FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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, Ohio 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 COMPANY 34-0150020
(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, Pennsylvania 16103
Telephone (412)652-5531
Indicate by check mark whether each of the registrants (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
____ ____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
OUTSTANDING
CLASS AS OF MAY 13, 1999
----- ------------------
FirstEnergy Corp., $.10 par value 234,653,887
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.
This combined Form 10-Q 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.
This Form 10-Q includes forward looking statements based on
information currently available to management. Such statements 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 (including revised environmental requirements),
availability and cost of capital and other similar factors.
TABLE OF CONTENTS
Pages
Part I. Financial Information
Notes to Consolidated Financial Statements 1-3
FirstEnergy Corp.
Consolidated Statements of Income 4
Consolidated Balance Sheets 5-6
Consolidated Statements of Cash Flows 7
Report of Independent Public Accountants 8
Management's Discussion and Analysis of Results
of Operations and Financial Condition 9-11
Ohio Edison Company
Consolidated Statements of Income 12
Consolidated Balance Sheets 13-14
Consolidated Statements of Cash Flows 15
Report of Independent Public Accountants 16
Management's Discussion and Analysis of Results
of Operations and Financial Condition 17-19
The Cleveland Electric Illuminating Company
Consolidated Statements of Income 20
Consolidated Balance Sheets 21-22
Consolidated Statements of Cash Flows 23
Report of Independent Public Accountants 24
Management's Discussion and Analysis of Results
of Operations and Financial Condition 25-26
The Toledo Edison Company
Consolidated Statements of Income 27
Consolidated Balance Sheets 28-29
Consolidated Statements of Cash Flows 30
Report of Independent Public Accountants 31
Management's Discussion and Analysis of Results
of Operations and Financial Condition 32-33
Pennsylvania Power Company
Consolidated Statements of Income 34
Consolidated Balance Sheets 35-36
Consolidated Statements of Cash Flows 37
Report of Independent Public Accountants 38
Management's Discussion and Analysis of Results
of Operations and Financial Condition 39-40
Part II. Other Information
PART I. FINANCIAL INFORMATION
- ------------------------------
FIRSTENERGY CORP. AND SUBSIDIARIES
OHIO EDISON COMPANY AND SUBSIDIARIES
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY
THE TOLEDO EDISON COMPANY AND SUBSIDIARY
PENNSYLVANIA POWER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - CONSOLIDATED FINANCIAL STATEMENTS:
The principal business of FirstEnergy Corp. (FirstEnergy) is
the holding, directly or indirectly, of all of the outstanding common
stock of its four principal electric utility operating subsidiaries,
Ohio Edison Company (OE), The Cleveland Electric Illuminating Company
(CEI), The Toledo Edison Company (TE) and Pennsylvania Power Company
(Penn). These utility subsidiaries are referred to throughout as
"Companies." Penn is a wholly owned subsidiary of OE.
The condensed consolidated financial statements of FirstEnergy
and each of the Companies reflect all normal recurring adjustments that,
in the opinion of management, are necessary to fairly present results of
operations for the interim periods. These statements should be read in
connection with the financial statements and notes included in the
combined Annual Report on Form 10-K for the year ended December 31, 1998
for FirstEnergy and the Companies. The reported results of operations
are not indicative of results of operations for any future period.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Penn's consolidated financial statements include Penn and its
wholly owned subsidiary, Penn Power Energy, Inc. The subsidiary was
formed to market energy products and services coincident with the
commencement of electricity generation customer choice and competition
in Pennsylvania in January 1999. All significant intercompany
transactions have been eliminated.
The sole assets of the subsidiary trust that is the obligor on
the preferred securities included in FirstEnergy's and OE's
capitalization are $123,711,350 principal amount of 9% Junior
Subordinated Debentures of OE due December 31, 2025.
2 - COMMITMENTS, GUARANTEES AND CONTINGENCIES:
CAPITAL EXPENDITURES-
FirstEnergy's current forecast reflects expenditures of
approximately $2.2 billion (FirstEnergy-$263 million, OE-$856 million,
CEI-$701 million, TE-$257 million and Penn-$167 million) for property
additions and improvements from 1999-2003, of which approximately $522
million (FirstEnergy-$172 million, OE-$140 million, CEI-$124 million,
TE-$48 million and Penn-$38 million) is applicable to 1999. Investments
for additional nuclear fuel during the 1999-2003 period are estimated to
be approximately $404 million (OE-$140 million, CEI-$133 million, TE-
$103 million and Penn-$28 million), of which approximately $51 million
(OE-$21 million, CEI-$17 million, TE-$10 million and Penn-$3 million)
applies to 1999.
GUARANTEES-
The Companies and Duquesne Light Company (Duquesne) have each
severally guaranteed certain debt and lease obligations in connection
with a coal supply contract for the Bruce Mansfield Plant. As of March
31, 1999, the Companies' share of the guarantees was $23.5 million (OE-
$13.6 million, CEI-$5.0 million, TE-$2.9 million and Penn-$2.0
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.
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 $449 million (OE-$213
million, CEI-$145 million, TE-$44 million and Penn-$47 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 are being achieved
by burning lower-sulfur fuel, generating more electricity from lower-
emitting plants, and/or purchasing emission allowances. NOx reductions
are being achieved through combustion controls and generating more
electricity from lower-emitting plants. 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 an April 30, 1999 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. Implementation in Ohio and
Pennsylvania has not yet occurred.
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 of disposal 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. CEI and TE
have accrued liabilities of $4.6 million and $1.0 million,
respectively, as of March 31, 1999, 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.
PENDING EXCHANGE OF ASSETS-
On March 26, 1999, FirstEnergy announced that it completed its
agreements with Duquesne to exchange certain generating assets. Upon
receipt of regulatory approvals, Duquesne will transfer 1,436 megawatts
owned by Duquesne at eight Central Area Power Coordination Group (CAPCO)
generating units in exchange for 1,323 megawatts at three non-CAPCO
power plants owned by the Companies. The agreements for the exchange of
assets, which is structured as a like-kind exchange for tax purposes,
will provide the Companies with exclusive ownership and operating control
of all CAPCO generating units. The three FirstEnergy plants to be
transferred will be included in Duquesne's upcoming auction of its
generating assets. The Companies will operate the plants until
the assets are transferred to the new owners. Duquesne will fund
decommissioning costs equal to its percentage interest in the three
nuclear generating units to be transferred. The asset transfer could
take place later in 1999. Under the agreements, the existing CAPCO
arrangements will terminate upon transfer of the assets.
3 - REGULATORY ACCOUNTING:
Based on the current regulatory environment and the Companies'
respective regulatory plans, 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 Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation," to those respective operations. However, 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.
4 - SEGMENT INFORMATION:
FirstEnergy'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 the FirstEnergy Trading Services, Inc. subsidiary
(formerly known as FirstEnergy Trading & Power Marketing, Inc.) 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>
FirstEnergy
Electric Trading All Reconciling
Three Months Ended: Utilities Services Other Eliminations Totals
- ------------------ --------- ----------- ----- ------------ ------
(In millions)
March 31, 1999
- --------------
<S> <C> <C> <C> <C> <C>
External revenues $ 1,272 $ 11 $ 134 $ -- $ 1,417
Intersegment revenues 8 -- 23 (31) --
Total revenues 1,280 11 157 (31) 1,417
Depreciation and amortization 186 -- 4 -- 190
Net interest charges 142 -- 16 (12) 146
Income taxes 96 (1) (2) -- 93
Net income/Earnings on common stock 143 (1) (4) (1) 137
Total assets 17,558 86 1,830 (1,286) 18,188
Property additions 52 -- 30 -- 82
Acquisitions -- -- 9 -- 9
March 31, 1998
- --------------
External revenues $ 1,235 $116 $ 16 $ -- $ 1,367
Intersegment revenues 8 -- 21 (29) --
Total revenues 1,243 116 37 (29) 1,367
Depreciation and amortization 193 -- 1 -- 194
Net interest charges 141 -- 16 (13) 144
Income taxes 84 -- (1) -- 83
Net income/Earnings on common stock 126 (1) -- (1) 124
Total assets 18,252 38 1,316 (1,373) 18,233
Property additions 58 -- 6 -- 64
Acquisitions -- -- -- -- --
</TABLE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
---------- ----------
(In thousands, except per share amounts)
<S> <C> <C>
REVENUES:
Electric sales $1,214,551 $1,180,589
Other - electric utilities 63,669 60,706
Facilities services 104,568 9,529
Electric trading and power marketing 11,477 115,818
Other 23,145 437
---------- ----------
Total revenues 1,417,410 1,367,079
---------- ----------
EXPENSES:
Fuel and purchased power 204,357 214,865
Other expenses:
Electric utilities 365,911 343,676
Facilities services 101,353 9,996
Electric trading and power marketing 12,804 117,426
Other 29,330 314
Provision for depreciation and amortization 189,838 194,127
General taxes 138,094 136,374
---------- ----------
Total expenses 1,041,687 1,016,778
---------- ----------
INCOME BEFORE INTEREST AND INCOME TAXES 375,723 350,301
---------- ----------
NET INTEREST CHARGES:
Interest expense 129,381 135,769
Allowance for borrowed funds used during construction
and capitalized interest (2,685) (1,481)
Subsidiaries' preferred stock dividends 19,381 9,328
---------- ----------
Net interest charges 146,077 143,616
---------- ----------
INCOME TAXES 92,925 83,033
---------- ----------
NET INCOME $ 136,721 $ 123,652
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 229,140 222,407
========== ==========
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK $ .60 $ .56
====== ======
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ .375 $ .375
====== ======
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to FirstEnergy Corp. are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(In thousands)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 45,612 $ 77,798
Receivables-
Customers (less accumulated provisions of $6,547,000 and
$6,397,000, respectively, for uncollectible accounts) 253,302 239,183
Other (less accumulated provisions of $46,532,000 and
$46,251,000, respectively, for uncollectible accounts) 329,430 322,186
Materials and supplies, at average cost-
Owned 141,916 145,926
Under consignment 118,132 110,109
