<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1995
FILE NO. 33-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OHIO
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
34-0150020
(I.R.S. EMPLOYER IDENTIFICATION NO.)
55 Public Square, Cleveland, Ohio 44101
(216) 622-9800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JANIS T. PERCIO, Secretary
c/o Centerior Energy Corporation
P. O. Box 94661
Cleveland, Ohio 44101-4661
(216) 447-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
COPIES TO:
TERRENCE G. LINNERT, Esq.
Centerior Energy Corporation
P.O. Box 94661
Cleveland, Ohio 44101-4661
ROBERT A. WEIBLE, Esq.
Baker & Hostetler
3200 National City Center
Cleveland, Ohio 44114
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the registration statement becomes effective.
------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(l) of this form, check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
=====================================================================================================
<CAPTION>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
-----------------------------------------------------------------------------------------------------
First Mortgage Bonds $150,000,000 100%* $150,000,000* $51,724.50
=====================================================================================================
<FN>
*Estimated solely for the purpose of determining the registration fee.
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
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CROSS REFERENCE SHEET
<CAPTION>
FORM S-2 ITEM LOCATION IN PROSPECTUS
----------------------------------------------- -----------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Facing Page of the Registration
Statement, Cross Reference Sheet and
Outside Front Cover Page
2. Inside Front and Outside Cover Pages of
Prospectus..................................... Inside Front Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Summary Information, Investment
Considerations and The Company
4. Use of Proceeds................................ Use of Proceeds
5. Determination of Offering Price................ Not Applicable
6. Dilution....................................... Not Applicable
7. Selling Security Holders....................... Not Applicable
8. Plan of Distribution........................... Underwriting
9. Description of Securities to be Registered..... Description of New Bonds
10. Interests of Named Experts and Counsel......... Legal Opinions and Experts
11. Information with Respect to the Registrant..... Summary Information, The Company and
Financial Statements
12. Incorporation of Certain Information by
Reference...................................... Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
</TABLE>
<PAGE> 3
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
PROSPECTUS (Subject to Completion)
Issued , 1995
$150,000,000
The Cleveland Electric Illuminating Company
FIRST MORTGAGE BONDS, % SERIES DUE 2005-B
------------------
Interest payable and
------------------
THE FIRST MORTGAGE BONDS, % SERIES DUE 2005-B (THE "NEW BONDS") WILL BE
REDEEMABLE AT THE OPTION OF THE COMPANY, IN WHOLE OR IN PART, AT ANY TIME
ON OR AFTER , 2002, UPON NOT LESS THAN 30 DAYS' NOTICE AT THE
REDEMPTION PRICES SET FORTH HEREIN, PLUS ACCRUED INTEREST. SEE
"DESCRIPTION OF NEW BONDS -- REDEMPTION" HEREIN. THE NEW BONDS
WILL BE ISSUED ONLY IN BOOK-ENTRY FORM THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------
PROSPECTIVE PURCHASERS OF THE NEW BONDS SHOULD BE AWARE OF CERTAIN
INVESTMENT CONSIDERATIONS IN EVALUATING AN INVESTMENT IN THE NEW
BONDS. SEE "INVESTMENT CONSIDERATIONS" HEREIN.
------------------
PRICE % AND ACCRUED INTEREST, IF ANY
------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Bond........................... % % %
Total.............................. $ $ $
</TABLE>
---------------
(1) Plus accrued interest, if any, from , 1995.
(2) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933.
(3) Before deduction of estimated expenses of $250,500 payable by the
Company.
------------------
The New Bonds are offered, subject to prior sale, when, as and if accepted
by the Underwriters and subject to approval of certain legal matters by Baker &
Hostetler, counsel for the Underwriters. It is expected that delivery of the New
Bonds will be made on or about , 1995, at the office of Morgan Stanley &
Co. Incorporated, New York, N.Y., against payment therefor in same day funds.
------------------
MORGAN STANLEY & CO. LEHMAN BROTHERS
Incorporated
, 1995
<PAGE> 4
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................................. 3
Incorporation of Certain Documents by Reference....................................... 3
Summary Information................................................................... 5
Investment Considerations............................................................. 8
Use of Proceeds....................................................................... 10
Capitalization........................................................................ 11
Selected Financial Information........................................................ 12
The Company........................................................................... 13
General............................................................................. 13
Strategy............................................................................ 13
Competition......................................................................... 14
Sales of Electricity................................................................ 15
Rate and Regulatory Matters......................................................... 15
1995 Rate Requests.................................................................. 16
Fuel Supply......................................................................... 16
Nuclear Units....................................................................... 17
Construction Program................................................................ 19
Regulation.......................................................................... 20
Properties.......................................................................... 21
Legal Proceedings................................................................... 21
Proposed Merger Between the Company and Toledo Edison................................. 22
Description of New Bonds.............................................................. 26
Legal Opinions........................................................................ 32
Experts............................................................................... 33
Underwriting.......................................................................... 33
Index to Financial Statements......................................................... F-1
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NEW BONDS AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
AVAILABLE INFORMATION
The Cleveland Electric Illuminating Company ("Company") is subject to the
informational requirements of the Securities Exchange Act of 1934 ("Exchange
Act") and in accordance therewith files reports and other information with the
Securities and Exchange Commission ("SEC"). Such reports and other information
can be inspected and copied at the public reference facilities maintained by the
SEC at its principal office located at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004 and at its regional offices located at 500 West
Madison, 14th Floor, Chicago, IL 60661-2511 and 7 World Trade Center, 13th
Floor, New York, NY 10048. Copies of such material also can be obtained at
prescribed rates from the Public Reference Section of the SEC at its principal
office. Such material can also be inspected at the New York Stock Exchange.
The Company has filed with the SEC a Registration Statement on Form S-2
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933 ("Securities Act") with respect to the securities offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
omits certain information set forth in the Registration Statement as permitted
by the rules and regulations of the SEC. For further information, reference is
made to the Registration Statement, including the exhibits filed therewith.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
following documents heretofore filed with the SEC, pursuant to the Exchange Act,
to which reference hereby is made:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1994 ("Form 10-K").
The report of Arthur Andersen LLP on the consolidated financial
statements and schedule of the Company as of December 31, 1994 and for
the three years then ended, included in the Form 10-K and incorporated
by reference in this Prospectus, includes an explanatory paragraph that
describes a change made in the method of accounting for postretirement
benefits other than pensions in 1993, as discussed in Note 9 to the
financial statements.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, ON THE WRITTEN OR ORAL
REQUEST OF ANY SUCH PERSON, A COPY OF THE DOCUMENT REFERRED TO ABOVE WHICH HAS
BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS, OTHER THAN EXHIBITS TO SUCH
DOCUMENT UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE INFORMATION THAT THIS PROSPECTUS INCORPORATES. REQUESTS FOR SUCH COPIES
SHOULD BE DIRECTED TO JANIS T. PERCIO, SECRETARY, THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY, C/O CENTERIOR ENERGY CORPORATION, P.O. BOX 94661,
CLEVELAND, OH 44101-4661, OR TELEPHONE (216) 447-3100.
3
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4
<PAGE> 7
SUMMARY INFORMATION
THE FOLLOWING MATERIAL IS QUALIFIED IN ITS ENTIRETY BY THE INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE.
THE COMPANY
The Company, which was incorporated under the laws of the State of Ohio in
1892, is a public utility engaged in the generation, purchase, transmission,
distribution and sale of electric energy in an area of approximately 1,700
square miles in northeastern Ohio, including the City of Cleveland. The Company
also provides electric energy at wholesale to other electric utility companies
and to two municipal electric systems in its service area. The Company serves
approximately 747,000 customers and derives approximately 77% of its total
electric retail revenue from customers outside the City of Cleveland. Principal
industries served by the Company 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 the Company's operating revenues are derived from the
sale of electric energy. The Company's energy sources for 1994 consisted of 67%
coal and 33% nuclear. At December 31, 1994, the Company had 3,547 employees.
The Company and The Toledo Edison Company ("Toledo Edison") are wholly
owned electric utility subsidiaries of Centerior Energy Corporation ("Centerior
Energy"). See "Proposed Merger Between the Company and Toledo Edison" for a
discussion of the planned merger of Toledo Edison into the Company.
In January 1994, the Company, Centerior Energy and Toledo Edison announced
a comprehensive strategic action plan ("Strategic Plan") to strengthen their
financial and competitive position through the year 2001. The Strategic Plan
objectives include achieving profitable revenue growth, becoming industry
leaders in customer satisfaction and attaining increasingly competitive power
supply costs. The attainment of such objectives would allow the companies to
significantly reduce fixed-income obligations while maximizing share owner
return.
During 1994, the Company, Centerior Energy and Toledo Edison made
significant strides in achieving the objectives of the Strategic Plan. In
February 1994, Centerior Energy reduced its quarterly common stock dividend from
$.40 per share to $.20 per share, which reduced its cash outflow by over
$110,000,000 annually. The Company's operating and maintenance expenses were
reduced by approximately $71,000,000 from 1993 due to aggressive cost reduction
measures. The Company also repaid $77,000,000 in fixed-income obligations in
1994. In addition, the Company and Toledo Edison initiated a marketing plan
designed to increase total retail revenues by 2-3% annually through 2001.
THE OFFERING
<TABLE>
<S> <C>
Securities to be Offered........... $150,000,000 principal amount of First Mortgage Bonds, %
Series due 2005-B ("New Bonds").
Interest Payment Dates............. 1 and 1, commencing 1, 1995.
Maturity........................... , 2005.
Redemption......................... The New Bonds will be redeemable at any time or from time
to time on or after , 2002, at the option of
the Company, in whole or in part at the redemption prices
set forth herein, plus accrued interest to the date of
redemption. See "Description of New Bonds -- Redemption".
</TABLE>
5
<PAGE> 8
<TABLE>
<S> <C>
Security........................... The New Bonds and all of the Company's first mortgage
bonds of other series currently outstanding and hereafter
issued under the First Mortgage (as defined under
"Description of New Bonds -- General") will be secured
equally and ratably (except as to any sinking or analogous
fund established for any particular series of first
mortgage bonds) by a valid and perfected first lien,
subject only to certain permitted liens and other
encumbrances, on substantially all the property owned and
franchises held by the Company, with certain exceptions.
See "Description of New Bonds -- Security".
Limitations on the Issuance of
Additional First Mortgage The First Mortgage contains certain limitations on the
Bonds............................ amount of additional first mortgage bonds that may be
issued. See "Description of New Bonds -- Issuance of
Additional First Mortgage Bonds".
Use of Proceeds.................... To reimburse the Company for cash expended in the optional
redemption of $26,000,000 of first mortgage bonds or to
repay any short-term debt incurred in connection
therewith, to help fund required sinking fund payments and
maturing securities in 1995 and for general corporate
purposes. See "Use of Proceeds".
</TABLE>
6
<PAGE> 9
<TABLE>
SUMMARY FINANCIAL INFORMATION
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues................... $1,691,159 $1,825,738 $1,743,167 $1,751,330 $1,698,021
Operating Income..................... $ 346,381 $ 415,690 $ 383,534 $ 222,941 $ 396,009
Deferred Carrying Charges, Net (a)... $ 161,598 $ 87,615 $ 59,112 $ (487,410) $ 25,369
Write-off of Perry Nuclear Power
Plant Unit 2....................... -- -- -- $ (350,537) --
Income (Loss) Before Interest
Charges............................ $ 493,945 $ 492,655 $ 448,031 $ (347,193) $ 427,456
Interest Charges..................... $ 251,617 $ 246,497 $ 243,092 $ 239,954 $ 242,025
Earnings (Loss) Before Interest
Charges, Income Taxes, Depreciation
and Amortization ("EBITDA") (b).... $ 758,971 $ 793,361 $ 721,993 $ (413,594) $ 708,083
Net Income (Loss).................... $ 242,328 $ 246,158 $ 204,939 $ (587,147) $ 185,431
Ratio of Earnings to Fixed Charges
(c)................................ 1.94 2.08 1.89 --(d) 1.81
Ratio of EBITDA to Interest
Charges............................ 3.02 3.22 2.97 -- 2.93
BALANCE SHEET DATA
Total Assets....................... $7,820,759 $7,942,182 $8,122,723 $7,159,173 $7,150,640
Long-Term Debt..................... $2,631,911 $2,682,805 $2,515,436 $2,793,162 $2,543,036
Preferred Stock
With Mandatory Redemption
Provisions..................... $ 171,162 $ 268,368 $ 313,818 $ 285,225 $ 245,971
Without Mandatory Redemption
Provisions..................... $ 217,334 $ 217,334 $ 144,021 $ 240,871 $ 240,871
Common Stock Equity................ $1,884,258 $1,897,401 $1,864,988 $1,039,947 $1,058,190
Total Capitalization............... $4,904,665 $5,065,908 $4,838,263 $4,359,205 $4,088,068
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------
AS
OUTSTANDING PERCENT ADJUSTED(E) PERCENT
----------- ------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CAPITALIZATION SUMMARY
Long-Term Debt................................................... $2,543,036 62.2 $2,667,036 63.3
Serial Preferred Stock........................................... 486,842 11.9 486,842 11.6
Common Stock Equity.............................................. 1,058,190 25.9 1,058,190 25.1
----------- ------- ----------- -------
Total Capitalization....................................... $4,088,068 100.0 $4,212,068 100.0
========== ======= =========== =======
<FN>
---------------
(a) In 1993, the Company wrote off $518,739,000 of deferred carrying charges.
(b) EBITDA consists of income before interest charges, plus income taxes charged
to operating expenses and to other income, plus depreciation and
amortization. EBITDA is not a measure of operating results, but rather is a
measure of debt service ability. EBITDA is not required by generally
accepted accounting principles and should not be considered as an
alternative to net income or any other measure of performance required by
generally accepted accounting principles or as an indicator of the Company's
operating performance.
(c) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of net income plus fixed charges and current and deferred
income taxes. Fixed charges consist of total interest charges (including
interest on first mortgage bonds, bank loans, commercial paper, pollution
control notes and other interest included in operation expenses;
amortization of net premium, discount and expense on debt; and capitalized
interest on nuclear fuel lease obligations) and an estimate of the interest
element of rentals (including the interest component of certain sale and
leaseback rentals, leased nuclear fuel in the reactor and other
miscellaneous rentals).
(d) Not meaningful due to a net loss. For the year ended December 31, 1993, the
net loss before income taxes and fixed charges was $501,503,000. Fixed
charges during the period were $333,610,000. The net loss before income
taxes and fixed charges included write-offs of $986,036,000 related to the
Company's investment in Perry Nuclear Power Plant Unit 2 and phase-in plan
deferred charges, and other charges of $78,675,000 attributable to an early
retirement program. Excluding these write-offs and other charges, the ratio
of earnings to fixed charges would have been 1.68.
(e) As adjusted for the proposed issuance of the New Bonds, the planned issuance
of $53,900,000 principal amount of first mortgage bonds in the second
quarter of 1995 in connection with the refinancing of certain pollution
control facilities and the related refunding of $53,900,000 principal amount
of First Mortgage Bonds, 11 1/8% Series due 2014 in the second quarter of
1995 and the planned redemption of $26,000,000 principal amount of First
Mortgage Bonds, 13 3/4% Series due 2005-A.
</TABLE>
7
<PAGE> 10
INVESTMENT CONSIDERATIONS
Prospective purchasers of the New Bonds should be aware of the investment
considerations set forth below in evaluating an investment in the New Bonds. The
information below is qualified in its entirety by the information appearing in
the financial statements included as a part of this Prospectus and in the
documents incorporated in this Prospectus by reference and should be read in
conjunction with the other information set forth in this Prospectus.
COMPETITION
The Company faces competitive challenges due to regulatory and tax
constraints and its high retail cost structure.
Currently, the Company's most pressing competition comes from the two
municipal electric systems in its service area. The Company's 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.
The Company faces the threat that municipalities in its service area could
establish new electric systems and continue expanding existing systems. The
largest municipal system in the Company's service area, Cleveland Public Power
("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 are now served exclusively by the Company. CPP's
expansion has resulted in a reduction in the Company's annual net income by
about $4,000,000 in 1993 and an additional $3,000,000 in 1994. The Company
estimates that its net income will continue to be reduced by an additional
$4,000,000 to $5,000,000 each year in the 1995-1999 period because of CPP's
expansion.
The Energy Policy Act of 1992 ("Energy Act") will continue to increase
competition in the electric utility industry by allowing broader access by
others to a utility's transmission system. It should not significantly increase
the competitive threat to the Company since the Company has been required to
wheel electricity to municipal systems in its service area since 1977 under
operating licenses for its nuclear generating units. Further, legislative
developments could eventually require utilities to deliver power from other
utilities or generation sources to their retail customers.
RATE MATTERS
Under a Rate Stabilization Program approved by The Public Utilities
Commission of Ohio ("PUCO") in October 1992 ("Rate Stabilization Program"), the
Company agreed to freeze base rates until 1996 and limit rate increases through
1998. In exchange, the Company is 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 the Company's continuing assessment and conclusion that there
will be probable recovery of such deferrals in future rates. The Company's
analysis leading to certain year-end 1993 financial actions and the strategic
plan, as discussed in "The Company -- Strategy", also included an evaluation of
the Company's regulatory accounting measures. The Company decided that, once the
deferral of expenses and acceleration of benefits under the Rate Stabilization
Program are completed in 1995, the Company should no longer plan to use these
measures to the extent it has in the past.
On March 17, 1995, the Company and Toledo Edison each notified the PUCO of
their intent to file a request for a rate increase to be effective in 1996. The
Company'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 the Company's existing rates and an
average increase of 4.7% in Toledo Edison's existing rates. The rate increases
are necessary to recover capital investment and increases in costs incurred
since the Company's and Toledo Edison's last rate cases, which were decided in
January 1989, and to recover certain costs deferred since 1992. See "Rate and
Regulatory Matters" and "1995 Rate Requests" under "The Company".
8
<PAGE> 11
REGULATORY ACCOUNTING
The Company complies with the provisions of Statement of Financial
Accounting Standards 71 ("SFAS 71") which governs accounting for the effects of
certain types of rate regulation. The Company continually monitors changes in
market and regulatory conditions and considers 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 the Company determines it no longer meets the criteria for
following SFAS 71, the Company would be required to record a before-tax charge
to write off its regulatory assets, which totaled $1,277,000,000 at December 31,
1994. In addition, the Company 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.
NUCLEAR OPERATIONS
The Company has interests in three nuclear generating units -- Davis-Besse
Nuclear Power Station ("Davis-Besse"), Perry Nuclear Power Plant Unit 1 ("Perry
Unit 1") and Beaver Valley Power Station Unit 2 ("Beaver Valley Unit 2"). The
Company operates Perry Unit 1. 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 that the Company developed
in 1993 to improve the operating performance of Perry Unit 1. Work in connection
with that course of action is ongoing.
The Company's three nuclear units may be impacted by activities or events
beyond its 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 United States Nuclear Regulatory Commission ("NRC") to
limit or prohibit the operation or licensing of any domestic nuclear unit. If
one of the Company's 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, the Company cannot predict whether regulatory authorities would impose
unfavorable rate treatment. Such treatment could include taking the affected
unit out of rate base, thereby not permitting the Company to recover its
investment in and earn a return on that asset, or disallowing certain
construction or maintenance costs. An extended outage coupled with unfavorable
rate treatment could have a material adverse effect on the Company's financial
condition and results of operations.
LIQUIDITY
At December 31, 1994, the Company would have been permitted to issue
approximately $487,000,000 of additional first mortgage bonds. See "Description
of New Bonds -- Issuance of Additional First Mortgage Bonds".
The Perry Nuclear Power Plant Unit 2 ("Perry Unit 2") and deferred charge
write-offs recorded at December 31, 1993 caused Centerior Energy, the Company
and Toledo Edison to violate certain covenants contained in various unsecured
debt agreements to which the Company is a party, including the revolving credit
facility described below. The affected creditors waived those violations in
exchange for a subordinate mortgage security interest on the Company's and
Toledo Edison's properties. This transaction was completed in August 1994.
Although the Company does not expect to raise funds through the sale of debt
junior to first mortgage bonds, it retains the ability to do so.
The Company also is able to raise funds through the sale of preferred stock
and preference stock.
The Company is a party to a $205,000,000 revolving credit facility which
runs through mid-1996. At December 31, 1994, the Company had $66,000,000 of cash
and temporary cash investments. The Company is unable to issue commercial paper
because of its below investment grade commercial paper ratings.
9
<PAGE> 12
In mid-1995, certain letters of credit now in effect in connection with the
sale and leaseback of Beaver Valley Unit 2 will expire. The Company and Toledo
Edison are required to procure replacement letters of credit in an aggregate
amount of $229,000,000. The letters of credit now in effect are secured by the
Company's and Toledo Edison's subordinate mortgages. At this time, it is likely
that the replacement letters of credit would be secured in whole or in part by
first mortgage security of the Company or Toledo Edison or a combination
thereof, while the subordinate mortgage interests would be released. If first
mortgage security is provided to secure the replacement letters of credit, it is
likely that the subordinate mortgage security provided for the $205,000,000
revolving credit facility would also be replaced by first mortgage security of
the Company or Toledo Edison or a combination thereof.
<TABLE>
The financing resources discussed above 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 the Company's 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>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the New Bonds will be
added to the general funds of the Company and used to reimburse the Company for
cash expended in the optional redemption of $26,000,000 of First Mortgage Bonds,
13 3/4% Series due 2005-A, or to repay any short-term debt incurred in
connection therewith, to help fund required sinking fund payments and maturing
securities in 1995 and for general corporate purposes.
10
<PAGE> 13
<TABLE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at December 31, 1994, and as adjusted for the issuance of the New
Bonds and the planned issuance of $53,900,000 principal amount of first mortgage
bonds in the second quarter of 1995 in connection with the refinancing of
certain pollution control facilities and the related refunding of $53,900,000
principal amount of First Mortgage Bonds, 11 1/8% Series due 2014 in the second
quarter of 1995 and the planned redemption of $26,000,000 principal amount of
First Mortgage Bonds, 13 3/4% Series due 2005-A with the proceeds from the New
Bonds.
<CAPTION>
ADJUSTMENTS
------------------------ DECEMBER 31, 1994
DECEMBER 31, 1994 ISSUANCE REFUNDINGS PRO FORMA
----------------- ---------- ---------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current liabilities:
Long-term debt and preferred
stock due within one
year..................... $ 281,785 $ -- $ -- $ 281,785
================= ========= ========== =================
Capitalization:
Common stock equity:
Common Shares without par
value: 105,000,000
authorized; 79,590,689
outstanding............ $ 1,241,087 1,241,087
Other paid in capital.... 78,624 78,624
Retained earnings
(deficit).............. (261,521) (261,521)
----------------- ---------- ---------- -----------------
Total common stock
equity.............. 1,058,190 -- -- 1,058,190
----------------- ---------- ---------- -----------------
Preferred stock:
With mandatory redemption
provisions............... 245,971 245,971
Without mandatory redemption
provisions............... 240,871 240,871
----------------- ---------- ---------- -----------------
Total preferred
stock............... 486,842 -- -- 486,842
----------------- ---------- ---------- -----------------
Long-term debt, net of amount
due within one year:
Outstanding first mortgage
bonds.................... 2,495,696(a) 2,495,696(a)
New Bonds................... 150,000 150,000
First mortgage bonds
(refunding).............. 53,900 53,900
First Mortgage Bonds,
11 1/8% Series due
2014..................... (53,900) (53,900)
First Mortgage Bonds,
13 3/4% Series due
2005-A................... (26,000) (26,000)
Term Bank Loans............. 1,600 1,600
Pollution Control Notes..... 51,920 51,920
Other....................... (6,180) (6,180)
----------------- ---------- ---------- -----------------
Total long-term debt... 2,543,036 203,900 (79,900) 2,667,036
----------------- ---------- ---------- -----------------
Total capitalization... $ 4,088,068 $ 203,900 $(79,900) $ 4,212,068
================= ========= ========== =================
<FN>
---------------
(a) Includes $515,500,000 of first mortgage bonds securing a corresponding
amount of the Company's outstanding medium-term notes.
</TABLE>
11
<PAGE> 14
<TABLE>
SELECTED FINANCIAL INFORMATION
<CAPTION>
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues................... $1,691,159 $1,825,738 $1,743,167 $1,751,330 $1,698,021
Fuel and Purchased Power Expense..... $ 412,397 $ 455,055 $ 434,238 $ 423,200 $ 390,779
Other Operation and Maintenance
Expense............................ $ 514,186 $ 469,530 $ 464,912 $ 488,958 $ 449,873
Depreciation and Amortization
Expense............................ $ 169,526 $ 170,571 $ 179,335 $ 181,565 $ 195,172
Operating Income..................... $ 346,381 $ 415,690 $ 383,534 $ 222,941 $ 396,009
Deferred Carrying Charges, Net (a)... $ 161,598 $ 87,615 $ 59,112 $ (487,410) $ 25,369
Write-off of Perry Unit 2............ $ -- $ -- $ -- $ (350,537) $ --
Income (Loss) Before Interest
Charges............................ $ 493,945 $ 492,655 $ 448,031 $ (347,193) $ 427,456
Interest Charges..................... $ 251,617 $ 246,497 $ 243,092 $ 239,954 $ 242,025
Earnings (Loss) Before Interest
Charges, Income Taxes, Depreciation
and Amortization ("EBITDA") (b).... $ 758,971 $ 793,361 $ 721,993 $ (413,594) $ 708,083
Net Income (Loss).................... $ 242,328 $ 246,158 $ 204,939 $ (587,147) $ 185,431
Preferred Dividend Requirements...... $ 36,682 $ 35,857 $ 40,538 $ 44,650 $ 45,437
Earnings (Loss) Available for Common
Stock.............................. $ 205,646 $ 210,301 $ 164,401 $ (631,797) $ 139,994
Ratio of Earnings to Fixed Charges
(c)................................ 1.94 2.08 1.89 --(d) 1.81
Ratio of EBITDA to Interest
Charges............................ 3.02 3.22 2.97 -- 2.93
OTHER DATA
Utility Plant Additions.............. $ 164,619 $ 150,005 $ 156,022 $ 175,290 $ 156,133
BALANCE SHEET DATA
Total Assets......................... $7,820,759 $7,942,182 $8,122,723 $7,159,173 $7,150,640
Current Portion of Long-Term Debt and
Preferred Stock.................... $ 97,988 $ 92,857 $ 309,838 $ 70,394 $ 281,785
Long-Term Debt....................... $2,631,911 $2,682,805 $2,515,436 $2,793,162 $2,543,036
Preferred Stock
With Mandatory Redemption
Provisions....................... $ 171,162 $ 268,368 $ 313,818 $ 285,225 $ 245,971
Without Mandatory Redemption
Provisions....................... $ 217,334 $ 217,334 $ 144,021 $ 240,871 $ 240,871
Common Stock Equity.................. $1,884,258 $1,897,401 $1,864,988 $1,039,947 $1,058,190
Total Capitalization............. $4,904,665 $5,065,908 $4,838,263 $4,359,205 $4,088,068
<FN>
---------------
(a) In 1993, the Company wrote off $518,739,000 of deferred carrying charges.
