SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
333-21011 FIRSTENERGY CORP. 34-1843785
(An Ohio Corporation)
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-2578 OHIO EDISON COMPANY 34-0437786
(An Ohio Corporation)
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-2323 THE CLEVELAND ELECTRIC ILLUMINATING 34-0150020
COMPANY
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3583 THE TOLEDO EDISON COMPANY 34-4375005
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3491 PENNSYLVANIA POWER COMPANY 25-0718810
(A Pennsylvania Corporation)
1 East Washington Street
P. O. Box 891
New Castle, PA 16103
Telephone (412)652-5531
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
---
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days: Yes (X) No ( )
--- ---
State the aggregate market value of the voting stock held
by non-affiliates of the registrant:
$7,197,332,945 as of March 17, 1999. Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as
of the latest practicable date:
OUTSTANDING
CLASS AT MARCH 23, 1999
----- -----------------
FirstEnergy Corp., $.10 par value 236,008,687
Ohio Edison Company, $9 par value 100
The Cleveland Electric Illuminating
Company, no par value 79,590,689
The Toledo Edison Company, $5 par value 39,133,887
Pennsylvania Power Company, $30 par value 6,290,000
FirstEnergy Corp. is the sole holder of Ohio Edison Company, The
Cleveland Electric Illuminating Company and The Toledo Edison
Company common stock; Ohio Edison Company is the sole holder of
Pennsylvania Power Company common stock.
Documents incorporated by reference (to the extent indicated
herein):
PART OF FORM 10-K INTO WHICH
DOCUMENT DOCUMENT IS INCORPORTED
-------- -----------------------------
FirstEnergy Corp. Annual Report to
Stockholders for the fiscal year
ended December 31, 1998 (Pages 16-40) Part II
Proxy Statement for 1998 Annual
Meeting of Stockholders to be held
April 29, 1999 Part III
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
---------- -------------------------- ----------------------
FirstEnergy Corp. Common Stock, $.10 par value New York Stock
Exchange
Ohio Edison Cumulative Preferred Stock,
Company $100 par value
3.90% Series All series
registered
4.40% Series on New York Stock
4.44% Series Exchange and
Chicago
4.56% Series Stock Exchange
Cumulative Preferred Stock, Registered on New
$25 par value York Stock
Exchange and
7.75% Series Chicago Stock
Exchange
The Cleveland Cumulative Serial Preferred
Electric Illumin- Stock, without par value:
ating Company
$7.40 Series A All series
registered
$7.56 Series B on New York Stock
Adjustable Rate, Series L Exchange
Depository Shares:
1993 Series A, each New York Stock
share representing 1/20 Exchange
of a share of Serial
Preferred Stock, $42.40
Series T (without par
value)
First Mortgage Bonds:
8-3/4% Series due 2005 New York Stock
Exchange
8-3/8% Series due 2011 New York Stock
Exchange
8-3/8% Series due 2012 New York Stock
Exchange
The Toledo Edison Cumulative Preferred Stock,
Company par value $100 per share:
4-1/4% Series All series
registered
8.32% Series on American Stock
7.76% Series Exchange
10% Series
Cumulative Preferred Stock,
par value $25 per share:
8.84% Series All series
registered
$2.365 Series on New York Stock
Adjustable Rate, Series A Exchange
Adjustable Rate, Series B
First Mortgage Bonds:
8% Series due 2003 All series
registered
on New York Stock
Exchange
Pennsylvania Cumulative Preferred Stock,
Power Company $100 par value:
4.24% Series All series
registered
4.25% Series on Philadelphia
Stock
4.64% Series Exchange, Inc.
7.64% Series
8.00% Series
This combined Form 10-K is separately filed by FirstEnergy
Corp., Ohio Edison Company, Pennsylvania Power Company, The Cleveland
Electric Illuminating Company and The Toledo Edison Company.
Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. No registrant makes any
representation as to information relating to any other registrant,
except that information relating to any of the four FirstEnergy
subsidiaries is also attributed to FirstEnergy.
FORM 10-K
TABLE OF CONTENTS
Page
----
Part I
Item 1. Business 1
The Company 1
Utility Regulation 1
PUCO Rate Matters 2
PPUC Rate Matters 2
FERC Rate Matters 3
Fuel Recovery Procedures 3
Capital Requirements 4
Central Area Power Coordination Group 5
Nuclear Regulation 6
Nuclear Insurance 6
Environmental Matters 7
Air Regulation 7
Water Regulation 8
Waste Disposal 8
Summary 9
Fuel Supply 9
System Capacity and Reserves 10
Regional Reliability 10
Competition 10
Research and Development 11
Executive Officers 11
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security
Holders 14
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 15
Part III
Item 10. Directors and Executive Officers of the
Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
PART I
ITEM 1. BUSINESS
The Company
FirstEnergy Corp. (Company) was organized under the laws of
the State of Ohio in 1996 and became a holding company on November 8,
1997 in connection with the merger of Ohio Edison Company (OE) and
Centerior Energy Corporation (Centerior). The Company's principal
business is the holding, directly or indirectly, of all of the
outstanding common stock of its four principal electric utility
operating subsidiaries, OE, The Cleveland Electric Illuminating
Company (CEI), Pennsylvania Power Company (Penn) and The Toledo
Edison Company (TE). These utility subsidiaries are referred to
throughout as "Companies." The Company's consolidated revenues are
primarily derived from electric service provided by its utility
operating subsidiaries and the revenues of its other principal
subsidiaries: FirstEnergy Facilities Services Group, Inc. (FE
Facilities); FirstEnergy Trading & Power Marketing, Inc. (FETPM), and
MARBEL Energy Corporation (MARBEL). In addition, the Company holds
all of the outstanding common stock of six other direct subsidiaries:
FirstEnergy Services Corp. (FE Services), FirstEnergy Properties
Inc., FirstEnergy Ventures, Corp., FirstEnergy Nuclear Operating Co.
(FENOC), American Transmission Systems, Inc., and FirstEnergy
Securities Transfer Company.
The Companies' combined service areas encompass
approximately 13,200 square miles in central and northern Ohio and
western Pennsylvania. The areas they serve have combined populations
of approximately 5,548,000.
OE was organized under the laws of the State of Ohio in
1930 and owns property and does business as an electric public
utility in that state. OE also has ownership interests in certain
generating facilities located in the Commonwealth of Pennsylvania. OE
furnishes electric service to communities in a 7,500 square mile area
of central and northeastern Ohio. It also provides transmission
services and electric energy for resale to certain municipalities in
OE's service area and transmission services to certain rural
cooperatives. OE also engages in the sale, purchase and interchange
of electric energy with other electric companies. The area it serves
has a population of approximately 2,474,000.
OE owns all of the outstanding common stock of Penn, a
Pennsylvania corporation, which furnishes electric service to
communities in a 1,500 square mile area of western Pennsylvania. Penn
also provides transmission services and electric energy for resale to
certain municipalities in Pennsylvania. The area served by Penn has a
population of approximately 377,000.
CEI was organized under the laws of the State of Ohio in
1892 and does business as an electric public utility in that state.
It also has ownership interests in certain generating facilities in
Pennsylvania. CEI furnishes electric service in an area of
approximately 1,700 square miles in northeastern Ohio, including the
City of Cleveland. The area CEI serves has a population of
approximately 2,011,000.
TE was organized under the laws of the State of Ohio in
1901 and does business as an electric public utility in that state.
It also has ownership interests in certain generating facilities in
Pennsylvania. TE furnishes electric service in an area of
approximately 2,500 square miles in northwestern Ohio, including the
City of Toledo. The area TE serves has a population of approximately
686,000.
FE Facilities is the parent company of several heating,
ventilating, air conditioning and energy management companies. FETPM,
which was organized as a corporation in Delaware in 1995, markets and
trades electricity in nonregulated markets. MARBEL, which was
acquired by the Company in June 1998, is a fully integrated natural
gas company.
Utility Regulation
The Companies are subject to broad regulation as to rates
and other matters by the Public Utilities Commission of Ohio (PUCO)
and the Pennsylvania Public Utility Commission (PPUC). With respect
to their wholesale and interstate electric operations and rates, the
Companies are subject to regulation, including regulation of their
accounting policies and practices, by the Federal Energy Regulatory
Commission (FERC). Under Ohio law, municipalities may regulate rates,
subject to appeal to the PUCO if not acceptable to the utility.
In 1986, a law was passed which extended the jurisdiction
of the PUCO to nonutility affiliates of holding companies exempt
under Section 3(a)(1) and 3(a)(2) of the Public Utility Holding
Company Act of 1935 (1935 Act) to the extent that the activities of
such affiliates affect or relate to the cost of providing electric
utility service in Ohio. The law, among other things, requires PUCO
approval of investments in, or the transfer of assets to, nonutility
affiliates. Investments in such affiliates are limited to 15% of the
aggregate capitalization of the holding company on a consolidated
basis. The Company is an exempt holding company under Section 3(a)(1)
of the 1935 Act, but the law has not had any effect on its operations
as they are currently conducted.
The Energy Policy Act of 1992 (1992 Act) amended portions
of the 1935 Act, providing independent power producers and other
nonregulated generating facilities easier entry into electric
generation markets. The 1992 Act also amended portions of the Federal
Power Act, authorizing the FERC, under certain circumstances, to
mandate access to utility-owned transmission facilities. Following
the enactment of the 1992 Act, the FERC has ordered all utilities to
file open access tariffs applicable to transmission facilities,
including provisions which require utilities to offer comparable
services on a nondiscriminatory basis. The FirstEnergy system has
such an open access tariff in effect (see "FERC Rate Matters").
PUCO Rate Matters
The PUCO approved OE's Rate Reduction and Economic
Development Plan in 1995 and a Rate Reduction and Economic
Development Plan for CEI and TE in January 1997. These plans are
designed to enhance and accelerate economic development within the
Companies' Ohio service areas and to assure the Companies' customers
in those service areas of long-term competitive pricing for energy
services.
These plans initially maintain current base electric rates
for OE, CEI and TE through December 31, 2005, unless additional
revenues are needed to recover the costs of changes in environmental,
regulatory or tax laws or regulations. At the end of the plan
periods, OE base rates will be reduced by $300 million (approximately
20 percent below current levels) and CEI and TE base rates will be
reduced by a combined $310 million (approximately 15 percent below
current levels). As part of these plans, transition rate credits were
implemented for customers, which are expected to reduce operating
revenues for OE by approximately $600 million and CEI and TE by
approximately $391 million during the plan period. The plans also
established revised fuel recovery rate formulas which eliminated the
automatic pass-through of fuel costs to their retail customers (see
"Fuel Recovery Procedures").
All of OE's regulatory assets and CEI's and TE's regulatory
assets related to their nonnuclear operations are being recovered
under provisions of these plans. In addition, the PUCO has authorized
OE to recognize additional capital recovery related to its generating
assets (which is reflected as additional depreciation expense) and
additional amortization of regulatory assets during the plan period
of at least $2 billion more than the amount that would have been
recognized if OE's plan were not in effect. These additional amounts
are being recovered through current rates. CEI and TE recognized fair
value purchase accounting adjustments to reduce nuclear plant by
$1.71 billion and $.84 billion, respectively, in connection with the
FirstEnergy merger. These fair value adjustments recognized for
financial reporting purposes will ultimately satisfy the asset
reduction commitments of at least $1.4 billion for CEI and
$0.6 billion for TE contained in the CEI and TE plan. For regulatory
purposes, CEI and TE will recognize accelerated amortization over the
plan period.
Based on the Ohio plans, at this time, OE, CEI and TE
believe they will continue to be able to bill and collect cost-based
rates (with the exception of CEI's and TE's nuclear operations);
accordingly, it is appropriate that they continue the application of
Statement of Financial Accounting Standards (SFAS) No. 71 "Accounting
for the Effects of Certain Types of Regulation" (SFAS 71). However,
as discussed under "Competition" below, changes in the regulatory
environment are on the horizon in Ohio. The Companies believe that
changes in Ohio regulation are possible in 1999 but cannot assess
what the ultimate impact may be. CEI's and TE's plan does not provide
for full recovery of their nuclear operations. As a result, in
October 1997 CEI and TE discontinued application of SFAS 71 for their
nuclear operations and decreased their regulatory assets of customer
receivables for future income taxes related to the nuclear assets by
$499 million and $295 million, respectively, in addition to the fair
value adjustments referred to above.
PPUC Rate Matters
In December 1996, Pennsylvania enacted "The Electricity
Generation Customer Choice and Competition Act," which permitted
customers, including Penn's customers, to choose their electric
generation supplier, while transmission and distribution services
will continue to be supplied by their current providers. In June
1998, the PPUC authorized a rate-restructuring plan for Penn in
accordance with this law, which superseded the regulatory plan which
had been in place for Penn since 1996 and essentially resulted in the
deregulation of Penn's generation business as of June 30, 1998. Penn
was required to remove from its balance sheet all regulatory assets
and liabilities related to its generation business and assess all
other assets for impairment. The Securities and Exchange Commission
(SEC) issued interpretive guidance regarding asset impairment
measurement which concluded that any supplemental regulated cash
flows such as a competitive transition charge (CTC) should be
excluded from the cash flows of assets in a portion of the business
not subject to regulatory accounting practices. If those assets are
impaired, a regulatory asset should be established if the costs are
recoverable through regulatory cash flows. Consistent with the SEC
guidance, Penn reduced its nuclear generating unit investments by
approximately $305 million, of which approximately $227 million was
recognized as a regulatory asset to be recovered through a CTC over a
seven-year transition period; the remaining net amount of $78 million
was written off. The charge of $51.7 million ($30.5 million after
income taxes) for discontinuing the application of SFAS 71 to Penn's
generation business was recorded as an extraordinary item on the
Company's, OE's and Penn's respective Statement of Income.
Customer choice will be phased in over two years with 66%
of each customer class able to choose alternative suppliers of
generation on January 2, 1999, and all remaining customers having
choice as of January 2, 2000. Under the plan, Penn continues to
deliver power to homes and businesses through its transmission and
distribution system, which remains regulated by the PPUC. Penn is
also selling electricity and energy-related services in its own
territory and throughout Pennsylvania as an alternative supplier
through its nonregulated subsidiary, Penn Power Energy, Inc. Penn's
rates have been restructured to establish separate charges for
transmission and distribution; generation, which is subject to
competition; and stranded cost recovery. In the event customers
obtain power from an alternative source, the generation portion of
Penn's rates will be excluded from their bill and the customers will
receive a generation charge from the alternative supplier. The
stranded cost recovery portion of rates provides for recovery of
certain amounts not otherwise considered recoverable in a competitive
generation market, including regulatory assets. Penn is entitled to
recover $234 million of stranded costs through a competitive
transition charge that starts in 1999 and ends in 2005.
FERC Rate Matters
Rates for wholesale customers are regulated by the FERC.
The FirstEnergy merger was approved by the FERC on October 29, 1997,
and the Companies have operated as a single utility system since
December 1997. An open access transmission tariff and joint dispatch
agreement for the FirstEnergy system are currently in effect, subject
to refund, pending the outcome of hearings before the FERC. A
decision is expected on this proceeding in early 1999.
In October 1998, the Company announced plans to transfer
the Companies' transmission assets into a new subsidiary, American
Transmission Systems, Inc., with the transfer expected to be
finalized in 1999. The new subsidiary represents a first step toward
the goal of establishing or becoming part of a larger independent
transmission company (TransCo). The Company believes that a TransCo
better addresses the FERC's stated transmission objectives of
providing non-discriminatory service, while providing for streamlined
and cost-efficient operation. In working toward the goal of forming a
larger regional transmission entity, the Company, American Electric
Power, Virginia Power and Consumers Energy announced in November 1998
that they would prepare a FERC filing during the first part of 1999
for such a regional transmission entity. The entity would be designed
to meet the goals of reducing transmission costs that result when
transferring power over several transmission systems, ensuring
transmission reliability and providing non-discriminatory access to
the transmission grid.
Fuel Recovery Procedures
In accordance with their respective plans, OE's, CEI's and
TE's fuel recovery rates have been frozen, subject only to limited
periodic adjustments. The respective rates are adjusted annually
based on changes in the GDP Implicit Price Deflator, unless
significant changes in environmental, regulatory or tax laws or
regulations increase or decrease the cost of fuel. Such changes in
laws, regulations and/or taxes would require PUCO approval in order
to be reflected as an adjustment to the Electric Fuel Component (EFC)
rate.
Furthermore, for the period through June 30, 2000, the OE
EFC rate will be limited to the average fuel cost rate of certain
utilities within the state. Commencing July 1, 2000, the OE EFC rate
will be limited to between 97% to 99% of the average fuel cost rate
of three of these companies. The average fuel cost rate for these
three utilities may be adjusted by the PUCO to reflect any
significant changes in the Phase II environmental compliance plans of
such companies involving capital additions or equipment utilization.
On March 1, 2000, the respective EFC rates in effect for
CEI and TE will be reduced to reflect the elimination of annual fixed
charges related to a Bruce Mansfield Plant coal supply contract (see
"Fuel Supply"), which amounts to $13.96 million for CEI and
$8.74 million for TE. The resulting reduced EFC rates would be used
as the basis for the annual GDP adjustment, but, in no event, would
either company's annual EFC rate exceed 1.465 cents per kWh during
the plan period.
Under its 1996 plan, Penn eliminated its energy cost rate
for the recovery of fuel and net purchased power costs as a separate
component of customer charges. Energy costs were rolled into Penn's
base electric rates at their projected 1996-1997 level.
Capital Requirements
The Company and the Companies' respective capital
expenditures for the years 1998 through 2003, excluding nuclear fuel,
are shown on the following table. Such costs included expenditures
for the betterment of existing facilities and for the construction of
transmission lines, distribution lines, substations and other
additions. See "Environmental Matters" below with regard to possible
environment-related expenditures not included in the forecast.
<TABLE>
<CAPTION<
1998 1999-2003 Capital Expenditures Forecast
---------------------------------------
Actual 1999 2000-2003 Total
------ ---- --------- -----
(In millions)
<S> <C> <C> <C> <C>
OE $150 $141 $ 715 $ 856
Penn 16 28 139 167
CEI 72 150 551 701
TE 46 58 199 257
Company 64 179 84 263
---- ---- ------ ------
Total $348 $556 $1,688 $2,244
</TABLE>
During the 1999-2003 period, maturities of, and sinking
fund requirements for, long-term debt and preferred stock of the
Companies and the Company's other subsidiaries are:
<TABLE>
<CAPTION>
Preferred Stock and Long-Term Debt
1999-2003 Redemption Schedule
---------------------------------------
1999 2000-2003 Total
---- --------- -----
(In millions)
<S> <C> <C> <C>
OE $418 $ 730 $1,148
Penn 1 68 69
CEI 178 708 886
TE 106 369 475
Other subsidiaries 9 20 29
---- ------ ------
Total $712 $1,895 $2,607
</TABLE>
OE's and Penn's nuclear fuel purchases are financed through
OES Fuel (a wholly owned subsidiary of OE) commercial paper and
loans, both of which are supported by a $180.5 million long-term bank
credit agreement. CEI and TE severally lease their respective
portions of nuclear fuel and pay for the fuel as it is consumed. The
Companies' respective investments for additional nuclear fuel, and
nuclear fuel investment reductions as the fuel is consumed, during
the 1999-2003 period are represented in the following table. The
table also shows the Companies' operating lease commitments, net of
capital trust cash receipts for the 1999-2003 period. The Companies
recover the cost of nuclear fuel consumed and operating leases
through their electric rates.
<TABLE>
<CAPTION>
Other Net
Nuclear Fuel 1999-2003 Forecasts Operating Lease Commitments
------------------------------------------
New Investments Fuel Burn 1999-2003 Schedule
------------------------- ---------------------- ---------------------------
1999 2000-2003 Total 1999 2000-2003 Total 1999 2000-2003 Total
---- --------- ----- ---- --------- ----- ---- --------- -----
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OE $20 $119 $139 $29 $111 $140 $ 82 $282 $364
Penn 3 25 28 6 23 29 -- 1 1
CEI 14 116 130 32 117 149 7 33 40
TE 9 93 102 26 94 120 70 290 360
--- ---- ---- --- ---- ---- ---- ---- ----
Total $46 $353 $399 $93 $345 $438 $159 $606 $765
</TABLE>
Short-term borrowings outstanding at December 31, 1998,
consisted of $134.5 million of bank borrowings (OE-$129.5 and FE
Facilities - $5.0) and $120.0 million of OES Capital, Incorporated
commercial paper. OES Capital is a wholly owned subsidiary of OE
whose borrowings are secured by customer accounts receivable. OES
Capital can borrow up to $120 million under a receivables financing
agreement at rates based on certain bank commercial paper. The
Company and its utility operating subsidiaries also had $147 million
(Company-$100 million and OE-$47 million) available under revolving
lines of credit as of December 31, 1998. The Company plans to
transfer any of its borrowings under its $100 million line of credit
to CEI and/or TE. In addition, Penn had a $2 million bank facility
available that provides for borrowings on a short-term basis at the
bank's discretion.
Based on their present plans, the Companies could provide
for their cash requirements in 1999 from the following sources: funds
to be received from operations; available cash and temporary cash
investments (approximate amounts as of December 31, 1998: Company's
nonutility subsidiaries-$25 million, OE-$22 million, Penn-$7 million,
CEI-$20 million and TE-$4 million); the issuance of long-term debt
(for refunding purposes) and funds available under revolving credit
arrangements.
The extent and type of future financings will depend on the
need for external funds as well as market conditions, the maintenance
of an appropriate capital structure and the ability of the Companies
to comply with coverage requirements in order to issue first mortgage
bonds and preferred stock. The Companies will continue to monitor
financial market conditions and, where appropriate, may take
advantage of economic opportunities to refund debt and preferred
stock to the extent that their financial resources permit.
The coverage requirements contained in the first mortgage
indentures under which the Companies issue first mortgage bonds
provide that, except for certain refunding purposes, the Companies
may not issue first mortgage bonds unless applicable net earnings
(before income taxes), calculated as provided in the indentures, for
any period of twelve consecutive months within the fifteen calendar
months preceding the month in which such additional bonds are issued,
are at least twice annual interest requirements on outstanding first
mortgage bonds, including those being issued. Under OE's first
mortgage indenture, the availability of property additions is more
restrictive than the earnings test at the present time and would
limit the amount of first mortgage bonds issuable against property
additions to $377 million. OE is currently able to issue $857 million
principal amount of first mortgage bonds against previously retired
bonds without the need to meet the above restrictions. Under Penn's
first mortgage indenture, other requirements also apply and are more
restrictive than the earnings test at the present time. Penn is
currently able to issue $255 million principal amount of first
mortgage bonds, with up to $120 million of such amount issuable
against property additions; the remainder could be issued against
previously retired bonds. Purchase accounting revaluation applied to
CEI's and TE's net assets under the merger reduced CEI's and TE's
available bondable property so that first mortgage bonds cannot
currently be issued against property additions. CEI and TE can issue
$156 million and $117 million, respectively, principal amount of
first mortgage bonds against previously retired bonds.
OE's, Penn's and TE's respective articles of incorporation
prohibit the sale of preferred stock unless applicable gross income,
calculated as provided in the articles of incorporation, is equal to
at least 1-1/2 times the aggregate of the annual interest
requirements on indebtedness and annual dividend requirements on
preferred stock outstanding immediately thereafter. Based upon
earnings for 1998 and an assumed dividend rate of 8.25%, OE and Penn
would be permitted, under the earnings coverage test contained in
their respective charters, to issue at least $1.6 billion and
$175 million of preferred stock, respectively. Based on its 1998
earnings, TE could issue $296 million of additional preferred stock.
There are no restrictions on CEI's ability to issue preferred stock.
To the extent that coverage requirements or market
conditions restrict the Companies' abilities to issue desired amounts
of first mortgage bonds or preferred stock, the Companies may seek
other methods of financing. Such financings could include the sale of
preferred and/or preference stock or of such other types of
securities as might be authorized by applicable regulatory
authorities which would not otherwise be sold and could result in
annual interest charges and/or dividend requirements in excess of
those that would otherwise be incurred.
Central Area Power Coordination Group (CAPCO)
In September 1967, the CAPCO companies, which consists of
the Companies and Duquesne Light Company (Duquesne), announced a
program for joint development of power generation and transmission
facilities. Included in the program are Unit 7 at the W. H. Sammis
Plant, Unit 5 at the Eastlake Plant, Units 1, 2 and 3 at the Bruce
Mansfield Plant, Units 1 and 2 at the Beaver Valley Power Station,
the Perry Nuclear Power Plant and the Davis-Besse Nuclear Power
Station, each now in service.
The present CAPCO Basic Operating Agreement provides, among
other things, for coordinated maintenance responsibilities among the
CAPCO companies, a limited and qualified mutual backup arrangement in
the event of outage of CAPCO units and certain capacity and energy
transactions among the CAPCO companies.
The agreements among the CAPCO companies generally treat OE
and Penn as a single system as between them and the other three CAPCO
companies, but, in agreements between the CAPCO companies and others,
all five companies are treated as separate entities. Subject to any
rights that might arise among the CAPCO companies as such, each
member company, severally and not jointly, is obligated to pay only
its proportionate share of the costs associated with the facilities
and the cost of required fuel. The CAPCO companies have agreed that
any modification of their arrangements or of their agreed-upon
programs requires their unanimous consent. Should any member become
unable to continue to pay its share of the costs associated with a
CAPCO facility, each of the other CAPCO companies could be adversely
affected in varying degrees because it may become necessary for the
remaining members to assume such costs for the account of the
defaulting member.
Under the agreements governing the construction and
operation of CAPCO generating units, the responsibility is assigned
to a specific CAPCO company. FENOC has such responsibilities for
Perry and Davis-Besse, CEI for Eastlake Unit 5, Duquesne is
responsible for Beaver Valley Units 1 and 2, OE for Sammis Unit 7 and
Penn for Bruce Mansfield Units 1, 2 and 3. The Companies monitor
activities in connection with Beaver Valley Units 1 and 2 but must
rely to a significant degree on Duquesne for necessary information.
The Companies in their oversight role as a practical matter cannot be
privy to every detail; it is Duquesne that must directly supervise
activities and then exercise its reporting responsibilities to the
co-owners. The Companies critically review the information given to
it by Duquesne, but they cannot be absolutely certain that things
they would have considered significant have been reported or that
they always would have reached exactly the same conclusion about
matters that are reported. In addition, the time that is necessarily
part of the compiling and analyzing process creates a lag between the
occurrence of events and the time the Companies become aware of their
significance.
On October 15, 1998, the Company announced that it signed
an agreement in principle with Duquesne that would result in the
transfer of 1,436 megawatts owned by Duquesne at eight CAPCO
generating units in exchange for 1,328 megawatts at three non-CAPCO
power plants owned by the Companies. A definitive agreement on the
exchange of assets, which will be structured as a tax-free
transaction to the extent possible, will provide the Companies with
exclusive ownership and operating control of all CAPCO generating
units. Duquesne will fund decommissioning costs equal to its
percentage interest in the three nuclear generating units to be
transferred. The asset transfer is expected to take twelve to
eighteen months to close. Under the agreement in principle, the CAPCO
arrangement discussed above will terminate upon transfer of the
assets.
Nuclear Regulation
The construction and operation of nuclear generating units
are subject to the regulatory jurisdiction of the Nuclear Regulatory
Commission (NRC) including the issuance by it of construction permits
and operating licenses. The NRC's procedures with respect to
application for construction permits and operating licenses afford
opportunities for interested parties to request public hearings on
health, safety, environmental and antitrust issues. In this
connection, the NRC may require substantial changes in operation or
the installation of additional equipment to meet safety or
environmental standards with resulting delay and added costs. The
possibility also exists for modification, denial or revocation of
licenses or permits. Davis-Besse was placed in commercial operation
in 1977, and its operating license expires in 2017. Beaver Valley
Unit 1 was placed in commercial operation in 1976, and its operating
license expires in 2016. 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.
The NRC has promulgated and continues to promulgate
regulations related to the safe operation of nuclear power plants.
The Companies cannot predict what additional regulations will be
promulgated or design changes required or the effect that any such
regulations or design changes, or the consideration thereof, may have
upon Beaver Valley, Davis-Besse and Perry. Although the Companies
have no reason to anticipate an accident at any nuclear plant in
which they have an interest, if such an accident did happen, it could
have a material but currently undeterminable adverse effect on the
Company's consolidated financial position. In addition, such an
accident at any operating nuclear plant, whether or not owned by the
Companies, could result in regulations or requirements that could
affect the operation or licensing of plants that the Companies do own
with a consequent but currently undeterminable adverse impact, and
could affect the Companies' abilities to raise funds in the capital
markets.
Nuclear Insurance
The Price-Anderson Act limits the public liability which
can be assessed with respect to a nuclear power plant to $9.7 billion
(assuming 108 units licensed to operate) for a single nuclear
incident, which amount is covered by: (i) private insurance amounting
to $200 million; and (ii) $9.5 billion provided by an industry
retrospective rating plan required by the NRC pursuant thereto. Under
such retrospective rating plan, in the event of a nuclear incident at
any unit in the United States resulting in losses in excess of
private insurance, up to $88.1 million (but not more than $10 million
per unit per year in the event of more than one incident) must be
contributed for each nuclear unit licensed to operate in the country
by the licensees thereof to cover liabilities arising out of the
incident. Based on their present ownership and leasehold interests in
Beaver Valley, Perry and Davis-Besse, the Companies' maximum
potential assessment under these provisions (assuming Duquesne were
to contribute its proportionate share of any assessments under the
retrospective rating plan) would be $286.3 million (OE-$94.2 million,
Penn-$20.0 million, CEI-$94.2 million and TE-$77.9 million) per
incident but not more than $32.5 million (OE-$10.7 million, Penn-
$2.3 million, CEI-$10.7 million and TE-$8.8 million) in any one year
for each incident.
In addition to the public liability insurance provided
pursuant to the Price-Anderson Act, the Companies have also obtained
insurance coverage in limited amounts for economic loss and property
damage arising out of nuclear incidents. The Companies are members of
Nuclear Electric Insurance Limited (NEIL) which provides coverage
(NEIL I) for the extra expense of replacement power incurred due to
prolonged accidental outages of nuclear units. Under NEIL I, the
Companies have policies, renewable yearly, corresponding to their
respective interests in Beaver Valley, Perry and Davis-Besse, which
provide an aggregate indemnity of up to approximately $1.22 billion
(OE-$239 million, Penn-$69 million, CEI-$558 million and TE-
$354 million) for replacement power costs incurred during an outage
after an initial 17-week waiting period. Members of NEIL I pay annual
premiums and are subject to assessments if losses exceed the
accumulated funds available to the insurer. The Companies' present
maximum aggregate assessment for incidents at any covered nuclear
facility occurring during a policy year would be approximately
$8.4 million (OE-$1.7 million, Penn-$.5 million, CEI-$3.8 million and
TE-$2.4 million).
The Companies are insured as to their respective interests
in Beaver Valley, Perry and Davis-Besse under property damage
insurance provided by NEIL to the operating company for each plant.
Under these arrangements, $2.75 billion of coverage for
decontamination costs, decommissioning costs, debris removal and
repair and/or replacement of property is provided for Beaver Valley,
Perry and Davis-Besse. The Companies pay annual premiums for this
coverage and are liable for retrospective assessments of up to
approximately $31.5 million (OE-$10.9 million, Penn-$2.2 million,
CEI-$10.3 million and TE-$8.1 million) during a policy year.
The Companies intend to maintain insurance against nuclear
risks as described above as long as it is available. To the extent
that replacement power, property damage, decontamination,
decommissioning, repair and replacement costs and other such costs
arising from a nuclear incident at any of the Companies' plants
exceed the policy limits of the insurance in effect with respect to
that plant, to the extent a nuclear incident is determined not to be
covered by the Companies' insurance policies, or to the extent such
insurance becomes unavailable in the future, the Companies would
remain at risk for such costs.
The NRC requires nuclear power plant licensees to obtain
minimum property insurance coverage of $1.06 billion or the amount
generally available from private sources, whichever is less. The
proceeds of this insurance are required to be used first to ensure
that the licensed reactor is in a safe and stable condition and can
be maintained in that condition so as to prevent any significant risk
to the public health and safety. Within 30 days of stabilization, the
licensee is required to prepare and submit to the NRC a cleanup plan
for approval. The plan is required to identify all cleanup operations
necessary to decontaminate the reactor sufficiently to permit the
resumption of operations or to commence decommissioning. Any property
insurance proceeds not already expended to place the reactor in a
safe and stable condition must be used first to complete those
decontamination operations that are ordered by the NRC. The Companies
are unable to predict what effect these requirements may have on the
availability of insurance proceeds to the Companies for the
Companies' bondholders.
Environmental Matters
Various federal, state and local authorities regulate the
Companies with regard to air and water quality and other
environmental matters. The Companies have estimated capital
expenditures for environmental compliance of approximately
$400 million, which is included in the construction estimate given
under "Capital Requirements" for 1999 through 2003.
Air Regulation
Under the provisions of the Clean Air Act of 1970, both the
State of Ohio and the Commonwealth of Pennsylvania adopted ambient
air quality standards, and related emission limits, including limits
for sulfur dioxide (SO2) and particulates. In addition, the U.S.
Environmental Protection Agency (EPA) promulgated an SO2 regulatory
plan for Ohio which became effective for OE's, CEI's and TE's plants
in 1977. Generating plants to be constructed in the future and some
future modifications of existing facilities will be covered not only
by the applicable state standards but also by EPA emission
performance standards for new sources. In both Ohio and Pennsylvania
the construction or modification of emission sources requires
approval from appropriate environmental authorities, and the
facilities involved may not be operated unless a permit or variance
to do so has been issued by those same authorities.
The Companies are in compliance with the current SO2 and
nitrogen oxides (NOx) reduction requirements under the Clean Air Act
Amendments of 1990. SO2 reductions in 1999 will be achieved by
burning lower-sulfur fuel, generating more electricity from lower-
emitting plants, and/or purchasing emission allowances. Plans for
complying with reductions required for the year 2000 and thereafter
have not been finalized. In September 1998, the EPA finalized
regulations requiring additional NOx reductions from the Companies'
Ohio and Pennsylvania facilities by May 2003. The EPA's NOx Transport
Rule imposes uniform reductions of NOx emissions across a region of
twenty-two states and the District of Columbia, including Ohio and
Pennsylvania, based on a conclusion that such NOx emissions are
contributing significantly to ozone pollution in the eastern United
States. By September 1999, each of the twenty-two states are required
to submit revised State Implementation Plans (SIP) which comply with
individual state NOx budgets established by the EPA. These state NOx
budgets contemplate an 85% reduction in utility plant NOx emissions
from 1990 emissions. A proposed Federal Implementation Plan
accompanied the NOx Transport Rule and may be implemented by the EPA
in states which fail to revise their SIP. In a separate but related
action, eight states filed petitions with the EPA under Section 126
of the Clean Air Act seeking reductions of NOx emissions which are
alleged to contribute to ozone pollution in the eight petitioning
states. The EPA suggests that the Section 126 petitions will be
adequately addressed by the NOx Transport Program, but a September
1998 proposed rulemaking established an alternative program which
would require nearly identical 85% NOx reductions at the Companies'
Ohio and Pennsylvania plants by May 2003 in the event implementation
of the NOx Transport Rule is delayed. The Companies continue to
evaluate their compliance plans and other compliance options and
currently estimate the additional capital expenditures for NOx
reductions may reach $500 million.
The Companies are required to meet federally approved SO2
regulations. Violations of such regulations can result in shutdown of
the generating unit involved and/or civil or criminal penalties of up
to $25,000 for each day the unit is in violation. The EPA has an
interim enforcement policy for SO2 regulations in Ohio that allows
for compliance based on a 30-day averaging period. The Companies
cannot predict what action the EPA may take in the future with
respect to proposed regulations or the interim enforcement policy.
In July 1997, EPA promulgated changes in the National
Ambient Air Quality Standard (NAAQS) for ozone and proposed a new
NAAQS for previously unregulated ultra-fine particulate matter. The
cost of compliance with these regulations may be substantial and
depends on the manner in which they are implemented by the states in
which the Companies operate affected facilities.
Water Regulation
Various water quality regulations, the majority of which
are the result of the federal Clean Water Act and its amendments,
apply to the Companies' plants. In addition, Ohio and Pennsylvania
have water quality standards applicable to the Companies' operations.
As provided in the Clean Water Act, authority to grant federal
National Pollutant Discharge Elimination System (NPDES) water
discharge permits can be assumed by a state. Ohio and Pennsylvania
have assumed such authority.
Waste Disposal
As a result of the Resource Conservation and Recovery Act
of 1976, as amended, and the Toxic Substances Control Act of 1976,
federal and state hazardous waste regulations have been promulgated.
Certain fossil-fuel combustion waste products, such as coal ash, were
exempted from hazardous waste disposal requirements pending EPA's
evaluation of the need for future regulation. EPA has issued its
final regulatory determination that regulation of coal ash as a
hazardous waste is unnecessary.
CEI and TE have been named as "potentially responsible
parties" (PRPs) at waste disposal sites which may require cleanup
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980. Federal law provides that all PRPs for a
particular site be held liable on a joint and several basis. CEI and
TE have accrued a liability totaling $5.8 million at December 31,
1998 based on estimates of the costs of cleanup and the proportionate
responsibility of other PRPs for such costs. CEI and TE believe that
waste disposal costs will not have a material adverse effect on their
financial condition, cash flows or results of operations.
In 1980, Congress passed the Low-Level Radioactive Waste
Policy Act which provides that the disposal of low-level radioactive
waste is the responsibility of the state where such waste is
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. On
June 26, 1997, the Midwest Compact Commission (Compact) voted to
cease all siting activities in the host state of Ohio and to
dismantle the Ohio Low-Level Radioactive Waste Facility Development
Authority, the statutory agency charged with siting and constructing
the low-level radioactive waste disposal facility. While the Compact
remains intact, it has no plans to site or construct a low-level
radioactive waste disposal facility in the Midwest. The Companies
continue to ship low-level radioactive waste from their nuclear
facilities to the Barnwell, South Carolina waste disposal facility.
Summary
Environmental controls are still in the process of
development and require, in many instances, balancing the needs for
additional quantities of energy in future years and the need to
protect the environment. As a result, the Companies cannot now
estimate the precise effect of existing and potential regulations and
legislation upon any of their existing and proposed facilities and
operations or upon their ability to issue additional first mortgage
bonds under their respective mortgages. These mortgages contain
covenants by the Companies to observe and conform to all valid
governmental requirements at the time applicable unless in course of
contest, and provisions which, in effect, prevent the issuance of
additional bonds if there is a completed default under the mortgage.
The provisions of each of the mortgages, in effect, also require, in
the opinion of counsel for the respective Companies, that
certification of property additions as the basis for the issuance of
bonds or other action under the mortgages be accompanied by an
opinion of counsel that the company certifying such property
additions has all governmental permissions at the time necessary for
its then current ownership and operation of such property additions.
The Companies intend to contest any requirements they deem
unreasonable or impossible for compliance or otherwise contrary to
the public interest. Developments in these and other areas of
regulation may require the Companies to modify, supplement or replace
equipment and facilities, and may delay or impede the construction
and operation of new facilities, at costs which could be substantial.
Fuel Supply
The Companies' sources of generation during 1998 were:
<TABLE>
<CAPTION>
Coal Nuclear
---- -------
<S> <C> <C>
OE 81.9% 18.1%
Penn 76.9% 23.1%
CEI 65.3% 34.7%
TE 47.9% 52.1%
</TABLE>
The Companies have long-term coal contracts providing for
annual tons of approximately: OE - 6,008,000; Penn - 1,241,000; CEI -
4,146,000; and TE - 623,000. These contracts include the Companies'
portion of the coal purchase contract relating to the Bruce Mansfield
Plant discussed below. This contract coal is produced primarily from
mines located in Ohio, Pennsylvania, Kentucky, Wyoming and West
Virginia; the contracts expire at various times through December 31,
2003.
The Companies estimate their 1999 coal requirements to be
approximately 17,005,000 tons (including their respective shares of
the coal requirements of CAPCO's Eastlake Unit 5, Sammis Unit 7 and
the Bruce Mansfield Plant). See "Environmental Matters" for factors
pertaining to meeting environmental regulations affecting coal-fired
generating units.
The Companies have each severally guaranteed (OE's, CEI's,
TE's and Penn's composite percentages being approximately 46.8%,
17.6%, 10.3% and 6.7%, respectively) certain debt and lease
obligations in connection with a coal supply contract for the Bruce
Mansfield Plant (see "Commitments, Guarantees and Contingencies"
notes to the respective financial statements). As of December 31,
1998, the Companies' shares of the guarantees were $43.2 million. The
price under the coal supply contract, which includes certain minimum
payments, has been determined to be sufficient to satisfy the debt
and lease obligations. This contract expires December 31, 1999.
The Companies' fuel costs (excluding disposal costs) for
each of the five years ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cost of fuel consumed per million BTUs:
Coal: OE $1.33 $1.31 $1.33 $1.37 $1.36
Penn 1.35 1.27 1.31 1.30 1.34
CEI 1.50 1.41 1.50 1.56 1.50
TE 1.46 1.54 1.79 1.86 1.76
Nuclear: OE $ .55 $ .58 $ .66 $ .79 $ .94
Penn .54 .61 .64 .77 .88
CEI .63 .76 .84 .98 .98
TE .54 .66 .74 .91 .92
Average fuel cost per kilowatt-hour
generated (cents):
OE 1.19 1.17 1.20 1.27 1.31
Penn 1.16 1.17 1.15 1.20 1.29
CEI 1.20 1.23 1.35 1.42 1.35
TE 1.03 1.06 1.26 1.32 1.35
</TABLE>
OES Fuel is the sole lessor for OE's and Penn's nuclear
fuel requirements (see "Capital Requirements" and Note 3G of Notes to
OE's Consolidated Financial Statements). Nuclear fuel is currently
financed for CEI and TE through leases with a special-purpose
corporation.
The Company has contracts for uranium material through 2000
and conversion services through 2001. The enrichment services are
contracted for the majority of the enrichment requirements for
nuclear fuel through 2005. Fabrication services for fuel assemblies
are contracted for the next four reloads for Beaver Valley Unit 1,
three reloads for Beaver Valley Unit 2 (through approximately 2005
and 2006, respectively), the next four reloads for Davis-Besse
(through approximately 2004) and through the life of the plant for
Perry (through approximately 2026). In addition to the existing
commitments, the Company intends to make additional arrangements for
the supply of uranium and for the subsequent conversion, enrichment,
fabrication, and waste disposal services.
Due to the present lack of availability of domestic
reprocessing services, to the continuing absence of any program to
begin development of such reprocessing capability and questions as to
the economics of reprocessing, nuclear fuel costs are calculated
based on the assumption that spent fuel will not be reprocessed. On-
site spent fuel storage facilities are expected to be adequate for
Perry through 2010; facilities at Beaver Valley Units 1 and 2 are
expected to be adequate through 2016 and 2012, respectively. After
scheduled plant modifications are completed in 2002, Davis-Besse will
have adequate storage through 2020. After on-site storage capacity is
exhausted, additional storage capacity will have to be obtained which
could result in significant additional costs unless reprocessing
services, interim off-site disposal, or permanent waste disposal
facilities become available. The Federal Nuclear Waste Policy Act of
1982 provides for the construction of facilities for the disposal of
high-level nuclear wastes, including spent fuel from nuclear power
plants operated by electric utilities; however, the selection of a
suitable site has become embroiled in the political process. Duquesne
and the Company have contracts with the U.S. Department of Energy
(DOE) for the disposal of spent fuel from Beaver Valley, Perry and
Davis-Besse. On December 17, 1996, the DOE notified the Companies
that it would be unable to begin acceptance of spent fuel for
disposal by January 31, 1998 as mandated by Section 302(a)(5)(B) of
the Nuclear Waste Policy Act (NPA). The permanent disposal facility
is currently projected to start receiving spent fuel in 2010. The
Companies along with over 40 other nuclear utilities and more than 50
state agencies have asked for federal court approval to stop payments
into the Nuclear Waste Fund and for an order requiring DOE to take
immediate action to accept delivery of spent nuclear fuel.
System Capacity and Reserves
The respective 1998 net maximum hourly demand on each of
the Companies was OE-6,130,000 kilowatts (kW) (including 387,000 kW
of firm power sales which extend through 2005 as discussed under
"Competition") on June 24, 1998; Penn-918,000 kW on June 22, 1998;
CEI-4,248,000 kW (including 12,000 kW of firm power sales which
extend through 2005 as discussed under "Competition") on July 21,
1998; and TE-1,978,000 kW on July 21, 1998.
Based on existing capacity plans, the load forecast made in
December 1998 and anticipated term power sales to other utilities,
the capacity margins during the 1999-2003 period are expected to
range from about 10% to 12% for the FirstEnergy system.
Regional Reliability
The Companies participate with 24 other electric companies
operating in nine states in the East Central Area Reliability
Coordination Agreement (ECAR), which was organized for the purpose of
furthering the reliability of bulk power supply in the area through
coordination of the planning and operation by the ECAR members of
their bulk power supply facilities. The ECAR members have established
principles and procedures regarding matters affecting the reliability
of the bulk power supply within the ECAR region. Procedures have been
adopted regarding: i) the evaluation and simulated testing of
systems' performance; ii) the establishment of minimum levels of
daily operating reserves; iii) the development of a program regarding
emergency procedures during conditions of declining system frequency;
and iv) the basis for uniform rating of generating equipment.
Competition
The Companies compete with other utilities for intersystem
bulk power sales and for sales to municipalities and cooperatives.
The Companies compete with suppliers of natural gas and other forms
of energy in connection with their industrial and commercial sales
and in the home climate control market, both with respect to new
customers and conversions, and with all other suppliers of
electricity. To date, there has been no substantial cogeneration by
the Companies' customers.
Technological advances and regulatory changes are driving
forces toward increasing competition in the energy market.
Pennsylvania legislation, which phases in customer choice for their
electricity generation supplier to 66% of Pennsylvania's residents in
January 1999 and the remaining customers in January 2000 (see
"Utility Regulation--PPUC Rate Matters") is one such regulatory
change. In addition, many large electricity users continue to push
for some form of retail wheeling, which would enable retail customers
to purchase electricity from producers other than the local utility.
In February 1996, the PUCO approved a change allowing large
industrial customers that have interruptible service contracts to buy
their power from other sources when they have been advised by their
local utility that service will be interrupted. In early 1998, a
proposal for the deregulation of Ohio's investor-owned electric
utility industry was introduced, leading to the creation of a working
group to recommend legislation. As requested by state legislative
leadership, investor-owned utilities introduced a deregulation plan
with objectives to (1) treat all major stakeholders in Ohio's
electric system fairly; (2) protect public schools and local
governments from revenue loss; and (3) allow utilities an opportunity
to recover costs of government-mandated investments. The utilities
have submitted proposals which incorporate these objectives and also
recognize the complexity of restructuring the industry. Currently,
the working group, comprised of legislative leaders, representatives
of the electric utility companies and other interested stakeholders
are meeting to discuss and mold these proposals. Most recently,
placeholder bills containing statements of principle (that will be
replaced by specific proposals as they are agreed upon) have been
introduced. Legislative leaders have placed a high priority on
enacting a deregulation bill by mid-year 1999.
In an effort to more fully utilize their facilities and
hold down rates to their other customers, OE and Penn have entered
into a long-term power sales agreement with another utility.
Currently, OE and Penn are selling 450,000 kW annually under this
contract through December 31, 2005. OE and Penn have the option to
reduce this commitment by 150,000 kW, with three years' advance
notice. In addition, CEI has entered into a long-term power sales
contract with another utility and is currently selling up to
20,000 kW under this contract through December 31, 2002.
Research and Development
The Companies participate in funding the Electric Power
Research Institute (EPRI), which was formed for the purpose of
expanding electric research and development under the voluntary
sponsorship of the nation's electric utility industry -- public,
private and cooperative. Its goal is to mutually benefit utilities
and their customers by promoting the development of new and improved
technologies to help the utility industry meet present and future
electric energy needs in environmentally and economically acceptable
ways. EPRI conducts research on all aspects of electric power
production and use, including fuels, generating, delivery, energy
management and conservation, environmental effects and energy
analysis. The major portion of EPRI research and development projects
is directed toward practical solutions and their applications to
problems currently facing the electric utility industry. In 1998,
approximately 72% of the Companies' research and development
expenditures were related to EPRI.
Executive Officers
The executive officers are elected at the annual
organization meeting of the Board of Directors, held immediately
after the annual meeting of stockholders, and hold office until the
next such organization meeting, unless the Board of Directors shall
otherwise determine, or unless a resignation is submitted.
<TABLE>
<CAPTION>
Position Held During
Name Age Past Five Years Dates
- --------------- --- ---------------------------------------------------- -----------
<S> <C> <C> <C>
W. R. Holland 62 Chairman of the Board and Chief Executive Officer 1997-present
Chairman of the Board and Chief Executive Officer-OE 1996-1997
President and Chief Executive Officer-OE *-1996
H. P. Burg 52 President and Chief Operating Officer 1998-present
President and Chief Financial Officer 1997-1998
President, Chief Operating Officer and Chief Financial
Officer-OE 1996-1997
Senior Vice President and Chief Financial Officer-OE *-1996
A. J. Alexander 47 Executive Vice President and General Counsel 1997-present
Executive Vice President and General Counsel-OE 1997-1996
Senior Vice President and General Counsel-OE *-1996
E. T. Carey 56 Vice President - Distribution 1997-present
Vice President--Regional Operations and Customer
Service-OE 1995-1997
Vice President--Marketing and Customer Service
Support-OE 1994-1995
Manager, Performance Initiatives-OE *-1994
M. B. Carroll 47 Vice President - Corporate Affairs 1997-present
Manager - Sandusky Area-OE 1994-1997
Director, Communications and Mission Services
- Providence Hospital *-1994
K. W. Dindo 49 Vice President - Energy Services 1998-present
Vice President and Controller - Caliber-System Inc. 1994-1998
Partner - Ernst & Young LLP *-1994
D. S. Elliott 44 Vice President - Sales and Marketing 1997-present
Manager - FirstEnergy Services - OE 1997
Manager - Eastern Division - OE 1996-1997
Manager - Youngstown Division - OE *-1996
A. R. Garfield 60 Vice President - Business Development 1997-present
Vice President - System Operations - OE *-1997
J. A. Gill 62 Senior Vice President - Administrative Services 1998-present
Vice President - Administrative Services 1997-1998
Vice President - Administration - OE *-1997
R. H. Marsh 48 Vice President and Chief Financial Officer 1998-present
Vice President - Finance 1997-1998
Treasurer - OE *-1997
G. L. Pipitone 49 Vice President - Fossil Production 1997-present
Vice President - Generation and Transmission - OE 1996-1997
Manager - Akron Division - OE *-1996
S. F. Szwed 46 Vice President - Transmission 1997-present
Vice President - Engineering & Planning - CSC 1995-1997
Director - System Planning & Operations - CSC *-1995
N. C. Ashcom 51 Corporate Secretary 1997-present
Secretary - OE 1994-1997
Assistant Secretary - OE *-1994
T. C. Navin 41 Treasurer 1998-present
Assistant Treasurer 1998-1998
Director, Treasury Services 1998-1998
Director, Asset Strategy 1997-1998
Staff Business Analyst 1997-1997
Senior Business Analyst 1995-1997
Senior Planning Analyst *-1995
H. L. Wagner 46 Controller 1997-present
Comptroller - OE *-1997
<FN>
Except for W. R. Holland, M. B. Carroll, K. W. Dindo and D. S. Elliott, the officers above hold the
same offices for FirstEnergy, OE, CEI and TE.
Except for R. Joseph Hrach, A. J. Alexander, J. A. Gill and H. L. Wagner holding the offices of
President, Vice President and General Counsel, Vice President and Comptroller, respectively, and except
for H. P. Burg, M. B. Carroll, K. W. Dindo and D. S. Elliott, the officers above hold the same offices
for Penn.
*Indicates position held at least since January 1, 1994.
</TABLE>
At December 31, 1998, the Company's nonutility
subsidiaries and the Companies had a total of 11,918 employees
consisting of the following: Company - 1,604, OE - 1,944, CEI -
1,798, TE - 997, Penn - 888, FE Services - 375, FENOC - 1,159, FE
Facilities - 3,012 and MARBEL - 141 employees.
ITEM 2. PROPERTIES
The Companies' respective first mortgage indentures
constitute, in the opinion of the Companies' counsel, direct first
liens on substantially all of the respective Companies' physical
property, subject only to excepted encumbrances, as defined in the
indentures. See "Leases" and "Capitalization" notes to the respective
financial statements for information concerning leases and financing
encumbrances affecting certain of the Companies' properties.
The Companies own, individually or together with other
companies as tenants in common, and/or lease, the generating units
in service as of March 1, 1999, shown on the table below.
<TABLE>
<CAPTION>
Net Demonstrated
Capacity (MW)
--------------------
Companies' OE Penn CEI TE
----------- ----------- ---------------- ---------------
Unit Total Entitlement % MW % MW % MW % MW
---- ----- ----------- - -- - -- - -- - --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Plant - Location
- ----------------
Coal-Fired Units
- ----------------
Ashtabula- 5,8,9 332 332 -- -- -- -- 100.00% 332 -- --
Ashtabula, OH
Avon Lake- 6,7,9 717 717 -- -- -- -- 100.00% 717 -- --
Avon Lake, OH (d)
Bay Shore- 1-4 631 631 -- -- -- -- -- -- 100.00% 631
Toledo, OH
R. E. Burger- 3-5 406 406 100.00% 406 -- -- -- -- -- --
Shadyside, OH
Eastlake-Eastlake, OH (e) 1-4 636 636 -- -- -- -- 100.00% 636 -- --
5 597 411 -- -- -- -- 68.80% 411 -- --
Lakeshore- 18 245 245 -- -- -- -- 100.00% 245 -- --
Cleveland, OH
B. Mansfield- 1 780 552 60.00% 468 4.20% 33 6.50%(b) 51 -- --
Shippingport, PA (e) 2 780 718 39.30% 307 6.80% 53 28.60%(b) 223 17.30%(b) 135
3 800 690 35.60% 285 6.28% 50 24.47%(b) 196 19.91%(b) 159
New Castle- 3-5 333 333 -- -- 100.00% 333 -- -- -- --
W. Pittsburg, PA (d)
Niles-Niles, OH (d) 1-2 216 216 100.00% 216 -- -- -- -- -- --
W.H. Sammis- 1-6 1,620 1,620 100.00% 1,620 -- -- -- -- -- --
Stratton, OH (e) 7 600 413 48.00% 288 20.80% 125 -- -- -- --
----- ----- --- ----- ---
Total 7,920 3,590 594 2,811 925
----- ----- --- ----- ---
Nuclear Units
- -------------
Beaver Valley- 1 810 425 35.00% 283 17.50% 142 -- -- -- --
Shippingport, PA (e) 2 820 707 41.88%(a) 343 -- -- 24.47% 201 19.91%(c) 163
Davis-Besse- 1 883 883 -- -- -- -- 51.38% 454 48.62% 429
Oak Harbor, OH
Perry- 1 1,194 1,030 30.00%(a) 358 5.24% 63 31.11% 371 19.91% 238
N. Perry Village, OH (e) ----- --- --- ----- ---
Total 3,045 984 205 1,026 830
----- --- --- ----- ---
Oil/Gas-Fired/
Pumped Storage Units
Edgewater-Lorain, OH 4 100 100 100.00% 100 -- -- -- -- -- --
Seneca-Warren, PA 439 351 -- -- -- -- 80.00% 351 -- --
West Lorain-
Lorain, OH 1 120 120 100.00% 120 -- -- -- -- -- --
Other (d) 303 303 139 25 62 77
------ ------ --- ----- -----
Total 874 359 25 413 77
------ ------ --- ----- -----
Total 11,839 4,933 824 4,250 1,832
====== ====== === ===== =====
<FN>
Notes: (a) OE's interests consist of 20.22% owned and 21.66% leased for Beaver Valley Unit 2; and 17.42% owned (representing
portion leased from a wholly owned subsidiary of OE) and 12.58% leased for Perry.
(b) CEI's and TE's Bruce Mansfield interests are leased.
(c) TE's interests consist of 1.65% owned and 18.26% leased.
(d) Companies' interests in these plants and oil/gas-fired units at those plants to be transferred to Duquesne
(see "Central Area Power Coordination Group").
(e) Duquesne's interests in these plants will be acquired by the Companies (see "Central Area Power Coordination Group").
</TABLE>
Prolonged outages of existing generating units might make
it necessary for the Companies, depending upon the demand for
electric service upon their system, to use to a greater extent than
otherwise, less efficient and less economic generating units, or
purchased power, and in some cases may require the reduction of load
during peak periods under the Companies' interruptible programs, all
to an extent not presently determinable.
The Companies' generating plants and load centers are
connected by a transmission system consisting of elements having
various voltage ratings ranging from 23 kilovolts (kV) to 345 kV. The
Companies' overhead and underground transmission lines aggregate
8,691 miles.
The Companies' electric distribution systems include 55,591
miles of overhead pole line and underground conduit carrying primary,
secondary and street lighting circuits. They own, individually or
together with one or more of the other CAPCO companies as tenants in
common, substations with a total installed transformer capacity of
49,387,086 kilovolt-amperes.
The Companies' transmission lines also interconnect with
those of AEP, The Dayton Power and Light Company, Duquesne,
Monongahela Power Company, West Penn Power Company, Detroit Edison
Company and Pennsylvania Electric Company. These interconnections
make possible utilization by the Companies of generating capacity
constructed as a part of the CAPCO program, as well as providing
opportunities for the sale of power to other utilities.
<TABLE>
<CAPTION>
Substation
Distribution Transmission Transformer
Lines Lines Capacity
------------ ------------ -----------
(Miles) (kV-amperes)
<S> <C> <C> <C>
OE 26,475 4,019 20,603,056
Penn 5,105 608 3,792,250
CEI 23,505 3,016 17,228,300
TE 506 1,048 7,763,480
------ ----- ----------
Total 55,591 8,691 49,387,086
</TABLE>
MARBEL is a fully integrated natural gas company. MARBEL
owns interests in more than 1,800 gas and oil wells and holds
interests in more than 200,000 undeveloped acres in eastern and
central Ohio. MARBEL's subsidiaries include MB Operating Company,
Inc., a natural gas exploration and production company which has the
subsidiaries J. R. Nominee Corp., J. R. Nominee Corp. II and Natural
Gas Brokerage Corporation and Northeast Ohio Operating Companies,
Inc. which has the subsidiaries Gas Transport, Inc., NEO Construction
Company, Ohio Intrastate Gas Transmission Company and Northeast Ohio
Gas Marketing, Inc. FE Facilities is the parent company of ten direct
subsidiaries which are heating, ventilating, air conditioning and
energy management companies. The Facility Services companies own or
lease various offices, shops, maintenance and warehouse facilities,
equipment and vehicles.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required for this item for FirstEnergy and
OE (through November 7, 1997) is included on page 17 of FirstEnergy's
1998 Annual Report to Stockholders (Exhibit 13). The information
required for OE (subsequent to November 7, 1997), CEI, TE and Penn is
not applicable because they are wholly owned subsidiaries.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Items 6 through 8 is
incorporated herein by reference to Selected Financial Data,
Management's Discussion and Analysis of Results of Operations and
Financial Condition, and Financial Statements included on the pages
shown in the following table in the respective company's 1998 Annual
Report to Stockholders (Exhibit 13).
<TABLE>
<CAPTION>
Item 6 Item 7 Item 8
------ ------ ------
<S> <C> <C> <C>
FirstEnergy 17 18-23 24-40
OE 1 2-6 7-25
Penn 1 2-6 7-22
CEI 1 2-7 8-27
TE 1 2-6 7-26
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
FirstEnergy
-----------
The information required by Item 10, with respect to
Identification of FirstEnergy's Directors and with respect to reports
required to be filed under Section 16 of the Securities Exchange Act
of 1934, is incorporated herein by reference to the Company's 1999
Proxy Statement filed with the Securities and Exchange Commission
(SEC) pursuant to Regulation 14A and, with respect to Identification
of Executive Officers, to "Part I, Item 1. Business - Executive
Officers" herein.
OE, Penn, CEI and TE
--------------------
W. R. Holland, H. P. Burg and A. J. Alexander are the
Directors of OE, Penn, CEI, and TE. Information concerning these
individuals is shown in the "Executive Officers" section of Item 1.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FirstEnergy, OE, CEI, TE and Penn -
The information required by Items 11, 12 and 13 is
incorporated herein by reference to the Company's 1999 Proxy
Statement filed with the SEC pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
Included in Part II of this report and incorporated herein
by reference to the respective company's 1998 Annual Report to
Stockholders (Exhibit 13 below) at the pages indicated.
<TABLE>
<CAPTION>
FE OE Penn CEI TE
-- -- ---- --- --
<S> <C> <C> <C> <C> <C>
Report of Independent Public
Accountants. 16 25 22 27 26
Statements of Income--Three Years
Ended December 31, 1998 24 7 7 8 7
Balance Sheets--December 31, 1998
and 1997 25 8 8 9 8
Statements of Capitalization-
December 31, 1998 and 1997 26-28 9-10 9 10-11 9-10
Statements of Common Stockholders'
Equity--Three Years Ended
December 31, 1998 29 11 10 12 11
Statements of Preferred Stock-Three
Years Ended December 31, 1998 29 11 10 12 11
Statements of Cash Flows--Three
Years Ended December 31, 1998 30 12 11 13 12
Statements of Taxes--Three Years
Ended December 31, 1998 31 13 12 14 13
Notes to Financial Statements 32-40 14 13 15 14
</TABLE>
2. Financial Statement Schedules
Included in Part IV of this report:
<TABLE>
<CAPTION>
FE OE Penn CEI TE
-- -- ---- --- --
<S> <C> <C> <C> <C> <C>
Report of Independent Public
Accountants 44 45 48 46 47
Schedule - Three Years Ended
December 31, 1998:
II -- Consolidated Valuation and
Qualifying Accounts 49 50 53 51 52
</TABLE>
Schedules other than the schedule listed above are omitted
for the reason that they are not required or are not applicable, or
the required information is shown in the financial statements or
notes thereto.
3. Exhibits - FirstEnergy
Exhibit
Number
- -------
3-1 - Articles of Incorporation constituting FirstEnergy
Corp's Articles of Incorporation, dated September 17,
1996. (September 17, 1996 Form 8-K, Exhibit C)
3-1(a) - Amended Articles of Incorporation of FirstEnergy Corp.
(Registration No. 333-21011, Exhibit (3)-1.)
3-2 - Regulations of FirstEnergy Corp. (September 17, 1996
Form 8-K, Exhibit D)
3-2(a) - FirstEnergy Corp. Amended Code of Regulations.
(Registration No. 333-21011, Exhibit (3)-2.)
4-1 - Rights Agreement (December 1, 1997 Form 8-K, Exhibit
4.1)
(A)10-1 - FirstEnergy Corp. Executive and Director Incentive
Compensation Plan.
(A)10-2 - Amended FirstEnergy Corp. Deferred Compensation Plan
for Directors, amended February 15, 1999.
(A)13 - 1998 Annual Report to Stockholders. (Only those
portions expressly incorporated by reference in this
Form 10-K are to be deemed "filed" with the SEC.)
(A)21 - List of Subsidiaries of the Registrant at December 31,
1998.
(A)23 - Consent of Independent Public Accountants.
(A)27 - Financial Data Schedule.
(A)Provided herein in electronic format as an exhibit.
3. Exhibits - Ohio Edison
2-1 - Agreement and Plan of Merger, dated as of September 13,
1996, between Ohio Edison Company (OE) and Centerior
Energy Corporation. (September 17, 1996 Form 8-K,
Exhibit 2-1.)
3-1 - Amended Articles of Incorporation, Effective June 21,
1994, constituting OE's Articles of Incorporation.
(1994 Form 10-K, Exhibit 3-1.)
3-2 - Code of Regulations of OE as amended April 24, 1986.
(Registration No. 33-5081, Exhibit (4)(d).)
(B) 4-1 - Indenture dated as of August 1, 1930 between OE and
Bankers Trust Company, (now the Bank of New York), as
Trustee, as amended and supplemented by Supplemental
Indentures:
<TABLE>
<CAPTION>
Dated as of File Reference Exhibit No.
----------- --------------------------- -----------
<S> <C> <C>
March 3, 1931 2-1725 B-1,B-1(a),B-1(b)
November 1, 1935 2-2721 B-4
January 1, 1937 2-3402 B-5
September 1, 1937 Form 8-A B-6
June 13, 1939 2-5462 7(a)-7
August 1, 1974 Form 8-A, August 28, 1974 2(b)
July 1, 1976 Form 8-A, July 28, 1976 2(b)
December 1, 1976 Form 8-A, December 15, 1976 2(b)
June 15, 1977 Form 8-A, June 27, 1977 2(b)
Supplemental Indentures:
September 1, 1944 2-61146 2(b)(2)
April 1, 1945 2-61146 2(b)(2)
September 1, 1948 2-61146 2(b)(2)
May 1, 1950 2-61146 2(b)(2)
January 1, 1954 2-61146 2(b)(2)
May 1, 1955 2-61146 2(b)(2)
August 1, 1956 2-61146 2(b)(2)
March 1, 1958 2-61146 2(b)(2)
April 1, 1959 2-61146 2(b)(2)
June 1, 1961 2-61146 2(b)(2)
September 1, 1969 2-34351 2(b)(2)
May 1, 1970 2-37146 2(b)(2)
September 1, 1970 2-38172 2(b)(2)
June 1, 1971 2-40379 2(b)(2)
August 1, 1972 2-44803 2(b)(2)
September 1, 1973 2-48867 2(b)(2)
May 15, 1978 2-66957 2(b)(4)
February 1, 1980 2-66957 2(b)(5)
April 15, 1980 2-66957 2(b)(6)
June 15, 1980 2-68023 (b)(4)(b)(5)
October 1, 1981 2-74059 (4)(d)
October 15, 1981 2-75917 (4)(e)
February 15, 1982 2-75917 (4)(e)
Dated as of File Reference Exhibit No.
----------- --------------------------- -----------
July 1, 1982 2-89360 (4)(d)
March 1, 1983 2-89360 (4)(e)
March 1, 1984 2-89360 (4)(f)
September 15, 1984 2-92918 (4)(d)
September 27, 1984 33-2576 (4)(d)
November 8, 1984 33-2576 (4)(d)
December 1, 1984 33-2576 (4)(d)
December 5, 1984 33-2576 (4)(e)
January 30, 1985 33-2576 (4)(e)
February 25, 1985 33-2576 (4)(e)
July 1, 1985 33-2576 (4)(e)
October 1, 1985 33-2576 (4)(e)
January 15, 1986 33-8791 (4)(d)
May 20, 1986 33-8791 (4)(d)
June 3, 1986 33-8791 (4)(e)
October 1, 1986 33-29827 (4)(d)
August 25, 1989 33-34663 (4)(d)
February 15, 1991 33-39713 (4)(d)
May 1, 1991 33-45751 (4)(d)
May 15, 1991 33-45751 (4)(d)
September 15, 1991 33-45751 (4)(d)
April 1, 1992 33-48931 (4)(d)
June 15, 1992 33-48931 (4)(d)
September 15, 1992 33-48931 (4)(e)
April 1, 1993 33-51139 (4)(d)
June 15, 1993 33-51139 (4)(d)
September 15, 1993 33-51139 (4)(d)
November 15, 1993 1-2578 (4)(2)
April 1, 1995 1-2578 (4)(2)
May 1, 1995 1-2578 (4)(2)
July 1, 1995 1-2578 (4)(2)
June 1, 1997 (A) (4)(2)
April 1, 1998 (A) (4)(2)
June 1, 1998 (A) (4)(2)
</TABLE>
(B) 4-2 - General Mortgage Indenture and Deed of Trust dated as
of January 1, 1998 between OE and the Bank of New
York, as Trustee. (Registration No. 333-05277, Exhibit
4(g).)
10-1 - Administration Agreement between the CAPCO Group dated
as of September 14, 1967. (Registration No. 2-43102,
Exhibit 5(c)(2).)
10-2 - Amendment No. 1 dated January 4, 1974 to Administration
Agreement between the CAPCO Group dated as of
September 14, 1967. (Registration No. 2-68906, Exhibit
5(c)(3).)
10-3 - Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (Registration No.
2-43102, Exhibit 5(c)(3).)
10-4 - Amendment No. 1 dated as of January 1, 1993 to
Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (1993 Form 10-K,
Exhibit 10-4.)
10-5 - Agreement for the Termination or Construction of
Certain Agreements effective September 1, 1980 among
the CAPCO Group. (Registration No. 2-68906, Exhibit 10-
4.)
10-6 - Amendment dated as of December 23, 1993 to Agreement
for the Termination or Construction of Certain
Agreements effective September 1, 1980 among the CAPCO
Group. (1993 Form 10-K, Exhibit 10-6.)
10-7 - CAPCO Basic Operating Agreement, as amended
September 1, 1980. (Registration No. 2-68906, Exhibit
10-5.)
10-8 - Amendment No. 1 dated August 1, 1981, and Amendment
No. 2 dated September 1, 1982 to CAPCO Basic Operating
Agreement, as amended September 1, 1980. (September 30,
1981 Form 10-Q, Exhibit 20-1 and 1982 Form 10-K,
Exhibit 19-3, respectively.)
10-9 - Amendment No. 3 dated July 1, 1984 to CAPCO Basic
Operating Agreement, as amended September 1, 1980.
(1985 Form 10-K, Exhibit 10-7.)
10-10 - Basic Operating Agreement between the CAPCO Companies
as amended October 1, 1991. (1991 Form 10-K, Exhibit
10-8.)
10-11 - Basic Operating Agreement between the CAPCO Companies
as amended January 1, 1993. (1993 Form 10-K,
Exhibit 10-11.)
10-12 - Memorandum of Agreement effective as of September 1,
1980 among the CAPCO Group. (1982 Form 10-K, Exhibit
19-2.)
10-13 - Operating Agreement for Beaver Valley Power Station
Units Nos. 1 and 2 as Amended and Restated
September 15, 1987, by and between the CAPCO Companies.
(1987 Form 10-K, Exhibit 10-15.)
10-14 - Construction Agreement with respect to Perry Plant
between the CAPCO Group dated as of July 22, 1974.
(Registration No. 2-52251 of Toledo Edison Company,
Exhibit 5(yy).)
10-15 - Participation Agreement No. 1 relating to the financing
of the development of certain coal mines, dated as of
October 1, 1973, among Quarto Mining Company, the CAPCO
Group, Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in
Schedules A and B thereto, Central National Bank of
Cleveland, as Owner Trustee, National City Bank, as
Loan Trustee, and Owner Trustee, National City Bank, as
Loan Trustee, and National City Bank, as Bond Trustee.
(Registration No. 2-61146, Exhibit 5(e)(1).)
10-16 - Amendment No. 1 dated as of September 15, 1978 to
Participation Agreement No. 1 dated as of October 1,
1973 among Quarto Mining Company, the CAPCO Group,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in
Schedules A and B thereto, Central National Bank of
Cleveland as Owner Trustee, National City Bank as Loan
Trustee and National City Bank as Bond Trustee.
(Registration No. 2-68906 of Pennsylvania Power
Company, Exhibit 5(e)(2).)
10-17 - Participation Agreement No. 2 relating to the financing
of the development of certain coal mines, dated as of
August 1, 1974, among Quarto Mining Company, the CAPCO
Group, Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules
A and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration
No. 2-53059, Exhibit 5(h)(2).)
10-18 - Amendment No. 1 dated as of September 15, 1978 to
Participation Agreement No. 2 dated as of August 1,
1974 among Quarto Mining Company, the CAPCO Group,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in
Schedules A and B thereto, Central National Bank of
Cleveland as Owner Trustee, National City Bank as Loan
Trustee and National City Bank as Bond Trustee.
(Registration No. 2-68906 of Pennsylvania Power
Company, Exhibit 5(e)(4).)
10-19 - Participation Agreement No. 3 dated as of
September 15, 1978 among Quarto Mining Company, the
CAPCO Companies, Energy Properties, Inc., General
Electric Credit Corporation, the Loan Participants
listed in Schedules A and B thereto, Central National
Bank of Cleveland as Owner Trustee, and National City
Bank as Loan Trustee and Bond Trustee. (Registration
No. 2-68906 of Pennsylvania Power Company,
Exhibit 5(e)(5).)
10-20 - Participation Agreement No. 4 dated as of October 31,
1980 among Quarto Mining Company, the CAPCO Group, the
Loan Participants listed in Schedule A thereto and
National City Bank as Bond Trustee. (Registration
No. 2- 68906 of Pennsylvania Power Company, Exhibit 10-
16.)
10-21 - Participation Agreement dated as of May 1, 1986, among
Quarto Mining Company, the CAPCO Companies, the Loan
Participants thereto, and National City Bank as Bond
Trustee. (1986 Form 10-K, Exhibit 10-22.)
10-22 - Participation Agreement No. 6 dated as of December 1,
1991 among Quarto Mining Company, The Cleveland
Electric Illuminating Company, Duquesne Light Company,
Ohio Edison Company, Pennsylvania Power Company, the
Toledo Edison Company, the Loan Participants listed in
Schedule A thereto, National City Bank, as Mortgage
Bond Trustee and National City Bank, as Refunding Bond
Trustee. (1991 Form 10-K, Exhibit 10-19.)
10-23 - Agreement entered into as of October 20, 1981 among the
CAPCO Companies regarding the use of Quarto coal at
Mansfield Units 1, 2 and 3. (1981 Form 10-K,
Exhibit 20-1.)
10-24 - Restated Option Agreement dated as of May 1, 1983 by
and between the North American Coal Corporation and the
CAPCO Companies. (1983 Form 10-K, Exhibit 19-1.)
10-25 - Trust Indenture and Mortgage dated as of October 1,
1973 between Quarto Mining Company and National City
Bank, as Bond Trustee, together with Guaranty dated as
of October 1, 1973 with respect thereto by the CAPCO
Group. (Registration No. 2-61146, Exhibit 5(e)(5).)
10-26 - Amendment No. 1 dated August 1, 1974 to Trust Indenture
and Mortgage dated as of October 1, 1973 between Quarto
Mining Company and National City Bank, as Bond Trustee,
together with Amendment No. 1 dated August 1, 1974 to
Guaranty dated as of October 1, 1973 with respect
thereto by the CAPCO Group. (Registration No. 2-53059,
Exhibit 5(h)(2).)
10-27 - Amendment No. 2 dated as of September 15, 1978 to the
Trust Indenture and Mortgage dated as of October 1,
1973, as amended, between Quarto Mining Company and
National City Bank, as Bond Trustee, together with
Amendment No. 2 dated as of September 15, 1978 to
Guaranty dated as of October 1, 1973 with respect to
the CAPCO Group. (Registration No. 2-68906 of
Pennsylvania Power Company, Exhibits 5(e)(11) and
5(e)(12).)
10-28 - Amendment No. 3 dated as of October 31, 1980, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended between Quarto Mining Company and National City
Bank as Bond Trustee. (Registration No. 2-68906 of
Pennsylvania Power Company, Exhibit 10-16.)
10-29 - Amendment No. 4 dated as of July 1, 1985 to the Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended between Quarto Mining Company and National City
Bank as Bond Trustee. (1985 Form 10-K, Exhibit 10-28.)
10-30 - Amendment No. 5 dated as of May 1, 1986, to the Trust
Indenture and Mortgage between Quarto and National City
Bank as Bond Trustee. (1986 Form 10-K, Exhibit 10-30.)
10-31 - Amendment No. 6 dated as of December 1, 1991, to the
Trust Indenture and Mortgage dated as of October 1,
1973, between Quarto Mining Company and National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-28.)
10-32 - Trust Indenture dated as of December 1, 1991, between
Quarto Mining Company and National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-29.)
10-33 - Amendment No. 3 dated as of October 31, 1980 to the
Bond Guaranty dated as of October 1, 1973, as amended,
with respect to the CAPCO Group. (Registration No. 2-
68906 of Pennsylvania Power Company, Exhibit 10-16.)
10-34 - Amendment No. 4 dated as of July 1, 1985 to the Bond
Guaranty dated as of October 1, 1973, as amended, by
the CAPCO Companies to National City Bank as Bond
Trustee. (1985 Form 10-K, Exhibit 10-30.)
10-35 - Amendment No. 5 dated as of May 1, 1986, to the Bond
Guaranty by the CAPCO Companies to National City Bank
as Bond Trustee. (1986 Form 10-K, Exhibit 10-33.)
10-36 - Amendment No. 6A dated as of December 1, 1991, to the
Bond Guaranty dated as of October 1, 1973, by The
Cleveland Electric Illuminating Company, Duquesne Light
Company, Ohio Edison Company, Pennsylvania Power
Company, the Toledo Edison Company to National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-33.)
10-37 - Amendment No. 6B dated as of December 30, 1991, to the
Bond Guaranty dated as of October 1, 1973 by The
Cleveland Electric Illuminating Company, Duquesne Light
Company, Ohio Edison Company, Pennsylvania Power
Company, the Toledo Edison Company to National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-34.)
10-38 - Bond Guaranty dated as of December 1, 1991, by The
Cleveland Electric Illuminating Company, Duquesne Light
Company, Ohio Edison Company, Pennsylvania Power
Company, the Toledo Edison Company to National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-35.)
10-39 - Open end Mortgage dated as of October 1, 1973 between
Quarto Mining Company and the CAPCO Companies and
Amendment No. 1 thereto, dated as of September 15,
1978. (Registration No. 2-68906 of Pennsylvania Power
Company, Exhibit 10-23.)
10-40 - Repayment and Security Agreement and Assignment of
Lease dated as of October 1, 1973 between Quarto Mining
Company and Ohio Edison Company as Agent for the CAPCO
Companies and Amendment No. 1 thereto, dated as of
September 15, 1978. (1980 Form 10-K, Exhibit 20-2.)
10-41 - Restructuring Agreement dated as of April 1, 1985 among
Quarto Mining Company, the Company and the other CAPCO
Companies, Energy Properties, Inc., General Electric
Credit Corporation, the Loan Participants signatories
thereto, Central National Bank of Cleveland, as Owner
Trustee and National City Bank as Loan Trustee and Bond
Trustee. (1985 Form 10-K, Exhibit 10-33.)
10-42 - Unsecured Note Guaranty dated as of July 1, 1985 by the
CAPCO Companies to General Electric Credit Corporation.
(1985 Form 10-K, Exhibit 10-34.)
10-43 - Memorandum of Understanding dated March 31, 1985 among
the CAPCO Companies. (1985 Form 10-K, Exhibit 10-35.)
(C) 10-44 - Ohio Edison System Executive Supplemental Life
Insurance Plan. (1995 Form 10-K, Exhibit 10-44.)
(C) 10-45 - Ohio Edison System Executive Incentive Compensation
Plan. (1995 Form 10-K, Exhibit 10-45.)
(C) 10-46 - Ohio Edison System Restated and Amended Executive
Deferred Compensation Plan. (1995 Form 10-K, Exhibit
10-46.)
(C) 10-47 - Ohio Edison System Restated and Amended Supplemental
Executive Retirement Plan. (1995 Form 10-K, Exhibit 10-
47.)
(C) 10-48 - Severance pay agreement between Ohio Edison Company and
W. R. Holland. (1995 Form 10-K, Exhibit 10-48.)
(C) 10-49 - Severance pay agreement between Ohio Edison Company and
H. P. Burg. (1995 Form 10-K, Exhibit 10-49.)
(C) 10-50 - Severance pay agreement between Ohio Edison Company and
A. J. Alexander. (1995 Form 10-K, Exhibit 10-50.)
(C) 10-51 - Severance pay agreement between Ohio Edison Company and
J. A. Gill. (1995 Form 10-K, Exhibit 10-51.)
(D) 10-52 - Participation Agreement dated as of March 16, 1987
among Perry One Alpha Limited Partnership, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 Hereto, as Original Loan Participants, PNPP
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1986 Form 10-K, Exhibit 28-1.)
(D) 10-53 - Amendment No. 1 dated as of September 1, 1987 to
Participation Agreement dated as of March 16, 1987
among Perry One Alpha Limited Partnership, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 thereto, as Original Loan Participants, PNPP
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company (now The Bank of New York), as Indenture
Trustee, and Ohio Edison Company, as Lessee. (1991 Form
10-K, Exhibit 10-46.)
(D) 10-54 - Amendment No. 3 dated as of May 16, 1988 to
Participation Agreement dated as of March 16, 1987, as
amended among Perry One Alpha Limited Partnership, as
Owner Participant, PNPP Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and Ohio Edison Company,
as Lessee. (1992 Form 10-K, Exhibit 10-47.)
(D) 10-55 - Amendment No. 4 dated as of November 1, 1991 to
Participation Agreement dated as of March 16, 1987
among Perry One Alpha Limited Partnership, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1991 Form
10-K, Exhibit 10-47.)
(D) 10-56 - Amendment No. 5 dated as of November 24, 1992 to
Participation Agreement dated as of March 16, 1987, as
amended, among Perry One Alpha Limited Partnership, as
Owner Participant, PNPP Funding Corporation, as Funding
Corporation, PNPPII Funding Corporation, as New Funding
Corporation, The First National Bank of Boston, as
Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company as Lessee. (1992 Form
10-K, Exhibit 10-49.)
(D) 10-57 - Amendment No. 6 dated as of January 12, 1993 to
Participation Agreement dated as of March 16, 1987
among Perry One Alpha Limited Partnership, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1992 Form
10-K, Exhibit 10-50.)
(D) 10-58 - Amendment No. 7 dated as of October 12, 1994 to
Participation Agreement dated as of March 16, 1987 as
amended, among Perry One Alpha Limited Partnership, as
Owner Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1994 Form
10-K, Exhibit 10-54.)
(D) 10-59 - Facility Lease dated as of March 16, 1987 between The
First National Bank of Boston, as Owner Trustee, with
Perry One Alpha Limited Partnership, Lessor, and Ohio
Edison Company, Lessee. (1986 Form 10-K, Exhibit 28-2.)
(D) 10-60 - Amendment No. 1 dated as of September 1, 1987 to
Facility Lease dated as of March 16, 1987 between The
First National Bank of Boston, as Owner Trustee, Lessor
and Ohio Edison Company, Lessee. (1991 Form 10-K,
Exhibit 10-49.)
(D) 10-61 - Amendment No. 2 dated as of November 1, 1991, to
Facility Lease dated as of March 16, 1987, between The
First National Bank of Boston, as Owner Trustee, Lessor
and Ohio Edison Company, Lessee. (1991 Form 10-K,
Exhibit 10-50.)
(D) 10-62 - Amendment No. 3 dated as of November 24, 1992 to
Facility Lease dated as of March 16, 1987, as amended,
between The First National Bank of Boston, as Owner
Trustee, with Perry One Alpha Limited Partnership, as
Owner Participant and Ohio Edison Company, as Lessee.
(1992 Form 10-K, Exhibit 10-54.)
(D) 10-63 - Amendment No. 4 dated as of January 12, 1993 to
Facility Lease dated as of March 16, 1987 as amended,
between, The First National Bank of Boston, as Owner
Trustee, with Perry One Alpha Limited Partnership, as
Owner Participant, and Ohio Edison Company, as Lessee.
(1994 Form 10-K, Exhibit 10-59.)
(D) 10-64 - Amendment No. 5 dated as of October 12, 1994 to
Facility Lease dated as of March 16, 1987 as amended,
between, The First National Bank of Boston, as Owner
Trustee, with Perry One Alpha Limited Partnership, as
Owner Participant, and Ohio Edison Company, as Lessee.
(1994 Form 10-K, Exhibit 10-60.)
(D) 10-65 - Letter Agreement dated as of March 19, 1987 between
Ohio Edison Company, Lessee, and The First National
Bank of Boston, as Owner Trustee under a Trust dated
March 16, 1987 with Chase Manhattan Realty Leasing
Corporation, required by Section 3(d) of the Facility
Lease. (1986 Form 10-K, Exhibit 28-3.)
(D) 10-66 - Ground Lease dated as of March 16, 1987 between Ohio
Edison Company, Ground Lessor, and The First National
Bank of Boston, as Owner Trustee under a Trust
Agreement, dated as of March 16, 1987, with the Owner
Participant, Tenant. (1986 Form 10-K, Exhibit 28-4.)
(D) 10-67 - Trust Agreement dated as of March 16, 1987 between
Perry One Alpha Limited Partnership, as Owner
Participant, and The First National Bank of Boston.
(1986 Form 10-K, Exhibit 28-5.)
(D) 10-68 - Trust Indenture, Mortgage, Security Agreement and
Assignment of Facility Lease dated as of March 16, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement dated as of March 16,
1987 with Perry One Alpha Limited Partnership, and
Irving Trust Company, as Indenture Trustee. (1986 Form
10-K, Exhibit 28-6.)
(D) 10-69 - Supplemental Indenture No. 1 dated as of September 1,
1987 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of March 16,
1987 between The First National Bank of Boston as Owner
Trustee and Irving Trust Company (now The Bank of New
York), as Indenture Trustee. (1991 Form 10-K, Exhibit
10-55.)
(D) 10-70 - Supplemental Indenture No. 2 dated as of November 1,
1991 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of March 16,
1987 between The First National Bank of Boston, as
Owner Trustee and The Bank of New York, as Indenture
Trustee. (1991 Form 10-K, Exhibit 10-56.)
(D) 10-71 - Tax Indemnification Agreement dated as of March 16,
1987 between Perry One, Inc. and PARock Limited
Partnership as General Partners and Ohio Edison
Company, as Lessee. (1986 Form 10-K, Exhibit 28-7.)
(D) 10-72 - Amendment No. 1 dated as of November 1, 1991 to Tax
Indemnification Agreement dated as of March 16, 1987
between Perry One, Inc. and Parock Limited Partnership
and Ohio Edison Company. (1991 Form 10-K, Exhibit 10-
58.)
(D) 10-73 - Amendment No. 2 dated as of January 12, 1993 to Tax
Indemnification Agreement dated as of March 16, 1987
between Perry One, Inc. and Parock Limited Partnership
and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-
69.)
(D) 10-74 - Amendment No. 3 dated as of October 12, 1994 to Tax
Indemnification Agreement dated as of March 16, 1987
between Perry One, Inc. and Parock Limited Partnership
and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-
70.)
(D) 10-75 - Partial Mortgage Release dated as of March 19, 1987
under the Indenture between Ohio Edison Company and
Bankers Trust Company, as Trustee, dated as of the 1st
day of August, 1930. (1986 Form 10-K, Exhibit 28-8.)
(D) 10-76 - Assignment, Assumption and Further Agreement dated as
of March 16, 1987 among The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated
as of March 16, 1987, with Perry One Alpha Limited
Partnership, The Cleveland Electric Illuminating
Company, Duquesne Light Company, Ohio Edison Company,
Pennsylvania Power Company and Toledo Edison Company.
(1986 Form 10-K, Exhibit 28-9.)
(D) 10-77 - Additional Support Agreement dated as of March 16, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of March 16,
1987, with Perry One Alpha Limited Partnership, and
Ohio Edison Company. (1986 Form 10-K, Exhibit 28-10.)
(D) 10-78 - Bill of Sale, Instrument of Transfer and Severance
Agreement dated as of March 19, 1987 between Ohio
Edison Company, Seller, and The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated
as of March 16, 1987, with Perry One Alpha Limited
Partnership. (1986 Form 10-K, Exhibit 28- 11.)
(D) 10-79 - Easement dated as of March 16, 1987 from Ohio Edison
Company, Grantor, to The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of
March 16, 1987, with Perry One Alpha Limited
Partnership, Grantee. (1986 Form 10-K, File Exhibit
28-12.)
10-80 - Participation Agreement dated as of March 16, 1987
among Security Pacific Capital Leasing Corporation, as
Owner Participant, the Original Loan Participants
listed in Schedule 1 Hereto, as Original Loan
Participants, PNPP Funding Corporation, as Funding
Corporation, The First National Bank of Boston, as
Owner Trustee, Irving Trust Company, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1986 Form
10-K, as Exhibit 28-13.)
10-81 - Amendment No. 1 dated as of September 1, 1987 to
Participation Agreement dated as of March 16, 1987
among Security Pacific Capital Leasing Corporation, as
Owner Participant, The Original Loan Participants
Listed in Schedule 1 thereto, as Original Loan
Participants, PNPP Funding Corporation, as Funding
Corporation, The First National Bank of Boston, as
Owner Trustee, Irving Trust Company, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1991 Form
10-K, Exhibit 10-65.)
10-82 - Amendment No. 4 dated as of November 1, 1991, to
Participation Agreement dated as of March 16, 1987
among Security Pacific Capital Leasing Corporation, as
Owner Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1991 Form
10-K, Exhibit 10-66.)
10-83 - Amendment No. 5 dated as of November 24, 1992 to
Participation Agreement dated as of March 16, 1987 as
amended among Security Pacific Capital Leasing
Corporation, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1992 Form 10-K, Exhibit 10-71.)
10-84 - Amendment No. 6 dated as of January 12, 1993 to
Participation Agreement dated as of March 16, 1987 as
amended among Security Pacific Capital Leasing
Corporation, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1994 Form 10-K, Exhibit 10-80.)
10-85 - Amendment No. 7 dated as of October 12, 1994 to
Participation Agreement dated as of March 16, 1987 as
amended among Security Pacific Capital Leasing
Corporation, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1994 Form 10-K, Exhibit 10-81.)
10-86 - Facility Lease dated as of March 16, 1987 between The
First National Bank of Boston, as Owner Trustee, with
Security Pacific Capital Leasing Corporation, Lessor,
and Ohio Edison Company, as Lessee. (1986 Form 10-K,
Exhibit 28-14.)
10-87 - Amendment No. 1 dated as of September 1, 1987 to
Facility Lease dated as of March 16, 1987 between The
First National Bank of Boston as Owner Trustee, Lessor
and Ohio Edison Company, Lessee. (1991 Form 10-K,
Exhibit 10-68.)
10-88 - Amendment No. 2 dated as of November 1, 1991 to
Facility Lease dated as of March 16, 1987 between The
First National Bank of Boston as Owner Trustee, Lessor
and Ohio Edison Company, Lessee. (1991 Form 10-K,
Exhibit 10-69.)
10-89 - Amendment No. 3 dated as of November 24, 1992 to
Facility Lease dated as of March 16, 1987, as amended,
between, The First National Bank of Boston, as Owner
Trustee, with Security Pacific Capital Leasing
Corporation, as Owner Participant and Ohio Edison
Company, as Lessee. (1992 Form 10-K, Exhibit 10-75.)
10-90 - Amendment No. 4 dated as of January 12, 1993 to
Facility Lease dated as of March 16, 1987 as amended
between, The First National Bank of Boston, as Owner
Trustee, with Security Pacific Capital Leasing
Corporation, as Owner Participant, and Ohio Edison
Company, as Lessee. (1992 Form 10-K, Exhibit 10-76.)
10-91 - Amendment No. 5 dated as of October 12, 1994 to
Facility Lease dated as of March 16, 1987 as amended
between, The First National Bank of Boston, as Owner
Trustee, with Security Pacific Capital Leasing
Corporation, as Owner Participant, and Ohio Edison
Company, as Lessee. (1994 Form 10-K, Exhibit 10-87.)
10-92 - Letter Agreement dated as of March 19, 1987 between
Ohio Edison Company, as Lessee, and The First National
Bank of Boston, as Owner Trustee under a Trust, dated
as of March 16, 1987, with Security Pacific Capital
Leasing Corporation, required by Section 3(d) of the
Facility Lease. (1986 Form 10-K, Exhibit 28-15.)
10-93 - Ground Lease dated as of March 16, 1987 between Ohio
Edison Company, Ground Lessor, and The First National
Bank of Boston, as Owner Trustee under a Trust
Agreement, dated as of March 16, 1987, with Perry One
Alpha Limited Partnership, Tenant. (1986 Form 10-K,
Exhibit 28-16.)
10-94 - Trust Agreement dated as of March 16, 1987 between
Security Pacific Capital Leasing Corporation, as Owner
Participant, and The First National Bank of Boston.
(1986 Form 10-K, Exhibit 28-17.)
10-95 - Trust Indenture, Mortgage, Security Agreement and
Assignment of Facility Lease dated as of March 16, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of March 16,
1987, with Security Pacific Capital Leasing
Corporation, and Irving Trust Company, as Indenture
Trustee. (1986 Form 10-K, Exhibit 28-18.)
10-96 - Supplemental Indenture No. 1 dated as of September 1,
1987 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of March 16,
1987 between The First National Bank of Boston, as
Owner Trustee and Irving Trust Company (now The Bank of
New York), as Indenture Trustee. (1991 Form 10-K,
Exhibit 10-74.)
10-97 - Supplemental Indenture No. 2 dated as of November 1,
1991 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of March 16,
1987 between The First National Bank of Boston, as
Owner Trustee and The Bank of New York, as Indenture
Trustee. (1991 Form 10-K, Exhibit 10-75.)
10-98 - Tax Indemnification Agreement dated as of March 16,
1987 between Security Pacific Capital Leasing
Corporation, as Owner Participant, and Ohio Edison
Company, as Lessee. (1986 Form 10-K, Exhibit 28-19.)
10-99 - Amendment No. 1 dated as of November 1, 1991 to Tax
Indemnification Agreement dated as of March 16, 1987
between Security Pacific Capital Leasing Corporation
and Ohio Edison Company. (1991 Form 10-K, Exhibit 10-
77.)
10-100- Amendment No. 2 dated as of January 12, 1993 to Tax
Indemnification Agreement dated as of March 16, 1987
between Security Pacific Capital Leasing Corporation
and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-
96.)
10-101- Amendment No. 3 dated as of October 12, 1994 to Tax
Indemnification Agreement dated as of March 16, 1987
between Security Pacific Capital Leasing Corporation
and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-
97.)
10-102- Assignment, Assumption and Further Agreement dated as
of March 16, 1987 among The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated
as of March 16, 1987, with Security Pacific Capital
Leasing Corporation, The Cleveland Electric
Illuminating Company, Duquesne Light Company, Ohio
Edison Company, Pennsylvania Power Company and Toledo
Edison Company. (1986 Form 10-K, Exhibit 28-20.)
10-103- Additional Support Agreement dated as of March 16, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of March 16,
1987, with Security Pacific Capital Leasing
Corporation, and Ohio Edison Company. (1986 Form 10-K,
Exhibit 28-21.)
10-104- Bill of Sale, Instrument of Transfer and Severance
Agreement dated as of March 19, 1987 between Ohio
Edison Company, Seller, and The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated
as of March 16, 1987, with Security Pacific Capital
Leasing Corporation, Buyer. (1986 Form 10-K, Exhibit
28-22.)
10-105- Easement dated as of March 16, 1987 from Ohio Edison
Company, Grantor, to The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of
March 16, 1987, with Security Pacific Capital Leasing
Corporation, Grantee. (1986 Form 10-K, Exhibit 28-23.)
10-106- Refinancing Agreement dated as of November 1, 1991
among Perry One Alpha Limited Partnership, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee, The Bank of New York, as Collateral Trust
Trustee, The Bank of New York, as New Collateral Trust
Trustee and Ohio Edison Company, as Lessee. (1991 Form
10-K, Exhibit 10-82.)
10-107- Refinancing Agreement dated as of November 1, 1991
among Security Pacific Leasing Corporation, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee, The Bank of New York, as Collateral Trust
Trustee, The Bank of New York, as New Collateral Trust
Trustee and Ohio Edison Company, as Lessee. (1991 Form
10-K, Exhibit 10-83.)
10-108- Ohio Edison Company Master Decommissioning Trust
Agreement for Perry Nuclear Power Plant Unit One, Perry
Nuclear Power Plant Unit Two, Beaver Valley Power
Station Unit One and Beaver Valley Power Station Unit
Two dated July 1, 1993. (1993 Form 10-K, Exhibit
10-94.)
10-109- Nuclear Fuel Lease dated as of March 31, 1989, between
OES Fuel, Incorporated, as Lessor, and Ohio Edison
Company, as Lessee. (1989 Form 10-K, Exhibit 10-62.)
10-110- Receivables Purchase Agreement dated as November 28,
1989, as amended and restated as of April 23, 1993,
between OES Capital, Incorporated, Corporate Asset
Funding Company, Inc. and Citicorp North America, Inc.
(1994 Form 10-K, Exhibit 10-106.)
10-111- Guarantee Agreement entered into by Ohio Edison Company
dated as of January 17, 1991. (1990 Form 10-K, Exhibit
10-64).
10-112- Transfer and Assignment Agreement among Ohio Edison
Company and Chemical Bank, as trustee under the OE
Power Contract Trust. (1990 Form 10-K, Exhibit 10-65).
10-113- Renunciation of Payments and Assignment among Ohio
Edison Company, Monongahela Power Company, West Penn
Power Company, and the Potomac Edison Company dated as
of January 4, 1991. (1990 Form 10-K, Exhibit 10-66).
10-114- Transfer and Assignment Agreement dated May 20, 1994
among Ohio Edison Company and Chemical Bank, as trustee
under the OE Power Contract Trust. (1994 Form 10-K,
Exhibit 10-110.)
10-115- Renunciation of Payments and Assignment among Ohio
Edison Company, Monongahela Power Company, West Penn
Power Company, and the Potomac Edison Company dated as
of May 20, 1994. (1994 Form 10-K, Exhibit 10-111.)
10-116- Transfer and Assignment Agreement dated October 12,
1994 among Ohio Edison Company and Chemical Bank, as
trustee under the OE Power Contract Trust. (1994 Form
10-K, Exhibit 10-112.)
10-117- Renunciation of Payments and Assignment among Ohio
Edison Company, Monongahela Power Company, West Penn
Power Company, and the Potomac Edison Company dated as
of October 12, 1994. (1994 Form 10-K, Exhibit 10-113.)
(E) 10-118- Participation Agreement dated as of September 15, 1987,
among Beaver Valley Two Pi Limited Partnership, as
Owner Participant, the Original Loan Participants
listed in Schedule 1 Thereto, as Original Loan
Participants, BVPS Funding Corporation, as Funding
Corporation, The First National Bank of Boston, as
Owner Trustee, Irving Trust Company, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1987 Form
10-K, Exhibit 28-1.)
(E) 10-119- Amendment No. 1 dated as of February 1, 1988, to
Participation Agreement dated as of September 15, 1987,
among Beaver Valley Two Pi Limited Partnership, as
Owner Participant, the Original Loan Participants
listed in Schedule 1 Thereto, as Original Loan
Participants, BVPS Funding Corporation, as Funding
Corporation, The First National Bank of Boston, as
Owner Trustee, Irving Trust Company, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1987 Form
10-K, Exhibit 28-2.)
(E) 10-120- Amendment No. 3 dated as of March 16, 1988 to
Participation Agreement dated as of September 15, 1987,
as amended, among Beaver Valley Two Pi Limited
Partnership, as Owner Participant, BVPS Funding
Corporation, The First National Bank of Boston, as
Owner Trustee, Irving Trust Company, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1992
Form 10-K, Exhibit 10-99.)
(E) 10-121- Amendment No. 4 dated as of November 5, 1992 to
Participation Agreement dated as of September 15, 1987,
as amended, among Beaver Valley Two Pi Limited
Partnership, as Owner Participant, BVPS Funding
Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1992 Form 10-K, Exhibit 10-100.)
(E) 10-122- Amendment No. 5 dated as of September 30, 1994 to
Participation Agreement dated as of September 15, 1987,
as amended, among Beaver Valley Two Pi Limited
Partnership, as Owner Participant, BVPS Funding
Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1994 Form 10-K, Exhibit 10-118.)
(E) 10-123- Facility Lease dated as of September 15, 1987, between
The First National Bank of Boston, as Owner Trustee,
with Beaver Valley Two Pi Limited Partnership, Lessor,
and Ohio Edison Company, Lessee. (1987 Form 10-K,
Exhibit 28-3.)
(E) 10-124- Amendment No. 1 dated as of February 1, 1988, to
Facility Lease dated as of September 15, 1987, between
The First National Bank of Boston, as Owner Trustee,
with Beaver Valley Two Pi Limited Partnership, Lessor,
and Ohio Edison Company, Lessee. (1987 Form 10-K,
Exhibit 28-4.)
(E) 10-125- Amendment No. 2 dated as of November 5, 1992 to
Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as
Owner Trustee, with Beaver Valley Two Pi Limited
Partnership, as Owner Participant, and Ohio Edison
Company, as Lessee. (1992 Form 10-K, Exhibit 10-103.)
(E) 10-126- Amendment No. 3 dated as of September 30, 1994 to
Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as
Owner Trustee, with Beaver Valley Two Pi Limited
Partnership, as Owner Participant, and Ohio Edison
Company, as Lessee. (1994 Form 10-K, Exhibit 10-122.)
(E) 10-127- Ground Lease and Easement Agreement dated as of
September 15, 1987, between Ohio Edison Company, Ground
Lessor, and The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of September
15, 1987, with Beaver Valley Two Pi Limited
Partnership, Tenant. (1987 Form 10-K, Exhibit 28- 5.)
(E) 10-128- Trust Agreement dated as of September 15, 1987, between
Beaver Valley Two Pi Limited Partnership, as Owner
Participant, and The First National Bank of Boston.
(1987 Form 10-K, Exhibit 28-6.)
(E) 10-129- Trust Indenture, Mortgage, Security Agreement and
Assignment of Facility Lease dated as of September 15,
1987, between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement dated as of
September 15, 1987, with Beaver Valley Two Pi Limited
Partnership, and Irving Trust Company, as Indenture
Trustee. (1987 Form 10-K, Exhibit 28-7.)
(E) 10-130- Supplemental Indenture No. 1 dated as of February 1,
1988 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of
September 15, 1987 between The First National Bank of
Boston, as Owner Trustee under a Trust Agreement dated
as of September 15, 1987 with Beaver Valley Two Pi
Limited Partnership and Irving Trust Company, as
Indenture Trustee. (1987 Form 10-K, Exhibit 28-8.)
(E) 10-131- Tax Indemnification Agreement dated as of September 15,
1987, between Beaver Valley Two Pi Inc. and PARock
Limited Partnership as General Partners and Ohio Edison
Company, as Lessee. (1987 Form 10-K, Exhibit 28-9.)
(E) 10-132- Amendment No. 1 dated as of November 5, 1992 to Tax
Indemnification Agreement dated as of September 15,
1987, between Beaver Valley Two Pi Inc. and PARock
Limited Partnership as General Partners and Ohio Edison
Company, as Lessee. (1994 Form 10-K, Exhibit 10-128.)
(E) 10-133- Amendment No. 2 dated as of September 30, 1994 to Tax
Indemnification Agreement dated as of September 15,
1987, between Beaver Valley Two Pi Inc. and PARock
Limited Partnership as General Partners and Ohio Edison
Company, as Lessee. (1994 Form 10-K, Exhibit 10-129.)
(E) 10-134- Tax Indemnification Agreement dated as of September 15,
1987, between HG Power Plant, Inc., as Limited Partner
and Ohio Edison Company, as Lessee. (1987 Form 10-K,
Exhibit 28-10.)
(E) 10-135- Amendment No. 1 dated as of November 5, 1992 to Tax
Indemnification Agreement dated as of September 15,
1987, between HG Power Plant, Inc., as Limited Partner
and Ohio Edison Company, as Lessee. (1994 Form 10-K,
Exhibit 10-131.)
(E) 10-136- Amendment No. 2 dated as of September 30, 1994 to Tax
Indemnification Agreement dated as of September 15,
1987, between HG Power Plant, Inc., as Limited Partner
and Ohio Edison Company, as Lessee. (1994 Form 10-K,
Exhibit 10-132.)
(E) 10-137- Assignment, Assumption and Further Agreement dated as
of September 15, 1987, among The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated
as of September 15, 1987, with Beaver Valley Two Pi
Limited Partnership, The Cleveland Electric
Illuminating Company, Duquesne Light Company, Ohio
Edison Company, Pennsylvania Power Company and Toledo
Edison Company. (1987 Form 10-K, Exhibit 28-11.)
(E) 10-138- Additional Support Agreement dated as of September 15,
1987, between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement, dated as of
September 15, 1987, with Beaver Valley Two Pi Limited
Partnership, and Ohio Edison Company. (1987 Form 10-K,
Exhibit 28-12.)
(F) 10-139- Participation Agreement dated as of September 15, 1987,
among Chrysler Consortium Corporation, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 Thereto, as Original Loan Participants, BVPS
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1987 Form 10-K, Exhibit 28-13.)
(F) 10-140- Amendment No. 1 dated as of February 1, 1988, to
Participation Agreement dated as of September 15, 1987,
among Chrysler Consortium Corporation, as Owner
Participant, the Original Loan Participants listed in
Schedule I Thereto, as Original Loan Participants, BVPS
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and Ohio Edison Company,
as Lessee. (1987 Form 10-K, Exhibit 28-14.)
(F) 10-141- Amendment No. 3 dated as of March 16, 1988 to
Participation Agreement dated as of September 15, 1987,
as amended, among Chrysler Consortium Corporation, as
Owner Participant, BVPS Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and Ohio Edison Company,
as Lessee. (1992 Form 10-K, Exhibit 10-114.)
(F) 10-142- Amendment No. 4 dated as of November 5, 1992 to
Participation Agreement dated as of September 15, 1987,
as amended, among Chrysler Consortium Corporation, as
Owner Participant, BVPS Funding Corporation, BVPS II
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1992 Form
10-K, Exhibit 10-115.)
(F) 10-143- Amendment No. 5 dated as of January 12, 1993 to
Participation Agreement dated as of September 15, 1987,
as amended, among Chrysler Consortium Corporation, as
Owner Participant, BVPS Funding Corporation, BVPS II
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1994 Form
10-K, Exhibit 10-139.)
(F) 10-144- Amendment No. 6 dated as of September 30, 1994 to
Participation Agreement dated as of September 15, 1987,
as amended, among Chrysler Consortium Corporation, as
Owner Participant, BVPS Funding Corporation, BVPS II
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1994 Form
10-K, Exhibit 10-140.)
(F) 10-145- Facility Lease dated as of September 15, 1987, between
The First National Bank of Boston, as Owner Trustee,
with Chrysler Consortium Corporation, Lessor, and Ohio
Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-
15.)
(F) 10-146- Amendment No. 1 dated as of February 1, 1988, to
Facility Lease dated as of September 15, 1987, between
The First National Bank of Boston, as Owner Trustee,
with Chrysler Consortium Corporation, Lessor, and Ohio
Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-
16.)
(F) 10-147- Amendment No. 2 dated as of November 5, 1992 to
Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as
Owner Trustee, with Chrysler Consortium Corporation, as
Owner Participant and Ohio Edison Company, as Lessee.
(1992 Form 10-K, Exhibit 118.)
(F) 10-148- Amendment No. 3 dated as of January 12, 1993 to
Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as
Owner Trustee, with Chrysler Consortium Corporation, as
Owner Participant, and Ohio Edison Company, as Lessee.
(1992 Form 10-K, Exhibit 10-119.)
(F) 10-149- Amendment No. 4 dated as of September 30, 1994 to
Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as
Owner Trustee, with Chrysler Consortium Corporation, as
Owner Participant, and Ohio Edison Company, as Lessee.
(1994 Form 10-K, Exhibit 10-145.)
(F) 10-150- Ground Lease and Easement Agreement dated as of
September 15, 1987, between Ohio Edison Company, Ground
Lessor, and The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of September
15, 1987, with Chrysler Consortium Corporation, Tenant.
(1987 Form 10-K, Exhibit 28-17.)
(F) 10-151- Trust Agreement dated as of September 15, 1987, between
Chrysler Consortium Corporation, as Owner Participant,
and The First National Bank of Boston. (1987 Form 10-K,
Exhibit 28-18.)
(F) 10-152- Trust Indenture, Mortgage, Security Agreement and
Assignment of Facility Lease dated as of September 15,
1987, between the First National Bank of Boston, as
Owner Trustee under a Trust Agreement, dated as of
September 15, 1987, with Chrysler Consortium
Corporation and Irving Trust Company, as Indenture
Trustee. (1987 Form 10-K, Exhibit 28-19.)