Prepayments and other 196,857 171,931
---------- ----------
1,085,249 1,067,133
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
In service 15,018,231 14,961,664
Less--Accumulated provision for depreciation 6,119,331 6,012,761
----------- -----------
8,898,900 8,948,903
Construction work in progress 320,734 293,671
----------- -----------
9,219,634 9,242,574
----------- -----------
INVESTMENTS:
Capital trust investments 1,287,192 1,329,010
Nuclear plant decommissioning trusts 369,837 358,371
Letter of credit collateralization 277,763 277,763
Other 481,951 453,860
----------- -----------
2,416,743 2,419,004
----------- -----------
DEFERRED CHARGES:
Regulatory assets 2,817,738 2,887,437
Goodwill 2,163,946 2,167,968
Property taxes 271,642 270,666
Other 213,411 199,400
----------- -----------
5,466,737 5,525,471
----------- -----------
$18,188,363 $18,254,182
=========== ===========
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock $ 841,513 $ 876,470
Short-term borrowings 265,734 254,470
Accounts payable 270,993 257,524
Accrued taxes 396,100 401,688
Accrued interest 145,479 141,575
Other 213,998 251,262
----------- -----------
2,133,817 2,182,989
----------- -----------
CAPITALIZATION:
Common stockholders' equity-
Common stock, $.10 par value, authorized 300,000,000
shares - 235,531,187 and 237,069,087 shares outstanding,
respectively 23,553 23,707
Other paid-in capital 3,803,485 3,846,513
Accumulated comprehensive income (439) (439)
Retained earnings 768,993 718,409
Unallocated employee stock ownership plan common stock -
7,311,471 and 7,406,332 shares, respectively (135,994) (139,032)
----------- -----------
Total common stockholders' equity 4,459,598 4,449,158
Preferred stock of consolidated subsidiaries-
Not subject to mandatory redemption 660,195 660,195
Subject to mandatory redemption 174,710 174,710
OE obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely OE subordinated debentures 120,000 120,000
Long-term debt 6,335,289 6,352,359
----------- -----------
11,749,792 11,756,422
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes 2,276,861 2,282,864
Accumulated deferred investment tax credits 282,710 286,154
Pensions and other postretirement benefits 529,985 525,647
Other 1,215,198 1,220,106
----------- -----------
4,304,754 4,314,771
----------- -----------
COMMITMENTS, GUARANTEES AND
CONTINGENCIES (Note 2) ----------- -----------
$18,188,363 $18,254,182
=========== ===========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to FirstEnergy Corp. are an
integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $136,721 $123,652
Adjustments to reconcile net income to net cash from
operating activities-
Provision for depreciation and amortization 189,838 194,127
Nuclear fuel and lease amortization 26,595 24,313
Other amortization, net (465) (272)
Deferred income taxes, net (6,435) 5,224
Investment tax credits, net (3,444) (5,771)
Receivables (18,370) 40,065
Materials and supplies (5,006) (9,994)
Accounts payable 12,158 (47,906)
Other (118,962) (69,926)
-------- --------
Net cash provided from operating activities 212,630 253,512
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 12,277 148,119
Short-term borrowings, net 11,264 --
Redemptions and Repayments-
Common stock 44,499 --
Long-term debt 80,802 159,981
Short-term borrowings, net -- 20,844
Common stock dividend payments 86,137 83,391
-------- --------
Net cash used for financing activities 187,897 116,097
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 90,705 64,104
Bay Shore investment -- 145,505
Cash investments (41,268) (33,961)
Other 7,482 11,159
-------- --------
Net cash used for investing activities 56,919 186,807
-------- --------
Net decrease in cash and cash equivalents 32,186 49,392
Cash and cash equivalents at beginning of period 77,798 98,237
-------- --------
Cash and cash equivalents at end of period $ 45,612 $ 48,845
======== ========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to FirstEnergy Corp. are an
integral part of these statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FirstEnergy Corp.:
We have reviewed the accompanying consolidated balance sheet of
FirstEnergy Corp. (an Ohio corporation) and subsidiaries as of March 31,
1999, and the related consolidated statements of income and cash flows
for the three-month periods ended March 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of FirstEnergy Corp.
and subsidiaries as of December 31, 1998 (not presented herein), and, in
our report dated February 12, 1999, we expressed an unqualified opinion
on that statement. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1998, is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 14, 1999
FIRSTENERGY CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company, as a producer and trader of electricity and
natural gas, has certain financial risks inherent in its business
activities. With respect to its trading operations, the Company uses
principally over-the-counter and commodity exchange contracts for the
purchase and sale of electricity and natural gas. These contracts may
expose the Company to commodity price fluctuations. Market risk
represents the risk of loss that may impact financial position, results
of operations or cash flow due to either changes in the commodity market
prices for electricity and natural gas or the failure of contract
counterparties to perform. Various policies and procedures have been
established to manage market risk. However, electricity and natural gas
are subject to unpredictable price fluctuations due to changing economic
and weather conditions and supply constraints, which arise from time to
time.
Results of Operations
Basic and diluted earnings per share of common stock
increased to $.60 per share for the first quarter of 1999 from $.56 per
share for the same period last year. Results benefited from higher
retail revenues, lower fuel and purchased power costs, and reduced
interest expense.
Revenues increased $50.3 million in the first quarter of
1999, compared to the same period of 1998, as a result of higher
revenue contributions from the Electric Utility Operating Companies
(EUOC) business segment and the acquisition of facilities services and
natural gas companies, offset by reduced revenue from the FirstEnergy
Trading Services, Inc. (FETS) business segment. The sources of the
increase in first quarter 1999 revenues are summarized in the following
table.
(In millions)
Electric sales $ 33.9
Other electric utility revenue 3.0
-------
EUOC 36.9
FETS (104.3)
Business acquisitions 117.7
-------
Net Revenue Increase $ 50.3
=======
The increase in EUOC revenue resulted from an increase in
kilowatt-hour sales, which was partially offset by reduced unit prices.
Residential, commercial and industrial customers all contributed to the
increase in kilowatt-hour sales in the first quarter of 1999 compared to
the same period of 1998, with increases of 11.2%, 7.9% and 1.2%,
respectively. Residential sales in the first quarter of 1999 benefited
from lower temperatures, compared to the very mild first quarter of
1998. Adjusting for weather, residential sales were up 5.7%. Continued
service sector growth contributed to the commercial sales increase while
industrial sales were affected by weak demand from the primary metal
sector. Despite a 6.0% increase in retail kilowatt-hour sales in the
first quarter of 1999, compared to the same period of 1998, total
kilowatt-hour sales increased by a more modest 1.6% due to a decrease in
sales to the wholesale market. The decrease in FETS revenue resulted
from limiting trading activities and focusing on support of
FirstEnergy's retail marketing activities. Acquisition of nine
facilities services companies and MARBEL Energy Corporation (MARBEL) in
the twelve months ending March 31, 1999, contributed significantly to
the increased revenues.
Total expenses increased $26.4 million in the first quarter
of 1999, compared to the same quarter of 1998. More available
generation from EUOC sources in the first quarter of 1999, compared to
the first quarter of 1998, reduced EUOC purchased power costs. A higher
level of available nuclear capacity in 1999 resulted in lower fuel
costs, despite the additional generation to support increased kilowatt-
hour sales. Other expenses for the EUOCs increased in 1999 due in part
to customer service and sales costs - similar costs in 1998 were
recognized later in that year. Reduced FETS activity resulted in
significant cost reductions in that business segment. The increases in
facilities services and other costs in the first quarter of 1999 from
the same quarter of 1998 reflect expenses of businesses acquired
subsequent to March 31, 1998. Depreciation and amortization in the
first quarter of 1999 decreased from the same quarter of 1998 primarily
due to the net effect of the OE and Penn rate plans, which were
partially offset by additional depreciation and amortization from
companies acquired since the first quarter of 1998.
Capital Resources and Liquidity
The Company and its subsidiaries have continuing cash
requirements for planned capital expenditures and debt maturities.
During the last three quarters of 1999, capital requirements for
property additions and capital leases are expected to be about $456
million, including $9 million for nuclear fuel. The Companies have
additional cash requirements of approximately $653.1 million to meet
sinking fund requirements for preferred stock and maturing long-term
debt during the remainder of 1999. These cash requirements are expected
to be satisfied with internal cash and/or short-term credit
arrangements.
During the first quarter of 1999, the Company initiated its
previously announced common stock repurchase program by buying almost
1.5 million shares at an average price of slightly less than $29 per
share.
As of March 31, 1999, the Company and its subsidiaries had
about $45.6 million of cash and temporary investments and $265.7
million of short-term indebtedness. Unused borrowing capability
included $174.0 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.
On January 19, 1999, the Company completed the purchase of
Webb Technologies, Inc., an HVAC contractor headquartered in Norfolk,
Virginia. The new acquisition adds approximately $14 million in annual
revenue and 90 employees to FirstEnergy Facilities Services Group,
Inc., a wholly owned subsidiary of the Company. On March 31, 1999, the
Company also completed its purchase of Atlas Gas Marketing Inc. of
Pittsburgh, Pennsylvania, which will become part of FETS. The Company
has entered into an agreement with Atlas Gas Marketing's former parent,
Atlas America, to buy and market their natural gas production.
The Company completed its agreements with Duquesne on March
25, 1999, to exchange certain generating assets. Upon receipt of
regulatory approvals, Duquesne will transfer 1,436 megawatts (MW) that
it owns at eight generating units to the Company in exchange for 1,323
MW at three power plants owned by the Company's EUOCs.
Following an appeal by Penn of the 1998 restructuring order
from the Pennsylvania Public Utility Commission (PPUC) to the
Commonwealth Court, a settlement was reached in April 1999 with parties
to Penn's original restructuring proceeding. Among the provisions of the
settlement was a one year extension of the period for which all
customers may select among alternative generation suppliers.