(b) EBITDA consists of income before interest charges, plus income taxes charged
to operating expenses and to other income, plus depreciation and
amortization. EBITDA is not a measure of operating results, but rather is a
measure of debt service ability. EBITDA is not required by generally
accepted accounting principles and should not be considered as an
alternative to net income or any other measure of performance required by
generally accepted accounting principles or as an indicator of the Company's
operating performance.
(c) For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of net income plus fixed charges and current and deferred
income taxes. Fixed charges consist of total interest charges (including
interest on first mortgage bonds, bank loans, commercial paper, pollution
control notes and other interest included in operation expenses;
amortization of net premium, discount and expense on debt; and capitalized
interest on nuclear fuel lease obligations) and an estimate of the interest
element of rentals (including the interest component of certain sale and
leaseback rentals, leased nuclear fuel in the reactor and other
miscellaneous rentals).
(d) Not meaningful due to a net loss. For the year ended December 31, 1993, the
net loss before income taxes and fixed charges was $501,503,000. Fixed
charges during the period were $333,610,000. The net loss before income
taxes and fixed charges included write-offs of $986,036,000 related to the
Company's investment in Perry Nuclear Power Plant Unit 2 and phase-in plan
deferred charges, and other charges of $78,675,000 attributable to an early
retirement program. Excluding these write-offs and other charges, the ratio
of earnings to fixed charges would have been 1.68.
</TABLE>
12
<PAGE> 15
THE COMPANY
GENERAL
The Company, which was incorporated under the laws of the State of Ohio in
1892, is a public utility engaged in the generation, purchase, transmission,
distribution and sale of electric energy in an area of approximately 1,700
square miles in northeastern Ohio, including the City of Cleveland. The Company
also provides electric energy at wholesale to other electric utility companies
and to two municipal electric systems (directly and through American Municipal
Power-Ohio ("AMP-Ohio")) in its service area. The Company serves approximately
747,000 customers and derives approximately 77% of its total electric retail
revenue from customers outside the City of Cleveland. Principal industries
served by the Company 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 the Company's operating revenues are derived from the
sale of electric energy. At December 31, 1994, the Company had 3,547 employees
of which about 54% were represented by one union having a collective bargaining
agreement with the Company.
The mailing address of the Company's principal offices is P.O. Box 5000,
Cleveland, OH 44101, and its telephone number is (216) 622-9800.
The Company and Toledo Edison are wholly owned electric utility
subsidiaries of Centerior Energy, a holding company formed by them for the
purpose of enabling them to affiliate. The affiliation became effective in April
1986. Centerior Energy has a third subsidiary, Centerior Service Company
("Service Company"), which furnishes certain administrative and other services
to the two utility subsidiaries and to Centerior Energy. The Company and Toledo
Edison operate as separate companies, each serving the customers in its
respective service area. In March 1994, Centerior Energy announced a plan to
merge Toledo Edison into the Company. See "Proposed Merger Between the Company
and Toledo Edison".
STRATEGY
In January 1994, the Company, Centerior Energy and Toledo Edison announced
the Strategic Plan to strengthen their financial and competitive position
through the year 2001. The Strategic Plan objectives include achieving
profitable revenue growth, becoming industry leaders in customer satisfaction
and attaining increasingly competitive power supply costs. The attainment of
such objectives would allow the companies to significantly reduce fixed-income
obligations while maximizing share owner return.
Several actions were taken at that time. Centerior Energy reduced its
quarterly common stock dividend from $.40 per share to $.20 per share effective
with the dividend payable in February 1994, which reduced its cash outflow by
over $110,000,000 annually. The Company and Toledo Edison also wrote off their
investments in Perry Unit 2 and certain deferred charges related to a January
1989 rate agreement. The aggregate after-tax effect of these write-offs for the
Company was $691 million, which resulted in a net loss in 1993 and a retained
earnings deficit. The write-offs are discussed in Notes 4(b) and 7 to the
Financial Statements included as a part of this Prospectus. The Company also
recognized other one-time charges totaling $25 million after taxes primarily
related to a performance improvement plan for Perry Unit 1.
Throughout 1994, the Company, Centerior Energy and Toledo Edison made
significant strides in achieving the objectives of the Strategic Plan. The
Company's operating and maintenance expenses were reduced by approximately
$71,000,000 from 1993 due to aggressive cost reduction measures. The Company
also repaid $77,000,000 in fixed-income obligations in 1994. In addition, the
Company and Toledo Edison initiated a marketing plan designed to increase total
retail revenues by 2-3% annually through 2001.
To achieve the Strategic Plan's objectives, the Company will continue to
control expenditures and reduce its outstanding debt and preferred stock. In
addition, the Company will work to increase revenues by finding new uses for
existing assets and resources, implementing new marketing programs and
restructuring rates when appropriate. See "The Company -- 1995 Rate Requests".
The Company will also work to improve the operating performance of its
generating plants and take other appropriate actions.
13
<PAGE> 16
COMPETITION
The Company is addressing its competitive environment by implementing
strategies designed to create and enhance its competitive advantages and to
overcome the competitive disadvantages that it faces due to regulatory and tax
constraints and its high retail cost structure.
Currently, the Company's most pressing competition comes from the two
municipal electric systems in its service area. The Company's rates are
generally higher than those of the two municipal systems due largely to the
municipal systems' 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. The
Company is 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.
The Company is now working to submit this proposal to the Ohio legislature.
The largest municipal system in the Company's service area, CPP, is
operated by the City of Cleveland in competition with the Company. 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
the Company. The Company makes power available to CPP on a wholesale basis,
subject to Federal Energy Regulatory Commission ("FERC") regulation. In 1994,
the Company 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 the Company's transmission system.
CPP's kilowatt-hour sales and revenues are equal to about 5% of the
Company's kilowatt-hour sales and revenues. Much of the area served by CPP
overlaps the Company's service area. 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 are now served
exclusively by the Company. CPP's expansion has resulted in a reduction in the
Company's annual net income by about $4,000,000 in 1993 and an additional
$3,000,000 in 1994. The Company estimates that its net income will continue to
be reduced by an additional $4,000,000 to $5,000,000 each year in the 1995-1999
period because of CPP's expansion.
Despite CPP's expansion efforts, the Company 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.
The Company has similar contracts with customers in other areas. Approximately
90% of the Company's industrial revenues under contract will not be up for
renewal until 1997 or later. As these contracts expire, the Company expects to
renegotiate them and retain the customers. In addition, an increasing number of
CPP customers are converting back to the Company's service. However, competition
for such customers will continue. In March 1995, one of the Company's large
commercial customers, comprising medical and educational institutions, indicated
that it intends to transfer to CPP service when its contract with the Company
terminates in 1996. The loss of this customer to CPP would reduce the Company's
net income by about $5,000,000 based on 1994 sales levels.
Although there continues to be interest in some other communities in the
municipalization of electric service, the Company believes that it offers the
best value and most reliable source of electric service in its territory.
The Energy Act will continue to increase competition in the electric
utility industry by allowing broader access to a utility's transmission system.
This should not significantly increase the competitive threat to the Company
since it has been required to wheel electricity to municipal systems in its
service area since 1977 under its operating licenses for its nuclear generating
units. Further, legislative developments could eventually require utilities to
deliver power from other utilities or generation sources to their retail
customers. To combat this threat, the Company is offering incentives such as
energy-efficiency improvements and reductions in demand charges for increased
electricity usage to its industrial and commercial customers in return for long-
term commitments from these customers.
14
<PAGE> 17
Currently, one commercial customer and one industrial customer of the
Company have cogeneration installations.
SALES OF ELECTRICITY
The Company's kilowatt-hour sales follow a seasonal pattern marked by
increased customer usage in the summer for air conditioning and in the winter
for heating. Historically, the Company 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.
The Company's largest customer is a steel manufacturer which has two major
steel producing facilities. Sales to these facilities accounted for 3.7% of the
Company's 1994 total electric operating revenues. The loss of these facilities
would reduce the Company's net income by about $27,000,000 based on 1994 sales
levels.
RATE AND REGULATORY MATTERS
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 increase
cannot be filed before the issuance of a final order in any prior pending
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.
The Rate Stabilization Program applicable to the Company and Toledo Edison
remains in effect. Under this program, the Company agreed to freeze base rates
until 1996 and limit rate increases through 1998. In exchange, the Company is
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 the Company's
continuing assessment and conclusion that there will be probable recovery of
such deferrals in future rates.
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. The Company
continually monitors changes in market and regulatory conditions and considers
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 the Company
determines that it no longer meets the criteria for following SFAS 71, the
Company would be required to record a before-tax charge to write off its
regulatory assets, which totaled $1,277,000,000 at December 31, 1994. In
addition, the Company would be required to evaluate whether the changes in the
competitive and regulatory environment which led to
15
<PAGE> 18
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 analysis leading to certain year-end 1993 financial actions
and its strategic plan also included an evaluation of its regulatory accounting
measures. The remaining recovery periods for all remaining regulatory assets are
between 17 and 34 years. The Company believes its rates will provide for
recovery of these assets over the relevant periods and SFAS 71 continues to
apply. In addition, the Company has decided that, once the deferral of expenses
and acceleration of benefits under the Rate Stabilization Program are completed
in 1995, it should no longer plan to use these measures to the extent it has in
the past.
1995 RATE REQUESTS
On March 17, 1995, the Company and Toledo Edison each notified the PUCO of
their intent to file a request for a rate increase to be effective in 1996. The
Company'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 the Company's existing rates and an
average increase of 4.7% in Toledo Edison's existing rates.
The Company and Toledo Edison 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 Company and
Toledo Edison obtaining full recovery of all costs including an acceptable rate
of return on equity in order to continue to apply SFAS 71 for financial
reporting purposes. The Company and Toledo Edison plan to avoid the need for
further rate increases through additional cost reductions, an enhanced marketing
program and other efforts. The Company and Toledo Edison 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. 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 Company's and Toledo Edison's 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 the Company's and Toledo
Edison's financial and competitive positions.
FUEL SUPPLY
Generation by type of fuel for 1994 was 67% coal-fired and 33% nuclear.
Coal. In 1994, the Company burned 5,304,000 tons of coal for electric
generation. The Company normally maintains a reserve supply of coal sufficient
for about 30 days of normal operations.
In 1994, about 49% of the Company'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 the Company's coal was purchased on the spot market with sulfur
content ranging from less than 1% to 3.5%.
One of the Company's long-term coal supply contracts is with The Ohio
Valley Coal Company ("Ohio Valley"). The Company 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 agreement is terminated for any reason, the Company 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 the
Company'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. The Company
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.
16
<PAGE> 19
The Company and Toledo Edison are members of the Central Area Power
Coordination Group, a power pool created in 1967 with Duquesne Light Company
("Duquesne"), Ohio Edison Company and Pennsylvania Power Company (each, a "CAPCO
Group Company" and collectively, the "CAPCO Group Companies"). The CAPCO Group
Companies have a long-term contract with Quarto Mining Company ("Quarto") and
Consolidation Coal Company for the supply of about 75%-85% of the annual coal
needs of the Bruce Mansfield Generating Plant ("Mansfield Plant"). The contract
runs 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 amount
of Quarto's debt and lease obligations guaranteed by the Company was $28,698,000
and by Toledo Edison was $16,772,000. The Company 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 Company's least cost plan for complying with the Clean Air Act
Amendments of 1990 ("Clean Air Act Amendments"), which was included in the
agreement approved by the PUCO in February 1993 in connection with the Company's
and Toledo Edison's 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
distinct steps: (i) supply of uranium oxide raw materials, (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 Company and Toledo Edison 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 United
States Enrichment Corporation ("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 the Company's and Toledo Edison's enrichment services
reduced to 70% of their requirements in 1996-1999 and to zero in 2000-2002. 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 materials to meet
the industry's nuclear fuel needs.
Oil. The Company and Toledo Edison have adequate supplies of oil and fuel
for their oil-fired electric generating units, which are used primarily as
reserve and peaking capacity.
NUCLEAR UNITS
The Company's generating facilities include, among others, three nuclear
units owned or leased by the CAPCO Group Companies -- Perry Unit 1, Beaver
Valley Unit 2 and Davis-Besse. These three units are in commercial operation.
The Company has responsibility for operating Perry Unit 1, Duquesne has
responsibility for operating Beaver Valley Unit 2 and Toledo Edison has
responsibility for operating Davis-Besse. The Company 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. The Company and Toledo
Edison also lease, as joint lessees, another 18.26% of Beaver Valley Unit 2 as a
result of a September 1987 sale and leaseback transaction.
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 Company and Toledo Edison 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
operating availability averages of the Company's and Toledo
17
<PAGE> 20
Edison's 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 Company and Toledo Edison to refund incremental replacement power
costs to customers through the semiannual fuel cost rate adjustment. If the
performance of these 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 Company and Toledo Edison 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 Systematic Assessment of Licensee Performance
("SALP") reviews. 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.
<TABLE>
The most recent review periods and SALP review scores for Beaver Valley
Unit 2, Perry Unit 1 and Davis-Besse are:
<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 Company and Toledo
Edison are no longer able to ship low-level radioactive waste produced at their
nuclear plants to off-site disposal facilities. Their ability to ship off-site
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 Company and Toledo Edison have constructed storage facilities to
house the waste at each nuclear site.
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.
CONSTRUCTION PROGRAM
The Company carries on a continuous program of constructing transmission,
distribution and generating facilities and modifying existing generating
facilities to meet anticipated demand for electric service, to comply with
governmental regulations and to protect the environment. The Company's and
Toledo Edison's 1994 long-term (20-year) forecast, as filed with the PUCO,
projects long-term annual growth rates in peak demand
18
<PAGE> 21
and kilowatt-hour sales for the Company and Toledo Edison of 0.5% and 1.0%,
respectively, after demand-side management considerations. The Company's and
Toledo Edison'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 generating capacity that the Company and
Toledo Edison plan to put into service will be two 150,000-kilowatt units and
one 80,000-kilowatt unit in 2008.
<TABLE>
The following tables show, categorized by major components, the
construction expenditures by the Company and Toledo Edison and, by aggregating
them, for Centerior Energy during 1992, 1993 and 1994 and the estimated cost of
their construction programs for 1995 through 1999, in each case including
allowance for funds used during construction and excluding nuclear fuel:
<CAPTION>
ACTUAL ESTIMATED
---------------------- ----------------------------------------
CLEVELAND ELECTRIC 1992 1993 1994 1995 1996 1997 1998 1999
----------------------------------- ---- ---- ---- ---- ---- ---- ---- ----
(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
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ACTUAL ESTIMATED
---------------------- ----------------------------------------
TOLEDO EDISON 1992 1993 1994 1995 1996 1997 1998 1999
----------------------------------- ---- ---- ---- ---- ---- ---- ---- ----
(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....................... -- -- 1 6 3 7 2 7
---- ---- ---- ---- ---- ---- ---- ----
Total.................... $ 44 $ 43 $ 41 $ 64 $ 65 $ 53 $ 55 $ 68
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
ACTUAL ESTIMATED
---------------------- ----------------------------------------
CENTERIOR ENERGY 1992 1993 1994 1995 1996 1997 1998 1999
----------------------------------- ---- ---- ---- ---- ---- ---- ---- ----
(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>
REGULATION
State Utility Commissions. The Company is subject to the jurisdiction of
the PUCO with respect 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 "Rate and Regulatory
Matters" for a description of certain aspects of Ohio rate-making law. The
Company is also subject to the
19
<PAGE> 22
jurisdiction of the Pennsylvania Public Utility Commission in certain respects
relating to its 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
disciplines. 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 Ohio Power Siting Board ("OPSB") are required to consider the record of such
hearings in proceedings 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 Company's and Toledo Edison's 1992 long-term forecast and environmental
compliance plan. The PUCO held hearings in January 1995 on the Company's and
Toledo Edison's 1994 long-term forecast and has scheduled hearings in April 1995
on the Company's and Toledo Edison's updated environmental compliance plan which
was filed in January 1995.
The PUCO has jurisdiction over certain transactions by companies in an
electric 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 Public Utility Holding Company Act of 1935. Consequently, the Company must
obtain PUCO approval to invest in, lend funds to, guarantee the obligations of
or otherwise finance or transfer assets to any nonutility company in the
Centerior Energy holding company 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 Energy 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 Energy'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 customers
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. Over the 1995-1997 period, the
Company forecasts its capacity margins at the time of its projected peak loads
to range from 12% to 13%, excluding the capacity on cold standby status.
Ohio Power Siting Board. The OPSB has state-wide jurisdiction, except to
the extent preempted 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 Company is subject to the
jurisdiction of the FERC with respect to the transmission and sale of power at
wholesale in interstate commerce, interconnections with other
20
<PAGE> 23
utilities, accounting and certain other matters. The Company is also subject to
FERC jurisdiction with respect to its ownership and operation of the Seneca
Power Plant, a pumped-storage, hydroelectric generating station in Pennsylvania
("Seneca") that the Company jointly owns with Pennsylvania Electric Company.
Nuclear Regulatory Commission. The nuclear generating units in which the
Company has 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 considerations and environmental impacts.
Owners of nuclear units are required to purchase the full amount of nuclear
liability insurance available. See Note 5(b) to the Financial Statements
included as a part of this Prospectus.
Other Regulation. The Company is subject to regulation by Federal, state
and local authorities with regard to the location, construction and operation of
certain facilities. The Company is also subject to regulation by local
authorities with respect to certain zoning and planning matters.
PROPERTIES
For a description of the Company's properties, see "Description of New
Bonds -- Title to Property".
LEGAL PROCEEDINGS
Westinghouse Lawsuit. In April 1991, the CAPCO Group Companies filed a
lawsuit against Westinghouse Electric Corporation ("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 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 Company believes that the outcome of this lawsuit will
not have a materially adverse effect on its financial position or results of
operation.
Garfield Heights. In March 1994, the City Council of Garfield Heights, a
suburb of Cleveland, passed an ordinance calling for a 30% reduction in rates
for the Company's customers in that city, which would be a reduction in the
Company's annual revenues of $5,500,000. The Company 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 held public hearings in March 1995 but has not ruled on the matter.
PROPOSED MERGER BETWEEN THE COMPANY AND TOLEDO EDISON
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. In March 1994, Centerior announced a plan to merge Toledo
Edison into the Company.
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 distributions 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
21
<PAGE> 24
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.
On May 2, 1994, the Company and Toledo Edison 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 Company and Toledo Edison application. On December 1,
1994, the PUCO approved the merger. The Pennsylvania Public Utility Commission
approved the merger on July 7, 1994. The other intervenors have opposed the
merger citing concerns primarily relating to the merger's impact on competition.
On December 8, 1994, the FERC advised the Company 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. The Company and Toledo Edison have advised the FERC
that they intend to provide the additional information requested and to file an
open-access transmission tariff offering comparable service.
The merger also 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. Debt holders of the
merging companies will become debt holders of the successor corporation. The
merging companies plan to seek preferred stock share owner approval in mid-1995.
The merger is expected to be effective in late 1995.
Upon completion of the merger, the Company will provide electric service to
an area of approximately 4,200 square miles in northeastern and northwestern
Ohio, including the cities of Cleveland and Toledo, with an estimated population
of about 2,450,000. The Company will also provide electric energy at wholesale
to other electric utility companies and to two municipal electric systems, 13
municipally owned distribution systems and one rural electric cooperative
distribution system in its service area. The Company will serve over 1,030,000
customers and is expected to derive approximately 70% of its total electric
retail revenue from customers outside the cities of Cleveland and Toledo. Nearly
all of the Company's operating revenues will be derived from the sale of
electric energy.
EFFECT OF PROPOSED MERGER ON FIRST MORTGAGE. Substantially all of the
fixed properties and the franchises of the Company (the "CEI Mortgaged
Property") are subject to the lien of the First Mortgage (for the purpose of
this discussion, the "CEI First Mortgage"). As a result of the merger of Toledo
Edison into the Company, the Company will acquire all of the assets of Toledo
Edison. Substantially all of the fixed properties and franchises of Toledo
Edison ("TE Mortgaged Property") are subject to the lien of the Indenture dated
as of April 1, 1947 from Toledo Edison to The Chase National Bank of the City of
New York (predecessor of The Chase Manhattan Bank (National Association)), as
trustee, as supplemented and amended (the "TE First Mortgage"). As a result of
the merger, the TE Mortgaged Property will become subject to the lien of the CEI
First Mortgage, which lien will be junior to the lien of the TE First Mortgage.
After the merger, the only assets of the Company which will be subject to
the lien of the TE First Mortgage will be the TE Mortgaged Property at the time
of the merger and properties thereafter acquired by the Company which are
betterments, extensions, improvements, additions, repairs, renewals,
replacements, substitutions and alterations to, upon, for and of the TE
Mortgaged Property and all property held or acquired for use or used upon or in
connection with or appertaining to the TE Mortgaged Property. The lien of the
CEI First Mortgage will, after the merger, continue to be a first lien on
substantially all of the CEI Mortgaged Property. After the merger, the existing
junior liens of the subordinate mortgages of the Company and Toledo Edison will
be junior to the liens of the CEI First Mortgage and the TE First Mortgage.
The Company expects that it will, after the merger, enter into a new
indenture (the "New Indenture") which will prohibit the issuance of any bonds
under the TE First Mortgage or the CEI First Mortgage, except to the trustee
under the New Indenture in the same principal amounts as, and as the basis for
the issuance of, bonds issued by the Company under the New Indenture. The New
Indenture trustee will hold such TE First Mortgage bonds and CEI First Mortgage
bonds for the benefit of the holders of the New Indenture bonds,
22
<PAGE> 25
which are thus expected to be rated the same as the TE First Mortgage bonds and
the CEI First Mortgage bonds.
A substantial portion of the properties owned by the Company after the
merger, including some or all of the CEI Mortgaged Property and TE Mortgaged
Property, will be subject to the lien of the New Indenture, and such lien will
be junior to the liens of the CEI First Mortgage and the TE First Mortgage, but
senior to the existing liens of the subordinate mortgages of the Company and
Toledo Edison.
At such time as the New Indenture trustee holds all of the outstanding CEI
First Mortgage bonds or TE First Mortgage bonds, such bonds will be canceled,
the indenture under which such bonds were issued will be discharged, and the
lien of the New Indenture will become a first mortgage lien on the properties
which were subject to the first mortgage lien of the discharged indenture.
COMBINED PRO FORMA CONDENSED FINANCIAL STATEMENTS FOR THE COMPANY AND TOLEDO
EDISON
The following pro forma condensed balance sheet and income statements give
effect to the agreement between the Company and Toledo Edison to merge Toledo
Edison into the Company. 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' condensed historical balance sheets at December 31,
1994 and December 31, 1993 and their condensed 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.
23
<PAGE> 26
<TABLE>
COMBINED PRO FORMA CONDENSED BALANCE SHEETS OF THE COMPANY AND TOLEDO EDISON
(UNAUDITED)
(DOLLARS ARE IN MILLIONS)
<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>
<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>
24
<PAGE> 27
<TABLE>
COMBINED PRO FORMA CONDENSED INCOME STATEMENTS OF THE COMPANY AND TOLEDO EDISON
(UNAUDITED)
(DOLLARS ARE IN MILLIONS)
<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
Deferred Carrying Charges and Other
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
========= ====== ======= =========
Ratio of Earnings to Fixed Charges............ 1.81 1.51 -- 1.69
</TABLE>
<TABLE>
<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
Write-off of Perry Unit 2..................... (351) (232 ) -- (583)
Deferred Carrying Charges, Net and Other
Nonoperating Income (Loss).................. (218) (31 ) (1)(D) (250)
--------- ------ ------- ---------
(Loss) Before Interest Charges.............. (347) (174 ) -- (521)
Interest Charges.............................. 240 115 -- 355
--------- ------ ------- ---------
Net (Loss).................................. $ (587) $(289 ) $ -- $ (876)
========= ====== ======= =========
Ratio of Earnings to Fixed Charges............ --(*) -- (*) -- --(*)
<FN>
---------------
(*) Not meaningful due to a net loss. For the year ended December 31, 1993, the
net loss before income taxes and fixed charges for the Company, Toledo
Edison and on the combined pro forma basis was $501,503,000, $195,267,000
and $696,771,000, respectively. Such fixed charges during the period were
$333,610,000, $233,487,000 and $567,096,000, respectively. The net loss
before income taxes and fixed charges included write-offs of $986,036,000,
$473,200,000 and $1,459,237,000, respectively, related to the Company's and
Toledo Edison's investment in Perry Unit 2 and phase-in plan deferred
charges. Other charges of $78,675,000, $55,695,000 and $134,370,000,
respectively, attributable to an early retirement program, also contributed
to the net loss. Excluding these write-offs and other charges, the ratio of
earnings to fixed charges for the Company, Toledo Edison and on the combined
pro forma basis would have been 1.68, 1.42 and 1.57, respectively.