(F) 10-153- Supplemental Indenture No. 1 dated as of February 1,
1988 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of
September 15, 1987 between The First National Bank of
Boston, as Owner Trustee under a Trust Agreement dated
as of September 15, 1987 with Chrysler Consortium
Corporation and Irving Trust Company, as Indenture
Trustee. (1987 Form 10-K, Exhibit 28-20.)
(F) 10-154- Tax Indemnification Agreement dated as of September 15,
1987, between Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1987
Form 10-K, Exhibit 28-21.)
(F) 10-155- Amendment No. 1 dated as of November 5, 1992 to Tax
Indemnification Agreement dated as of September 15,
1987, between Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
Form 10-K, Exhibit 10-151.)
(F) 10-156- Amendment No. 2 dated as of January 12, 1993 to Tax
Indemnification Agreement dated as of September 15,
1987, between Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
Form 10-K, Exhibit 10-152.)
(F) 10-157- Amendment No. 3 dated as of September 30, 1994 to Tax
Indemnification Agreement dated as of September 15,
1987, between Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
Form 10-K, Exhibit 10-153.)
(F) 10-158- Assignment, Assumption and Further Agreement dated as
of September 15, 1987, among The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated
as of September 15, 1987, with Chrysler Consortium
Corporation, The Cleveland Electric Illuminating
Company, Duquesne Light Company, Ohio Edison Company,
Pennsylvania Power Company, and Toledo Edison Company.
(1987 Form 10-K, Exhibit 28-22.)
(F) 10-159- Additional Support Agreement dated as of September 15,
1987, between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement, dated as of
September 15, 1987, with Chrysler Consortium
Corporation, and Ohio Edison Company. (1987 Form 10-K,
Exhibit 28-23.)
10-160- Operating Agreement dated March 10, 1987 with respect
to Perry Unit No. 1 between the CAPCO Companies. (1987
Form 10-K, Exhibit 28-24.)
10-161- Operating Agreement for Bruce Mansfield Units Nos. 1, 2
and 3 dated as of June 1, 1976, and executed on
September 15, 1987, by and between the CAPCO Companies.
(1987 Form 10-K, Exhibit 28-25.)
10-162- Operating Agreement for W. H. Sammis Unit No. 7 dated
as of September 1, 1971 by and between the CAPCO
Companies. (1987 Form 10-K, Exhibit 28-26.)
10-163- OE-APS Power Interchange Agreement dated March 18,
1987, by and among Ohio Edison Company and Pennsylvania
Power Company, and Monongahela Power Company and West
Penn Power Company and The Potomac Edison Company.
(1987 Form 10-K, Exhibit 28-27.)
10-164- OE-PEPCO Power Supply Agreement dated March 18, 1987,
by and among Ohio Edison Company and Pennsylvania Power
Company and Potomac Electric Power Company. (1987
Form 10-K, Exhibit 28-28.)
10-165- Supplement No. 1 dated as of April 28, 1987, to the OE-
PEPCO Power Supply Agreement dated March 18, 1987, by
and among Ohio Edison Company, Pennsylvania Power
Company, and Potomac Electric Power Company. (1987 Form
10-K, Exhibit 28-29.)
10-166- APS-PEPCO Power Resale Agreement dated March 18, 1987,
by and among Monongahela Power Company, West Penn Power
Company, and The Potomac Edison Company and Potomac
Electric Power Company. (1987 Form 10-K, Exhibit 28-
30.)
(A) 12.1 - Consolidated fixed charge ratios.
(A) 13.1 - 1998 Annual Report to Stockholders. (Only those
portions expressly incorporated by reference in this
Form 10-K are to be deemed "filed" with the SEC.)
(A) 21.1 - List of Subsidiaries of the Registrant at December 31,
1998.
(A) 23.1 - Consent of Independent Public Accountants.
(A) 27.1 - Financial Data Schedule.
(A) Provided herein in electronic format as an exhibit.
(B) Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation
S-K, OE has not filed as an exhibit to this Form 10-K any
instrument with respect to long-term debt if the total amount of
securities authorized thereunder does not exceed 10% of the
total assets of OE and its subsidiaries on a consolidated basis,
but hereby agrees to furnish to the SEC on request any such
instruments.
(C) Management contract or compensatory plan contract or arrangement
filed pursuant to Item 601 of Regulation S-K.
(D) Substantially similar documents have been entered into relating
to three additional Owner Participants.
(E) Substantially similar documents have been entered into relating
to five additional Owner Participants.
(F) Substantially similar documents have been entered into relating
to two additional Owner Participants.
Note: Reports of OE on Forms 10-Q and 10-K are on file with the
SEC under number 1-2578.
Pursuant to Rule 14a - 3 (10) of the Securities Exchange Act of
1934, the Company will furnish any exhibit in this Report upon
the payment of the Company's expenses in furnishing such
exhibit.
3. Exhibits - Penn
3-1 - Agreement of Merger and Consolidation dated April 1,
1929, among Pennsylvania Power Company (Penn), Harmony
Electric Company and Peoples Power Company (consummated
May 31, 1930), copies of Letters Patent issued thereon,
together with the Election Return and Treasurer's
Return, relative to decrease of capital stock; Election
Return authorizing change of capital stock and increase
of indebtedness; Election Return authorizing change of
capital stock; Election Return authorizing increase of
capital stock; Election Return establishing 4.24%
Preferred Stock; Certificate with respect to the
establishment of the 4.64% Preferred Stock; Election
Returns and Certificates of Actual Sale in connection
with the purchase by Penn Power of all the property of
Pine-Mercer Electric Company, Industry Borough Electric
Company, Ohio Township Electric Company, and
Shippingport Borough Electric Company; Certificate of
Change of Location of Penn Power's principal office;
Certificate of Consent authorizing increase in
authorized Common Stock; Certificate of Consent with
respect to the removal of limitations on the authorized
amount of indebtedness of Penn Power; Election Returns
and Certificates of Actual Sale in connection with the
purchase by Penn Power of all the property of Borolak
Public Service Company, Eastfax Public Service Company,
Norango Public Service Company, Sadwick Public Service
Company, Sosango Public Service Company, Surrick Public
Service Company, Wesango Public Service Company, and
Westfax Public Service Company; Certificate of Change
of Location of Penn Power's principal office; Amendment
to the Charter extending the territory in which Penn
Power may operate in the Borough of Shippingport,
Beaver County, Pennsylvania; Certificate of Consent
authorizing increase in authorized Common Stock;
Certificate with respect to the establishment of the 8%
Preferred Stock; Certificate accepting Business
Corporation Law of Pennsylvania for government and
regulation of affairs of Penn Power; Articles of
Amendment incorporating certain protective provisions
relating to Preferred Stock, increasing amount of
authorized Preferred Stock and authorizing future
increases in amounts of authorized Preferred Stock
without a vote of the holders of Preferred Stock;
Articles of Amendment increasing the authorized number
of shares of Common Stock; Statement Affecting Class or
Series of Shares with respect to the establishment of
the 7.64% Preferred Stock; Articles of Amendment
increasing the authorized number of shares of Common
Stock; Articles of Amendment increasing the number of
authorized shares of Preferred Stock; Statement
Affecting Class or Series of Shares with respect to the
establishment of the 8.48% Preferred Stock; Articles of
Amendment authorizing sinking fund requirements for
Preferred Stock; Statement Affecting Class or Series of
Shares with respect to the establishment of the 11%
Preferred Stock; Articles of Amendment increasing the
authorized number of shares of Common Stock; Statement
Affecting Class or Series of Shares with respect to the
establishment of the 9.16% Preferred Stock; Articles of
Amendment increasing authorized number of shares of
Common Stock; Articles of Amendment increasing
authorized number of shares of Preferred Stock;
Statement Affecting Class or Series of Shares with
respect to the establishment of the 8.24% Preferred
Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 10.50%
Preferred Stock; Articles of Amendment increasing
authorized number of shares of Common Stock; Articles
of Amendment increasing authorized number of shares of
Preferred Stock; Statement Affecting Class or Series of
Shares with respect to the establishment of the 15.00%
Preferred Stock; Statement Affecting Class or Series of
Shares with respect to the establishment of the 11.50%
Preferred Stock; Articles of Amendment increasing
authorized number of shares of Preferred Stock;
Statement Affecting Class or Series of Shares with
respect to the establishment of the 13.00% Preferred
Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 11.50%
Preferred Stock, Series B; Articles of Amendment
effective April 2, 1987, adding a standard of care for,
and limiting the personal liability of, officers and
directors; Articles of Amendment effective April 1,
1992, setting forth corporate purposes of the Company;
Statement With Respect to Shares with respect to the
establishment of the 7.625% Preferred Stock and
Statement with Respect to Shares with respect to the
establishment of the 7.75% Preferred Stock.(Physically
filed and designated respectively, as follows: in Form
A-2, Registration No. 2-3889, as Exhibit A-1; in Form
1-MD for 1938, File No.2-3889, as Exhibit (a)-1; in
Form 1-MD for 1945, File No. 2-3889, as Exhibit A; in
Form U-1, File No. 70-2310, as Exhibit A-3 (d); in Form
8-K for March 1951, File No. 1-3491, as Exhibit B; in
Form 8-K for June 1958, File No. 1-3491B, as Exhibit 1;
in Form 10-K for 1959 as Exhibits 1, 2, 3 and 4; in
Form 8-K for March 1960, File No. 1-3491B as Exhibit A;
in Form U-1, File No. 70-3971, as Exhibit A-2; in
Form U-1, File No. 70-4055, as Exhibit A-2; as Exhibits
1 through 8 in Form 8-K for January 1962, File No. 1-
3491; as Exhibit A in Form 8-K for August 1963, File
No. 1-3491; as Exhibits A and B in Form 8-K for
September 1969, File No. 1-3491; as Exhibit B in Form
8-K for April 1971, File No. 1-3491; as Exhibit B in
Form 8-K for September 1971, File No. 1-3491; in Form
Form 8-K for September 1972, File No. 1-3491; as
Exhibit A in Form 8-K for December 1972, File No. 1-
3491; as Exhibit A in Form 8-K for March 1973, File No.
1-3491; as Exhibit A in Form 8-K for December 1973,
File No. 1-3491; as Exhibits A and C in Form 8-K for
February 1974, File No. 1-3491; as Exhibits A and B in
Form 8-K for January 1975, File No. 1-3491; as Exhibit
F in Form 8-K for May 1975, File No. 1-3491; as Exhibit
A in Form 8-K for April 1976, File No. 1-3491; as
Exhibit G in Form 10-Q for quarter ended June 30, 1977,
File No. 1-3491; as Exhibit C in Form 10-K for 1977,
File No. 1-3491; as Exhibit A in Form 10-K for 1977,
File No. 1-3491; as Exhibit D in Form 10-Q for quarter
ended June 30, 1980, File No. 1-3491; as Exhibit (4) in
Form 10-Q for quarter ended June 30, 1981, File No. 1-
3491; as Exhibit 4 in Form 10-Q for quarter ended
June 30, 1982, File No. 1-3491; as Exhibit 4 in Form
10-Q for quarter ended September 30, 1982, File No. 1-
3491; as Exhibit 4 in Form 10-Q for quarter ended
September 30, 1983, File No. 1-3491; as Exhibit 4 in
Form 10-Q for quarter ended March 31, 1984, File No. 1-
3491; as Exhibit 4 in Form 10-Q for quarter ended
June 30, 1984, File No. 1-3491; as Exhibit 4 in Form
10-Q for quarter ended September 30, 1985, File No. 1-
3491; as Exhibit 3-2 in Form 10-K for 1987 File No. 1-
3491; as Exhibit 3-2 in Form 10-K for 1992 File
No. 1-3491; as Exhibit 19-2 in Form 10-K for 1992 File
No. 1-3491; and as Exhibit 3-2 in Form 10-K for 1993
File No. 1-3491.)
3-2 - By-Laws of Penn as amended March 25, 1992. (1992
Form 10-K, Exhibit 3-3, File No. 1-3491.)
4-1* - Indenture dated as of November 1, 1945, between Penn
and The First National Bank of the City of New York
(now Citibank, N.A.), as Trustee, as supplemented and
amended by Supplemental Indentures dated as of May 1,
1948, March 1, 1950, February 1, 1952, October 1, 1957,
September 1, 1962, June 1, 1963, June 1, 1969, May 1,
1970, April 1, 1971, October 1, 1971, May 1, 1972,
December 1, 1974, October 1, 1975, September 1, 1976,
April 15, 1978, June 28, 1979, January 1, 1980, June 1,
1981, January 14, 1982, August 1, 1982, December 15,
1982, December 1, 1983, September 6, 1984, December 1,
1984, May 30, 1985, October 29, 1985, August 1, 1987,
May 1, 1988, November 1, 1989, December 1, 1990,
September 1, 1991, May 1, 1992, July 15, 1992,
August 1, 1992, and May 1, 1993, July 1, 1993, August
31, 1993, September 1, 1993, September 15, 1993,
October 1, 1993, November 1, 1993 and August 1, 1994.
(Physically filed and designated as Exhibits 2(b) (1)-1
through 2(b) (l)-15 in Registration Statement File No.
2-60837; as Exhibits 2(b) (2), 2(b) (3), and 2 (b) (4
in Registration Statement File No. 2-68906; as Exhibit
4-2 in Form 10-K for 1981 File No. 1-3491; as Exhibit
19-1 in Form 10-K for 1982 File No. 1-3491; as Exhibit
19-1 in Form 10-K for 1983 File No. 1-3491; as Exhibit
19-1 in Form 10-K for 1984 File No. 1-3491; as Exhibit
19-1 in Form 10-K for 1985 File No. 1-3491; as Exhibit
19-1 in Form 10-K for 1987 File No. 1-3491; as Exhibit
19-1 in Form 10-K for 1988 File No. 1-3491; as Exhibit
19 in Form 10-K for 1989 File No. 1-3491; as Exhibit 19
in Form 10-K for 1990 File No. 1-3491; as Exhibit 19 in
Form 10-K for 1991 File No. 1-3491; as Exhibit 19-1 in
Form 10-K for 1992 File No. 1-3491; as Exhibit 4-2 in
Form 10-K for 1993 File No. 1-3491; and as Exhibit 4-2
in Form 10-K for 1994 File No. 1-3491.)
4-2 - Supplemental Indenture dated as of September 1, 1995,
between Penn and Citibank, N.A., as Trustee. (1995 Form
10-K, Exhibit 4-2.)
4-3 - Supplemental Indenture dated as of June 1, 1997,
between Penn and Citibank, N.A., as Trustee. (1997 Form
10-K, Exhibit 4-3.)
- ----------------
* Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of Regulation
S-K, Penn has not filed as an exhibit to this Form 10-K any
instrument with respect to long-term debt if the total amount of
securities authorized thereunder does not exceed 10% of the total
assets of Penn, but hereby agrees to furnish to the Commission on
request any such instruments.
(A) 4-4 - Supplemental Indenture dated as of June 1, 1998,
between Penn and Citibank, N.A., as Trustee.
10-1 - Administration Agreement between the CAPCO Group dated
as of September 14, 1967. (Registration Statement of
Ohio Edison Company, File No. 2-43102, Exhibit 5 (c)
(2).)
10-2 - Amendment No. 1 dated January 4, 1974 to Administration
Agreement between the CAPCO Group dated as of
September 14, 1967. (Registration Statement No. 2-
68906, Exhibit 5 (c) (3).)
10-3 - Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (Registration
Statement of Ohio Edison Company, File No. 2-43102,
Exhibit 5 (c) (3).)
10-4 - Amendment No. 1 dated as of January 1, 1993 to
Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (1993 Form 10-K,
Exhibit 10-4, Ohio Edison Company.)
10-5 - Agreement for the Termination or Construction of
Certain Agreements effective September 1, 1980 among
the CAPCO Group. (Registration Statement No. 2-68906,
Exhibit 10-4.)
10-6 - Amendment dated as of December 23, 1993 to Agreement
for the Termination or Construction of Certain
Agreements effective September 1, 1980 among the CAPCO
Group. (1993 Form 10-K, Exhibit 10-6, Ohio Edison
Company.)
10-7 - CAPCO Basic Operating Agreement, as amended September
1, 1980. (Registration Statement No. 2-68906, as
Exhibit 10-5.)
10-8 - Amendment No. 1 dated August 1, 1981 and Amendment No.
2 dated September 1, 1982, to CAPCO Basic Operating
Agreement as amended September 1, 1980. (September 30,
1981 Form 10-Q, Exhibit 20-1, and 1982 Form 10-K,
Exhibit 19-3, File No. 1-2578, of Ohio Edison Company.)
10-9 - Amendment No. 3 dated as of July 1, 1984, to CAPCO
Basic Operating Agreement as amended September 1, 1980.
(1985 Form 10-K, Exhibit 10-7, File No. 1-2578, of Ohio
Edison Company.)
10-10 - Basic Operating Agreement between the CAPCO Companies
as amended October 1, 1991. (1991 Form 10-K, Exhibit
10-8, File No. 1-2578, of Ohio Edison Company.)
10-11 - Basic Operating Agreement between the CAPCO Companies,
as amended January 1, 1993. (1993 Form 10-K,
Exhibit 10-11, Ohio Edison Company.)
10-12 - Memorandum of Agreement effective as of September 1,
1980, among the CAPCO Group. (1991 Form 10-K, Exhibit
19-2, Ohio Edison Company.)
10-13 - Operating Agreement for Beaver Valley Power Station
Units Nos. 1 and 2 as Amended and Restated September
15, 1987, by and between the CAPCO Companies. (1987
Form 10-K, Exhibit 10-15, File No. 1-2578, of Ohio
Edison Company.)
10-14 - Construction Agreement with respect to Perry Plant
between the CAPCO Group dated as of July 22, 1974.
(Registration Statement of Toledo Edison Company, File
No. 2-52251, as Exhibit 5 (yy).)
10-15 - Participation Agreement No. 1 relating to the financing
of the development of certain coal mines, dated as of
October 1, 1973, among Quarto Mining Company, the CAPCO
Group, Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules
A and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration
Statement of Ohio Edison Company, File No. 2-61146,
Exhibit 5 (e) (1).)
10-16 - Amendment No. 1 dated as of September 15, 1978, to
Participation Agreement No. 1 dated as of October 1,
1973, among Quarto Mining Company, the CAPCO Group,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules
A and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration
Statement No. 2-68906, Exhibit 5 (e) (2).)
10-17 - Participation Agreement No. 2 relating to the financing
of the development of certain coal mines, dated as of
August 1, 1974, among Quarto Mining Company, the CAPCO
Group, Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules
A and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Ohio Edison
Company, File No. 2-53059, Exhibit 5 (h) (2).)
10-18 - Amendment No. 1 dated as of September 15, 1978, to
Participation Agreement No. 2 dated as of August 1,
1974, among Quarto Mining Company, the CAPCO Group,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules
A and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration
Statement No. 2-68906, Exhibit 5 (e) (4).)
10-19 - Participation Agreement No. 3 relating to the financing
of the development of certain coal mines, dated as of
September 15, 1978, among Quarto Mining Company, the
CAPCO Group, Energy Properties, Inc., General Electric
Credit Corporation, the Loan Participants listed in
Schedules A and B thereto, Central National Bank of
Cleveland, as Owner Trustee, National City Bank, as
Loan Trustee, and National City Bank, as Bond Trustee.
(Registration Statement No. 2-68906, Exhibit 5 (e)
(5).)
10-20 - Participation Agreement No. 4 relating to the financing
of the development of certain coal mines, dated as of
October 31, 1980, among Quarto Mining Company, the
CAPCO Group, the Loan Participants listed in Schedule A
thereto and National City Bank, as Bond Trustee.
(Registration Statement No. 2-68906, Exhibit 10-16.)
10-21 - Participation Agreement No. 5 dated as of May 1, 1986,
among Quarto Mining Company, the CAPCO Companies, the
Loan Participants listed in Schedule A thereto, and
National City Bank, as Bond Trustee. (1986 Form 10-K,
Exhibit 10-22, File No. 1-2578, Ohio Edison Company.)
10-22 - Participation Agreement No. 6 dated as of December 1,
1991, among Quarto Mining Company, the CAPCO Companies,
the Loan Participants listed in Schedule A thereto,
National City Bank, as Mortgage Bond Trustee, and
National City Bank, as Refunding Bond Trustee. (1991
Form 10-K, Exhibit 10-19, File No. 1-2578, Ohio Edison
Company.)
10-23 - Agreement entered into as of October 20, 1981, among
the CAPCO Companies regarding the use of Quarto Coal at
Mansfield Units Nos. 1, 2 and 3. (1981 Form 10-K,
Exhibit 20-1, File No. 1-2578, Ohio Edison Company.)
10-24 - Restated Option Agreement dated as of May 1, 1983, by
and between The North American Coal Corporation and the
CAPCO Companies. (1983 Form 10-K, Exhibit 19-1, File
No. 1-2578, Ohio Edison Company.)
10-25 - Trust Indenture and Mortgage dated as of October 1,
1973, between Quarto Mining Company and National City
Bank, as Bond Trustee, together with Guaranty, dated as
of October 1, 1973, with respect thereto by the CAPCO
Group. (Registration Statement of Ohio Edison Company,
File No. 2-61146, Exhibit 5 (e) (5).)
10-26 - Amendment No. 1 dated August 1, 1974, to Trust
Indenture and Mortgage dated as of October 1, 1973,
between Quarto Mining Company and National City Bank,
as Bond Trustee, together with Amendment No. 1 dated
August 1, 1974, to Guaranty dated as of October 1,
1973, with respect thereto by the CAPCO Group.
(Registration Statement of Ohio Edison Company, File
No. 2-53059, Exhibit 5 (h) (2).)
10-27 - Amendment No. 2 dated as of September 15, 1978, to
Trust Indenture and Mortgage dated as of October 1,
1973, as amended, between Quarto Mining Company and
National City Bank, as Bond Trustee, together with
Amendment No. 2 dated as of September 15, 1978, to Bond
Guaranty dated as of October 1, 1973, as amended,
between the CAPCO Group and National City Bank, as Bond
Trustee. (Registration Statement No. 2-68906, Exhibits
5 (e) (11) and 5 (e) (12).)
10-28 - Amendment No. 3 dated as of October 31, 1980, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National
City Bank, as Bond Trustee. (Registration Statement No.
2-68906, Exhibit 10-16.)
10-29 - Amendment No. 4 dated as of July 1, 1985, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National
City Bank, as Bond Trustee. (1985 Form 10-K, Exhibit
10-28, File No. 1-2578, Ohio Edison Company.)
10-30 - Amendment No. 5 dated as of May 1, 1986, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National
City Bank, as Bond Trustee. (1986 Form 10-K, Exhibit
10-30, File No. 1-2578, Ohio Edison Company.)
10-31 - Amendment No. 6 dated as of December 1, 1991, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National
City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit
10-28, File No. 1-2578, Ohio Edison Company.)
10-32 - Trust Indenture dated as of December 1, 1991, between
Quarto Mining Company and National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-29, File No. 1-
2578, Ohio Edison Company.)
10-33 - Amendment No. 3 dated as of October 31, 1980, to the
Bond Guaranty dated as of October 1, 1973, as amended,
with respect to the CAPCO Group. (Registration
Statement No. 2-68906, Exhibit 10-16.)
10-34 - Amendment No. 4 dated as of July 1, 1985, to the Bond
Guaranty dated as of October 1, 1973, as amended, by
the CAPCO Companies to National City Bank, as Bond
Trustee. (1985 Form 10-K, Exhibit 10-30 , File No. 1-
2578, Ohio Edison Company.)
10-35 - Amendment No. 5 dated as of May 1, 1986, to the Bond
Guaranty dated as of October 1, 1973, as amended, by
the CAPCO Companies to National City Bank, as Bond
Trustee. (1986 Form 10-K, Exhibit 10-33, File No. 1-
2578, Ohio Edison Company.)
10-36 - Amendment No. 6A dated as of December 1, 1991, to the
Bond Guaranty dated as of October 1, 1973, as amended,
by the CAPCO Companies to National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-33, File No. 1-
2578, Ohio Edison Company.)
10-37 - Amendment No. 6B dated as of December 30, 1991, to the
Bond Guaranty dated as of October 1, 1973, as amended,
by the CAPCO Companies to National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-34, File No. 1-
2578, Ohio Edison Company.)
10-38 - Bond Guaranty dated as of December 1, 1991, by the
CAPCO Companies to National City Bank, as Bond Trustee.
(1991 Form 10-K, Exhibit 10-35, File No. 1-2578, Ohio
Edison Company.)
10-39 - Open End Mortgage dated as of October 1, 1973, between
Quarto Mining Company and the CAPCO Companies and
Amendment No. 1 thereto dated as of September 15, 1978.
(Registration Statement No. 2-68906, Exhibit 10-23.)
10-40 - Restructuring Agreement dated as of April 1, 1985,
among Quarto Mining Company, the CAPCO Companies,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in schedules
thereto, Central National Bank of Cleveland, as Owner
Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (1985 Form 10-K,
Exhibit 10-33, File No. 1-2578, Ohio Edison Company.)
10-41 - Unsecured Note Guaranty dated as of July 1, 1985, by
the CAPCO Companies to General Electric Credit
Corporation. (1985 Form 10-K, Exhibit 10-34, File No.
1-2578, Ohio Edison Company.)
10-42 - Memorandum of Understanding dated as of March 31, 1985,
among the CAPCO Companies. (1985 Form 10-K, Exhibit 10-
35, File No. 1-2578, Ohio Edison Company.)
(B) 10-43 - Ohio Edison System Executive Supplemental Life
Insurance Plan. (1995 Form 10-K, Exhibit 10-44, File
No. 1-2578, Ohio Edison Company.)
(B) 10-44 - Ohio Edison System Executive Incentive Compensation
Plan. (1995 Form 10-K, Exhibit 10-45, File No. 1-2578,
Ohio Edison Company.)
(B) 10-45 - Ohio Edison System Restated and Amended Executive
Deferred Compensation Plan. (1995 Form 10-K, Exhibit
10-46, File No. 1-2578, Ohio Edison Company.)
(B) 10-46 - Ohio Edison System Restated and Amended Supplemental
Executive Retirement Plan. (1995 Form 10-K, Exhibit 10-
47, File No. 1-2578, Ohio Edison Company.)
10-47 - Operating Agreement for Perry Unit No. 1 dated March
10, 1987, by and between the CAPCO Companies. (1987
Form 10-K, Exhibit 28-24, File No. 1-2578, Ohio Edison
Company.)
10-48 - Operating Agreement for Bruce Mansfield Units Nos. 1, 2
and 3 dated as of June 1, 1976, and executed on
September 15, 1987, by and between the CAPCO Companies.
(1987 Form 10-K, Exhibit 28-25, File No. 1-2578, Ohio
Edison Company.)
10-49 - Operating Agreement for W. H. Sammis Unit No. 7 dated
as of September 1, 1971, by and between the CAPCO
Companies. (1987 Form 10-K, Exhibit 28-26, File No. 1-
2578, Ohio Edison Company.)
10-50 - OE-APS Power Interchange Agreement dated March 18,
1987, by and among Ohio Edison Company and Pennsylvania
Power Company, and Monongahela Power Company and West
Penn Power Company and The Potomac Edison Company.
(1987 Form 10-K, Exhibit 28-27, File No. 1-2578, of
Ohio Edison Company.)
10-51 - OE-PEPCO Power Supply Agreement dated March 18, 1987,
by and among Ohio Edison Company and Pennsylvania Power
Company and Potomac Electric Power Company. (1987 Form
10-K, Exhibit 28-28, File No. 1-2578, of Ohio Edison
Company.)
10-52 - Supplement No. 1 dated as of April 28, 1987, to the OE-
PEPCO Power Supply Agreement dated March 18, 1987, by
and among Ohio Edison Company, Pennsylvania Power
Company and Potomac Electric Power Company. (1987 Form
10-K, Exhibit 28-29, File No. 1-2578, of Ohio Edison
Company.)
10-53 - APS-PEPCO Power Resale Agreement dated March 18, 1987,
by and among Monongahela Power Company, West Penn Power
Company, and The Potomac Edison Company and Potomac
Electric Power Company. (1987 Form 10-K, Exhibit 28-30,
File No. 1-2578, of Ohio Edison Company.)
10-54 - Pennsylvania Power Company Master Decommissioning Trust
Agreement for Beaver Valley Power Station and Perry
Nuclear Power Plant dated as of April 21, 1995.
(Quarter ended June 30, 1995 Form 10-Q, Exhibit 10,
File No. 1-3491.)
10-55 - Nuclear Fuel Lease dated as of March 31, 1989, between
OES Fuel, Incorporated, as Lessor, and Pennsylvania
Power Company, as Lessee. (1989 Form 10-K, Exhibit 10-
39, File No. 1-3491.)
(A) 12.2 - Fixed Charge Ratios
(A) 13.4 - 1998 Annual Report to Stockholders. (Only those
portions expressly incorporated by reference in this
Form 10-K are to be deemed "filed" with the Securities
and Exchange Commission.)
(A) 23.3 - Consent of Independent Public Accountants.
(A) 27.4 - Financial Data Schedule
(A) Provided herein in electronic format as an exhibit.
(B) Management contract or compensatory plan contract or arrangement
filed pursuant to Item 601 of Regulation S-K.
Pursuant to Rule 14a - 3(10) of the Securities Exchange Act of
1934, the Company will furnish any exhibit in this Report upon
the payment of the Company's expenses in furnishing such
exhibit.
3. Exhibits -Common Exhibits to CEI and TE
Exhibit
Number
- -------
2(a) - Agreement and Plan of Merger between Ohio Edison and
Centerior Energy dated as of September 13, 1996 (Exhibit
(2)-1, Form S-4 File No. 333-21011, filed by FirstEnergy).
2(b) - Merger Agreement by and among Centerior Acquisition Corp.,
FirstEnergy and Centerior (Exhibit (2)-3, Form S-4 File
No. 333-21011, filed by FirstEnergy.
4(a) - Rights Agreement (Exhibit 4, June 25, 1996 Form 8-K, File
Nos. 1-9130, 1-2323 and 1-3583).
4(b)(1) - Form of Note Indenture between Cleveland Electric, Toledo
Edison and The Chase Manhattan Bank, as Trustee dated as
of June 13, 1997 (Exhibit 4(c), Form S-4 File No. 333-
35931, filed by Cleveland Electric and Toledo Edison).
4(b)(2) - Form of First Supplemental Note Indenture between
Cleveland Electric, Toledo Edison and The Chase Manhattan
Bank, as Trustee dated as of June 13, 1997 (Exhibit 4(d),
Form S-4 File No. 333-35931, filed by Cleveland Electric
and Toledo Edison).
10b(1)(a)- CAPCO Administration Agreement dated November 1, 1971, as
of September 14, 1967, among the CAPCO Group members
regarding the organization and procedures for implementing
the objectives of the CAPCO Group (Exhibit 5(p), Amendment
No. 1, File No. 2-42230, filed by Cleveland Electric).
10b(1)(b)- Amendment No. 1, dated January 4, 1974, to CAPCO
Administration Agreement among the CAPCO Group members
(Exhibit 5(c)(3), File No. 2-68906, filed by Ohio Edison).
10b(2) - CAPCO Transmission Facilities Agreement dated November 1,
1971, as of September 14, 1967, among the CAPCO Group
members regarding the installation, operation and
maintenance of transmission facilities to carry out the
objectives of the CAPCO Group (Exhibit 5(q), Amendment No.
1, File No. 2-42230, filed by Cleveland Electric).
10b(2)(1)- Amendment No. 1 to CAPCO Transmission Facilities
Agreement, dated December 23, 1993 and effective as of
January 1, 1993, among the CAPCO Group members regarding
requirements for payment of invoices at specified times,
for payment of interest on non-timely paid invoices, for
restricting adjustment of invoices after a four-year
period, and for revising the method for computing the
Investment Responsibility charge for use of a member's
transmission facilities (Exhibit 10b(2)(1), 1993 Form 10-
K, File Nos. 1-9130, 1-2323 and 1-3583).
10b(3) - CAPCO Basic Operating Agreement As Amended January 1, 1993
among the CAPCO Group members regarding coordinated
operation of the members' systems (Exhibit 10b(3), 1993
Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583).
10b(4) - Agreement for the Termination or Construction of Certain
Agreement By and Among the CAPCO Group members, dated
December 23, 1993 and effective as of September 1, 1980
(Exhibit 10b(4), 1993 Form 10-K, File Nos. 1-9130, 1-2323
and 1-3583).
10b(5) - Construction Agreement, dated July 22, 1974, among the
CAPCO Group members and relating to the Perry Nuclear
Plant (Exhibit 5 (yy), File No. 2-52251, filed by Toledo
Edison).
10b(6) - Contract, dated as of December 5, 1975, among the CAPCO
Group members for the construction of Beaver Valley Unit
No. 2 (Exhibit 5 (g), File No. 2-52996, filed by Cleveland
Electric).
10b(7) - Amendment No. 1, dated May 1, 1977, to Contract, dated as
of December 5, 1975, among the CAPCO Group members for the
construction of Beaver Valley Unit No. 2 (Exhibit 5(d)(4),
File No. 2-60109, filed by Ohio Edison).
10d(1)(a)- Form of Collateral Trust Indenture among CTC Beaver Valley
Funding Corporation, Cleveland Electric, Toledo Edison and
Irving Trust Company, as Trustee (Exhibit 4(a), File No.
33-18755, filed by Cleveland Electric and Toledo Edison).
10d(1)(b)- Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10d(1)(a) above, including
form of Secured Lease Obligation Bond (Exhibit 4(b), File
No. 33-18755, filed by Cleveland Electric and Toledo
Edison).
10d(1)(c)- Form of Collateral Trust Indenture among Beaver Valley II
Funding Corporation, The Cleveland Electric Illuminating
Company and The Toledo Edison Company and The Bank of New
York, as Trustee (Exhibit (4) (a), File No. 33-46665,
filed by Cleveland Electric and Toledo Edison).
10d(1)(d)- Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10d(1)(c) above, including
form of Secured Lease Obligation Bond (Exhibit (4) (b),
File No. 33-46665, filed by Cleveland Electric and Toledo
Edison).
10d(2)(a)- Form of Collateral Trust Indenture among CTC Mansfield
Funding Corporation, Cleveland Electric, Toledo Edison and
IBJ Schroder Bank & Trust Company, as Trustee (Exhibit
4(a), File No. 33-20128, filed by Cleveland Electric and
Toledo Edison).
10d(2)(b)- Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10d(2)(a) above, including
forms of Secured Lease Obligation Bonds (Exhibit 4(b),
File No. 33-20128, filed by Cleveland Electric and Toledo
Edison).
10d(3)(a)- Form of Facility Lease dated as of September 15, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement dated as of September 15,
1987 with the limited partnership Owner Participant named
therein, Lessor, and Cleveland Electric and Toledo Edison,
Lessees (Exhibit 4(c), File No. 33-18755, filed by
Cleveland Electric and Toledo Edison).
10d(3)(b)- Form of Amendment No. 1 to Facility Lease constituting
Exhibit 10d(3)(a) above (Exhibit 4(e), File No. 33-18755,
filed by Cleveland Electric and Toledo Edison).
10d(4)(a)- Form of Facility Lease dated as of September 15, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement dated as of September 15,
1987 with the corporate Owner Participant named therein,
Lessor, and Cleveland Electric and Toledo Edison, Lessees
(Exhibit 4(d), File No. 33-18755, filed by Cleveland
Electric and Toledo Edison).
10d(4)(b)- Form of Amendment No. 1 to Facility Lease constituting
Exhibit 10d(4)(a) above (Exhibit 4(f), File No. 33-18755,
filed by Cleveland Electric and Toledo Edison).
10d(5)(a)- Form of Facility Lease dated as of September 30, 1987
between Meridian Trust Company, as Owner Trustee under a
Trust Agreement dated as of September 30, 1987 with the
Owner Participant named therein, Lessor, and Cleveland
Electric and Toledo Edison, Lessees (Exhibit 4(c), File
No. 33-20128, filed by Cleveland Electric and Toledo
Edison).
10d(5)(b)- Form of Amendment No. 1 to the Facility Lease constituting
Exhibit 10d(5)(a) above (Exhibit 4(f), File No. 33-20128,
filed by Cleveland Electric and Toledo Edison).
10d(6)(a)- Form of Participation Agreement dated as of September 15,
1987 among the limited partnership Owner participant named
therein, the Original Loan Participants listed in Schedule
1 thereto, as Original Loan Participants, CTC Beaver
Valley Fund Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and Cleveland Electric and
Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-
18755, filed by Cleveland Electric and Toledo Edison).
10d(6)(b)- Form of Amendment No. 1 to Participation Agreement
constituting Exhibit 10d(6) (a) above (Exhibit 28(c), File
No. 33-18755, filed by Cleveland Electric and Toledo
Edison).
10d(7)(a)- Form of Participation Agreement dated as of September 15,
1987 among the corporate Owner Participant named therein,
the Original Loan Participants listed in Schedule 1
thereto, as Owner Loan Participants, CTC Beaver Valley
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and Cleveland Electric and
Toledo Edison, as Lessees (Exhibit 28(b), File No. 33-
18755, filed by Cleveland Electric and Toledo Edison).
10d(7)(b)- Form of Amendment No. 1 to Participation Agreement
constituting Exhibit 10d(7) (a) above (Exhibit 28(d), File
No. 33-18755, filed by Cleveland Electric and Toledo
Edison).
10d(8)(a)- Form of Participation Agreement dated as of September 30,
1987 among the Owner Participant named therein, the
Original Loan Participants listed in Schedule II thereto,
as Owner Loan Participants, CTC Mansfield Funding
Corporation, Meridian Trust Company, as Owner Trustee, IBJ
Schroder Bank & Trust Company, as Indenture Trustee, and
Cleveland Electric and Toledo Edison, as Lessees (Exhibit
28(a), File No. 33-20128, filed by Cleveland Electric and
Toledo Edison).
10d(8)(b)- Form of Amendment No. 1 to the Participation Agreement
constituting Exhibit 10d(8) (a) above (Exhibit 28(b), File
No. 33-20128, filed by Cleveland Electric and Toledo
Edison).
10d(9) - Form of Ground Lease dated as of September 15, 1987
between Toledo Edison, Ground Lessor, and The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement dated as of September 15, 1987 with the Owner
Participant named therein, Tenant (Exhibit 28(e), File No.
33-18755, filed by Cleveland Electric and Toledo Edison).
10d(10) - Form of Site Lease dated as of September 30, 1987 between
Toledo Edison, Lessor, and Meridian Trust Company, as
Owner Trustee under a Trust Agreement dated as of
September 30, 1987 with the Owner Participant named
therein, Tenant (Exhibit 28(c), File No. 33-20128, filed
by Cleveland Electric and Toledo Edison).
10d(11) - Form of Site Lease dated as of September 30, 1987 between
Cleveland Electric, Lessor, and Meridian Trust Company, as
Owner Trustee under a Trust Agreement dated as of
September 30, 1987 with the Owner Participant named
therein, Tenant (Exhibit 28(d), File No. 33-20128, filed
by Cleveland Electric and Toledo Edison).
10d(12) - Form of Amendment No. 1 to the Site Leases constituting
Exhibits 10d(10) and 10d(11) above (Exhibit 4 (f), File
No. 33-20128, filed by Cleveland Electric and Toledo
Edison).
10d(13) - Form of Assignment, Assumption and Further Agreement dated
as of September 15, 1987 among The First National Bank of
Boston, as Owner Trustee under a Trust Agreement dated as
of September 15, 1987 with the Owner Participant named
therein, Cleveland Electric, Duquesne, Ohio Edison,
Pennsylvania Power and Toledo Edison (Exhibit 28(f), File
No. 33-18755, filed by Cleveland Electric and Toledo
Edison).
10d(14) - Form of Additional Support Agreement dated as of September
15, 1987 between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement dated as of
September 15, 1987 with the Owner Participant named
therein, and Toledo Edison (Exhibit 28(g), File No. 33-
18755, filed by Cleveland Electric and Toledo Edison).
10d(15) - Form of Support Agreement dated as of September 30, 1987
between Meridian Trust Company, as Owner Trustee under a
Trust Agreement dated as of September 30, 1987 with the
Owner Participant named therein, Toledo Edison, Cleveland
Electric, Duquesne, Ohio Edison and Pennsylvania Power
(Exhibit 28(e), File No. 33-20128, filed by Cleveland
Electric and Toledo Edison).
10d(16) - Form of Indenture, Bill of Sale, Instrument of Transfer
and Severance Agreement dated as of September 30, 1987
between Toledo Edison, Seller, and The First National Bank
of Boston, as Owner Trustee under a Trust Agreement dated
as of September 15, 1987 with the Owner Participant named
therein, Buyer (Exhibit 28 (h), File No. 33-18755, filed
by Cleveland Electric and Toledo Edison).
10d(17) - Form of Bill of Sale, Instrument of Transfer and Severance
Agreement dated as of September 30, 1987 between Toledo
Edison, Seller, and Meridian Trust Company, as Owner
Trustee under a Trust Agreement dated as of September 30,
1987 with the Owner Participant named therein, Buyer
(Exhibit 28(f), File No. 33-20128, filed by Cleveland
Electric and Toledo Edison).
10d(18) - Form of Bill of Sale, Instrument of Transfer and Severance
Agreement dated as of September 30, 1987 between Cleveland
Electric, Seller, and Meridian Trust Company, as Owner
Trustee under a Trust Agreement dated as of September 30,
1987 with the Owner Participant named therein, Buyer
(Exhibit 28(g), File No. 33-20128, filed by Cleveland
Electric and Toledo Edison).
10d(19) - Forms of Refinancing Agreement, including exhibits
thereto, among the Owner Participant named therein, as
Owner Participant, CTC Beaver Valley Funding Corporation,
as Funding Corporation, Beaver Valley II Funding
Corporation, as New Funding Corporation, The Bank of New
York, as Indenture Trustee, The Bank of New York, as New
Collateral Trust Trustee, and The Cleveland Electric
Illuminating Company and The Toledo Edison Company, as
Lessees (Exhibit (28) (e) (i), File No. 33-46665, filed by
Cleveland Electric and Toledo Edison).
10d(20)(a)-Form of Amendment No. 2 to Facility Lease among Citicorp
Lescaman, Inc., Cleveland Electric and Toledo Edison
(Exhibit 10(a), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
10d(20)(b)-Form of Amendment No. 3 to Facility Lease among Citicorp
Lescaman, Inc., Cleveland Electric and Toledo Edison
(Exhibit 10(b), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
10d(21)(a)-Form of Amendment No. 2 to Facility Lease among US West
Financial Services, Inc., Cleveland Electric and Toledo
Edison (Exhibit 10(c), Form S-4 File No. 333-47651, filed
by Cleveland Electric).
10d(21)(b)-Form of Amendment No. 3 to Facility Lease among US West
Financial Services, Inc., Cleveland Electric and Toledo
Edison (Exhibit 10(d), Form S-4 File No. 333-47651, filed
by Cleveland Electric).
10d(22) - Form of Amendment No. 2 to Facility Lease among Midwest
Power Company, Cleveland Electric and Toledo Edison
(Exhibit 10(e), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
10e(1) - Centerior Energy Corporation Equity Compensation Plan
(Exhibit 99, Form S-8, File No. 33-59635).
3. Exhibits - Cleveland Electric Illuminating (CEI)
3a - Amended Articles of Incorporation of CEI, as amended,
effective May 28, 1993 (Exhibit 3a, 1993 Form 10-K, File
No. 1-2323).
3b - Regulations of CEI, dated April 29, 1981, as amended
effective October 1, 1988 and April 24, 1990 (Exhibit 3b,
1990 Form 10-K, File No. 1-2323).
(B)4b(1)- Mortgage and Deed of Trust between CEI and Guaranty Trust
Company of New York (now The Chase Manhattan Bank
(National Association)), as Trustee, dated July 1, 1940
(Exhibit 7(a), File No. 2-4450).
Supplemental Indentures between CEI and the Trustee,
supplemental to Exhibit 4b(1), dated as follows:
4b(2) - July 1, 1940 (Exhibit 7(b), File No. 2-4450).
4b(3) - August 18, 1944 (Exhibit 4(c), File No. 2-9887).
4b(4) - December 1, 1947 (Exhibit 7(d), File No. 2-7306).
4b(5) - September 1, 1950 (Exhibit 7(c), File No. 2-8587).
4b(6) - June 1, 1951 (Exhibit 7(f), File No. 2-8994).
4b(7) - May 1, 1954 (Exhibit 4(d), File No. 2-10830).
4b(8) - March 1, 1958 (Exhibit 2(a)(4), File No. 2-13839).
4b(9) - April 1, 1959 (Exhibit 2(a)(4), File No. 2-14753).
4b(10) - December 20, 1967 (Exhibit 2(a)(4), File No. 2-30759).
4b(11) - January 15, 1969 (Exhibit 2(a)(5), File No. 2-30759).
4b(12) - November 1, 1969 (Exhibit 2(a)(4), File No. 2-35008).
4b(13) - June 1, 1970 (Exhibit 2(a)(4), File No. 2-37235).
4b(14) - November 15, 1970 (Exhibit 2(a)(4), File No. 2-38460).
4b(15) - May 1, 1974 (Exhibit 2(a)(4), File No. 2-50537).
4b(16) - April 15, 1975 (Exhibit 2(a)(4), File No. 2-52995).
4b(17) - April 16, 1975 (Exhibit 2(a)(4), File No. 2-53309).
4b(18) - May 28, 1975 (Exhibit 2(c), June 5, 1975 Form 8-A, File
No. 1-2323).
4b(19) - February 1, 1976 (Exhibit 3(d)(6), 1975 Form 10-K, File
No. 1-2323).
4b(20) - November 23, 1976 (Exhibit 2(a)(4), File No. 2-57375).
4b(21) - July 26, 1977 (Exhibit 2(a)(4), File No. 2-59401).
4b(22) - September 27, 1977 (Exhibit 2(a)(5), File No. 2-67221).
4b(23) - May 1, 1978 (Exhibit 2(b), June 30, 1978 Form 10-Q, File
No. 1-2323).
4b(24) - September 1, 1979 (Exhibit 2(a), September 30, 1979 Form
10-Q, File No. 1-2323).
4b(25) - April 1, 1980 (Exhibit 4(a)(2), September 30, 1980 Form
10-Q, File No. 1-2323).
4b(26) - April 15, 1980 (Exhibit 4(b), September 30, 1980 Form 10-
Q, File No. 1-2323).
4b(27) - May 28, 1980 (Exhibit 2(a)(4), Amendment No. 1, File No.
2-67221).
4b(28) - June 9, 1980 (Exhibit 4(d), September 30, 1980 Form 10-Q,
File No. 1-2323).
4b(29) - December 1, 1980 (Exhibit 4(b) (29), 1980 Form 10-K, File
No. 1-2323).
4b(30) - July 28, 1981 (Exhibit 4(a), September 30, 1981, Form 10-
Q, File No. 1-2323).
4b(31) - August 1, 1981 (Exhibit 4(b), September 30, 1981, Form 10-
Q, File No. 1-2323).
4b(32) - March 1, 1982 (Exhibit 4(b)(3), Amendment No. 1, File No.
2-76029).
4b(33) - July 15, 1982 (Exhibit 4(a), September 30, 1982 Form 10-Q,
File No. 1-2323).
4b(34) - September 1, 1982 (Exhibit 4(a)(1), September 30, 1982
Form 10-Q, File No. 1-2323).
4b(35) - November 1, 1982 (Exhibit 4(a)(2), September 30, 1982 Form
10-Q, File No. 1-2323).
4b(36) - November 15, 1982 (Exhibit 4(b)(36), 1982 Form 10-K, File
No. 1-2323).
4b(37) - May 24, 1983 (Exhibit 4(a), June 30, 1983 Form 10-Q, File
No. 1-2323).
4b(38) - May 1, 1984 (Exhibit 4, June 30, 1984 Form 10-Q, File No.
1-2323).
4b(39) - May 23, 1984 (Exhibit 4, May 22, 1984 Form 8-K, File No.
1-2323).
4b(40) - June 27, 1984 (Exhibit 4, June 11, 1984 Form 8-K, File No.
1-2323).
4b(41) - September 4, 1984 (Exhibit 4b(41), 1984 Form 10-K, File
No. 1-2323).
4b(42) - November 14, 1984 (Exhibit 4b(42), 1984 Form 10-K, File
No. 1-2323).
4b(43) - November 15, 1984 (Exhibit 4b(43), 1984 Form 10-K, File
No. 1-2323).
4b(44) - April 15, 1985 (Exhibit 4(a), May 8, 1985 Form 8-K, File
No. 1-2323).
4b(45) - May 28, 1985 (Exhibit 4(b), May 8, 1985 Form 8-K, File No.
1-2323).
4b(46) - August 1, 1985 (Exhibit 4, September 30, 1985 Form 10-Q,
File No. 1-2323).
4b(47) - September 1, 1985 (Exhibit 4, September 30, 1985 form 8-K,
File No. 1-2323).
4b(48) - November 1, 1985 (Exhibit 4, January 31, 1986 Form 8-K,
File No. 1-2323).
4b(49) - April 15, 19 86 (Exhibit 4, March 31, 1986 Form 10-Q, File
No. 1-2323).
4b(50) - May 14, 1986 (Exhibit 4(a), June 30, 1986 Form 10-Q, File
No. 1-2323).
4b(51) - May 15, 1986 (Exhibit 4(b), June 30, 1986 Form 10-Q, File
No. 1-2323).
4b(52) - February 25, 1987 (Exhibit 4b(52), 1986 Form 10-K, File
No. 1-2323).
4b(53) - October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q,
File No. 1-2323).
4b(54) - February 24, 1988 (Exhibit 4b(54), 1987 Form 10-K, File
No. 1-2323).
4b(55) - September 15, 1988 (Exhibit 4b(55), 1988 Form 10-K, File
No. 1-2323).
4b(56) - May 15, 1989 (Exhibit 4(a)(2)(i), File No. 33-32724).
4b(57) - June 13, 1989 (Exhibit 4(a)(2)(ii), File No. 33-32724).
4b(58) - October 15, 1989 (Exhibit 4(a)(2)(iii), File No. 33-
32724).
4b(59) - January 1, 1990 (Exhibit 4b(59), 1989 Form 10-K, File No.
1-2323).
4b(60) - June 1, 1990 (Exhibit 4(a), September 30, 1990 Form 10-Q,
File No. 1-2323).
4b(61) - August 1, 1990 (Exhibit 4(b), September 30, 1990 Form 10-
Q, File No. 1-2323).
4b(62) - May 1, 1991 (Exhibit 4(a), June 30, 1991 Form 10-Q, File
No.
4b(63) - May 1, 1992 (Exhibit 4(a)(3), File No. 33-48845).
4b(64) - July 31, 1992 (Exhibit 4(a)(3), File No. 33-57292).
4b(65) - January 1, 1993 (Exhibit 4b(65), 1992 Form 10-K, File No.
1-2323).
4b(66) - February 1, 1993 (Exhibit 4b(66), 1992 Form 10-K, File No.
1-2323).
4b(67) - May 20, 1993 (Exhibit 4(a), July 14, 1993 Form 8-K, File
No. 1-2323).
4b(68) - June 1, 1993 (Exhibit 4(b), July 14, 1993 Form 8-K, File
No. 1-2323).
4b(69) - September 15, 1994 (Exhibit 4(a), September 30, 1994 Form
10-Q, File No. 1-2323).
4b(70) - May 1, 1995 (Exhibit 4(a), September 30, 1995 Form 10-Q,
File No. 1-2323).
4b(71) - May 2, 1995 (Exhibit 4(b), September 30, 1995 Form 10-Q,
File No. 1-2323).
4b(72) - June 1, 1995 (Exhibit 4(c), September 30, 1995 Form 10-Q,
File No. 1-2323).
4b(73) - July 15, 1995 (Exhibit 4b(73), 1995 Form 10-K, File No. 1-
2323).
4b(74) - August 1, 1995 (Exhibit 4b(74), 1995 Form 10-K, File No.
1-2323).
4b(75) - June 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-35931,
filed by Cleveland Electric and Toledo Edison).
4b(76) - October 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-
47651, filed by Cleveland Electric).
4b(77) - June 1, 1998 (Exhibit 4b(77), Form S-4 File No. 333-
72891).
4b(78) - October 1, 1998 (Exhibit 4b(78), Form S-4 File No. 333-
72891).
4b(79) - October 1, 1998 (Exhibit 4b(79), Form S-4 File No. 333-
72891).
4b(80) - February 24, 1999 (Exhibit 4b(80), Form S-4 File No. 333-
72891).
4c - Open-End Subordinate Indenture of Mortgage between The
Cleveland Electric Illuminating Company and Bank One,
Columbus, N.A., as Trustee, Dated as of June 1, 1994
(Exhibit 4(a), August 26, 1994 Form 8-K, File No. 1-2323).
4d - Form of Note Indenture between Cleveland Electric and The
Chase Manhattan Bank, as Trustee dated as of October 24,
1997 (Exhibit 4(b), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
4d(1) - Form of Supplemental Note Indenture between Cleveland
Electric and The Chase Manhattan Bank, as Trustee dated as
of October 24, 1997 (Exhibit 4(c), Form S-4 File No. 333-
47651, filed by Cleveland Electric).
10-1 - Administration Agreement between the CAPCO Group dated as
of September 14, 1967. (Registration No. 2-43102, Exhibit
5(c)(2).)
10-2 - Amendment No. 1 dated January 4, 1974 to Administration
Agreement between the CAPCO Group dated as of September
14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3).)
10-3 - Transmission Facilities Agreement between the CAPCO Group
dated as of September 14, 1967. (Registration No. 2-43102,
Exhibit 5(c)(3).)
10-4 - Amendment No. 1 dated as of January 1, 1993 to
Transmission Facilities Agreement between the CAPCO Group
dated as of September 14, 1967. (1993 Form 10-K,
Exhibit 10-4.)
10-5 - Agreement for the Termination or Construction of Certain
Agreements effective September 1, 1980 October 15, 1997
(Exhibit 4(a), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
(A)13.2 - 1998 Annual Report to Stockholders. (only those portions
expressly incorporated by reference in this Form 10-K are
to be deemed "filed" with the SEC.)
(A)21.2 - List of Subsidiaries of the Registrant at December 31,
1998.
(A)23.2 - Consent of Independent Public Accountants.
(A)27.2 - Financial Data Schedule.
(A) - Provided herein in electronic format as an exhibit.
(B) - Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of
Regulation S-K, CEI has not filed as an exhibit to this
Form 10-K any instrument with respect to long-term debt if
the total amount of securities authorized thereunder does
not exceed 10% of the total assets of the CEI, but hereby
agrees to furnish to the Commission on request any such
instruments.
3. Exhibits -Toledo Edison (TE)
Exhibit
Number
- -------
3a - Amended Articles of Incorporation of TE, as amended
effective October 2, 1992 (Exhibit 3a, 1992 Form 10-K,
File No. 1-3583).
3b - Code of Regulations of TE dated January 28, 1987, as
amended effective July 1 and October 1, 1988 and April 24,
1990 (Exhibit 3b, 1990 Form 10-K, File No. 1-3583).
(B)4b(1)- Indenture, dated as of April 1, 1947, between TE and The
Chase National Bank of the City of New York (now The
Manhattan Bank (National Association)) (Exhibit 2(b), File
No. 2-26908).
Supplemental Indentures between TE and the Trustee,
Supplemental to Exhibit 4b(1), dated as follows:
4b(2) - September 1, 1948 (Exhibit 2(d), File No. 2-26908).
4b(3) - April 1, 1949 (Exhibit 2(e), File No. 2-26908).
4b(4) - December 1, 1950 (Exhibit 2(f), File No. 2-26908).
4b(5) - March 1, 1954 (Exhibit 2(g), File No. 2-26908).
4b(6) - February 1, 1956 (Exhibit 2(h), File No. 2-26908).
4b(7) - May 1, 1958 (Exhibit 5(g), File No. 2-59794).
4b(8) - August 1, 1967 (Exhibit 2(c), File No. 2-26908).
4b(9) - November 1, 1970 (Exhibit 2(c), File No. 2-38569).
4b(10) - August 1, 1972 (Exhibit 2(c), File No. 2-44873).
4b(11) - November 1, 1973 (Exhibit 2(c), File No. 2-49428).
4b(12) - July 1, 1974 (Exhibit 2(c), File No. 2-51429).
4b(13) - October 1, 1975 (Exhibit 2(c), File No. 2-54627).
4b(14) - June 1, 1976 (Exhibit 2(c), File No. 2-56396).
4b(15) - October 1, 1978 (Exhibit 2(c), File No. 2-62568).
4b(16) - September 1, 1979 (Exhibit 2(c), File No. 2-65350).
4b(17) - September 1, 1980 (Exhibit 4(s), File No. 2-69190).
4b(18) - October 1, 1980 (Exhibit 4(c), File No. 2-69190).
4b(19) - April 1, 1981 (Exhibit 4(c), File No. 2-71580).
4b(20) - November 1, 1981 (Exhibit 4(c), File No. 2-74485).
4b(21) - June 1, 1982 (Exhibit 4(c), File No. 2-77763).
4b(22) - September 1, 1982 (Exhibit 4(x), File No. 2-87323).
4b(23) - April 1, 1983 (Exhibit 4(c), March 31, 1983 Form 10-Q,
File No. 1-3583).
4b(24) - December 1, 1983 (Exhibit 4(x), 1983 Form 10-K, File No.
1-3583).
4b(25) - April 1, 1984 (Exhibit 4(c), File No. 2-90059).
4b(26) - October 15, 1984 (Exhibit 4(z), 1984 Form 10-K, File No.
1-3583).
4b(27) - October 15, 1984 (Exhibit 4(aa), 1984 Form 10-K, File No.
1-3583).
4b(28) - August 1, 1985 (Exhibit 4(dd), File No. 33-1689).
4b(29) - August 1, 1985 (Exhibit 4(ee), File No. 33-1689).
4b(30) - December 1, 1985 (Exhibit 4(c), File No. 33-1689).
4b(31) - March 1, 1986 (Exhibit 4b(31), 1986 Form 10-K, File No. 1-
3583).
4b(32) - October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q,
File No. 1-3583).
4b(33) - September 15, 1988 (Exhibit 4b(33), 1988 Form 10-K, File
No. 1-3583).
4b(34) - June 15, 1989 (Exhibit 4b(34), 1989 Form 10-K, File No. 1-
3583).
4b(35) - October 15, 1989 (Exhibit 4b(35), 1989 Form 10-K, File No.
1-3583).
4b(36) - May 15, 1990 (Exhibit 4, June 30, 1990 Form 10-Q, File No.
1-3583).
4b(37) - March 1, 1991 (Exhibit 4(b), June 30, 1991 Form 10-Q, File
No. 1-3583).
4b(38) - May 1, 1992 (Exhibit 4(a)(3), File No. 33-48844).
4b(39) - August 1, 1992 (Exhibit 4b(39), 1992 Form 10-K, File No.
1-3583).
4b(40) - October 1, 1992 (Exhibit 4b(40), 1992 Form 10-K, File No.
1-3583).
4b(41) - January 1, 1993 (Exhibit 4b(41), 1992 Form 10-K, File No.
1-3583).
4b(42) - September 15, 1994 (Exhibit 4(b), September 30, 1994 Form
10-Q, File No. 1-3583).
4b(43) - May 1, 1995 (Exhibit 4(d), September 30, 1995 Form 10-Q,
File No. 1-3583).
4b(44) - June 1, 1995 (Exhibit 4(e), September 30, 1995 Form 10-Q,
File No. 1-3583).
4b(45) - July 14, 1995 (Exhibit 4(f), September 30, 1995 Form 10-Q,
File No. 1-3583).
4b(46) - July 15, 1995 (Exhibit 4(g), September 30, 1995 Form 10-Q,
File No. 1-3583).
(A)4b(47)- August 1, 1997
(A)4b(48)- June 1, 1998
4c - Open-End Subordinate Indenture of Mortgage between The
Toledo Edison Company and Bank One, Columbus, N.A., as
Trustee, dated as of June 1, 1994 (Exhibit 4(b), August
26, 1994 Form 8-K, File No. 1-3583).
(A) 13.3- 1998 Annual Report to Stockholders. (Only those portions
expressly incorporated by reference in this Form 10-K are
to be deemed "filed" with the SEC.)
(A)21.3 - List of Subsidiaries of the Registrant at December 31,
1998.
(A)27.3 - Financial Data Schedule.
(A) Provided herein in electronic format as an exhibit.
(B) Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of
Regulation S-K, TE has not filed as an exhibit to this
Form 10-K any instrument with respect to long-term debt if
the total amount of securities authorized thereunder does
not exceed 10% of the total assets of TE, but hereby
agrees to furnish to the Commission on request any such
instruments.
(b) Reports on Form 8-K
FirstEnergy, OE, CEI, TE, Penn-
-------------------------------
One combined report on Form 8-K was filed since September
30, 1998. A report dated October 15, 1998 reported that FirstEnergy
will transfer its transmission assets into a new subsidiary and has
signed an agreement in principle with Duquesne Light Company
(Duquesne) that would result in an exchange of certain generating
assets between FirstEnergy's operating subsidiaries and Duquesne.
FirstEnergy-
-----------
The Company filed two reports on Form 8-K since September
30, 1998. A report dated November 9, 1998 reported a Company common
stock repurchase program and a report dated December 17, 1998,
reported estimated adverse effects on fourth quarter 1998 earnings.
OE, CEI, TE and Penn
--------------------
None
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of FirstEnergy Corp.:
We have audited, in accordance with generally accepted
auditing standards, the consolidated financial statements included in
FirstEnergy Corp.'s Annual Report to Stockholders incorporated by
reference in this Form 10-K and have issued our report thereon dated
February 12, 1999. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule of
consolidated valuation and qualifying accounts listed in Item 14 is
the responsibility of the Company's management and is presented for
the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein
in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Ohio Edison Company:
We have audited, in accordance with generally accepted
auditing standards, the consolidated financial statements included in
Ohio Edison Company's Annual Report to Stockholders incorporated by
reference in this Form 10-K and have issued our report thereon dated
February 12, 1999. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule of
consolidated valuation and qualifying accounts listed in Item 14 is
the responsibility of the Company's management and is presented for
the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein
in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Cleveland Electric
Illuminating Company:
We have audited, in accordance with generally accepted
auditing standards, the consolidated financial statements included in
The Cleveland Electric Illuminating Company's Annual Report to
Stockholders incorporated by reference in this Form 10-K and have
issued our report thereon dated February 12, 1999. Our audit was made
for the purpose of forming an opinion on those statements taken as a
whole. The schedule of consolidated valuation and qualifying accounts
listed in Item 14 is the responsibility of the Company's management
and is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein
in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Toledo Edison
Company:
We have audited, in accordance with generally accepted
auditing standards, the consolidated financial statements included in
The Toledo Edison Company's Annual Report to Stockholders
incorporated by reference in this Form 10-K and have issued our
report thereon dated February 12, 1999. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole.
The schedule of consolidated valuation and qualifying accounts listed
in Item 14 is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein
in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Pennsylvania Power
Company:
We have audited, in accordance with generally accepted
auditing standards, the financial statements included in Pennsylvania
Power Company's Annual Report to Stockholders incorporated by
reference in this Form 10-K and have issued our report thereon dated
February 12, 1999. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule of
valuation and qualifying accounts listed in Item 14 is the
responsibility of the Company's management and is presented for the
purpose of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
<TABLE>
SCHEDULE II
FIRSTENERGY CORP.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Additions
--------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts - customers $5,618 $28,984 $2,290 (a) $30,495 (b) $ 6,397
====== ======= ====== ======= =======
- other $4,026 $45,836 $ 42 (a) $ 3,653 (b) $46,251
====== ======= ====== ======= =======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts - customers $2,306 $13,565 $2,277 (a) $12,530 (b) $ 5,618
====== ======= ====== ======= =======
- other $ -- $ 941 $4,808 (c) $ 1,723 $ 4,026
====== ======= ====== ======= =======
Year Ended December 31, 1996:
Accumulated provision for
uncollectible accounts - $2,528 $6,949 $2,008 (a) $ 9,179 (b) $ 2,306
====== ====== ====== ======= =======
<FN>
- -------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
(c) Includes the $4,026,000 effect of the FirstEnergy merger on November 8, 1997.
</TABLE>
<TABLE>
SCHEDULE II
OHIO EDISON COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Additions
--------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts $5,618 $ 7,933 $2,290 (a) $9,444 (b) $6,397
====== ======= ====== ====== ======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts $2,306 $10,979 $2,277 (a) $9,944 (b) $5,618
====== ======= ====== ====== ======
Year Ended December 31, 1996:
Accumulated provision for
uncollectible accounts $2,528 $ 6,949 $2,008 (a) $9,179 (b) $2,306
====== ======= ====== ====== ======
<FN>
- -------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
</TABLE>
<TABLE>
SCHEDULE II
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Additions
--------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts $1,226 $ (16) $ 42 (a) $ 761 (b) $ 491
====== ======= ====== ======= ======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts:
Nov. 8 - Dec. 31, 1997 $1,226 $ 2,331 $ 216 (a) $ 2,547 (b) $1,226
====== ======= ====== ======= ======
- -------------------------------------------------------------------------------------------------------
Jan. 1 - Nov. 7, 1997 $ 58 $12,853 $1,366 (a) $13,051 (b) $1,226
====== ======= ====== ======= ======
Year Ended December 31, 1996:
Accumulated provision for
uncollectible accounts $2,326 $14,872 $1,353 (a) $18,493 (b)(c) $ 58
====== ======= ====== ======= ======
<FN>
- -------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
(c) Sale of retail customer accounts receivable net of Accumulated Provision for Uncollectible
Accounts.
</TABLE
</TABLE>
<TABLE>
SCHEDULE II
THE TOLEDO EDISON COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Additions
--------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts $2,800 $ 192 $ -- $2,892 (b) $ 100
====== ====== ====== ====== ======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts:
Nov. 8 - Dec. 31, 1997 $2,800 $1,196 $ 566 (a) $1,762 (b) $2,800
====== ====== ====== ======= ======
- ----------------------------------------------------------------------------------------------------
Jan. 1 - Nov. 7, 1997 $ 100 $9,367 $1,797 (a) $8,464 (b) $2,800
====== ====== ====== ======= ======
Year Ended December 31, 1996:
Accumulated provision for
uncollectible accounts $1,046 $6,223 $1,879 (a) $ 9,048 (b)(c) $ 100
====== ====== ====== ======= ======
<FN>
- -------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
(c) Sale of retail customer accounts receivable net of Accumulated Provision for Uncollectible
Accounts.
</TABLE>
<TABLE>
SCHEDULE II
PENNSYLVANIA POWER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Additions
--------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts $3,609 $1,242 $409 (a) $1,661 (b) $3,599
====== ====== ==== ====== ======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts $ 569 $4,409 $397 (a) $1,766 (b) $3,609
====== ====== ==== ====== ======
Year Ended December 31, 1996:
Accumulated provision for
uncollectible accounts $ 563 $1,308 $362 (a) $1,664 (b) $ 569
====== ====== ==== ====== ======
<FN>
- -------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRSTENERGY CORP.
BY /s/ W. R. Holland
--------------------------
W. R. Holland
Chairman of the Board
and Chief Executive Officer
Date: March 16, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date
indicated:
/s/ W. R. Holland /s/ H. P. Burg
- ------------------------------ ----------------------------------
W. R. Holland H. P. Burg
Chairman of the Board President and Chief Operating
and Chief Executive Officer Officer and Director
and Director (Principal
Executive Officer)
/s/ Richard H. Marsh /s/ Harvey L. Wagner
- --------------------------------- ----------------------------------
Richard H. Marsh Harvey L. Wagner
Vice President and Chief Controller
Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
/s/ Glenn H. Meadows
- --------------------------------- ----------------------------------
Carol A. Cartwright Glenn H. Meadows
Director Director
/s/ William F. Conway /s/ Paul J. Powers
- --------------------------------- ----------------------------------
William F. Conway Paul J. Powers
Director Director
/s/ Robert B. Heisler, Jr. /s/ Robert C. Savage
- --------------------------------- ----------------------------------
Robert B. Heisler, Jr. Robert C. Savage
Director Director
/s/ Robert L. Loughhead /s/ George M. Smart
- --------------------------------- ----------------------------------
Robert L. Loughhead George M. Smart
Director Director
/s/ Russell W. Maier /s/ Jesse T. Williams, Sr.
- --------------------------------- ----------------------------------
Russell W. Maier Jesse T. Williams, Sr.
Director Director
Date: March 16, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OHIO EDISON COMPANY
BY /s/ H. P. Burg
---------------------------------
H. P. Burg
President
Date: March 16, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date indicated:
/s/ H. P. Burg /s/ R. H. Marsh
- --------------------------------- ----------------------------------
H. P. Burg R. H. Marsh
President and Director Vice President
(Principal Executive Officer) (Principal Financial Officer)
/s/ Harvey L. Wagner /s/ W. R. Holland
- --------------------------------- ----------------------------------
Harvey L. Wagner W. R. Holland
Controller Director
(Principal Accounting Officer)
/s/ Anthony J. Alexander
- ---------------------------------
Anthony J. Alexander
Director
Date: March 16, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY
BY /s/ H. P. Burg
---------------------------------
H. P. Burg
President
Date: March 16, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated:
/s/ H. P. Burg /s/ R. H. Marsh
- --------------------------------- ----------------------------------
H. P. Burg R. H. Marsh
President and Director Vice President
(Principal Executive Officer) (Principal Financial Officer)
/s/ Harvey L. Wagner /s/ W. R. Holland
- --------------------------------- ----------------------------------
Harvey L. Wagner W. R. Holland
Controller Director
(Principal Accounting Officer)
/s/ Anthony J. Alexander
- ---------------------------------
Anthony J. Alexander
Director
Date: March 16, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE TOLEDO EDISON COMPANY
BY /s/ H. P. Burg
----------------------------------
H. P. Burg
President
Date: March 16, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date
indicated:
/s/ H. P. Burg /s/ R. H. Marsh
- --------------------------------- ----------------------------------
H. P. Burg R. H. Marsh
President and Director Vice President
(Principal Executive Officer) (Principal Financial Officer)
/s/ Harvey L. Wagner /s/ W. R. Holland
- --------------------------------- ----------------------------------
Harvey L. Wagner W. R. Holland
Controller Director
(Principal Accounting Officer)
/s/ Anthony J. Alexander
- ---------------------------------
Anthony J. Alexander
Director
Date: March 16, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PENNSYLVANIA POWER COMPANY
BY /s/ Willard R. Holland
------------------------------------
Willard R. Holland
Chairman of the Board and
Chief Executive Officer
Date: March 16, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date
indicated:
/s/ Willard R. Holland /s/ Richard H. Marsh
- --------------------------------- ----------------------------------
Willard R. Holland Richard H. Marsh
Chairman of the Board and Vice President
Chief Executive Officer (Principal Financial Officer)
(Principal Executive Officer)
/s/ Harvey L. Wagner /s/ H. Peter Burg
- --------------------------------- ----------------------------------
Harvey L. Wagner H. Peter Burg
Comptroller Director
(Principal Accounting Officer)
/s/ Anthony J. Alexander
- ---------------------------------
Anthony J. Alexander
Director
Date: March 16, 1999
FIRSTENERGY CORP.
EXECUTIVE AND DIRECTOR INCENTIVE
COMPENSATION PLAN
FE Plan effective May 1, 1998
Revised November 16, 1998
Table of Contents
Page
----
Article 1 Establishment, Purpose, and Duration 1
1.1 Establishment of the Plan 1
1.2 Purpose of the Plan 1
1.3 Duration of the Plan 1
Article 2 Definitions and Construction 1
2.1 Definitions
2.1.1 Award 1
2.1.2 Beneficial Owner 1
2.1.3 Black-Scholes Value 1
2.1.4 Board or Board of Directors 1
2.1.5 Cash Award 1
2.1.6 Cause 1
2.1.7 Change in Control 2
2.1.8 Code 4
2.1.9 Committee 4
2.1.10 Company 4
2.1.11 Covered Employee 4
2.1.12 Directors' Award 4
2.1.13 Exchange Act 4
2.1.14 Fair Market Value 4
2.1.15 Incentive Stock Option or ISO 4
2.1.16 Key Employee 4
2.1.17 Nonqualified Stock Option or NSO 4
2.1.18 Option 4
2.1.19 Outside Director 4
2.1.20 Participant 4
2.1.21 Performance Share 5
2.1.22 Period of Restriction 5
2.1.23 Person 5
2.1.24 Plan 5
2.1.25 Restricted Stock 5
2.1.26 Subsidiary 5
2.1.27 Standard Rate 5
2.1.28 Stock 5
2.1.29 Stock Appreciation Right or SAR 5
2.1.30 Voting Stock 5
2.2 Gender and Number 5
2.3 Severability 5
Table of Contents
Article 3 Administration
3.1 The Committee 5
3.2 Authority of the Committee 5
3.3 Selection of Participants 6
3.4 Decisions Binding 6
3.5 Delegation of Certain Responsibilities 6
3.6 Procedures of the Committee 6
3.7 Award Agreements 7
3.8 Conditions on Awards 7
3.9 Saturdays, Sundays, and Holidays 7
Article 4 Stock Subject to the Plan
4.1 Number of Shares 7
4.2 Lapsed Awards 8
4.3 Adjustments in Authorized Shares 8
Article 5 Eligibility and Participation
5.1 Eligibility 8
5.2 Actual Participation 8
Article 6 Stock Options
6.1 Grant of Options 8
6.2 Option Agreement 9
6.3 Option Price 9
6.4 Duration of Options 9
6.5 Exercise of Options 9
6.6 Payment 9
6.7 Restrictions on Stock Transferability 10
6.8 Termination of Employment Due to Death, 10
Disability, or Retirement
6.9 Termination of Employment for 10
Other Reasons
6.10 Nontransferability of Options 10
Table of Contents
Article 7 Stock Appreciation Rights
7.1 Grant of Stock Appreciation Rights 11
7.2 Exercise of SARS in Lieu of Options 11
7.3 Exercise of SARS in Addition to Options 11
7.4 Exercise of SARS Independent of Options 11
7.5 Payment of SAR Amount 12
7.6 Form and Timing of Payment 12
7.7 Term of SAR 12
7.8 Termination of Employment 12
7.9 Nontransferability of SARs 12
Article 8 Restricted Stock
8.1 Grant of Restricted Stock 12
8.2 Restricted Stock Agreement 12
8.3 Transferability 12
8.4 Other Restrictions 13
8.5 Certificate Legend 13
8.6 Removal of Restrictions 13
8.7 Voting Rights 13
8.8 Dividends and Other Distributions 13
8.9 Termination of Employment Due 13
to Retirement
8.10 Termination of Employment Due to Death 14
or Disability
8.11 Termination of Employment for 14
Other Reasons
Article 9 Performance Shares
9.1 Grant of Performance Shares 14
9.2 Value of Performance Shares 14
9.3 Payment of Performance Shares 15
9.4 Committee Discretion to Adjust Awards 15
9.5 Form and Timing of Payment 15
9.6 Termination of Employment Due to Death, 15
Disability, or Retirement
9.7 Termination of Employment for 15
Other Reasons
9.8 Nontransferability 16
Article 10 Cash Awards
10.1 Grant of Cash Award 16
10.2 Cash Award Performance Criteria 16
10.3 Payout of Cash awards 16
10.4 Conversion of Cash Award Payout 16
Restricted Stock
Table of Contents
Article 11 Directors' Awards
11.1 Grant of Director's Awards 17
11.2 Conversion of Retainer to Stock 17
11.3 Conversion of Retainer to Restricted Stock 17
11.4 Conversion of Retainer to Stock Options 17
Article 12 Beneficiary Designation 17
Article 13 Rights of Employees
13.1 Employment 18
13.2 Participation 18
13.3 No Implied Rights; Rights on Termination 18
of Service
13.4 No Right to Company Assets 18
Article 14 Change in Control
14.1 Stock Based Awards 18
14.2 All Awards Other than Stock Based Awards 18
Article 15 Amendment, Modification, and Termination
15.1 Amendment, Modification, and Termination 19
15.2 Awards Previously Granted 19
15.3 Deferral of Payments and Distributions 19
Article 16 Withholding and Deferral
16.1 Tax Withholding 19
16.2 Stock Delivery or Withholding 19
Article 17 Successors 20
Article 18 Requirements of Law
18.1 Requirements of Law 20
18.2 Governing Law 20
ARTICLE 1 ESTABLISHMENT, PURPOSE, AND DURATION
------------------------------------
1.1 ESTABLISHMENT OF THE PLAN. FirstEnergy Corp. (hereinafter
referred to as "FirstEnergy"), established, effective May 1,
1998, an incentive compensation plan known as the "Executive and
Director Incentive Compensation Plan" (hereinafter referred to as
the "Plan"), which permits the grant of Incentive Stock Options,
Non-qualified Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares, Cash Awards and Directors'
Awards.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote
the success of the Company and its Subsidiaries by providing
incentives to Key Employees and Directors that will link their
personal interests to the long-term financial success of the
Company and its Subsidiaries, and to growth in shareholder value.
The Plan is designed to provide flexibility to the Company and
its Subsidiaries in their ability to motivate, attract, and
retain the services of Key Employees upon whose judgment,
interest, and special effort the successful conduct of their
operations is largely dependent. The Plan is intended to
preserve maximum deductibility of all awards made under the plan
within the structure of Section 162(m) of the Internal Revenue
Code of 1986 as amended "the Code".
1.3 DURATION OF THE PLAN. The Plan will commence on May 1,
1998, as described in Section 1.1 herein. The Plan shall remain
in effect, subject to the right of the Board of Directors to
terminate the Plan at any time, until all Shares subject to it
shall have been purchased or acquired according to the provisions
herein.
ARTICLE 2 DEFINITIONS AND CONSTRUCTION
----------------------------
2.1. DEFINITIONS. Whenever used in the Plan, the following
terms shall have the meanings set forth below and, when the
meaning is intended, the initial letter of the word is
capitalized:
2.1.1 "Award" means, individually or collectively, a
grant under this Plan of Incentive Stock Options, Nonqualified
Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares, Cash Awards or Directors' Awards.
2.1.2 "Beneficial Owner" shall have the meaning ascribed
to such term in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act.
2.1.3 "Black-Scholes Value" means the value of one stock
option as calculated by the Black-Scholes Valuation Model as
prescribed under Financial Accounting Standard 123.
2.1.4 "Board" or "Board of Directors" means the Board of
Directors of the Company.
2.1.5 "Cash Award" means an award in the form of cash
that is a bonus made pursuant to the terms of Article 10.
2.1.6 "Cause" shall mean the occurrence of any one of the
following:
(i) the willful and continued failure by a
Participant to substantially perform his/her duties (other than
any such failure resulting from the Participant's disability),
after a written demand for substantial performance is delivered
to the Participant that specifically identifies the manner in
which the Company or any of its Subsidiaries, as the case may be,
believes that the Participant has not substantially performed
his/her duties, and the Participant has failed to remedy the
situation within ten (10) business days of receiving such notice;
or
(ii) the Participant's conviction for committing a
felony or a crime involving an act of moral turpitude, dishonesty
or misfeasance; or
(iii) the willful engaging by the Participant in
gross misconduct materially and demonstrably injurious to the
Company or any of its Subsidiaries. However, no act, or failure
to act, on the Participant's part shall be considered "willful"
unless done, or omitted to be done, by the Participant not in
good faith and without reasonable belief that his/her action or
omission was in the best interest of the Company or any of its
Subsidiaries.
2.1.7 "Change in Control" shall mean:
(i) The acquisition by Person of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% (25%if such Person proposes any individual
for election to the Board or any member of the Board is the
representative of such Person) or more of either
(a) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change in Control:
(1) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise of a
conversion privilege),
(2) any acquisition by the Company,
(3) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or
(4) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the
conditions described in clauses (a), (b) and (c) of subsection
(iii) of this subsection 2.1.7 are satisfied; or
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of the Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board; or
(iii) Approval by the shareholders of the Company
of a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or consolidation,
(a) more than 75% of, respectively, the then
outstanding shares of common stock of the corporation resulting
from such reorganization, merger or consolidation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such reorganization, merger or consolidation
in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be,
(b) no Person (excluding the Company, an
employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly
or indirectly, 25% or more of the Outstanding Company Common
Stock or Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(iv) Approval by the shareholders of the Company
of (a) a complete liquidation or dissolution of the Company or
(b) the sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with
respect to which following such sale or other disposition (1)
more than 75% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of
the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or such
corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 25% or
more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 25% or more of, respectively, the then
outstanding share of common stock of such corporation and the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (3) at least a majority of the members of the board
of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition
of assets of the Company.
However, in no event shall a Change in
Control be deemed to have occurred, with respect to a
Participant, if the Participant is part of a purchasing group,
which consummates the Change in Control transaction. The
Participant shall be deemed "part of a purchasing group. . . "
for purposes of the preceding sentence if the Participant is an
equity participant or has agreed to become an equity participant
in the purchasing company or group (except for (i) passive
ownership of less than 5% of the voting securities of the
purchasing company or (ii) ownership of equity participation in
the purchasing company or group which is otherwise not deemed to
be significant, as determined prior to the Change in Control by a
majority of the non-employee continuing members of the Board).
2.1.8 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.1.9 "Committee" means the Compensation Committee of the
Board.
2.1.10 "Company" means FirstEnergy Corp., an Ohio
corporation, or any successor thereto as provided in Article 17
herein.
2.1.11 "Covered Employee" means any Participant designated
prior to the grant of Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares or Cash Award by the
Committee who is or may be a "covered employee" within the
meaning of Section 162(m)(3) of the Code in the year in which
such Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares or Cash Award are taxable to such Participant.
2.1.12 "Directors' Award" means an Award made pursuant to
Article 11 of this Plan.
2.1.13 "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time.
2.1.14 "Fair Market Value" means the average of the
closing prices for the 20 trading days preceding the relevant
date, as reported on the composite tape of the New York Stock
Exchange.
2.1.15 "Incentive Stock Option" or "ISO" means an option
to purchase Stock, granted under Article 6 herein, which is
designated as an incentive stock option and is intended to meet
the requirements of Section 422 of the Code.
2.1.16 "Key Employee" means an employee of the Company or
any of its Subsidiaries, including an employee who is an officer
or a director of the Company or any of its Subsidiaries, who, in
the opinion of the Committee, can contribute significantly to the
growth and profitability of the Company and its Subsidiaries.
"Key Employee" also may include any other employee, identified by
the Committee, in special situations involving extraordinary
performance, promotion, retention, or recruitment. The granting
of an Award under this Plan shall be deemed a determination by
the Committee that such employee is a Key Employee, but shall not
create a right to remain a Key Employee.
2.1.17 "Nonqualified Stock Option" or "NSO" means an
option to purchase Stock, granted under Article 6 herein, which
is not intended to be an Incentive Stock Option.
2.1.18 "Option" means an Incentive Stock Option or a
Nonqualified Stock Option.
2.1.19 "Outside Director" means any director who qualifies
as an "outside director" as that term is defined in Code Section
162(m) and the regulations issued thereunder.
2.1.20 "Participant" means a Key Employee or Director who
has been granted an Award under the Plan.
2.1.21 "Performance Share" means an Award, designated as a
performance share, granted to a Participant pursuant to Article 9
herein.
2.1.22 "Period of Restriction" means the period during
which the transfer or sale of Shares of Restricted Stock by the
participant is restricted.
2.1.23 "Person" shall have the meaning ascribed to such
term in Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) thereof.
2.1.24 "Plan" means this Executive and Director Incentive
Compensation Plan of FirstEnergy Corp., as herein described and
as hereafter from time to time amended.
2.1.25 "Restricted Stock" means an Award of Stock granted
to a Participant pursuant to Article 8 herein.
2.1.26 "Subsidiary" shall mean any corporation of which
more than 50% (by number of votes) of the Voting Stock at the
time outstanding is owned, directly or indirectly, by the
Company.
2.1.27 "Standard Rate" means the electric utility median
base salary level for a given position as determined in the
judgment of the Committee.
2.1.28 "Stock" or "Shares" means the common stock with a
10 cent par value of the Company.
2.1.29 "Stock Appreciation Right" or "SAR" means an Award,
designated as a Stock Appreciation Right, granted to a
Participant pursuant to Article 7 herein.
2.1.30 "Voting Stock" shall mean securities of any class
or classes of stock of a corporation, the holders of which are
ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the
feminine, the plural shall include the singular, and the singular
shall include the plural.
2.3. SEVERABILITY. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
ARTICLE 3 ADMINISTRATION
--------------
3.1 THE COMMITTEE. The Plan shall be administered by the
Committee, which consists of not less than three Directors who
shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors. To the extent required to
comply with Rule 16b-3 under the Exchange Act, each member of the
Committee shall qualify as a "Non-Employee Director" as defined
in Rule 16b-3 or any successor definition adopted by the
Securities and Exchange Commission. To the extent required to
comply with Code Section 162(m), each member of the Committee
shall also be an Outside Director.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of
the Plan, the Committee shall have full power to construe and
interpret the Plan; to establish, amend or waive rules and
regulations for its administration; to accelerate the
exercisability of any Award or the end of a performance period or
the termination of any Period of Restriction or any award
agreement, or any other instrument relating to an Award under the
Plan; and (subject to the provisions of Article 15 herein) to
amend the terms and conditions of any outstanding Option, Stock
Appreciation Right or other Award to the extent such terms and
conditions are within the discretion of the Committee as provided
in the Plan. Notwithstanding the foregoing, the Committee shall
have no authority to adjust upwards the amount payable to a
Covered Employee with respect to a particular Award, to take any
of the foregoing actions, or to take any other action to the
extent that such action or the Committee's ability to take such
action would cause any Award under the Plan to any Covered
Employee to fail to qualify as "performance-based compensation"
within the meaning of Code Section 162(m)(4) and the regulations
issued thereunder. Subject to section 4.3, in no event shall the
Committee have the right to i) cancel outstanding Options or SARs
for the purpose of replacing or regranting such Options or SARs
with an exercise price that is less than the original exercise
price of the Option or SAR, or ii) change the Option Price of an
Option or SAR to an exercise price that is less than the original
Option or SAR exercise price, without first obtaining the
approval of shareholders. Also notwithstanding the foregoing, no
action of the Committee (other than pursuant to Section 4.3
hereof or Section 9.4 hereof) may, without the consent of the
person or persons entitled to exercise any outstanding Option or
Stock Appreciation Right or to receive payment of any other
outstanding Award, adversely affect the rights of such person or
persons.
3.3 SELECTION OF PARTICIPANTS. The Committee shall have the
authority to grant Awards under the Plan, from time to time, to
such Key Employees and Directors as may be selected by it. The
Committee shall select Participants from among those who they
have identified as being Key Employees or Directors.
3.4 DECISIONS BINDING. All determinations and decisions made
by the Committee pursuant to the provisions of the Plan and all
related orders or resolutions of the Board of Directors shall be
final, conclusive and binding on all persons, including the
Company and its Subsidiaries, its stockholders, employees, and
Participants and their estates and beneficiaries, and such
determinations and decisions shall not be reviewable.
3.5 DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may,
in its sole discretion, delegate to an officer or officers of the
Company the administration of the Plan under this Article 3;
provided, however, that no such delegation by the Committee shall
be made with respect to the administration of the Plan as it
affects Directors of the Company or Covered Employees and
provided further that the Committee may not delegate its
authority to correct errors, omissions or inconsistencies in the
Plan. The Committee may delegate to the Chief Executive Officer
of the Company its authority under this Article 3 to grant Awards
to Key Employees who are not Covered Employees. All authority
delegated by the Committee under this Section 3.5 shall be
exercised in accordance with the provisions of the Plan and any
guidelines for the exercise of such authority that may from time
to time be established by the Committee.
3.6 PROCEDURES OF THE COMMITTEE. All determinations of the
Committee shall be made by not less than a majority of its
members present at the meeting (in person or otherwise) at which
a quorum is present. A majority of the entire Committee shall
constitute a quorum for the transaction of business. Any action
required or permitted to be taken at a meeting of the Committee
may be taken without a meeting if a unanimous written consent,
which sets forth the action, is signed by each member of the
Committee and filed with the minutes for proceedings of the
Committee. Service on the Committee shall constitute service as
a director of the Company so that members of the Committee shall
be entitled to indemnification, limitation of liability and
reimbursement of expenses with respect to their services as
members of the Committee to the same extent that they are
entitled under the Company's Articles of Incorporation and Ohio
law for their services as directors of the Company.
3.7 AWARD AGREEMENTS. Stock-based Awards under the Plan shall
be evidenced by an award agreement, which shall be signed by an
authorized officer of the Company or delegate and by the
Participant, and shall contain such terms and conditions as may
be approved by the Committee. Such terms and conditions need not
be the same in all cases.
3.8 CONDITIONS ON AWARDS. Notwithstanding any other provision
of the Plan, the Board or the Committee may impose such
conditions on any Award (including, without limitation, the right
of the Board or the Committee to limit the time of exercise to
specified periods).
Notwithstanding any other provisions of the Plan, all
Awards under this Plan shall be subject to the following
conditions:
(i) Except in the case of death, no SAR, ISO, NSO or
other option granted pursuant to Article 6 shall be exercisable
for at least six months after its grant; and
(ii) Except in the case of death, no Restricted Stock or
Performance Share (or a Share issued in payment thereof) shall be
sold for at least six months after its grant.
3.9 SATURDAYS, SUNDAYS AND HOLIDAYS. When a date referenced in
an award Agreement falls on a Saturday, Sunday or other day when
the FirstEnergy General Office is closed, the date reference will
revert back to the day prior to such date.
ARTICLE 4 STOCK SUBJECT TO THE PLAN
-------------------------
4.1 NUMBER OF SHARES. Subject to adjustment as provided in
Section 4.3 herein, the aggregate number of Shares that may be
delivered under the Plan at any time shall not exceed 7,500,000
Shares of common stock of the Company. No more than three-
quarters of such aggregate number of such Shares shall be issued
as Restricted Stock under Article 8 of the Plan or as Performance
Shares under Article 9. Stock delivered under the Plan may
consist, in whole or in part, of authorized and unissued shares,
treasury shares or shares purchased on the open market. The
exercise of a Stock Appreciation Right, whether paid in cash or
Stock, shall be deemed to be an issuance of Stock under the Plan.
4.2 LAPSED AWARDS. If any Award granted under this Plan
terminates, expires, or lapses for any reason, any Stock subject
to such Award again shall be available for the grant of an Award
under the Plan, subject to Section 7.2 herein. If the value of
any Performance Shares issued under Article 9 are paid in cash
after a Performance Period has ended, such stock subject to such
award shall again be available for the grant of an award under
the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any
merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split-up, share
combination, or other change in the corporate structure of the
Company affecting the Stock, such adjustment shall be made in the
number and class of shares which may be delivered under the Plan,
and in the number and class of and/or price of shares subject to
outstanding Options, Stock Appreciation Rights, Restricted Stock
Awards and Performance Shares, granted under the Plan, as may be
determined to be appropriate and equitable by the Committee, in
its sole discretion, to prevent dilution or enlargement of
rights; and provided that the number of shares subject to any
Award shall always be a whole number. Any adjustment of an
Incentive Stock Option under this paragraph shall be made in such
a manner so as not to constitute a modification within the
meaning of Section 425(h)(3) of the Code.
ARTICLE 5 ELIGIBILITY AND PARTICIPATION
-----------------------------
5.1 ELIGIBILITY. Persons eligible to receive Awards under all
Articles of this Plan except Article 11 include all employees of
the Company and its Subsidiaries who, in the opinion of the
Committee, are Key Employees. Key Employees may include
employees who are members of the Board, but may not include
Directors who are not employees. Directors who are not employees
may receive Awards under this Plan exclusively under Articles 6
and 8, subject to Article 11.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the
Plan, the Committee may from time to time select those Key
Employees to whom Awards shall be granted and determine the
nature and amount of each Award. No employee shall have any
right to be granted an Award under this Plan even if previously
granted an Award.
ARTICLE 6 STOCK OPTIONS
-------------
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of
the Plan, Options may be granted to Participants at any time and
from time to time as shall be determined by the Committee. The
maximum number of Shares subject to Options granted to any
individual Participant in any calendar year shall be two hundred
thousand (200,000) Shares. The Committee shall have the sole
discretion, subject to the requirements of the Plan, to determine
the actual number of Shares subject to Options granted to any
Participant. The Committee may grant any type of Option to
purchase Stock that is permitted by law at the time of grant,
including, but not limited to, ISO's and NSO's. However, no
employee may receive an Award of Incentive Stock Options that are
first exercisable during any calendar year to the extent that the
aggregate Fair Market Value of the Stock (determined at the time
the options are granted) exceeds $100,000. Nothing in this
Article 6 shall be deemed to prevent the grant of NSO's in excess
of the maximum established by Section 422 of the Code. Unless
otherwise expressly provided at the time of grant, Options
granted under the Plan will be NSO's. Notwithstanding any other
provision of the Plan, no ISO shall be granted after May 1, 2008.
6.2 OPTION AGREEMENT. Each Option grant shall be evidenced by
an Option agreement that shall specify the type of Option
granted, the Option price, the duration of the Option, the number
of Shares to which the Option pertains, and such other provisions
as the Committee shall determine. The Option agreement shall
specify whether the Option is intended to be an Incentive Stock
Option within the meaning of Section 422 of the Code, or a
Nonqualified Stock Option whose grant is not intended to be
subject to the provisions of Code Section 422.
6.3 OPTION PRICE. The purchase price per share of Stock
covered by an Option shall be determined by the Committee but
shall not be less than 100% of the Fair Market Value of such
Stock on the date the Option is granted.
An Incentive Stock Option granted to an Employee who, at the time
of grant, owns (within the meaning of Section 425(d) of the Code)
Stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company, shall have an exercise
price which is at least 110% of the Fair Market Value of the
Stock subject to the Option.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time
as the Committee shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth
(10th) anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Subject to Section 3.8 herein,
Options granted under the Plan shall be exercisable at such times
and be subject to such restrictions and conditions as the
Committee shall in each instance approve, which need not be the
same for all Participants. All options within a single grant
need not be exercised at one time.
6.6 PAYMENT. Options shall be exercised by the delivery of a
written notice to the Company setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied
by full payment for the Shares. The Option price upon exercise
of any Option shall be payable to the Company in full either:
(a) in cash or its equivalent;
(b) by tendering Shares of previously acquired Stock
having a Fair Market Value at the time of exercise equal to the
total Option price,
(c) by foregoing compensation under rules established by
the Committee,
(d) by delivery by the Participant of irrevocable
instructions to an approved broker to promptly deliver to the
Company the amount of the sale or loan proceeds to pay the
exercise price, or
(e) such other consideration as the Committee may deem
appropriate.
The proceeds from such a payment shall be added to the
general funds of the Company and shall be used for general
corporate purposes. As soon as practicable, after the Company's
receipt of written notification and payment, the Participant
shall receive either:
(i) stock certificates in an appropriate amount based
upon the number of Options exercised, issued in the Participant's
name:
(ii) cash in an amount equal to the difference between the
sale price of such Shares and the Option price less taxes and
administrative expenses; or
(iii) a combination of the foregoing.
6.7 RESTRICTIONS ON STOCK TRANSFERABILITY. The Committee shall
impose such restrictions on any Shares acquired pursuant to the
exercise of an Option under the Plan as it may deem advisable,
including, without limitation, restrictions under applicable
Federal securities law, under the requirements of any stock
exchange upon which such Shares are then listed and under any
blue sky or state securities laws applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. In the event the employment of a Participant is
terminated by reason of death, any of such Participant's
outstanding Options shall become immediately exercisable at any
time prior to the expiration date of the Options or within one
year after such date of termination of employment, whichever
period is shorter, by such person or persons as shall have
acquired the Participant's rights under the Option pursuant to
Article 12 hereof or by will or by the laws of descent and
distribution. In the event the employment of a Participant is
terminated by reason of disability or retirement (as defined
under the then established rules of the Company or any of its
Subsidiaries, as the case may be), any of such Participant's
outstanding Options shall become immediately exercisable, at any
time prior to the expiration date of the Options or within one
year after such date of termination of employment, whichever
period is shorter. Notwithstanding the foregoing to the
contrary, the Committee may, in its sole discretion, lengthen the
exercise period up to the expiration date for an individual
participant if it deems this is in the best interest of the
Company. In the case of Incentive Stock Options, the favorable
tax treatment prescribed under Section 422 of the Internal
Revenue Code of l986, as amended, may not be available if the
Options are not exercised within the Code Section 422 prescribed
time period after termination of employment for death,
disability, or retirement.
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the
employment of a Participant shall terminate for any reason other
than death, disability, retirement or for Cause, the Participant
shall have the right to exercise such Participant's outstanding
Options within 90 days after the date of his termination, but in
no event beyond the expiration of the term of the Options and
only to the extent that the Participant was entitled to exercise
the Options at the date of his termination of employment. In its
sole discretion, the Committee may extend the 90 days to up to
one year but, however, in no event beyond the expiration date of
the Option.
If the employment of the Participant shall terminate for
Cause, all of the Participant's outstanding Options shall be
immediately forfeited back to the Company.
6.10 NONTRANSFERABILITY OF OPTIONS. No Option granted under the
Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, otherwise than by will or by the laws
of descent and distribution. Further, all Options granted to a
Participant under the Plan shall be exercisable during his
lifetime only by such Participant.
ARTICLE 7 STOCK APPRECIATION RIGHTS
-------------------------
7.1 GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms
and conditions of the Plan, Stock Appreciation Rights may be
granted to Participants, at the discretion of the Committee, in
any of the following forms:
(a) in lieu of Options;
(b) in addition to Options;
(c) independent of Options; or
(d) in any combination of (a), (b), or (c).
The maximum numbers of Shares subject to SARs granted to
any individual Participant in any calendar year shall be two
hundred thousand (200,000) Shares. Subject to the immediately
preceding sentence, the Committee shall have the sole discretion,
subject to the requirements of the Plan, to determine the actual
number of Shares subject to SARs granted to any Participant.
7.2 EXERCISE OF SARS IN LIEU OF OPTIONS. SARs granted in lieu
of Options may be exercised for all or part of the Shares subject
to the related Option upon the surrender of the related Options
representing the right to purchase an equivalent number of
Shares. The SAR may be exercised only with respect to the Shares
of Stock for which its related Option is then exercisable.
Option Stock with respect to which the SAR shall have been
exercised may not be subject again to an Award under the Plan.
Notwithstanding any other provision of the Plan to the
contrary, with respect to a SAR granted in lieu of an Incentive
Stock Option:
(i) the SAR will expire no later than the expiration of
the underlying Incentive Stock Option;
(ii) the SAR amount may be for no more than one hundred
percent (100%) of the difference between the exercise price of
the underlying Incentive Stock Option and the Fair Market Value
of the Stock subject to the underlying Incentive Stock Option at
the time the SAR is exercised; and
(iii) the SAR may be exercised only when the Fair Market
Value of the Stock subject to the Incentive Stock Option exceeds
the exercise price of the Incentive Stock Option.
7.3 EXERCISE OF SARS IN ADDITION TO OPTIONS. SARs granted in
addition to Options shall be deemed to be exercised upon the
exercise of the related Options. The deemed exercise of SARs
granted in addition to Options shall not necessitate a reduction
in the number of related Options.
7.4 EXERCISE OF SARS INDEPENDENT OF OPTIONS. Subject to
Section 3.8 herein and Section 7.5 herein, SARs granted
independently of Options may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon
the SARs, including, but not limited to, a corresponding
proportional reduction in previously granted Options.
7.5 PAYMENT OF SAR AMOUNT. Upon exercise of the SAR, the
holder shall be entitled to receive payment of an amount
determined by multiplying:
(a) The difference between the market price of a Share on
the date of exercise over the price fixed by the Committee at the
date of grant (which price shall not be less than 100% of the
market price of a Share on the date of grant) (the Exercise
Price); by
(b) The number of Shares with respect to which the SAR is
exercised.
7.6 FORM AND TIMING OF PAYMENT. Payment to a Participant, upon
SAR exercise, will be made in cash or stock, at the discretion of
the Committee, as soon as administratively possible after
exercise.
7.7 TERM OF SAR. The term of an SAR granted under the Plan
shall not exceed ten years.
7.8 TERMINATION OF EMPLOYMENT. In the event the employment of
a Participant is terminated by reason of death, disability,
retirement, or any other reason, the exercisability of any
outstanding SAR granted in lieu of or in addition to an Option
shall terminate in the same manner as its related Option as
specified under Sections 6.8 and 6.9 herein. The exercisability
of any outstanding SARs granted independent of Options also shall
terminate in the manner provided under Sections 6.8 and 6.9
hereof.
7.9 NONTRANSFERABILITY OF SARS. No SAR granted under the Plan
may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, all SARs granted to a
Participant under the Plan shall be exercisable during his
lifetime only by such Participant.
ARTICLE 8 RESTRICTED STOCK
----------------
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and
provisions of the Plan, the Committee, at any time and from time
to time, may grant Shares of Restricted Stock under the Plan to
such Participants and in such amounts, as it shall determine.
The Committee may condition the vesting or lapse of the Period of
Restriction established pursuant to Section 8.3 upon the
attainment of one or more of the performance goals utilized for
purposes of Performance Shares pursuant to Article 9 hereof. As
required for valuation of grants under the Plan, Restricted Stock
will be valued at its Fair Market Value. The maximum number of
Shares subject to issuance as Restricted Stock granted to any
individual Participant in any calendar year is one hundred
thousand (100,000) Shares.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant
shall be evidenced by a Restricted Stock agreement that shall
specify the Period of Restriction, or periods, the number of
Shares of Restricted Stock granted, and such other provisions as
the Committee shall determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8 or
in Section 3.8 herein, the Shares of Restricted Stock granted
hereunder may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the termination of the
applicable Period of Restriction or for such period of time as
shall be established by the Committee and as shall be specified
in the Restricted Stock agreement, or upon earlier satisfaction
of other conditions (including any performance goals) as
specified by the Committee in its sole discretion and set forth
in the Restricted Stock agreement. All rights with respect to
the Restricted Stock granted to a Participant under the Plan
shall be exercisable during his lifetime only by such
Participant.
8.4 OTHER RESTRICTIONS. The Committee shall impose such other
restrictions on any Shares of Restricted Stock granted pursuant
to the Plan as it may deem advisable including, without
limitation, restrictions under applicable Federal or state
securities laws, and the Committee may legend certificates
representing Restricted Stock to give appropriate notice of such
restrictions.
8.5 CERTIFICATE LEGEND. In addition to any legends placed on
certificates pursuant to Section 8.4 herein, each certificate
representing Shares of Restricted Stock granted pursuant to the
Plan shall bear the following legend:
"The sale or other transfer of the shares of stock
represented by this certificate, whether voluntary, involuntary,
or by operation of law, is subject to certain restrictions on
transfer set forth in the Executive and Director Incentive
Compensation Plan of FirstEnergy Corp., in the rules and
administrative procedures adopted pursuant to such Plan, and in a
Restricted Stock Agreement dated __________. A copy of the Plan,
such rules and procedures, and such Restricted Stock agreement
may be obtained from the Secretary of FirstEnergy Corp."
8.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in
this Article, Shares of Restricted Stock covered by each
Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the Period
of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the
legend required by Section 8.5 removed from his Stock
certificate.
8.7 VOTING RIGHTS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder
may exercise full voting rights with respect to those Shares.
8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock
granted hereunder shall be entitled to receive all dividends and
other distributions paid with respect to those Shares while they
are so held. If any such dividends or distributions are paid in
Shares, the Shares shall be subject to the same restrictions on
transferability as the Shares of Restricted Stock with respect to
which they were paid.
8.9 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event
that a Participant terminates his employment with the Company or
any of its Subsidiaries because of retirement (as defined under
the then established rules of the Company or any of its
Subsidiaries, as the case may be), the Committee in its sole
discretion (subject to Section 3.8 herein) may waive or modify
the restrictions remaining on any or all Shares of Restricted
Stock as it deems appropriate.
8.10 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. In
the event a Participant's employment is terminated because of
death or disability (as defined under the then established rules
of the Company or any of its Subsidiaries, as the case may be)
during the Period of Restriction, any remaining Period of
Restriction applicable to the Restricted Stock shall
automatically terminate and, except as otherwise provided in
Section 8.4. herein, the Shares of Restricted Stock shall thereby
be free of restrictions and be fully transferable.
8.11 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event
that a Participant terminates his employment with the Company or
any of its Subsidiaries for any reason other than for death,
disability, or retirement, as set forth in Sections 8.9 and 8.10
herein, during the Period of Restriction, then any Shares of
Restricted Stock still subject to restrictions as of the date of
such termination shall automatically be forfeited and returned to
the Company; provided, however, that in the event of a
termination of the employment of a Participant by the Company or
any of its Subsidiaries other than for Cause, the Committee, in
its sole discretion (subject to Section 3.8 herein), may waive or
modify the automatic forfeiture of any or all such Shares as it
deems appropriate.
ARTICLE 9 PERFORMANCE SHARES
------------------
9.1 GRANT OF PERFORMANCE SHARES. Subject to the terms and
provisions of the Plan, Performance Shares may be granted to
Participants at any time and from time to time as shall be
determined by the Committee. The maximum number of Shares that
may be issued to any Participant in a calendar year shall not
exceed one hundred thousand (100,000), subject to adjustment as
provided in Section 4.3.
9.2 VALUE OF PERFORMANCE SHARES. The Committee shall set
performance goals over certain periods to be determined in
advance by the Committee ("Performance Periods"). Prior to each
grant of Performance Shares, the Committee shall establish an
initial number of Shares for each Performance Share granted to
each Participant for that Performance Period. Prior to each
grant of Performance Shares, the Committee also shall set the
performance goals that will be used to determine the extent to
which the Participant receives a payment of the number of Shares
for the Performance Shares awarded for such Performance Period.
These goals will be based on the attainment by the Company or its
Subsidiaries of certain objective performance measures, which may
include, but are not limited to one or more of the following:
total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net
income, cash flow, retained earnings, results of customer
satisfaction surveys, aggregate product price and other product
price measures, safety record, service reliability, demand-side
management (including conservation and load management),
operating and maintenance cost management, and energy production
availability performance measures. Such performance goals also
may be based upon the attainment of specified levels of
performance of the Company or one or more Subsidiaries under one
or more of the measures described above, relative to the
performance of other corporations. The Committee may provide for
the crediting of dividend equivalents during the performance
period. With respect to each such performance measure utilized
during a Performance Period, the Committee shall assign
percentages to various levels of performance which shall be
applied to determine the extent to which the Participant shall
receive a payout of the number of Performance Shares awarded.
With respect to Covered Employees, all performance goals shall be
objective performance goals satisfying the requirements for
"performance-based compensation" within the meaning of Section
162(m)(4) of the Code, and shall be set by the Committee within
the time period prescribed by Section 162(m) of the Code and
related regulations.
9.3 PAYMENT OF PERFORMANCE SHARES. After a Performance Period
has ended, the holder of a Performance Share shall be entitled to
receive the value thereof as determined by the Committee. The
Committee shall make this determination by first determining the
extent to which the performance goals set pursuant to Section 9.2
have been met. It will then determine the applicable percentage
(which may exceed 100%) to be applied to, and will apply such
percentage to, the number of Performance Shares to determine the
payout to be received by the Participant. In addition, with
respect to Performance Shares granted to any Covered Employee, no
payout shall be made hereunder except upon written certification
by the Committee that the applicable performance goal or goals
have been satisfied to a particular extent. The amount payable
in cash in a calendar year to any Participant with respect to any
Performance Period pursuant to any Performance Share award shall
not exceed $1,000,000.
9.4 COMMITTEE DISCRETION TO ADJUST AWARDS. Subject to Section
3.2 regarding Awards to Covered Employees, the Committee shall
have the authority to modify, amend or adjust the terms and
conditions of any Performance Share award, at any time or from
time to time, including but not limited to the performance goals.