In the continuing move toward enactment of legislation
deregulating Ohio's investor-owned electric utility industry,
substitute bills (HB 5 & SB 3) were introduced at a joint meeting of
the House Public Utilities and the Senate Ways and Means committees on
March 26, 1999. The bills, sponsored by House Republican Priscilla Mead
and Senate Republican Bruce Johnson, will be considered by the two
committees individually. Hearings in the Senate and House began on
April 13 and 14, 1999, respectively. As many as two hearings a week
will be held with the objective of delivering legislation to the
Governor by the beginning of June. The Company is unable to predict the
ultimate outcome of this process or the level of recovery of regulatory
assets and nuclear generating unit investment for OE, CEI and TE.
Unfavorable resolution could result in a charge to earnings which could
have a material adverse effect on the Company's results of operations
and financial condition.
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 the Company's 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 the Company's 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.
The Company has developed a multi-phase program for Year 2000
compliance that consists of an assessment of its 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. The
Company has focused its Year 2000 review on three areas: centralized
system applications, noncentralized systems and relationships with
third parties (including suppliers as well as end-use customers). The
Company's review of system readiness extends to systems involving
customer service, safety, shareholder needs and regulatory obligations.
The Company is committed to taking appropriate actions to
eliminate or lessen negative effects of the Year 2000 issue on its
operations. The Company has completed an inventory of all computer
systems and hardware including equipment with embedded computer chips
and has determined which systems need to be converted or replaced to
become Year 2000-ready and is in the process of remediating them. Based
on its timetable, the Company expects to have all identified repairs,
replacements and upgrades completed by June 30, 1999 to enable it to be
ready to serve its customers into the Year 2000.
Most of the Company's Year 2000 issues will be resolved
through system replacement. Of the Company's major centralized systems,
the general ledger system and inventory management, procurement and
accounts payable systems were replaced at the end of 1998. The
Company's 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.
The Company has completed formal communications with most of
its key suppliers to determine the extent to which it is vulnerable to
those third parties' failure to resolve their own Year 2000 problems.
For suppliers having potential compliance problems, the Company is
developing alternate sources and services in the event such
noncompliance occurs. The Company is 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 issues will not have a material adverse effect on the Company's
business, financial condition and results of operations, although it
does not consider this likely to occur.
The Company is using both internal and external resources to
reprogram and/or replace and test its software for Year 2000
modifications. Of the $93 million total project cost, approximately $70
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 $23 million will be expensed as
incurred. As of March 31, 1999, the Company had spent $60 million for
Year 2000 capital projects and had expensed approximately $13 million
for Year 2000-related maintenance activities. The Company's total Year
2000 project cost, as well as its 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.
The Company believes it is managing the Year 2000 issue in
such a way that its customers will not experience any interruption of
service. The Company believes 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 its financial results. The Company is
developing contingency plans to address the effects of any delay in
becoming Year 2000 compliant and expects to have contingency plans
completed by June 30, 1999.
The costs of the project and the dates on which the Company
plans 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>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
---------- ---------
(In thousands)
<S> <C> <C>
OPERATING REVENUES $633,118 $597,865
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 112,022 113,915
Nuclear operating costs 72,436 71,866
Other operating costs 100,283 92,173
-------- --------
Total operation and maintenance expenses 284,741 277,954
Provision for depreciation and amortization 103,404 111,196
General taxes 62,260 59,525
Income taxes 47,763 38,057
-------- --------
Total operating expenses and taxes 498,168 486,732
-------- --------
OPERATING INCOME 134,950 111,133
OTHER INCOME 9,318 12,502
-------- --------
INCOME BEFORE NET INTEREST CHARGES 144,268 123,635
-------- --------
NET INTEREST CHARGES:
Interest on long-term debt 45,083 46,668
Allowance for borrowed funds used during construction
and capitalized interest (1,097) (660)
Other interest expense 8,619 9,494
Subsidiaries' preferred stock dividend requirements 3,857 3,857
-------- --------
Net interest charges 56,462 59,359
-------- --------
NET INCOME 87,806 64,276
PREFERRED STOCK DIVIDEND REQUIREMENTS 2,913 3,019
-------- --------
EARNINGS ON COMMON STOCK $ 84,893 $ 61,257
======== ========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(In thousands)
ASSETS
------
<S> <C> <C>
UTILITY PLANT:
In service $8,190,241 $8,158,763
Less--Accumulated provision for depreciation 3,670,416 3,610,155
---------- ----------
4,519,825 4,548,608
---------- ----------
Construction work in progress-
Electric plant 174,742 174,418
Nuclear fuel 38,028 17,003
---------- ----------
212,770 191,421
---------- ----------
4,732,595 4,740,029
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
PNBV Capital Trust 474,537 475,087
Nuclear plant decommissioning trusts 136,641 130,572
Letter of credit collateralization 277,763 277,763
Other 430,152 407,839
---------- ----------
1,319,093 1,291,261
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 14,539 33,213
Receivables-
Customers (less accumulated provisions of $6,547,000
and $6,397,000, respectively, for uncollectible
accounts) 216,211 215,257
Associated companies 255,064 229,854
Other 56,890 47,684
Materials and supplies, at average cost-
Owned 69,619 76,756
Under consignment 54,736 48,341
Prepayments and other 95,772 78,618
---------- ----------
762,831 729,723
---------- ----------
DEFERRED CHARGES:
Regulatory assets 1,856,615 1,913,808
Property taxes 101,360 101,360
Unamortized sale and leaseback costs 88,848 90,098
Other 59,137 57,547
---------- ----------
2,105,960 2,162,813
---------- ----------
$8,920,479 $8,923,826
========== ==========
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
CAPITALIZATION:
Common stockholder's equity-
Common stock, $9 par value, authorized 175,000,000
shares - 100 shares outstanding $ 1 $ 1
Other paid-in capital 2,098,728 2,098,728
Retained earnings 586,443 583,144
---------- ----------
Total common stockholder's equity 2,685,172 2,681,873
Preferred stock-
Not subject to mandatory redemption 160,965 160,965
Subject to mandatory redemption 10,000 10,000
Preferred stock of consolidated subsidiary-
Not subject to mandatory redemption 50,905 50,905
Subject to mandatory redemption 15,000 15,000
OE obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely OE
subordinated debentures 120,000 120,000
Long-term debt 2,220,693 2,215,042
---------- ----------
5,262,735 5,253,785
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 482,879 528,792
Short-term borrowings-
Associated companies 94,403 88,732
Other 259,006 249,451
Accounts payable-
Associated companies 34,645 10,176
Other 77,432 89,483
Accrued taxes 210,747 188,295
Accrued interest 42,833 45,221
Other 106,303 114,162
---------- ----------
1,308,248 1,314,312
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 1,583,614 1,601,887
Accumulated deferred investment tax credits 152,561 154,538
Pensions and other postretirement benefits 139,759 136,856
Other 473,562 462,448
---------- ----------
2,349,496 2,355,729
---------- ----------
COMMITMENTS, GUARANTEES AND
CONTINGENCIES (Note 2) ---------- ----------
$8,920,479 $8,923,826
========== ==========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an
integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
---------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 87,806 $ 64,276
Adjustments to reconcile net income to net cash from
operating activities-
Provision for depreciation and amortization 103,404 111,196
Nuclear fuel and lease amortization 10,677 6,783
Deferred income taxes, net (12,010) (12,979)
Investment tax credits, net (1,977) (3,826)
Receivables (35,370) 31,868
Materials and supplies 742 (175)
Accounts payable 12,418 17,175
Other (6,531) 49,632
-------- --------
Net cash provided from operating activities 159,159 263,950
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 9,935 2,638
Short-term borrowings, net 15,226 99,156
Redemptions and Repayments-
Long-term debt 50,682 139,861
Dividend Payments-
Common stock 81,738 169,898
Preferred stock 2,769 3,025
-------- --------
Net cash used for financing activities 110,028 210,990
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 54,038 41,016
Other 13,767 4,969
-------- --------
Net cash used for investing activities 67,805 45,985
-------- --------
Net increase (decrease) in cash and cash equivalents (18,674) 6,975
Cash and cash equivalents at beginning of period 33,213 4,680
-------- --------
Cash and cash equivalents at end of period $ 14,539 $ 11,655
======== ========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an
integral part of these statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Ohio Edison Company:
We have reviewed the accompanying consolidated balance sheet of Ohio
Edison Company (an Ohio corporation and wholly owned subsidiary of
FirstEnergy Corp.) and subsidiaries as of March 31, 1999, and the
related consolidated statements of income and cash flows for the three-
month periods ended March 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Ohio Edison
Company and subsidiaries as of December 31, 1998 (not presented herein),
and, in our report dated February 12, 1999, we expressed an unqualified
opinion on that statement. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1998, is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 14, 1999
OHIO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Operating revenues increased $35.3 million in the first
quarter of 1999 from the first quarter of 1998 due to an increase in
retail kilowatt-hour sales. Residential and commercial customers
contributed to the higher kilowatt-hour sales with increases of 10.8%
and 9.5%, respectively. Industrial sales decreased 2.2% between the two
periods. Residential sales in the first quarter of 1999 benefited from
lower temperatures, compared to mild weather conditions in the first
quarter of 1998. Continued service sector growth contributed to the
commercial sales increase while industrial sales were affected by
weaker demand from the primary metal sector. Overall, retail kilowatt-
hour sales increased by 5.3% in the first quarter of 1999, compared to
the same period of 1998 while total kilowatt-hour sales increased a
more substantial 6.1% due to a 10.3% increase in kilowatt-hour sales to
the wholesale market.
Operation and maintenance expenses increased $6.8 million
in the first quarter of 1999 compared to the first quarter the previous
year. The increase resulted from higher other operating costs, which
were offset in part by lower fuel and purchased power expenses. More
available internal generation in the first quarter of 1999 lowered
purchased power expenses. Other operating costs increased in the first
quarter of 1999 from the same period the prior year due to an increase
in customer service and sales costs. Factors contributing to the
increase included expenditures for energy efficiency programs,
marketing program expenditures, unregulated business management costs,
and similar costs in 1998 being recognized later in that year.