</TABLE>
25
<PAGE> 28
<TABLE>
<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
Deferred Carrying Charges and Other
Nonoperating Income....................... 63 42 (1)(D) 104
--------- ------ ------- ---------
Income Before Interest Charges............ 448 192 -- 640
Interest Charges............................ 243 121 -- 364
--------- ------ ------- ---------
Net Income................................ $ 205 $ 71 $ -- $ 276
========= ====== ======= =========
Ratio of Earnings to Fixed Charges.......... 1.89 1.43 -- 1.70
<FN>
---------------
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.
</TABLE>
DESCRIPTION OF NEW BONDS
GENERAL
The New Bonds will be issued as a series of the Company's First Mortgage
Bonds ("First Mortgage Bonds") under the Mortgage and Deed of Trust, dated July
1, 1940, from the Company to Guaranty Trust Company of New York as trustee,
under which The Chase Manhattan Bank (National Association) is successor trustee
("First Mortgage Trustee"), as supplemented and modified by sixty-eight
supplemental indentures and as to be further supplemented by a Sixty-Ninth
Supplemental Indenture dated April 1, 1995 and a Seventieth Supplemental
Indenture ("Seventieth Supplemental Indenture") to be dated April 15, 1995 (the
Mortgage and Deed of Trust as so supplemented called the "First Mortgage"),
copies of which are exhibits to the Registration Statement. The New Bonds will
be issued under the First Mortgage and the Seventieth Supplemental Indenture.
The following summaries of certain provisions of the First Mortgage do not
purport to be complete and are subject to, and qualified in their entirety by,
all of the provisions of the First Mortgage. For a discussion of the effect on
the First Mortgage of the proposed merger of Toledo Edison into the Company, see
"Proposed Merger Between the Company and Toledo Edison -- Effect of Proposed
Merger on First Mortgage". The Articles cited below refer to Articles of the
First Mortgage.
FORM, MATURITY, INTEREST AND PAYMENT
The New Bonds will be fully registered bonds only, in denominations of
$1,000 or any integral multiple thereof, will be dated as of the date of
authentication, will mature on , 2005 and will bear interest at
the rate per annum set forth in their title, payable semiannually on 1
and 1 in each year to Bondholders of record at the close of business
on the fifteenth day (whether or not a business day) of the calendar month
preceding the interest payment date, the first interest payment date being
1, 1995. Interest on the New Bonds will be computed on the basis of
twelve 30-day months and a 360-day year. Principal and interest and premium, if
any, will be payable at the agency of the Company in the
26
<PAGE> 29
borough of Manhattan, The City of New York, currently designated as The Chase
Manhattan Bank (National Association).
REDEMPTION
The New Bonds will be redeemable at any time or from time to time on or
after , 2002, at the option of the Company, in whole or in
part, on at least thirty days' prior notice, upon payment of the following
percentages of the principal amount thereof, together in each case with accrued
interest to the date of redemption:
<TABLE>
<CAPTION>
REDEMPTION
IF REDEEMED PRICE AS A
DURING THE 12 PERCENTAGE
MONTHS ENDING OF PRINCIPAL
------------------------------------------------------------------------------ ------------
<S> <C>
, 2003.................................................... %
, 2004....................................................
</TABLE>
SECURITY
The New Bonds and all First Mortgage Bonds of other series currently
outstanding and hereafter issued under the First Mortgage will, in the opinion
of counsel for the Company, be secured equally and ratably (except as to any
sinking or analogous fund established for the First Mortgage Bonds of any
particular series) by a valid and perfected first lien, subject only to certain
permitted liens and other encumbrances, on substantially all the property owned
and franchises held by the Company, except the following: (a) cash, receivables
and contracts not pledged or required to be pledged under the First Mortgage and
leases in which the Company is lessor; (b) securities not specifically pledged
or required to be pledged under the First Mortgage; (c) property held for
consumption in operation or in advance of use for fixed capital purposes or for
resale or lease to customers; (d) electric energy and other materials or
products produced or purchased by the Company for sale, distribution or use in
the ordinary conduct of its business; and (e) all the property of any other
corporation which may now or hereafter be wholly or substantially wholly owned
by the Company. (Clauses preceding Article I) All property acquired by the
Company after June 30, 1940, other than the property excepted from the lien of
the First Mortgage, becomes subject to the lien thereof upon acquisition.
(Article I and granting and other clauses preceding Article I) Under certain
conditions, the First Mortgage permits the Company to acquire property subject
to a lien prior to the lien of the First Mortgage. (Article IV)
Property subject to the lien of the First Mortgage will be released from
the lien upon the sale or transfer of such property if the Company deposits the
fair value of the property with the First Mortgage Trustee and meets certain
other conditions specified in the First Mortgage. (Article VII) Moneys received
by the First Mortgage Trustee for the release of property will, under certain
circumstances, be applied to redeem outstanding First Mortgage Bonds, be applied
to satisfy other obligations of the Company or be paid over to the Company from
time to time based upon property additions or refundable First Mortgage Bonds.
(Article VIII)
In the Nineteenth Supplemental Indenture, the First Mortgage was modified
to permit the Company without the vote or consent of the holders of any First
Mortgage Bonds issued after November 1976 (a) to exclude nuclear fuel from the
lien of the First Mortgage to the extent not excluded therefrom by its existing
provisions and (b) to revise the definition of property additions which can
constitute bondable property to include facilities outside the State even though
they are not physically connected with property of the Company in the State and
to clarify its general scope.
TITLE TO PROPERTY
The generating plants and other principal facilities of the Company are
owned by the Company, except as follows:
27
<PAGE> 30
(a) The Company and Toledo Edison jointly 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 and also jointly lease from others for the same term an 18.26% undivided
tenant-in-common interest in Beaver Valley Unit 2, all located in Shippingport,
Pennsylvania. The Company owns another 24.47% interest in Beaver Valley Unit 2
as a tenant-in-common.
(b) Most of the Lake Shore Plant ("Lake Shore") facilities are situated on
artificially filled land, extending beyond the natural shoreline of Lake Erie as
it existed in 1910. As of December 31, 1994, the cost of the Company'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
the State (including artificially filled land) is in the State 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 proceedings, to
grant a lease to an upland owner, such as the Company, which erected and
maintained facilities on such filled land prior to October 13, 1955. The Company
does not have such a lease from the State with respect to the artificially
filled land on which its Lake Shore facilities are located, but the Company's
position, on advice of counsel for the Company, is that the Lake Shore
facilities and occupancy may not be disturbed because they do not interfere with
the free flow of commerce in navigable channels and also 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. The
Company does hold permits, under Federal statutes relating to navigation, to
occupy such artificially filled land.
(c) The facilities at Seneca are located on land owned by the United States
and occupied by the Company and Pennsylvania Electric Company pursuant to a
license issued by the Federal Energy Regulatory Commission for a 50-year period
starting December 1, 1965 for the construction, operation and maintenance of a
pumped-storage hydroelectric plant.
(d) The water intake and discharge facilities at the electric generating
plants located along Lake Erie and the Ohio River are extended into the lake and
river under the Company's property rights as owner of the land above the water
line and pursuant to permits under Federal statutes relating to navigation.
(e) The transmission system is located on land, easements or rights-of-way
owned by the Company. The distribution system also is located, in part, on land
owned by the Company, but, for the most part, it is located on lands owned by
others and on streets and highways. In most cases, the Company has obtained
permission from the apparent owner, or, if located on streets and highways, from
the apparent owner of the abutting property. The electric underground
transmission and distribution systems are located for the most part in public
streets. The Pennsylvania portions of the main transmission lines from Seneca,
the Mansfield Plant and Beaver Valley Unit 2 are not owned by the Company.
The fee title which the Company has as a tenant-in-common owner, and the
leasehold interests it has as a joint lessee, 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 First Mortgage Trustee.
ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS
In addition to the $2,697,780,000 principal amount of First Mortgage Bonds
outstanding at December 31, 1994 and the principal amount of the New Bonds,
additional First Mortgage Bonds may be issued under Article III of the First
Mortgage, ranking equally and ratably with such outstanding First Mortgage Bonds
and the New Bonds and without limit as to amount, on the basis of: (a) 70% of
bondable property (as described under "Description of New Bonds -- Security")
not previously used as the basis for issuance of First Mortgage Bonds or applied
for some other purpose under the First Mortgage; (b) the deposit of cash (which
may be withdrawn thereafter on the basis of bondable property or refundable
First Mortgage Bonds); and (c) substitution for refundable First Mortgage Bonds.
First Mortgage Bonds become refundable First Mortgage Bonds when they are paid
upon maturity, redemption or purchase out of money deposited with the First
28
<PAGE> 31
Mortgage Trustee for such payment or when money for such payment is irrevocably
deposited with the First Mortgage Trustee. (Articles I, III and VIII) In
general, all property subject to the lien of the First Mortgage which is used or
useful in the Company's electric business (including property not located in the
State if it is physically connected with property of the Company in the State,
either directly or through other property of the Company), which is not subject
to an unfunded prior lien and as to which the Company has good title and
corporate power to own and operate, is bondable property and as such is
available as a basis for the issuance of First Mortgage Bonds. The facilities of
the Company on the artificially filled land at Lake Shore will become bondable
property only when the Company acquires, under conditions specified in the First
Mortgage, either good title to such land or the right to occupy it; and the
facilities of the Company on the land at Seneca are not now bondable property.
See "Description of New Bonds -- Title to Property". The tenant-in-common
interests owned by the Company in certain generating units qualify as bondable
property, except that its interest in property located in Pennsylvania,
including Beaver Valley Unit 2, does not qualify because it is located outside
the State and is not physically connected with property of the Company in the
State. With certain exceptions, property which the Company leases from others is
not bondable property. (Articles I and III)
Also, with certain exceptions, in order to issue additional First Mortgage
Bonds based on bondable property, net earnings of the Company available for
interest and property retirement appropriations for any 12 consecutive months
within the 15 calendar months immediately preceding the month in which
application for authentication and delivery of such additional First Mortgage
Bonds is made must be at least twice the annual interest charges on all First
Mortgage Bonds outstanding and on the issue applied for. (Article III)
At December 31, 1994, the Company would have been permitted to issue
approximately $487,000,000 of additional First Mortgage Bonds. The amount of
additional First Mortgage Bonds which may be issued will fluctuate depending
upon the amount of available refundable First Mortgage Bonds, available bondable
property, earnings and interest rates.
COVENANT TO CHARGE EARNINGS NOT APPLICABLE TO THE NEW BONDS
The supplemental indentures applicable to First Mortgage Bonds issued prior
to 1974 contain a covenant to the effect that, so long as any of those First
Mortgage Bonds remain outstanding (which will be until November 15, 2005,
assuming no prior redemption), the Company will charge against earnings, and
credit to reserves for depreciation and retirement of property, an amount not
less than 15% of gross operating revenues for each year (after deducting the
costs of purchased power and net electric energy received on interchange), less
the amounts expended for maintenance and repairs during the year. The Seventieth
Supplemental Indenture will not extend such covenant to the New Bonds.
REMEDIES IN THE EVENT OF DEFAULT
Events of default under the First Mortgage include the failure of the
Company (a) to pay the principal of or premium, if any, on any First Mortgage
Bond when due; (b) to pay any interest on or sinking fund obligation of any
First Mortgage Bond within 30 days after it is due; (c) to pay the principal of
or interest on any prior lien bonds within any allowable period; (d) to
discharge, appeal or obtain the stay of any final judgment against the Company
in excess of $100,000 within 30 days after it is rendered; or (e) to perform any
other covenant in the First Mortgage within 60 days after notice to the Company
from the First Mortgage Trustee or the holders of not less than 15% in principal
amount of the First Mortgage Bonds. Events of default also include certain
events of bankruptcy, insolvency or reorganization in bankruptcy or insolvency
of the Company. (Article IX) The Company is required to furnish periodically to
the First Mortgage Trustee a certificate as to the absence of any default or as
to compliance with the terms of the First Mortgage, and such a certificate is
also required in connection with the issuance of any additional First Mortgage
Bonds and in certain other circumstances. (Article III) The First Mortgage
provides that the First Mortgage Trustee, within 90 days after notice of
defaults under the First Mortgage (60 days with respect to events of default
described in (e) above), is required to give notice of such defaults to all
holders of First Mortgage Bonds, but, except in the case of a default resulting
from the failure to make any payment of principal of or interest on the First
Mortgage Bonds or in the payment of any sinking or purchase fund installments,
the First Mortgage
29
<PAGE> 32
Trustee may withhold such notice if it determines in good faith that it is in
the best interests of the holders of the First Mortgage Bonds to do so. (Article
XIII)
Upon the occurrence of any event of default, the First Mortgage Trustee or
the holders of not less than 25% in principal amount of the First Mortgage Bonds
may declare the principal amount of all First Mortgage Bonds due, and, if the
Company cures all defaults before a sale of the mortgaged property, the holders
of a majority in principal amount of the First Mortgage Bonds may waive the
default. If any event of default occurs, the First Mortgage Trustee also may (a)
take possession of and operate the mortgaged property for the purpose of paying
the principal of and interest on the First Mortgage Bonds; (b) sell at public
auction all of the mortgaged property, or such parts thereof as the holders of a
majority in principal amount of the First Mortgage Bonds may request or, in the
absence of such request, as the First Mortgage Trustee may determine; (c) bring
suit to enforce payment of the principal of and interest on the First Mortgage
Bonds, to foreclose the First Mortgage or for the appointment of a receiver of
the mortgaged property; and (d) pursue any other remedy. (Article IX)
No holder of First Mortgage Bonds may institute any action, suit or
proceeding for any remedy under the First Mortgage unless he has previously
given the First Mortgage Trustee written notice of a default by the Company, and
in addition: (a) the holders of not less than 25% in principal amount of the
First Mortgage Bonds have requested the First Mortgage Trustee and afforded it a
reasonable opportunity to exercise its powers under the First Mortgage or to
institute such action, suit or proceeding in its own name; (b) such holder has
offered to the First Mortgage Trustee security and indemnity satisfactory to it
against the costs, expenses and liabilities to be incurred thereby; and (c) the
First Mortgage Trustee has refused or neglected to comply with such request
within a reasonable time. The holders of a majority in principal amount of the
First Mortgage Bonds, upon furnishing the First Mortgage Trustee with security
and indemnification satisfactory to it, may require the First Mortgage Trustee
to pursue any available remedy, and any holder of the First Mortgage Bonds has
the absolute and unconditional right to enforce the payment of the principal of
and interest on his First Mortgage Bonds. (Article IX)
MODIFICATION OF FIRST MORTGAGE AND FIRST MORTGAGE BONDS
Certain modifications which do not in any manner impair any of the rights
of the holders of any series of First Mortgage Bonds then outstanding or of the
First Mortgage Trustee may be made without the vote of the holders of the First
Mortgage Bonds by supplemental indenture entered into between the Company and
the First Mortgage Trustee. (Article XIV)
Modifications of the First Mortgage or any indenture supplemental thereto,
and of the rights and obligations of the Company and of holders of all series of
First Mortgage Bonds outstanding, may be made with the consent of the Company by
the vote of the holders of at least 80% in principal amount of the outstanding
First Mortgage Bonds entitled to vote at a meeting of the holders of the First
Mortgage Bonds or, if one or more, but less than all, of the series of First
Mortgage Bonds outstanding under the First Mortgage are affected by any such
modification, by the vote of the holders of at least 80% in principal amount of
the outstanding First Mortgage Bonds entitled to vote of each series so
affected; but no such modification may be made which will affect the terms of
payment of the principal of or premium, if any, or interest on any First
Mortgage Bond issued under the First Mortgage or to change the voting percentage
described above to less than 80% with respect to any First Mortgage Bonds
outstanding when such modification becomes effective. First Mortgage Bonds owned
or held by or for the account or benefit of the Company or an affiliate of the
Company (as defined in the First Mortgage) are not entitled to vote. (Article
XV) In the Nineteenth Supplemental Indenture, the First Mortgage was modified,
effective when none of the First Mortgage Bonds of any series issued prior to
December 1976 are outstanding, so as to change the 80% voting requirements
discussed above to 60%. Based on the series of First Mortgage Bonds outstanding
at December 31, 1994, the 60% voting requirement will become effective on May 1,
2009.
DEFEASANCE AND DISCHARGE
The First Mortgage provides that the Company will be discharged from any
and all obligations under the First Mortgage if the Company pays the principal
and interest and premium, if any, due on all First Mortgage
30
<PAGE> 33
Bonds outstanding in accordance with the terms stipulated in each such Bond and
if the Company has performed all other obligations under the First Mortgage. In
the event of such discharge, the Company has agreed to continue to indemnify the
First Mortgage Trustee from any liability arising out of the First Mortgage.
(Article XVI)
BOOK ENTRY SYSTEM
The Depository Trust Company ("DTC") will act as securities depository for
the New Bonds and the New Bonds initially will be issued solely in book-entry
form to be held under DTC's book-entry-only system ("book entry system"),
registered in the name of Cede & Co. (DTC's partnership nominee). One fully
registered bond in the aggregate principal amount of the New Bonds will be
deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the SEC.
Purchases of the New Bonds under the DTC system must be made by or through
Direct Participants, which will receive a credit for the New Bonds on DTC's
records. The ownership interest of each actual purchaser of each New Bond
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the New Bonds are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in New Bonds,
except in the event that use of the book entry system for the New Bonds is
discontinued.
To facilitate subsequent transfers, all New Bonds deposited by Participants
with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of New Bonds with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the New Bonds; DTC's records reflect only the identity of
the Direct Participants to whose accounts such New Bonds are credited, which may
or may not be the Beneficial Owners. The Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices will be sent to Cede & Co. If less than all of the New
Bonds are being redeemed, DTC's practice is to determine by lot the amount of
the interest of each Direct Participant in such issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the New
Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the First
Mortgage Trustee as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
31
<PAGE> 34
whose accounts the New Bonds are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Settlement for the New Bonds will be made by the Underwriters in
immediately available funds. While the New Bonds are held under DTC's book entry
system, principal and interest payments on the New Bonds will be made to DTC in
immediately available funds. DTC's practice is to credit Direct Participants'
accounts on the payable date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not receive
payment on the payable date. Payments by Participants to Beneficial Owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of such Participant and not of
DTC, the First Mortgage Trustee, or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to DTC is the responsibility of the Company, disbursement
of such payments to Direct Participants will be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners will be the
responsibility of Direct and Indirect Participants. Secondary trades in
long-term bonds, notes and debentures of corporate issuers are generally settled
in clearinghouse or next-day funds. In contrast, while the New Bonds are held
under DTC's book entry system, the New Bonds will trade in DTC's same-day funds
settlement system, and secondary market trading in the New Bonds will therefore
be required by DTC to settle in immediately available funds.
DTC may discontinue providing its services as securities depository with
respect to the New Bonds at any time by giving reasonable notice to the Company
or the First Mortgage Trustee, or the Company may remove DTC as the securities
depository for the New Bonds. Under such circumstances, bond certificates are
required to be delivered. The Beneficial Owners, upon registration of
certificates held in the Beneficial Owners' names, will become the registered
owners of the New Bonds.
So long as Cede & Co. is the registered owner of the New Bonds, as nominee
of DTC, references herein to the registered owners of the New Bonds will mean
Cede & Co. and will not mean the Beneficial Owners. Under the First Mortgage,
payments made by the Company to DTC or its nominee will satisfy the Company's
obligations under the First Mortgage and the New Bonds, to the extent of the
payments so made. Beneficial Owners will not be, and will not be considered by
the Company or the First Mortgage Trustee to be, and will not have any rights
as, holders of New Bonds under the First Mortgage.
THE COMPANY, THE UNDERWRITERS AND THE FIRST MORTGAGE TRUSTEE WILL HAVE NO
RESPONSIBILITY OR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR
ANY BENEFICIAL OWNER OR ANY OTHER PERSON NOT SHOWN ON THE REGISTRATION BOOKS OF
THE FIRST MORTGAGE TRUSTEE AS BEING A REGISTERED OWNER WITH RESPECT TO: (1) THE
ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT
PARTICIPANT; (2) THE PAYMENT OF ANY AMOUNT DUE BY DTC TO ANY DIRECT PARTICIPANT
OR BY ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT TO ANY BENEFICIAL OWNER IN
RESPECT OF THE PRINCIPAL AMOUNT OF OR INTEREST OR ANY PREMIUM ON THE NEW BONDS;
(3) THE DELIVERY OF ANY NOTICE BY DTC TO ANY DIRECT PARTICIPANT OR BY ANY DIRECT
PARTICIPANT OR INDIRECT PARTICIPANT TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR
PERMITTED TO BE GIVEN TO REGISTERED OWNERS UNDER THE TERMS OF THE FIRST
MORTGAGE; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE
EVENT OF ANY PARTIAL REDEMPTION OF THE NEW BONDS; OR (5) ANY CONSENT GIVEN OR
OTHER ACTION TAKEN BY DTC AS REGISTERED OWNER.
The Company, the First Mortgage Trustee and the Underwriters cannot and do
not give any assurances that DTC will distribute payments of debt service on the
New Bonds made to DTC or its nominee as the registered owner, or any redemption
or other notices, to the Participants, or that the Participants or others will
distribute such payments or notices to the Beneficial Owners, or that they will
do so on a timely basis, or that DTC will serve and act in the manner described
in this Prospectus.
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<PAGE> 35
LEGAL OPINIONS
Legal matters with respect to the securities offered hereby will be passed
upon for the Company by Terrence G. Linnert, Mary E. O'Reilly or Kevin P.
Murphy, counsel for the Company, and for the Underwriters by Baker & Hostetler,
3200 National City Center, Cleveland, Ohio 44114.
EXPERTS
The statements as to matters of law and legal conclusions under the
headings "General Regulation", "Environmental Regulation", "Electric Rates",
"Title to Property" and "Legal Proceedings" in the Form 10-K, under the heading
"Description of New Bonds" in this Prospectus and under the heading
"Indemnification of Directors and Officers" in the Registration Statement are
made on the authority of Terrence G. Linnert, Mary E. O'Reilly or Kevin P.
Murphy, as an expert. Mr. Linnert is Vice President of the Company and Centerior
and Vice President-Legal & Governmental Affairs and General Counsel of the
Service Company, Mrs. O'Reilly is Managing Attorney of the Service Company and
Mr. Murphy is Senior Corporate Counsel of the Service Company.
The consolidated financial statements and schedule of the Company as of
December 31, 1994 and 1993 and for each of the three years in the period ended
December 31, 1994, included in the Form 10-K and included in or incorporated by
reference in this Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report. Reference is made to said report which includes
an explanatory paragraph that describes a change made in the method of
accounting for postretirement benefits other than pensions in 1993, as discussed
in Note 9 to the financial statements.
UNDERWRITING
Under the terms of and subject to the conditions contained in an
Underwriting Agreement dated , 1995, the Underwriters named below
have severally agreed to purchase, and the Company has agreed to sell to each
Underwriter, severally, the respective principal amount of the New Bonds set
forth below.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------------------------------------------------------------------------- ------------
<S> <C>
Morgan Stanley & Co. Incorporated............................................ $
Lehman Brothers Inc..........................................................
------------
Total................................................................ $150,000,000
===========
</TABLE>
The Underwriting Agreement provides that the several obligations of the
Underwriters are subject to the approval by counsel of certain legal matters in
connection with the New Bonds and to certain other conditions. The Underwriters
are committed to take and pay for all of the New Bonds if any are taken.
The Underwriters propose to offer part of the New Bonds directly to the
public at the public offering price set forth on the cover page hereof and part
to certain dealers at a price which represents a concession not in excess of
% of the principal amount of the New Bonds. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of % of the principal
amount of the New Bonds to certain other dealers. After the initial offering of
the New Bonds, the offering price and other selling terms may from time to time
be varied by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act.
The Company does not intend to apply for listing of the New Bonds on a
national securities exchange, but has been advised by the Underwriters that they
currently intend to make a market in the New Bonds, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the New Bonds and any such market making, if initiated, may be
discontinued at any time at the sole discretion of the Underwriters.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the New Bonds.
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<PAGE> 36
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Financial Statements for the Year Ended December 31, 1994
(Reprinted from the Company's Annual Report to Share Owners)
Management's Financial Analysis.................................................. F-2
Income Statement................................................................. F-7
Retained Earnings................................................................ F-7
Cash Flows....................................................................... F-8
Balance Sheet.................................................................... F-9
Statement of Preferred Stock..................................................... F-11
Notes to the Financial Statements................................................ F-12
Report of Independent Public Accountants......................................... F-22
Financial and Statistical Review................................................. F-23
</TABLE>
F-1
<PAGE> 37
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
F-2
<PAGE> 38
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).
F-3
<PAGE> 39
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
F-4
<PAGE> 40
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>
<TABLE>
RESULTS OF OPERATIONS
1994 VS. 1993
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
F-5
<PAGE> 41
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.
<TABLE>
1993 VS. 1992
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.
F-6
<PAGE> 42
<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.
