SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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, OH 44308
Telephone (800)736-3402
1-2578 OHIO EDISON COMPANY 34-0437786
(An Ohio Corporation)
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-2323 THE CLEVELAND ELECTRIC ILLUMINATING 34-0150020
COMPANY
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3583 THE TOLEDO EDISON COMPANY 34-4375005
(An Ohio Corporation)
c/o FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Telephone (800)736-3402
1-3491 PENNSYLVANIA POWER COMPANY 25-0718810
(A Pennsylvania Corporation)
1 East Washington Street
P. O. Box 891
New Castle, PA 16103
Telephone (412)652-5531
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. (X)
---
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
Yes (X) No ( )
--- ---
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: $4,238,859,520 as of March 10, 2000. Indicate
the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
OUTSTANDING
CLASS AT MARCH 24, 2000
----- -----------------
FirstEnergy Corp., $.10 par value 231,119,841
Ohio Edison Company, $9 par value 100
The Cleveland Electric Illuminating Company,
no par value 79,590,689
The Toledo Edison Company, $5 par value 39,133,887
Pennsylvania Power Company, $30 par value 6,290,000
FirstEnergy Corp. is the sole holder of Ohio Edison Company, The Cleveland
Electric Illuminating Company and The Toledo Edison Company common stock;
Ohio Edison Company is the sole holder of Pennsylvania Power Company common
stock.
Documents incorporated by reference (to the extent indicated herein):
PART OF FORM 10-K INTO WHICH
DOCUMENT DOCUMENT IS INCORPORTED
-------- ----------------------------
FirstEnergy Corp. Annual Report to
Stockholders for the fiscal year ended
December 31, 1999 (Pages 16-47) Part II
Proxy Statement for 2000 Annual Meeting
of Stockholders to be held April 27, 2000 Part III
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Registrant Title of Each Class on Which Registered
---------- -------------------------------- -----------------------
FirstEnergy Corp. Common Stock, $.10 par value New York Stock Exchange
Ohio Edison
Company Cumulative Preferred Stock,
$100 par value
3.90% Series All series registered
4.40% Series on New York Stock
4.44% Series Exchange and Chicago
4.56% Series Stock Exchange
Cumulative Preferred Stock,
$25 par value
7.75% Series Registered on New York
Stock Exchange and
Chicago Stock Exchange
The Cleveland Cumulative Serial Preferred
Electric Stock, without par value:
Illuminating $7.40 Series A All series registered
Company $7.56 Series B on New York Stock
Adjustable Rate, Series L Exchange
Depository Shares:
1993 Series A, each New York Stock Exchange
share representing
1/20 of a share of
Serial Preferred Stock,
$42.40 Series T (without
par value)
The Toledo Edison Cumulative Preferred Stock, par
Company value $100 per share:
4-1/4% Series All series registered
8.32% Series on American Stock
7.76% Series Exchange
10% Series
Cumulative Preferred Stock, par
value $25 per share:
8.84% Series All series registered
$2.365 Series on New York Stock
Adjustable Rate, Series A Exchange
Adjustable Rate, Series B
First Mortgage Bonds:
8% Series due 2003 All series registered
on New York Stock
Exchange
Pennsylvania Cumulative Preferred Stock,
Power $100 par value:
Company 4.24% Series All series registered
4.25% Series on Philadelphia Stock
4.64% Series Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (Cont'd)
This combined Form 10-K is separately filed by FirstEnergy Corp.,
Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric
Illuminating Company and The Toledo Edison Company. Information contained
herein relating to any individual registrant is filed by such registrant on
its own behalf. No registrant makes any representation as to information
relating to any other registrant, except that information relating to any of
the four FirstEnergy subsidiaries is also attributed to FirstEnergy.