9.5 FORM AND TIMING OF PAYMENT. The payment described in
Section 9.3 herein shall be made in cash, Stock, or a combination
thereof as determined by the Committee. Payment may be made in a
lump sum or installments as prescribed by the Committee. If any
payment is to be made on a deferred basis, the Committee may
provide for the payment of dividend equivalents or interest
during the deferral period. Any stock issued in payment of a
Performance Share shall be subject to the restrictions on
transfer in Section 3.8 herein.
9.6 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. In the case of death, disability, or retirement
(each of disability and retirement as defined under the
established rules of the Company or any of its Subsidiaries, as
the case may be), the holder of a Performance Share shall receive
a prorated payment based on the Participant's number of full
months of service during the Performance Period, further adjusted
based on the achievement of the performance goals, as computed by
the Committee. The Committee may require that a Participant have
a minimum number of full months of service during the Performance
Period to qualify for an Award payout.
9.7 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event
that a Participant terminates employment with the Company or any
of its Subsidiaries for any reason other than death, disability,
or retirement, all Performance Shares shall be forfeited;
provided, however, that in the event of a termination of the
employment of the Participant by the Company or any of its
Subsidiaries other than for Cause, the Committee in its sole
discretion may waive the automatic forfeiture provisions.
9.8 NONTRANSFERABILITY. No Performance Shares granted under
the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution until the termination of the
applicable Performance Period. All rights with respect to
Performance Shares granted to a Participant under the Plan shall
be exercisable during his/her lifetime only by such Participant.
ARTICLE 10 CASH AWARDS
-----------
10.1 GRANT OF CASH AWARD. Subject to the terms of this Plan,
Cash Awards may be made to Participants at any time and from time
to time as shall be determined by the Committee. The Committee
shall have complete discretion in the determining the form of the
Cash Awards granted to Participants
10.2 CASH AWARD PERFORMANCE CRITERIA. All Cash Awards made
under this Plan shall be subject to pre-established, objective,
business-related Performance Measures. The performance measures
shall be approved for use by the Committee and the Committee
shall certify their attainment and the resulting payout of Cash
Awards. Performance Measures for Cash Awards may be measurable
for periods of one year to five years (allowing for prorated
periods for new Participants). The Performance Measures may
include, but shall not be limited to: operational measures (e.g.
attaining merger milestones, customer satisfaction, service
reliability, safety and tactical objectives), financial measures
(e.g. expense control, revenue, margins and shareholder value
added levels "SVA") and individual measures. Performance
Measures can be made on overlapping cycles, (i.e. one-year cycles
could emphasize operational measures and three-year cycles could
emphasize SVA Performance Measures.) Each cycle of Performance
Measures could have a distinct Cash Award associated with it.
10.3 PAYOUT OF CASH AWARDS. Payouts of Cash Awards are made in
relationship to a target payout level determined prior to each
cycle on a per Participant basis. Target levels under multiple
cycles will be calibrated to provide, in total, an annualized
level of incentives consistent with the Company's compensation
philosophy as set by the Committee. Actual payouts of Cash
Awards will vary with performance results as follows: actual
payouts based upon operational or individual Performance Measures
will vary from 50% (if threshold performance is attained) to 150%
of the target level; actual payouts based upon Company SVA and
other corporate financial measures will vary from 50% (if
threshold performance is attained) up to 200% of the target
level. The maximum Cash Award payable in a calendar year to any
Participant with respect to any Performance Period shall not
exceed $1,000,000.
10.4 CONVERSION OF CASH AWARD PAYOUT TO RESTRICTED STOCK. At
the request of the Participant, but subject to the discretion of
the Committee, any Cash Award payout may be converted to
Restricted Stock at a discount. The conversion to Restricted
Stock will occur by multiplying the Cash Award by a premium, but
in no event more than 120% and dividing the product by the Fair
Market Value of the Restricted Stock on the date of conversion,
which shall be chosen by the Committee at least 10 days in
advance, to determine the number of shares of Restricted Stock
that will be provided as full settlement of the Cash Award. The
shares of Restricted Stock provided to Participants in settlement
of Cash Awards shall be Restricted Stock subject to Article 8.
ARTICLE 11 DIRECTORS' AWARDS
-----------------
11.1 GRANT OF DIRECTORS' AWARDS. In lieu of a portion of their
retainer, Directors' Awards can be made in the form of Stock
Options or Restricted Stock under Articles 6 and 8 respectively.
No other Awards may be made to Directors under the Plan.
11.2 CONVERSION OF RETAINER TO STOCK. At the request of a
Director but subject to the election of the Committee, a Director
may convert any retainer otherwise due to be paid by the Company
in cash to an aggregate equivalent value of either Stock Options,
Restricted Stock or both.
11.3 CONVERSION OF RETAINER TO RESTRICTED STOCK. Retainer,
otherwise payable in cash may be converted to Restricted Stock
under Article 8. The conversion to Restricted Stock will occur
by multiplying the retainer by a premium, but in no event more
than 120% and dividing the product by the Fair Market Value of
the Restricted Stock on the date of conversion, which shall be
chosen by the Committee at least 10 days in advance, into the
amount of the retainer to determine the number of shares of
Restricted Stock that will be provided as full settlement of the
retainer.
11.4 CONVERSION OF RETAINER TO STOCK OPTIONS. Retainer
otherwise due to be paid in cash may be converted to Stock
Options under Article 6 at the request of the Participant but
subject to the election of the Committee. Retainer shall be
converted by multiplying the retainer by a premium, but in no
event more than 120% and dividing the product by the amount equal
to the Black-Scholes Value of the Stock Option on the date of
conversion. The quotient of which is the number of Stock Options
that shall be awarded.
ARTICLE 12 BENEFICIARY DESIGNATION
-----------------------
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or
successively and who may include a trustee under a will or living
trust) to whom any benefit under the Plan is to be paid in case
of his/her death before he receives any or all of such benefit.
Each designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and
will be effective only when filed by the Participant in writing
with the Committee during his lifetime. In the absence of any
such designation or if all designated beneficiaries predecease
the Participant, benefits remaining unpaid at the Participant's
death shall be paid to the Participant's estate.
ARTICLE 13 RIGHTS OF EMPLOYEES
-------------------
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any of its
Subsidiaries to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in
the employ of the Company or any of its Subsidiaries.
13.2 PARTICIPATION. No employee shall have a right to be
selected as a Participant, or, having been so selected, to be
selected again as a Participant.
13.3 NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE.
Neither the establishment of the Plan nor any amendment thereof
shall be construed as giving any Participant, beneficiary, or any
other person any legal or equitable right unless such right shall
be specifically provided for in the Plan or conferred by specific
action of the Committee in accordance with the terms and
provisions of the Plan. Except as expressly provided in this
Plan, neither the Company nor any of its Subsidiaries shall be
required or be liable to make any payment under the Plan.
13.4 NO RIGHT TO COMPANY ASSETS. Neither the Participant nor
any other person shall acquire, by reason of the Plan, any right
in or title to any assets, funds or property of the Company or
any of its Subsidiaries whatsoever including, without limiting
the generality of the foregoing, any specific funds, assets, or
other property which the Company or any of its Subsidiaries, in
its sole discretion, may set aside in anticipation of a liability
hereunder. Any benefits which become payable hereunder shall be
paid from the general assets of the Company or the applicable
subsidiary. The Participant shall have only a contractual right
to the amounts, if any, payable hereunder unsecured by any asset
of the Company or any of its Subsidiaries. Nothing contained in
the Plan constitutes a guarantee by the Company or any of its
Subsidiaries that the assets of the Company or the applicable
subsidiary shall be sufficient to pay any benefit to any person.
ARTICLE 14 CHANGE IN CONTROL
-----------------
14.1 STOCK BASED AWARDS. Notwithstanding any other provisions
of the Plan, in the event of a Change in Control, all Stock based
awards granted under this Plan shall immediately vest 100% in
each Participant (subject to Section 3.8 herein), including
Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, and Restricted Stock.
14.2 ALL AWARDS OTHER THAN STOCK BASED AWARDS. Notwithstanding
any other provisions of the Plan, in the event of a Change in
Control, all Awards other than Stock Based Awards granted under
this Plan shall be immediately paid out in cash, including
Performance Shares. The amount of the payout shall be based on
the higher of: (i) the extent, as determined by the Committee,
to which performance goals, established for the Performance
Period then in progress have been met up through and including
the effective date of the Change in Control or (ii) 100% of the
value on the date of grant of the number of Performance Shares.
ARTICLE 15 AMENDMENT, MODIFICATION, AND TERMINATION
----------------------------------------
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. At any time and
from time to time, the Board or Committee may terminate, amend,
or modify the Plan. However, without the approval of the
stockholders of the Company if required by the Code, by the
insider trading rules of Section 16 of the Exchange Act, by any
national securities exchange or system on which the Stock is then
listed or reported, or by any regulatory body having jurisdiction
with respect hereto, no such termination, amendment, or
modification may:
(a) Increase the total amount of Stock which may be
issued under this Plan, except as provided in Section 4.3 herein;
or
(b) Change the class of Employees eligible to participate
in the Plan;
(c) Materially increase the cost of the Plan or
materially increase the benefits to Participants; or
(d) Extend the maximum period after the date of grant
during which Options or Stock Appreciation Rights may be
exercised.
15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or
modification of the Plan other than pursuant to Section 4.3
hereof shall in any manner adversely affect any Award theretofore
granted under the Plan, without the written consent of the
Participant.
15.3 DEFERRAL OF PAYMENTS AND DISTRIBUTIONS. Cash Awards
pursuant to Article 10 may be eligible for deferral by any
plan(s) offered by the company, subject to the approval of the
Committee and any administrative requirements imposed by the
Committee.
ARTICLE 16 WITHHOLDING AND DEFERRAL
------------------------
16.1 TAX WITHHOLDING. The Company and any of its Subsidiaries
shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company or any of its
Subsidiaries, an amount sufficient to satisfy Federal, state and
local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any grant,
exercise, or payment made under or as a result of this Plan.
16.2 STOCK DELIVERY OR WITHHOLDING. With respect to withholding
required upon the exercise of Stock Options, or upon the lapse of
restrictions on Restricted Stock, participants may elect, subject
to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by tendering to the Company
Shares of previously acquired Stock or by having the Company
withhold Shares of Stock, in each such case in an amount having a
Fair Market Value equal to the amount required to be withheld to
satisfy the tax withholding obligations described in
Section 16.1. The value of the Shares to be tendered or withheld
is to be based on the Fair Market Value of the Stock on the date
that the amount of tax to be withheld is to be determined. All
Stock withholding elections shall be irrevocable and made in
writing, signed by the Participant on forms approved by the
Committee in advance of the day that the transaction becomes
taxable.
Stock withholding elections made by Participants who are
subject to the short-swing profit restrictions of Section 16 of
the Exchange Act must comply with the additional restrictions of
Section 16 and Rule 16b-3 in making their elections.
ARTICLE 17 SUCCESSORS
----------
All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to
the Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger, consolidation or
otherwise, of all or substantially all of the business and/or
assets of the Company.
ARTICLE 18 REQUIREMENTS OF LAW
-------------------
18.1 REQUIREMENTS OF LAW. The granting of Awards and the
issuance of Shares of Stock under this Plan shall be subject to
all applicable laws, rules, and regulations, and to such
approvals by any governmental agencies or national securities
exchanges as may be required.
18.2 GOVERNING LAW. The Plan, and all agreements hereunder,
shall be construed in accordance with and governed by the laws of
the State of Ohio without giving effect to the principles of the
conflicts of laws.
AMENDED
FIRSTENERGY CORP.
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
--------------------------
ARTICLE I
---------
Director Election
-----------------
Any member of the Board of Directors ("Director") of
FirstEnergy Corp. (the "Company") may elect from time to time, by
written notice to the Company given on or before December 31 of
any year, to defer receipt of all or any specified part of his or
her fees (cash or stock) for services as a Director during
succeeding calendar years, including retainer fees, fees for
attending meetings of the Board of Directors and its Committees
and fees for serving as Chairman or other official of the Board
or a Committee (collectively "Director's fees"). Any person
elected to the Board who was not a Director on the preceding
December 31 may elect, by written notice to the Company given
within thirty (30) days after becoming a Director, to defer
receipt of all or any specified part of his or her Director's
fees during the balance of the calendar year following his or her
becoming a Director and succeeding calendar years.
With respect to the calendar year in which this Plan is
adopted by the Board of Directors of the Company, any Director
may elect, by written notice to the Company given within thirty
(30) days after the date on which this Plan is adopted or, if
later, within thirty (30) days after first becoming a Director,
to defer receipt of all or any specified part of his or her
Director's fees during the balance of that calendar year and
succeeding calendar years. An election to defer Director's fees
shall be irrevocable and shall continue from year to year unless
the Director terminates it by written notice to the Company on or
before December 31 of the year preceding the year to which the
termination applies.
ARTICLE II
----------
Deferred Fee Account--Balances
------------------------------
Any deferred Director's fees shall be credited by the
Company to the Director's deferred fee account to be maintained
by the Company as of the date the fees would otherwise be
payable. Adjustments to the balance in the account for deemed
interest or deemed investment gains and losses shall be made from
time to time, as determined by the Compensation Committee of the
Board of Directors of FirstEnergy Corp. (the "Committee"), but at
least annually. The Committee, in its sole discretion shall
determine whether adjustments to the account shall be made based
upon deemed interest or deemed investment earnings. If deemed
interest is selected by the Committee, the deemed interest rate
shall be the "prime rate" then in effect at The Chase Manhattan
Bank, N.A., of New York City, New York, or at another bank as the
Committee may from time to time designate. If the Committee
elects to make adjustments to the accounts in accordance with
deemed investment gains and losses, the Committee, in its sole
discretion, shall determine the investment vehicles to be used.
In its the sole discretion, the Committee may permit the Director
to designate that the balance of his or her account be invested
in one or more investment vehicles selected by the Committee, and
adjusted accordingly. The Company shall provide an annual
statement to each Director who has elected to defer fees.
One of the investment options for stock and cash retainer
fees shall be an account whose value will be adjusted as if the
deferred fees were invested in FirstEnergy Common Stock. This
account shall be called the Deferred Stock Account (DSA). At the
time cash retainer fees are designated for investment into this
account, the initial account value shall be increased by 20
percent. If a Director separates from the Board for any reason
other than death, retirement, or disability as defined by Section
22(e)(3) of the Internal Revenue Code and such retainer fees are
not kept in this account for a minimum of three years from
January 1 of the year of deferral, the Director shall forfeit the
20 percent bonus on such retainer fees and any earnings
associated with it. A Director shall be immediately entitled to
the 20 percent bonus and all associated earnings if a Change in
Control occurs as defined in Article IX. Initial unit valuation
for cash deferrals into this account shall be based on the Fair
Market Value which is the average of the closing price of
FirstEnergy Common Stock for the previous 20 business days prior
to when payment would otherwise be received. Stock deferred into
this account shall be valued at the actual purchase price,
including any commissions.
ARTICLE III
-----------
Payment to Director
-------------------
Amounts credited to a Director's deferred fee account,
including deemed interest and earnings shall be paid to the
Director in cash, either in a lump sum or in annual installments
over a period not to exceed 10 years. For this purpose, a
designation by a Director of the form of payment will be
effective only if it is made at the time of his or her election
to defer Director's fees; provided, however, that if a Director
makes a designation, he or she may change that designation by
filing a new superseding designation with the Company during the
period beginning 120 days prior and ending on the day prior to
the day on which the Director ceases to be a Director.
Payment(s) shall be made on or commencing with the January 1 next
following the day the Director ceases to be a Director unless
during the foregoing 120 day election period, the Director
designates a later payment or commencement date (not later than
the January 1 next following the day he or she attains age 72).
Payment of the balance of the DSA to the Director will be in
the form of FirstEnergy Common Stock and will be paid out when a
Director ceases to be a Director unless a separate election for
the DSA is made. The election options are the same as described
in the paragraph above. If a Director requests any change in the
date of the pay-out of his DSA, the request must be approved by
the Compensation Committee of the Board of Directors of the
Company.
A Director may at any time request an accelerated
distribution of his or her account balances, subject to a 10
percent penalty and, if applicable, forfeiture of the 20 percent
bonus and associated earnings described above if the three-year
criterion is not met. Such a request must be made in writing, in
a form and manner specified by the Committee. The Company will
distribute to the Director the balance of his or her account
minus any forfeitures and the 10 percent penalty as a lump sum
within 90 days after the end of the month in which the Committee
receives the request. Such distribution shall completely
discharge the Company from all liability with respect to the
Director's account. If the Director is an active Director, the
Director may not resume any further deferrals into the Plan until
January 1 of the second calendar year following the calendar year
in which the Director receives such distribution. If a Director
requests an accelerated distribution of his DSA, the request must
be approved by the Compensation Committee of the Board of
Directors of the Company.
A Director who is an active Director and who has been a Plan
Participant for at least five calendar years may request to
withdraw a portion of his or her deferred fees and associated
earnings. All deferred cash fees must be disbursed prior to the
disbursement of any deferred stock fees. Such request must be
made in writing in a form and manner specified by the Committee
and must specify the amount to be withdrawn and the future date
or dates to be paid. The date(s) must be the first of a month in
the second calendar year following the calendar year in which the
request was made. The request will be irrevocable after December
31 of the calendar in which it is made unless, prior to payment,
the Director separates from the Board or a Change in Control
occurs as defined in Article IX. In these instances, the request
will become null and void and the account balances will be paid
as elected by the Director or as in the paragraph below.
In the instance of a Change in Control as defined in Article
IX, all cash account balances will be paid out immediately as a
lump sum and the DSA in stock as soon as practicable.
ARTICLE IV
----------
Payment to Beneficiary
----------------------
Upon the death of a Director or a former Director prior to
the distribution of the entire balance in the Director's or
former Director's deferred fee account, the balance including
interest, shall be paid to the beneficiary or beneficiaries
designated by the Director or former Director in writing filed
with the Company, or in the absence of a designation, paid to his
or her estate, in a lump sum as soon as practicable, but no later
than January 1 of the year following the year in which the death
occurred.
ARTICLE V
---------
Assignment
----------
Except to the extent that a Director or former Director may
designate a beneficiary to receive any payment to be made
following his or her death and except by will or the laws of
descent and distribution, no rights under this Plan shall be
assignable or transferable, or subject to encumbrance or charge
of any nature.
ARTICLE VI
----------
Administration
--------------
This Plan shall be administered by the Committee as defined
in Article II. Except as otherwise provided by action of the
Board of Directors of the Company or the terms of the Plan: (a) a
majority of the members of the Committee shall constitute a
quorum for the transaction of business, and (b) all resolutions
or other actions taken by the Committee at a meeting shall be by
the vote of the majority of the committee members present, or,
without a meeting, by an instrument in writing signed by all
members of the Committee.
The powers of the Committee shall include the power to
construe, interpret, and apply this Plan, and to render
nondiscriminatory rulings or determinations. Constructions,
interpretations, and decisions of the committee shall be
conclusive and binding on all persons.
ARTICLE VII
-----------
Amendment and Termination
-------------------------
The Board of Directors of the Company may from time to time
amend, suspend, terminate or reinstate any or all of the
provisions of this Plan, except that no amendment, suspension,
termination or reinstatement shall adversely affect the deferred
fee account of any Director, former Director or beneficiary
(collectively, "Eligible Persons") as it existed immediately
before the amendment, suspension, termination or reinstatement or
the manner of payments, unless the Eligible Person shall have
consented in writing.
The Board of Directors of the Company may at any time
terminate its participation in this Plan and/or transfer its
liabilities under this Plan to a similar plan established by the
Committee. Upon the termination of its participation in this
Plan, amounts credited to deferred fee accounts of Eligible
Persons shall continue to be payable to those Eligible Persons in
accordance with the terms of this Plan. Upon termination of the
participation of the Company in this Plan, if the Board of
Directors of the Company should transfer its liabilities to
another plan, such transfer of liabilities shall not adversely
affect the deferred fee account of any Eligible Person as it
existed immediately prior to that transfer or the manner of
payments, unless the Eligible Person shall have consented in
writing.
All liabilities of the Ohio Edison Company Deferred
Compensation Plan for Directors shall be transferred to this
Plan; and this Plan shall be an amendment, restatement and
continuation of that Plan. If any deferred fee account is in pay
status or is otherwise payable to an Eligible Person, it shall
continue to be payable to that person under the same terms and
conditions as were provided under the Plan. The balance in any
deferred fee account under that Plan maintained with respect to
an individual who is a Director of FirstEnergy Corp. at the time
of the amendment or restatement of this Plan shall become payable
under the terms and conditions of this Plan; provided, however,
that the Director's deferral elections, commencement date
elections, and beneficiary elections made under the Prior Plan
shall continue to be effective under this Plan unless amended or
changed under the terms of this Plan.
Notwithstanding any other provisions of the Plan, if the
Plan is terminated and the liabilities of this Plan are not
transferred to another plan, no subsequent Director's fees may be
deferred under this Plan, the balance in a Director's deferred
account shall continue to be credited with deemed interest or
earnings in a manner similar to that described in Article II, and
the entire balance in the account (including interest) shall
become payable to the Director (or his or her beneficiary) in
accordance with the provisions of this Plan in effect at the date
of termination.
ARTICLE VIII
------------
Unfunded Plan
-------------
Deferred fee accounts maintained for purposes of this Plan
shall constitute bookkeeping records of the Company and shall not
constitute any allocation of any assets of the Company or be
deemed to create any trust or special deposit with respect to any
of the assets of the Company. The Company shall not be under any
obligation to any Director, former Director or beneficiary to
acquire, segregate or reserve any funds or other assets for
purposes relating to this Plan. No Eligible Person shall have
any rights whatsoever in or with respect to any funds or other
assets owned or held by the Company; the rights of an Eligible
Person under this Plan are solely those of a general creditor of
the Company to the extent of the amount credited to his or her
deferred fee account with the Company.
The Company may, at its discretion, establish one or more
trusts, purchase one or more insurance contracts or otherwise
invest or segregate funds for purposes relating to this Plan, but
the assets of such trusts, rights and assets of such insurance
contracts or otherwise invested or segregated funds shall at all
times remain subject to the claims of the general creditors of
the Company except to the extent and at the time any payment is
made to an Eligible Person under this Plan; and no Eligible
Person shall have any rights whatsoever in or with respect to any
trust, insurance contract or other investment or fund, or their
assets.
ARTICLE IX
----------
Change In Control
For purposes of the Plan, a "Change in Control" means any of the
following:
1. An acquisition by any person or entity of at least 50% (25%
if the acquiring person or entity proposes any individual for
election to the Board of Directors or is represented by any
member of the Board) of either the Company's outstanding common
stock ("Outstanding Common Stock") or the combined voting power
of the Company's outstanding voting securities ("Outstanding
Voting Securities"). The following acquisitions will not
constitute a Change in Control:
a) any acquisition directly from the Company (excluding
an acquisition by virtue of the exercise of a conversion
privilege);
b) any acquisition by the Company;
c) any acquisition by an employee benefit plan sponsored
by the Company or one of its affiliates (e.g., the FirstEnergy
Corp. Savings Plan);
d) any acquisition pursuant to a merger or other form of
reorganization or consolidation where the requirements of
paragraph 3 below are satisfied.
2. The current members of the Company's Board of Directors (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board. For this purpose, any individual whose
election or nomination to the Board was approved by at least a
majority of the Directors then comprising the Incumbent Board
shall be considered as though he or she were a member of the
Incumbent board, unless the individual first assumed office as a
result of an actual or threatened proxy or election contest.
3. Approval by the Company's shareholders of a reorganization,
merger or consolidation, or of a sale or other disposition of all
or substantially all of the assets of the Company, unless after
the transaction each of the following requirements are satisfied:
a) all or substantially all of the holders of the
Company's Outstanding Common Stock and Outstanding Voting
Securities immediately prior the transaction, continue to hold at
least 75% of the outstanding common stock and the combined voting
power of outstanding voting securities of the corporation
resulting from the reorganization, merger or consolidation (or of
the corporation that purchased the assets of the Company, as the
case may be) in the same proportions as they held the Company's
Outstanding Common Stock and Outstanding Voting Securities
immediately before the transaction.
b) no person or entity owns 25% or more of the
outstanding common stock or the combined voting power of
outstanding voting securities of the corporation resulting from
the reorganization, merger or consolidation (or of the
corporation that purchased the assets of the Company, as the case
may be). This 25% limitation does not apply to the Company, any
employee benefit plan sponsored by the Company or such other
corporation, or any person or entity who owned at least 25% of
the Company's Outstanding Common Stock or Outstanding Voting
Securities immediately prior to the transaction; and
c) at least a majority of the members of the Board of
Directors of the corporation resulting from the reorganization,
merger or consolidation (or of the corporation that purchased the
assets of the Company, as the case may be), were members of the
Incumbent Board of the Company at the time of the initial
agreement providing for the reorganization, merger, consolidation
or sale or other disposition of all or substantially all of the
assets of the Company.
4. Approval by the Company's shareholders of the complete
liquidation or dissolution of the Company.
However in no event will a Change in Control be deemed to have
occurred, with respect to a Director, if the Director is part of
a purchasing group which consummates the Change in Control
transaction. The Director will be deemed "part of a purchasing
group" for purposes of the preceding sentence if the Director is
an equity participant or has agreed to become an equity
participant in the purchasing company or group (excluding passive
ownership of less than 5% of the voting securities of the
purchasing company or ownership of equity participation in the
purchasing company or group which is otherwise not deemed to be
significant, as determined prior to the Change in Control by a
majority of the nonemployee, continuing members of the Board of
Directors).
ARTICLE X
---------
Miscellaneous
-------------
The invalidity or unenforceability of any particular
provision of this Plan shall not affect any other provision, and
the Plan shall be construed in all respects as if invalid or
unenforceable provisions were omitted.
This Plan shall be construed and governed in accordance with
the laws of the State of Ohio without giving effect to principles
of conflicts of laws.
<TABLE>
FIRSTENERGY CORP.
SELECTED FINANCIAL DATA
<CAPTION>
For the Years Ended December 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 5,861,285 $ 2,960,196 $2,521,788 $2,500,770 $2,390,957
--------------------------------------------------------------------
Income Before Extraordinary Item $ 441,396 $ 305,774 $ 302,673 $ 294,747 $ 281,852
--------------------------------------------------------------------
Net Income $ 410,874 $ 305,774 $ 302,673 $ 294,747 $ 281,852
--------------------------------------------------------------------
Earnings per Share of Common Stock:
Before Extraordinary Item $1.95 $1.94 $2.10 $2.05 $1.97
After Extraordinary Item $1.82 $1.94 $2.10 $2.05 $1.97
--------------------------------------------------------------------
Dividends Declared per Share of
Common Stock $1.50 $1.50 $1.50 $1.50 $1.50
--------------------------------------------------------------------
Total Assets $18,063,507 $18,080,795 $9,054,457 $8,892,088 $9,045,255
--------------------------------------------------------------------
Capitalization at December 31:
Common Stockholders' Equity $ 4,449,158 $ 4,159,598 $2,503,359 $2,407,871 $2,317,197
Preferred Stock:
Not Subject to Mandatory Redemption 660,195 660,195 211,870 211,870 328,240
Subject to Mandatory Redemption 294,710 334,864 155,000 160,000 40,000
Long-Term Debt 6,352,359 6,969,835 2,712,760 2,786,256 3,166,593
--------------------------------------------------------------------
Total Capitalization $11,756,422 $12,124,492 $5,582,989 $5,565,997 $5,852,030
====================================================================
PRICE RANGE OF COMMON STOCK
FirstEnergy Corp.'s Common Stock is listed on the New York Stock Exchange
and is traded on other registered exchanges. Trading of the common stock began
on November 10, 1997. Prices represent Ohio Edison Company Common Stock before
November 10, 1997 and FirstEnergy Corp. Common Stock beginning November 10, 1997.
<CAPTION>
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter High-Low 31-5/8 27-7/8 23-7/8 20-7/8
Second Quarter High-Low 31-7/8 28-1/2 22 19-1/4
Third Quarter High-Low 31-5/16 27-1/16 23-5/8 21-3/4
Fourth Quarter High-Low 34-1/16 29-3/16 29 22-13/16
Yearly High-Low 34-1/16 27-1/16 29 19-1/4
<FN>
Prices are based on reports published in The Wall Street Journal for New York
Stock Exchange Composite Transactions.
</TABLE>
HOLDERS OF COMMON STOCK
As of December 31, 1998 and January 31, 1999, there were 197,741 and 196,337
holders, respectively, of the 237,069,087 shares of the Company's Common Stock.
Information regarding retained earnings available for payment of cash dividends
is given in Note 3A.
<PAGE>
FirstEnergy Corp.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
This discussion includes forward-looking statements based on
information currently available to management that are subject to
certain risks and uncertainties. These statements typically contain,
but are not limited to, the terms anticipate, potential, expect,
believe, estimate and similar words. Actual results may differ
materially due to the speed and nature of increased competition and
deregulation in the electric utility industry, economic or weather
conditions affecting future sales and margins, changes in markets for
energy services, changing energy market prices, legislative and
regulatory changes, and the availability and cost of capital and other
similar factors.
Results of Operations
FirstEnergy Corp. (Company) was formed when the merger of
Ohio Edison Company (OE) and Centerior Energy Corporation (Centerior)
became effective on November 8, 1997. The merger has been accounted for
by using purchase accounting under the guidelines of Accounting
Principles Board Opinion No. 16, "Business Combinations." Under
purchase accounting, the results of operations for the combined entity
are reported from the point of consummation forward. As a result, our
financial statements for 1997 reflect twelve months of operations for
OE and its wholly owned subsidiary, Pennsylvania Power Company (Penn),
but include only seven weeks (November 8, to December 31, 1997) for the
former Centerior companies, which include The Cleveland Electric
Illuminating Company (CEI) and The Toledo Edison Company (TE). Results
for 1998 include operations for the entire year for OE and Penn (OE
companies), CEI and TE. On June 8, 1998, we acquired MARBEL Energy
Corporation (MARBEL), an integrated natural gas company. Also, during
1998, FirstEnergy Facilities Services Group, Inc. (FE Facilities), a
wholly owned subsidiary of the Company, acquired eight companies which
principally provide heating, ventilating and air-conditioning services.
See Note 1 for additional information. All acquisitions in 1998 were
accounted for using purchase accounting and are included in our
consolidated results from their respective acquisition dates.
We continued to take steps in 1998 to better position
FirstEnergy as competition continues to expand in the electric utility
industry. The acquisitions completed in 1998 reflect our strategy to
provide customers an expanded portfolio of energy-related products and
services. We also invested in new information systems with enhanced
functionality which also address Year 2000 application deficiencies.
Cash savings of $173 million were captured in 1998 from initiatives
implemented during the year in connection with our merger. About one-
half of that amount resulted from staffing reductions.
Basic and diluted earnings per share of common stock were
$1.82 for 1998 compared to $1.94 for 1997. Results for 1998 were
adversely affected by a one-time, extraordinary charge of $30.5 million
after taxes, or $.13 per common share, related to Penn's discontinued
application of Statement of Financial Accounting Standards No. 71 (SFAS
71), "Accounting for the Effects of Certain Types of Regulation", to
its generation business, as discussed later in this report.
Additionally, sharp increases in the spot market price for electricity
occasioned by a constrained power supply and heavy customer demand in
the latter part of June 1998, combined with unscheduled generating unit
outages, resulted in spot market purchases of power at prices which
substantially exceeded amounts recovered from retail customers. The
recovery shortfall reduced 1998 net income by approximately $50 million
or $.22 per common share. Finally, unprecedented market prices for
electricity in June 1998 contributed to credit losses totaling $27
million after taxes or $.12 per common share. Four power marketers with
which the Company's FirstEnergy Trading & Power Marketing, Inc. (FETPM)
subsidiary had transactions under contract defaulted as a result of
June's price movements. Earnings for 1997 were also affected by
nonrecurring charges, primarily resulting from merger-related staffing
reductions, which decreased basic and diluted earnings by $.22 per
common share.
Revenue in 1998 increased by $2.9 billion over the previous
year, primarily reflecting a full twelve months of results for the
former Centerior companies in the Electric Utility Operating Companies
(EUOC) business segment compared to seven weeks in 1997. The EUOCs
represent our vertically integrated electric utility operations. As
discussed later, we anticipate future changes to our business segments
to align with our strategy as the electric utility industry
restructures. The sources of the increases in revenue during 1998 and
1997 are summarized in the following table.
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------
(In millions)
<S> <C> <C>
Electric sales
OE companies --
Increase in average retail prices $ 27.0 $ 13.3
Change in retail kilowatt-hour sales (0.1) 7.8
Wholesale 13.3 (27.5)
- -----------------------------------------------------------------------
Net OE companies 40.2 (6.4)
Centerior acquisition 2,196.4 350.6
Intercompany sales (31.9) (3.8)
- -----------------------------------------------------------------------
Total electric sales 2,204.7 340.4
Other electric utility revenues 102.3 54.6
- -----------------------------------------------------------------------
Electric utility operating companies 2,307.0 395.0
FETPM 367.6 43.1
Other business acquisitions 226.5 0.3
- -----------------------------------------------------------------------
Net Revenue Increase $2,901.1 $438.4
=======================================================================
</TABLE>
Retail kilowatt-hour sales for the OE companies in 1998 were
approximately the same as the previous year at 27.3 billion kilowatt-
hours after setting a new record in 1997. Residential and commercial
kilowatt-hour sales increased 1.7% and 3.5%, respectively, from 1997,
offset by a 3.6% decrease in industrial sales. Residential and
commercial kilowatt-hour sales benefited from continued growth in the
retail customer base, with over 11,000 new retail customers added in
1998 compared to approximately 4,900 new retail customers in 1997. The
closure of an electric arc furnace by a large steel customer in the
latter part of 1997 and a general decline in electricity demand by
steel manufacturers due to intense foreign competition contributed to
the lower industrial sales. Sales to wholesale customers by the OE
companies increased 8.9% contributing to an increase in total kilowatt-
hour sales of 1.4%. In 1997, commercial and industrial kilowatt-hour
sales increased 1.2% and 1.0%, respectively, from 1996, partially
offset by a 0.8% decrease in residential sales resulting in a 0.5%
increase in retail kilowatt-hour sales. A decrease in kilowatt-hour
sales to wholesale customers contributed to a 5.0% decline in total
kilowatt-hour sales in 1997 compared to 1996.
Total expenses increased $2.4 billion in 1998 compared to the
prior year primarily due to the inclusion of a full twelve months of
expenses for the former Centerior companies compared to seven weeks of
expense in the 1997 results. Fuel and purchased power costs were up
$497.5 million in 1998 compared to 1997. Excluding the former Centerior
companies, fuel and purchased power costs for the OE companies
increased $74.4 million. Most of the increase occurred in the second
quarter and resulted from a combination of factors. In late June 1998,
the midwestern and southern regions of the United States experienced
electricity shortages caused mainly by record temperatures and humidity
and unscheduled generating unit outages. During that period, the Beaver
Valley Plant was out of service and the Davis-Besse Plant was removed
from service as a result of damage to transmission facilities caused by
a tornado. Also, Avon Lake Unit 9 experienced an unscheduled outage
during the period due to lightning-related transformer damage. As a
result, the EUOCs purchased significant amounts of power on the spot
market at unusually high prices, causing an increase in purchased power
costs. In 1997, excluding the results for the former Centerior
companies, fuel and purchased power costs were down $19.4 million from
the previous year due to lower total kilowatt-hour sales.
Other expenses for the EUOCs increased in 1998 and 1997 as a
result of the inclusion of the Centerior results. Excluding the former
Centerior companies, 1998 nonnuclear costs decreased $34.8 million from
the previous year due primarily to the absence of expenses related to a
1997 voluntary retirement program and estimated severance costs which
increased other expenses for that year. For the OE companies, nuclear
costs increased $12.2 million in 1998 and $20.0 million in 1997
reflecting higher costs at the Beaver Valley Plant. Expenses for the
facilities services companies in 1998 reflect costs incurred from their
respective acquisition dates. Other expenses for electric trading and
power marketing activities increased in 1998 compared to 1997 due to a
substantial expansion of activity at FETPM.
Depreciation and amortization increased compared to the prior
year in both 1998 and 1997. Excluding the effect of the former
Centerior companies, depreciation and amortization in 1998 decreased
$14.2 million from the prior year due primarily to the net effect of
the OE and Penn rate plans. The Pennsylvania Public Utility
Commission's (PPUC) authorization of Penn's rate restructuring plan in
the second quarter led to discontinued application of certain
regulatory accounting procedures (i.e. SFAS 71) to Penn's generation
business, resulting in a write down of its nuclear generating unit
investment and the recognition of a portion of such investment,
recoverable through future customer rates, as a regulatory asset. Net
of the Centerior contribution to results in 1997, the increase in
depreciation and amortization resulted from accelerations under the
regulatory plans. General taxes increased for the OE companies in 1998
compared to 1997 in part because of gross receipts taxes on increased
electric sales revenue. This followed a decrease in 1997 due to lower
property taxes and an adjustment in the second quarter of that year
which reduced the OE companies' liabilities for gross receipt taxes.
Interest expenses increased due to the inclusion of the
former Centerior companies for both 1998 and 1997. Excluding the impact
of the merger, interest on long-term debt for the OE companies
continued to trend downward due to refinancings and redemptions of
long-term debt. Other interest expense increased as a result of
increased short-term borrowings.
Capital Resources and Liquidity
Savings from improved efficiency helped to fund the strategic
investments we made in 1998 while strengthening our financial position.
We continue to streamline our electric utility operations, as evidenced
by the 50% increase in our customer/employee ratio over the past five
years, from 165 at the end of 1993 to 247 as of December 31, 1998. We
also continued to reduce our capital costs. During 1998, net
redemptions of long-term debt and preferred stock totaled $430 million,
including $176 million of optional redemptions. In addition, we
completed $230 million of refinancings. Combined, these actions will
produce annualized savings of $42 million. The average cost of long-
term debt was reduced to 7.83% in 1998 from 8.02% at the end of 1997.
In the first quarter of 1998, we formed an alliance with
British Petroleum (BP) to help ensure the long-term viability of BP's
refinery operation in the TE service area while also generating
additional revenue for our Company. Bay Shore Power Company, a
FirstEnergy subsidiary, will build a new state-of-the-art steam-
generating plant fueled by a waste by-product from a new lower-cost
refinery process at BP's Oregon, Ohio facility. Steam from the plant
will supply both the refinery and a Bay Shore generating unit. To fund
the project, Bay Shore Power issued $147.5 million of solid waste-
disposal revenue bonds during the first quarter of 1998. As of December
31, 1998, approximately $88 million of the funds from the revenue bonds
were invested for financing future construction.
We had about $77.8 million of cash and temporary investments
and $254.5 million of short-term indebtedness on December 31, 1998. Our
unused borrowing capability included $146.5 million under revolving
lines of credit and a $2.0 million bank facility that provide for
borrowings on a short-term basis at the bank's discretion.
Our cash requirements in 1999 for operating expenses,
construction expenditures and scheduled debt maturities are expected to
be met without issuing new securities. During 1998, we reduced our
total debt by approximately $278 million. We have cash requirements of
approximately $2.6 billion for the 1999-2003 period to meet scheduled
maturities of long-term debt and preferred stock. Of that amount,
approximately $712 million applies to 1999. On November 17, 1998, we
announced our intention to repurchase up to 15 million shares of the
Company's common stock over a three-year period beginning in 1999.
Our capital spending for the period 1999-2003 is expected to
be about $2.2 billion (excluding nuclear fuel), of which approximately
$556 million applies to 1999. Investments for additional nuclear fuel
during the 1999-2003 period are estimated to be approximately $399
million, of which about $46 million applies to 1999. During the same
periods, our nuclear fuel investments are expected to be reduced by
approximately $438 million and $93 million, respectively, as the
nuclear fuel is consumed. Also, we have operating lease commitments,
net of trust cash receipts, of approximately $765 million for the 1999-
2003 period, of which approximately $159 million relates to 1999.
Nine acquisitions were completed during 1998, representing
strategic investments designed to expand our portfolio of energy-
related products and services. The acquisition of MARBEL, a fully
integrated natural gas company based in Canton, Ohio, was completed in
June 1998. FE Facilities also acquired eight additional facilities
services companies during the year bringing the total number of
facilities services acquisitions to ten companies by the end of 1998.
For 1998, our facilities services companies provided revenue of $198
million with more than 3,000 employees.
During 1998, we established a national sales group within
FirstEnergy Services Corp. to pursue sales in the unregulated electric
utility market. The national sales group began selling in the
Pennsylvania market following the restructuring which opened the
generation business to increased competition.
FirstEnergy signed an agreement in principle with Duquesne
Light Company (Duquesne) that would result in the transfer of 1,436
megawatts owned by Duquesne at five generating plants in exchange for
1,328 megawatts at three plants owned by our EUOCs (see "Common
Ownership of Generating Facilities" in Note 1). Final agreements
relating to the exchange of assets, which will be structured as a tax-
free transaction to the extent possible, are being negotiated. The
transaction benefits the Company by providing exclusive ownership and
operating control of all generating assets that are now jointly owned
and operated under the Central Area Power Coordination Group agreement.
In a final step to achieve complete ownership and operating
control over our power plants, we signed an agreement to purchase from
GPU, Inc. its 20 percent interest in the Seneca Pumped-Storage
Hydroelectric Plant (87 megawatts). The added capacity will enhance our
ability to meet our customers' demand for electricity during peak
periods.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is
mitigated since a significant portion of our debt has fixed interest
rates, as noted in the table below. We are subject to the inherent
interest rate risks related to refinancing maturing debt by issuing new
debt securities. As discussed in Note 2, our investments in capital
trusts effectively reduce future lease obligations, also reducing
interest rate risk. Changes in the market value of our nuclear
decommissioning trust funds are recognized by making a corresponding
change to the decommissioning liability, as described in Note 1.
The table below presents principal amounts and related
weighted average interest rates by year of maturity for our investment
portfolio, debt obligations and preferred stock with mandatory
redemption provisions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
(Dollars in millions)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than Cash
and Cash Equivalents
Fixed Income $ 98 $ 91 $ 55 $ 84 $ 97 $1,406 $1,831 $1,942
Average interest rate 6.9% 5.1% 7.7% 7.7% 7.7% 7.7% 7.5%
- ---------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------
Long-term Debt
Fixed rate $420 $373 $105 $724 $459 $3,921 $6,002 $6,464
Average interest rate 7.6% 7.0% 8.7% 7.9% 8.0% 7.6% 7.6%
Variable rate $252 $ 4 $ 3 $ 2 $ 1 $ 519 $ 781 $ 783
Average interest rate 6.0% 6.3% 6.3% 6.2% 6.3% 3.8% 4.6%
Short-term Borrowings $254 $ 254 $ 254
Average interest rate 5.7% 5.7%
- ---------------------------------------------------------------------------------------
Preferred Stock $ 40 $ 38 $ 85 $ 20 $ 2 $ 139 $ 324 $ 340
Average dividend rate 8.9% 8.9% 8.9% 8.9% 7.5% 8.8% 8.8%
- ---------------------------------------------------------------------------------------
</TABLE>
Market Risk - Commodity Prices
We are exposed to market risk due to fluctuations in
electricity and natural gas prices. To manage the volatility relating
to these exposures, we use a variety of derivative instruments,
including forward contracts, options and futures contracts. These
derivatives are used principally for hedging purposes and to a lesser
extent, for trading purposes. A sensitivity analysis has been prepared
to estimate our exposure to the market risk of our commodity position.
A hypothetical 10 percent adverse shift in quoted market prices in the
near term on both our trading and non-trading instruments would not
have had a material effect on our consolidated financial position,
results of operations or cash flows as of or for the year ended
December 31, 1998.
Outlook
We face many competitive challenges in the years ahead as the
electric utility industry undergoes significant changes, including
changing regulation and the entrance of more energy suppliers into the
marketplace. Retail wheeling, which has begun in our Pennsylvania
service area, allows retail customers to purchase electricity from
other energy producers. Our regulatory plans have provided a solid
foundation to position us to meet the challenges we are facing by
significantly reducing fixed costs and lowering rates to a more
competitive level.
OE's Rate Reduction and Economic Development Plan was
approved by the Public Utilities Commission of Ohio (PUCO) in 1995 and
FirstEnergy's Rate Reduction and Economic Development Plan for CEI and
TE was approved in January 1997. These regulatory plans maintain base
electric rates for OE, CEI and TE through December 31, 2005. The plans
also revised the OE, CEI and TE fuel cost recovery methods. Penn's Rate
Stability and Economic Development Plan, which was approved by the PPUC
in the second quarter of 1996, ended in 1998 with the PPUC's
authorization of Penn's rate restructuring plan.
As part of OE's regulatory plan, transition rate credits were
implemented for customers, which are expected to reduce electric
operating revenues by approximately $600 million during the regulatory
plan period, which is to be followed by a base rate reduction of
approximately $300 million in 2006. The base rate freeze for CEI and TE
is to be followed by a $310 million base rate reduction in 2006;
interim reductions which began in June 1998 of $3 per month will
increase to $5 per month per residential customer by July 1, 2001.
Total savings of $391 million are anticipated over the term of the plan
for CEI's and TE's customers. CEI and TE have also committed $105
million for economic development and energy efficiency programs.
The PUCO has authorized OE to recognize additional capital
recovery related to its generating assets (which is reflected as
additional depreciation expense) and additional amortization of
regulatory assets during the regulatory plan period of at least $2
billion more than the amount that would have been recognized if the
regulatory plan was not in effect. This additional amount is being
recovered through current rates.
In the regulatory plan for CEI and TE, the PUCO authorized
for regulatory accounting purposes, additional capital recovery related
to CEI's and TE's generating assets and additional amortization of
regulatory assets during the regulatory plan period of at least $2
billion more than the amounts that would have been recognized if these
regulatory plans were not in effect. These additional regulatory
charges will be recognized over the rate plan period. The FirstEnergy
regulatory plan does not provide for full recovery of CEI's and TE's
nuclear operations. Accordingly, regulatory assets representing
customer receivables for future income taxes related to nuclear assets
of $794 million were written off prior to consummation of the merger in
1997 since CEI and TE ceased application of SFAS 71 for their nuclear
operations when implementation of the FirstEnergy regulatory plan
became probable. At the consummation of the merger in November 1997,
CEI and TE recognized a fair value purchase accounting adjustment,
which decreased the carrying value of their nuclear assets by
approximately $2.55 billion. The fair value adjustment recognized for
financial reporting purposes will ultimately satisfy the $2 billion
asset reduction commitment contained in the CEI and TE regulatory plan.
Based on the current regulatory environment and our
regulatory plans, we believe we will continue to be able to bill and
collect cost-based rates relating to CEI's and TE's nonnuclear
operations and all of OE's operations. As a result, we will continue
the application of SFAS 71. However, changes in the regulatory
environment appear to be on the horizon for electric utilities in Ohio.
As further discussed below, the Ohio legislature is in the discussion
stages of restructuring the State's electric utility industry. Although
we believe that regulatory changes are possible in 1999, we cannot
currently estimate the ultimate impact.
For Penn, application of SFAS 71 was discontinued for the
generation portion of its business in June 1998 following PPUC approval
of the rate-restructuring plan. Customer choice will be phased in over
two years with 66% of each customer class able to choose alternative
suppliers of generation on January 2, 1999, and all remaining customers
having choice as of January 2, 2000. Under the plan, Penn continues to
deliver power to homes and businesses through its transmission and
distribution system, which remains regulated. However, Penn's rates
have been restructured to establish separate charges for transmission
and distribution; generation, which is subject to competition; and
stranded cost recovery. In the event customers obtain power from an
alternative source, the generation portion of Penn's rates will be
excluded from their bill and the customers will receive a generation
charge from the alternative supplier. The stranded cost recovery
portion of rates provides for recovery of certain amounts not otherwise
considered recoverable in a competitive generation market, including
regulatory assets. Penn is entitled to recover $234 million of stranded
costs through a competitive transition charge that starts in 1999 and
ends in 2005.
We continue to actively pursue the enactment of fair
legislation calling for deregulation of Ohio's investor-owned electric
utility industry. In early 1998, a deregulation proposal was
introduced, leading to the creation of a working group to recommend
legislation. As requested by legislative leadership, investor-owned
utilities introduced a deregulation plan with objectives to (1) treat
all major stakeholders in Ohio's electric system fairly; (2) protect
public schools and local governments from revenue loss; and (3) allow
utilities an opportunity to recover costs of government-mandated
investments. The utilities have submitted proposals which incorporate
these objectives and also recognize the complexity of restructuring the
industry. The overlying objective is to do the job right the first
time. Currently, the working group, comprised of legislative leaders,
representatives of the electric utility companies and other interested
stakeholders are meeting to discuss and mold these proposals. Most
recently, placeholder bills containing statements of principle (that
will be replaced by specific proposals as they are agreed upon) have
been introduced. Legislative leaders have placed a high priority on
enacting a deregulation bill by mid-year.
The Clean Air Act Amendments of 1990, discussed in Note 5,
require additional emission reductions by 2000. We are pursuing cost-
effective compliance strategies for meeting these reduction
requirements.
On September 24, 1998, the Federal Environmental Protection
Agency issued a final rule establishing tighter nitrogen oxide emission
requirements for fossil fuel-fired utility boilers in Ohio,
Pennsylvania and twenty other eastern states, including the District of
Columbia (see "Environmental Matters" in Note 5). Controls must be in
place by May 2003, with required reductions achieved during the five-
month summer ozone season (May through September). The new rule is
expected to increase the cost of producing electricity; however, we
believe that we are in a better position than a number of other
utilities to achieve compliance due to our diversified nuclear and
hydroelectric generation capacity.
CEI and TE have been named as "potentially responsible
parties" (PRPs) for three sites listed on the Superfund National
Priorities List and are aware of their potential involvement in the
cleanup of several other sites. Allegations that CEI and TE disposed of
hazardous waste at these sites, and the amount involved are often
unsubstantiated and subject to dispute. Federal law provides that all
PRPs for a particular site be held liable on a joint and several basis.
If CEI and TE were held liable for 100% of the cleanup costs of all the
sites referred to above, the cost could be as high as $313 million.
However, we believe that the actual cleanup costs will be substantially
lower than $313 million, that CEI's and TE'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. CEI and TE have accrued
a $5.8 million liability as of December 31, 1998, based on estimates of
the costs of cleanup and their proportionate responsibility for such
costs. We believe that the ultimate outcome of these matters will not
have a material adverse effect on our financial condition, cash flows
or results of operations.
In connection with the regulatory plans of our electric
utility operating companies to reduce fixed costs and lower rates, we
continue to take steps to restructure our operations. We announced
plans to transfer our transmission assets into a new subsidiary,
American Transmission Systems, Inc., with the transfer expected to be
finalized in 1999. The new subsidiary represents a first step toward
the goal of establishing or becoming part of a larger independent
transmission company (TransCo). We believe that a TransCo better
addresses the Federal Energy Regulatory Commission's (FERC) stated
transmission objectives of providing non-discriminatory service, while
providing for streamlined and cost-efficient operation. In working
toward the goal of forming a larger regional transmission entity,
FirstEnergy, American Electric Power, Virginia Power and Consumers
Energy announced in November 1998 that they would prepare a FERC filing
during the first quarter of 1999 for such a regional transmission
entity. The entity would be designed to meet the goals of reducing
transmission costs that result when transferring power over several
transmission systems, ensuring transmission reliability and providing
non-discriminatory access to the transmission grid.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities". The
Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded on the balance sheet as either
an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the
income statement. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. A company may implement the Statement for any
fiscal quarter beginning after June 16, 1998. We have not yet
quantified the impacts of adopting SFAS 133 on our financial statements
or determined the method of its adoption. We anticipate adopting the
new Statement effective January 1, 2000.
Year 2000 Readiness
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to identify the applicable
year. Any of our programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
Because so many of our computer functions are date sensitive, this
could cause far-reaching problems, such as system-wide computer
failures and miscalculations, if no remedial action is taken.
We have developed a multi-phase program for Year 2000
compliance that consists of an assessment of our systems and operations
that could be affected by the Year 2000 problem; remediation or
replacement of noncompliant systems and components; and testing of
systems and components following such remediation or replacement. We
have focused our Year 2000 review on three areas: centralized system
applications, noncentralized systems and relationships with third
parties (including suppliers as well as end-use customers). Our review
of system readiness extends to systems involving customer service,
safety, shareholder needs and regulatory obligations.
We are committed to taking appropriate actions to eliminate
or lessen negative effects of the Year 2000 issue on our operations. We
have completed an inventory of all computer systems and hardware
including equipment with embedded computer chips and have determined
which systems need to be converted or replaced to become Year 2000-
ready and are in the process of remediating them. Based on our
timetable, we expect to have all identified repairs, replacements and
upgrades completed to achieve Year 2000 readiness by September 1999.
Most of our Year 2000 issues will be resolved through system
replacement. Of our major centralized systems, the general ledger
system and inventory management, procurement and accounts payable
systems were replaced at the end of 1998. Our payroll system was
enhanced to be Year 2000 compliant in July 1998; all employees have
been converted to the new system. The customer service system is due to
be replaced in mid-1999.
We have completed formal communications with most of our key
suppliers to determine the extent to which we are vulnerable to those
third parties' failure to resolve their own Year 2000 problems. For
suppliers having potential compliance problems, we are developing
alternate sources and services in the event such noncompliance occurs.
We are also identifying areas requiring higher inventory levels based
on compliance uncertainties. There can be no guarantee that the failure
of companies to resolve their own Year 2000 issue will not have a
material adverse effect on our business, financial condition and
results of operations.
We are using both internal and external resources to
reprogram and/or replace and test our software for Year 2000
modifications. Of the $92 million total project cost, approximately $74
million will be capitalized since those costs are attributable to the
purchase of new software for total system replacements because the Year
2000 solution comprises only a portion of the benefits resulting from
the system replacements. The remaining $18 million will be expensed as
incurred. As of December 31, 1998, we have spent $54 million for Year
2000 capital projects and had expensed approximately $9 million for
Year 2000-related maintenance activities. Our total Year 2000 project
cost, as well as our estimates of the time needed to complete remedial
efforts, are based on currently available information and do not
include the estimated costs and time associated with the impact of
third party Year 2000 issues.
We believe we are managing the Year 2000 issue in such a way
that our customers will not experience any interruption of service. We
believe the most likely worst-case scenario from the Year 2000 issue
will be disruption in power plant monitoring systems, thereby producing
inaccurate data and potential failures in electronic switching
mechanisms at transmission junctions. This would prolong localized
outages, as technicians would have to manually activate switches. Such
an event could have a material, but currently undeterminable, effect on
our financial results. We are developing contingency plans to address
the effects of any delay in becoming Year 2000 compliant and expect to
have contingency plans completed by June 1999.
The costs of the project and the dates on which we plan to
complete the Year 2000 modifications are based on management's best
estimates, which were derived from numerous assumptions of future
events including the continued availability of certain resources, and
other factors. However, there can be no guarantee that this project
will be completed as planned and actual results could differ materially
from the estimates. Specific factors that might cause material
differences include but are not limited to, the availability and cost
of trained personnel, the ability to locate and correct all relevant
computer code, and similar uncertainties.
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES
Electric sales $4,979,718 $2,774,996 $2,434,633
Other - electric utilities 244,129 141,813 87,155
Facilities services 198,336 -- --
Electric trading and power marketing 410,728 43,145 --
Other 28,374 242 --
---------- ---------- ----------
Total revenues 5,861,285 2,960,196 2,521,788
---------- ---------- ----------
EXPENSES
Fuel and purchased power 983,735 486,267 456,629
Other expenses:
Electric utilities 1,478,840 850,217 670,819
Facilities services 184,440 -- --
Electric trading and power marketing 517,001 44,032 --
Other 41,337 -- --
Provision for depreciation and amortization 740,953 475,228 383,441
General taxes 550,908 282,163 241,998
---------- ---------- ----------
Total expenses 4,497,214 2,137,907 1,752,887
---------- ---------- ----------
INCOME BEFORE INTEREST AND INCOME TAXES 1,364,071 822,289 768,901
---------- ---------- ----------
NET INTEREST CHARGES:
Interest expense 542,819 284,180 240,146
Allowance for borrowed funds used during construction
and capitalized interest (7,642) (3,469) (3,136)
Subsidiaries' preferred stock dividends 65,799 27,818 27,923
---------- ---------- ---------
Net interest charges 600,976 308,529 264,933
---------- ---------- ----------
INCOME TAXES 321,699 207,986 201,295
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 441,396 305,774 302,673
EXTRAORDINARY ITEM (NET OF INCOME TAX
BENEFIT OF $21,208,000) (Note 1) (30,522) -- --
---------- ---------- ----------
NET INCOME $ 410,874 $ 305,774 $ 302,673
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 226,373 157,464 144,095
========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK (Note 3C):
Income before extraordinary item $1.95 $1.94 $2.10
Extraordinary item (Net of income taxes) (Note 1) (.13) -- --
----- ----- -----
Net income $1.82 $1.94 $2.10
===== ===== =====
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $1.50 $1.50 $1.50
===== ===== =====
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1998 1997
- -----------------------------------------------------------------------------------------
(In thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 77,798 $ 98,237
Receivables--
Customers (less accumulated provisions of
$6,397,000 and $5,618,000,respectively, for
uncollectible accounts) 239,183 284,162
Other (less accumulated provisions of
$46,251,000 and $4,026,000,respectively, for
uncollectible accounts) 322,186 219,106
Materials and supplies, at average cost--
Owned 145,926 154,961
Under consignment 110,109 82,839
Prepayments and other 171,931 163,686
----------- -----------
1,067,133 1,002,991
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
In service 14,961,664 15,104,327
Less--Accumulated provision for depreciation 6,012,761 5,668,997
----------- -----------
8,948,903 9,435,330
Construction work in progress 293,671 200,662
----------- -----------
9,242,574 9,635,992
----------- -----------
INVESTMENTS:
Capital trust investments (Note 2) 1,329,010 1,370,177
Letter of credit collateralization (Note 2) 277,763 277,763
Other 812,231 596,380
----------- -----------
2,419,004 2,244,320
----------- -----------
DEFERRED CHARGES:
Regulatory assets 2,696,762 2,624,144
Goodwill 2,167,968 2,107,795
Other 470,066 465,553
----------- -----------
5,334,796 5,197,492
----------- -----------
$18,063,507 $18,080,795
=========== ===========
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock $ 876,470 $ 470,436
Short-term borrowings (Note 4) 254,470 302,229
Accounts payable 305,326 312,690
Accrued taxes 401,688 381,937
Accrued interest 141,575 147,694
Other 203,460 193,850
----------- -----------
2,182,989 1,808,836
----------- -----------
CAPITALIZATION (See Consolidated Statements
of Capitalization):
Common stockholders' equity 4,449,158 4,159,598
Preferred stock of consolidated subsidiaries--
Not subject to mandatory redemption 660,195 660,195
Subject to mandatory redemption 174,710 214,864
Ohio Edison obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely Ohio Edison subordinated debentures 120,000 120,000
Long-term debt 6,352,359 6,969,835
----------- -----------
11,756,422 12,124,492
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes 2,282,864 2,304,305
Accumulated deferred investment tax credits 286,154 324,200
Pensions and other postretirement benefits 525,647 492,425
Other 1,029,431 1,026,537
----------- -----------
4,124,096 4,147,467
----------- -----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Notes 2 and 5) ----------- -----------
$18,063,507 $18,080,795
=========== ===========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.10 par value
authorized 300,000,000 shares-237,069,087 and 230,207,141
shares outstanding, respectively $ 23,707 $ 23,021
Other paid-in capital 3,846,513 3,637,522
Accumulated other comprehensive income (Note 3D) (439) (614)
Retained earnings (Note 3A) 718,409 646,646
Unallocated employee stock ownership plan common stock-
7,406,332 and 7,829,538 shares, respectively (Note 3B) (139,032) (146,977)
---------- ----------
Total common stockholders' equity 4,449,158 4,159,598
---------- ----------
Number of Shares Optional
Outstanding Redemption Price
---------------- ------------------------
1998 1997 Per Share Aggregate
---- ---- --------- ---------
<S> <C> <C> <C> <C>
PREFERRED STOCK OF CONSOLIDATED
SUBSIDIARIES (Note 3E)
Ohio Edison Company (OE)
Cumulative, $100 par value-
Authorized 6,000,000 shares
Not Subject to Mandatory Redemption:
3.90% 152,510 152,510 $103.63 $15,804 15,251 15,251
4.40% 176,280 176,280 108.00 19,038 17,628 17,628
4.44% 136,560 136,560 103.50 14,134 13,656 13,656
4.56% 144,300 144,300 103.38 14,917 14,430 14,430
--------- --------- ------- ---------- ----------
609,650 609,650 63,893 60,965 60,965
Cumulative, $25 par value-
Authorized 8,000,000 shares
Not Subject to Mandatory Redemption:
7.75% 4,000,000 4,000,000 100,000 100,000
--------- --------- ------- ---------- ----------
Total not subject to
mandatory redemption 4,609,650 4,609,650 $63,893 160,965 160,965
========= ========= ======= ---------- ----------
Cumulative, $100 par value-
Subject to Mandatory Redemption
(Note 3F):
8.45% 150,000 200,000 15,000 20,000
Redemption within one year (5,000) (5,000)
--------- --------- --------- ----------
150,000 200,000 10,000 15,000
========= ========= --------- ----------
Pennsylvania Power Company
Cumulative, $100 par value-
Authorized 1,200,000 shares
Not Subject to Mandatory Redemption:
4.24% 40,000 40,000 103.13 $ 4,125 4,000 4,000
4.25% 41,049 41,049 105.00 4,310 4,105 4,105
4.64% 60,000 60,000 102.98 6,179 6,000 6,000
7.64% 60,000 60,000 101.42 6,085 6,000 6,000
7.75% 250,000 250,000 -- -- 25,000 25,000
8.00% 58,000 58,000 102.07 5,920 5,800 5,800
--------- --------- -------- ---------- ----------
Total not subject to mandatory
redemption 509,049 509,049 $ 26,619 50,905 50,905
========= ========= ======== ---------- ----------
Subject to Mandatory Redemption
(Note 3F):
7.625% 150,000 150,000 106.86 $ 16,029 15,000 15,000
========= ========= ======== ---------- ----------
OE OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY OE SUBORDINATED
DEBENTURES (Note 3G):
Cumulative, $25 par value-
Authorized 4,800,000 shares
Subject to Mandatory Redemption:
9.00% 4,800,000 4,800,000 120,000 120,000
========= ========= ---------- ----------
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
<CAPTION>
At December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Number of Shares Optional
Outstanding Redemption Price
---------------- ------------------------
1998 1997 Per Share Aggregate
---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK OF CONSOLIDATED
SUBSIDIARIES (Cont'd)
Cleveland Electric Illuminating Company
Cumulative, Without Par Value--
Authorized 4,000,000 shares
Not Subject to Mandatory Redemption:
$ 7.40 Series A 500,000 500,000 $ 101.00 $ 50,500 $ 50,000 $ 50,000
$ 7.56 Series B 450,000 450,000 102.26 46,017 45,071 45,071
Adjustable Series L 474,000 474,000 100.00 47,400 46,404 46,404
$ 42.40 Series T 200,000 200,000 500.00 100,000 96,850 96,850
--------- --------- -------- ---------- ----------
Total Not Subject to Mandatory
Redemption 1,624,000 1,624,000 $243,917 238,325 238,325
========= ========= ======== ---------- ----------
Subject to Mandatory Redemption:
$ 7.35 Series C 100,000 110,000 101.00 $ 10,100 10,110 11,110
$ 88.00 Series E 6,000 9,000 1,003.83 6,023 6,000 9,000
$ 91.50 Series Q 32,144 42,858 1,000.00 32,144 32,144 42,858
$ 88.00 Series R 50,000 50,000 -- -- 55,000 55,000
$ 90.00 Series S 74,000 74,000 -- -- 79,920 79,920
--------- --------- -------- ---------- ----------
262,144 285,858 48,267 183,174 197,888
Redemption Within One Year (33,464) (14,714)
--------- --------- -------- ---------- ----------
Total Subject to Mandatory Redemption 262,144 285,858 $ 48,267 149,710 183,174
========= ========= ======== ---------- ----------
Toledo Edison Company
Cumulative, $100 Par Value-
Authorized 3,000,000 shares
Not Subject to Mandatory Redemption:
$ 4.25 160,000 160,000 104.63 $ 16,740 16,000 16,000
$ 4.56 50,000 50,000 101.00 5,050 5,000 5,000
$ 4.25 100,000 100,000 102.00 10,200 10,000 10,000
$ 8.32 100,000 100,000 102.46 10,246 10,000 10,000
$ 7.76 150,000 150,000 102.44 15,366 15,000 15,000
$ 7.80 150,000 150,000 101.65 15,248 15,000 15,000
$ 10.00 190,000 190,000 101.00 19,190 19,000 19,000
--------- --------- -------- ---------- ----------
900,000 900,000 92,040 90,000 90,000
--------- --------- -------- ---------- ----------
Cumulative, $25 Par Value-
Authorized 12,000,000 shares
Not Subject to Mandatory Redemption:
$ 2.21 1,000,000 1,000,000 25.25 25,250 25,000 25,000
$ 2.365 1,400,000 1,400,000 27.75 38,850 35,000 35,000
Adjustable Series A 1,200,000 1,200,000 25.00 30,000 30,000 30,000
Adjustable Series B 1,200,000 1,200,000 25.00 30,000 30,000 30,000
--------- --------- -------- ---------- ----------
4,800,000 4,800,000 124,100 120,000 120,000
--------- --------- -------- ---------- ----------
Total Not Subject to Mandatory
Redemption 5,700,000 5,700,000 $216,140 210,000 210,000
========= ========= ======== ---------- ----------
Cumulative, $100 par value-
Subject to Mandatory Redemption:
$ 9.375 16,900 33,550 100.00 $ 1,690 1,690 3,355
Redemption Within One Year (1,690) (1,665)
--------- --------- -------- ---------- ----------
Total Subject to Mandatory
Redemption 16,900 33,550 $ 1,690 -- 1,690
========= ========= ======== ---------- ----------
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
<CAPTION>
LONG-TERM DEBT (Note 3H) (Interest rates reflect weighted average rates) (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------
FIRST MORTGAGE BONDS SECURED NOTES UNSECURED NOTES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
At December 31, 1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ohio Edison Co. -
Due 1998-2003 7.60% $ 659,265 $ 809,265 7.52% $ 144,261 $ 146,201 5.34% $566,500 $531,500
Due 2004-2008 6.88% 80,000 80,000 7.68% 106,995 104,445 -- -- --
Due 2009-2013 -- -- -- -- -- -- -- -- --
Due 2014-2018 -- -- -- 7.12% 113,725 113,725 -- -- --
Due 2019-2023 7.99% 225,960 225,960 7.32% 209,943 209,943 -- -- --
Due 2024-2028 -- -- -- 7.49% 121,522 108,000 -- -- --
Due 2029-2033 -- -- -- 5.75% 121,012 121,012 -- -- --
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
Total-Ohio Edison 965,225 1,115,225 817,458 803,326 566,500 531,500 $ 2,349,183 $ 2,450,051
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
Cleveland Electric
Illuminating Co. -
Due 1998-2003 7.54% 295,000 295,000 7.94% 424,150 490,180 -- -- 6,600
Due 2004-2008 8.72% 425,000 375,000 7.51% 400,150 400,150 -- -- 23,000
Due 2009-2013 -- -- 200,000 7.62% 230,280 237,630 -- -- 17,000
Due 2014-2018 -- -- -- 6.59% 412,630 413,915 -- -- --
Due 2019-2023 9.00% 150,000 150,000 6.58% 291,860 341,860 -- -- --
Due 2024-2028 -- -- -- 7.59% 148,843 142,850 -- -- --
Due 2029-2033 -- -- -- 4.56% 104,895 -- -- -- --
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
Total-Cleveland
Electric 870,000 1,020,000 2,012,808 2,026,585 -- -- 46,600 2,882,808 3,093,185
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
Toledo Edison Co. -
Due 1998-2003 7.47% 120,325 146,725 7.90% 214,500 253,150 8.62% 138,720 139,020
Due 2004-2008 7.88% 145,000 145,000 7.51% 100,000 100,000 10.00% 150 150
Due 2009-2013 -- -- -- 4.98% 31,250 31,250 10.00% 730 730
Due 2014-2018 -- -- -- -- -- -- -- -- --
Due 2019-2023 -- -- -- 7.88% 334,000 334,000 -- -- --
Due 2024-2028 -- -- -- 5.90% 13,851 10,100 -- -- --
Due 2029-2033 -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
Total-Toledo Edison 265,325 291,725 693,601 728,500 139,600 139,900 1,098,526 1,160,125
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
Pennsylvania
Power Co. -
Due 1998-2003 7.72% 44,383 44,383 6.08% 23,000 23,850 -- -- --
Due 2004-2008 6.88% 39,370 39,370 -- -- -- -- -- --
Due 2009-2013 9.74% 4,870 4,870 5.40% 1,000 1,000 -- -- --
Due 2014-2018 9.74% 4,870 4,870 6.28% 45,325 45,325 -- -- --
Due 2019-2023 8.37% 34,757 34,757 6.91% 32,382 32,382 -- -- --
Due 2024-2028 -- -- -- 5.63% 47,734 46,000 -- -- --
Due 2029-2033 -- -- -- 5.95% 238 238 -- -- --
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
Total-Penn
Power 128,250 128,250 149,679 148,795 -- -- 277,929 277,045
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
OES Fuel 5.97% 79,524 80,755 79,524 80,755
Bay Shore Power 7.12% 147,500 -- 147,500 --
MARBEL Energy
Corp. 6.40% 12,418 -- 12,418 --
Facilities
Services Group 7.38% 10,237 -- 8.52% 3,917 -- 14,154 --
---------- ---------- ---------- ---------- -------- -------- ----------- -----------
Total 2,228,800 2,555,200 3,923,225 3,787,961 710,017 718,000 6,862,042 7,061,161
========== ========== ========== ========== ======== ======== ----------- -----------
Capital lease obligations 199,491 204,213
----------- -----------
Net unamortized premium on debt 127,142 153,518
----------- -----------
Long-term debt due within one year (836,316) (449,057)
----------- -----------
Total long-term debt 6,352,359 6,969,835
----------- -----------
TOTAL CAPITALIZATION $11,756,422 $12,124,492
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<CAPTION>
Accumulated
Other Unallocated
Comprehensive Other Comprehensive ESOP
Income- Number Par Paid-In Income- Retained Common
Note 3D of Shares Value Capital Note 3D Earnings Stock
------------- --------- ----------- --------- ------------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 152,569,437 $ 1,373,125 $ 726,915 $(608) $ 471,095 $(162,656)
Net income $302,673 302,673
Minimum liability for unfunded
retirement benefits, net of
$27,000 of income taxes (51) (51)
--------
Comprehensive income $302,622
========
Allocation of ESOP Shares 1,346 7,646
Cash dividends on common stock (216,126)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 152,569,437 1,373,125 728,261 (659) 557,642 (155,010)
Net income $305,774 305,774
Minimum liability for unfunded
retirement benefits, net of
$26,000 of income taxes 45 45
--------
Comprehensive income $305,819
========
Centerior acquisition 77,637,704 (1,350,104) 2,907,387
Allocation of ESOP Shares 1,874 8,033
Cash dividends on common stock (216,770)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 230,207,141 23,021 3,637,522 (614) 646,646 (146,977)
Net income $410,874 410,874
Minimum liability for unfunded
retirement benefits, net of
$53,000 of income taxes 175 175
--------
Comprehensive income $411,049
========
Business acquisitions 6,861,946 686 203,496
Allocation of ESOP Shares 5,495 7,945
Cash dividends on common stock (339,111)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 237,069,087 $ 23,707 $3,846,513 $(439) $ 718,409 $(139,032)
=============================================================================================================================
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
-------------------- --------------------
Par or Par or
Number Stated Number Stated
of Shares Value of Shares Value
--------- ------ --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1996 5,118,699 $211,870 5,200,000 $160,000
----------------------------------------------------------------------------------------
Balance, December 31, 1996 5,118,699 211,870 5,200,000 160,000
Centerior acquisition 7,324,000 448,325 319,408 201,243
Redemptions-
8.45% Series (50,000) (5,000)
------------------------------------------------------------------------------------------
Balance, December 31, 1997 12,442,699 660,195 5,469,408 356,243
Redemptions-
8.45% Series (50,000) (5,000)
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$91.50 Series Q (10,714) (10,714)
$9.375 Series (16,650) (1,665)
------------------------------------------------------------------------------------------
Balance, December 31, 1998 12,442,699 $660,195 5,379,044 $334,864
========================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 410,874 $ 305,774 $ 302,673
Adjustments to reconcile net income to net
cash from operating activities:
Provision for depreciation and amortization 740,953 475,228 383,441
Nuclear fuel and lease amortization 94,348 61,960 52,784
Other amortization, net (13,007) (1,187) (1,700)
Deferred income taxes, net (5,851) (29,642) 41,365
Investment tax credits, net (22,070) (16,252) (14,041)
Allowance for equity funds used during construction -- (201) --
Extraordinary item 51,730 -- --
Receivables 35,515 21,846 24,326
Materials and supplies (14,235) (18,909) (736)
Accounts payable (73,205) 57,087 962
Other (49,727) 733 (41,317)
---------- ---------- ---------
Net cash provided from operating activities 1,155,325 856,437 747,757
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Common stock 204,182 1,558,237 --
Long-term debt 499,975 89,773 306,313
Ohio Schools Council prepayment program 116,598 -- --
Short-term borrowings, net -- -- 229,515
Redemptions and Repayments-
Preferred stock 21,379 5,000 1,016
Long-term debt 804,780 335,909 438,916
Short-term borrowings, net 48,354 47,251 --
Common Stock Dividend Payments 339,111 237,848 218,656
---------- ---------- ---------
Net cash provided from (used for) financing
activities (392,869) 1,022,002 (122,760)
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Centerior acquisition -- 1,582,459 --
Property additions 652,852 203,839 148,189
Cash investments 47,804 8,934 487,979
Other 82,239 62,237 13,406
---------- ---------- ---------
Net cash used for investing activities 782,895 1,857,469 649,574
---------- ---------- ---------
Net increase (decrease) in cash and cash equivalents (20,439) 20,970 (24,577)
Cash and cash equivalents at beginning of period* 98,237 77,267 29,830
---------- ---------- ---------
Cash and cash equivalents at end of year $ 77,798 $ 98,237 $ 5,253
========== ========== =========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash Paid During the Year-
Interest (net of amounts capitalized) $ 536,064 $ 281,670 $ 224,541
Income taxes $ 326,268 $ 265,615 $ 157,477
<FN>
* 1997 beginning balance includes Centerior cash and cash equivalents
as of the November 8, 1997 acquisition date.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
GENERAL TAXES:
Real and personal property $ 292,503 $ 137,816 $ 115,443
State gross receipts 217,633 118,390 104,158
Social security and unemployment 27,363 16,551 14,602
Other 13,409 9,406 7,795
---------- ---------- ----------
Total general taxes $ 550,908 $ 282,163 $ 241,998
========== ========== ==========
PROVISION FOR INCOME TAXES:
Currently payable-
Federal $ 313,960 $ 235,728 $ 164,132
State 14,452 18,152 9,839
---------- ---------- ----------
328,412 253,880 173,971
---------- ---------- ----------
Deferred, net-
Federal 3,356 (23,716) 37,277
State (9,207) (5,926) 4,088
---------- ---------- ----------
(5,851) (29,642) 41,365
---------- ---------- ----------
Investment tax credit amortization (22,070) (16,252) (14,041)
---------- ---------- ----------
Total provision for income taxes $ 300,491 $ 207,986 $ 201,295
========== ========== ==========
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes $ 711,365 $ 513,760 $ 503,968
========== ========== ==========
Federal income tax expense at statutory rate $ 248,978 $ 179,816 $ 176,389
Increases (reductions) in taxes resulting from-
Amortization of investment tax credits (22,070) (16,252) (14,041)
State income taxes net of federal income tax benefit 3,409 7,947 9,053
Amortization of tax regulatory assets 40,365 30,402 26,945
Amortization of goodwill 17,868 2,685 --
Preferred stock dividends 19,250 5,956 5,993
Other, net (7,309) (2,568) (3,044)
---------- ---------- ----------
Total provision for income taxes $ 300,491 $ 207,986 $ 201,295
========== ========== ==========
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Property basis differences $1,938,735 $2,091,207 $1,319,878
Deferred nuclear expense 436,601 454,902 262,123
Customer receivables for future income taxes 159,526 262,428 191,537
Competitive transition charge 135,730 -- --
Deferred sale and leaseback costs (61,506) (121,974) 78,607
Unamortized investment tax credits (102,085) (116,593) (72,663)
Unused alternative minimum tax credits (190,781) (243,039) --
Other (33,356) (22,626) (2,396)
---------- ---------- ----------
Net deferred income tax liability $2,282,864 $2,304,305 $1,777,086
========== ========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include FirstEnergy
Corp. (Company) and its principal electric utility operating
subsidiaries, Ohio Edison Company (OE), The Cleveland Electric
Illuminating Company (CEI), Pennsylvania Power Company (Penn) and The
Toledo Edison Company (TE). The Company and its utility subsidiaries
are referred to throughout as "Companies." The Company's 1997 results
of operations include the results of CEI and TE for the period November
8, 1997 through December 31, 1997. The consolidated financial
statements also include the Company's other principal subsidiaries:
FirstEnergy Facilities Services Group, Inc. (FE Facilities);
FirstEnergy Trading & Power Marketing, Inc. (FETPM); and MARBEL Energy
Corporation. FE Facilities is the parent company of several heating,
ventilating, air conditioning and energy management companies. FETPM
markets and trades electricity in nonregulated markets. MARBEL is a
fully integrated natural gas company. Significant intercompany
transactions have been eliminated. The Companies follow the accounting
policies and practices prescribed by the Public Utilities Commission of
Ohio (PUCO), the Pennsylvania Public Utility Commission (PPUC) and the
Federal Energy Regulatory Commission (FERC). The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make periodic estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Certain prior year amounts have been
reclassified to conform with the current year presentation.
REVENUES-
The Companies' principal business is providing electric
service to customers in central and northern Ohio and western
Pennsylvania. The Companies' retail customers are metered on a cycle
basis. Revenue is recognized for unbilled electric service through the
end of the year.
Receivables from customers include sales to residential,
commercial and industrial customers located in the Companies' service
area and sales to wholesale customers. There was no material
concentration of receivables at December 31, 1998 or 1997, with respect
to any particular segment of the Companies' customers.
CEI and TE sell substantially all of their retail customer
accounts receivable to Centerior Funding Corp. under an asset-backed
securitization agreement which expires in 2001. Centerior Funding
completed a public sale of $150 million of receivables-backed investor
certificates in a transaction that qualified for sale accounting
treatment.
REGULATORY PLANS-
The PUCO approved OE's Rate Reduction and Economic
Development Plan in 1995 and FirstEnergy's Rate Reduction and Economic
Development Plan for CEI and TE in January 1997. These regulatory plans
initially maintain current base electric rates for OE, CEI and TE
through December 31, 2005. At the end of the regulatory plan periods,
OE base rates will be reduced by $300 million (approximately 20 percent
below current levels) and CEI and TE base rates will be reduced by a
combined $310 million (approximately 15 percent below current levels).
The plans also revised the Companies' fuel cost recovery methods. The
Companies formerly recovered fuel-related costs not otherwise included
in base rates from retail customers through separate energy rates. In
accordance with the respective regulatory plans, OE's, CEI's and TE's
fuel rates will be frozen through the regulatory plan period, subject
to limited periodic adjustments. As part of OE's and FirstEnergy's
regulatory plans, transition rate credits were implemented for
customers, which are expected to reduce operating revenues for OE by
approximately $600 million and CEI and TE by approximately $391 million
during the regulatory plan period.
In June 1998, the PPUC authorized a rate restructuring plan
for Penn, which superseded the regulatory plan which had been in place
for Penn since 1996 and essentially resulted in the deregulation of
Penn's generation business as of June 30, 1998. Penn was required to
remove from its balance sheet all regulatory assets and liabilities
related to its generation business and assess all other assets for
impairment. The Securities and Exchange Commission (SEC) issued
interpretive guidance regarding asset impairment measurement which
concluded that any supplemental regulated cash flows such as a
competitive transition charge (CTC) should be excluded from the cash
flows of assets in a portion of the business not subject to regulatory
accounting practices. If those assets are impaired, a regulatory asset
should be established if the costs are recoverable through regulatory
cash flows. Consistent with the SEC guidance, Penn reduced its nuclear
generating unit investments by approximately $305 million, of which
approximately $227 million was recognized as a regulatory asset to be
recovered through a CTC over a seven-year transition period; the
remaining net amount of $78 million was written off. The charge of $51.7
million ($30.5 million after income taxes) for discontinuing the
application of Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation" (SFAS
71), to Penn's generation business was recorded as an extraordinary item
on the Consolidated Statement of Income.
All of the Companies' regulatory assets are being recovered
under provisions of the regulatory plans. In addition, the PUCO has
authorized OE to recognize additional capital recovery related to its
generating assets (which is reflected as additional depreciation
expense) and additional amortization of regulatory assets during the
regulatory plan period of at least $2 billion, and the PPUC had
authorized Penn to accelerate at least $358 million, more than the
amounts that would have been recognized if the regulatory plans were
not in effect. These additional amounts are being recovered through
current rates. As of December 31, 1998, OE's and Penn's cumulative
additional capital recovery and regulatory asset amortization amounted
to $696 million (including Penn's impairment discussed above). CEI and
TE recognized a fair value purchase accounting adjustment of $2.55
billion in connection with the FirstEnergy merger; that fair value
adjustment recognized for financial reporting purposes will ultimately
satisfy the $2 billion asset reduction commitment contained in the CEI
and TE regulatory plan. For regulatory purposes, CEI and TE will
recognize the accelerated amortization over the rate plan period.
Application of SFAS 71 was discontinued in 1997 with respect
to CEI's and TE's nuclear operations (see "Regulatory Assets" below)
and in 1998 with respect to Penn's generation operations (as described
above). The following summarizes net assets included in property, plant
and equipment relating to operations for which the application of SFAS
71 was discontinued, compared with the respective company's total
assets at December 31, 1998.
<TABLE>
<CAPTION>
SFAS 71
Discontinued
Net Assets Total Assets
------------ ------------
(In millions)
<S> <C> <C>
CEI $1,064 $6,318
TE 579 2,739
Penn 146 978
</TABLE>
PROPERTY, PLANT AND EQUIPMENT-
Property, plant and equipment reflects original cost (except
for CEI's, TE's and Penn's nuclear generating units which were adjusted
to fair value), including payroll and related costs such as taxes,
employee benefits, administrative and general costs, and interest
costs.
The Companies provide for depreciation on a straight-line
basis at various rates over the estimated lives of property included in
plant in service. The annual composite rate for OE's and Penn's
electric plant was approximately 3.0% in 1998, 1997 and 1996. CEI's and
TE's composite rates were both approximately 3.4% in 1998. In addition
to the straight-line depreciation recognized in 1998, 1997 and 1996, OE
and Penn recognized additional capital recovery of $141 million
(excluding Penn's impairment), $172 million and $144 million,
respectively, as additional depreciation expense in accordance with
their regulatory plans. Such additional charges in the accumulated
provision for depreciation were $422 million and $343 million as of
December 31, 1998 and 1997, respectively.
Annual depreciation expense includes approximately $30.9
million for future decommissioning costs applicable to the Companies'
ownership and leasehold interests in four nuclear generating units. The
Companies' share of the future obligation to decommission these units
is approximately $1.3 billion in current dollars and (using a 4.0%
escalation rate) approximately $3.4 billion in future dollars. The
estimated obligation and the escalation rate were developed based on
site specific studies. Payments for decommissioning are expected to
begin in 2016, when actual decommissioning work begins. The Companies
have recovered approximately $284 million for decommissioning through
their electric rates from customers through December 31, 1998. If the
actual costs of decommissioning the units exceed the funds accumulated
from investing amounts recovered from customers, the Companies expect
that additional amount to be recoverable from their customers. The
Companies have approximately $358.4 million invested in external
decommissioning trust funds as of December 31, 1998. Earnings on these
funds are reinvested with a corresponding increase to the
decommissioning liability. The Companies have also recognized an
estimated liability of approximately $32.5 million related to
decontamination and decommissioning of nuclear enrichment facilities
operated by the United States Department of Energy (DOE), as required
by the Energy Policy Act of 1992.
The Financial Accounting Standards Board (FASB) issued a
proposed accounting standard for nuclear decommissioning costs in 1996.
If the standard is adopted as proposed: (1) annual provisions for
decommissioning could increase; (2) the net present value of estimated
decommissioning costs could be recorded as a liability; and (3) income
from the external decommissioning trusts could be reported as
investment income. The FASB subsequently expanded the scope of the
proposed standard to include other closure and removal obligations
related to long-lived assets. A revised proposal may be issued by the
FASB in 1999.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Companies and Duquesne Light Company (Duquesne)
constitute the Central Area Power Coordination Group (CAPCO). The CAPCO
companies own and/or lease, as tenants in common, various power
generating facilities. Each of the companies is obligated to pay a
share of the costs associated with any jointly owned facility in the
same proportion as its interest. The Companies' portions of operating
expenses associated with jointly owned facilities are included in the
corresponding operating expenses on the Consolidated Statements of
Income. The amounts reflected on the Consolidated Balance Sheet under
property, plant and equipment at December 31, 1998, include the
following:
<TABLE>
<CAPTION>
Companies'
Accumulated Construction Ownership/
Provision for Work in Leasehold
Generating Units In Service Depreciation Progress Interest
- -------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
W.H. Sammis #7 $ 303.3 $ 101.3 $ 2.0 68.80%
Bruce Mansfield #1,
#2 and #3 895.1 433.9 11.2 83.01%
Beaver Valley
#1 and #2 2,052.3 619.6 11.8 69.46%
Davis-Besse 404.4 4.8 10.3 100.00%
Perry 2,174.7 790.2 19.1 86.26%
Eastlake # 5 160.5 116.8 0.7 68.80%
Seneca 64.3 25.4 0.1 80.00%
- -------------------------------------------------------------------------------------------
Total $6,054.6 $2,092.0 $ 55.2
===========================================================================================
</TABLE>
The Seneca Unit is currently jointly owned by CEI and a non-CAPCO
company. The Company has agreed to purchase the remaining 20% share in 1999.
On October 15, 1998, the Company announced that it signed an
agreement in principle with Duquesne that would result in the transfer of
1,436 megawatts owned by Duquesne at eight CAPCO generating units in exchange
for 1,328 megawatts at three non-CAPCO power plants owned by the Companies. A
definitive agreement on the exchange of assets, which will be structured as a
tax-free transaction to the extent possible, will provide the Companies with
exclusive ownership and operating control of all CAPCO generating units.
Duquesne will fund decommissioning costs equal to its percentage interest in
the three nuclear generating units to be transferred. The asset transfer is
expected to take twelve to eighteen months to close.
NUCLEAR FUEL-
OE's and Penn's nuclear fuel is recorded at original cost, which
includes material, enrichment, fabrication and interest costs incurred prior
to reactor load. CEI and TE severally lease their respective portions of
nuclear fuel and pay for the fuel as it is consumed (see Note 2). The
Companies amortize the cost of nuclear fuel based on the rate of consumption.
The Companies' electric rates include amounts for the future disposal of
spent nuclear fuel based upon the formula used to compute payments to the
DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on the
Consolidated Statements of Taxes. Deferred income taxes result from timing
differences in the recognition of revenues and expenses for tax and
accounting purposes. Investment tax credits, which were deferred when
utilized, are being amortized over the recovery period of the related
property. The liability method is used to account for deferred income taxes.
Deferred income tax liabilities related to tax and accounting basis
differences are recognized at the statutory income tax rates in effect when
the liabilities are expected to be paid. Alternative minimum tax credits of
$191 million, which may be carried forward indefinitely, are available to
reduce future federal income taxes.
RETIREMENT BENEFITS-
The Companies' trusteed, noncontributory defined benefit pension
plans cover almost all full-time employees. Upon retirement, employees
receive a monthly pension based on length of service and compensation. In
1998, the Centerior Energy Corporation (Centerior) pension plan was merged
into the FirstEnergy pension plans. The Companies use the projected unit
credit method for funding purposes and were not required to make pension
contributions during the three years ended December 31, 1998. The assets of
the pension plans consist primarily of common stocks, United States
government bonds and corporate bonds.
The Companies provide a minimum amount of noncontributory life
insurance to retired employees in addition to optional contributory
insurance. Health care benefits, which include certain employee deductibles
and copayments, are also available to retired employees, their dependents
and, under certain circumstances, their survivors. The Companies pay
insurance premiums to cover a portion of these benefits in excess of set
limits; all amounts up to the limits are paid by the Companies. The Companies
recognize the expected cost of providing other postretirement benefits to
employees and their beneficiaries and covered dependents from the time
employees are hired until they become eligible to receive those benefits.
The following sets forth the funded status of the plans and amounts
recognized on the Consolidated Balance Sheets as of December 31:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- ------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation as of January 1 $1,327.5 $ 688.5 $ 534.1 $ 241.1
Service Cost 25.0 15.2 7.5 4.6
Interest cost 92.5 55.9 37.6 20.4
Plan amendments 44.3 3.0 40.1 --
Early retirement program expense -- 54.5 -- 1.9
Actuarial loss 101.6 63.3 10.7 17.0
Centerior acquisition -- 508.9 -- 265.9
Benefits paid (90.8) (61.8) (28.7) (16.8)
- -------------------------------------------------------------------------------------------
Benefit obligation as of December 31 1,500.1 1,327.5 601.3 534.1
- -------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of
January 1 1,542.5 946.3 2.8 2.0
Actual return on plan assets 231.3 194.0 0.7 0.5
Company contribution -- -- 0.4 0.3
Centerior acquisition -- 464.0 -- --
Benefits paid (90.8) (61.8) -- --
- --------------------------------------------------------------------------------------------
Fair value of plan assets as of
December 31 1,683.0 1,542.5 3.9 2.8
- --------------------------------------------------------------------------------------------
Funded status of plan 182.9 215.0 (597.4) (531.3)
Unrecognized actuarial loss (gain) (110.8) (136.5) 30.6 24.0
Unrecognized prior service cost 63.0 21.0 27.4 (13.8)
Unrecognized net transition obligation
(asset) (18.0) (25.9) 129.3 138.9
- --------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 117.1 $ 73.6 $(410.1) $(382.2)
=============================================================================================
Assumptions used as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected long-term return on plan assets 10.25% 10.00% 10.25% 10.00%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
</TABLE>
Net pension and other postretirement benefit costs for the
three years ended December 31, 1998 were computed as follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------------- -----------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 25.0 $ 15.2 $ 14.2 $ 7.5 $ 4.6 $ 4.3
Interest cost 92.5 55.9 49.3 37.6 20.4 17.4
Expected return on plan assets (152.7) (99.7) (83.2) (0.3) (0.2) (0.1)
Amortization of transition
obligation (asset) (8.0) (8.0) (8.0) 9.2 8.2 10.1
Amortization of prior service cost 2.3 2.1 2.3 (0.8) 0.3 (1.2)
Recognized net actuarial loss (gain) (2.6) (0.9) -- -- -- 0.1
Voluntary early retirement program expense -- 54.5 12.5 -- 1.9 0.5
Plan curtailment loss (gain) -- -- (12.8) -- -- 13.1
- -------------------------------------------------------------------------------------------------
Net benefit cost $ (43.5) $ 19.1 $ (25.7) $53.2 $35.2 $44.2
==================================================================================================
</TABLE>
<PAGE>
In accordance with SFAS 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," the 1996 net pension costs and postretirement
benefit costs shown above included curtailment effects (significant
changes in projected plan assumptions) relating to the pension and
postretirement benefit plans. The employee terminations reflected in
OE's and Penn's 1996 voluntary early retirement program represented a
plan curtailment that significantly reduced the expected future
employee service years and the related accrual of defined pension and
postretirement benefits. In the pension plan, the reduction in the
benefit obligation increased the net pension asset and was shown as a
plan curtailment gain. In the postretirement benefit plan, the
unrecognized prior service cost associated with service years no longer
expected to be rendered as a result of the terminations was shown as a
plan curtailment loss.
The health care trend rate assumption is 5.5% in the first
year gradually decreasing to 4.0% for the year 2008 and later. Assumed
health care cost trend rates have a significant effect on the amounts
reported for the health care plan. An increase in the health care trend
rate assumption by one percentage point would increase the total
service and interest cost components by $4.0 million and the
postretirement benefit obligation by $68.1 million. A decrease in the
same assumption by one percentage point would decrease the total
service and interest cost components by $3.2 million and the
postretirement benefit obligation by $55.2 million.
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial
maturity of three months or less are reported as cash equivalents on
the Consolidated Balance Sheets. The Companies reflect temporary cash
investments at cost, which approximates their market value. Noncash
financing and investing activities included capital lease transactions
amounting to $61.8 million, $3.0 million and $2.0 million for the years
1998, 1997 and 1996, respectively. Commercial paper transactions of OES
Fuel, Incorporated (OES Fuel) (a wholly owned subsidiary of OE) that
have initial maturity periods of three months or less are reported net
within financing activities under long-term debt and are reflected as
long-term debt on the Consolidated Balance Sheets (see Note 3H).
All borrowings with initial maturities of less than one year
are defined as financial instruments under generally accepted
accounting principles and are reported on the Consolidated Balance
Sheets at cost, which approximates their fair market value. The
following sets forth the approximate fair value and related carrying
amounts of all other long-term debt, preferred stock subject to
mandatory redemption and investments other than cash and cash
equivalents as of December 31:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $6,783 $7,247 $6,980 $7,334
Preferred stock $ 335 $ 340 $ 356 $ 362
Investments other than cash
and cash equivalents:
Debt securities
- Maturity (5-10 years) $ 481 $ 520 $ 487 $ 512
- Maturity (more than 10 years) 1,109 1,139 1,134 1,149
Equity securities 17 17 24 24
All other 520 533 336 337
- ---------------------------------------------------------------------
$2,127 $2,209 $1,981 $2,022
======================================================================
</TABLE>
The fair values of long-term debt and preferred stock reflect
the present value of the cash outflows relating to those securities
based on the current call price, the yield to maturity or the yield to
call, as deemed appropriate at the end of each respective year. The
yields assumed were based on securities with similar characteristics
offered by a corporation with credit ratings similar to the Companies'
ratings.
The fair value of investments other than cash and cash
equivalents represent cost (which approximates fair value) or the
present value of the cash inflows based on the yield to maturity. The
yields assumed were based on financial instruments with similar
characteristics and terms. Investments other than cash and cash
equivalents include decommissioning trust investments. Unrealized gains
and losses applicable to the decommissioning trust have been recognized
in the trust investment with a corresponding change to the
decommissioning liability. The debt and equity securities referred to
above are in the held-to-maturity category. The Companies have no
securities held for trading purposes.
Effective December 31, 1998, the Company began accounting for
its commodity price derivatives, entered into specifically for trading
purposes, on a marked-to-market basis in accordance with Emerging
Issues Task Force Issue 98-10, "Accounting for Energy Trading and Risk
Management Activities," with gains and losses recognized currently in
the Consolidated Statements of Income. The contracts that were marked
to market are included in the 1998 Consolidated Balance Sheets as
Deferred Charges and Deferred Credits at their fair values. The impact
on the consolidated financial statements was immaterial.
REGULATORY ASSETS-
The Companies recognize, as regulatory assets, costs which
the FERC, PUCO and PPUC have authorized for recovery from customers in
future periods. Without such authorization, the costs would have been
charged to income as incurred. All regulatory assets are being
recovered from customers under the Companies' respective regulatory
plans. Based on those regulatory plans, at this time, the Companies
believe they will continue to be able to bill and collect cost-based
rates relating to all of OE's operations, CEI's and TE's nonnuclear
operations, and Penn's nongeneration operations; accordingly, it is
appropriate that the Companies continue the application of SFAS 71 to
those respective operations. OE and Penn recognized additional cost
recovery of $50 million, $39 million and $34 million in 1998, 1997 and
1996, respectively, as additional regulatory asset amortization in
accordance with their regulatory plans. FirstEnergy's regulatory plan
does not provide for full recovery of CEI's and TE's nuclear
operations. As a result, in October 1997 CEI and TE discontinued
application of SFAS 71 for their nuclear operations and decreased their
regulatory assets of customer receivables for future income taxes
related to the nuclear assets by $794 million.
Net regulatory assets on the Consolidated Balance Sheets are
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------
(In millions)
<S> <C> <C>
Nuclear unit expenses $1,164.8 $1,224.2
Customer receivables for future income
taxes 444.0 558.7
Rate stabilization program deferrals 440.1 460.2
Sale and leaseback costs 28.1 24.4
Competitive transition charge 331.0 --
Loss on reacquired debt 183.5 191.1
Employee postretirement benefit costs 28.9 25.9
Uncollectible customer accounts 6.8 18.9
Perry Unit 2 termination -- 36.7
DOE decommissioning and decontamination
costs 32.9 39.3
Other 36.7 44.7
- -----------------------------------------------------------------------
Total $2,696.8 $2,624.1
=======================================================================
</TABLE>
2. LEASES:
The Companies lease certain generating facilities, nuclear
fuel, certain transmission facilities, office space and other property
and equipment under cancelable and noncancelable leases.
OE sold portions of its ownership interests in Perry Unit 1
and Beaver Valley Unit 2 and entered into operating leases on the
portions sold for basic lease terms of approximately 29 years. CEI and
TE also sold portions of their ownership interests in Beaver Valley
Unit 2 and Bruce Mansfield Units 1, 2 and 3 and entered into similar
operating leases for lease terms of approximately 30 years. During the
terms of their respective leases, OE, CEI and TE continue to be
responsible, to the extent of their individual combined ownership and
leasehold interests, for costs associated with the units including
construction expenditures, operation and maintenance expenses,
insurance, nuclear fuel, property taxes and decommissioning. They have
the right, at the end of the respective basic lease terms, to renew
their respective leases. They also have the right to purchase the
facilities at the expiration of the basic lease term or renewal term
(if elected) at a price equal to the fair market value of the
facilities. The basic rental payments are adjusted when applicable
federal tax law changes.
OES Finance, Incorporated (OES Finance), a wholly owned
subsidiary of OE, maintains deposits pledged as collateral to secure
reimbursement obligations relating to certain letters of credit
supporting OE's obligations to lessors under the Beaver Valley Unit 2
sale and leaseback arrangements. The deposits pledged to the financial
institution providing those letters of credit are the sole property of
OES Finance. In the event of liquidation, OES Finance, as a separate
corporate entity, would have to satisfy its obligations to creditors
before any of its assets could be made available to OE as sole owner of
OES Finance common stock.
Nuclear fuel is currently financed for CEI and TE through
leases with a special-purpose corporation. As of December 31, 1998, $156
million of nuclear fuel was financed under a lease financing arrangement
totaling $175 million ($60 million of intermediate-term notes and $115
million from bank credit arrangements). The notes mature from 1999
through 2000 and the bank credit arrangements expire in September 2000.
Lease rates are based on intermediate-term note rates, bank rates and
commercial paper rates.
Consistent with the regulatory treatment, the rentals for
capital and operating leases are charged to operating expenses on the
Consolidated Statements of Income. Such costs for the three years ended
December 31, 1998, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Operating leases
Interest element $201.2 $149.9 $107.6
Other 147.8 45.2 18.3
Capital leases
Interest element 17.6 6.1 6.5
Other 66.3 6.0 6.3
- --------------------------------------------------------------
Total rentals $432.9 $207.2 $138.7
==============================================================
</TABLE>
The future minimum lease payments as of December 31, 1998, are:
<TABLE>
<CAPTION>
Operating Leases
-----------------------------
Capital Lease Capital
Leases Payments Trusts Net
- -----------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
1999 $ 76.6 $ 301.6 $ 143.1 $ 158.5
2000 55.3 296.4 150.5 145.9
2001 37.3 307.3 146.0 161.3
2002 22.8 318.3 169.5 148.8
2003 13.9 326.6 176.5 150.1
Years thereafter 81.6 3,936.8 1,475.1 2,461.7
- ------------------------------------------------------------------------
Total minimum lease payments 287.5 $5,487.0 $2,260.7 $3,226.3
======= ======== ========
Executory costs 29.5
- --------------------------------------
Net minimum lease payments 258.0
Interest portion 76.9
- --------------------------------------
Present value of net minimum
lease payments 181.1
Less current portion 58.6
- --------------------------------------
Noncurrent portion $122.5
======================================
</TABLE>
OE invested in the PNBV Capital Trust , which was established
to purchase a portion of the lease obligation bonds issued on behalf of
lessors in OE's Perry Unit 1 and Beaver Valley Unit 2 sale and
leaseback transactions. CEI and TE established the Shippingport Capital
Trust in the fourth quarter of 1997 to purchase the lease obligation
bonds issued on behalf of lessors in their Bruce Mansfield Units 1, 2
and 3 sale and leaseback transactions. The PNBV and Shippingport
capital trust arrangements effectively reduce lease costs related to
those transactions.
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
There are no restrictions on retained earnings for payment of
cash dividends on the Company's common stock.
(B) EMPLOYEE STOCK OWNERSHIP PLAN-
The Companies fund the matching contribution for their 401(k)
savings plan through an ESOP Trust. All full-time employees eligible for
participation in the 401(k) savings plan are covered by the ESOP. The
ESOP borrowed $200 million from OE and acquired 10,654,114 shares of
OE's common stock through market purchases; the shares were converted
into the Company's common stock in connection with the merger. Dividends
on ESOP shares are used to service the debt. Shares are released from
the ESOP on a pro rata basis as debt service payments are made. In 1998,
1997 and 1996, 423,206 shares, 429,515 shares and 404,522 shares,
respectively, were allocated to employees with the corresponding expense
recognized based on the shares allocated method. The fair value of
7,406,332 shares unallocated as of December 31, 1998, was approximately
$241.2 million. Total ESOP-related compensation expense was calculated
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Base compensation $13.5 $ 9.9 $ 9.0
Dividends on common stock held
by the ESOP and used to
service debt (3.9) (3.4) (2.9)
- -----------------------------------------------------------------
Net expense $ 9.6 $ 6.5 $ 6.1
=================================================================
</TABLE>
(C) STOCK COMPENSATION PLANS-
Under a Centerior Equity Compensation Plan (Centerior Plan)
adopted in 1994, restricted stock and common stock options were granted
to management employees. Upon consummation of the merger, outstanding
options became exercisable for the Company's common stock with option
prices and the number of shares adjusted to reflect the merger
conversion ratio. A total of 329,493 options for the Company's common
stock were exercised in 1998 and 222,023 options were exercised in
1997. Unexercised options totaling 117,004 shares were outstanding as
of December 31, 1998 and at year end 1997, unexercised options totaled
517,388 shares. The plan ends when all outstanding options are
exercised or when all options lapse by February 25, 2007. There will be
no additional grants under the Centerior Plan.
On April 30, 1998, the Company adopted the Executive and
Director Incentive Compensation Plan (FE Plan). The FE Plan permits
awards to be made to key employees in the form of restricted stock,
stock options, stock appreciation rights, performance shares or cash. A
total of 189,491 options for the Company's common stock and 20,000
shares of restricted stock were granted during 1998. Options granted in
1998 are exercisable in four years and expire after 10 years.
Restrictions on restricted stock lapse in 25% annual increments
beginning in the fourth year. During 1998, options on 7,535 shares were
forfeited under the FE Plan leaving 181,956 options outstanding as of
December 31, 1998. No shares of restricted stock were forfeited.
Computing compensation costs for options consistent with SFAS 123,
"Accounting for Stock-Based Compensation," would not have materially
affected net income in 1998 and basic and diluted earnings per share
are the same.
(D) COMPREHENSIVE INCOME-
In 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income", and applied the standard to all periods
presented in the Consolidated Statements of Common Stockholders'
Equity. Comprehensive income includes net income as reported on the
Consolidated Statements of Income and all other changes in common
stockholders' equity except those resulting from transactions with
common stockholders.
(E) PREFERRED AND PREFERENCE STOCK-
Penn's 7.75% series of preferred stock has a restriction
which prevents early redemption prior to July 2003. OE's 8.45% series
of preferred stock has no optional redemption provision. CEI's $88.00
series of preferred stock is not redeemable before December 2001 and
its $90.00 series has no optional redemption provision. All other
preferred stock may be redeemed by the Companies in whole, or in part,
with 30-90 days' notice.
Preference stock authorized for the Companies are 8 million
shares without par value for OE; 3 million shares without par value for
CEI; and 5 million shares, $25 par value for TE. No preference shares
are currently outstanding.
(F) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
Annual sinking fund provisions for the Companies' preferred stock are
as follows:
<TABLE>
<CAPTION>
Redemption
Price Per
Series Shares Share Date Beginning
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OE 8.45% 50,000 $ 100 (i)
CEI $ 7.35 C 10,000 100 (i)
88.00 E 3,000 1,000 (i)
91.50 Q 10,714 1,000 (i)
90.00 S 18,750 1,000 November 1 1999
88.00 R 50,000 1,000 December 1 2001
TE $9.375 16,900 100 (i)
Penn 7.625% 7,500 100 October 1 2002
- -------------------------------------------------------------------------------------------
<FN>
(i) Sinking fund provisions are in effect.
</TABLE>
Annual sinking fund requirements for the next five years are
$40 million in 1999, $38 million in 2000, $85 million in 2001, $19
million in 2002 and $2 million in 2003. A liability of $19 million was
included in the net assets acquired from CEI and TE for preferred
dividends declared attributable to the post-merger period. Accordingly,
no accruals for CEI and TE preferred dividends are included in the
Company's Consolidated Statement of Income for the period November 8,
1997 through December 31, 1997.
(G) OHIO EDISON OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY OHIO EDISON
SUBORDINATED DEBENTURES-
Ohio Edison Financing Trust, a wholly owned subsidiary of OE,
has issued $120 million of 9% Cumulative Trust Preferred Capital
Securities. OE purchased all of the Trust's Common Securities and
simultaneously issued to the Trust $123.7 million principal amount of
9% Junior Subordinated Debentures due 2025 in exchange for the proceeds
that the Trust received from its sale of Preferred and Common
Securities. The sole assets of the Trust are the Subordinated
Debentures whose interest and other payment dates coincide with the
distribution and other payment dates on the Trust Securities. Under
certain circumstances, the Subordinated Debentures could be distributed
to the holders of the outstanding Trust Securities in the event the
Trust is liquidated. The Subordinated Debentures may be optionally
redeemed by OE beginning December 31, 2000, at a redemption price of
$25 per Subordinated Debenture plus accrued interest, in which event
the Trust Securities will be redeemed on a pro-rata basis at $25 per
share plus accumulated distributions. OE's obligations under the
Subordinated Debentures along with the related Indenture, amended and
restated Trust Agreement, Guarantee Agreement and the Agreement for
expenses and liabilities, constitute a full and unconditional guarantee
by OE of payments due on the Preferred Securities.
(H) LONG-TERM DEBT-
The first mortgage indentures and their supplements, which
secure all of the Companies' first mortgage bonds, serve as direct
first mortgage liens on substantially all property and franchises,
other than specifically excepted property, owned by the Companies.
Based on the amount of bonds authenticated by the Trustees
through December 31, 1998, OE's and TE's annual sinking and improvement
fund requirements for all bonds issued under the mortgage amounts to
$30 million. OE and TE expect to deposit funds in 1999 that will be
withdrawn upon the surrender for cancellation of a like principal
amount of bonds, which are specifically authenticated for such purposes
against unfunded property additions or against previously retired
bonds. This method can result in minor increases in the amount of the
annual sinking fund requirement.