F-7
<PAGE> 43
<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.
F-8
<PAGE> 44
<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.
F-9
<PAGE> 45
<TABLE>
The Cleveland Electric Illuminating Company and Subsidiaries
<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>
F-10
<PAGE> 46
<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> <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.
F-11
<PAGE> 47
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 decommissioning (prompt decontamination), and the locations
F-12
<PAGE> 48
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 depreciation expense. See Note 7 for a
discussion of the
F-13
<PAGE> 49
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.
F-14
<PAGE> 50
<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.
F-15
<PAGE> 51
(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.
<TABLE>
(7) REGULATORY MATTERS
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
F-16
<PAGE> 52
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.
<TABLE>
(8) FEDERAL INCOME TAX
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.
F-17
<PAGE> 53
<TABLE>
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.
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 132 127
expenses
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
F-18
<PAGE> 54
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.
F-19
<PAGE> 55
<TABLE>
(11) CAPITALIZATION
(A) CAPITAL STOCK TRANSACTIONS
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.
<TABLE>
(D) LONG-TERM DEBT AND OTHER
BORROWING ARRANGEMENTS
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
F-20
<PAGE> 56
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%.
<TABLE>
(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:
<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.
<TABLE>
(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.
<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>
F-21
<PAGE> 57
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.
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 are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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.
Arthur Andersen LLP
Cleveland, Ohio
February 17, 1995
F-22
<PAGE> 58
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>
F-23
<PAGE> 59
The Cleveland Electric Illuminating Company 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 4 924 5 770 7 970 1 073 575 20 312 668 346 71 609 7 401 747 35
1993 4 934 5 634 7 911 2 290 532 21 301 669 118 70 442 8 149 747 70
1992 4 725 5 467 7 988 1 989 533 20 702 669 800 70 943 8 375 749 11
1991 4 940 5 493 8 017 2 442 565 21 457 667 495 70 405 8 398 746 29
1990 4 716 5 234 8 551 1 607 463 20 571 665 000 68 700 8 351 742 05
1984 4 446 4 396 7 997 142 431 17 412 644 904 61 934 7 930 714 76
---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RESIDENTIAL USAGE
Average Average
Average Price Revenue
KWH Per Per Per
Year Customer KWH Customer
-------------------------------------------
<S> <C> <C> <C>
1994 7 370 10.79c $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>
<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 4 497 3 740 16.8% 62.4% 12 986 6 405 19 391 2 022 21 413 1.35c 10 538
1993 4 497 3 862 14.1 59.9 15 557 5 644 21 201 1 454 22 655 1.37 10 339
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>
<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 $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>
<CAPTION>
CAPITALIZATION (millions of dollars & %)
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>
F-24
<PAGE> 60
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM
14 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
*Printing............................................................ $ 20,000.00
*Rating Agencies' Fees............................................... 127,500.00
*Accountants' Fee.................................................... 15,000.00
*Registrar's and Trustee's Fees...................................... 7,000.00
Securities and Exchange Commission Registration Fee................. 51,724.50
NASD Filing Fee..................................................... 15,500.00
*Title Search........................................................ 5,000.00
*Blue Sky Fees and Expenses.......................................... 6,000.00
*Miscellaneous....................................................... 2,775.50
-----------
TOTAL...................................................... $250,500.00
*Estimated
</TABLE>
15 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Regulations of the Company provide that each person who is or has
been a director or officer of the Company shall be indemnified by the
Company against judgments, penalties, reasonable settlements, legal fees
and expenses arising out of any threatened, pending or completed
proceedings of a criminal, administrative or investigative nature in which
he or she may become involved by reason of his or her relationship to the
Company (other than a proceeding by or on behalf of the Company), but only
if he or she is found, by the disinterested members of the Board of
Directors, by independent legal counsel or by the share owners, (1) to have
acted in good faith and in a manner he or she reasonably believed to be in,
or not opposed to, the best interests of the Company and (2) in the case of
a criminal matter, to have had no reasonable cause to believe his or her
conduct was unlawful.
In the case of actions brought by or on behalf of the Company against
a director or officer, indemnification is provided only for reasonable
legal fees and expenses and only if it is determined that he or she acted
in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the Company; but if he or she is
adjudged to be liable due to negligence or misconduct, indemnification is
provided only if an appropriate court determines that indemnification is
fair and reasonable under the circumstances.
Similar indemnification also may be made available by the Company to
its directors and officers, and to a limited extent may be available as a
matter of right to such persons, under Section 1701.13 of the Revised Code
of Ohio.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise,
the Company is advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is
asserted by a director, officer or controlling person, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company maintains and pays the premium on contracts insuring the
Company (with certain exclusions) against any liability to directors and
officers it may incur under the above indemnity
II-1
<PAGE> 61
provisions and insuring each director and officer of the Company (with
certain exclusions) against liability and expense, including legal fees,
which he or she may incur by reason of his or her relationship to the
Company, even if the Company does not have the obligation or right to
indemnify him or her against such liability or expense.
16 EXHIBITS
See Exhibit Index and exhibits following.
17 UNDERTAKINGS
(a) See the fourth paragraph of Item 15 above.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement related to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 62
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF INDEPENDENCE, STATE OF OHIO, ON THE 29TH DAY OF
MARCH, 1995.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
Registrant
By JANIS T. PERCIO, Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(i) Principal executive officer: |
*ROBERT J. FARLING Chairman of the Board and |
Chief Executive Officer |
|
(ii) Principal financial officer: |
*GARY R. LEIDICH Vice President & Chief |
Financial Officer |
|
|-- March 29, 1995
(iii) Principal accounting |
officer: |
*E. LYLE PEPIN Controller |
|
(iv) Directors: |
*ROBERT J. FARLING Director |
*MURRAY R. EDELMAN Director |
*FRED J. LANGE, JR. Director |
*By JANIS T. PERCIO |
Janis T. Percio, Attorney-in-fact |
</TABLE>
II-3
<PAGE> 63
EXHIBIT INDEX
Exhibits Filed Herewith
The following exhibits are filed herewith and made a part hereof:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
----------------- -------------------------------------------------------------------------
<S> <C>
1
Form of Underwriting Agreement.
4(a)(3)
Form of Sixty-Ninth Supplemental Indenture dated April 1, 1995, securing
First Mortgage Bonds, % Series due 2025 (including therein the
form of Bond of such Series).
4(a)(4)
Form of Seventieth Supplemental Indenture dated April 15, 1995, securing
First Mortgage Bonds, % Series due 2005-B (including therein
the form of Bond of such Series).
5
Opinion of counsel for the Company.
12
Statements regarding computation of ratios.
23(a)
Consent of Arthur Andersen LLP.
23(b)
Consent of counsel for the Company -- contained in Exhibit 5.
24
Powers of Attorney.
25
Statement of Eligibility of Trustee.
</TABLE>
<TABLE>
Exhibits Incorporated by Reference
The exhibits listed below have been filed heretofore with the Securities
and Exchange Commission pursuant to requirements of the Acts administered by the
Commission and are incorporated herein by reference and made a part hereof. The
exhibit number and file number of such documents are stated in parentheses.
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
----------------- -------------------------------------------------------------------------
<S> <C>
2
Agreement and Plan of Reorganization Between The Cleveland Electric
Illuminating Company and The Toledo Edison Company, as amended, dated
June 25, 1985 (Appendix I to the Joint Proxy Statement/Prospectus dated
October 4, 1985 filed as part of Item 5, "Other Events -- 3. Proposed
Affiliation with The Toledo Edison Company", September 30, 1985 Form
8-K, File No. 1-2323).
4(a)(1)
Indenture of Mortgage and Deed of Trust dated July 1, 1940, from the
Company to Morgan Guaranty Trust Company of New York, Trustee (Exhibit
7(a), File No. 2-4450).
4(a)(2)
Supplemental Indentures, dated July 1, 1940 (Exhibit 7(b), File No.
2-4450); dated August 18, 1944 (Exhibit 4(c), File No. 2-9887); dated
December 1, 1947 (Exhibit 7(d), File No. 2-7306); dated September 1,
1950 (Exhibit 7(c), File No. 2-8578); dated June 1, 1951 (Exhibit 7(f),
File No. 2-8994); dated May 1, 1954 (Exhibit 4(d), File No. 2-10830);
dated March 1, 1958 (Exhibit 2(a)(4), File No. 2-13839); dated April 1,
1959 (Exhibit 2(a)(4), File No. 2-14753); dated December 20, 1967
(Exhibit 2(a)(4), File No. 2-30759); dated January 15, 1969 (Exhibit
2(a)(5), File No. 2-30759); dated November 1, 1969 (Exhibit 2(a)(4),
File No. 2-35008); dated June 1, 1970 (Exhibit 2(a)(4), File No.
2-37235); dated November 15, 1970 (Exhibit 2(a)(4), File No. 2-38460);
dated May 1, 1974 (Exhibit 2(a)(4), File No. 2-50537); dated April 15,
1975 (Exhibit 2(a)(4), File No. 2-52995); dated April 16, 1975 (Exhibit
2(a)(4), File No. 2-53309); dated May 28, 1975 (Exhibit 2(c), June 5,
1975 Form 8-A, File No. 1-2323); dated February 1, 1976 (Exhibit
3(d)(6), 1975 Form 10-K, File No. 1-2323); dated November 23,
II-4
<PAGE> 64
1976 (Exhibit 2(a)(4), File No. 2-57375; dated July 26, 1977 (Exhibit
2(a)(4), File No. 2-59401); dated September 27, 1977 (Exhibit 2(a)(5),
File No. 2-67221); dated May 1, 1978 (Exhibit 2(b), June 30, 1978 Form
10-Q, File No. 1-2323); dated September 1, 1979 (Exhibit 2(a),
September 30, 1979 Form 10-Q, File No. 1-2323); dated April 1, 1980
(Exhibit 4(a)(2), September 30, 1980 Form 10-Q, File No. 1-2323); dated
April 15, 1980 (Exhibit 4(b), September 30, 1980 Form 10-Q, File No.
1-2323); dated May 28, 1980 (Exhibit 2(a)(4), Amendment No. 1, File No.
2-67221); dated June 9, 1980 (Exhibit 4(d), September 30, 1980 Form 10-
Q, File No. 1-2323); dated December 1, 1980 (Exhibit 4(b)(29), 1980
Form 10-K, File No. 1-2323); dated July 28, 1981 (Exhibit 4(a),
September 30, 1981 Form 10-Q, File No. 1-2323); dated August 1, 1981
(Exhibit 4(b), September 30, 1981 Form 10-Q, File No. 1-2323); dated
March 1, 1982 (Exhibit 4(b)(3), File No. 2-76029); dated July 15, 1982
(Exhibit 4(a), September 30, 1982 Form 10-Q, File No. 1-2323); dated
September 1, 1982 (Exhibit 4(a)(1), September 30, 1982 Form 10-Q, File
No. 1-2323); dated November 1, 1982 (Exhibit 4(a)(2), September 30,
1982 Form 10-Q, File No. 1-2323); dated November 15, 1982 (Exhibit
4b(36), 1982 Form 10-K, File No. 1-2323); dated May 24, 1983 (Exhibit
4(a), June 30, 1983 Form 10-Q, File No. 1-2323); dated May 1, 1984
(Exhibit 4, June 30, 1984 Form 10-Q, File No. 1-2323); dated May 23,
1984 (Exhibit 4, May 22, 1984 Form 8-K, File No. 1-2323); dated June
27, 1984 (Exhibit 4, June 11, 1984 Form 8-K, File No. 1-2323); dated
September 4, 1984 (Exhibit 4b(41), 1984 Form 10-K, File No. 1-2323);
dated November 14, 1984 (Exhibit 4b(42), 1984 Form 10-K, File No.
1-2323); dated November 15, 1984 (Exhibit 4b(43), 1984 Form 10-K, File
No. 1-2323); dated April 15, 1985 (Exhibit 4(a), May 8, 1985 Form 8-K,
File No. 1-2323); dated May 28, 1985 (Exhibit 4(b), May 8, 1985 Form
8-K, File No. 1-2323); dated August 1, 1985 (Exhibit 4, September 30,
1985 Form 10-Q, File No. 1-2323); dated September 1, 1985 (Exhibit 4,
September 30, 1985 Form 8-K, File No. 1-2323); dated November 1, 1985
(Exhibit 4, January 31, 1986 Form 8-K, File No. 1-2323); dated April
15, 1986 (Exhibit 4, March 31, 1986 Form 10-Q, File No. 1-2323); dated
May 14, 1986 (Exhibit 4(a), June 30, 1986 Form 10-Q, File No. 1-2323);
dated May 15, 1986 (Exhibit 4(b), June 30, 1986 Form 10-Q, File No. 1-
2323), dated February 25, 1987 (Exhibit 4b(52), 1986 Form 10-K, File
No. 1-2323); dated as of October 15, 1987 (Exhibit 4, September 30,
1987 Form 10-Q, File No. 1-2323); dated February 24, 1988 (Exhibit
4b(54), 1987 Form 10-K, File No. 1-2323); dated as of September 15,
1988 (Exhibit 4b(55), 1988 Form 10-K, File No. 1-2323); dated May 15,
1989 (Exhibit 4(a)(2)(i), File No. 33-32724); dated June 13, 1989
(Exhibit 4(a)(2)(ii), File No. 33-32724); dated October 15, 1989
(Exhibit 4(a)(2)(iii), File No. 33-32724); dated January 1, 1990
(Exhibit 4b(59), 1989 Form 10-K, File No. 1-2323); dated June 1, 1990
(Exhibit 4(a), September 30, 1990 Form 10-Q, File No. 1-2323); dated
August 1, 1990 (Exhibit 4(b), September 30, 1990 Form 10-Q, File No.
1-2323); dated May 1, 1991 (Exhibit 4(a), June 30, 1991 Form 10-Q, File
No. 1-2323); dated May 1, 1992 (Exhibit 4(a)(3), File No. 33-48845);
dated July 31, 1992 (Exhibit 4(a)(3), File No. 33-57292); dated January
1, 1993 (Exhibit 4b(65), 1992 Form 10-K, File No. 1-2323); dated
February 1, 1993 (Exhibit 4b(66), 1992 Form 10-K, File No. 1-2323);
dated May 20, 1993 (Exhibit 4(a), July 14, 1993 Form 8-K, File No. 1-
2323); dated June 1, 1993 (Exhibit 4(b), July 14, 1993 Form 8-K, File
No. 1-2323); and dated September 15, 1994 (Exhibit 4(a), September 30,
1994 Form 10-Q, File No.1-2323).
4(b)
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).
</TABLE>
II-5
<PAGE> 1
Exhibit 1
DRAFT 3/28/95
$150,000,000
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
FIRST MORTGAGE BONDS, ______% DUE 20___
UNDERWRITING AGREEMENT
_______________, 1995
<PAGE> 2
April __, 1995
Morgan Stanley & Co.
Incorporated
[Lehman Brothers Inc.]
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
The Cleveland Electric Illuminating Company, an Ohio corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") $150,000,000 principal amount of its
First Mortgage Bonds, _______% Series due 2025-B (the "Securities") to be
issued as a series of the Company's First Mortgage Bonds ("First Mortgage
Bonds") under the Mortgage and Deed of Trust, dated July 1, 1940, from the
Company to Guaranty Trust Company of New York, as trustee, under which The
Chase Manhattan Bank (National Association) is successor trustee ("First
Mortgage Trustee"), as supplemented and modified by sixty supplemental
indentures and as to be further supplemented by a Sixty-Ninth Supplemental
Indenture to be dated as of April 1, 1995 supplemental indenture to be dated
April 15, 1995 (the "Supplemental Indenture"; together called the "First
Mortgage").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Securities. The registration statement, including any information deemed to be
part of the registration statement at the time of effectiveness pursuant to
Rule 430A (if applicable) under the Securities Act of 1933, as amended (the
"Securities Act"), is hereinafter referred to as the Registration Statement;
the prospectus in the form first used to confirm sales of Securities is
hereinafter referred to as the Prospectus.
I.
The Company represents and warrants to and agrees with each of the
Underwriters that:
(a) The Registration Statement has become effective or will become
effective not later than 10:00 a.m. on the day after the date hereof; no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the knowledge of
the Company, threatened by the Commission.
(b)(i) Each document, if any, filed pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"),
<PAGE> 3
and incorporated by reference in the Prospectus complied when so filed in all
material respects with the Exchange Act and the applicable rules and
regulations of the Commission thereunder, (ii) each part of the Registration
Statement, when such part became effective, did not contain, and each such
part, as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
(iii) the Registration Statement and the Prospectus comply, and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
paragraph I(b) do not apply (A) to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein or (B) to that part of the Registration Statement that
constitutes the Statement of Eligibility (Form T-1) under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), of the First Mortgage
Trustee.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(e) This Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
-2-
<PAGE> 4
(f) The First Mortgage has been duly qualified under the Trust Indenture
Act, the Supplemental Indenture has been duly authorized and, at the Closing
Date (as hereinafter defined), the Supplemental Indenture will be duly executed
and delivered by the Company and the First Mortgage will be a valid and binding
agreement of the Company, enforceable in accordance with its terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(g) The Securities have been duly authorized and, when executed and
authenticated in accordance with the provisions of the First Mortgage and
delivered to and paid for by the Underwriters in accordance with the terms of
this Underwriting Agreement, will be entitled to the benefits of the First
Mortgage and will be valid and binding obligations of the Company, enforceable
in accordance with their terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
(h) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, this Underwriting Agreement, the
Supplemental Indenture, the First Mortgage and the Securities will not
contravene any provision of applicable law or the articles of incorporation or
regulations of the Company or any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Underwriting
Agreement, the First Mortgage or the Securities, except such as have been
obtained from The Public Utilities Commission of Ohio (the "PUCO") and under
the Securities Act or as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Securities.
(i) There has not occurred any material adverse change, or any development
involving a prospective material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in or contemplated by the
Prospectus.
(j) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any
-3-
<PAGE> 5
of the properties of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus and
are not so described or any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are
not described or filed as required.
(k) The Company has good title to substantially all the properties
referred to or described in the Prospectus and in the granting clauses of the
First Mortgage, subject only to the conditions and exceptions set forth in the
Prospectus, none of which conditions and exceptions materially impairs the use
of the property affected thereby in the operation of the business of the
Company. The First Mortgage constitutes a valid and perfected first lien on
said property, subject to said conditions and exceptions.
(l) The Company is a "subsidiary" of Centerior Energy Corporation, which
is a "holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended. Centerior Energy Corporation is exempt from
regulation under such Act pursuant to Section 3(a)(1) thereof and the rules and
regulations thereunder promulgated by the Commission and, therefore, the
Company is also exempt from such regulation.
(m) The Company and its subsidiaries possess such certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies, including, without limitation, the PUCO,
necessary to conduct the business now operated by them. The Company and its
subsidiaries have not received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would materially and adversely affect the Company and its
subsidiaries, taken as a whole.
(n) The Company is not an "investment company" or an entity controlled by
an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended.
(o) The Company does not do business with the
government of Cuba or with any person or affiliate located in Cuba.
II.
The Company hereby agrees to sell to the several Underwriters, and the
Underwriters, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agree, severally
and not jointly, to purchase from the Company the respective principal
-4-
<PAGE> 6
amounts of Securities set forth in Schedule I hereto opposite their names at
_____% of their principal amount -- the purchase price -- plus accrued
interest, if any, from _______, 1995 to the date of delivery.
III.
The Company is advised by you that the Underwriters propose to make a public
offering of their respective portions of the Securities an soon after the
Registration Statement and this Underwriting Agreement have become effective as
in your judgment is advisable. The Company is further advised by you that the
securities are to be offered to the public initially at _____% of their
principal amount -- the public offering price -- plus accrued interest, if any,
and to certain dealers selected by you at a price that represents a concession
not in excess of ___% of their principal amount under the public offering
price, and that any Underwriter may allow, and such dealers may reallow, a
concession, not in excess of ___% of their principal amount, to any underwriter
or to certain other dealers.
IV.
Payment for the Securities shall be made by certified or official bank check
or checks payable to the order of the Company in New York Clearing House funds
at the office of Morgan Stanley & Co. Incorporated, 1251 Avenue of the
Americas, New York, New York, at 10:00 A.M., local time, on _______, 1995, or
at such other time on the same or such other date, not later than _______,
1995, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the Closing Date.
Payment for the securities shall be made against delivery to you for the
respective accounts of the several Underwriters of the Securities registered in
such names and in such denominations as you shall request in writing not less
than two full business days prior to the date of delivery, with any transfer
taxes payable in connection with the transfer of the Securities to the
Underwriters duly paid.
V.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than 10:00 a.m. on the day
after the date hereof, that the Company shall have received the approval by the
PUCO of the issuance, sale and delivery of the Securities on terms consistent
with those described in the Registration Statement, and that such approval
shall not have been withdrawn.
-5-
<PAGE> 7
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Underwriting
Agreement and prior to the Closing Date,
(i) there shall not have occurred any downgrading, nor shall any notice
have been given of any intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the possible change, in
the rating accorded any of the Company's debt securities by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act;
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or in
the earnings, business or operations, of the Company and its subsidiaries,
taken as a whole, from that set forth in or contemplated by the Prospectus,
that, in your reasonable judgment, is material and adverse and that makes it,
in your reasonable judgment, impracticable to market the Securities on the
terms and in the manner contemplated in the Prospectus; and
(iii) there shall not have occurred any (A) suspension or material
limitation of trading generally on or by, as the case may be, the New York
Stock Exchange, the American Stock Exchange or the National Association of
Securities Dealers, Inc., (B) suspension of trading of any securities of the
Company on any exchange or in any over-the-counter market (other than any such
suspension with respect to any debt security of the Company resulting solely
from the maturit or the redemption or the announcement of redemption of such
debt security), (C) declaration of a general moratorium on commercial banking
activities in New York by either Federal or New York State authorities or (D)
any outbreak or escalation of hostilities or any change in financial markets or
any calamity or crisis that, in your reasonable judgment, is material and
adverse and, in the case of any of the events described in clauses (iii)(A)
through (D), such event, singly or together with any other such event, makes it
impracticable for you to market or hold the Securities on the terms and in the
manner contemplated by the Prospectus.
(b) You shall have received on the Closing Date a certificate, dated the
Closing Date and signed by an officer of the Company, to the effect set forth
in clause (a)(i) above and to the effect that the representations and
warranties of the Company contained in this Underwriting Agreement are true and
correct as of the Closing Date and that the Company has complied with all of
the agreements and satisfied all of the conditions on its part to be performed
or satisfied on or before the Closing Date.
-6-
<PAGE> 8
The officer signing and delivering such certificate may rely upon the best of
his knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of Fred J.
Lange, Jr., Terrence G. Linnert, Mary E. O'Reilly or Kevin P. Murphy, counsel
for the Company (or other such counsel reasonably satisfactory to you), dated
the Closing Date, to the effect that
(i) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole;
(iii) this Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(iv) the First Mortgage has been duly qualified under the Trust Indenture Act,
the Supplemental Indenture has been duly authorized, executed and delivered by
the Company and the First Mortgage is a valid and binding agreement of the
Company, enforceable in accordance with its terms except as (A) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (E) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability;
(v) the Securities have been duly authorized and executed and, when
authenticated in accordance with the provisions of the First Mortgage and
delivered to and paid for by the Underwriters in accordance with the terms of
this Underwriting Agreement, will be entitled to the benefits of the First
Mortgage and will be valid and binding obligations of the Company, enforceable
in accordance with their terms except as (A)
-7-
<PAGE> 9
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (B) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability;
(vi) the execution and delivery by the Company of, and the performance by the
Company of its obligations under, this Underwriting Agreement, the Supplemental
Indenture, the Securities and the First Mortgage will not contravene any
provision of applicable law or the articles of incorporation or regulations of
the Company or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries that is material
to the Company and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with, any
governmental order or agency is required for the performance by the Company of
its obligations under this Underwriting Agreement, the Securities and the First
Mortgage, except such as have been obtained from the PUCO and under the
Securities Act or as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Securities;
(vii) the statements (A) in the Prospectus under the captions "Description of
New Bonds" and "Underwriters," (B) in the Registration Statement under Item 15
and (C) under the captions "General Regulation," "Environmental Regulation,"
"Electric Rates," "Title to Property," and "Legal Proceedings" of the Company's
most recent annual report on Form 10-K incorporated by reference in the
Prospectus, in each case insofar as such statements constitute summaries of the
legal matters, documents and proceedings referred to therein, fairly present
the information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(viii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(ix) the Company is not an "investment company" or an entity "controlled" by
an "investment company," as such terms are defined in the Investment Company Act
of 1940, as amended;
-8-
<PAGE> 10
(x) the Company has good title to substantially all the properties referred
to or described in the Prospectus and in the granting clauses of the First
Mortgage, subject only to the conditions and exceptions set forth in the
Prospectus, none of which materially impairs the use of the property affected
thereby in the operation of the business of the Company;
(xi) the First Mortgage and all financing statements have been duly filed and
recorded in all places where such filing or recording is necessary for the
perfection or preservation of the lien of the First Mortgage, and the First
Mortgage constitutes a valid and perfected first lien on all of the property
referred to in subparagraph (x), subject only to the conditions and exceptions
referred to therein, and, under current law, all property acquired by the
Company hereafter, other than property excepted by the express terms of the
First Mortgage from the lien of the First Mortgage, will become subject to the
lien thereof upon acquisition;
(xii) except as may be set forth in the Prospectus, the Company and its
subsidiaries have statutory authority, franchises and consents free from
burdensome restrictions and adequate for the conduct of the business in which
they are engaged;
(xiii) the Company is a "subsidiary" of Centerior Energy Corporation, which
is a "holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended. Centerior Energy Corporation is exempt from
regulation under such Act pursuant to Section 3(a)(1) thereof and the rules and
regulations thereunder promulgated by the Commission and, therefore, the
Company is also exempt from such regulation;
(xiv) such counsel is of the opinion that each document, if any, filed
pursuant to the Exchange Act and incorporated by reference in the Prospectus
(except for financial statements and schedules included therein as to which
such counsel need not express any opinion) complied when so filed in all
material respects with the Exchange Act and the applicable rules and
regulations of the Commission thereunder; and
(xv) such counsel (A) is of the opinion that the Registration Statement and
Prospectus (except for financial statements and schedules included therein as
to which such counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (B) believes that (except for financial statements and
schedules as to which such counsel need not express any belief and except for
that part of the Registration Statement that constitutes the Form T-1
heretofore referred to) the Registration Statement and the Prospectus included
therein at the time the Registration Statement became effective did not contain
any untrue statement of a material fact or omit to state a material fact
required to
-9-
<PAGE> 11
be stated therein or necessary to make the statements therein not misleading
and (C) believes that (except for financial statements and schedules as to
which such counsel need not express any belief) the Prospectus as of the
Closing Date does not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(d) You shall have received on the Closing Date an opinion of Baker &
Hostetler, special counsel for the Underwriters, dated the Closing Date,
covering the matters referred to in subparagraphs (iii), (iv), (v), (vii) (but
only as to the statements in the Prospectus under "Description of New Bonds"
and "Underwriters"), (ix) and (xv) of paragraph (c) above.