Depreciation and amortization in the first quarter of 1999
decreased from the same period of 1998 primarily due to the net effect
of the OE and Penn rate plans. Total accelerated depreciation and
amortization of nuclear and regulatory assets under the OE rate plan
was $43.0 million in the first quarter of 1999, down from $49.6 million
the previous year. Increased gross receipts taxes due to higher retail
operating revenues, and increased property taxes were the primary
factors contributing to the increase in general taxes in the first
quarter of 1999, compared to the same period in the prior year.
Net redemptions of long-term debt reduced interest expense in
the first quarter of 1999, compared to same period of 1998.
Capital Resources and Liquidity
OE and Penn (OE companies) have continuing cash requirements
for planned capital expenditures and debt maturities. During the last
three quarters of 1999, capital requirements for property additions and
capital leases are expected to be about $148 million, including $3
million for nuclear fuel. The OE companies have additional cash
requirements of approximately $369.2 million to meet sinking fund
requirements for preferred stock and maturing long-term debt during the
remainder of 1999. These cash requirements are expected to be satisfied
with internal cash and/or short-term credit arrangements.
As of March 31, 1999, the OE companies had about $14.5
million of cash and temporary investments and $353.4 million of short-
term indebtedness. In addition, the OE companies' unused borrowing
capability included $74.0 million under revolving lines of credit and a
$2.0 million bank facility that provided for borrowings on a short-term
basis at the bank's discretion. Under its first mortgage indenture, as
of March 31, 1999, OE would have been permitted to issue up to $1.2
billion of additional first mortgage bonds on the basis of bondable
property additions and retired bonds.
FirstEnergy completed its agreements with Duquesne on March
25, 1999, to exchange certain generating assets. Upon receipt of
regulatory approvals, Duquesne will transfer 886 MW that it owns at
five generating units to the OE companies in exchange for the OE
companies' 584 MW at the Niles and New Castle Plants.
Following an appeal by Penn of the 1998 restructuring order
from the PPUC to the Commonwealth Court, a settlement was reached in
April 1999 with parties to Penn's original restructuring proceeding.
Among the provisions of the settlement was a one year extension of the
period for which all customers may select alternative generation
suppliers.
In the continuing move toward enactment of legislation
deregulating Ohio's investor-owned electric utility industry,
substitute bills (HB 5 & SB 3) were introduced at a joint meeting of
the House Public Utilities and the Senate Ways and Means committees on
March 26, 1999. The bills, sponsored by House Republican Priscilla Mead
and Senate Republican Bruce Johnson, will be considered by the two
committees individually. Hearings in the Senate and House began on
April 13 and 14, 1999, respectively. As many as two hearings a week
will be held with the objective of delivering legislation to the
Governor by the beginning of June. OE is unable to predict the ultimate
outcome of this process or the level of recovery of regulatory assets
and nuclear generating unit investment. Unfavorable resolution could
result in a charge to earnings which could have a material adverse
effect on OE's results of operations and financial condition.
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 the OE companies' 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 the OE companies' 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.
The OE companies have developed a multi-phase program for
Year 2000 compliance that consists of an assessment of their 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. The OE companies have focused their Year 2000 review on
three areas: centralized system applications, noncentralized systems
and relationships with third parties (including suppliers as well as
end-use customers). The OE companies' review of system readiness
extends to systems involving customer service, safety, shareholder
needs and regulatory obligations.
The OE companies are committed to taking appropriate actions
to eliminate or lessen negative effects of the Year 2000 issue on their
operations. The OE companies have completed an inventory of all
computer systems and hardware including equipment with embedded
computer chips and has determined which systems need to be converted or
replaced to become Year 2000-ready and is in the process of remediating
them. Based on their timetable, the OE companies expect to have all
identified repairs, replacements and upgrades completed by June 30,
1999 to enable them to be ready to serve their customers into the Year
2000.
Most of the OE companies' Year 2000 issues will be resolved
through system replacement. Of the OE companies' major centralized
systems, the general ledger system and inventory management,
procurement and accounts payable systems were replaced at the end of
1998. The OE companies' 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.
The OE companies have completed formal communications with
most of their key suppliers to determine the extent to which they are
vulnerable to those third parties' failure to resolve their own Year
2000 problems. For suppliers having potential compliance problems, the
OE companies are developing alternate sources and services in the event
such noncompliance occurs. The OE companies 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 issues will not have a material adverse effect on
the OE companies' business, financial condition and results of
operations, although it does not consider this likely to occur.
The OE companies are using both internal and external
resources to reprogram and/or replace and test their software for Year
2000 modifications. Of the $46 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 $12 million will be expensed
as incurred. As of March 31, 1999, the OE companies had spent $29
million for Year 2000 capital projects and had expensed approximately $7
million for Year 2000-related maintenance activities. The OE companies'
total Year 2000 project cost, as well as their 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.
The OE companies believe they are managing the Year 2000
issue in such a way that their customers will not experience any
interruption of service. The OE companies 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 their financial
results. The OE companies 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 30, 1999.
The costs of the project and the dates on which the OE
companies 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>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
OPERATING REVENUES $418,839 $415,027
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 91,030 91,715
Nuclear operating costs 29,516 26,239
Other operating costs 84,917 72,694
-------- --------
Total operation and maintenance expenses 205,463 190,648
Provision for depreciation and amortization 57,687 57,229
General taxes 54,013 54,511
Income taxes 20,155 21,943
-------- --------
Total operating expenses and taxes 337,318 324,331
-------- --------
OPERATING INCOME 81,521 90,696
OTHER INCOME 6,457 7,593
-------- --------
INCOME BEFORE NET INTEREST CHARGES 87,978 98,289
-------- --------
NET INTEREST CHARGES:
Interest on long-term debt 53,753 60,060
Allowance for borrowed funds used during construction (216) (552)
Other interest expense (credit) (479) (844)
-------- --------
Net interest charges 53,058 58,664
-------- --------
NET INCOME 34,920 39,625
PREFERRED STOCK DIVIDEND REQUIREMENTS 8,541 1,068
-------- --------
EARNINGS ON COMMON STOCK $ 26,379 $ 38,557
======== ========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to The Cleveland Electric
Illuminating Company are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(In thousands)
ASSETS
------
<S> <C> <C>
UTILITY PLANT:
In service $4,661,434 $4,648,725
Less--Accumulated provision for depreciation 1,674,965 1,631,974
---------- ----------
2,986,469 3,016,751
---------- ----------
Construction work in progress-
Electric plant 38,357 42,428
Nuclear fuel 27,672 14,864
---------- ----------
66,029 57,292
---------- ----------
3,052,498 3,074,043
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Shippingport Capital Trust 517,263 543,161
Nuclear plant decommissioning trusts 127,818 125,050
Other 22,664 21,059
---------- ----------
667,745 689,270
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 14,432 19,526
Receivables-
Customers 23,182 16,588
Associated companies 51,174 15,636
Other 115,895 142,834
Notes receivable from associated companies 59,077 53,509
Materials and supplies, at average cost-
Owned 40,215 38,213
Under consignment 43,531 43,620
Prepayments and other 63,174 58,342
---------- ----------
410,680 388,268
---------- ----------
DEFERRED CHARGES:
Regulatory assets 548,778 555,925
Goodwill 1,461,999 1,471,563
Property taxes 126,464 126,464
Other 15,783 12,650
---------- ----------
2,153,024 2,166,602
---------- ----------
$6,283,947 $6,318,183
========== ==========
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
CAPITALIZATION:
Common stockholder's equity-
Common stock, without par value, authorized
105,000,000 shares - 79,590,689 shares outstanding $ 931,962 $ 931,962
Retained earnings 91,882 76,276
---------- ----------
Total common stockholder's equity 1,023,844 1,008,238
Preferred stock-
Not subject to mandatory redemption 238,325 238,325
Subject to mandatory redemption 149,710 149,710
Long-term debt 2,880,207 2,888,202
---------- ----------
4,292,086 4,284,475
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 208,127 208,050
Accounts payable-
Associated companies 79,037 47,680
Other 48,205 67,929
Notes payable to associated companies 68,773 80,618
Accrued taxes 176,223 192,359
Accrued interest 70,180 66,685
Other 32,920 62,325
---------- ----------
683,465 725,646
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 527,881 524,285
Accumulated deferred investment tax credits 89,959 90,946
Pensions and other postretirement benefits 216,801 217,719
Other 473,755 475,112
---------- ----------
1,308,396 1,308,062
---------- ----------
COMMITMENTS, GUARANTEES AND
CONTINGENCIES (Note 2) ---------- ----------
$6,283,947 $6,318,183
========== ==========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to The Cleveland Electric
Illuminating Company are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,920 $ 39,625
Adjustments to reconcile net income to net
cash from operating activities-
Provision for depreciation and amortization 57,687 57,229
Nuclear fuel and lease amortization 9,306 10,229
Other amortization (465) --
Deferred income taxes, net 3,740 11,736
Investment tax credits, net (987) (1,296)
Receivables (15,193) (10,331)
Materials and supplies (1,913) (4,348)
Accounts payable 11,633 (25,733)
Other (64,519) (31,151)
-------- --------
Net cash provided from operating activities 34,209 45,960
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Short-term borrowings, net -- 18,798
Redemptions and Repayments-
Long-term debt 17,668 11,552
Short-term borrowings, net 11,845 --
Dividend Payments-
Common stock 7,163 --
Preferred stock 8,541 8,871
-------- --------
Net cash used for financing activities 45,217 1,625
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 10,095 15,334
Loans to associated companies 5,568 77,000
Capital trust investments (25,898) (31,958)
Other 4,321 4,184
-------- --------
Net cash used for (provided from) investing activities (5,914) 64,560
-------- --------
Net increase (decrease) in cash and cash equivalents (5,094) (20,225)
Cash and cash equivalents at beginning of period 19,526 33,775
-------- --------
Cash and cash equivalents at end of period $ 14,432 $ 13,550
======== ========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to The Cleveland Electric
Illuminating Company are an integral part of these statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Cleveland Electric Illuminating Company:
We have reviewed the accompanying consolidated balance sheet of The
Cleveland Electric Illuminating Company (an Ohio corporation and wholly
owned subsidiary of FirstEnergy Corp.) and subsidiary as of March 31,
1999, and the related consolidated statements of income and cash flows
for the three-month periods ended March 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of The Cleveland
Electric Illuminating Company and subsidiary as of December 31, 1998
(not presented herein), and, in our report dated February 12, 1999, we
expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying consolidated balance sheet as
of December 31, 1998, is fairly stated, in all material respects, in
relation to the balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 14, 1999
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Operating revenues increased $3.8 million in the first
quarter of 1999 from the first quarter of 1998 due to an increase in
retail kilowatt-hour sales. Residential and commercial customers
contributed to the higher kilowatt-hour sales with increases of 13.8%
and 1.9%, respectively. Industrial sales experienced a small, 0.4%
decline. Residential sales in the first quarter of 1999 benefited from
lower temperatures, compared to milder weather conditions in the first
quarter of 1998. Overall, retail kilowatt-hour sales increased by 4.1%
in the first quarter of 1999, compared to the same period of 1998.