Sinking fund requirements for first mortgage bonds and
maturing long-term debt (excluding capital leases) for the next five
years are:
<TABLE>
<CAPTION>
(In millions)
- ------------------------------------------
<C> <C>
1999 $777.7
2000 587.2
2001 187.8
2002 726.4
2003 459.5
- ------------------------------------------
</TABLE>
The Companies' obligations to repay certain pollution control
revenue bonds are secured by several series of first mortgage bonds
and, in some cases, by subordinate liens on the related pollution
control facilities. Certain pollution control revenue bonds are
entitled to the benefit of irrevocable bank letters of credit of $419.0
million. To the extent that drawings are made under those letters of
credit to pay principal of, or interest on, the pollution control
revenue bonds, OE, CEI and/or TE are entitled to a credit against their
obligation to repay those bonds. The Companies pay annual fees of 0.43%
to 1.875% of the amounts of the letters of credit to the issuing banks
and are obligated to reimburse the banks for any drawings thereunder.
OE had unsecured borrowings of $250 million at December 31,
1998, supported by a $250 million long-term revolving credit facility
agreement which expires December 30, 1999. OE must pay an annual
facility fee of 0.20% on the total credit facility amount. In addition,
the credit agreement provides that OE maintain unused first mortgage
bond capability for the full credit agreement amount under OE's
indenture as potential security for the unsecured borrowings.
CEI and TE have letters of credit of approximately $225
million in connection with the sale and leaseback of Beaver Valley Unit
2 that expire in June 1999. The letters of credit are secured by first
mortgage bonds of CEI and TE in the proportion of 40% and 60%,
respectively (see Note 2).
OE's and Penn's nuclear fuel purchases are financed through
the issuance of OES Fuel commercial paper and loans, both of which are
supported by a $180.5 million long-term bank credit agreement which
expires March 31, 2001. Accordingly, the commercial paper and loans are
reflected as long-term debt on the Consolidated Balance Sheets. OES
Fuel must pay an annual facility fee of 0.20% on the total line of
credit and an annual commitment fee of 0.0625% on any unused amount.
4. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT:
Short-term borrowings outstanding at December 31, 1998,
consisted of $134.5 million of bank borrowings and $120.0 million of
OES Capital, Incorporated (OES Capital) commercial paper. OES Capital
is a wholly owned subsidiary of OE whose borrowings are secured by
customer accounts receivable. OES Capital can borrow up to $120 million
under a receivables financing agreement at rates based on certain bank
commercial paper and is required to pay an annual fee of 0.26% on the
amount of the entire finance limit. The receivables financing agreement
expires in 1999.
The Companies have various credit facilities with domestic
banks that provide for borrowings of up to $175 million under various
interest rate options. OE's short-term borrowings may be made under its
line of credit on its unsecured notes. To assure the availability of
these lines, the Companies are required to pay annual commitment fees
that vary from 0.20% to 0.50%. These lines expire at various times
during 1999. The weighted average interest rates on short-term
borrowings outstanding at December 31, 1998 and 1997, were 5.67% and
6.02%, respectively.
5. COMMITMENTS, GUARANTEES AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Companies' current forecasts reflect expenditures of
approximately $2.2 billion for property additions and improvements from
1999-2003, of which approximately $556 million is applicable to 1999.
Investments for additional nuclear fuel during the 1999-2003 period are
estimated to be approximately $399 million, of which approximately $46
million applies to 1999. During the same periods, the Companies'
nuclear fuel investments are expected to be reduced by approximately
$438 million and $93 million, respectively, as the nuclear fuel is
consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative
to a single incident at a nuclear power plant to $9.7 billion. The
amount is covered by a combination of private insurance and an industry
retrospective rating plan. Based on their present ownership and
leasehold interests in the Beaver Valley Station, Davis-Besse Plant and
the Perry Plant, the Companies' maximum potential assessment under the
industry retrospective rating plan (assuming the other co-owner
contributes its proportionate share of any assessments under the
retrospective rating plan) would be $286.3 million per incident but not
more than $32.5 million in any one year for each incident.
The Companies are also insured as to their respective
interests in the Beaver Valley Station, Davis-Besse Plant and the Perry
Plant under policies issued to the operating company for each plant.
Under these policies, up to $2.75 billion is provided for property
damage and decontamination and decommissioning costs. The Companies
have also obtained approximately $1.22 billion of insurance coverage
for replacement power costs for their respective interests in Perry,
Davis-Besse and Beaver Valley. Under these policies, the Companies can
be assessed a maximum of approximately $39.9 million for incidents at
any covered nuclear facility occurring during a policy year which are
in excess of accumulated funds available to the insurer for paying
losses.
The Companies intend to maintain insurance against nuclear
risks as described above as long as it is available. To the extent that
replacement power, property damage, decontamination, decommissioning,
repair and replacement costs and other such costs arising from a
nuclear incident at any of the Companies' plants exceed the policy
limits of the insurance in effect with respect to that plant, to the
extent a nuclear incident is determined not to be covered by the
Companies' insurance policies, or to the extent such insurance becomes
unavailable in the future, the Companies would remain at risk for such
costs.
GUARANTEES-
The CAPCO companies have each severally guaranteed certain debt and
lease obligations in connection with a coal supply contract for the
Bruce Mansfield Plant. As of December 31, 1998, the Companies' shares
of the guarantees (which approximate fair market value) were $43.2
million. The price under the coal supply contract, which includes
certain minimum payments, has been determined to be sufficient to
satisfy the debt and lease obligations. The Companies' total payments
under the coal supply contract were $220.1 million, $135.3 million and
$113.8 million during 1998, 1997 and 1996, respectively. The Companies'
minimum payment for 1999 is approximately $58 million. The contract
expires December 31, 1999.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the
Companies with regard to air and water quality and other environmental
matters. The Companies estimate additional capital expenditures for
environmental compliance of approximately $400 million, which is
included in the construction forecast provided under "Capital
Expenditures" for 1999 through 2003.
The Companies are in compliance with the current sulfur
dioxide (SO2) and nitrogen oxides (NOx) reduction requirements under
the Clean Air Act Amendments of 1990. SO2 reductions in 1999 will be
achieved by burning lower-sulfur fuel, generating more electricity from
lower-emitting plants, and/or purchasing emission allowances. Plans for
complying with reductions required for the year 2000 and thereafter
have not been finalized. In September 1998, the Environmental
Protection Agency (EPA) finalized regulations requiring additional NOx
reductions from the Companies' Ohio and Pennsylvania facilities by May
2003. The EPA`s NOx Transport Rule imposes uniform reductions of NOx
emissions across a region of twenty-two states and the District of
Columbia, including Ohio and Pennsylvania, based on a conclusion that
such NOx emissions are contributing significantly to ozone pollution in
the eastern United States. By September 1999, each of the twenty-two
states are required to submit revised State Implementation Plans (SIP)
which comply with individual state NOx budgets established by the EPA.
These state NOx budgets contemplate an 85% reduction in utility plant
NOx emissions from 1990 emissions. A proposed Federal Implementation
Plan accompanied the NOx Transport Rule and may be implemented by the
EPA in states which fail to revise their SIP. In another separate but
related action, eight states filed petitions with the EPA under Section
126 of the Clean Air Act seeking reductions of NOx emissions which are
alleged to contribute to ozone pollution in the eight petitioning
states. The EPA suggests that the Section 126 petitions will be
adequately addressed by the NOx Transport Program, but a September 1998
proposed rulemaking established an alternative program which would
require nearly identical 85% NOx reductions at the Companies' Ohio and
Pennsylvania plants by May 2003 in the event implementation of the NOx
Transport Rule is delayed. The Companies continue to evaluate their
compliance plans and other compliance options and currently estimate
the additional capital expenditures for NOx reductions may reach $500
million.
The Companies are required to meet federally approved SO2
regulations. Violations of such regulations can result in shutdown of
the generating unit involved and/or civil or criminal penalties of up
to $25,000 for each day the unit is in violation. The EPA has an
interim enforcement policy for SO2 regulations in Ohio that allows for
compliance based on a 30-day averaging period. The Companies cannot
predict what action the EPA may take in the future with respect to the
interim enforcement policy.
In July 1997, the EPA promulgated changes in the National
Ambient Air Quality Standard (NAAQS) for ozone and proposed a new NAAQS
for previously unregulated ultra-fine particulate matter. The cost of
compliance with these regulations may be substantial and depends on the
manner in which they are implemented by the states in which the
Companies operate affected facilities.
CEI and TE have been named as "potentially responsible
parties" (PRPs) at waste disposal sites which may require cleanup under
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980. Allegations that CEI and TE disposed of hazardous
substances at historical sites and the liability involved, are often
unsubstantiated and subject to disputes. Federal law provides that all
PRPs for a particular site be held liable on a joint and several basis.
CEI and TE have accrued a liability of $5.8 million as of December 31,
1998, based on estimates of the costs of cleanup and the proportionate
responsibility of other PRPs for such costs. CEI and TE believe that
waste disposal costs will not have a material adverse effect on their
financial condition, cash flows or results of operations.
Legislative, administrative and judicial actions will
continue to change the way that the Companies must operate in order to
comply with environmental laws and regulations. With respect to any
such changes and to the environmental matters described above, the
Companies expect that while they remain regulated, any resulting
additional capital costs which may be required, as well as any required
increase in operating costs, would ultimately be recovered from their
customers.
6. SEGMENT INFORMATION:
The Company adopted SFAS 131, "Disclosure About Segments of
an Enterprise and Related Information," in 1998. The Company's primary
segment is its Electric Utility Group which includes four regulated
electric utility operating companies that provide electric service in
Ohio and Pennsylvania. Its other material business segment is FETPM
which markets and trades electricity in nonregulated markets. Financial
data for these business segments and products and services are as
follows:
<TABLE>
Segment Financial Information
- -----------------------------
<CAPTION>
FE Trading
Electric & Power All Reconciling
Utilities Marketing Other Eliminations Totals
--------- ---------- ----- ------------ ------
(In millions)
1998
----
<S> <C> <C> <C> <C> <C>
External revenues $ 5,201 $410 $ 250 $ -- $ 5,861
Intersegment revenues 32 27 96 (155) --
Total revenues 5,233 437 346 (155) 5,861
Depreciation and amortization 730 -- 11 -- 741
Net interest charges 590 2 69 (60) 601
Income taxes 337 (35) (2) -- 300
Extraordinary Item:
Pennsylvania restructuring (31) -- -- -- (31)
Net income/Earnings on common
stock 478 (52) 1 (16) 411
Total assets 18,188 54 1,742 (1,920) 18,064
Property additions 304 -- 64 -- 368
Acquisitions -- -- 285 -- 285
1997
----
External revenues $ 2,843 $ 43 $ 74 $ -- $ 2,960
Intersegment revenues 33 -- 106 (139) --
Total revenues 2,876 43 180 (139) 2,960
Depreciation and amortization 470 -- 5 -- 475
Net interest charges 300 -- 60 (51) 309
Income taxes 205 -- 3 -- 208
Net income/Earnings on common
stock 335 (1) 4 (32) 306
Total assets 18,520 32 1,209 (1,680) 18,081
Property additions 166 -- 38 -- 204
Acquisitions -- -- 1,582 -- 1,582
1996
----
External revenues $ 2,499 $ -- $ 23 $ -- $ 2,522
Intersegment revenues 33 -- 109 (142) --
Total revenues 2,532 -- 132 (142) 2,522
Depreciation and amortization 378 -- 5 -- 383
Net interest charges 256 -- 57 (48) 265
Income taxes 195 -- 6 -- 201
Net income/Earnings on common
stock 337 -- 7 (41) 303
Total assets 9,406 -- 1,013 (1,365) 9,054
Property additions 124 -- 24 -- 148
</TABLE>
<TABLE>
Products and Services
- ---------------------
<CAPTION>
Oil & Gas Energy Related
Electricity Sales and Sales and
Year Sales Production Services Other
---- ----------- ---------- -------------- -----
(In millions)
<S> <C> <C> <C> <C>
1998 $4,980 $26 $853 $ 2
1997 2,775 -- 185 --
1996 2,435 -- 87 --
</TABLE>
7. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain consolidated operating results
by quarter for 1998 and 1997.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $1,344.2 $1,410.6 $1,633.6 $1,472.9
Expenses 988.3 1,140.9 1,203.3 1,164.7
- ---------------------------------------------------------------------------------------------
Income Before Interest and Income Taxes 355.9 269.7 430.3 308.2
Net Interest Charges 143.6 154.6 152.1 150.7
Income Taxes 88.6 55.1 115.2 62.8
- ---------------------------------------------------------------------------------------------
Income Before Extraordinary Item 123.7 60.0 163.0 94.7
Extraordinary Item (Net of Income
Taxes)(Note 1) -- (30.5) -- --
- ---------------------------------------------------------------------------------------------
Net Income $ 123.7 $ 29.5 $ 163.0 $ 94.7
=============================================================================================
Earnings per Share of Common Stock
Before Extraordinary Item $ .56 $ .27 $ .71 $ .41
Extraordinary Item (Net of Income
Taxes)(Note 1) -- (.14) -- --
- ---------------------------------------------------------------------------------------------
Earnings per Share of Common Stock $ .56 $ .13 $ .71 $ .41
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1997 1997 1997 1997
- --------------------------------------------------------------------------------------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $626.2 $614.4 $671.2 $1,048.4
Expenses 436.9 425.4 459.5 816.1
- --------------------------------------------------------------------------------------------
Income Before Interest and Income Taxes 189.3 189.0 211.7 232.3
Net Interest Charges 67.0 66.2 64.4 110.9
Income Taxes 49.4 49.0 58.6 51.0
- ---------------------------------------------------------------------------------------------
Net Income $ 72.9 $ 73.8 $ 88.7 $ 70.4
=============================================================================================
Earnings per Share of Common Stock $ .51 $ .51 $ .61 $ .36
=============================================================================================
<FN>
Results for CEI and TE are included from the November 8, 1997 acquisition date through
December 31, 1998.
</TABLE>
8. PRO FORMA COMBINED CONDENSED FIRSTENERGY STATEMENTS OF INCOME
(UNAUDITED):
The Company was formed on November 8, 1997 by the merger of
OE and Centerior. The merger was accounted for as a purchase of
Centerior's net assets with 77,637,704 shares of FirstEnergy Common
Stock through the conversion of each outstanding Centerior Common Stock
share into 0.525 of a share of FirstEnergy Common Stock (fractional
shares were paid in cash). Based on an imputed value of $20.125 per
share, the purchase price was approximately $1.582 billion, which also
included approximately $20 million of merger related costs. Goodwill of
approximately $2.0 billion was recognized (to be amortized on a
straight-line basis over forty years), which represented the excess of
the purchase price over Centerior's net assets after fair value
adjustments.
Accumulated amortization of goodwill was approximately $59
million as of December 31, 1998. The merger purchase accounting
adjustments, which were recorded in the records of Centerior's direct
subsidiaries, included recognizing estimated severance and other
compensation liabilities ($80 million). The amount charged against the
liability in 1998 relating to the costs of involuntary employee
separation was $41 million. In addition, the liability was reduced to
approximately $9 million as of December 31, 1998 to represent potential
costs associated with the separation of 493 CEI employees. The
liability adjustment was offset by a corresponding reduction to
goodwill recognized in connection with the Centerior acquisition.
The following pro forma statements of income of FirstEnergy
give effect to the OE/Centerior merger as if it had been consummated on
January 1, 1996, with the purchase accounting adjustments actually
recognized in the business combination.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
- ------------------------------------------------------------------
(In millions, except per share amounts)
<S> <C> <C>
Revenues $5,206 $5,089
Expenses 3,800 3,671
- ------------------------------------------------------------------
Income Before Interest and Income Taxes 1,406 1,418
Net Interest Charges 643 634
Income Taxes 336 316
- ------------------------------------------------------------------
Net Income $ 427 $ 468
==================================================================
Earnings per Share of Common Stock $ 1.92 $ 2.11
===================================================================
</TABLE>
Pro forma adjustments reflected above include: (1) adjusting
CEI and TE nuclear generating units to fair value based upon
independent appraisals and estimated discounted future cash flows based
on management's estimate of cost recovery; (2) goodwill recognized
representing the excess of the purchase price over Centerior's adjusted
net assets; (3) elimination of revenue and expense transactions between
OE and Centerior; (4) amortization of the fair value adjustment for
long-term debt; and (5) adjustments for estimated tax effects of the
above adjustments.
<PAGE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of FirstEnergy Corp.:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of FirstEnergy Corp. (an Ohio
corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, common stockholders' equity,
preferred stock, cash flows and taxes for each of the three years in
the period ended December 31, 1998. 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 FirstEnergy
Corp. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
1
EXHIBIT 21
FIRSTENERGY CORP.
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1998
Ohio Edison Company - Incorporated in Ohio
The Cleveland Electric Illuminating Company - Incorporated in Ohio
The Toledo Edison Company - Incorporated in Ohio
Centerior Service Company - Incorporated in Ohio
FirstEnergy Properties Company - Incorporated in Ohio
FirstEnergy Ventures Corporation - Incorporated in Ohio
FirstEnergy Trading & Power Marketing, Inc. - Incorporated in Delaware
FirstEnergy Facilities Services Group, Inc. - Incorporated in Ohio
FirstEnergy Securities Transfer Company - Incorporated in Ohio
FirstEnergy Services Corp. - Incorporated in Ohio
MARBEL Energy Corporation - Incorporated in Ohio
JR Operating Company - Incorporated in Ohio
FirstEnergy Nuclear Operating Company - Incorporated in Ohio
FirstEnergy Holdings, LLC - Incorporated in Ohio
FE Acquisition Corp. - Incorporated in Ohio
American Transmission Systems, Inc. - Incorporated in Ohio
Statement of Differences
------------------------
Exhibit Number 21, List of Subsidiaries of the Registrant at
December 31, 1998, is not included in the printed document.
EXHIBIT 23
FIRSTENERGY CORP.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our reports included or incorporated by
reference in this Form 10-K, into FirstEnergy Corp.'s previously
filed Registration Statements, File No. 333-40065, No. 333-48587,
No. 333-48651, No. 333-58279 and No. 333-65409.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the related
Form 10-K financial statements for FirstEnergy Corp. and is qualified in its
entirety by reference to such financial statements. (Amounts in 1,000's, except
earnings per share.) Income tax expense includes $(21,208,000) related to
extraordinary item.
</LEGEND>
<CIK> 0001031296
<NAME> FIRSTENERGY CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,242,574
<OTHER-PROPERTY-AND-INVEST> 2,419,004
<TOTAL-CURRENT-ASSETS> 1,067,133
<TOTAL-DEFERRED-CHARGES> 5,334,796
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,063,507
<COMMON> 23,707
<CAPITAL-SURPLUS-PAID-IN> 3,707,042
<RETAINED-EARNINGS> 718,409
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,449,158
294,710
660,195
<LONG-TERM-DEBT-NET> 6,352,359
<SHORT-TERM-NOTES> 134,495
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 119,975
<LONG-TERM-DEBT-CURRENT-PORT> 777,714
40,154
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 58,602
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,176,145
<TOT-CAPITALIZATION-AND-LIAB> 18,063,507
<GROSS-OPERATING-REVENUE> 5,861,285
<INCOME-TAX-EXPENSE> 300,491
<OTHER-OPERATING-EXPENSES> 4,497,214
<TOTAL-OPERATING-EXPENSES> 4,818,913
<OPERATING-INCOME-LOSS> 1,042,372
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 1,042,372
<TOTAL-INTEREST-EXPENSE> 600,976
<NET-INCOME> 410,874
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 339,111
<TOTAL-INTEREST-ON-BONDS> 512,131
<CASH-FLOW-OPERATIONS> 1,155,325
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
</TABLE>
EXECUTION COPY
===============================================================
OHIO EDISON COMPANY
with
BANKERS TRUST COMPANY,
As Trustee
_______________
Sixty-Eighth Supplemental Indenture
Providing among other things for
First Mortgage Bonds
Guarantee Series of 1997 due 2000
_______________
Dated as of June 1, 1997
================================================================
SUPPLEMENTAL INDENTURE, dated as of June 1, 1997 between
Ohio Edison Company, a corporation organized and existing under
the laws of the State of Ohio (hereinafter called the
"Company"), party of the first part, and Bankers Trust Company,
a corporation organized and existing under the laws of the State
of New York, as Trustee under the Indenture hereinafter referred
to, party of the second part.
Whereas, the Company has heretofore executed and delivered
to Bankers Trust Company, as Trustee (hereinafter called the
"Trustee"), a certain Indenture of Mortgage and Deed of Trust,
dated as of August 1, 1930, to secure an issue of bonds of the
Company, issued and to be issued in series, from time to time,
in the manner and subject to the conditions set forth in the
said Indenture; and the said Indenture has been supplemented by
supplemental indentures, dated as of August 1, 1930, March 3,
1931, as of November 1, 1935, as of January 1, 1937, as of
September 1, 1937, as of June 13, 1939, as of September 1, 1944,
as of April 1, 1945, as of September 1, 1948, as of May 1, 1950,
as of January 1, 1954, as of May 1, 1955, as of August 1, 1956,
as of March 1, 1958, as of April 1, 1959, as of June 1, 1961, as
of September 1, 1969, as of May 1, 1970, as of September 1,
1970, as of June 1, 1971, as of August 1, 1972, as of September
1, 1973, as of August 1, 1974, as of July 1, 1976, as of
December 1, 1976, as of June 15, 1977, as of May 15, 1978, as of
February 1, 1980, as of April 15, 1980, as of June 15, 1980, as
of October 1, 1981, as of October 15, 1981, as of February 15,
1982, as of July 1, 1982, as of March 1, 1983, as of March 1,
1984, as of September 15, 1984, as of September 27, 1984, as of
November 8, 1984, as of December 1, 1984, as of December 5,
1984, as of January 1, 1985, as of January 30, 1985, as of
February 25, 1985, as of July 1, 1985, as of October 1, 1985, as
of January 15, 1986, as of May 20, 1986, as of June 3, 1986, as
of October 1, 1986, as of July 15, 1989, as of August 25, 1989,
as of February 15, 1991, as of May 1, 1991, as of May 15, 1991,
as of September 15, 1991, as of April 1, 1992, as of June 15,
1992, as of September 15, 1992, as of April 1, 1993, as of June
15, 1993, as of September 15, 1993, as of November 15, 1993, as
of April 1, 1995, as of May 1, 1995, and as of July 1, 1995,
respectively, which Indenture as so supplemented and to be
hereby supplemented is hereinafter referred to as the
"Indenture"; and
Whereas, the Indenture provides for the issuance of bonds
thereunder in one or more series, the form of each series of
bonds and of the coupons to be attached to the coupon bonds, if
any, to be substantially in the forms set forth therein with
such insertions, omissions and variations as the Board of
Directors of the Company may determine; and
Whereas, the Company, by appropriate corporate action in
conformity with the terms of the Indenture, in accordance with
the requirements of the Letter of Credit and Reimbursement
Agreement dated as of June 30, 1997 among the Company, Deutsche
Bank AG, New York Branch, as Agent (the "Agent") and Issuing
Bank, and the Banks named therein (as the same may be amended
from time to time, the "Reimbursement Agreement"), has duly
determined to create a new series of bonds under the Indenture,
consisting of f$54,375,000 in principal amount to be designated
as "First Mortgage Bonds Guarantee Series of 1997 due 2000"
(hereinafter sometimes referred to as the "bonds of Guarantee
Series"), the bonds of which series are to bear interest (which
for the purposes hereof shall also include commissions, fees and
other amounts (other than amounts payable as principal) due and
owing under the Reimbursement Agreement) at the same rates and
on the same dates as the Reimbursement Agreement provides for
the accrual and payment of interest, fees, commissions and such
other amounts, are to mature on September 16, 2000, or, as
provided herein, such later date as shall correspond to the
latest Stated Termination Date (as defined in the Reimbursement
Agreement) of the Letter of Credit (as defined in the
Reimbursement Agreement) issued and outstanding under the
Reimbursement Agreement, and are to be substantially in the
following form:
THIS BOND IS NOT TRANSFERABLE EXCEPT (X) TO A SUCCESSOR AGENT
UNDER A LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, DATED AS
OF JUNE 30, 1997, AMONG THE OHIO EDISON COMPANY, THE AGENT, THE
ISSUING BANK AND THE BANKS NAMED THEREIN AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, OR (Y) IN CONNECTION WITH THE
EXERCISE OF THE RIGHTS AND REMEDIES OF THE HOLDER HEREOF
CONSEQUENT UPON AN "EVENT OF DEFAULT" AS DEFINED IN SUCH
REIMBURSEMENT AGREEMENT.
OHIO EDISON COMPANY
First Mortgage Bond Guarantee Series of 1997 Due
2000
Due September 16, 2000
$ No.
Ohio Edison Company, a corporation of the State of Ohio
(hereinafter called the Company), for value received, hereby
promises to pay to DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent
under the Reimbursement Agreement hereinafter described, or
registered assigns,
dollars at an office or agency of the Company in the Borough of
Manhattan, The City of New York, N.Y. or in the City of Akron,
Ohio, on the dates and in the amounts set forth in the
Reimbursement Agreement for the payment of the principal of
demand loans and the reimbursement of drawings under the Letter
of Credit (as defined in the Reimbursement Agreement) and to pay
interest on said sum as described on the reverse hereof, in any
coin or currency of the United States of America which at the
time of payment is legal tender for public and private debts.
Payments of principal of and interest on this bond shall be made
at an office or agency of the Company in the Borough of
Manhattan, The City of New York, N.Y. or in the City of Akron,
Ohio.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have
the same effect as though fully set forth at this place.
This bond shall not become obligatory until Bankers Trust
Company, the Trustee under the Mortgage referred to on the
reverse hereof, or its successor thereunder, shall have
authenticated the form of certificate endorsed hereon.
In witness whereof, Ohio Edison Company has caused this
bond to be signed in its name by its President or a Vice
President, by his signature or a facsimile thereof, and its
corporate seal to be printed hereon, attested by its Secretary
or an Assistant Secretary, by his or her signature or a
facsimile thereof.
Dated, June __, 1997
Ohio Edison Company
By____________________
Title: President
Attest:
_________________________
Title: Secretary
Trustee's Authentication Certificate
This bond is one of the bonds of the series designated
therein, described in the within-mentioned Mortgage.
Bankers Trust Company,
as Trustee,
By_________________________
Authorized Officer
OHIO EDISON COMPANY
First Mortgage Bond Guarantee Series of 1997 Due 2000
This bond is one of an issue of bonds of the Company,
issuable in series, and is one of a series known as its First
Mortgage Bonds of the series designated in its title, all issued
and to be issued under and equally secured (except as to any
sinking fund established in accordance with the provisions of
the Mortgage hereinafter mentioned for the bonds of any
particular series) by an Indenture of Mortgage and Deed of
Trust, dated as of August 1, 1930, executed by the Company to
Bankers Trust Company, as Trustee, as amended and supplemented
by indentures supplemental thereto, to which Indenture as so
amended and supplemented (herein referred to as the "Mortgage")
reference is made for a description of the property mortgaged
and pledged, the nature and extent of the security, the rights
of the holders of the bonds in respect thereof and the terms and
conditions upon which the bonds are secured.
The bonds of this Series have been issued to Deutsche Bank
AG, New York Branch ("DBNY"), as Agent (including any successors
as Agent under the Reimbursement Agreement, the "Agent") in
connection with the execution and delivery by the Company of the
Letter of Credit and Reimbursement Agreement dated as of June
30, 1997 among the Company, DBNY as Agent and Issuing Bank, and
the Banks named therein (as the same may be amended from time to
time, the "Reimbursement Agreement"). The principal amount of
this bond shall equal $54,375,000.
Except as hereinafter provided, interest (which for the
purposes hereof shall also include commissions, fees and other
amounts (other than amounts payable as principal) due and owing
under the Reimbursement Agreement) on this bond accrues and is
payable at the same rates and on the same dates as the
Reimbursement Agreement provides for the accrual and payment of
interest, fees, commissions and such other amounts.
The obligation of the Company to make payments with respect
to the principal and interest (calculated as set forth above) on
the bonds of this Series whether at stated maturity, as a result
of acceleration of maturity or upon mandatory redemption shall
be fully or partially, as the case may be, satisfied and
discharged to the extent that, at any time that any such payment
shall become due, the Company shall have fully or partially paid
the then due principal amount of any demand loans or any
unreimbursed drawings under the Letter of Credit outstanding
under the Reimbursement Agreement, or the then due interest on
any thereof, or any fees, commissions or other amounts payable
under the Reimbursement Agreement.
The maturity date of bonds of this Series shall be extended
automatically, without further written amendment or other action
by either the Company or the Trustee, to correspond to the
latest Stated Termination Date of the Letter of Credit, as the
same may be extended pursuant to the Reimbursement Agreement,
but in no event shall such maturity be extended beyond September
1, 2012.
The bonds of this series shall be redeemed in whole, by
payment of the principal amount thereof plus accrued interest
(calculated as set forth above) thereon, if any, to the date
fixed for redemption, upon receipt by the Trustee of a written
advice from the Agent, stating that an Event of Default (as
defined in the Reimbursement Agreement) has occurred pursuant to
the provisions of Section 6.01 of the Reimbursement Agreement,
specifying the date of the occurrence of such an Event of
Default, stating such occurrence of an Event of Default has not
been annulled and demanding payment of the principal amount
hereof plus accrued interest (calculated as set forth above)
hereon to the date fixed for such redemption. As provided in
the supplemental indenture establishing the terms and provisions
of the bonds of this series, the date fixed for such redemption
shall be the date specified in the aforesaid written advice as
the date of the occurrence of an Event of Default. As provided
in said supplemental indenture, the aforementioned redemption
shall become null and void for all purposes under said
supplemental indenture and the Mortgage upon receipt by the
Trustee of written notice from the Agent confirming that such
Event of Default under the Reimbursement Agreement is no longer
continuing prior to such redemption, and thereupon no redemption
of the bonds of this series and no payment in respect thereof
shall be effected or required. But no such rescission shall
extend to any subsequent written advice from the Agent or impair
any right consequent on such subsequent written advice.
Bonds of this series are not otherwise redeemable prior to
their maturity.
As more fully described in the supplemental indenture
establishing the terms and provisions of the bonds of this
series (the "Indenture Supplement"), the Company reserves the
right, without any consent or other action by holders of the
bonds of this series, to amend the Mortgage to provide (a) that
the Mortgage, the rights and obligations of the Company and the
rights of the bondholders may be modified with the consent of
the holders of not less than 60% in principal amount of the
bonds adversely affected; provided, however, that no
modification shall (1) extend the time, or reduce the amount, of
any payment on any bond, without the consent of the holder of
each bond so affected, (2) permit the creation of any lien, not
otherwise permitted, prior to or on a parity with the lien of
the Mortgage, without the consent of the holders of all bonds
then outstanding, or (3) reduce the above percentage of the
principal amount of bonds the holders of which are required to
approve any such modification without the consent of the holders
of all bonds then outstanding and (b) that (i) additional bonds
may be issued against 70% of the value of the property which
forms the basis for such issuance and (ii) the charge against
property subject to a prior lien which is used to effectuate the
release of property under the Mortgage be similarly based.
The principal hereof may be declared or may become due on
the conditions, in the manner and at the time set forth in the
Mortgage, upon the occurrence of a completed default as in the
Mortgage provided.
No recourse shall be had for the payment of the principal
of or interest (calculated as set forth above) on this bond
against any incorporator or any past, present or future
subscriber to the capital stock, stockholder, officer or
director of the Company or of any predecessor or successor
corporation, either directly or through the Company or any
predecessor or successor corporation, under any rule of law,
statute or constitution or by the enforcement of any assessment
or otherwise, all such liability of incorporators, subscribers,
stockholders, officers and directors being released by the
registered owner hereof by the acceptance of this bond and being
likewise waived and released by the terms of the Mortgage.
The bonds of this series are issuable only as registered
bonds without coupons in denominations of $1,000 and authorized
multiples thereof. Subject to the restrictions contained in the
Reimbursement Agreement, this bond is transferable as prescribed
in the Mortgage by the registered owner hereof, and exchangeable
as set forth in the next sentence, in person or by attorney duly
authorized, at an office or agency of the Company, in the
Borough of Manhattan, The City of New York, N.Y. or in the City
of Akron, Ohio, upon surrender and cancellation of this bond and
thereupon a new registered bond or bonds of the same series for
a like aggregate principal amount, in authorized denominations,
will be issued to the transferee in exchange therefor, as
provided in the Mortgage, and upon payment, if the Company shall
require it, of the transfer charges therein prescribed. In the
event the maturity of bonds of this Series is extended in
accordance with the provisions hereof and of the Indenture
Supplement, as a result of the extension of the Stated
Termination Date of the Letter of Credit, as the same may be
extended pursuant to the Reimbursement Agreement, the holder
hereof shall be entitled to exchange this bond for a bond or
bonds stating such new maturity date. The Company and the
Trustee may deem and treat the person in whose name this bond is
registered as the absolute owner for the purpose of receiving
payment of or on account of the principal and interest due
hereon and for all other purposes. Registered bonds of this
series shall be exchangeable at said offices or agencies of the
Company for registered bonds of other authorized denominations
having the same aggregate principal amount, in the manner and
upon the conditions prescribed in the Mortgage. Notwithstanding
any provision of the Mortgage, (a) neither the Company nor the
Trustee shall be required to make transfers or exchanges of
bonds of this series during the period between any interest
payment date for such series and the record date next preceding
such interest payment date, and (b) no charge shall be made upon
any transfer or exchange of bonds of this series other than for
any tax or taxes or other governmental charge required to be
paid by the Company.
[END OF BOND OF GUARANTEE SERIES]
and
Whereas, Section 115 of the Indenture provides that the
Company and the Trustee may, from time to time and at any time,
enter into such indentures supplemental thereto as shall be
deemed necessary or desirable for one or more purposes,
including, among others, to describe and set forth the
particular terms and the form of additional series of bonds to
be issued under the Indenture, to add other limitations on the
issue of bonds, withdrawal of cash or release of property, to
add to the covenants and agreements of the Company for the
protection of the holders of the bonds and of the mortgaged and
pledged property, to supplement defective or inconsistent
provisions contained in the Indenture, and for any other purpose
not inconsistent with the terms of the Indenture; and
Whereas, all things necessary to make the bonds of
Guarantee Series when authenticated by the Trustee and issued as
in the Indenture provided, the valid, binding and legal
obligations of the Company, entitled in all respects to the
security of the Indenture, have been done and performed, and the
creation, execution and delivery of this Supplemental Indenture
have in all respects been duly authorized; and
Whereas, the Company and Trustee deem it advisable to enter
into this Supplemental Indenture for the purposes of describing
the bonds of Guarantee Series and of establishing the terms and
provisions thereof, confirming the mortgaging under the
Indenture of additional property for the equal and proportionate
benefit and security of the holders of all bonds at any time
issued thereunder, amplifying the description of the property
mortgaged, adding other limitations to the Indenture on the
issue of bonds, withdrawal of cash or release of property, and
adding to the covenants and agreements of the Company for the
protection of the holders of bonds and of mortgaged and pledged
property;
Now, therefore, this supplemental indenture witnesseth:
That Ohio Edison Company, in consideration of the premises and
of one dollar to it duly paid by the Trustee at or before the
ensealing and delivery of these presents, the receipt whereof is
hereby acknowledged, and of the purchase and acceptance of the
bonds issued or to be issued hereunder by the holders thereof,
and in order to secure the payment both of the principal and
interest of all bonds at any time issued and outstanding under
the Indenture, according to their tenor and effect, and the
performance of all the provisions of the Indenture and of said
bonds, hath granted, bargained, sold, released, conveyed,
assigned, transferred, pledged, set over and confirmed and by
these presents doth grant, bargain, sell, release, convey,
assign, transfer, pledge, set over and confirm unto Bankers
Trust Company, as Trustee, and to its successor or successors in
said trust, and to its and their assigns forever, all the
properties of the Company described in Schedule A (which is
identified by the signature of an officer of each party hereto
at the end thereof) hereto annexed and hereby made a part
hereof;
Together with all and singular the tenements, hereditaments
and appurtenances belonging or in any wise appertaining to the
aforesaid property or any part thereof, with the reversion and
reversions, remainder and remainders and (subject to the
provisions of Article XI of the Indenture) the tolls, rents,
revenues, issues, earnings, income, product and profits thereof,
and all the estate, right, title and interest and claim
whatsoever, at law as well as in equity, which the Company now
has or may hereafter acquire in and to the aforesaid property
and franchises and every part and parcel thereof.
The Company does hereby agree and does hereby confirm and
reaffirm the agreement made by it in the Indenture, dated as of
August 1, 1930, that all the property, rights and franchises
acquired by the Company after the date of the Indenture, dated
as of August 1, 1930 (except any hereinafter expressly
excepted), shall be as fully embraced within the lien of the
Indenture as if such property had been owned by the Company on
the date of the Indenture, dated as of August 1, 1930 and was
specifically described therein and conveyed thereby and does
hereby confirm that the Company will not cause or consent to a
partition, whether voluntary or through legal proceedings, of
property, whether herein described or heretofore or hereafter
acquired, in which its ownership shall be as a tenant in common
except as permitted by and in conformity with the provisions of
the Indenture and particularly of Article XI thereof.
Provided that the following are not and are not intended to
be now or hereafter granted, bargained, sold, released,
conveyed, assigned, transferred, mortgaged, pledged, set over or
confirmed hereunder and are hereby expressly excepted from the
lien and operation of the Indenture, viz.: cash, shares of
stock and obligations (including bonds, notes and other
securities) not heretofore or hereafter specifically pledged,
paid or deposited or delivered under the Indenture or covenanted
so to be.
To have and to hold all such properties, real, personal and
mixed, mortgaged, pledged or conveyed by the Company as
aforesaid, or intended so to be, unto the Trustee and its
successors and assigns forever.
In trust, nevertheless, upon the terms and trusts of the
Indenture for those who shall hold the bonds and coupons issued
and to be issued thereunder, or any of them, without preference,
priority or distinction as to lien of any of said bonds and
coupons over any others thereof by reason of priority in the
time of the issue or negotiations thereof, or otherwise
howsoever, subject, however, to the provisions in reference to
extended, transferred or pledged coupons and claims for interest
set forth in the Indenture (and subject to any sinking funds
that may be hereafter created for the benefit of any particular
series).
Provided, however, and these presents are upon the
condition that if the Company, its successors or assigns, shall
pay or cause to be paid, the principal of and interest on said
bonds, at the times and in the manner stipulated therein and
herein, and shall keep, perform and observe all and singular the
covenants and promises in said bonds and in the Indenture
expressed to be kept, performed and observed by or on the part
of the Company, then this Supplemental Indenture and the estate
and rights hereby granted shall cease, determine and be void,
otherwise to be and remain in full force and effect.
It is hereby covenanted, declared and agreed, by the
Company, that all such bonds and coupons are to be issued,
authenticated and delivered, and that all property subject or to
become subject hereto is to be held, subject to the further
covenants, conditions, uses and trusts in the Indenture set
forth, and the parties hereto mutually agree as follows:
Section 1. Bonds of Guarantee Series shall mature on
September 16, 2000, or such later date as shall correspond to
the latest Stated Termination Date of the Letter of Credit, as
the same may be extended pursuant to the Reimbursement
Agreement, but in no event shall such maturity be extended
beyond September 1, 2012, and shall be designated as the
Company's "First Mortgage Bonds Guarantee Series of 1997 due
2000." The bonds of Guarantee Series shall bear interest (which
for the purposes hereof shall also include commissions, fees and
other amounts (other than amounts payable as principal) due and
owing under the Reimbursement Agreement) at the same rates and
on the same dates as the Reimbursement Agreement provides for
the accrual and payment of interest, fees, commissions and such
other amounts. Principal or redemption price of and interest on
the bonds of Guarantee Series shall be payable in any coin or
currency of the United States of America which at the time of
payment is legal tender for public and private debts, at an
office or agency of the Company in the Borough of Manhattan, The
City of New York, N.Y. or in the City of Akron, Ohio.
Definitive bonds of Guarantee Series may be issued,
originally or otherwise, only as registered bonds, substantially
in the form of bond hereinbefore recited, and in the
denominations of $1,000 and authorized multiples thereof.
Delivery of a bond of Guarantee Series to the Trustee for
authentication shall be conclusive evidence that its serial
number has been duly approved by the Company.
The bonds of Guarantee Series shall be redeemable pursuant
to the requirements of this Sixty-Eighth Supplemental Indenture
in whole, prior to maturity, upon receipt by the Trustee of a
written advice from the Agent, stating that an Event of Default
has occurred pursuant to the provisions of Section 6.01 of the
Reimbursement Agreement, specifying the date of the occurrence
of such an Event of Default, stating such occurrence of an Event
of Default has not been annulled and demanding payment of the
principal amount hereof plus accrued interest (calculated as set
forth above) hereon to the date fixed for such redemption. The
Trustee shall immediately upon receiving such written advice
mail a copy thereof to the Company stamped or otherwise marked
to indicate the date of receipt by the Trustee. The redemption
date shall be the date specified in the aforesaid written advice
as the date of such occurrence of an Event of Default under the
Reimbursement Agreement. The terms "Agent" and "Reimbursement
Agreement" shall have the meanings specified in the form of bond
of Guarantee Series provided for herein. Redemption of the
bonds of Guarantee Series shall be at the principal amount
thereof, plus accrued interest thereon to the date fixed for
redemption and such amount shall become due and payable on the
date fixed for such redemption. Anything in this paragraph
contained to the contrary notwithstanding, if prior to such
redemption, the Trustee shall have been advised in writing by
the Agent that such Event of Default under the Reimbursement
Agreement is no longer continuing and that the aforesaid written
advice has been rescinded, the aforesaid written advice shall
thereupon, without further act of the Trustee or the Company, be
rescinded and become null and void for all purposes hereunder
and no redemption of the bonds of Guarantee Series and no
payments in respect thereof shall be effected or required. But
no such rescission shall extend to any subsequent written advice
from the Agent or impair any right consequent on such subsequent
written advice.
Section 2. Bonds of Guarantee Series shall be deemed to be
paid and no longer outstanding under the Indenture to the extent
that the Company's obligations with respect to the principal,
interest, commissions, fees and other amounts payable under or
in connection with the Reimbursement Agreement which are due
from time to time under the Reimbursement Agreement are, and the
Letter of Credit issued pursuant thereto is, no longer
outstanding and the Trustee has been notified to such effect by
the Company.
Section 3. Subject to the terms of the Reimbursement
Agreement, bonds of Guarantee Series may be transferred by the
registered owners thereof, and exchanged as set forth in the
next sentence, in person or by attorney duly authorized, at an
office or agency of the Company in the Borough of Manhattan, The
City of New York, N.Y. or in the City of Akron, Ohio but only in
the manner and upon the conditions prescribed in the Indenture
and in the form of bond hereinbefore recited. In the event the
maturity of bonds of Guarantee Series is extended in accordance
with the provisions hereof, as a result of the extension of the
Stated Termination Date of the Letter of Credit, as the same may
be extended pursuant to the Reimbursement Agreement, the holder
hereof shall be entitled to exchange this bond for a bond or
bonds stating such new maturity date. Bonds of Guarantee Series
shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the
Indenture, and in the form of bond hereinbefore recited, upon
the surrender of such bonds at said offices or agencies of the
Company. However, notwithstanding the provisions of Section 14
or 15 of the Indenture, no charge shall be made upon any
transfer or exchange of bonds of said series other than for any
tax or taxes or other governmental charge required to be paid by
the Company.
Section 4. Bonds of Guarantee Series shall be considered
and deemed to be "outstanding" for all purposes under the
Mortgage in the full principal amount thereof, until the
maturity thereof, regardless of whether any amounts have accrued
thereunder or are then due and owing thereunder.
Section 5. The Company reserves the right, without any
consent or other action by holders of the bonds of Guarantee
Series, or any subsequent series of bonds, to amend the
Indenture by inserting the following language as Section 115A
immediately following current Section 115 of the Indenture:
With the consent of the holders of not less than sixty per
centum (60%) in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if
the rights of the holders of one or more, but not all, series
then outstanding are affected, the consent of the holders of not
less than sixty per centum (60%) in aggregate principal amount
of the bonds at the time outstanding of all affected series,
taken together, and not any other series, the Company, when
authorized by a resolution, and the Trustee may from time to
time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions
of this Indenture or of any supplemental indenture or modifying
the rights and obligations of the Company and the rights of the
holders of any of the bonds and coupons; provided, however, that
no such supplemental indenture shall (1) extend the maturity of
any of the bonds or reduce the rate or extend the time of
payment of interest thereon, or reduce the amount of the
principal thereof, or reduce any premium, payable on the
redemption thereof or change the coin or currency in which any
bond or interest thereon is payable, without the consent of the
holder of each bond so affected, or (2) permit the creation of
any lien, not otherwise permitted, prior to or on a parity with
the lien of this Indenture, without the consent of the holders
of all of the bonds then outstanding, or (3) reduce the
aforesaid percentage of the principal amount of bonds the
holders of which are required to approve any such supplemental
indenture, without the consent of the holders of all the bonds
then outstanding. For the purposes of this Section, bonds shall
be deemed to be affected by a supplemental indenture if such
supplemental indenture adversely affects or diminishes the right
of holders thereof against the Company or against its property.
Upon the written request of the Company, accompanied by a
resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of
the consent of bondholders as aforesaid (the instrument or
instruments evidencing such consent to be dated within one year
of such request), the Trustee shall join with the Company in the
execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion but shall not be obligated to
enter into such supplemental indenture. The Trustee shall be
entitled to receive and, subject to Section 102 of the Indenture
and Article Five of the Seventh Supplemental Indenture, may rely
upon an opinion of counsel as conclusive evidence that any such
supplemental indenture is authorized or permitted by the
provisions of this Section.
It shall not be necessary for the consent of the
bondholders under this Section to approve the particular form of
any proposed supplemental indenture, but it shall be sufficient
if such consent shall approve the substance thereof.
The Company and the Trustee, if they so elect, and either
before or after such 60% or greater consent has been obtained,
may require the holder of any bond consenting to the execution
of any such supplemental indenture to submit his bond to the
Trustee or to such bank, banker or trust company as may be
designated by the Trustee for the purpose, for the notation
thereon of the fact that the holder of such bond has consented
to the execution of such supplemental indenture, and in such
case such notation, in form satisfactory to the Trustee, shall
be made upon all bonds so submitted, and such bonds bearing such
notation shall forthwith be returned to the persons entitled
thereto. All subsequent holders of bonds bearing such notation
shall be deemed to have consented to the execution of such
supplemental indenture, and consent, once given or deemed to be
given, may not be withdrawn.
Prior to the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this
Section, the Company shall publish a notice, setting forth in
general terms the substance of such supplemental indenture, at
least once in one daily newspaper of general circulation in each
city in which the principal of any of the bonds shall be
payable, or, if all bonds outstanding shall be registered bonds
without coupons or coupon bonds registered as to principal, such
notice shall be sufficiently given if mailed, first class,
postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such
holder appearing on the registry books, such publication or
mailing, as the case may be, to be made not less than thirty
days prior to such execution. Any failure of the Company to
give such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental
indenture.
Section 6. The Company reserves the right, without any
consent or other action by the holders of the bonds of Guarantee
Series, or any subsequent series of bonds, to amend the
Indenture by deleting the phrase "sixty per centum (60%)" in
Section 28 of the Indenture and substituting therefor the phrase
"seventy per centum (70%)" and by deleting the phrase "One
hundred sixty-six and two-thirds per cent. (166 2/3%)" in
Sections 65 and 67 of the Indenture and substituting therefor
the phrase "One hundred and forty-two and eighty-six hundredths
per cent. (142.86%)".
Section 7. Except as herein otherwise expressly provided,
no duties, responsibilities or liabilities are assumed, or shall
be construed to be assumed, by the Trustee by reason of this
Supplemental Indenture; the Trustee shall not be responsible for
the recitals herein or in the bonds (except the Trustee's
authentication certificate), all of which are made by the
Company solely; and this Supplemental Indenture is executed and
accepted by the Trustee, subject to all the terms and conditions
set forth in the Indenture, as fully to all intents and purposes
as if the terms and conditions of the Indenture were herein set
forth at length.
Section 8. As supplemented by this Supplemental Indenture,
the Indenture is in all respects ratified and confirmed, and the
Indenture as herein defined, and this Supplemental Indenture,
shall be read, taken and construed as one and the same
instrument.
Section 9. Nothing in this Supplemental Indenture
contained shall or shall be construed to confer upon any person
other than a holder of bonds issued under the Indenture, the
Company and the Trustee any right or interest to avail himself
of any benefit under any provision of the Indenture or of this
Supplemental Indenture.
Section 10. This Supplemental Indenture may be
simultaneously executed in several counterparts and all such
counterparts executed and delivered, each as an original, shall
constitute but one and the same instrument.
In witness whereof, Ohio Edison Company, party of the first
part hereto, and Bankers Trust Company, party of the second part
hereto, have caused these presents to be executed in their
respective names by their respective Presidents or one of their
Vice Presidents or Assistant Vice Presidents and their
respective seals to be hereunto affixed and attested by their
respective Secretaries or one of their Assistant Secretaries or
Assistant Treasurers, all as of the day and year first above
written.
Ohio Edison Company
[Seal]
By: /S/ John A. Gill
----------------------
Title: Vice President
Attest: /s/ Nancy C. Ashcom
Title: Secretary
Signed, Sealed and Acknowledged on behalf of
Ohio Edison Company in the presence of:
/s/ Cynthia A. LaFlame
------------------------
Cynthia A. Laflame
/s/ Suzette H. Sharif
------------------------
Suzette H. Sharif
Bankers Trust Company
[Seal]
By: /s/ Scott Thiel
-----------------------------
Title: Assistant Vice President
Attest: /s/ Paul Dispenza
-------------------------------
Title: Assistant Vice President
Signed, Sealed and Acknowledged on behalf of
Bankers Trust Company in the presence of:
/s/ Barbara Nastro
----------------------
Barbara Nastro
/s/ William T. Jenkins, Jr.
--------------------------------
William T. Jenkins, Jr.
State of Ohio )
: ss.:
County of Summit )
On the 26th day of June, 1997, personally appeared before
me, a Notary Public in and for the said County and State
aforesaid, John A. Gill, and Nancy C. Ashcom, to me known and
known to me to be a Vice President and Secretary, respectively,
of Ohio Edison Company, the corporation which executed the
foregoing instrument, and who severally acknowledged that they
did sign and seal such instrument as such Vice President and
Secretary, respectively, of Ohio Edison Company, the same is
their free act and deed and the free and corporate act and deed
of said corporation.
In witness whereof, I have hereunto set my hand and seal
the 26th day of June, 1997.
/s/ Debra L. Cordea
----------------------
Debra L. Cordea, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires Nov. 20, 1999
[Seal]
State of Ohio )
: ss.:
County of Summit )
On the 26th day of June, 1997, before me personally came
John A. Gill, to me known, who, being by me duly sworn, did
depose and say that he resides at 123 Meadow Lane, Peninsula,
Ohio 44264; that he is a Vice President of Ohio Edison Company,
one of the corporations described in and which executed the
above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like
order.
/s/ Debra L. Cordea
----------------------
Debra L. Cordea, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires Nov. 20, 1999
[Seal]
State of New York )
: ss.:
County of New York)
On the 30th day of June, 1997, personally appeared before
me, a Notary Public in and for the said County and State
aforesaid, Scott Thiel and Paul Dispenza, to me known and known
to me to be an Assistant Vice President and Assistant Vice
President, respectively, of Bankers Trust Company, the
corporation which executed the foregoing instrument, and who
severally acknowledged that they did sign and seal such
instrument as such Assistant Vice President and Assistant Vice
President for and on behalf of said corporation and that the
same is their free act and deed and the free and corporate act
and deed of said corporation.
In witness whereof, I have hereunto set my hand and seal
the 30th day of June, 1997.
/s/ Sharon v. Alston
------------------------
Sharon V. Alston
Notary Public, State of New York
No. 31-4966275
Qualified in New York County
Commission Expires 5/7/98
[Seal]
State of New York )
: ss.:
County of New York )
On the 30th day of June, 1997, before me personally came
Scott Thiel, to me known, who, being by me duly sworn, did
depose and say that he resides at Stanhope, New Jersey 07874;
that he is an Assistant Vice President of Bankers Trust Company,
one of the parties described in and which executed the above
instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it
was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like
authority.
/s/ Sharon V. Alston
---------------------------
Sharon V. Alston
Notary Public, State of New York
No. 31-4966275
Qualified in New York County
Commission Expires 5/7/98
[Seal]
Bankers Trust Company hereby certifies that its precise
name and address as Trustee hereunder are:
Bankers Trust Company
Four Albany Street
Borough of Manhattan
City, County and State of New York 10006
Bankers Trust Company
By: /s/ Scott Thiel
---------------------------------
Title: Assistant Vice President
SCHEDULE A
Detailed Description of Additional Properties
A. OFFICE BUILDINGS, STORE HOUSES, ETC.
The following offices, storerooms, warehouses, and other
buildings of the Company, together with all land of the Company
on which the same are situated, and all easements, rights of way
and appurtenances of said lands, together with all furniture and
fixtures located in said buildings:
1. Land and dwelling, 777 Mayfield Drive, Marion Township,
Marion County, Ohio.
2. Land and dwelling, 4181 Autumn Creek Drive, German Township,
Clark County, Ohio.
3. Land and dwelling, 3300 St. Clair Avenue, St. Clair
Township, Columbiana County, Ohio.
4. Land and dwelling, 33925 S. Park Circle, St. Clair Township,
Columbiana County, Ohio.
5. Land and dwelling, 3970 Walnut Wood Way, City of Green,
Summit County, Ohio.
6. Land and dwelling, 699 E. Church Street, City of Marion,
Marion County, Ohio.
7. Land and dwelling, 1124 Colonial Avenue, City of Marion,
Marion County, Ohio.
B. ELECTRIC TRANSMISSION LINES
The following electric transmission lines of the Company,
including the towers, poles, line poles, wire, switch racks,
insulators and other appurtenances, and equipment owned by the
Company, and all other property of the Company, with all the
Company's rights of way, easements, permits, privileges and
consents, licenses and rights over or relating to the
construction, maintenance or operation thereof, through, over,
under or upon any public streets or highways or other lands,
public or private.
1. Seville Substation Loop: Double circuit wood pole
construction extending from Pole #10189 on the existing Star-W.
Medina Line, westerly to Seville Substation, a distance of 0.87
mile, being located in Guilford and Westfield Townships, Medina
County, Ohio.
2. Blue Jacket-Kirby: New single circuit wood pole construction
extending from Kirby Substation westerly and northerly to
interconnect with D. P. & L. Company at Pole #11181, a distance
of 6.32 miles, being located in Claibourne Township, Union
County, Ohio.
3. Avery Substation Loop: Double circuit wood pole construction
extending from Pole #8894 on the existing Greenfield-Shinrock
Line northerly to Avery Substation, a distance of 0.08 mile,
being located in Milan Township, Erie County, Ohio.
4. Nevada Tap: Single circuit wood pole construction extending
from Tower #6589 southerly and westerly to Nevada Substation, a
distance of 0.06 mile, being located in Boardman Township,
Mahoning County, Ohio.
5. Lakemore Loop: Double circuit wood pole construction
extending from Tower #7957 on the existing Gilchrist-South Akron
Line northerly, northwesterly, and westerly to Lakemore
Substation, a distance of 0.25 mile, all being located in
Springfield Township, Summit County, Ohio.
6. Babb-Evans: Single circuit construction on existing steel
towers, new wood poles, and new steel poles. Extending from
Babb Substation southerly, easterly, northwesterly, and westerly
to Evans Substation, a distance of 4.7 miles, all being located
in the City of Akron, Summit County, Ohio.
7. Chamberlin Loop: Double circuit steel pole construction
extending from steel tower #42839 and from steel pole #42845 in
the existing Harding-Mansfield Line northerly and easterly to
Chamberlin Substation, a distance of 0.79 mile, all being
located in the City of Macedonia, Twinsburg Township, Summit
County, Ohio.
8. Clark-Urbana: Single circuit wood pole construction
extending from Clark Substation in a northerly direction to the
D. P. & L. Company Interconnection at Pole A, a distance of 8.70
miles, being located in Mad River Township, Springfield Township
and German Township in Clark County and Urbana Township in
Champaign County, Ohio.
Akron Division
9. Macedonia-W. Akron Relocate for Glencairn: Single circuit
wood pole construction extending from Structure #31-N on the
existing line easterly and southerly to Structure #57 on the
existing line, an increased distance of 0.21 mile, all being
located in Richfield Township, Summit County, State of Ohio.
10. Case Tap: Single and double wood pole construction
extending from Structure #32 on the existing Aurora-Chamberlin
Line at Highland Road southerly and westerly at Case Substation,
a distance of 0.43 mile of single circuit construction and 0.27
mile of double circuit construction, all located in Twinsburg,
Summit County, State of Ohio.
11. Aurora-Chamberlin: New single circuit wood pole
construction extending from Chamberlin Substation easterly and
southerly to Pole #63 south of the Conrail Railroad, a distance
of 0.17 mile, being located in Summit County, Ohio.
12. Aurora-Chamberlin: New wood pole construction extending
from Pole #63 to Pole #2 near Hadden Road, a distance of 1.16
miles, being located in the City of Twinsburg and Twinsburg
Township, Summit County, Ohio.
13. Prospect Substation Tap: Single circuit wood pole
construction extending from Pole #61 on the existing Ravenna-
West Ravenna #2 Line easterly to Prospect Substation, a distance
of 0.05 mile, being located in Rootstown Township, Portage
County, Ohio.
14. Shiloh Tap: Single circuit wood pole construction extending
from Pole #10 on the existing Abbe-Medina Line, westerly to
Shiloh Substation, a distance of 0.02 mile, being located in
Liverpool Township, Medina County, Ohio.
15. Seville Loop: Double circuit wood pole construction
extending from Pole #74 on the existing Rittman Line northerly
and northeasterly to Seville Substation, a distance of 0.75
mile, being located in Westfield Township, Medina County, Ohio.
16. Quarry Substation Loop: Single circuit wood pole
construction extending from Pole #110 on the existing Avery-
Greenfield Lone, easterly to Quarry Substation, a distance of
0.2 mile, being located in Perkins Township, Erie County, Ohio.
17. Bechtel McLaughlin Tap: Single circuit wood pole
construction extending from Pole #20 on the existing Carriage-
Greenfield Line, easterly to Bechtel McLaughlin Substation, a
distance of 0.07 mile, being located in Perkins Township, Erie
County, Ohio.
18. Avery Substation Loop: Double circuit wood pole
construction extending from Pole #165 on the existing Carriage-
Greenfield Line westerly to Avery Substation, a distance of 0.52
mile, being located in Milan Township, Erie County, Ohio.
19. Wellington Muni Tap: Single circuit wood pole construction
extending from Pole #11A on the existing Carlisle-Wellington
Line northerly to Wellington Muni Substation, a distance of 0.1
mile, being located in Wellington Township, Lorain County, Ohio.
20. Bellevue-Greenfield #2: Single circuit wood pole
construction extending from Bellevue Substation northerly and
northeasterly to Greenfield Substation, a distance of 14.40
miles, all being located in the city of Bellevue, Lyme Township,
Huron County, Ohio, and in Groton Township, Margaretta Township,
Village of Castalia, Perkins Township, Erie County, Ohio.
21. Dell Loop: Single circuit wood pole construction extending
from Structure #35 on the existing Industrial Line northerly and
westerly to Dell substation, a distance of 0.07 mile, and single
circuit wood pole construction extending from Structure #37 on
the existing Industrial Line northerly and westerly to Dell
Substation, a distance of 0.13 mile, all being located in the
City of Ashland, Montgomery Township, Ashland County, Ohio.
22. National Latex Company Tap: Single circuit wood pole
construction extending from Structure #14B on the existing
Industrial Line easterly to National Latex Company Substation, a
distance of 0.01 mile, all being located in the City of Ashland,
Ashland County, Ohio.
Stark Division
23. Dale Loop: Double circuit wood pole construction extending
from Structure #73 on the existing Hartville-Star Line southerly
and westerly to Dale Substation, a distance of 3.04 miles, all
being located in the City of Green, Summit County and in Jackson
Township, Stark County, Ohio.
24. Knox Loop: Double circuit wood pole construction extending
from Structure #102 on the existing Lynchburg Line westerly to
Knox Substation, a distance of 1.33 miles, all being located in
West Township, Columbiana County, Ohio.
25. Fleming Foods Tap: Single circuit wood pole construction
extending from Structure #17 on the existing Richville Line
easterly to Fleming Foods Substation, a distance of 0.01 mile,
all being located in Perry Township, Stark County, Ohio.
26. Dale Strobel: Double circuit and single circuit wood pole
construction extending from Dale Substation easterly, southerly,
westerly, southerly, and westerly to Strobel Substation a
distance of 3.43 miles, all being located in Jackson Township,
Stark County, Ohio.
Youngstown Division
27. Carriage Hill Foods Tap: Single circuit wood pole
construction extending from Structure #12 on the existing
Boardman-Pidgeon north line southwesterly and southerly to
Carriage Hill Foods substation, a distance of 0.09 mile, all
being located in Perry Township, City of Salem, Columbiana
County, Ohio.
Springfield Division
28. Villa Tap: single circuit wood pole construction extending
from Structure #35 on the existing Broadview-East
Springfield Line easterly 0.50 miles to Villa Substation.
The line is located in Moorefield Township, Clark County,
Ohio.
29. Tech II Tap: Single Circuit wood pole construction
extending from structure #35 on the existing Broadview -
Waterworks line westerly to Tech II Substation, a distance
of 1.74 miles, all being located in Moorefield and German
Township, Clark County and in Mad River Township, Champaign
County, Ohio.
C. ELECTRICAL SUBSTATIONS
The following substations and substation sites and
miscellaneous property of the Company, including all buildings
structures, towers, poles, all equipment, appliances and devices
for manufacturing, converting and distributing electric energy,
owned by the Company, and all land of the Company on which the
same are situated, and all of the Company's lands and easements,
rights of way, rights, machinery, equipment, appliances,
devices, licenses and supplies, forming a part of said
substations or any of them or used or enjoyed or capable of
being used to enjoyed in connection therewith:
Western Division
Akron Division
Case Substation, structures and equipment only (land was
reported previously), located at 2111 Case Parkway South in the
City of Twinsburg, Summit County, Ohio.
Chillicothe Substation site, land only, located on the west
side of South Chillicothe Road approximately 1,800 feet south of
its intersection with Lena Drive in the City of Aurora, Portage
County, Ohio.
Clayben Substation site, land only, located at 2175
Massillon Road in Springfield Township, Summit County, Ohio.
Lakemore Substation, structures and equipment only (land was
reported previously), located at 2862 Canton Road (across from
its intersection with Jackson Boulevard) in the City of
Uniontown, Summit County, Ohio.
Prospect Substation, land, structures, and equipment,
located at 5159 South Prospect Street, Village of Rootstown,
Portage County, Ohio.
Rosemont Substation site, land only, located at 660
Brunsdorf Drive (immediately south of Interstate No. 77) in the
City of Fairlawn, Summit County, Ohio.
Seville Substation, land, structures, and equipment, located
at 5501 Greenwich Road, in Westfield Township, Medina County,
Ohio.
Treat Substation, land, structures, and equipment, located
at 95 Treat Road, in the City of Aurora, Portage County, Ohio.
Bay Area
Avery Substation site, land only, located at 805 West Mason
Road, in Milan Township, Erie County, Ohio.
Quarry Substation, land, structures, and equipment, located
on Bogart Road, across from its intersection with Galloway Road,
in Perkins Township, Erie County, Ohio.
Lake Erie Area
Baumhart Substation, structures and equipment only (land was
reported previously), located at 315 Helen Drive in the City of
Vermillion, Lorain County, Ohio.
Mansfield Area
Dell Substation, structures and equipment only (land was
reported previously), located at 200 Delafield Avenue in
Montgomery Township, Ashland County, Ohio.
Perrysville substation, structures and equipment only,
located east of Route 39 approximately 0.5 miles north of its
intersection with Route 95 in Green Township, Ashland County,
Ohio.
Marion Area
Kirby Substation site, land only, located on Landon Road,
approximately 0.3 miles east of its intersection with State
Route No. 37 in Claibourne Township, Union County, Ohio.
Stark Division
Carmont Substation, land structures and equipment, located
at 1336 Carmont Avenue (17th Street, S.W.) across from its
intersection with Rondale Avenue in the City of Massillon, Stark
County, Ohio.
Fleming Foods, structure and equipment only, located on the
east side of Erie Avenue, approximately 300 feet north of its
intersection with Londcrest Street in the City of Massillon,
Stark County, Ohio.
Dale Substation, structures and equipment only (land was
reported previously), located at 7181 Arlington Avenue, in
Jackson Township, Stark County, Ohio.
Springfield Division
Villa Substation, structures and equipment only, located at
3039 Derr Road (near the intersection of Villa Road and Derr
Road) in Moorefield Township, Clark County, Ohio.
Youngstown Division
Fresh Mark Substation, structures and equipment only,
located on the west side of Lincoln Avenue (State Route No. 45)
immediately south of its intersection with Snyder Road in the
City of Salem, Columbiana County, Ohio.
Lockwood Substation site, land only, located on the east
side of Lockwood Boulevard approximately 100 feet north of its
intersection with Shields Road in the Township of Austintown,
Summit County, Ohio.
Matthews Substation site, land only, located at 1971
Matthews Road (approximately 500 feet east of its intersection
with Sheridan Road) in the City of Youngstown, Mahoning County,
Ohio.
/s/ Nancy C. Ashcom ,
--------------------------------
Nancy C. Ashcom, Secretary
Ohio Edison Company
/s/ Scott Thiel ,
---------------------------------
Scott Thiel, Assistant Vice President
Bankers Trust Company
OHIO EDISON COMPANY
with
THE BANK OF NEW YORK,
As Trustee
---------------------
SIXTY-NINTH SUPPLEMENTAL INDENTURE
Providing among other things for
FIRST MORTGAGE BONDS
Pledge Series of 1998 due 2006
-----------------------
Dated as of April 1, 1998
SUPPLEMENTAL INDENTURE, dated as of April 1, 1998 between
Ohio Edison Company, a corporation organized and existing under
the laws of the State of Ohio (hereinafter called the
"Company"), party of the first part, and The Bank of New York, a
corporation organized and existing under the laws of the State
of New York (hereinafter called the "Trustee"), as Trustee under
the Indenture hereinafter referred to, party of the second part.
Whereas, the Company has heretofore executed and delivered
to Bankers trust company, as trustee (hereinafter called the
"Old Trustee"), a certain Indenture of Mortgage and Deed of
Trust, dated as of August 1, 1930, to secure an issue of bonds
of the Company, issued and to be issued in series, from time to
time, in the manner and subject to the conditions set forth in
the said Indenture; and the said Indenture has been supplemented
by sixty-eight supplemental indentures, which Indenture as so
supplemented and to be hereby supplemented is hereinafter
referred to as the "Indenture"; and
WHEREAS, the Trustee has succeeded the Old Trustee as
trustee under the Indenture pursuant to Article XVI thereof; and
WHEREAS, the Indenture provides for the issuance of bonds
thereunder in one or more series, the form of each series of
bonds and of the coupons to be attached to the coupon bonds, if
any, to be substantially in the forms set forth therein with
such insertions, omissions and variations as the Board of
Directors of the Company may determine; and
Whereas, the Company, by appropriate corporate action in
conformity with the terms of the Indenture, has duly determined
to create a new series of bonds under the Indenture, consisting
of $125,097,000 in principal amount to be designated as "First
Mortgage Bonds Pledge Series of 1998 due 2006" (hereinafter
sometimes referred to as the "bonds of First Pledge Series"),
the bonds of which series are to bear interest at the rate of
6.38% per annum, are to mature April 15, 2006, and are to be
substantially in the following form:
[Form of Bond of First Pledge Series]
This Bond is not transferable except to a successor trustee
under the General Mortgage Indenture and Deed of Trust, dated as
of January 1, 1998, between the Company and The Bank of New
York, as Trustee, or in connection with the exercise of the
rights and remedies of the holder hereof consequent upon a
"default" as defined in the Mortgage referred to herein.
OHIO EDISON COMPANY
First Mortgage Bond Pledge Series of 1998 Due 2006
Due April 15, 2006
$ No.
Ohio Edison Company, a corporation of the State of Ohio
(hereinafter called the Company), for value received, hereby
promises to pay to , or
registered assigns, dollars at an office or
agency of the Company in the Borough of Manhattan, The City of
New York, N.Y. or in the City of Akron, Ohio, on April 15, 2006
in any coin or currency of the United States of America which at
the time of payment is legal tender for public and private
debts, and to pay at said offices or agencies to the registered
owner hereof, in like coin or currency, interest thereon from
the Initial Interest Accrual Date (hereinbelow defined) at the
rate of six and thirty-eight hundredths per centum per annum.
Payments of principal of and interest on this bond shall be made
at an office or agency of the Company in the Borough of
Manhattan, The City of New York, N.Y. or in the City of Akron,
Ohio.
Payment of principal of principal of, or premium or
interest on, the Company's First Mortgage Bonds Guarantee Series
of 1998 (the "General Mortgage Bonds") issued under the
Company's General Mortgage Indenture and Deed of Trust to The
Bank of New York, as Trustee, dated as of January 1, 1998,
shall, to the extent thereof, be deemed to satisfy and discharge
the obligation of the Company, if any, to make a payment of
principal, premium or interest, as the case may be, in respect
of this bond which is then due.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have
the same effect as though fully set forth at this place.
This bond shall not become obligatory until The Bank of New
York, the Trustee under the Mortgage referred to on the reverse
hereof, or its successor thereunder, shall have authenticated
the form of certificate endorsed hereon.
In witness whereof, Ohio Edison Company has caused this
bond to be signed in its name by its President or a Vice
President, by his signature or a facsimile thereof, and its
corporate seal to be printed hereon, attested by its Secretary
or an Assistant Secretary, by his signature or a facsimile
thereof.
Dated, ,
Ohio Edison Company,
By:
Title:
Attest:
Title:
[Form of Trustee's Authentication Certificate]
Trustee's Authentication Certificate
This bond is one of the bonds of the series designated
therein, described in the within-mentioned Mortgage.
The Bank of New York,
as Trustee,
By:
Authorized Officer
[Form of Bond of First Pledge Series]
[Reverse]
OHIO EDISON COMPANY
FIRST MORTGAGE BOND PLEDGE SERIES OF 1998 DUE 2006
This bond is one of an issue of bonds of the Company,
issuable in series, and is one of a series known as its First
Mortgage Bonds of the series designated in its title, all issued
and to be issued under and equally secured (except as to any
sinking fund established in accordance with the provisions of
the Mortgage hereinafter mentioned for the bonds of any
particular series) by an Indenture of Mortgage and Deed of
Trust, dated as of August 1, 1930, executed by the Company to
The Bank of New York, as Trustee, as amended and supplemented by
indentures supplemental thereto, to which Indenture as so
amended and supplemented (herein referred to as the "Mortgage")
reference is made for a description of the property mortgaged
and pledged, the nature and extent of the security, the rights
of the holders of the bonds in respect thereof and the terms and
conditions upon which the bonds are secured.
Bonds of this series are not redeemable prior to their
maturity.
As a sinking fund, to the extent that the General Mortgage
Bonds are called for redemption, a like principal amount of
bonds of this series shall become due and payable on the
redemption date that such General Mortgage Bonds are to be
redeemed, together with accrued interest to such date.
The Initial Interest Accrual Date for the bonds of this
series shall be the date that interest begins to accrue on the
General Mortgage Bonds.
As more fully described in the supplemental indenture
establishing the terms and provisions of the bonds of this
series, the Company reserves the right, without any consent or
other action by holders of the bonds of this series, to amend
the Mortgage to provide (a) that the Mortgage, the rights and
obligations of the Company and the rights of the bondholders may
be modified with the consent of the holders of not less than 60%
in principal amount of the bonds adversely affected; provided,
however, that no modification shall (1) extend the time, or
reduce the amount, of any payment on any bond, without the
consent of the holder of each bond so affected, (2) permit the
creation of any lien, not otherwise permitted, prior to or on a
parity with the lien of the Mortgage, without the consent of the
holders of all bonds then outstanding, or (3) reduce the above
percentage of the principal amount of bonds the holders of which
are required to approve any such modification without the
consent of the holders of all bonds then outstanding and
(b) that (i) additional bonds may be issued against 70% of the
value of the property which forms the basis for such issuance
and (ii) the charge against property subject to a prior lien
which is used to effectuate the release of property under the
Mortgage be similarly based.
The principal hereof may be declared or may become due on
the conditions, in the manner and at the time set forth in the
Mortgage, upon the occurrence of a completed default as in the
Mortgage provided.
No recourse shall be had for the payment of the principal
of or interest on this bond against any incorporator or any
past, present or future subscriber to the capital stock,
stockholder, officer or director of the Company or of any
predecessor or successor corporation, either directly or through
the Company or a predecessor or successor corporation, under any
rule of law, statute or constitution or by the enforcement of
any assessment or otherwise, all such liability of
incorporators, subscribers, stockholders, officers and directors
being released by the registered owner hereof by the acceptance
of this bond and being likewise waived and released by the terms
of the Mortgage.
The bonds of this series are issuable only as registered
bonds without coupons in denominations of $1,000 and authorized
multiples thereof. The Company and the Trustee may deem and
treat the person in whose name this bond is registered as the
absolute owner for the purpose of receiving payment of or on
account of the principal and interest due hereon and for all
other purposes. Registered bonds of this series shall be
exchangeable at said offices or agencies of the Company for
registered bonds of other authorized denominations having the
same aggregate principal amount, in the manner and upon the
conditions prescribed in the Mortgage. Notwithstanding any
provision of the Mortgage, (a) neither the Company nor the
Trustee shall be required to make transfers or exchanges of
bonds of this series during the period between any interest
payment date for such series and the record date next preceding
such interest payment date, and (b) no charge shall be made upon
any transfer or exchange of bonds of this series other than for
any tax or taxes or other governmental charge required to be
paid by the Company.
[END OF FORM OF BOND OF FIRST PLEDGE SERIES]
and
Whereas, Section 115 of the Indenture provides that the
Company and the Trustee may, from time to time and at any time,
enter into such indentures supplemental thereto as shall be
deemed necessary or desirable for one or more purposes,
including, among others, to describe and set forth the
particular terms and the form of additional series of bonds to
be issued under the Indenture, to add other limitations on the
issue of bonds, withdrawal of cash or release of property, to
add to the covenants and agreements of the Company for the
protection of the holders of the bonds and of the mortgaged and
pledged property, to supplement defective or inconsistent
provisions contained in the Indenture, and for any other purpose
not inconsistent with the terms of the Indenture; and
Whereas, all things necessary to make the bonds of First
Pledge Series when authenticated by the Trustee and issued as in
the Indenture provided, the valid, binding and legal obligations
of the Company, entitled in all respects to the security of the
Indenture, have been done and performed, and the creation,
execution and delivery of this Supplemental Indenture have in
all respects been duly authorized; and
Whereas, the Company and Trustee deem it advisable to enter
into this Supplemental Indenture for the purposes of describing
the bonds of First Pledge Series and of establishing the terms
and provisions thereof, confirming the mortgaging under the
Indenture of additional property for the equal and proportionate
benefit and security of the holders of all bonds at any time
issued thereunder, amplifying the description of the property
mortgaged, adding other limitations to the Indenture on the
issue of bonds, withdrawal of cash or release of property, and
adding to the covenants and agreements of the Company for the
protection of the holders of bonds and of mortgaged and pledged
property;
Now, therefore, this supplemental indenture witnessth:
That Ohio Edison Company, in consideration of the premises and
of one dollar to it duly paid by the Trustee at or before the
ensealing and delivery of these presents, the receipt whereof is
hereby acknowledged, and of the purchase and acceptance of the
bonds issued or to be issued hereunder by the holders thereof,
and in order to secure the payment both of the principal and
interest of all bonds at any time issued and outstanding under
the Indenture, according to their tenor and effect, and the
performance of all the provisions of the Indenture and of said
bonds, hath granted, bargained, sold, released, conveyed,
assigned, transferred, pledged, set over and confirmed and by
these presents doth grant, bargain, sell, release, convey,
assign, transfer, pledge, set over and confirm unto The Bank of
New York, as Trustee, and to its successor or successors in said
trust, and to its and their assigns forever, all the properties
of the Company described in Schedule A (which is identified by
the signature of an officer of each party hereto at the end
thereof) hereto annexed and hereby made a part hereof;
Together with all and singular the tenements, hereditaments
and appurtenances belonging or in any wise appertaining to the
aforesaid property or any part thereof, with the reversion and
reversions, remainder and remainders and (subject to the
provisions of Article XI of the Indenture) the tolls, rents,
revenues, issues, earnings, income, product and profits thereof,
and all the estate, right, title and interest and claim
whatsoever, at law as well as in equity, which the Company now
has or may hererafter acquire in and to the aforesaid property
and franchises and every part and parcel thereof.
The Company does hereby agree and does hereby confirm and
reaffirm the agreement made by it in the Indenture, dated as of
August 1, 1930, that all property, rights and franchises
acquired by the Company after the date of the Indenture, dated
as of August 1, 1930 (except any hereinafter expressly
excepted), shall be as fully embraced within the lien of the
Indenture as if such property had been owned by the Company on
the date of the Indenture, dated as of August 1, 1930 and was
specifically described therein and conveyed thereby and does
hereby confirm that the Company will not cause or consent to a
partition, whether voluntary or through legal proceedings, of
property, whether herein described or heretofore or hereafter
acquired, in which its ownership shall be as a tenant in common
except as permitted by and in conformity with the provisions of
the Indenture and particularly of Article XI thereof.
Provided that the following are not and are not intended to
be now or hereafter granted, bargained, sold, released,
conveyed, assigned, transferred, mortgaged, pledged, set over or
confirmed hereunder and are hereby expressly excepted from the
lien and operation of the Indenture, viz.: cash, shares of
stock and obligations (including bonds, notes and other
securities) not heretofore or hereafter specifically pledged,
paid or deposited or delivered under the Indenture or covenanted
so to be.
To have and to hold all such properties, real, personal and
mixed, mortgaged, pledged or conveyed by the Company as
aforesaid, or intended so to be, unto the Trustee and its
successors and assigns forever.
In trust, nevertheless, upon the terms and trusts of the
Indenture for those who shall hold the bonds and coupons issued
and to be issued thereunder, or any of them, without preference,
priority or distinction as to lien of any of said bonds and
coupons over any others thereof by reason of priority in the
time of the issue or negotiations thereof, or otherwise
howsoever, subject, however, to the provisions in reference to
extended, transferred or pledged coupons and claims for interest
set forth in the Indenture (and subject to any sinking funds
that may be hereafter created for the benefit of any particular
series).
Provided, however, and these presents are upon the
condition that if the Company, its successors or assigns, shall
pay or caused to be paid, the principal of and interest on said
bonds, at the times and in the manner stipulated therein and
herein, and shall keep, perform and observe all and singular the
covenants and promises in said bonds and in the Indenture
expressed to be kept, performed and observed by or on the part
of the Company, then this Supplemental Indenture and the estate
and rights hereby granted shall cease, determine and be void,
otherwise to be and remain in full force and effect.
It is hereby covenanted, declared and agreed, by the
Company, that all such bonds and coupons are to be issued,
authenticated and delivered, and that all property subject or to
become subject hereto is to be held, subject to the further
covenants, conditions, uses and trusts in the Indenture set
forth, and the parties hereto mutually agree as follows:
SECTION 1. Bonds of First Pledge Series shall mature on
April 15, 2006, and shall be designated as the Company's "First
Mortgage Bonds Pledge Series of 1998 due 2006." The bonds of
First Pledge Series shall bear interest from the Initial
Interest Accrual Date (as defined in the form of the bond
hereinabove set forth) at the rate of six and thirty-eight
hundredths per centum per annum. Principal or redemption price
of and interest on the bonds of First Pledge Series shall be
payable in any coin or currency of the United States of America
which at the time of payment is legal tender for public and
private debts, at an office or agency of the Company in the
Borough of Manhattan, The City of New York, N.Y. or in the City
of Akron, Ohio.
Definitive bonds of First Pledge Series may be issued,
originally or otherwise, only as registered bonds, substantially
in the form of bond hereinbefore recited, and in the
denominations of $1,000 and authorized multiples thereof.
Delivery of a bond of First Pledge Series to the Trustee for
authentication shall be conclusive evidence that its serial
number has been duly approved by the Company.
The bonds of First Pledge Series shall not be redeemable
prior to their maturity.
As a sinking fund, to the extent that the General Mortgage
Bonds (as defined in the form of bond hereinabove set forth) are
called for redemption, a like principal amount of First Pledge
Series shall become due and payable on the redemption date that
such General Mortgage Bonds are to be redeemed, together with
accrued interest to such date.
SECTION 2. Bonds of First Pledge Series shall be deemed
to be paid and no longer outstanding under the Indenture to the
extent that General Mortgage Bonds (as defined in the form of
bonds hereinabove set forth) which are outstanding from time to
time under the Revenue Bond Indenture are paid or deemed to be
paid and are no longer outstanding and the Trustee has been
notified to such effect by the Company.
SECTION 3. Bonds of First Pledge Series may be
transferred by the registered owners thereof, in person or by
attorney duly authorized, at an office or agency of the Company
in the Borough of Manhattan, The City of New York, N.Y. or in
the City of Akron, Ohio but only in the manner and upon the
conditions prescribed in the Indenture and in the form of bond
hereinbefore recited. Bonds of First Pledge Series shall be
exchangeable for other registered bonds of the same series, in
the manner and upon the conditions prescribed in the Indenture,
and in the form of bond hereinbefore recited, upon the surrender
of such bonds at said offices or agencies of the Company.
However, notwithstanding the provisions of Section 14 or 15 of
the Indenture, no charge shall be made upon any transfer or
exchange of bonds of said series other than for any tax or taxes
or other governmental charge required to be paid by the Company.
SECTION 4. The Company reserves the right, without any
consent or other action by holders of the bonds of First Pledge
Series, or any subsequent series of bonds, to amend the
Indenture by inserting the following language as Section 115A
immediately following current Section 115 of the Indenture.
With the consent of the holders of not less than sixty
per centum (60%) in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if
the rights of the holders of one or more, but not all, series
then outstanding are affected, the consent of the holders of not
less than sixty per centum (60%) in aggregate principal amount
of the bonds at the time outstanding of all affected series,
taken together, and not any other series, the Company, when
authorized by a resolution, and the Trustee may from time to
time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions
of this Indenture or of any supplemental indenture or modifying
the rights and obligations of the Company and the rights of the
holders of any of the bonds and coupons; provided, however, that
no such supplemental indenture shall (1) extend the maturity of
any of the bonds or reduce the rate or extend the time of
payment of interest thereon, or reduce the amount of the
principal thereof, or reduce any premium, payable on the
redemption thereof or change the coin or currency in which any
bond or interest thereon is payable, without the consent of the
holder of each bond so affected, or (2) permit the creation of
any lien, not otherwise permitted, prior to or on a parity with
the lien of this Indenture, without the consent of the holders
of all of the bonds then outstanding, or (3) reduce the
aforesaid percentage of the principal amount of bonds the
holders of which are required to approve any such supplemental
indenture, without the consent of the holders of all the bonds
then outstanding. For the purposes of this Section, bonds shall
be deemed to be affected by a supplemental indenture if such
supplemental indenture adversely affects or diminishes the right
of holders thereof against the Company or against its property.
Upon the written request of the Company, accompanied
by a resolution authorizing the execution of any such
supplemental indenture, and upon the filling with the Trustee of
evidence of the consent of bondholders as aforesaid (the
instrument or instruments evidencing such consent to be dated
within one year of such request), the Trustee shall join with
the Company in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's owns
rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in its discretion but shall not
be obligated to enter into such supplemental indenture. The
Trustee shall be entitled to receive and, subject to Section 102
of the Indenture and Article Five of the Seventh Supplemental
Indenture, may rely upon an opinion of counsel as conclusive
evidence that any such supplemental indenture is authorized or
permitted by the provisions of this Section.
It shall not be necessary for the consent of the
bondholders under this Section to approve the particular form of
any proposed supplemental indenture, but it shall be sufficient
if such consent shall approve the substance thereof.
The Company and the Trustee, if they so elect, and
either before or after such 60% or greater consent has been
obtained, may require the holder of any bond consenting to the
execution of any such supplemental indenture to submit his bond
to the Trustee or to such bank, banker or trust company as may
be designated by the Trustee for the purpose, for the notation
thereon of the fact that the holder of such bond has consented
to the execution of such supplemental indenture, and in such
case such notation, in form satisfactory to the Trustee, shall
be made upon all bonds so submitted, and such bonds bearing such
notation shall forthwith be returned to the persons entitled
thereto. All subsequent holders of bonds bearing such notation
shall be deemed to have consented to the execution of such
supplemental indenture, and consent, once given or deemed to be
given, may not be withdrawn.
Prior to the execution by the Company and the Trustee
of any supplemental indenture pursuant to the provisions of this
Section, the Company shall publish a notice, setting forth in
general terms the substance of such supplemental indenture, at
least once in one daily newspaper of general circulation in each
city in which the principal of any of the bonds shall be
payable, or, if all bonds outstanding shall be registered bonds
without coupons or coupon bonds registered as to principal, such
notice shall be sufficiently given if mailed, first class,
postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such
holder appearing on the registry books, such publication or
mailing, as the case may be, to be made not less than thirty
days prior to such execution. Any failure of the Company to
give such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental
indenture.
SECTION 5. The Company reserves the right, without any
consent or other action by the holders of the bonds of First
Pledge Series, or any subsequent series of bonds, to amend the
Indenture by deleting the phrase "sixty per centum (60%)" in
Section 28 of the Indenture and substituting therefor the phrase
"seventy per centum (70%)" and by deleting the phrase "One
hundred sixty-six and two-thirds per cent. (166 2/3%)" in
Sections 65 and 67 of the Indenture and substituting therefor
the phrase "One hundred and forty-two and eighty-six hundredths
per cent. (142.86%)".
SECTION 6. Except as herein otherwise expressly provided,
no duties, responsibilities or liabilities are assumed, or shall
be construed to be assumed, by the Trustee by reason of this
Supplemental Indenture; the Trustee shall not be responsible for
the recitals herein or in the bonds (except the Trustee's
authentication certificate), all of which are made by the
Company solely; and this Supplemental Indenture is executed and
accepted by the Trustee, subject to all the terms and conditions
set forth in the Indenture, as fully to all intents and purposes
as if the terms and conditions of the Indenture were herein set
forth at length.
SECTION 7. As supplemented by this Supplemental
Indenture, the Indenture is in all respects ratified and
confirmed, and the Indenture as herein defined, and this
Supplemental Indenture, shall be read, taken and construed as
one and the same instrument.
SECTION 8. Nothing in this Supplemental Indenture
contained shall or shall be construed to confer upon any person
other than a holder of bonds issued under the Indenture, the
Company and the Trustee any right or interest to avail himself
of any benefit under any provision of the Indenture or of this
Supplemental Indenture.
SECTION 9. This Supplemental Indenture may be
simultaneously executed in several counterparts and all such
counterparts executed and delivered, each as an original, shall
constitute but one and the same instrument.
In Witness Whereof, Ohio Edison Company and The Bank of New
York have caused these presents to be executed in their
respective names by their respective Presidents or one of their
Vice Presidents or Assistant Vice Presidents and their
respective seals to be hereunto affixed and attested by their
respective Secretaries or one of their Assistant Secretaries or
Assistant Treasurers, all as of the day and year first above
written.
Ohio Edison Company
By: /s/ Richard H. Marsh
------------------------
Title: Vice President
[Seal]
Attest: /s/ Nancy C. Ashcom
------------------------
Title: Secretary
Signed, Sealed and Acknowledged on behalf of
Ohio Edison Company in the presence of:
/s/ Cynthia A. LaFlame
/s/ Suzette H. Sharif
The Bank of New York
By: /s/ Lucille Firrincieli
--------------------------
Title: Vice President
[Seal]
Attest: /s/ Iliana Acevedo
-------------------------
Title: Assistant Treasurer
Signed, Sealed and Acknowledged on behalf of
The Bank of New York in the presence of:
- --------------------------------
- --------------------------------
STATE OF OHIO )
: ss.:
COUNTY OF SUMMIT )
On the 9th day of April, 1998, personally appeared before
me, a Notary Public in and for the said County and State
aforesaid, Richard H. Marsh and Nancy C. Ashcom, to me known and
known to me to be a Vice President and Corporate Secretary,
respectively, of OHIO EDISON COMPANY, the corporation which
executed the foregoing instrument, and who severally
acknowledged that they did sign and seal such instrument as such
Vice President and Corporate Secretary, respectively, of OHIO
EDISON COMPANY, the same is their free act and deed and the free
and corporate act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
the 9th day of April, 1998.
/s/ Debra L. Cordea
--------------------------
Debra L. Cordea, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires Nov. 20, 1999
[SEAL]
STATE OF OHIO )
: ss.:
COUNTY OF SUMMIT )
On the 9th day of April, 1998, before me personally came
Richard H. Marsh, to me known, who, being by me duly sworn, did
dispose and say that he resides at 1126 Woodhaven Boulevard,
Fairlawn, Ohio 44333; that he is a Vice President of OHIO EDISON
COMPANY, one of the corporations described in and which executed
the above instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of
Directors of said corporation, and that he signed his name
thereto by like order.
/s/ Debra L. Cordea
-------------------------------
Debra L. Cordea, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires Nov. 20, 1999
[SEAL]
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 14th day of April, 1998, personally appeared before
me, a Notary Public in and for the said County and State
aforesaid, Lucille Firrincieli and Iliana Acevedo, to me known
and known to me to be a VICE PRESIDENT and ASSISTANT TREASURER,
respectively, of The Bank of New York, the corporation which
executed the foregoing instrument, and who severally
acknowledged that they did sign and seal such instrument as such
VICE PRESIDENT and TREASURER for and on behalf of said
corporation and that the same is their free act and deed and the
free and corporation act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
the 14th day of April, 1998.
/s/ William J. Cassels
-------------------------------
William J. Cassels
Notary Public, State of New York
No.: 0ICA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 2000
[SEAL]
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 14th day of April, 1998, before me personally came
Lucille Firrincieli, to me known, who, being by me duly sworn,
did dispose and say that she resides at 163-09 32nd Avenue,
Flushing, New York 11358; that she is a Vice President of THE
BANK OF NEW YORK, one of the parties described in and which
executed the above instrument; that she knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of
Directors of said corporation, and that she signed her name
thereto by like authority.
/s/ William J. Cassels
--------------------------------
William J. Cassels
Notary Public, State of New York
No.: 0ICA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 2000
[SEAL]
The Bank of New York hereby certifies that its precise name
and address as Trustee hereunder are:
The Bank of New York
101 Barclay Street
City, County and State of New York 10286
The Bank of New York
By: /s/ Iliana Acevedo
----------------------
Title: Assistant Treasurer
- ----------------------------------------------------------------
OHIO EDISON COMPANY
with
THE BANK OF NEW YORK,
As Trustee
_______________________
SEVENTIETH SUPPLEMENTAL INDENTURE
Providing among other things for
FIRST MORTGAGE BONDS
Pledge Series of 1998 due 2028
_________
Dated as of June 1, 1998
- --------------------------------------------------------------
SUPPLEMENTAL INDENTURE, dated as of June 1, 1998 between
Ohio Edison Company, a corporation organized and existing under
the laws of the State of Ohio (hereinafter called the
"Company"), party of the first part, and The Bank of New York, a
banking corporation organized and existing under the laws of the
State of New York, as Trustee under the Indenture hereinafter
referred to, party of the second part.
WHEREAS, the Company has heretofore executed and delivered
to Bankers trust company (hereinafter called the "Old Trustee"),
as trustee, a certain Indenture, dated as of August 1, 1930, to
secure an issue of bonds of the Company, issued and to be issued
in series, from time to time, in the manner and subject to the
conditions set forth in the said Indenture; and the said
Indenture has been supplemented by sixty-nine supplemental
indentures, which Indenture as so supplemented and to be hereby
supplemented is hereinafter referred to as the "Indenture"; and
WHEREAS, The Bank of New York has succeeded the Old Trustee
as trustee under the Indenture (hereinafter called the
"Trustee") pursuant to Article XVI thereof; and
WHEREAS, the Indenture provides for the issuance of bonds
thereunder in one or more series, the form of each series of
bonds and of the coupons to be attached to the coupon bonds, if
any, to be substantially in the forms set forth therein with
such insertions, omissions and variations as the Board of
Directors of the Company may determine; and
WHEREAS, the Company, by appropriate corporate action in
conformity with the terms of the Indenture, has duly determined
to create a new series of bonds under the Indenture, consisting
of $13,521,974 in principal amount to be designated as "First
Mortgage Bonds Pledge Series of 1998 due 2028" (hereinafter
sometimes referred to as the "bonds of Second Pledge Series"),
the bonds of which series are to bear interest from the Initial
Interest Accrual Date (as defined in the form of bond
hereinbelow set forth) at the rate of 5.375% per annum, are to
mature June 1, 2028, and are to be substantially in the
following form:
[Form of Bond of Second Pledge Series]
This Bond is not transferable except to a successor trustee
under the General Mortgage Indenture and Deed of Trust, dated as
of January 1, 1998, between the Company and The Bank of New
York, as Trustee, or in connection with the exercise of the
rights and remedies of the holder hereof consequent upon a
"default" as defined in the Mortgage referred to herein.
OHIO EDISON COMPANY
First Mortgage Bond Pledge Series of 1998 due 2028
Due June 1, 2028
$ No.
Ohio Edison Company, a corporation of the State of Ohio
(hereinafter called the Company), for value received, hereby
promises to pay to , or
registered assigns, dollars at an office or
agency of the Company in the Borough of Manhattan, The City of
New York, N.Y. or in the City of Akron, Ohio, on June 1, 2028 in
any coin or currency of the United States of America which at
the time of payment is legal tender for public and private
debts, and to pay at said offices or agencies to the registered
owner hereof, in like coin or currency, interest thereon from
the Initial Interest Accrual Date (hereinbelow defined) at the
rate of five and three-eighths per centum per annum on each
June 1 and December 1. Payments of principal of and interest on
this bond shall be made at an office or agency of the Company in
the Borough of Manhattan, The City of New York, N.Y. or in the
City of Akron, Ohio.
Payment of principal of, or premium or interest on, the
Company's Mortgage Bonds Guarantee Series A of 1998 (the
"General Mortgage Bonds") issued under the Company's General
Mortgage Indenture and Deed of Trust to The Bank of New York, as
Trustee, dated as of January 1, 1998, shall, to the extent
thereof, be deemed to satisfy and discharge the obligation of
the Company, if any, to make a payment of principal, premium or
interest, as the case may be, in respect of this bond which is
then due.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have
the same effect as though fully set forth at this place.
This bond shall not become obligatory until The Bank of New
York, the Trustee under the Mortgage referred to on the reverse
hereof, or its successor thereunder, shall have authenticated
the form of certificate endorsed hereon.
In witness whereof, Ohio Edison Company has caused this
bond to be signed in its name by its President or a Vice
President, by his signature or a facsimile thereof, and its
corporate seal to be printed hereon, attested by its Secretary
or an Assistant Secretary, by his signature or a facsimile
thereof.
Dated:
Ohio Edison Company,
By:
---------------------------
Title:
Attest:
- ---------------------------
Title:
[Form of Trustee's Authentication Certificate]
Trustee's Authentication Certificate
This bond is one of the bonds of the series designated
therein, described in the within-mentioned Mortgage.
The Bank of New York,
as Trustee,
By:
-----------------------------
Authorized Officer
[Form of Bond of Second Pledge Series]
[Reverse]
OHIO EDISON COMPANY
First Mortgage Bond Pledge Series of 1998 due
2028
This bond is one of an issue of bonds of the Company,
issuable in series, and is one of a series known as its First
Mortgage Bonds of the series designated in its title, all issued
and to be issued under and equally secured (except as to any
sinking fund established in accordance with the provisions of
the Mortgage hereinafter mentioned for the bonds of any
particular series) by an Indenture, dated as of August 1, 1930,
executed by the Company to The Bank of New York, as Trustee, as
amended and supplemented by indentures supplemental thereto, to
which Indenture as so amended and supplemented (herein referred
to as the "Mortgage") reference is made for a description of the
property mortgaged and pledged, the nature and extent of the
security, the rights of the holders of the bonds in respect
thereof and the terms and conditions upon which the bonds are
secured.
Bonds of this series are not redeemable prior to their
maturity.
As a sinking fund, to the extent that the General Mortgage
Bonds are called for redemption, a like principal amount of
bonds of this series shall become due and payable on the
redemption date that such General Mortgage Bonds are to be
redeemed, together with accrued interest to such date.
The Initial Interest Accrual Date for the bonds of this
series shall be the date that interest begins to accrue on the
General Mortgage Bonds.
As more fully described in the supplemental indenture
establishing the terms and provisions of the bonds of this
series, the Company reserves the right, without any consent or
other action by holders of the bonds of this series, to amend
the Mortgage to provide (a) that the Mortgage, the rights and
obligations of the Company and the rights of the bondholders may
be modified with the consent of the holders of not less than 60%
in principal amount of the bonds adversely affected; provided,
however, that no modification shall (1) extend the time, or
reduce the amount, of any payment on any bond, without the
consent of the holder of each bond so affected, (2) permit the
creation of any lien, not otherwise permitted, prior to or on a
parity with the lien of the Mortgage, without the consent of the
holders of all bonds then outstanding, or (3) reduce the above
percentage of the principal amount of bonds the holders of which
are required to approve any such modification without the
consent of the holders of all bonds then outstanding and
(b) that (i) additional bonds may be issued against 70% of the
value of the property which forms the basis for such issuance
and (ii) the charge against property subject to a prior lien
which is used to effectuate the release of property under the
Mortgage be similarly based.
The principal hereof may be declared or may become due on
the conditions, in the manner and at the time set forth in the
Mortgage, upon the occurrence of a completed default as in the
Mortgage provided.
No recourse shall be had for the payment of the principal
of or interest on this bond against any incorporator or any
past, present or future subscriber to the capital stock,
stockholder, officer or director of the Company or of any
predecessor or successor corporation, either directly or through
the Company or a predecessor or successor corporation, under any
rule of law, statute or constitution or by the enforcement of
any assessment or otherwise, all such liability of
incorporators, subscribers, stockholders, officers and directors
being released by the registered owner hereof by the acceptance
of this bond and being likewise waived and released by the terms
of the Mortgage.
The bonds of this series are issuable only as registered
bonds without coupons in denominations of $1,000 and, if higher,
in multiples of $1.00. The Company and the Trustee may deem and
treat the person in whose name this bond is registered as the
absolute owner for the purpose of receiving payment of or on
account of the principal and interest due hereon and for all
other purposes. Registered bonds of this series shall be
exchangeable at said offices or agencies of the Company for
registered bonds of other authorized denominations having the
same aggregate principal amount, in the manner and upon the
conditions prescribed in the Mortgage. Notwithstanding any
provision of the Mortgage, (a) neither the Company nor the
Trustee shall be required to make transfers or exchanges of
bonds of this series during the period between any interest
payment date for such series and the record date next preceding
such interest payment date, and (b) no charge shall be made upon
any transfer or exchange of bonds of this series other than for
any tax or taxes or other governmental charge required to be
paid by the Company.
[END OF FORM OF BOND OF SECOND PLEDGE SERIES]
and
Whereas, Section 115 of the Indenture provides that the
Company and the Trustee may, from time to time and at any time,
enter into such indentures supplemental thereto as shall be
deemed necessary or desirable for one or more purposes,
including, among others, to describe and set forth the
particular terms and the form of additional series of bonds to
be issued under the Indenture, to add other limitations on the
issue of bonds, withdrawal of cash or release of property, to
add to the covenants and agreements of the Company for the
protection of the holders of the bonds and of the mortgaged and
pledged property, to supplement defective or inconsistent
provisions contained in the Indenture, and for any other purpose
not inconsistent with the terms of the Indenture; and
Whereas, all things necessary to make the bonds of Second
Pledge Series when authenticated by the Trustee and issued as in
the Indenture provided, the valid, binding and legal obligations
of the Company, entitled in all respects to the security of the
Indenture, have been done and performed, and the creation,
execution and delivery of this Supplemental Indenture have in
all respects been duly authorized; and
Whereas, the Company and Trustee deem it advisable to enter
into this Supplemental Indenture for the purposes of describing
the bonds of Second Pledge Series and of establishing the terms
and provisions thereof, confirming the mortgaging under the
Indenture of additional property for the equal and proportionate
benefit and security of the holders of all bonds at any time
issued thereunder, amplifying the description of the property
mortgaged, adding other limitations to the Indenture on the
issue of bonds, withdrawal of cash or release of property, and
adding to the covenants and agreements of the Company for the
protection of the holders of bonds and of mortgaged and pledged
property;
Now, therefore, this supplemental indenture witnessth:
That Ohio Edison Company, in consideration of the premises and
of one dollar to it duly paid by the Trustee at or before the
ensealing and delivery of these presents, the receipt whereof is
hereby acknowledged, and of the purchase and acceptance of the
bonds issued or to be issued hereunder by the holders thereof,
and in order to secure the payment both of the principal and
interest of all bonds at any time issued and outstanding under
the Indenture, according to their tenor and effect, and the
performance of all the provisions of the Indenture and of said
bonds, hath granted, bargained, sold, released, conveyed,
assigned, transferred, pledged, set over and confirmed and by
these presents doth grant, bargain, sell, release, convey,
assign, transfer, pledge, set over and confirm unto The Bank of
New York, as Trustee, and to its successor or successors in said
trust, and to its and their assigns forever, all the properties
of the Company described in Schedule A (which is identified by
the signature of an officer of each party hereto at the end
thereof) hereto annexed and hereby made a part hereof;
Together with all and singular the tenements, hereditaments
and appurtenances belonging or in any wise appertaining to the
aforesaid property or any part thereof, with the reversion and
reversions, remainder and remainders and (subject to the
provisions of Article XI of the Indenture) the tolls, rents,
revenues, issues, earnings, income, product and profits thereof,
and all the estate, right, title and interest and claim
whatsoever, at law as well as in equity, which the Company now
has or may hereafter acquire in and to the aforesaid property
and franchises and every part and parcel thereof.
The Company does hereby agree and does hereby confirm and
reaffirm the agreement made by it in the Indenture, dated as of
August 1, 1930, that all property, rights and franchises
acquired by the Company after the date of the Indenture, dated
as of August 1, 1930 (except any hereinafter expressly
excepted), shall be as fully embraced within the lien of the
Indenture as if such property had been owned by the Company on
the date of the Indenture, dated as of August 1, 1930 and was
specifically described therein and conveyed thereby and does
hereby confirm that the Company will not cause or consent to a
partition, whether voluntary or through legal proceedings, of
property, whether herein described or heretofore or hereafter
acquired, in which its ownership shall be as a tenant in common
except as permitted by and in conformity with the provisions of
the Indenture and particularly of Article XI thereof.
Provided that the following are not and are not intended to
be now or hereafter granted, bargained, sold, released,
conveyed, assigned, transferred, mortgaged, pledged, set over or
confirmed hereunder and are hereby expressly excepted from the
lien and operation of the Indenture, viz.: cash, shares of
stock and obligations (including bonds, notes and other
securities) not heretofore or hereafter specifically pledged,
paid or deposited or delivered under the Indenture or covenanted
so to be.
To have and to hold all such properties, real, personal and
mixed, mortgaged, pledged or conveyed by the Company as
aforesaid, or intended so to be, unto the Trustee and its
successors and assigns forever.
In trust, nevertheless, upon the terms and trusts of the
Indenture for those who shall hold the bonds and coupons issued
and to be issued thereunder, or any of them, without preference,
priority or distinction as to lien of any of said bonds and
coupons over any others thereof by reason of priority in the
time of the issue or negotiations thereof, or otherwise
howsoever, subject, however, to the provisions in reference to
extended, transferred or pledged coupons and claims for interest
set forth in the Indenture (and subject to any sinking funds
that may be hereafter created for the benefit of any particular
series).
Provided, however, and these presents are upon the condition
that if the Company, its successors or assigns, shall pay or
caused to be paid, the principal of and interest on said bonds,
at the times and in the manner stipulated therein and herein,
and shall keep, perform and observe all and singular the
covenants and promises in said bonds and in the Indenture
expressed to be kept, performed and observed by or on the part
of the Company, then this Supplemental Indenture and the estate
and rights hereby granted shall cease, determine and be void,
otherwise to be and remain in full force and effect.
It is hereby covenanted, declared and agreed, by the
Company, that all such bonds and coupons are to be issued,
authenticated and delivered, and that all property subject or to
become subject hereto is to be held, subject to the further
covenants, conditions, uses and trusts in the Indenture set
forth, and the parties hereto mutually agree as follows:
SECTION 1. Bonds of Second Pledge Series shall mature on
June 1, 2028, and shall be designated as the Company's "First
Mortgage Bonds Pledge Series of 1998 due 2028." The bonds of
Second Pledge Series shall bear interest from the Initial
Interest Accrual Date (as defined in the form of the bond
hereinabove set forth) at the rate of five and three-eighths per
centum per annum. Principal or redemption price of and interest
on the bonds of Second Pledge Series shall be payable in any
coin or currency of the United States of America which at the
time of payment is legal tender for public and private debts, at
an office or agency of the Company in the Borough of Manhattan,
The City of New York, N.Y. or in the City of Akron, Ohio.
Definitive bonds of Second Pledge Series may be issued,
originally or otherwise, only as registered bonds, substantially
in the form of bond hereinbefore recited, and in the
denominations of $1,000 and, if higher, in multiples of $1.00.
Delivery of a bond of Second Pledge Series to the Trustee for
authentication shall be conclusive evidence that its serial
number has been duly approved by the Company.
The bonds of Second Pledge Series shall not be redeemable
prior to their maturity.
As a sinking fund, to the extent that the General Mortgage
Bonds (as defined in the form of bond hereinabove set forth) are
called for redemption, a like principal amount of Second Pledge
Series shall become due and payable on the redemption date that
such General Mortgage Bonds are to be redeemed, together with
accrued interest to such date.
SECTION 2. Bonds of Second Pledge Series shall be deemed
to be paid and no longer outstanding under the Indenture to the
extent that General Mortgage Bonds (as defined in the form of
bonds hereinabove set forth) to which they relate are paid or
deemed to be paid and are no longer outstanding and the Trustee
has been notified to such effect by the Company.
SECTION 3. Bonds of Second Pledge Series may be
transferred by the registered owners thereof, in person or by
attorney duly authorized, at an office or agency of the Company
in the Borough of Manhattan, The City of New York, N.Y. or in
the City of Akron, Ohio but only in the manner and upon the
conditions prescribed in the Indenture and in the form of bond
hereinbefore recited. Bonds of Second Pledge Series shall be
exchangeable for other registered bonds of the same series, in
the manner and upon the conditions prescribed in the Indenture,
and in the form of bond hereinbefore recited, upon the surrender
of such bonds at said offices or agencies of the Company.
However, notwithstanding the provisions of Section 14 or 15 of
the Indenture, no charge shall be made upon any transfer or
exchange of bonds of said series other than for any tax or taxes
or other governmental charge required to be paid by the Company.
SECTION 4. The Company reserves the right, without any
consent or other action by holders of the bonds of Second Pledge
Series, or any subsequent series of bonds, to amend the
Indenture by inserting the following language as Section 115A
immediately following current Section 115 of the Indenture.