With respect to subparagraph (xiv) of paragraph (c) above, Terrence G.
Linnert, Mary E. O'Reilly or Kevin P. Murphy may state that their opinion and
belief are based upon his or her participation in the preparation of these
documents and review and discussion of the contents thereof.
With respect to subparagraph (xv) of paragraph (c) above, Terrence G.
Linnert, Mary E. O'Reilly or Kevin P. Murphy, and Baker & Hostetler, may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification except as specified.
The opinion of Terrence G. Linnert, Mary E. O'Reilly or Kevin P. Murphy,
described in paragraph (c) above, shall be rendered to you at the request of
the Company and shall so state therein.
(e) You shall have received, on the Closing Date, a letter dated the
Closing Date, in form and substance satisfactory to you, from Arthur Andersen
LLP, independent public accountants for the Company, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus.
VI.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish to you, without charge, three signed copies of the
Registration Statement (including exhibits
-10-
<PAGE> 12
thereto) and for delivery to each other Underwriter a conformed copy of the
Registration Statement (without exhibits thereto) and, during the period
mentioned in paragraph (c) below, as many copies of the Prospectus, any
documents incorporated by reference therein and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object.
(c) If, during such period after the first day of the public offering of
the Securities as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur or condition exist as a result
of which it is necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion
of counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with the law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to the
dealers (whose names and addresses you will furnish to the Company) to which
Securities may have been sold by you on behalf of the Underwriters and to any
other dealers upon request, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus
is delivered to a purchaser, be misleading or so that the Prospectus, as
amended or supplemented, will comply with the law.
(d) To endeavor to qualify the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including reasonable fees and disbursements
of counsel) in connection with such qualification and in connection with (i)
the determination of the eligibility of the Securities for investment under
the laws of such jurisdictions as you may designate and (ii) any review of
the offering of the Securities by the National Association of Securities
Dealers, Inc.
(e) To make generally available to the Company's security holders and to
you as soon as practicable an earning statement covering the twelve-month
period ending March 31, 1995 that satisfies the provisions of Section
-11-
<PAGE> 13
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
(f) During the period beginning on the date hereof and continuing to and
including the Closing Date, not to offer, sell, contract to sell or otherwise
dispose of any debt securities of the Company or warrants to purchase debt
securities of the Company substantially similar to the Securities (other than
(i) the Securities and (ii) commercial paper issued in the ordinary course of
business), without your prior written consent.
VII.
The Company agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls such Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred by any Underwriter or any such controlling
person in connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such
Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus,
the Prospectus or any amendments or supplements thereto.
In case any proceeding (including any governmental investigation) shall be
instituted involving any person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such person (the
"Indemnified Party") shall promptly notify the person against whom such
-12-
<PAGE> 14
indemnity may be sought (the "Indemnifying Party") in writing and the
Indemnifying Party, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party and any others the Indemnifying Party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any Indemnified Party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expenses of such Indemnified Party unless (a) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the retention of such
counsel or (b) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Party shall not, in respect of the legal
expenses of any Indemnified Party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
Indemnified Parties and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Morgan Stanley
& Co. Incorporated, in the case of parties indemnified pursuant to the second
preceding paragraph, and by the Company, in the case of parties indemnified
pursuant to the first preceding paragraph. The Indemnifying Party shall not be
liable for any settlement of any proceeding affected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party
from and against any loss or liability by reason of such settlement of
judgment. Notwithstanding the foregoing sentence, if at any time an
Indemnified Party shall have requested an Indemnifying Party to reimburse the
Indemnified Party for fees and expenses of counsel as contemplated by the
second and third sentences of this paragraph, the Indemnifying Party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (a) such settlement is entered into more than 30 days
after receipt by such Indemnifying Party of the aforesaid request and (b) such
Indemnifying Party shall not have reimbursed the Indemnified Party in
accordance with such request prior to the date of such settlement. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Party is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such proceeding.
To the extent the indemnification provided for in the first or second
paragraph of this Article VII is unavailable to
-13-
<PAGE> 15
an Indemnified Party or insufficient in respect of any losses, claims, damages
or liabilities referred to therein, then each Indemnifying Party under such
paragraph, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (a) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
or (b) if the allocation provided by clause (a) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (a) above but also the relative fault
of the Company on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other hand in connection with the offering of the
Securities shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the Securities (before deducting expenses)
received by the Company and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover of the Prospectus, bear to the aggregate public offering price of the
Securities. The relative fault of the Company on the one hand and of the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations
to contribute pursuant to this Article VII are several in proportion to the
respective principal amounts of Securities they have purchased hereunder, and
not joint.
The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article VII, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to
-14-
<PAGE> 16
the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Article VII
are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any Indemnified Party at law or in equity.
The indemnity and contribution provisions contained in this Article VII and
the representations and warranties of the Company contained in this
Underwriting Agreement shall remain operative and in full force and effect
regardless of (a) any termination of this Underwriting Agreement, (b) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (c) acceptance of and payment for any of
the Securities.
VIII.
This Underwriting Agreement shall be subject to termination by notice given
by you to the Company, if (a) after the execution and delivery of this
Underwriting Agreement and prior to the Closing Date (i) trading generally
shall have been suspended or materially limited on or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange or the National
Association of Securities Dealers, Inc., (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market (other than any such suspension with respect to any debt security of the
Company resulting solely from the maturity or the redemption or the
announcement of redemption of such debt security), (iii) a general moratorium
on commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your reasonable judgment, is material and adverse
and (b) in the case of any of the events specified in clauses (a)(i) through
(iv), such event singly or together with any other such event makes it, in your
reasonable judgment, impracticable to market the Securities on the terms and in
the manner contemplated in the Prospectus.
IX.
This Underwriting Agreement shall become effective upon the latter of (x)
execution and delivery hereof by the parties
-15-
<PAGE> 17
hereto and (y) notification of the effectiveness of the Registration Statement
by the Commission.
If, on the Closing Date, any one or more of the Underwriters shall fail or
refuse to purchase Securities that it or they have agreed to purchase hereunder
on such date, and the aggregate principal amount of Securities which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate principal amount of the Securities
to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the principal amount of Securities set forth
opposite their respective names in Schedule I bears to the principal amount of
Securities set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Securities which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date; provided that in no event shall the
principal amount of Securities that any Underwriter has agreed to purchase
pursuant to Article II be increased pursuant to this Article IX by an amount in
excess of one-ninth of such principal amount of Securities without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Securities and the aggregate
principal amount of Securities with respect to which such default occurs is
more than one-tenth of the aggregate principal amount of Securities to be
purchased on such date, and arrangements satisfactory to you and the Company
for the purchase of such Securities are not made within 36 hours after such
default, this Underwriting Agreement shall terminate without liability on the
part of any non-defaulting Underwriter or the Company. In any such case either
you or the Company shall have the right to postpone the Closing Date but in no
event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and in the Prospectus or in any other documents
or arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Underwriting Agreement.
If this Underwriting Agreement shall be terminated by the Underwriters, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Underwriting
Agreement, or if for any reason the Company shall be unable to perform its
obligations under this Underwriting Agreement, the Company will reimburse the
Underwriters or such Underwriters as have so terminated this Underwriting
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the reasonable fees and disbursements of their counsel) reasonably
incurred by such Underwriters in connection with this Underwriting Agreement or
the offering contemplated hereunder.
-16-
<PAGE> 18
This Underwriting Agreement may be signed in two or more counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
This Underwriting Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
Very truly yours,
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY
By: ______________________________
Title
Accepted __________, 1995
By: Morgan Stanley & Co.
Incorporated
By: ___________________________
-17-
<PAGE> 19
SCHEDULE I
Principal Amount
of Securities
Underwriters: To Be Purchased
------------ ---------------
Morgan Stanley & Co. Incorporated $
Lehman Brothers Inc.
____________
Total........... $150,000,000
RAW0233:03253:95001:RAW-01A.dup
oa 3/28/95
-18-
<PAGE> 1
EXHIBIT 4(a)(3)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY
TO
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
(successor to Morgan Guaranty Trust Company
of New York,
formerly Guaranty Trust Company of New York)
As Trustee under
The Cleveland Electric Illuminating Company's
Mortgage and Deed of Trust,
Dated July 1, 1940
------------------------
SIXTY-NINTH SUPPLEMENTAL INDENTURE
DATED APRIL 1, 1995
FIRST MORTGAGE BONDS, % SERIES DUE 2025-A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
i
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
Sixty-Ninth Supplemental Indenture
Dated April 1, 1995
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PARTIES..................................................... 1
RECITALS:
Indenture and Supplemental Indentures..................... 1
First Mortgage Bonds outstanding.......................... 2
Authorization by Indenture of issue of additional Bonds... 2
Bonds of this Series...................................... 2
Purpose of Sixty-Ninth Supplemental Indenture............. 2
Authorization of Sixty-Ninth Supplemental Indenture....... 3
Compliance with conditions to making of Sixty-Ninth
Supplemental Indenture................................. 3
ARTICLE I -- CONFIRMATION OF 1940 MORTGAGE AND SUPPLEMENTAL
INDENTURES................................................ 3
ARTICLE II -- CREATION, PROVISIONS, REDEMPTION, PRINCIPAL
AMOUNT AND FORM OF BONDS OF THIS SERIES................... 4
Section 1 -- Creation and designation of Bonds and
compliance with Indenture............................ 4
Section 2 -- Date of Bonds, maturity date, interest
rate, accrual date, payment dates, Record Date and
place of payments.................................... 4
Section 3 -- Principal amount of Bonds................. 5
Section 4 -- Registration and denomination of Bonds.... 5
Section 5 -- Transfer and exchange of Bonds............ 5
Section 6 -- Redemption of Bonds....................... 6
Section 7 -- Redemption of Bonds pursuant to Section
4.01(a) of the Authority Trust Indenture............. 6
Section 8 -- Redemption of Bonds pursuant to Section
4.01(b) of the Authority Trust Indenture............. 7
Section 9 -- Redemption of Bonds pursuant to Section
4.01(c) of the Authority Trust Indenture............. 7
Section 10 -- Redemption of Bonds in an "Event of De-
fault" under the Authority Trust Indenture........... 8
Section 11 -- Notice of redemption under Sections 7
through 10 of Article II of this Supplemental
Indenture............................................ 8
</TABLE>
---------------
*The Table of Contents, the page headings and the recording data are not
part of the Sixty-Ninth Supplemental Indenture as executed.
<PAGE> 3
ii
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Section 12 -- Bonds deemed to be paid in full upon
surrender of Authority Bonds for cancellation under
the Authority Trust Indenture........................ 9
Section 13 -- Payment on the Authority Bonds deemed to
be payment of corresponding obligation on Bonds...... 9
Section 14 -- Surrender of Bonds in the event of
payment in full or partial payment thereof and
issuance of new Bonds for the unpaid balance......... 10
Section 15 -- Form of Fully Registered Bond of this
Series............................................... 10
Form of Trustee's Certificate of
Authentica-
tion................................. 17
Form of Schedule of Payments........... 18
ARTICLE III -- THE TRUSTEE.................................. 19
Section 1 -- Acceptance by Trustee..................... 19
Section 2 -- Responsibility of Trustee................. 19
Section 3 -- Reliance by Trustee upon certain demands,
certificates and opinions............................ 19
Section 4 -- Records kept and indemnity given by agency
of the Company....................................... 19
Section 5 -- Certain advices to the Company............ 20
ARTICLE IV -- MISCELLANEOUS PROVISIONS...................... 20
EXECUTION................................................... 20
COMPANY'S ACKNOWLEDGMENT.................................... S-1
TRUSTEE'S ACKNOWLEDGMENT.................................... S-2
RECORDING AND FILING DATA................................... R-1
</TABLE>
<PAGE> 4
SIXTY-NINTH SUPPLEMENTAL INDENTURE, dated April 1, 1995, made by and
between THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and
existing under the laws of the State of Ohio (the "Company"), and THE CHASE
MANHATTAN BANK (NATIONAL ASSOCIATION) (successor to MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, formerly GUARANTY TRUST COMPANY OF NEW YORK), a national
banking association existing under the laws of the United States of America,
with its head office at 1 Chase Manhattan Plaza, The City of New York (the
"Trustee"), as Trustee under the Mortgage and Deed of Trust dated July 1, 1940,
hereinafter mentioned:
RECITALS
In order to secure First Mortgage Bonds of the Company ("Bonds"), the
Company has heretofore executed and delivered to the Trustee the Mortgage and
Deed of Trust dated July 1, 1940 (the "1940 Mortgage") and sixty-eight
Supplemental Indentures thereto dated, respectively, July 1, 1940, August 18,
1944, December 1, 1947, September 1, 1950, June 1, 1951, May 1, 1954, March 1,
1958, April 1, 1959, December 20, 1967, January 15, 1969, November 1, 1969, June
1, 1970, November 15, 1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28,
1975, February 1, 1976, November 23, 1976, July 26, 1977, September 27, 1977,
May 1, 1978, September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980,
June 9, 1980, December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982,
July 15, 1982, September 1, 1982, November 1, 1982, November 15, 1982, May 24,
1983, May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14,
1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985, September
1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15, 1986, February
25, 1987, October 15, 1987, February 24, 1988, September 15, 1988, May 15, 1989,
June 13, 1989, October 15, 1989, January 1, 1990, June 1, 1990, August 1, 1990,
May 1, 1991, May 1, 1992, July 31, 1992, January 1, 1993, February 1, 1993, May
20, 1993, June 1, 1993 and September 15, 1994; and
The 1940 Mortgage, as supplemented and modified by said Supplemental
Indentures and by this Sixty-Ninth Supplemental Indenture, will be hereinafter
collectively referred to as the "Indenture" and this Sixty-Ninth Supplemental
Indenture will be hereinafter referred to as "this Supplemental Indenture"; and
Pursuant to the provisions of the Indenture, the Company has issued
series of Bonds in the aggregate principal amount of $ , of which
series in the aggregate principal amount of $ are no longer
outstanding; and
<PAGE> 5
2
The Indenture provides among other things that the Company, from time to
time, in addition to the Bonds authorized to be executed, authenticated and
delivered pursuant to other provisions therein, may execute and deliver
additional Bonds to the Trustee and the Trustee shall thereupon authenticate and
deliver such Bonds to or upon the order of the Company; and
The Company has determined to create pursuant to the provisions of the
Indenture one new series of Bonds designated as "First Mortgage Bonds, %
Series due 2025-A" (the "Bonds of this Series") with the denominations, rate of
interest, date of maturity, redemption provisions and other provisions and
agreements in respect thereof as in this Supplemental Indenture set forth; and
The Bonds of this Series are to be issued by the Company and delivered to
the Authority Trustee (hereinafter defined) to evidence and secure its
obligation to pay to the Beaver County Industrial Development Authority
(hereinafter called the "Authority") a portion of the Company's share of the
purchase price for certain air and water pollution control facilities and sewage
and solid waste disposal facilities used in connection with the operation of
Beaver Valley Power Station Unit 2, a nuclear powered generating unit located in
Shippingport, Pennsylvania (hereinafter called the "Project Facilities"), such
portion being in an amount equal to the principal of the Authority Bonds
(hereinafter defined) issued pursuant to the Beaver Valley Pollution Control
Facilities Agreement dated as of April 1, 1974, among the Authority, the
Company, The Toledo Edison Company, Duquesne Light Company, Ohio Edison Company
and Pennsylvania Power Company; and
That portion of the Company's share of the cost of the Project Facilities
was originally financed with proceeds from the sale by the Authority of
$53,900,000 principal amount of Beaver County Industrial Development Authority
Collateralized Pollution Control Revenue Bonds (The Cleveland Electric
Illuminating Company Beaver Valley Project) 1984 Series (hereinafter called the
"Prior Authority Bonds"). The Prior Authority Bonds are to be refunded from the
proceeds of one series of Collateralized Pollution Control Revenue Refunding
Bonds, Series 1995 (The Cleveland Electric Illuminating Company Beaver Valley
Project) (hereinafter called the "Authority Bonds") to be issued pursuant to a
Trust Indenture, dated as of April 1, 1995 (hereinafter called the "Authority
Trust Indenture"), between the Authority and Society National Bank, as trustee,
(hereinafter called the "Authority Trustee"), and the Bonds of this Series are
to be assigned by the Authority to the Authority Trustee as security for the
payment of the principal of and premium, if any, and interest on the Authority
Bonds and are to be delivered by the Company on behalf of
<PAGE> 6
3
the Authority directly to, and registered in the name of, the Authority Trustee;
and
The Company, in the exercise of the powers and authority conferred upon and
reserved to it under the provisions of the Indenture, and pursuant to
appropriate resolutions of the Board of Directors, has duly resolved and
determined to make, execute and deliver to the Trustee this Supplemental
Indenture in the form hereof for the purposes herein provided; and
All conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled and the execution and delivery hereof have been in all respects duly
authorized.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
That The Cleveland Electric Illuminating Company, in consideration of the
premises and of the mutual covenants herein contained and of the sum of One
Dollar ($1.00) to it duly paid by the Trustee at or before the ensealing and
delivery of these presents and for other valuable considerations, the receipt
whereof is hereby acknowledged, hereby covenants and agrees to and with the
Trustee and its successors in the Trust under the Indenture, for the benefit of
those who shall hold the Bonds and coupons, if any, issued and to be issued
thereunder and under this Supplemental Indenture as hereinafter provided, as
follows:
ARTICLE I
CONFIRMATION OF 1940 MORTGAGE AND
SUPPLEMENTAL INDENTURES
The 1940 Mortgage (as modified in Article V of the Supplemental Indenture
dated December 1, 1947, Article V of the Supplemental Indenture dated May 1,
1954, Article V of the Supplemental Indenture dated March 1, 1958, Article V of
the Supplemental Indenture dated January 15, 1969, Article III of the
Supplemental Indenture dated November 23, 1976 and Article III of the
Supplemental Indenture dated April 15, 1985) and the Supplemental Indentures
dated July 1, 1940, August 18, 1944, December 1, 1947, September 1, 1950, June
1, 1951, May 1, 1954, March 1, 1958, April 1, 1959, December 20, 1967, January
15, 1969, November 1, 1969, June 1, 1970, November 15, 1970, May 1, 1974, April
15, 1975, April 16, 1975, May 28, 1975, February 1, 1976, November 23, 1976,
July 26, 1977, September 27, 1977, May 1, 1978, September 1, 1979, April 1,
1980, April 15, 1980, May 28, 1980, June 9, 1980, December 1, 1980, July 28,
1981, August 1, 1981, March 1, 1982, July 15, 1982, September 1, 1982, November
1,
<PAGE> 7
4
1982, November 15, 1982, May 24, 1983, May 1, 1984, May 23, 1984, June 27, 1984,
September 4, 1984, November 14, 1984, November 15, 1984, April 15, 1985, May 28,
1985, August 1, 1985, September 1, 1985, November 1, 1985, April 15, 1986, May
14, 1986, May 15, 1986, February 25, 1987, October 15, 1987, February 24, 1988,
September 15, 1988, May 15, 1989, June 13, 1989, October 15, 1989, January 1,
1990, June 1, 1990, August 1, 1990, May 1, 1991, May 1, 1992, July 31, 1992,
January 1, 1993, February 1, 1993, May 20, 1993, June 1, 1993 and September 15,
1994, respectively, are hereby in all respects confirmed.
ARTICLE II
CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT
AND FORM OF BONDS OF THIS SERIES
SECTION 1. The Company hereby creates a new series of Bonds to be issued
under and secured by the Indenture and to be designated as "First Mortgage
Bonds, % Series due 2025-A" of the Company. The Bonds of this Series shall be
executed, authenticated and delivered in accordance with the provisions of, and
shall in all respects be subject to, all of the terms, conditions and covenants
of the Indenture.
SECTION 2. The Bonds of this Series shall be dated the date of their
authentication, shall mature April 1, 2025, and shall bear interest from the
time hereinafter provided at the rate of % per annum payable semiannually on
the same dates as interest is payable on the Authority Bonds (each such date
herein called an "interest payment date") until the maturity of the Bonds of
this Series, or, in the case of any Bonds of this Series duly called for
redemption, until the redemption date, or, in the case of any default by the
Company in the payment of the principal due on any Bonds of this Series, until
the Company's obligation with respect to the payment of the principal shall be
discharged as provided in the Indenture.
Except as hereinafter provided, each Bond of this Series shall bear
interest (a) from the interest payment date next preceding the date of such Bond
to which interest has been paid, or (b) if the date of such Bond is an interest
payment date to which interest has been paid, then from such date, or (c) if no
interest has been paid thereon, then from April 1, 1995. Notwithstanding the
foregoing, if the date of such Bond is after a Record Date (as hereinafter
defined) and before the next following interest payment date, then it shall bear
interest from such interest payment date; provided, however, that (i) if the
Company shall default in the payment of the interest due on such interest
payment date, then such Bond shall bear interest from the interest payment date
next preceding the date of such Bond to which interest
<PAGE> 8
5
has been paid, or (ii) if no interest has been paid thereon, then it shall bear
interest from April 1, 1995.
The interest payable on any interest payment date shall be paid to the
respective persons in whose names the Bonds of this Series shall be registered
at the close of business on the Record Date next preceding such interest payment
date, notwithstanding the cancellation of any such Bond upon any transfer or
exchange thereof subsequent to such Record Date and prior to such interest
payment date; provided, however, that, if and to the extent the Company shall
default in the payment of the interest due on such interest payment date, such
defaulted interest shall be paid to the respective persons in whose names such
outstanding Bonds of this Series are registered at the close of business on a
date (the "Subsequent Record Date") not less than ten days nor more than 15 days
next preceding the date of payment of such defaulted interest, such Subsequent
Record Date to be established by the Company by notice given by mail by or on
behalf of the Company to the registered owners of Bonds of this Series not less
than 10 days next preceding such Subsequent Record Date.
The term "Record Date" shall mean, with respect to any regular interest
payment date of any Bond of this Series, the date which would be the "Regular
Record Date", as defined in the Authority Trust Indenture, applicable to such
regular interest payment date, if it were an "Interest Payment Date", as defined
in the Authority Trust Indenture.
The Bonds of this Series shall be payable as to principal (and premium, if
any) and interest in any coin or currency of the United States of America which
at the time of payment is legal tender for the payment of public and private
debts and shall be payable (as well the interest as the principal thereof and
the premium thereon, if any) at the agency of the Company in the City of
Cleveland, State of Ohio, or, at the option of the Company, at the agency of the
Company in The City of New York. Unless the context indicates a different
meaning, any reference in this Article II to "agency of the Company" means
either the agency of the Company in the City of Cleveland, State of Ohio or the
agency of the Company in The City of New York.
SECTION 3. The principal amount of Bonds of this Series which may be
authenticated and delivered hereunder shall not exceed $53,900,000, except as
otherwise provided in the Indenture.
SECTION 4. The Bonds of this Series shall be issued as fully registered
Bonds only, without coupons, in the denominations of $100,000 and any integral
multiple thereof.
SECTION 5. In the manner and subject to the limitations provided in the
Indenture, Bonds of this Series may be transferred or may be
<PAGE> 9
6
exchanged for a like aggregate principal amount of Bonds of this Series of other
authorized denominations, in either case without charge, except for any tax or
taxes or other governmental charges incident to such transfer or exchange, at
the agency of the Company in The City of New York.
In the event less than all of the Bonds of this Series at the time
outstanding are called for redemption, the Company shall not be required (a) to
register any transfer or make any exchange of any such Bond for a period of 15
days before the mailing of the notice of redemption of any such Bond, (b) to
register any transfer or make any exchange of any such Bond so called for
redemption in its entirety, or (c) to register any transfer or make any exchange
of any portion of any such Bond so called for redemption.
Except as otherwise provided in Section 2 of this Article II with respect
to the payment of interest, the Company, the agencies of the Company and the
Trustee may deem and treat the person in whose name a Bond of this Series is
registered as the absolute owner thereof for the purpose of receiving any
payment and for all other purposes.
SECTION 6. The Bonds of this Series shall be redeemable only to the extent
provided in this Article II, subject to the provisions contained in Article V of
the Indenture and the form of Bond of this Series.
