization 195 182 179
Taxes, other than federal income taxes 218 221 226
Deferred operating expenses, net (34) 27 (35)
Federal income taxes 82 22 89
------ ------ ------
1,302 1,529 1,358
------ ------ ------
OPERATING INCOME 396 222 385
------ ------ ------
NONOPERATING 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 (LOSS) BEFORE INTEREST CHARGES 427 (347) 448
------ ------ ------
INTEREST CHARGES
Debt interest 247 244 243
Allowance for borrowed funds used during construction (5) (4) --
------ ------ ------
242 240 243
------ ------ ------
NET INCOME (LOSS) 185 (587) 205
PREFERRED DIVIDEND REQUIREMENTS 45 45 41
------ ------ ------
EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK $ 140 $ (632) $ 164
====== ====== ======
<FN>
- ---------------
(1) Includes purchased power expense of $111 million, $120 million and $130
million in 1994, 1993 and 1992, respectively, for all purchases from Toledo
Edison.
</TABLE>
<TABLE>
RETAINED EARNINGS
<CAPTION>
For the years ended
December 31,
-------------------------
1994 1993 1992
----- ----- -----
(millions of dollars)
<S> <C> <C> <C>
RETAINED EARNINGS (DEFICIT) AT BEGINNING OF YEAR $(280) $ 545 $ 578
----- ----- -----
ADDITIONS
Net income (loss) 185 (587) 205
DEDUCTIONS
Dividends declared:
Common stock (122) (189) (195)
Preferred stock (45) (48) (41)
Other, primarily preferred stock redemption expenses -- (1) (2)
----- ----- -----
Net Increase (Decrease) 18 (825) (33)
----- ----- -----
RETAINED EARNINGS (DEFICIT) AT END OF YEAR $(262) $(280) $ 545
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
(Cleveland Electric) F-33 (Cleveland Electric)
<PAGE> 84
<TABLE>
BALANCE SHEET
<CAPTION>
December 31,
----------------
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
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
------ ------
584 632
------ ------
DEFERRED CHARGES AND OTHER ASSETS
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 95 103
------ ------
1,416 1,298
------ ------
Total Assets $7,151 $7,159
====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
(Cleveland Electric) F-34 (Cleveland Electric)
<PAGE> 85
The Cleveland Electric Illuminating Company and Subsidiaries
<TABLE>
<CAPTION>
December 31,
-----------------
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shares, without par value: 105 million authorized;
79.6 million outstanding in 1994 and 1993 $1,241 $1,241
Other paid-in-capital 79 79
Retained earnings (deficit) (262) (280)
------ ------
Common stock equity 1,058 1,040
Preferred stock
With mandatory redemption provisions 246 285
Without mandatory redemption provisions 241 241
Long-term debt 2,543 2,793
------ ------
4,088 4,359
------ ------
CURRENT LIABILITIES
Current portion of long-term debt and preferred stock 282 70
Current portion of nuclear fuel lease obligations 47 63
Accounts payable 88 122
Accounts and notes payable to affiliates 118 61
Accrued taxes 310 305
Accrued interest 62 60
Other 51 52
------ ------
958 733
------ ------
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized investment tax credits 192 235
Accumulated deferred federal income taxes 1,234 1,105
Unamortized gain from Bruce Mansfield Plant sale 327 343
Accumulated deferred rents for Bruce Mansfield Plant 84 77
Nuclear fuel lease obligations 132 151
Retirement benefits 59 52
Other 77 104
------ ------
2,105 2,067
------ ------
Total Capitalization and Liabilities $7,151 $7,159
====== ======
</TABLE>
(Cleveland Electric) F-35 (Cleveland Electric)
<PAGE> 86
<TABLE>
CASH FLOWS The Cleveland Electric Illuminating Company and Subsidiaries
<CAPTION>
For the years ended
December 31,
-------------------------
1994 1993 1992
----- ----- -----
(millions of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (1)
Net Income (Loss) $ 185 $(587) $ 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 affecting 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 ACTIVITIES (2)
Bank loans, commercial paper and other short-term debt -- (10) 10
Notes payable to affiliates 58 (11) (13)
First mortgage bond issues 46 280 324
Secured medium-term note issues -- 35 90
Term bank loan -- 40 --
Preferred 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) (213) (303)
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES (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 INVESTMENTS (11) 43 (63)
----- ----- -----
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 77 34 97
----- ----- -----
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 66 $ 77 $ 34
===== ===== =====
<FN>
- ---------------
(1) Interest paid (net of amounts capitalized) was $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.
(2) Increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance
Sheet resulting from the noncash capitalizations under nuclear fuel
agreements are excluded from this statement.
</TABLE>
The accompanying notes are an integral part of this statement.
(Cleveland Electric) F-36 (Cleveland Electric)
<PAGE> 87
<TABLE>
STATEMENT OF PREFERRED STOCK
The Cleveland Electric Illuminating Company and Subsidiaries
<CAPTION>
Current December 31,
1994 Shares Call Price -------------
Outstanding Per Share 1994 1993
----------- ---------- ---- ----
(millions of
dollars)
<S> <C> <C> <C> <C>
Without par value, 4,000,000 preferred shares authorized
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
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 36 29
---- ----
TOTAL PREFERRED STOCK, WITH MANDATORY REDEMPTION PROVISIONS $246 $285
==== ====
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
42.40 Series T 200,000 -- 97 97
---- ----
TOTAL PREFERRED STOCK, WITHOUT MANDATORY REDEMPTION PROVISIONS $241 $241
==== ====
</TABLE>
The accompanying notes are an integral part of this statement.
(Cleveland Electric) F-37 (Cleveland Electric)
<PAGE> 88
NOTES TO THE FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(a) GENERAL
The Company is an electric utility and a wholly owned subsidiary of Centerior
Energy. The Company's financial statements have historically included the
accounts of the Company's wholly owned subsidiaries, which in the aggregate were
not material. During 1994, the Company transferred its investments in its three
wholly owned subsidiaries to Centerior Energy at cost ($26 million) via property
dividends.
The Company follows the Uniform System of Accounts prescribed by the Federal
Energy Regulatory Commission (FERC) and adopted by the PUCO. Rate-regulated
utilities are subject to SFAS 71 which governs accounting for the effects of
certain types of rate regulation. Pursuant to SFAS 71, certain incurred costs
are deferred for recovery in future rates. See Note 7.
The Company is a member of the Central Area Power Coordination Group (CAPCO).
Other members are Toledo Edison, Duquesne Light Company, Ohio Edison Company and
its wholly owned subsidiary, Pennsylvania Power Company. The members have
constructed and operate generation and transmission facilities for their use.
(b) RELATED PARTY TRANSACTIONS
Operating revenues, operating expenses and interest charges include those
amounts for transactions with affiliated companies in the ordinary course of
business operations.
The Company's transactions with Toledo Edison are primarily for firm power,
interchange power, transmission line rentals and jointly owned power plant
operations and construction. See Notes 2 and 3.
The Service Company provides management, financial, administrative, engineering,
legal and other services at cost to the Company and other affiliated companies.
The Service Company billed the Company $136 million, $167 million and $150
million in 1994, 1993 and 1992, respectively, for such services.
(c) REVENUES
Customers are billed on a monthly cycle basis for their energy consumption based
on rate schedules or contracts authorized by the PUCO. An accrual is made at the
end of each month to record the estimated amount of unbilled revenues for
kilowatt-hours sold in the current month but not billed by the end of that
month.
A fuel factor is added to the base rates for electric service. This factor is
designed to recover from customers the costs of fuel and most purchased power.
It is reviewed and adjusted semiannually in a PUCO proceeding.
(d) FUEL EXPENSE
The cost of fossil fuel is charged to fuel expense based on inventory usage. The
cost of nuclear fuel, including an interest component, is charged to fuel
expense based on the rate of consumption. Estimated future nuclear fuel disposal
costs are being recovered through base rates.
The Company defers the differences between actual fuel costs and estimated fuel
costs currently being recovered from customers through the fuel factor. This
matches fuel expenses with fuel-related revenues.
Owners of nuclear generating plants are assessed by the federal government for
the cost of decontamination and decommissioning of nuclear enrichment facilities
operated by the United States Department of Energy. The assessments are based
upon the amount of enrichment services used in prior years and cannot be imposed
for more than 15 years (to 2007). The Company has accrued a liability for its
share of the total assessments. These costs have been recorded in a deferred
charge account since the PUCO is allowing the Company to recover the assessments
through its fuel cost factors.
(e) DEPRECIATION AND AMORTIZATION
The cost of property, plant and equipment is depreciated over their estimated
useful lives on a straight-line basis. The annual straight-line depreciation
provision for nonnuclear property expressed as a percent of average depreciable
utility plant in service was 3.4% in 1994, 1993 and 1992. The annual
straight-line depreciation rate for nuclear property is 2.5%.
The Company accrues the estimated costs of decommissioning its three nuclear
generating units. The accruals are required to be funded in an external trust.
The PUCO requires that the expense and payments to the external trusts be
determined on a levelized basis by dividing the unrecovered decommissioning
costs in current dollars by the remaining years in the licensing period of each
unit. This methodology requires that the net earnings on the trusts be
reinvested therein with the intent of allowing net earnings to offset inflation.
The PUCO requires that the estimated costs of decommissioning and the funding
level be reviewed at least every five years.
In 1994, the Company increased its annual decommissioning expense accruals to
$13 million from the $4 million level in 1992. The accruals are reflected in
current rates. The increased accruals were derived from recently updated,
site-specific studies for each of the units. The revised estimates reflect the
DECON method of decom-
(Cleveland Electric) F-38 (Cleveland Electric)
<PAGE> 89
missioning (prompt decontamination), and the locations and cost characteristics
specific to the units, and include costs associated with decontamination,
dismantlement and site restoration.
<TABLE>
The revised estimates for the units in 1993 and 1992 dollars and in dollars at
the time of license expiration, assuming a 4% annual inflation rate, are as
follows:
<CAPTION>
License
Expiration Future
Generating Unit Year Amount Amount
- ------------------------------- ---------- ------ ------
(millions of
dollars)
<S> <C> <C> <C>
Davis-Besse 2017 $178(1) $ 443
Perry Unit 1 2026 156(1) 554
Beaver Valley Unit 2 2027 63(2) 233
---- ------
Total $397 $1,230
==== ======
<FN>
- ---------------
(1) Dollar amounts in 1993 dollars.
(2) Dollar amounts in 1992 dollars.
</TABLE>
The updated estimates reflect substantial increases from the prior
PUCO-recognized aggregate estimates of $142 million in 1987 and 1986 dollars.
The classification, Accumulated Depreciation and Amortization, in the Balance
Sheet at December 31, 1994 includes $53 million of decommissioning costs
previously expensed and the earnings on the external trust funding. This amount
exceeds the Balance Sheet amount of the external Nuclear Plant Decommissioning
Trusts because the reserve began prior to the external trust funding. The trust
earnings are recorded as an increase to the trust assets and the related
component of the decommissioning reserve (included in Accumulated Depreciation
and Amortization).
The staff of the Securities and Exchange Commission has questioned certain of
the current accounting practices of the electric utility industry, including
those of the Company, regarding the recognition, measurement and classification
of decommissioning costs for nuclear generating stations in the financial
statements. In response to these questions, the Financial Accounting Standards
Board is reviewing the accounting for removal costs, including decommissioning.
If such current accounting practices are changed, the annual provision for
decommissioning could increase; the estimated cost for decommissioning could be
recorded as a liability rather than as accumulated depreciation; and trust fund
income from the external decommissioning trusts could be reported as investment
income rather than as a reduction to decommissioning expense.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost less amounts ordered
by the PUCO to be written off. Construction costs include related payroll taxes,
retirement benefits, fringe benefits, management and general overheads and
allowance for funds used during construction (AFUDC). AFUDC represents the
estimated composite debt and equity cost of funds used to finance construction.
This noncash allowance is credited to income. The AFUDC rate was 9.68% in 1994,
9.63% in 1993 and 10.56% in 1992.
Maintenance and repairs for plant and equipment are charged to expense as
incurred. The cost of replacing plant and equipment is charged to the utility
plant accounts. The cost of property retired plus removal costs, after deducting
any salvage value, is charged to the accumulated provision for depreciation.
(g) DEFERRED GAIN FROM
SALE OF UTILITY PLANT
The sale and leaseback transaction discussed in Note 2 resulted in a net gain
for the sale of the Bruce Mansfield Generating Plant (Mansfield Plant). The net
gain was deferred and is being amortized over the term of leases. The
amortization and the lease expense amounts are reported in the Income Statement
as Generation Facilities Rental Expense, Net.
(h) INTEREST CHARGES
Debt Interest reported in the Income Statement does not include interest on
obligations for nuclear fuel under construction. That interest is capitalized.
See Note 6.
Losses and gains realized upon the reacquisition or redemption of long-term debt
are deferred, consistent with the regulatory rate treatment. See Note 7. Such
losses and gains are either amortized over the remainder of the original life of
the debt issue retired or amortized over the life of the new debt issue when the
proceeds of a new issue are used for the debt redemption. The amortizations are
included in debt interest expense.
(i) FEDERAL INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with SFAS 109. See Note 8. This method requires that deferred taxes
be recorded for all temporary differences between the book and tax bases of
assets and liabilities. The majority of these temporary differences are
attributable to property-related basis differences. Included in these basis
differences is the equity component of AFUDC, which will increase future tax
expense when it is recovered through rates. Since this component is not
recognized for tax purposes, the Company must record a liability for its tax
obligation. The PUCO permits recovery of such taxes from customers when they
become payable. Therefore, the net amount due from customers through rates has
been recorded as a deferred charge and will be recovered over the lives of the
related assets. See Note 7.
Investment tax credits are deferred and amortized over the lives of the
applicable property as a reduction of
(Cleveland Electric) F-39 (Cleveland Electric)
<PAGE> 90
depreciation expense. See Note 7 for a discussion of the amortization of certain
unrestricted excess deferred taxes and unrestricted investment tax credits under
the Rate Stabilization Program.
(2) UTILITY PLANT SALE AND
LEASEBACK TRANSACTIONS
The Company and Toledo Edison are co-lessees of 18.26% (150 megawatts) of Beaver
Valley Unit 2 and 6.5% (51 megawatts), 45.9% (358 megawatts) and 44.38% (355
megawatts) of Units 1, 2 and 3 of the Mansfield Plant, respectively, all for
terms of about 29 1/2 years. These leases are the result of sale and leaseback
transactions completed in 1987.
Under these leases, the Company and Toledo Edison are responsible for paying all
taxes, insurance premiums, operation and maintenance expenses and all other
similar costs for their interests in the units sold and leased back. They may
incur additional costs in connection with capital improvements to the units. The
Company and Toledo Edison have options to buy the interests back at the end of
the leases for the fair market value at that time or renew the leases.
Additional lease provisions provide other purchase options along with conditions
for mandatory termination of the leases (and possible repurchase of the
leasehold interests) for events of default. These events include noncompliance
with any of several financial covenants discussed in Note 11(d).
As co-lessee with Toledo Edison, the Company is also obligated for Toledo
Edison's lease payments. If Toledo Edison is unable to make its payments under
the Beaver Valley Unit 2 and Mansfield Plant leases, the Company would be
obligated to make such payments. No such payments have been made on behalf of
Toledo Edison.
<TABLE>
Future minimum lease payments under the operating leases at December 31, 1994
are summarized as follows:
<CAPTION>
For For
the Toledo
Year Company Edison
- ------------------------------------ --------- ---------
(millions of dollars)
<S> <C> <C>
1995 $ 63 $ 103
1996 63 125
1997 63 102
1998 63 102
1999 70 108
Later Years 1,321 1,918
------ ------
Total Future Minimum Lease
Payments $1,643 $2,458
====== ======
</TABLE>
Rental expense is accrued on a straight-line basis over the terms of the leases.
The amount recorded in 1994, 1993 and 1992 as annual rental expense for the
Mansfield Plant leases was $70 million. Amounts charged to expense in excess of
the lease payments are classified as Accumulated Deferred Rents in the Balance
Sheet.
The Company is buying 150 megawatts of Toledo Edison's Beaver Valley Unit 2
leased capacity entitlement. Purchased power expense for this transaction was
$108 million, $103 million and $108 million in 1994, 1993 and 1992,
respectively. We anticipate that this purchase will continue indefinitely. The
future minimum lease payments through the year 2017 associated with Beaver
Valley Unit 2 aggregate $1.413 billion.
(Cleveland Electric) F-40 (Cleveland Electric)
<PAGE> 91
<TABLE>
(3) PROPERTY OWNED WITH OTHER UTILITIES 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:
<CAPTION>
In- Plant Construction
Service Ownership Ownership Power in Work in Accumulated
Generating Unit Date Share Megawatts Source Service Progress Depreciation
- ------------------------------- ------- --------- --------- -------- ------- ------------ -----------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Seneca Pumped Storage 1970 80.00% 351 Hydro $ 66 $ -- $ 22
Eastlake Unit 5 1972 68.80 411 Coal 156 1 --
Davis-Besse 1977 51.38 454 Nuclear 664 2 190
Perry Unit 1 1987 31.11 371 Nuclear 1,774 5 314
Beaver Valley Unit 2 and
Common Facilities (Note 2) 1987 24.47 201 Nuclear 1,276 2 250
------ ---- -----
Total $3,936 $ 10 $ 776
====== ==== =====
</TABLE>
Depreciation for Eastlake Unit 5 has been accumulated with all other nonnuclear
depreciable property rather than by specific units of depreciable property.
(4) CONSTRUCTION AND CONTINGENCIES
(a) CONSTRUCTION PROGRAM
The estimated cost of the Company's construction program for the 1995-1999
period is $851 million, including AFUDC of $49 million and excluding nuclear
fuel.
The Clean Air Act requires, among other things, significant reductions in the
emission of sulfur dioxide and nitrogen oxides by fossil-fueled generating
units. Our strategy provides for compliance primarily through greater use of
low-sulfur coal at some of our units and the use of emission allowances. Total
capital expenditures from 1991 through 1994 in connection with Clean Air Act
compliance amounted to $34 million. The plan will require additional capital
expenditures over the 1995-2004 period of approximately $125 million for
nitrogen oxide control equipment and plant modifications. In addition, higher
fuel and other operation and maintenance expenses will be incurred. The
anticipated rate increase associated with the capital expenditures and higher
expenses would be about 1-2% in the late 1990s. The Company may need to install
sulfur emission control technology at one of its generating plants after 2005
which could require additional expenditures at that time.
(b) PERRY UNIT 2
Perry Unit 2, including its share of the facilities common with Perry Unit 1,
was approximately 50% complete when construction was suspended in 1985 pending
consideration of various options. We wrote off our investment in Perry Unit 2 at
December 31, 1993 after we determined that it would not be completed or sold.
The write-off totaled $351 million ($258 million after taxes) for the Company's
44.85% ownership share of the unit. See Note 14.
(c) HAZARDOUS WASTE DISPOSAL SITES
The Company is aware of its potential involvement in the cleanup of three sites
listed on the Superfund List and several other waste sites not on such list. The
Company has accrued a liability totaling $8 million at December 31, 1994 based
on estimates of the costs of cleanup and its proportionate responsibility for
such costs. We believe that the ultimate outcome of these matters will not have
a material adverse effect on our financial condition or results of operations.
See Management's Financial Analysis -- Outlook-Hazardous Waste Disposal Sites.
(5) NUCLEAR OPERATIONS AND CONTINGENCIES
(a) OPERATING NUCLEAR UNITS
The Company's three nuclear units may be impacted by activities or events
beyond our control. An extended outage of one of our nuclear units for any
reason, coupled with any unfavorable rate treatment, could have a material
adverse effect on our financial condition and results of operations. See the
discussion of these risks in Management's Financial Analysis -- Outlook-Nuclear
Operations.
(Cleveland Electric) F-41 (Cleveland Electric)
<PAGE> 92
(b) NUCLEAR INSURANCE
The Price-Anderson Act limits the public liability of the owners of a nuclear
power plant to the amount provided by private insurance and an industry
assessment plan. In the event of a nuclear incident at any unit in the United
States resulting in losses in excess of the level of private insurance
(currently $200 million), the Company's maximum potential assessment under that
plan would be $85 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 other CAPCO companies contribute their
proportionate share of any assessment.
The utility owners and lessees of Davis-Besse, Perry and Beaver Valley also have
insurance coverage for damage to property at these sites (including leased fuel
and cleanup costs). Coverage amounted to $2.75 billion for each site as of
January 1, 1995. Damage to property could exceed the insurance coverage by a
substantial amount. If it does, the Company's share of such excess amount could
have a material adverse effect on its financial condition and results of
operations. Under these policies, the Company can be assessed a maximum of $12
million during a policy year if the reserves available to the insurer are
inadequate to pay claims arising out of an accident at any nuclear facility
covered by the insurer.
The Company also has extra expense insurance coverage. It includes the
incremental cost of any replacement power purchased (over the costs which would
have been incurred had the units been operating) and other incidental expenses
after the occurrence of certain types of accidents at our nuclear units. The
amounts of the coverage are 100% of the estimated extra expense per week during
the 52-week period starting 21 weeks after an accident and 80% of such estimate
per week for the next 104 weeks. The amount and duration of extra expense could
substantially exceed the insurance coverage.
(6) NUCLEAR FUEL
Nuclear fuel is financed for the Company and Toledo Edison through leases with a
special-purpose corporation. At December 31, 1994, $307 million ($182 million
for the Company and $125 million for Toledo Edison) of nuclear fuel was financed
($157 million from intermediate-term notes and $150 million from bank credit
arrangements). The intermediate-term notes mature in 1996 and 1997. The Company
and Toledo Edison severally lease their respective portions of the nuclear fuel
and are obligated to pay for the fuel as it is consumed in a reactor. The lease
rates are based on various intermediate-term note rates, bank rates and
commercial paper rates.
The amounts financed include nuclear fuel in the Davis-Besse, Perry Unit 1 and
Beaver Valley Unit 2 reactors with remaining lease payments for the Company of
$67 million, $57 million and $14 million, respectively, at December 31, 1994.