With the consent of the holders of not less than sixty
per centum (60%) in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if
the rights of the holders of one or more, but not all, series
then outstanding are affected, the consent of the holders of not
less than sixty per centum (60%) in aggregate principal amount
of the bonds at the time outstanding of all affected series,
taken together, and not any other series, the Company, when
authorized by a resolution, and the Trustee may from time to
time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions
of this Indenture or of any supplemental indenture or modifying
the rights and obligations of the Company and the rights of the
holders of any of the bonds and coupons; provided, however, that
no such supplemental indenture shall (1) extend the maturity of
any of the bonds or reduce the rate or extend the time of
payment of interest thereon, or reduce the amount of the
principal thereof, or reduce any premium, payable on the
redemption thereof or change the coin or currency in which any
bond or interest thereon is payable, without the consent of the
holder of each bond so affected, or (2) permit the creation of
any lien, not otherwise permitted, prior to or on a parity with
the lien of this Indenture, without the consent of the holders
of all of the bonds then outstanding, or (3) reduce the
aforesaid percentage of the principal amount of bonds the
holders of which are required to approve any such supplemental
indenture, without the consent of the holders of all the bonds
then outstanding. For the purposes of this Section, bonds shall
be deemed to be affected by a supplemental indenture if such
supplemental indenture adversely affects or diminishes the right
of holders thereof against the Company or against its property.
Upon the written request of the Company, accompanied
by a resolution authorizing the execution of any such
supplemental indenture, and upon the filling with the Trustee of
evidence of the consent of bondholders as aforesaid (the
instrument or instruments evidencing such consent to be dated
within one year of such request), the Trustee shall join with
the Company in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's owns
rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in its discretion but shall not
be obligated to enter into such supplemental indenture. The
Trustee shall be entitled to receive and, subject to Section 102
of the Indenture and Article Five of the Seventh Supplemental
Indenture, may rely upon an opinion of counsel as conclusive
evidence that any such supplemental indenture is authorized or
permitted by the provisions of this Section.
It shall not be necessary for the consent of the
bondholders under this Section to approve the particular form of
any proposed supplemental indenture, but it shall be sufficient
if such consent shall approve the substance thereof.
The Company and the Trustee, if they so elect, and
either before or after such 60% or greater consent has been
obtained, may require the holder of any bond consenting to the
execution of any such supplemental indenture to submit his bond
to the Trustee or to such bank, banker or trust company as may
be designated by the Trustee for the purpose, for the notation
thereon of the fact that the holder of such bond has consented
to the execution of such supplemental indenture, and in such
case such notation, in form satisfactory to the Trustee, shall
be made upon all bonds so submitted, and such bonds bearing such
notation shall forthwith be returned to the persons entitled
thereto. All subsequent holders of bonds bearing such notation
shall be deemed to have consented to the execution of such
supplemental indenture, and consent, once given or deemed to be
given, may not be withdrawn.
Prior to the execution by the Company and the Trustee
of any supplemental indenture pursuant to the provisions of this
Section, the Company shall publish a notice, setting forth in
general terms the substance of such supplemental indenture, at
least once in one daily newspaper of general circulation in each
city in which the principal of any of the bonds shall be
payable, or, if all bonds outstanding shall be registered bonds
without coupons or coupon bonds registered as to principal, such
notice shall be sufficiently given if mailed, first class,
postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such
holder appearing on the registry books, such publication or
mailing, as the case may be, to be made not less than thirty
days prior to such execution. Any failure of the Company to
give such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental
indenture.
SECTION 5. The Company reserves the right, without any
consent or other action by the holders of the bonds of Second
Pledge Series, or any subsequent series of bonds, to amend the
Indenture by deleting the phrase "sixty per centum (60%)" in
Section 28 of the Indenture and substituting therefor the phrase
"seventy per centum (70%)" and by deleting the phrase "One
hundred sixty-six and two-thirds per cent. (166 2/3%)" in
Sections 65 and 67 of the Indenture and substituting therefor
the phrase "One hundred and forty-two and eighty-six hundredths
per cent. (142.86%)".
SECTION 6. Except as herein otherwise expressly provided,
no duties, responsibilities or liabilities are assumed, or shall
be construed to be assumed, by the Trustee by reason of this
Supplemental Indenture; the Trustee shall not be responsible for
the recitals herein or in the bonds (except the Trustee's
authentication certificate), all of which are made by the
Company solely; and this Supplemental Indenture is executed and
accepted by the Trustee, subject to all the terms and conditions
set forth in the Indenture, as fully to all intents and purposes
as if the terms and conditions of the Indenture were herein set
forth at length.
SECTION 7. As supplemented by this Supplemental
Indenture, the Indenture is in all respects ratified and
confirmed, and the Indenture as herein defined, and this
Supplemental Indenture, shall be read, taken and construed as
one and the same instrument.
SECTION 8. Nothing in this Supplemental Indenture
contained shall or shall be construed to confer upon any person
other than a holder of bonds issued under the Indenture, the
Company and the Trustee any right or interest to avail himself
of any benefit under any provision of the Indenture or of this
Supplemental Indenture.
SECTION 9. This Supplemental Indenture may be
simultaneously executed in several counterparts and all such
counterparts executed and delivered, each as an original, shall
constitute but one and the same instrument.
In Witness Whereof, Ohio Edison Company and The Bank of New
York have caused these presents to be executed in their
respective names by their respective Presidents or one of their
Vice Presidents or Assistant Vice Presidents and their
respective seals to be hereunto affixed and attested by their
respective Secretaries or one of their Assistant Secretaries or
Assistant Treasurers, all as of the day and year first above
written.
Ohio Edison Company
By: /s/ Richard H. Marsh
-------------------------
Richard H. Marsh, Vice President
[Seal]
Attest: /s/ Nancy C. Ashcom
------------------------------------
Nancy C. Ashcom, Corporate Secretary
Signed, Sealed and Acknowledged on behalf of
Ohio Edison Company in the presence of:
/s/ Thomas C. Navin
- ---------------------------
Thomas C. Navin
/s/ Cynthia A. LaFlame
- ----------------------------
Cynthia A. LaFlame
The Bank of New York
By: /s/ Lucille Firrincieli
-----------------------------------
Lucille Firrincieli, Vice President
[Seal]
Attest: /s/ Iliana Acevedo
----------------------------------
Iliana Acevedo, Assistant Treasurer
Signed, Sealed and Acknowledged on behalf of
The Bank of New York in the presence of:
/s/ Paul J. Schmalzel
- --------------------------------
Paul J. Schmalzel
/s/ F.W. Clark
- --------------------------------
F. W. Clark
STATE OF OHIO )
: ss.:
COUNTY OF SUMMIT )
On the 5th day of June, 1998, personally appeared before
me, a Notary Public in and for the said County and State
aforesaid, Richard H. Marsh and Nancy C. Ashcom, to me known and
known to me to be a Vice President and Corporate Secretary,
respectively, of OHIO EDISON COMPANY, the corporation which
executed the foregoing instrument, and who severally
acknowledged that they did sign and seal such instrument as such
Vice President and Corporate Secretary, respectively, of OHIO
EDISON COMPANY, the same is their free act and deed and the free
and corporate act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
the 5th day of June, 1998.
/s/ Debra L. Cordea
--------------------------
Debra L. Cordea, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires Nov. 20, 1999
[SEAL]
STATE OF OHIO )
: ss.:
COUNTY OF SUMMIT )
On the 5th day of June, 1998, before me personally came
Richard H. Marsh, to me known, who, being by me duly sworn, did
dispose and say that he resides at 1126 Woodhaven Boulevard,
Fairlawn, Ohio 44333; that he is a Vice President of OHIO EDISON
COMPANY, one of the corporations described in and which executed
the above instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of
Directors of said corporation, and that he signed his name
thereto by like order.
/s/ Debra L. Cordea
-------------------------------
Debra L. Cordea, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires Nov. 20, 1999
[SEAL]
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 4th day of June, 1998, personally appeared before
me, a Notary Public in and for the said County and State
aforesaid, Lucille Firrincieli and Iliana Acevedo, to me known
and known to me to be a VICE PRESIDENT and ASSISTANT TREASURER,
respectively, of The Bank of New York, the corporation which
executed the foregoing instrument, and who severally
acknowledged that they did sign and seal such instrument as such
VICE PRESIDENT and TREASURER for and on behalf of said
corporation and that the same is their free act and deed and the
free and corporation act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
the 4th day of June, 1998.
/s/ William J. Cassels
-------------------------------
William J. Cassels
Notary Public, State of New York
No.: 0ICA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 2000
[SEAL]
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 4th day of June, 1998, before me personally came
Lucille Firrincieli, to me known, who, being by me duly sworn,
did dispose and say that she resides at 163-09 32nd Avenue,
Flushing, New York 11358; that she is a Vice President of THE
BANK OF NEW YORK, one of the parties described in and which
executed the above instrument; that she knows the seal of said
corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of
Directors of said corporation, and that she signed her name
thereto by like authority.
/s/ William J. Cassels
--------------------------------
William J. Cassels
Notary Public, State of New York
No.: 0ICA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 2000
[SEAL]
The Bank of New York hereby certifies that its precise name
and address as Trustee hereunder are:
The Bank of New York
101 Barclay Street
City, County and State of New York 10286
The Bank of New York
By: /s/ Iliana Acevedo
-----------------------------------
Iliana Acevedo, Assistant Treasurer
SCHEDULE A
Detailed Description of Properties
A. OFFICE BUILDINGS, STORE HOUSES, ETC.
The following offices, storerooms, warehouses, and other
buildings of the Company, together with all land of the Company
on which the same are situated, and all easements, rights of way
and appurtenances of said lands, together with all furniture and
fixtures located in said buildings.
1. Land and dwelling, 167 Steeplechase Land, Munroe Falls,
Summit County, Ohio.
2. Land and dwelling, 15 Patrician Drive, Norwalk, Huron
County, Ohio
3. Land and dwelling, 4143 Firestone Lane, Vermillion, Erie
County, Ohio
4. Land and dwelling, 2058 Greensburg Road, North Canton,
Stark County, Ohio
5. Land and dwelling, 885 East Avenue, Tallmadge, Summit
County, Ohio
6. Land and dwelling, 10 Kehner Road, Suffield, Portgage
County, Ohio
7. Land and dwelling, 127 Stonyridge Drive #207, Sandusky,
Erie County, Ohio
8. Land and dwelling, 22831 Laramie Drive, Rocky River,
Cuyahoga County, Ohio.
B. ELECTRICAL SUBSTATIONS
The following substations and substation sites and
miscellaneous property of the Company, including all buildings,
structures, towers, poles, all equipment, appliances and devices
for manufacturing, converting and distributing electric energy,
owned by the Company, and all land of the Company on which the
same are situated, and all of the Company's lands and easements,
rights, machinery, equipment, appliances, devices, licenses and
supplies, forming a part of said substation or any of them or
used or enjoyed or capable of being used or enjoyed in
connection therewith.
MARION AREA
Hamilton Substation Site, land only, located at 606 Likens Road,
north of the City of Marion and east of State Route 4, Marion
Township, Marion County, Ohio.
Cardington Substation Site, land only, located at 2188 TR 151,
Westfield Township, Cardington, Ohio.
YOUNGSTOWN AREA
Campbell-Struthers Substation, land only, located in the City of
Youngstown, Mahoning County and further being described as City
Lots 44733, 44732, 44731, 44730, part of 44729 and part of O.L.
1625 and 1632.
KIRBY SUBSTATION
Structures and equipment only (land was reported previously),
located at Landon Road, approximately 0.3 miles east of its
intersection with State Route No. 37 in Clairborne Township,
Union County, Ohio
AVERY SUBSTATION
Structures and equipment only (land was reported previously),
located at 805 W. Mason Road in Milan Township, Erie County,
Ohio
YUTAKA TECHNOLOGIES SUBSTATION
(OE owned and leased to Customer), structures and equipment
only, located at U.S. 42, Morrow County, Village of Cardington
HAMILTON SUBSTATION SITE
Land only, located at 1500 ft. East of Route 4 on Likens Road,
Marion County, Marion Ohio
STERLITE SUBSTATION
(OE owned and leased to Customer), structures and equipment
only, located at Navarre, Ohio
CLAYBEN SUBSTATION
Structures and equipment only (land was reported previously),
located at 2175 Massillon Road in Springfield Township, Summit
County, Ohio
MATHEWS SUBSTATION
Structures and equipment only (land was reported previously),
located at 1971 Mathews Road (approximately 500 feet east of its
intersection with Sheridan Road) in the City of Youngstown,
Mahoning County, Ohio.
/s/ Nancy C.Ashcom
------------------------------------
Nancy C. Ashcom, Corporate Secretary
Ohio Edison Company
/s/ Iliana Acevedo
------------------------------------
Iliana Acevedo, Assistant Treasurer
The Bank of New York
<TABLE>
<PAGE> EXHIBIT 12.1
Page 1
OHIO EDISON COMPANY
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $303,531 $317,241 $315,170 $293,194 $301,320
Interest and other charges, before reduction
for amounts capitalized 283,849 273,719 255,572 250,920 235,317
Provision for income taxes 188,886 199,307 201,295 187,805 191,261
Interest element of rentals charged
to income (a) 108,463 111,534 114,093 117,409 115,310
-------- -------- -------- -------- --------
Earnings as defined $884,729 $901,801 $886,130 $849,328 $843,208
======== ======== ======== ======== ========
FIXED CHARGES AS DEFINED IN REGULATION S-K:
Interest on long-term debt $259,554 $243,570 $211,935 $204,285 $173,781
Other interest expense 18,931 22,944 28,211 31,209 46,110
Subsidiaries' preferred stock dividend
requirements 5,364 7,205 15,426 15,426 15,426
Adjustment to subsidiaries' preferred stock
dividends to state on a pre-income tax basis 3,294 2,956 2,910 2,918 2,892
Interest element of rentals charged
to income (a) 108,463 111,534 114,093 117,409 115,310
-------- -------- -------- -------- --------
Fixed charges as defined $395,606 $388,209 $372,575 $371,247 $353,519
======== ======== ======== ======== ========
CONSOLIDATED RATIO OF EARNINGS TO FIXED
CHARGES (b) 2.24 2.32 2.38 2.29 2.39
==== ==== ==== ==== ====
<FN>
- -------------------
(a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no
readily defined interest element can be determined.
(b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier
aggregating $7,424,000, $6,315,000, $5,093,000, $3,828,000 and $2,209,000 for each of
the five years ended December 31, 1998, respectively.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12.1
Page 2
OHIO EDISON COMPANY
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED AND
PREFERENCE STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $303,531 $317,241 $315,170 $293,194 $301,320
Interest and other charges, before
reduction for amounts capitalized 283,849 273,719 255,572 250,920 235,317
Provision for income taxes 188,886 199,307 201,295 187,805 191,261
Interest element of rentals charged to
income (a) 108,463 111,534 114,093 117,409 115,310
-------- -------- -------- -------- --------
Earnings as defined $884,729 $901,801 $886,130 $849,328 $843,208
======== ======== ======== ======== ========
FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS PREFERRED
AND PREFERENCE STOCK DIVIDEND REQUIREMENTS
(PRE-INCOME TAX BASIS):
Interest on long-term debt $259,554 $243,570 $211,935 $204,285 $173,781
Other interest expense 18,931 22,944 28,211 31,209 46,110
Preferred and preference stock dividend
requirements 27,043 29,699 27,923 27,817 27,395
Adjustment to preferred and preference
stock dividends to state on a pre-income
tax basis 16,444 16,745 10,542 10,503 10,140
Interest element of rentals charged to
income (a) 108,463 111,534 114,093 117,409 115,310
-------- -------- -------- -------- --------
Fixed charges as defined plus preferred
and preference stock dividend require-
ments (pre-income tax basis) $430,435 $424,492 $392,704 $391,223 $372,736
======== ======== ======== ======== ========
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED AND PREFERENCE STOCK DIVIDEND
REQUIREMENTS (PRE-INCOME TAX BASIS) (b) 2.06 2.12 2.26 2.17 2.26
==== ==== ==== === ====
<FN>
- -------------------
(a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no
readily defined interest element can be determined.
(b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier
aggregating $7,424,000, $6,315,000, $5,093,000, $3,828,000 and $2,209,000 for each of the five
years ended December 31, 1998, respectively.
</TABLE
<PAGE>
</TABLE>
<TABLE>
OHIO EDISON COMPANY
SELECTED FINANCIAL DATA
<CAPTION>
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating Revenues $2,519,662 $2,473,582 $2,469,785 $2,465,846 $2,368,191
----------------------------------------------------------
Operating Income $ 486,920 $ 488,568 $ 530,069 $ 566,618 $ 557,254
----------------------------------------------------------
Income Before Extraordinary Item $ 301,320 $ 293,194 $ 315,170 $ 317,241 $ 303,531
----------------------------------------------------------
Net Income $ 270,798 $ 293,194 $ 315,170 $ 317,241 $ 303,531
----------------------------------------------------------
Earnings on Common Stock $ 258,828 $ 280,802 $ 302,673 $ 294,747 $ 281,852
----------------------------------------------------------
Total Assets $8,733,151 $8,977,455 $9,054,457 $8,892,088 $9,045,255
----------------------------------------------------------
Capitalization at December 31:
Common Stockholders' Equity $2,681,873 $2,724,319 $2,503,359 $2,407,871 $2,317,197
Preferred Stock:
Not Subject to Mandatory Redemption 211,870 211,870 211,870 211,870 328,240
Subject to Mandatory Redemption 145,000 150,000 155,000 160,000 40,000
Long-Term Debt 2,215,042 2,569,802 2,712,760 2,786,256 3,166,593
----------------------------------------------------------
Total Capitalization $5,253,785 $5,655,991 $5,582,989 $5,565,997 $5,852,030
----------------------------------------------------------
Capitalization Ratios:
Common Stockholders' Equity 51.0% 48.2% 44.8% 43.3% 39.6%
Preferred Stock:
Not Subject to Mandatory Redemption 4.0 3.7 3.8 3.8 5.6
Subject to Mandatory Redemption 2.8 2.7 2.8 2.9 0.7
Long-Term Debt 42.2 45.4 48.6 50.0 54.1
----------------------------------------------------------
Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
----------------------------------------------------------
Kilowatt-Hour Sales (Millions):
Residential 8,773 8,631 8,704 8,546 8,201
Commercial 7,590 7,335 7,246 7,151 6,885
Industrial 10,803 11,202 11,089 10,513 9,841
Other 150 150 147 146 144
----------------------------------------------------------
Total Retail 27,316 27,318 27,186 26,356 25,071
Total Wholesale 5,706 5,241 7,076 6,920 5,879
----------------------------------------------------------
Total 33,022 32,559 34,262 33,276 30,950
----------------------------------------------------------
Customers Served:
Residential 1,004,552 995,605 988,179 978,118 968,483
Commercial 113,820 111,189 113,795 111,978 109,832
Industrial 4,598 4,568 4,590 4,268 3,786
Other 1,476 1,415 1,331 1,308 1,226
----------------------------------------------------------
Total 1,124,446 1,112,777 1,107,895 1,095,672 1,083,327
----------------------------------------------------------
Average Annual Residential kWh Usage 8,780 8,720 8,861 8,787 8,524
Cost of Fuel per Million Btu $1.15 $1.10 $1.13 $1.18 $1.21
Peak Load-Megawatts 6,840 6,225 6,027 6,332 5,744
Number of Employees 1,944 4,215 4,273 4,812 5,166
PRICE RANGE OF COMMON STOCK
The Company's Common Stock became wholly owned by FirstEnergy
Corp. effective with the November 8, 1997 merger date. Prices shown below
are for the period through November 7, 1997.
1997
-----------------------------------------------
<S> <C> <C>
First Quarter High-Low 23-7/8 20-7/8
---------------------
Second Quarter High-Low 22 19-1/4
---------------------
Third Quarter High-Low 23-5/8 21-3/4
---------------------
Fourth Quarter High-Low -- --
---------------------
Yearly High-Low -- --
---------------------
<FN>
Prices are based on reports published in The Wall Street Journal for New York Stock Exchange Composite
Transactions.
</TABLE>
<PAGE>
OHIO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This discussion includes forward-looking statements based on
information currently available to management that are subject to
certain risks and uncertainties. These statements typically contain,
but are not limited to, the terms anticipate, potential, expect,
believe, estimate and similar words. Actual results may differ
materially due to the speed and nature of increased competition and
deregulation in the electric utility industry, economic or weather
conditions affecting future sales and margins, changes in markets for
energy services, changing energy market prices, legislative and
regulatory changes, and the availability and cost of capital and other
similar factors.
Results of Operations
We continued to take steps in 1998 to better position our
Company as competition continues to expand in the electric utility
industry. Investments were made in new information systems with
enhanced functionality which also address Year 2000 application
deficiencies. We also contributed to 1998 cash savings of FirstEnergy
Corp. (FirstEnergy) totaling $173 million which were captured from
initiatives implemented during the year in connection with our November
1997 merger with Centerior Energy Corporation to form FirstEnergy.
Earnings on common stock were $258.8 million in 1998 compared
to $280.8 million in 1997. Results for 1998 were adversely affect by a
one-time, extraordinary charge of $30.5 million after taxes, related to
Penn's discontinued application of Statement of Financial Accounting
Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain
Types of Regulation", to its generation business, as discussed later in
this report. Additionally, sharp increases in the spot market price for
electricity occasioned by a constrained power supply and heavy customer
demand in the latter part of June 1998, combined with unscheduled
generating unit outages, resulted in spot market purchases of power at
prices which substantially exceeded amounts recovered from retail
customers. Earnings on common stock for 1997 were affected by net
nonrecurring charges, resulting from merger-related staffing
reductions, amounting to $26.4 million, and an increase in accelerated
depreciation and amortization of nuclear and regulatory assets under
our rate plans, totaling $20 million after taxes.
For the fourth consecutive year, we achieved record operating
revenues. The following table summarizes the sources of increases in
operating revenues for 1998 and 1997 as compared to the previous year:
<TABLE>
<CAPTION>
1998 1997
---- ----
(In millions)
<S> <C> <C>
Increase in average retail price $27.0 $ 13.3
Change in retail kilowatt-hour sales (0.1) 7.8
Wholesale sales 13.3 (27.3)
Other 5.9 10.0
- -----------------------------------------------------------
Net Increase $46.1 $ 3.8
===========================================================
</TABLE>
Retail kilowatt-hour sales were approximately the same as the
previous year at 27.3 billion kilowatt-hours after setting a new record
in 1997. Residential and commercial kilowatt-hour sales increased 1.7%
and 3.5%, respectively from 1997, offset by a 3.6% decrease in
industrial sales. Residential and commercial kilowatt-hour sales
benefited from continued growth in the retail customer base, with over
11,000 new retail customers added in 1998 compared to approximately
4,900 new retail customers in 1997. The closure of an electric arc
furnace by a large steel customer in the latter part of 1997 and a
general decline in electricity demand by steel manufacturers due to
intense foreign competition contributed to the lower industrial sales.
Sales to wholesale customers increased 8.9% contributing to an increase
in total kilowatt-hour sales of 1.4%. In 1997, commercial and
industrial kilowatt-hour sales increased 1.2% and 1.0%, respectively,
from 1996, partially offset by an 0.8% decrease in residential sales
resulting in a 0.5% increase in retail kilowatt-hour sales. A decrease
in kilowatt-hour sales to wholesale customers contributed to a 5.0%
decline in total kilowatt-hour sales in 1997 compared to 1996.
Operation and maintenance expenses increased in 1998 compared
to the prior year due to increased fuel and purchased power costs. Most
of the increase occurred in the second quarter and resulted from a
combination of factors. In late June 1998, the midwestern and southern
regions of the United States experienced electricity shortages caused
mainly by record temperatures and humidity and unscheduled generating
unit outages. Due in part to unscheduled outages at the Beaver Valley
Plant at that time, our production capabilities were reduced to the
point that we purchased significant amounts of power at unusually high
spot market prices, causing the increase in purchased power costs. In
1997, fuel and purchased power costs were down from the previous year
due to lower total kilowatt-hour sales. Nuclear operating costs
increased in 1998 and in 1997 reflecting higher costs at the Beaver
Valley Plant. Other operating costs decreased in 1998 from the previous
year due primarily to the absence of expenses related to a 1997
voluntary retirement program and estimated severance costs which
increased other operating costs for that year.
Depreciation and amortization decreased in 1998 compared to
the prior year due primarily to the net effect of our rate plans. Total
accelerated depreciation and amortization of our nuclear and regulatory
assets under our rate plans was $173 million in 1998; down from $190
million the previous year. In 1997, the increase in depreciation and
amortization resulted from accelerations under the regulatory plans.
General taxes increased in 1998 compared to 1997 in part because of
gross receipts taxes on increased operating revenue. This followed a
decrease in 1997 due to lower property taxes and an adjustment in the
second quarter of that year which reduced the liabilities for gross
receipts taxes.
Interest on long-term debt continued to trend downward due to
refinancings and redemptions of long-term debt. Other interest expense
increased as a result of increased short-term borrowings.
Capital Resources and Liquidity
We have significantly improved our financial position over
the past five years. Excluding nonrecurring charges, our fixed charge
coverage ratios continue to improve. Our corporate indenture ratio,
which is used to measure our ability to issue first mortgage bonds,
improved from 4.13 at the end of 1993 to 6.17 at the end of 1998. Over
the same period, our charter ratio, a measure of our ability to issue
preferred stock, improved from 2.02 to 2.49 and our common
stockholders' equity percentage of capitalization rose from
approximately 40% at the end of 1993 to 51% at the end of 1998. Our
improving financial position reflects ongoing efforts to increase
competitiveness. We continue to streamline our operations as evidenced
by the 50% increase in FirstEnergy's customer/employee ratio, which has
increased from 165 at the end of 1993 to 247 as of December 31, 1998.
Merger-related savings achieved through consolidation of activities
have contributed to these results. Also, net debt redemptions and
refinancings have lowered our average cost of long-term debt over the
last five years from 8.27% in 1993 to 7.55% at the end of 1998.
We had about $33.2 million of cash and temporary investments
and $338.2 million of short-term indebtedness as of December 31, 1998.
Our unused borrowing capability included $46.5 million under revolving
lines of credit and a $2.0 million bank facility that provides for
borrowings on a short-term basis at the bank's discretion.
Our cash requirements in 1999 for operating expenses,
construction expenditures and scheduled debt maturities are expected to
be met without issuing new securities. During 1998, we reduced our
total debt by approximately $69 million. We have cash requirements of
approximately $1.2 billion for the 1999-2003 period to meet scheduled
maturities of long-term debt and preferred stock. Of that amount,
approximately $417 million applies to 1999.
Our capital spending for the period 1999-2003 is expected to
be about $1.0 billion (excluding nuclear fuel), of which approximately
$169 million applies to 1999. Investments for additional nuclear fuel
during the 1999-2003 period are estimated to be approximately $167
million, of which about $23 million applies to 1999. During the same
periods, our nuclear fuel investments are expected to be reduced by
approximately $169 million and $35 million, respectively, as the
nuclear fuel is consumed. Also, we have operating lease commitments,
net of PNBV Capital Trust cash receipts, of approximately $365 million
for the 1999-2003 period, of which approximately $82 million relates to
1999.
FirstEnergy signed an agreement in principle with Duquesne
Light Company (Duquesne) that would result in the transfer of 1,436
megawatts owned by Duquesne at five generating plants in exchange for
1,328 megawatts at three plants owned by FirstEnergy's electric utility
operating companies (see "Common Ownership of Generating Facilities" in
Note 1). A final agreement on the exchange of assets, which will be
structured as a tax-free transaction to the extent possible, is being
negotiated. The transaction benefits the FirstEnergy's utility
operating companies by providing exclusive ownership and operating
control of all generating assets that are now jointly owned and
operated under the Central Area Power Coordination Group agreement.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is
mitigated since a significant portion of our debt has fixed interest
rates, as noted in the table below. We are subject to the inherent
interest rate risks related to refinancing maturing debt by issuing new
debt securities. As discussed in Note 2, our investment in the PNBV
Capital Trust effectively reduces future lease obligations, also
reducing interest rate risk. Changes in the market value of our nuclear
decommissioning trust funds are recognized by making a corresponding
change to the decommissioning liability, as described in Note 1.
The table below presents principal amounts and related
weighted average interest rates by year of maturity for our investment
portfolio, debt obligations and preferred stock with mandatory
redemption provisions.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
(Dollars in Millions)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than Cash and
Cash Equivalents:
Fixed Income $ 6 $ 17 $23 $ 26 $ 30 $ 724 $ 826 $ 912
Average interest rate 5.5% 7.3% 7.7% 7.8% 7.9% 7.9% 7.9%
- ----------------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate $164 $118 $17 $326 $246 $1,179 $2,050 $2,196
Average interest rate 7.0% 6.5% 8.0% 7.8% 8.2% 7.2% 7.4%
Variable rate $250 $ 327 $ 577 $ 579
Average interest rate 6.0% 4.1% 4.9%
Short-term Borrowings $338 $ 338 $ 338
Average interest rate 5.6% 5.6%
- ----------------------------------------------------------------------------------------------
Preferred Stock $ 5 $ 5 $ 5 $ 1 $ 1 $ 133 $ 150 $ 155
Average dividend rate 8.5% 8.5% 8.5% 7.6% 7.6% 8.9% 8.8%
- ----------------------------------------------------------------------------------------------
</TABLE>
Outlook
We face many competitive challenges in the years ahead
as the electric utility industry undergoes significant changes,
including changing regulation and the entrance of more energy
suppliers into the marketplace. Retail wheeling, which has begun
in our Pennsylvania service area, allows retail customers to
purchase electricity from other energy producers. Our regulatory
plans have provided a solid foundation to position us to meet the
challenges we are facing by significantly reducing fixed costs
and lowering rates to a more competitive level.
Our Rate Reduction and Economic Development Plan was
approved by the Public Utilities Commission of Ohio (PUCO) in
1995. This plan maintains our base electric rates through
December 31, 2005 and revises our fuel cost recovery method.
Penn's Rate Stability and Economic Development Plan, which was
approved by the PPUC in the second quarter of 1996, ended in 1998
with the PPUC's authorization of Penn's rate restructuring plan.
As part of our regulatory plan, transition rate credits
were implemented for customers, which are expected to reduce
operating revenues by approximately $600 million during the
regulatory plan period, which is to be followed by a base rate
reduction of approximately $300 million in 2006.
The PUCO has authorized additional capital recovery
related to our generating assets (which is reflected as
additional depreciation expense) and additional amortization of
regulatory assets during the regulatory plan period of at least
$2 billion more than the amount that would have been recognized
if the regulatory plan was not in effect. This additional amount
is being recovered through current rates.
Based on the current regulatory environment and our
regulatory plan, we believe we will continue to be able to bill
and collect cost-based rates. As a result, we will continue the
application of SFAS 71. However, changes in the regulatory
environment appear to be on the horizon for electric utilities in
Ohio. As further discussed below, the Ohio legislature is in the
discussion stages of restructuring the State's electric utility
industry. Although we believe that regulatory changes are
possible in 1999, we cannot currently estimate the ultimate
impact.
For Penn, application of SFAS 71 was discontinued for
the generation portion of its business in June 1998 following
PPUC approval of the rate restructuring plan. Customer choice
will be phased in over two years with 66% of each customer class
able to choose alternative suppliers of generation on January 2,
1999, and all remaining customers having choice as of January 2,
2000. Under the plan, Penn continues to deliver power to homes
and businesses through its transmission and distribution system,
which remains regulated. However, Penn's rates have been
restructured to establish separate charges for transmission and
distribution; generation, which is subject to competition; and
stranded cost recovery. In the event customers obtain power from
an alternative source, the generation portion of Penn's rates
will be excluded from their bill and the customers will receive a
generation charge from the alternative supplier. The stranded
cost recovery portion of rates provides for recovery of certain
amounts not otherwise considered recoverable in a competitive
generation market, including regulatory assets. Penn is entitled
to recover $234 million of stranded costs through a competitive
transition charge that starts in 1999 and ends in 2005.
We continue to actively pursue the enactment of fair
legislation calling for deregulation of Ohio's investor-owned
electric utility industry. In early 1998, a deregulation proposal
was introduced, leading to the creation of a working group to
recommend legislation. As requested by legislative leadership,
investor-owned utilities introduced a deregulation plan with
objectives to (1) treat all major stakeholders in Ohio's electric
system fairly; (2) protect public schools and local governments
from revenue loss; and (3) allow utilities an opportunity to
recover costs of government-mandated investments. The utilities
have submitted proposals which incorporate these objectives and
also recognize the complexity of restructuring the industry. The
overlying objective is to do the job right the first time.
Currently, the working group, comprised of legislative leaders,
representatives of the electric utility companies and other
interested stakeholders are meeting to discuss and mold these
proposals. Most recently, placeholder bills containing statements
of principle (that will be replaced by specific proposals as they
are agreed upon) have been introduced. Legislative leaders have
placed a high priority on enacting a deregulation bill by mid-
year.
The Clean Air Act Amendments of 1990, discussed in Note
5, require additional emission reductions by 2000. We are
pursuing cost-effective compliance strategies for meeting these
reduction requirements.
On September 24, 1998, the Federal Environmental
Protection Agency issued a final rule establishing tighter
nitrogen oxide emission requirements for fossil fuel-fired
utility boilers in Ohio, Pennsylvania and twenty other eastern
states, including the District of Columbia (see "Environmental
Matters" in Note 5). Controls must be in place by May 2003, with
required reductions achieved during the five-month summer ozone
season (May through September). The new rule is expected to
increase the cost of producing electricity; however, we believe
that we are in a better position than a number of other utilities
to achieve compliance due to our nuclear generation capacity.
In connection with our regulatory plans to reduce fixed
costs and lower rates, we continue to take steps to restructure
our operations. FirstEnergy announced plans to transfer the
Companies' transmission assets into a new subsidiary, American
Transmission Systems, Inc., with the transfer expected to be
finalized in 1999. The new subsidiary represents a first step
toward the goal of establishing or becoming part of a larger
independent transmission company (TransCo). We believe that a
TransCo better addresses the Federal Energy Regulatory
Commission's (FERC) stated transmission objectives of providing
non-discriminatory service, while providing for streamlined and
cost-efficient operation. In working toward the goal of forming a
larger regional transmission entity, FirstEnergy, American
Electric Power, Virginia Power and Consumers Energy announced in
November 1998 that they would prepare a FERC filing during 1999
for such a regional transmission entity. The entity would be
designed to meet the goals of reducing transmission costs that
result when transferring power over several transmission systems,
ensuring transmission reliability and providing non-
discriminatory access to the transmission grid.
Year 2000 Readiness
The Year 2000 issue is the result of computer programs
being written using two digits rather than four to identify the
applicable year. Any of our programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather
than the year 2000. Because so many of our computer functions are
date sensitive, this could cause far-reaching problems, such as
system-wide computer failures and miscalculations, if no remedial
action is taken.
We have developed a multi-phase program for Year 2000
compliance that consists of an assessment of our systems and
operations that could be affected by the Year 2000 problem;
remediation or replacement of noncompliant systems and
components; and testing of systems and components following such
remediation or replacement. We have focused our Year 2000 review
on three areas: centralized system applications, noncentralized
systems and relationships with third parties (including suppliers
as well as end-use customers). Our review of system readiness
extends to systems involving customer service, safety,
shareholder needs and regulatory obligations.
We are committed to taking appropriate actions to
eliminate or lessen negative effects of the Year 2000 issue on
our operations. We have completed an inventory of all computer
systems and hardware including equipment with embedded computer
chips and have determined which systems need to be converted or
replaced to become Year 2000-ready and are in the process of
remediating them. Based on our timetable, we expect to have all
identified repairs, replacements and upgrades completed to
achieve Year 2000 readiness by September 1999.
Most of our Year 2000 issues will be resolved through
system replacement. Of our major centralized systems, the general
ledger system and inventory management, procurement and accounts
payable systems were replaced at the end of 1998. Our payroll
system was enhanced to be Year 2000 compliant in July 1998. The
customer service system is due to be replaced in mid-1999.
We have completed formal communications with most of
our key suppliers to determine the extent to which we are
vulnerable to those third parties' failure to resolve their own
Year 2000 problems. For suppliers having potential compliance
problems, we are developing alternate sources and services in the
event such noncompliance occurs. We are also identifying areas
requiring higher inventory levels based on compliance
uncertainties. There can be no guarantee that the failure of
companies to resolve their own Year 2000 issue will not have a
material adverse effect on our business, financial condition and
results of operations.
We are using both internal and external resources to
reprogram and/or replace and test our software for Year 2000
modifications. Of the $43 million total project cost,
approximately $34 million will be capitalized since those costs
are attributable to the purchase of new software for total system
replacements because the Year 2000 solution comprises only a
portion of the benefits resulting from the system replacements.
The remaining $9 million will be expensed as incurred. As of
December 31, 1998, we have spent $24 million for Year 2000
capital projects and had expensed approximately $4 million for
Year 2000-related maintenance activities. Our total Year 2000
project cost, as well as our estimates of the time needed to
complete remedial efforts, are based on currently available
information and do not include the estimated costs and time
associated with the impact of third party Year 2000 issues.
We believe we are managing the Year 2000 issue in such
a way that our customers will not experience any interruption of
service. We believe the most likely worst-case scenario from the
Year 2000 issue will be disruption in power plant monitoring
systems, thereby producing inaccurate data and potential failures
in electronic switching mechanisms at transmission junctions.
This would prolong localized outages, as technicians would have
to manually activate switches. Such an event could have a
material, but currently undeterminable, effect on our financial
results. We are developing contingency plans to address the
effects of any delay in becoming Year 2000 compliant and expect
to have contingency plans completed by June 1999.
The costs of the project and the dates on which we plan
to complete the Year 2000 modifications are based on management's
best estimates, which were derived from numerous assumptions of
future events including the continued availability of certain
resources, and other factors. However, there can be no guarantee
that this project will be completed as planned and actual results
could differ materially from the estimates. Specific factors that
might cause material differences include but are not limited to,
the availability and cost of trained personnel, the ability to
locate and correct all relevant computer code, and similar
uncertainties.
<TABLE>
<PAGE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING REVENUES $2,519,662 $2,473,582 $2,469,785
---------- ---------- ----------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 511,645 437,223 456,629
Nuclear operating costs 279,917 267,681 247,708
Other operating costs 411,985 446,778 420,523
---------- ---------- ----------
Total operation and maintenance expenses 1,203,547 1,151,682 1,124,860
Provision for depreciation and amortization 415,715 429,941 383,441
General taxes 242,524 234,964 241,998
Income taxes 170,956 168,427 189,417
---------- ---------- ----------
Total operating expenses and taxes 2,032,742 1,985,014 1,939,716
---------- ---------- ----------
OPERATING INCOME 486,920 488,568 530,069
OTHER INCOME 47,621 52,847 37,537
---------- ---------- ----------
INCOME BEFORE NET INTEREST CHARGES 534,541 541,415 567,606
---------- ---------- ----------
NET INTEREST CHARGES:
Interest on long-term debt 173,781 204,285 211,935
Allowance for borrowed funds used during
construction and capitalized interest (2,096) (2,699) (3,136)
Other interest expense 46,110 31,209 28,211
Subsidiaries' preferred stock dividend requirements 15,426 15,426 15,426
---------- ---------- ----------
Net interest charges 233,221 248,221 252,436
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 301,320 293,194 315,170
EXTRAORDINARY ITEM (NET OF INCOME TAXES) (Note 1) (30,522) -- --
---------- ---------- ----------
NET INCOME 270,798 293,194 315,170
PREFERRED STOCK DIVIDEND REQUIREMENTS 11,970 12,392 12,497
---------- ---------- ----------
EARNINGS ON COMMON STOCK $ 258,828 $ 280,802 $ 302,673
========== ========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
In service $8,158,763 $8,666,272
Less--Accumulated provision for depreciation 3,610,155 3,546,594
---------- ----------
4,548,608 5,119,678
---------- ----------
Construction work in progress--
Electric plant 174,418 99,158
Nuclear fuel 17,003 21,360
---------- ----------
191,421 120,518
---------- ----------
4,740,029 5,240,196
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
PNBV Capital Trust (Note 2) 475,087 482,220
Letter of credit collateralization (Note 2) 277,763 277,763
Other (Note 3B) 538,411 529,408
---------- ----------
1,291,261 1,289,391
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 33,213 4,680
Receivables--
Customers (less accumulated provisions of $6,397,000 and
$5,618,000, respectively, for uncollectible accounts) 215,257 235,332
Associated companies 229,854 25,348
Other 47,684 87,566
Materials and supplies, at average cost--
Owned 76,756 75,580
Under consignment 48,341 47,890
Prepayments and other 78,618 78,348
---------- ----------
729,723 554,744
---------- ----------
DEFERRED CHARGES:
Regulatory assets 1,723,133 1,601,709
Unamortized sale and leaseback costs 90,098 95,096
Property taxes 101,360 100,043
Other 57,547 96,276
---------- ----------
1,972,138 1,893,124
---------- ----------
$8,733,151 $8,977,455
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Consolidated Statements of Capitalization):
Common stockholders' equity $2,681,873 $2,724,319
Preferred stock--
Not subject to mandatory redemption 160,965 160,965
Subject to mandatory redemption 10,000 15,000
Preferred stock of consolidated subsidiary--
Not subject to mandatory redemption 50,905 50,905
Subject to mandatory redemption 15,000 15,000
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Company subordinated debentures 120,000 120,000
Long-term debt 2,215,042 2,569,802
---------- ----------
5,253,785 5,655,991
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 528,792 278,492
Short-term borrowings (Note 4)--
Associated companies 88,732 --
Other 249,451 302,229
Accounts payable 99,659 115,836
Accrued taxes 188,295 157,095
Accrued interest 45,221 53,165
Other 114,162 115,256
---------- ----------
1,314,312 1,022,073
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 1,601,887 1,698,354
Accumulated deferred investment tax credits 154,538 184,804
Pensions and other postretirement benefits 136,856 158,038
Other 271,773 258,195
---------- ----------
2,165,054 2,299,391
---------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Notes 2 and 5 ) ---------- ----------
$8,733,151 $8,977,455
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
Common stock, $9 par value, authorized 175,000,000 shares-100 shares outstanding $ 1 $ 1
Other paid-in capital 2,098,728 2,103,259
Accumulated other comprehensive income (Note 3C) -- (615)
Retained earnings (Note 3A) 583,144 621,674
---------- ----------
Total common stockholders' equity 2,681,873 2,724,319
---------- ----------
Number of Shares Optional
Outstanding Redemption Price
---------------- ---------------------
1998 1997 Per Share Aggregate
---- ---- --------- ---------
<S> <C> <C> <C> <C>
PREFERRED STOCK (Note 3D):
Cumulative, $100 par value-
Authorized 6,000,000 shares
Not Subject to Mandatory Redemption:
3.90% 152,510 152,510 $103.63 $15,804 15,251 15,251
4.40% 176,280 176,280 108.00 19,038 17,628 17,628
4.44% 136,560 136,560 103.50 14,134 13,656 13,656
4.56% 144,300 144,300 103.38 14,917 14,430 14,430
--------- --------- ------- ---------- ----------
609,650 609,650 63,893 60,965 60,965
Cumulative, $25 par value-
Authorized 8,000,000 shares
Not Subject to Mandatory Redemption:
7.75% 4,000,000 4,000,000 100,000 100,000
--------- --------- ------- ---------- ----------
Total not subject to
mandatory redemption 4,609,650 4,609,650 $63,893 160,965 160,965
========= ========= ======= ---------- ----------
Cumulative, $100 par value-
Subject to Mandatory Redemption (Note 3E):
8.45% 150,000 200,000 15,000 20,000
Redemption within one year (5,000) (5,000)
--------- --------- ---------- ----------
Total subject to mandatory redemption 150,000 200,000 10,000 15,000
========= ========= ---------- ----------
PREFERRED STOCK OF CONSOLIDATED
SUBSIDIARY (Note 3D):
Pennsylvania Power Company-
Cumulative, $100 par value-
Authorized 1,200,000 shares
Not Subject to Mandatory Redemption:
4.24% 40,000 40,000 $103.13 $ 4,125 4,000 4,000
4.25% 41,049 41,049 105.00 4,310 4,105 4,105
4.64% 60,000 60,000 102.98 6,179 6,000 6,000
7.64% 60,000 60,000 101.42 6,085 6,000 6,000
7.75% 250,000 250,000 -- -- 25,000 25,000
8.00% 58,000 58,000 102.07 5,920 5,800 5,800
--------- --------- ------- ---------- ----------
Total not subject to mandatory
redemption 509,049 509,049 $26,619 50,905 50,905
========= ========= ======= ---------- ----------
Subject to Mandatory Redemption (Note 3E):
7.625% 150,000 150,000 106.86 $16,029 15,000 15,000
========= ========= ======= ---------- ----------
COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY COMPANY SUBORDINATED
DEBENTURES (Note 3F):
Cumulative, $25 par value-
Authorized 4,800,000 shares
Subject to Mandatory Redemption:
9.00% 4,800,000 4,800,000 120,000 120,000
========= ========= ---------- ----------
</TABLE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31, 1998 1997 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT (Note 3G):
First mortgage bonds:
Ohio Edison Company- Pennsylvania Power Company-
8.750% due 1998 -- 150,000 9.740% due 1999-2019 20,000 20,000
6.875% due 1999 150,000 150,000 7.500% due 2003 40,000 40,000
6.375% due 2000 80,000 80,000 6.375% due 2004 20,500 20,500
7.375% due 2002 120,000 120,000 6.625% due 2004 14,000 14,000
7.500% due 2002 34,265 34,265 8.500% due 2022 27,250 27,250
8.250% due 2002 125,000 125,000 7.625% due 2023 6,500 6,500
8.625% due 2003 150,000 150,000 ------- -------
6.875% due 2005 80,000 80,000
8.750% due 2022 50,960 50,960
7.625% due 2023 75,000 75,000
7.875% due 2023 100,000 100,000
------- ---------
Total first mortgage
bonds. 965,225 1,115,225 128,250 128,250 1,093,475 1,243,475
------- --------- ------- ------- ---------- ----------
Secured notes:
Ohio Edison Company- Pennsylvania Power Company-
7.930% due 2002 39,936 50,646 4.750% due 1998 -- 850
7.680% due 2005 200,000 200,000 6.080% due 2000 23,000 23,000
6.750% due 2015 40,000 40,000 5.400% due 2013 1,000 1,000
7.450% due 2016 47,725 47,725 5.400% due 2017 10,600 10,600
7.100% due 2018 26,000 26,000 7.150% due 2017 17,925 17,925
7.050% due 2020 60,000 60,000 5.900% due 2018 16,800 16,800
7.000% due 2021 69,500 69,500 8.100% due 2020 5,200 5,200
7.150% due 2021 443 443 7.150% due 2021 14,482 14,482
7.625% due 2023 50,000 50,000 6.150% due 2023 12,700 12,700
8.100% due 2023 30,000 30,000 *4.150% due 2027 10,300 10,300
7.750% due 2024 108,000 108,000 6.450% due 2027 14,500 14,500
5.375% due 2028 13,522 -- 5.375% due 2028 1,734 --
5.625% due 2029 50,000 50,000 5.450% due 2028 6,950 6,950
5.950% due 2029 56,212 56,212 6.000% due 2028 14,250 14,250
5.450% due 2033 14,800 14,800 5.950% due 2029 238 238
------- -------
Limited Partnerships-
7.87% weighted
average interest
rate due 1999-2007 11,320 --
------- ---------
817,458 803,326 149,679 148,795 967,137 952,121
------- --------- ------- ------- ---------- ----------
OES Fuel-
5.97% weighted average
interest rate 79,524 80,755
---------- ----------
Total secured notes 1,046,661 1,032,876
---------- ----------
Unsecured notes:
Ohio Edison Company-
5.963% due 1999 115,000 --
6.025% due 1999 85,000 --
6.088% due 1999 50,000 --
6.338% due 1999 -- 40,000
6.400% due 1999 -- 175,000
*4.300% due 2012 50,000 50,000
*3.950% due 2014 50,000 50,000
*3.650% due 2015 50,000 50,000
*4.200% due 2018 57,100 57,100
*4.200% due 2018 56,000 56,000
*4.050% due 2032 53,400 53,400
---------- ----------
Total unsecured notes 566,500 531,500
---------- ----------
Capital lease obligations (Note 2) 36,891 40,614
---------- ----------
Net unamortized discount on debt (4,693) (5,171)
---------- ----------
Long-term debt due within one year (523,792) (273,492)
---------- ----------
Total long-term debt 2,215,042 2,569,802
---------- ----------
TOTAL CAPITALIZATION $5,253,785 $5,655,991
========== ==========
<FN>
* Denotes variable rate issue with December 31, 1998 interest rate shown.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<CAPTION>
Accumulated
Other Unallocated
Comprehensive Other Comprehensive ESOP
Income Number Par Paid-In Income Retained Common
(Note 3C) of Shares Value Capital (Note 3C) Earnings Stock
-------------- --------- ---------- --------- -------------- -------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 152,569,437 $ 1,373,125 $ 726,915 $(608) $ 471,095 $(162,656)
Net income $315,170 315,170
Minimum liability for unfunded
retirement benefits, net of
$27,000 of income taxes (51) (51)
--------
Comprehensive income $315,119
========
Allocation of ESOP shares 1,346 7,646
Cash dividends on preferred stock (12,497)
Cash dividends on common stock (216,126)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 152,569,437 1,373,125 728,261 (659) 557,642 (155,010)
Net income $293,194 293,194
Minimum liability for unfunded
retirement benefits, net of
$26,000 of income taxes 44 44
--------
Comprehensive income $293,238
========
FirstEnergy merger (152,569,337) (1,373,124) 1,373,124 146,977
Allocation of ESOP shares 1,874 8,033
Cash dividends on preferred stock (12,392)
Cash dividends on common stock (216,770)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 100 1 2,103,259 (615) 621,674 --
Net income $270,798 270,798
Transfer of minimum liability for
unfunded retirement benefits
to parent 615 615
--------
Comprehensive income $271,413
========
Transfer of ESOP premium to parent (4,531)
Cash dividends on preferred stock (11,952)
Cash dividends on common stock (297,376)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 100 $ 1 $2,098,728 $ -- $ 583,144 $ --
=================================================================================================================================
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
--------------------- --------------------
Par or Par or
Number Stated Number Stated
of Shares Value of Shares Value
--------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1996 5,118,699 $211,870 5,200,000 $160,000
-------------------------------------------------------------------------------------
Balance, December 31, 1996 5,118,699 211,870 5,200,000 160,000
Redemptions--
8.45% Series (50,000) (5,000)
--------------------------------------------------------------------------------------
Balance, December 31, 1997 5,118,699 211,870 5,150,000 155,000
Redemptions--
8.45% Series (50,000) (5,000)
--------------------------------------------------------------------------------------
Balance, December 31, 1998 5,118,699 $211,870 5,100,000 $150,000
======================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 270,798 $293,194 $315,170
Adjustments to reconcile net income to net cash from
operating activities:
Provision for depreciation and amortization 415,715 429,941 383,441
Nuclear fuel and lease amortization 35,086 49,251 52,784
Deferred income taxes, net (59,553) (40,478) 41,365
Investment tax credits, net (14,290) (15,031) (14,041)
Extraordinary item 51,730 -- --
Receivables (144,549) (23,887) 24,326
Materials and supplies (1,627) (10,557) (736)
Accounts payable (8,455) 32,531 962
Other 64,552 21,756 (42,954)
--------- -------- --------
Net cash provided from operating activities 609,407 736,720 760,317
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 117,265 89,773 306,313
Short-term borrowings, net 35,954 -- 229,515
Redemptions and Repayments-
Preferred stock 5,000 5,000 1,016
Long-term debt 225,241 292,409 438,916
Short-term borrowings, net -- 47,251 --
Dividend Payments-
Common stock 297,746 237,848 218,656
Preferred stock 11,865 12,559 12,560
--------- -------- --------
Net cash used for financing activities 386,633 505,294 135,320
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 186,139 179,328 148,189
PNBV capital trust investment -- -- 487,979
Other 8,102 52,671 13,406
--------- -------- --------
Net cash used for investing activities 194,241 231,999 649,574
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 28,533 (573) (24,577)
Cash and cash equivalents at beginning of year 4,680 5,253 29,830
--------- -------- --------
Cash and cash equivalents at end of year $ 33,213 $ 4,680 $ 5,253
========= ======== ========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash Paid During the Year-
Interest (net of amounts capitalized) $ 201,064 $212,987 $224,541
========= ======== ========
Income taxes $ 219,226 $228,399 $157,477
========= ======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
GENERAL TAXES:
Real and personal property $ 116,868 $ 114,111 $ 115,443
State gross receipts 104,175 99,262 104,158
Social security and unemployment 12,701 14,113 14,602
Other 8,780 7,478 7,795
---------- ---------- ----------
Total general taxes $ 242,524 $ 234,964 $ 241,998
========== ========== ==========
PROVISION FOR INCOME TAXES:
Currently payable-
Federal $ 229,164 $ 225,529 $ 164,132
State 14,732 17,784 9,839
---------- ---------- ----------
243,896 243,313 173,971
---------- ---------- ----------
Deferred, net-
Federal (53,943) (34,429) 37,277
State (5,610) (6,048) 4,088
---------- ---------- ----------
(59,553) (40,477) 41,365
---------- ---------- ----------
Investment tax credit amortization (14,290) (15,031) (14,041)
---------- ---------- ----------
Total provision for income taxes $ 170,053 $ 187,805 $ 201,295
========== ========== ==========
INCOME STATEMENT CLASSIFICATION
OF PROVISION FOR INCOME TAXES:
Operating income $ 170,956 $ 168,427 $ 189,417
Other income 20,305 19,378 11,878
Extraordinary item (21,208) -- --
---------- ---------- ----------
Total provision for income taxes $ 170,053 $ 187,805 $ 201,295
========== ========== ==========
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes $ 440,851 $ 480,999 $ 516,465
========== ========== ==========
Federal income tax expense at statutory rate $ 154,298 $ 168,350 $ 180,763
Increases (reductions) in taxes resulting from-
Amortization of investment tax credits (14,290) (15,031) (14,041)
State income taxes net of federal income tax benefit 5,929 7,628 9,053
Amortization of tax regulatory assets 27,599 28,277 26,945
Other, net (3,483) (1,419) (1,425)
---------- ---------- ----------
Total provision for income taxes $ 170,053 $ 187,805 $ 201,295
========== ========== ==========
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Property basis differences $ 880,645 $1,019,952 $1,086,533
Allowance for equity funds used during construction 169,780 210,136 233,345
Deferred nuclear expense 237,602 252,946 262,123
Competitive transition charge 135,730 -- --
Customer receivables for future income taxes 164,618 204,643 219,932
Deferred sale and leaseback costs 45,521 47,796 50,212
Unamortized investment tax credits (55,495) (67,208) (72,663)
Other 23,486 30,089 (2,396)
---------- ---------- ----------
Net deferred income tax liability $1,601,887 $1,698,354 $1,777,086
========== ========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include Ohio Edison
Company (Company), and its wholly owned subsidiaries. Pennsylvania
Power Company (Penn) is the Company's principal operating subsidiary.
All significant intercompany transactions have been eliminated. The
Company became a wholly owned subsidiary of FirstEnergy Corp.
(FirstEnergy) on November 8, 1997. FirstEnergy was formed on that date
by the merger of the Company and Centerior Energy Corporation
(Centerior). FirstEnergy holds directly all of the issued and
outstanding common shares of the Company and all of the issued and
outstanding common shares of Centerior's former direct subsidiaries,
which include, among others, The Cleveland Electric Illuminating
Company (CEI) and The Toledo Edison Company (TE). The Company and Penn
(Companies) follow the accounting policies and practices prescribed by
the Public Utilities Commission of Ohio (PUCO), the Pennsylvania Public
Utility Commission (PPUC) and the Federal Energy Regulatory Commission
(FERC). The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
periodic estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Certain prior year amounts
have been reclassified to conform with the current year presentation.
REVENUES-
The Companies' principal business is providing electric
service to customers in central and northeastern Ohio and western
Pennsylvania. The Companies' retail customers are metered on a cycle
basis. Revenue is recognized for unbilled electric service through the
end of the year.
Receivables from customers include sales to residential,
commercial and industrial customers located in the Companies' service
area and sales to wholesale customers. There was no material
concentration of receivables at December 31, 1998 or 1997, with respect
to any particular segment of the Companies' customers.
REGULATORY PLANS-
The PUCO approved the Company's Rate Reduction and Economic
Development Plan in 1995. This regulatory plan initially maintains
current base electric rates for the Company through December 31, 2005.
At the end of the regulatory plan period, the Company's base rates will
be reduced by $300 million (approximately 20 percent below current
levels).The plan also revised the Company's fuel cost recovery method.
The Company formerly recovered fuel-related costs not otherwise
included in base rates from retail customers through separate energy
rates. In accordance with the regulatory plan, the Company's fuel rates
will be frozen through the regulatory plan period, subject to limited
periodic adjustments. As part of the Company's regulatory plan,
transition rate credits were implemented for customers, which are
expected to reduce operating revenues for the Company by approximately
$600 million.
In June 1998, the PPUC authorized a rate restructuring plan
for Penn, which superseded the regulatory plan which had been in place
for Penn since 1996 and essentially resulted in the deregulation of
Penn's generation business as of June 30, 1998. Penn was required to
remove from its balance sheet all regulatory assets and liabilities
related to its generation business and assess all other assets for
impairment. The Securities and Exchange Commission (SEC) issued
interpretive guidance regarding asset impairment measurement which
concluded that any supplemental regulated cash flows such as a
competitive transition charge (CTC) should be excluded from the cash
flows of assets in a portion of the business not subject to regulatory
accounting practices. If those assets are impaired, a regulatory asset
should be established if the costs are recoverable through regulatory
cash flows. Consistent with the SEC guidance, Penn reduced its nuclear
generating unit investments by approximately $305 million, of which
approximately $227 million was recognized as a regulatory asset to be
recovered through a CTC over a seven-year transition period; the
remaining net amount of $78 million was written off. The charge of $51.7
million ($30.5 million after income taxes) for discontinuing the
application of Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation" (SFAS
71), to Penn's generation business was recorded as an extraordinary item
on the Consolidated Statement of Income. Penn's net assets included in
utility plant relating to the operations for which the application of
SFAS 71 was discontinued and Penn's total assets as of December 31, 1998
were $146 million and $978 million, respectively.
All of the Companies' regulatory assets are being recovered
under provisions of the regulatory plans. In addition, the PUCO has
authorized the Company to recognize additional capital recovery related
to its generating assets (which is reflected as additional depreciation
expense) and additional amortization of regulatory assets during the
regulatory plan period of at least $2 billion, and the PPUC had
authorized Penn to accelerate at least $358 million, more than the
amounts that would have been recognized if the regulatory plans were not
in effect. These additional amounts are being recovered through current
rates. As of December 31, 1998, the Companies' cumulative additional
capital recovery and regulatory asset amortization amounted to $696
million (including Penn's impairment discussed above).
UTILITY PLANT AND DEPRECIATION-
Utility plant reflects the original cost of construction,
(except for Penn's nuclear generating units which were adjusted to fair
value as discussed above), including payroll and related costs such as
taxes, employee benefits, administrative and general costs, and interest
costs.
The Companies provide for depreciation on a straight-line
basis at various rates over the estimated lives of property included in
plant in service. The annual composite rate for electric plant was
approximately 3.0% in 1998, 1997, and 1996. In addition to the
straight-line depreciation recognized in 1998, 1997 and 1996, the
Companies recognized additional capital recovery of $141 million
(excluding Penn's impairment), $172 million and $144 million,
respectively, as additional depreciation expense in accordance with
their regulatory plans. Such additional charges in the accumulated
provision for depreciation were $422 million and $343 million as of
December 31, 1998 and 1997, respectively.
Annual depreciation expense includes approximately $9.4
million for future decommissioning costs applicable to the Companies'
ownership and leasehold interests in three nuclear generating units. The
Companies' share of the future obligation to decommission these units is
approximately $511 million in current dollars and (using a 4.0%
escalation rate) approximately $1.4 billion in future dollars. The
estimated obligation and the escalation rate were developed based on
site specific studies. Payments for decommissioning are expected to
begin in 2016, when actual decommissioning work begins. The Companies
have recovered approximately $83 million for decommissioning through
their electric rates from customers through December 31, 1998. If the
actual costs of decommissioning the units exceed the funds accumulated
from investing amounts recovered from customers, the Companies expect
that additional amount to be recoverable from their customers. The
Companies have approximately $130.6 million invested in external
decommissioning trust funds as of December 31, 1998. Earnings on these
funds are reinvested with a corresponding increase to the
decommissioning liability. The Companies have also recognized an
estimated liability of approximately $13.7 million related to
decontamination and decommissioning of nuclear enrichment facilities
operated by the United States Department of Energy (DOE), as required by
the Energy Policy Act of 1992.
The Financial Accounting Standards Board (FASB) issued a
proposed accounting standard for nuclear decommissioning costs in 1996.
If the standard is adopted as proposed: (1) annual provisions for
decommissioning could increase; (2) the net present value of estimated
decommissioning costs could be recorded as a liability; and (3) income
from the external decommissioning trusts could be reported as investment
income. The FASB subsequently expanded the scope of the proposed
standard to include other closure and removal obligations related to
long-lived assets. A revised proposal may be issued by the FASB in 1999.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Companies, together with the other FirstEnergy utilities,
CEI and TE, and Duquesne Light Company (Duquesne) constitute the Central
Area Power Coordination Group (CAPCO). The CAPCO companies own and/or
lease, as tenants in common, various power generating facilities. Each
of the companies is obligated to pay a share of the costs associated
with any jointly owned facility in the same proportion as its interest.
The Companies' portions of operating expenses associated with jointly
owned facilities are included in the corresponding operating expenses on
the Consolidated Statements of Income. The amounts reflected on the
Consolidated Balance Sheet under utility plant at December 31, 1998,
include the following:
<TABLE>
<CAPTION>
Companies'
Utility Accumulated Construction Ownership/
Plant Provision for Work in Leasehold
Generating Units in Service Depreciation Progress Interest
- ---------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
W.H. Sammis #7 $ 303.3 $ 101.3 $ 2.0 68.80%
Bruce Mansfield #1,
#2 and #3 791.9 399.7 8.3 50.68%
Beaver Valley
#1 and #2 1,653.0 599.9 10.1 47.11%
Perry 1,295.4 748.8 7.5 35.24%
- ------------------------------------------------------------------
Total $4,043.6 $1,849.7 $27.9
===================================================================
</TABLE>
On October 15, 1998, FirstEnergy announced that it signed an
agreement in principle with Duquesne that would result in the transfer
of 1,436 megawatts owned by Duquesne at eight CAPCO generating units in
exchange for 1,328 megawatts at three non-CAPCO power plants owned by
the Company, Penn and CEI. As part of this exchange, the Companies will
transfer their 246-megawatt Niles Plant and 339-megawatt New Castle
Plant to Duquesne. A definitive agreement on the exchange of assets,
which will be structured as a tax-free transaction to the extent
possible, will provide FirstEnergy's utility operating companies with
exclusive ownership and operating control of all CAPCO generating units.
Duquesne will fund decommissioning costs equal to its percentage
interest in the three nuclear generating units to be transferred. The
asset transfer is expected to take twelve to eighteen months to close.
NUCLEAR FUEL-
Nuclear fuel is recorded at original cost, which includes
material, enrichment, fabrication and interest costs incurred prior to
reactor load. The Companies amortize the cost of nuclear fuel based on
the rate of consumption. The Companies' electric rates include amounts
for the future disposal of spent nuclear fuel based upon the formula
used to compute payments to the DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on
the Consolidated Statements of Taxes. Deferred income taxes result from
timing differences in the recognition of revenues and expenses for tax
and accounting purposes. Investment tax credits, which were deferred
when utilized, are being amortized over the recovery period of the
related property. The liability method is used to account for deferred
income taxes. Deferred income tax liabilities related to tax and
accounting basis differences are recognized at the statutory income tax
rates in effect when the liabilities are expected to be paid. Since
November 8, 1997, the Companies are included in FirstEnergy's
consolidated federal income tax return. The consolidated tax liability
is allocated on a "stand-alone" company basis, with the Companies
recognizing any tax losses or credits they contributed to the
consolidated return.
RETIREMENT BENEFITS-
The Companies' trusteed, noncontributory defined benefit
pension plans cover almost all full-time employees. Upon retirement,
employees receive a monthly pension based on length of service and
compensation. In 1998, the Companies' pension plans and the Centerior
pension plan were merged into the FirstEnergy pension plans. The
Companies use the projected unit credit method for funding purposes and
were not required to make pension contributions during the three years
ended December 31, 1998. The assets of the pension plans consist
primarily of common stocks, United States government bonds and
corporate bonds.
The Companies provide a minimum amount of noncontributory life
insurance to retired employees in addition to optional contributory
insurance. Health care benefits, which include certain employee
deductibles and copayments, are also available to retired employees,
their dependents and, under certain circumstances, their survivors. The
Companies pay insurance premiums to cover a portion of these benefits in
excess of set limits; all amounts up to the limits are paid by the
Companies. The Companies recognize the expected cost of providing other
postretirement benefits to employees and their beneficiaries and covered
dependents from the time employees are hired until they become eligible
to receive those benefits.
The following sets forth the funded status of the FirstEnergy
plans in 1998 and the Companies' plans in 1997 on the Consolidated
Balance Sheets as of December 31 (which includes the Companies' share of
the FirstEnergy 1998 plans' net prepaid pension cost and accrued other
postretirement benefits cost of $175.9 million and $132.8 million,
respectively):
<TABLE>
<OPTION>
Other
Pension Benefits Postretirement Benefits
---------------------- -----------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation as of January 1* $1,327.5 $ 688.5 $ 534.1 $ 241.1
Service cost 25.0 12.9 7.5 4.1
Interest cost 92.5 49.8 37.6 17.6
Plan amendments 44.3 3.0 40.1 --
Early retirement program expense -- 31.5 -- 1.9
Actuarial loss 101.6 62.9 10.7 17.0
Benefits paid (90.8) (54.5) (28.7) (14.1)
- ----------------------------------------------------------------------------------------
Benefit obligation as of December 31 1,500.1 794.1 601.3 267.6
- ----------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of
January 1* 1,542.5 946.3 2.8 2.0
Actual return on plan assets 231.3 188.8 0.7 0.5
Company contribution -- -- 0.4 0.3
Benefits paid (90.8) (54.5) -- --
- ----------------------------------------------------------------------------------------
Fair value of plan assets as of
December 31 1,683.0 1,080.6 3.9 2.8
- ----------------------------------------------------------------------------------------
Funded status of plan* 182.9 286.5 (597.4) (264.8)
Unrecognized actuarial loss (gain) (110.8) (139.5) 30.6 24.0
Unrecognized prior service cost 63.0 21.0 27.4 (13.5)
Unrecognized net transition obligation
(asset) (18.0) (25.9) 129.3 138.6
- ----------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 117.1 $ 142.1 $(410.1) $(115.7)
========================================================================================
Assumptions used as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected long-term return on plan assets 10.25% 10.00% 10.25% 10.00%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
<FN>
* 1998 beginning balances reflect 1998 merger of the Companies'
and Centerior plans into FirstEnergy plans.
</TABLE>
Net pension and other postretirement benefit costs for the
three years ended December 31, 1998 (including the Companies' share
of FirstEnergy plans' 1998 pension benefits costs and other
postretirement benefit costs of $(39.7) million and $31.2 million,
respectively) were computed as follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------------- -----------------------
1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 25.0 $ 12.9 $ 14.2 $ 7.5 $ 4.1 $ 4.3
Interest cost 92.5 49.8 49.3 37.6 17.6 17.4
Expected return on plan assets (152.7) (91.9) (83.2) (0.3) (0.2) (0.1)
Amortization of transition obligation
(asset) (8.0) (8.0) (8.0) 9.2 8.2 10.1
Amortization of prior service cost 2.3 2.1 2.3 (0.8) 0.3 (1.2)
Recognized net actuarial loss (gain) (2.6) (0.9) -- -- -- 0.1
Voluntary early retirement program
expense -- 31.5 12.5 -- 1.9 0.5
Plan curtailment loss (gain) -- -- (12.8) -- -- 13.1
- -----------------------------------------------------------------------------------------------
Net benefit cost $ (43.5) $ (4.5) $(25.7) $53.2 $31.9 $44.2
===============================================================================================
</TABLE>
In accordance with SFAS 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," the 1996 net pension costs and postretirement
benefit costs shown above included curtailment effects (significant
changes in projected plan assumptions) relating to the pension and
postretirement benefit plans. The employee terminations reflected in
the Companies' 1996 voluntary early retirement program represented a
plan curtailment that significantly reduced the expected future
employee service years and the related accrual of defined pension and
postretirement benefits. In the pension plan, the reduction in the
benefit obligation increased the net pension asset and was shown as a
plan curtailment gain. In the postretirement benefit plan, the
unrecognized prior service cost associated with service years no
longer expected to be rendered as a result of the terminations, was
shown as a plan curtailment loss.
The FirstEnergy's plans' health care trend rate assumption
is 5.5% in the first year gradually decreasing to 4.0% for the year
2008 and later. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plan.
An increase in the health care trend rate assumption by one
percentage point would increase the total service and interest cost
components by $4.0 million and the postretirement benefit obligation
by $68.1 million. A decrease in the same assumption by one percentage
point would decrease the total service and interest cost components
by $3.2 million and the postretirement benefit obligation by $55.2
million.
TRANSACTIONS WITH AFFILIATED COMPANIES-
Operating revenues and operating expenses include amounts
for affiliated transactions with CEI and TE since the November 8,
1997 merger date. The Companies' transactions with CEI and TE from
the merger date were primarily for electric sales. The amounts
related to CEI and TE were $17.8 million and $12.7 million,
respectively, for 1998 and $4.3 million and $0.4 million,
respectively, for the November 8-December 31, 1997 period.
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial
maturity of three months or less are reported as cash equivalents on
the Consolidated Balance Sheets. The Companies reflect temporary cash
investments at cost, which approximates their market value. Noncash
financing and investing activities included capital lease transactions
amounting to $1.6 million, $3.0 million and $2.0 million for the years
1998, 1997 and 1996, respectively. Commercial paper transactions of
OES Fuel, Incorporated (OES Fuel) (a wholly owned subsidiary of the
Company) that have initial maturity periods of three months or less
are reported net within financing activities under long-term debt and
are reflected as long-term debt on the Consolidated Balance Sheets
(see Note 3G).
All borrowings with initial maturities of less than one year
are defined as financial instruments under generally accepted
accounting principles and are reported on the Consolidated Balance
Sheets at cost, which approximates their fair market value. The
following sets forth the approximate fair value and related carrying
amounts of all other long-term debt, preferred stock subject to
mandatory redemption and investments other than cash and cash
equivalents as of December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $2,627 $2,775 $2,727 $2,835
Preferred stock $ 150 $ 155 $ 155 $ 161
Investments other than cash
and cash equivalents:
Debt securities
- Maturity (5-10 years) $ 481 $ 520 $ 486 $ 512
- Maturity (more than 10 years) 258 305 259 294
Equity securities 14 14 14 14
All other 170 179 145 147
- ---------------------------------------------------------------------
$ 923 $1,018 $ 904 $ 967
======================================================================
</TABLE>
The fair values of long-term debt and preferred stock
reflect the present value of the cash outflows relating to those
securities based on the current call price, the yield to maturity or
the yield to call, as deemed appropriate at the end of each
respective year. The yields assumed were based on securities with
similar characteristics offered by a corporation with credit ratings
similar to the Companies' ratings.
The fair value of investments other than cash and cash
equivalents represent cost (which approximates fair value) or the
present value of the cash inflows based on the yield to maturity. The
yields assumed were based on financial instruments with similar
characteristics and terms. Investments other than cash and cash
equivalents include decommissioning trust investments. Unrealized
gains and losses applicable to the decommissioning trust have been
recognized in the trust investment with a corresponding change to the
decommissioning liability. The other debt and equity securities
referred to above are in the held-to-maturity category. The Companies
have no securities held for trading purposes.
REGULATORY ASSETS-
The Companies recognize, as regulatory assets, costs which
the FERC, PUCO and PPUC have authorized for recovery from customers
in future periods. Without such authorization, the costs would have
been charged to income as incurred. All regulatory assets are being
recovered from customers under the Companies' respective regulatory
plans. Based on those regulatory plans, at this time, the Companies
believe they will continue to be able to bill and collect cost-based
rates relating to all of the Company's operations and Penn's
nongeneration operations; accordingly, it is appropriate that the
Companies continue the application of SFAS 71 to these respective
operations. The Companies also recognized additional cost recovery of
$50 million, $39 million and $34 million in 1998, 1997 and 1996,
respectively, as additional regulatory asset amortization in
accordance with their regulatory plans.
Regulatory assets on the Consolidated Balance Sheets are
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------
(In millions)
<S> <C> <C>
Nuclear unit expenses $ 666.7 $ 707.7
Customer receivables for future income taxes 458.3 560.7
Competitive transition charge 331.0 --
Sale and leaseback costs 127.7 134.3
Loss on reacquired debt 81.9 89.1
Employee postretirement benefit costs 28.9 25.9
Uncollectible customer accounts 6.8 18.9
Perry Unit 2 termination -- 36.7
DOE decommissioning and decontamination costs 12.2 16.5
Other 9.6 11.9
- ---------------------------------------------------------------------
Total $1,723.1 $1,601.7
=====================================================================
</TABLE>
2. LEASES:
The Companies lease certain generating facilities, certain
transmission facilities, office space and other property and
equipment under cancelable and noncancelable leases.
The Company sold portions of its ownership interests in
Perry Unit 1 and Beaver Valley Unit 2 and entered into operating
leases on the portions sold for basic lease terms of approximately 29
years. During the terms of the leases, the Company continues to be
responsible, to the extent of its individual combined ownership and
leasehold interests, for costs associated with the units including
construction expenditures, operation and maintenance expenses,
insurance, nuclear fuel, property taxes and decommissioning. The
Company has the right, at the end of the respective basic lease terms,
to renew the leases for up to two years. The Company also has the
right to purchase the facilities at the expiration of the basic lease
term or renewal term (if elected) at a price equal to the fair market
value of the facilities. The basic rental payments are adjusted when
applicable federal tax law changes.
OES Finance, Incorporated (OES Finance), a wholly owned
subsidiary of the Company, maintains deposits pledged as collateral to
secure reimbursement obligations relating to certain letters of credit
supporting the Company's obligations to lessors under the Beaver
Valley Unit 2 sale and leaseback arrangements. The deposits pledged to
the financial institution providing those letters of credit are the
sole property of OES Finance. In the event of liquidation, OES
Finance, as a separate corporate entity, would have to satisfy its
obligations to creditors before any of its assets could be made
available to the Company as sole owner of OES Finance common stock.
Consistent with the regulatory treatment, the rentals for
capital and operating leases are charged to operating expenses on the
Consolidated Statements of Income. Such costs for the three years
ended December 31, 1998, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Operating leases
Interest element $110.0 $111.3 $107.6
Other 28.9 23.2 18.3
Capital leases
Interest element 5.3 6.1 6.5
Other 4.8 6.0 6.3
- -----------------------------------------------------
Total rentals $149.0 $146.6 $138.7
=====================================================
</TABLE>
The future minimum lease payments as of December 31, 1998,
are:
<TABLE>
<CAPTION>
Operating Leases
----------------------------
Capital Lease PNBV Capital
Leases Payments Trust Net
- -------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
1999 $ 12.0 $ 125.8 $ 44.0 $ 81.8
2000 10.4 125.0 54.6 70.4
2001 9.3 127.6 59.5 68.1
2002 8.8 130.8 61.0 69.8
2003 8.6 137.3 62.6 74.7
Years thereafter 69.8 1,842.4 589.2 1,253.2
- --------------------------------------------------------------------
Total minimum lease
payments 118.9 $2,488.9 $870.9 $1,618.0
======== ====== ========
Executory costs 29.5
- -----------------------------------
Net minimum lease payments 89.4
Interest portion 52.5
- -----------------------------------
Present value of net minimum
lease payments 36.9
Less current portion 4.0
- -----------------------------------
Noncurrent portion $ 32.9
===================================
</TABLE>
The Company invested in the PNBV Capital Trust, which was
established to purchase a portion of the lease obligation bonds issued
on behalf of lessors in the Company's Perry Unit 1 and Beaver Valley
Unit 2 sale and leaseback transactions. The PNBV capital trust
arrangement effectively reduces lease costs related to those
transactions.
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
Under the Company's first mortgage indenture, the Company's
consolidated retained earnings unrestricted for payment of cash
dividends on the Company's common stock were $516.3 million at
December 31, 1998.
(B) EMPLOYEE STOCK OWNERSHIP PLAN-
The Companies were funding the matching contribution for
their 401(k) savings plan through an ESOP Trust. All full-time
employees eligible for participation in the 401(k) savings plan are
covered by the ESOP. The ESOP borrowed $200 million from the Company
and acquired 10,654,114 shares of the Company's common stock through
market purchases; the shares were converted into FirstEnergy's common
stock in connection with the merger. The ESOP loan is included in
Other Property and Investments on the Consolidated Balance Sheet as
of December 31, 1998 and 1997 as an investment with FirstEnergy
related to the FirstEnergy savings plan. Dividends on ESOP shares are
used to service the debt. Shares are released from the ESOP on a pro
rata basis as debt service payments are made. In 1997 and 1996,
429,515 and 404,522 shares, respectively, were allocated to the
Companies' employees with the corresponding expense recognized based
on the shares allocated method. Total ESOP-related compensation
expense reflected on the 1997 and 1996 Consolidated Statements of
Income was calculated as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
1997 1996
- --------------------------------------------------------
(In millions)
<S> <C> <C>
Base compensation $ 9.9 $ 9.0
Dividends on common stock
held by the ESOP and used to
service debt (3.4) (2.9)
- ---------------------------------------------------------
Net expense $ 6.5 $ 6.1
=========================================================
</TABLE>
(C) COMPREHENSIVE INCOME-
In 1998, the Companies adopted SFAS 130, "Reporting
Comprehensive Income," and applied the standard to all periods
presented in the Consolidated Statements of Common Stockholders'
Equity. Comprehensive income includes net income as reported on the
Consolidated Statements of Income and all other changes in common
stockholders' equity except dividends to stockholders.
(D) PREFERRED AND PREFERENCE STOCK-
Penn's 7.75% series of preferred stock has a restriction
which prevents early redemption prior to July 2003. The Company's
8.45% series of preferred stock has no optional redemption provision.
All other preferred stock may be redeemed by the Companies in whole,
or in part, with 30-60 days' notice.
Preference stock authorized for the Company is 8,000,000
shares without par value. No preference shares are currently
outstanding.
(E) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
The Company's 8.45% series of preferred stock has an annual
sinking fund requirement for 50,000 shares that began on September 16,
1997. Penn's 7.625% series has an annual sinking fund requirement for
7,500 shares beginning on October 1, 2002.
The Companies' preferred shares are retired at $100 per
share plus accrued dividends. Annual sinking fund requirements are $5
million in each year 1999-2001 and $1 million in each year 2002-2003.
(F) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY
SUBORDINATED DEBENTURES-
Ohio Edison Financing Trust, a wholly owned subsidiary of
the Company, has issued $120 million of 9% Cumulative Trust Preferred
Capital Securities. The Company purchased all of the Trust's Common
Securities and simultaneously issued to the Trust $123.7 million
principal amount of 9% Junior Subordinated Debentures due 2025 in
exchange for the proceeds that the Trust received from its sale of
Preferred and Common Securities. The sole assets of the Trust are the
Subordinated Debentures whose interest and other payment dates
coincide with the distribution and other payment dates on the Trust
Securities. Under certain circumstances the Subordinated Debentures
could be distributed to the holders of the outstanding Trust
Securities in the event the Trust is liquidated. The Subordinated
Debentures may be optionally redeemed by the Company beginning
December 31, 2000, at a redemption price of $25 per Subordinated
Debenture plus accrued interest, in which event the Trust Securities
will be redeemed on a pro rata basis at $25 per share plus
accumulated distributions. The Company's obligations under the
Subordinated Debentures along with the related Indenture, amended and
restated Trust Agreement, Guarantee Agreement and the Agreement for
expenses and liabilities, constitute a full and unconditional
guarantee by the Company of payments due on the Preferred Securities.
(G) LONG-TERM DEBT-
The first mortgage indentures and their supplements, which
secure all of the Companies' first mortgage bonds, serve as direct
first mortgage liens on substantially all property and franchises,
other than specifically excepted property, owned by the Companies.
Based on the amount of bonds authenticated by the Trustee
through December 31, 1998, the Company's annual sinking and
improvement fund requirement for all bonds issued under the mortgage
amounts to $30 million. The Company expects to deposit funds in 1999
that will be withdrawn upon the surrender for cancellation of a like
principal amount of bonds, which are specifically authenticated for
such purposes against unfunded property additions or against
previously retired bonds. This method can result in minor increases
in the amount of the annual sinking fund requirement.
Sinking fund requirements for first mortgage bonds and
maturing long-term debt (excluding capital leases) for the next five
years are:
<TABLE>
<CAPTION>
(In millions)
- --------------------------------
<S> <C>
1999 $519.8
2000 328.8
2001 96.0
2002 326.4
2003 246.0
- -------------------------------
</TABLE>
The Companies' obligations to repay certain pollution
control revenue bonds are secured by several series of first mortgage
bonds and, in some cases, by subordinate liens on the related
pollution control facilities. Certain pollution control revenue bonds
are entitled to the benefit of irrevocable bank letters of credit of
$338.8 million. To the extent that drawings are made under those
letters of credit to pay principal of, or interest on, the pollution
control revenue bonds, the Company is entitled to a credit against
their obligation to repay those bonds. The Company pays annual fees
of 0.43% to 0.75% of the amounts of the letters of credit to the
issuing banks and are obligated to reimburse the banks for any
drawings thereunder.
The Company had unsecured borrowings of $250 million at
December 31, 1998, which are supported by a $250 million long-term
revolving credit facility agreement which expires December 30, 1999.
The Company must pay an annual facility fee of 0.20% on the total
credit facility amount. In addition, the credit agreement provides
that the Company maintain unused first mortgage bond capability for
the full credit agreement amount under the Company's indenture as
potential security for the unsecured borrowings.
Nuclear fuel purchases are financed through the issuance of
OES Fuel commercial paper and loans, both of which are supported by a
$180.5 million long-term bank credit agreement which expires March 31,
2001. Accordingly, the commercial paper and loans are reflected as
long-term debt on the Consolidated Balance Sheets. OES Fuel must pay
an annual facility fee of 0.20% on the total line of credit and an
annual commitment fee of 0.0625% on any unused amount.
4. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT:
Short-term borrowings outstanding at December 31, 1998,
consisted of $129.5 million of bank borrowings and $120.0 million of
OES Capital, Incorporated (OES Capital) commercial paper. OES Capital
is a wholly owned subsidiary of the Company whose borrowings are
secured by customer accounts receivable. OES Capital can borrow up to
$120 million under a receivables financing agreement at rates based on
certain bank commercial paper and is required to pay an annual fee of
0.26% on the amount of the entire finance limit. The receivables
financing agreement expires in 1999. At December 31, 1998, the Company
also had total short-term borrowings of $88.7 million from its
affiliates.
The Company has a line of credit with a domestic bank that
provides for borrowings of up to $75 million under various interest
rate options. Short-term borrowings may be made under this line of
credit on its unsecured notes. To assure the availability of this
line, the Company is required to pay an annual commitment fee of
0.20%. This line expires in May 1999. The weighted average interest
rates on short-term borrowings outstanding at December 31, 1998 and
1997, were 5.61% and 6.02%, respectively.
5. COMMITMENTS, GUARANTEES AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Companies' current forecasts reflect expenditures of
approximately $1 billion for property additions and improvements from
1999-2003, of which approximately $169 million is applicable to 1999.
Investments for additional nuclear fuel during the 1999-2003 period
are estimated to be approximately $167 million, of which approximately
$23 million applies to 1999. During the same periods, the Companies'
nuclear fuel investments are expected to be reduced by approximately
$169 million and $35 million, respectively, as the nuclear fuel is
consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative
to a single incident at a nuclear power plant to $9.7 billion. The
amount is covered by a combination of private insurance and an
industry retrospective rating plan. Based on their present ownership
and leasehold interests in the Beaver Valley Station and the Perry
Plant, the Companies' maximum potential assessment under the industry
retrospective rating plan (assuming the other co-owners contribute
their proportionate shares of any assessments under the retrospective
rating plan) would be $114.2 million per incident but not more than
$13 million in any one year for each incident.
The Companies are also insured as to their respective
interests in the Beaver Valley Station and the Perry Plant under
policies issued to the operating company for each plant. Under these
policies, up to $2.75 billion is provided for property damage and
decontamination and decommissioning costs. The Companies have also
obtained approximately $308.1 million of insurance coverage for
replacement power costs for their respective interests in Perry and
Beaver Valley. Under these policies, the Companies can be assessed a
maximum of approximately $15.4 million for incidents at any covered
nuclear facility occurring during a policy year which are in excess
of accumulated funds available to the insurer for paying losses.
The Companies intend to maintain insurance against nuclear
risks as described above as long as it is available. To the extent
that replacement power, property damage, decontamination,
decommissioning, repair and replacement costs and other such costs
arising from a nuclear incident at any of the Companies' plants exceed
the policy limits of the insurance in effect with respect to that
plant, to the extent a nuclear incident is determined not to be
covered by the Companies' insurance policies, or to the extent such
insurance becomes unavailable in the future, the Companies would
remain at risk for such costs.
GUARANTEES-
The CAPCO companies have each severally guaranteed certain
debt and lease obligations in connection with a coal supply contract
for the Bruce Mansfield Plant. As of December 31, 1998, the Companies'
shares of the guarantees (which approximate fair market value) were
$28.4 million. The price under the coal supply contract, which
includes certain minimum payments, has been determined to be
sufficient to satisfy the debt and lease obligations. The Companies'
total payments under the coal supply contract were $134.7 million,
$119.5 million and $113.8 million during 1998, 1997 and 1996,
respectively. The Companies' minimum payment for 1999 is approximately
$35 million. The contract expires December 31, 1999.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the
Companies with regard to air and water quality and other
environmental matters. The Companies estimate additional capital
expenditures for environmental compliance of approximately $260
million, which is included in the construction forecast provided
under "Capital Expenditures" for 1999 through 2003.
The Companies are in compliance with the current sulfur
dioxide (SO2) and nitrogen oxides (NOx) reduction requirements under
the Clean Air Act Amendments of 1990. SO2 reductions in 1999 will be
achieved by burning lower-sulfur fuel, generating more electricity
from lower-emitting plants, and/or purchasing emission allowances.
Plans for complying with reductions required for the year 2000 and
thereafter have not been finalized. In September 1998, the
Environmental Protection Agency (EPA) finalized regulations requiring
additional NOx reductions from the Companies' Ohio and Pennsylvania
facilities by May 2003. The EPA's NOx Transport Rule imposes uniform
reductions of NOx emissions across a region of twenty-two states and
the District of Columbia, including Ohio and Pennsylvania, based on a
conclusion that such NOx emissions are contributing significantly to
ozone pollution in the eastern United States. By September 1999, each
of the twenty-two states are required to submit revised State
Implementation Plans (SIP) which comply with individual state NOx
budgets established by the EPA. These state NOx budgets contemplate an
85% reduction in utility plant NOx emissions from 1990 emissions. A
proposed Federal Implementation Plan accompanied the NOx Transport
Rule and may be implemented by the EPA in states which fail to revise
their SIP. In another separate but related action, eight states filed
petitions with EPA under Section 126 of the Clean Air Act seeking
reductions of NOx emissions which are alleged to contribute to ozone
pollution in the eight petitioning states. The EPA suggests that the
Section 126 petitions will be adequately addressed by the NOx
Transport Program, but a September 1998 proposed rulemaking
established an alternative program which would require nearly
identical 85% NOx reductions at the Companies' Ohio and Pennsylvania
plants by May 2003 in the event implementation of the NOx Transport
Rule is delayed. FirstEnergy continues to evaluate its compliance
plans and other compliance options and currently estimates its
additional capital expenditures for NOx reductions may reach $500
million.
The Companies are required to meet federally approved SO2
regulations. Violations of such regulations can result in shutdown of
the generating unit involved and/or civil or criminal penalties of up
to $25,000 for each day the unit is in violation. The EPA has an
interim enforcement policy for SO2 regulations in Ohio that allows for
compliance based on a 30-day averaging period. The Companies cannot
predict what action the EPA may take in the future with respect to the
interim enforcement policy.
In July 1997, the EPA promulgated changes in the National
Ambient Air Quality Standard (NAAQS) for ozone and proposed a new
NAAQS for previously unregulated ultra-fine particulate matter. The
cost of compliance with these regulations may be substantial and
depends on the manner in which they are implemented by the states in
which the Companies operate affected facilities.
Legislative, administrative and judicial actions will
continue to change the way that the Companies must operate in order to
comply with environmental laws and regulations. With respect to any
such changes and to the environmental matters described above, the
Company expects that while it remains regulated, any resulting
additional capital costs which may be required, as well as any
required increase in operating costs, would ultimately be recovered
from its customers.
6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain consolidated operating
results by quarter for 1998 and 1997.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $597.8 $618.5 $696.2 $607.0
Operating Expenses and Taxes 486.7 524.9 555.5 465.5
- ------------------------------------------------------------------------------------------
Operating Income 111.1 93.6 140.7 141.5
Other Income 12.5 11.8 12.6 10.7
Net Interest Charges 59.3 59.1 58.6 56.2
- ------------------------------------------------------------------------------------------
Income Before Extraordinary Item 64.3 46.3 94.7 96.0
Extraordinary Item (Net of Income Taxes)
(Note 1) -- (30.5) -- --
- ------------------------------------------------------------------------------------------
Net Income $ 64.3 $ 15.8 $ 94.7 $ 96.0
==========================================================================================
Earnings on Common Stock $ 61.3 $ 12.8 $ 91.7 $ 93.0
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1997 1997 1997 1997
- --------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $604.8 $593.3 $652.7 $622.9
Operating Expenses and Taxes 478.5 467.3 511.6 527.7
- ------------------------------------------------------------------------------------------
Operating Income 126.3 126.0 141.1 95.2
Other Income 13.5 14.1 12.0 13.3
Net Interest Charges 63.8 63.2 61.3 60.0
- ------------------------------------------------------------------------------------------
Net Income $ 76.0 $ 76.9 $ 91.8 $ 48.5
==========================================================================================
Earnings on Common Stock $ 72.9 $ 73.8 $ 88.7 $ 45.4
==========================================================================================
</TABLE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Ohio Edison Company:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Ohio Edison Company (an
Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.)
and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, common stockholders' equity,
preferred stock, cash flows and taxes for each of the three years in
the period ended December 31, 1998. 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 Ohio
Edison Company and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
EXHIBIT 21.1
OHIO EDISON COMPANY
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1998
Pennsylvania Power Company - Incorporated in Pennsylvania
OES Fuel, Incorporated - Incorporated in Ohio
OES Ventures, Incorporated - Incorporated in Ohio
OES Capital, Incorporated - Incorporated in Ohio
OES Finance, Incorporated - Incorporated in Ohio
OES Nuclear, Incorporated - Incorporated in Ohio
Ohio Edison Financing Trust - Incorporated in Delaware
Ohio Edison Financing Trust II - Incorporated in Delaware
Statement of Differences
----------------------------
Exhibit Number 21, List of Subsidiaries of the Registrant at
December 31, 1998, is not included in the printed document.
EXHIBIT 23.1
OHIO EDISON COMPANY
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our reports included or incorporated by
reference in this Form 10-K, into Ohio Edison Company's previously
filed Registration Statements, File No. 33-49135, No. 33-49259,
No. 33-49413, No. 33-51139, No. 333-01489 and No. 333-05277.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the related
Form 10-K financial statements for Ohio Edison Company and is qualified in its
entirety by reference to such financial statements. (Amounts in 1,000's). Income
tax expense includes $20,305,000 related to other income and $(21,208,000)
related to extraordinary item.
</LEGEND>
<CIK> 0000073960
<NAME> OHIO EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,740,029
<OTHER-PROPERTY-AND-INVEST> 1,291,261
<TOTAL-CURRENT-ASSETS> 729,723
<TOTAL-DEFERRED-CHARGES> 1,972,138
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,733,151
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 2,098,728
<RETAINED-EARNINGS> 583,144
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,681,873
145,000
211,870
<LONG-TERM-DEBT-NET> 2,215,042
<SHORT-TERM-NOTES> 218,208
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 119,975
<LONG-TERM-DEBT-CURRENT-PORT> 519,782
5,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 4,010
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,612,391
<TOT-CAPITALIZATION-AND-LIAB> 8,733,151
<GROSS-OPERATING-REVENUE> 2,519,662
<INCOME-TAX-EXPENSE> 170,053
<OTHER-OPERATING-EXPENSES> 1,861,786
<TOTAL-OPERATING-EXPENSES> 2,032,742
<OPERATING-INCOME-LOSS> 486,920
<OTHER-INCOME-NET> 47,621
<INCOME-BEFORE-INTEREST-EXPEN> 534,541
<TOTAL-INTEREST-EXPENSE> 233,221
<NET-INCOME> 270,798
11,970
<EARNINGS-AVAILABLE-FOR-COMM> 258,828
<COMMON-STOCK-DIVIDENDS> 297,376
<TOTAL-INTEREST-ON-BONDS> 197,590
<CASH-FLOW-OPERATIONS> 609,407
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE>
<PAGE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED FINANCIAL AND OPERATING STATISTICS
<CAPTION>
Nov. 8 - Jan. 1 -
1998 Dec. 31, 1997 Nov. 7, 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
GENERAL FINANCIAL INFORMATION: |
|
Operating Revenues $1,782,376 $ 253,963 | $1,529,014 $1,789,961 $1,768,737 $1,698,021
========== ========== | ========== ========== ========== ==========
Operating Income $ 368,902 $ 49,502 | $ 307,332 $ 358,620 $ 397,899 $ 396,009
========== ========== | ========== ========== ========== ==========
Income Before Extraordinary Item $ 164,891 $ 19,290 | $ 95,191 $ 116,553 $ 183,719 $ 185,431
========== ========== | ========== ========== ========== ==========
Net Income (Loss) $ 164,891 $ 19,290 | $ (229,247) $ 116,553 $ 183,719 $ 185,431
========== ========== | ========== ========== ========== ==========
Earnings (Loss) on Common Stock $ 140,097 $ 19,290 | $ (274,276) $ 77,810 $ 141,275 $ 139,994
========== ========== | ========== ========== ========== ==========
Net Utility Plant $3,074,043 $3,156,659 | $4,983,219 $5,090,315 $5,191,628
========== ========== | ========== ========== ==========
Total Assets $6,318,183 $6,440,284 | $6,962,297 $7,222,416 $7,204,045
========== ========== | ========== ========== ==========
|
CAPITALIZATION: |
Common Stockholder's Equity $1,008,238 $ 950,904 | $1,044,283 $1,126,762 $1,058,190
Preferred Stock- |
Not Subject to Mandatory Redemption 238,325 238,325 | 238,325 240,871 240,871
Subject to Mandatory Redemption 149,710 183,174 | 186,118 215,420 245,971
Long-Term Debt 2,888,202 3,189,590 | 2,523,030 2,759,492 2,683,207
---------- ---------- | ---------- ---------- ----------
Total Capitalization $4,284,475 $4,561,993 | $3,991,756 $4,342,545 $4,228,239
========== ========== | ========== ========== ==========
CAPITALIZATION RATIOS: |
Common Stockholder's Equity 23.5% 20.9%| 26.2% 25.9% 25.0%
Preferred Stock- |
Not Subject to Mandatory Redemption 5.6 5.2 | 6.0 5.6 5.7
Subject to Mandatory Redemption 3.5 4.0 | 4.6 5.0 5.8
Long-Term Debt 67.4 69.9 | 63.2 63.5 63.5
----- ----- | ----- ----- -----
Total Capitalization 100.0% 100.0%| 100.0% 100.0% 100.0%
===== ===== | ===== ===== =====
KILOWATT-HOUR SALES (Millions): |
Residential 4,949 790 | 4,062 4,958 5,063 4,924
Commercial 6,353 893 | 4,990 5,908 5,946 5,770
Industrial 8,024 1,285 | 6,710 7,977 7,994 7,970
Other 165 89 | 476 522 550 575
---------- ---------- | ---------- ---------- ---------- ----------
Total Retail 19,491 3,057 | 16,238 19,365 19,553 19,239
Total Wholesale 1,275 575 | 2,408 2,155 1,694 1,073
---------- ---------- | ---------- ---------- ---------- ----------
Total 20,766 3,632 | 18,646 21,520 21,247 20,312
========== ========== | ========== ========== ========== ==========
CUSTOMERS SERVED (Year-End): |
Residential 668,470 671,265 | 663,130 669,725 668,346
Commercial 68,896 74,751 | 70,886 72,259 71,609
Industrial 5,336 6,515 | 6,545 6,649 6,993
Other 221 278 | 446 442 417
---------- ---------- | ---------- ---------- ----------
Total 742,923 752,809 | 741,007 749,075 747,365
========== ========== | ========== ========== ==========
|
Average Annual Residential kWh Usage 7,395 7,235 | 7,451 7,570 7,370
Peak Load-Megawatts 4,248 3,955 | 3,938 4,049 3,740
Number of Employees (Year-End) 1,798 3,162 | 3,282 3,636 3,547
</TABLE>
<PAGE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This discussion includes forward-looking statements based on
information currently available to management that are subject to certain
risks and uncertainties. These statements typically contain, but are not
limited to, the terms anticipate, potential, expect, believe, estimate
and similar words. Actual results may differ materially due to the speed
and nature of increased competition and deregulation in the electric
utility industry, economic or weather conditions affecting future sales
and margins, changes in markets for energy services, changing energy
market prices, legislative and regulatory changes, and the availability
and cost of capital and other similar factors.
Results of Operations
We continued to take steps in 1998 to better position our
Company as competition continues to expand in the electric utility
industry. Investments were made in new information systems with enhanced
functionality which also address Year 2000 application deficiencies. We
also contributed to the 1998 cash savings of FirstEnergy Corp.
(FirstEnergy) totaling $173 million. These savings were captured from
initiatives implemented during the year in connection with merger-related
economies made possible by FirstEnergy's formation through the merger of
our former parent company, Centerior Energy Corporation, and Ohio Edison
Company on November 8, 1997.
Financial results reflect the application of purchase
accounting to the merger. This accounting resulted in fair value
adjustments, which were "pushed down" or reflected on the separate
financial statements of Centerior's direct subsidiaries as of the merger
date, including our financial statements. As a result, we recorded
purchase accounting fair value adjustments to: (1) revalue our nuclear
generating units to fair value, (2) adjust long-term debt to fair value,
(3) adjust our retirement and severance benefit liabilities, and (4)
record goodwill. Accordingly, the post-merger financial statements
reflect a new basis of accounting, and separate financial statements are
presented for the pre-merger and post-merger periods. For the remainder
of this discussion, for categories substantially unaffected by the merger
and with no significant pre-merger or post-merger accounting events, we
have combined the 1997 pre-merger and post-merger periods and have
compared the total to 1998 and 1996.
Earnings on common stock were $140.1 million in 1998. Results
for 1998 were adversely affected by sharp increases in the spot market
price for electricity occasioned by a constrained power supply and heavy
customer demand in the latter part of June 1998, combined with unscheduled
generating unit outages, which resulted in spot market purchases of power
at prices which substantially exceeded amounts recovered from retail
customers. Pre-merger earnings on common stock in 1997 included an October
1997 write-off of certain regulatory assets. Excluding this write-off,
pre-merger earnings on common stock were $50.2 million. For the seven-week
post-merger period, earnings on common stock were $19.3 million. Earnings
on common stock were $77.8 million in 1996.
Operating revenues decreased slightly in 1998 following a
decline the previous year. The following table summarizes the sources of
decreases in operating revenues for 1998 and 1997 as compared to the prior
year:
<TABLE>
<CAPTION>
1998 1997
---- ----
(In millions)
<S> <C> <C>
Change in retail kilowatt-hour sales $ 12.7 $ (9.8)
Change in average retail price 5.9 (4.8)
Wholesale sales (15.7) 18.6
Other (3.5) (11.0)
- -----------------------------------------------------------------
Net Decrease $ (0.6) $ (7.0)
=================================================================
</TABLE>
Total kilowatt-hour sales were down in 1998 from the prior year
after establishing a new record for kilowatt-hours sold in 1997. The
decline was due to a 57.5% decrease in sales to wholesale customers.
Several generating unit outages, described later in this report, reduced
energy available for sale to the wholesale market. Retail sales were up in
1998, compared to 1997, with an increase of 0.5%. Kilowatt-hour sales to
residential and commercial customers increased 1.5% and 0.3%,
respectively, while industrial sales remained nearly unchanged from the
previous year. In 1997, retail sales decreased 0.4% with a small increase
in sales to industrial customers more than offset by a 2.2% decrease in
residential kilowatt-hour sales and a 0.4% reduction in commercial
kilowatt-hour sales from the previous year. However, overall there was a
3.5% increase in kilowatt-hour sales due to an increase in sales to
wholesale customers.
Operation and maintenance expenses were nearly unchanged in
1998, compared to the prior year, due to increased fuel and purchased
power costs substantially offset by a decrease in nuclear operating costs
and other operating costs. Most of the increase in fuel and purchased
power occurred in the second quarter and resulted from a combination of
factors. In late June 1998, the midwestern and southern regions of the
United States experienced electricity shortages caused mainly by record
temperatures and humidity and unscheduled generating unit outages. During
this period, Beaver Valley Unit 2 was out of service and the Davis-Besse
plant was removed from service as a result of damage to transmission
facilities caused by a tornado. As a result, we purchased significant
amounts of power on the spot market at unusually high prices, causing the
increase in purchased power costs. An increase in purchased power costs
also contributed to the 1997 increase in fuel and purchased power costs,
compared to 1996, which was offset in part by lower fuel costs caused by
an increase in the mix of nuclear generation to coal-fired generation.
Nuclear operating costs were lower in 1998, compared to 1997, reflecting
reduced costs at the Perry Plant partially offset by increased costs at
the Beaver Valley and Davis-Besse plants. Lower nuclear operating costs
in 1997 resulted from lower costs at the Perry and Davis-Besse plants
offset in part by increased costs at the Beaver Valley Plant. Other
operating costs in 1998 were lower partially due to the absence of a 1997
pre-merger charge for estimated severance costs totaling $9.9 million. In
comparing other operating costs in 1997 and 1996, the effect of the 1997
charge was more than offset by an $11.9 million charge in 1996 for
disposal of obsolete materials and supplies. Both 1998 and 1997 benefited
from ongoing cost cutting and the effect of work force reductions.
Lower depreciable asset balances, resulting from the purchase
accounting adjustment, reduced depreciation and amortization in the 1998
and 1997 post-merger period. These reductions were partially offset by the
amortization of goodwill recognized with the application of purchase
accounting. Depreciation and amortization in the 1997 pre-merger period
increased principally due to changes in depreciation rates approved in the
April 1996 Public Utilities Commission of Ohio (PUCO) rate order.
Interest income on trust notes acquired in connection with the
Bruce Mansfield Plant lease refinancing (see Note 2), which began in June
1997, increased other income in 1998 and the 1997 post-merger period. In
the pre-merger period of 1997, interest income on the trust notes was
more than offset by merger-related expenses and costs associated with the
accounts receivable securitization. Total interest charges decreased in
1998 principally due to the amortization of premiums associated with the
revaluation of long-term debt in connection with the merger, which also
contributed to the decrease in interest charges in the post-merger period
of 1997. In the pre-merger period of 1997, interest charges were higher
because interest on new secured notes and short-term borrowings for the
Bruce Mansfield Plant lease refinancing exceeded the expense reduction
from the redemption and refinancing of debt securities.
Preferred stock dividend requirements in 1998 were reduced by $9
million and in 1997 were increased by $9 million due to the declaration of
preferred dividends as of the merger date for dividends attributable to
the post-merger period (see "Preferred and Preference Stock" in Note 3c).
Capital Resources and Liquidity
We continue to actively pursue economic refinancings and
optional redemptions to reduce the cost of debt and preferred stock, and
improve our financial position. A total of $230 million of long-term debt
refinancing was completed during 1998. We completed $150 million of
optional redemptions. During 1998, we reduced our total debt by
approximately $210 million. Our common stockholder's equity percentage of
capitalization increased to 24% at December 31, 1998 from 21% at the end
of the previous year. The merger resulted in improved credit ratings in
1997, which have lowered the cost of new issues. The following table
summarizes changes in credit ratings resulting from the merger:
<TABLE>
<CAPTION>
Pre-Merger Post-Merger
------------------------- --------------------------
Standard Moody's Standard Moody's
& Poor's Investors & Poor's Investors
Corporation Service, Inc. Corporation Service, Inc.
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
First mortgage bonds BB Ba2 BB+ Ba1
Subordinated debt B+ Ba3 BB- Ba3
Preferred Stock B b2 BB- b1
</TABLE>
Excluding the effect of the Bruce Mansfield Plant lease
refinancing, interest costs on long-term debt were reduced by
approximately $18 million in 1998, compared to 1997. Through economic
refinancings and redemptions of higher cost debt we have reduced the
average cost of outstanding debt from 8.82% in 1993 to 8.15% in 1997
and 7.99% in 1998. We continue to streamline our operations, as
evidenced by a 50% increase in FirstEnergy's customer/employee ratio,
which has increased from 165 at the end of 1993 to 247 as of December
31, 1998. Merger-related savings through consolidation of activities
have contributed to these results.
Our cash requirements in 1999 for operating expenses,
construction expenditures and scheduled debt maturities are expected
to be met without issuing additional securities. We have cash
requirements of approximately $885.6 million for the 1999-2003 period
to meet scheduled maturities of long-term debt and preferred stock. Of
that amount, approximately $178.0 million applies to 1999.
We had about $73.0 million of cash and temporary investments
and no short-term indebtedness on December 31, 1998. Upon completion
of the merger, application of purchase accounting reduced bondable
property such that we are not currently able to issue additional first
mortgage bonds, except in connection with refinancing. Together with
The Toledo Edison Company, as of December 31, 1998, we had unused
borrowing capability of $100 million under a FirstEnergy revolving
line of credit.
Our capital spending for the period 1999-2003 is expected to
be about $701 million (excluding nuclear fuel), of which approximately
$150 million applies to 1999. Investments in additional nuclear fuel
during the 1999-2003 period are estimated to be approximately $130
million, of which about $14 million applies to 1999. During the same
periods, our nuclear fuel investments are expected to be reduced by
approximately $150 million and $32 million, respectively, as the
nuclear fuel is consumed. Also, we have operating lease commitments
net of trust cash receipts of approximately $39 million for the 1999-
2003 period, of which approximately $6 million relates to 1999. We
recover the cost of nuclear fuel consumed and operating leases through
our electric rates.
FirstEnergy signed an agreement in principle with Duquesne
Light Company (Duquesne) that would result in the transfer of 1,436
megawatts owned by Duquesne at five generating plants in exchange for
1,328 megawatts at three plants owned by its electric utility
operating companies (see "Common Ownership of Generating Facilities"
in Note 1), including the Company's 743-megawatt Avon Lake Plant. A
final agreement on the exchange of assets, which will be structured as
a tax-free transaction to the extent possible is being negotiated. The
transaction benefits FirstEnergy's utility operating companies by
providing exclusive ownership and operating control of all generating
assets that are now jointly owned and operated under the Central Area
Power Coordination Group agreement.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is
mitigated since a significant portion of our debt has fixed interest
rates, as noted in the table below. We are subject to the inherent
interest rate risks related to refinancing maturing debt by issuing
new debt securities. As discussed in Note 2, our investment in the
Shippingport Capital Trust effectively reduces future lease
obligations, also reducing interest rate risk. Changes in the market
value of our nuclear decommissioning trust funds are recognized by
making a corresponding change to the decommissioning liability, as
described in Note 1.