SECTION 7. The Bonds of this Series shall be subject to redemption by the
Company prior to maturity in whole at any time or in part from time to time at a
redemption price of 100% of the principal amount to be redeemed, but in each
instance only upon receipt by the Trustee of an officers' certificate to the
effect (a) that the Authority, at the direction of the Company, or the Company,
on behalf of the Authority, has given notice to the Authority Trustee that the
Company is exercising its option to direct the redemption of all or a part
(specifying the principal amount) of the Authority Bonds as provided in Section
4.01(a) of the Authority Trust Indenture and (b) that an equivalent principal
amount of Bonds of this Series shall be concurrently called for redemption. Such
officers' certificate shall specify the principal amount of the Bonds of this
Series to be redeemed and the accrued and unpaid interest to the redemption
date, shall have attached to it a copy of said notice to the Authority Trustee
and said direction of the Company and shall specify the redemption date of such
Bonds of this Series (which redemption date shall be not less than forty-five
(45) days from the date of the Trustee's receipt of such certificate and shall
be the same date as the redemption date of the Authority Bonds being
concurrently redeemed which is specified in said attached notice). The
redemption of the Bonds of this Series shall be made upon the notice and in the
manner provided in this Article II, subject to the provisions of the Indenture.
<PAGE> 10
7
SECTION 8. The Bonds of this Series shall be redeemed by the Company prior
to maturity in whole at any time or in part from time to time upon a final
determination by any federal judicial or administrative authority that interest
on the Authority Bonds is includable for federal income tax purposes in the
gross income of the holders of the Authority Bonds (other than because a holder
is a "substantial user" of the Project Facilities or a "related person" thereof
as those terms are used in Section 147(a) of the Internal Revenue Code of 1986,
as amended) at a redemption price of 100% of the principal amount to be redeemed
plus accrued and unpaid interest to the redemption date, but in each instance
only upon receipt by the Trustee of an officers' certificate to the effect (a)
that the Authority, at the direction of the Company, or the Company, on behalf
of the Authority, has given notice to the Authority Trustee that it is required
to redeem all or a part (specifying the principal amount) of the Authority Bonds
as provided in Section 4.01(b) of the Authority Trust Indenture and (b) that an
equivalent principal amount of Bonds of this Series shall be concurrently called
for redemption. Such officers' certificate shall specify the principal amount of
the Bonds of this Series to be redeemed and the redemption price thereof and
accrued and unpaid interest to the redemption date, shall have attached to it a
copy of said notice to the Authority Trustee and said direction of the Company
and shall specify the redemption date of such Bonds of this Series (which
redemption date shall be not less than forty-five (45) days from the date of the
Trustee's receipt of such certificate and shall be the same date as the
redemption date of the Authority Bonds being concurrently redeemed which is
specified in said attached notice). The redemption of the Bonds of this Series
shall be made upon the notice and in the manner provided in this Article II,
subject to the provisions of the Indenture.
<TABLE>
SECTION 9. The Bonds of this Series shall be subject to redemption by the
Company prior to maturity in whole at any time or in part from time to time, but
in no instance before April 1, 2005, at the same redemption price plus accrued
and unpaid interest, if any, as shall be payable on the Authority Bonds to be
redeemed concurrently therewith, to the redemption date as follows:
<CAPTION>
REDEMPTION PRICE
(EXPRESSED AS A
PERCENTAGE OF THE
REDEMPTION PERIODS PRINCIPAL AMOUNT
(DATES INCLUSIVE) BEING REDEEMED)
--------------------------------------------- --------------------
<S> <C>
April 1, 2005 through March 31, 2006......... 102%
April 1, 2006 through March 31, 2007......... 101
April 1, 2007 and thereafter................. 100
</TABLE>
but in each instance only upon receipt by the Trustee of an officers'
certificate to the effect (a) that the Authority, at the direction of the
<PAGE> 11
8
Company, or the Company, on behalf of the Authority, has given notice to the
Authority Trustee that the Company is exercising its option to direct the
redemption of all or part (specifying the principal amount) of the Authority
Bonds as provided in Section 4.01(c) of the Authority Trust Indenture and (b)
that an equivalent principal amount of Bonds of this Series shall be
concurrently called for redemption. Such officers' certificate shall specify the
principal amount of the Bonds of this Series to be redeemed and the redemption
price thereof and accrued and unpaid interest to the redemption date, shall have
attached to it a copy of said notice to the Authority Trustee and said direction
of the Company and shall specify the redemption date of such Bonds of this
Series (which redemption date shall be not less than forty-five (45) days from
the date of the Trustee's receipt of such certificate and shall be the same date
as the redemption date of the Authority Bonds being concurrently redeemed which
is specified in said attached notice). The redemption of the Bonds of this
Series shall be made upon the notice and in the manner provided in this Article
II, subject to the provisions of the Indenture.
SECTION 10. The Bonds of this Series shall be redeemed by the Company in
whole at any time prior to maturity at a redemption price of 100% of the
principal amount to be redeemed, plus accrued and unpaid interest to the
redemption date, but only if the Trustee shall receive a written demand from the
Authority Trustee for redemption of all Bonds of this Series held by the
Authority Trustee stating that an "Event of Default" under the Authority Trust
Indenture has occurred and is continuing and that payment of the principal of
the Authority Bonds has been accelerated; provided, however, that the Bonds of
this Series shall not be redeemed in the event that prior to the date of mailing
of notice of such redemption as provided in Section 11 of this Article II (a)
the Trustee shall have received a certificate of the Authority Trustee (i)
stating that there has been a waiver of such acceleration or (ii) withdrawing
said written demand or (b) if an event of default under Section 1 of Article IX
of the Indenture shall have occurred and be continuing, there has been a
declaration of acceleration of the principal of the Bonds of this Series. The
redemption of the Bonds of this Series shall be made on a date selected by the
Company not more than forty-five (45) days after receipt of the written demand
and shall be made upon the notice and in the manner provided in this Article II,
subject to the provisions of the Indenture.
SECTION 11. Subject to the provisions of the Indenture, written notice of
redemption of Bonds of this Series pursuant to any of Sections 7 through 10,
inclusive, of this Article II shall be given by the Trustee by mailing to the
registered owner or owners of such Bonds to be redeemed a notice of such
redemption, first class postage prepaid, at its last address as it shall appear
upon the books of the Company for
<PAGE> 12
9
the registration and transfer of such Bonds. Any notice of redemption pursuant
to said Section 7, 8 or 9 shall be mailed at least 30 days and not more than 60
days before the redemption date and any notice of redemption pursuant to said
Section 10 shall be mailed not more than 45 days before the redemption date;
provided, however, that the registered owner or owners of all Bonds of this
Series may consent in writing to a shorter notice period, and such consent, if
filed with the Trustee, shall be binding upon the Company and such registered
owner or owners and their transferees. In the event of a partial redemption, the
Trustee shall select the Bonds of this Series to be redeemed in such manner as
the Trustee shall deem appropriate and fair.
SECTION 12. In the event any Authority Bonds shall be purchased by the
Company and surrendered by the Company to the Authority Trustee for cancellation
or shall be otherwise surrendered to the Authority Trustee or other person for
cancellation pursuant to the Authority Trust Indenture (except upon exchange for
other Authority Bonds), Bonds of this Series equal in principal amount to the
Authority Bonds so surrendered shall be deemed to have been paid, but only when
and to the extent that (a) such payment of such principal amount of such Bonds
of this Series shall be noted by an agency of the Company on the Schedule of
Payments on such Bonds of this Series and (if such agency is not the Trustee)
written notice by such agency of such notation shall have been received by the
Trustee or (b) such principal amount of such Bonds of this Series shall have
been surrendered to and cancelled by the Trustee as provided in Section 14 of
this Article II.
SECTION 13. In the event and to the extent the principal of (or premium, if
any) or interest on any Authority Bonds shall be paid out of funds held by the
Authority Trustee or out of any other funds or shall otherwise be deemed to be
paid, an equal amount of principal (or premium, if any) or interest, as the case
may be, payable with respect to an aggregate principal amount of Bonds of this
Series equal to the aggregate principal amount of such Authority Bonds shall be
deemed to have been paid, but, in the case of such payment of principal of such
Bonds of this Series, only when and to the extent that (a) such payment of the
principal amount thereof shall be noted by an agency of the Company on the
Schedule of Payments on such Bonds of this Series and (if such agency is not the
Trustee) written notice by such agency of such notation shall have been received
by the Trustee or (b) such principal amount of Bonds of this Series shall have
been surrendered to and cancelled by the Trustee as provided in Section 14 of
this Article II. If the Authority Bonds are issued in an aggregate principal
amount of less than $53,900,000, an aggregate principal amount of the Bonds of
this Series equal to the difference between $53,900,000 and the aggregate
principal amount of the Authority Bonds issued (and all
<PAGE> 13
10
related premium and interest, if any) shall be deemed to have been paid.
SECTION 14. When payment of any principal amount of a Bond of this Series
is made as provided in Section 12 or 13 of this Article II, the registered owner
thereof shall surrender such Bond to an agency of the Company for notation and
notification or to the Trustee for cancellation as provided in such Section. All
Bonds of this Series deemed to have been paid in full as provided in Section 12
or 13 of this Article II shall be surrendered to the Trustee for cancellation
and the Trustee shall forthwith cancel the same. In the event that part of a
Bond of this Series shall be deemed to have been paid as provided in said
Section 12 or 13, the registered owner shall surrender such Bond to the Trustee
for cancellation, in which event the Trustee shall cancel such Bond and the
Company shall execute and the Trustee shall authenticate and deliver, without
charge to the registered owner, Bonds of this Series in such authorized
denominations as shall be specified by the registered owner in an aggregate
principal amount equal to the unpaid balance of the principal amount of such
surrendered Bond.
SECTION 15. The form of the fully registered Bonds of this Series and of
the Trustee's certificate of authentication thereon shall be substantially as
follows:
[FORM OF FULLY REGISTERED BOND OF THIS SERIES]
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
Incorporated under the laws of the State of Ohio
FIRST MORTGAGE BOND, % SERIES DUE 2025-A
Due April 1, 2025
No. $
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and
existing under the laws of the State of Ohio (hereinafter called the "Company",
which term shall include any successor corporation as defined in the Indenture
hereinafter referred to), for value received, hereby promises to pay to
, or registered assigns,
the sum of Dollars or the
aggregate unpaid principal amount hereof (as shown on the Schedule of Payments
hereon), whichever is less, on April 1, 2025, in any coin or currency of the
United States of America which at the time of payment is legal tender for the
payment of public and private debts, and to pay interest on the unpaid principal
amount hereof in like coin or currency from the time hereinafter provided at
such rate per annum on each interest payment date (hereinafter defined) as shall
cause the amount of interest payable on such interest payment date on the Bonds
of this Series (hereinafter defined) to equal the amount of interest
<PAGE> 14
11
payable on such interest payment date on the Authority Bonds (hereinafter
defined) and payable semiannually on the same dates as interest is payable on
said Authority Bonds (each such date herein called an "interest payment date")
until the maturity of this Bond, or, if this Bond shall be duly called for
redemption, until the redemption date, or, if the Company shall default in the
payment of the principal amount of this Bond, until the Company's obligation
with respect to the payment of such principal shall be discharged as provided in
said Indenture. Except as hereinafter provided, this Bond shall bear interest
(a) from the interest payment date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an interest payment
date to which interest has been paid, then from such date, or (c) if no interest
has been paid on this Bond, then from April 1, 1995. Notwithstanding the
foregoing, if the date of this Bond is after the Record Date (as defined in
Section 2 of Article II of the Supplemental Indenture hereinafter defined) which
next precedes an interest payment date and before such interest payment date,
then it shall bear interest from such interest payment date; provided, however,
that (i) if the Company shall default in the payment of the interest due on such
interest payment date, then this Bond shall bear interest from the interest
payment date next preceding the date of this Bond to which interest has been
paid, or (ii) if no interest has been paid on this Bond, then it shall bear
interest from April 1, 1995. Subject to certain exceptions provided in said
Indenture, the interest payable on any interest payment date shall be paid to
the person in whose name this Bond shall be registered at the close of business
on the Record Date or, in the case of defaulted interest, on a day preceding the
date of payment thereof established by notice to the registered owner of this
Bond in the manner provided in said Supplemental Indenture. Principal of (and
premium, if any) and interest on this Bond are payable at the agency of the
Company in The City of New York, or, at the option of the registered owner, at
the agency of the Company in the City of Cleveland, State of Ohio.
This Bond is one of the duly authorized First Mortgage Bonds of the Company
(herein called the "Bonds"), all issued and to be issued under and equally
secured by a Mortgage and Deed of Trust dated July 1, 1940, executed by the
Company to Guaranty Trust Company of New York as Trustee, under which The Chase
Manhattan Bank (National Association) is successor trustee (herein called the
"Trustee"), and all indentures supplemental thereto (said Mortgage as so
supplemented herein called the "Indenture") to which reference is hereby made
for a description of the properties mortgaged and pledged, the nature and extent
of the security, the rights of the registered owner or owners of the Bonds and
of the Trustee in respect thereof and the terms and conditions upon which the
Bonds are, and are to be, secured. The
<PAGE> 15
12
Bonds may be issued in series, for various principal sums, may mature at
different times, may bear interest at different rates and may otherwise vary as
in the Indenture provided. This Bond is one of a series designated as the First
Mortgage Bonds, % Series due 2025-A (herein called the "Bonds of this Series")
limited, except as otherwise provided in the Indenture, in aggregate principal
amount to $53,900,000, issued under and secured by the Indenture and described
in the Supplemental Indenture dated April 1, 1995, between the Company and the
Trustee (herein called the "Supplemental Indenture").
The Bonds of this Series have been issued by the Company and delivered to
the Authority Trustee (hereinafter defined) to evidence and secure its
obligation to pay to the Beaver County Industrial Development Authority
(hereinafter called the "Authority") a portion of the Company's share of the
purchase price for certain air and water pollution control facilities and sewage
and solid waste disposal facilities used in connection with the operation of
Beaver Valley Power Station Unit 2, a nuclear powered generating unit located in
Shippingport, Pennsylvania (hereinafter called the "Project Facilities"), such
portion being in an amount equal to the principal of the Authority Bonds
(hereinafter defined) issued pursuant to the Beaver Valley Pollution Control
Facilities Agreement dated as of April 1, 1974, among the Authority, the
Company, The Toledo Edison Company, Duquesne Light Company, Ohio Edison Company
and Pennsylvania Power Company. That portion of the Company's share of the cost
of the Project Facilities was originally financed with proceeds from the sale by
the Authority of certain bonds, which were refunded from the proceeds of one
series of Collateralized Pollution Control Revenue Refunding Bonds, Series 1995
(The Cleveland Electric Illuminating Company Beaver Valley Project) (hereinafter
called the "Authority Bonds") issued pursuant to a Trust Indenture, dated as of
April 1, 1995 (hereinafter called the "Authority Trust Indenture"), between the
Authority and Society National Bank, as trustee, (hereinafter called the
"Authority Trustee"). The Bonds of this Series have been assigned by the
Authority to the Authority Trustee as security for the payment of the principal
of and premium, if any, and interest on the Authority Bonds and have been
delivered by the Company on behalf of the Authority directly to, and registered
in the name of, the Authority Trustee.
In the event any Authority Bonds shall be surrendered to the Authority
Trustee or other person for cancellation pursuant to the Authority Trust
Indenture (except upon exchange for other Authority Bonds), Bonds of this Series
equal in principal amount to such Authority Bonds shall be deemed to have been
paid, but only when and to the extent (a) so noted on the Schedule of Payments
hereon by one of the agencies of the Company hereinabove specified and (if such
agency is
<PAGE> 16
13
not the Trustee) written notice by such agency of such notation has been
received by the Trustee or (b) such Bond is surrendered to and cancelled by the
Trustee as provided in the next paragraph; and in the event and to the extent
the principal of (or premium, if any) or interest on any Authority Bonds shall
be paid or deemed to be paid, an equal amount of principal (or premium, if any)
or interest, as the case may be, payable with respect to an aggregate principal
amount of Bonds of this Series equal to the aggregate principal amount of such
Authority Bonds shall be deemed to have been paid, but, in the case of such
payment of principal, only when and to the extent (i) so noted on the Schedule
of Payments hereon by one of the agencies of the Company hereinabove specified
and (if such agency is not the Trustee) written notice by such agency of such
notation has been received by the Trustee or (ii) such Bond is surrendered to
and cancelled by the Trustee as provided in the next paragraph. When any such
payment of principal of this Bond is made, such Bond shall be surrendered by the
registered owner hereof to an agency of the Company for such notation or to the
Trustee for cancellation. If the Authority Bonds are issued in an aggregate
principal amount of less than $53,900,000, an aggregate principal amount of the
Bonds of this Series equal to the difference between $53,900,000 and the
aggregate principal amount of the Authority Bonds issued (and all related
premium and interest, if any) shall be deemed to have been paid.
In the event that this Bond shall be deemed to have been paid in full, this
Bond shall be surrendered to the Trustee for cancellation. In the event that
this Bond shall be deemed to have been paid in part, this Bond may, at the
option of the registered holder, be surrendered to the Trustee for cancellation,
in which event the Trustee shall cancel this Bond and the Company shall execute
and the Trustee shall authenticate and deliver Bonds of this Series in
authorized denominations in aggregate principal amount equal to the unpaid
balance of the principal amount of this Bond.
The Bonds of this Series are subject to redemption by the Company prior to
maturity in whole at any time or in part from time to time as provided in
Section 7 of Article II of the Supplemental Indenture at a redemption price of
100% of the principal amount to be redeemed, plus accrued and unpaid interest to
the redemption date.
The Bonds of this Series shall be redeemed by the Company prior to maturity
in whole at any time or in part from time to time as provided in Section 8 of
Article II of the Supplemental Indenture at a redemption price of 100% of the
principal amount to be redeemed, plus accrued and unpaid interest to the
redemption date, at the earliest practicable date selected by the Authority
Trustee after consultation with the Company, but in no event later than 180 days
following the
<PAGE> 17
14
Authority Trustee's notification of the Determination of Taxability (as defined
in the Authority Trust Indenture).
<TABLE>
The Bonds of this Series are subject to redemption by the Company prior to
maturity in whole at any time or in part from time to time, but in no instance
before April 1, 2005, as provided in Section 9 of Article II of the Supplemental
Indenture at a redemption price, plus accrued and unpaid interest, if any, to
the redemption date as follows:
<CAPTION>
REDEMPTION PRICE
(EXPRESSED AS A
PERCENTAGE OF THE
REDEMPTION PERIODS PRINCIPAL AMOUNT
(DATES INCLUSIVE) BEING REDEEMED)
--------------------------------------------- --------------------
<S> <C>
April 1, 2005 through March 31, 2006......... 102%
April 1, 2006 through March 31, 2007......... 101
April 1, 2007 and thereafter................. 100
</TABLE>
The Bonds of this Series shall be redeemed by the Company prior to maturity
in whole at any time as provided in Section 10 of Article II of the Supplemental
Indenture at a redemption price of 100% of the principal amount to be redeemed,
plus accrued and unpaid interest to the redemption date.
Any redemption of the Bonds of this Series shall be made after written
notice to the registered owner or owners of such Bonds, sent by the Trustee by
first class mail, postage prepaid, at least 30 days and not more than 60 days
before the redemption date (except in the event of redemption described in the
next preceding paragraph in which case such notice shall be mailed not more than
45 days before the redemption date), unless a shorter notice period is consented
to in writing by the registered owner or owners of all Bonds of this Series and
such consent is filed with the Trustee, and such redemption and notice shall be
made in the manner provided in Article II of the Supplemental Indenture, subject
to the provisions of the Indenture. In the event of a partial redemption, the
Trustee shall select the Bonds of this Series to be redeemed in such manner as
the Trustee shall deem appropriate and fair.
In the Forty-Third Supplemental Indenture dated April 15, 1985 between the
Company and the Trustee, the Company has modified, in certain respects, the
redemption provisions in the Indenture effective only with respect to the Bonds
of all series established or created in said Forty-Third Supplemental Indenture
and all supplemental indentures dated after May 28, 1985.
To the extent permitted by and as provided in the Indenture, modifications
or alterations of the Indenture, or of any indenture supplemental thereto, and
of the rights and obligations of the Com-
<PAGE> 18
15
pany and of the holders of the Bonds and coupons may be made with the consent of
the Company by an affirmative vote of not less than 80% in principal amount of
the Bonds entitled to vote then outstanding at a meeting of Bondholders called
and held as provided in the Indenture and, in case one or more but less than all
of the series of Bonds then outstanding under the Indenture are so affected, by
an affirmative vote of not less than 80% in principal amount of the Bonds of any
series entitled to vote then outstanding and affected by such modification or
alteration; provided, however, that no such modification or alteration shall be
made which will affect the terms of payment of the principal of (or premium, if
any) or interest on this Bond. In the Nineteenth Supplemental Indenture dated
November 23, 1976 between the Company and the Trustee, the Company has modified
the Indenture effective from and after the time when none of the Bonds of any
series established prior to the execution of the Nineteenth Supplemental
Indenture shall remain outstanding so as to change "80%" in the foregoing
sentence to "60%" and to make certain other modifications of the Indenture and
has reserved the right to make certain other modifications of the Indenture
without any vote, consent or other action by the holders of Bonds of any series
established in the Nineteenth Supplemental Indenture or in any subsequent
supplemental indenture.
If an event of default, as defined in the Indenture, shall occur, the
principal of all the Bonds at any such time outstanding under the Indenture may
be declared or may become due and payable upon the conditions and in the manner
and with the effect provided in the Indenture. The Indenture provides that such
declaration may in certain events be waived by the holders of a majority in
principal amount of the Bonds outstanding.
Subject to the limitations provided in the Indenture, this Bond is
transferable by the registered owner hereof, in person or by duly authorized
attorney, on the books of the Company to be kept for that purpose at the agency
of the Company in The City of New York upon surrender and cancellation of this
Bond, and upon presentation of a duly executed written instrument of transfer,
and thereupon a new fully registered Bond or Bonds of this Series, of the same
aggregate principal amount and in authorized denominations will be issued to the
transferee or transferees in exchange herefor; and this Bond, with or without
other Bonds of this Series, may in like manner be exchanged for one or more new
fully registered Bonds of this Series of other authorized denominations but of
the same aggregate principal amount; all without charge except for any tax or
taxes or other governmental charges incidental to such transfer or exchange and
all subject to the terms and conditions set forth in the Indenture. In the event
less than all of the Bonds of this Series at the time outstanding are called for
<PAGE> 19
16
redemption, the Company shall not be required (a) to register any transfer or
make any exchange of any such Bond for a period of 15 days before the mailing of
the notice of redemption of any such Bond, (b) to register any transfer or make
any exchange of any such Bond so called for redemption in its entirety, or (c)
to register any transfer or make any exchange of any portion of any such Bond so
called for redemption. Except as otherwise provided herein with respect to the
payment of interest, the Company, the agencies of the Company and the Trustee
may deem and treat the person in whose name this Bond is registered as the
absolute owner hereof for the purpose of receiving any payment and for all other
purposes.
No recourse shall be had for the payment of the principal of or the
interest or premium, if any, on this Bond, or for any claim based hereon or on
the Indenture or any indenture supplemental thereto, against any incorporator,
or against any stockholder, director or officer, past, present or future, of the
Company, or of any predecessor or successor corporation, as such, either
directly or through the Company or any such predecessor or successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such
liability, whether at common law, in equity, by any constitution or statute or
otherwise, of incorporators, stockholders, directors or officers being released
by every owner hereof by the acceptance of this Bond and as part of the
consideration for the issue hereof and being likewise released by the terms of
the Indenture.
This Bond shall not be entitled to any benefit under the Indenture or any
indenture supplemental thereto, or become valid or obligatory for any purpose,
until the Trustee under the Indenture, or a successor trustee thereto under the
Indenture, shall have signed the form of certificate of authentication endorsed
hereon.
<PAGE> 20
17
IN WITNESS WHEREOF, The Cleveland Electric Illuminating Company has caused
this Bond to be signed in its name by its President or a Vice President (whose
signature may be manual or a facsimile thereof) and its corporate seal (or a
facsimile thereof) to be hereto affixed and attested by its Secretary or an
Assistant Secretary (whose signature may be manual or a facsimile thereof).
Dated:
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
By ....................................................
VICE PRESIDENT
Attest:
............................
Secretary
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Bond is one of the Bonds of the series designated and described in the
within-mentioned Indenture and Supplemental Indenture.
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
TRUSTEE
By ...........................................
AUTHORIZED OFFICER
<PAGE> 21
18
<TABLE>
[FORM OF SCHEDULE OF PAYMENTS]
SCHEDULE OF PAYMENTS
<CAPTION>
AGENCY
OF THE
UNPAID COMPANY
PRINCIPAL PRINCIPAL PREMIUM INTEREST MAKING AUTHORIZED
DATE PAYMENT AMOUNT PAYMENT PAYMENT NOTATION OFFICER TITLE
--------- ------- ------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
[END OF FORM OF FULLY REGISTERED BOND]
<PAGE> 22
19
ARTICLE III
THE TRUSTEE
SECTION 1. The Trustee hereby accepts the trusts hereby declared and
provided upon the terms and conditions in the Indenture set forth and upon the
terms and conditions set forth in this Article III.
SECTION 2. The Trustee shall not be responsible in any manner whatsoever
for or in respect of the validity or sufficiency of this Supplemental Indenture
or the due execution hereof by the Company or for or in respect of the recitals
contained herein, all of which recitals are made by the Company solely. In
general, each and every term and condition contained in Article XIII of the
Indenture shall apply to this Supplemental Indenture with the same force and
effect as if the same were herein set forth in full, with such omissions,
variations and modifications thereof as may be appropriate.