FORM 10-K
TABLE OF CONTENTS
Page
----
Part I
Item 1. Business 1
The Company 1
Utility Regulation 1
PUCO Rate Matters 2
PPUC Rate Matters 3
FERC Rate Matters 3
Fuel Recovery Procedures 4
Capital Requirements 4
Central Area Power Coordination Group 6
Nuclear Regulation 6
Nuclear Insurance 7
Environmental Matters 7
Air Regulation 8
Water Regulation 9
Waste Disposal 9
Summary 9
Fuel Supply 10
System Capacity and Reserves 10
Regional Reliability 11
Competition 11
Research and Development 11
Executive Officers 11
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 15
Part III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management 15
Item 13. Certain Relationships and Related Transactions 15
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 16
PART 1
ITEM 1. BUSINESS
The Company
FirstEnergy Corp. (Company) was organized under the laws of the
State of Ohio in 1996 and became a holding company on November 8, 1997 in
connection with the merger of Ohio Edison Company (OE) and Centerior Energy
Corporation (Centerior). The Company's principal business is the holding,
directly or indirectly, of all of the outstanding common stock of its four
principal electric utility operating subsidiaries, OE, The Cleveland Electric
Illuminating Company (CEI), Pennsylvania Power Company (Penn) and The Toledo
Edison Company (TE). These utility subsidiaries are referred to throughout as
"Companies." The Company's consolidated revenues are primarily derived from
electric service provided by its utility operating subsidiaries and the
revenues of its other principal subsidiaries: FirstEnergy Services Corp. (FE
Services), FirstEnergy Facilities Services Group, LLC. (FE Facilities);
FirstEnergy Trading Services, Inc. (FETS), and MARBEL Energy Corporation
(MARBEL). In addition, the Company holds all of the outstanding common stock
of five other direct subsidiaries: FirstEnergy Properties, Inc., FirstEnergy
Ventures, Corp., FirstEnergy Nuclear Operating Co. (FENOC), American
Transmission Systems, Inc., and FirstEnergy Securities Transfer Company.
The Companies' combined service areas encompass approximately
13,200 square miles in central and northern Ohio and western Pennsylvania.
The areas they serve have combined populations of approximately 5.8 million.
OE was organized under the laws of the State of Ohio in 1930 and
owns property and does business as an electric public utility in that state.
OE also has ownership interests in certain generating facilities located in
the Commonwealth of Pennsylvania. OE furnishes electric service to
communities in a 7,500 square mile area of central and northeastern Ohio. It
also provides transmission services and electric energy for resale to certain
municipalities in OE's service area and transmission services to certain
rural cooperatives. OE also engages in the sale, purchase and interchange of
electric energy with other electric companies. The area it serves has a
population of approximately 2.7 million.
OE owns all of the outstanding common stock of Penn, a Pennsylvania
corporation, which furnishes electric service to communities in a 1,500
square mile area of western Pennsylvania. Penn also provides transmission
services and electric energy for resale to certain municipalities in
Pennsylvania. The area served by Penn has a population of approximately 0.4
million.
CEI was organized under the laws of the State of Ohio in 1892 and
does business as an electric public utility in that state. It also has
ownership interests in certain generating facilities in Pennsylvania. CEI
furnishes electric service in an area of approximately 1,700 square miles in
northeastern Ohio, including the City of Cleveland. The area CEI serves has a
population of approximately 1.9 million.
TE was organized under the laws of the State of Ohio in 1901 and
does business as an electric public utility in that state. It also has
ownership interests in certain generating facilities in Pennsylvania. TE
furnishes electric service in an area of approximately 2,500 square miles in
northwestern Ohio, including the City of Toledo. The area TE serves has a
population of approximately 0.8 million.
FE Services was organized under the laws of the State of Ohio in
1997 and offers energy-related products and services primarily on a regional
basis. FE Services has one subsidiary, Penn Power Energy, Inc. (a
Pennsylvania corporation) which provides electric generation services and
other energy services to Pennsylvania customers under Pennsylvania's
deregulated environment. FE Facilities is the parent company of eleven direct
subsidiaries, which are heating, ventilating, air conditioning and energy
management companies. FETS, which was organized as a corporation in Delaware
in 1995, acquires and arranges for the delivery of electricity and natural
gas to FE Services' retail customers. MARBEL, which was acquired by the
Company in June 1998, is a company whose subsidiaries include Marbel HoldCo,
Inc. a holding company which has a 50% ownership in Great Lakes Energy
Partners, LLC, an oil and natural gas exploration and production venture and
other subsidiaries owning interests in natural gas distribution and
transmission facilities.
Utility Regulation
The Companies are subject to broad regulation as to rates and other
matters by the Public Utilities Commission of Ohio (PUCO) and the
Pennsylvania Public Utility Commission (PPUC). With respect to their
wholesale and interstate electric operation and rates, the Companies are
subject to regulation, including regulation of their accounting policies and
practices, by the Federal Energy Regulatory Commission (FERC). Under Ohio
law, municipalities may regulate rates, subject to appeal to the PUCO if not
acceptable to the utility.