The table below presents principal amounts and related
weighted average interest rates by year of maturity for our investment
portfolio, debt obligations and preferred stock with mandatory
redemption provisions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
(Dollars in Millions)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than Cash and
Cash Equivalents:
Fixed Income $ 25 $ 24 $15 $ 38 $ 48 $ 416 $ 566 $ 583
Average interest rate 7.7% 7.6% 7.8% 7.7% 7.6% 7.4% 7.5%
- ----------------------------------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate $145 $175 $57 $228 $115 $2,003 $2,723 $2,960
Average interest rate 8.6% 7.2% 8.6% 7.7% 7.4% 7.7% 7.7%
Variable rate $ 160 $ 160 $ 160
Average interest rate 3.4% 3.4%
Short-term Borrowings $ 81 $ 81 $ 81
Average interest rate 5.5% 5.5%
- ----------------------------------------------------------------------------------------------------
Preferred Stock $ 33 $ 33 $81 $ 19 $ 1 $ 5 $ 172 $ 184
Average dividend rate 9.0% 9.0% 8.9% 8.9% 7.4% 7.4% 8.9%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Outlook
We face many competitive challenges in the years ahead as
the electric utility industry undergoes significant changes, including
regulation and the entrance of more energy suppliers into the
marketplace. Retail wheeling, which would allow retail customers to
purchase electricity from other energy producers, will be one of those
challenges. The FirstEnergy Rate Reduction and Economic Development
Plan provides the foundation to position us to meet the challenges we
are facing by significantly reducing fixed costs and lowering rates to
a more competitive level. The plan was approved by the PUCO in January
1997, and initially maintains current base electric rates through
December 31, 2005. The plan also revised our fuel recovery method.
As part of the regulatory plan, the base rate freeze is to
be followed by a $217 million base rate reduction in 2006; interim
reductions which began in June 1998 of $3 per month will increase to
$5 per month per residential customer by July 1, 2001. Total savings
of $280 million are anticipated over the term of the plan for our
customers. We have committed $70 million for economic development and
energy efficiency programs.
We have been authorized by the PUCO, for regulatory
accounting purposes, to recognize additional depreciation related to
our generating assets and additional amortization of regulatory assets
during the regulatory plan period of at least $1.4 billion more than
the amounts that would have been recognized if the regulatory plans
were not in effect. For regulatory purposes these additional charges
will be reflected over the rate plan period. Our regulatory plan does
not provide for full recovery of nuclear operations. Accordingly,
regulatory assets representing customer receivables for future income
taxes related to nuclear assets of $499 million were written off ($324
million net of income taxes) prior to consummation of the merger since
we ceased application of Statement of Financial Accounting Standards
No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of
Regulation" for our nuclear operations when implementation of the
FirstEnergy regulatory plan became probable.
Based on the current regulatory environment and our
regulatory plan, we believe we will continue to be able to bill and
collect cost-based rates relating to our nonnuclear operations. As a
result, we will continue the application of SFAS 71. However, changes
in the regulatory environment appear to be on the horizon for electric
utilities in Ohio. As further discussed below, the Ohio legislature is
in the discussion stages of restructuring the State's electric utility
industry. Although we believe that regulatory changes are possible in
1999, we cannot currently estimate the ultimate impact.
At the consummation of the merger in November 1997, we
recognized a fair value purchase accounting adjustment, which
decreased the carrying value of our nuclear assets by approximately
$1.7 billion based upon cash flow models. The fair value adjustment to
nuclear plant recognized for financial reporting purposes will
ultimately satisfy the asset reduction commitment contained in our
regulatory plan.
We continue to actively pursue the enactment of fair
legislation calling for deregulation of Ohio's investor-owned electric
utility industry. In early 1998, a deregulation proposal was
introduced, leading to the creation of a working group to recommend
legislation. As requested by legislative leadership, investor-owned
utilities introduced a deregulation plan with objectives to (1) treat
all major stakeholders in Ohio's electric system fairly; (2) protect
public schools and local governments from revenue loss; and (3) allow
utilities an opportunity to recover costs of government-mandated
investments. The utilities have submitted proposals, which incorporate
these objectives and also recognize the complexity of restructuring
the industry. The overlying objective is to do the job right the first
time. Currently, the working group, comprised of legislative leaders,
representatives of the electric utility companies and other interested
stakeholders are meeting to discuss and mold these proposals. Most
recently, placeholder bills containing statements of principle (that
will be replaced by specific proposals as they are agreed upon) have
been introduced. Legislative leaders have placed a high priority on
enacting a deregulation bill by mid-year.
The Clean Air Act Amendments of 1990, discussed in Note 5,
require additional emission reductions by 2000. We are pursuing cost-
effective compliance strategies for meeting these reduction
requirements.
On September 24, 1998, the Federal Environmental Protection
Agency issued a final rule establishing tighter nitrogen oxide
emission requirements for fossil fuel-fired utility boilers in Ohio,
Pennsylvania and twenty other eastern states, including the District
of Columbia (see "Environmental Matters" in Note 5). Controls must be
in place by May 2003, with required reductions achieved during the
five-month summer ozone season (May through September). The new rule
is expected to increase the cost of producing electricity; however, we
believe that we are in a better position than a number of other
utilities to achieve compliance due to our diversified nuclear and
hydroelectric generation capacity.
We have been named as a "potentially responsible party"
(PRP) for three sites listed on the Superfund National Priorities List
and are aware of our potential involvement in the cleanup of several
other sites. Allegations that we disposed of hazardous waste at these
sites, and the amount involved are often unsubstantiated and subject
to dispute. Federal law provides that all PRPs for a particular site
be held liable on a joint and several basis. If we were held liable
for 100% of the cleanup costs of all the sites referred to above, the
cost could be as high as $212 million. However, we believe that the
actual cleanup costs will be substantially less than 100% and that
most of the other parties involved are financially able to contribute
their share. We have accrued a $4.7 million liability as of December
31, 1998, based on estimates of the costs of cleanup and our
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, cash flows or results of
operations.
In connection with FirstEnergy's regulatory plan to reduce
fixed costs and lower rates, we continue to take steps to restructure
our operations. FirstEnergy announced plans to transfer our
transmission assets into a new subsidiary, American Transmission
Systems, Inc., with the transfer expected to be finalized in 1999.
The new subsidiary represents a first step toward the goal of
establishing or becoming part of a larger independent transmission
company (TransCo). We believe that a TransCo better addresses the
Federal Energy Regulatory Commission's (FERC) stated transmission
objectives of providing non-discriminatory service, while providing
for streamlined and cost-efficient operation. In working toward the
goal of forming a larger regional transmission entity, FirstEnergy,
American Electric Power, Virginia Power and Consumers Energy
announced in November 1998 that they would prepare a FERC filing
during 1999 for such a regional transmission entity. The entity would
be designed to meet the goals of reducing transmission costs that
result when transferring power over several transmission systems,
ensuring transmission reliability and providing non-discriminatory
access to the transmission grid.
Year 2000 Readiness
The Year 2000 issue is the result of computer programs
being written using two digits rather than four to identify the
applicable year. Any of our programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than
the year 2000. Because so many of our computer functions are date
sensitive, this could cause far-reaching problems, such as system-
wide computer failures and miscalculations, if no remedial action is
taken.
We have developed a multi-phase program for Year 2000
compliance that consists of an assessment of our systems and
operations that could be affected by the Year 2000 problem;
remediation or replacement of noncompliant systems and components;
and testing of systems and components following such remediation or
replacement. We have focused our Year 2000 review on three areas:
centralized system applications, noncentralized systems and
relationships with third parties (including suppliers as well as end-
use customers). Our review of system readiness extends to systems
involving customer service, safety, shareholder needs and regulatory
obligations.
We are committed to taking appropriate actions to eliminate
or lessen negative effects of the Year 2000 issue on our operations.
We have completed an inventory of all computer systems and hardware
including equipment with embedded computer chips and have determined
which systems need to be converted or replaced to become Year 2000-
ready and are in the process of remediating them. Based on our
timetable, we expect to have all identified repairs, replacements and
upgrades completed to achieve Year 2000 readiness by September 1999.
Most of our Year 2000 issues will be resolved through
system replacement. Of our major centralized systems, the general
ledger system and inventory management, procurement and accounts
payable systems were replaced at the end of 1998. Our payroll system
was enhanced to be Year 2000 compliant in July 1998. The customer
service system is due to be replaced in mid-1999.
We have completed formal communications with most of our key
suppliers to determine the extent to which we are vulnerable to those
third parties' failure to resolve their own Year 2000 problems. For
suppliers having potential compliance problems, we are developing
alternate sources and services in the event such noncompliance occurs.
We are also identifying areas requiring higher inventory levels based
on compliance uncertainties. There can be no guarantee that the
failure of companies to resolve their own Year 2000 issue will not
have a material adverse effect on our business, financial condition
and results of operations.
We are using both internal and external resources to
reprogram and/or replace and test our software for Year 2000
modifications. Of the $32 million total project cost, approximately
$26 million will be capitalized since those costs are attributable to
the purchase of new software for total system replacements because
the Year 2000 solution comprises only a portion of the benefits
resulting from the system replacements. The remaining $6 million will
be expensed as incurred. As of December 31, 1998, we have spent $19
million for Year 2000 capital projects and had expensed approximately
$3 million for Year 2000-related maintenance activities. Our total
Year 2000 project cost, as well as our estimates of the time needed
to complete remedial efforts, are based on currently available
information and do not include the estimated costs and time
associated with the impact of third party Year 2000 issues.
We believe we are managing the Year 2000 issue in such a
way that our customers will not experience any interruption of
service. We believe the most likely worst-case scenario from the Year
2000 issue will be disruption in power plant monitoring systems,
thereby producing inaccurate data and potential failures in
electronic switching mechanisms at transmission junctions. This would
prolong localized outages, as technicians would have to manually
activate switches. Such an event could have a material, but currently
undeterminable, effect on our financial results. We are developing
contingency plans to address the effects of any delay in becoming
Year 2000 compliant and expect to have contingency plans completed by
June 1999.
The costs of the project and the dates on which we plan to
complete the Year 2000 modifications are based on management's best
estimates, which were derived from numerous assumptions of future
events including the continued availability of certain resources, and
other factors. However, there can be no guarantee that this project
will be completed as planned and actual results could differ
materially from the estimates. Specific factors that might cause
material differences include but are not limited to, the availability
and cost of trained personnel, the ability to locate and correct all
relevant computer code, and similar uncertainties.
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Year For the Year
Ended Ended
December 31, Nov. 8 - Jan. 1 - December 31,
1998 Dec. 31, 1997 Nov. 7, 1997 1996
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> | <C> <C>
OPERATING REVENUES $1,782,376 $253,963 | $1,529,014 $1,789,961
---------- -------- | ---------- ----------
OPERATING EXPENSES AND TAXES: |
Fuel and purchased power 435,752 53,239 | 368,243 418,145
Nuclear operating costs 97,914 16,791 | 85,207 89,514
Other operating costs 335,621 57,852 | 286,384 381,976
---------- -------- | ---------- ----------
Total operation and maintenance expenses 869,287 127,882 | 739,834 889,635
Provision for depreciation and amortization 224,430 31,978 | 211,827 244,615
General taxes 221,077 33,912 | 194,400 229,856
Income taxes 98,680 10,689 | 75,621 67,235
---------- -------- | ---------- ----------
Total operating expenses and taxes 1,413,474 204,461 | 1,221,682 1,431,341
---------- -------- | ---------- ----------
OPERATING INCOME 368,902 49,502 | 307,332 358,620
|
OTHER INCOME (EXPENSE) 25,393 4,572 | (2,476) (2,089)
---------- -------- | ---------- ----------
INCOME BEFORE NET INTEREST CHARGES 394,295 54,074 | 304,856 356,531
NET INTEREST CHARGES: ---------- -------- | ---------- ----------
Interest on long-term debt 234,795 35,300 | 197,323 229,491
Allowance for borrowed funds used during |
construction (2,079) (631) | (1,928) (2,110)
Other interest expense (3,312) 115 | 14,270 12,597
---------- -------- | ---------- ----------
Net interest charges 229,404 34,784 | 209,665 239,978
---------- -------- | ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 164,891 19,290 | 95,191 116,553
EXTRAORDINARY ITEM (NET OF INCOME
TAXES) (Note 1) -- -- | (324,438) --
---------- -------- | ---------- ----------
NET INCOME (LOSS) 164,891 19,290 | (229,247) 116,553
|
PREFERRED STOCK DIVIDEND |
REQUIREMENTS 24,794 -- | 45,029 38,743
---------- -------- | ---------- ----------
EARNINGS (LOSS) ON COMMON STOCK $140,097 $ 19,290 | $ (274,276) $ 77,810
========== ======== | ========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1998 1997
- ------------------------------------------------------------------------------------------
(In thousands)
ASSETS
<S> <C> <C>
UTILITY PLANT:
In service $4,648,725 $4,578,649
Less--Accumulated provision for depreciation 1,631,974 1,470,084
---------- ----------
3,016,751 3,108,565
---------- ----------
Construction work in progress--
Electric plant 42,428 41,261
Nuclear fuel 14,864 6,833
---------- ----------
57,292 48,094
---------- ----------
3,074,043 3,156,659
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Shippingport Capital Trust (Note 2) 543,161 575,084
Nuclear plant decommissioning trusts 125,050 105,334
Other 21,059 21,482
---------- ----------
689,270 701,900
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 19,526 33,775
Receivables--
Customers 16,588 29,759
Associated companies 15,636 8,695
Other 142,834 98,077
Notes receivable from associated companies 53,509 --
Materials and supplies, at average cost--
Owned 38,213 47,489
Under consignment 43,620 25,411
Prepayments and other 58,342 57,763
---------- ----------
388,268 300,969
---------- ----------
DEFERRED CHARGES:
Regulatory assets 555,925 579,711
Goodwill 1,471,563 1,552,483
Property taxes 126,464 125,204
Other 12,650 23,358
---------- ----------
2,166,602 2,280,756
---------- ----------
$6,318,183 $6,440,284
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Consolidated Statements
of Capitalization):
Common stockholder's equity $1,008,238 $ 950,904
Preferred stock--
Not subject to mandatory redemption 238,325 238,325
Subject to mandatory redemption 149,710 183,174
Long-term debt 2,888,202 3,189,590
---------- ----------
4,284,475 4,561,993
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 208,050 121,965
Accounts payable--
Associated companies 47,680 56,109
Other 92,976 90,737
Notes payable to associated companies 80,618 56,802
Accrued taxes 192,359 194,394
Accrued interest 66,685 67,896
Other 37,278 52,297
---------- ----------
725,646 640,200
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 524,285 496,437
Accumulated deferred investment tax credits 90,946 96,131
Pensions and other postretirement benefits 217,719 198,642
Other 475,112 446,881
---------- ----------
1,308,062 1,238,091
---------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Notes 2 and 5) ---------- ----------
$6,318,183 $6,440,284
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDER'S EQUITY:
Common stock, without par value, authorized 105,000,000 shares--
79,590,689 shares outstanding $ 931,962 $ 931,614
Retained earnings (Note 3A) 76,276 19,290
---------- ----------
Total common stockholder's equity 1,008,238 950,904
---------- ----------
Number of Shares Optional
Outstanding Redemption Price
------------------ ---------------------
1998 1997 Per Share Aggregate
---- ---- --------- ---------
<S> <C> <C> <C> <C>
PREFERRED STOCK (Note 3C):
Cumulative, without par value-
Authorized 4,000,000 shares
Not Subject to Mandatory Redemption:
$ 7.40 Series A 500,000 500,000 $ 101.00 $ 50,500 50,000 50,000
$ 7.56 Series B 450,000 450,000 102.26 46,017 45,071 45,071
Adjustable Series L 474,000 474,000 100.00 47,400 46,404 46,404
$42.40 Series T 200,000 200,000 500.00 100,000 96,850 96,850
--------- --------- -------- ---------- ----------
Total not subject to mandatory
redemption 1,624,000 1,624,000 $243,917 238,325 238,325
========= ========= ======== ---------- ----------
Subject to Mandatory Redemption (Note 3D):
$7.35 Series C. 100,000 110,000 101.00 $ 10,100 10,110 11,110
$88.00 Series E 6,000 9,000 1,003.83 6,023 6,000 9,000
$91.50 Series Q 32,144 42,858 1,000.00 32,144 32,144 42,858
$88.00 Series R 50,000 50,000 -- -- 55,000 55,000
$90.00 Series S 74,000 74,000 -- -- 79,920 79,920
Redemption within one year (33,464) (14,714)
--------- --------- -------- ---------- ----------
Total subject to mandatory redemption 262,144 285,858 $ 48,267 149,710 183,174
========= ========= ======== ---------- ----------
LONG-TERM DEBT (Note 3E):
First mortgage bonds:
7.625% due 2002 195,000 195,000
7.375% due 2003 100,000 100,000
8.750% due 2005 -- 75,000
9.500% due 2005 300,000 300,000
6.860% due 2008 125,000 --
8.375% due 2011 -- 125,000
8.375% due 2012 -- 75,000
9.000% due 2023 150,000 150,000
---------- ----------
Total first mortgage bonds 870,000 1,020,000
---------- ----------
Unsecured notes:
6.700% due 2006 -- 19,500
5.700% due 2008 -- 7,300
6.700% due 2011 -- 5,500
5.875% due 2012 -- 14,300
---------- ----------
Total unsecured notes -- 46,600
---------- ----------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
LONG-TERM DEBT: (Cont.)
Secured notes:
8.150% due 1998 -- 7,500
8.160% due 1998 -- 5,000
8.170% due 1998 -- 11,000
8.260% due 1998 -- 2,500
8.330% due 1998 -- 25,000
8.870% due 1998 -- 10,000
9.000% due 1998 -- 5,000
7.000% due 1999-2009 1,880 1,910
7.250% due 1999 12,000 12,000
7.670% due 1999 3,000 3,000
7.770% due 1999 17,000 17,000
7.850% due 1999 25,000 25,000
8.290% due 1999 10,000 10,000
9.250% due 1999 52,500 52,500
9.300% due 1999 25,000 25,000
7.190% due 2000 175,000 175,000
7.420% due 2001 10,000 10,000
8.540% due 2001 3,000 3,000
8.550% due 2001 5,000 5,000
8.560% due 2001 3,500 3,500
8.680% due 2001 15,000 15,000
9.050% due 2001 5,000 5,000
9.200% due 2001 15,000 15,000
7.850% due 2002 5,000 5,000
8.130% due 2002 28,000 28,000
7.750% due 2003 15,000 15,000
7.670% due 2004 280,000 280,000
7.130% due 2007 120,000 120,000
7.430% due 2009 150,000 150,000
6.000% due 2011* -- 5,650
6.000% due 2011* -- 1,700
8.000% due 2013 78,700 78,700
3.278% due 2015* 39,835 39,835
6.000% due 2017* -- 1,285
7.880% due 2017 300,000 300,000
3.060% due 2018* 72,795 72,795
4.100% due 2020* 47,500 47,500
6.000% due 2020* -- 40,900
6.000% due 2020* -- 9,100
6.000% due 2020 62,560 62,560
6.100% due 2020 70,500 70,500
9.520% due 2021 7,500 7,500
6.850% due 2023 30,000 30,000
8.000% due 2023 73,800 73,800
7.625% due 2025 53,900 53,900
7.700% due 2025 43,800 43,800
7.750% due 2025 45,150 45,150
5.375% due 2028 5,993 --
4.400% due 2030 23,255 --
4.600% due 2030 81,640 --
---------- ----------
Total secured notes 2,012,808 2,026,585
---------- ----------
Capital lease obligations (Note 2) 94,568 98,504
---------- ----------
Net unamortized premium on debt 85,412 105,152
---------- ----------
Long-term debt due within one year (174,586) (107,251)
---------- ----------
Total long-term debt 2,888,202 3,189,590
---------- ----------
TOTAL CAPITALIZATION $4,284,475 $4,561,993
========== ==========
<FN>
* Denotes variable rate issue with December 31, 1998 interest rate
shown for December 31, 1998 balances and December 31, 1997 interest
rate for issues with only December 31, 1997 balances.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
Comprehensive Other Retained
Income (Loss) Number Carrying Paid-In Earnings
(Note 3B) of Shares Value Capital (Deficit)
-------------- --------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 79,590,689 $1,241,284 $ 78,624 $(193,146)
Net income $ 116,553 116,553
=========
Reclassification of $90.00 Series S
preferred stock redemption gain (111) 111
Unrealized loss on securities (6)
Gain on redemption of Adjustable Series L
preferred stock 725
Carrying value adjustments for preferred
stock redemptions 114
Cash dividends on preferred stock (38,734)
Cash dividends on common stock (160,816)
Other, primarily preferred stock
redemption expenses (315)
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 79,590,689 1,241,287 79,454 (276,458)
Net (loss) $(229,247) (229,247)
=========
Equity contributions from parent 4,500
Carrying value adjustments for preferred
stock redemptions 25
Cash dividends on preferred stock (35,848)
Cash dividends on common stock (123,602)
Other, primarily preferred stock
redemption expenses (232)
- --------------------------------------------------------------------------------------------------------------
Purchase accounting fair value adjustment (309,698) (83,954) 665,387
Net income $ 19,290 19,290
=========
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 79,590,689 931,614 -- 19,290
Purchase accounting fair value adjustment 348
Net income $ 164,891 164,891
=========
Cash dividends on preferred stock (21,947)
Cash dividends on common stock (85,958)
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 79,590,689 $ 931,962 $ -- $ 76,276
==============================================================================================================
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
-------------------- --------------------
Number Carrying Number Carrying
of Shares Value of Shares Value
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1996 1,650,000 $240,871 633,286 $245,134
Redemptions-
Adjustable Series L (26,000) (2,546)
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$9.125 Series N (150,000) (14,794)
$91.50 Series Q (10,714) (10,714)
- ---------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,624,000 238,325 459,572 215,626
Redemptions-
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$9.125 Series N (150,000) (14,794)
$91.50 Series Q (10,714) (10,714)
- ---------------------------------------------------------------------------------------------
Purchase accounting fair value
adjustment-
$ 7.35 Series C 110
$88.00 Series R 5,000
$90.00 Series S 6,660
- ---------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,624,000 238,325 285,858 197,888
Redemptions-
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$91.50 Series Q (10,714) (10,714)
- ---------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,624,000 $238,325 262,144 $183,174
=============================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Year For the Year
Ended Ended
December 31, Nov. 8 - Jan. 1 - December 31,
1998 Dec. 31, 1997 Nov. 7, 1997 1996
- ------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net Income (Loss) $164,891 $ 19,290 | $ (229,247) $ 116,553
Adjustments to reconcile net income |
to net cash from operating activities: |
Provision for depreciation and |
amortization 224,430 31,978 | 211,827 244,615
Nuclear fuel and lease amortization 35,361 7,393 | 42,577 45,987
Other amortization (12,677) -- | -- --
Deferred income taxes, net 22,949 7,723 | (126,693) 24,973
Investment tax credits, net (5,185) (822) | (6,670) (7,992)
Allowance for equity funds used |
during construction -- (140) | (1,647) (2,014)
Extraordinary item -- -- | 499,135 --
Receivables (38,527) 51,213 | (3,974) 586
Net proceeds from accounts |
receivable securitization -- -- | -- 64,891
Materials and supplies (8,933) (3,922) | 6,363 25,589
Accounts payable 20,180 (777) | (7,938) (6,344)
Other (53,433) 18,839 | (2,566) 10,992
-------- -------- | ---------- ---------
Net cash provided from operating |
activities 349,056 130,775 | 381,167 517,836
-------- -------- | ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES: |
New Financing-- |
Long-term debt 232,919 -- | 1,176,781 (307)
Ohio Schools Council prepayment program 116,598 -- | -- --
Short-term borrowings, net 23,816 703 | -- 106,618
Redemptions and Repayments-- |
Preferred stock 14,714 -- | 29,714 31,528
Long-term debt 488,610 43,500 | 701,843 310,177
Short-term borrowings, net -- -- | 55,519 --
Dividend Payments-- |
Common stock 85,958 34,785 | 88,816 160,816
Preferred stock 34,841 7,191 | 29,311 39,325
-------- -------- | ---------- ---------
Net cash provided from |
(used for) financing activities (250,790) (84,773) | 271,578 (435,535)
-------- -------- | ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES: |
Property additions 72,130 17,943 | 104,230 105,588
Loans to associated companies 53,509 -- | -- --
Capital trust investments (31,923) 16,248 | 558,836 --
Other 18,799 (4,288) | 2,276 16,210
-------- -------- | ---------- ---------
Net cash used for investing |
activities 112,515 29,903 | 665,342 121,798
-------- -------- | ---------- ---------
Net increase (decrease) in cash and |
cash equivalents (14,249) 16,099 | (12,597) (39,497)
Cash and cash equivalents at beginning |
of period 33,775 17,676 | 30,273 69,770
-------- -------- | ---------- ---------
Cash and cash equivalents at end |
of period $ 19,526 $ 33,775 | $ 17,676 $ 30,273
======== ======== | ========== =========
SUPPLEMENTAL CASH FLOWS INFORMATION: |
Cash Paid During the Period-- |
Interest (net of amounts capitalized) $239,000 $ 36,000 | $ 188,000 $ 237,000
======== ======== | ========== =========
Income taxes $100,107 $ 9,000 | $ 26,300 $ 29,732
======== ======== | ========== =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
For the Year For the Year
Ended Ended
December 31, Nov. 8 - Jan. 1 - December 31,
1998 Dec. 31, 1997 Nov. 7, 1997 1996
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
GENERAL TAXES: |
Real and personal property $ 130,642 $ 17,707 | $ 114,393 $ 132,582
State gross receipts 78,344 13,302 | 65,966 78,109
Social security and unemployment 9,029 1,548 | 6,296 9,127
Other 3,062 1,355 | 7,745 10,038
--------- --------- | --------- ----------
Total general taxes $ 221,077 $ 33,912 | $ 194,400 $ 229,856
========= ========= | ========= ==========
PROVISION FOR INCOME TAXES: |
Currently payable- |
Federal $ 90,690 $ 6,969 | $ 37,605 $ 44,147
State * 2,158 159 | -- --
--------- --------- | --------- ----------
92,848 7,128 | 37,605 44,147
--------- --------- | --------- ----------
Deferred, net- |
Federal 22,743 7,617 | (126,693) 24,973
State * 206 106 | -- --
--------- --------- | --------- ----------
22,949 7,723 | (126,693) 24,973
--------- --------- | --------- ----------
Investment tax credit amortization (5,185) (822) | (6,670) (7,992)
--------- --------- | --------- ----------
Total provision for income taxes $ 110,612 $ 14,029 | $ (95,758) $ 61,128
========= ========= | ========= ==========
INCOME STATEMENT CLASSIFICATION |
OF PROVISION FOR INCOME TAXES: |
Operating income $ 98,680 $ 10,689 | $ 75,621 $ 67,235
Other income 11,932 3,340 | 3,318 (6,107)
Extraordinary item -- -- | (174,697) --
--------- --------- | --------- ----------
Total provision for income taxes $ 110,612 $ 14,029 | $ (95,758) $ 61,128
========= ========= | ========= ==========
RECONCILIATION OF FEDERAL INCOME TAX |
EXPENSE AT STATUTORY RATE TO TOTAL |
PROVISION FOR INCOME TAXES: |
Book income before provision for income |
taxes $ 275,503 $ 33,319 | $(325,005) $ 177,681
========= ========= | ========= ==========
Federal income tax expense at statutory |
rate $ 96,426 $ 11,662 | $(113,752) $ 62,188
Increases (reductions) in taxes resulting |
from- |
Amortization of investment tax credits (5,186) (822) | (6,670) (7,992)
Depreciation -- -- | 14,780 7,853
Amortization of tax regulatory assets 7,038 1,170 | -- --
Amortization of goodwill 13,447 2,015 | -- --
Other, net (1,113) 4 | 9,884 (921)
--------- --------- | --------- ----------
Total provision for income taxes $ 110,612 $ 14,029 | $ (95,758) $ 61,128
========= ========= | ========= ==========
ACCUMULATED DEFERRED INCOME TAXES AT |
DECEMBER 31 : |
Property basis differences $ 672,283 $ 676,853 | $1,482,000
Deferred nuclear expense 132,818 133,281 | 134,000
Deferred sale and leaseback costs (113,884) (118,611) | (121,000)
Unamortized investment tax credits (40,241) (42,743) | (95,000)
Unused alternative minimum tax credits (124,459) (133,442) | (173,733)
Other (2,232) (18,901) | 79,334
--------- --------- | ----------
Net deferred income tax liability $ 524,285 $ 496,437 | $1,305,601
========= ========= | ==========
<FN>
* For periods prior to November 8, 1997, state income taxes are included
in the General Taxes section above. These amounts are not material and
no restatement was made.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include The Cleveland
Electric Illuminating Company (Company) and its wholly owned subsidiary,
Centerior Funding Corporation (Centerior Funding). The subsidiary was
formed in 1995 to serve as the transferor in connection with an accounts
receivable securitization completed in 1996. All significant
intercompany transactions have been eliminated. The Company is a wholly
owned subsidiary of FirstEnergy Corp. (FirstEnergy). Prior to the merger
in November 1997 (see Note 7), the Company and The Toledo Edison Company
(TE) were the principal operating subsidiaries of Centerior Energy
Corporation (Centerior). The merger was accounted for using the purchase
method of accounting in accordance with generally accepted accounting
principles, and the applicable effects were reflected on the separate
financial statements of Centerior's direct subsidiaries as of the merger
date. Accordingly, the post-merger financial statements reflect a new
basis of accounting and pre-merger period and post-merger period
financial results (separated by a heavy black line) are presented. The
Company follows the accounting policies and practices prescribed by the
Public Utilities Commission of Ohio (PUCO) and the Federal Energy
Regulatory Commission (FERC). The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make periodic estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Certain
prior year amounts have been reclassified to conform with the current
year presentation.
REVENUES-
The Company's principal business is providing electric service
to customers in northeastern Ohio. The Company's retail customers are
metered on a cycle basis. Revenue is recognized for unbilled electric
service through the end of the year.
Receivables from customers include sales to residential,
commercial and industrial customers located in the Company's service
area and sales to wholesale customers. There was no material
concentration of receivables at December 31, 1998 or 1997, with respect
to any particular segment of the Company's customers.
In May 1996, the Company and TE began to sell on a daily basis
substantially all of their retail customer accounts receivable to
Centerior Funding under an asset-backed securitization agreement which
expires in 2001. In July 1996, Centerior Funding completed a public sale
of $150 million of receivables-backed investor certificates in a
transaction that qualified for sale accounting treatment.
REGULATORY PLAN-
FirstEnergy's Rate Reduction and Economic Development Plan for
the Company was approved in January 1997, to become effective upon
consummation of the merger. The regulatory plan initially maintains
current base electric rates for the Company through December 31, 2005.
At the end of the regulatory plan period, the Company's base rates will
be reduced by $217 million (approximately 15 percent below current
levels). The regulatory plan also revised the Company's fuel cost
recovery method. The Company formerly recovered fuel-related costs not
otherwise included in base rates from retail customers through a
separate energy rate. In accordance with the regulatory plan, the
Company's fuel rate will be frozen through the regulatory plan period,
subject to limited periodic adjustments. As part of the regulatory plan,
transition rate credits were implemented for customers, which are
expected to reduce operating revenues for the Company by approximately
$280 million during the regulatory plan period.
All of the Company's regulatory assets related to its
nonnuclear operations are being recovered under provisions of the
regulatory plan (see "Regulatory Assets"). The Company recognized a fair
value purchase accounting adjustment to reduce nuclear plant by
$1.71 billion in connection with the FirstEnergy merger (see Note 7);
that fair value adjustment recognized for financial reporting purposes
will ultimately satisfy the $1.4 billion asset reduction commitment
contained in the regulatory plan. For regulatory purposes, the Company
will recognize the $1.4 billion of accelerated amortization over the
regulatory plan period.
Application of Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71), was discontinued in 1997 with respect to the
Company's nuclear operations. The Company's net assets included in
utility plant relating to the operations for which the application of
SFAS 71 was discontinued were $1,064 million as of December 31, 1998.
UTILITY PLANT AND DEPRECIATION-
Utility plant reflects the original cost of construction
(except for the Company's nuclear generating units which were adjusted
to fair value in 1997), including payroll and related costs such as
taxes, employee benefits, administrative and general costs, and interest
costs.
The Company provides for depreciation on a straight-line basis
at various rates over the estimated lives of property included in plant
in service. The annualized composite rate was approximately 3.4%
(reflecting the nuclear asset fair value adjustment discussed above) and
2.8% for 1998 and the post-merger 1997 period, respectively. In its
April 1996 rate order, the PUCO approved depreciation rates for the
Company of 2.88% for nuclear property and 3.23% for nonnuclear property.
Annual depreciation expense includes approximately
$11.7 million for future decommissioning costs applicable to the
Company's ownership interests in three nuclear generating units. The
Company's share of the future obligation to decommission these units is
approximately $432 million in current dollars and (using a 4.0%
escalation rate) approximately $1.1 billion in future dollars. The
estimated obligation and the escalation rate were developed based on
site specific studies. Payments for decommissioning are expected to
begin in 2016, when actual decommissioning work begins. The Company has
recovered approximately $110 million for decommissioning through its
electric rates from customers through December 31, 1998. If the actual
costs of decommissioning the units exceed the funds accumulated from
investing amounts recovered from customers, the Company expects that
additional amount to be recoverable from its customers. The Company has
approximately $125.0 million invested in external decommissioning trust
funds as of December 31, 1998. Earnings on these funds are reinvested
with a corresponding increase to the decommissioning liability. The
Company has also recognized an estimated liability of approximately
$10.1 million at December 31, 1998 related to decontamination and
decommissioning of nuclear enrichment facilities operated by the United
States Department of Energy (DOE), as required by the Energy Policy Act
of 1992.
The Financial Accounting Standards Board (FASB) issued a
proposed accounting standard for nuclear decommissioning costs in 1996.
If the standard is adopted as proposed: (1) annual provisions for
decommissioning could increase; (2) the net present value of estimated
decommissioning costs could be recorded as a liability; and (3) income
from the external decommissioning trusts could be reported as investment
income. The FASB subsequently expanded the scope of the proposed
standard to include other closure and removal obligations related to
long-lived assets. A revised proposal may be issued by the FASB in 1999.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Company, TE, Duquesne Light Company (Duquesne), Ohio
Edison Company (OE) and its wholly owned subsidiary, Pennsylvania Power
Company (Penn), constitute the Central Area Power Coordination Group
(CAPCO). The CAPCO Companies own and/or lease, as tenants in common,
various power generating facilities. Each of the companies is obligated
to pay a share of the costs associated with any jointly owned facility
in the same proportion as its interest. The Company's portion of
operating expenses associated with jointly owned facilities is included
in the corresponding operating expenses on the Consolidated Statements
of Income. The amounts reflected on the Consolidated Balance Sheet under
utility plant at December 31, 1998 include the following:
<TABLE>
<CAPTION>
Utility Accumulated Construction Ownership/
Plant Provision for Work in Leasehold
Generating Units in Service Depreciation Progress Interest
- ---------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Bruce Mansfield
Units 1, 2, and 3 $ 63.8 $ 23.1 $ 1.8 19.92%
Beaver Valley Unit 2 341.5 16.5 1.0 24.47%
Davis-Besse 201.9 -- 4.1 51.38%
Perry 546.6 24.9 7.6 31.11%
Eastlake Unit 5 160.5 116.8 0.7 68.80%
Seneca 64.3 25.4 0.1 80.00%
- -------------------------------------------------------------------------
Total $1,378.6 $206.7 $15.3
=========================================================================
</TABLE>
The Bruce Mansfield Plant is being leased through a sale and
leaseback transaction (see Note 2) and the above-related amounts
represent construction expenditures subsequent to the transaction.
The Seneca Unit is currently jointly owned by the Company
and a non-CAPCO company. FirstEnergy has agreed to purchase the
remaining 20% share in 1999.
On October 15, 1998, FirstEnergy announced that it signed an
agreement in principle with Duquesne that would result in the transfer
of 1,436 megawatts owned by Duquesne at eight CAPCO generating units
in exchange for 1,328 megawatts at three non-CAPCO power plants owned
by the Company, OE and Penn. As part of this exchange, the Company
will transfer the 743-megawatt Avon Lake Plant to Duquesne. A
definitive agreement on the exchange of assets, which will be
structured as a tax-free transaction to the extent possible, will
provide FirstEnergy's utility operating companies with exclusive
ownership and operating control of all CAPCO generating units.
Duquesne will fund decommissioning costs equal to its percentage
interest in the three nuclear generating units to be transferred. The
asset transfer is expected to take twelve to eighteen months to close.
NUCLEAR FUEL-
The Company leases its nuclear fuel and pays for the fuel as
it is consumed (see Note 2). The Company amortizes the cost of nuclear
fuel based on the rate of consumption. The Company's electric rates
include amounts for the future disposal of spent nuclear fuel based
upon the payments to the DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on
the Consolidated Statements of Taxes. Deferred income taxes result
from timing differences in the recognition of revenues and expenses
for tax and accounting purposes. Investment tax credits, which were
deferred when utilized, are being amortized over the recovery period
of the related property. The liability method is used to account for
deferred income taxes. Deferred income tax liabilities related to tax
and accounting basis differences are recognized at the statutory
income tax rates in effect when the liabilities are expected to be
paid. Alternative minimum tax credits of $124 million, which may be
carried forward indefinitely, are available to reduce future federal
income taxes. Since the Company became a wholly owned subsidiary of
FirstEnergy on November 8, 1997, the Company is included in
FirstEnergy's consolidated federal income tax return. The consolidated
tax liability is allocated on a "stand-alone" company basis, with the
Company recognizing any tax losses or credits it contributed to the
consolidated return.
RETIREMENT BENEFITS-
Centerior had sponsored jointly with the Company, TE and
Centerior Service Company (Service Company) a noncontributory pension
plan (Centerior Pension Plan) which covered all employee groups. Upon
retirement, employees receive a monthly pension generally based on the
length of service. In 1998, the Centerior Pension Plan was merged into
the FirstEnergy pension plans. In connection with the OE-Centerior
merger, the Company recorded fair value purchase accounting
adjustments to recognize the net gain, prior service, cost and net
transition asset (obligation) associated with the pension and
postretirement benefit plans. The assets of the pension plans consist
primarily of common stocks, United States government bonds and
corporate bonds.
The Company provides a minimum amount of noncontributory
life insurance to retired employees in addition to optional
contributory insurance. Health care benefits, which include certain
employee deductibles and copayments, are also available to retired
employees, their dependents and, under certain circumstances, their
survivors. The Company pays insurance premiums to cover a portion of
these benefits in excess of set limits; all amounts up to the limits
are paid by the Company. The Company recognizes the expected cost of
providing other postretirement benefits to employees and their
beneficiaries and covered dependents from the time employees are hired
until they become eligible to receive those benefits.
The following sets forth the funded status of the
FirstEnergy plans in 1998 and the former Centerior plans in 1997 and
amounts recognized on the Consolidated Balance Sheets as of December
31:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation as of January 1* $1,327.5 $395.0 $ 534.1 $ 211.9
Service cost 25.0 13.4 7.5 2.3
Interest cost 92.5 31.5 37.6 16.3
Plan amendments 44.3 7.1 40.1 --
Early retirement program expense -- 27.8 -- --
Actuarial loss 101.6 74.8 10.7 51.9
Benefits paid (90.8) (16.2) (28.7) (15.9)
- -----------------------------------------------------------------------------------------------
Benefit obligation as of December 31 1,500.1 533.4 601.3 266.5
- -----------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of January 1* 1,542.5 420.8 2.8 --
Actual return on plan assets 231.3 57.3 0.7 --
Company contribution -- -- 0.4 --
Benefits paid (90.8) (16.2) -- --
- -----------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31 1,683.0 461.9 3.9 --
- -----------------------------------------------------------------------------------------------
Funded status of plan* 182.9 (71.5) (597.4) (266.5)
Unrecognized actuarial loss (gain) (110.8) 3.0 30.6 --
Unrecognized prior service cost 63.0 -- 27.4 --
Unrecognized net transition obligation (asset) (18.0) -- 129.3 --
- -----------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 117.1 $(68.5) $(410.1) $(266.5)
===============================================================================================
Assumptions used as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected long-term return on plan assets 10.25% 10.00% 10.25% 10.00%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
<FN>
* 1998 beginning balances represents 1998 merger of Centerior
and OE plans into FirstEnergy plans.
</TABLE>
The Consolidated Balance Sheet classification of Pensions
and Other Postretirement Benefits at December 31, 1998 and 1997
includes the Company's share of the net pension liability of $47.7
million and $49.2 million, respectively; and the Company's share of
the accrued postretirement liability of $170.0 million and $149.5
million, respectively.
Net pension and other postretirement benefit costs for the
three years ended December 31, 1998 (FirstEnergy plans in 1998 and
Centerior plans in 1997 and 1996) were computed as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
----------------------------- -----------------------------
1997 1997
---------------- ----------------
Nov. 8-| Jan. 1- Nov. 8-| Jan. 1-
1998 Dec. 31| Nov. 7 1996 1998 Dec. 31| Nov. 7 1996
- -----------------------------------------------|--------------------------------|-------------
| (In millions) |
<S> <C> <C> | <C> <C> <C> <C> |<C> <C>
| |
Service cost $ 25.0 $ 2.3 | $ 11.1 $ 12.6 $ 7.5 $0.5 |$ 1.8 $ 2.1
Interest cost 92.5 6.1 | 25.4 27.9 37.6 2.8 | 13.5 17.8
Expected return on plan assets (152.7) (7.7)| (38.0) (43.0) (0.3) -- | -- --
Amortization of transition | |
obligation (asset) (8.0) -- | (3.0) (3.5) 9.2 -- | 6.4 7.5
Amortization of prior service | |
cost 2.3 -- | 1.1 1.3 (0.8) -- | -- --
Recognized net actuarial loss | |
(gain) (2.6) -- | (0.5) (2.7) -- -- | (0.9) --
Voluntary early retirement | |
program expense -- 23.0 | 4.8 -- -- -- | -- --
- -----------------------------------------------|--------------------------------|--------------
Net benefit cost $ (43.5) $23.7 | $ 0.9 $ (7.4) $53.2 $3.3 |$20.8 $27.4
===============================================|================================|==============
Company's share of total plan | |
costs $ (2.7) $16.5 | $ (2.5) $ (5.0) $14.5 $2.6 |$11.4 $18.4
- -----------------------------------------------------------------------------------------------
</TABLE>
The FirstEnergy plans' health care trend rate assumption is
5.5% in the first year gradually decreasing to 4.0% for the year 2008
and later. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan. An increase
in the health care trend rate assumption by one percentage point would
increase the total service and interest cost components by $4.0
million and the postretirement benefit obligation by $68.1 million. A
decrease in the same assumption by one percentage point would decrease
the total service and interest cost components by $3.2 million and the
postretirement benefit obligation by $55.2 million.
TRANSACTIONS WITH AFFILIATED COMPANIES-
Operating revenues, operating expenses and interest charges
include amounts for transactions with affiliated companies in the
ordinary course of business operations.
The Company's transactions with TE and the other FirstEnergy
operating subsidiaries (OE and Penn) from the November 8, 1997 merger
date are primarily for firm power, interchange power, transmission
line rentals and jointly owned power plant operations and construction
(see Note 7). Beginning in May 1996, Centerior Funding began serving
as the transferor in connection with the accounts receivable
securitization for the Company and TE.
The Service Company (formerly a wholly owned subsidiary of
Centerior and now a wholly owned subsidiary of FirstEnergy) provided
support services at cost to the Company and other affiliated
companies. The Service Company billed the Company $80.6 million,
$34.1 million, $130.8 million and $148.6 million in 1998, the
November 8-December 31, 1997 period, the January 1-November 7, 1997
period and 1996, respectively, for such services.
Fuel and purchased power expenses on the Consolidated
Statements of Income include the cost of power purchased from TE of
$104.7 million, $17.7 million, $98.5 million and $105.0 million in
1998, the November 8-December 31, 1997 period, the January 1-
November 7, 1997 period and 1996, respectively.
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial
maturity of three months or less are reported as cash equivalents on
the Consolidated Balance Sheets. The Company reflects temporary cash
investments at cost, which approximates their fair market value.
Noncash financing and investing activities included capital lease
transactions amounting to $32 million, $3 million, $13 million and
$37 million in 1998, the November 8-December 31, 1997 period, the
January 1-November 7, 1997 period and 1996, respectively.
All borrowings with initial maturities of less than one year
are defined as financial instruments under generally accepted
accounting principles and are reported on the Consolidated Balance
Sheets at cost, which approximates their fair market value. The
following sets forth the approximate fair value and related carrying
amounts of all other long-term debt, preferred stock subject to
mandatory redemption and investments other than cash and cash
equivalents as of December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $2,883 $3,120 $3,093 $3,238
Preferred stock $ 183 $ 184 $ 198 $ 198
Investments other than cash
and cash equivalents:
Debt securities
- (Maturing in more than 10 years) $ 543 $ 533 $ 547 $ 553
All other 135 136 105 104
- -------------------------------------------------------------------
$ 678 $ 669 $ 652 $ 657
====================================================================
</TABLE>
The carrying values of long-term debt and preferred stock
subject to mandatory redemption were adjusted to fair value in
connection with the OE-Centerior merger and reflect the present value
of the cash outflows relating to those securities based on the current
call price, the yield to maturity or the yield to call, as deemed
appropriate at the end of each respective year. The yields assumed
were based on securities with similar characteristics offered by a
corporation with credit ratings similar to the Company's ratings.
The fair value of investments other than cash and cash
equivalents represent cost (which approximates fair value) or the
present value of the cash inflows based on the yield to maturity. The
yields assumed were based on financial instruments with similar
characteristics and terms. Investments other than cash and cash
equivalents include decommissioning trusts investments. Unrealized
gains and losses applicable to the decommissioning trusts have been
recognized in the trust investments with a corresponding change to the
decommissioning liability. The debt securities referred to above are
in the held-to-maturity category. The Company has no securities held
for trading purposes.
REGULATORY ASSETS-
The Company recognizes, as regulatory assets, costs which
the FERC and PUCO have authorized for recovery from customers in
future periods. Without such authorization, the costs would have been
charged to income as incurred. All regulatory assets related to
nonnuclear operations are being recovered from customers under the
Company's regulatory plan. Based on the regulatory plan, at this time,
the Company believes it will continue to be able to bill and collect
cost-based rates (with the exception of the Company's nuclear
operations as discussed below); accordingly, it is appropriate that
the Company continues the application of SFAS 71 in the foreseeable
future for its nonnuclear operations.
The Company discontinued the application of SFAS 71 for its
nuclear operations in October 1997 when implementation of the
regulatory plan became probable. The regulatory plan does not provide
for full recovery of the Company's nuclear operations. In accordance
with SFAS No. 101, "Regulated Enterprises -- Accounting for the
Discontinuation of Application of SFAS 71," the Company was required
to remove from its balance sheet all regulatory assets and liabilities
related to the portion of its business for which SFAS 71 was
discontinued and to assess all other assets for impairment. Regulatory
assets attributable to nuclear operations of $499.1 million
($324.4 million after taxes) were written off as an extraordinary item
in October 1997. The regulatory assets attributable to nuclear
operations written off represent the net amounts due from customers
for future federal income taxes when the taxes become payable, which,
under the regulatory plan, are no longer recoverable from customers.
The remainder of the Company's business continues to comply with the
provisions of SFAS 71. All remaining regulatory assets will continue
to be recovered through rates set for the nonnuclear portion of the
Company's business. For financial reporting purposes, the net book
value of the nuclear generating units was not impaired as a result of
the regulatory plan.
Net regulatory assets on the Consolidated Balance Sheets are
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------
(In millions)
<S> <C> <C>
Nuclear unit expenses $ 298.0 $ 309.0
Customer receivables for future income taxes 13.0 18.6
Rate stabilization program deferrals 276.0 288.1
Sale and leaseback costs (140.9) (150.0)
Loss on reacquired debt 81.6 80.9
Other 28.2 33.1
- ------------------------------------------------------------------
Total $ 555.9 $ 579.7
==================================================================
</TABLE>
2. LEASES:
The Company leases certain generating facilities, nuclear
fuel, certain transmission facilities, office space and other property
and equipment under cancelable and noncancelable leases.
The Company and TE sold their ownership interests in Bruce
Mansfield Units 1, 2 and 3 and TE sold a portion of its ownership
interest in Beaver Valley Unit 2. In connection with these sales,
which were completed in 1987, the Company and TE entered into
operating leases for lease terms of approximately 30 years as co-
lessees. During the terms of the leases, the Company and TE continue
to be responsible, to the extent of their combined ownership and
leasehold interest, for costs associated with the units including
construction expenditures, operation and maintenance expenses,
insurance, nuclear fuel, property taxes and decommissioning. The
Company and TE have the right, at the end of the respective basic
lease terms, to renew the leases. The Company and TE also have the
right to purchase the facilities at the expiration of the basic lease
term or renewal term (if elected) at a price equal to the fair market
value of the facilities.
As co-lessee with TE, the Company is also obligated for TE's
lease payments. If TE is unable to make its payments under the Beaver
Valley Unit 2 and Bruce Mansfield Plant leases, the Company would be
obligated to make such payments. No such payments have been made on
behalf of TE. (TE's future minimum lease payments as of December 31,
1998 were approximately $1.9 billion.)
The Company is buying 150 megawatts of TE's Beaver Valley
Unit 2 leased capacity entitlement. Purchased power expense for this
transaction was $98.5 million, $16.8 million, $87.4 million and
$99.4 million in 1998, the November 8-December 31, 1997 period, the
January 1-November 7, 1997 period and 1996, respectively. This
purchase is expected to continue through the end of the lease period.
The future minimum lease payments through 2017 associated with Beaver
Valley Unit 2 are approximately $1.1 billion.
Nuclear fuel is currently financed for the Company and TE
through leases with a special-purpose corporation. As of December 31,
1998, $156 million of nuclear fuel ($88 million for the Company) was
financed under a lease financing arrangement totaling $175 million
($60 million of intermediate-term notes and $115 million from bank
credit arrangements). The notes mature from 1999 through 2000 and the
bank credit arrangements expire in September 2000. Lease rates are
based on intermediate-term note rates, bank rates and commercial paper
rates.
Consistent with the regulatory treatment, the rentals for
capital and operating leases are charged to operating expenses on the
Consolidated Statements of Income. Such costs for the three years
ended December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Nov. 8 - Jan. 1 -
1998 Dec. 31, 1997 Nov. 7, 1997 1996
- ---------------------------------------------------------------------
(In millions)
<S> <C> <C> | <C> <C>
Operating leases |
Interest element $ 32.4 $10.6 | $ 56.0 $ 58.1
Other 74.4 8.4 | 18.3 4.8
Capital leases |
Interest element 7.0 1.5 | 8.5 10.1
Other 36.1 7.5 | 43.4 51.7
- ----------------------------------------------|----------------------
Total rentals $149.9 $28.0 | $126.2 $124.7
======================================================================
</TABLE>
The future minimum lease payments as of December 31, 1998
are:
<TABLE>
<CAPTION>
Operating Leases
----------------------------
Capital Lease Capital
Leases Payments Trust Net
- ------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
1999 $35.9 $ 69.3 $ 62.9 $ 6.4
2000 25.5 66.6 60.5 6.1
2001 16.0 71.7 50.2 21.5
2002 8.2 76.4 70.6 5.8
2003 3.4 77.5 77.9 (0.4)
Years thereafter 10.8 776.2 564.3 211.9
- -------------------------------------------------------------------
Total minimum lease payments 99.8 $1,137.7 $886.4 $251.3
======== ====== ======
Interest portion 16.1
- -----------------------------------
Present value of net
minimum lease payments 83.7
Less current portion 30.0
- -----------------------------------
Noncurrent portion $53.7
===================================
</TABLE>
The Company and TE refinanced high-cost fixed obligations
related to their 1987 sale and leaseback transaction for the Bruce
Mansfield Plant through a lower cost transaction in June and
July 1997. In a June 1997 offering (Offering), the two companies
pledged $720 million aggregate principal amount ($575 million for the
Company and $145 million for TE) of first mortgage bonds due in 2000,
2004 and 2007 to a trust as security for the issuance of a like
principal amount of secured notes due in 2000, 2004 and 2007. The
obligations of the two companies under these secured notes are joint
and several. Using available cash, short-term borrowings and the net
proceeds from the Offering, the two companies invested $906.5 million
($569.4 million for the Company and $337.1 million for TE) in a
business trust, in June 1997. The trust used these funds in July 1997
to purchase lease notes and redeem all $873.2 million aggregate
principal amount of 10-1/4% and 11-1/8% secured lease obligation bonds
(SLOBs) due 2003 and 2016. The SLOBs were issued by a special-purpose-
funding corporation in 1988 on behalf of lessors in the two companies'
1987 sale and leaseback transaction. The Shippingport capital trust
arrangement effectively reduces lease costs related to that
transaction.
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
There are no restrictions on retained earnings for payment
of cash dividends on the Company's common stock. The merger purchase
accounting adjustments included resetting the retained earnings
balance to zero at the November 8, 1997 merger date.
(B) COMPREHENSIVE INCOME-
In 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income," and applied the standard to all periods
presented in the Consolidated Statements of Common Stockholder's
Equity. Comprehensive income includes net income as reported on the
Consolidated Statements of Income and all other changes in common
stockholder's equity except dividends to stockholders. Net income and
comprehensive income are the same for each period presented.
(C) PREFERRED AND PREFERENCE STOCK-
The Company's $88.00 Series R preferred stock is not
redeemable before December 2001 and its $90.00 Series S has no
optional redemption provision. All other preferred stock may be
redeemed by the Company in whole, or in part, with 30-90 days' notice.
The preferred dividend rate on the Company's Series L
fluctuates based on prevailing interest rates and market conditions.
The dividend rate for this issue was 7% in 1998.
Preference stock authorized for the Company is 3,000,000
shares without par value. No preference shares are currently
outstanding.
A liability of $14 million was included in the Company's net
assets as of the merger date for preferred dividends declared
attributable to the post-merger period. Accordingly, no accrual for
preferred stock dividend requirements was included on the Company's
November 8, 1997 to December 31, 1997 Consolidated Statement of
Income. This liability was subsequently reduced to zero in 1998.
(D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
Annual sinking fund provisions for preferred stock are as
follows:
<TABLE>
<CAPTION>
Redemption
Price Per
Series Shares Share Date Beginning
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7.35 C 10,000 $ 100 (i)
88.00 E 3,000 1,000 (i)
91.50 Q 10,714 1,000 (i)
90.00 S 18,750 1,000 November 1 1999
88.00 R 50,000 1,000 December 1 2001
- -------------------------------------------------------------
<FN>
(i) Sinking fund provisions are in effect.
</TABLE>
Annual sinking fund requirements for the next five years are
$33.5 million in each year 1999 and 2000, $80.5 million in 2001,
$18.0 million in 2002 and $1.0 million in 2003.
(E) LONG-TERM DEBT-
The first mortgage indenture and its supplements, which
secure all of the Company's first mortgage bonds, serve as direct
first mortgage liens on substantially all property and franchises,
other than specifically excepted property, owned by the Company.
Sinking fund requirements for first mortgage bonds and
maturing long-term debt (excluding capital leases) for the next five
years are:
<TABLE>
<CAPTION>
(In millions)
- ----------------------------
<S> <C>
1999 $144.5
2000 175.0
2001 56.5
2002 228.0
2003 115.0
- ---------------------------
</TABLE>
The Company's obligations to repay certain pollution control
revenue bonds are secured by several series of first mortgage bonds.
One pollution control revenue bond issue is entitled to the benefit of
an irrevocable bank letter of credit of $48.1 million. To the extent
that drawings are made under this letter of credit to pay principal
of, or interest on, the pollution control revenue bonds, the Company
is entitled to a credit against its obligation to repay those bonds.
The Company pays an annual fee of 1.1% of the amount of the letter of
credit to the issuing bank and is obligated to reimburse the bank for
any drawings thereunder.
The Company and TE have letters of credit of approximately
$225 million in connection with the sale and leaseback of Beaver
Valley Unit 2 that expire in June 1999. The letters of credit are
secured by first mortgage bonds of the Company and TE in the
proportion of 40% and 60%, respectively (see Note 2).
4. SHORT-TERM BORROWINGS:
FirstEnergy has a $100 million revolving credit facility
that expires in May 1999. FirstEnergy may borrow under the facility,
with all borrowings jointly and severally guaranteed by the Company
and TE. FirstEnergy plans to transfer any of its borrowed funds to the
Company and TE. The credit agreement is secured with first mortgage
bonds of the Company and TE in the proportion of 40% and 60%,
respectively. The credit agreement also provides the participating
banks with a subordinate mortgage security interest in the properties
of the Company and TE. The banks' fee is 0.50% per annum payable
quarterly in addition to interest on any borrowings. There were no
borrowings under the facility at December 31, 1998. Also, the Company
may borrow from its affiliates on a short-term basis. At December 31,
1998, the Company had total short-term borrowings of $80.6 million
from its affiliates with a weighted average interest rate of
approximately 5.5%.
5. COMMITMENTS, GUARANTEES AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Company's current forecast reflects expenditures of
approximately $701 million for property additions and improvements
from 1999-2003, of which approximately $150 million is applicable to
1999. Investments for additional nuclear fuel during the 1999-2003
period are estimated to be approximately $130 million, of which
approximately $14 million applies to 1999. During the same periods,
the Company's nuclear fuel investments are expected to be reduced by
approximately $150 million and $32 million, respectively, as the
nuclear fuel is consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative
to a single incident at a nuclear power plant to $9.7 billion. The
amount is covered by a combination of private insurance and an
industry retrospective rating plan. Based on its present ownership and
leasehold interests in Beaver Valley Unit 2, the Davis-Besse Plant and
the Perry Plant, the Company's maximum potential assessment under the
industry retrospective rating plan (assuming the other co-owners
contribute their proportionate shares of any assessments under the
retrospective rating plan) would be $94.2 million per incident but not
more than $10.7 million in any one year for each incident.
The Company is also insured as to its respective interests
in Beaver Valley Unit 2, the Davis-Besse Plant and the Perry Plant
under policies issued to the operating company for each plant. Under
these policies, up to $2.75 billion is provided for property damage
and decontamination and decommissioning costs. The Company has also
obtained approximately $558 million of insurance coverage for
replacement power costs for its respective interests in Beaver Valley
Unit 2, Davis-Besse and Perry. Under these policies, the Company can
be assessed a maximum of approximately $14.1 million for incidents at
any covered nuclear facility occurring during a policy year which are
in excess of accumulated funds available to the insurer for paying
losses.
The Company intends to maintain insurance against nuclear
risks as described above as long as it is available. To the extent
that replacement power, property damage, decontamination,
decommissioning, repair and replacement costs and other such costs
arising from a nuclear incident at any of the Company's plants exceed
the policy limits of the insurance in effect with respect to that
plant, to the extent a nuclear incident is determined not to be
covered by the Company's insurance policies, or to the extent such
insurance becomes unavailable in the future, the Company would remain
at risk for such costs.
GUARANTEE-
The Company, together with the other CAPCO companies, has
severally guaranteed certain debt and lease obligations in connection
with a coal supply contract for the Bruce Mansfield Plant. As of
December 31, 1998, the Company's share of the guarantee (which
approximates fair market value) was $9.4 million. The price under the
coal supply contract, which includes certain minimum payments, has
been determined to be sufficient to satisfy the debt and lease
obligations. The Company's total payments under the coal supply
contract were $52.5 million, $51.2 million and $47.0 million during
1998, 1997 and 1996, respectively. The Company's minimum payment for
1999 is approximately $14 million. The contract expires December 31,
1999.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the
Company with regard to air and water quality and other environmental
matters. The Company has estimated additional capital expenditures for
environmental compliance of approximately $145 million, which is
included in the construction forecast provided under "Capital
Expenditures" for 1999 through 2003.
The Company is in compliance with the current sulfur dioxide
(SO2) and nitrogen oxides (NOx) reduction requirements under the Clean
Air Act Amendments of 1990. SO2 reductions in 1999 will be achieved by
burning lower-sulfur fuel, generating more electricity from lower-
emitting plants, and/or purchasing emission allowances. Plans for
complying with reductions required for the year 2000 and thereafter
have not been finalized. In September 1998, the Environmental
Protection Agency (EPA) finalized regulations requiring additional NOx
reductions from the Company's Ohio and Pennsylvania facilities by May
2003. The EPA's NOx Transport Rule imposes uniform reductions of NOx
emissions across a region of twenty-two states and the District of
Columbia, including Ohio and Pennsylvania, based on a conclusion that
such NOx emissions are contributing significantly to ozone pollution
in the eastern United States. By September 1999, each of the twenty-
two states are required to submit revised State Implementation Plans
(SIP) which comply with individual state NOx budgets established by
the EPA. These state NOx budgets contemplate an 85% reduction in
utility plant NOx emissions from 1990 emissions. A proposed Federal
Implementation Plan accompanied the NOx Transport Rule and may be
implemented by the EPA in states which fail to revise their SIP. In
another separate but related action, eight states filed petitions with
the EPA under Section 126 of the Clean Air Act seeking reductions of
NOx emissions which are alleged to contribute to ozone pollution in
the eight petitioning states. The EPA suggests that the Section 126
petitions will be adequately addressed by the NOx Transport Program,
but a September 1998 proposed rulemaking established an alternative
program which would require nearly identical 85% NOx reductions at the
Company's Ohio and Pennsylvania plants by May 2003 in the event
implementation of the NOx Transport Rule is delayed. FirstEnergy
continues to evaluate its compliance plans and other compliance
options and currently estimates its additional capital expenditures
for NOx reductions may reach $500 million.
The Company is required to meet federally approved SO2
regulations. Violations of such regulations can result in shutdown of
the generating unit involved and/or civil or criminal penalties of up
to $25,000 for each day the unit is in violation. The EPA has an
interim enforcement policy for SO2 regulations in Ohio that allows for
compliance based on a 30-day averaging period. The Company cannot
predict what action the EPA may take in the future with respect to the
interim enforcement policy.
In July 1997, the EPA promulgated changes in the National
Ambient Air Quality Standard (NAAQS) for ozone and proposed a new
NAAQS for previously unregulated ultra-fine particulate matter. The
cost of compliance with these regulations may be substantial and
depends on the manner in which they are implemented by the states in
which the Company operates affected facilities.
The Company has been named as a "potentially responsible
party" (PRP) at waste disposal sites which may require cleanup under
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980. Allegations that the Company disposed of hazardous
substances at historical sites and the liability involved, are often
unsubstantiated and subject to dispute. Federal law provides that all
PRPs for a particular site be held liable on a joint and several
basis. The Company has accrued a liability of $4.7 million as of
December 31, 1998, based on estimates of the costs of cleanup and the
proportionate responsibility of other PRPs for such costs. The Company
believes that waste disposal costs will not have a material adverse
effect on its financial condition, cash flows or results of
operations.
Legislative, administrative and judicial actions will
continue to change the way that the Company must operate in order to
comply with environmental laws and regulations. With respect to any
such changes and to the environmental matters described above, the
Company expects that while it remains regulated, any resulting
additional capital costs which may be required, as well as any
required increase in operating costs, would ultimately be recovered
from its customers.
6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain consolidated operating
results by quarter for 1998 and 1997.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $415.0 $465.2 $512.6 $389.5
Operating Expenses and Taxes 324.3 377.8 389.4 321.9
- -----------------------------------------------------------------------------------------------
Operating Income 90.7 87.4 123.2 67.6
Other Income 7.6 5.9 8.1 3.7
Net Interest Charges 58.7 58.5 56.3 55.9
- -----------------------------------------------------------------------------------------------
Net Income $ 39.6 $ 34.8 $ 75.0 $ 15.4
===============================================================================================
Earnings on Common Stock $ 38.6 $ 27.4 $ 66.5 $ 7.6
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
Mar. 31, June 30, Sept. 30, Oct. 1 - Nov. 8 -
1997 1997 1997 Nov. 7, 1997 Dec. 31, 1997
- --------------------------------------------------------------------------------------------------
(In millions) |
<S> <C> <C> <C> <C> | <C>
Operating Revenues $431.6 $428.2 $499.5 $ 169.7 | $254.0
Operating Expenses and Taxes 351.6 350.8 368.0 151.3 | 204.5
- ----------------------------------------------------------------------------------|------------
Operating Income 80.0 77.4 131.5 18.4 | 49.5
Other Income (Expense) (3.7) (5.2) 7.5 (1.2) | 4.6
Net Interest Charges 56.1 58.2 71.3 24.0 | 34.8
- ----------------------------------------------------------------------------------|------------
Income (Loss) Before Extraordinary |
Item 20.2 14.0 67.7 (6.8) | 19.3
Extraordinary Item (Net of |
Income Taxes) (Note 1) -- -- -- (324.4) | --
- ----------------------------------------------------------------------------------|------------
Net Income (Loss) $ 20.2 $ 14.0 $ 67.7 $(331.2) | $ 19.3
==================================================================================|============
Earnings (Loss) on Common Stock $ 10.9 $ 4.9 $ 58.9 $(348.9) | $ 19.3
===============================================================================================
</TABLE>
7. PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME (UNAUDITED):
FirstEnergy was formed on November 8, 1997 by the merger of
OE and Centerior. The merger was accounted for as a purchase of
Centerior's net assets with 77,637,704 shares of FirstEnergy Common
Stock through the conversion of each outstanding Centerior Common
Stock share into 0.525 of a share of FirstEnergy Common Stock
(fractional shares were paid in cash). Based on an imputed value of
$20.125 per share, the purchase price was approximately
$1.582 billion, which also included approximately $20 million of
merger related costs. Goodwill of approximately $2.0 billion was
recognized (to be amortized on a straight-line basis over forty
years), which represented the excess of the purchase price over
Centerior's net assets after fair value adjustments.
Accumulated amortization of goodwill was approximately
$44 million as of December 31, 1998. The merger purchase accounting
adjustments included recognizing estimated severance and other
compensation liabilities ($56 million). The amount charged against
the liability in 1998 relating to the costs of involuntary employee
separation was $30 million. The liability was subsequently reduced to
approximately $9 million as of December 31, 1998 to represent
potential costs associated with the separation of 493 Company
employees. The liability adjustment was offset by a corresponding
reduction to goodwill recognized in connection with the Centerior
acquisition.
The following pro forma statements of income for the
Company give effect to the OE-Centerior merger as if it had been
consummated on January 1, 1996, with the purchase accounting
adjustments actually recognized in the business combination.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
- ---------------------------------------------------------------
(In millions)
<S> <C> <C>
Operating Revenues $1,783 $1,790
Operating Expenses and Taxes 1,418 1,424
------ ------
Operating Income 365 366
Other Income 15 2
Net Interest Charges 232 227
------ ------
Net Income $ 148 $ 141
=============================================================
</TABLE>
Pro forma adjustments reflected above include: (1)
adjusting the Company's nuclear generating units to fair value based
upon independent appraisals and estimated discounted future cash
flows based on management's estimate of cost recovery; (2) the effect
of discontinuing SFAS 71 for the Company's nuclear operations; (3)
amortization of the fair value adjustment for long-term debt; (4)
goodwill recognized representing the excess of the Company's portion
of the purchase price over the Company's adjusted net assets; (5) the
elimination of merger costs; and (6) adjustments for estimated tax
effects of the above adjustments.
8. PENDING MERGER OF TE INTO THE COMPANY:
In March 1994, Centerior announced a plan to merge TE into
the Company. All necessary regulatory approvals have been obtained,
except the approval of the Nuclear Regulatory Commission (NRC). This
application was withdrawn at the NRC's request pending the decision
whether to complete this merger. No final decision regarding the
proposed merger has been reached.
In June 1995, TE's preferred stockholders approved the
merger and the Company's preferred stockholders approved the
authorization of additional shares of preferred stock. If and when
the merger becomes effective, TE's preferred stockholders 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.
For the merging companies, the combined pro forma operating
revenues were $2.621 billion, $2.527 billion and $2.554 billion and
the combined pro forma net income was $272 million, $220 million
(excluding the extraordinary item discussed in Note 1 and a similar
item for TE) and $218 million for the years 1998, 1997 and 1996,
respectively. The pro forma data is based on accounting for the
merger of the Company and TE on a method similar to a pooling of
interests and for 1997 and 1996 includes pro forma adjustments to
reflect the effect of the OE-Centerior merger. 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 TE.
Report of Independent Public Accountants
To the Stockholders and Board of Directors of The Cleveland Electric
Illuminating Company:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of The Cleveland Electric
Illuminating Company (an Ohio corporation and wholly owned subsidiary
of FirstEnergy Corp.) and subsidiary as of December 31, 1998 and 1997,
and the related consolidated statements of income, common
stockholder's equity, preferred stock, cash flows and taxes for the
year ended December 31, 1996, the period from January 1, 1997 to
November 7, 1997 (pre-merger), the period from November 8, 1997 to
December 31, 1997 (post-merger), and the year ended December 31, 1998.
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 subsidiary as of
December 31, 1998 and 1997, and the results of their operations and
their cash flows for the year ended December 31, 1996, the period from
January 1, 1997 to November 7, 1997 (pre-merger), the period from
November 8, 1997 to December 31, 1997 (post-merger), and the year
ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
EXHIBIT 21.2
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1998
Centerior Funding Corporation - Incorporated in Ohio
Statement of Differences
-------------------------
Exhibit Number 21, List of Subsidiaries of the Registrant at
December 31, 1998, is not included in the printed document.
EXHIBIT 23.2
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our reports included or incorporated by
reference in this Form 10-K, into The Cleveland Electric
Illuminating Company's previously filed Registration Statements,
File No. 33-55513, No. 333-47651 and No. 333-72891.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the related
Form 10-K financial statements for The Cleveland Electric Illuminating Company
and is qualified in its entirety by reference to such financial statements.
Income tax expense includes $11,932,000 related to other income.
</LEGEND>
<CIK> 0000020947
<NAME> THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,074,043
<OTHER-PROPERTY-AND-INVEST> 689,270
<TOTAL-CURRENT-ASSETS> 388,268
<TOTAL-DEFERRED-CHARGES> 2,166,602
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,318,183
<COMMON> 931,962
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 76,276
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,008,238
149,710
238,325
<LONG-TERM-DEBT-NET> 2,888,202
<SHORT-TERM-NOTES> 80,618
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 144,530
33,464
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 30,056
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,745,040
<TOT-CAPITALIZATION-AND-LIAB> 6,318,183
<GROSS-OPERATING-REVENUE> 1,782,376
<INCOME-TAX-EXPENSE> 110,612
<OTHER-OPERATING-EXPENSES> 1,314,794
<TOTAL-OPERATING-EXPENSES> 1,413,474
<OPERATING-INCOME-LOSS> 368,902
<OTHER-INCOME-NET> 25,393
<INCOME-BEFORE-INTEREST-EXPEN> 394,295
<TOTAL-INTEREST-EXPENSE> 229,404
<NET-INCOME> 164,891
24,794
<EARNINGS-AVAILABLE-FOR-COMM> 140,097
<COMMON-STOCK-DIVIDENDS> 85,958
<TOTAL-INTEREST-ON-BONDS> 216,550
<CASH-FLOW-OPERATIONS> 349,056
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
===============================================================
THE TOLEDO EDISON COMPANY
TO
THE CHASE MANHATTAN BANK
as Trustee.
Forty-seventh Supplemental Indenture
DATED AUGUST 1, 1997
(Supplemental to Indenture dated as of April 1, 1947)
First Mortgage Bonds, 6.10% Series due 2027
================================================================
THE TOLEDO EDISON COMPANY
Forty-seventh Supplemental Indenture
Dated August 1, 1997
TABLE OF CONTENTS
Page
----
Parties 1
Recitals 1
Form of Bond of This Series 4
Granting Clauses 10
Article I -- Creation and Description of Bonds of
This Series 11
Section 1 --Creation of Bonds of This Series,
Limit on Amount Issuable 11
Section 2 --Interest Rates, Computation and
Payment Dates 11
Section 3 --Place and Coin of Payment 11
Section 4 --Denominations 11
Section 5 --Transfer and Exchange 11
Section 6 --Record Date for Payment of Interest 12
Section 7 --Date of Bonds of This Series 12
Section 8 --Authentication of Bonds of This
Series by Trustee 12
Article II -- Redemption of Bonds of This Series 13
Section 1 --Bonds of This Series Redeemable 13
Section 2 --Mandatory Redemption Provisions 13
Section 3 --Certain Provisions Of Original Indenture
Applicable To Redemption Of Bonds Of
This Series 14
Section 4 --Bondholder Agrees To Accept Payment
Of Bonds Of This Series Redeemed Prior
To Maturity 14
Article III -- Payment Deemed Made of Bonds of
This Series 14
Section 1 --Upon Surrender Of Authority Bonds
Purchased 14
Section 2 --Upon Payment Of Authority Bonds 15
Section 3 --Surrender And Cancellation Of Bonds
Of This Series 15
Article IV -- The Trustee 16
Section 1 --The Trustee Accepts Trust Created By
Forty-Seventh Supplemental Indenture 16
Section 2 --Agency Of The Company Other Than The
Trustee 16
Section 3 --Trustee Advises Company Of Notations
Provided For In Article III 16
Article V -- Miscellaneous Provisions 17
Section 1 --Ratification And Approval Of Original
Indenture As Supplemented 17
Covenants Of Original Indenture, Except
As Modified, Continue In Effect
Section 2 --Forty-Seventh Supplemental Indenture
May Be Executed In Counterparts 17
Testimonium Clause S-1
Signatures And Seals S-1
Acknowledgments S-1
Recording And Filing Data R-1
Forty-seventh Supplemental Indenture, dated August 1, 1997,
made by and between THE TOLEDO EDISON Company, a corporation
organized and existing under the laws of the State of Ohio
(hereinafter called the "Company"), and THE CHASE MANHATTAN BANK,
a corporation organized and existing under the laws of the State
of New York (the "Trustee"), as Trustee.
RECITALS
The Company has heretofore executed and delivered an
Indenture of Mortgage and Deed of Trust dated as of April 1, 1947
(the "Original Indenture") to The Chase National Bank of the City
of New York, predecessor Trustee, to secure an issue of First
Mortgage Bonds of the Company, issuable in series, and created
thereunder an initial series of bonds designated as First Mortgage
Bonds, 2 7/8% Series due 1977, being the initial series of bonds
issued under the Original Indenture; and
The Company has heretofore executed and delivered to The
Chase National Bank of the City of New York, predecessor Trustee,
four Supplemental Indentures supplementing the Original Indenture
dated, respectively, September 1, 1948, April 1, 1949, December 1,
1950 and March 1, 1954 and has heretofore executed and delivered
to The Chase Manhattan Bank, which on March 31, 1955, became the
Trustee under the Original Indenture by virtue of the merger of
The Chase National Bank of the City of New York into President and
Directors of The Manhattan Company under the name of The Chase
Manhattan Bank, the Fifth and the Sixth Supplemental Indentures
dated, respectively, February 1, 1956, and May 1, 1958,
supplementing the Original Indenture; and
The Chase Manhattan Bank was converted into a national
banking association under the name The Chase Manhattan Bank
(National Association), effective September 23, 1965; and by
virtue of said conversion the continuity of the business of Chase
Manhattan Bank, including its business of acting as corporate
trustee, and its corporate existence, were not affected, so that
Chase Manhattan Bank is vested with all the trusts, powers,
discretion, immunities, privileges and all other matters as were
vested in said Chase Manhattan Bank under the Indenture, with like
effect as if originally named as Trustee therein; and
The Company has heretofore executed and delivered to The
Chase Manhattan Bank (National Association), predecessor Trustee,
38 Supplemental Indentures dated, respectively, as follows:
Seventh, August 1, 1967, Eighth, November 1, 1970, Ninth,
August 1, 1972, Tenth, November 1, 1973, Eleventh, August 15,
1974, Twelfth, October 1, 1975, Thirteenth, June 1, 1976,
Fourteenth, October 1, 1978, Fifteenth, September 1, 1979,
Sixteenth, September 1, 1980, Seventeenth, October 1, 1980,
Eighteenth, April 1, 1981, Nineteenth, November 1, 1981,
Twentieth, June 1, 1982, Twenty-first, September 1, 1982, Twenty-
second, April 1, 1983, Twenty-third, December 1, 1983, Twenty-
fourth, April 1, 1984, Twenty-fifth, October 15, 1984, Twenty-
sixth, October 15, 1984, Twenty-seventh, August 1, 1985, Twenty-
eighth, August 1, 1985, Twenty-ninth, December 1, 1985, Thirtieth,
March 1, 1986, Thirty-first, October 15, 1987, Thirty-second,
September 15, 1988, Thirty-third, June 15, 1989, Thirty-fourth,
October 15, 1989, Thirty-fifth, May 15, 1990, Thirty-sixth,
March 1, 1991, Thirty-seventh, May 1, 1992, Thirty-eighth,
August 1, 1992, Thirty-ninth, October 1, 1992, Fortieth,
January 1, 1993, Forty-first, September 15, 1994, Forty-second,
May 1, 1995, Forty-third, June 1, 1995, Forty-fourth, August 15,
1995 and Forty-fifth, August 15, 1995, supplementing the Original
Indenture; and
The Chase Manhattan Bank (National Association), Successor
Trustee, was merged on July 1, 1996, with and into Chemical Bank,
a New York banking corporation, which changed its name to The
Chase Manhattan Bank, and which became the Trustee under the
Original Indenture by virtue of such merger; and
The Company has heretofore executed and delivered to The
Chase Manhattan Bank, Trustee, a Forty-sixth Supplemental
Indenture dated June 15, 1997, supplementing the Original
Indenture, and is executing and delivering to The Chase Manhattan
Bank, Trustee, this Forty-seventh Supplemental Indenture, dated
August 1, 1997, supplementing the Original Indenture (The Original
Indenture, all the aforementioned Supplemental Indentures, this
Forty-seventh Supplemental Indenture and any other indentures
supplemental to the Original Indenture are herein collectively
called the "Indenture" and this Forty-seventh Supplemental
Indenture is hereinafter called "this Supplemental Indenture");
and
Pursuant to the provisions of the Indenture, the Company has
issued 55 series of bonds in the aggregate principal amount of
$2,472,400,000, of which 30 series (including the Bonds of the
1977 Series issued pursuant to the Original Indenture) in the
aggregate principal amount of $1,177,200,000 are no longer
outstanding and of which additional portions, aggregating
$95,775,000 in principal amount, of 5 other series have been
retired; and
The Company covenanted in and by the Original Indenture to
execute and deliver such further instruments and do such further
acts as may be necessary or proper to carry out more effectually
the purposes of the Original Indenture and to make subject to the
lien thereof property acquired after the execution and delivery of
the Original Indenture; and
Under Article 3 of the Original Indenture, the Company is
authorized to issue additional bonds upon the terms and conditions
expressed in the Original Indenture; and
The Company proposes to create one new series of First
Mortgage Bonds to be designated as First Mortgage Bonds, 6.10%
Series due 2027 (hereinafter called the "Bonds of this Series"),
such 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 to
the Ohio Air Quality Development Authority (hereinafter called the
"Air Authority"), and registered initially in the name of The
Fifth Third Bank, Cincinnati, Ohio, Trustee (hereinafter called
the "Air Bond Trustee") for the account of the Air Authority, to
evidence and secure the obligations of the Company to repay a loan
(hereinafter called the "Air Loan") made by the Air Authority to
the Company pursuant to a certain loan agreement, dated as of
August 1, 1997, between the Air Authority and the Company
(hereinafter called the "Air Authority Loan Agreement") to assist
the Company in refunding certain bonds which had been previously
issued by the Air Authority, the proceeds of which had been loaned
to the Company to assist in financing its portion of the cost of
the acquisition, construction and installation of certain air
pollution control facilities located at the Perry Nuclear Unit
No. 1 in Lake County, Ohio. The Air Loan is to be funded with
proceeds to be derived from the sale by the Air Authority of one
series of State of Ohio Collateralized Pollution Control Revenue
Refunding Bonds, Series 1997-A (The Toledo Edison Company Project)
(hereinafter called the "Air Bonds") in the aggregate principal
amount of $10,100,000, to be issued under a Trust Indenture, dated
as of August 1, 1997 (hereinafter called the "Air Bond
Indenture"), between the Air Bond Trustee and the Air Authority.
All right, title and interest of the Air Authority in the Bonds of
this Series are to be assigned and pledged by the Air Authority to
the Air Bond Trustee as further security for the payment of the
principal of, premium, if any, and interest on the Air Bonds; and
The Company, by appropriate corporate action, has duly
resolved and determined to execute this Supplemental Indenture for
the purpose of providing for the creation of the Bonds of this
Series and of specifying the form, provisions and particulars
thereof as in said Original Indenture, as amended, provided or
permitted, including the issuance only of fully registered Bonds
of this Series, and of giving to the Bonds of this Series the
protection and security of the Indenture; and
The text of the Bonds of this Series is to be substantially
in the form following:
[Form of Bond of This Series]
The Toledo Edison Company
First Mortgage Bond, 6.10% Series Due 2027
Due August 1, 2027
No. $
The Toledo Edison Company, an Ohio corporation (hereinafter
called the Company) for value received, hereby promises to pay to
or registered assigns, the principal sum of Dollars or the
aggregate unpaid principal amount hereof (as shown on the
Schedule of Payments hereon), whichever is less, on August 1,
2027, at its office or agency in the Borough of Manhattan, The
City of New York, or, so long as the registered owner of this Bond
is the Air Bond Trustee (hereinafter defined), at the agency of
the Company in the City of Cincinnati, State of Ohio, and semi-
annually on the first day of August and the first day of
February in each year, commencing February 1, 1998 (each such date
hereinafter called an interest payment date), to pay interest on
the unpaid principal amount hereof to the registered owner hereof
at said office or agencies at the rate per annum specified in the
title of this Bond, until maturity, 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 the
Indenture (hereinafter defined). Except as hereinafter provided,
this Bond shall bear interest from the interest payment date next
preceding the date of this Bond to which interest has been paid,
unless this Bond is dated on an interest payment date, in which
case from the date hereof; or unless this Bond is dated prior to
the first interest payment date in respect hereof, in which case
from August 1, 1997, and except that if this Bond is delivered on
a transfer or exchange of or in substitution for another Bond or
Bonds it shall bear interest from the last preceding date to which
interest shall have been paid on the Bond or Bonds in respect of
which this Bond is delivered (except that if this Bond is dated
between the record date (hereinafter defined) for any interest
payment date and such interest payment date, then from such
interest payment date, provided, however, that if the Company
shall default in payment of the interest due on such interest
payment date, then from the next preceding interest payment date
to which interest has been paid on the Bond of this Series, or if
such interest payment date is the first interest payment date for
Bonds of this Series, then from August 1, 1997). The interest so
payable on any interest payment date will, subject to certain
exceptions provided in the Indenture, be paid to the person in
whose name this Bond is registered at the close of business on the
record date, which shall be the "Regular Record Date" as defined
in the Air Bond Indenture (hereinafter defined), applicable to the
regular interest payment date of any Bond of this Series, if it
were an "Interest Payment Date" as defined in the Air Bond
Indenture. Both the principal of and the interest on this Bond
shall be payable in any coin or currency of the United States of
America which at the time of payment shall be legal tender for the
payment of public and private debts.
This Bond is one of the Bonds of the Company, known as its
First Mortgage Bonds, issued and to be issued in one or more
series under and equally and ratably secured (except as any
sinking, amortization, improvement or other fund, established in
accordance with the provisions of the Indenture, may afford
additional security for the Bonds of any particular series) by a
certain Indenture of Mortgage and Deed of Trust, dated as of
April 1, 1947 (hereinafter called the Original Indenture), made by
the Company to The Chase National Bank of the City of New York,
now succeeded by The Chase Manhattan Bank, as Trustee (hereinafter
called the Trustee), and by certain indentures supplemental
thereto, including the Forty-seventh Supplemental Indenture dated
as of August 1, 1997 (the Original Indenture and said indentures
supplemental thereto herein collectively called the Indenture and
said Forty-seventh Supplemental Indenture hereinafter called the
Supplemental Indenture), to which Indenture reference is hereby
made for a description of the property mortgaged, the nature and
extent of the security, the rights and limitations of rights of
the Company, the Trustee and the holders of said Bonds and of the
coupons appurtenant to coupon Bonds under the Indenture and the
terms and conditions upon which said Bonds are and are to be
issued and secured, to all of the provisions of which Indenture
and of all such supplemental indentures in respect of such
security, including the provisions of the Indenture permitting the
issue of Bonds of any series for property which, under the
restrictions and limitations therein specified, may be subject to
liens prior to the lien of the Indenture, the holder, by accepting
this Bond, assents. To the extent permitted by and as provided in
the Indenture, the rights and obligations of the Company and of
the holders of said Bonds and coupons (including those pertaining
to any sinking or other fund) may be changed and modified, with
the consent of the Company, by the holders of at least 75% in
aggregate principal amount of the Bonds then outstanding, such
percentage being determined as provided in the Indenture;
provided, however, that in case such changes and modifications
affect one or more but less than all series of Bonds then
outstanding, they shall be required to be adopted only by the
affirmative vote of the holders of at least 75% in aggregate
principal amount of outstanding Bonds of such one or more series
so affected; and further provided, that without the consent of the
holder hereof no such change or modification shall be made which
will extend the time of payment of the principal of, or of the
interest or premium, if any, on this Bond or reduce the principal
amount hereof or the rate of interest or the premium, if any,
hereon, or affect any other modification of the terms of payment
of such principal or interest, or premium, if any, or will permit
the creation of any lien ranking prior to or on a parity with the
lien of the Indenture on any of the mortgaged property, or will
deprive the holder hereof of the benefit of a lien upon the
mortgaged property for the security of this Bond, or will reduce
the percentage of Bonds required for the adoption of changes or
modifications as aforesaid.
This Bond is one of a series of Bonds designated as First
Mortgage Bonds, 6.10% Series due 2027, of the Company (herein
called Bonds of this Series) limited, except as otherwise provided
in the Indenture, in aggregate principal amount to $10,100,000 and
issued under and secured by the Supplemental Indenture. The Bonds
of this Series have been issued by the Company to the Ohio Air
Quality Development Authority (hereinafter called the Air
Authority) to evidence and secure the obligations of the Company
to repay a loan (herein called the Air Authority Loan) made by the
Air Authority to the Company pursuant to a certain loan agreement,
dated as of August 1, 1997 (herein called the Air Authority Loan
Agreement), between the Air Authority and the Company to assist
the Company in refunding certain bonds which had been previously
issued by the Air Authority, the proceeds of which had been loaned
to the Company to assist in financing its portion of the cost of
the acquisition, construction and installation of certain air
pollution control facilities. The Air Authority Loan has been
funded with proceeds derived from the sale by the Air Authority of
one series of State of Ohio Collateralized Pollution Control
Revenue Refunding Bonds, Series 1997-A (The Toledo Edison Company
Project) (herein called the Air Bonds) in the aggregate principal
amount of $10,100,000, issued under a Trust Indenture, dated as of
August 1, 1997 (herein called the Air Bond Indenture), between The
Fifth Third Bank, Cincinnati, Ohio, as trustee (herein called the
Air Bond Trustee) and the Air Authority. All right, title and
interest of the Air Authority in the Bonds of this Series have
been assigned by the Air Authority to the Air Bond Trustee as
security for the payment of the principal of and premium, if any,
and interest on the Air Bonds; and the Bonds of this Series have
been delivered to the Air Bond Trustee, as trustee, for the
benefit of the holders of the Air Bonds.
In the event any Air Bonds shall be surrendered to the Air
Bond Trustee or other person for cancellation pursuant to the Air
Bond Indenture (except upon exchange for other Air Bonds), Bonds
of this Series equal in principal amount to such Air 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 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 Air 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 Air 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) this 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, this Bond shall be surrendered by the registered owner
hereof to an agency of the Company for such notation and
notification or to the Trustee for cancellation.
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
owner, 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 mandatory redemption
by the Company prior to maturity, upon not less than thirty days
prior notice, in whole or in part at any time, all as more fully
provided in Section 1 of Article II of the Supplemental Indenture,
in the event the Company exercises its option to direct the
redemption of Air Bonds, pursuant to Section 6.2 of the Air
Authority Loan Agreement, and an equivalent principal amount of
Air Bonds are being concurrently called for redemption, at a
redemption price of 100% of the principal amount to be redeemed,
plus accrued interest to the date fixed for redemption.
The Bonds of this Series are also subject to mandatory
redemption by the Company prior to maturity at any time (a) in
whole upon notice of the occurrence of an event of default under
the Air Bond Indenture and of the acceleration of the payment of
the principal of the Air Bonds or (b) in whole or in part upon a
final determination by any federal, judicial or administrative
authority that interest on the Air Bonds is includable for federal
income tax purposes in the gross income of the holders of the Air
Bonds (other than because a holder is a "substantial user" of the
Project being financed pursuant to the Air Authority Loan
Agreement or a "related person" thereof, as those terms are used
in Section 147(a) of the Internal Revenue Code of 1986, as
amended) and an equivalent amount of Air Bonds are being
concurrently called for redemption, in each case as provided in
Section 2 of Article II of the Supplemental Indenture, at a
redemption price of 100% of the principal amount to be redeemed,
plus accrued interest to the date fixed for redemption.
The Bonds of this Series are also subject to mandatory
redemption by the Company prior to stated maturity, all as more
fully provided in Section 1 of Article II of the Supplemental
Indenture, in whole or in part, on any date on or after August 1,
2007 in the event that and to the extent that the Company
exercises its option to direct the redemption of Air Bonds,
pursuant to Section 6.1 of the Air Authority Loan Agreement, and
an equivalent principal amount of Air Bonds are being concurrently
called for redemption, at redemption prices, plus accrued and
unpaid interest, if any, to the redemption date as follows:
Redemption Price
(Expressed as a Percentage
of the
Redemption Periods Principal Amount
(dates inclusive) Being Redeemed)
------------------ -------------------------
August 1, 2007 through July 31, 2008 102%
August 1, 2008 through July 31, 2009 101%
August 1, 2009 and thereafter 100%
Any redemption of the Bonds of this Series shall be made in
accordance with the applicable provisions of Sections 5.02, 5.03,
5.04 and 5.05 of the Original Indenture, unless and to the extent
waived in writing by the registered owner or owners of all Bonds
of this Series and such waiver is filed with the Trustee.
If this Bond shall be called for redemption and payment of
the redemption price shall be duly provided by the Company as
specified in the Indenture, interest shall cease to accrue hereof
from and after the date of redemption fixed in the notice thereof.
The principal of this Bond may be declared or may become due
before the maturity hereof, on the conditions, in the manner and
at the times set forth in the Indenture, upon the happening of a
default as therein described.
This Bond is transferable by the registered owner hereof in
person or by his duly authorized attorney at the office or agency
of the Company in the Borough of Manhattan, The City of New York,
upon surrender and cancellation of this Bond, and thereupon a new
fully registered Bond or Bonds of this Series and maturity, for
the same aggregate principal amount, in authorized denominations,
will be issued to the transferee in exchange therefor, as provided
in the Indenture. The Company and the Trustee and any paying agent
may deem and treat the person in whose name this Bond is
registered as the absolute owner hereof for the purpose or
receiving payment and for all other purposes. This Bond, alone or
with other Bonds of this Series and maturity, may in like manner
be exchanged at such office or agency for one or more new fully
registered Bonds of this Series and maturity, in authorized
denominations, of the same aggregate principal amount. Upon each
such transfer, exchange and re-exchange the Company will not
require the payment of any charges, other than for any tax or
other governmental charge required to be paid by the Company in
connection therewith.
No recourse under or upon any covenant or obligation of the
Indenture, or of any indenture supplemental thereto, or of this
Bond, for the payment of the principal of or the interest on this
Bond, or for any claim based thereon, or otherwise in any manner
in respect thereof, shall be had against any incorporator,
subscriber to the capital stock, stockholder, officer or director,
as such, of the Company, whether former, present or future, either
directly, or indirectly through the Company or any predecessor or
successor corporation or the Trustee, by the enforcement of any
subscription to capital stock, assessment or otherwise, or by any
legal or equitable proceeding by virtue of any constitution,
statute or otherwise (including, without limiting the generality
of the foregoing, any proceeding to enforce any claimed liability
of stockholders of the Company based upon any theory of
disregarding the corporate entity of the Company or upon any
theory that the Company was acting as the agent or instrumentality
of the stockholders), any and all such liability of incorporators,
stockholders, subscribers, officers and directors, as such, being
released by the holder hereof, by the acceptance of this Bond, and
being likewise waived and released by the terms of the Indenture.
This Bond shall not be valid or become obligatory for any
purpose until the certificate of authentication endorsed hereon
shall have been signed by The Chase Manhattan Bank or its
successor, as Trustee under the Indenture.
In Witness Whereof, The Toledo Edison Company has caused this
Bond to be signed in its name by its President or a Vice
President, manually or in facsimile, and its corporate seal to be
impressed or imprinted hereon and attested by a manual or
facsimile signature of its Secretary or an Assistant.
Dated:
The Toledo Edison Company
By
----------------------------------
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, as Trustee
By
------------------------------
Authorized Officer
[Form of Schedule of Payments]
Schedule of Payments
Agency of
the
Unpaid Company
Principal Principal Premium Interest Making Authorized
Date Payment Amount Payment Payment Notation Officer Title
- ---- ------- ------ ------- ------- -------- ------- -----
[End of Form of Bond of This Series]
All conditions and requirements necessary to make this
Supplemental Indenture a valid, legal and binding instrument in
accordance with its terms and to make the Bonds of this Series,
when duly executed by the Company and authenticated and delivered
by the Trustee, and duly issued, the valid, binding and legal
obligations of the Company, have been done and performed, and the
execution and delivery of this Supplemental Indenture have been in
all respects duly authorized;
Now, Therefore, This Supplemental Indenture Witnesseth: That
The Toledo Edison Company, the Company herein named, in
consideration of the premises and of One Dollar ($1.00) to it duly
paid by the Trustee at or before the ensealing and delivery of
these presents, the receipt whereof is hereby acknowledged, does
hereby covenant and agree to and with the Trustee and its
successors in the trust under the Indenture, for the benefit of
those who shall hold the bonds to be issued hereunder and
thereunder, as hereinafter provided, as follows:
ARTICLE I
Creation and Description of Bonds of This Series
Section 1. A new series of bonds to be issued under and
secured by the Indenture is hereby created, to be designated as
First Mortgage Bonds, 6.10% Series due 2027 (such bonds herein
referred to as the "Bonds of this Series"). The Bonds of this
Series shall be limited to an aggregate principal amount of
$10,100,000, excluding any Bonds of this Series which may be
authenticated in exchange for or in lieu of or in substitution for
or on transfer of other Bonds of this Series pursuant to any
provisions of the Original Indenture or of this Supplemental
Indenture. The Bonds of this Series shall be substantially in the
form hereinbefore recited.
Section 2. All Bonds of this Series shall mature August 1,
2027 and shall bear interest from August 1, 1997 at the rate of
6.10% per annum payable semi-annually on August 1 and February 1
in each year, commencing February 1, 1998.
Section 3. Both principal and interest shall be payable, so
long as the registered owner of the Bonds of this Series is the
Air Bond Trustee, at the agency of the Company in the City of
Cincinnati, State of Ohio, but if and when the registered owner of
the Bonds of this Series is not the Air Bond Trustee, shall be
payable at the office or agency of the Company in the Borough of
Manhattan, The City of New York; and both principal and interest
shall be payable in any coin or currency of the United States of
America which at the time of payment shall be legal tender for the
payment of public and private debts.
Section 4. The Bonds of this Series shall be issued only as
fully registered Bonds in denominations of $5,000 and any integral
multiple thereof.
Section 5. Bonds of this Series shall be transferable and
exchangeable for other Bonds of the same series at the office or
agency of the Company in the Borough of Manhattan, The City of New
York, in the manner and upon the terms set forth in Section 2.05
of the Original Indenture, but notwithstanding the provisions of
Section 2.08 of the Original Indenture, no charge shall be made
upon any transfer or exchange of Bonds of said series other than
for any tax or taxes or other governmental charge required to be
paid by the Company.
Section 6. The person in whose name any Bond of this Series
is registered at the close of business on any record date (as
defined in the text of the Form of Bond of this Series set forth
in this Supplemental Indenture) with respect to any interest
payment date shall be entitled to receive the interest payable on
such interest payment date notwithstanding the cancellation of
such registered Bond upon any transfer or exchange thereof
subsequent to the record date and prior to such interest payment
date, except if and to the extent the Company shall default in the
payment of the interest due on such interest payment date, in
which case such defaulted interest shall be paid to the person in
whose name such Bond (or any Bond or Bonds issued, directly or
after intermediate transactions, upon transfer or exchange or in
substitution thereof) is registered on the date of payment of such
defaulted interest or on a subsequent record date for such payment
if one shall have been established as hereinafter provided. A
subsequent record date may be established by the Company by notice
mailed to the holders of Bonds of this Series not less than
10 days preceding such record date, which record date shall be not
more than 15 days prior to the subsequent interest payment date.
Section 7. Except as provided in this Article I, every Bond
of this Series shall be dated and shall bear interest as provided
in Section 2.04 of the Original Indenture; provided, however,
that, so long as there is no existing default in the payment of
interest on said Bonds, the holder of any Bond of this Series
authenticated by the Trustee between the record date for any
interest payment date and such interest payment date shall not be
entitled to the payment of the interest due on such interest
payment date and shall have no claim against the Company with
respect thereto; provided, further, that, if and to the extent the
Company shall default in the payment of the interest due on such
interest payment date, then any such Bond shall bear interest from
the interest payment date next preceding the date of such Bond to
which interest has been paid or, if the Company shall be in
default with respect to the interest due on the first interest
payment date of such Bond, then from August 1, 1997.
Section 8. The Bonds of this Series may be executed by the
Company and delivered to the Trustee and, upon compliance with all
applicable provisions and requirements of the Original Indenture
in respect thereof, shall be authenticated by the Trustee and
delivered (without awaiting the filing or recording of this
Supplemental Indenture) in accordance with the written order or
orders of the Company.
ARTICLE II
Redemption of Bonds of This Series
Section 1. The Bonds of this Series shall, in the manner
provided in Article 5 of the Original Indenture, be subject to
mandatory redemption by the Company prior to maturity, as follows:
(a) In the event the Company exercises its option to direct
the redemption of Air Bonds upon the occurrence of any of the
events described in Section 6.2 of the Air Authority Loan
Agreement, in whole or in part, in each case at a redemption price
of 100% of the principal amount, plus accrued interest to the date
fixed for redemption; or
(b) In whole or in part on any date on or after August 1,
2007, in the event that and to the extent that the Company
exercises its option to direct the redemption of Air Bonds
pursuant to Section 6.1 of the Air Authority Loan Agreement, at
redemption prices equal to the following percentages of the
principal amount to be redeemed, plus accrued interest to the date
fixed for redemption:
Redemption Price
(Expressed as a Percentage
of the
Redemption Periods Principal Amount
(dates inclusive) Being Redeemed)
------------------ -------------------------
August 1, 2007 through July 31, 2008 102%
August 1, 2008 through July 31, 2009 101%
August 1, 2009 and thereafter 100%
Any redemption under this Section 1 shall occur only upon
receipt by the Trustee of a certificate of the Company to the
effect that (i) the Company has given notice to the Air Bond
Trustee that the Company is exercising its option to direct
redemption of Air Bonds as provided in Section 6.1 or 6.2 of the
Air Authority Loan Agreement and (ii) an equivalent principal
amount of Air Bonds are currently being called for redemption.
Such certificate shall specify the principal amount of the Bonds
of this Series to be redeemed, shall have attached to it a copy of
said notice to the Air Bond Trustee and shall specify the
redemption date of such Bonds of this Series, which redemption
date shall not be less than forty-five (45) days from the date of
the Trustee's receipt of such certificate and shall be the same as
the redemption date specified in the attached notice for the Air
Bonds being concurrently redeemed.
Section 2. (a) The Bonds of this Series shall be subject to
mandatory redemption by the Company in whole at any time prior to
maturity if the Trustee shall receive a written demand from the
Air Bond Trustee for redemption of all Bonds of this Series held
by the Air Bond Trustee, stating that an "event of default" under
the Air Bond Indenture has occurred and is continuing and that
payment of the principal of the Air Bonds has been accelerated;
provided, however, that the Bonds of this Series shall not be
redeemed under this Section 2(a) in the event that prior to the
date fixed for redemption: (i) the Trustee shall have received a
certificate of the Air Bond Trustee (a) stating that there has
been a waiver of such acceleration or (b) withdrawing said written
demand, or (ii) if an event of default under Section 9.01 of
Article 9 of the Original Indenture shall have occurred and be
continuing, there has been an acceleration of the principal of the
Bonds of this Series. Any such redemption shall be made not more
than 45 days after receipt of the written demand at a redemption
price of 100% of the principal amount to be redeemed, plus accrued
interest to the date fixed for redemption.
(b) The Bonds of this Series shall also be subject to special
mandatory redemption by the Company in whole or in part at any
time at a redemption price of 100% of the principal amount
thereof, plus accrued interest to the date fixed for redemption,
at the earliest practicable date selected by the Air Bond Trustee,
after consultation with the Company, but in any event no later
than 180 days following the Air Bond Trustee's notification of a
Determination of Taxability (as defined in the Air Bond
Indenture). Any special mandatory redemption hereunder shall be
made upon receipt by the Trustee of a certificate of the Company
to the effect that the Company is delivering monies to redeem
Bonds of this Series in order to provide the Air Bond Trustee with
the monies needed to redeem Air Bonds in accordance with
Section 6.3 of the Air Authority Loan Agreement and
Section 4.01(b) of the Air Bond Indenture. Such certificate shall
specify the principal amount of Air Bonds to be redeemed and the
redemption date of the Bonds of this Series, which date shall be
the same as the redemption date for the Air Bonds being
concurrently redeemed.
Section 3. The provisions of Sections 5.02, 5.03, 5.04 and
5.05 of the Original Indenture shall be applicable to Bonds of
this Series, provided that upon deposit with the Trustee of money
to redeem Bonds of this Series, such money shall be immediately
available for payment.
Section 4. The holder of each and every Bond of this
Series issued hereunder hereby agrees to accept payment thereof
prior to maturity on the terms and conditions provided for in this
Article II.
ARTICLE III
Payment Deemed Made of Bonds of This Series
Section 1. In the event any Air Bonds shall be purchased by
the Company and surrendered by it to the Air Bond Trustee for
cancellation or shall be otherwise surrendered to the Air Bond
Trustee for cancellation pursuant to the Air Bond Indenture
(except upon exchange for other Air Bonds), Bonds of this Series
equal in principal amount and maturity to the Air Bonds so
surrendered shall be deemed to have been paid, but only when and
to the extent that (a) such payment of the 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 Bonds of this Series shall have been surrendered to and
cancelled by the Trustee as provided in Section 3 of this
Article III.
Section 2. In the event and to the extent the principal of
or premium, if any, or interest on any Air Bonds shall be paid out
of funds held by the Air Bond Trustee or out of any other funds or
shall otherwise be deemed to be paid, an equal amount of principal
of or premium, if any, or interest on, as the case may be, Bonds
of this Series shall be deemed to have been paid, but in the case
of such payments of principal on such Bonds of this Series, only
when and to the extent that (a) such payment of the 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 Bonds of this Series shall have been
surrendered to and cancelled by the Trustee as provided in
Section 3 of this Article III.
Section 3. When payment of any principal amount of a Bond
of this Series shall be deemed to have been made as provided in
Section 1 or 2 of this Article III, 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
said Section. All Bonds of this Series which shall be deemed to
have been paid in full as provided in said Section 1 or 2 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 1 or 2, the registered owner may, at its option, 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.
ARTICLE IV
The Trustee
Section 1. The Trustee accepts the trusts created by this
Supplemental Indenture upon the terms and conditions in the
Original Indenture and in this Supplemental Indenture set forth.
The recitals in this Supplemental Indenture are made by the
Company only and not by the Trustee. Each and every term and
condition contained in Article 13 of the Original 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 to make the same conform to this Supplemental
Indenture.
Section 2. 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 act or failure to act as such agency,
except for any liability resulting from any action taken by it at
the specific direction of the Trustee;
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 3. The Trustee shall advise the Company, promptly,
in writing of the notation or receipt of written notice of
notation on or cancellation of any Bond of this Series provided
for in Articles I, II and III of this Supplemental Indenture.
ARTICLE V
Miscellaneous Provisions
Section 1. The Original Indenture, as heretofore
supplemented, is in all respects ratified and confirmed, and the
Original Indenture, this Supplemental Indenture and all other
indentures supplemental to the Original Indenture shall be read,
taken and construed as one and the same instrument. Neither the
execution of this Supplemental Indenture nor anything herein
contained shall be construed to impair the lien of the Indenture
on any of the property subject thereto, and such lien shall remain
in full force and effect as security for all bonds now outstanding
or hereafter issued under the Indenture. All covenants and
provisions of the Original Indenture, except as modified by this
Supplemental Indenture and all other indentures supplemental to
the Original Indenture, shall continue in full force and effect
for the respective periods of time therein specified, and this
Supplemental Indenture shall form part of the Indenture. All terms
defined in Article 1 of the Original Indenture shall, for all
purposes of this Supplemental Indenture, have the meanings in said
Article 1 specified, except as modified by this Supplemental
Indenture and all other indentures supplemental to the Original
Indenture and unless the context otherwise requires.
Section 2. This Supplemental Indenture may be simultaneously
executed in any number of counterparts, and all said counterparts
executed and delivered, each as an original, shall constitute but
one and the same instrument.
EXECUTION
In Witness Whereof, The Toledo Edison Company has caused its
corporate name to be hereunto affixed, this instrument to be
signed by its President or a Vice President and its corporate seal
to be hereunto affixed and attested by its Secretary or an
Assistant Secretary for and in its behalf and The Chase Manhattan
Bank, as Trustee, in evidence of its acceptance of the trust
hereby created, has caused its corporate name to be hereunto
affixed, this instrument to be signed by its President or a Vice
President and its corporate seal to be hereunto affixed and
attested by its Secretary, an Assistant Secretary or a Corporate
Trust Officer, for and in its behalf, all as of the day and year
first above written.
The Toledo Edison Company
By: /s/ Gary R. Leidich
----------------------------
Gary R. Leidich, Vice President
Attest:
/s/ Janis T. Percio
- ---------------------------
Janis T. Percio, Secretary
Signed, sealed and acknowledged by The Toledo
Edison Company in the presence of:
/s/ T. Michele Lynch
- ---------------------------
T. Michele Lynch
/s/ Carol L. Hebach
- ---------------------------
Carol L. Hebach
As witnesses
The Chase Manhattan Bank, as
Trustee
By: /s/ P.J. Gilkeson
---------------------------
P.J. Gilkeson, Vice President
Attest:
/s/ R. Lorenzen
- ---------------------------------
R. Lorenzen, Senior Trust Officer
Signed, sealed and acknowledged by The Chase
Manhattan Bank in the presence of:
/s/ B. Skiba
- -----------------
B. Skiba
/s/ James P. Freeman
- -------------------------
James P. Freeman
As witnesses
State of Ohio
SS:
County of Cuyahoga
On this 20th day of August, 1997, before me personally
appeared Gary R. Leidich and Janis T. Percio 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 Toledo
Edison 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.
/s/ Carol L. Hebach
--------------------------
Notary Public
Carol L. Hebach
Notary Public, State of Ohio
Recorded in Cuyahoga County
My Commission expires January 19, 2000
State of New York
SS:
County of New York
On this 21st day of August, 1997, before me personally
appeared P.J.Gilkeson and R. Lorenzen to me personally known, who
being by me severally duly sworn, did say that they are a Vice
President and a Senior Trust Officer, respectively, of The Chase
Manhattan Bank, 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.
/s/ Emily Fayan
------------------------------
Notary Public
Emily Fayan
Notary Public, State of New York
No. 24-4737006
Qualified in Kings County
Certificate Filed in New York County
Commission expires December 31, 1997
This Instrument Prepared By Paul N. Edwards, Attorney At Law.