The nuclear fuel amounts financed and capitalized also included interest charges
incurred by the lessors amounting to $7 million in 1994 and $9 million in both
1993 and 1992. The estimated future lease amortization payments based on
projected consumption are $57 million in 1995, $52 million in 1996, $46 million
in 1997, $43 million in 1998 and $36 million in 1999.
(7) REGULATORY MATTERS
<TABLE>
The Company is subject to the provisions of SFAS 71. Regulatory assets represent
probable future revenues to the Company associated with certain incurred costs,
which it will recover from customers through the ratemaking process. Regulatory
assets in the Balance Sheet are as follows:
<CAPTION>
December 31,
---------------
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
Amounts due from customers for future federal
income taxes $ 641 $ 586
Unamortized loss on reacquired debt 58 60
Pre-phase-in deferrals* 341 351
Rate Stabilization Program deferrals 237 168
------ ------
Total $1,277 $1,165
====== ======
<FN>
* Represent deferrals of operating expenses and carrying charges for Perry Unit
1 and Beaver Valley Unit 2 in 1987 and 1988 which are being amortized over the
lives of the related property.
</TABLE>
As of December 31, 1994, customer rates provide for recovery of all the above
regulatory assets, except those related to the Rate Stabilization Program
discussed below. The remaining recovery periods for all of the regulatory assets
listed above range from 17 to 34 years. We continually assess the effects of
competition and the changing industry and regulatory environment on operations
and the Company's ability to recover the regulatory assets. In the event that we
determine that future revenues would not be provided for recovery of any
regulatory asset, such asset would be required to be written off. See
Management's Financial Analysis -- Outlook-Regulatory Accounting.
The Company will file a request with the PUCO to restructure rates to increase
revenues to be effective in 1996 which will include provision for recovery of
the Rate Stabilization Program deferrals. We believe that rates will be set at a
level consistent with cost-based regulations and will provide revenues to
recover the then-current operating costs, return requirements and amortization
of all regulatory assets listed above.
The Rate Stabilization Program that the PUCO approved in October 1992 was
designed to encourage economic growth in the Company's service area by freezing
the Company's base rates until 1996 and limiting subsequent
(Cleveland Electric) F-42 (Cleveland Electric)
<PAGE> 93
rate increases to specified annual amounts not to exceed $216 million over the
1996-1998 period.
As part of the Rate Stabilization Program, during the 1992-1995 period the
Company is allowed to defer and subsequently recover certain costs not currently
recovered in rates and to accelerate amortization of certain benefits. The
continued use of these regulatory accounting measures will be dependent upon our
continuing assessment and conclusion that there will be probable recovery of
such deferrals in future rates.
The regulatory accounting measures we are eligible to record through December
31, 1995 include the deferral of post-in-service interest carrying charges,
depreciation expense and property taxes on assets placed in service after
February 29, 1988. The cost deferrals recorded in 1994, 1993 and 1992 pursuant
to these provisions were $66 million, $56 million and $52 million, respectively.
The regulatory accounting measures also provide for the accelerated amortization
of certain unrestricted excess deferred tax and unrestricted investment tax
credit balances and interim spent fuel storage accrual balances for Davis-Besse.
The total amount of such regulatory benefits recognized pursuant to these
provisions was $28 million in both 1994 and 1993 and $7 million in 1992.
The Rate Stabilization Program also authorized the Company to defer and
subsequently recover the incremental expenses associated with the adoption of
the accounting standard for postretirement benefits other than pensions (SFAS
106). In 1994 and 1993, we deferred $4 million and $60 million, respectively,
pursuant to this provision. Amortization and recovery of these deferrals are
expected to commence in 1996 and to be completed by no later than 2012. See Note
9(b).
In 1993, upon completing a comprehensive study which led to our current
strategic plan, we concluded that projected revenues would not provide for
recovery of deferrals recorded pursuant to a phase-in plan approved by the PUCO
in 1989. Such deferrals were scheduled to be recovered over the 1994 through
1998 period. The total phase-in deferred operating expenses and carrying charges
written off at December 31, 1993 by the Company were $117 million and $519
million, respectively (totaling $433 million after taxes). See Note 14.
Additionally, based on our assessment of business conditions, we concluded that,
once the deferral of expenses and acceleration of benefits under our Rate
Stabilization Program are completed in 1995, we should no longer plan to use
regulatory accounting measures to the extent we have in the past.
(8) FEDERAL INCOME TAX
<TABLE>
The components of federal income tax expense (credit) recorded in the Income
Statement were as follows:
<CAPTION>
1994 1993 1992
---- ----- ----
(millions of
dollars)
<S> <C> <C> <C>
Operating Expenses:
Current $ 53 $ 64 $ 47
Deferred 29 (42) 42
---- ----- ----
Total Charged to Operating Expenses 82 22 89
---- ----- ----
Nonoperating Income:
Current (17) (20) (19)
Deferred 21 (250) 24
---- ----- ----
Total Expense (Credit) to
Nonoperating Income 4 (270) 5
---- ----- ----
Total Federal Income Tax Expense (Credit) $ 86 $(248) $ 94
==== ===== ====
</TABLE>
The deferred federal income tax expense results from the temporary differences
that arise from the different years certain expenses are recognized for tax
purposes as opposed to financial reporting purposes. Such temporary differences
affecting operating expenses relate principally to depreciation and deferred
operating expenses whereas those affecting nonoperating income principally
relate to deferred carrying charges and the 1993 write-offs.
<TABLE>
Federal income tax, computed by multiplying income before taxes by the statutory
rate (35% in 1994 and 1993 and 34% in 1992), is reconciled to the amount of
federal income tax recorded on the books as follows:
<CAPTION>
1994 1993 1992
---- ----- ----
(millions of
dollars)
<S> <C> <C> <C>
Book Income (Loss) Before Federal Income
Tax $271 $(835) $299
==== ===== ====
Tax (Credit) on Book Income (Loss) at
Statutory Rate $ 95 $(292) $102
Increase (Decrease) in Tax:
Write-off of Perry Unit 2 -- 30 --
Write-off of phase-in deferrals -- 20 --
Depreciation 6 6 (3)
Rate Stabilization Program (18) (20) (5)
Other items 3 8 --
---- ----- ----
Total Federal Income Tax Expense (Credit) $ 86 $(248) $ 94
==== ===== ====
</TABLE>
The Company joins in the filing of a consolidated federal income tax return with
its affiliated companies. The method of tax allocation reflects the benefits and
burdens realized by each company's participation in the consolidated 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 $187 million 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 was recognized in 1994.
(Cleveland Electric) F-43 (Cleveland Electric)
<PAGE> 94
In August 1993, the Revenue Reconciliation Act of 1993 was enacted. Retroactive
to January 1, 1993, the top marginal corporate income tax rate increased to 35%.
The change in tax rate did not materially impact the results of operations for
1993, but increased Accumulated Deferred Federal Income Taxes for the future tax
obligation by approximately $61 million. Since the PUCO has historically
permitted recovery of such taxes from customers when they become payable, the
deferred charge, Amounts Due from Customers for Future Federal Income Taxes,
also was increased by $61 million.
<TABLE>
Under SFAS 109, temporary differences and carryforwards resulted in deferred tax
assets of $418 million and deferred tax liabilities of $1.652 billion at
December 31, 1994 and deferred tax assets of $426 million and deferred tax
liabilities of $1.531 billion at December 31, 1993. These are summarized as
follows:
<CAPTION>
December 31,
---------------
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
Property, plant and equipment $1,429 $1,311
Deferred carrying charges and operating
expenses 132 127
Net operating loss carryforwards (88) (69)
Investment tax credits (105) (128)
Sale and leaseback transactions (125) (126)
Other (9) (10)
------ ------
Net deferred tax liability $1,234 $1,105
====== ======
</TABLE>
For tax purposes, net operating loss (NOL) carryforwards of approximately $252
million are available to reduce future taxable income and will expire in 2003
through 2009. The 35% tax effect of the NOLs is $88 million. Additionally, AMT
credits of $99 million that may be carried forward indefinitely are available to
reduce future regular tax.
(9) RETIREMENT BENEFITS
(a) RETIREMENT INCOME PLAN
Centerior Energy sponsors jointly with its subsidiaries a noncontributing
pension plan (Centerior Pension Plan) which covers all employee groups. The
amount of retirement benefits generally depends upon the length of service.
Under certain circumstances, benefits can begin as early as age 55. The funding
policy is to comply with the Employee Retirement Income Security Act of 1974
guidelines.
In 1993, eligible employees were offered the VTP, an early retirement program.
Operating expenses for Centerior Energy and its subsidiaries in 1993 included
$205 million of pension plan accruals to cover enhanced VTP benefits and an
additional $10 million of pension costs for VTP benefits paid to retirees from
corporate funds. The $10 million is not included in the pension data reported in
the following table. A credit of $81 million resulting from a settlement of
pension obligations through lump sum payments to almost all the VTP retirees
partially offset the VTP expenses.
<TABLE>
Pension and VTP costs (credits) for Centerior Energy and its subsidiaries for
1992 through 1994 were comprised of the following components:
<CAPTION>
1994 1993 1992
---- ---- ----
(millions of
dollars)
<S> <C> <C> <C>
Pension Costs (Credits):
Service cost for benefits earned
during the
period $ 13 $ 15 $ 15
Interest cost on projected benefit
obligation 26 37 38
Actual return on plan assets (2) (65) (24)
Net amortization and deferral (34) 4 (45)
---- ---- ----
Net pension costs (credits) 3 (9) (16)
VTP cost -- 205 --
Settlement gain -- (81) --
---- ---- ----
Net costs (credits) $ 3 $115 $(16)
==== ==== ====
</TABLE>
Pension and VTP costs (credits) for the Company and its pro rata share of the
Service Company's costs were $2 million, $62 million and $(16) million for 1994,
1993 and 1992, respectively.
<TABLE>
The following table presents a reconciliation of the funded status of the
Centerior Pension Plan. The Company's share of the Centerior Pension Plan's
total projected benefit obligation approximates 50%.
<CAPTION>
December 31,
-------------
1994 1993
---- ----
(millions of
dollars)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $278 $333
Nonvested benefits 2 37
---- ----
Accumulated benefit obligation 280 370
Effect of future compensation levels 37 53
---- ----
Total projected benefit obligation 317 423
Plan assets at fair market value 362 386
---- ----
Funded status 45 (37)
Unrecognized net loss (gain) from variance
between assumptions and experience (79) 11
Unrecognized prior service cost 10 10
Transition asset at January 1, 1987 being
amortized over 19 years (39) (43)
---- ----
Net accrued pension liability $(63) $(59)
==== ====
</TABLE>
A September 30, 1994 measurement date was used for 1994 reporting. At December
31, 1994, the settlement (discount) rate and long-term rate of return on plan
assets assumptions were 8.5% and 10%, respectively. The long-term rate of annual
compensation increase assumption was 3.5% for 1995 and 1996 and 4% thereafter.
At December 31, 1993, the settlement rate and long-term rate of return on plan
assets assumptions were 7.25% and 8.75%, respectively. The long-term rate of
annual compensation increase assumption was 4.25%. At December 31, 1994 and
1993, the Company's net prepaid pension cost included in Deferred Charges and
Other
(Cleveland Electric) F-44 (Cleveland Electric)
<PAGE> 95
Assets -- Other in the Balance Sheet was $7 million and $9 million,
respectively.
Plan assets consist primarily of investments in common stock, bonds, guaranteed
investment contracts, cash equivalent securities and real estate.
(b) OTHER POSTRETIREMENT BENEFITS
Centerior Energy sponsors jointly with its subsidiaries a postretirement benefit
plan which provides all employee groups certain health care, death and other
postretirement benefits other than pensions. The plan is contributory, with
retiree contributions adjusted annually. The plan is not funded. The Company
adopted SFAS 106, the accounting standard for postretirement benefits other than
pensions, effective January 1, 1993. The standard requires the accrual of the
expected costs of such benefits during the employees' years of service. Prior to
1993, the costs of these benefits were expensed as paid, which was consistent
with ratemaking practices.
<TABLE>
The components of the total postretirement benefit costs for 1994 and 1993 were
as follows:
<CAPTION>
1994 1993
---- ----
(millions
of dollars)
<S> <C> <C>
Service cost for benefits earned during the
period $ 1 $ 2
Interest cost on accumulated postretirement
benefit obligation 11 10
Amortization of transition obligation at January
1, 1993 of $104 million over 20 years 5 5
VTP curtailment cost (includes $10 million
transition obligation adjustment) -- 52
--- ---
Total costs $17 $69
=== ===
</TABLE>
These amounts included costs for the Company and its pro rata share of the
Service Company's costs.
In 1994 and 1993, the Company deferred incremental SFAS 106 expenses (in excess
of the amounts paid) of $4 million and $60 million, respectively, pursuant to a
provision of the Rate Stabilization Program. See Note 7.
<TABLE>
The accumulated postretirement benefit obligation and accrued postretirement
benefit cost for the Company and its share of the Service Company's obligation
are as follows:
<CAPTION>
December 31,
-------------
1994 1993
----- -----
(millions of
dollars)
<S> <C> <C>
Accumulated postretirement benefit obligation
attributable to:
Retired participants $(124) $(141)
Fully eligible active plan participants (1) (1)
Other active plan participants (14) (19)
----- -----
Accumulated postretirement benefit
obligation (139) (161)
Unrecognized net loss (gain) from variance
between assumptions and experience (16) 9
Unamortized transition obligation 84 89
----- -----
Accrued postretirement benefit cost $ (71) $ (63)
===== =====
</TABLE>
The Balance Sheet classification of Retirement Benefits at December 31, 1994 and
1993 includes only the Company's accrued postretirement benefit cost of $59
million and $52 million, respectively, and excludes the Service Company's
portion since the Service Company's total accrued cost is carried on its books.
A September 30, 1994 measurement date was used for 1994 reporting. At December
31, 1994 and 1993, the settlement rate and the long-term rate of annual
compensation increase assumptions were the same as those discussed for pension
reporting in Note 9(a). At December 31, 1994, the assumed annual health care
cost trend rates (applicable to gross eligible charges) are 8.5% for medical and
8% for dental in 1995. Both rates reduce gradually to a fixed rate of 4.75% by
2003. Elements of the obligation affected by contribution caps are significantly
less sensitive to the health care cost trend rate than other elements. If the
assumed health care cost trend rates were increased by one percentage point in
each future year, the accumulated postretirement benefit obligation as of
December 31, 1994 would increase by $3 million and the aggregate of the service
and interest cost components of the annual postretirement benefit cost would
increase by $0.3 million.
(10) GUARANTEES
The Company has guaranteed certain loan and lease obligations of two coal
suppliers under two long-term coal supply contracts. At December 31, 1994, the
principal amount of the loan and lease obligations guaranteed by the Company
under both contracts was $50 million. In addition, the Company may be
responsible for mine closing costs when one of the contracts is terminated. At
December 31, 1994, the unfunded costs of closing this mine as estimated by the
supplier were $54 million.
The prices under both contracts which include certain minimum payments are
sufficient to satisfy the loan and lease obligations and mine closing costs over
the lives of the contracts. If either contract is terminated early for any
reason, the Company would attempt to reduce the termination charges and would
ask the PUCO to allow recovery of such charges from customers through the fuel
factor.
(Cleveland Electric) F-45 (Cleveland Electric)
<PAGE> 96
(11) CAPITALIZATION
(a) CAPITAL STOCK TRANSACTIONS
<TABLE>
Preferred stock shares sold and retired during the three years ended December
31, 1994 are listed in the following table.
<CAPTION>
1994 1993 1992
---- ----- -----
(thousands of shares)
<S> <C> <C> <C>
Subject to Mandatory Redemption:
Sales
$90.00 Series S -- -- 75
Retirements
$ 7.35 Series C (10) (10) (10)
88.00 Series E (3) (3) (3)
Adjustable Series M (100) (100) (100)
9.125 Series N (189) (150) --
Not Subject to Mandatory Redemption:
Sales
$42.40 Series T -- 200 --
Retirements
Remarketed Series P -- -- (1)
---- ---- ----
Net (Decrease) (302) (63) (39)
==== ==== ====
</TABLE>
(b) EQUITY DISTRIBUTION RESTRICTIONS
Federal law prohibits the Company from paying dividends out of capital accounts.
However, the Company may pay preferred and common stock dividends out of
appropriated retained earnings and current earnings. At December 31, 1994, the
Company had $144 million of appropriated retained earnings for the payment of
preferred and common stock dividends.
(c) PREFERRED AND PREFERENCE STOCK
Amounts to be paid for preferred stock which must be redeemed during the next
five years are $36 million in 1995, $30 million in both 1996 and 1997, $15
million in 1998 and $33 million in 1999.
<TABLE>
The annual preferred stock mandatory redemption provisions are as follows:
<CAPTION>
Shares Price
To Be Beginning Per
Redeemed in Share
-------- --------- ------
<S> <C> <C> <C>
$ 7.35 Series C 10,000 1984 $ 100
88.00 Series E 3,000 1981 1,000
Adjustable Series M 100,000 1991 100
9.125 Series N 150,000 1993 100
91.50 Series Q 10,714 1995 1,000
88.00 Series R 50,000 2001* 1,000
90.00 Series S 18,750 1999 1,000
<FN>
* All outstanding shares to be redeemed on December 1, 2001.
</TABLE>
In 1993, the Company issued $100 million principal amount of Serial Preferred
Stock, $42.40 Series T. The Series T stock was deposited with an agent which
issued Depositary Receipts, each representing 1/20 of a share of the Series T
stock.
The annualized preferred dividend requirement at December 31, 1994 was $44
million.
The preferred dividend rates on the Company's Series L and M fluctuate based on
prevailing interest rates and market conditions. The dividend rates for these
issues averaged 7.17% and 7.01%, respectively, in 1994.
Preference stock authorized for the Company is 3,000,000 shares without par
value. No preference shares are currently outstanding.
With respect to dividend and liquidation rights, the Company's preferred stock
is prior to its preference stock and common stock, and its preference stock is
prior to its common stock.
(d) LONG-TERM DEBT AND OTHER
BORROWING ARRANGEMENTS
<TABLE>
Long-term debt, less current maturities, was as follows:
<CAPTION>
Actual
or Average
Interest
Rate at December 31,
December 31, ---------------
Year of Maturity 1994 1994 1993
- -------------------------------- ------------ ------ ------
(millions of
dollars)
<S> <C> <C> <C>
First mortgage bonds:
1996-1999 13.75% $ 17 $ 21
1996-1999 7.00 3 4
1997-1999 10.88 18 18
1999 6.20 2 2
2000-2004 7.92 396 400
2005-2009 8.33 202 202
2010-2014 8.50 365 365
2015-2019 8.00 459 459
2020-2023 8.75 518 518
------ ------
1,980 1,989
Secured medium term notes due
1996-2021 8.68 516 713
Term bank loans due 1996 8.50 2 45
Pollution control notes due
1996-2012 6.82 52 53
Other -- net -- (7) (7)
------ ------
Total Long-Term Debt $2,543 $2,793
====== ======
</TABLE>
Long-term debt matures during the next five years as follows: $246 million in
1995, $151 million in 1996, $55 million in 1997, $78 million in 1998 and $159
million in 1999.
The Company issued $125 million aggregate principal amount of secured
medium-term notes in 1992 and 1993. The notes are secured by first mortgage
bonds.
The Company's mortgage constitutes a direct first lien on substantially all
property owned and franchises held by the Company. Excluded from the lien, among
other things, are cash, securities, accounts receivable, fuel and supplies.
An unsecured loan agreement of the Company contains covenants relating to
capitalization ratios, fixed charge coverage ratios and limitations on secured
financing other than through first mortgage bonds or certain other transactions.
Two reimbursement agreements relating to separate letters of credit issued in
connection with the sale
(Cleveland Electric) F-46 (Cleveland Electric)
<PAGE> 97
and leaseback of Beaver Valley Unit 2 contain several financial covenants
affecting the Company, Toledo Edison and Centerior Energy. Among these are
covenants relating to fixed charge coverage ratios and capitalization ratios.
The write-offs recorded at December 31, 1993 caused the Company, Toledo Edison
and Centerior Energy to violate certain covenants contained in the loan
agreement and the two reimbursement agreements. The affected creditors waived
those violations in exchange for a subordinate mortgage security interest on the
properties of the Company and Toledo Edison. The Company provided the same
security interest to certain other creditors because their agreements require
equal treatment. At December 31, 1994, the Company provided subordinate mortgage
collateral for $45 million of unsecured debt, $228 million of bank letters of
credit and a $205 million revolving credit facility. The bank letters of credit
are joint and several obligations of the Company and Toledo Edison and the
revolving credit facility is an obligation of Centerior Energy that is jointly
and severally guaranteed by the Company and Toledo Edison.
(12) SHORT-TERM BORROWING ARRANGEMENTS
Centerior Energy has a $205 million revolving credit facility through May 1996.
Centerior Energy and the Service Company may borrow under the facility, with all
borrowings jointly and severally guaranteed by the Company and Toledo Edison.
Centerior Energy plans to transfer any of its borrowed funds to the Company and
Toledo Edison. The facility agreement as amended provides the participating
banks with a subordinate mortgage security interest on the properties of the
Company and Toledo Edison. The banks' fee is 0.625% per annum payable quarterly
in addition to interest on any borrowings. There were no borrowings under the
facility at December 31, 1994. The facility agreement contains covenants
relating to capitalization and fixed charge coverage ratios for the Company,
Toledo Edison and Centerior Energy.
Short-term borrowing capacity authorized by the PUCO annually is $300 million
for the Company. The Company and Toledo Edison are authorized by the PUCO to
borrow from each other on a short-term basis. At December 31, 1994, the Company
had total short-term borrowings of $58 million from its affiliates with a
weighted average interest rate of 6.14%.