The Energy Policy Act of 1992 (1992 Act) amended portions of the
1935 Act, providing independent power producers and other nonregulated
generating facilities easier entry into electric generation markets. The 1992
Act also amended portions of the Federal Power Act, authorizing the FERC,
under certain circumstances, to mandate access to utility-owned transmission
facilities. Following the enactment of the 1992 Act, the FERC has ordered all
utilities to file open access tariffs applicable to transmission facilities,
including provisions which require utilities to offer comparable services on
a nondiscriminatory basis. The FirstEnergy system has such an open access
tariff in effect (see "FERC Rate Matters").
PUCO Rate Matters
The PUCO approved OE's Rate Reduction and Economic Development Plan
in 1995 and a Rate Reduction and Economic Development Plan for CEI and TE in
January 1997. These plans were designed to enhance and accelerate economic
development within the Companies' Ohio service areas and to assure the
Companies' customers in those service areas of long-term competitive pricing
for energy services.
These plans were to maintain current base electric rates for OE,
CEI and TE through December 31, 2005, unless additional revenues were needed
to recover the costs of changes in environmental, regulatory or tax laws or
regulations. At the end of the plan periods, OE base rates were to be reduced
by $300 million (approximately 20 percent below current levels) and CEI and
TE base rates were to be reduced by a combined $310 million (approximately 15
percent below current levels). As part of these plans, transition rate
credits were implemented for customers, which are expected to reduce
operating revenues for OE by approximately $600 million and CEI and TE by
approximately $391 million during the plan period. The plans also established
revised fuel recovery rate formulas which eliminated the automatic pass-
through of fuel costs to their retail customers (see "Fuel Recovery
Procedures").
In July 1999, Ohio's new electric utility restructuring
legislation, which will allow Ohio electric customers to select their
generation suppliers beginning January 1, 2001, was signed into law. Among
other things, the new law provides for a 5% reduction on the generation
portion of residential customers' bills and the opportunity to recover
transition costs, including regulatory assets, from January 1, 2001 through
December 31, 2005. The period for the recovery of regulatory assets only can
be extended up to December 31, 2010. The PUCO was authorized to determine the
level of transition cost recovery, as well as the recovery period for the
regulatory assets portion of those costs, in considering each Ohio electric
utility's transition plan application.
The Company, on behalf of its Ohio electric utility operating
companies -- OE, CEI and TE -- on December 22, 1999 refiled its transition
plan under Ohio's new electric utility restructuring law. The plan was
originally filed with the PUCO on October 4, 1999, but was refiled to conform
to PUCO rules established on November 30, 1999. The new filing also included
additional information on the Company's plans to turn over control, and
perhaps ownership, of its transmission assets to the Alliance Regional
Transmission Organization. The PUCO indicated that it will endeavor to issue
its order in the Company's case within 275 days of the initial October filing
date.
The transition plan itemizes, or unbundles, the current price of
electricity into its component elements - including generation, transmission,
distribution and transition charges. As required by the PUCO's rules, the
Company's filing also included its proposals on corporate separation of its
regulated and unregulated operations, operational and technical support
changes needed to accommodate customer choice, an education program to inform
customers of their options under the law, and how the Company's transmission
system will be operated to ensure access to all users. Under the plan,
customers who remain with OE, CEI, or TE as their generation provider will
continue to receive savings under the Company's rate plans, expected to total
$759 million between 2000 and 2005. In addition, customers will save $358
million through reduced charges for taxes and the 5% reduction in the price
of generation for residential customers beginning January 1, 2001. Customer
prices are expected to be frozen through a five-year market development
period (2001-2005), except for certain limited statutory exceptions including
the 5% reduction in the price of generation for residential customers. The
plan proposes recovery of generation-related transition costs of
approximately $1.8 billion ($1.6 billion, net of deferred income taxes), $1.9
billion ($1.7 billion, net of deferred income taxes) and $0.8 billion ($0.7
billion, net of deferred income taxes) for OE, CEI and TE, respectively, over
the market development period; transition costs related to regulatory assets
aggregating approximately $1.5 billion ($1.0 billion, net of deferred income
taxes), $1.9 billion ($1.4 billion, net of deferred income taxes) and $0.8
billion ($0.5 billion, net of deferred income taxes) for OE, CEI and TE,
respectively, will be recovered over the period of 2001 through 2004 for OE;
2001 through 2007 for TE; and 2001 through 2010 for CEI.