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
This Supplemental Indenture was filed for record and recorded
in the record of mortgages in the offices of the Recorders of the
following Counties:
County Volume Page Filed for Record
------ ------ ---- ----------------
Ohio
Belmont
Defiance
Erie
Fulton
Henry
Lake
Monroe
Ottawa
Paulding August , 1997
Putnam
Sandusky
Seneca
Williams
Wood
Pennsylvania
Beaver
Microfiche
----------
Lucas, Ohio August , 1997
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
August , 1997 under original or amendment file number 07851362,
microfilm number 24581784, to comply with the filing requirements
of the Pennsylvania enactment of the Uniform Commercial Code.
Pursuant to Section 6.18 of a certain Trust Indenture, dated
as of August 1, 1997, between the Ohio Air Quality Development
Authority and The Fifth Third Bank, as Trustee, and a Letter
Agreement, dated August 26, 1997, from said Trustee to The Toledo
Edison Company, a copy of which is on file with said Trustee, this
Bond may not be sold, assigned, pledged or transferred except as
required to effect an assignment by said Trustee to a successor
trustee under said Trust Indenture.
The Toledo Edison Company
First Mortgage Bond, 6.10% Series Due 2027
Due August 1, 2027
No. 1 $10,100,000
The Toledo Edison Company, an Ohio corporation (hereinafter
called the Company) for value received, hereby promises to pay to
The Fifth Third Bank, as trustee under the Air Bond Indenture
(hereinafter defined) or registered assigns, the principal sum of
Ten Million, One Hundred Thousand Dollars or the aggregate unpaid
principal amount hereof (as shown on the Schedule of Payments
hereon), whichever is less, on August 1, 2027, at its office or
agency in the Borough of Manhattan, The City of New York, or, so
long as the registered owner of this Bond is the Air Bond Trustee
(hereinafter defined), at the agency of the Company in the City of
Cincinnati, State of Ohio, and semi-annually on the first day of
August and the first day of February in each year, commencing
February 1, 1998 (each such date hereinafter called an interest
payment date), to pay interest on the unpaid principal amount
hereof to the registered owner hereof at said office or agencies
at the rate per annum specified in the title of this Bond, until
maturity, 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 the Indenture (hereinafter defined).
Except as hereinafter provided, this Bond shall bear interest from
the interest payment date next preceding the date of this Bond to
which interest has been paid, unless this Bond is dated on an
interest payment date, in which case from the date hereof; or
unless this Bond is dated prior to the first interest payment date
in respect hereof, in which case from August 1, 1997, and except
that if this Bond is delivered on a transfer or exchange of or in
substitution for another Bond or Bonds it shall bear interest from
the last preceding date to which interest shall have been paid on
the Bond or Bonds in respect of which this Bond is delivered
(except that if this Bond is dated between the record date
(hereinafter defined) for any interest payment date and such
interest payment date, then from such interest payment date,
provided, however, that if the Company shall default in payment of
the interest due on such interest payment date, then from the next
preceding interest payment date to which interest has been paid on
the Bond of this Series, or if such interest payment date is the
first interest payment date for Bonds of this Series, then from
August 1, 1997). The interest so payable on any interest payment
date will, subject to certain exceptions provided in the
Indenture, be paid to the person in whose name this Bond is
registered at the close of business on the record date, which
shall be the "Regular Record Date" as defined in the Air Bond
Indenture (hereinafter defined), applicable to the regular
interest payment date of any Bond of this Series, if it were an
"Interest Payment Date" as defined in the Air Bond Indenture. Both
the principal of and the interest on this Bond shall be payable in
any coin or currency of the United States of America which at the
time of payment shall be legal tender for the payment of public
and private debts.
This Bond is one of the Bonds of the Company, known as its
First Mortgage Bonds, issued and to be issued in one or more
series under and equally and ratably secured (except as any
sinking, amortization, improvement or other fund, established in
accordance with the provisions of the Indenture, may afford
additional security for the Bonds of any particular series) by a
certain Indenture of Mortgage and Deed of Trust, dated as of
April 1, 1947 (hereinafter called the Original Indenture), made by
the Company to The Chase National Bank of the City of New York,
now succeeded by The Chase Manhattan Bank, as Trustee (hereinafter
called the Trustee), and by certain indentures supplemental
thereto, including the Forty-seventh Supplemental Indenture dated
as of August 1, 1997 (the Original Indenture and said indentures
supplemental thereto herein collectively called the Indenture and
said Forty-seventh Supplemental Indenture hereinafter called the
Supplemental Indenture), to which Indenture reference is hereby
made for a description of the property mortgaged, the nature and
extent of the security, the rights and limitations of rights of
the Company, the Trustee and the holders of said Bonds and of the
coupons appurtenant to coupon Bonds under the Indenture and the
terms and conditions upon which said Bonds are and are to be
issued and secured, to all of the provisions of which Indenture
and of all such supplemental indentures in respect of such
security, including the provisions of the Indenture permitting the
issue of Bonds of any series for property which, under the
restrictions and limitations therein specified, may be subject to
liens prior to the lien of the Indenture, the holder, by accepting
this Bond, assents. To the extent permitted by and as provided in
the Indenture, the rights and obligations of the Company and of
the holders of said Bonds and coupons (including those pertaining
to any sinking or other fund) may be changed and modified, with
the consent of the Company, by the holders of at least 75% in
aggregate principal amount of the Bonds then outstanding, such
percentage being determined as provided in the Indenture;
provided, however, that in case such changes and modifications
affect one or more but less than all series of Bonds then
outstanding, they shall be required to be adopted only by the
affirmative vote of the holders of at least 75% in aggregate
principal amount of outstanding Bonds of such one or more series
so affected; and further provided, that without the consent of the
holder hereof no such change or modification shall be made which
will extend the time of payment of the principal of, or of the
interest or premium, if any, on this Bond or reduce the principal
amount hereof or the rate of interest or the premium, if any,
hereon, or affect any other modification of the terms of payment
of such principal or interest, or premium, if any, or will permit
the creation of any lien ranking prior to or on a parity with the
lien of the Indenture on any of the mortgaged property, or will
deprive the holder hereof of the benefit of a lien upon the
mortgaged property for the security of this Bond, or will reduce
the percentage of Bonds required for the adoption of changes or
modifications as aforesaid.
This Bond is one of a series of Bonds designated as First
Mortgage Bonds, 6.10% Series due 2027, of the Company (herein
called Bonds of this Series) limited, except as otherwise provided
in the Indenture, in aggregate principal amount to $10,100,000 and
issued under and secured by the Supplemental Indenture. The Bonds
of this Series have been issued by the Company to the Ohio Air
Quality Development Authority (hereinafter called the Air
Authority) to evidence and secure the obligations of the Company
to repay a loan (herein called the Air Authority Loan) made by the
Air Authority to the Company pursuant to a certain loan agreement,
dated as of August 1, 1997 (herein called the Air Authority Loan
Agreement), between the Air Authority and the Company to assist
the Company in refunding certain bonds which had been previously
issued by the Air Authority, the proceeds of which had been loaned
to the Company to assist in financing its portion of the cost of
the acquisition, construction and installation of certain air
pollution control facilities. The Air Authority Loan has been
funded with proceeds derived from the sale by the Air Authority of
one series of State of Ohio Collateralized Pollution Control
Revenue Refunding Bonds, Series 1997-A (The Toledo Edison Company
Project) (herein called the Air Bonds) in the aggregate principal
amount of $10,100,000, issued under a Trust Indenture, dated as of
August 1, 1997 (herein called the Air Bond Indenture), between The
Fifth Third Bank, Cincinnati, Ohio, as trustee (herein called the
Air Bond Trustee) and the Air Authority. All right, title and
interest of the Air Authority in the Bonds of this Series have
been assigned by the Air Authority to the Air Bond Trustee as
security for the payment of the principal of and premium, if any,
and interest on the Air Bonds; and the Bonds of this Series have
been delivered to the Air Bond Trustee, as trustee, for the
benefit of the holders of the Air Bonds.
In the event any Air Bonds shall be surrendered to the Air
Bond Trustee or other person for cancellation pursuant to the Air
Bond Indenture (except upon exchange for other Air Bonds), Bonds
of this Series equal in principal amount to such Air 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 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 Air 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 Air 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) this 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, this Bond shall be surrendered by the registered owner
hereof to an agency of the Company for such notation and
notification or to the Trustee for cancellation.
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
owner, 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 mandatory redemption
by the Company prior to maturity, upon not less than thirty days
prior notice, in whole or in part at any time, all as more fully
provided in Section 1 of Article II of the Supplemental Indenture,
in the event the Company exercises its option to direct the
redemption of Air Bonds, pursuant to Section 6.2 of the Air
Authority Loan Agreement, and an equivalent principal amount of
Air Bonds are being concurrently called for redemption, at a
redemption price of 100% of the principal amount to be redeemed,
plus accrued interest to the date fixed for redemption.
The Bonds of this Series are also subject to mandatory
redemption by the Company prior to maturity at any time (a) in
whole upon notice of the occurrence of an event of default under
the Air Bond Indenture and of the acceleration of the payment of
the principal of the Air Bonds or (b) in whole or in part upon a
final determination by any federal, judicial or administrative
authority that interest on the Air Bonds is includable for federal
income tax purposes in the gross income of the holders of the Air
Bonds (other than because a holder is a "substantial user" of the
Project being financed pursuant to the Air Authority Loan
Agreement or a "related person" thereof, as those terms are used
in Section 147(a) of the Internal Revenue Code of 1986, as
amended) and an equivalent amount of Air Bonds are being
concurrently called for redemption, in each case as provided in
Section 2 of Article II of the Supplemental Indenture, at a
redemption price of 100% of the principal amount to be redeemed,
plus accrued interest to the date fixed for redemption.
The Bonds of this Series are also subject to mandatory
redemption by the Company prior to stated maturity, all as more
fully provided in Section 1 of Article II of the Supplemental
Indenture, in whole or in part, on any date on or after August 1,
2007 in the event that and to the extent that the Company
exercises its option to direct the redemption of Air Bonds,
pursuant to Section 6.1 of the Air Authority Loan Agreement, and
an equivalent principal amount of Air Bonds are being concurrently
called for redemption, at redemption prices, plus accrued and
unpaid interest, if any, to the redemption date as follows:
Redemption Price
(Expressed as a Percentage of
Redemption Periods the Principal Amount
(dates inclusive) Being Redeemed
------------------ ----------------------------
August 1, 2007 through July 31, 2008 102%
August 1, 2008 through July 31, 2009 101%
August 1, 2009 and thereafter 100%
Any redemption of the Bonds of this Series shall be made in
accordance with the applicable provisions of Sections 5.02, 5.03,
5.04 and 5.05 of the Original Indenture, unless and to the extent
waived in writing by the registered owner or owners of all Bonds
of this Series and such waiver is filed with the Trustee.
If this Bond shall be called for redemption and payment of
the redemption price shall be duly provided by the Company as
specified in the Indenture, interest shall cease to accrue hereof
from and after the date of redemption fixed in the notice thereof.
The principal of this Bond may be declared or may become due
before the maturity hereof, on the conditions, in the manner and
at the times set forth in the Indenture, upon the happening of a
default as therein described.
This Bond is transferable by the registered owner hereof in
person or by his duly authorized attorney at the office or agency
of the Company in the Borough of Manhattan, The City of New York,
upon surrender and cancellation of this Bond, and thereupon a new
fully registered Bond or Bonds of this Series and maturity, for
the same aggregate principal amount, in authorized denominations,
will be issued to the transferee in exchange therefor, as provided
in the Indenture. The Company and the Trustee and any paying agent
may deem and treat the person in whose name this Bond is
registered as the absolute owner hereof for the purpose or
receiving payment and for all other purposes. This Bond, alone or
with other Bonds of this Series and maturity, may in like manner
be exchanged at such office or agency for one or more new fully
registered Bonds of this Series and maturity, in authorized
denominations, of the same aggregate principal amount. Upon each
such transfer, exchange and re-exchange the Company will not
require the payment of any charges, other than for any tax or
other governmental charge required to be paid by the Company in
connection therewith.
No recourse under or upon any covenant or obligation of the
Indenture, or of any indenture supplemental thereto, or of this
Bond, for the payment of the principal of or the interest on this
Bond, or for any claim based thereon, or otherwise in any manner
in respect thereof, shall be had against any incorporator,
subscriber to the capital stock, stockholder, officer or director,
as such, of the Company, whether former, present or future, either
directly, or indirectly through the Company or any predecessor or
successor corporation or the Trustee, by the enforcement of any
subscription to capital stock, assessment or otherwise, or by any
legal or equitable proceeding by virtue of any constitution,
statute or otherwise (including, without limiting the generality
of the foregoing, any proceeding to enforce any claimed liability
of stockholders of the Company based upon any theory of
disregarding the corporate entity of the Company or upon any
theory that the Company was acting as the agent or instrumentality
of the stockholders), any and all such liability of incorporators,
stockholders, subscribers, officers and directors, as such, being
released by the holder hereof, by the acceptance of this Bond, and
being likewise waived and released by the terms of the Indenture.
This Bond shall not be valid or become obligatory for any
purpose until the certificate of authentication endorsed hereon
shall have been signed by The Chase Manhattan Bank or its
successor, as Trustee under the Indenture.
In Witness Whereof, The Toledo Edison Company has caused this
Bond to be signed in its name by its President or a Vice
President, manually or in facsimile, and its corporate seal to be
impressed or imprinted hereon and attested by a manual or
facsimile signature of its Secretary or an Assistant.
Dated:
The Toledo Edison Company
By
---------------------------
Vice President
Attest:
- ---------------------------
Secretary
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, as
Trustee
By
------------------------------
- ---
Authorized Officer
Schedule of Payments
Agency of
the
Unpaid Company
Principal Principal Premium Interest Making Authorized
Date Payment Amount Payment Payment Notation Officer Title
- ---- ------- ------ ------- ------- -------- ------- -----
Pursuant to Section 6.18 of a certain Trust Indenture, dated
as of August 1, 1997, between the Ohio Air Quality Development
Authority and The Fifth Third Bank, as Trustee, and a Letter
Agreement, dated August 26, 1997, from said Trustee to The Toledo
Edison Company, a copy of which is on file with said Trustee, this
Bond may not be sold, assigned, pledged or transferred except as
required to effect an assignment by said Trustee to a successor
trustee under said Trust Indenture.
The Toledo Edison Company
First Mortgage Bond, 6.10% Series Due 2027
Due August 1, 2027
No. $
The Toledo Edison Company, an Ohio corporation (hereinafter
called the Company) for value received, hereby promises to pay to
or registered assigns, the principal sum of Dollars or the
aggregate unpaid principal amount hereof (as shown on the Schedule
of Payments hereon), whichever is less, on August 1, 2027, at its
office or agency in the Borough of Manhattan, The City of New
York, or, so long as the registered owner of this Bond is the Air
Bond Trustee (hereinafter defined), at the agency of the Company
in the City of Cincinnati, State of Ohio, and semi-annually on the
first day of August and the first day of February in each year,
commencing February 1, 1998 (each such date hereinafter called an
interest payment date), to pay interest on the unpaid principal
amount hereof to the registered owner hereof at said office or
agencies at the rate per annum specified in the title of this
Bond, until maturity, 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 the Indenture
(hereinafter defined). Except as hereinafter provided, this Bond
shall bear interest from the interest payment date next preceding
the date of this Bond to which interest has been paid, unless this
Bond is dated on an interest payment date, in which case from the
date hereof; or unless this Bond is dated prior to the first
interest payment date in respect hereof, in which case from
August 1, 1997, and except that if this Bond is delivered on a
transfer or exchange of or in substitution for another Bond or
Bonds it shall bear interest from the last preceding date to which
interest shall have been paid on the Bond or Bonds in respect of
which this Bond is delivered (except that if this Bond is dated
between the record date
==========================================
THE TOLEDO EDISON COMPANY
TO
THE CHASE MANHATTAN BANK,
as Trustee.
-------------------
Forty-Eighth Supplemental Indenture
DATED AS OF JUNE 1, 1998
(Supplemental to Indenture dated as of April 1, 1947)
First Mortgage Bonds, 1998 Guaranty Series due 2028
==========================================
Forty-eighth Supplemental Indenture, dated as of June 1,
l998, made by and between THE TOLEDO EDISON COMPANY, a
corporation organized and existing under the laws of the State of
Ohio (hereinafter called the "Company"), and THE CHASE MANHATTAN
BANK, a corporation organized and existing under the laws of the
State of New York (the "Trustee"), as Trustee.
RECITALS
The Company has heretofore executed and delivered an
Indenture of Mortgage and Deed of Trust dated as of April 1, 1947
(the "Original Indenture") to The Chase National Bank of the City
of New York, predecessor Trustee, to secure an issue of First
Mortgage Bonds of the Company, issuable in series, and created
thereunder an initial series of bonds designated as First
Mortgage Bonds, 27/8% Series due 1977, being the initial series
of bonds issued under the Original Indenture; and
The Company has heretofore executed and delivered to The
Chase National Bank of the City of New York, predecessor Trustee,
four Supplemental Indentures supplementing the Original Indenture
dated, respectively, September 1, 1948, April 1, 1949, December
1, 1950 and March 1, 1995 and has heretofore executed and
delivered to The Chase Manhattan Bank, which on March 31, 1955,
became the Trustee under the Original Indenture by virtue of the
merger of The Chase National Bank of the City of New York into
President and Directors of The Manhattan Company under the name
of The Chase Manhattan Bank, the Fifth and the Sixth Supplemental
Indentures dated, respectively, February 1, 1956, and May 1,
1958, supplementing the Original Indenture; and
The Chase Manhattan Bank was converted into a national
banking association under the name of The Chase Manhattan Bank
(National Association), effective September 23, 1965; and by
virtue of said conversion the continuity of the business of The
Chase Manhattan Bank, including its business of acting as
corporate trustee, and its corporate existence, were not
affected, so that The Chase Manhattan Bank is vested with all the
trusts, powers, discretion, immunities, privileges and all other
matters as were vested in said The Chase Manhattan Bank under the
Indenture, with like effect as if originally named as Trustee
therein; and
The Company has heretofore executed and delivered to The
Chase Manhattan Bank (National Association), predecessor Trustee,
38 Supplemental Indentures dated, respectively, as follows:
Seventh, August 1, 1967, Eighth, November 1, 1970, Ninth, August
1, 1972, Tenth, November 1, 1973, Eleventh, July 1, 1974,
Twelfth, October 1, 1975, Thirteenth, June 1, 1976, Fourteenth,
October 1, 1978, Fifteenth, September 1, 1979, Sixteenth,
September 1, 1980, Seventeenth, October 1, 1980, Eighteenth,
April 1, 1981, Nineteenth, November 1, 1981, Twentieth, June 1,
1982, Twenty-first, September 1, 1982, Twenty-second, April 1,
1983, Twenty-third, December 1, 1983, Twenty-fourth, April 1,
1984, Twenty-fifth, October 15, 1984, Twenty-sixth, October 15,
1984, Twenty-seventh, August 1, 1985, Twenty-eighth, August 1,
1985, Twenty-ninth, December 1, 1985, Thirtieth, March 1, 1986,
Thirty-first, October 15, 1987, Thirty-second, September 15,
1988, Thirty-third, June 15, 1989, Thirty-fourth, October 15,
1989, Thirty-fifth, May 15, 1990, Thirty-sixth, March 1, 1991,
Thirty-seventh, May 1, 1992, Thirty-eighth, August 1, 1992,
Thirty-ninth, October 1, 1992, Fortieth, January 1, 1993, Forty-
first, September 15, 1994, Forty-second, May 1, 1995, Forty-
third, June 1, 1995, Forty-fourth, July 14, 1995, Forty-fifth,
July 15, 1995, Forty-sixth, June 15, 1997 and Forty-seventh,
August 1, 1997 supplementing the Original Indenture; and
The Chase Manhattan Bank (National Association), Successor
Trustee, was merged on July 1, 1996, with and into Chemical Bank,
a New York banking corporation, which changed its name to The
Chase Manhattan Bank, and which became the Trustee under the
Original Indenture by virtue of such merger; and
The Company is executing and delivering to The Chase
Manhattan Bank, Trustee, this Forty-eighth Supplemental
Indenture, dated as of June 1, 1998, supplementing the Original
Indenture (the Original Indenture, all the aforementioned
Supplemental Indentures, this Forty-eighth Supplemental Indenture
and any other indentures supplemental to the Original Indenture
are herein collectively called the "Indenture" and this Forty-
eighth Supplemental Indenture is hereinafter called "this
Supplemental Indenture"); and
The Company covenanted in and by the Original Indenture to
execute and deliver such further instruments and do such further
acts as may be necessary or proper to carry out more effectually
the purposes of the Original Indenture and to make subject to the
lien thereof property acquired after the execution and delivery
of the Original Indenture; and
Under Article 3 of the Original Indenture, the Company is
authorized to issue additional bonds upon the terms and
conditions expressed in the Original Indenture; and
The Company has determined to create pursuant to the
provisions of the Indenture a new series of first mortgage bonds
(the "Pledge Bonds"), to be pledged as security for the payment
of certain obligations undertaken by the Company in connection
with the issuance by the Beaver County Industrial Development
Authority (the "Authority") of $3,750,754 aggregate principal
amount of the Authority's Exempt Facilities Revenue Bonds 5.375%
1998 Series A (Shippingport Project) on behalf of the Company
(the "Revenue Bonds"), with such Pledge Bonds to have 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 Pledge Bonds are to be limited in aggregate principal
amount to $3,750,754, are to be delivered to Chase Manhattan
Trust Company, National Association, as trustee (hereinafter
called the "Revenue Bond Trustee"), under the Trust Indenture
(the "Revenue Bond Indenture") dated as of June 1, 1998 between
the Authority and the Revenue Bond Trustee; and
The Company, by appropriate corporate action, has duly
resolved and determined to execute this Supplemental Indenture
for the purpose of providing for the creation of the Pledge Bonds
and of specifying the form, provisions and particulars thereof as
in said Original Indenture, as amended, provided or permitted,
including the issuance only of fully registered Pledge Bonds, and
of giving to the Pledge Bonds the protection and security of the
Indenture; and
All conditions and requirements necessary to make this
Supplemental Indenture a valid, legal and binding instrument in
accordance with its terms and to make the Pledge Bonds, when duly
executed by the Company and authenticated and delivered by the
Trustee, and duly issued, the valid, binding and legal
obligations of the Company, have been done and performed, and the
execution and delivery of this Supplemental Indenture have been
in all respects duly authorized.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
That The Toledo Edison Company, the Company herein named, in
consideration of the premises and of One Dollar ($1.00) to it
duly paid by the Trustee at or before the ensealing and delivery
of these presents, the receipt whereof is hereby acknowledged,
does hereby covenant and agree to and with the Trustee and its
successors in the trust under the Indenture, for the benefit of
those who shall hold the bonds to be issued hereunder and
thereunder, as hereinafter provided, as follows:
ARTICLE I
CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT
AND FORM OF BONDS OF PLEDGE 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, 1998 Guaranty Series due
2028" of the Company and hereinabove and hereinafter called the
"Pledge Bonds." The Pledge Bonds 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 Pledge Bonds shall be issued as fully
registered Bonds only, without coupons, in the denominations of
$1,000 or any higher multiple of $1.00.
SECTION 3. The Pledge Bonds shall be dated the date of
authentication, shall mature June 1, 2028, and shall bear
interest from the time hereinafter provided at such rate per
annum as shall cause the rate of interest payable on such Pledge
Bonds then outstanding to equal the rate of interest payable on
the Revenue Bonds. The interest on the Pledge Bonds is payable
on June 1 and December 1 in each year starting on the Interest
Accrual Date (as defined below) (each such date hereinafter
called an "interest payment date") on and until maturity, or, in
the case of any such Pledge 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
Pledge Bonds, until the Company's obligation with respect to the
payment of the principal shall be discharged as provided in the
Indenture.
The Pledge Bonds shall be payable as to principal and
interest at the office or agency of the Company in the City of
Akron, State of Ohio, 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 Pledge Bond shall bear
interest from the Interest Accrual Date (as defined below) until
the principal of such Pledge Bond is paid or duly provided for.
The interest payable on any interest payment date shall be
paid to the respective persons in whose names the Pledge Bonds
shall be registered at the close of business on the Record Date
next preceding such interest payment date, notwithstanding the
cancellation of any such Pledge 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 a redemption date or maturity date), such defaulted
interest shall be paid to the respective persons in whose names
such outstanding Pledge Bonds are registered at the close of
business on a date (the "Subsequent Record Date") not less than
10 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 Pledge Bonds
not less than 10 days next preceding such Subsequent Record Date.
If any interest payment date should fall on a day which is not a
business day, then such interest payment date shall be the next
preceding business day.
The interest rate on the Revenue Bonds, and therefore on the
Pledge Bonds, is 5.375% per annum.
SECTION 4. In the manner and subject to the limitations
provided in the Indenture, Pledge Bonds may be exchanged for a
like aggregate principal amount of Pledge Bonds of other
authorized denominations, in either case without charge, except
for any tax or taxes or other governmental charges incident to
such exchange, at the office or agency of the Company in the
Borough of Manhattan, The City of New York or the City of Akron,
State of Ohio.
Except as otherwise provided in Section 3 of this Article I
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 Pledge Bond is registered as the absolute
owner thereof for the purpose of receiving any payment and for
all other purposes.
SECTION 5. The Pledge Bonds shall be redeemable only to
the extent provided in this Article I, subject to the provisions
contained in Article V of the Indenture and the form of Pledge
Bond.
SECTION 6. Subject to the applicable provisions of the
Indenture, written notice of redemption of Pledge Bonds pursuant
to this Supplemental Indenture shall be given by the Trustee by
mailing to each registered owner of such Pledge 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 Pledge
Bonds. Any notice of redemption shall be mailed at least 30
days, but no more than 60 days, prior to the redemption date.
SECTION 7. If and when the principal of any Revenue Bonds
shall be paid, then there shall be deemed to have been paid a
principal amount of the Pledge Bonds then outstanding which bears
the same ratio to the aggregate principal amount of Pledge Bonds
then outstanding as the principal amount of the Revenue Bonds so
paid bears to the aggregate principal amount of the Revenue Bonds
outstanding immediately before such payment; provided, however,
that such payment of Pledge Bonds shall be deemed to have been
made only when and to the extent that notice of such purchase or
payment of the principal amount of such Revenue Bonds shall have
been given by the Company to the Trustee. The Trustee may rely
upon any such notification by the Company that such payment of
Revenue Bonds has been so made.
SECTION 8. The Pledge Bonds 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 written advice from the Revenue Bond
Trustee stating that the principal amount of all the Revenue
Bonds then outstanding under the Revenue Bond Indenture has been
declared due and payable pursuant to the provisions of Section
8.02 of the Revenue Bond Indenture, specifying the date of the
accelerated maturity of such Revenue Bonds and the date from
which interest on the Revenue Bonds issued under the Revenue Bond
Indenture has then accrued and is unpaid, stating such
declaration of maturity has not been annulled and demanding
payment of the principal amount hereof plus accrued interest
hereon to the date fixed for such redemption. The date fixed for
such redemption shall be not earlier than the date specified in
the aforesaid written advice as the date of the accelerated
maturity of the Revenue Bonds then outstanding under the Revenue
Bond Indenture. Upon mailing of notice of redemption, the date
from which unpaid interest on the Revenue Bonds has then accrued
(as specified by the Revenue Bond Trustee) shall become the
initial interest accrual date (the "Initial Interest Accrual
Date") with respect to the bonds of this series, provided,
however, on any demand for payment of the principal amount hereof
at maturity as a result of the principal of the Revenue Bonds
becoming due and payable on the maturity date of the bonds of
this series, the date from which unpaid interest on the Revenue
Bonds has then accrued shall become the Initial Interest Accrual
Date with respect to the bonds of this series, such date to be a
stated in a written notice from Revenue Bond Trustee to the
Trustee. The aforementioned notice of redemption shall become
null and void for all purposes (including the fixing of the
Initial Interest Accrual Date with respect to the bonds of this
series) upon receipt by the Trustee of written notice from the
Revenue Bond Trustee of the annulment of the acceleration of the
maturity of the Revenue Bonds then outstanding under the Revenue
Bond Indenture and of the rescission of the aforesaid written
advice prior to the redemption of the bonds of this series and no
payment in respect thereof as specified in such notice of
redemption shall be effected or required. But no such rescission
shall extend to any subsequent written advice from the Revenue
Bond Trustee or impair any right consequent on such subsequent
written advice.
SECTION 9. Pledge Bonds shall not be transferable except
to a successor trustee under the Revenue Bond Indenture or in
connection with the exercise of the rights and remedies of the
holder thereof consequent upon an event of default as defined in
the Indenture.
SECTION 10. The aggregate principal amount of Pledge Bonds
which may be authenticated and delivered hereunder shall not
exceed $3,750,754, except as otherwise provided in the Indenture.
SECTION 11. The form of the fully registered Pledge Bonds,
and of the Trustee's certificate of authentication thereon, shall
be substantially as follows:
[FORM OF FULLY REGISTERED BOND OF 1998 GUARANTY SERIES]
THE TOLEDO EDISON COMPANY
Incorporated under the laws of the State of Ohio
FIRST MORTGAGE BOND, 1998 GUARANTY SERIES DUE 2028
Due June 1, 2028
No. $
THE TOLEDO EDISON 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 June 1, 2028, 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 of
five and three eighths per centum per annum. The interest on the
Pledge Bonds is payable on June 1 and December 1 in each year
starting on the Initial Interest Accrual Date (hereinafter
defined) (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 said Indenture. Except as hereinafter
provided, this Bond shall bear interest from the Initial Interest
Accrual Date (hereinafter defined) until the principal of this
Bond has been paid or duly provided for. 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 the
Supplemental Indenture (hereinafter defined). Principal of and
interest on this Bond are payable at the office or agency of the
Company in the City of Akron, State of Ohio.
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 as of
April 1, 1947 (herein called the "Original Indenture"), executed
by the Company to The Chase National Bank of the City of New
York, now succeeded by The Chase Manhattan Bank as 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
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, 1998
Guaranty Series due 2028 (herein called the "Pledge Bonds")
limited, except as otherwise provided in the Indenture, in
aggregate principal amount to $3,750,754, issued under and
secured by the Indenture and described in the Forty-eighth
Supplemental Indenture dated as of June 1, 1998, between the
Company and the Trustee (herein called the "Supplemental
Indenture").
The Pledge Bonds have been delivered by the Company to Chase
Manhattan Trust Company, National Association, as trustee
(hereinafter called the "Revenue Bond Trustee"), under the Trust
Indenture (the "Revenue Bond Indenture") dated as of June 1, 1998
between The Beaver County Industrial Development Authority (the
"Authority") and the Revenue Bond Trustee securing, among other
bonds, $3,750,754 of the Authority's Exempt Facilities Revenue
Bonds, 5.375% 1998 Series A (Shippingport Project) which have
been issued on behalf of the Company (the "Revenue Bonds").
If and when the principal of any Revenue Bonds is paid, then
there shall be deemed to be paid a principal amount of the Pledge
Bonds then outstanding which bears the same ratio to the
aggregate principal amount of Pledge Bonds outstanding
immediately before such payment as the principal amount of the
Revenue Bonds paid bears to the aggregate principal amount of the
Revenue Bonds outstanding immediately before such payment;
provided, however, that such payment of Pledge Bonds is deemed to
be made only when and to the extent that notice of such payment
is given by the Company to the Trustee.
The Pledge Bonds shall be redeemed by the Company prior to
maturity in whole at any time as provided in Section 8 of Article
I 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 Pledge Bonds shall be made in
accordance with the applicable provisions of Sections 5.02, 5.03,
5.04 and 5.06 of the Original Indenture, unless and to the extent
waived in writing by the registered owner or owners of all Pledge
Bonds and such waiver is filed with the Trustee.
To the extent permitted by and as provided in the Indenture,
the rights and obligations of the Company and of the holders of
said Bonds and coupons (including those pertaining to any sinking
or other fund) may be changed and modified, with the consent of
the Company by the holders of at least 75% in aggregate principal
amount of the Bonds then outstanding, such percentage being
determined as provided in the Indenture; provided, however, that
in case such changes and modifications affect one or more but
less than all series of Bonds then outstanding, they shall be
required to be adopted only by the affirmative vote of the
holders of at least 75% in aggregate principal amount of
outstanding Bonds of such one or more series so affected; and
further provided, that without the consent of the holder hereof
no such change or modification shall be made which will extend
the time of payment of the principal of or interest on this Bond
or reduce the principal amount hereof or the rate of interest
hereon, or affect any other modification of the terms of payment
of such principal or interest or will permit the creation of any
lien ranking prior to or on a party with the lien of the
Indenture on any of the mortgaged property, or will deprive the
holder hereof of the benefit of a lien upon the mortgaged
property for the security of this Bond, or will reduce the
percentage of Bonds required for the adoption of changes or
modifications as aforesaid.
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 and in
Section 9 of Article I of the Supplemental 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 office or agency of the Company in the
Borough of Manhattan, The City of New York or the City of Akron,
State of Ohio, 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, 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
others of the same series, may in like manner be exchanged for
one or more new fully registered Pledge Bonds 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.
No recourse shall be had for the payment of the principal of
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.
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 Toledo Edison 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 TOLEDO EDISON 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,
TRUSTEE
By
-------------------------
Authorized Officer
[END OF FORM OF FULLY REGISTERED BOND]
ARTICLE II
THE TRUSTEE
-----------
SECTION 1. The Trustee accepts the trusts created by this
Supplemental Indenture upon the terms and conditions in the
Original Indenture and in this Supplemental Indenture set forth,
The recitals in this Supplemental Indenture are made by the
Company only and not by the Trustee. Each and every term and
condition contained in Article 13 of the Original Indenture shall
apply to this Supplemental Indenture with the same force and
effect as if the same were herein set forth in fully, with such
omissions, variations and modifications thereof as may be
appropriate to make the same conform to this Supplemental
Indenture.
SECTION 2. 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 Pledge Bonds, 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;
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 3. For purposes of the Original Indenture, this
Supplemental Indenture and the Pledge Bonds, the Trustee is
permitted to assume for all purposes that the rate of interest on
the Pledge Bonds is the applicable initial interest rate
expressed in this Supplemental Indenture.
ARTICLE III
MISCELLANEOUS PROVISIONS
------------------------
SECTION 1. The Original Indenture, as heretofore
supplemented, is in all respects ratified and confirmed, and the
Original Indenture, this Supplemental Indenture and all other
indentures supplemental to the Original Indenture shall be read,
taken and construed as one and the same instrument. Neither the
execution of this Supplemental Indenture nor anything herein
contained shall be construed to impair the lien of the Indenture
on any of the property subject thereto, and such lien shall
remain in full force and effect as security for all bonds now
outstanding or hereafter issued under the Indenture. All
covenants and provisions of the Original Indenture, except as
modified by this Supplemental Indenture and all other indentures
supplemental to the Original Indenture, shall continue in full
force and effect for the respective periods of time therein
specified, and this Supplemental Indenture shall form part of the
Indenture. All terms defined in Article I of the Original
Indenture shall, for all purposes of this Supplemental Indenture,
have the meanings in said Article I specified, except as modified
by this Supplemental Indenture and all other indentures
Supplemental to the Original Indenture and unless the context
otherwise requires.
SECTION 2. This Supplemental Indenture may be
simultaneously executed in any number of counterparts, and all
said counterparts executed and delivered, each as an original,
shall constitute but one and the same instrument.
EXECUTION
IN WITNESS WHEREOF, The Toledo Edison Company has caused its
corporate name to be hereunto affixed, this instrument to be
signed by its President or a Vice President and its corporate
seal to be hereunto affixed and attested by its Secretary or an
Assistant Secretary for and in its behalf and The Chase Manhattan
Bank, as Trustee, in evidence of its acceptance of the trust
hereby created, has caused its corporate name to be hereunto
affixed, this instrument to be signed by its President or a Vice
President and its corporate seal to be hereunto affixed and
attested by its Secretary, an Assistant Secretary or a Corporate
Trust Officer, for and in its behalf, all as of the day and year
first above written.
THE TOLEDO EDISON COMPANY
By: /s/ Richard H. Marsh
--------------------------------
Richard H. Marsh, Vice President
Attest
/s/ Nancy C. Ashcom
- --------------------------------------
Nancy C. Ashcom, Corporate Secretary
Signed, sealed and acknowledged by
The Toledo Edison Company
in the presence of
/s/ Thomas C. Navin
- --------------------------------------
Thomas C. Navin
/s/ Cynthia A. LaFlame
- --------------------------------------
Cynthia A. LaFlame
As witnesses
THE CHASE MANHATTAN BANK,
AS TRUSTEE
By: /s/ P.J. Gilkeson
--------------------
P.J. Gilkeson, Vice President
Attest:
/s/ R. Lorenzen
- ---------------------------------
R. Lorenzen, Senior Trust Officer
Signed, sealed and acknowledged by
The Chase Manhattan Bank
in the presence of
/s/ W. Keenan
- -------------------------------
W. Keenan
/s/ David Trakimowicz
- -------------------------------
David Trakimowicz
As witnesses
STATE OF OHIO
COUNTY OF SUMMIT
On this 5th day of June, 1998, before me personally appeared
Richard H. Marsh and Nancy C. Ashcom, to me personally known, who
being by me severally duly sworn, did say that they are a Vice
President and the Corporate Secretary, respectively, of The
Toledo Edison 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 the free act
and deed of said corporation.
/s/ Susie M. Hoisten
-------------------------------------
Notary Public
Susie M. Hoisten
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission expires November 19, 2001
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 4th day of June, 1998, before me personally
appeared P.J. Gilkeson and R. Lorenzen, to me personally known,
who being by me severally duly sworn, did say that they are a
Vice President and a Senior Trust Officer, respectively, of The
Chase Manhattan Bank, 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 the free act
and deed of said corporation.
/s/ Emily Fayan
---------------------------------
Notary Public
Emily Fayan
Notary Public, State of New York
No. 24-4737006
Qualified in Kings County
Certificate Filed in New York County
Commission expires December 31, 1999
<TABLE>
<PAGE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED FINANCIAL AND OPERATING STATISTICS
<CAPTION>
Nov. 8 - Jan. 1 -
1998 Dec. 31, 1997 Nov. 7, 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GENERAL FINANCIAL INFORMATION: |
|
Operating Revenues $ 957,037 $ 122,669 | $ 772,707 $ 897,259 $ 873,657 $ 864,647
========== ========== | ========== ========== ========== ==========
Operating Income $ 180,261 $ 19,055 | $ 123,282 $ 156,815 $ 188,068 $ 179,499
========== ========== | ========== ========== ========== ==========
Income Before Extraordinary Item $ 106,582 $ 7,616 | $ 41,769 $ 57,289 $ 96,762 $ 82,531
========== ========== | ========== ========== ========== ==========
Net Income (Loss) $ 106,582 $ 7,616 | $ (150,132) $ 57,289 $ 96,762 $ 82,531
========== ========== | ========== ========== ========== ==========
Earnings (Loss) on Common Stock $ 92,972 $ 7,616 | $ (169,567) $ 40,363 $ 78,510 $ 62,311
========== ========== | ========== ========== ========== ==========
Net Utility Plant $1,168,216 $1,170,806 | $2,079,742 $2,122,266 $2,204,717
========== ========== | ========== ========== ==========
Total Assets $2,768,765 $2,758,152 | $3,428,175 $3,532,714 $3,546,628
========== ========== | ========== ========== ==========
|
CAPITALIZATION: |
Common Stockholder's Equity $ 575,692 $ 531,650 | $ 803,237 $ 762,877 $ 684,568
Preferred Stock- |
Not Subject to Mandatory Redemption 210,000 210,000 | 210,000 210,000 210,000
Subject to Mandatory Redemption -- 1,690 | 3,355 5,020 6,685
Long-Term Debt 1,083,666 1,210,190 | 1,051,517 1,119,294 1,241,331
---------- ---------- | ---------- ---------- ----------
Total Capitalization $1,869,358 $1,953,530 | $2,068,109 $2,097,191 $2,142,584
========== ========== | ========== ========== ==========
|
CAPITALIZATION RATIOS: |
Common Stockholder's Equity 30.8% 27.2% | 38.8% 36.4% 32.0%
Preferred Stock- |
Not Subject to Mandatory Redemption 11.2 10.8 | 10.2 10.0 9.8
Subject to Mandatory Redemption -- 0.1 | 0.2 0.2 0.3
Long-Term Debt 58.0 61.9 | 50.8 53.4 57.9
----- ----- | ----- ----- -----
Total Capitalization 100.0% 100.0% | 100.0% 100.0% 100.0%
===== ===== | ===== ===== =====
|
KILOWATT-HOUR SALES (Millions): |
Residential 2,252 355 | 1,718 2,145 2,164 2,056
Commercial 2,425 284 | 1,498 1,790 1,748 1,711
Industrial 5,317 847 | 4,003 4,301 4,174 4,099
Other 63 79 | 413 488 500 499
---------- ---------- | ---------- ---------- ---------- ----------
Total Retail 10,057 1,565 | 7,632 8,724 8,586 8,365
Total Wholesale 1,617 435 | 2,218 2,330 2,563 2,548
---------- ---------- | ---------- ---------- ---------- ----------
Total 11,674 2,000 | 9,850 11,054 11,149 10,913
========== ========== | ========== ========== ========== ==========
CUSTOMERS SERVED (Year-End): |
Residential 265,237 262,501 | 261,541 260,007 256,998
Commercial 31,982 29,367 | 27,411 26,508 25,921
Industrial 1,954 1,835 | 1,839 1,846 1,839
Other 359 347 | 2,136 2,119 1,858
---------- ---------- | --------- ---------- ----------
Total 299,532 294,050 | 292,927 290,480 286,616
========== ========== | ========= ========== ==========
|
Average Annual Residential kWh Usage 8,554 7,937 | 8,284 8,384 8,044
Peak Load-Megawatts 1,978 1,813 | 1,758 1,738 1,620
Number of Employees (Year-End) 997 1,532 | 1,643 1,809 1,887
</TABLE>
THE TOLEDO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This discussion includes forward-looking statements based on
information currently available to management that are subject to
certain risks and uncertainties. These statements typically contain,
but are not limited to, the terms anticipate, potential, expect,
believe, estimate and similar words. Actual results may differ
materially due to the speed and nature of increased competition and
deregulation in the electric utility industry, economic or weather
conditions affecting future sales and margins, changes in markets for
energy services, changing energy market prices, legislative and
regulatory changes, and the availability and cost of capital and other
similar factors.
Results of Operations
We continued to take steps in 1998 to better position our
Company as competition continues to expand in the electric utility
industry. Investments were made in new information systems with enhanced
functionality which also address Year 2000 application deficiencies. We
also contributed to the 1998 cash savings of FirstEnergy Corp.
(FirstEnergy) totaling $173 million. These savings were captured from
initiatives implemented during the year in connection with merger-
related economies made possible by FirstEnergy's formation through the
merger of our former parent company, Centerior Energy Corporation, and
Ohio Edison Company on November 8, 1997.
Financial results reflect the application of purchase
accounting to the merger. This accounting resulted in fair value
adjustments, which were "pushed down" or reflected on the separate
financial statements of Centerior's direct subsidiaries as of the
merger date, including our financial statements. As a result, we
recorded purchase accounting fair value adjustments to: (1) revalue our
nuclear generating units to fair value, (2) adjust long-term debt to
fair value, (3) adjust our retirement and severance benefit
liabilities, and (4) record goodwill. Accordingly, the post-merger
financial statements reflect a new basis of accounting, and separate
financial statements are presented for the pre-merger and post-merger
periods. For the remainder of this discussion, for categories
substantially unaffected by the merger and with no significant pre-
merger or post-merger accounting events, we have combined the 1997 pre-
merger and post-merger periods and have compared the total for 1997 to
1998 and 1996.
Earnings on common stock were $93.0 million in 1998. Results
for 1998 were adversely affected by sharp increases in the spot market
price for electricity occasioned by a constrained power supply and heavy
customer demand in the latter part of June 1998, combined with
unscheduled generating unit outages, which resulted in spot market
purchases of power at prices which substantially exceeded amounts
recovered from retail customers. Pre-merger earnings on common stock in
1997 included an October 1997 write-off of certain regulatory assets.
Excluding this write-off, pre-merger earnings on common stock were $22.3
million. For the seven-week post-merger period, earnings on common stock
were $7.6 million. Earnings on common stock were $40.4 million in 1996.
After experiencing a decline in operating revenues in 1997,
compared to the previous year, we achieved record operating revenues in
1998. The following table summarizes the sources of changes in operating
revenues for 1998 and 1997 as compared to the prior year:
<TABLE>
<CAPTION>
1998 1997
---- ----
(In millions)
<S> <C> <C>
Increase in retail kilowatt-hour sales $68.2 $ 14.4
Decrease in average retail price (8.8) (23.4)
Wholesale sales (6.6) 7.8
Other 8.9 (0.7)
- ---------------------------------------------------------------
Net Change $61.7 $ (1.9)
===============================================================
</TABLE>
Total kilowatt-hour sales were down in 1998 from the prior
year after establishing a new record high in 1997. The decline was due
to a 39.1% decrease in sales to wholesale customers. Several generating
unit outages, described later in this report, reduced energy available
for sale to the wholesale market. Retail sales were up for all customer
groups; residential, commercial and industrial with increases of 8.6%,
9.5% and 9.6%, respectively, compared to 1997. Retail kilowatt-hour
sales benefited from growth in the customer base, which added almost
5,500 new customers during the year. Expanded production at the new
North Star BHP Steel (North Star) facility was a major contributor to
the increase in industrial kilowatt-hour sales. In 1997, North Star was
also a major contributor to industrial sales, which experienced a 12.8%
increase, compared to 1996. This increase was offset in part by reduced
kilowatt-hour sales to residential and commercial customers, which
declined 3.3% and 0.5%, respectively.
Operation and maintenance expenses increased in 1998 compared
to the prior year due to increased fuel and purchased power costs,
offset in part by a decrease in nuclear operating costs. Most of the
increase in fuel and purchased power occurred in the second quarter and
resulted from a combination of factors. In late June 1998, the
midwestern and southern regions of the United States experienced
electricity shortages caused mainly by record temperatures and humidity
and unscheduled generating unit outages. During this period, Beaver
Valley Unit 2 was out of service and the Davis-Besse Plant was removed
from service as a result of damage to transmission facilities caused by
a tornado. As a result, we purchased significant amounts of power on the
spot market at unusually high prices, causing the increase in purchased
power costs. An increase in purchased power costs also contributed to
the 1997 increase in fuel and purchased power costs, compared to 1996,
which was offset in part by lower fuel costs caused by an increase in
the mix of nuclear generation to coal-fired generation. Nuclear
operating costs were lower in 1998, compared to 1997, reflecting a
decrease in costs at the Perry Plant offset in part by higher costs at
the Beaver Valley and Davis-Besse plants. Nuclear operating costs in
1997 were relatively unchanged from 1996 with increased operating costs
at the Beaver Valley Plant substantially offset by lower operating costs
at the Perry and Davis-Besse plants. Other operating costs were higher
in 1997 than the previous year principally due to a $9.3 million
severance and early retirement charge in the 1997 pre-merger period. In
1998, other operating costs increased slightly, compared to 1997,
despite the absence of the severance and early retirement charge
recorded in 1997 primarily due to increased fossil plant costs.
Lower depreciable asset balances resulting from the purchase
accounting adjustment reduced depreciation in the 1998 and 1997 post-
merger period. These reductions were partially offset by the
amortization of goodwill recognized with the application of purchase
accounting. Depreciation in the 1997 pre-merger period increased
principally due to changes in depreciation rates approved in the April
1996 Public Utilities Commission of Ohio (PUCO) rate order.
Interest income on trust notes acquired in connection with the
Bruce Mansfield Plant lease refinancing (see Note 2), which began in
June 1997, was the principal cause of an increase in other income in
1998 and the 1997 post-merger period. In the pre-merger period of 1997,
interest income on the trust notes was substantially offset by merger-
related expenses. Total interest charges decreased in 1998 principally
due to the amortization of net premiums associated with the revaluation
of long-term debt in connection with the merger, which also contributed
to the decrease in interest charges in the post-merger period of 1997.
In the pre-merger period of 1997, interest charges were higher because
interest on new secured notes and short-term borrowings for the Bruce
Mansfield Plant lease refinancing exceeded the expense reduction from
the redemption and refinancing of debt securities.
Preferred stock dividend requirements in 1998 were reduced by
$3 million and in 1997 were increased by $3 million due to the
declaration of preferred dividends as of the merger date for dividends
attributable to the post-merger period (see Note 3c).
Capital Resources and Liquidity
We continue to actively pursue economic refinancings and
optional redemptions to reduce the cost of debt and preferred stock, and
improve our financial position. In 1998, we completed $26 million of
optional redemptions. We reduced total debt by approximately $66 million
during 1998. Our common stockholder's equity percentage of
capitalization increased to 31% at December 31, 1998 from 27% at the end
of the previous year. The merger resulted in improved credit ratings in
1997, which have lowered the cost of new issues. The following table
summarizes changes in credit ratings resulting from the merger:
<TABLE>
<CAPTION>
Pre-Merger Post-Merger
------------------------- --------------------------
Standard Moody's Standard Moody's
& Poor's Investors & Poor's Investors
Corporation Service, Inc. Corporation Service, Inc.
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
First mortgage bonds BB Ba2 BB+ Ba1
Subordinated debt B+ B1 BB- Ba3
Preferred Stock B b2 BB- b1
</TABLE>
Excluding the effect of the Bruce Mansfield Plant lease
refinancing, interest costs on long-term debt were reduced by
approximately $4 million in 1998, compared to 1997. Through economic
refinancings and redemptions of higher cost debt we have reduced the
average cost of outstanding debt from 9.19% in 1993 to 8.25% in 1997
and 8.08% in 1998. We continue to streamline our operations, as
evidenced by a 50% increase in FirstEnergy's customer/employee ratio,
which has increased from 165 at the end of 1993 to 247 as of December
31, 1998. Merger-related savings through consolidation of activities
have contributed to these results.
Our cash requirements in 1999 for operating expenses,
construction expenditures and scheduled debt maturities are expected
to be met without issuing additional securities. We have cash
requirements of approximately $475.2 million for the 1999-2003 period
to meet scheduled maturities of long-term debt and preferred stock. Of
that amount, approximately $105.9 million applies to 1999.
We had about $105.4 million of cash and temporary
investments and no short-term indebtedness on December 31, 1998. Upon
completion of the merger, application of purchase accounting reduced
bondable property such that we are not currently able to issue
additional first mortgage bonds, except in connection with
refinancing. Together with The Cleveland Electric Illuminating
Company, as of December 31, 1998, we had unused borrowing capability
of $100 million under a FirstEnergy revolving line of credit.
Our capital spending for the period 1999-2003 is expected to
be about $257 million (excluding nuclear fuel), of which approximately
$58 million applies to 1999. Investments in additional nuclear fuel
during the 1999-2003 period are estimated to be approximately $102
million, of which about $9 million applies to 1999. During the same
periods, our nuclear fuel investments are expected to be reduced by
approximately $120 million and $26 million, respectively, as the
nuclear fuel is consumed. Also, we have operating lease commitments
net of trust cash receipts of approximately $360 million for the 1999-
2003 period, of which approximately $70 million relates to 1999. We
recover the cost of nuclear fuel consumed and operating leases through
our electric rates.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is
mitigated since a significant portion of our debt has fixed interest
rates, as noted in the table below. We are subject to the inherent
interest rate risks related to refinancing maturing debt by issuing
new debt securities. As discussed in Note 2, our investment in the
Shippingport Capital Trust effectively reduces future lease
obligations, also reducing interest rate risk. Changes in the market
value of our nuclear decommissioning trust funds are recognized by
making a corresponding change to the decommissioning liability, as
described in Note 1.
The table below presents principal amounts and related
weighted average interest rates by year of maturity for our investment
portfolio, debt obligations and preferred stock with mandatory
redemption provisions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
(Dollars in Millions)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than Cash and
Cash Equivalents:
Fixed Income $ 15 $ 15 $17 $ 20 $19 $241 $ 327 $ 334
Average interest rate 7.6% 7.6% 7.6% 7.6% 7.6% 7.3% 7.4%
- ---------------------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate $104 $ 76 $30 $165 $98 $594 $1,067 $1,143
Average interest rate 7.4% 7.3% 9.2% 8.6% 7.9% 7.8% 7.9%
Variable rate $ 31 $ 31 $ 31
Average interest rate 3.1% 3.1%
- ---------------------------------------------------------------------------------------------------
Preferred Stock $ 2 $ 2 $ 2
Average dividend rate 9.4% 9.4%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Outlook
We face many competitive challenges in the years ahead as
the electric utility industry undergoes significant changes, including
regulation and the entrance of more energy suppliers into the
marketplace. Retail wheeling, which would allow retail customers to
purchase electricity from other energy producers, will be one of those
challenges. The FirstEnergy Rate Reduction and Economic Development
Plan provides the foundation to position us to meet the challenges we
are facing by significantly reducing fixed costs and lowering rates to
a more competitive level. The plan was approved by the PUCO in January
1997, and initially maintains current base electric rates through
December 31, 2005. The plan also revised our fuel recovery method.
As part of the regulatory plan, the base rate freeze is to
be followed by a $93 million base rate reduction in 2006; interim
reductions which began in June 1998 of $3 per month will increase to
$5 per month per residential customer by July 1, 2001. Total savings
of $111 million are anticipated over the term of the plan for our
customers. We have committed $35 million for economic development and
energy efficiency programs.
We have been authorized by the PUCO to recognize, for
regulatory accounting purposes, additional depreciation related to our
generating assets and additional amortization of regulatory assets
during the regulatory plan period of at least $647 million more than
the amounts that would have been recognized if the regulatory plans
were not in effect. For regulatory purposes these additional charges
will be reflected over the rate plan period. Our regulatory plan does
not provide for full recovery of nuclear operations. Accordingly,
regulatory assets representing customer receivables for future income
taxes related to nuclear assets of $295 million were written off ($192
million net of income taxes) prior to consummation of the merger since
we ceased application of Statement of Financial Accounting Standards
No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of
Regulation" for our nuclear operations when implementation of the
FirstEnergy regulatory plan became probable.
Based on the current regulatory environment and our
regulatory plan, we believe we will continue to be able to bill and
collect cost-based rates relating to our nonnuclear operations. As a
result, we will continue the application of SFAS 71. However, changes
in the regulatory environment appear to be on the horizon for electric
utilities in Ohio. As further discussed below, the Ohio legislature is
in the discussion stages of restructuring the State's electric utility
industry. Although we believe that regulatory changes are possible in
1999, we cannot currently estimate the ultimate impact.
At the consummation of the merger in November 1997, we
recognized a fair value purchase accounting adjustment, which
decreased the carrying value of our nuclear assets by approximately
$842 million based upon cash flow models. The fair value adjustment to
nuclear plant recognized for financial reporting purposes will
ultimately satisfy the asset reduction commitment contained in our
regulatory plan.
We continue to actively pursue the enactment of fair
legislation calling for deregulation of Ohio's investor-owned electric
utility industry. In early 1998, a deregulation proposal was
introduced, leading to the creation of a working group to recommend
legislation. As requested by legislative leadership, investor-owned
utilities introduced a deregulation plan with objectives to (1) treat
all major stakeholders in Ohio's electric system fairly; (2) protect
public schools and local governments from revenue loss; and (3) allow
utilities an opportunity to recover costs of government-mandated
investments. The utilities have submitted proposals, which incorporate
these objectives and also recognize the complexity of restructuring
the industry. The overlying objective is to do the job right the first
time. Currently, the working group, comprised of legislative leaders,
representatives of the electric utility companies and other interested
stakeholders are meeting to discuss and mold these proposals. Most
recently, placeholder bills containing statements of principle (that
will be replaced by specific proposals as they are agreed upon) have
been introduced. Legislative leaders have placed a high priority on
enacting a deregulation bill by mid-year.
The Clean Air Act Amendments of 1990, discussed in Note 5,
require additional emission reductions by 2000. We are pursuing cost-
effective compliance strategies for meeting these reduction
requirements.
On September 24, 1998, the Federal Environmental Protection
Agency issued a final rule establishing tighter nitrogen oxide
emission requirements for fossil fuel-fired utility boilers in Ohio,
Pennsylvania and twenty other eastern states, including the District
of Columbia (see "Environmental Matters" in Note 5). Controls must be
in place by May 2003, with required reductions achieved during the
five-month summer ozone season (May through September). The new rule
is expected to increase the cost of producing electricity; however, we
believe that we are in a better position than a number of other
utilities to achieve compliance due to our nuclear generation
capacity.
We are aware of our potential involvement in the cleanup of
several sites containing hazardous waste. Although these sites are not
on the Superfund National Priorities List, they are generally being
administered by various governmental entities in the same manner as
they would be administered if they were on such a list. Allegations
that we disposed of hazardous waste at these sites, and the amount
involved are often unsubstantiated and subject to dispute. Federal law
provides that all "potentially responsible parties" for a particular
site be held liable on a joint and several basis. If we were held
liable for 100% of the cleanup costs of all the sites referred to
above, the cost could be as high as $101 million. However, we believe
that the actual cleanup costs will be substantially less than 100% and
that most of the other parties involved are financially able to
contribute their share. We have accrued a $1.1 million liability as of
December 31, 1998, based on estimates of the costs of cleanup and our
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, cash flows or results of
operations.
In connection with FirstEnergy's regulatory plan to reduce
fixed costs and lower rates, we continue to take steps to restructure
our operations. FirstEnergy announced plans to transfer our
transmission assets into a new subsidiary, American Transmission
Systems, Inc., with the transfer expected to be finalized in 1999.
The new subsidiary represents a first step toward the goal of
establishing or becoming part of a larger independent transmission
company (TransCo). We believe that a TransCo better addresses the
Federal Energy Regulatory Commission's (FERC) stated transmission
objectives of providing non-discriminatory service, while providing
for streamlined and cost-efficient operation. In working toward the
goal of forming a larger regional transmission entity, FirstEnergy,
American Electric Power, Virginia Power and Consumers Energy
announced in November 1998 that they would prepare a FERC filing
during 1999 for such a regional transmission entity. The entity would
be designed to meet the goals of reducing transmission costs that
result when transferring power over several transmission systems,
ensuring transmission reliability and providing non-discriminatory
access to the transmission grid.
Year 2000 Readiness
The Year 2000 issue is the result of computer programs
being written using two digits rather than four to identify the
applicable year. Any of our programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than
the year 2000. Because so many of our computer functions are date
sensitive, this could cause far-reaching problems, such as system-
wide computer failures and miscalculations, if no remedial action is
taken.
We have developed a multi-phase program for Year 2000
compliance that consists of an assessment of our systems and
operations that could be affected by the Year 2000 problem;
remediation or replacement of noncompliant systems and components;
and testing of systems and components following such remediation or
replacement. We have focused our Year 2000 review on three areas:
centralized system applications, noncentralized systems and
relationships with third parties (including suppliers as well as end-
use customers). Our review of system readiness extends to systems
involving customer service, safety, shareholder needs and regulatory
obligations.
We are committed to taking appropriate actions to
eliminate or lessen negative effects of the Year 2000 issue on our
operations. We have completed an inventory of all computer systems
and hardware including equipment with embedded computer chips and
have determined which systems need to be converted or replaced to
become Year 2000-ready and are in the process of remediating them.
Based on our timetable, we expect to have all identified repairs,
replacements and upgrades completed to achieve Year 2000 readiness by
September 1999.
Most of our Year 2000 issues will be resolved through
system replacement. Of our major centralized systems, the general
ledger system and inventory management, procurement and accounts
payable systems were replaced at the end of 1998. Our payroll system
was enhanced to be Year 2000 compliant in July 1998. The customer
service system is due to be replaced in mid-1999.
We have completed formal communications with most of our key
suppliers to determine the extent to which we are vulnerable to those
third parties' failure to resolve their own Year 2000 problems. For
suppliers having potential compliance problems, we are developing
alternate sources and services in the event such noncompliance occurs.
We are also identifying areas requiring higher inventory levels based
on compliance uncertainties. There can be no guarantee that the
failure of companies to resolve their own Year 2000 issue will not
have a material adverse effect on our business, financial condition
and results of operations.
We are using both internal and external resources to
reprogram and/or replace and test our software for Year 2000
modifications. Of the $17 million total project cost, approximately
$14 million will be capitalized since those costs are attributable to
the purchase of new software for total system replacements because
the Year 2000 solution comprises only a portion of the benefits
resulting from the system replacements. The remaining $3 million will
be expensed as incurred. As of December 31, 1998, we have spent $11
million for Year 2000 capital projects and had expensed approximately
$2 million for Year 2000-related maintenance activities. Our total
Year 2000 project cost, as well as our estimates of the time needed
to complete remedial efforts, are based on currently available
information and do not include the estimated costs and time
associated with the impact of third party Year 2000 issues.
We believe we are managing the Year 2000 issue in such a
way that our customers will not experience any interruption of
service. We believe the most likely worst-case scenario from the Year
2000 issue will be disruption in power plant monitoring systems,
thereby producing inaccurate data and potential failures in
electronic switching mechanisms at transmission junctions. This would
prolong localized outages, as technicians would have to manually
activate switches. Such an event could have a material, but currently
undeterminable, effect on our financial results. We are developing
contingency plans to address the effects of any delay in becoming
Year 2000 compliant and expect to have contingency plans completed by
June 1999.
The costs of the project and the dates on which we plan to
complete the Year 2000 modifications are based on management's best
estimates, which were derived from numerous assumptions of future
events including the continued availability of certain resources, and
other factors. However, there can be no guarantee that this project
will be completed as planned and actual results could differ
materially from the estimates. Specific factors that might cause
material differences include but are not limited to, the availability
and cost of trained personnel, the ability to locate and correct all
relevant computer code, and similar uncertainties.
<TABLE>
<PAGE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Year For the Year
Ended Ended
December 31, Nov. 8 - Jan. 1 - December 31,
1998 Dec. 31, 1997 Nov. 7, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> | <C> <C>
OPERATING REVENUES (1) $957,037 $122,669 | $ 772,707 $897,259
|
OPERATING EXPENSES AND TAXES: |
Fuel and purchased power 202,239 22,926 | 158,027 177,517
Nuclear operating costs 160,080 29,372 | 138,559 168,458
Other operating costs 166,935 20,608 | 145,174 157,785
-------- -------- | --------- --------
Total operation and maintenance expenses 529,254 72,906 | 441,760 503,760
Provision for depreciation and amortization 94,703 13,133 | 98,986 115,083
General taxes 86,661 13,126 | 77,426 89,647
Income taxes 66,158 4,449 | 31,253 31,954
-------- -------- | --------- --------
Total operating expenses and taxes 776,776 103,614 | 649,425 740,444
-------- -------- | --------- --------
OPERATING INCOME 180,261 19,055 | 123,282 156,815
|
OTHER INCOME (EXPENSE) 12,225 2,153 | 2,153 (4,585)
-------- -------- | --------- --------
INCOME BEFORE NET INTEREST CHARGES 192,486 21,208 | 125,435 152,230
-------- -------- | --------- --------
NET INTEREST CHARGES: |
Interest on long-term debt 88,364 13,689 | 74,264 85,535
Allowance for borrowed funds used during |
construction (1,273) (138) | (259) (827)
Other interest expense (1,187) 41 | 9,661 10,233
-------- -------- | -------- --------
Net interest charges 85,904 13,592 | 83,666 94,941
-------- -------- | -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 106,582 7,616 | 41,769 57,289
|
EXTRAORDINARY ITEM (NET OF INCOME |
TAXES) (Note 1) -- -- | (191,901) --
-------- -------- | --------- --------
NET INCOME (LOSS) 106,582 7,616 | (150,132) 57,289
|
PREFERRED STOCK DIVIDEND |
REQUIREMENTS 13,610 -- | 19,435 16,926
-------- -------- | --------- --------
EARNINGS (LOSS) ON COMMON STOCK $ 92,972 $ 7,616 | $(169,567) $ 40,363
======== ======== | ========= ========
<FN>
(1) Includes electric sales to associated companies of $123.6 million, $17.7 million,
$98.5 million and $105.0 million in 1998, the November 8-December 31, 1997 period,
the January 1-November 7, 1997 period and 1996, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1998 1997
- ------------------------------------------------------------------------------------
(In thousands)
ASSETS
<S> <C> <C>
UTILITY PLANT:
In service $1,757,364 $1,763,495
Less--Accumulated provision for depreciation 626,942 619,222
---------- ----------
1,130,422 1,144,273
---------- ----------
Construction work in progress--
Electric plant 26,603 19,901
Nuclear fuel 11,191 6,632
---------- ----------
37,794 26,533
---------- ----------
1,168,216 1,170,806
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Shippingport Capital Trust (Note 2) 310,762 312,873
Nuclear plant decommissioning trusts 102,749 85,956
Other 3,656 3,164
---------- ----------
417,167 401,993
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 4,140 22,170
Receivables--
Customers 36,710 19,071
Associated companies 30,006 15,199
Other 2,316 2,593
Notes receivable from associated companies 101,236 40,802
Materials and supplies, at average cost--
Owned 25,745 31,892
Under consignment 18,148 9,538
Prepayments and other 25,647 26,437
---------- ----------
243,948 167,702
---------- ----------
DEFERRED CHARGES:
Regulatory assets 417,704 442,724
Goodwill 474,593 514,462
Property taxes 42,842 45,338
Other 4,295 15,127
---------- ----------
939,434 1,017,651
---------- ----------
$2,768,765 $2,758,152
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Consolidated Statements
of Capitalization):
Common stockholder's equity $ 575,692 $ 531,650
Preferred stock--
Not subject to mandatory redemption 210,000 210,000
Subject to mandatory redemption -- 1,690
Long-term debt 1,083,666 1,210,190
---------- ----------
1,869,358 1,953,530
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred
stock 130,426 69,979
Accounts payable--
Associated companies 34,260 21,173
Other 61,587 60,756
Accrued taxes 62,288 34,441
Accrued interest 24,965 26,633
Other 14,862 22,603
---------- ----------
328,388 235,585
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 151,321 104,543
Accumulated deferred investment tax credits 40,670 43,265
Pensions and other postretirement benefits 122,314 113,254
Other 256,714 307,975
---------- ----------
571,019 569,037
---------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Notes 2 and 5) ---------- ---------
$2,768,765 $2,758,152
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDER'S EQUITY:
Common stock, $5 par value, authorized 60,000,000 shares-
39,133,887 shares outstanding $ 195,670 $ 195,670
Premium on capital stock 328,559 328,364
Retained earnings (Note 3A) 51,463 7,616
---------- ----------
Total common stockholder's equity 575,692 531,650
---------- ----------
Number of Shares Optional
Outstanding Redemption Price
------------------ ----------------------
1998 1997 Per Share Aggregate
---- ---- --------- ---------
<C> <C> <C> <C>
PREFERRED STOCK (Note 3C):
Cumulative, $100 par value-
Authorized 3,000,000 shares
Not Subject to Mandatory Redemption:
$ 4.25 160,000 160,000 $104.63 $ 16,740 16,000 16,000
$ 4.56 50,000 50,000 101.00 5,050 5,000 5,000
$ 4.25 100,000 100,000 102.00 10,200 10,000 10,000
$ 8.32 100,000 100,000 102.46 10,246 10,000 10,000
$ 7.76 150,000 150,000 102.44 15,366 15,000 15,000
$ 7.80 150,000 150,000 101.65 15,248 15,000 15,000
$10.00 190,000 190,000 101.00 19,190 19,000 19,000
--------- --------- --------- ---------- ----------
900,000 900,000 92,040 90,000 90,000
--------- --------- --------- ---------- ----------
Cumulative, $25 par value-
Authorized 12,000,000 shares
Not Subject to Mandatory Redemption:
$ 2.21 1,000,000 1,000,000 25.25 25,250 25,000 25,000
$ 2.365 1,400,000 1,400,000 27.75 38,850 35,000 35,000
Adjustable Series A 1,200,000 1,200,000 25.00 30,000 30,000 30,000
Adjustable Series B 1,200,000 1,200,000 25.00 30,000 30,000 30,000
--------- --------- -------- ---------- ----------
4,800,000 4,800,000 124,100 120,000 120,000
--------- --------- -------- ---------- ----------
Total not subject to mandatory
redemption 5,700,000 5,700,000 $216,140 210,000 210,000
========= ========= ======== ---------- ----------
Cumulative, $100 par value-
Subject to Mandatory Redemption
(Note 3D):
$9.375. 16,900 33,550 100.00 $ 1,690 1,690 3,355
Redemption within one year (1,690) (1,665)
--------- --------- -------- ---------- ----------
Total subject to mandatory
redemption 16,900 33,550 $ 1,690 -- 1,690
========= ========= ======== ---------- ----------
LONG-TERM DEBT (Note 3E):
First mortgage bonds:
7.250% due 1999 85,000 85,000
7.500% due 2002 -- 26,000
8.000% due 2003 35,325 35,725
7.875% due 2004 145,000 145,000
---------- ----------
Total first mortgage bonds 265,325 291,725
---------- ----------
Unsecured notes and debentures:
5.750% due 1999-2003 3,600 3,900
10.000% due 2000-2010 1,000 1,000
8.700% due 2002 135,000 135,000
---------- ----------
Total unsecured notes and debentures 139,600 139,900
---------- ----------
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<C> <C>
LONG-TERM DEBT (Cont.):
Secured notes:
7.940% due 1998 -- 5,000
8.000% due 1998 -- 7,000
9.300% due 1998 -- 26,000
10.000% due 1998 -- 650
7.720% due 1999 15,000 15,000
8.470% due 1999 3,500 3,500
7.190% due 2000 45,000 45,000
7.380% due 2000 14,000 14,000
7.460% due 2000 16,500 16,500
7.500% due 2000 100 100
8.500% due 2001 8,000 8,000
9.500% due 2001 21,000 21,000
8.180% due 2002 17,000 17,000
8.620% due 2002 7,000 7,000
8.650% due 2002 5,000 5,000
7.760% due 2003 5,000 5,000
7.780% due 2003 1,000 1,000
7.820% due 2003 38,400 38,400
7.850% due 2003 15,000 15,000
7.910% due 2003 3,000 3,000
7.670% due 2004 70,000 70,000
7.130% due 2007 30,000 30,000
3.050% due 2011* 31,250 31,250
8.000% due 2019 67,300 67,300
7.625% due 2020 45,000 45,000
7.750% due 2020 54,000 54,000
9.220% due 2021 15,000 15,000
10.000% due 2021 15,000 15,000
7.400% due 2022 30,900 30,900
6.875% due 2023 20,200 20,200
7.550% due 2023 37,300 37,300
8.000% due 2023 49,300 49,300
6.100% due 2027 10,100 10,100
5.375% due 2028 3,751 --
---------- ----------
Total secured notes 693,601 728,500
---------- ----------
Capital lease obligations (Note 2) 67,453 64,843
---------- ----------
Net unamortized premium on debt 46,423 53,536
---------- ----------
Long-term debt due within one year (128,736) (68,314)
---------- ----------
Total long-term debt 1,083,666 1,210,190
---------- ----------
TOTAL CAPITALIZATION $1,869,358 $1,953,530
========== ==========
<FN>
*Denotes variable rate issue with December 31, 1998 interest rate shown.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
Comprehensive Premium Other Retained
Income (Loss) Number Par on Capital Paid-In Earnings
(Note 3B) of Shares Value Stock Capital (Deficit)
------------ --------- ------- ---------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 39,133,887 $195,687 $ 481,057 $ 121,059 $ (34,926)
Net income $ 57,289 57,289
=========
Unrealized loss on securities (3)
Cash dividends on preferred stock (16,926)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 39,133,887 195,687 481,057 121,056 5,437
Net (loss) $(150,132) (150,132)
=========
Cash dividends on preferred stock (20,973)
- ---------------------------------------------------------------------------------------------------------------------------
Purchase accounting fair value adjustment (17) (152,693) (121,056) 165,668
Net income $ 7,616 7,616
=========
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 39,133,887 195,670 328,364 -- 7,616
Purchase accounting fair value adjustment 195
Net income $ 106,582 106,582
=========
Cash dividends on preferred stock (12,252)
Cash dividends on common stock (50,483)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 39,133,887 $195,670 $ 328,559 $ -- $ 51,463
=============================================================================================================================
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
-------------------- --------------------
Number Par Number Par
of Shares Value of Shares Value
--------- --------- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1996 5,700,000 $210,000 66,850 $ 6,685
Redemptions-
$100 par $9.375 (16,650) (1,665)
---------------------------------------------------------------------------------------------
Balance, December 31, 1996 5,700,000 210,000 50,200 5,020
Redemptions-
$100 par $9.375 (16,650) (1,665)
---------------------------------------------------------------------------------------------
Balance, December 31, 1997 5,700,000 210,000 33,550 3,355
Redemptions-
$100 par $9.375 (16,650) (1,665)
---------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,700,000 $210,000 16,900 $ 1,690
=============================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Year For the Year
Ended Ended
December 31, Nov. 8 - Jan. 1 - December 31,
1998 Dec. 31, 1997 Nov. 7, 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net Income (Loss) $ 106,582 $ 7,616 | $(150,132) $ 57,289
Adjustments to reconcile net income to net |
cash from operating activities: |
Provision for depreciation and amortization 94,703 13,133 | 98,986 115,083
Nuclear fuel and lease amortization 24,071 5,316 | 30,354 33,294
Deferred income taxes, net 50,570 3,113 | (121,002) 17,919
Investment tax credits, net (2,595) (400) | (3,601) (4,321)
Allowance for equity funds used during construction -- (61) | (776) (1,045)
Extraordinary item -- -- | 295,233 --
Receivables (32,169) 1,923 | 317 (9,610)
Net proceeds from accounts receivable securitization -- -- | -- 78,461
Materials and supplies (2,463) (4,430) | 6,543 5,697
Accounts payable 31,871 (12,989) | 18,679 (9,737)
Other (8,140) (29,443) | 55,233 (1,509)
--------- -------- | --------- ---------
Net cash provided from (used for) operating |
activities 262,430 (16,222) | 229,834 281,521
--------- -------- | --------- ---------
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
New Financing-- |
Long-term debt 3,629 -- | 149,804 (260)
Redemptions and Repayments-- |
Preferred stock 1,665 -- | 1,665 1,665
Long-term debt 90,929 -- | 85,419 110,108
Short-term borrowings, net -- -- | -- 20,950
Dividend Payments-- |
Common stock 50,483 -- | -- --
Preferred stock 16,378 4,156 | 12,589 16,926
--------- -------- | --------- ---------
Net cash provided from (used for) financing |
activities (155,826) (4,156) | 50,131 (149,909)
--------- -------- | --------- ---------
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Property additions 45,870 6,568 | 36,680 47,961
Loans to associated companies 60,434 -- | -- 81,817
Loan payments from associated companies -- (15,297) | (25,718) --
Capital trust investments (2,111) (7,314) | 320,187 --
Other 20,441 (6,585) | 10,350 14,049
--------- -------- | --------- ---------
Net cash used for (provided from) investing |
activities 124,634 (22,628) | 341,499 143,827
--------- -------- | --------- ---------
Net increase (decrease) in cash and cash equivalents (18,030) 2,250 | (61,534) (12,215)
Cash and cash equivalents at beginning of period 22,170 19,920 | 81,454 93,669
--------- -------- | --------- ---------
Cash and cash equivalents at end of period $ 4,140 $ 22,170 | $ 19,920 $ 81,454
========= ======== | ========= =========
|
SUPPLEMENTAL CASH FLOWS INFORMATION: |
Cash Paid During the Period-- |
Interest (net of amounts capitalized) $ 94,000 $ 16,000 | $ 73,000 $ 92,000
========= ======== | ========= =========
Income taxes $ 6,935 $ 28,000 | $ 25,300 $ 15,950
========= ======== | ========= =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
For the Year For the Year
Ended Ended
December 31, Nov. 8 - Jan. 1 - December 31,
1998 Dec. 31, 1997 Nov. 7, 1997 1996
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
GENERAL TAXES: |
Real and personal property $ 44,993 $ 5,998 | $ 40,495 $ 45,446
State gross receipts 35,114 5,826 | 28,590 33,793
Social security and unemployment 5,065 818 | 4,444 5,689
Other 1,489 484 | 3,897 4,719
-------- --------- | --------- --------
Total general taxes $ 86,661 $ 13,126 | $ 77,426 $ 89,647
======== ========= | ========= ========
PROVISION FOR INCOME TAXES: |
Currently payable-- |
Federal $ 22,767 $ 2,859 | $ 55,192 $ 13,582
State * 1,954 209 | -- --
-------- --------- | --------- --------
24,721 3,068 | 55,192 13,582
-------- --------- | --------- --------
Deferred, net-- |
Federal 50,337 3,096 | (121,002) 17,919
State * 233 17 | -- --
-------- --------- | --------- --------
50,570 3,113 | (121,002) 17,919
-------- --------- | --------- --------
Investment tax credit amortization (2,595) (400) | (3,601) (4,321)
-------- --------- | --------- --------
Total provision for income taxes $ 72,696 $ 5,781 | $ (69,411) $ 27,180
======== ========= | ========= ========
INCOME STATEMENT CLASSIFICATION |
OF PROVISION FOR INCOME TAXES: |
Operating income $ 66,158 $ 4,449 | $ 31,253 $ 31,954
Other income 6,538 1,332 | 2,667 (4,774)
Extraordinary item -- -- | (103,331) --
-------- --------- | --------- --------
Total provision for income taxes $ 72,696 $ 5,781 | $ (69,411) $ 27,180
======== ========= | ========= ========
RECONCILIATION OF FEDERAL INCOME TAX |
EXPENSE AT STATUTORY RATE TO TOTAL |
PROVISION FOR INCOME TAXES: |
Book income before provision for income taxes $179,278 $ 13,397 | $(219,543) $ 84,469
======== ========= | ========= ========
Federal income tax expense at statutory rate $ 62,747 $ 4,689 | $ (76,840) $ 29,564
Increases (reductions) in taxes resulting |
from-- |
Amortization of investment tax credits (2,595) (400) | (3,601) (4,321)
Depreciation -- -- | 3,428 (3,742)
Amortization of tax regulatory assets 5,728 955 | -- --
Amortization of goodwill 4,421 670 | -- --
Other, net 2,395 (133) | 7,602 5,679
-------- --------- | --------- --------
Total provision for income taxes $ 72,696 $ 5,781 | $ (69,411) $ 27,180
======== ========= | ========= ========
ACCUMULATED DEFERRED INCOME TAXES |
AT DECEMBER 31: |
Property basis differences $195,948 $ 190,636 | $612,000
Deferred nuclear expense 79,355 83,052 | 84,000
Deferred sale and leaseback costs (20,623) (17,431) | --
Unamortized investment tax credits (19,515) (20,960) | (44,000)
Unused alternative minimum tax credits (66,322) (108,156) | (99,837)
Other (17,522) (22,598) | 13,437
-------- --------- | --------
Net deferred income tax liability $151,321 $ 104,543 | $565,600
======== ========= | ========
<FN>
* For periods prior to November 8, 1997, state income taxes are included
in the General Taxes section above. These amounts are not material and
no restatement was made.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include The Toledo
Edison Company (Company) and its 90% owned subsidiary, The Toledo Edison
Capital Corporation (TECC). The subsidiary was formed in 1997 to make
equity investments in a business trust in connection with the financing
transactions related to the Bruce Mansfield Plant sale and leaseback
(see Note 2). The Cleveland Electric Illuminating Company (CEI), an
affiliate, has a 10% interest in TECC. All significant intercompany
transactions have been eliminated. The Company is a wholly owned
subsidiary of FirstEnergy Corp. (FirstEnergy). Prior to the merger in
November 1997 (see Note 7), the Company and CEI were the principal
operating subsidiaries of Centerior Energy Corporation (Centerior). The
merger was accounted for using the purchase method of accounting in
accordance with generally accepted accounting principles, and the
applicable effects were reflected on the separate financial statements
of Centerior's direct subsidiaries as of the merger date. Accordingly,
the post-merger financial statements reflect a new basis of accounting
and pre-merger period and post-merger period financial results
(separated by a heavy black line) are presented. The Company follows the
accounting policies and practices prescribed by the Public Utilities
Commission of Ohio (PUCO) and the Federal Energy Regulatory Commission
(FERC). The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
periodic estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Certain prior year amounts
have been reclassified to conform with the current year presentation.
REVENUES-
The Company's principal business is providing electric service
to customers in northwestern Ohio. The Company's retail customers are
metered on a cycle basis. Revenue is recognized for unbilled electric
service through the end of the year.
Receivables from customers include sales to residential,
commercial and industrial customers located in the Company's service
area and sales to wholesale customers. There was no material
concentration of receivables at December 31, 1998 or 1997, with respect
to any particular segment of the Company's customers.
In May 1996, the Company and CEI began to sell on a daily
basis substantially all of their retail customer accounts receivable to
Centerior Funding Corporation (Centerior Funding), a wholly owned
subsidiary of CEI, under an asset-backed securitization agreement which
expires in 2001. In July 1996, Centerior Funding completed a public sale
of $150 million of receivables-backed investor certificates in a
transaction that qualified for sale accounting treatment.
REGULATORY PLAN-
FirstEnergy's Rate Reduction and Economic Development Plan for
the Company was approved in January 1997, to be effective upon
consummation of the merger. The regulatory plan initially maintains
current base electric rates for the Company through December 31, 2005.
At the end of the regulatory plan period, the Company's base rates will
be reduced by $93 million (approximately 15 percent below current
levels). The regulatory plan also revised the Company's fuel cost
recovery method. The Company formerly recovered fuel-related costs not
otherwise included in base rates from retail customers through a
separate energy rate. In accordance with the regulatory plan, the
Company's fuel rate will be frozen through the regulatory plan period,
subject to limited periodic adjustments. As part of the regulatory plan,
transition rate credits were implemented for customers, which are
expected to reduce operating revenues for the Company by approximately
$111 million during the regulatory plan period.
All of the Company's regulatory assets related to its
nonnuclear operations are being recovered under provisions of the
regulatory plan (see "Regulatory Assets"). The Company recognized a fair
value purchase accounting adjustment to reduce nuclear plant by
$842 million in connection with the FirstEnergy merger (see Note 7);
that fair value adjustment recognized for financial reporting purposes
will ultimately satisfy the $647 million asset reduction commitment
contained in the regulatory plan. For regulatory purposes, the Company
will recognize the $647 million of accelerated amortization over the
regulatory plan period.
Application of Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71), was discontinued in 1997 with respect to the
Company's nuclear operations. The Company's net assets included in
utility plant relating to the operations for which the application of
SFAS 71 was discontinued were $579 million as of December 31, 1998.
UTILITY PLANT AND DEPRECIATION-
Utility plant reflects the original cost of construction
(except for the Company's nuclear generating units which were adjusted
to fair value in 1997), including payroll and related costs such as
taxes, employee benefits, administrative and general costs, and interest
costs.
The Company provides for depreciation on a straight-line basis
at various rates over the estimated lives of property included in plant
in service. The annualized composite rate was approximately 3.4%
(reflecting the nuclear asset fair value adjustment discussed above) and
2.6% in 1998 and the post-merger period in 1997, respectively. In its
April 1996 rate order, the PUCO approved depreciation rates for the
Company of 2.95% for nuclear property and 3.13% for nonnuclear property.
Annual depreciation expense includes approximately
$9.8 million for future decommissioning costs applicable to the
Company's ownership interests in three nuclear generating units. The
Company's share of the future obligation to decommission these units is
approximately $348 million in current dollars and (using a 4.0%
escalation rate) approximately $896 million in future dollars. The
estimated obligation and the escalation rate were developed based on
site specific studies. Payments for decommissioning are expected to
begin in 2016, when actual decommissioning work begins. The Company has
recovered approximately $91 million for decommissioning through its
electric rates from customers through December 31, 1998. If the actual
costs of decommissioning the units exceed the funds accumulated from
investing amounts recovered from customers, the Company expects that
additional amount to be recoverable from its customers. The Company has
approximately $102.7 million invested in external decommissioning trust
funds as of December 31, 1998. Earnings on these funds are reinvested
with a corresponding increase to the decommissioning liability. The
Company has also recognized an estimated liability of approximately $8.7
million at December 31, 1998 related to decontamination and
decommissioning of nuclear enrichment facilities operated by the United
States Department of Energy (DOE), as required by the Energy Policy Act
of 1992.
The Financial Accounting Standards Board (FASB) issued a
proposed accounting standard for nuclear decommissioning costs in 1996.
If the standard is adopted as proposed: (1) annual provisions for
decommissioning could increase; (2) the net present value of estimated
decommissioning costs could be recorded as a liability; and (3) income
from the external decommissioning trusts could be reported as investment
income. The FASB subsequently expanded the scope of the proposed
standard to include other closure and removal obligations related to
long-lived assets. A revised proposal may be issued by the FASB in 1999.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Company, CEI, Duquesne Light Company, Ohio Edison Company
(OE) and its wholly owned subsidiary, Pennsylvania Power Company (Penn),
constitute the Central Area Power Coordination Group (CAPCO). The CAPCO
companies own and/or lease, as tenants in common, various power
generating facilities. Each of the companies is obligated to pay a share
of the costs associated with any jointly owned facility in the same
proportion as its interest. The Company's portion of operating expenses
associated with jointly owned facilities is included in the
corresponding operating expenses on the Consolidated Statements of
Income. The amounts reflected on the Consolidated Balance Sheet under
utility plant at December 31, 1998 include the following:
<TABLE>
<CAPTION>
Utility Accumulated Construction Ownership/
Plant Provision for Work in Leasehold
Generating Units in Service Depreciation Progress Interest
- ---------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Bruce Mansfield
Units 2 and 3 $ 39.4 $11.1 $ 1.1 18.61%
Beaver Valley Unit 2 57.7 3.3 0.7 19.91%
Davis-Besse 202.5 4.8 6.2 48.62%
Perry 332.7 16.4 4.0 19.91%
- -------------------------------------------------------------------------
Total $632.3 $35.6 $12.0
=========================================================================
</TABLE>
The Bruce Mansfield Plant and Beaver Valley Unit 2 are being
leased through sale and leaseback transactions (see Note 2) and the
above-related amounts represent construction expenditures subsequent
to the transaction.
NUCLEAR FUEL-
The Company leases its nuclear fuel and pays for the fuel as
it is consumed (see Note 2). The Company amortizes the cost of nuclear
fuel based on the rate of consumption. The Company's electric rates
include amounts for the future disposal of spent nuclear fuel based
upon the payments to the DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on
the Consolidated Statements of Taxes. Deferred income taxes result
from timing differences in the recognition of revenues and expenses
for tax and accounting purposes. Investment tax credits, which were
deferred when utilized, are being amortized over the recovery period
of the related property. The liability method is used to account for
deferred income taxes. Deferred income tax liabilities related to tax
and accounting basis differences are recognized at the statutory
income tax rates in effect when the liabilities are expected to be
paid. Alternative minimum tax credits of $66 million, which may be
carried forward indefinitely, are available to reduce future federal
income taxes. Since the Company became a wholly owned subsidiary of
FirstEnergy on November 8, 1997, the Company is included in
FirstEnergy's consolidated federal income tax return. The consolidated
tax liability is allocated on a "stand-alone" company basis, with the
Company recognizing any tax losses or credits it contributed to the
consolidated return.
RETIREMENT BENEFITS-
Centerior had sponsored jointly with the Company, CEI and
Centerior Service Company (Service Company) a noncontributory pension
plan (Centerior Pension Plan) which covered all employee groups. Upon
retirement, employees receive a monthly pension generally based on the
length of service. In 1998, the Centerior Pension Plan was merged into
the FirstEnergy pension plans. In connection with the OE-Centerior
merger, the Company recorded fair value purchase accounting
adjustments to recognize the net gain, prior service cost, and net
transition asset (obligation) associated with the pension and
postretirement benefit plans. The assets of the pension plans consist
primarily of common stocks, United States government bonds and
corporate bonds.
The Company provides a minimum amount of noncontributory
life insurance to retired employees in addition to optional
contributory insurance. Health care benefits, which include certain
employee deductibles and copayments, are also available to retired
employees, their dependents and, under certain circumstances, their
survivors. The Company pays insurance premiums to cover a portion of
these benefits in excess of set limits; all amounts up to the limits
are paid by the Company. The Company recognizes the expected cost of
providing other postretirement benefits to employees and their
beneficiaries and covered dependents from the time employees are hired
until they become eligible to receive those benefits.
The following sets forth the funded status of the
FirstEnergy plans in 1998 and the former Centerior plans in 1997 and
amounts recognized on the Consolidated Balance Sheets as of December
31:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation as of January 1* $1,327.5 $395.0 $ 534.1 $ 211.9
Service cost 25.0 13.4 7.5 2.3
Interest cost 92.5 31.5 37.6 16.3
Plan amendments 44.3 7.1 40.1 --
Early retirement program expense -- 27.8 -- --
Actuarial loss 101.6 74.8 10.7 51.9
Benefits paid (90.8) (16.2) (28.7) (15.9)
- -----------------------------------------------------------------------------------------------
Benefit obligation as of December 31 1,500.1 533.4 601.3 266.5
- -----------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of January 1* 1,542.5 420.8 2.8 --
Actual return on plan assets 231.3 57.3 0.7 --
Company contribution -- -- 0.4 --
Benefits paid (90.8) (16.2) -- --
- -----------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31 1,683.0 461.9 3.9 --
- -----------------------------------------------------------------------------------------------
Funded status of plan* 182.9 (71.5) (597.4) (266.5)
Unrecognized actuarial loss (gain) (110.8) 3.0 30.6 --
Unrecognized prior service cost 63.0 -- 27.4 --
Unrecognized net transition obligation (asset) (18.0) -- 129.3 --
- -----------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 117.1 $(68.5) $(410.1) $(266.5)
===============================================================================================
Assumptions used as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected long-term return on plan assets 10.25% 10.00% 10.25% 10.00%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
<FN>
* 1998 beginning balances represents 1998 merger of Centerior
and OE plans into FirstEnergy plans.
</TABLE>
The Consolidated Balance Sheet classification of Pensions
and Other Postretirement Benefits at December 31, 1998 and 1997
includes the Company's share of the net pension liability of $17.3
million and $18.1 million, respectively; and the Company's share of
the accrued postretirement benefit liability of $105.0 million and
$95.2 million, respectively.
Net pension and other postretirement benefit costs for the
three years ended December 31, 1998 (FirstEnergy plans in 1998 and
Centerior plans in 1997 and 1996) were computed as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
----------------------------- ------------------------------
1997 1997
---------------- ----------------
Nov. 8- | Jan. 1- Nov. 8-| Jan. 1-
1998 Dec. 31 | Nov. 7 1996 1998 Dec. 31| Nov. 7 1996
- ------------------------------------------------|---------------------------------|-------------
| (In millions) |
<S> <C> <C> | <C> <C> <C> <C> | <C> <C>
Service cost $ 25.0 $ 2.3 | $ 11.1 $ 12.6 $ 7.5 $0.5 | $ 1.8 $ 2.1
Interest cost 92.5 6.1 | 25.4 27.9 37.6 2.8 | 13.5 17.8
Expected return on plan assets (152.7) (7.7) | (38.0) (43.0) (0.3) -- | -- --
Amortization of transition | |
obligation (asset) (8.0) -- | (3.0) (3.5) 9.2 -- | 6.4 7.5
Amortization of prior service | |
cost 2.3 -- | 1.1 1.3 (0.8) -- | -- --
Recognized net actuarial loss | |
(gain) (2.6) -- | (0.5) (2.7) -- -- | (0.9) --
Voluntary early retirement | |
program expense -- 23.0 | 4.8 -- -- -- | -- --
- ------------------------------------------------|---------------------------------|-------------
Net benefit cost $ (43.5) $23.7 | $ 0.9 $ (7.4) $53.2 $3.3 | $20.8 $27.4
================================================|=================================|=============
Company's share of total plan | |
costs $ (1.1) $ 5.7 | $ 3.5 $ (2.4) $ 7.5 $1.5 | $ 8.9 $ 9.0
- ------------------------------------------------------------------------------------------------
</TABLE>
The FirstEnergy plans' health care trend rate assumption is
5.5% in the first year gradually decreasing to 4.0% for the year 2008
and later. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan. An increase
in the health care trend rate assumption by one percentage point would
increase the total service and interest cost components by $4.0
million and the postretirement benefit obligation by $68.1 million. A
decrease in the same assumption by one percentage point would decrease
the total service and interest cost components by $3.2 million and the
postretirement benefit obligation by $55.2 million.
TRANSACTIONS WITH AFFILIATED COMPANIES-
Operating revenues, operating expenses and interest charges
include amounts for transactions with affiliated companies in the
ordinary course of business operations.
The Company's transactions with CEI and the other
FirstEnergy operating subsidiaries (OE and Penn) from the November 8,
1997 merger date are primarily for firm power, interchange power,
transmission line rentals and jointly owned power plant operations and
construction (see Note 7). Beginning in May 1996, Centerior Funding
began serving as the transferor in connection with the accounts
receivable securitization for the Company and CEI.
The Service Company (formerly a wholly owned subsidiary of
Centerior and now a wholly owned subsidiary of FirstEnergy) provided
support services at cost to the Company and other affiliated
companies. The Service Company billed the Company $39.0 million,
$13.9 million, $51.5 million and $59.8 million in 1998, the
November 8-December 31, 1997 period, the January 1-November 7, 1997
period and 1996, respectively, for such services.
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial
maturity of three months or less are reported as cash equivalents on
the Consolidated Balance Sheets. The Company reflects temporary cash
investments at cost, which approximates their fair market value.
Noncash financing and investing activities included capital lease
transactions amounting to $28 million, $2 million, $12 million and
$32 million in 1998, the November 8-December 31, 1997 period, the
January 1-November 7, 1997 period and 1996, respectively.
All borrowings with initial maturities of less than one year
are defined as financial instruments under generally accepted
accounting principles and are reported on the Consolidated Balance
Sheets at cost, which approximates their fair market value. The
following sets forth the approximate fair value and related carrying
amounts of all other long-term debt, preferred stock subject to
mandatory redemption and investments other than cash and cash
equivalents as of December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $1,098 $1,174 $1,160 $1,218
Preferred stock $ 2 $ 2 $ 3 $ 3
Investments other than cash
and cash equivalents:
Debt securities
-(Maturing in more than 10 years) $ 308 $ 301 $ 295 $ 303
Equity securities 3 3 3 3
All other 103 105 86 85
- -------------------------------------------------------------------
$ 414 $ 409 $ 384 $ 391
====================================================================
</TABLE>
The carrying value of long-term debt was adjusted to fair
value in connection with the OE-Centerior merger and reflects the
present value of the cash outflows relating to those securities based
on the current call price, the yield to maturity or the yield to call,
as deemed appropriate at the end of each respective year. The yields
assumed were based on securities with similar characteristics offered
by a corporation with credit ratings similar to the Company's ratings.
The fair value of investments other than cash and cash
equivalents represent cost (which approximates fair value) or the
present value of the cash inflows based on the yield to maturity. The
yields assumed were based on financial instruments with similar
characteristics and terms. Investments other than cash and cash
equivalents include decommissioning trusts investments. Unrealized
gains and losses applicable to the decommissioning trusts have been
recognized in the trust investments with a corresponding change to the
decommissioning liability. The other debt and equity securities
referred to above are in the held-to-maturity category. The Company
has no securities held for trading purposes.
REGULATORY ASSETS-
The Company recognizes, as regulatory assets, costs which
the FERC and PUCO have authorized for recovery from customers in
future periods. Without such authorization, the costs would have been
charged to income as incurred. All regulatory assets related to
nonnuclear operations are being recovered from customers under the
Company's regulatory plan. Based on the regulatory plan, at this time,
the Company believes it will continue to be able to bill and collect
cost-based rates (with the exception of the Company's nuclear
operations as discussed below); accordingly, it is appropriate that
the Company continues the application of SFAS 71 in the foreseeable
future for its nonnuclear operations.
The Company discontinued the application of SFAS 71 for its
nuclear operations in October 1997 when implementation of the
regulatory plan became probable. The regulatory plan does not provide
for full recovery of the Company's nuclear operations. In accordance
with SFAS No. 101, "Regulated Enterprises -- Accounting for the
Discontinuation of Application of SFAS 71," the Company was required
to remove from its balance sheet all regulatory assets and liabilities
related to the portion of its business for which SFAS 71 was
discontinued and to assess all other assets for impairment. Regulatory
assets attributable to nuclear operations of $295.2 million
($191.9 million after taxes) were written off as an extraordinary item
in October 1997. The regulatory assets attributable to nuclear
operations written off represent the net amounts due from customers
for future federal income taxes when the taxes become payable, which,
under the regulatory plan, are no longer recoverable from customers.
The remainder of the Company's business continues to comply with the
provisions of SFAS 71. All remaining regulatory assets of the Company
will continue to be recovered through rates set for the nonnuclear
portion of its business. For financial reporting purposes, the net
book value of the nuclear generating units was not impaired as a
result of the regulatory plan.
Net regulatory assets on the Consolidated Balance Sheets are
comprised of the following:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------
(In millions)
<S> <C> <C>
Nuclear unit expenses $200.1 $207.4
Rate stabilization program deferrals 164.1 172.0
Sale and leaseback costs 41.3 40.2
Loss on reacquired debt 20.0 21.1
Other (7.8) 2.0
- ----------------------------------------------------------
Total $417.7 $442.7
==========================================================
</TABLE>
2. LEASES:
The Company leases certain generating facilities, nuclear
fuel, certain transmission facilities, office space and other property
and equipment under cancelable and noncancelable leases.
The Company and CEI sold their ownership interests in Bruce
Mansfield Units 1, 2 and 3 and the Company sold a portion of its
ownership interest in Beaver Valley Unit 2. In connection with these
sales, which were completed in 1987, the Company and CEI entered into
operating leases for lease terms of approximately 30 years as co-
lessees. During the terms of the leases, the Company and CEI continue
to be responsible, to the extent of their combined ownership and
leasehold interest, for costs associated with the units including
construction expenditures, operation and maintenance expenses,
insurance, nuclear fuel, property taxes and decommissioning. The
Company and CEI have the right, at the end of the respective basic
lease terms, to renew the leases. The Company and CEI also have the
right to purchase the facilities at the expiration of the basic lease
term or renewal term (if elected) at a price equal to the fair market
value of the facilities.
As co-lessee with CEI, the Company is also obligated for
CEI's lease payments. If CEI is unable to make its payments under the
Bruce Mansfield Plant lease, the Company would be obligated to make
such payments. No such payments have been made on behalf of CEI.
(CEI's future minimum lease payments as of December 31, 1998 were
approximately $1.1 billion.)
The Company is selling 150 megawatts of its Beaver Valley
Unit 2 leased capacity entitlement to CEI. Operating revenues for this
transaction were $98.5 million, $16.8 million, $87.4 million and
$99.4 million in 1998, the November 8-December 31, 1997 period, the
January 1-November 7, 1997 period and 1996, respectively. This sale is
expected to continue through the end of the lease period. The future
minimum lease payments through 2017 associated with Beaver Valley
Unit 2 are approximately $1.1 billion.
Nuclear fuel is currently financed for the Company and CEI
through leases with a special-purpose corporation. As of December 31,
1998, $156 million of nuclear fuel ($67 million for the Company) was
financed under a lease financing arrangement totaling $175 million
($60 million of intermediate-term notes and $115 million from bank
credit arrangements). The notes mature from 1999 through 2000 and the
bank credit arrangements expire in September 2000. Lease rates are
based on intermediate-term note rates, bank rates and commercial paper
rates.
Consistent with the regulatory treatment, the rentals for
capital and operating leases are charged to operating expenses on the
Consolidated Statements of Income. Such costs for the three years
ended December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Nov. 8 - Jan. 1 -
1998 Dec. 31, 1997 Nov. 7, 1997 1996
- ---------------------------------------------------------------------
(In millions)
<S> <C> <C> | <C> <C>
Operating leases |
Interest element $ 59.2 $28.0 | $ 57.4 $ 82.5
Other 44.9 13.5 | 23.1 42.6
Capital leases |
Interest element 4.9 1.0 | 6.0 7.5
Other 25.1 5.3 | 30.4 38.6
- ----------------------------------------------|----------------------
Total rentals $134.1 $47.8 | $116.9 $171.2
=====================================================================
</TABLE>
The future minimum lease payments as of December 31, 1998
are:
<TABLE>
<CAPTION>
Operating Leases
----------------------------
Capital Lease Capital
Leases Payments Trust Net
- ------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
1999 $28.7 $ 106.5 $ 36.3 $ 70.2
2000 19.4 104.8 35.4 69.4
2001 12.0 108.0 36.4 71.6
2002 5.8 111.0 37.9 73.1
2003 1.9 111.7 36.0 75.7
Years thereafter 0.4 1,318.4 321.4 997.0
- --------------------------------------------------------------------
Total minimum lease payments 68.2 $1,860.4 $503.4 $1,357.0
======== ====== ========
Interest portion 8.3
- -----------------------------------
Present value of net
minimum lease payments 59.9
Less current portion 24.5
- -----------------------------------
Noncurrent portion $35.4
===================================
</TABLE>
The Company and CEI refinanced high-cost fixed obligations
related to their 1987 sale and leaseback transaction for the Bruce
Mansfield Plant through a lower cost transaction in June and July
1997. In a June 1997 offering (Offering), the two companies pledged
$720 million aggregate principal amount ($145 million for the Company
and $575 million for CEI) of first mortgage bonds due in 2000, 2004
and 2007 to a trust as security for the issuance of a like principal
amount of secured notes due in 2000, 2004 and 2007. The obligations of
the two companies under these secured notes are joint and several.
Using available cash, short-term borrowings and the net proceeds from
the Offering, the two companies invested $906.5 million
($337.1 million for the Company and $569.4 million for CEI) in a
business trust, in June 1997. The trust used these funds in July 1997
to purchase lease notes and redeem all $873.2 million aggregate
principal amount of 10-1/4% and 11-1/8% secured lease obligation bonds
(SLOBs) due 2003 and 2016. The SLOBs were issued by a special-purpose
funding corporation in 1988 on behalf of lessors in the two companies'
1987 sale and leaseback transaction. The Shippingport capital trust
arrangement effectively reduce lease costs related to that
transaction.
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
The Company has a provision in its mortgage applicable to
$35.325 million of its 8.00% First Mortgage Bonds due 2003 that
requires common stock dividends to be paid out of its total balance of
retained earnings. The merger purchase accounting adjustments included
resetting the retained earnings balance to zero at the November 8,
1997 merger date.
(B) COMPREHENSIVE INCOME-
In 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income," and applied the standard to all periods
presented in the Consolidated Statements of Common Stockholder's
Equity. Comprehensive income includes net income as reported on the
Consolidated Statements of Income and all other changes in common
stockholder's equity except dividends to stockholders. Net income and
comprehensive income are the same for each period presented.
(C) PREFERRED AND PREFERENCE STOCK-
Preferred stock may be redeemed by the Company in whole, or
in part, with 30-90 days' notice.
The preferred dividend rates on the Company's Series A and
Series B fluctuate based on prevailing interest rates and market
conditions. The dividend rates for these issues averaged 7.00% and
7.07%, respectively, in 1998.
Preference stock authorized for the Company is 5,000,000
shares with a $25 par value. No preference shares are currently
outstanding.
A liability of $5 million was included in the Company's net
assets as of the merger date for preferred dividends declared
attributable to the post-merger period. Accordingly, no accrual for
preferred stock dividend requirements was included on the Company's
November 8, 1997 to December 31, 1997 Consolidated Statement of
Income. This liability was subsequently reduced to zero in 1998.
(D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
Annual sinking fund requirements for the next five years
consist of $1.7 million in 1999.
(E) LONG-TERM DEBT-
The first mortgage indenture and its supplements, which
secure all of the Company's first mortgage bonds, serve as direct
first mortgage liens on substantially all property and franchises,
other than specifically excepted property, owned by the Company.
Based on the amount of bonds authenticated by the Trustees
through December 31, 1998, TE's annual sinking and improvement fund
requirements for all bonds issued under the mortgage amounts to $0.4
million. TE expects to deposit funds in 1999 that will be withdrawn
upon the surrender for cancellation of a like principal amount of
bonds, which are specifically authenticated for such purposes against
unfunded property additions or against previously retired bonds. This
method can result in minor increases in the amount of the annual
sinking fund requirement.
Sinking fund requirements for first mortgage bonds and
maturing long-term debt (excluding capital leases) for the next five
years are:
<TABLE>
<CAPTION>
(In millions)
- -------------------------------
<S> <C>
1999 $104.2
2000 76.3
2001 29.9
2002 165.4
2003 97.7
- -------------------------------
</TABLE>
The Company's obligations to repay certain pollution control
revenue bonds are secured by several series of first mortgage bonds.
One pollution control revenue bond issue is entitled to the benefit of
an irrevocable bank letter of credit of $32.1 million. To the extent
that drawings are made under this letter of credit to pay principal
of, or interest on, the pollution control revenue bonds, the Company
is entitled to a credit against its obligation to repay those bonds.
The Company pays an annual fee of 1.875% of the amount of the letter
of credit to the issuing bank and is obligated to reimburse the bank
for any drawings thereunder.
The Company and CEI have letters of credit of approximately
$225 million in connection with the sale and leaseback of Beaver
Valley Unit 2 that expire in June 1999. The letters of credit are
secured by first mortgage bonds of the Company and CEI in the
proportion of 60% and 40%, respectively (see Note 2).
4. SHORT-TERM BORROWINGS:
FirstEnergy has a $100 million revolving credit facility
that expires in May 1999. FirstEnergy may borrow under the facility,
with all borrowings jointly and severally guaranteed by the Company
and CEI. FirstEnergy plans to transfer any of its borrowed funds to
the Company and CEI. The credit agreement is secured with first
mortgage bonds of the Company and CEI in the proportion of 60% and
40%, respectively. The credit agreement also provides the
participating banks with a subordinate mortgage security interest in
the properties of the Company and CEI. The banks' fee is 0.50% per
annum payable quarterly in addition to interest on any borrowings.
There were no borrowings under the facility at December 31, 1998.
Also, the Company may borrow from its affiliates on a short-term
basis.
5. COMMITMENTS, GUARANTEES AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Company's current forecast reflects expenditures of
approximately $257 million for property additions and improvements
from 1999-2003, of which approximately $58 million is applicable to
1999. Investments for additional nuclear fuel during the 1999-2003
period are estimated to be approximately $102 million, of which
approximately $9 million applies to 1999. During the same periods, the
Company's nuclear fuel investments are expected to be reduced by
approximately $120 million and $26 million, respectively, as the
nuclear fuel is consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative
to a single incident at a nuclear power plant to $9.7 billion. The
amount is covered by a combination of private insurance and an
industry retrospective rating plan. Based on its present ownership and
leasehold interests in Beaver Valley Unit 2, the Davis-Besse Plant and
the Perry Plant, the Company's maximum potential assessment under the
industry retrospective rating plan (assuming the other co-owners
contribute their proportionate share of any assessments under the
retrospective rating plan) would be $77.9 million per incident but not
more than $8.8 million in any one year for each incident.
The Company is also insured as to its respective interests
in Beaver Valley Unit 2, the Davis-Besse Plant and the Perry Plant
under policies issued to the operating company for each plant. Under
these policies, up to $2.75 billion is provided for property damage
and decontamination and decommissioning costs. The Company has also
obtained approximately $354 million of insurance coverage for
replacement power costs for its respective interests in Beaver Valley
Unit 2, Davis-Besse and Perry. Under these policies, the Company can
be assessed a maximum of approximately $10.5 million for incidents at
any covered nuclear facility occurring during a policy year which are
in excess of accumulated funds available to the insurer for paying
losses.
The Company intends to maintain insurance against nuclear
risks as described above as long as it is available. To the extent
that replacement power, property damage, decontamination,
decommissioning, repair and replacement costs and other such costs
arising from a nuclear incident at any of the Company's plants exceed
the policy limits of the insurance in effect with respect to that
plant, to the extent a nuclear incident is determined not to be
covered by the Company's insurance policies, or to the extent such
insurance becomes unavailable in the future, the Company would remain
at risk for such costs.