(13) FINANCIAL INSTRUMENTS
<TABLE>
Except for the Nuclear Plant Decommissioning Trusts at December 31 1994, as
discussed below, the estimated fair values at December 31, 1994 and 1993 of
financial instruments that do not approximate their carrying amounts in the
Balance Sheet are as follows:
<CAPTION>
December 31,
----------------------------------
1994 1993
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(millions of dollars)
<S> <C> <C> <C> <C>
Assets:
Nuclear Plant Decommissioning
Trusts $ 44 $ 44 $ 30 $ 32
Capitalization and Liabilities:
Preferred Stock, with
Mandatory Redemption
Provisions (including
current portion) 282 245 314 307
Long-Term Debt (including
current portion) 2,795 2,503 2,841 2,946
</TABLE>
The Nuclear Plant Decommissioning Trusts at December 31, 1994 included $25
million of federal governmental securities and $17 million of municipal
securities. The securities had the following maturities: $11 million due within
one year; $8 million due in one to five years; $10 million due in six to 10
years; and $13 million due after 10 years. The fair value of these trusts is
estimated based on the quoted market prices for the investment securities. As a
result of adopting the new accounting standard for certain investments in debt
and equity securities, SFAS 115, in 1994, the carrying amount of these trusts is
equal to the fair value. The fair value of the Company's preferred stock, with
mandatory redemption provisions, and long-term debt is estimated based on the
quoted market prices for the respective or similar issues or on the basis of the
discounted value of future cash flows. The discounted value used current
dividend or interest rates (or other appropriate rates) for similar issues and
loans with the same remaining maturities.
The estimated fair values of all other financial instruments approximate their
carrying amounts in the Balance Sheet at December 31, 1994 and 1993 because of
their short-term nature.
(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended December 31, 1994.
<CAPTION>
Quarters Ended
----------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- --------
(millions of dollars)
<S> <C> <C> <C> <C>
1994
Operating Revenues $ 408 $415 $ 474 $ 401
Operating Income 86 91 132 88
Net Income 33 38 79 35
Earnings Available for
Common Stock 21 27 68 24
1993
Operating Revenues $ 421 $417 $ 507 $ 406
Operating Income (Loss) 82 85 89 (32)
Net Income (Loss) 33 30 39 (689)
Earnings (Loss)
Available for Common
Stock 23 19 27 (701)
</TABLE>
(Cleveland Electric) F-47 (Cleveland Electric)
<PAGE> 98
Earnings for the quarter ended September 30, 1993 were decreased by $46 million
as a result of the recording of $71 million of VTP pension-related benefits.
Earnings for the quarter ended December 31, 1993 were decreased as a result of
year-end adjustments for the $351 million write-off of Perry Unit 2 (see Note
4(b)), the $636 million write-off of the phase-in deferrals (see Note 7) and $38
million of other charges. These adjustments decreased quarterly earnings by $716
million.
(15) PENDING MERGER OF TOLEDO EDISON INTO THE COMPANY
In March 1994, Centerior Energy announced a plan to merge Toledo Edison into the
Company. Since the Company and Toledo Edison affiliated in 1986, efforts have
been made to consolidate operations and administration as much as possible to
achieve maximum cost savings. Various aspects of the merger are subject to the
approval of the FERC and other regulatory authorities. The PUCO and the
Pennsylvania Public Utility Commission have approved the merger. In addition,
the merger must be approved by share owners of Toledo Edison's preferred stock.
Share owners of the Company's preferred stock must approve the authorization of
additional shares of preferred stock. When the merger becomes effective, share
owners of Toledo Edison's preferred stock will exchange their shares for
preferred stock shares of the Company having substantially the same terms. Debt
holders of the merging companies will become debt holders of the Company. The
merging companies plan to seek preferred stock share owner approval in mid-1995.
The merger is expected to be effective in 1995.
For the merging companies, the combined pro forma operating revenues were $2.422
billion, $2.475 billion and $2.439 billion and the combined pro forma net income
(loss) was $268 million, $(876) million and $276 million for the years 1994,
1993 and 1992, respectively. The pro forma data is based on accounting for the
merger on a method similar to a pooling of interests. The pro forma data is not
necessarily indicative of the results of operations which would have been
reported had the merger been in effect during those years or which may be
reported in the future. The pro forma data should be read in conjunction with
the audited financial statements of both the Company and Toledo Edison.
(Cleveland Electric) F-48 (Cleveland Electric)
<PAGE> 99
Financial and Statistical Review
<TABLE>
OPERATING REVENUES (millions of dollars)
<CAPTION>
Total
Total Total Steam Operating
Year Residential Commercial Industrial Other Retail Wholesale Electric Heating Revenues
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $ 531 541 508 98 1 678 20 1 698 -- $ 1 698
1993 539 536 510 98 1 683 68 1 751 -- 1 751
1992 517 531 530 101 1 679 64 1 743 -- 1 743
1991 547 540 547 117 1 751 75 1 826 -- 1 826
1990 495 494 544 123 1 656 35 1 691 -- 1 691
1984 376 339 441 44 1 200 6 1 206 15 1 221
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
OPERATING EXPENSES (millions of dollars)
<CAPTION>
Other Generation Deferred
Fuel & Operation Facilities Depreciation Taxes, Operating Federal Total
Purchased & Rental & Other Than Expenses, Income Operating
Year Power Maintenance Expense, Net Amortization FIT Net Taxes Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $ 391 394 56 195 218 (34) 82 $ 1 302
1993 423 598(a) 56 182 221 27(b) 22 1 529
1992 434 410 55 179 226 (35) 89 1 358
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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
INCOME (LOSS) (millions of dollars)
<CAPTION>
Federal Income
Other Deferred Income (Loss)
Income & Carrying Taxes-- Before
Operating AFUDC-- Deductions, Charges, Credit Interest
Year Income Equity Net Net (Expense) Charges
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 1 162 (20) 495
1984 263 130 3 -- 35 431
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
INCOME (LOSS) (millions of dollars)
<CAPTION>
Preferred Earnings
& (Loss)
Net Preference Available for
Debt AFUDC-- Income Stock Common
Year Interest Debt (Loss) Dividends Stock
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 $247 (5) 185 45 $ 140
1993 244 (4) (587) 45 (632)
1992 243 -- 205 41 164
1991 251 (4) 246 36 210
1990 255 (3) 243 37 206
1984 181 (41) 291 43 248
- --------------------------------------------------------------------------------
<FN>
(a) Includes early retirement program expenses and other charges of $165 million
in 1993.
(b) Includes write-off of phase-in deferrals of $636 million in 1993, consisting
of $117 million of deferred operating expenses and $519 million of deferred
carrying charges.
(c) In 1991, a change in accounting for nuclear plant depreciation was adopted,
changing from the units-of-production method to the straight-line method at
a 2.5% rate.
</TABLE>
(Cleveland Electric) F-49 (Cleveland Electric)
<PAGE> 100
The Cleveland Electric Illuminating Company and Subsidiaries
<TABLE>
ELECTRIC SALES (millions of KWH) ELECTRIC CUSTOMERS (year end)
Industrial
Year Residential Commercial Industrial Wholesale Other Total Residential Commercial & Other Total
- ------------------------------------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 4 924 5 770 7 970 1 073 575 20 312 668 346 71 609 7 401 747 356
1993 4 934 5 634 7 911 2 290 532 21 301 669 118 70 442 8 149 747 709
1992 4 725 5 467 7 988 1 989 533 20 702 669 800 70 943 8 375 749 118
1991 4 940 5 493 8 017 2 442 565 21 457 667 495 70 405 8 398 746 298
1990 4 716 5 234 8 551 1 607 463 20 571 665 000 68 700 8 351 742 051
1984 4 446 4 396 7 997 142 431 17 412 644 904 61 934 7 930 714 768
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RESIDENTIAL USAGE
Average Average
Average Price Revenue
KWH Per Per Per
Year Customer KWH Customer
- -------------------------------------------------------
<S> <C> <C> <C>
1994 7 370 10.79cent(s) $795.11
1993 7 373 10.93 805.68
1992 7 071 10.94 773.77
1991 7 170 11.08 797.25
1990 6 867 10.53 723.15
1984 6 646 8.48 563.60
</TABLE>
<TABLE>
LOAD (MW & %) ENERGY (millions of KWH) FUEL
Net Company Generated Efficiency--
Seasonal Peak Capacity Load ----------------------------- Purchased Fuel Cost BTU Per
Year Capability Load Margin Factor Fossil Nuclear Total Power Total Per KWH KWH
- ------------------------------------------------ ----------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 4 497 3 740 16.8% 62.4% 12 986 6 405 19 391 2 022 21 413 1.35cent(s) 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
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 1 770 18 731 1.70 10 416
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
INVESTMENT (millions of dollars)
<CAPTION>
Construction
Utility Work In Total
Plant Accumulated Progress Nuclear Property, Utility
In Depreciation & Net & Perry Fuel and Plant and Plant Total
Year Service Amortization Plant Unit 2 Other Equipment Additions Assets
- -------------------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $6 871 2 014 4 857 99 195 $ 5 151 $ 156 $7 151
1993 6 734 1 889 4 845 141 243 5 229 175 7 159
1992 6 602 1 728 4 874 501 261 5 636 156 8 123
1991 6 196 1 565 4 631 545 305 5 481 150 7 942
1990 6 032 1 398 4 634 572 344 5 550 165 7 821
1984 2 909 799 2 110 2 114 289(e) 4 513 582 5 120
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CAPITALIZATION (millions of dollars & %)
<CAPTION>
Preferred &
Preference Preferred
Stock, with Stock, without
Mandatory Mandatory
Common Stock Redemption Redemption
Year Equity Provisions Provisions Long-Term Debt Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 $1 058 26% 246 6% 241 6% 2 543 62% $4 088
1993 1 040 24 285 7 241 5 2 793 64 4 359
1992 1 865 39 314 6 144 3 2 515 52 4 838
1991 1 898 38 268 5 217 4 2 683 53 5 066
1990 1 884 38 171 3 217 4 2 632 55 4 904
1984 1 593 41 293 7 144 4 1 884 48 3 914
- -------------------------------------------------------------------------------------------------------
<FN>
(d) Includes write-off of Perry Unit 2 of $351 million in 1993.
(e) Restated for effects of capitalization of nuclear fuel lease and financing
arrangements pursuant to Statement of Financial Accounting Standards 71.
</TABLE>
(Cleveland Electric) F-50 (Cleveland Electric)
<PAGE> 101
Report of Independent
Public Accountants
To the Share Owners and
Board of Directors of
The Toledo Edison Company:
We have audited the accompanying balance sheet and statement of preferred stock
of The Toledo Edison Company (a wholly owned subsidiary of Centerior Energy
Corporation) as of December 31, 1994 and 1993, and the related statements of
income, retained earnings and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
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 includes examining, 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 evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Toledo Edison Company as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed further in Note 9, a change was made in the method of accounting
for postretirement benefits other than pensions in 1993.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of The Toledo Edison Company
listed in the Index to Schedules is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Cleveland, Ohio
February 17, 1995
(Toledo Edison) F-51 (Toledo Edison)
<PAGE> 102
Management's Financial Analysis
OUTLOOK
STRATEGIC PLAN
We made significant strides in achieving the objectives of the comprehensive
strategic action plan announced in January 1994. Centerior Energy Corporation
(Centerior Energy), along with The Toledo Edison Company (Company) and The
Cleveland Electric Illuminating Company (Cleveland Electric), created the
strategic plan to strengthen their financial and competitive position through
the year 2001. The Company and Cleveland Electric are the two wholly owned
electric utility subsidiaries of Centerior Energy. The plan's objectives relate
to the combined operations of all three companies. The objectives are to achieve
profitable revenue growth, become an industry leader in customer satisfaction,
build a winning employee team, attain increasingly competitive power supply
costs and maximize share owner return on Centerior Energy common stock. To
achieve these objectives, we will continue to control expenditures and reduce
our outstanding debt and preferred stock. In addition, we will increase revenues
by finding new uses for existing assets and resources, implementing new
marketing programs and restructuring rates when appropriate. We will also
improve the operating performance of our generating plants and take other
appropriate actions.
During 1994, we made progress toward most of our long-term objectives. The
Company and Cleveland Electric initiated a marketing plan designed to increase
total retail revenues (exclusive of fuel cost recovery revenues and weather
influences) by 2-3% annually through 2001. Our new customer service activities
are intended to raise our customer satisfaction rating. Our employees achieved
enough of their established objectives for the year to receive a $500 per
eligible employee incentive compensation award. The work undertaken during
refueling outages at the Davis-Besse Nuclear Power Station (Davis-Besse) and
Perry Nuclear Power Plant Unit 1 (Perry Unit 1) as well as the outage work at
our fossil-fueled plants should help us achieve our long-term objective of
reducing variable power costs to a more competitive level. Strong cash flow
continued in 1994 and the Company's fixed-income obligations were reduced by $66
million. Also, the Company's total operation and maintenance expenses declined
$22 million, exclusive of one-time charges in 1993.
We are taking aggressive steps to increase revenues through our enhanced
marketing plan and to control costs. The full impact of these efforts will take
time. In the meantime, the Company and Cleveland Electric must raise revenues by
restructuring rates. Accordingly, the Company and Cleveland Electric are
preparing to file a request with The Public Utilities Commission of Ohio (PUCO)
to be effective in 1996. Meaningful cost control and marketing strategies will
mitigate the need for additional rate increases and help us meet competition.
COMPETITION
We are implementing strategies designed to create and enhance our competitive
advantages and to overcome the competitive disadvantages that we face due to
regulatory and tax constraints and our high retail cost structure.
Currently our most pressing competition comes from municipal electric systems in
our service area. Our rates are generally higher than those of municipal systems
due largely to their exemption from taxation, the lower cost financing available
to them, the continued availability to them of lower cost power through
short-term power purchases and their access to cheaper governmental power. We
are seeking to address the tax disparity through the legislative process. In
1994, the Ohio Governor's Tax Commission recommended the replacement of the
gross receipts and personal property taxes currently levied only on
investor-owned utilities and collected through rates with a different tax
collected from customers of all electric utilities, including municipal systems.
Investor-owned utilities would reduce rates upon repeal of the existing taxes.
We are now working to submit this proposal to the Ohio legislature.
We face the threat that municipalities in our service area could establish new
systems and continue expanding existing systems. We are responding with
aggressive marketing programs and by emphasizing the value of our service and
the risks of a municipal system: substantial, long-term debt; no guarantee of
low-cost wholesale electricity; the difficulty of forecasting costs; and the
uncertainty of market share as a result of our aggressive competition.
Generally, these municipalities have determined that developing a system is not
feasible or have agreed with us not to pursue development of a system at this
time. Although some communities continue to be interested in municipalization,
we believe that we offer the best value and most reliable source of electric
service in our territory.
The Energy Policy Act of 1992 will increase competition in the electric utility
industry by allowing broader access to a utility's transmission system. It
should not significantly increase the competitive threat to us since we have
been required to wheel electricity to municipal systems in our service area
since 1977 under operating licenses for our nuclear generating units. Further,
the government could eventually require utilities to deliver power from other
utilities or generation sources to their retail customers. To combat this
threat, we are offering incentives such as energy-efficiency improvements and
reductions in demand charges for increased electricity usage to our industrial
and commercial customers in return for long-term commitments. Most of our large
industrial and
(Toledo Edison) F-52 (Toledo Edison)
<PAGE> 103
commercial customers have entered into sole-supplier contracts with us. More
than 80% of our industrial revenues under contract will not be up for renewal
until 1997 or later. As these contracts expire, we expect to renegotiate them
and retain the customers.
RATE MATTERS
Under the Rate Stabilization Program discussed in Note 7, we agreed to freeze
base rates until 1996 and limit rate 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 the amortization of certain
benefits. Amortization and recovery of the deferrals are expected to begin in
1996 with future rate recognition and will continue over the average life of the
related assets, or between 17 and 30 years. The continued use of these
regulatory accounting measures in 1995 will be dependent upon our continuing
assessment and conclusion that there will be probable recovery of such deferrals
in future rates. Our analysis leading to certain year-end 1993 financial actions
and the strategic plan also included an evaluation of our regulatory accounting
measures. See Regulatory Accounting below and Note 7. We decided that, once the
deferral of expenses and acceleration of benefits under the Rate Stabilization
Program are completed in 1995, we should no longer plan to use these measures to
the extent we have in the past.
REGULATORY ACCOUNTING
As described in Notes 1(a) and 7, the Company complies with the provisions of
Statement of Financial Accounting Standards (SFAS) 71. We continually monitor
changes in market and regulatory conditions and consider the effects of such
changes in assessing the continuing applicability of SFAS 71. Criteria that
could give rise to discontinuation of the application of SFAS 71 include: (1)
increasing competition which significantly restricts the Company's ability to
establish rates to recover operating costs, return requirements and the
amortization of regulatory assets and (2) a significant change in the manner in
which rates are set by the PUCO from cost-based regulations to some other form
of regulations. In the event we determine that the Company no longer meets the
criteria for following SFAS 71, the Company would be required to record a
before-tax charge to write off the regulatory assets shown in Note 7. In
addition, we would be required to evaluate whether the changes in the
competitive and regulatory environment which led to discontinuing the
application of SFAS 71 would also result in an impairment of the net book value
of the Company's property, plant and equipment.
The Company's write-off in 1993 of the phase-in deferred operating expenses and
carrying charges (phase-in deferrals) discussed in Note 7 resulted from our
conclusion that projected revenues for the 1994-1998 period would not provide
for recovery of such deferrals as scheduled by the PUCO order. This short time
frame for recovery of the phase-in deferrals is a requirement under the
accounting standard for phase-in plans of regulated enterprises, SFAS 92. The
remaining recovery periods for all remaining regulatory assets are between 17
and 34 years. We believe the Company's rates will provide for recovery of these
assets over the relevant periods and SFAS 71 continues to apply.
NUCLEAR OPERATIONS
The Company has interests in three nuclear generating units -- Davis-Besse,
Perry Unit 1 and Beaver Valley Power Station Unit 2 (Beaver Valley Unit
2) -- and operates the first one. Cleveland Electric operates Perry Unit 1.
Davis-Besse and Beaver Valley Unit 2 have been operating extremely well, with
each unit having a three-year availability average at year-end 1994 that
exceeded the three-year industry average of 80% for similar reactors. However,
the three-year availability average of Perry Unit 1 was below the three-year
industry availability average for that reactor type.
In 1994, Davis-Besse had an availability factor of 88%. Further, Davis-Besse
completed the shortest refueling and maintenance outage in its history in 1994,
returning to service just 46 days after shutting down. Cleveland Electric is in
the process of upgrading Perry Unit 1 to the same level. For seven months in
1994, Perry Unit 1 was out of service for its fourth refueling and maintenance
outage. Work was also performed in connection with the comprehensive course of
action developed in 1993 to improve the operating performance of Perry Unit 1.
Work in connection with that course of action is ongoing.
We externally fund the estimated costs for the future decommissioning of our
nuclear units. In 1993 and 1994, we increased our decommissioning expense
accruals because of revisions in our cost estimates. See Note 1(e).
Our nuclear units may be impacted by activities or events beyond our control.
Operating nuclear units have experienced unplanned outages or extensions of
scheduled outages because of equipment problems or new regulatory requirements.
A major accident at a nuclear facility anywhere in the world could cause the
Nuclear Regulatory Commission to limit or prohibit the operation or licensing of
any domestic nuclear unit. If one of our nuclear units is taken out of service
for an extended period for any reason, including an accident at such unit or any
other nuclear facility, we cannot predict whether regulatory authorities would
impose unfavorable rate treatment. Such treatment could include taking our
affected unit out of rate base, thereby not permitting us to recover our
investment in and earn a return on it, or disallowing certain construction or
maintenance costs. An extended
(Toledo Edison) F-53 (Toledo Edison)
<PAGE> 104
outage coupled with unfavorable rate treatment could have a material adverse
effect on our financial condition and results of operations.
HAZARDOUS WASTE DISPOSAL SITES
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
as amended (Superfund) established programs addressing the cleanup of hazardous
waste disposal sites, emergency preparedness and other issues. The Company is
aware of its potential involvement in the cleanup of several sites. Although
these sites are not on the Superfund National Priorities List, they are
generally being administered by various governmental entities in the same manner
as they would be administered if they were on such list. Allegations that the
Company disposed of hazardous waste at these sites, and the amounts involved,
are often unsubstantiated and subject to dispute. Superfund provides that all
"potentially responsible parties" (PRPs) for a particular site can be held
liable on a joint and several basis. If the Company were held liable for 100% of
the cleanup costs of all of the sites referred to above, the cost could be as
high as $150 million. However, we believe that the actual cleanup costs will be
substantially lower than $150 million, that the Company's share of any cleanup
costs will be substantially less than 100% and that most of the other PRPs are
financially able to contribute their share. The Company has accrued a liability
totaling $5 million at December 31, 1994 based on estimates of the costs of
cleanup and its proportionate responsibility for such costs. We believe that the
ultimate outcome of these matters will not have a material adverse effect on our
financial condition or results of operations.
COMMON STOCK DIVIDENDS
In recent years, the Company has retained all of its earnings available for
common stock. The Company has not paid a common stock dividend to Centerior
Energy since February 1991. The Company is currently prohibited from paying a
common stock dividend by a provision in its mortgage (see Note 11(b)). The
Company does not expect to pay any common stock dividends prior to its merger
into Cleveland Electric, as discussed below.
MERGER OF THE COMPANY INTO CLEVELAND ELECTRIC
We continue to seek the necessary regulatory approvals to complete the merger of
the Company into Cleveland Electric which was announced in 1994. The Company and
Cleveland Electric plan to seek preferred stock share owner approval in
mid-1995. The merger is expected to be effective in 1995. See Note 15.
INFLATION
Although the rate of inflation has eased in recent years, we are still affected
by even modest inflation which causes increases in the unit cost of labor,
materials and services.
CAPITAL RESOURCES AND LIQUIDITY
1992-1994 CASH REQUIREMENTS
We need cash for normal corporate operations, the mandatory retirement of
securities and constructing and modifying facilities. Construction is needed to
meet anticipated demand for electric service, comply with government regulations
and protect the environment. Over the three-year period 1992-1994, construction
and mandatory retirement needs totaled approximately $370 million. In addition,
we exercised options to redeem approximately $460 million of our securities.