The PUCO indicated that it will endeavor to issue its order related
to the transition plan filing by mid-2000. The application of Statement of
Financial Accounting Standards (SFAS) No. 71 "Accounting for the Effect of
Certain Types of Regulation" (SFAS 71) to OE's generation business and the
nonnuclear generation businesses of CEI and TE will be discontinued at that
time. If the transition plans ultimately approved by the PUCO for OE, CEI and
TE do not provide adequate recovery of their nuclear generating unit
investments and regulatory assets, there would be a charge to earnings which
could have a material adverse effect on the results of operations and
financial condition for the Company, OE, CEI and TE. The Companies will
continue to bill and collect cost-based rates for their transmission and
distribution services, which will remain regulated; accordingly, it is
appropriate that the Companies continue the application of SFAS 71 to those
respective operations after December 31, 2000.
All of OE's regulatory assets and CEI's and TE's regulatory assets
related to their nonnuclear operations are being recovered under provisions
of the regulatory plans currently in effect. In addition, the PUCO has
authorized OE to recognize additional capital recovery related to its
generating assets (which is reflected as additional depreciation expense) and
additional amortization of regulatory assets during the plan period of at
least $2 billion more than the amount that would have been recognized if OE's
plan were not in effect. These additional amounts are being recovered through
current rates. CEI and TE recognized fair value purchase accounting
adjustments to reduce nuclear plant by $1.71 billion and $.84 billion,
respectively, in connection with the FirstEnergy merger. These fair value
adjustments recognized for financial reporting purposes will ultimately
satisfy the asset reduction commitments of at least $1.4 billion for CEI and
$0.6 billion for TE contained in the CEI and TE plan. For regulatory
purposes, CEI and TE will recognize the accelerated amortization over the
period that their rate plan is in effect.
Based on the Ohio plans, at this time, OE, CEI and TE are
continuing to bill and collect cost-based rates (with the exception of CEI's
and TE's nuclear operations) and they continue the application of SFAS 71 to
those respective operations. CEI's and TE's plan does not provide for full
recovery of their nuclear operations. As a result, in October 1997 CEI and TE
discontinued application of SFAS 71 for their nuclear operations and
decreased their regulatory assets of customer receivables for future income
taxes related to the nuclear assets by $499 million and $295 million,
respectively, in addition to the fair value adjustments referred to above.
PPUC Rate Matters
In December 1996, Pennsylvania enacted "The Electricity Generation
Customer Choice and Competition Act," which permitted customers, including
Penn's customers, to choose their electric generation supplier, while
transmission and distribution services will continue to be supplied by their
current providers. In June 1998, the PPUC authorized a rate-restructuring
plan for Penn in accordance with this law, which essentially resulted in the
deregulation of Penn's generation business as of June 30, 1998. Penn was
required to remove from its balance sheet all regulatory assets and
liabilities related to its generation business and assess all other assets
for impairment. The Securities and Exchange Commission (SEC) issued
interpretive guidance regarding asset impairment measurement which concluded
that any supplemental regulated cash flows such as a competitive transition
charge (CTC) should be excluded from the cash flows of assets in a portion of
the business not subject to regulatory accounting practices. If those assets
are impaired, a regulatory asset should be established if the costs are
recoverable through regulatory cash flows. Consistent with the SEC guidance,
Penn reduced its nuclear generating unit investments by approximately $305
million, of which approximately $227 million was recognized as a regulatory
asset to be recovered through a CTC over a seven-year transition period; the
remaining net amount of $78 million was written off. The charge of $51.7
million ($30.5 million after income taxes) for discontinuing the application
of SFAS 71 to Penn's generation business was recorded as a 1998 extraordinary
item on the Company's, OE's and Penn's respective Statement of Income.