SECTION 3. For purposes of this Supplemental Indenture, (a) the Trustee may
conclusively rely and shall be protected in acting upon the written demand from,
or certificate of, the Authority Trustee or any officers' certificate or opinion
of counsel as to the truth of the statements and the correctness of the opinions
expressed therein, without independent investigation or verification thereof,
subject to Article XIII of the Indenture and (b) a written demand from, or
certificate of, the Authority Trustee shall mean a written demand or certificate
executed by the president, any vice president or any trust officer of the
Authority Trustee.
SECTION 4. The Company shall cause any agency of the Company, other than
the Trustee, which it may appoint from time to time to act as such agency in
respect of the Bonds of this Series, to execute and deliver to the Trustee an
instrument in which such agency shall:
(a) Agree to keep and maintain, and furnish to the Trustee from time
to time as reasonably requested by the Trustee, appropriate records of all
transactions carried out by it as such agency and to furnish the Trustee
such other information and reports as the Trustee may reasonably require;
(b) Certify that it is eligible for appointment as such agency and
agree to notify the Trustee promptly if it shall cease to be so eligible;
and
(c) Agree to indemnify the Trustee, in a manner satisfactory to the
Trustee, against any loss, liability or expense incurred by, and defend any
claim asserted against, the Trustee by reason of any acts or failures to
act as such agency, except for any liability resulting from any action
taken by it at the specific direction of the Trustee;
<PAGE> 23
20
provided, however, that the Company, in lieu of causing any such agency to
furnish such an instrument, may make such other arrangements with the Trustee in
respect of any such agency as shall be satisfactory to the Trustee.
SECTION 5. The Trustee shall advise the Company in writing of the receipt
of any notification provided for in or any cancellation made pursuant to Section
12, 13 or 14 of Article II of this Supplemental Indenture.
ARTICLE IV
MISCELLANEOUS PROVISIONS
This Supplemental Indenture may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original; but such
counterparts shall together constitute but one and the same instrument.
EXECUTION
IN WITNESS WHEREOF, said The Cleveland Electric Illuminating Company has
caused this Supplemental Indenture to be executed on its behalf by its President
or one of its Vice Presidents and its corporate seal to be hereto affixed and
said seal and this Supplemental Indenture to be attested by its Secretary or an
Assistant Secretary, and said The Chase Manhattan Bank (National Association),
in evidence of its acceptance of the trust hereby created, has caused this
Supplemental Indenture to be executed on its behalf by one of its Vice
Presidents or one of its Trust Officers and its corporate seal to be hereto
affixed and said seal and this Supplemental Indenture to be attested by one of
its Assistant Secretaries or Corporate Trust Officers, all as of the day and
year first above written.
<PAGE> 24
S-1
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
By
Vice President
Attest:
Secretary
Signed, sealed and acknowledged by
The Cleveland Electric Illuminating Company
in the presence of:
------------------------------------------
Patricia Barkey
------------------------------------------
Sondra Clarke
As witnesses
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
AS TRUSTEE
By
Second Vice President
Attest:
Corporate Trust Officer
Signed, sealed and acknowledged on
behalf of The Chase Manhattan Bank
(National Association)
in the presence of:
------------------------------------------
Ronald J. Halleran
------------------------------------------
Timothy E. Burke
As witnesses
<PAGE> 25
S-2
STATE OF OHIO
SS:
COUNTY OF CUYAHOGA
On this th day of April, 1995, before me personally appeared GARY R.
LEIDICH and E. LYLE PEPIN to me personally known, who being by me severally duly
sworn, did say that they are a Vice President and the Secretary, respectively,
of The Cleveland Electric Illuminating Company, that the seal affixed to the
foregoing instrument is the corporate seal of said corporation and that said
instrument was signed and sealed in behalf of said corporation by authority of
its Board of Directors; and said officers severally acknowledged said instrument
to be the free act and deed of said corporation.
---------------------------------------------
Notary Public
Amy B. McCabe
Notary Public, State of Ohio
Recorded in Lucas County
My Commission expires July 26, 1997
STATE OF NEW YORK
SS:
COUNTY OF NEW YORK
On this th day of April, 1995, before me personally appeared VALERIE
DUNBAR and MARY LEWICKI to me personally known, who being by me severally duly
sworn, did say that they are a Second Vice President and a Corporate Trust
Officer, respectively, of The Chase Manhattan Bank (National Association), that
the seal affixed to the foregoing instrument is the corporate seal of said
corporation and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors; and said officers severally
acknowledged said instrument to be the free act and deed of said corporation.
---------------------------------------------
Notary Public
Della K. Benjamin
Notary Public, State of New York
No. 24-4659567
Qualified in Kings County
Commission Expires April 30, 1995
This instrument prepared by Bruce T. Rosenbaum, attorney at law.
<PAGE> 26
R-1
This page contains information as to recording and filing which was not set
forth in this Supplemental Indenture at the time of execution. This page is not
a part of this Supplemental Indenture.
RECORDING AND FILING DATA
<TABLE>
This Supplemental Indenture was filed for record and recorded in the record
of mortgages in the offices of the Recorders of the following Counties:
<CAPTION>
COUNTY VOLUME PAGE FILED FOR RECORD
------------------------------- --------------- -------------------------
<S> <C> <C> <C>
Ohio
Ashtabula
Cuyahoga
Geauga
Lake
Lorain
Ottawa
Portage
Stark
Summit
Trumbull
Pennsylvania
Warren
Beaver
</TABLE>
<TABLE>
This Supplemental Indenture was filed for record and recorded in the
Registered Land Department of the offices of the Recorders of the following
Counties in the State of Ohio:
<CAPTION>
COUNTY DOCUMENT NUMBER FILED FOR RECORD
--------------------------------------------- -------------------------
<S> <C> <C>
Cuyahoga
Lake
</TABLE>
An amendment to a previously filed financing statement and a counterpart of
this Supplemental Indenture were filed in the office of the Secretary of the
Commonwealth of Pennsylvania on under original or
amendment file number , microfilm number , to comply with
the filing requirements of the Pennsylvania enactment of the Uniform Commercial
Code.
<PAGE> 1
EXHIBIT 4(a)(4)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY
TO
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
(successor to Morgan Guaranty Trust Company
of New York,
formerly Guaranty Trust Company of New York)
As Trustee under
The Cleveland Electric Illuminating Company's
Mortgage and Deed of Trust,
Dated July 1, 1940
------------------------
SEVENTIETH SUPPLEMENTAL INDENTURE
DATED APRIL 15, 1995
FIRST MORTGAGE BONDS, % SERIES DUE 2025-B
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
i
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
SEVENTIETH SUPPLEMENTAL INDENTURE
DATED APRIL 15, 1995
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PARTIES..................................................... 1
RECITALS:
Indenture and Supplemental Indentures..................... 1
First Mortgage Bonds outstanding.......................... 1
Authorization by Indenture of issue of additional Bonds... 2
Bonds of this Series...................................... 2
Authorization of Seventieth Supplemental Indenture........ 2
Compliance with conditions to making of Seventieth
Supplemental Indenture................................. 2
ARTICLE I -- CONFIRMATION OF 1940 MORTGAGE AND SUPPLEMENTAL
INDENTURES................................................ 2
ARTICLE II -- CREATION, PROVISIONS, REDEMPTION, PRINCIPAL
AMOUNT AND FORM OF BONDS OF THIS SERIES................... 3
Section 1 -- Creation and designation of Bonds and
compliance with Indenture............................ 3
Section 2 -- Registered Bonds and denominations........ 3
Section 3 -- Date of Bonds, maturity date, interest
rate, accrual date, payment dates, place of payments,
Subsequent Record Date and Record Date............... 3
Section 4 -- Transfer and exchange of Bonds............ 4
Section 5 -- Redemption of Bonds....................... 5
Section 6 -- Notice of redemption...................... 5
Section 7 -- Surrender of Bonds purchased or otherwise
acquired............................................. 5
Section 8 -- Principal amount of Bonds which may be au-
thenticated and delivered............................ 5
Section 9 -- Form of Fully Registered Bonds............ 5
Form of Trustee's Certificate of
Authentication......................... 5
</TABLE>
---------------
*The Table of Contents, the page headings and the recording data are not
part of the Seventieth Supplemental Indenture as executed.
<PAGE> 3
ii
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ARTICLE III -- THE TRUSTEE.................................. 11
Section 1 -- Acceptance by Trustee..................... 11
Section 2 -- Responsibility of Trustee................. 11
ARTICLE IV -- MISCELLANEOUS PROVISIONS...................... 11
EXECUTION................................................... 11
COMPANY'S ACKNOWLEDGMENT.................................... S-1
TRUSTEE'S ACKNOWLEDGMENT.................................... S-2
RECORDING AND FILING DATA................................... R-1
</TABLE>
<PAGE> 4
SEVENTIETH SUPPLEMENTAL INDENTURE, dated April 15, 1995, made by and
between THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and
existing under the laws of the State of Ohio (the "Company"), and THE CHASE
MANHATTAN BANK (NATIONAL ASSOCIATION) (MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, formerly GUARANTY TRUST COMPANY OF NEW YORK), a national banking
association existing under the laws of the United States of America, with its
head office at 1 Chase Manhattan Plaza, The City of New York (the "Trustee"), as
Trustee under the Mortgage and Deed of Trust dated July 1, 1940, hereinafter
mentioned:
RECITALS
In order to secure First Mortgage Bonds of the Company ("Bonds"), the
Company has heretofore executed and delivered to the Trustee the Mortgage and
Deed of Trust dated July 1, 1940 (the "1940 Mortgage") and sixty-nine
Supplemental Indentures thereto dated, respectively, July 1, 1940, August 18,
1944, December 1, 1947, September 1, 1950, June 1, 1951, May 1, 1954, March 1,
1958, April 1, 1959, December 20, 1967, January 15, 1969, November 1, 1969, June
1, 1970, November 15, 1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28,
1975, February 1, 1976, November 23, 1976, July 26, 1977, September 27, 1977,
May 1, 1978, September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980,
June 9, 1980, December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982,
July 15, 1982, September 1, 1982, November 1, 1982, November 15, 1982, May 24,
1983, May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14,
1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985, September
1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15, 1986, February
25, 1987, as of October 15, 1987, February 24, 1988, September 15, 1988, May 15,
1989, June 13, 1989, October 15, 1989, January 1, 1990, June 1, 1990, August 1,
1990, May 1, 1991, May 1, 1992, July 31, 1992, January 1, 1993, February 1,
1993, May 20, 1993, June 1, 1993, September 15, 1994 and April 1, 1995; and
The 1940 Mortgage, as supplemented and modified by said Supplemental
Indentures and by this Seventieth Supplemental Indenture, will be hereinafter
collectively referred to as the "Indenture" and this Seventieth Supplemental
Indenture will be hereinafter referred to as "this Supplemental Indenture"; and
Pursuant to the provisions of the Indenture, the Company has issued series
of Bonds in the aggregate principal amount of $ , of which
series in the aggregate principal amount of $ are no longer
outstanding; and
<PAGE> 5
2
The Indenture provides among other things that the Company, from time to
time, in addition to the Bonds authorized to be executed, authenticated and
delivered pursuant to other provisions therein, may execute and deliver
additional Bonds to the Trustee and the Trustee shall thereupon authenticate and
deliver such Bonds to or upon the order of the Company; and
The Company has determined to create pursuant to the provisions of the
Indenture one new series of Bonds designated as "First Mortgage Bonds, % Series
due 2025-B" (the "Bonds of this Series") with the denominations, rate of
interest, date of maturity and other provisions and agreements in respect
thereof as in this Supplemental Indenture set forth; and
The Company, in the exercise of the powers and authority conferred upon and
reserved to it under the provisions of the Indenture, and pursuant to
appropriate resolutions of its Board of Directors, has duly resolved and
determined to make, execute and deliver to the Trustee this Supplemental
Indenture in the form hereof for the purposes herein provided; and
All conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled and the execution and delivery hereof have been in all respects duly
authorized.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
That The Cleveland Electric Illuminating Company, in consideration of the
premises and of the mutual covenants herein contained and of the sum of One
Dollar ($1.00) to it duly paid by the Trustee at or before the ensealing and
delivery of these presents and for other valuable considerations, the receipt
whereof is hereby acknowledged, hereby covenants and agrees to and with the
Trustee and its successors in the Trust under the Indenture, for the benefit of
those who shall hold the Bonds and coupons, if any, issued and to be issued
thereunder and under this Supplemental Indenture as hereinafter provided, as
follows:
ARTICLE I
CONFIRMATION OF 1940 MORTGAGE AND
SUPPLEMENTAL INDENTURES
The 1940 Mortgage (as modified in Article V of the Supplemental Indenture
dated December 1, 1947, Article V of the Supplemental Indenture dated May 1,
1954, Article V of the Supplemental Indenture dated March 1, 1958, Article V of
the Supplemental Indenture dated January 15, 1969, Article III of the
Supplemental Indenture dated
<PAGE> 6
3
November 23, 1976 and Article III of the Supplemental Indenture dated April 15,
1985) and the Supplemental Indentures dated July 1, 1940, August 18, 1944,
December 1, 1947, September 1, 1950, June 1, 1951, May 1, 1954, March 1, 1958,
April 1, 1959, December 20, 1967, January 15, 1969, November 1, 1969, June 1,
1970, November 15, 1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28,
1975, February 1, 1976, November 23, 1976, July 26, 1977, September 27, 1977,
May 1, 1978, September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980,
June 9, 1980, December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982,
July 15, 1982, September 1, 1982, November 1, 1982, November 15, 1982, May 24,
1983, May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14,
1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985, September
1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15, 1986, February
25, 1987, as of October 15, 1987, February 24, 1988, September 15, 1988, May 15,
1989, June 13, 1989, October 15, 1989, January 1, 1990, June 1, 1990, August 1,
1990, May 1, 1991, May 1, 1992, July 31, 1992, January 1, 1993, February 1,
1993, May 20, 1993, June 1, 1993, September 15, 1994 and April 1, 1995,
respectively, are hereby in all respects confirmed.
ARTICLE II
CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT
AND FORM OF BONDS OF THIS SERIES
SECTION 1. The Company hereby creates a new series of Bonds to be issued
under and secured by the Indenture and to be designated as "First Mortgage
Bonds, % Series due 2025-B" of the Company and hereinabove and hereinafter
called the "Bonds of this Series". The Bonds of this Series shall be executed,
authenticated and delivered in accordance with the provisions of, and shall in
all respects be subject to, all of the terms, conditions and covenants of the
Indenture.
SECTION 2. The Bonds of this Series shall be issued as fully registered
Bonds only, without coupons, in the denominations of $1,000 or any multiple
thereof.
SECTION 3. The Bonds of this Series shall be dated the date of
authentication, shall mature 1, 2025, and shall bear interest from the
time hereinafter provided at the rate of % per annum payable on 1 and
1 in each year starting on 1, 1995 (each such date
hereinafter called an "interest payment date") on and until maturity, or, in the
case of any such Bonds duly called for redemption, on and until the redemption
date, or, in the case of any default by the Company in the payment of the
principal due on any such Bonds, until the Company's obligation with respect to
the
<PAGE> 7
4
payment of the principal shall be discharged as provided in the Indenture.
The Bonds of this Series shall be payable as to principal (and premium, if
any) and interest at the agency of the Company in the Borough of Manhattan, The
City of New York, in any coin or currency of the United States of America which
at the time of payment is legal tender for the payment of public and private
debts.
Except as hereinafter provided, each Bond of this Series shall bear
interest from the later of the date of initial authentication of such Bond or
the most recent date to which interest has been paid until the principal of such
Bond is paid. Interest on the Bonds of this Series shall be computed on the
basis of twelve 30-day months and a 360-day year.
The interest payable on any interest payment date shall be paid to the
respective persons in whose name any Bond of this Series shall be registered at
the close of business on the Record Date (hereinafter defined) with respect to
such interest payment date, notwithstanding the cancellation of any such Bond
upon any transfer or exchange thereof subsequent to such Record Date and prior
to such interest payment date; provided, however, that, if and to the extent the
Company shall default in the payment of the interest due on such interest
payment date (other than an interest payment date that is the maturity date),
such defaulted interest shall be paid to the respective persons in whose names
such outstanding Bonds of this Series are registered at the close of business on
a date (the "Subsequent Record Date") not less than ten days nor more than 30
days next preceding the date of payment of such defaulted interest, such
Subsequent Record Date to be established by the Company by notice given by mail
by or on behalf of the Company to the registered owners of Bonds of this Series
not less than ten days next preceding such Subsequent Record Date.
The term "Record Date" shall mean, with respect to any interest payment
date (other than an interest payment date that is the maturity date) of any Bond
of this Series, the close of business on the fifteenth day (whether or not a
business day at the place of payment) of the calendar month next preceding such
interest payment date.
SECTION 4. In the manner and subject to the limitations provided in the
Indenture, Bonds of this Series may be transferred or may be exchanged for a
like aggregate principal amount of Bonds of such series of other authorized
denominations, in either case without charge, except for any tax or taxes or
other governmental charges incident to such transfer or exchange, at the agency
of the Company in the Borough of Manhattan, The City of New York.
<PAGE> 8
5
In the event less than all of the Bonds of this Series at the time
outstanding are called for redemption, the Company shall not be required (a) to
register any transfer or make any exchange of any such Bond for a period of 15
days before the mailing of the notice of redemption of any such Bonds, (b) to
register any transfer or make any exchange of any such Bond so called for
redemption in its entirety or (c) to register any transfer or make any exchange
of any portion of any such Bond which has been called for redemption.
Except as otherwise provided in Section 3 of this Article II with respect
to the payment of interest, the Company, the agencies of the Company and the
Trustee may deem and treat the person in whose name a Bond of this Series is
registered as the absolute owner thereof for the purpose of receiving any
payment and for all other purposes.
SECTION 5. The Bonds of this Series shall be redeemable as provided in the
form of Bond of this Series set forth in this Supplemental Indenture, subject to
the provisions contained in Article V of the Indenture and in said form of Bond
of this Series.
SECTION 6. Subject to the applicable provisions of the Indenture, written
notice of redemption of Bonds of this Series pursuant to this Supplemental
Indenture shall be given by the Trustee by mailing to each registered owner of
such Bonds to be redeemed a notice of such redemption, first class postage
prepaid, at its last address as it shall appear upon the books of the Company
for the registration and transfer of such Bonds. Any notice of redemption shall
be mailed at least 30 days, but no more than 60 days, prior to the redemption
date. In the event of partial redemption of Bonds of this Series, the Trustee
shall select the Bonds of this Series to be redeemed, subject to the provisions
of this Supplemental Indenture, in such manner as the Trustee shall deem
appropriate and fair.
SECTION 7. Any Bonds of this Series at any time purchased or otherwise
acquired by the Company shall be surrendered to the Trustee for cancellation and
the Trustee shall forthwith cancel the same.
SECTION 8. The aggregate principal amount of Bonds of this Series which may
be authenticated and delivered hereunder shall not exceed $300,000,000, except
as otherwise provided in the Indenture.
SECTION 9. The form of the fully registered Bonds of this Series and of the
Trustee's certificate of authentication thereon shall be substantially as
follows:
<PAGE> 9
6
[FORM OF FULLY REGISTERED BOND OF THIS SERIES]
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
Incorporated under the laws of the State of Ohio
FIRST MORTGAGE BOND, % SERIES DUE 2025-B
Due 1, 2025
No. $
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and
existing under the laws of the State of Ohio (hereinafter called the "Company",
which term shall include any successor corporation as defined in the Indenture
hereinafter referred to), for value received, hereby promises to pay to
, or registered assigns,
the sum of Dollars or the
aggregate unpaid principal amount hereof, whichever is less, on 1, 2025
in any coin or currency of the United States of America which at the time of
payment is legal tender for the payment of public and private debts, and to pay
interest on the unpaid principal amount hereof in like coin or currency from the
time hereinafter provided, at the rate per annum specified in the title hereof,
payable on 1 and 1 in each year starting on 1,
1995 (each such date herein called an "interest payment date"), and on and until
the date of maturity of this Bond, or, if this Bond shall be duly called for
redemption, on and until the redemption date, or, if the Company shall default
in the payment of the principal amount of this Bond, until the Company's
obligation with respect to the payment of such principal shall be discharged as
provided in the Indenture. Interest on this Bond shall be computed on the basis
of twelve 30-day months and a 360-day year. Except as hereinafter provided, this
Bond shall bear interest from the date of initial authentication of this Bond or
the most recent date to which interest has been paid until the principal of this
Bond has been paid. Subject to certain exceptions provided in said Indenture,
the interest payable on any interest payment date shall be paid to the person in
whose name this Bond shall be registered at the close of business on the Record
Date (hereinafter defined) or, in the case of defaulted interest, in the manner
and to the person as provided in the Supplemental Indenture (hereinafter
defined). Principal of (and premium, if any) and interest on this Bond are
payable at the agency of the Company in the Borough of Manhattan, The City of
New York.
The provisions of this Bond are continued on the reverse side hereof and
such continued provisions shall have the same effect as though fully set forth
in this place.
<PAGE> 10
7
This Bond shall not be entitled to any benefit under the Indenture or any
indenture supplemental thereto, or become valid or obligatory for any purpose,
until the Trustee under the Indenture, or a successor trustee thereto under the
Indenture, shall have signed the form of certificate of authentication endorsed
hereon.
IN WITNESS WHEREOF, The Cleveland Electric Illuminating Company has caused
this Bond to be signed in its name by its President (whose signature may be
manual or a facsimile thereof) or a Vice President and its corporate seal (or a
facsimile thereof) to be hereto affixed and attested by its Secretary (whose
signature may be manual or a facsimile thereof) or an Assistant Secretary.
Dated:
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
By ....................................................
Attest:
............................
Secretary
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This Bond is one of the Bonds of the series designated and described in the
within-mentioned Indenture and Supplemental Indenture.
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
TRUSTEE
By ...........................................
AUTHORIZED OFFICER
[REVERSE SIDE OF BOND OF THIS SERIES]
This Bond is one of the duly authorized Bonds of the Company (herein called
the "Bonds"), all issued and to be issued under and equally secured by a
Mortgage and Deed of Trust dated July 1, 1940, executed by the Company to
Guaranty Trust Company of New York as Trustee, under which The Chase Manhattan
Bank (National Association) is successor trustee (herein called the "Trustee")
and all indentures supplemental thereto (said Mortgage as so supplemented herein
called the "Indenture"), to which reference is hereby made for a
<PAGE> 11
8
description of the properties mortgaged and pledged, the nature and extent of
the security, the rights of the registered owner or owners of the Bonds and of
the Trustee in respect thereof, and the terms and conditions upon which the
Bonds are, and are to be, secured. The Bonds may be issued in series, for
various principal sums, may mature at different times, may bear interest at
different rates and may otherwise vary as in the Indenture provided. This Bond
is one of a series designated as the First Mortgage Bonds, % Series due 2025-B
(herein called the "Bonds of this Series"), limited, except as otherwise
provided in the Indenture, to $300,000,000 in aggregate principal amount, issued
under and secured by the Indenture and described in the Seventieth Supplemental
Indenture dated April 15, 1995, between the Company and the Trustee (herein
called the "Supplemental Indenture").
In the event that this Bond is deemed to be paid in full, this Bond shall
be surrendered to the Trustee for cancellation. In the event that this Bond is
deemed to be paid in part, this Bond may, at the option of the registered owner,
be surrendered to the Trustee for cancellation, in which event the Trustee will
cancel this Bond and the Company will execute and the Trustee will authenticate
and deliver to the registered owner Bonds in authorized denominations in
aggregate principal amount equal to the unpaid balance of the principal amount
of this Bond.
<TABLE>
The Bonds of this Series are subject to redemption by the Company prior to
maturity in whole at any time or in part from time to time, but in no instance
before , at a redemption price, plus accrued and unpaid
interest, if any, to the redemption date as follows:
<CAPTION>
REDEMPTION PRICE
(EXPRESSED AS A
PERCENTAGE
OF THE PRINCIPAL
REDEMPTION PERIODS AMOUNT
(DATES INCLUSIVE) BEING REDEEMED)
---------------------------------------------------------------------
<S> <C>
%
</TABLE>
<PAGE> 12
9
Any redemption of the Bonds of this Series shall be made after written
notice has been given by the Trustee by mailing to each registered owner of such
Bonds to be redeemed a notice of such redemption, first class postage prepaid,
at its last address as it shall appear upon the books of the Company for the
registration and transfer of such Bonds. Any notice of redemption shall be
mailed at least 30 days, but no more than 60 days, prior to the redemption date.
In the event of partial redemption of Bonds of this Series, the Trustee shall
select the Bonds of this Series to be redeemed, subject to the provisions of the
Indenture, in such manner as the Trustee shall deem appropriate and fair.
In the Forty-Third Supplemental Indenture dated April 15, 1985 between the
Company and the Trustee, the Company has modified, in certain respects, the
redemption provisions in the Indenture effective only with respect to the Bonds
of all series established or created in said Forty-Third Supplemental Indenture
and all supplemental indentures dated after May 28, 1985.