We raised $603 million through security issues and term bank loans during the
1992-1994 period. The Company also utilized short-term borrowings to help meet
its cash needs. Although write-offs of the Company's Perry Nuclear Power Plant
Unit 2 (Perry Unit 2) investment and phase-in deferrals in 1993 negatively
affected earnings, they did not adversely affect cash flow. See Notes 4(b)
and 7.
1995 AND BEYOND CASH REQUIREMENTS
Estimated cash requirements for 1995-1999 for the Company are $288 million for
construction and $378 million for the mandatory redemption of debt and preferred
stock. The Company expects to meet nearly all of its 1995 and 1996 cash
requirements of approximately $145 million and $154 million, respectively,
through internal cash generation and current cash resources. The Company expects
to meet nearly all of its 1997-1999 requirements through internal cash
generation and current cash resources. If economical, additional securities may
be redeemed under optional redemption provisions. We expect that the Company's
continued strong cash flow will reduce borrowing requirements and outstanding
debt and preferred stock during this period.
Cash expenditures to comply with the Clean Air Act Amendments of 1990 (Clean Air
Act) are estimated to be approximately $22 million over the 1995-1999 period.
See Note 4(a).
LIQUIDITY
Additional first mortgage bonds may be issued by the Company under its mortgage
on the basis of property 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
(Toledo Edison) F-54 (Toledo Edison)
<PAGE> 105
bonds. At December 31, 1994, the Company would have been permitted to issue
approximately $525 million of additional first mortgage bonds.
The Company also is able to raise funds through the sale of subordinated debt
and preferred and preference stock. Under its articles of incorporation, the
Company cannot issue preferred stock unless certain earnings coverage
requirements are met. At December 31, 1994, the Company would have been
permitted to issue approximately $28 million of additional preferred stock at an
assumed dividend rate of 12%. There are no restrictions on the Company's ability
to issue preference stock.
In 1995, the Company plans to raise funds through the collateralization of
accounts receivable. In addition, the Company expects to issue first mortgage
bonds as collateral security for the sale by a public authority of tax-exempt
bonds.
The Company is a party to a $205 million revolving credit facility which runs
through mid-1996. See Note 12. The Company had $88 million of cash and temporary
cash investments at the end of 1994. The Company is unable to issue commercial
paper because of its below investment grade commercial paper ratings.
<TABLE>
The foregoing financing resources are expected to be sufficient for the
Company's needs over the next several years. However, the availability and cost
of capital to meet the Company's external financing needs also depend upon such
factors as financial market conditions and its credit ratings. Current credit
ratings for the Company are as follows:
<CAPTION>
Standard Moody's
& Poor's Investors
Corporation Service, Inc.
----------- -------------
<S> <C> <C>
First mortgage bonds BB Ba2
Unsecured notes B+ B1
Preferred stock B b2
</TABLE>
RESULTS OF OPERATIONS
1994 VS. 1993
<TABLE>
Factors contributing to the 0.7% decrease in 1994 operating revenues are as
follows:
<CAPTION>
Millions
Increase (Decrease) in Operating Revenues of Dollars
- ------------------------------------------------ -----------
<S> <C>
KWH Sales Volume and Mix $ 8
Wholesale Revenues (5)
Fuel Cost Recovery Revenues (9)
---
Total $(6)
===
</TABLE>
The Company experienced good retail kilowatt-hour sales growth in the industrial
and commercial categories in 1994; the sales growth for the residential category
was lessened by weather conditions, particularly during the summer. The revenue
decrease resulted from milder weather conditions in 1994 and both lower
wholesale and fuel cost recovery revenues. Weather reduced base rate revenues
approximately $7 million from the 1993 amount. Total sales increased 7.8%.
Industrial sales increased 8.6% on the strength of increased sales to large
automotive manufacturers and the broad-based, smaller industrial customer group.
This growth substantiated an economic resurgence in Northwestern Ohio.
Residential and commercial sales increased 0.8% and 2.3%, respectively. Other
sales increased 16% because of increased sales to wholesale customers, although
the softer wholesale market conditions in 1994 resulted in lower wholesale
revenues. Lower 1994 fuel cost recovery revenues resulted from favorable changes
in the fuel cost factors. The weighted average of these factors dropped by 6%.
For 1994, operating revenues were 26% residential, 21% commercial, 29%
industrial and 24% other and kilowatt-hour sales were 19% residential, 16%
commercial, 37% industrial and 28% other. The average prices per kilowatt-hour
for residential, commercial and industrial customers were $.11, $.11 and $.06,
respectively.
Operating expenses were 12% lower in 1994. Operation and maintenance expenses
for 1993 included $88 million of net benefit expenses related to an early
retirement program, called the Voluntary Transition Program (VTP), and other
charges totaling $19 million. The VTP benefit expenses in 1993 consisted of $75
million of costs for the Company plus $13 million for the Company's pro rata
share of the costs for its affiliate, Centerior Service Company (Service
Company). Two other significant reasons for lower operation and maintenance
expenses in 1994 were a smaller work force and ongoing cost reduction measures.
Lower purchased power costs helped reduce fuel and purchased power expenses in
1994 despite an increase in the amount of power purchased. More nuclear
generation and less coal-fired generation also accounted for a part of the lower
fuel and purchased power expenses. Depreciation and amortization expenses
increased primarily because of higher nuclear plant decommissioning expenses as
discussed in Note 1(e). Deferred operating expenses were greater primarily
because of the write-off of $55 million of phase-in deferred operating expenses
in 1993 as discussed in Note 7. The 1993 deferrals also included $32 million of
postretirement benefit curtailment cost deferrals related to the VTP. See Note
9(b). Federal income taxes increased as a result of higher pretax operating
income.
As discussed in Note 4(b), $232 million of our Perry Unit 2 investment was
written off in 1993. Also, as discussed in Note 7, phase-in deferred carrying
charges of $186 million were written off in 1993. The change in the federal
income tax credit amounts for nonoperating income was attributable to these
write-offs.
(Toledo Edison) F-55 (Toledo Edison)
<PAGE> 106
1993 VS. 1992
<TABLE>
Factors contributing to the 3.1% increase in 1993 operating revenues are as
follows:
<CAPTION>
Millions
Increase (Decrease) in Operating Revenues of Dollars
- ------------------------------------------------ -----------
<S> <C>
KWH Sales Volume and Mix $ 38
Wholesale Sales (11)
Base Rates and Miscellaneous (3)
Fuel Cost Recovery Revenues 2
-----
Total $ 26
=====
</TABLE>
The revenue increase resulted primarily from the different weather conditions
and the changes in the composition of the sales mix among customer categories.
Weather accounted for approximately $15 million of higher 1993 base rate
revenues. Hot summer weather in 1993 boosted residential and commercial
kilowatt-hour sales. In contrast, the 1992 summer was the coolest in 56 years
for Northwestern Ohio. Residential and commercial sales also increased as a
result of colder late-winter temperatures in 1993 which increased electric
heating-related demand. Residential and commercial sales increased 5.1% and
3.2%, respectively, in 1993. Industrial sales increased 6% as a result of
increased sales to large automotive manufacturers, petroleum refiners and the
broad-based, smaller industrial customer group. Other sales decreased 18%
because of fewer sales to wholesale customers. Generating plant outages and
retail customer demand limited power availability for bulk power transactions.
As a result, total sales decreased 2.2% in 1993. Base rates and miscellaneous
revenues decreased in 1993 primarily from lower revenues under contracts having
reduced rates with certain large customers and a declining rate structure tied
to usage. The contracts have been negotiated to meet competition and encourage
economic growth. The increase in 1993 fuel cost recovery revenues resulted from
changes in the fuel cost factors. The weighted average of these factors
increased about 2%.
For 1993, operating revenues were 26% residential, 21% commercial, 28%
industrial and 25% other and kilowatt-hour sales were 20% residential, 17%
commercial, 37% industrial and 26% other. The average prices per kilowatt-hour
for residential, commercial and industrial customers were $.11, $.11 and $.06,
respectively. The changes from 1992 were not significant.
Operating expenses increased 13% in 1993. The increase in total operation and
maintenance expenses resulted from the $88 million of net benefit expenses
related to the VTP, other charges totaling $19 million and a slight increase in
other operation and maintenance expenses. Deferred operating expenses decreased
because of the write-off of the phase-in deferred operating expenses in 1993.
Federal income taxes decreased as a result of lower pretax operating income.
As mentioned above, $232 million of our Perry Unit 2 investment was written off
in 1993. Credits for carrying charges recorded in nonoperating income decreased
because of the write-off of the phase-in deferred carrying charges in 1993. The
federal income tax credit for nonoperating income in 1993 resulted from the
write-offs.
(Toledo Edison) F-56 (Toledo Edison)
<PAGE> 107
Income Statement The Toledo Edison Company
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------
1994 1993 1992
---- ----- ----
(millions of dollars)
<S> <C> <C> <C>
OPERATING REVENUES (1) $865 $ 871 $845
---- ----- ----
OPERATING EXPENSES
Fuel and purchased power 167 173 169
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) 33 (10) 33
---- ----- ----
685 782 695
---- ----- ----
OPERATING INCOME 180 89 150
---- ----- ----
NONOPERATING INCOME (LOSS)
Allowance for equity funds used during construction 1 1 1
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) (2) 129 (1)
---- ----- ----
17 (263) 42
---- ----- ----
INCOME (LOSS) BEFORE INTEREST CHARGES 197 (174) 192
---- ----- ----
INTEREST CHARGES
Debt interest 116 116 122
Allowance for borrowed funds used during construction (1) (1) (1)
---- ----- ----
115 115 121
---- ----- ----
NET INCOME (LOSS) 82 (289) 71
PREFERRED DIVIDEND REQUIREMENTS 20 23 24
---- ----- ----
EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK $ 62 $(312) $ 47
==== ===== ====
- ---------------
<FN>
(1) Includes revenues from all bulk power sales to Cleveland Electric of $111
million, $120 million and $130 million in 1994, 1993 and 1992, respectively.
</TABLE>
Retained Earnings
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------
1994 1993 1992
----- ----- ----
(millions of dollars)
<S> <C> <C> <C>
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 $(113) $(175) $137
===== ===== ====
</TABLE>
The accompanying notes are an integral part of these statements.
(Toledo Edison) F-57 (Toledo Edison)
<PAGE> 108
Balance Sheet
<TABLE>
<CAPTION>
December 31,
----------------
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
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 30 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
------ ------
1,018 965
------ ------
Total Assets $3,502 $3,510
====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
(Toledo Edison) F-58 (Toledo Edison)
<PAGE> 109
The Toledo Edison Company
<TABLE>
<CAPTION>
December 31,
-----------------
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
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 fuel lease obligations 36 49
Accounts payable 48 63
Accounts payable to affiliates 31 27
Accrued taxes 75 90
Accrued interest 27 27
Other 16 16
------ ------
316 329
------ ------
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized investment tax credits 87 94
Accumulated deferred federal income taxes 541 471
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
====== ======
</TABLE>
(Toledo Edison) F-59 (Toledo Edison)
<PAGE> 110
Cash Flows The Toledo Edison Company
<TABLE>
<CAPTION>
For the years ended
December 31,
-------------------------
1994 1993 1992
----- ----- -----
(millions of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES (1)
Net Income (Loss) $ 82 $(289) $ 71
----- ----- -----
Adjustments to Reconcile Net Income (Loss) to Cash from Operating
Activities:
Depreciation and amortization 83 76 77
Deferred federal income taxes 46 (160) 28
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 affecting 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 ACTIVITIES (2)
Bank 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 from Financing Activities (136) (87) (146)
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES (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 INVESTMENTS 6 66 (63)
----- ----- -----
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 82 16 79
----- ----- -----
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 88 $ 82 $ 16
===== ===== =====
- ---------------
<FN>
(1) Interest paid (net of amounts capitalized) 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.
(2) Increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance
Sheet resulting from the noncash capitalizations under nuclear fuel
agreements are excluded from this statement.
</TABLE>
The accompanying notes are an integral part of this statement.
(Toledo Edison) F-60 (Toledo Edison)
<PAGE> 111
Statement of Preferred Stock The Toledo Edison Company
<TABLE>
<CAPTION>
Current
Call
Price December 31,
1994 Shares Per -------------
Outstanding Share 1994 1993
----------- -------- ---- ----
(millions of
dollars)
<S> <C> <C> <C> <C> <C>
$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 30
---- ----
18 40
Less: Current maturities 11 12
---- ----
TOTAL PREFERRED STOCK, WITH MANDATORY REDEMPTION PROVISIONS $ 7 $ 28
==== ====
Not subject to mandatory redemption:
$100 par $ 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
2.365 1,400,000 27.75 35 35
Series A Adjustable 1,200,000 25.75 30 30
Series B Adjustable 1,200,000 25.75 30 30
---- ----
TOTAL PREFERRED STOCK, WITHOUT MANDATORY REDEMPTION PROVISIONS $210 $210
==== ====
</TABLE>
The accompanying notes are an integral part of this statement.
(Toledo Edison) F-61 (Toledo Edison)
<PAGE> 112
Notes to the Financial Statements
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(a) GENERAL
The Company is an electric utility and a wholly owned subsidiary of Centerior
Energy. The Company follows the Uniform System of Accounts prescribed by the
Federal Energy Regulatory Commission (FERC) and adopted by the PUCO.
Rate-regulated utilities are subject to SFAS 71 which governs accounting for the
effects of certain types of rate regulation. Pursuant to SFAS 71, certain
incurred costs are deferred for recovery in future rates. See Note 7.
The Company is a member of the Central Area Power Coordination Group (CAPCO).
Other members are Cleveland Electric, Duquesne Light Company, Ohio Edison
Company and its wholly owned subsidiary, Pennsylvania Power Company. The members
have constructed and operate generation and transmission facilities for their
use.
(b) RELATED PARTY TRANSACTIONS
Operating revenues, operating expenses and interest charges include those
amounts for transactions with affiliated companies in the ordinary course of
business operations.
The Company's transactions with Cleveland Electric are primarily for firm power,
interchange power, transmission line rentals and jointly owned power plant
operations and construction. See Notes 2 and 3.
The Service Company provides management, financial, administrative, engineering,
legal and other services at cost to the Company and other affiliated companies.
The Service Company billed the Company $59 million, $71 million and $60 million
in 1994, 1993 and 1992, respectively, for such services.
(c) REVENUES
Customers are billed on a monthly cycle basis for their energy consumption based
on rate schedules or contracts authorized by the PUCO or on ordinances of
individual municipalities. An accrual is made at the end of each month to record
the estimated amount of unbilled revenues for kilowatt-hours sold in the current
month but not billed by the end of that month.
A fuel factor is added to the base rates for electric service. This factor is
designed to recover from customers the costs of fuel and most purchased power.
It is reviewed and adjusted semiannually in a PUCO proceeding.
(d) FUEL EXPENSE
The cost of fossil fuel is charged to fuel expense based on inventory usage. The
cost of nuclear fuel, including an interest component, is charged to fuel
expense based on the rate of consumption. Estimated future nuclear fuel disposal
costs are being recovered through base rates.
The Company defers the differences between actual fuel costs and estimated fuel
costs currently being recovered from customers through the fuel factor. This
matches fuel expenses with fuel-related revenues.
Owners of nuclear generating plants are assessed by the federal government for
the cost of decontamination and decommissioning of nuclear enrichment facilities
operated by the United States Department of Energy. The assessments are based
upon the amount of enrichment services used in prior years and cannot be imposed
for more than 15 years (to 2007). The Company has accrued a liability for its
share of the total assessments. These costs have been recorded in a deferred
charge account since the PUCO is allowing the Company to recover the assessments
through its fuel cost factors.
(e) DEPRECIATION AND AMORTIZATION
The cost of property, plant and equipment is depreciated over their estimated
useful lives on a straight-line basis. The annual straight-line depreciation
provision for nonnuclear property expressed as a percent of average depreciable
utility plant in service was 3.5% in 1994 and 3.6% in both 1993 and 1992. The
annual straight-line depreciation rate for nuclear property is 2.5%.
The Company accrues the estimated costs of decommissioning its three nuclear
generating units. The accruals are required to be funded in an external trust.
The PUCO requires that the expense and payments to the external trusts be
determined on a levelized basis by dividing the unrecovered decommissioning
costs in current dollars by the remaining years in the licensing period of each
unit. This methodology requires that the net earnings on the trusts be
reinvested therein with the intent of allowing net earnings to offset inflation.
The PUCO requires that the estimated costs of decommissioning and the funding
level be reviewed at least every five years.
In 1994, the Company increased its annual decommissioning expense accruals to
$11 million from the $4 million level in 1992. The accruals are reflected in
current rates. The increased accruals were derived from recently updated,
site-specific studies for each of the units. The revised estimates reflect the
DECON method of decommissioning (prompt decontamination), and the locations and
cost characteristics specific to the units, and include costs associated with
decontamination, dismantlement and site restoration.
(Toledo Edison) F-62 (Toledo Edison)
<PAGE> 113
The revised estimates for the units in 1993 and 1992 dollars and in dollars at
the time of license expiration, assuming a 4% annual inflation rate, are as
follows:
<TABLE>
<CAPTION>
License
Expiration Future
Generating Unit Year Amount Amount
- ------------------------------- ---------- ------ ------
(millions of
dollars)
<S> <C> <C> <C>
Davis-Besse 2017 $168(1) $419
Perry Unit 1 2026 100(1) 354
Beaver Valley Unit 2 2027 51(2) 190
------ ------
Total $319 $963
====== ======
- ---------------
<FN>
(1) Dollar amounts in 1993 dollars.
(2) Dollar amounts in 1992 dollars.
</TABLE>
The updated estimates reflect substantial increases from the prior
PUCO-recognized aggregate estimates of $115 million in 1987 and 1986 dollars.
The classification, Accumulated Depreciation and Amortization, in the Balance
Sheet at December 31, 1994 includes $44 million of decommissioning costs
previously expensed and the earnings on the external trust funding. This amount
exceeds the Balance Sheet amount of the external Nuclear Plant Decommissioning
Trusts because the reserve began prior to the external trust funding. The trust
earnings are recorded as an increase to the trust assets and the related
component of the decommissioning reserve (included in Accumulated Depreciation
and Amortization).
The staff of the Securities and Exchange Commission has questioned certain of
the current accounting practices of the electric utility industry, including
those of the Company, regarding the recognition, measurement and classification
of decommissioning costs for nuclear generating stations in the financial
statements. In response to these questions, the Financial Accounting Standards
Board is reviewing the accounting for removal costs, including decommissioning.
If such current accounting practices are changed, the annual provision for
decommissioning could increase; the estimated cost for decommissioning could be
recorded as a liability rather than as accumulated depreciation; and trust fund
income from the external decommissioning trusts could be reported as investment
income rather than as a reduction to decommissioning expense.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at original cost less amounts ordered
by the PUCO to be written off. Construction costs include related payroll taxes,
retirement benefits, fringe benefits, management and general overheads and
allowance for funds used during construction (AFUDC). AFUDC represents the
estimated composite debt and equity cost of funds used to finance construction.
This noncash allowance is credited to income. The AFUDC rate was 9.87% in 1994,
10.22% in 1993 and 10.96% in 1992.
Maintenance and repairs for plant and equipment are charged to expense as
incurred. The cost of replacing plant and equipment is charged to the utility
plant accounts. The cost of property retired plus removal costs, after deducting
any salvage value, is charged to the accumulated provision for depreciation.
(g) DEFERRED GAIN AND LOSS FROM
SALES OF UTILITY PLANT
The sale and leaseback transactions discussed in Note 2 resulted in a net gain
for the sale of the Bruce Mansfield Generating Plant (Mansfield Plant) and a net
loss for the sale of Beaver Valley Unit 2. The net gain and net loss were
deferred and are being amortized over the terms of leases. See Note 7. These
amortizations and the lease expense amounts are reported in the Income Statement
as Generation Facilities Rental Expense, Net.
(h) INTEREST CHARGES
Debt Interest reported in the Income Statement does not include interest on
obligations for nuclear fuel under construction. That interest is capitalized.
See Note 6.
Losses and gains realized upon the reacquisition or redemption of long-term debt
are deferred, consistent with the regulatory rate treatment. See Note 7. Such
losses and gains are either amortized over the remainder of the original life of
the debt issue retired or amortized over the life of the new debt issue when the
proceeds of a new issue are used for the debt redemption. The amortizations are
included in debt interest expense.
(i) FEDERAL INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with SFAS 109. See Note 8. This method requires that deferred taxes
be recorded for all temporary differences between the book and tax bases of
assets and liabilities. The majority of these temporary differences are
attributable to property-related basis differences. Included in these basis
differences is the equity component of AFUDC, which will increase future tax
expense when it is recovered through rates. Since this component is not
recognized for tax purposes, the Company must record a liability for its tax
obligation. The PUCO permits recovery of such taxes from customers when they
become payable. Therefore, the net amount due from customers through rates has
been recorded as a deferred charge and will be recovered over the lives of the
related assets. See Note 7.
Investment tax credits are deferred and amortized over the lives of the
applicable property as a reduction of
(Toledo Edison) F-63 (Toledo Edison)
<PAGE> 114
depreciation expense. See Note 7 for a discussion of the amortization of certain
unrestricted excess deferred taxes and unrestricted investment tax credits under
the Rate Stabilization Program.
(2) UTILITY PLANT SALE AND
LEASEBACK TRANSACTIONS
The Company and Cleveland Electric are co-lessees of 18.26% (150 megawatts) of
Beaver Valley Unit 2 and 6.5% (51 megawatts), 45.9% (358 megawatts) and 44.38%
(355 megawatts) of Units 1, 2 and 3 of the Mansfield Plant, respectively, all
for terms of about 29 1/2 years. These leases are the result of sale and
leaseback transactions completed in 1987.
Under these leases, the Company and Cleveland Electric are responsible for
paying all taxes, insurance premiums, operation and maintenance expenses and all
other similar costs for their interests in the units sold and leased back. They
may incur additional costs in connection with capital improvements to the units.
The Company and Cleveland Electric have options to buy the interests back at the
end of the leases for the fair market value at that time or renew the leases.
Additional lease provisions provide other purchase options along with conditions
for mandatory termination of the leases (and possible repurchase of the
leasehold interests) for events of default. These events include noncompliance
with any of several financial covenants discussed in Note 11(d).