Customer choice is being phased in over three years with 66% of
each customer class able to choose alternative suppliers of generation by
January 2, 2000, and all remaining customers having choice as of January 1,
2001. Under the plan, Penn continues to deliver power to homes and businesses
through its transmission and distribution systems, which remain regulated by
the PPUC. Penn's rates have been restructured to establish separate charges
for transmission and distribution; generation, which is subject to
competition; and stranded cost recovery. In the event customers obtain power
from an alternative source, the generation portion of Penn's rates will be
excluded from their bill and the customers will receive a generation charge
from the alternative supplier. The stranded cost recovery portion of rates
provides for recovery of certain amounts not otherwise considered recoverable
in a competitive generation market, including regulatory assets. Penn is
entitled to recover $236 million of stranded costs through a competitive
transition charge that started in 1999 and ends in 2006.
FERC Rate Matters
Rates for wholesale customers are regulated by the FERC. The
FirstEnergy merger was approved by the FERC on October 29, 1997, and the
Companies have operated as a single utility system since December 1997. An
open access transmission tariff and joint dispatch agreement for the
FirstEnergy system submitted with the merger application were approved by the
FERC on February 9, 2000. The current FirstEnergy open access rates were
approved by the FERC on March 16, 2000.
In October 1998, the Company announced plans to transfer the
Companies' transmission assets into a new subsidiary, American Transmission
Systems, Inc. (ATSI), with the transfer expected to be finalized in 2000. The
new subsidiary represents a first step toward the goal of establishing or
becoming part of a larger independent transmission company (TransCo). The
Company believes that a TransCo better addresses the FERC's stated
transmission objectives of providing non-discriminatory service, while
providing for streamlined and cost-efficient operation. On October 27, 1999,
the FERC approved the plan to transfer the Company's transmission assets to
ATSI. The PUCO approved the transfer in February 2000. PPUC and SEC
regulatory approvals are also required. The new subsidiary represents a first
step toward the goal of establishing or becoming part of a larger
independent, regional transmission organization (RTO). In working toward that
goal, the Company joined with four other companies -- American Electric
Power, Consumers Energy, Detroit Edison and Virginia Power -- to form the
Alliance RTO. On June 3, 1999, the Alliance submitted an application to the
FERC to form an independent, for profit RTO. On December 15, 1999, the FERC
issued an order conditionally approving the Alliance's application.
Fuel Recovery Procedures
In accordance with their respective rate plans, OE's, CEI's and
TE's fuel recovery rates have been frozen, subject only to limited periodic
adjustments. The respective rates are adjusted annually based on changes in
the GDP Implicit Price Deflator, unless significant changes in environmental,
regulatory or tax laws or regulations increase or decrease the cost of fuel.
Such changes in laws, regulations and/or taxes would require PUCO approval in
order to be reflected as an adjustment to the Electric Fuel Component (EFC)
rate.
Furthermore, for the period July 1, 1999 through June 30, 2000, the
OE EFC rate is limited to the average fuel cost rate of certain utilities
within the state. Commencing July 1, 2000, the OE EFC rate will be limited to
97% of the average fuel cost rate of three of these companies. The average
fuel cost rate for these three utilities may be adjusted by the PUCO to
reflect any significant changes in the Phase II environmental compliance
plans of such companies involving capital additions or equipment utilization.
On March 1, 2000, the respective EFC rates in effect for CEI and TE
were reduced to reflect the elimination of annual fixed charges related to a
Bruce Mansfield Plant coal supply contract (see "Fuel Supply"), which amounts
to $13.96 million for CEI and $8.74 million for TE. The resulting reduced EFC
rates will be used as the basis for the annual GDP adjustment, but, in no
event, would either company's annual EFC rate exceed 1.465 cents per kWh
during the rate plan period.
Under the Ohio deregulation legislation the EFC will be repealed
effective with the beginning of the market development period on January 1,
2001. The unbundled retail electric rates for OE, CEI and TE during the
market development period will reflect the respective EFC rates in effect
when the legislation was effective in 1999.
Under its 1996 plan, Penn eliminated its energy cost rate for the
recovery of fuel and net purchased power costs as a separate component of
customer charges. Energy costs were rolled into Penn's base electric rates at
their projected 1996-1997 level.
Capital Requirements
Capital expenditures for the Company and its subsidiaries for the
years 1999 through 2004, excluding nuclear fuel, are shown on the following
table. Such costs include expenditures for the betterment of existing
facilities and for the construction of generating capacity, transmission
lines, distribution lines, substations and other additions. See
"Environmental Matters" below with regard to possible environment-related
expenditures not included in the forecast.