GUARANTEE-
The Company, together with the other CAPCO companies, has
severally guaranteed certain debt and lease obligations in connection
with a coal supply contract for the Bruce Mansfield Plant. As of
December 31, 1998, the Company's share of the guarantee (which
approximates fair market value) was $5.5 million. The price under the
coal supply contract, which includes certain minimum payments, has
been determined to be sufficient to satisfy the debt and lease
obligations. The Company's total payments under the coal supply
contract were $32.9 million, $29.9 million and $31.4 million during
1998, 1997 and 1996, respectively. The Company's minimum payment for
1999 is approximately $9 million. The contract expires December 31,
1999.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the
Company with regard to air and water quality and other environmental
matters. The Company has estimated additional capital expenditures for
environmental compliance of approximately $44 million, which is
included in the construction forecast provided under "Capital
Expenditures" for 1999 through 2003.
The Company is in compliance with the current sulfur dioxide
(SO2) and nitrogen oxides (NOx) reduction requirements under the Clean
Air Act Amendments of 1990. SO2 reductions in 1999 will be achieved by
burning lower-sulfur fuel, generating more electricity from lower-
emitting plants, and/or purchasing emission allowances. Plans for
complying with reductions required for the year 2000 and thereafter
have not been finalized. In September 1998, the Environmental
Protection Agency (EPA) finalized regulations requiring additional NOx
reductions from the Company's Ohio and Pennsylvania facilities by May
2003. The EPA's NOx Transport Rule imposes uniform reductions of NOx
emissions across a region of twenty-two states and the District of
Columbia, including Ohio and Pennsylvania, based on a conclusion that
such NOx emissions are contributing significantly to ozone pollution
in the eastern United States. By September 1999, each of the twenty-
two states are required to submit revised State Implementation Plans
(SIP) which comply with individual state NOx budgets established by
the EPA. These state NOx budgets contemplate an 85% reduction in
utility plant NOx emissions from 1990 emissions. A proposed Federal
Implementation Plan accompanied the NOx Transport Rule and may be
implemented by the EPA in states which fail to revise their SIP. In
another separate but related action, eight states filed petitions with
the EPA under Section 126 of the Clean Air Act seeking reductions of
NOx emissions which are alleged to contribute to ozone pollution in
the eight petitioning states. The EPA suggests that the Section 126
petitions will be adequately addressed by the NOx Transport Program,
but a September 1998 proposed rulemaking established an alternative
program which would require nearly identical 85% NOx reductions at the
Company's Ohio and Pennsylvania plants by May 2003 in the event
implementation of the NOx Transport Rule is delayed. FirstEnergy
continues to evaluate its compliance plans and other compliance
options and currently estimates its additional capital expenditures
for NOx reductions may reach $500 million.
The Company is required to meet federally approved SO2
regulations. Violations of such regulations can result in shutdown of
the generating unit involved and/or civil or criminal penalties of up
to $25,000 for each day the unit is in violation. The EPA has an
interim enforcement policy for SO2 regulations in Ohio that allows for
compliance based on a 30-day averaging period. The Company cannot
predict what action the EPA may take in the future with respect to the
interim enforcement policy.
In July 1997, the EPA promulgated changes in the National
Ambient Air Quality Standard (NAAQS) for ozone and proposed a new
NAAQS for previously unregulated ultra-fine particulate matter. The
cost of compliance with these regulations may be substantial and
depends on the manner in which they are implemented by the states in
which the Company operates affected facilities.
The Company has been named as a "potentially responsible
party" (PRP) at waste disposal sites which may require cleanup under
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980. Allegations that the Company disposed of hazardous
substances at historical sites and the liability involved, are often
unsubstantiated and subject to dispute. Federal law provides that all
PRPs for a particular site be held liable on a joint and several
basis. The Company has accrued a liability of $1 million as of
December 31, 1998, based on estimates of the costs of cleanup and the
proportionate responsibility of other PRPs for such costs. The Company
believes that waste disposal costs will not have a material adverse
effect on its financial condition, cash flows or results of
operations.
Legislative, administrative and judicial actions will
continue to change the way that the Company must operate in order to
comply with environmental laws and regulations. With respect to any
such changes and to the environmental matters described above, the
Company expects that while it remains regulated, any resulting
additional capital costs which may be required, as well as any
required increase in operating costs, would ultimately be recovered
from its customers.
6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain consolidated operating
results by quarter for 1998 and 1997.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- -------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $221.1 $239.7 $253.3 $243.0
Operating Expenses and Taxes 169.1 201.9 202.1 203.7
- ----------------------------------------------------------------------------------------
Operating Income 52.0 37.8 51.2 39.3
Other Income 3.8 3.1 2.7 2.6
Net Interest Charges 21.8 21.8 21.2 21.1
- ----------------------------------------------------------------------------------------
Net Income $ 34.0 $ 19.1 $ 32.7 $ 20.8
========================================================================================
Earnings on Common Stock $ 32.6 $ 15.0 $ 28.5 $ 16.9
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
Mar. 31, June 30, Sept. 30, Oct. 1 - Nov. 8 -
1997 1997 1997 Nov. 7, 1997 Dec. 31, 1997
- --------------------------------------------------------------------------------------------------
(In millions) |
<S> <C> <C> <C> <C> | <C>
Operating Revenues $217.1 $222.1 $241.3 $ 92.2 | $122.7
Operating Expenses and Taxes 184.7 186.1 191.9 86.7 | 103.6
- ----------------------------------------------------------------------------------|----------
Operating Income 32.4 36.0 49.4 5.5 | 19.1
Other Income (Expense) (0.4) 0.4 5.0 (2.9) | 2.1
Net Interest Charges 23.2 23.3 27.2 10.0 | 13.6
- ----------------------------------------------------------------------------------|----------
Income (Loss) Before Extraordinary |
Item 8.8 13.1 27.2 (7.4) | 7.6
Extraordinary Item (Net of Income |
Taxes) (Note 1) -- -- -- (191.9) | --
- ----------------------------------------------------------------------------------|----------
Net Income (Loss) $ 8.8 $ 13.1 $ 27.2 $(199.3) | $ 7.6
==================================================================================|==========
Earnings (Loss) on Common Stock $ 4.6 $ 8.9 $ 23.0 $(206.2) | $ 7.6
=============================================================================================
</TABLE>
7. PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME (UNAUDITED):
FirstEnergy was formed on November 8, 1997 by the merger of
OE and Centerior. The merger was accounted for as a purchase of
Centerior's net assets with 77,637,704 shares of FirstEnergy Common
Stock through the conversion of each outstanding Centerior Common
Stock share into 0.525 of a share of FirstEnergy Common Stock
(fractional shares were paid in cash). Based on an imputed value of
$20.125 per share, the purchase price was approximately
$1.582 billion, which also included approximately $20 million of
merger related costs. Goodwill of approximately $2.0 billion was
recognized (to be amortized on a straight-line basis over forty
years), which represented the excess of the purchase price over
Centerior's net assets after fair value adjustments.
Accumulated amortization of goodwill was approximately
$15 million as of December 31, 1998. The merger purchase accounting
adjustments included recognizing estimated severance and other
compensation liabilities ($24 million). The amount charged against
the liability in 1998 relating to the costs of involuntary employee
separation was $11 million. The liability was subsequently reduced to
zero as of December 31, 1998. The liability adjustment was offset by
a corresponding reduction to goodwill recognized in connection with
the Centerior acquisition.
The following pro forma statements of income for the
Company give effect to the OE-Centerior merger as if it had been
consummated on January 1, 1996, with the purchase accounting
adjustments actually recognized in the business combination.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
- ----------------------------------------------------------
(In millions)
<S> <C> <C>
Operating Revenues $895 $897
Operating Expenses and Taxes 742 728
---- ----
Operating Income 153 169
Other Income (Expense) 10 (3)
Net Interest Charges 91 89
---- ----
Net Income $ 72 $ 77
========================================================
</TABLE>
Pro forma adjustments reflected above include: (1)
adjusting the Company's nuclear generating units to fair value based
upon independent appraisals and estimated discounted future cash
flows based on management's estimate of cost recovery; (2) the effect
of discontinuing SFAS 71 for the Company's nuclear operations; (3)
amortization of the fair value adjustment for long-term debt; (4)
goodwill recognized representing the excess of the Company's portion
of the purchase price over the Company's adjusted net assets; (5) the
elimination of merger costs; and (6) adjustments for estimated tax
effects of the above adjustments.
8. PENDING MERGER OF THE COMPANY INTO CEI:
In March 1994, Centerior announced a plan to merge the
Company into CEI. All necessary regulatory approvals have been
obtained, except the approval of the Nuclear Regulatory Commission
(NRC). This application was withdrawn at the NRC's request pending
the decision whether to complete this merger. No final decision
regarding the proposed merger has been reached.
In June 1995, the Company's preferred stockholders approved
the merger and CEI's preferred stockholders approved the
authorization of additional shares of preferred stock. If and when
the merger becomes effective, the Company's preferred stockholders
will exchange their shares for preferred stock shares of CEI having
substantially the same terms. Debt holders of the merging companies
will become debt holders of CEI.
For the merging companies, the combined pro forma operating
revenues were $2.621 billion, $2.527 billion and $2.554 billion and
the combined pro forma net income was $272 million, $220 million
(excluding the extraordinary item discussed in Note 1 and a similar
item for CEI) and $218 million for the years 1998, 1997 and 1996,
respectively. The pro forma data is based on accounting for the
merger of the Company and CEI on a method similar to a pooling of
interests and for 1997 and 1996 includes pro forma adjustments to
reflect the effect of the OE -Centerior merger. 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 CEI.
Report of Independent Public Accountants
To the Stockholders and Board of Directors of The Toledo Edison
Company:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of The Toledo Edison Company
(an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.)
and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, common stockholder's equity,
preferred stock, cash flows and taxes for the year ended December 31,
1996, the period from January 1, 1997 to November 7, 1997 (pre-
merger), the period from November 8, 1997 to December 31, 1997 (post-
merger), and the year ended December 31, 1998. 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 Toledo
Edison Company and subsidiary as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for the year
ended December 31, 1996, the period from January 1, 1997 to
November 7, 1997 (pre-merger), the period from November 8, 1997 to
December 31, 1997 (post-merger), and the year ended December 31, 1998,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
EXHIBIT 21.3
THE TOLEDO EDISON COMPANY
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1998
The Toledo Edison Capital Corporation
Statement of Differences
------------------------
Exhibit Number 21, List of Subsidiaries of the Registrant at
December 31, 1998, is not included in the printed document.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the related
Form 10-K financial statements for The Toledo Edison Company and is qualified in
its entirety by reference to such financial statements. (Amounts in 1,000's).
Income tax expense includes $6,538,000 related to other income.
</LEGEND>
<CIK> 0000352049
<NAME> THE TOLEDO EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,168,216
<OTHER-PROPERTY-AND-INVEST> 417,167
<TOTAL-CURRENT-ASSETS> 243,948
<TOTAL-DEFERRED-CHARGES> 939,434
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,768,765
<COMMON> 195,670
<CAPITAL-SURPLUS-PAID-IN> 328,559
<RETAINED-EARNINGS> 51,463
<TOTAL-COMMON-STOCKHOLDERS-EQ> 575,692
0
210,000
<LONG-TERM-DEBT-NET> 1,083,666
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 104,200
1,690
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 24,536
<OTHER-ITEMS-CAPITAL-AND-LIAB> 768,981
<TOT-CAPITALIZATION-AND-LIAB> 2,768,765
<GROSS-OPERATING-REVENUE> 957,037
<INCOME-TAX-EXPENSE> 72,696
<OTHER-OPERATING-EXPENSES> 710,618
<TOTAL-OPERATING-EXPENSES> 776,776
<OPERATING-INCOME-LOSS> 180,261
<OTHER-INCOME-NET> 12,225
<INCOME-BEFORE-INTEREST-EXPEN> 192,486
<TOTAL-INTEREST-EXPENSE> 85,904
<NET-INCOME> 106,582
13,610
<EARNINGS-AVAILABLE-FOR-COMM> 92,972
<COMMON-STOCK-DIVIDENDS> 50,483
<TOTAL-INTEREST-ON-BONDS> 85,606
<CASH-FLOW-OPERATIONS> 262,430
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
(CONFORMED WITH RECORDATION DATA)
PENNSYLVANIA POWER COMPANY
to
CITIBANK, N.A.,
As Trustee
Forty-sixth Supplemental
Indenture
Providing among other things for
FIRST MORTGAGE BONDS
Guarantee Series A of 1998 due 2028
Dated as of June 1, 1998
FORTY-SIXTH SUPPLEMENTAL INDENTURE, dated as of June 1,
1998, made and entered into by and between PENNSYLVANIA POWER
COMPANY, a corporation organized and existing under the laws of
the Commonwealth of Pennsylvania, with its principal place of
business in New Castle, Lawrence County, Pennsylvania
(hereinafter sometimes referred to as the "Company") and
CITIBANK, N.A., a national banking association incorporated and
existing under the laws of the United States of America, with
its principal office in the Borough of Manhattan, The City,
County and State of New York (hereinafter sometimes referred to
as the "Trustee"), as trustee under the Indenture dated as of
November 1, 1945 between the Company and CITIBANK, N.A.
(successor to The First National Bank of The City of New York),
as trustee, as supplemented and amended by Supplemental
Indentures between the Company and the Trustee, dated as of May
1, 1948, as of March 1, 1950, as of February 1, 1952, as of
October 1, 1957, as of September 1, 1962, as of June 1, 1963, as
of June 1, 1969, as of May 1, 1970, as of April 1, 1971, as of
October 1, 1971, as of May 1, 1972, as of December 1, 1974, as
of October 1, 1975, as of September 1, 1976, as of April 15,
1978, as of June 28, 1979, as of January 1, 1980, as of June 1,
1981, as of January 14, 1982, as of August 1, 1982, as of
December 15, 1982, as of December 1, 1983, as of September 6,
1984, as of December 1, 1984, as of May 30, 1985, as of
October 29, 1985, as of August 1, 1987, as of May 1, 1988, as of
November 1, 1989, as of December 1, 1990, as of September 1,
1991, as of May 1, 1992, as of July 15, 1992, as of August 1,
1992, as of May 1, 1993, as of July 1, 1993, as of August 31,
1993, as of September 1, 1993, as of September 15, 1993, as of
October 1, 1993, as of November 1, 1993, as of August 1, 1994,
as of September 1, 1995 and as of June 1, 1997 (said Indenture
as so supplemented and amended, and as hereby supplemented and
amended, being hereinafter sometimes referred to as the
"Indenture");
WHEREAS, the Company and the Trustee have executed and
delivered the Indenture for the purpose of securing an issue of
bonds of the First Series described therein and such additional
bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount
of bonds to be secured thereby being not limited, and the
Indenture fully describes and sets forth the property conveyed
thereby and is filed with the Secretary of the Commonwealth of
Pennsylvania and the Secretary of State of the State of Ohio and
will be of record in the office of the recorder of deeds of each
county in the Commonwealth of Pennsylvania and the State of Ohio
in which this Forty-Sixth Supplemental Indenture is to be
recorded and is on file at the corporate trust office of the
Trustee, above referred to; and
WHEREAS the Indenture provides for the issuance of bonds
thereunder in one or more series and the Company, by appropriate
corporate action in conformity with the terms of the Indenture,
has duly determined to create one such series of bonds under the
Indenture to be designated as "First Mortgage Bonds, Guarantee
Series A of 1998 due 2028" (hereinafter sometimes referred to as
the "bonds of the 2028 Series"), the bonds of which are to bear
interest at the same rate as that of the Beaver County
Industrial Authority Exempt Facilities Revenue Bonds, 5.375%
1998 Series A (Shippingport Project) referred to herein, and are
to mature on June 1, 2028.
AND WHEREAS each of the bonds of the 2028 Series and the
Trustee's Authentication Certificate thereon are to be
substantially in the following form, to wit:
[FORM OF BOND OF THE 2028 SERIES]
[FACE]
This Bond is not transferable except to a successor trustee
under the Trust Indenture, dated as of June 1, 1998, between the
Beaver County Industrial Development Authority and Chase
Manhattan Trust Company, National Association, as Trustee, or in
connection with the rights and remedies of the holder hereof
consequent upon an "Event of Default" as defined in the
Indenture referred to herein.
PENNSYLVANIA POWER COMPANY
First Mortgage Bond, Guarantee Series A of 1998 due 2028
$ No.
Pennsylvania Power Company, a Pennsylvania corporation
(hereinafter called the "Company"), for value received, hereby
promises to pay to or registered assigns,
the principal sum of $ on June 1, 2028, and to pay the
registered holder hereof interest on said sum from the Initial
Interest Accrual Date (hereinbelow defined) at the rate of five
and three eighths per centum per annum. The principal of and
interest on this bond shall be payable at the office or agency
of the Company in the Borough of Manhattan, The City, County and
State of New York, or in the City of Akron, State of Ohio,
designated for that purpose, in any coin or currency of the
United States of America which at the time of payment is legal
tender for public and private debts.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have
the same effect as though fully set forth at this place.
This bond shall not be valid or become obligatory for any
purpose unless and until it shall have been authenticated by the
execution by the Trustee or its successor in trust under the
Indenture of the certificate hereon.
IN WITNESS WHEREOF, PENNSYLVANIA POWER COMPANY has caused
this bond to be executed in its name by its President or one of
its Vice Presidents by his or her signature or a facsimile
thereof, and its corporate seal or a facsimile thereof to be
affixed hereto or imprinted hereon and attested by its Secretary
or one of its Assistant Secretaries by his or her signature or a
facsimile thereof.
Dated:
PENNSYLVANIA POWER COMPANY
By ................................
President
Attest:
.........................
Secretary
[FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE]
TRUSTEE'S AUTHENTICATION CERTIFICATE
This bond is one of the bonds, of the series designated therein,
described in the within-mentioned Indenture.
CITIBANK, N.A.
AS TRUSTEE,
By ...........
Authorized Officer
[FORM OF BOND OF THE 2028 SERIES]
[REVERSE]
PENNSYLVANIA POWER COMPANY
First Mortgage Bond, Guarantee Series A of 1998 due 2028
This bond is one of the bonds issued and to be issued from
time to time under and in accordance with and all secured by an
indenture of mortgage or deed of trust dated as of November 1,
1945, and indentures supplemental thereto, given by the Company
to Citibank, N.A. (successor to The First National Bank of The
City of New York), as trustee (hereinafter referred to as the
"Trustee"), to which indenture and indentures supplemental
thereto (hereinafter referred to collectively as the
"Indenture") reference is hereby made for a description of the
property mortgaged and pledged, the nature and extent of the
security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of the bonds and coupons
and of the Trustee and of the Company in respect of such
security, and the limitations on such rights. By the terms of
the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate
of interest, terms of redemption and in other respects as in the
Indenture provided.
The Indenture contains provisions permitting the Company
and the Trustee, with the consent of the holders of not less
than seventy-five per centum in principal amount of the bonds
(exclusive of bonds disqualified by reason of the Company's
interest therein) at the time outstanding, including, if more
than one series of bonds shall be at the time outstanding, not
less than sixty per centum in principal amount of each series
affected, to effect, by an indenture supplemental to the
Indenture, modifications or alterations of the Indenture and of
the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no
such modification or alteration shall be made without the
written approval or consent of the holder hereof which will (a)
extend the maturity of this bond or reduce the rate or extend
the time of payment of interest hereon or reduce the amount of
the principal hereof or reduce any premium payable on the
redemption hereof, or (b) permit the creation of any lien, not
otherwise permitted, prior to or on a parity with the lien of
the Indenture, or (c) reduce the percentage of the principal
amount of the bonds upon the approval or consent of the holders
of which modifications or alterations may be made as aforesaid.
The bonds of this series shall be redeemed in whole, by
payment of the principal amount thereof plus accrued interest
thereon, if any, to the date fixed for redemption, upon receipt
by the Trustee of a written advice from the trustee under the
Trust Indenture (the "Revenue Bond Indenture") dated as of June
1, 1998, between Beaver County Industrial Development Authority
and Chase Manhattan Trust Company, National Association, as
trustee (such trustee and any successor trustee being
hereinafter referred to as the "Revenue Bond Trustee"),
securing, among other bonds, $1,733,896 of Exempt Facilities
Revenue Bonds, 5.375% 1998 Series A (Shippingport Project) which
have been issued on behalf of the Company (the "Revenue Bonds"),
stating that the principal amount of all the Revenue Bonds then
outstanding under the Revenue Bond Indenture has been declared
due and payable pursuant to the provisions of Section 8.02 of
the Revenue Bond Indenture, specifying the date of the
accelerated maturity of such Revenue Bonds and the date from
which interest on the Revenue Bonds issued under the Revenue
Bond Indenture has then accrued, stating such declaration of
maturity has not been annulled and demanding payment of the
principal amount hereof plus accrued interest hereon to the date
fixed for such redemption. As provided in the Supplemental
Indenture establishing the terms and provisions of the bonds of
this series, the date fixed for such redemption shall be not
earlier than the date specified in the aforesaid written advice
as the date of the accelerated maturity of the Revenue Bonds
then outstanding under the Revenue Bond Indenture and not later
than the 45th day after the receipt by the Trustee of such
advice, unless such 45th day is earlier than such date of
accelerated maturity. The date fixed for such redemption shall
be specified in a notice of redemption to be given not less than
30 days prior to the date so fixed for such redemption. Upon
mailing of such notice of redemption, the date from which unpaid
interest on the aforesaid Revenue Bonds has then accrued (as
specified by the Revenue Bond Trustee) shall become the initial
interest accrual date (the "Initial Interest Accrual Date") with
respect to the bonds of this series, and the date which is six
months after the Initial Interest Accrual Date shall be the
first interest payment date for the bonds of this series,
provided, however, on any demand for payment of the principal
amount hereof at maturity as a result of the principal of the
aforesaid Revenue Bonds becoming due and payable on the maturity
date of the bonds of this series, the date from which unpaid
interest on the aforesaid Revenue Bonds has then accrued shall
become the Initial Interest Accrual Date with respect to the
bonds of this series, such date to be as stated in a written
notice from the Revenue Bond Trustee to the Trustee. As
provided in said Supplemental Indenture, the aforementioned
notice of redemption shall become null and void for all purposes
under the Indenture (including the fixing of the Initial
Interest Accrual Date with respect to the bonds of this series)
upon receipt by the Trustee of written notice from the Revenue
Bond Trustee of the annulment of the acceleration of the
maturity of the Revenue Bonds then outstanding under the Revenue
Bond Indenture and of the rescission of the aforesaid written
advice prior to the redemption date specified in such notice of
redemption, and thereupon no redemption of the bonds of this
series and no payment in respect thereof as specified in such
notice of redemption shall be effected or required. But no such
rescission shall extend to any subsequent written advice from
the Revenue Bond Trustee or impair any right consequent on such
subsequent written notice.
Bonds of this series are not otherwise redeemable prior to
their maturity.
In case of certain defaults as specified in the Indenture,
the principal of this bond may be declared or may become due and
payable on the conditions, at the time, in the manner and with
the effect provided in the Indenture.
No recourse shall be had for the payment of the principal
of or interest on this bond, or for any claim based hereon, or
otherwise in respect hereof or of the Indenture, to or against
any incorporator, stockholder, director or officer, past,
present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the
Company, or such predecessor or successor company, or otherwise,
under any constitution or statute or rule of law, or by the
enforcement of any assessment or penalty, or otherwise, all such
liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and
owner hereof by the acceptance of this bond and being likewise
waived and released by the terms of the Indenture.
The bonds of this series are issuable only as registered
bonds without coupons in denominations of $1,000 and, if higher,
any authorized multiple of $1.00. Except as may be stated in
any legend written on the face of this bond, this bond is
transferable by the registered holder hereof, in person or by
attorney duly authorized, at the corporate trust office of the
Trustee, in the Borough of Manhattan, The City, County and State
of New York, or at such other place or places as the Company may
designate by resolution of the Board of Directors, but only in
the manner and upon the conditions prescribed in the Indenture,
upon the surrender and cancellation of this bond and the payment
of charges for transfer, and upon any such transfer a new
registered bond or bonds, without coupons, of the same series
and maturity date and for the same aggregate principal amount,
in authorized denominations, will be issued to the transferee in
exchange herefor. The Company, the Trustee and any agent
designated to make transfers or exchanges of bonds of this
series may deem and treat the person in whose name this bond is
registered as the absolute owner for all purposes including the
purpose of the receipt of payment. Registered bonds of this
series shall be exchangeable at said corporate trust office of
the Trustee, or at such other place or places as the Company may
designate by resolution of the Board of Directors, for
registered bonds of other authorized denominations having the
same aggregate principal amount, in the manner and upon the
conditions prescribed in the Indenture. Neither the Company nor
the Trustee nor any other agent designated for such purpose
shall be required to make transfers or exchanges of bonds of
this series during the period between any interest payment date
for such series and the record date next preceding such interest
payment date. Notwithstanding any provisions of the Indenture,
no charge shall be made upon any transfer or exchange of bonds
of this series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
[END OF FORM OF BOND OF THE 2028 SERIES]
AND WHEREAS all acts and things necessary to make the
bonds, when authenticated by the Trustee and issued as in the
Indenture provided, the valid, binding and legal obligations of
the Company, and to constitute the Indenture a valid, binding
and legal instrument for the security thereof, have been done
and performed, and the creation, execution and delivery of the
Indenture and the creation, execution and issue of the bonds
subject to the terms hereof and of the Indenture, have in all
respects been duly authorized;
NOW THEREFORE, in consideration of the premises, and of the
acceptance and purchase by holders thereof of the bonds issued
and to be issued under the Indenture, and the sum of One Dollar
duly paid by the Trustee to the Company, and of other good and
valuable consideration, the receipt of which is hereby
acknowledged, and for the purpose of securing the due and
punctual payment of the principal of and premium, if any, and
interest on all bonds now outstanding under the Indenture and
the $1,733,896 principal amount of bonds of the 2028 Series
proposed presently to be issued and all other bonds which shall
be issued under the Indenture, and for the purpose of securing
the faithful performance and observance of all covenants and
conditions therein and in any supplemental indenture set forth,
the Company has given, granted, bargained, sold, released,
transferred, assigned, hypothecated, pledged, mortgaged,
confirmed, created a security interest in, set over, warranted,
aliened and conveyed and by these presents does give, grant,
bargain, sell, release, transfer, assign, hypothecate, pledge,
mortgage, confirm, create a security interest in, set over,
warrant, alien and convey unto Citibank, N.A., as Trustee as
provided in the Indenture, and its successor or successors in
the trust thereby and hereby created and to its or their assigns
forever, all the right, title and interest of the Company in and
to the property described in the Indenture (and not therein
expressly excepted), together (subject to the provisions of
Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and does
hereby confirm that the Company will not cause or consent to a
partition, whether voluntary or through legal proceedings, of
property, whether herein described or heretofore or hereafter
acquired, in which its ownership shall be as a tenant in common
except as permitted by and in conformity with the provisions of
the Indenture and particularly of said Article X thereof.
TOGETHER WITH all and singular the tenements, hereditaments
and appurtenances belonging or in any wise appertaining to the
premises, property, franchises and rights, or any thereof,
referred to in the Indenture (and not therein expressly
excepted) with the reversion and reversions, remainder and
remainders and (subject to the provisions of Article X of the
Indenture) the tolls, rents, revenues, issues, earnings, income,
products and profits thereof, and all the estate, right, title
and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to
such premises, property, franchises and rights and every part
and parcel thereof, subject to "excepted encumbrances" of the
original Indenture.
TO HAVE AND TO HOLD all said premises, property, franchises
and rights hereby conveyed, assigned, pledged, or mortgaged, or
intended so to be, unto the Trustee, its successor or successors
in trust, and their assigns forever.
BUT IN TRUST, NEVERTHELESS, with power of sale, for the
equal and proportionate benefit and security of the holders of
all bonds now or hereafter authenticated and delivered under the
Indenture, and interest coupons appurtenant thereto, pursuant to
the provisions thereof, and for the enforcement of the payment
of said bonds and coupons when payable and the performance of
and compliance with the covenants and conditions of the
Indenture, without any preference, distinction or priority as to
lien or otherwise of any bond or bonds over others by reason of
the difference in time of the actual authentication, delivery,
issue, sale or negotiation thereof or for any other reason
whatsoever, except as otherwise expressly provided in the
Indenture; and so that each and every bond now or hereafter
authenticated and delivered thereunder shall have the same lien,
and so that the principal of and premium, if any, and interest
on every such bond shall, subject to the terms of the Indenture,
be equally and proportionately secured thereby and hereby, as if
it had been made, executed, authenticated, delivered, sold and
negotiated simultaneously with the execution and delivery of the
Indenture.
AND IT IS EXPRESSLY DECLARED that all bonds authenticated
and delivered and secured thereunder and hereunder are to be
issued, authenticated and delivered, and all said premises,
property, franchises and rights hereby and by the Indenture
conveyed, assigned, pledged or mortgaged, or intended so to be
(including all the right, title and interest of the Company in
and to any and all premises, property, franchises and rights of
every kind and description, real, personal and mixed, tangible
and intangible, thereafter acquired by the Company and whether
or not specifically described in the Indenture, except any
therein expressly excepted), are to be dealt with and disposed
of, under, upon and subject to the terms, conditions,
stipulations, covenants, agreements, trusts, uses and purposes
in the Indenture expressed, and it is hereby agreed as follows:
Section 1. There is hereby created a series of bonds
designated Guarantee Series A of 1998 due 2028, which shall also
bear the descriptive title "First Mortgage Bond" and the form of
such series shall be substantially as hereinbefore set forth.
Bonds of the 2028 Series shall mature on June 1, 2028. The
bonds of the 2028 Series may be issued only as registered bonds
without coupons in denominations of $1,000 or, if higher, in
such multiples of $1.00 as the Board of Directors shall approve,
and delivery to the Trustee for authentication shall be
conclusive evidence of such approval. The serial numbers of
bonds of the 2028 Series shall be such as may be approved by any
officer of the Company, the execution thereof by any such
officer, by facsimile signature or otherwise, to be conclusive
evidence of such approval. Bonds of the 2028 Series shall bear
interest from the Initial Interest Accrual Date (as defined in
the form of the bonds of the 2028 Series hereinabove set forth)
at the rate of 5.375% per annum. Principal or redemption price
of and interest on said bonds shall be payable in any coin or
currency of the United States of America which at the time of
payment is legal tender for public and private debts at the
office or agency of the Company in the Borough of Manhattan, The
City, County and State of New York, designated for that purpose.
Bonds of the 2028 Series shall be exchangeable and
transferable as and to the extent set forth in the form thereof
hereinbefore set forth.
The bonds of the 2028 Series shall be redeemable as set
forth in the form thereof hereinbefore set forth in whole, prior
to maturity, upon notice given by mailing the same, postage pre-
paid, at least thirty days and not more than forty-five days
prior to the date fixed for redemption to each registered holder
of a bond to be redeemed at the last address of such holder
appearing on the registry books. The Trustee shall within five
business days of receiving the written advice specified in the
form of bond of the 2028 Series provided for herein mail a copy
thereof to the Company stamped or otherwise marked to indicate
the date of receipt by the Trustee. The Company shall fix a
redemption date for the redemption so demanded and shall mail to
the Trustee notice of such date at least thirty-five days prior
thereto. Subject to the foregoing sentence, the redemption date
so fixed may be any day not earlier than the date specified in
the aforesaid written advice as the date of the accelerated
maturity of the Revenue Bonds then outstanding under the Revenue
Bond Indenture and not later than the forty-fifth day after
receipt by the Trustee of such advice, unless such forty-fifth
day is earlier than such date of accelerated maturity. If the
Trustee does not receive such notice from the Company within
thirteen days after receipt by the Trustee of the aforesaid
written advice, the redemption date shall be deemed fixed as the
forty-fifth day after such receipt. The Trustee shall mail
notice of the redemption date to the Revenue Bond Trustee not
less than thirty days prior to such redemption date, provided,
however, that the Trustee shall mail no such notice (and no
redemption shall be made) if prior to the mailing of such notice
the Trustee shall have received written notice from the Revenue
Bond Trustee of the annulment of the acceleration of the
maturity of the Revenue Bonds then outstanding under the Revenue
Bond Indenture and of the rescission of the aforesaid written
advice. The terms "Revenue Bond Trustee" and "Revenue Bond
Indenture" as they relate to the bonds of the 2028 Series shall
have the meanings specified in the form thereof hereinabove set
forth. Redemption of the bonds of the 2028 Series shall be at
the principal amount thereof, plus accrued interest thereon to
the date fixed for redemption and such amount shall become due
and payable on the date fixed for such redemption. Anything in
this paragraph contained to the contrary notwithstanding, if,
after mailing notice of the date fixed for redemption but prior
to such date, the Trustee shall have been advised in writing by
the Revenue Bond Trustee that the acceleration of the maturity
of the Revenue Bonds then outstanding under the Revenue Bond
Indenture has been annulled and that the aforesaid written
advice has been rescinded, the aforesaid written advice shall
thereupon, without further act of the Trustee or the Company, be
rescinded and become null and void for all purposes hereunder
(including the fixing of the Initial Interest Accrual Date as
provided in the form of the bonds of the 2028 Series provided
for herein) and no redemption of the bonds of the 2028 Series
and no payments in respect thereof as specified in the aforesaid
written notice shall be effected or required. But no such
rescission shall extend to any subsequent written advice from
the Revenue Bond Trustee or impair any right consequent on such
subsequent written advice.
SECTION 2. Bonds of the 2028 Series shall be deemed to be
paid and no longer outstanding under the Indenture to the extent
that Revenue Bonds which are outstanding from time to time under
the Revenue Bond Indenture are paid or deemed to be paid and are
no longer outstanding and the Trustee has been notified to such
effect by the Company.
SECTION 3. The Company covenants and agrees that the
provisions of Section 3 of the Fifth Supplemental Indenture
dated as of September 1, 1962, which are to remain in effect so
long as any bonds of the Sixth Series shall be outstanding under
the Indenture, shall remain in full force and effect so long as
any bonds of the 2028 Series shall be outstanding under the
Indenture.
SECTION 4. As supplemented and amended by this
Supplemental Indenture, the Indenture is in all respects
ratified and confirmed, and the Indenture and this Supplemental
Indenture shall be read, taken and construed as one and the same
instrument.
SECTION 5. Nothing in this Supplemental Indenture
contained shall, or shall be construed to, confer upon any
person other than a holder of bonds issued under the Indenture,
the Company and the Trustee any right or interest to avail
himself of any benefit under any provision of the Indenture or
of this Supplemental Indenture.
SECTION 6. The Trustee assumes no responsibility 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 and statements contained herein, all
of which recitals and statements are made solely by the Company.
SECTION 7. This Supplemental Indenture may be executed in
several counterparts and all such counterparts executed and
delivered, each as an original, shall constitute but one and the
same instrument.
PENNSYLVANIA POWER COMPANY hereby constitutes and appoints
Jack E. Reed to be its attorney for it and in its name as and
for its corporate act and deed to acknowledge this Supplemental
Indenture before any person having authority to take such
acknowledgment, to the intent that the same may be duly
recorded.
CITIBANK, N.A. hereby constitutes and appoints P. DeFelice
to be its attorney for it and in its name as and for its
corporate act and deed to acknowledge this Supplemental
Indenture before any person having authority to take such
acknowledgment, to the intent that the same may be duly
recorded.
IN WITNESS WHEREOF, PENNSYLVANIA POWER COMPANY has caused
its corporate name to be hereunto affixed, and this instrument
to be signed and sealed by its President or a Vice President,
and its corporate seal to be attested by its Secretary or an
Assistant Secretary for and on its behalf, in the city of New
Castle, County of Lawrence and Commonwealth of Pennsylvania and
CITIBANK, N.A., in token of its acceptance of the trust, has
caused its corporate name to be hereunto affixed, and this
instrument to be signed by a Vice President and its corporate
seal to be affixed and attested by one of its Vice Presidents in
the City of New York, County of New York and State of New York,
all as of the day and year first above written.
PENNSYLVANIA POWER COMPANY
By: /s/ Jack E. Reed
---------------------------
Jack E. Reed
Vice President
ATTEST:
By: /s/ Robert P. Wushinske
------------------------------------
Robert P. Wushinske
Secretary
[Seal]
Signed, sealed and delivered by
PENNSYLVANIA POWER COMPANY
in the presence of:
/s/ Angeline Comparone
- ---------------------------------
Angeline Comparone
/s/ Sylvia M. Rashid
- ---------------------------------
Sylvia M. Rashid
CITIBANK, N.A.
as Trustee as aforesaid,
By: /s/ P. DeFelice
---------------------------
P. DeFelice
Vice President
ATTEST:
By: /s/ Carol Ng
-------------------------
Carol Ng
Vice President
[Seal]
Signed, sealed and delivered by
CITIBANK, N.A.
in the presence of:
/s/ Nancy Forte
- ----------------------------
Nancy Forte
/s/ Wafaa Orfy
- ----------------------------
Wafaa Orfy
COMMONWEALTH OF PENNSYLVANIA )
: ss.:
COUNTY OF LAWRENCE )
BE IT REMEMBERED that, on the 5th day of June, 1998, before
me, the undersigned, a Notary Public in said County of Lawrence,
Commonwealth of Pennsylvania, personally appeared Robert P.
Wushinske, who being duly sworn according to law, doth depose
and say that he was personally present and did see the common or
corporate seal of the above named PENNSYLVANIA POWER COMPANY
affixed to the foregoing Supplemental Indenture; that the seal
so affixed is the common or corporate seal of the said
Pennsylvania Power Company and was so affixed by the authority
of the said corporation as the act and deed thereof; that the
above named Jack E. Reed is a Vice President of said corporation
and did sign the said Supplemental Indenture as such in the
presence of this deponent; that this deponent is the Secretary
of Pennsylvania Power Company, and that the name of this
deponent above signed in attestation of the due execution of the
said Supplemental Indenture is in this deponent's own proper
handwriting.
Sworn to and subscribed before me this 5th day of June, 1998.
[SEAL] /s/ Robert P. Wushinske
---------------------------------
Robert P. Wushinske, Secretary
/s/ Donna S. Mathieson
---------------------------------
Donna S. Mathieson, Notary Public
NOTARIAL SEAL
DONNA S. Mathieson, Notary Public
New Castle, Lawrence Co., PA
My Commission Expires Nov. 23, 1998
COMMONWEALTH OF PENNSYLVANIA )
: ss.:
COUNTY OF LAWRENCE )
I HEREBY CERTIFY that, on this 5th day of June, 1998,
before me, the subscriber, a Notary Public in and for the State
and County aforesaid, personally appeared Jacke E. Reed, the
attorney for PENNSYLVANIA POWER COMPANY, and the attorney named
in the foregoing Supplemental Indenture and, by virtue and in
pursuance of the authority therein conferred upon him,
acknowledged the said Supplemental Indenture to be the act and
deed of said Pennsylvania Power Company.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL]
/s/ Donna S. Mathieson
-----------------------------------
Donna S. Mathieson, Notary Public
NOTARIAL SEAL
DONNA S. Mathieson, Notary Public
New Castle, Lawrence Co., PA
My Commission Expires Nov. 23, 1998
COMMONWEALTH OF PENNSYLVANIA )
: ss.:
COUNTY OF LAWRENCE )
On the 5th day of June, 1998, before me, personally came
Jack E. Reed, to me known, who, being by me duly sworn, did
depose and say that he resides at 3487 Pheasant Chase,
Hermitage, Pennsylvania 16148; that he is a Vice President of
PENNSYLVANIA POWER COMPANY, one of the corporations described in
and which executed the above instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was affixed by order of the Board
of Directors of said corporation, and that he signed his name
thereto by like authority.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL]
/s/ Donna S. Mathieson
----------------------------
Donna S. Mathieson, Notary Public
NOTARIAL SEAL
DONNA S. Mathieson, Notary Public
New Castle, Lawrence Co., PA
My Commission Expires Nov. 23, 1998
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
BE IT REMEMBERED that, on the 4th day of June, 1998, before
me, the undersigned, a Notary Public in said County of New York,
State of New York, personally appeared Carol Ng, who being duly
sworn according to law, doth depose and say that she was
personally present and did see the common or corporate seal of
the above named CITIBANK, N.A. affixed to the foregoing
Supplemental Indenture; that the seal so affixed is the common
or corporate seal of the said CITIBANK, N.A. and was so affixed
by the authority of the said association as the act and deed
thereof; that the above named P. DeFelice is one of the Vice
Presidents of said association and did sign the said
Supplemental Indenture as such in the presence of this deponent;
that this deponent is a Vice President of said CITIBANK, N.A.,
and that the name of this deponent above signed in attestation
of the due execution of the said Supplemental Indenture is in
this deponent's own proper handwriting.
Sworn to and subscribed before me this 4th day of June, 1998.
/s/ Carol Ng
----------------------------
[SEAL] Carol Ng, Vice President
/s/ Doris Ware
-----------------------------
Doris Ware
Notary Public, State of New York
No. 01WA5017241
Qualified in Queens County
Commission Expires September 7, 1999
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that, on this 4th day of June, 1998,
before me, the subscriber, a Notary Public in and for the State
and County aforesaid, personally appeared P. DeFelice, the
attorney for CITIBANK, N.A., and the attorney named in the
foregoing Supplemental Indenture and, by virtue and in pursuance
of the authority therein conferred upon him, acknowledged the
execution of said Supplemental Indenture to be the act and deed
of said CITIBANK, N.A.
WITNESS my hand and notarial seal the day and year aforesaid.
/s/ Doris Ware
---------------------------
Doris Ware
Notary Public, State of New York
No. 01WA5017241
Qualified in Queens County
Commission Expires September 7, 1999
[SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 4th day of June, 1998, before me, personally came P.
DeFelice, to me known, who being by me duly sworn, did depose
and say that he resides at 47-09 169th Street, Flushing, New
York; that he is a Vice President of CITIBANK, N.A., one of the
parties described in and which executed the above instrument;
that he knows the seal of said association; that the seal
affixed to said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said
association, and that he signed his name thereto by like
authority.
WITNESS my hand and notarial seal the day and year aforesaid.
/s/ Doris Ware
---------------------------
Doris Ware
Notary Public, State of New York
No. 01WA5017241
Qualified in Queens County
Commission Expires September 7, 1999
[SEAL]
Citibank, N.A. hereby certifies that its precise name and
address as Trustee hereunder are:
CITIBANK, N.A.
111 Wall Street
Borough of Manhattan
City, County and State
of New York 10043
CITIBANK, N.A.
By: /s/ P. DeFelice
------------------------
P. DeFelice
Vice President
(..continued)
<TABLE>
<PAGE> EXHIBIT 12.2
Page 1
PENNSYLVANIA POWER COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $31,260 $38,930 $40,587 $31,472 $39,748
Interest before reduction for amounts
capitalized 34,947 31,350 27,889 22,438 21,073
Provision for income taxes 24,333 32,591 33,421 26,658 32,504
Interest element of rentals charged to
income (a) 1,652 1,865 1,868 1,750 1,920
------- -------- -------- ------- -------
Earnings as defined $92,192 $104,736 $103,765 $82,318 $95,245
======= ======== ======== ======= =======
FIXED CHARGES AS DEFINED IN REGULATION S-K:
Interest on long-term debt $32,130 $28,937 $25,715 $20,458 $19,255
Interest on nuclear fuel obligations 519 407 219 276 28
Other interest expense 2,298 2,006 1,955 1,704 1,789
Interest element of rentals charged to income (a) 1,652 1,865 1,868 1,750 1,920
------- ------- ------- ------- -------
Fixed charges as defined $36,599 $33,215 $29,757 $24,188 $22,992
======= ======= ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES (b) 2.52 3.15 3.49 3.40 4.14
==== ==== ==== ==== ====
<FN>
- -------------------
(a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no
readily defined interest element can be determined.
(b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier
aggregating $935,000, $795,000, $642,000, $483,000 and $273,000 for each of the five years ended
December 31, 1998, respectively.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12.2
Page 2
PENNSYLVANIA POWER COMPANY
RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED
STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $31,260 $ 38,930 $ 40,587 $31,472 $39,748
Interest before reduction for
amounts capitalized 34,947 31,350 27,889 22,438 21,073
Provision for income taxes 24,333 32,591 33,421 26,658 32,504
Interest element of rentals charged to
income (a) 1,652 1,865 1,868 1,750 1,920
------- -------- -------- ------- -------
Earnings as defined $92,192 $104,736 $103,765 $82,318 $95,245
======= ======== ======== ======= =======
FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS
PREFERRED STOCK DIVIDEND REQUIREMENTS
(PRE-INCOME TAX BASIS):
Interest on long-term debt $32,130 $ 28,937 $ 25,715 $20,458 $19,255
Interest on nuclear fuel obligations 519 407 219 276 28
Other interest expense 2,298 2,006 1,955 1,704 1,789
Preferred stock dividend requirements 5,364 4,775 4,626 4,626 4,626
Adjustment to preferred stock dividends
to state on a pre-income tax basis 4,121 3,939 3,751 3,859 3,726
Interest element of rentals charged to
income (a) 1,652 1,865 1,868 1,750 1,920
------- -------- -------- ------- -------
Fixed charges as defined plus preferred
stock dividend requirements (pre-income
tax basis) $46,084 $ 41,929 $ 38,134 $32,673 $31,344
======= ======== ======== ======= =======
RATIO OF EARNINGS TO FIXED CHARGES PLUS
PREFERRED STOCK DIVIDEND REQUIREMENTS
(PRE-INCOME TAX BASIS) (b) 2.00 2.50 2.72 2.52 3.04
==== ==== ==== ==== ====
<FN>
- -------------------
(a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no
readily defined interest element can be determined.
(b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier
aggregating $935,000, $795,000, $642,000, $483,000 and $273,000 for each of the five years ended
December 31, 1998, respectively.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
SELECTED FINANCIAL DATA
<CAPTION>
1998 1997 1996 1995 1994
-------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Revenues $323,756 $ 323,381 $ 322,625 $ 314,642 $ 301,965
======== ========== ========== ========== ==========
Operating Income $ 58,041 $ 50,736 $ 62,329 $ 67,317 $ 63,668
======== ========== ========== ========== ==========
Income Before Extraordinary Item $ 39,748 $ 31,472 $ 40,587 $ 38,930 $ 31,260
======== ========== ========== ========== ==========
Net Income $ 9,226 $ 31,472 $ 40,587 $ 38,930 $ 31,260
======== ========== ========== ========== ==========
Earnings on Common Stock $ 4,600 $ 26,846 $ 35,961 $ 34,155 $ 25,896
======== ========== ========== ========== ==========
Return on Average Common Equity 1.6% 9.3% 12.8% 12.9% 10.0%
=== === ==== ==== ====
Cash Dividends on Common Stock $ 21,386 $ 21,386 $ 21,386 $ 21,386 $ 21,386
======== ========== ========== ========== ==========
Total Assets $977,772 $1,034,457 $1,074,578 $1,151,990 $1,197,302
======== ========== ========== ========== ==========
CAPITALIZATION:
Common Stockholder's Equity $275,281 $ 291,977 $ 286,504 $ 271,920 $ 258,973
Preferred Stock-
Not Subject to Mandatory Redemption 50,905 50,905 50,905 50,905 50,905
Subject to Mandatory Redemption 15,000 15,000 15,000 15,000 15,000
Long-Term Debt 287,689 289,305 310,996 338,670 424,457
-------- ---------- ---------- ---------- ----------
Total Capitalization $628,875 $ 647,187 $ 663,405 $ 676,495 $ 749,335
======== ========== ========== ========== ==========
CAPITALIZATION RATIOS:
Common Stockholder's Equity 43.8% 45.1% 43.2% 40.2% 34.6%
Preferred Stock-
Not Subject to Mandatory Redemption 8.1 7.9 7.7 7.5 6.8
Subject to Mandatory Redemption 2.4 2.3 2.2 2.2 2.0
Long-Term Debt 45.7 44.7 46.9 50.1 56.6
----- ----- ----- ----- -----
Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
KILOWATT-HOUR SALES (Millions):
Residential 1,278 1,238 1,254 1,195 1,178
Commercial 1,090 1,013 996 938 891
Industrial 1,436 1,659 1,693 1,558 1,293
Other 6 6 6 6 6
----- ----- ----- ----- -----
Total Retail 3,810 3,916 3,949 3,697 3,368
Total Wholesale 964 901 1,106 1,080 1,076
----- ----- ----- ----- -----
Total 4,774 4,817 5,055 4,777 4,444
===== ===== ===== ===== =====
CUSTOMERS SERVED:
Residential 129,452 129,316 127,936 126,480 124,951
Commercial 17,296 16,738 16,531 16,317 15,966
Industrial 250 241 225 223 219
Other 107 97 99 97 98
-------- ---------- ---------- ---------- ----------
Total 147,105 146,392 144,791 143,117 141,234
======== ========== ========== ========== ==========
Average Annual Residential kWh Usage 9,913 9,634 9,866 9,505 9,501
Cost of Fuel per Million Btu $1.15 $1.10 $1.09 $1.12 $1.20
Peak Load - Megawatts 918 836 792 836 710
Generating Capability:
Coal 72.1% 72.1% 72.1% 72.1% 72.1%
Oil 3.0 3.0 3.0 3.0 3.0
Nuclear 24.9 24.9 24.9 24.9 24.9
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
SOURCES OF ELECTRIC GENERATION:
Coal 76.9% 73.8% 67.6% 65.6% 69.6%
Nuclear 23.1 26.2 32.4 34.4 30.4
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
NUMBER OF EMPLOYEES 888 997 1,015 1,220 1,255
=== === ===== ===== =====
</TABLE>
<PAGE>
PENNSYLVANIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
This discussion includes forward-looking statements based on
information currently available to management that are subject to
certain risks and uncertainties. These statements typically contain,
but are not limited to, the terms anticipate, potential, expect,
believe, estimate and similar words. Actual results may differ
materially due to the speed and nature of increased competition and
deregulation in the electric utility industry, economic or weather
conditions affecting future sales and margins, changes in markets for
energy services, changing energy market prices, legislative and
regulatory changes, and the availability and cost of capital and other
similar factors.
Results of Operations
We continued to take steps in 1998 to better position our
Company as competition continues to expand in the electric utility
industry. Investments were made in new information systems with
enhanced functionality which also address Year 2000 application
deficiencies. We also contributed to 1998 cash savings of FirstEnergy
Corp. (FirstEnergy) totaling $173 million which were captured from
initiatives implemented during the year in connection with the November
1997 merger of our parent company, Ohio Edison Company and Centerior
Energy Corporation to form FirstEnergy.
Earnings on common stock of $4.6 million in 1998 declined
from $26.8 million in 1997. Results for 1998 were adversely affected by
a one-time, extraordinary charge of $30.5 million after taxes, related
to our discontinued application of Statement of Financial Accounting
Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain
Types of Regulation," to our generation business, as discussed later in
this report. Additionally, sharp increases in the spot market price for
electricity occasioned by a constrained power supply and heavy customer
demand in the latter part of June 1998, combined with an unscheduled
generating unit outage, resulted in spot market purchases of power at
prices which substantially exceeded amounts recovered from retail
customers. Earnings on common stock in 1997 were adversely affected by
nonrecurring charges resulting from merger-related staffing reductions,
charges for uncollectible customer accounts and an increase in
accelerated depreciation and amortization of nuclear and regulatory
assets under our rate plan.
Operating revenues were slightly higher in 1998 compared to
the prior year. This was the third consecutive year of record operating
revenues. The following table summarizes the sources of increases in
operating revenues for 1998 and 1997 as compared to the previous year:
<TABLE>
<CAPTION>
1998 1997
---- ----
(In millions)
<S> <C> <C>
Decrease in retail kilowatt-hour sales $(7.6) $(1.7)
Change in average retail price (1.1) 3.7
Wholesale sales 1.3 (3.2)
Other 7.8 2.0
- -----------------------------------------------------------
Net Increase $ 0.4 $ 0.8
==========================================================
</TABLE>
Our retail customer base continued to grow with over 700 new
customers added in 1998, after gaining approximately 1,600 customers
the previous year. Although residential and commercial kilowatt-hour
sales increased 3.3% and 7.5%, respectively from 1997, the increases
were more than offset by a 13.4% decrease in industrial sales. Closure
of an electric arc furnace at Caparo Steel Company (Caparo) in August
1997 and a general decline in electricity demand by steel manufacturers
due to intense foreign competition contributed to lower industrial
kilowatt-hour sales. Excluding sales to Caparo, industrial sales
declined 1.7% from 1997. Despite a 7.1% increase in kilowatt-hour sales
to wholesale customers, total kilowatt-hour sales decreased slightly
from 1997 due to the lower industrial sales. Without the closure of the
Caparo facility, total sales would have increased 3.4% from the
previous year. In 1997, residential and industrial kilowatt-hour sales
decreased 1.3% and 2.0%, respectively, compared to 1996. Kilowatt-hour
sales to commercial customers increased 1.8% from the prior year.
Expiration of a one-year contract with another utility to supply 33
megawatts of power contributed to a 18.6% decline in 1997 kilowatt-hour
sales to wholesale customers from the previous year and contributed to
a 4.7% decrease in total 1997 kilowatt-hour sales from 1996.
Total operation and maintenance expenses in 1998 decreased
from the prior year with higher fuel and purchased power costs more
than offset by lower nuclear operating costs and other operating costs.
Most of the increase in fuel and purchased power occurred in the second
quarter and resulted from a combination of factors. In late June 1998,
the midwestern and southern regions of the United States experienced
electricity shortages caused mainly by record temperatures and humidity
and unscheduled generating unit outages. Due in part to an unscheduled
outage at Beaver Valley Unit 1 at that time, our production
capabilities were reduced to the point that we purchased significant
amounts of power, at unusually high spot market prices, causing the
increase in purchased power costs. Because of the decrease in kilowatt-
hour sales in 1997, we spent less on fuel and purchased power during
1997, compared to 1996. Nuclear operating costs were lower in 1998,
compared to 1997, due primarily to lower refueling outage cost levels.
Increased operating costs at Beaver Valley Unit 1 resulted in higher
nuclear operating costs in 1997 compared to the previous year. Two
items in 1997, a $3 million charge for uncollectible customer accounts
and a fourth quarter charge of approximately $5.4 million for a
voluntary retirement program, contributed to the increase in other
operating costs in 1997 from the previous year and to the subsequent
reduction in other operating costs in 1998. In addition, continuing
improvements in operating efficiency, evidenced by a reduction in the
number of our employees over the last five years, contributed to the
reduction in other operating costs in 1998.
Depreciation and amortization decreased in 1998 compared to
the prior year due primarily to the effect of our rate restructuring
plan. The Pennsylvania Public Utility Commission's (PPUC) authorization
of our rate restructuring plan in the second quarter led to
discontinued application of certain regulatory accounting procedures
(i.e. SFAS 71) to our generation business, resulting in a write down of
our nuclear generating unit investment and the recognition of a portion
of such investment, recoverable through future customer rates, as a
regulatory asset. The decrease in nuclear depreciation resulting from
the write down was the primary cause of the total decrease. In 1997,
the increase in the provision for depreciation and amortization of net
regulatory assets from the previous year reflected accelerated
depreciation and amortization of nuclear and regulatory assets under
our rate plan. The decrease in general taxes in 1997 was due
principally to an adjustment, which reduced our liability for gross
receipts taxes.
The downward trend of net interest charges continued in 1998.
Interest on long-term debt decreased in both 1998 and 1997 from the
previous year due to our economic refinancings and redemption of
higher-cost debt totaling approximately $6.1 million in 1998 and $39.4
million in 1997.
Capital Resources and Liquidity
We have significantly improved our financial position over
the past five years as evidenced by our enhanced fixed charge coverage
ratios and percentage of common stockholder's equity to total
capitalization. Our SEC ratio of earnings to fixed charges improved to
4.14 at the end of 1998 from 2.16 at the end of 1993. Our indenture
ratio, which is used to determine our ability to issue first mortgage
bonds, increased from 2.99 at the end of 1993 to 4.92 at the end of
1998. Over the same period, the charter ratio, a measure of our ability
to issue preferred stock, improved from 1.61 to 2.33 and our common
stockholder's equity percentage of capitalization rose from
approximately 33% at the end of 1993 to almost 44% at the end of 1998.
Our improving financial position reflects ongoing efforts to increase
competitiveness. We continue to streamline our operations, as evidenced
by a 50% increase in FirstEnergy's customer/employee ratio, which has
increased from 165 at the end of 1993 to 247 as of December 31, 1998.
Merger-related savings through consolidation of activities have
contributed to these results. Also, net debt redemptions and
refinancings have lowered our average cost of long-term debt over the
last five years from 8.36% in 1993 to 7.70% at the end of 1998.
All cash requirements for the year, including debt
repayments, were met with internally generated funds. Our cash
requirements for 1999 for operating expenses, construction expenditures
and scheduled debt maturities are expected to be met without issuing
additional securities. Cash requirements of approximately $69 million
for the 1999-2003 period to meet scheduled maturities of long-term debt
and preferred stock are also expected to be funded internally.
We had about $57.5 million of cash and temporary investments
and no short-term indebtedness as of December 31, 1998. We also had a
$2 million bank facility that provides for borrowings on a short-term
basis at the bank's discretion.
During 1998, our capital spending (excluding nuclear fuel)
totaled approximately $16 million. Our capital spending for the period
1999-2003 is expected to be about $167 million (excluding nuclear
fuel), of which approximately $28 million applies to 1999. Investments
for additional nuclear fuel during the 1999-2003 period are estimated
to be approximately $28 million, of which about $3 million applies to
1999. During the same periods, our nuclear fuel investments are
expected to be reduced by approximately $29 million and $6 million,
respectively, as the nuclear fuel is consumed.
FirstEnergy signed an agreement in principle with Duquesne
Light Company (Duquesne) that would result in the transfer of 1,436
megawatts owned by Duquesne at five generating plants in exchange for
1,328 megawatts at three plants owned by FirstEnergy's electric utility
operating companies (see "Common Ownership of Generating Facilities" in
Note 1). A final agreement on the exchange of assets, which will be
structured as a tax-free transaction to the extent possible is being
negotiated. The transaction benefits FirstEnergy's utility operating
companies by providing exclusive ownership and operating control of all
generating assets that are now jointly owned and operated under the
Central Area Power Coordination Group agreement.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is
mitigated since a significant portion of our debt has fixed interest
rates, as noted in the table below. We are subject to the inherent
interest rate risks related to refinancing maturing debt by issuing new
debt securities. Changes in the market value of our nuclear
decommissioning trust funds are recognized by making a corresponding
change to the decommissioning liability, as described in Note 1.
The table below presents principal amounts and related
weighted average interest rates by year of maturity for our investment
portfolio, debt obligations and preferred stock with mandatory
redemption provisions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
(Dollars in Millions)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than Cash and
Cash Equivalents:
Fixed Income $ 9 $ 9 $ 9
Average interest rate 5.1% 5.1%
- -------------------------------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate $ 1 $24 $ 1 $ 1 $41 $200 $268 $284
Average interest rate 9.7% 6.2% 9.7% 9.7% 7.6% 7.0% 7.0%
Variable rate $ 10 $ 10 $ 10
Average interest rate 4.2% 4.2%
- -------------------------------------------------------------------------------------------------
Preferred Stock $ 1 $ 1 $ 13 $ 15 $ 16
Average dividend rate 7.6% 7.6% 7.6% 7.6%
- -------------------------------------------------------------------------------------------------
</TABLE>
Outlook
We face many competitive challenges in the years ahead as
the electric utility industry undergoes significant changes,
including changing regulation and the entrance of more energy
suppliers into the marketplace. Retail wheeling, which has begun in
our service area, allows retail customers to purchase electricity
from other energy producers. Our regulatory plan provided a solid
foundation to position us to meet the challenges we are now facing by
facilitating the reduction of fixed costs.
Application of SFAS 71 was discontinued for the generation
portion of our business in June 1998 following PPUC approval of the
rate restructuring plan. Customer choice will be phased in over two
years with 66% of each customer class able to choose alternative
suppliers of generation on January 2, 1999, and all remaining
customers having choice as of January 2, 2000. Under the plan, we
continue to deliver power to homes and businesses through our
transmission and distribution system, which remains regulated.
However, our rates have been restructured to establish separate
charges for transmission and distribution; generation, which is
subject to competition; and stranded cost recovery. In the event
customers obtain power from an alternative source, the generation
portion of our rates will be excluded from their bill and our
customers will receive a generation charge from the alternative
supplier. The stranded cost recovery portion of rates provides for
recovery of certain amounts not otherwise considered recoverable in a
competitive generation market, including regulatory assets. We are
entitled to recover $234 million of stranded costs through a
competitive transition charge that starts in 1999 and ends in 2005.
The Clean Air Act Amendments of 1990, discussed in Note 5,
require additional emission reductions by 2000. We are pursuing cost-
effective compliance strategies for meeting these reduction
requirements.
On September 24, 1998, the Federal Environmental Protection
Agency issued a final rule establishing tighter nitrogen oxide
emission requirements for fossil fuel-fired utility boilers in
Pennsylvania, Ohio and twenty other eastern states, including the
District of Columbia (see "Environmental Matters" in Note 5).
Controls must be in place by May 2003, with required reductions
achieved during the five-month summer ozone season (May through
September). The new rule is expected to increase the cost of
producing electricity; however, we believe that we are in a better
position than a number of other utilities to achieve compliance due
to our nuclear generation capacity.
In connection with FirstEnergy's regulatory plan to reduce
fixed costs and lower rates, we continue to take steps to restructure
our operations. FirstEnergy announced plans to transfer our
transmission assets into a new subsidiary, American Transmission
Systems, Inc., with the transfer expected to be finalized in 1999.
The new subsidiary represents a first step toward the goal of
establishing or becoming part of a larger independent transmission
company (TransCo). We believe that a TransCo better addresses the
Federal Energy Regulatory Commission's (FERC) stated transmission
objectives of providing non-discriminatory service, while providing
for streamlined and cost-efficient operation. In working toward the
goal of forming a larger regional transmission entity, FirstEnergy,
American Electric Power, Virginia Power and Consumers Energy
announced in November 1998 that they would prepare a FERC filing
during 1999 for such a regional transmission entity. The entity would
be designed to meet the goals of reducing transmission costs that
result when transferring power over several transmission systems,
ensuring transmission reliability and providing non-discriminatory
access to the transmission grid.
Year 2000 Readiness
The Year 2000 issue is the result of computer programs
being written using two digits rather than four to identify the
applicable year. Any of our programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than
the year 2000. Because so many of our computer functions are date
sensitive, this could cause far-reaching problems, such as system-
wide computer failures and miscalculations, if no remedial action is
taken.
We have developed a multi-phase program for Year 2000
compliance that consists of an assessment of our systems and
operations that could be affected by the Year 2000 problem;
remediation or replacement of noncompliant systems and components;
and testing of systems and components following such remediation or
replacement. We have focused our Year 2000 review on three areas:
centralized system applications, noncentralized systems and
relationships with third parties (including suppliers as well as end-
use customers). Our review of system readiness extends to systems
involving customer service, safety, shareholder needs and regulatory
obligations.
We are committed to taking appropriate actions to eliminate
or lessen negative effects of the Year 2000 issue on our operations.
We have completed an inventory of all computer systems and hardware
including equipment with embedded computer chips and have determined
which systems need to be converted or replaced to become Year 2000-
ready and are in the process of remediating them. Based on our
timetable, we expect to have all identified repairs, replacements and
upgrades completed to achieve Year 2000 readiness by September 1999.
Most of our Year 2000 issues will be resolved through
system replacement. Of our major centralized systems, the general
ledger system and inventory management, procurement and accounts
payable systems were replaced at the end of 1998. Our payroll system
was enhanced to be Year 2000 compliant in July 1998. The customer
service system is due to be replaced in mid-1999.
We have completed formal communications with most of our key
suppliers to determine the extent to which we are vulnerable to those
third parties' failure to resolve their own Year 2000 problems. For
suppliers having potential compliance problems, we are developing
alternate sources and services in the event such noncompliance occurs.
We are also identifying areas requiring higher inventory levels based
on compliance uncertainties. There can be no guarantee that the
failure of companies to resolve their own Year 2000 issue will not
have a material adverse effect on our business, financial condition
and results of operations.
We are using both internal and external resources to
reprogram and/or replace and test our software for Year 2000
modifications. Of the $6 million total project cost, approximately $5
million will be capitalized since those costs are attributable to the
purchase of new software for total system replacements because the
Year 2000 solution comprises only a portion of the benefits resulting
from the system replacements. The remaining $1 million will be
expensed as incurred. As of December 31, 1998, we have spent $3
million for Year 2000 capital projects and had expensed approximately
$600,000 for Year 2000-related maintenance activities. Our total Year
2000 project cost, as well as our estimates of the time needed to
complete remedial efforts, are based on currently available
information and do not include the estimated costs and time
associated with the impact of third party Year 2000 issues.
We believe we are managing the Year 2000 issue in such a
way that our customers will not experience any interruption of
service. We believe the most likely worst-case scenario from the Year
2000 issue will be disruption in power plant monitoring systems,
thereby producing inaccurate data and potential failures in
electronic switching mechanisms at transmission junctions. This would
prolong localized outages, as technicians would have to manually
activate switches. Such an event could have a material, but currently
undeterminable, effect on our financial results. We are developing
contingency plans to address the effects of any delay in becoming
Year 2000 compliant and expect to have contingency plans completed by
June 1999.
The costs of the project and the dates on which we plan to
complete the Year 2000 modifications are based on management's best
estimates, which were derived from numerous assumptions of future
events including the continued availability of certain resources, and
other factors. However, there can be no guarantee that this project
will be completed as planned and actual results could differ
materially from the estimates. Specific factors that might cause
material differences include but are not limited to, the availability
and cost of trained personnel, the ability to locate and correct all
relevant computer code, and similar uncertainties.
<TABLE>
<PAGE>
PENNSYLVANIA POWER COMPANY
STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING REVENUES $323,756 $323,381 $322,625
-------- -------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 76,801 67,345 67,443
Nuclear operating costs 22,968 26,220 22,064
Other operating costs 52,348 66,518 59,753
-------- -------- --------
Total operation and maintenance expenses 152,117 160,083 149,260
Provision for depreciation and amortization 59,264 64,628 57,114
General taxes 22,540 22,379 24,015
Income taxes 31,794 25,555 29,907
-------- -------- --------
Total operating expenses and taxes 265,715 272,645 260,296
-------- -------- --------
OPERATING INCOME 58,041 50,736 62,329
OTHER INCOME 2,485 2,760 5,760
-------- -------- --------
INCOME BEFORE NET INTEREST CHARGES 60,526 53,496 68,089
-------- -------- --------
NET INTEREST CHARGES:
Interest on long-term debt 19,255 20,458 25,715
Interest on nuclear fuel obligations 28 276 219
Allowance for borrowed funds used during construction (294) (414) (387)
Other interest expense 1,789 1,704 1,955
-------- -------- --------
Net interest charges 20,778 22,024 27,502
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 39,748 31,472 40,587
EXTRAORDINARY ITEM (NET OF INCOME TAXES) (Note 1) (30,522) -- --
-------- -------- --------
NET INCOME 9,226 31,472 40,587
PREFERRED STOCK DIVIDEND REQUIREMENTS 4,626 4,626 4,626
-------- -------- --------
EARNINGS ON COMMON STOCK $ 4,600 $ 26,846 $ 35,961
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
BALANCE SHEETS
<CAPTION>
At December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------
(In thousands)
ASSETS
<S> <C> <C>
UTILITY PLANT:
In service $686,771 $1,237,562
Less-Accumulated provision for depreciation 291,188 508,981
-------- ----------
395,583 728,581
-------- ----------
Construction work in progress-
Electric plant 17,187 7,427
Nuclear fuel 508 6,788
-------- ----------
17,695 14,215
-------- ----------
413,278 742,796
-------- ----------
OTHER PROPERTY AND INVESTMENTS 29,177 26,157
-------- ----------
CURRENT ASSETS:
Cash and cash equivalents 7,485 660
Notes receivable from parent company (Note 4) 50,000 17,500
Receivables-
Customers (less accumulated provisions of $3,599,000 and $3,609,000,
respectively, for uncollectible accounts) 34,737 33,934
Associated companies 34,430 12,599
Other 12,472 14,426
Materials and supplies, at average cost 15,515 14,973
Prepayments 2,657 1,707
-------- ----------
157,296 95,799
-------- ----------
DEFERRED CHARGES:
Regulatory assets 371,027 162,966
Other 6,994 6,739
-------- ----------
378,021 169,705
-------- ----------
$977,772 $1,034,457
======== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Statements of Capitalization):
Common stockholder's equity $275,281 $ 291,977
Preferred stock-
Not to subject to mandatory redemption 50,905 50,905
Subject mandatory redemption 15,000 15,000
Long-term debt-
Associated companies 6,617 9,231
Other 281,072 280,074
-------- ----------
628,875 647,187
-------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt-
Associated companies 5,557 6,958
Other 984 1,443
Accounts payable-
Associated companies 9,676 6,788
Other 23,156 22,751
Accrued taxes 12,849 12,332
Accrued interest 6,519 6,588
Other 17,046 14,746
-------- ----------
75,787 71,606
-------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 212,427 239,952
Accumulated deferred investment tax credits 7,787 26,052
Other 52,896 49,660
-------- ----------
273,110 315,664
-------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 2 and 5) -------- ----------
$977,772 $1,034,457
======== ==========
<FN>
The accompanying Notes to Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDER'S EQUITY:
Common stock, $30 par value, 6,500,000 shares authorized, 6,290,000 shares outstanding $188,700 $188,700
Other paid-in capital (310) (310)
Accumulated other comprehensive income (Note 3B) -- (90)
Retained earnings (Note 3A) 86,891 103,677
-------- --------
Total common stockholder's equity 275,281 291,977
-------- --------
Number of Shares Optional
Outstanding Redemption Price
----------------- -----------------------
1998 1997 Per Share Aggregate
---- ---- --------- ---------
<C> <C> <C> <C>
PREFERRED STOCK (Note 3C):
Cumulative, $100 par value-
Authorized 1,200,000 shares
Not Subject to Mandatory Redemption:
4.24% 40,000 40,000 $103.13 $ 4,125 4,000 4,000
4.25% 41,049 41,049 105.00 4,310 4,105 4,105
4.64% 60,000 60,000 102.98 6,179 6,000 6,000
7.64% 60,000 60,000 101.42 6,085 6,000 6,000
7.75% 250,000 250,000 -- -- 25,000 25,000
8.00% 58,000 58,000 102.07 5,920 5,800 5,800
------- ------- ------- -------- --------
Total not subject to mandatory redemption 509,049 509,049 $26,619 50,905 50,905
======= ======= ======= -------- --------
Subject to Mandatory Redemption (Note 3D):
7.625% 150,000 150,000 106.86 $16,029 15,000 15,000
======= ======= ======= -------- --------
LONG-TERM DEBT (Note 3E):
First mortgage bonds-
9.740% due 1999-2019 20,000 20,000
7.500% due 2003 40,000 40,000
6.375% due 2004 20,500 20,500
6.625% due 2004 14,000 14,000
8.500% due 2022 27,250 27,250
7.625% due 2023 6,500 6,500
-------- --------
Total first mortgage bonds 128,250 128,250
-------- --------
Secured notes-
4.750% due 1998 -- 850
6.080% due 2000 23,000 23,000
5.400% due 2013 1,000 1,000
5.400% due 2017 10,600 10,600
7.150% due 2017 17,925 17,925
5.900% due 2018 16,800 16,800
8.100% due 2020 5,200 5,200
7.150% due 2021 14,482 14,482
6.150% due 2023 12,700 12,700
*4.150% due 2027 10,300 10,300
6.450% due 2027 14,500 14,500
5.375% due 2028 1,734 --
5.450% due 2028 6,950 6,950
6.000% due 2028 14,250 14,250
5.950% due 2029 238 238
-------- --------
Total secured notes 149,679 148,795
-------- --------
Other obligations-
Nuclear fuel 12,174 16,189
Capital leases (Note 2) 4,635 5,022
-------- --------
Total other obligations 16,809 21,211
-------- --------
Net unamortized discount on debt (508) (550)
-------- --------
Long-term debt due within one year (6,541) (8,401)
-------- --------
Total long-term debt 287,689 289,305
-------- --------
TOTAL CAPITALIZATION $628,875 $647,187
======== ========
<FN>
* Denotes variable rate issue with December 31, 1998 interest rate shown.
The accompanying Notes to Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
Accumulated
Other
Comprehensive Other Comprehensive
Income Number Par Paid-In Income Retained
(Note 3B) of Shares Value Capital (Note 3B) Earnings
------------- ---------- ------- ------- -------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 6,290,000 $188,700 $(310) $(112) $ 83,642
Net income $40,587 40,587
Minimum liability for
unfunded retirement
benefits, net of $7,000
of income taxes 9 9
-------
Comprehensive income $40,596
=======
Cash dividends on common
stock (21,386)
Cash dividends on preferred
stock (4,626)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 1996 6,290,000 188,700 (310) (103) 98,217
Net income $31,472 31,472
Minimum liability for
unfunded retirement
benefits, net of $9,000
of income taxes 13 13
-------
Comprehensive income $31,485
=======
Cash dividends on common
stock (21,386)
Cash dividends on preferred
stock (4,626)
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,290,000 188,700 (310) (90) 103,677
Net income $ 9,226 9,226
Transfer of minimum liability
for unfunded retirement
benefits to FirstEnergy 90 90
-------
Comprehensive income $ 9,316
=======
Cash dividends on common
stock (21,386)
Cash dividends on preferred
stock (4,626)
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 6,290,000 $188,700 $(310) $ -- $ 86,891
======================================================================================================
</TABLE>
<TABLE>
STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
-------------------- --------------------
Number Par Number Par
of Shares Value of Shares Value
--------- ------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1996 509,049 $50,905 150,000 $15,000
- -----------------------------------------------------------------------------
Balance, December 31, 1996 509,049 50,905 150,000 15,000
- -----------------------------------------------------------------------------
Balance, December 31, 1997 509,049 50,905 150,000 15,000
- -----------------------------------------------------------------------------
Balance, December 31, 1998 509,049 $50,905 150,000 $15,000
=============================================================================
<FN>
The accompanying Notes to Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,226 $31,472 $ 40,587
Adjustments to reconcile net income to net cash from
operating activities:
Provision for depreciation and amortization 59,264 64,628 57,114
Nuclear fuel and lease amortization 5,418 7,172 8,693
Other amortization, net (330) (1,187) (1,700)
Deferred income taxes, net (20,007) (6,631) 396
Investment tax credits, net (2,289) (2,331) (2,138)
Deferred fuel costs, net -- -- 3,220
Extraordinary item 51,730 -- --
Receivables (20,680) 6,515 (1,193)
Materials and supplies (542) (704) 1,319
Accounts payable 3,293 (4,476) (2,472)
Other 3,148 (5,707) (12,087)
-------- ------- --------
Net cash provided from operating activities 88,231 88,751 91,739
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 1,563 9,942 --
Redemptions and Repayments-
Long-term debt 6,088 39,464 84,347
Dividend Payments-
Common stock 21,386 21,386 21,386
Preferred stock 4,626 4,626 4,626
-------- ------- --------
Net cash used for financing activities 30,537 55,534 110,359
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 16,495 14,513 20,361
Loan to parent 32,500 15,000 --
Loan payment from parent -- -- (19,500)
Other 1,874 4,431 116
-------- ------- --------
Net cash used for investing activities 50,869 33,944 977
-------- ------- --------
Net increase (decrease) in cash and cash equivalents 6,825 (727) (19,597)
Cash and cash equivalents at beginning of year 660 1,387 20,984
-------- ------- --------
Cash and cash equivalents at end of year $ 7,485 $ 660 $ 1,387
======== ======= ========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid during the year-
Interest (net of amounts capitalized) $ 19,057 $21,137 $ 26,653
======== ======= ========
Income taxes $ 32,290 $38,324 $ 36,815
======== ======= ========
<FN>
The accompanying Notes to Financial Statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENT OF TAXES
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
GENERAL TAXES:
State gross receipts $ 10,830 $ 11,267 $ 12,305
Real and personal property 6,893 6,060 6,178
State capital stock 2,774 2,566 2,820
Social security and unemployment 1,894 2,224 2,064
Other 149 262 648
-------- -------- --------
Total general taxes $ 22,540 $ 22,379 $ 24,015
======== ======== ========
PROVISION FOR INCOME TAXES:
Currently payable-
Federal $ 25,938 $ 27,560 $ 27,282
State 7,654 8,061 7,881
-------- -------- --------
33,592 35,621 35,163
-------- -------- --------
Deferred, net-
Federal (15,454) (5,096) 272
State (4,553) (1,535) 124
-------- -------- --------
(20,007) (6,631) 396
-------- -------- --------
Investment tax credit amortization (2,289) (2,331) (2,138)
-------- -------- --------
Total provision for income taxes $ 11,296 $ 26,659 $ 33,421
======== ======== ========
INCOME STATEMENT CLASSIFICATION OF
PROVISION FOR INCOME TAXES:
Operating expenses $ 31,794 $ 25,555 $ 29,907
Other income 710 1,104 3,514
Extraordinary item (21,208) -- --
-------- -------- --------
Total provision for income taxes $ 11,296 $ 26,659 $ 33,421
======== ======== ========
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes $ 20,522 $ 58,131 $ 74,008
======== ======== ========
Federal income tax expense at statutory rate $ 7,183 $ 20,346 $ 25,903
Increases (reductions) in taxes resulting from:
State income taxes, net of federal income tax benefit 2,016 4,242 5,203
Amortization of investment tax credits (2,289) (2,331) (2,138)
Amortization of tax regulatory assets 4,745 4,554 4,423
Other, net (359) (152) 30
-------- -------- --------
Total provision for income taxes $ 11,296 $ 26,659 $ 33,421
======== ======== ========
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Competitive transition charge $135,730 $ -- $ --
Property basis differences 69,867 172,094 178,886
Allowance for equity funds used during construction 7,219 29,875 33,677
Deferred nuclear expense -- 7,163 8,031
Customer receivables for future income taxes 9,690 37,954 40,901
Unamortized investment tax credits (3,193) (10,681) (11,635)
Other (6,886) 3,547 3,916
-------- -------- --------
Net deferred income tax liability $212,427 $239,952 $253,776
======== ======== ========
<FN>
The accompanying Notes to Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company, a wholly owned subsidiary of Ohio Edison Company
(Edison), follows the accounting policies and practices prescribed by
the Pennsylvania Public Utility Commission (PPUC) and the Federal Energy
Regulatory Commission (FERC). The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make periodic estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Certain
prior year amounts have been reclassified to conform with the current
year presentation.
REVENUES-
The Company's principal business is providing electric
service to customers in western Pennsylvania. The Company's retail
customers are metered on a cycle basis. Revenue is recognized for
unbilled electric service through the end of the year.
Receivables from customers include sales to residential,
commercial and industrial customers located in the Company's service
area and sales to wholesale customers. There was no material
concentration of receivables at December 31, 1998 or 1997, with respect
to any particular segment of the Company's customers.
REGULATORY PLAN-
In June 1998, the PPUC authorized a rate restructuring plan
for the Company, which superseded the regulatory plan which had been in
place for the Company since 1996, and essentially resulted in the
deregulation of the Company's generation business as of June 30, 1998.
The Company was required to remove from its balance sheet all
regulatory assets and liabilities related to its generation business
and assess all other assets for impairment. The Securities and Exchange
Commission (SEC) issued interpretive guidance regarding asset
impairment measurement which concluded that any supplemental regulated
cash flows such as a competitive transition charge (CTC) should be
excluded from the cash flows of assets in a portion of the business not
subject to regulatory accounting practices. If those assets are
impaired, a regulatory asset should be established if the costs are
recoverable through regulatory cash flows. Consistent with the SEC
guidance, the Company reduced its nuclear generating unit investments
by approximately $305 million, of which approximately $227 million was
recognized as a regulatory asset to be recovered through a CTC over a
seven-year transition period; the remaining net amount of $78 million
was written off. The charge of $51.7 million ($30.5 million after
income taxes) for discontinuing the application of Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71), to the Company's
generation business was recorded as an extraordinary item on the
Statement of Income. The Company's net assets included in utility plant
relating to the operations for which the application of SFAS 71 was
discontinued were $146 million as of December 31, 1998.
All of the Company's regulatory assets are being recovered
under provisions of the regulatory plan. In addition, the PPUC had
authorized the Company to accelerate at least $358 million, more than
the amounts that would have been recognized if the regulatory plan was
not in effect. These additional amounts are being recovered through
current rates. As of December 31, 1998, the Company's cumulative
additional capital recovery and regulatory asset amortization amounted
to $184 million (including the impairment discussed above).
In December 1996, Pennsylvania enacted "The Electricity
Generation Customer Choice and Competition Act," which permitted
customers, including the Company's customers, to choose their electric
generation supplier, while transmission and distribution services will
continue to be supplied by their current providers. Customer choice will
be phased in over two years with 66% of each customer class able to
choose alternative suppliers of generation on January 2, 1999, and all
remaining customers having choice as of January 2, 2000. Under the rate
restructuring plan, the Company continues to deliver power to homes and
businesses through its transmission and distribution system, which
remains regulated by the PPUC. The Company's rates have been
restructured to establish separate charges for transmission and
distribution; generation, which is subject to competition; and stranded
cost recovery. In the event customers obtain power from an alternative
source, the generation portion of the Company's rates will be excluded
from their bill and the customers will receive a generation charge from
the alternative supplier. The stranded cost recovery portion of rates
provides for recovery of certain amounts not otherwise considered
recoverable in a competitive generation market, including regulatory
assets. The Company is entitled to recover $234 million of stranded
costs through a CTC that starts in 1999 and ends in 2005.
UTILITY PLANT AND DEPRECIATION-
Utility plant reflects the original cost of construction
(except for nuclear generating units which were adjusted to fair value
as discussed above), including payroll and related costs such as taxes,
employee benefits, administrative and general costs, and interest costs.
The Company provides for depreciation on a straight-line basis
at various rates over the estimated lives of property included in plant
in service. The annual composite rate for electric plant was
approximately 3.0% in 1998 and 2.7% in 1997 and 1996. In addition to the
straight-line depreciation recognized in 1998, 1997 and 1996, the
Company also recognized additional capital recovery of $15 million,
$27 million and $20 million, respectively, as additional depreciation
expense in accordance with the regulatory plan.
Annual depreciation expense includes approximately
$3.1 million for future decommissioning costs applicable to the
Company's ownership interest in two nuclear generating units. The
Company's share of the future obligation to decommission these units is
approximately $88 million in current dollars and (using a 4.0%
escalation rate) approximately $205 million in future dollars. The
estimated obligation and the escalation rate were developed based on
site specific studies. Payments for decommissioning are expected to
begin in 2016, when actual decommissioning work begins. The Company has
recovered approximately $12 million for decommissioning through its
electric rates from customers through December 31, 1998. If the actual
costs of decommissioning the units exceed the funds accumulated from
investing amounts recovered from customers, the Company expects that
additional amount to be recoverable from its customers. The Company has
approximately $13.7 million invested in external decommissioning trust
funds as of December 31, 1998. Earnings on these funds are reinvested
with a corresponding increase to the decommissioning liability. The
Company has also recognized an estimated liability of approximately
$3.0 million at December 31, 1998 related to decontamination and
decommissioning of nuclear enrichment facilities operated by the United
States Department of Energy (DOE), as required by the Energy Policy Act
of 1992.
The Financial Accounting Standards Board (FASB) issued a
proposed accounting standard for nuclear decommissioning costs in 1996.
If the standard is adopted as proposed: (1) annual provisions for
decommissioning could increase; (2) the net present value of estimated
decommissioning costs could be recorded as a liability; and (3) income
from the external decommissioning trusts could be reported as investment
income. The FASB subsequently expanded the scope of the proposed
standard to include other closure and removal obligations related to
long-lived assets. A revised proposal may be issued by the FASB in 1999.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Company and other Central Area Power Coordination Group
(CAPCO) companies own, as tenants in common, various power generating
facilities. Each of the companies is obligated to pay a share of the
costs associated with any jointly owned facility in the same proportion
as its interest. The Company's portion of operating expenses associated
with jointly owned facilities is included in the corresponding
operating expenses on the Statements of Income. The amounts reflected
on the Balance Sheet under utility plant at December 31, 1998, include
the following:
<TABLE>
<CAPTION>
Utility Accumulated Construction Company's
Generating Plant Provision for Work in Ownership
Units in Service Depreciation Progress Interest
- ---------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
W. H. Sammis #7 $ 57.8 $21.8 $0.3 20.80%
Bruce Mansfield
#1, #2 and #3 98.9 47.3 0.6 5.76%
Beaver Valley #1 18.6 1.2 2.2 17.50%
Perry #1 1.5 0.6 1.1 5.24%
- --------------------------------------------------------------------------
Total $176.8 $70.9 $4.2
==========================================================================
</TABLE>
On October 15, 1998, FirstEnergy Corp. (FirstEnergy) the
parent company of Edison, announced that it signed an agreement in
principle with Duquesne Light Company (Duquesne) that would result in
the transfer of 1,436 megawatts owned by Duquesne at eight CAPCO
generating units in exchange for 1,328 megawatts at three non-CAPCO
power plants owned by the Company, Edison and The Cleveland Electric
Illuminating Company, an affiliate. As part of this exchange, the
Company will transfer its 339-megawatt New Castle Plant and its 4-
megawatt interest in the Niles Plant to Duquesne. A definitive
agreement on the exchange of assets, which will be structured as a
tax-free transaction to the extent possible, will provide
FirstEnergy's utility operating companies with exclusive ownership
and operating control of all CAPCO generating units. Duquesne will
fund decommissioning costs equal to its percentage interest in the
three nuclear generating units to be transferred. The asset transfer
is expected to take twelve to eighteen months to close.
NUCLEAR FUEL-
OES Fuel, Incorporated (OES Fuel), a wholly owned subsidiary
of Edison, is the sole lessor for the Company's nuclear fuel
requirements.
Minimum lease payments during the next five years are
estimated to be as follows:
(In millions)
- -------------------------------
1999 $6.3
2000 3.6
2001 2.2
2002 1.2
2003 0.2
- ------------------------------
The Company amortizes the cost of nuclear fuel based on the
rate of consumption. The Company's electric rates include amounts for
the future disposal of spent nuclear fuel based upon the formula used
to compute payments to the DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on
the Statements of Taxes. Deferred income taxes result from timing
differences in the recognition of revenues and expenses for tax and
accounting purposes. Investment tax credits, which were deferred when
utilized, are being amortized over the recovery period of the related
property. The liability method is used to account for deferred income
taxes. Deferred income tax liabilities related to tax and accounting
basis differences are recognized at the statutory income tax rates in
effect when the liabilities are expected to be paid. Since Edison
became a wholly owned subsidiary of FirstEnergy on November 8, 1997,
the Company is included in FirstEnergy's consolidated federal income
tax return. The consolidated tax liability is allocated on a "stand-
alone" company basis, with the Company recognizing any tax losses or
credits it contributed to the consolidated return.
RETIREMENT BENEFITS-
The Company's trusteed, noncontributory defined benefit
pension plan covers almost all full-time employees. Upon retirement,
employees receive a monthly pension based on length of service and
compensation. In 1998, the Company's, Edison's and Centerior Energy
Corporation pension plans were merged into the FirstEnergy pension
plans. The Company uses the projected unit credit method for funding
purposes and was not required to make pension contributions during
the three years ended December 31, 1998. The assets of the pension
plans consist primarily of common stocks, United States government
bonds and corporate bonds.
The Company provides a minimum amount of noncontributory
life insurance to retired employees in addition to optional
contributory insurance. Health care benefits, which include certain
employee deductibles and copayments, are also available to retired
employees, their dependents and, under certain circumstances, their
survivors. The Company pays insurance premiums to cover a portion of
these benefits in excess of set limits; all amounts up to the limits
are paid by the Company. The Company recognizes the expected cost of
providing other postretirement benefits to employees and their
beneficiaries and covered dependents from the time employees are
hired until they become eligible to receive those benefits.
The following sets forth the funded status of the
FirstEnergy plans in 1998 and the Company's plans in 1997 and amounts
recognized on the Balance Sheets as of December 31 (which includes
the Company's share of the FirstEnergy 1998 plans' net prepaid
pension cost and accrued other postretirement benefits costs of $9.0
million and $28.4 million, respectively):
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation as of January 1* $1,327.5 $122.8 $ 534.1 $ 43.7
Service cost 25.0 2.7 7.5 0.9
Interest cost 92.5 8.9 37.6 3.2
Plan amendments 44.3 0.5 40.1 --
Early retirement program expense -- 5.8 -- 0.3
Actuarial loss 101.6 10.1 10.7 1.5
Benefits paid (90.8) (8.4) (28.7) (2.3)
- ---------------------------------------------------------------------------------------------
Benefit obligation as of December 31 1,500.1 142.4 601.3 47.3
- ---------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of January 1* 1,542.5 150.5 2.8 0.2
Actual return on plan assets 231.3 30.0 0.7 0.1
Company contribution -- -- 0.4 --
Benefits paid (90.8) (8.4) -- --
- ---------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31 1,683.0 172.1 3.9 0.3
- ---------------------------------------------------------------------------------------------
Funded status of plan* 182.9 29.7 (597.4) (47.0)
Unrecognized actuarial loss (gain) (110.8) (25.7) 30.6 4.3
Unrecognized prior service cost 63.0 4.2 27.4 (4.0)
Unrecognized net transition obligation (asset) (18.0) (5.3) 129.3 21.4
- ---------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 117.1 $ 2.9 $(410.1) $(25.3)
=============================================================================================
Assumptions used as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected long-term return on plan assets 10.25% 10.00% 10.25% 10.00%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
<FN>
* 1998 beginning balances reflect 1998 merger of the Company's,
Edison's and Centerior plans into FirstEnergy plans.
</TABLE>
Net pension and other postretirement benefit costs for the
three years ended December 31, 1998 (including the Company's share of
FirstEnergy plans' 1998 pension benefits costs and other
postretirement benefit costs of $(6.1) million and $5.4 million,
respectively) were computed as follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
-------------------- ----------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 25.0 $ 2.7 $ 3.2 $ 7.5 $0.9 $ 1.1
Interest cost 92.5 8.9 9.5 37.6 3.2 3.2
Expected return on plan assets (152.7) (14.7) (12.3) (0.3) -- --
Amortization of transition obligation
(asset) (8.0) (1.0) (1.0) 9.2 1.2 1.7
Amortization of prior service cost 2.3 0.4 0.4 (0.8) -- (0.3)
Recognized net actuarial gain (2.6) (0.4) -- -- -- --
Voluntary early retirement program
expense -- 5.8 -- -- 0.3 --
Plan curtailment loss (gain) -- -- (4.3) -- -- 3.5
- -------------------------------------------------------------------------------------------
Net benefit cost $ (43.5) $ 1.7 $ (4.5) $53.2 $5.6 $ 9.2
============================================================================================
</TABLE>
In accordance with SFAS 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," the 1996 net pension costs and postretirement
benefit costs shown above included curtailment effects (significant
changes in projected plan assumptions) relating to the pension and
postretirement benefit plans. The employee terminations reflected in
the Company's 1996 restructuring activities represented a plan
curtailment that significantly reduced the expected future employee
service years and the related accrual of defined pension and
postretirement benefits. In the pension plan, the reduction in the
benefit obligation increased the net pension asset and was shown as a
plan curtailment gain. In the postretirement benefit plan, the
unrecognized prior service cost associated with service years no
longer expected to be rendered as a result of the terminations, was
shown as a plan curtailment loss.
The FirstEnergy plans' health care trend rate assumption is
5.5% in the first year gradually decreasing to 4.0% for the year 2008
and later. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan. An increase
in the health care trend rate assumption by one percentage point would
increase the total service and interest cost components by $4.0
million and the postretirement benefit obligation by $68.1 million. A
decrease in the same assumption by one percentage point would decrease
the total service and interest cost components by $3.2 million and the
postretirement benefit obligation by $55.2 million.
TRANSACTIONS WITH AFFILIATED COMPANIES-
Transactions with affiliated companies are included on the
Statements of Income as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Operating revenues:
Electric sales $ 9.8 $ 6.1 $ 3.6
Bruce Mansfield Plant administrative
and general charges to affiliates 6.3 0.9 --
Other transactions 0.7 0.4 0.4
- -------------------------------------------------------------------
$16.8 $ 7.4 $ 4.0
===================================================================
Fuel and purchased power:
Purchased power $20.9 $12.7 $13.2
Nuclear fuel leased from OES Fuel 5.9 7.5 9.6
- -------------------------------------------------------------------
$26.8 $20.2 $22.8
===================================================================
Other operating costs:
Rental of transmission lines $ 1.3 $ 1.0 $ 1.0
Data processing services 2.8 2.9 2.5
Other transactions 5.4 4.4 3.9
- -------------------------------------------------------------------
$ 9.5 $ 8.3 $ 7.4
===================================================================
</TABLE>
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial
maturity of three months or less are reported as cash equivalents on
the Balance Sheets. The Company reflects temporary cash investments
at cost, which approximates their market value. Noncash financing and
investing activities included capital lease transactions amounting to
$0.8 million, $8.5 million and $4.1 million for the years 1998, 1997
and 1996, respectively.
All borrowings with initial maturities of less than one year
are defined as financial instruments under generally accepted
accounting principles and are reported on the Balance Sheets at cost,
which approximates their fair market value. The following sets forth
the approximate fair value and related carrying amounts of all other
long-term debt, preferred stock subject to mandatory redemption and
investments other than cash and cash equivalents as of December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $278 $294 $277 $291
Preferred stock 15 16 15 15
Investments other than cash
and cash equivalents 17 21 14 15
- --------------------------------------------------------------------
</TABLE>
The fair values of long-term debt and preferred stock
reflect the present value of the cash outflows relating to those
securities based on the current call price, the yield to maturity or
the yield to call, as deemed appropriate at the end of each
respective year. The yields assumed were based on securities with
similar characteristics offered by a corporation with credit ratings
similar to the Company's ratings.
The fair value of investments other than cash and cash
equivalents represent cost (which approximates fair value) or the
present value of the cash inflows based on the yield to maturity. The
yields assumed were based on financial instruments with similar
characteristics and terms. Investments other than cash and cash
equivalents consist primarily of decommissioning trust investments.
Unrealized gains and losses applicable to the decommissioning trust
have been recognized in the trust investment with a corresponding
change to the decommissioning liability. The Company has no
securities held for trading purposes.
REGULATORY ASSETS-
The Company recognizes, as regulatory assets, costs which
the FERC and PPUC have authorized for recovery from customers in
future periods. Without such authorization, the costs would have been
charged to income as incurred. All regulatory assets are being
recovered from customers under the Company's regulatory plan. Based
on the regulatory plan, at this time, the Company believes it will
continue to be able to bill and collect cost-based rates relating to
the Company's nongeneration operations; accordingly, it is
appropriate that the Company continues the application of SFAS 71
relating to those operations. The Company recognized additional cost
recovery of $24 million, $11 million and $8 million in 1998, 1997 and
1996, respectively, as additional regulatory asset amortization in
accordance with its regulatory plan. Regulatory assets on the Balance
Sheets are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------
(In millions)
<S> <C> <C>
Competitive transition charge $331.0 $ --
Customer receivables for future income taxes 23.6 92.6
Nuclear unit expenses -- 17.5
Perry Unit 2 termination -- 36.7
Loss on reacquired debt 8.2 9.2
DOE decommissioning and decontamination costs 0.3 3.6
Employee postretirement benefit costs 6.2 --
Other 1.7 3.4
- -------------------------------------------------------------------
Total $371.0 $163.0
===================================================================
</TABLE>
2. LEASES
The Company leases certain transmission facilities, office
space and other property and equipment under cancelable and
noncancelable leases. Consistent with the regulatory treatment, the
rentals for capital and operating leases are charged to operating
expenses on the Statements of Income. Such costs for the three years
ended December 31, 1998, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------
(In millions)
<S> <C> <C> <C>
Operating leases
Interest element $0.5 $0.5 $0.5
Other 1.3 1.5 1.3
Capital leases
Interest element 0.6 0.7 0.7
Other 0.7 0.8 0.9
- ---------------------------------------------------
Total rental payments $3.1 $3.5 $3.4
===================================================
</TABLE>
The future minimum lease payments as of December 31, 1998,
are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- ------------------------------------------------------------------
(In millions)
<S> <C> <C>
1999 $ 1.3 $0.2
2000 1.2 0.2
2001 1.0 0.2
2002 1.0 0.2
2003 0.9 0.2
Years thereafter 9.6 3.0
- --------------------------------------------------------------
Total minimum lease payments 15.0 $4.0
====
Executory costs 3.1
- -----------------------------------------------
Net minimum lease payments 11.9
Interest portion 7.3
- -----------------------------------------------
Present value of net minimum
lease payments 4.6
Less current portion 0.5
- -----------------------------------------------
Noncurrent portion $ 4.1
===============================================
</TABLE>
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
Under the Company's Charter, the Company's retained
earnings unrestricted for payment of cash dividends on the Company's
common stock were $75.3 million at December 31, 1998.
(B) COMPREHENSIVE INCOME-
In 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income," and applied the standard to all periods
presented in the Statements of Common Stockholder's Equity.
Comprehensive income includes net income as reported on the
Statements of Income and all other changes in common stockholder's
equity except dividends to stockholders.
(C) PREFERRED STOCK-
The Company's 7.75% series of preferred stock has
restrictions which prevent early redemption prior to July 2003. All
other preferred stock may be redeemed by the Company in whole, or in
part, with 30-60 days' notice.
(D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
The Company's 7.625% series has an annual sinking fund
requirement for 7,500 shares beginning on October 1, 2002.
(E) LONG-TERM DEBT-
The first mortgage indenture and its supplements, which
secure all of the Company's first mortgage bonds, serve as a direct
first mortgage lien on substantially all property and franchises,
other than specifically excepted property, owned by the Company.
Long-term debt maturities (excluding capital leases) during the next
five years are $0.5 million in 1999, $24.0 million in 2000,
$1.0 million in 2001, $1.0 million in 2002 and $41.0 million in
2003.
The Company's obligations to repay certain pollution
control revenue bonds are secured by series of first mortgage bonds
and, in some cases, by subordinate liens on the related pollution
control facilities.
4. SHORT-TERM BORROWINGS:
The Company has a credit agreement with Edison whereby
either company can borrow funds from the other by issuing unsecured
notes at the prevailing prime or similar interest rate. Under the
terms of this agreement, the maximum borrowing is limited only by the
availability of funds; however, the Company's borrowing under this
agreement is currently limited by the PPUC to a total of $50 million.
Either company can terminate the agreement with six months' notice.
5. COMMITMENTS, GUARANTEES AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Company's current forecast reflects expenditures of
approximately $167 million for property additions and improvements
from 1999 through 2003, of which approximately $28 million is
applicable to 1999. Investments for additional nuclear fuel during
the 1999-2003 period are estimated to be approximately $28 million,
of which approximately $3 million applies to 1999. During the same
periods, the Company's nuclear fuel investments are expected to be
reduced by approximately $29 million and $6 million, respectively, as
the nuclear fuel is consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative
to a single incident at a nuclear power plant to $9.7 billion. The
amount is covered by a combination of private insurance and an
industry retrospective rating plan. Based on its present ownership
interests in Beaver Valley Unit 1 and the Perry Plant, the Company's
maximum potential assessment under the industry retrospective rating
plan (assuming the other co-owners contribute their proportionate
shares of any assessments under the retrospective rating plan) would
be $20 million per incident but not more than $2.3 million in any one
year for each incident.
The Company is also insured as to its interest in Beaver
Valley Unit 1 and the Perry Plant under policies issued to the
operating company for each plant. Under these policies, up to
$2.75 billion is provided for property damage and decontamination and
decommissioning costs. The Company has also obtained approximately
$69.5 million of insurance coverage for replacement power costs for
its interests in Perry and Beaver Valley Unit 1. Under these
policies, the Company can be assessed a maximum of approximately
$2.8 million for incidents at any covered nuclear facility occurring
during a policy year which are in excess of accumulated funds
available to the insurer for paying losses.
The Company intends to maintain insurance against nuclear
risks as described above as long as it is available. To the extent
that replacement power, property damage, decontamination,
decommissioning, repair and replacement costs and other such costs
arising from a nuclear incident at any of the Company's plants exceed
the policy limits of the insurance in effect with respect to that
plant, to the extent a nuclear incident is determined not to be
covered by the Company's insurance policies, or to the extent such
insurance becomes unavailable in the future, the Company would remain
at risk for such costs.
GUARANTEE-
The Company, together with the other CAPCO companies, has
severally guaranteed certain debt and lease obligations in connection
with a coal supply contract for the Bruce Mansfield Plant. As of
December 31, 1998, the Company's share of the guarantee (which
approximates fair market value) was $3.6 million. The price under the
coal supply contract, which includes certain minimum payments, has
been determined to be sufficient to satisfy the debt and lease
obligations. The Company's total payments under the coal supply
contract were $15.0 million, $13.3 million and $11.1 million during
1998, 1997, and 1996, respectively. The Company's minimum payment for
1999 is approximately $4 million. The contract expires December 31,
1999.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the
Company with regard to air and water quality and other environmental
matters. The Company has estimated additional capital expenditures
for environmental compliance of approximately $47 million, which is
included in the construction forecast provided under "Capital
Expenditures" for 1999 through 2003.
The Company is in compliance with the current sulfur dioxide
(SO2) and nitrogen oxides (NOx) reduction requirements under the Clean
Air Act Amendments of 1990. SO2 reductions in 1999 will be achieved by
burning lower-sulfur fuel, generating more electricity from lower-
emitting plants, and/or purchasing emission allowances. Plans for
complying with reductions required for the year 2000 and thereafter
have not been finalized. In September 1998, the Environmental
Protection Agency (EPA) finalized regulations requiring additional NOx
reductions from the Company's Pennsylvania facilities by May 2003. The
EPA's NOx Transport Rule imposes uniform reductions of NOx emissions
across a region of twenty-two states and the District of Columbia,
including Ohio and Pennsylvania, based on a conclusion that such NOx
emissions are contributing significantly to ozone pollution in the
eastern United States. By September 1999, each of the twenty-two
states are required to submit revised State Implementation Plans (SIP)
which comply with individual state NOx budgets established by the EPA.
These state NOx budgets contemplate an 85% reduction in utility plant
NOx emissions from 1990 emissions. A proposed Federal Implementation
Plan accompanied the NOx Transport Rule and may be implemented by the
EPA in states which fail to revise their SIP. In another separate but
related action, eight states filed petitions with the EPA under
Section 126 of the Clean Air Act seeking reductions of NOx emissions
which are alleged to contribute to ozone pollution in the eight
petitioning states. The EPA suggests that the Section 126 petitions
will be adequately addressed by the NOx Transport Program, but a
September 1998 proposed rulemaking established an alternative program
which would require nearly identical 85% NOx reductions at the
Company's Ohio and Pennsylvania plants by May 2003 in the event
implementation of the NOx Transport Rule is delayed. FirstEnergy
continues to evaluate its compliance plans and other compliance
options and currently estimates its additional capital expenditures
for NOx reductions may reach $500 million.
The Company is required to meet federally approved SO2
regulations. Violations of such regulations can result in shutdown of
the generating unit involved and/or civil or criminal penalties of up
to $25,000 for each day the unit is in violation. The EPA has an
interim enforcement policy for SO2 regulations in Ohio that allows
for compliance based on a 30-day averaging period. The Company cannot
predict what action the EPA may take in the future with respect to
the interim enforcement policy.
In July 1997, the EPA promulgated changes in the National
Ambient Air Quality Standard (NAAQS) for ozone and proposed a new
NAAQS for previously unregulated ultra-fine particulate matter. The
cost of compliance with these regulations may be substantial and
depends on the manner in which they are implemented by the states in
which the Company operates affected facilities.
Legislative, administrative and judicial actions will
continue to change the way that the Company must operate in order to
comply with environmental laws and regulations. With respect to any
such changes and to the environmental matters described above, the
Company expects that any resulting additional capital costs which may
be required, as well as any required increase in operating costs,
would ultimately be reflected in its generation supply prices.
6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain operating results by
quarter for 1998 and 1997.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- -------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $78.5 $ 80.3 $87.9 $77.0
Operating Expenses and Taxes 65.9 70.3 71.5 58.0
- ----------------------------------------------------------------------------------------
Operating Income 12.6 10.0 16.4 19.0
Other Income 0.7 0.6 0.6 0.6
Net Interest Charges 5.4 5.2 5.2 5.1
- ----------------------------------------------------------------------------------------
Income Before Extraordinary Item 7.9 5.4 11.8 14.5
Extraordinary Item (Net of Income Taxes)
(Note 1) -- (30.5) -- --
Net Income (Loss) $ 7.9 $(25.1) $11.8 $14.5
========================================================================================
Earnings (Loss) on Common Stock $ 6.8 $(26.2) $10.7 $13.3
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1997 1997 1997 1997
- --------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $79.0 $79.2 $85.2 $79.9
Operating Expenses and Taxes 65.4 66.2 69.6 71.4
- ----------------------------------------------------------------------------------------
Operating Income 13.6 13.0 15.6 8.5
Other Income 0.7 0.3 0.8 0.9
Net Interest Charges 5.7 5.5 5.5 5.2
- ----------------------------------------------------------------------------------------
Net Income $ 8.6 $ 7.8 $10.9 $ 4.2
=========================================================================================
Earnings on Common Stock $ 7.4 $ 6.6 $ 9.7 $ 3.1
=========================================================================================
</TABLE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Pennsylvania Power Company:
We have audited the accompanying balance sheets and statements of
capitalization of Pennsylvania Power Company (a Pennsylvania corporation
and wholly owned subsidiary of Ohio Edison Company) as of December 31, 1998
and 1997, and the related statements of income, common stockholder's
equity, preferred stock, cash flows and taxes for each of the three years
in the period ended December 31, 1998. 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 Pennsylvania Power
Company as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 12, 1999
EXHIBIT 23.3
PENNSYLVANIA POWER COMPANY
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
the incorporation of our reports included or incorporated by
reference in this Form 10-K, into Pennsylvania Power Company's
previously filed Registration Statements, File No. 33-47372, No.
33-62450 and No. 33-65156.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the related
Form 10-K financial statements for Pennsylvania Power Company and is qualified
in its entirety by reference to such financial statements. (Amounts in 1,000's).
Income tax includes $710,000 related to other income and $(21,208,000) related
to extraordinary item.
</LEGEND>
<CIK> 0000077278
<NAME> PENNSYLVANIA POWER COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 413,278
<OTHER-PROPERTY-AND-INVEST> 29,177
<TOTAL-CURRENT-ASSETS> 157,296
<TOTAL-DEFERRED-CHARGES> 378,021
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 977,772
<COMMON> 188,700
<CAPITAL-SURPLUS-PAID-IN> (310)
<RETAINED-EARNINGS> 86,891
<TOTAL-COMMON-STOCKHOLDERS-EQ> 275,281
15,000
50,905
<LONG-TERM-DEBT-NET> 287,689
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 487
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 6,054
<OTHER-ITEMS-CAPITAL-AND-LIAB> 342,356
<TOT-CAPITALIZATION-AND-LIAB> 977,772
<GROSS-OPERATING-REVENUE> 323,756
<INCOME-TAX-EXPENSE> 11,296
<OTHER-OPERATING-EXPENSES> 233,921
<TOTAL-OPERATING-EXPENSES> 265,715
<OPERATING-INCOME-LOSS> 58,041
<OTHER-INCOME-NET> 2,485
<INCOME-BEFORE-INTEREST-EXPEN> 60,526
<TOTAL-INTEREST-EXPENSE> 20,778
<NET-INCOME> 9,226
4,626
<EARNINGS-AVAILABLE-FOR-COMM> 4,600
<COMMON-STOCK-DIVIDENDS> 21,386
<TOTAL-INTEREST-ON-BONDS> 19,233
<CASH-FLOW-OPERATIONS> 88,231
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