As co-lessee with Cleveland Electric, the Company is also obligated for
Cleveland Electric's lease payments. If Cleveland Electric is unable to make its
payments under the Mansfield Plant leases, the Company would be obligated to
make such payments. No such payments have been made on behalf of Cleveland
Electric.
In April 1992, nearly all of the outstanding Secured Lease Obligation Bonds
(SLOBs) issued by a special purpose corporation in connection with financing the
sale and leaseback of Beaver Valley Unit 2 were refinanced through a tender
offer and the sale of new bonds having a lower interest rate. As part of the
refinancing transaction, the Company paid $43 million as supplemental rent to
fund transaction expenses and part of the tender premium. This amount has been
deferred and is being amortized over the remaining lease term. The refinancing
transaction reduced the annual rental expense for the Beaver Valley Unit 2 lease
by $9 million.
Future minimum lease payments under the operating leases at December 31, 1994
are summarized as follows:
<TABLE>
<CAPTION>
For For
the Cleveland
Year Company Electric
- ---------------------------------------- ------- ---------
(millions of
dollars)
<S> <C> <C>
1995 $ 103 $ 63
1996 125 63
1997 102 63
1998 102 63
1999 108 70
Later Years 1,918 1,321
------- ---------
Total Future Minimum Lease
Payments $2,458 $ 1,643
======= =========
</TABLE>
Rental expense is accrued on a straight-line basis over the terms of the leases.
The amount recorded in 1994, 1993 and 1992 as annual rental expense for the
Mansfield Plant leases was $45 million. The amounts recorded in 1994, 1993 and
1992 as annual rental expense for the Beaver Valley Unit 2 lease were $64
million, $63 million and $66 million, respectively. Amounts charged to expense
in excess of the lease payments are classified as Accumulated Deferred Rents in
the Balance Sheet.
The Company is selling 150 megawatts of its Beaver Valley Unit 2 leased capacity
entitlement to Cleveland Electric. Revenues recorded for this transaction were
$108 million, $103 million and $108 million in 1994, 1993 and 1992,
respectively. We anticipate that this sale will continue indefinitely. The
future minimum lease payments through the year 2017 associated with Beaver
Valley Unit 2 aggregate $1.413 billion.
(Toledo Edison) F-64 (Toledo Edison)
<PAGE> 115
(3) PROPERTY OWNED WITH OTHER UTILITIES 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:
<TABLE>
<CAPTION>
In- Plant Construction
Service Ownership Ownership Power in Work in Accumulated
Generating Unit Date Share Megawatts Source Service Progress Depreciation
- ------------------------------- ------- --------- --------- -------- ------- ------------ -----------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Davis-Besse 1977 48.62% 429 Nuclear $ 642 $ 4 $ 179
Perry Unit 1 1987 19.91 238 Nuclear 1,043 4 197
Beaver Valley Unit 2 and
Common Facilities (Note 2) 1987 1.65 13 Nuclear 204 3 42
------- --- -----
Total $1,889 $ 11 $ 418
======= === ====-
</TABLE>
(4) CONSTRUCTION AND CONTINGENCIES
(a) CONSTRUCTION PROGRAM
The estimated cost of the Company's construction program for the 1995-1999
period is $303 million, including AFUDC of $15 million and excluding nuclear
fuel.
The Clean Air Act requires, among other things, significant reductions in the
emission of sulfur dioxide and nitrogen oxides by fossil-fueled generating
units. Our strategy provides for compliance primarily through greater use of
low-sulfur coal at some of our units and the use of emission allowances. Total
capital expenditures from 1991 through 1994 in connection with Clean Air Act
compliance amounted to $1 million. The plan will require additional capital
expenditures over the 1995-2004 period of approximately $32 million for nitrogen
oxide control equipment and plant modifications. In addition, higher fuel and
other operation and maintenance expenses may be incurred. The anticipated rate
increase associated with the capital expenditures and higher expenses would be
less than 2% over the ten-year period.
(b) PERRY UNIT 2
Perry Unit 2, including its share of the facilities common with Perry Unit 1,
was approximately 50% complete when construction was suspended in 1985 pending
consideration of various options. We wrote off our investment in Perry Unit 2 at
December 31, 1993 after we determined that it would not be completed or sold.
The write-off totaled $232 million ($167 million after taxes) for the Company's
19.91% ownership share of the unit. See Note 14.
(c) HAZARDOUS WASTE DISPOSAL SITES
The Company is aware of its potential involvement in the cleanup of several
hazardous waste disposal sites. The Company has accrued a liability totaling $5
million at December 31, 1994 based on estimates of the costs of cleanup and its
proportionate responsibility for such costs. We believe that the ultimate
outcome of these matters will not have a material adverse effect on our
financial condition or results of operations. See Management's Financial
Analysis -- Outlook-Hazardous Waste Disposal Sites.
(5) NUCLEAR OPERATIONS AND CONTINGENCIES
(a) OPERATING NUCLEAR UNITS
The Company's three nuclear units may be impacted by activities or events beyond
our control. An extended outage of one of our nuclear units for any reason,
coupled with any unfavorable rate treatment, could
have a material adverse effect on our financial condition and results of
operations. See the discussion of these risks in Management's Financial
Analysis -- Outlook-Nuclear Operations.
(b) NUCLEAR INSURANCE
The Price-Anderson Act limits the public liability of the owners of a nuclear
power plant to the amount provided by private insurance and an industry
assessment plan. In the event of a nuclear incident at any unit in the United
States resulting in losses in excess of the level of private insurance
(currently $200 million), the Company's maximum potential assessment under that
plan would be $70 million (plus any inflation adjustment) per incident. The
assessment is limited to $9 million per year for each nuclear incident. These
assessment limits assume the other CAPCO companies contribute their
proportionate share of any assessment.
(Toledo Edison) F-65 (Toledo Edison)
<PAGE> 116
The utility owners and lessees of Davis-Besse, Perry and Beaver Valley also have
insurance coverage for damage to property at these sites (including leased fuel
and cleanup costs). Coverage amounted to $2.75 billion for each site as of
January 1, 1995. Damage to property could exceed the insurance coverage by a
substantial amount. If it does, the Company's share of such excess amount could
have a material adverse effect on its financial condition and results of
operations. Under these policies, the Company can be assessed a maximum of $10
million during a policy year if the reserves available to the insurer are
inadequate to pay claims arising out of an accident at any nuclear facility
covered by the insurer.
The Company also has extra expense insurance coverage. It includes the
incremental cost of any replacement power purchased (over the costs which would
have been incurred had the units been operating) and other incidental expenses
after the occurrence of certain types of accidents at our nuclear units. The
amounts of the coverage are 100% of the estimated extra expense per week during
the 52-week period starting 21 weeks after an accident and 80% of such estimate
per week for the next 104 weeks. The amount and duration of extra expense could
substantially exceed the insurance coverage.
(6) NUCLEAR FUEL
Nuclear fuel is financed for the Company and Cleveland Electric through leases
with a special-purpose corporation. At December 31, 1994, $307 million ($125
million for the Company and $182 million for Cleveland Electric) of nuclear fuel
was financed ($157 million from intermediate-term notes and $150 million from
bank credit arrangements). The intermediate-term notes mature in 1996 and 1997.
The Company and Cleveland Electric severally lease their respective portions of
the nuclear fuel and are obligated to pay for the fuel as it is consumed in a
reactor. The lease rates are based on various intermediate-term note rates, bank
rates and commercial paper rates.
The amounts financed include nuclear fuel in the Davis-Besse, Perry Unit 1 and
Beaver Valley Unit 2 reactors with remaining lease payments for the Company of
$61 million, $34 million and $10 million, respectively, at December 31, 1994.
The nuclear fuel amounts financed and capitalized also included interest charges
incurred by the lessors amounting to $4 million in 1994 and $6 million in both
1993 and 1992. The estimated future lease amortization payments based on
projected consumption are $43 million in 1995, $38 million in 1996, $34 million
in 1997, $31 million in 1998 and $27 million in 1999.
(7) REGULATORY MATTERS
<TABLE>
The Company is subject to the provisions of SFAS 71. Regulatory assets represent
probable future revenues to the Company associated with certain incurred costs,
which it will recover from customers through the ratemaking process. Regulatory
assets in the Balance Sheet are as follows:
<CAPTION>
December 31,
-------------
1994 1993
---- ----
(millions of
dollars)
<S> <C> <C>
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
Pre-phase-in deferrals* 229 236
Rate Stabilization Program deferrals 150 107
---- ----
Total $913 $862
==== ====
<FN>
* Represent deferrals of operating expenses and carrying charges for Perry Unit
1 and Beaver Valley Unit 2 in 1987 and 1988 which are being amortized over the
lives of the related property.
</TABLE>
As of December 31, 1994, customer rates provide for recovery of all the above
regulatory assets, except those related to the Rate Stabilization Program
discussed below. The remaining recovery periods for all of the regulatory assets
listed above range from 17 to 34 years. We continually assess the effects of
competition and the changing industry and regulatory environment on operations
and the Company's ability to recover the regulatory assets. In the event that we
determine that future revenues would not be provided for recovery of any
regulatory asset, such asset would be required to be written off. See
Management's Financial Analysis -- Outlook-Regulatory Accounting.
The Company will file a request with the PUCO to restructure rates to increase
revenues to be effective in 1996 which will include provision for recovery of
the Rate Stabilization Program deferrals. We believe that rates will be set at a
level consistent with cost-based regulations and will provide revenues to
recover the then-current operating costs, return requirements and amortization
of all regulatory assets listed above.
The Rate Stabilization Program that the PUCO approved in October 1992 was
designed to encourage economic growth in the Company's service area by freezing
the Company's base rates until 1996 and limiting subsequent rate increases to
specified annual amounts not to exceed $89 million over the 1996-1998 period.
As part of the Rate Stabilization Program, during the 1992-1995 period the
Company is allowed to defer and subsequently recover certain costs not currently
recovered in rates and to accelerate amortization of certain benefits. The
continued use of these regulatory accounting measures will be dependent upon our
continuing assess-
(Toledo Edison) F-66 (Toledo Edison)
<PAGE> 117
ment and conclusion that there will be probable recovery of such deferrals in
future rates.
The regulatory accounting measures we are eligible to record through December
31, 1995 include the deferral of post-in-service interest carrying charges,
depreciation expense and property taxes on assets placed in service after
February 29, 1988 and the deferral of operating expenses equivalent to an
accumulated excess rent reserve for Beaver Valley Unit 2 (which resulted from
the April 1992 refinancing of SLOBs as discussed in Note 2). The cost deferrals
recorded in 1994, 1993 and 1992 pursuant to these provisions were $40 million,
$39 million and $32 million, respectively. The regulatory accounting measures
also provide for the accelerated amortization of certain unrestricted excess
deferred tax and unrestricted investment tax credit balances and interim spent
fuel storage accrual balances for Davis-Besse. The total amount of such
regulatory benefits recognized pursuant to these provisions was $18 million in
both 1994 and 1993 and $5 million in 1992.
The Rate Stabilization Program also authorized the Company to defer and
subsequently recover the incremental expenses associated with the adoption of
the accounting standard for postretirement benefits other than pensions (SFAS
106). In 1994 and 1993, we deferred $2 million and $37 million, respectively,
pursuant to this provision. Amortization and recovery of these deferrals are
expected to commence in 1996 and to be completed by no later than 2012. See Note
9(b).
In 1993, upon completing a comprehensive study which led to our current
strategic plan, we concluded that projected revenues would not provide for
recovery of deferrals recorded pursuant to a phase-in plan approved by the PUCO
in 1989. Such deferrals were scheduled to be recovered over the 1994 through
1998 period. The total phase-in deferred operating expenses and carrying charges
written off at December 31, 1993 by the Company were $55 million and $186
million, respectively (totaling $165 million after taxes). See Note 14.
Additionally, based on our assessment of business conditions, we concluded that,
once the deferral of expenses and acceleration of benefits under our Rate
Stabilization Program are completed in 1995, we should no longer plan to use
regulatory accounting measures to the extent we have in the past.
(8) FEDERAL INCOME TAX
<TABLE>
The components of federal income tax expense (credit) recorded in the Income
Statement were as follows:
<CAPTION>
1994 1993 1992
---- ----- ----
(millions of dollars)
<S> <C> <C> <C>
Operating Expenses:
Current $18 $ 36 $26
Deferred 15 (46) 7
---- ----- ----
Total Expense (Credit) to Operating
Expenses 33 (10) 33
---- ----- ----
Nonoperating Income:
Current (29) (15) (20)
Deferred 31 (114) 21
---- ----- ----
Total Expense (Credit) to
Nonoperating Income 2 (129) 1
---- ----- ----
Total Federal Income Tax Expense
(Credit) $35 $(139) $34
==== ===== ====
</TABLE>
The deferred federal income tax expense results from the temporary differences
that arise from the different years certain expenses are recognized for tax
purposes as opposed to financial reporting purposes. Such temporary differences
affecting operating expenses relate principally to depreciation and deferred
operating expenses whereas those affecting nonoperating income principally
relate to deferred carrying charges and the 1993 write-offs.
<TABLE>
Federal income tax, computed by multiplying income before taxes by the statutory
rate (35% in 1994 and 1993 and 34% in 1992), is reconciled to the amount of
federal income tax recorded on the books as follows:
<CAPTION>
1994 1993 1992
---- ----- ----
(millions of dollars)
<S> <C> <C> <C>
Book Income (Loss) Before Federal
Income Tax $117 $(428) $105
==== ===== ====
Tax (Credit) on Book Income (Loss) at
Statutory Rate $ 41 $(150) $ 36
Increase (Decrease) in Tax:
Write-off of Perry Unit 2 -- 16 --
Write-off of phase-in deferrals -- 8 --
Depreciation (3) (12) (6)
Rate Stabilization Program (9) (10) (2)
Sale and leaseback transactions and
amortization 5 5 5
Other items 1 4 1
---- ----- ----
Total Federal Income Tax Expense
(Credit) $ 35 $(139) $ 34
==== ===== ====
</TABLE>
The Company joins in the filing of a consolidated federal income tax return with
its affiliated companies. The method of tax allocation reflects the benefits and
burdens realized by each company's participation in the consolidated 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. Because 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.
(Toledo Edison) F-67 (Toledo Edison)
<PAGE> 118
In August 1993, the Revenue Reconciliation Act of 1993 was enacted. Retroactive
to January 1, 1993, the top marginal corporate income tax rate increased to 35%.
The change in tax rate did not materially impact the results of operations for
1993, but increased Accumulated Deferred Federal Income Taxes for the future tax
obligation by approximately $29 million. Since the PUCO has historically
permitted recovery of such taxes from customers when they become payable, the
deferred charge, Amounts Due from Customers for Future Federal Income Taxes,
also was increased by $29 million.
Under SFAS 109, temporary differences and carryforwards resulted in deferred tax
assets of $178 million and deferred tax liabilities of $719 million at December
31, 1994 and deferred tax assets of $178 million and deferred tax liabilities of
$649 million at December 31, 1993. These are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------
1994 1993
---- ----
(millions of
dollars)
<S> <C> <C>
Property, plant and equipment $606 $534
Deferred carrying charges and operating
expenses 83 79
Net operating loss carryforwards (54) (39)
Investment tax credits (51) (55)
Sale and leaseback transactions (3) --
Other (40) (48)
---- ----
Net deferred tax liability $541 $471
==== ====
</TABLE>
For tax purposes, net operating loss (NOL) carryforwards of approximately $154
million are available to reduce future taxable income and will expire in 2003
through 2009. The 35% tax effect of the NOLs is $54 million. Additionally, AMT
credits of $69 million that may be carried forward indefinitely are available to
reduce future regular tax.
(9) RETIREMENT BENEFITS
(a) RETIREMENT INCOME PLAN
Centerior Energy sponsors jointly with its subsidiaries a noncontributing
pension plan (Centerior Pension Plan) which covers all employee groups. The
amount of retirement benefits generally depends upon the length of service.
Under certain circumstances, benefits can begin as early as age 55. The funding
policy is to comply with the Employee Retirement Income Security Act of 1974
guidelines.
In 1993, eligible employees were offered the VTP, an early retirement program.
Operating expenses for Centerior Energy and its subsidiaries in 1993 included
$205 million of pension plan accruals to cover enhanced VTP benefits and an
additional $10 million of pension costs for VTP benefits paid to retirees from
corporate funds. The $10 million is not included in the pension data reported in
the following table. A credit of $81 million resulting from a settlement of
pension obligations through lump sum payments to almost all the VTP retirees
partially offset the VTP expenses.
Pension and VTP costs (credits) for Centerior Energy and its subsidiaries for
1992 through 1994 were comprised of the following components:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(millions of
dollars)
<S> <C> <C> <C>
Pension Costs (Credits):
Service cost for benefits earned
during the period $ 13 $ 15 $ 15
Interest cost on projected benefit
obligation 26 37 38
Actual return on plan assets (2) (65) (24)
Net amortization and deferral (34) 4 (45)
---- ---- ----
Net pension costs (credits) 3 (9) (16)
VTP cost -- 205 --
Settlement gain -- (81) --
---- ---- ----
Net costs (credits) $ 3 $115 $(16)
==== ==== ====
</TABLE>
Pension and VTP costs (credits) for the Company and its pro rata share of the
Service Company's costs were $1 million and $53 million for 1994 and 1993,
respectively. The costs for 1992 were negligible.
The following table presents a reconciliation of the funded status of the
Centerior Pension Plan. The Company's share of the Centerior Pension Plan's
total projected benefit obligation approximates 30%.
<TABLE>
<CAPTION>
December 31,
-------------
1994 1993
---- ----
(millions of
dollars)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $278 $333
Nonvested benefits 2 37
---- ----
Accumulated benefit obligation 280 370
Effect of future compensation levels 37 53
---- ----
Total projected benefit obligation 317 423
Plan assets at fair market value 362 386
---- ----
Funded status 45 (37)
Unrecognized net loss (gain) from variance
between assumptions and experience (79) 11
Unrecognized prior service cost 10 10
Transition asset at January 1, 1987 being
amortized over 19 years (39) (43)
---- ----
Net accrued pension liability $(63) $(59)
==== ====
</TABLE>
A September 30, 1994 measurement date was used for 1994 reporting. At December
31, 1994, the settlement (discount) rate and long-term rate of return on plan
assets assumptions were 8.5% and 10%, respectively. The long-term rate of annual
compensation increase assumption was 3.5% for 1995 and 1996 and 4% thereafter.
At December 31, 1993, the settlement rate and long-term rate of return on plan
assets assumptions were 7.25% and 8.75%, respectively. The long-term rate of
annual compensation increase assumption was 4.25%. At December 31, 1994 and
1993, the Company's net accrued pension liability included in Retirement
Benefits in the
(Toledo Edison) F-68 (Toledo Edison)
<PAGE> 119
Balance Sheet was $66 million and $65 million, respectively.
Plan assets consist primarily of investments in common stock, bonds, guaranteed
investment contracts, cash equivalent securities and real estate.
(b) OTHER POSTRETIREMENT BENEFITS
Centerior Energy sponsors jointly with its subsidiaries a postretirement benefit
plan which provides all employee groups certain health care, death and other
postretirement benefits other than pensions. The plan is contributory, with
retiree contributions adjusted annually. The plan is not funded. The Company
adopted SFAS 106, the accounting standard for postretirement benefits other than
pensions, effective January 1, 1993. The standard requires the accrual of the
expected costs of such benefits during the employees' years of service. Prior to
1993, the costs of these benefits were expensed as paid, which was consistent
with ratemaking practices.
The components of the total postretirement benefit costs for 1994 and 1993 were
as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(millions
of dollars)
<S> <C> <C>
Service cost for benefits earned during the
period $ 1 $ 1
Interest cost on accumulated postretirement
benefit obligation 7 6
Amortization of transition obligation at January
1, 1993 of $63 million over 20 years 3 3
VTP curtailment cost (includes $6 million
transition obligation adjustment) -- 32
---- ----
Total costs $11 $42
==== ====
</TABLE>
These amounts included costs for the Company and its pro rata share of the
Service Company's costs.
In 1994 and 1993, the Company deferred incremental SFAS 106 expenses (in excess
of the amounts paid) of $2 million and $37 million, respectively, pursuant to a
provision of the Rate Stabilization Program. See Note 7.
The accumulated postretirement benefit obligation and accrued postretirement
benefit cost for the Company and its share of the Service Company's obligation
are as follows:
<TABLE>
<CAPTION>
December 31,
-------------
1994 1993
---- ----
(millions of
dollars)
<S> <C> <C>
Accumulated postretirement benefit obligation
attributable to:
Retired participants $(79) $(88)
Other active plan participants (7) (9)
---- ----
Accumulated postretirement benefit
obligation (86) (97)
Unrecognized net loss (gain) from variance
between assumptions and experience (7) 5
Unamortized transition obligation 51 54
---- ----
Accrued postretirement benefit cost $(42) $(38)
==== ====
</TABLE>
The Balance Sheet classification of Retirement Benefits at December 31, 1994 and
1993 includes only the Company's accrued postretirement benefit cost of $37
million and $33 million, respectively, and excludes the Service Company's
portion since the Service Company's total accrued cost is carried on its books.
A September 30, 1994 measurement date was used for 1994 reporting. At December
31, 1994 and 1993, the settlement rate and the long-term rate of annual
compensation increase assumptions were the same as those discussed for pension
reporting in Note 9(a). At December 31, 1994, the assumed annual health care
cost trend rates (applicable to gross eligible charges) are 8.5% for medical and
8% for dental in 1995. Both rates reduce gradually to a fixed rate of 4.75% by
2003. Elements of the obligation affected by contribution caps are significantly
less sensitive to the health care cost trend rate than other elements. If the
assumed health care cost trend rates were increased by one percentage point in
each future year, the accumulated postretirement benefit obligation as of
December 31, 1994 would increase by $3 million and the aggregate of the service
and interest cost components of the annual postretirement benefit cost would
increase by $0.3 million.