<TABLE>
<CAPTION>
1999 2000-2004 Capital Expenditures Forecast
---------------------------------------
Actual 2000 2001-2004 Total
------ ---- --------- -----
(In millions)
<S> <C> <C> <C> <C>
OE $167 $213 $ 553 $ 766
Penn 22 38 196 234
CEI 122 112 417 529
TE 107 97 162 259
Other subsidiaries 81 190 1,022 1,212
---- ---- ------ ------
Total $499 $650 $2,350 $3,000
</TABLE>
During the 2000-2004 period, maturities of, and sinking fund
requirements for, long-term debt and preferred stock of the Company and its
subsidiaries are:
<TABLE>
<CAPTION>
Preferred Stock and Long-Term Debt
2000-2004 Redemption Schedule
---------------------------------------
2000 2001-2004 Total
---- --------- -----
(In millions)
<S> <C> <C> <C>
OE $177 $ 883 $1,060
Penn 29 81 110
CEI 209 780 989
TE 76 505 581
Other subsidiaries 3 10 13
---- ------ ------
Total $494 $2,259 $2,753
</TABLE>
OE's and Penn's nuclear fuel purchases are financed through OES
Fuel (a wholly owned subsidiary of OE) commercial paper and loans, both of
which are supported by a $180.5 million long-term bank credit agreement. CEI
and TE severally lease their respective portions of nuclear fuel and pay for
the fuel as it is consumed. The Companies' respective investments for
additional nuclear fuel, and nuclear fuel investment reductions as the fuel
is consumed, during the 2000-2004 period are presented in the following
table. The table also shows the Companies' operating lease commitments, net
of capital trust cash receipts for the 2000-2004 period.
<TABLE>
<CAPTION>
Other Net
Nuclear Fuel 2000-2004 Forecasts Operating Lease Commitments
-----------------------------------------
New Investments Consumption 2000-2004 Schedule
------------------------ ------------------------ ------------------------
2000 2001-2004 Total 2000 2001-2004 Total 2000 2001-2004 Total
---- --------- ----- ---- --------- ----- ---- --------- -----
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OE $ 40 $ 88 $128 $ 28 $101 $129 $ 71 $286 $357
Penn 24 66 90 18 68 86 -- 1 1
CEI 56 110 166 36 123 159 6 55 61
TE 39 74 113 24 82 106 69 294 363
---- ---- ---- ---- ---- ---- ---- ---- ----
Total $159 $338 $497 $106 $374 $480 $146 $636 $782
</TABLE>
Short-term borrowings outstanding at December 31, 1999, consisted
of $257.8 million of bank borrowings (Company - $90.0 million, OE-$162.7 and
FE Facilities - $5.1) and $160.0 million of OES Capital, Incorporated
commercial paper. OES Capital is a wholly owned subsidiary of OE whose
borrowings are secured by customer accounts receivable. OES Capital can
borrow up to $170 million under a receivables financing agreement at rates
based on certain bank commercial paper. The Company and its utility operating
subsidiaries also had $137 million (Company-$60 million and OE-$77 million)
available under revolving lines of credit as of December 31, 1999. The
Company may borrow under the facility and could transfer any of its
borrowings under its $150 million line of credit to CEI and/or TE. In
addition, Penn had a $2 million bank facility available that provides for
borrowings on a short-term basis at the bank's discretion.
Based on their present plans, the Companies could provide for their
cash requirements in 2000 from the following sources: funds to be received
from operations; available cash and temporary cash investments (approximate
amounts as of December 31, 1999: Company's nonutility subsidiaries-$24
million, OE-$81 million, Penn-$6 million and CEI-$1 million); the issuance of
long-term debt (for refunding purposes) and funds available under revolving
credit arrangements.
The extent and type of future financings will depend on the need
for external funds as well as market conditions, the maintenance of an
appropriate capital structure and the ability of the Companies to comply with
coverage requirements in order to issue first mortgage bonds and preferred
stock. The Companies will continue to monitor financial market conditions
and, where appropriate, may take advantage of economic opportunities to
refund debt and preferred stock to the extent that their financial resources
permit.