However, sales to the wholesale market in the first quarter of 1999
were down approximately 60% from the first quarter of 1998, due in part
to the expiration of several wholesale contracts, which contributed to
a 0.5% decline in total kilowatt-hour sales.
Operation and maintenance expenses increased $14.8 million in
the first quarter of 1999, compared to the same period of 1998.
Increased operating costs at the Beaver Valley Plant and costs related
to the Davis-Besse Plant outage scheduled for April 1999 contributed to
the increase in nuclear operating costs in the first quarter of 1999,
compared to the first quarter of 1998. Other operating costs increased
primarily as a result of higher fossil generating unit operating costs,
and customer and sales expenses. A turbine-generator outage at the
Eastlake Plant, which began in the first quarter of 1999, was a major
factor contributing to the $5 million increase in fossil unit costs.
Customer and sales expenses reflect increased expenditures for energy
efficiency programs and similar costs in 1998 being recognized later in
that year.
Other income decreased in the first quarter of 1999, compared
to the first quarter of 1998, due in part to reduced interest income.
Long-term debt refinancings of $229 million and net redemptions of $217
million during the twelve months ended March 31, 1999, produced the
$6.3 million reduction in long-term debt interest expense in 1999.
Preferred stock dividend requirements increased in the first quarter of
1999, compared to the first quarter of 1998, due to the declaration in
the fourth quarter of 1997 of preferred dividends payable in 1998 by
CEI.
Capital Resources and Liquidity
CEI has continuing cash requirements for planned capital
expenditures and debt maturities. During the last three quarters of
1999, capital requirements for property additions and capital leases
are expected to be about $115 million, including $4 million for nuclear
fuel. CEI has additional cash requirements of approximately $178
million to meet sinking fund requirements for preferred stock and
maturing long-term debt during the remainder of 1999. These cash
requirements are expected to be satisfied with internal cash and/or
short-term credit arrangements.
As of March 31, 1999, CEI had approximately $73.5 million of
cash and temporary investments and $68.8 million of short-term
indebtedness to associated companies. Together with TE, CEI had unused
borrowing capability of $100 million under a FirstEnergy revolving line
of credit at the end of the first quarter of 1999. Under its first
mortgage indenture, as of March 31, 1999, CEI would have been permitted
to issue at least $190 million of additional first mortgage bonds on
the basis of bondable property additions and retired bonds.
FirstEnergy completed its agreements with Duquesne on March
25, 1999, to exchange certain generating assets. Upon receipt of
regulatory approvals, Duquesne will transfer 550 MW that it owns at
four generating units to CEI in exchange for CEI's 739 MW Avon Lake
Plant.
In the continuing move toward enactment of legislation
deregulating Ohio's investor-owned electric utility industry,
substitute bills (HB 5 & SB 3) were introduced at a joint meeting of
the House Public Utilities and the Senate Ways and Means committees on
March 26, 1999. The bills, sponsored by House Republican Priscilla Mead
and Senate Republican Bruce Johnson, will be considered by the two
committees individually. Hearings in the Senate and House began on
April 13 and 14, 1999, respectively. As many as two hearings a week
will be held with the objective of delivering legislation to the
Governor by the beginning of June. CEI is unable to predict the
ultimate outcome of this process or the level of recovery of regulatory
assets and nuclear generating unit investment. Unfavorable resolution
could result in a charge to earnings which could have a material
adverse effect on CEI's results of operations and financial condition.
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 CEI's 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 CEI's 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.
CEI has developed a multi-phase program for Year 2000
compliance that consists of an assessment of its 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. CEI
has focused its Year 2000 review on three areas: centralized system
applications, noncentralized systems and relationships with third
parties (including suppliers as well as end-use customers). CEI's
review of system readiness extends to systems involving customer
service, safety, shareholder needs and regulatory obligations.
CEI is committed to taking appropriate actions to eliminate
or lessen negative effects of the Year 2000 issue on its operations.
CEI has completed an inventory of all computer systems and hardware
including equipment with embedded computer chips and has determined
which systems need to be converted or replaced to become Year 2000-
ready and is in the process of remediating them. Based on its
timetable, CEI expects to have all identified repairs, replacements and
upgrades completed by June 30, 1999 to enable it to be ready to serve
its customers into the Year 2000.
Most of CEI's Year 2000 issues will be resolved through
system replacement. Of CEI's major centralized systems, the general
ledger system and inventory management, procurement and accounts
payable systems were replaced at the end of 1998. CEI's 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.
CEI has completed formal communications with most of its key
suppliers to determine the extent to which it is vulnerable to those
third parties' failure to resolve their own Year 2000 problems. For
suppliers having potential compliance problems, CEI is developing
alternate sources and services in the event such noncompliance occurs.
CEI is 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 issues will not have a
material adverse effect on CEI's business, financial condition and
results of operations, although it does not consider this likely to
occur.
CEI is using both internal and external resources to reprogram
and/or replace and test its software for Year 2000 modifications. Of the
$31 million total project cost, approximately $23 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 $8 million will be expensed as incurred. As
of March 31, 1999, CEI had spent $20 million for Year 2000 capital
projects and had expensed approximately $4 million for Year 2000-related
maintenance activities. CEI's total Year 2000 project cost, as well as
its 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.
CEI believes it is managing the Year 2000 issue in such a way
that its customers will not experience any interruption of service. CEI
believes 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
its financial results. CEI is developing contingency plans to address
the effects of any delay in becoming Year 2000 compliant and expect to
have contingency plans completed by June 30, 1999.
The costs of the project and the dates on which CEI plans 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>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
OPERATING REVENUES $224,262 $221,103
-------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 36,402 34,841
Nuclear operating costs 41,894 37,795
Other operating costs 33,514 32,973
-------- --------
Total operation and maintenance expenses 111,810 105,609
Provision for depreciation and amortization 25,743 25,482
General taxes 21,098 21,030
Income taxes 16,907 17,016
-------- --------
Total operating expenses and taxes 175,558 169,137
-------- --------
OPERATING INCOME 48,704 51,966
OTHER INCOME 2,922 3,842
-------- --------
INCOME BEFORE NET INTEREST CHARGES 51,626 55,808
-------- --------
NET INTEREST CHARGES:
Interest on long-term debt 21,041 22,886
Allowance for borrowed funds used during construction (202) (269)
Other interest expense (credit) (1,361) (814)
-------- --------
Net interest charges 19,478 21,803
-------- --------
NET INCOME 32,148 34,005
PREFERRED STOCK DIVIDEND REQUIREMENTS 4,070 1,385
-------- --------
EARNINGS ON COMMON STOCK $ 28,078 $ 32,620
======== ========
<FN>
The preceding Consolidated Notes to Financial Statements as they relate to The Toledo Edison Company
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
(In thousands)
ASSETS
------
<S> <C> <C>
UTILITY PLANT:
In service $1,772,925 $1,757,364
Less--Accumulated provision for depreciation 649,625 626,942
---------- ----------
1,123,300 1,130,422
---------- ----------
Construction work in progress-
Electric plant 22,491 26,603
Nuclear fuel 19,444 11,191
---------- ----------
41,935 37,794
---------- ----------
1,165,235 1,168,216
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Shippingport Capital Trust 295,392 310,762
Nuclear plant decommissioning trusts 105,378 102,749
Other 6,226 3,656
---------- ----------
406,996 417,167
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 173 4,140
Receivables-
Customers 29,837 36,710
Associated companies 32,387 30,006
Other 22,225 2,316
Notes receivable from associated companies 104,098 101,236
Materials and supplies, at average cost-
Owned 26,409 25,745
Under consignment 19,864 18,148
Prepayments and other 28,522 25,647
---------- ----------
263,515 243,948
---------- ----------
DEFERRED CHARGES:
Regulatory assets 412,345 417,704
Goodwill 471,424 474,593
Property taxes 43,818 42,842
Other 5,127 4,295
---------- ----------
932,714 939,434
---------- ----------
$2,768,460 $2,768,765
========== ==========
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
CAPITALIZATION:
Common stockholder's equity-
Common stock, $5 par value, authorized 60,000,000
shares - 39,133,887 shares outstanding $ 195,670 $ 195,670
Other paid-in capital 328,559 328,559
Retained earnings 78,184 51,463
---------- ----------
Total common stockholder's equity 602,413 575,692
Preferred stock subject to mandatory redemption 210,000 210,000
Long-term debt 1,063,644 1,083,666
---------- ----------
1,876,057 1,869,358
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 144,537 130,426
Accounts payable-
Associated companies 39,936 34,260
Other 27,491 38,832
Accrued taxes 49,091 62,288
Accrued interest 24,700 24,965
Other 40,508 37,617
---------- ----------
326,263 328,388
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 155,686 151,321
Accumulated deferred investment tax credits 40,189 40,670
Pensions and other postretirement benefits 121,752 122,314
Other 248,513 256,714
---------- ----------
566,140 571,019
---------- ----------
COMMITMENTS, GUARANTEES AND
CONTINGENCIES (Note 2) ---------- ----------
$2,768,460 $2,768,765
========== ==========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32,148 $ 34,005
Adjustments to reconcile net income to net
cash from operating activities-
Provision for depreciation and amortization 25,743 25,482
Nuclear fuel and lease amortization 6,612 7,301
Deferred income taxes, net 3,682 6,521
Investment tax credits, net (481) (649)
Receivables (15,417) 18,201
Materials and supplies (2,380) (2,980)
Accounts payable (5,665) (12,772)
Other (32,923) 2,869
-------- --------
Net cash provided from operating activities 11,319 77,978
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions and Repayments-
Long-term debt 12,434 8,568
Dividend Payments-
Preferred stock 4,070 4,127
-------- --------
Net cash used for financing activities 16,504 12,695
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 8,931 7,749
Loans to associated companies 2,862 77,798
Capital investments (15,370) (2,003)
Other 2,359 3,536
-------- --------
Net cash used for (provided from) investing activities (1,218) 87,080
-------- --------
Net increase (decrease) in cash and cash equivalents (3,967) (21,797)
Cash and cash equivalents at beginning of period 4,140 22,170
-------- --------
Cash and cash equivalents at end of period $ 173 $ 373
======== ========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company
are an integral part of these statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Toledo Edison Company:
We have reviewed the accompanying consolidated balance sheet of The
Toledo Edison Company (an Ohio corporation and wholly owned subsidiary
of FirstEnergy Corp.) and subsidiary as of March 31, 1999, and the
related consolidated statements of income and cash flows for the three-
month periods ended March 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of The Toledo Edison
Company and subsidiary as of December 31, 1998 (not presented herein),
and, in our report dated February 12, 1999, we expressed an unqualified
opinion on that statement. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1998, is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 14, 1999
THE TOLEDO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Operating revenues increased $3.2 million in the first
quarter of 1999 from the first quarter of 1998 due to an increase in
retail kilowatt-hour sales. Residential and industrial customers
contributed to the higher kilowatt-hour sales with increases of 7.5%
and 10.5%, respectively. Commercial sales declined 1.4% in 1999.