(10) GUARANTEES
The Company has guaranteed certain loan and lease obligations of a coal supplier
under a long-term coal supply contract. At December 31, 1994, the principal
amount of the loan and lease obligations guaranteed by the Company was $17
million. The prices under the contract which includes certain minimum payments
are sufficient to satisfy the loan and lease obligations and mine closing costs
over the life of the contract. If the contract is terminated early for any
reason, the Company would attempt to reduce the termination charges and would
ask the PUCO to allow recovery of such charges from customers through the fuel
factor.
(11) CAPITALIZATION
(a) CAPITAL STOCK TRANSACTIONS
Preferred stock shares retired during the three years ended December 31, 1994
are listed in the following table.
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(thousands of shares)
<S> <C> <C> <C>
Subject to Mandatory Redemption:
$100 par $11.00 -- -- (25)
9.375 (17) (17) (17)
25 par 2.81 (800) (800) --
---- ---- ----
Total (817) (817) (42)
==== ==== ====
</TABLE>
(b) EQUITY DISTRIBUTION RESTRICTIONS
Federal law prohibits the Company from paying dividends out of capital accounts.
However, the Company may pay dividends out of appropriated retained earnings and
current earnings. At December 31, 1994, the Company had $104 million of
appropriated retained earnings for the payment of preferred stock dividends. The
Company is prohibited from paying a common stock dividend by a
(Toledo Edison) F-69 (Toledo Edison)
<PAGE> 120
provision in its mortgage that essentially requires such dividends to be paid
out of the total balance of retained earnings, which currently is a deficit.
(c) PREFERRED AND PREFERENCE STOCK
Amounts to be paid for preferred stock which must be redeemed during the next
five years are $11 million in 1995 and $2 million in each year 1996 through
1999.
The annual preferred stock mandatory redemption provisions are as follows:
<TABLE>
<CAPTION>
Shares Price
To Be Beginning Per
Redeemed in Share
-------- --------- -----
<S> <C> <C> <C>
$100 par $9.375 16,650 1985 $100
25 par 2.81 400,000 1993 25
</TABLE>
The annualized preferred dividend requirement at December 31, 1994 was $19
million.
The preferred dividend rates on the Company's Series A and B fluctuate based on
prevailing interest rates and market conditions. The dividend rates for these
issues averaged 7.66% and 8.44%, respectively, in 1994.
Preference stock authorized for the Company is 5,000,000 shares with a $25 par
value. No preference shares are currently outstanding.
With respect to dividend and liquidation rights, the Company's preferred stock
is prior to its preference stock and common stock, and its preference stock is
prior to its common stock.
(d) LONG-TERM DEBT AND OTHER
BORROWING ARRANGEMENTS
Long-term debt, less current maturities, was as follows:
<TABLE>
<CAPTION>
Actual
or Average
Interest
Rate at December 31,
December 31, ---------------
Year of Maturity 1994 1994 1993
- -------------------------------- ------------ ------ ------
(millions of
dollars)
<S> <C> <C> <C>
First mortgage bonds:
1997 6.125% $ 31 $ 31
1998 10.00 1 1
1999 7.25 100 100
2000-2004 7.85 207 207
2010-2014 3.85 31 31
2015-2019 8.00 67 67
2020-2023 7.74 148 148
------ ------
585 585
Secured medium term notes due
1996-2021 8.44 250 250
Term bank loans due 1996 9.08 62 109
Notes due 1996-1997 9.49 25 43
Debentures due 2002 8.70 135 135
Pollution control notes due
1996-2015 12.11 99 105
Other -- net -- (2) (2)
------ ------
Total Long-Term Debt $1,154 $1,225
====== ======
</TABLE>
Long-term debt matures during the next five years as follows: $71 million in
1995, $91 million in 1996, $40 million in 1997, $39 million in 1998 and $119
million in 1999.
The Company issued $141 million aggregate principal amount of secured
medium-term notes in 1992 and 1993. The notes are secured by first mortgage
bonds.
The Company's mortgage constitutes a direct first lien on substantially all
property owned and franchises held by the Company. Excluded from the lien, among
other things, are cash, securities, accounts receivable, fuel, supplies and
automotive equipment.
Certain unsecured loan agreements of the Company contain covenants relating to
capitalization ratios, fixed charge coverage ratios and limitations on secured
financing other than through first mortgage bonds or certain other transactions.
Two reimbursement agreements relating to separate letters of credit issued in
connection with the sale and leaseback of Beaver Valley Unit 2 contain several
financial covenants affecting the Company, Cleveland Electric and Centerior
Energy. Among these are covenants relating to fixed charge coverage ratios and
capitalization ratios. The write-offs recorded at December 31, 1993 caused the
Company, Cleveland Electric and Centerior Energy to violate certain covenants
contained in the two reimbursement agreements. The affected creditors waived
those violations in exchange for a subordinate mortgage security interest on the
properties of the Company and Cleveland Electric. The Company provided the same
security interest to certain other creditors because their agreements require
equal treatment. At December 31, 1994, the Company provided subordinate mortgage
collateral for $152 million of unsecured debt, $228 million of bank letters of
credit and a $205 million revolving credit facility. The bank letters of credit
are joint and several obligations of the Company and Cleveland Electric and the
revolving credit facility is an obligation of Centerior Energy that is jointly
and severally guaranteed by the Company and Cleveland Electric.
(12) SHORT-TERM BORROWING ARRANGEMENTS
Centerior Energy has a $205 million revolving credit facility through May 1996.
Centerior Energy and the Service Company may borrow under the facility, with all
borrowings jointly and severally guaranteed by the Company and Cleveland
Electric. Centerior Energy plans to transfer any of its borrowed funds to the
Company and Cleveland Electric. The facility agreement as amended provides the
participating banks with a subordinate mortgage security interest on the
properties of the Company
(Toledo Edison) F-70 (Toledo Edison)
<PAGE> 121
and Cleveland Electric. The banks' fee is 0.625% per annum payable quarterly in
addition to interest on any borrowings. There were no borrowings under the
facility at December 31, 1994. The facility agreement contains covenants
relating to capitalization and fixed charge coverage ratios for the Company,
Cleveland Electric and Centerior Energy.
Short-term borrowing capacity authorized by the PUCO annually is $150 million
for the Company. The Company and Cleveland Electric are authorized by the PUCO
to borrow from each other on a short-term basis.
(13) FINANCIAL INSTRUMENTS
Except for the Nuclear Plant Decommissioning Trusts at December 31 1994, as
discussed below, the estimated fair values at December 31, 1994 and 1993 of
financial instruments that do not approximate their carrying amounts in the
Balance Sheet are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1994 1993
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(millions of dollars)
<S> <C> <C> <C> <C>
Assets:
Nuclear Plant Decommissioning
Trusts $ 38 $ 38 $ 26 $ 27
Capitalization and Liabilities:
Preferred Stock, with
Mandatory Redemption
Provisions (including
current portion) 18 19 40 42
Long-Term Debt (including
current portion) 1,227 1,116 1,271 1,314
</TABLE>
The Nuclear Plant Decommissioning Trusts at December 31, 1994 included $21
million of federal governmental securities and $14 million of municipal
securities. The securities had the following maturities: $9 million due within
one year; $7 million due in one to five years; $7 million due in six to 10
years; and $12 million due after 10 years. The fair value of these trusts is
estimated based on the quoted market prices for the investment securities. As a
result of adopting the new accounting standard for certain investments in debt
and equity securities, SFAS 115, in 1994, the carrying amount of these trusts is
equal to the fair value. The fair value of the Company's preferred stock, with
mandatory redemption provisions, and long-term debt is estimated based on the
quoted market prices for the respective or similar issues or on the basis of the
discounted value of future cash flows. The discounted value used current
dividend or interest rates (or other appropriate rates) for similar issues and
loans with the same remaining maturities.
The estimated fair values of all other financial instruments approximate their
carrying amounts in the Balance Sheet at December 31, 1994 and 1993 because of
their short-term nature.
(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended December 31, 1994.
<TABLE>
<CAPTION>
Quarters Ended
----------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- -------- --------- --------
(millions of dollars)
<S> <C> <C> <C> <C>
1994
Operating Revenues $ 217 $216 $ 227 $204
Operating Income 43 43 53 40
Net Income 19 20 29 15
Earnings Available for
Common Stock 13 14 24 11
1993
Operating Revenues $ 215 $210 $ 239 $207
Operating Income (Loss) 39 42 17 (10)
Net Income (Loss) 18 20 (5) (323)
Earnings (Loss)
Available for Common
Stock 12 14 (10) (328)
</TABLE>
Earnings for the quarter ended September 30, 1993 were decreased by $35 million
as a result of the recording of $54 million of VTP pension-related benefits.
Earnings for the quarter ended December 31, 1993 were decreased as a result of
year-end adjustments for the $232 million write-off of Perry Unit 2 (see Note
4(b)), the $241 million write-off of the phase-in deferrals (see Note 7) and $19
million of other charges. These adjustments decreased quarterly earnings by $345
million.
(15) PENDING MERGER OF THE COMPANY INTO CLEVELAND ELECTRIC
In March 1994, Centerior Energy announced a plan to merge the Company into
Cleveland Electric. Since the Company and Cleveland Electric affiliated in 1986,
efforts have been made to consolidate operations and administration as much as
possible to achieve maximum cost savings. Various aspects of the merger are
subject to the approval of the FERC and other regulatory authorities. The PUCO
and the Pennsylvania Public Utility Commission have approved the merger. In
addition, the merger must be approved by share owners of the Company's preferred
stock. Share owners of Cleveland Electric's preferred stock must approve the
authorization of additional shares of preferred stock. When the merger becomes
effective, share owners of the Company's preferred stock will exchange their
shares for preferred stock shares of Cleveland Electric having substantially the
same terms. Debt holders of the merging companies will become debt holders of
Cleveland Electric. The merging companies plan to seek preferred stock share
owner approval in mid-1995. The merger is expected to be effective in 1995.
(Toledo Edison) F-71 (Toledo Edison)
<PAGE> 122
For the merging companies, the combined pro forma operating revenues were $2.422
billion, $2.475 billion and $2.439 billion and the combined pro forma net income
(loss) was $268 million, $(876) million and $276 million for the years 1994,
1993 and 1992, respectively. The pro forma data is based on accounting for the
merger on a method similar to a pooling of interests. The pro forma data is not
necessarily indicative of the results of operations which would have been
reported had the merger been in effect during those years or which may be
reported in the future. The pro forma data should be read in conjunction with
the audited financial statements of both the Company and Cleveland Electric.
(Toledo Edison) F-72 (Toledo Edison)
<PAGE> 123
Financial and Statistical Review
OPERATING REVENUES (millions of dollars)
<TABLE>
<CAPTION>
Steam
Total Total Heating
Year Residential Commercial Industrial Other Retail Wholesale Electric & Gas
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1994 $ 227 181 251 64 723 142 865 --
1993 229 180 244 71 724 147 871 --
1992 215 175 236 61 687 158 845 --
1991 230 184 236 90 740 147 887 --
1990 224 175 236 78 713 150 863 --
1984 173 115 195 45 528 20 548 9
<CAPTION>
Total
Operating
Year Revenues
<S> <<C>
- ------------------------------------
1994 $ 865
1993 871
1992 845
1991 887
1990 863
1984 557
</TABLE>
- --------------------------------------------------------------------------------
OPERATING EXPENSES (millions of dollars)
<TABLE>
<CAPTION>
Other Generation Deferred Federal
Fuel & Operation Facilities Depreciation Taxes, Operating Income Total
Purchased & Rental & Other Than Expenses, Taxes Operating
Year Power Maintenance Expense, Net Amortization FIT Net (Credit) Expenses
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
1994 $ 167 229 104 83 90 (21) 33 $ 685
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) 89 1 32 728
1990 174 262 111 73 79 (10) 21 710
1984 145 125 -- 50 47 -- 66 433
</TABLE>
- --------------------------------------------------------------------------------
INCOME (LOSS) (millions of dollars)
<TABLE>
<CAPTION>
Federal Income
Other Deferred Income (Loss)
Income & Carrying Taxes-- Before
Operating AFUDC-- Deductions, Charges, Credit Interest
Year Income Equity Net Net (Expense) Charges
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
1994 $ 180 1 3 15 (2) $ 197
1993 89 1 (232)(d) (161)(b) 129 (174)
1992 150 1 1 41 (1) 192
1991 159 1 5 22 (6) 181
1990 153 3 5 43 9 213
1984 124 83 7 -- 34 248
</TABLE>
- --------------------------------------------------------------------------------
INCOME (LOSS) (millions of dollars)
<TABLE>
<CAPTION>
Earnings
(Loss)
Net Preferred Available for
Debt AFUDC-- Income Stock Common
Year Interest Debt (Loss) Dividends Stock
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1994 $116 (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
- --------------------------------------------------------------------------------
<FN>
(a) Includes early retirement program expenses and other charges of $107 million
in 1993.
(b) Includes write-off of phase-in deferrals of $241 million in 1993, consisting
of $55 million of deferred operating expenses and $186 million of deferred
carrying charges.
(c) In 1991, a change in accounting for nuclear plant depreciation was adopted,
changing from the units-of-production method to the straight-line method at
a 2.5% rate.
</TABLE>
(Toledo Edison) F-73 (Toledo Edison)
<PAGE> 124
<TABLE>
<CAPTION>
The Toledo Edison Company
ELECTRIC SALES (millions of KWH) ELECTRIC CUSTOMERS (year end)
Industrial
Year Residential Commercial Industrial Wholesale Other Total Residential Commercial & Other Total
- ------------------------------------------------------------------------------ --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 ... 2 056 1 711 4 099 2 548 499 10 913 256 998 25 921 3 965 286 884
1993 ... 2 039 1 672 3 776 2 146 490 10 123 255 109 26 049 4 076 285 234
1992 ... 1 941 1 619 3 563 2 753 478 10 354 255 299 25 870 4 372 285 541
1991 ... 2 041 1 683 3 543 2 587 482 10 336 254 500 26 044 4 444 284 988
1990 ... 1 950 1 614 3 617 2 333 496 10 010 253 965 25 822 4 555 284 342
1984 ... 1 958 1 398 3 444 473 440 7 713 243 912 23 891 3 920 271 723
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RESIDENTIAL USAGE
Average Average
Average Price Revenue
KWH Per Per Per
Year Customer KWH Customer
- -----------------------------------------------
<S> <C> <C> <C>
1994 ... 8 044 11.04c $888.30
1993 ... 7 997 11.23 897.65
1992 ... 7 632 11.08 845.99
1991 ... 7 990 11.26 897.41
1990 ... 7 692 11.48 882.99
1984 ... 8 045 8.81 709.09
- -----------------------------------------------
<CAPTION>
LOAD (MW & %) ENERGY (millions of KWH) FUEL
Net Company Generated Efficiency--
Seasonal Peak Capacity Load -------------------------- Purchased Fuel Cost BTU Per
Year Capability Load Margin Factor Fossil Nuclear Total Power Total Per KWH KWH
- -------------------------------------------------- ------------------------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 ... 1 729 1 620 6.3% 64.7% 5 160 5 419 10 579 773 11 352 1.35c 10 298
1993 ... 1 729 1 568 9.3 64.3 5 548 4 791 10 339 196 10 535 1.42 10 146
1992 ... 1 762 1 514 14.1 63.2 4 656 6 293 10 949 (82) 10 867 1.41 10 284
1991 ... 1 759 1 510 14.2 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
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INVESTMENT (millions of dollars)
Construction
Utility Work In Total
Plant Accumulated Progress Nuclear Property, Utility
In Depreciation & Net & Perry Fuel and Plant and Plant Total
Year Service Amortization Plant Unit 2 Other Equipment Additions Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 ... $2 899 892 2 007 30 125 $ 2 162 $ 41 $3 502
1993 ... 2 837 788 2 049 40 142 2 231 43 3 510
1992 ... 2 847 760 2 087 280 164 2 531 44 3 939
1991 ... 2 692 709 1 983 308 198 2 489 54 3 926
1990 ... 2 604 640 1 964 349 224 2 537 87 3 913
1984 ... 1 373 365 1 008 1 413 197(e) 2 618 356 2 936
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CAPITALIZATION (millions of dollars & %)
Preferred Stock, Preferred Stock,
with Mandatory without Mandatory
Year Common Stock Equity Redemption Provisions Redemption Provisions Long-Term Debt Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1994 ... $685 34% 7 --% 210 10% 1 154 56% $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 1 158 50 2 320
1990 ... 881 39 66 3 210 9 1 097 49 2 254
1984 ... 814 36 158 7 200 9 1 110 48 2 282
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(d) Includes write-off of Perry Unit 2 of $232 million in 1993.
(e) Restated for effects of capitalization of nuclear fuel lease and financing arrangements pursuant to Statement of Financial
Accounting Standards 71.
</TABLE>
(Toledo Edison) F-74 (Toledo Edison)
<PAGE> 125
<TABLE>
INDEX TO SCHEDULES
------------------
<CAPTION>
Page
----
<S> <C>
Centerior Energy Corporation and Subsidiaries:
- ---------------------------------------------
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:
- ------------------------------------------------------------
Schedule II Valuation and Qualifying Accounts for the S-3
Years Ended December 31, 1994, 1993 and 1992
The Toledo Edison Company:
- -------------------------
Schedule II Valuation and Qualifying Accounts for the S-4
Years Ended December 31, 1994, 1993 and 1992
<FN>
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable.
</TABLE>
S-1
<PAGE> 126
<TABLE>
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Thousands of Dollars)
<CAPTION>
Additions Deductions
---------------------------- ----------------------------
Balance at Charged to Deductions Balance at
Beginning Income from End of
Description of Period Statement Other Reserves Other Period
- ----------- ------------ ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Reflected as Reductions
to the Related Assets:
Accumulated Provision
for Uncollectible Accounts
(Deduction from Amounts Due
from Customers and Others)
1994 $3,703 $12,779 (a) $6,047 (b) $19,010 (a)(c) $0 $3,519
1993 3,723 14,139 (a) 3,516 (b) 17,675 (a)(c) 0 3,703
1992 3,703 19,673 (a) 2,376 (b) 22,029 (a)(c) 0 3,723
Reserve for Perry Unit 2
Allowance for Funds Used
During Construction
(Deduction from Perry
Unit 2)
1994 $0 $0 $0 $0 $0 $0
1993 212,693 0 0 212,693 (d) 0 0
1992 212,693 0 0 0 0 212,693
FN>
(a) Includes a provision and corresponding write-off of uncollectible accounts
of $4,695,000, $4,550,000 and $5,968,000 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 PUCO approved surcharge tariff.
(b) Includes amounts for collection of accounts previously written off and
deferral of PIPP uncollectibles in excess of the amounts included in the
last base rate cases. The amounts deferred for future recovery were
$2,382,000, $971,000 and $37,000 in 1994, 1993 and 1992, respectively.
(c) Uncollectible accounts written off.
(d) Write-off of Perry Unit 2 investment.
</TABLE>
S-2
<PAGE> 127
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Thousands of Dollars)
<CAPTION>
Additions Deductions
---------------------------- ----------------------------
Balance at Charged to Deductions Balance at
Beginning Income from End of
Description of Period Statement Other Reserves Other Period
- ----------- ------------ ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Reflected as Reductions
to the Related Assets:
Accumulated Provision
for Uncollectible Accounts
(Deduction from Amounts Due
from Customers and Others)
1994 $2,313 $8,354 (a) $4,508 (b) $13,046 (a)(c) $0 $2,129
1993 2,333 9,280 (a) 1,813 (b) 11,113 (a)(c) 0 2,313
1992 2,313 16,359 (a) 1,309 (b) 17,648 (a)(c) 0 2,333
Reserve for Perry Unit 2
Allowance for Funds Used
During Construction
(Deduction from Perry
Unit 2)
1994 $0 $0 $0 $0 $0 $0
1993 124,398 0 0 124,398 (d) 0 0
1992 124,398 0 0 0 0 124,398
<FN>
(a) Includes a provision and corresponding write-off of uncollectible accounts
of $2,499,000, $2,447,000 and $5,269,000 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 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
$1,971,000 and $507,000 in 1994 and 1993, respectively.
(c) Uncollectible accounts written off.
(d) Write-off of Perry Unit 2 investment.
</TABLE>
S-3
<PAGE> 128
<TABLE>
THE TOLEDO EDISON COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Thousands of Dollars)
<CAPTION>
Additions Deductions
---------------------------- ----------------------------
Balance at Charged to Deductions Balance at
Beginning Income from End of
Description of Period Statement Other Reserves Other Period
- ----------- ------------ ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Reflected as Reductions
to the Related Assets:
Accumulated Provision
for Uncollectible Accounts
(Deduction from Amounts Due
from Customers and Others)
1994 $1,390 $4,425 (a) $1,539 (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
Reserve for Perry Unit 2
Allowance for Funds Used
During Construction
(Deduction from Perry
Unit 2)
1994 $0 $0 $0 $0 $0 $0
1993 88,295 0 0 88,295 (d) 0 0
1992 88,295 0 0 0 0 88,295
<FN>
(a) Includes a provision and corresponding write-off of uncollectible accounts
of $2,196,000, $2,103,000 and $699,000 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 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
$411,000, $464,000 and $37,000 in 1994, 1993 and 1992, respectively.
(c) Uncollectible accounts written off.
(d) Write-off of Perry Unit 2 investment.
</TABLE>
S-4
<PAGE> 129
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
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.
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.