The coverage requirements contained in the first mortgage
indentures under which the Companies issue first mortgage bonds provide that,
except for certain refunding purposes, the Companies may not issue first
mortgage bonds unless applicable net earnings (before income taxes),
calculated as provided in the indentures, for any period of twelve
consecutive months within the fifteen calendar months preceding the month in
which such additional bonds are issued, are at least twice annual interest
requirements on outstanding first mortgage bonds, including those being
issued. Under OE's first mortgage indenture, the availability of property
additions is more restrictive than the earnings test at the present time and
would limit the amount of first mortgage bonds issuable against property
additions to $162 million. OE is currently able to issue $833 million
principal amount of first mortgage bonds against previously retired bonds
without the need to meet the above restrictions. Under Penn's first mortgage
indenture, other requirements also apply and are more restrictive than the
earnings test at the present time. Penn is currently able to issue $114
million principal amount of first mortgage bonds, with up to $94 million of
such amount issuable against property additions; the remainder could be
issued against previously retired bonds. CEI and TE can issue $615 million
and $367 million, respectively, principal amount of first mortgage bonds
against previously retired bonds and against property additions.
OE's, Penn's and TE's respective articles of incorporation prohibit
the sale of preferred stock unless applicable gross income, calculated as
provided in the articles of incorporation, is equal to at least 1-1/2 times
the aggregate of the annual interest requirements on indebtedness and annual
dividend requirements on preferred stock outstanding immediately thereafter.
Based upon earnings for 1999 and an assumed dividend rate of 10.25%, OE would
be permitted, under the earnings coverage test contained in its charter, to
issue at least $1.3 billion of preferred stock. Based on its 1999 earnings,
TE could issue $250 million of additional preferred stock. There are no
restrictions on CEI' s ability to issue preferred stock.
To the extent that coverage requirements or market conditions
restrict the Companies' abilities to issue desired amounts of first mortgage
bonds or preferred stock, the Companies may seek other methods of financing.
Such financings could include the sale of preferred and/or preference stock
or of such other types of securities as might be authorized by applicable
regulatory authorities which would not otherwise be sold and could result in
annual interest charges and/or dividend requirements in excess of those that
would otherwise be incurred.
Central Area Power Coordination Group (CAPCO)
In September 1967, the CAPCO companies, which consisted of the
Companies and Duquesne Light Company (Duquesne), announced a program for
joint development of power generation and transmission facilities. Included
in the program are Unit 7 at the W H Sammis Plant, Unit 5 at the Eastlake
Plant, Units 1, 2 and 3 at the Bruce Mansfield Plant, Units 1 and 2 at the
Beaver Valley Power Station, the Perry Nuclear Power Plant and the Davis-
Besse Nuclear Power Station, each now in service.
On March 26, 1999, the Company completed its agreements with
Duquesne to exchange certain generating assets. All regulatory approvals were
received by October 1999. In December 1999, Duquesne transferred 1,436
megawatts owned by Duquesne at eight CAPCO generating units in exchange for
1,328 megawatts at three non-CAPCO power plants owned by the Companies. The
agreements for the exchange of assets, which was structured as a like-kind
exchange for tax purposes, provides the Companies with exclusive ownership
and operating control of all CAPCO generating units. The three FirstEnergy
plants transferred are being sold by Duquesne to a wholly owned subsidiary of
Orion Power Holdings, Inc. (Orion). The Companies will continue to operate
those plants until the assets are transferred to the new owners. Duquesne
funded decommissioning costs equal to its percentage interest in the three
nuclear generating units that were transferred to FirstEnergy. The Duquesne
asset transfer to the Orion subsidiary could take place by the middle of
2000. Under the agreements, Duquesne is no longer a participant in the CAPCO
arrangements after the exchange.
Nuclear Regulation
The construction and operation of nuclear generating units are
subject to the regulatory jurisdiction of the Nuclear Regulatory Commission
(NRC) including the issuance by it of construction permits and operating
licenses. The NRC's procedures with respect to the amendment of nuclear
reactor operating licenses afford opportunities for interested parties to
request adjudicatory hearings on health, safety and environmental issues
subject to meeting NRC "standing" requirements. In this connection, the NRC
may require substantial changes in operation or the installation of
additional equipment to meet safety or environmental standards, subject to
the backfit rule requiring the NRC to justify such new requirements as
necessary for the overall protection of public health and safety. The
possibility also exists for modification, denial or revocation of licenses in
the event of substantial safety concerns at the nuclear facility. Davis-Besse
was placed in commercial operation in 1977, and its operating license expires
in 2017. Beaver Valley Unit 1 was placed in commercial operation in 1976, and
its operating license expires in 2016. Perry Unit 1 and Beaver Valley Unit 2
were placed in commercial operation in 1987, and their operating licenses
expire in 2026 and 2027, respectively.