To the extent permitted by and as provided in the Indenture, modifications
or alterations of the Indenture, or of any indenture supplemental thereto, and
of the rights and obligations of the Company and of the holders of the Bonds and
coupons may be made with the consent of the Company by an affirmative vote of
not less than 80% in principal amount of the Bonds entitled to vote then
outstanding, at a meeting of Bondholders called and held as provided in the
Indenture, and, in case one or more but less than all of the series of Bonds
then outstanding under the Indenture are so affected, by an affirmative vote of
not less than 80% in principal amount of the Bonds of any series entitled to
vote then outstanding and affected by such modification or alteration; provided,
however, that no such modification or alteration shall be made which will affect
the terms of payment of the principal of (or premium, if any) or interest on
this Bond. In the Nineteenth Supplemental Indenture dated November 23, 1976
between the Company and the Trustee, the Company has modified the Indenture
effective from and after the time when none of the Bonds of any series
established prior to the execution of the Nineteenth Supplemental Indenture
shall remain outstanding so as to change "80%" in the foregoing sentence to
"60%" and to make certain other modifications of the Indenture and has reserved
the right to make certain other modifications of the Indenture without any vote,
consent or other action by the holders of Bonds of any series established in the
Nineteenth Supplemental Indenture or in any subsequent supplemental indenture.
If an event of default, as defined in the Indenture, shall occur, the
principal of all the Bonds at any such time outstanding under the
<PAGE> 13
10
Indenture may be declared or may become due and payable, upon the conditions and
in the manner and with the effect provided in the Indenture. The Indenture
provides that such declaration may in certain events be waived by the holders of
a majority in principal amount of the Bonds outstanding.
The term "Record Date" shall mean, with respect to any interest payment
date (other than an interest payment date that is the maturity date) of any Bond
of this Series, the close of business on the fifteenth day (whether or not a
business day at the place of payment) of the calendar month next preceding such
interest payment date.
Subject to the limitations provided in the Indenture, this Bond is
transferable by the registered owner hereof, in person or by duly authorized
attorney, on the books of the Company to be kept for that purpose at the agency
of the Company in the Borough of Manhattan, The City of New York, upon surrender
and cancellation of this Bond, and upon presentation of a duly executed written
instrument of transfer, and thereupon a new fully registered Bond or Bonds of
the same series, for the same aggregate principal amount and in authorized
denominations will be issued to the transferee or transferees in exchange
therefor; and this Bond, with or without others of the same series, may in like
manner be exchanged for one or more new fully registered Bonds of the same
series of other authorized denominations but of the same aggregate principal
amount; all without charge except for any tax or taxes or other governmental
charges incidental to such transfer or exchange and all subject to the terms and
conditions set forth in the Indenture. Except as otherwise provided herein with
respect to the payment of interest, the Company, the agencies of the Company and
the Trustee may deem and treat the person in whose name this Bond is registered
as the absolute owner hereof for the purpose of receiving any payment and for
all other purposes.
No recourse shall be had for the payment of the principal of (or premium,
if any) or the interest on this Bond, or for any claim based hereon or on the
Indenture or any indenture supplemental thereto, against any incorporator, or
against any stockholder, director or officer, past, present or future, of the
Company, or of any predecessor or successor corporation, as such, either
directly or through the Company or any such predecessor or successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such
liability, whether at common law, in equity, by any constitution or statute or
otherwise, of incorporators, stockholders, directors or officers being released
by every owner hereof by the acceptance of this Bond and as part of the
consideration for the issue hereof, and being likewise released by the terms of
the Indenture.
<PAGE> 14
11
[END OF FORM OF FULLY REGISTERED BOND]
ARTICLE III
THE TRUSTEE
SECTION 1. The Trustee hereby accepts the trusts hereby declared and
provided upon the terms and conditions in the Indenture set forth and upon the
terms and conditions set forth in this Article III.
SECTION 2. The Trustee shall not be responsible in any manner whatsoever
for or in respect of the validity or sufficiency of this Supplemental Indenture
or the due execution hereof by the Company or for or in respect of the recitals
contained herein, all of which recitals are made by the Company solely. In
general, each and every term and condition contained in Article XIII of the
Indenture shall apply to this Supplemental Indenture with the same force and
effect as if the same were herein set forth in full, with such omissions,
variations and modifications thereof as may be appropriate.
ARTICLE IV
MISCELLANEOUS PROVISIONS
This Supplemental Indenture may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original; but such
counterparts shall together constitute but one and the same instrument.
EXECUTION
IN WITNESS WHEREOF, said The Cleveland Electric Illuminating Company has
caused this Supplemental Indenture to be executed on its behalf by its President
or one of its Vice Presidents and its corporate seal to be hereto affixed and
said seal and this Supplemental Indenture
to be attested by its Secretary or an Assistant Secretary, and said The Chase
Manhattan Bank (National Association), in evidence of its acceptance of the
trust hereby created, has caused this Supplemental Indenture to be executed on
its behalf by one of its Vice Presidents or one of its Trust Officers, and its
corporate seal to be hereto affixed and said seal and this Supplemental
Indenture to be attested by one of its Assistant Secretaries or corporate Trust
Officers, all as of the day and year first above written.
<PAGE> 15
S-1
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
By ______________________________________
Vice President
Attest:
-------------------------------------
Secretary
Signed, sealed and acknowledged by
The Cleveland Electric Illuminating Company
in the presence of
-------------------------------------
PATRICIA BARKEY
-------------------------------------
SONDRA CLARKE
As witnesses
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), AS
TRUSTEE
By __________________________________
Second Vice President
Attest:
------------------------------------
Corporate Trust Officer
Signed, sealed and acknowledged by
The Chase Manhattan Bank
(National Association)
in the presence of
-------------------------------------
RONALD J. HALLERAN
-------------------------------------
TIMOTHY E. BURKE
As witnesses
<PAGE> 16
S-2
STATE OF OHIO
SS:
COUNTY OF CUYAHOGA
On this th day of April, 1995 before me personally appeared GARY R.
LEIDICH and J. T. PERCIO to me personally known, who being by me severally duly
sworn, did say that they are the Vice President and Secretary, respectively, of
The Cleveland Electric Illuminating Company, that the seal affixed to the
foregoing instrument is the corporate seal of said corporation and that said
instrument was signed and sealed in behalf of said corporation by authority of
its Board of Directors; and said officers severally acknowledged said instrument
to be the free act and deed of said corporation.
-------------------------------------
Notary Public
Amy B. McCabe
Notary Public, State of Ohio
Recorded in Lucas County
My Commission expires July 26, 1997
STATE OF NEW YORK
SS:
COUNTY OF NEW YORK
On this th day of April, 1995 before me personally appeared VALERIE
DUNBAR and MARY LEWICKI to me personally known, who being by me severally duly
sworn, did say that they are a Second Vice President and a Corporate Trust
Officer, respectively, of The Chase Manhattan Bank (National Association), that
the seal affixed to the foregoing instrument is the corporate seal of said
corporation and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors; and said officers severally
acknowledged said instrument to be the free act and deed of said corporation.
-------------------------------------
Notary Public
Della K. Benjamin
Notary Public, State of New York
No. 24-4659567
Qualified in Kings County
Commission Expires April 30, 1995
THIS INSTRUMENT PREPARED BY BRUCE T. ROSENBAUM, ATTORNEY AT LAW.
<PAGE> 17
R-1
This page contains information as to recording and filing which was not set
forth in this Supplemental Indenture at the time of execution. This page is not
a part of this Supplemental Indenture.
RECORDING AND FILING DATA
<TABLE>
This Supplemental Indenture was filed for record and recorded in the record
of mortgages in the offices of the Recorders of the following Counties:
<CAPTION>
COUNTY VOLUME PAGE FILED FOR RECORD
------------------------------- --------------- -------------------------
<S> <C> <C> <C>
Ohio |
Ashtabula |
Cuyahoga |
Geauga |
Lake |
Lorain |
Ottawa |---
Portage |
Stark |
Summit |
Trumbull |
Pennsylvania |
Warren |
Beaver |
</TABLE>
<TABLE>
This Supplemental Indenture was filed for record and recorded in the
Registered Land Department of the offices of the Recorders of the following
Counties in the State of Ohio
<CAPTION>
COUNTY DOCUMENT NUMBER FILED FOR RECORD
--------------------------------------------- -------------------------
<S> <C> <C>
Cuyahoga
Lake
</TABLE>
An amendment to a previously filed financing statement and a counterpart of
this Supplemental Indenture were filed in the office of the Secretary of the
Commonwealth of Pennsylvania on under original or amendment file
number , microfilm number , to comply with the filing
requirements of the Pennsylvania enactment of the Uniform Commercial Code.
<PAGE> 1
EXHIBIT 5
---------
March 29, 1995
The Cleveland Electric
Illuminating Company
P. O. Box 5000
Cleveland, Ohio 44101
Gentlemen:
With reference to the proposed issue and sale of the principal amount of
First Mortgage Bonds (the "Bonds") of The Cleveland Electric Illuminating
Company (the "Company") set forth in the Registration Statement described below
and to be issued and sold under the Mortgage and Deed of Trust, dated July 1,
1940, between the Company and The Chase Manhattan Bank (National Association),
as trustee, as supplemented and modified in certain respects by indentures
supplemental thereto (such Mortgage as supplemented and modified being herein
called the "Mortgage"), and as further to be supplemented by a Supplemental
Indenture to be dated April 15, 1995 (the "Supplemental Indenture"), I am
counsel for the Company, and attorneys acting under my supervision have
examined the following:
(a) A copy of the Company's Amended Articles of Incorporation, as filed with
the Secretary of the State of Ohio;
(b) A copy of the Company's Regulations, certified by the Secretary of the
Company;
(c) The Application filed by the Company with The Public Utilities
Commission of Ohio (the "PUCO") for authority to issue and sell not more than
$150,000,000 principal amount of the Bonds;
(d) The Mortgage and the proposed form of the Supplemental Indenture;
(e) The proposed form of the Bonds;
(f) The Registration Statement on Form S-2 (including the Prospectus and
exhibits) relating to the Bonds and the documents incorporated by reference
therein, in the form in which it is being filed with the Securities and
Exchange Commission (such Registration Statement being herein called the
"Registration Statement" and the Prospectus contained therein being herein
called the "Prospectus"); and
<PAGE> 2
The Cleveland Electric
Illuminating Company
March 29, 1995
Page 2
(g) Such other documents and matters as I deem necessary to express this
opinion.
Based on the foregoing and such legal considerations as I deem relevant, I am
of the opinion that:
(1) The Company is a corporation duly organized and validly existing and in
good standing under the laws of the State of Ohio, with power to authorize the
issue and sale of the Bonds;
(2) The Supplemental Indenture and the Bonds are in due and legal form;
(3) Upon (i) the adoption of resolutions by the Company's Board of Directors
authorizing the issue and sale of the Bonds as described in the Registration
Statement and ratifying the actions of Company officers taken in connection
therewith, (ii) due execution and delivery of the Supplemental Indenture by the
Company and the trustee of the Mortgage in accordance with law and the
provisions of the Mortgage; (iii) due filing and recording of the Supplemental
Indenture in the proper offices, (iv) due execution by the Company and
authentication by the Mortgage trustee of the Bonds as provided in the
Supplemental Indenture and the Mortgage, (v) due issuance of an order by the
PUCO authorizing the issuance and sale of the principal amount of the Bonds set
forth in the Registration Statement and (vi) issuance and sale of the Bonds in
accordance with the Registration Statement when the same shall have become
effective, the Bonds will be legally issued and the Bonds, the Mortgage and the
supplemental Indenture will constitute legal, valid and binding obligations of
the Company in accordance with their terms except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency, or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability;
(4) Upon the due execution, delivery, filing and recording of the
Supplemental Indenture and related financing statements and documents in
accordance with law and the provisions of the Mortgage, the Mortgage and the
Supplemental Indenture will constitute a valid and perfected first lien upon
the right, title and interest of the Company in the properties described in the
Mortgage and the Supplemental Indenture, except such properties as have been
sold or otherwise disposed of since the respective dates of the Mortgage and
supplemental indentures and, to the
<PAGE> 3
extent required, released from the lien thereof, subject only to the conditions
and exceptions described in the Prospectus under the subheadings "Security" and
"Title to Property" under the heading "Description of New Bonds".
The Cleveland Electric
Illuminating Company
March 29, 1995
Page 3
The statements as to matters of law and legal conclusions under the headings
"General Regulation", "Environmental Regulation", "Title to Property" and
"Legal Proceedings" in the Company's Annual Report on Form 10-K incorporated by
reference in the Prospectus, as supplemented by any Quarterly and Current
Reports on Forms 10-Q and 8-K, respectively, which have been incorporated by
reference in the Prospectus, under the heading "Description of New Bonds" in
the Prospectus and under the heading "Indemnification of Directors and
Officers" in the Registration Statement, have been prepared by me or under my
supervision, and in my opinion such statements as to such matters and
conclusions are correct.
I hereby consent (a) to the use of my name in connection with (i) the
statements as to matters of law and legal conclusions under the headings in the
documents described in the paragraph immediately preceding and (ii) the
statements under the headings "Legal Opinions" and "Experts" in the Prospectus,
(b) to the inclusion in and incorporation by reference into, as the case may
be, the Prospectus of the statements as to matters of law and legal conclusions
referred to in clause (a)(i) of this sentence and to be contained in any
documents hereafter incorporated by reference into the Prospectus and referred
to in such documents as having been reviewed by me and (c) to the filing of
this opinion and consent with the Securities and Exchange Commission as an
exhibit to the Registration Statement.
Respectfully submitted,
Terrence G. Linnert
Counsel for The Cleveland Electric
Illuminating Company
A:\CONV
<PAGE> 1
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY Exhibit 12
Computation of Ratio of Earnings to Fixed Charges ----------
-------------------------------------------------- Page 1 of 3
(Thousands of Dollars)
Statement Setting Forth Computations Showing Satisfaction of the Requirements Specified in Regulation S-K, Item 503(d):
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
1990 1991 1992 1993 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Consolidated Net Income (Loss) $242,328 $246,158 $204,939 ($587,147) $185,431
Add
Federal Income Taxes Expense 95,500 130,135 94,627 (247,966) 85,455
Interest (a) 275,169 264,072 253,042 252,479 254,248
Provision for Interest Element of Rentals (b) 83,215 83,370 81,948 81,131 79,462
-------- -------- -------- -------- --------
Total Earnings $696,212 $723,735 $634,556 ($501,503) $604,596
-------- -------- -------- -------- --------
Fixed Charges
Interest (a) $275,169 $264,072 $253,042 $252,479 $254,248
Provision for Interest Element of Rentals (b) 83,215 83,370 81,948 81,131 79,462
-------- -------- -------- -------- --------
Total Fixed Charges $358,384 $347,442 $334,990 $333,610 $333,710
-------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges 1.94 2.08 1.89 (1.50) 1.81
======== ======== ======== ======== ========
<FN>
(a) Includes interest on first mortgage bonds, bank loans, commercial paper,
pollution control notes, and other interest included in operation
expenses; amortization of net premium, discount and expense on debt; and
capitalized interest on nuclear fuel lease obligations.
(b) Includes the interest component of Bruce Mansfield sale and leaseback
rentals, leased nuclear fuel in the reactor, and other miscellaneous
rentals.
</TABLE>
<PAGE> 2
<TABLE>
THE TOLEDO EDISON COMPANY Exhibit 12
Computation of Ratio of Earnings to Fixed Charges ----------
-------------------------------------------------------------- Page 2 of 3
(Thousands of Dollars)
Statement Setting Forth Computations Showing Satisfaction of the Requirements Specified in Regulation S-K, Item 503(d):
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
1990 1991 1992 1993 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $81,424 $49,613 $70,677 ($289,275) $82,531
Add
Federal Income Taxes Expense (Credit) 12,377 37,995 33,905 (139,479) 34,342
Interest (a) 149,301 141,285 128,779 121,221 119,421
Provision for Interest Element of Rentals (b) 121,488 122,469 115,638 112,266 111,163
-------- -------- -------- -------- --------
Total Earnings $364,590 $351,362 $348,999 ($195,267) $347,457
-------- -------- -------- -------- --------
Fixed Charges
Interest (a) $149,301 $141,285 $128,779 $121,221 $119,421
Provision for Interest Element of Rentals (b) 121,488 122,469 115,638 112,266 111,163
-------- -------- -------- -------- --------
Total Fixed Charges $270,789 $263,754 $244,417 $233,487 $230,584
-------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges 1.35 1.33 1.43 (0.84) 1.51
======== ======== ======== ======== ========
<FN>
(a) Includes interest on first mortgage bonds, bank loans, commercial paper,
pollution control notes, and other interest included in operation
expenses; amortization of net premium, discount and expense on debt; and
capitalized interest on nuclear fuel lease obligations.
(b) Includes the interest component of Beaver Valley and Bruce Mansfield sale
and leaseback rentals, leased nuclear fuel in the reactor, and other
miscellaneous rentals.
</TABLE>
<PAGE> 3
<TABLE>
THE COMBINED CLEVELAND ELECTRIC ILLUMINATING AND TOLEDO EDISON COMPANIES Exhibit 12
Computation of Pro Forma Ratio of Earnings to Fixed Charges ----------
----------------------------------------------------------- Page 3 of 3
(Thousands of Dollars)
Statement Setting Forth Computations Showing Satisfaction of the Requirements Specified in Regulation S-K, Item 503(d):
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------
1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $323,752 $295,771 $275,616 ($876,422) $267,962
Add
Federal Income Taxes Expense (Credit) 107,877 168,130 128,532 (387,445) 119,797
Interest (a) 421,487 404,858 381,601 373,700 372,536
Provision for Interest Element of Rentals (b) 204,703 205,839 197,586 193,396 190,626
---------- ---------- ---------- ---------- ----------
Total Earnings $1,057,819 $1,074,598 $983,335 ($696,771) $950,921
---------- ---------- ---------- ---------- ----------
Fixed Charges
Interest (a) $421,487 $404,858 $381,601 $373,700 $372,536
Provision for Interest Element of Rentals (b) 204,703 205,839 197,586 193,396 190,626
---------- ---------- ---------- ---------- ----------
Total Fixed Charges $626,190 $610,697 $579,187 $567,096 $563,162
---------- ---------- ---------- ---------- ----------
Ratio of Earnings to Fixed Charges 1.69 1.76 1.70 (1.23) 1.69
========== ========== ========== ========== ==========
<FN>
(a) Includes interest on first mortgage bonds, bank loans, commercial paper,
pollution control notes, and other interest included in operation
expenses; amortization of net premium, discount and expense on debt; and
capitalized interest on nuclear fuel lease obligations.
(b) Includes the interest component of Beaver Valley and Bruce Mansfield sale
and leaseback rentals, leased nuclear fuel in the reactor, and other
miscellaneous rentals.
</TABLE>
<PAGE> 1
EXHIBIT 23(a)
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
-------------------------------------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated February 17, 1995, included in this Registration Statement, and to the
incorporation by reference of our report contained in The Cleveland Electric
Illuminating Company's Form 10-K for the year ended December 31, 1994 and to
all references to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 1995
<PAGE> 1
EXHIBIT 24
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 Registration Statement on Form S-2
relating to the registration of up to $150 million of the Company's First
Mortgage Bonds in the first half of 1995, and any and all amendments, exhibits
and supplementary information thereto, with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, 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
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 Registration Statement on Form S-2
relating to the registration of up to $150 million of the Company's First
Mortgage Bonds in the first half of 1995, and any and all amendments, exhibits
and supplementary information thereto, with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, 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
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 Registration Statement on Form S-2
relating to the registration of up to $150 million of the Company's First
Mortgage Bonds in the first half of 1995, and any and all amendments, exhibits
and supplementary information thereto, with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, 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
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 Registration Statement on Form S-2
relating to the registration of up to $150 million of the Company's First
Mortgage Bonds in the first half of 1995, and any and all amendments, exhibits
and supplementary information thereto, with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, 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
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 Registration Statement on Form S-2
relating to the registration of up to $150 million of the Company's First
Mortgage Bonds in the first half of 1995, and any and all amendments, exhibits
and supplementary information thereto, with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, 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
--------------------------
<PAGE> 1
Securities Act of 1933 File No. _________
(If application to determine eligibility of trustee
for delayed offering pursuant to Section 305 (b) (2))
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)___________
----------------
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
(Exact name of trustee as specified in its charter)
13-2633612
(I.R.S. Employer Identification Number)
1 CHASE MANHATTAN PLAZA, NEW YORK, NEW YORK
(Address of principal executive offices)
10081
(Zip Code)
----------------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
(Exact name of obligor as specified in its charter)
OHIO
(State or other jurisdiction of incorporation or organization)
34-0150020
(I.R.S. Employer Identification No.)
55 PUBLIC SQUARE
CLEVELAND, OHIO
(Address of principal executive offices)
44113
(Zip Code)
----------------
DEBT SECURITIES
(Title of the indenture securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C.
Board of Governors of The Federal Reserve System,
Washington, D. C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The Trustee is not the obligor, nor is the Trustee directly or
indirectly controlling, controlled by, or under common control
with the obligor.
(See Note on Page 2.)
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as a part of this statement of
eligibility.
*1. -- A copy of the articles of association of the trustee as now
in effect. (See Exhibit T-1 (Item 12), Registration No.
33-55626.)
*2. -- Copies of the respective authorizations of The Chase
Manhattan Bank (National Association) and The Chase Bank of
New York (National Association) to commence business and a
copy of approval of merger of said corporations, all of
which documents are still in effect. (See Exhibit T-1
(Item 12), Registration No. 2-67437.)
*3. -- Copies of authorizations of The Chase Manhattan Bank
(National Association) to exercise corporate trust powers,
both of which documents are still in effect. (See Exhibit T-1
(Item 12), Registration No. 2-67437).
*4. -- A copy of the existing by-laws of the trustee. (See Exhibit
T-1 (Item 12(a)), Registration No. 33-28806.)
*5. -- A copy of each indenture referred to in Item 4, if the
obligor is in default. (Not applicable).
*6. -- The consents of United States institutional trustees
required by Section 321(b) of the Act. (See Exhibit T-1,
(Item 12), Registration No. 22-19019.)
7. -- A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
___________________
*The Exhibits thus designated are incorporated herein by reference.
Following the description of such Exhibits is a reference to the copy of the
Exhibit heretofore filed with the Securities and Exchange Commission, to which
there have been no amendments or changes.
___________________
1.
<PAGE> 3
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base a responsive answer to Item 2 the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, The Chase Manhattan Bank (National Association), a corporation
organized and existing under the laws of the United States of America, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and the
State of New York, on the 28th day March, 1995.
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
/s/ Valerie Dunbar
By -------------------------
Valerie Dunbar
Second Vice President
_________________
2.
<PAGE> 4
EXHIBIT 7
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
<TABLE>
<CAPTION>
THE CHASE MANHATTAN BANK, N.A.
of New York in the State of New York, at the close of business on December 31, 1994, published in response to call made by
Comptroller of the Currency, under title 12, United States Code, Section 161.
CHARTER NUMBER 2370
COMPTROLLER OF THE CURRENCY NORTHEASTERN DISTRICT
STATEMENT OF RESOURCES AND LIABILITIES
THOUSANDS
ASSETS OF DOLLARS
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin $ 4,517,179
Interest-bearing balances 7,001,642
Held to maturity securities 1,593,325
Available-for-sale securities 4,669,255
Federal funds sold and securities purchased under agreements to resell in domestic
offices of the bank and of its
Edge and Agreement subsidiaries, and in IBFs:
Federal funds sold 3,651,850
Securities purchased under agreements to resell 0
Loans and lease financing receivable:
Loans and leases, net of unearned income $ 50,879,818
LESS: Allowance for loan and lease losses 1,073,196
LESS: Allocated transfer risk reserve 0
--------------
Loans and leases, net of unearned income, allowance, and reserve 49,806,622
Assets held in trading accounts 13,112,807
Premises and fixed assets (including capitalized leases) 1,758,500
Other real estate owned 480,982
Investments in unconsolidated subsidiaries and associated companies 55,722
Customers' liability to this bank on acceptances outstanding 611,839
Intangible assets 787,948
Other assets 6,145,452
---------
TOTAL ASSETS $94,193,123
===========
LIABILITIES
Deposits:
In domestic offices $ 29,536,028
Noninterest-bearing $ 11,648,377
Interest-bearing 17,887,651
----------
In foreign offices, Edge and Agreement subsidiaries, and IBFs 36,020,612
Noninterest-bearing $ 2,320,293
Interest-bearing 33,700,319
-------------
Federal funds purchased and securities sold under agreements to repurchase in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs:
Federal funds purchased 1,014,936
Securities sold under agreements to repurchase 678,033
Demand notes issued to the U.S. Treasury 300,000
Trading liabilities 8,066,477
Other borrowed money:
With original maturity of one year or less 2,940,252
With original maturity of more than one year 427,525
Mortgage indebtedness and obligations under capitalized leases 40,550
Bank's liability on acceptances executed and outstanding 616,531
Subordinated notes and debentures 2,360,000
Other liabilities 5,195,890
---------
TOTAL LIABILITIES 87,196,834
----------
Limited-life preferred stock and related surplus 0
EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock 915,576
Surplus 4,656,010
Undivided profits and capital reserves 1,478,713
Net unrealized holding gains (losses) on available-for-sale securities (64,959)
Cumulative foreign currency translation adjustments 10,949
------
TOTAL EQUITY CAPITAL 6,996,289
---------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK,
AND EQUITY CAPITAL $94,193,123
===========
</TABLE>
I, Lester J. Stephens, Jr., Senior Vice President and Controller of the above
named bank do hereby declare that this Report of Condition is true and correct
to the best of my knowledge and belief.
(Signed) Lester J. Stephens, Jr.
We the undersigned directors, attest to the correctness of this statement of
resources and liabilities. We declare that it has been examined by us, and to
the best of our knowledge and belief has been prepared in conformance with the
instructions and is true and correct.
(Signed) Thomas G. Labrecque
(Signed) Richard J. Boyle Directors
(Signed) Donald H. Trautlein