<TABLE>
COMBINED PRO FORMA CONDENSED BALANCE SHEETS
OF CLEVELAND ELECTRIC AND TOLEDO EDISON
(Unaudited)
(Millions of Dollars)
<CAPTION>
At December 31, 1994
---------------------------------------------
Historical
------------------
Cleveland Toledo Adjust- Pro Forma
Electric Edison ments Totals
--------- ------ ------- ---------
<S> <C> <C> <C> <C>
Assets
- ------
Property, Plant and Equipment $7,637 $3,435 $ - $11,072
Less: Accumulated Depreciation
and Amortization 2,486 1,273 - 3,759
------ ------ ----- -------
Net Property, Plant and
Equipment 5,151 2,162 - 7,313
Current Assets 584 322 (22)(A) 884
Deferred Charges and
Other Assets 1,416 1,018 ( 7)(B) 2,427
------ ------ ----- -------
Total Assets $7,151 $3,502 $(29) $10,624
====== ====== ===== =======
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common Stock Equity $1,058 $ 685 $ - $ 1,743
Preferred Stock:
With Mandatory Redemption
Provisions 246 7 - 253
Without 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 $(29) $10,624
====== ====== ===== =======
</TABLE>
P-1
<PAGE> 130
<TABLE>
<CAPTION>
At December 31, 1993
---------------------------------------------
Historical
------------------
Cleveland Toledo Adjust- Pro Forma
Electric Edison ments Totals
--------- ------ ------- ---------
<S> <C> <C> <C> <C>
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 $(29) $10,640
====== ====== ===== =======
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common Stock Equity $1,040 $ 623 $ (1)(R) $ 1,662
Preferred Stock:
With Mandatory Redemption
Provisions 285 28 - 313
Without Mandatory 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 $(29) $10,640
====== ====== ===== =======
</TABLE>
P-2
<PAGE> 131
COMBINED PRO FORMA CONDENSED INCOME STATEMENTS
OF CLEVELAND ELECTRIC AND TOLEDO EDISON
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
---------------------------------------------
Historical
------------------
Cleveland Toledo Adjust- Pro Forma
Electric Edison ments Totals
--------- ------ ------- ---------
<S> <C> <C> <C> <C>
Operating Revenues $1,698 $ 865 $(141)(C) $2,422
Operating Expenses 1,302 685 (143)(C,D) 1,844
------ ----- ----- ------
Operating Income 396 180 2 578
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 $ - $ 202
====== ===== ===== ======
<CAPTION>
Year Ended December 31, 1993
---------------------------------------------
Historical
------------------
Cleveland Toledo Adjust- Pro Forma
Electric Edison ments Totals
--------- ------ ------- ---------
<S> <C> <C> <C> <C>
Operating Revenues $1,751 $ 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 (Loss) (587) (289) - (876)
Preferred Dividend Requirements 45 23 - 68
------ ----- ----- ------
(Loss) Available for Common
Stock $ (632) $(312) $ - $ (944)
====== ===== ===== ======
<CAPTION>
Year Ended December 31, 1992
---------------------------------------------
Historical
------------------
Cleveland Toledo Adjust- Pro Forma
Electric Edison ments Totals
--------- ------ ------- ---------
<S> <C> <C> <C> <C>
Operating Revenues $1,743 $ 845 $(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 $ 164 $ 47 $ - $ 211
====== ===== ===== ======
</TABLE>
P-3
<PAGE> 132
NOTES TO COMBINED PRO FORMA CONDENSED BALANCE SHEETS AND INCOME STATEMENTS
(Unaudited)
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.
(C) Elimination of intercompany operating revenues and operating expenses.
(D) Elimination of intercompany working capital transactions.
(E) Elimination of intercompany interest income and interest expense.
(R) Rounding adjustments.
P-4
<PAGE> 133
EXHIBIT INDEX
-------------
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 (#)
is a management contract or compensatory plan or arrangement.
COMMON EXHIBITS
---------------
(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 CAPCO 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 CAPCO Group members (Exhibit
5(c)(3), File No. 2-68906, filed by Ohio Edison).
10b(2) CAPCO 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 CAPCO Transmission Facilities Agree-
ment, dated December 23, 1993 and effective as of
January 1, 1993, among the CAPCO Group members 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
Investment Responsibility charge for use of a member's
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 CAPCO 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 CAPCO Group members, dated
December 23, 1993 and effective as of September 1, 1980
(Exhibit 10b(4), 1993 Form 10-K, File Nos. 1-9130, 1-2323
and 1-3583).
10b(5) Construction Agreement, dated July 22, 1974, among the
CAPCO Group members and relating to the Perry Nuclear
Plant (Exhibit 5(yy), File No. 2-52251, filed by Toledo
Edison).
E-1
<PAGE> 134
Exhibit Number Document
- -------------- --------
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 CAPCO Group members for the
construction of Beaver Valley Unit No. 2 (Exhibit 5(d)(4),
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
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).
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 Mansfield
Funding Corporation, Cleveland Electric, Toledo Edison and
IBJ Schroder Bank & Trust Company, as Trustee (Exhibit
4(a), File No. 33-20128, filed by Cleveland Electric and
Toledo Edison).
10d(2)(b) Form of Supplemental Indenture to Collateral Trust In-
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
with the limited partnership Owner Participant named
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).
E-2
<PAGE> 135
Exhibit Number Document
- -------------- --------
10d(4)(a) Form of Facility Lease dated as of September 15, 1987
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
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).
10d(5)(a) Form of Facility Lease dated as of September 30, 1987 be-
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. 1 to the Facility Lease constituting
Exhibit 10d(5)(a) above (Exhibit 4(f), File No. 33-20128,
filed by Cleveland Electric and Toledo Edison).
10d(6)(a) Form of Participation Agreement dated as of September 15,
1987 among the limited partnership Owner Participant named
therein, the Original Loan Participants listed in Schedule
1 thereto, as Original Loan Participants, CTC Beaver
Valley Funding Corporation, as Funding Corporation, The
First National Bank of Boston, as Owner Trustee, Irving
Trust 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. 1 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) Form of Participation Agreement dated as of September 15,
1987 among the corporate Owner Participant named therein,
the Original Loan Participants listed in Schedule 1
thereto, as Original Loan Participants, CTC Beaver Valley
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and 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
<PAGE> 136
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 Mansfield 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).
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 Edison, Ground Lessor, 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, 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 Meridian Trust Company, as
Owner Trustee under a Trust Agreement dated as of
September 30, 1987 with the Owner 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 Meridian 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. 1 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 of
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
<PAGE> 137
Exhibit Number Document
- -------------- --------
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
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 Meridian Trust Company, as Owner
Trustee under a Trust Agreement dated as of September 30,
1987 with the Owner 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 Meridian 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
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).
E-5
<PAGE> 138
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 EXHIBITS
-------------------------
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 Agreements between Centerior and certain of its
current directors and officers.
21 (CEC) *List of subsidiaries.
23a (CEC) *Consent of Independent Accountants.
23b (CEC) *Consent of Counsel for Centerior Energy.
24 (CEC) *Powers of Attorney of Centerior Energy directors and
officers required to sign the Report.
27 (CEC) *Financial Data Schedule for the period ended
December 31, 1994.
CLEVELAND ELECTRIC EXHIBITS
---------------------------
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,
as amended effective October 1, 1988 and April 24, 1990
(Exhibit 3b, 1990 Form 10-K, File No. 1-2323).
4b(1) Mortgage and Deed of Trust between Cleveland Electric and
Guaranty Trust Company of New York (now Morgan 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
<PAGE> 139
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).
4b(7) May 1, 1954 (Exhibit 4(d), File No. 2-10830).
4b(8) March 1, 1958 (Exhibit 2(a)(4), File No. 2-13839).
4b(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).
4b(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).
4b(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) May 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-Q,
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-Q, 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).
4b(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-Q, File No. 1-2323).
4b(35) November 1, 1982 (Exhibit 4(a)(2), September 30, 1982 Form
10-Q, File No. 1-2323).
4b(36) November 15, 1982 (Exhibit 4(b)(36), 1982 Form 10-K, File
No. 1-2323).
E-7
<PAGE> 140
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.
1-2323).
4b(40) June 27, 1984 (Exhibit 4, June 11, 1984 Form 8-K, File No.
1-2323).
4b(41) September 4, 1984 (Exhibit 4b(41), 1984 Form 10-K, File
No. 1-2323).
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).
4b(45) May 28, 1985 (Exhibit 4(b), May 8, 1985 Form 8-K, File No.
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).
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
10-Q, File No. 1-2323).
4b(62) May 1, 1991 (Exhibit 4(a), June 30, 1991 Form 10-Q, File
No. 1-2323).
E-8
<PAGE> 141
Exhibit Number Document
- -------------- --------
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
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
Form 10-Q, File No. 1-2323).
4c Open-End Subordinate Indenture of Mortgage between The
Cleveland Electric Illuminating Company and Bank One,
Columbus, N.A., as Trustee, Dated as of June 1, 1994
(Exhibit 4(a), August 26, 1994 Form 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.
TOLEDO EDISON EXHIBITS
----------------------
Exhibit Number Document
- -------------- --------
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:
E-9
<PAGE> 142
Exhibit Number Document
- -------------- --------
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).
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).
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.
1-3583).
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).
E-10
<PAGE> 143
Exhibit Number Document
- -------------- --------
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).
4b(42) September 15, 1994 (Exhibit 4(b), September 30, 1994 Form
10-Q, 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) *Powers 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 will 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.
E-11
<PAGE> 1
Exhibit 10(a)(CEC)
CENTERIOR ENERGY CORPORATION
Each of the following current Directors and Officers of Centerior Energy
Corporation ("Company") has entered into the attached Indemnity Agreement with
the Company, which Agreement is currently in effect.
Richard P. Anderson Director
Albert C. Bersticker Director
Leigh Carter Director
Thomas A. Commes Director
William F. Conway Director
Wayne R. Embry Director
Robert J. Farling Director, Chairman of the Board
and President
George H. Kaull Director
Richard A. Miller Director
Frank E. Mosier Director
Sister Mary Marthe Reinhard Director
Robert C. Savage Director
William J. Williams Director
Murray R. Edelman Executive Vice President
Fred J. Lange, Jr. Senior Vice President
Gary R. Leidich Vice President
March 21, 1995
<PAGE> 2
CENTERIOR ENERGY CORPORATION
DIRECTOR OR OFFICER
INDEMNITY AGREEMENT
This Agreement made as of the date stated at the end hereof, between Centerior
Energy Corporation, an Ohio corporation (the "Company") and the Indemnitee
whose name appears above his signature at the end hereof, a director or
officer of the Company (the "Indemnitee");
Whereas, the Company and Indemnitee are each aware of the exposure to litiga-
tion of directors and officers of the Company as such persons exercise their
duties to the Company;
Whereas, the Company and Indemnitee also are aware of conditions in the
insurance industry that have affected and may continue to affect the Company's
ability to obtain appropriate directors' and officers' liability insurance on
an economically acceptable basis;
Whereas, the Company desires to continue to benefit from the services of
highly qualified, experienced and otherwise competent persons such as
Indemnitee;
Whereas, Indemnitee desires to serve or to continue to serve the Company as a
director or officer or as a director, officer, employee, agent or trustee of
another corporation, partnership, joint venture, trust or other enterprise in
which the Company has a direct or indirect ownership interest for so long as
the Company continues to provide on an acceptable basis adequate and reliable
indemnification against certain liabilities and expenses which may be incurred
by Indemnitee.
Now, Therefore, in consideration of the foregoing premises and the mutual
convenants herein contained, the parties hereto agree as follows:
1. Indemnification
Subject to the terms of this Agreement, the Company shall indemnify Indemnitee
with respect to his activities as a director or officer of the Company and/or
as a person who is serving or has served on behalf of the Company as a
director, officer, employee, agent or trustee of another corporation, partner-
ship, joint venture, trust or other enterprise, domestic or foreign, in which
the Company has a direct or indirect ownership interest (an "affiliated
entity") against expenses and liabilities (including, but not limited to,
attorneys' fees, judgments, fines and amounts paid in settlement) actually and
reasonably incurred by him ("Expenses") in connection with any claim against
Indemnitee which is the subject of any threatened, asserted, pending or com-
pleted action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise and whether formal or informal (a "Proceeding"), to
which Indemnitee was, is or is threatened to be made a party by reason of
facts which include Indemnitee's being or having been such a director,
-1-
<PAGE> 3
officer, employee, agent or representative, to the extent of the highest and
most advantageous to Indemnitee, as determined by Indemnitee, of one or any
combination of the following:
(a) The benefits provided by the Company's Regulations in effect on the
date hereof (or as adopted by the share owners of the Company at the
1987 annual meeting of share owners);
(b) The benefits provided by the Articles of Incorporation, Regulations,
By-laws or their equivalent of the Company in effect at the time
Expenses are incurred by Indemnitee;
(c) The benefits allowable under Ohio law in effect at the date hereof;
(d) The benefits allowable under the law of the jurisdiction under which
the Company exists at the time Expenses are incurred by Indemnitee;
(e) The benefits available under directors' and officers' liability
insurance obtained by the Company and in effect for directors or
officers of the Company at the time a claim for Expenses is made
against Indemnitee or the Company;
(f) The benefits which would be available to Indemnitee if the Directors'
and Officers' Liability Insurance and Reimbursement for Directors and
Officers Liability Policy issued to The Cleveland Electric
Illuminating Company by Harbor Insurance Company and other insurers
which expired on April 29, 1985 and which was designated as policy
number HI 165461 were in effect for directors and officers of the
Company at the time a claim for Expenses is made against Indemnitee
or the Company; and
(g) Such other benefits as are or may be otherwise available to
Indemnitee.
Any combination of two or more of the benefits provided by (a) through (g)
shall be available to the extent that the Applicable Document, as hereafter
defined, does not require that the benefits provided therein be exclusive of
other benefits. The document or law providing for the benefits listed in
items (a) through (g) above for an item of Expense is called the "Applicable
Document" in this Agreement with respect to that item of Expense. The Company
hereby undertakes to use its best efforts to assist Indemnitee, in all proper
and legal ways, to obtain the benefits to which Indemnitee is entitled under
this Section 2.
For purposes of this Agreement, references to "other enterprise" shall include
any employee benefit plan for employees of the Company or of any affiliated
entity without regard to ownership of such plan; references to "fines" shall
include any excise taxes assessed against Indemnitee with respect to any
employee benefit plan; references to "is serving or has served on behalf of
the Company" shall include any service as a director, officer, employee or
agent of the Company which imposes duties on, or involves services by,
Indemnitee with respect to any employee benefit plan, its participants or
beneficiaries; references to "Proceeding" shall include any threatened,
asserted, pending or completed Proceeding; references to the masculine shall
-2-
<PAGE> 4
include the feminine; references to the singular shall include the plural and
vice versa; and if Indemnitee acted in good faith and in a manner he reason-
ably believed to be in the interest of the participants and beneficiaries of
an employee benefit plan, he shall be deemed to have acted in a manner con-
sistent with the standards required for indemnification by the Company under
the Applicable Documents.
2. Insurance
The Company shall maintain directors' and officers' liability insurance
covering Indemnitee for so long as Indemnitee's services are covered here-
under, provided and only to the extent that such insurance is available in
amounts and on terms and conditions determined by the Company to be
acceptable. However, the Company agrees that the provisions hereof shall
remain in effect regardless of whether liability or other insurance coverage
is at any time obtained or retained by the Company; except that any payments
made to Indemnitee for an Expense under an insurance policy obtained or
retained by the Company shall reduce the obligation of the Company to make
payments for such Expense hereunder by the amount of the payments made under
any such insurance policy.
3. Payment of Expenses
At Indemnitee's request, the Company shall pay the Expenses as and when
incurred by Indemnitee, after receipt of written notice pursuant to Section 6
hereof and an undertaking, in the form attached hereto, by or on behalf of
Indemnitee (i) to repay such amounts so paid on Indemnitee's behalf if it
shall ultimately be determined under the Applicable Document that Indemnitee
is required to repay such amounts and (ii) to reasonably cooperate with the
Company concerning such Proceeding. That portion of Expenses which represents
attorneys' fees and other costs incurred in defending any Proceeding shall be
paid by the Company within 30 days of its receipt of such request, together
with reasonable documentation (consistent, in the case of attorney's fees,
with Company practice in payment of legal fees for outside counsel generally)
evidencing the amount and nature of such Expenses, subject to its also having
received such a notice and undertaking.
4. Trust Fund
The Company shall irrevocably deposit into a trust fund (the "Trust") assets
having an aggregate value of $600,000 as collateral security for the initial
funding of its obligations hereunder and under similar agreements with other
directors or officers. The Company shall promptly provide Indemnitee with a
true and complete copy of the agreement relating to the establishment and
operation of the Trust, together with such additional documentation or
information with respect to the Trust as Indemnitee may from time to time
reasonably request. The Company shall promptly deliver an executed copy of
this Agreement to the trustee of the Trust to evidence to the trustee that
Indemnitee is a beneficiary of the Trust and shall deliver to Indemnitee the
trustee's signed receipt evidencing that delivery. The Company shall have the
right, but no obligation, to replenish the Trust for amounts distributed from
time to time to the beneficiaries thereof.
-3-
<PAGE> 5
5. Additional Rights
The indemnification provided in this Agreement shall not be exclusive of any
other indemnification or right to which Indemnitee may be entitled and shall
continue after Indemnitee has ceased to occupy a position as an officer,
director, employee, agent or trustee as described in Section 1 above with
respect to Proceedings relating to or arising out of Indemnitee's acts or
omissions during his service in such position.
6. Notice to Company
Indemnitee shall provide to the Company prompt written notice of any
Proceeding threatened, asserted or commenced against Indemnitee with respect
to which Indemnitee may assert a right to indemnification hereunder; provided
that failure to provide such notice shall not in any way limit Indemnitee's
rights under this Agreement.
7. Cooperation in Defense and Settlement
Indemnitee shall not make any admission or effect any settlement of any
Proceeding without the Company's written consent unless Indemnitee shall have
determined to undertake his own defense in such matter and has waived the
benefits of this Agreement. The Company shall not settle any Proceeding to
which Indemnitee is a party in any manner which would impose any Expense on
Indemnitee without his written consent. Neither Indemnitee nor the Company
shall unreasonably withhold consent to any proposed settlement. Indemnitee
and the Company shall cooperate to the extent reasonably possible with each
other and with the Company's insurers, in attempts to defend and/or settle any
Proceeding.
8. Assumption of Defense
Except as otherwise provided below, to the extent that it may wish, the
Company jointly with any other indemnifying party similarly notified will be
entitled to assume Indemnitee's defense in any Proceeding, with counsel
mutually satisfactory to Indemnitee and the Company. After notice from the
Company to Indemnitee of the Company's election so to assume such defense, the
Company shall not be liable to Indemnitee under this Agreement for Expenses
subsequently incurred by Indemnitee in connection with the defense thereof
other than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ counsel in such Proceeding, but the
fees and expenses of such counsel incurred after notice from the Company of
its assumption of the defense thereof shall be at Indemnitee's expense unless:
(a) The employment of counsel by Indemnitee has been authorized by the
Company;
(b) Counsel employed by the Company initially is unacceptable or later
becomes unacceptable to Indemnitee and such unacceptability is
reasonable under then existing circumstances;
(c) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between Indemnitee and the Company in the
conduct of the defense of such Proceeding; or
-4-
<PAGE> 6
(d) The Company shall not have employed counsel promptly to assume the
defense of such Proceeding;
In each of which cases the fees and expenses of counsel employed by Indemnitee
shall be at the expense of the Company and subject to payment pursuant to this
Agreement. The Company shall not be entitled to assume the defense of
Indemnitee in any Proceeding brought by or on behalf of the Company or as to
which Indemnitee shall have made either of the conclusions provided for in
clauses (b) or (c) above.
9. Enforcement
In the event any dispute or controversy shall arise under this Agreement
between Indemnitee and the Company with respect to whether the Indemnitee is
entitled to indemnification in connection with any Proceeding or with respect
to any amount of Expenses incurred, then Indemnitee may seek to enforce the
Agreement with respect to such dispute or controversy through legal action or,
at Indemnitee's sole option and written request, through arbitration. If
arbitration is requested, such dispute or controversy shall be submitted by
the parties to binding arbitration in the City of Cleveland, State of Ohio,
before a single arbitrator agreeable to both parties. If the parties cannot
agree on a designated arbitrator within 15 days after arbitration is requested
in writing by Indemnitee, the arbitration shall proceed in the City of
Cleveland, State of Ohio, before an arbitrator appointed by the American
Arbitration Association. In either case, the arbitration proceeding shall
commence promptly under the rules then in effect of that Association and the
arbitrator agreed to by the parties or appointed by that Association shall be
an attorney other than an attorney who has, or is associated with a firm
having associated with it an attorney which has been retained by or performed
services for the Company or Indemnitee at any time during the five years
preceding the commencement of the arbitration. The award shall be rendered in
such form that judgment may be entered thereon in any court having jurisdic-
tion thereof. The prevailing party shall be entitled to prompt reimbursement
of any costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred in connection with such legal action or arbitration;
provided that Indemnitee shall not be obligated to reimburse the Company
unless the court or arbitrator which resolves the dispute determines that
Indemnitee acted in bad faith in bringing such action or arbitration.
10. Exclusions
Notwithstanding the scope of indemnification which may be available to
Indemnitee from time to time under any Applicable Document, no indemnifica-
tion, reimbursement or payment shall be required of the Company hereunder with
respect to:
(a) Any claim or any part thereof as to which Indemnitee shall have been
determined by a court of competent jurisdiction from which no appeal
is or can be taken, by clear and convincing evidence, to have acted
or failed to act with deliberate intent to cause injury to the
Company or with reckless disregard for the best interest of the
Company.
-5-
<PAGE> 7
(b) Any claim or any part thereof arising under Section 16(b) of the
Securities Exchange Act of 1934 pursuant to which Indemnitee shall be
obligated to pay any penalty, fine, settlement or judgment;
(c) Any obligation of Indemnitee based upon or attributable to the
Indemnitee gaining any personal gain, profit or advantage to which
he was not entitled; or
(d) Any Proceeding initiated by Indemnitee without the consent or
authorization of the Board of Directors of the Company, provided
that this exclusion shall not apply with respect to any claims
brought by Indemnitee (i) to enforce his rights under this Agreement
or (ii) in any Proceeding initiated by another person or entity
whether or not such claims were brought by Indemnitee against a
person or entity who was otherwise a party to such Proceeding.
Nothing in this Section 10 shall eliminate or diminish the Company's
obligations to advance that portion of Indemnitee's Expenses which represent
attorneys' fees and other costs incurred in defending any Proceeding pursuant
to Section 3 of this Agreement.