Residential sales in the first quarter of 1999 benefited from lower
temperatures, compared to milder weather conditions in the first
quarter of 1998. Strong automotive demand and expanded production at
the North Star BHP Steel facility contributed to the increase in
industrial sales.
Operation and maintenance expenses increased $6.2 million in
the first quarter of 1999, compared to the same period of 1998.
Increased operating costs at the Beaver Valley Plant and costs related
to the Dave-Besse Plant outage scheduled for April 1999 contributed to
the increase in nuclear operating costs in the first quarter of 1999,
compared to the first quarter of 1998.
Other income decreased in the first quarter of 1999, from the
same period the prior year, primarily as a result of lower interest
income. Net debt redemptions of $65 million during the twelve months
ended March 31, 1999, produced the reduction in long-term debt interest
expense in 1999. Preferred stock dividend requirements increased in the
first quarter of 1999, compared to the first quarter of 1998, due to
the declaration in the fourth quarter of 1997 of preferred dividends
payable in 1998 by TE.
Capital Resources and Liquidity
TE has continuing cash requirements for planned capital
expenditures and debt maturities. During the last three quarters of
1999, capital requirements for property additions and capital leases
are expected to be about $42 million, including $2 million for nuclear
fuel. TE has additional cash requirements of approximately $105.9
million to meet sinking fund requirements for preferred stock and
maturing long-term debt during the remainder of 1999. These cash
requirements are expected to be satisfied with internal cash and/or
short-term credit arrangements.
As of March 31, 1999, TE had approximately $104.3 million of
cash and temporary investments and no short-term indebtedness. Together
with CEI, TE had unused borrowing capability of $100 million under a
FirstEnergy revolving line of credit at the end of the first quarter of
1999. Under its first mortgage indenture, as of March 31, 1999, TE
would have been permitted to issue approximately $194 million of
additional first mortgage bonds on the basis of bondable property
additions and retired bonds.
In the continuing move toward enactment of legislation
deregulating Ohio's investor-owned electric utility industry,
substitute bills (HB 5 & SB 3) were introduced at a joint meeting of
the House Public Utilities and the Senate Ways and Means committees on
March 26, 1999. The bills, sponsored by House Republican Priscilla Mead
and Senate Republican Bruce Johnson, will be considered by the two
committees individually. Hearings in the Senate and House began on
April 13 and 14, 1999, respectively. As many as two hearings a week
will be held with the objective of delivering legislation to the
Governor by the beginning of June. TE is unable to predict the ultimate
outcome of this process or the level of recovery of regulatory assets
and nuclear generating unit investment. Unfavorable resolution could
result in a charge to earnings which could have a material adverse
effect on TE's results of operations and financial condition.
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 TE's 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 TE's 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.
TE has developed a multi-phase program for Year 2000
compliance that consists of an assessment of its 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. TE
has focused its Year 2000 review on three areas: centralized system
applications, noncentralized systems and relationships with third
parties (including suppliers as well as end-use customers). TE's review
of system readiness extends to systems involving customer service,
safety, shareholder needs and regulatory obligations.
TE is committed to taking appropriate actions to eliminate or
lessen negative effects of the Year 2000 issue on its operations. TE
has completed an inventory of all computer systems and hardware
including equipment with embedded computer chips and has determined
which systems need to be converted or replaced to become Year 2000-
ready and is in the process of remediating them. Based on its
timetable, TE expects to have all identified repairs, replacements and
upgrades completed by June 30, 1999 to enable it to be ready to serve
its customers into the Year 2000.
Most of TE's Year 2000 issues will be resolved through system
replacement. Of TE's major centralized systems, the general ledger
system and inventory management, procurement and accounts payable
systems were replaced at the end of 1998. TE's 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.
TE has completed formal communications with most of its key
suppliers to determine the extent to which it is vulnerable to those
third parties' failure to resolve their own Year 2000 problems. For
suppliers having potential compliance problems, TE is developing
alternate sources and services in the event such noncompliance occurs.
TE is 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 issues will not have a
material adverse effect on TE's business, financial condition and
results of operations, although it does not consider this likely to
occur.
TE is using both internal and external resources to reprogram
and/or replace and test its software for Year 2000 modifications. Of the
$16 million total project cost, approximately $12 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 $4 million will be expensed as incurred. As
of March 31, 1999, TE had spent $11 million for Year 2000 capital
projects and had expensed approximately $2 million for Year 2000-related
maintenance activities. TE's total Year 2000 project cost, as well as
its 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.
TE believes it is managing the Year 2000 issue in such a way
that its customers will not experience any interruption of service. TE
believes 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
its financial results. TE is developing contingency plans to address
the effects of any delay in becoming Year 2000 compliant and expect to
have contingency plans completed by June 30, 1999.
The costs of the project and the dates on which TE plans 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>
PENNSYLVANIA POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
OPERATING REVENUES $81,372 $78,576
------- -------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 16,912 17,798
Nuclear operating costs 6,713 7,106
Other operating costs 14,728 12,190
------- -------
Total operation and maintenance expenses 38,353 37,094
Provision for depreciation and amortization 14,437 16,498
General taxes 5,904 5,779
Income taxes 8,386 6,566
------- -------
Total operating expenses and taxes 67,080 65,937
------- -------
OPERATING INCOME 14,292 12,639
OTHER INCOME 997 739
------- -------
INCOME BEFORE NET INTEREST CHARGES 15,289 13,378
------- -------
NET INTEREST CHARGES:
Interest expense 5,096 5,494
Allowance for borrowed funds used during construction (146) (82)
------- -------
Net interest charges 4,950 5,412
------- -------
NET INCOME 10,339 7,966
PREFERRED STOCK DIVIDEND REQUIREMENTS 1,157 1,157
------- -------
EARNINGS ON COMMON STOCK $ 9,182 $ 6,809
======= =======
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to Pennsylvania Power Company
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(In thousands)
ASSETS
------
<S> <C> <C>
UTILITY PLANT:
In service $687,987 $686,771
Less--Accumulated provision for depreciation 296,809 291,188
-------- --------
391,178 395,583
-------- --------
Construction work in progress-
Electric plant 20,601 17,187
Nuclear fuel 3,582 508
-------- --------
24,183 17,695
-------- --------
415,361 413,278
-------- --------
OTHER PROPERTY AND INVESTMENTS 32,644 29,177
-------- --------
CURRENT ASSETS:
Cash and cash equivalents 865 7,485
Notes receivable from parent company 29,758 50,000
Receivables-
Customers (less accumulated provisions of
$3,898,000 and $3,599,000, respectively,
for uncollectible accounts) 32,004 34,737
Associated companies 28,686 34,430
Other 24,734 12,472
Materials and supplies, at average cost 16,247 15,515
Prepayments 12,455 2,657
-------- --------
144,749 157,296
-------- --------
DEFERRED CHARGES:
Regulatory assets 357,932 371,027
Other 6,721 6,994
-------- --------
364,653 378,021
-------- --------
$957,407 $977,772
======== ========
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(In thousands)
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
CAPITALIZATION:
Common stockholder's equity-
Common stock, $30 par value, authorized 6,500,000 shares -
6,290,000 shares outstanding $188,700 $188,700
Other paid-in capital (310) (310)
Retained earnings 64,398 86,891
-------- --------
Total common stockholder's equity 252,788 275,281
Preferred stock-
Not subject to mandatory redemption 50,905 50,905
Subject to mandatory redemption 15,000 15,000
Long-term debt-
Associated companies 8,797 6,617
Other 281,007 281,072
-------- --------
608,497 628,875
-------- --------
CURRENT LIABILITIES:
Currently payable long-term debt-
Associated companies 4,855 5,557
Other 968 984
Accounts payable-
Associated companies 11,686 9,676
Other 27,331 23,156
Accrued taxes 18,797 12,849
Accrued interest 3,775 6,519
Other 9,664 17,046
-------- --------
77,076 75,787
-------- --------
DEFERRED CREDITS:
Accumulated deferred income taxes 209,612 212,427
Accumulated deferred investment tax credits 7,605 7,787
Other 54,617 52,896
-------- --------
271,834 273,110
-------- --------
COMMITMENTS, GUARANTEES AND
CONTINGENCIES (Note 2) -------- --------
$957,407 $977,772
======== ========
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to Pennsylvania Power Company
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,339 $ 7,966
Adjustments to reconcile net income to net
cash from operating activities-
Provision for depreciation and amortization 14,437 16,498
Nuclear fuel and lease amortization 1,823 940
Deferred income taxes, net (2,023) (2,812)
Investment tax credits, net (183) (572)
Receivables (3,785) 962
Materials and supplies (732) (376)
Accounts payable 6,185 1,164
Other (12,451) (9,874)
------- -------
Net cash provided from operating activities 13,610 13,896
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions and Repayments-
Long-term debt 1,745 1,760
Dividend Payments-
Common stock 31,765 5,346
Preferred stock 1,066 1,157
------- -------
Net cash used for financing activities 34,576 8,263
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 4,633 3,284
Loan payment from parent (20,242) (1,000)
Other 1,263 812
------- ------
Net cash used for (provided from) investing activities (14,346) 3,096
------- ------
Net increase (decrease) in cash and cash equivalents (6,620) 2,537
Cash and cash equivalents at beginning of period 7,485 660
------- -------
Cash and cash equivalents at end of period $ 865 $ 3,197
======= =======
<FN>
The preceding Notes to Consolidated Financial Statements as they relate to Pennsylvania Power Company
are an integral part of these statements.