11. Extraordinary Transactions
The Company agrees that, in the event of any merger, consolidation or
reorganization in which the Company is not the surviving entity, any sale of
all or substantially all of the assets of the Company or any liquidation of
the Company (each such event is hereinafter referred to as an "extraordinary
transaction"), the Company shall:
(a) Have the obligations of the Company under this Agreement expressly
assumed by the survivor, purchaser or successor, as the case may be,
in such extraordinary transaction; or
(b) Otherwise adequately provide for the satisfaction of the Company's
obligations under this Agreement in a manner acceptable to
Indemnitee.
12. No Personal Liability
Indemnitee agrees that no director, officer, employee, representative or agent
of the Company shall be personally liable for the satisfaction of the
Company's obligations under this Agreement, and Indemnitee shall look solely
to the assets of the Company, any insurance referred to in Section 2 hereof
and the assets of the Trust for satisfaction of any claims hereunder.
13. Severability
If any provision, phrase or other portion of this Agreement shall be deter-
mined by any court of competent jurisdiction to be invalid, illegal or
unenforceable, in whole or in part, and such determination shall become final,
then such provision, phrase or other portion shall be deemed to be severed or
limited, but only to the extent required to render the remaining provisions
and portions of the Agreement enforceable, and the Agreement as so modified
shall be enforced to give effect to the intention of the parties insofar as
that is possible.
-6-
<PAGE> 8
14. Subrogation
In the event of any payment under this Agreement, the Company shall be
subrogated to the extent thereof to all rights to indemnification or
reimbursement against any insurer or other entity or person vested in
Indemnitee, who shall execute all instruments and take all other actions as
shall be reasonably necessary for the Company to enforce such rights.
15. Governing Law
This Agreement shall be construed and enforced in accordance with and governed
by the laws of the State of Ohio.
16. Notices
All notices, requests, demands and other communications hereunder shall be in
writing and shall be considered to have been duly given if delivered by hand
and receipted for by the party to whom the notice, request, demand or other
communication shall have been directed, or mailed by certified mail, return
receipt requested, with postage prepaid:
(a) If to the Company, to:
CENTERIOR ENERGY CORPORATION
6200 Oak Tree Boulevard
Post Office Box 94661
Independence, Ohio 44101-4661; and
(b) If to Indemnitee, at the address stated below the name of Indemnitee
at the end of this Agreement.
or to such other or further address as shall be designated from time to time
by the Company or Indemnitee to the other.
17. Termination
This Agreement may be terminated by either party upon not less than 60 days
prior written notice delivered to the other party, but such termination shall
not in any way diminish the obligations of Company hereunder (or Indemnitee's
right under the Trust) with respect to Indemnitee's activities prior to the
effective date of termination; provided, that if this Agreement has been
entered into by the Company before it shall have been authorized by the share
owners of the Company at its 1987 annual meeting, it shall terminate
automatically and be void ab initio if the share owners of the Company shall
not have ratified this Agreement at such annual meeting.
18. Amendments and Binding Effect
This Agreement and the rights and duties of Indemnitee and the Company
hereunder may not be amended, modified or terminated except by written
instrument signed and delivered by the parties hereto. This Agreement is and
shall be binding upon and shall inure to the benefit of the parties thereto
and their respective heirs, executors, administrators, successors and assigns.
-7-
<PAGE> 9
In Witness Whereof, the undersigned have executed this Agreement in triplicate
on the _____________ day of ___________________, ____, effective as of the
_____________ day of ___________________, ____.
INDEMNITEE: CENTERIOR ENERGY CORPORATION
____________________________________
Title: ____________________________ By: _________________________________
Signed: ___________________________ Title: ______________________________
Address: __________________________ Signed: _____________________________
____________________________________
____________________________________
-8-
<PAGE> 10
CENTERIOR ENERGY CORPORATION
DIRECTOR OR OFFICER
INDEMNITY AGREEMENT
UNDERTAKING TO REIMBURSE PAYMENT OF EXPENSES
This Undertaking has been entered into by the Indemnitee whose name appears
above his signature below (hereinafter "Indemnitee") pursuant to an Indemnity
Agreement dated the date set forth below (the "Indemnity Agreement") between
Centerior Energy Corporation (hereinafter "Company"), an Ohio corporation and
Indemnitee.
WITNESSETH:
Whereas, pursuant to the Indemnity Agreement, Company agreed to pay Expenses
(within the meaning of the Indemnity Agreement) as and when incurred by
Indemnitee in connection with any claim against Indemnitee which is the
subject of any threatened, asserted, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
Indemnitee was, is or is threatened to be made a party by reason of facts
which include Indemnitee's being or having been a director or officer of the
Company and/or as a person who is serving or has served on behalf of the
Company as a director, officer, employee, agent or trustee of another
corporation, partnership, joint venture, trust or other enterprise, domestic
or foreign, in which the Company has a direct or indirect ownership interest;
and
Whereas, such a claim has arisen against Indemnitee (hereinafter the
"Proceeding"), Indemnitee has notified Company of the Proceeding in accordance
with the terms of Section 6 of the Indemnity Agreement and a copy of the
Proceeding and notice are attached hereto as Exhibits A and B, respectively.
Now, Therefore, Indemnitee hereby agrees that in consideration of Company's
advance payment of Indemnitee's Expenses incurred prior to a final disposition
of the Proceeding, Indemnitee hereby undertakes to reimburse Company for any
and all Expenses paid by Company on behalf of Indemnitee prior to a final
disposition of the Proceeding in the event that Indemnitee is determined under
the Applicable Document (within the meaning of the Indemnity Agreement) to be
required to repay such amounts to the Company pursuant to the Indemnity
Agreement and applicable law, provided that if Indemnitee is entitled under
the Applicable Document to indemnification for some or a portion of such
Expenses, Indemnitee's obligation to reimburse Company shall apply only to
those Expenses which Indemnitee is so determined to be required to repay.
Such reimbursement or arrangements for reimbursement by Indemnitee shall be
consummated within 90 days after a determination that Indemnitee is so
required to repay such amounts to the Company pursuant to the Indemnity
Agreement and applicable law.
The Indemnitee agrees to reasonably cooperate with the Company concerning such
Proceeding.
-9-
<PAGE> 11
In Witness Whereof, the undersigned has set his hand this _____________ day of
______________________, 19__.
Date of Indemnity Agreement: INDEMNITEE:
________________________________ ______________________________________
Signed: _____________________________
-10-
<PAGE> 1
EXHIBIT 21 (CEC)
LIST OF SUBSIDIARIES
--------------------
OF
--
CENTERIOR ENERGY CORPORATION
----------------------------
The subsidiaries of Centerior Energy Corporation, all wholly-owned, are The
Cleveland Electric Illuminating Company, The Toledo Edison Company,
Centerior Service Company, Centerior Properties Company, CCO Company,
Dynamic Energy Ventures, Inc. and Diagnostic Services Group, Inc.. All
those subsidiaries are incorporated under the laws of the State of Ohio and
do not do business under any names other than those listed above, except that
The Cleveland Electric Illuminating Company does business under the trade
name The Illuminating Company.
<PAGE> 1
EXHIBIT 23a (CEC)
CENTERIOR ENERGY CORPORATION
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
of our report on the consolidated financial statements and schedule of
Centerior Energy Corporation and subsidiaries dated February 17, 1995,
included in this Form 10-K, into Centerior Energy Corporation's previously
filed Registration Statements, File Nos. 33-4788, 33-9736, 33-47231 and
33-49957.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 20, 1995
<PAGE> 1
EXHIBIT 23b (CEC)
CONSENT OF COUNSEL
------------------
FOR
---
CENTERIOR ENERGY CORPORATION
----------------------------
The statements as to matters of law and legal conclusions under the headings
"General Regulation", "Environmental Regulation" and "Electric Rates" in Item
1. and "Title to Property" in Item 2. and "Legal Proceedings" in Item 3. of the
Centerior Energy Corporation Annual Report on Form 10-K for the year ended
December 31, 1994 have been prepared under my supervision and in my opinion
such respective statements as to such matters are correct.
I hereby consent to the use of my name in connection with the statements
prepared under my supervision as stated in the preceding paragraph and to the
incorporation by reference of those statements into the respective Prospectuses
now and hereafter constituting parts of the Registration Statements previously
filed by Centerior Energy Corporation under File Nos. 33-4788, 33-9736,
33-47231 and 33-49957 and to the reference to me under the heading "Experts" in
such Prospectuses.
TERRENCE G. LINNERT
-------------------
Terrence G. Linnert
Vice President - Legal & Governmental Affairs and
General Counsel of Centerior Service Company
March 20, 1995
<PAGE> 1
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 3rd
day of March, 1995.
ROBERT J. FARLING
----------------------
Robert J. Farling
Chairman, President and Chief
Executive Officer and Director
Signed and acknowledged in the presence of: J. T. PERCIO
-----------------------
<PAGE> 2
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 3rd
day of March, 1995.
GARY R. LEIDICH
----------------------
Gary R. Leidich
Vice President and Chief Financial
Officer
Signed and acknowledged in the presence of: J. T. PERCIO
--------------------------
<PAGE> 3
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this
24th day of Feb., 1995.
E. LYLE PEPIN
------------------
E. Lyle Pepin
Controller
Signed and acknowledged in the presence of: RUTH A. HARNER
-----------------------------
<PAGE> 4
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this
4th day of March, 1995.
RICHARD P. ANDERSON
------------------------
Richard P. Anderson
Director
Signed and acknowledged in the presence of: JOANNE KAPNICK
-----------------------------
<PAGE> 5
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 28
day of February, 1995.
A. C. BERSTICKER
--------------------------
Albert C. Bersticker
Director
Signed and acknowledged in the presence of: T. A. COMMES
-------------------------
<PAGE> 6
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 28
day of Feb., 1995.
LEIGH CARTER
-----------------------
Leigh Carter
Director
Signed and acknowledged in the presence of: JEAN C. BROOKS
-------------------------------
<PAGE> 7
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this
24th day of February, 1995.
THOMAS A. COMMES
---------------------------
Thomas A. Commes
Director
Signed and acknowledged in the presence of: J. T. PERCIO
-----------------------------
<PAGE> 8
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this
28th day of February, 1995.
WILLIAM F. CONWAY
-------------------------
William F. Conway
Director
Signed and acknowledged in the presence of: J. T. PERCIO
----------------------------
<PAGE> 9
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this
28th day of February, 1995.
WAYNE R. EMBRY
-----------------------
Wayne R. Embry
Director
Signed and acknowledged in the presence of: TERRENCE G. LINNERT
--------------------------------
<PAGE> 10
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 27
day of Feb., 1995.
GEORGE H. KAULL
-----------------------
George H. Kaull
Director
Signed and acknowledged in the presence of: BARBARA WEBSTER
----------------------------
<PAGE> 11
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 25
day of Feb., 1995.
R. A. MILLER
-------------------------
Richard A. Miller
Director
Signed and acknowledged in the presence of: J. T. PERCIO
-------------------------
<PAGE> 12
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 1st
day of March, 1995.
FRANK E. MOSIER
---------------------------
Frank E. Mosier
Director
Signed and acknowledged in the presence of: PATRICIA J. CUMBERLAND
---------------------------------
<PAGE> 13
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 28
day of February, 1995.
SISTER MARY MARTHE REINHARD, SND
--------------------------------
Sister Mary Marthe Reinhard, SND
Director
Signed and acknowledged in the presence of: SR. M. JOANNE MILLER, SND
---------------------------------
<PAGE> 14
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 15
day of March, 1995.
ROBERT C. SAVAGE
-----------------------
Robert C. Savage
Director
Signed and acknowledged in the presence of: STACY L. TAYLOR
----------------------------
<PAGE> 15
EXHIBIT 24 (CEC)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
CENTERIOR ENERGY CORPORATION
----------------------------
The undersigned, being a director or officer or both (as stated under his or
her signature below) of Centerior Energy Corporation, an Ohio corporation
(hereinafter called the "Company"), does hereby constitute and appoint each of
Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich,
Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J.
Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C. Regulinski and Bruce T.
Rosenbaum, as an attorney of the undersigned with power to act alone for and in
the name, place and stead of the undersigned, with power of substitution and
resubstitution, to sign and file, including electronic filing, on behalf of the
undersigned acting in his or her capacity as such director or officer the
Company's Form 10-K Annual Report for the year ended December 31, 1994, and any
and all amendments, exhibits and supplementary information thereto, with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, with full power and authority to do and perform any and all acts and
things whatsoever requisite and necessary to be done in the premises and the
undersigned hereby ratifies and approves the acts of each such attorney and any
such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this
15th day of March, 1995.
WILLIAM J. WILLIAMS
------------------------------
William J. Williams
Director
Signed and acknowledged in the presence of: SARA J. WILLIAMS
--------------------------------
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
FORM 10-K FINANCIAL STATEMENTS FOR THE CENTERIOR ENERGY CORPORATION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000774197
<NAME> CENTERIOR ENERGY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,993,385
<OTHER-PROPERTY-AND-INVEST> 425,602
<TOTAL-CURRENT-ASSETS> 925,597
<TOTAL-DEFERRED-CHARGES> 2,346,872
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,691,456
<COMMON> 2,319,638
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> (437,708)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,881,930
252,656
450,871
<LONG-TERM-DEBT-NET> 3,697,082
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 326,195
47,256
<CAPITAL-LEASE-OBLIGATIONS> 219,465
<LEASES-CURRENT> 83,099
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,732,902
<TOT-CAPITALIZATION-AND-LIAB> 10,691,456
<GROSS-OPERATING-REVENUE> 2,421,040
<INCOME-TAX-EXPENSE> 114,301
<OTHER-OPERATING-EXPENSES> 1,729,369
<TOTAL-OPERATING-EXPENSES> 1,843,670
<OPERATING-INCOME-LOSS> 577,370
<OTHER-INCOME-NET> 46,865
<INCOME-BEFORE-INTEREST-EXPEN> 624,235
<TOTAL-INTEREST-EXPENSE> 355,049
<NET-INCOME> 203,529
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 118,227
<TOTAL-INTEREST-ON-BONDS> 293,864
<CASH-FLOW-OPERATIONS> 567,883
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 23a (CEI)
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
of our report on the consolidated financial statements and schedule of
The Cleveland Electric Illuminating Company and subsidiaries dated February
17, 1995, included in this Form 10-K, into The Cleveland Electric Illuminating
Company's previously filed Registration Statement, File No. 33-55513.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 20, 1995
<PAGE> 1
EXHIBIT 23b (CEI)
CONSENT OF COUNSEL
------------------
FOR
---
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
-------------------------------------------
The statements as to matters of law and legal conclusions under the headings
"General Regulation", "Environmental Regulation" and "Electric Rates" in Item
1. and "Title to Property" in Item 2. and "Legal Proceedings" in Item 3. of the
The Cleveland Electric Illuminating Company Annual Report on Form 10-K for the
year ended December 31, 1994 have been prepared under my supervision and in my
opinion such respective statements as to such matters are correct.
I hereby consent to the use of my name in connection with the statements
prepared under my supervision as stated in the preceding paragraph and to the
incorporation by reference of those statements into the Prospectus now and
hereafter constituting a part of the Registration Statement previously filed by
The Cleveland Electric Illuminating Company under File No. 33-55513 and to the
reference to me under the heading "Experts" in such Prospectus.
TERRENCE G. LINNERT
-------------------
Terrence G. Linnert
Vice President - Legal & Governmental Affairs and
General Counsel of Centerior Service Company
March 20, 1995
<PAGE> 1
EXHIBIT 24 (CEI)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 3rd day of March, 1995.
ROBERT J. FARLING
---------------------------------
Robert J. Farling
Chairman, Chief Executive Officer
and Director
Signed and acknowledged in the presence of: J. T. PERCIO
---------------------------
<PAGE> 2
EXHIBIT 24 (CEI)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 3rd day of March, 1995.
GARY R. LEIDICH
------------------------------------------
Gary R. Leidich
Vice President and Chief Financial Officer
Signed and acknowledged in the presence of: J. T. PERCIO
-------------------------
<PAGE> 3
EXHIBIT 24 (CEI)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 24th day of Feb., 1995.
E. LYLE PEPIN
-------------
E. Lyle Pepin
Controller
Signed and acknowledged in the presence of: RUTH A. HARNER
----------------------------
<PAGE> 4
EXHIBIT 24 (CEI)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 3rd day of March, 1995.
MURRAY R. EDELMAN
----------------------
Murray R. Edelman
President and Director
Signed and acknowledged in the presence of: J. T. PERCIO
---------------------------
<PAGE> 5
EXHIBIT 24 (CEI)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 2 day of March, 1995.
FRED J. LANGE, JR.
---------------------------
Fred J. Lange, Jr.
Vice President and Director
Signed and acknowledged in the presence of: KENDRA STANO
-------------------------
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
FORM 10-K FINANCIAL STATEMENTS FOR THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000020947
<NAME> CLEVELAND ELECTRIC ILLUMINATING
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,956,252
<OTHER-PROPERTY-AND-INVEST> 238,581
<TOTAL-CURRENT-ASSETS> 583,365
<TOTAL-DEFERRED-CHARGES> 1,372,442
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,150,640
<COMMON> 1,241,087
<CAPITAL-SURPLUS-PAID-IN> 78,624
<RETAINED-EARNINGS> (261,521)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,058,190
245,971
240,871
<LONG-TERM-DEBT-NET> 2,543,036
<SHORT-TERM-NOTES> 58,100
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 246,194
35,591
<CAPITAL-LEASE-OBLIGATIONS> 132,180
<LEASES-CURRENT> 47,403
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,543,104
<TOT-CAPITALIZATION-AND-LIAB> 7,150,640
<GROSS-OPERATING-REVENUE> 1,698,021
<INCOME-TAX-EXPENSE> 81,946
<OTHER-OPERATING-EXPENSES> 1,220,066
<TOTAL-OPERATING-EXPENSES> 1,302,012
<OPERATING-INCOME-LOSS> 396,009
<OTHER-INCOME-NET> 31,447
<INCOME-BEFORE-INTEREST-EXPEN> 427,456
<TOTAL-INTEREST-EXPENSE> 242,025
<NET-INCOME> 185,431
45,437
<EARNINGS-AVAILABLE-FOR-COMM> 139,994
<COMMON-STOCK-DIVIDENDS> 122,234
<TOTAL-INTEREST-ON-BONDS> 229,702
<CASH-FLOW-OPERATIONS> 414,382
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 24 (TE)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE TOLEDO EDISON COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 3rd day of March, 1995.
ROBERT J. FARLING
---------------------------------
Robert J. Farling
Chairman, Chief Financial Officer
and Director
Signed and acknowledged in the presence of: J. T. PERCIO
---------------------------
<PAGE> 2
EXHIBIT 24 (TE)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE TOLEDO EDISON COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 3rd day of March, 1995.
GARY R. LEIDICH
------------------------------------------
Gary R. Leidich
Vice President and Chief Financial Officer
Signed and acknowledged in the presence of: J. T. PERCIO
-------------------------
<PAGE> 3
EXHIBIT 24 (TE)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE TOLEDO EDISON COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 24th day of Feb., 1995.
E. LYLE PEPIN
-------------
E. Lyle Pepin
Controller
Signed and acknowledged in the presence of: RUTH A. HARNER
----------------------------
<PAGE> 4
EXHIBIT 24 (TE)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE TOLEDO EDISON COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 3rd day of March, 1995.
MURRAY R. EDELMAN
------------------------
Murray R. Edelman
Vice Chairman and Director
Signed and acknowledged in the presence of: J. T. PERCIO
---------------------------
<PAGE> 5
EXHIBIT 24 (TE)
POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF
-----------------------------------------------
THE TOLEDO EDISON COMPANY
-------------------------------------------
The undersigned, being a director or officer or both (as stated under
his or her signature below) of The Cleveland Electric Illuminating Company, an
Ohio corporation (hereinafter called the "Company"), does hereby constitute and
appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary
R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T.
Percio, Ronald J. Studeny, Mary E. O'Reilly, Kevin P. Murphy, Michael C.
Regulinski and Bruce T. Rosenbaum as an attorney of the undersigned with power
to act alone for and in the name, place and stead of the undersigned, with
power of substitution and resubstitution, to sign and file, including
electronic filing, on behalf of the undersigned acting in his or her capacity
as such director or officer the Company's Form 10-K Annual Report for the year
ended December 31, 1994, and any and all amendments, exhibits and supplementary
information thereto, with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, with full power and authority to do and
perform any and all acts and things whatsoever requisite and necessary to be
done in the premises and the undersigned hereby ratifies and approves the acts
of each such attorney and any such substitute or substitutes.
IN WITNESS WHEREOF, the undersigned hereby has signed his or her name
this 2 day of March, 1995.
FRED J. LANGE, JR.
---------------------------
Fred J. Lange, Jr.
President and Director
Signed and acknowledged in the presence of: KENDRA STANO
-------------------------
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED
FORM 10-K FINANCIAL STATEMENTS FOR THE TOLEDO EDISON COMPANY AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000352049
<NAME> TOLEDO EDISON
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,037,133
<OTHER-PROPERTY-AND-INVEST> 163,571
<TOTAL-CURRENT-ASSETS> 322,124
<TOTAL-DEFERRED-CHARGES> 979,304
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,502,132
<COMMON> 195,687
<CAPITAL-SURPLUS-PAID-IN> 602,117
<RETAINED-EARNINGS> (113,235)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 684,568
6,685
210,000
<LONG-TERM-DEBT-NET> 1,154,046
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 71,226
11,665
<CAPITAL-LEASE-OBLIGATIONS> 87,285
<LEASES-CURRENT> 35,696
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,240,961
<TOT-CAPITALIZATION-AND-LIAB> 3,502,132
<GROSS-OPERATING-REVENUE> 864,647
<INCOME-TAX-EXPENSE> 32,687
<OTHER-OPERATING-EXPENSES> 652,461
<TOTAL-OPERATING-EXPENSES> 685,148
<OPERATING-INCOME-LOSS> 179,499
<OTHER-INCOME-NET> 17,698
<INCOME-BEFORE-INTEREST-EXPEN> 197,197
<TOTAL-INTEREST-EXPENSE> 114,666
<NET-INCOME> 82,531
20,220
<EARNINGS-AVAILABLE-FOR-COMM> 62,311
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 64,162
<CASH-FLOW-OPERATIONS> 202,406
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