</TABLE>
<PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pennsylvania Power Company:
We have reviewed the accompanying consolidated balance sheet of
Pennsylvania Power Company (a Pennsylvania corporation and wholly owned
subsidiary of Ohio Edison Company) and subsidiary as of March 31, 1999,
and the related consolidated statements of income and cash flows for the
three-month periods ended March 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Pennsylvania Power Company as
of December 31, 1998 (not presented herein), and, in our report dated
February 12, 1999, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1998, is fairly stated, in
all material respects, in relation to the balance sheet from which it
has been derived.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 14, 1999
PENNSYLVANIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Operating revenues increased $2.8 million in the first
quarter of 1999 from the first quarter of 1998 due to an increase in
retail kilowatt-hour sales and additional wholesale revenues.
Residential and commercial customers contributed to the retail
kilowatt-hour sales with increases of 14.8% and 23.6%, respectively,
while industrial sales declined 10.4%. Residential sales in the first
quarter of 1999 benefited from lower temperatures, compared to milder
weather conditions in the first quarter of 1998. Continued service
sector growth contributed to the commercial sales increase while
industrial sales were affected by weaker demand from the primary metal
sector. Retail kilowatt-hour sales were increased by the addition of
unregulated sales by Penn Power Energy, Inc. (PPE), a wholly owned
subsidiary. Overall, retail kilowatt-hour sales increased 7.6%,
compared to the same period of 1998 and total sales increased 6.7%.
Operation and maintenance expenses increased $1.3 million in
the first quarter of 1999, compared to the same period of 1998. Fuel
and purchased power declined due to an increased mix of nuclear
production. However, other operating costs experienced a more than
offsetting increase primarily as a result of expanding activities and
related costs at PPE.
Depreciation and amortization decreased in the first quarter
of 1999, compared to the same period of 1998, due to the effect of
Penn's rate restructuring plan. The PPUC's authorization of Penn's rate
restructuring plan in the second quarter of 1998 led to discontinued
application of certain regulatory accounting procedures (i.e., SFAS 71)
to Penn's generation business, resulting in a write down of Penn's
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 depreciation and amortization was
caused by the resulting reduction of nuclear depreciation, which was
partially offset by increased amortization of regulatory assets.
Capital Resources and Liquidity
Penn has continuing cash requirements for planned capital
expenditures. During the last three quarters of 1999, capital
requirements for property additions and capital leases are expected to
be about $34 million, including $600,000 for nuclear fuel. Penn has
additional cash requirements of approximately $487,000 to meet
requirements for maturing long-term debt during the remainder of 1999.
These requirements are expected to be satisfied with internal cash.
As of March 31, 1999, Penn had approximately $30.6 million of
cash and temporary investments and no short-term indebtedness. Penn had
$2 million of an unused bank facility as of March 31, 1999, which may
be borrowed for up to several days at the bank's discretion. Under its
first mortgage indenture, as of March 31, 1999, Penn would have been
permitted to issue at least $255 million of additional first mortgage
bonds on the basis of bondable property additions and retired bonds.
FirstEnergy completed its agreements with Duquesne on March
25, 1999, to exchange certain generating assets. Upon receipt of
regulatory approvals, Duquesne will transfer 747 MW that it owns at
four generating units to Penn in exchange for Penn's 342 MW at the New
Castle and Niles Plants.
Following an appeal by Penn of the 1998 restructuring order
from the PPUC to the Commonwealth Court, a settlement was reached in
April 1999 with parties to Penn's original restructuring proceeding.
Among the provisions of the settlement was a one year extension of the
period for which all customers may select among alternative generation
suppliers.
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 Penn's 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 Penn's 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.
Penn has developed a multi-phase program for Year 2000
compliance that consists of an assessment of its 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. Penn
has focused its Year 2000 review on three areas: centralized system
applications, noncentralized systems and relationships with third
parties (including suppliers as well as end-use customers). Penn's
review of system readiness extends to systems involving customer
service, safety, shareholder needs and regulatory obligations.
Penn is committed to taking appropriate actions to eliminate
or lessen negative effects of the Year 2000 issue on its operations.
Penn has completed an inventory of all computer systems and hardware
including equipment with embedded computer chips and has determined
which systems need to be converted or replaced to become Year 2000-
ready and is in the process of remediating them. Based on its
timetable, Penn expects to have all identified repairs, replacements
and upgrades completed by June 30, 1999 to enable it to be ready to
serve its customers into the Year 2000.
Most of Penn's Year 2000 issues will be resolved through
system replacement. Of Penn's major centralized systems, the general
ledger system and inventory management, procurement and accounts
payable systems were replaced at the end of 1998. Penn's 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.
Penn has completed formal communications with most of its key
suppliers to determine the extent to which it is vulnerable to those
third parties' failure to resolve their own Year 2000 problems. For
suppliers having potential compliance problems, Penn is developing
alternate sources and services in the event such noncompliance occurs.
Penn is 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 Penn's business, financial condition and
results of operations, although it does not consider this likely to
occur.
Penn is using both internal and external resources to
reprogram and/or replace and test its software for Year 2000
modifications. Of the $5.0 million total project cost, approximately
$3.5 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 $1.5 million will be
expensed as incurred. As of March 31, 1999, Penn had spent $2.9 million
for Year 2000 capital projects and had expensed approximately $900,000
for Year 2000-related maintenance activities. Penn's total Year 2000
project cost, as well as its 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.
Penn believes it is managing the Year 2000 issue in such a
way that its customers will not experience any interruption of service.
Penn believes 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 its financial results. Penn is developing
contingency plans to address the effects of any delay in becoming Year
2000 compliant and expect to have contingency plans completed by June
30, 1999.
The costs of the project and the dates on which Penn plans 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.
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The annual meeting of FirstEnergy shareholders was held on
April 29, 1999.
(b) At this meeting, the following persons were elected to
FirstEnergy's Board of Directors:
Number of Votes
---------------------------
For Withheld
------------ ------------
Willard R. Holland 184,348,358 5,945,073
Russell W. Maier 184,217,005 6,076,426
Jesse T. Williams, Sr. 184,457,459 5,835,972
(c) At this meeting, the appointment of Arthur Andersen LLP,
independent public accountants, as auditors for the year 1999
was ratified (ratification of which required a majority of
votes cast):
Number of Votes
-----------------------------------
For Against Abstentions
----------- --------- -----------
186,564,895 1,941,501 1,787,035
(d) At this meeting, a shareholder proposal designed to result in
the election of the entire Board of Directors each year was
rejected (passage of which required 80% of the 236,728,687
common shares outstanding):
Number of Votes
------------------------------------------------
Broker
For Against Abstentions Non-Votes
---------- ---------- ----------- -----------
83,053,969 77,408,943 4,944,690 24,885,829
(e) At this meeting, a shareholder proposal to restrict executive
officers' severance arrangements was rejected (passage of
which required a majority of votes cast):
Number of Votes
------------------------------------------------
Broker
For Against Abstentions Non-Votes
---------- ----------- ----------- ----------
45,557,583 112,126,968 7,992,697 24,616,183
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number
-------
FirstEnergy, OE, CEI and Penn
-----------------------------
15 Letter from independent public accountants.
TE
--
None
Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation
S-K, FirstEnergy, or, respectively, any of the Companies, has
not filed as an exhibit to this Form 10-Q any instrument with
respect to long-term debt if the respective total amount of
securities authorized thereunder does not exceed 10% of the
total assets of FirstEnergy and its subsidiaries on a
consolidated basis, or respectively, any of the Companies, but
hereby agrees to furnish to the Commission on request any such
documents.
(b) Reports on Form 8-K
FirstEnergy, OE, CEI, TE and Penn
---------------------------------
None
SIGNATURE
Pursuant to the requirements 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.
May 14, 1999
FIRSTENERGY CORP.
-----------------
Registrant
OHIO EDISON COMPANY
-------------------
Registrant
THE CLEVELAND ELECTRIC
----------------------
ILLUMINATING COMPANY
----------------------
Registrant
THE TOLEDO EDISON COMPANY
-------------------------
Registrant
/s/ Harvey L. Wagner
--------------------------------
Harvey L. Wagner
Controller
Principal Accounting Officer
PENNSYLVANIA POWER COMPANY
--------------------------
Registrant
/s/ Harvey L. Wagner
--------------------------------
Harvey L. Wagner
Comptroller
Principal Accounting Officer
EXHIBIT 15
May 14, 1999
FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Gentlemen:
We are aware that FirstEnergy Corp. has incorporated by reference
in its Registration Statements No. 333-40065, No. 333-48587, No.
333-48651, No. 333-58279, No. 333-65409 and No. 333-75985 its
Form 10-Q for the quarter ended March 31, 1999, which includes
our report dated May 14, 1999 covering the unaudited interim
financial information contained therein. Pursuant to Regulation C
of the Securities Act of 1933, that report is not considered a
part of the registration statements prepared or certified by our
firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-Q 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.)
</LEGEND>
<CIK> 0001031296
<NAME> FIRSTENERGY CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,219,634
<OTHER-PROPERTY-AND-INVEST> 2,416,743
<TOTAL-CURRENT-ASSETS> 1,085,249
<TOTAL-DEFERRED-CHARGES> 5,466,737
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,188,363
<COMMON> 23,553
<CAPITAL-SURPLUS-PAID-IN> 3,667,052
<RETAINED-EARNINGS> 768,993
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,459,598
294,710
660,195
<LONG-TERM-DEBT-NET> 6,335,289
<SHORT-TERM-NOTES> 145,769
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 119,965
<LONG-TERM-DEBT-CURRENT-PORT> 742,822
40,154
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 58,537
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,331,324
<TOT-CAPITALIZATION-AND-LIAB> 18,188,363
<GROSS-OPERATING-REVENUE> 1,417,410
<INCOME-TAX-EXPENSE> 92,925
<OTHER-OPERATING-EXPENSES> 1,041,687
<TOTAL-OPERATING-EXPENSES> 1,134,612
<OPERATING-INCOME-LOSS> 282,798
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 282,798
<TOTAL-INTEREST-EXPENSE> 146,077
<NET-INCOME> 136,721
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 86,138
<TOTAL-INTEREST-ON-BONDS> 511,753
<CASH-FLOW-OPERATIONS> 212,630
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
EXHIBIT 15
May 14, 1999
Ohio Edison Company
76 South Main Street
Akron, OH 44308
Gentlemen:
We are aware that Ohio Edison Company has incorporated by
reference in its Registration Statements No. 33-49135, No. 33-
49259, No. 33-49413, No. 33-51139, No. 333-01489 and No. 333-
05277 its Form 10-Q for the quarter ended March 31, 1999, which
includes our report dated May 14, 1999 covering the unaudited
interim financial information contained therein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statements prepared or
certified by our firm or a report prepared or certified by our
firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-Q 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 $5,936,000 related to
other income.
</LEGEND>
<CIK> 0000073960
<NAME> OHIO EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,732,595
<OTHER-PROPERTY-AND-INVEST> 1,319,093
<TOTAL-CURRENT-ASSETS> 762,831
<TOTAL-DEFERRED-CHARGES> 2,105,960
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,920,479
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 2,098,728
<RETAINED-EARNINGS> 586,443
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,685,172
145,000
211,870
<LONG-TERM-DEBT-NET> 2,220,693
<SHORT-TERM-NOTES> 233,444
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 119,965
<LONG-TERM-DEBT-CURRENT-PORT> 474,022
5,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 3,857
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,821,456
<TOT-CAPITALIZATION-AND-LIAB> 8,920,479
<GROSS-OPERATING-REVENUE> 633,118
<INCOME-TAX-EXPENSE> 53,699
<OTHER-OPERATING-EXPENSES> 450,405
<TOTAL-OPERATING-EXPENSES> 498,168
<OPERATING-INCOME-LOSS> 134,950
<OTHER-INCOME-NET> 9,318
<INCOME-BEFORE-INTEREST-EXPEN> 144,268
<TOTAL-INTEREST-EXPENSE> 56,462
<NET-INCOME> 87,806
2,913
<EARNINGS-AVAILABLE-FOR-COMM> 84,893
<COMMON-STOCK-DIVIDENDS> 81,738
<TOTAL-INTEREST-ON-BONDS> 197,987
<CASH-FLOW-OPERATIONS> 159,159
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 15
May 14, 1999
The Cleveland Electric
Illuminating Company
76 South Main Street
Akron, OH 44308
Gentlemen:
We are aware that The Cleveland Electric Illuminating Company has
incorporated by reference in its Registration Statements No. 33-
55513, No. 333-47651 and No. 333-72891 its Form 10-Q for the
quarter ended March 31, 1999, which includes our report dated
May 14, 1999 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act
of 1933, that report is not considered a part of the registration
statements prepared or certified by our firm or a report prepared
or certified by our firm within the meaning of Sections 7 and 11
of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-Q financial statements for The Cleveland Electric
Illuminating Company and is qualified in its entirety by reference to such
financial statements. (Amounts in 1000's.) Income tax expense includes
$3,279,000 related to other income.
</LEGEND>
<CIK> 0000020947
<NAME> THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,052,498
<OTHER-PROPERTY-AND-INVEST> 667,745
<TOTAL-CURRENT-ASSETS> 410,680
<TOTAL-DEFERRED-CHARGES> 2,153,024
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,283,947
<COMMON> 931,962
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 91,882
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,023,844
149,710
238,325
<LONG-TERM-DEBT-NET> 2,880,207
<SHORT-TERM-NOTES> 68,773
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 144,530
33,464
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 30,133
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,714,961
<TOT-CAPITALIZATION-AND-LIAB> 6,283,947
<GROSS-OPERATING-REVENUE> 418,839
<INCOME-TAX-EXPENSE> 23,434
<OTHER-OPERATING-EXPENSES> 317,163
<TOTAL-OPERATING-EXPENSES> 337,318
<OPERATING-INCOME-LOSS> 81,521
<OTHER-INCOME-NET> 6,457
<INCOME-BEFORE-INTEREST-EXPEN> 87,978
<TOTAL-INTEREST-EXPENSE> 53,058
<NET-INCOME> 34,920
8,541
<EARNINGS-AVAILABLE-FOR-COMM> 26,379
<COMMON-STOCK-DIVIDENDS> 7,163
<TOTAL-INTEREST-ON-BONDS> 215,631
<CASH-FLOW-OPERATIONS> 34,209
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-Q 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 $1,531,000 related to other income.
</LEGEND>
<CIK> 0000352049
<NAME> THE TOLEDO EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,165,235
<OTHER-PROPERTY-AND-INVEST> 406,996
<TOTAL-CURRENT-ASSETS> 263,515
<TOTAL-DEFERRED-CHARGES> 932,714
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,768,460
<COMMON> 195,670
<CAPITAL-SURPLUS-PAID-IN> 328,559
<RETAINED-EARNINGS> 78,184
<TOTAL-COMMON-STOCKHOLDERS-EQ> 602,413
0
210,000
<LONG-TERM-DEBT-NET> 1,063,644
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 118,300
1,690
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 24,547
<OTHER-ITEMS-CAPITAL-AND-LIAB> 747,866
<TOT-CAPITALIZATION-AND-LIAB> 2,768,460
<GROSS-OPERATING-REVENUE> 224,262
<INCOME-TAX-EXPENSE> 18,438
<OTHER-OPERATING-EXPENSES> 158,651
<TOTAL-OPERATING-EXPENSES> 175,558
<OPERATING-INCOME-LOSS> 48,704
<OTHER-INCOME-NET> 2,922
<INCOME-BEFORE-INTEREST-EXPEN> 51,626
<TOTAL-INTEREST-EXPENSE> 19,478
<NET-INCOME> 32,148
4,070
<EARNINGS-AVAILABLE-FOR-COMM> 28,078
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 85,606
<CASH-FLOW-OPERATIONS> 11,319
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 15
May 14, 1999
Pennsylvania Power Company
1 E. Washington Street
P. O. Box 891
New Castle, PA 16103
Gentlemen:
We are aware that Pennsylvania Power Company has incorporated by
reference in its Registration Statements No. 33-62450 and No. 33-
65156 its Form 10-Q for the quarter ended March 31, 1999, which
includes our report dated May 14, 1999 covering the unaudited
interim financial information contained therein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statements prepared or
certified by our firm or a report prepared or certified by our
firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-Q 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 expense includes $(4,000) related to other
income.
</LEGEND>
<CIK> 0000077278
<NAME> PENNSYLVANIA POWER COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 415,361
<OTHER-PROPERTY-AND-INVEST> 32,644
<TOTAL-CURRENT-ASSETS> 144,749
<TOTAL-DEFERRED-CHARGES> 364,653
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 957,407
<COMMON> 188,700
<CAPITAL-SURPLUS-PAID-IN> (310)
<RETAINED-EARNINGS> 64,398
<TOTAL-COMMON-STOCKHOLDERS-EQ> 252,788
15,000
50,905
<LONG-TERM-DEBT-NET> 289,804
<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> 5,336
<OTHER-ITEMS-CAPITAL-AND-LIAB> 343,087
<TOT-CAPITALIZATION-AND-LIAB> 957,407
<GROSS-OPERATING-REVENUE> 81,372
<INCOME-TAX-EXPENSE> 8,382
<OTHER-OPERATING-EXPENSES> 58,694
<TOTAL-OPERATING-EXPENSES> 67,080
<OPERATING-INCOME-LOSS> 14,292
<OTHER-INCOME-NET> 997
<INCOME-BEFORE-INTEREST-EXPEN> 15,289
<TOTAL-INTEREST-EXPENSE> 4,950
<NET-INCOME> 10,339
1,157
<EARNINGS-AVAILABLE-FOR-COMM> 9,182
<COMMON-STOCK-DIVIDENDS> 31,765
<TOTAL-INTEREST-ON-BONDS> 19,115
<CASH-FLOW-OPERATIONS> 13,610
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