The NRC has promulgated and continues to promulgate regulations
related to the safe operation of nuclear power plants. The Companies cannot
predict what additional regulations will be promulgated or design changes
required or the effect that any such regulations or design changes, or the
consideration thereof, may have upon their nuclear plants. Although the
Companies have no reason to anticipate an accident at any of their nuclear
plants, if such an accident did happen, it could have a material but
currently undeterminable adverse effect on the Company's consolidated
financial position. In addition, such an accident at any operating nuclear
plant, whether or not owned by the Companies, could result in regulations or
requirements that could affect the operation or licensing of plants that the
Companies do own with a consequent but currently undeterminable adverse
impact, and could affect the Companies' abilities to raise funds in the
capital markets.
Nuclear Insurance
The Price-Anderson Act limits the public liability which can be
assessed with respect to a nuclear power plant to $9.5 billion (assuming 106
units licensed to operate) for a single nuclear incident, which amount is
covered by: (i) private insurance amounting to $200 million; and (ii) $9.3
billion provided by an industry retrospective rating plan required by the NRC
pursuant thereto. Under such retrospective rating plan, in the event of a
nuclear incident at any unit in the United States resulting in losses in
excess of private insurance, up to $88.1 million (but not more than $10
million per unit per year in the event of more than one incident) must be
contributed for each nuclear unit licensed to operate in the country by the
licensees thereof to cover liabilities arising out of the incident. Based on
their present nuclear ownership and leasehold interests, the Companies'
maximum potential assessment under these provisions would be $352.4 million
(OE-$94.2 million, Penn-$74.0 million, CEI-$106.3 million and TE-$77.9
million) per incident but not more than $40.0 million (OE-$10.7 million,
Penn-$8.4 million, CEI-$12.1 million and TE-$8.8 million) in any one year for
each incident.
In addition to the public liability insurance provided pursuant to
the Price-Anderson Act, the Companies have also obtained insurance coverage
in limited amounts for economic loss and property damage arising out of
nuclear incidents. The Companies are members of Nuclear Electric Insurance
Limited (NEIL) which provides coverage (NEIL I) for the extra expense of
replacement power incurred due to prolonged accidental outages of nuclear
units. Under NEIL I, the Companies have policies, renewable yearly,
corresponding to their respective nuclear interests, which provide an
aggregate indemnity of up to approximately $1.43 billion (OE-$339 million,
Penn-$367 million, CEI-$443 million and TE-$276 million) for replacement
power costs incurred during an outage after an initial 12-week waiting
period. Members of NEIL I pay annual premiums and are subject to assessments
if losses exceed the accumulated funds available to the insurer. The
Companies' present maximum aggregate assessment for incidents at any covered
nuclear facility occurring during a policy year would be approximately $7.9
million (OE-$2.0 million, Penn-$2.3 million, CEI-$2.2 million and TE-$1.4
million).
The Companies are insured as to their respective nuclear interests
under property damage insurance provided by NEIL to the operating company for
each plant. Under these arrangements, $2.75 billion of coverage for
decontamination costs, decommissioning costs, debris removal and repair
and/or replacement of property is provided. The Companies pay annual premiums
for this coverage and are liable for retrospective assessments of up to
approximately $36.1 million (OE-$10.3 million, Penn-$7.5 million, CEI-$10.9
million and TE-$7.4 million) during a policy year.
The Companies intend to maintain insurance against nuclear risks as
described above as long as it is available. To the extent that replacement
power, property damage, decontamination, decommissioning, repair and
replacement costs and other such costs arising from a nuclear incident at any
of the Companies' plants exceed the policy limits of the insurance in effect
with respect to that plant, to the extent a nuclear incident is determined
not to be covered by the Companies' insurance policies, or to the extent such
insurance becomes unavailable in the future, the Companies would remain at
risk for such costs.
The NRC requires nuclear power plant licensees to obtain minimum
property insurance coverage of $1.06 billion or the amount generally
available from private sources, whichever is less. The proceeds of this
insurance are required to be used first to ensure that the licensed reactor
is in a safe and stable condition and can be maintained in that condition so
as to prevent any significant risk to the public health and safety. Within 30
days of stabilization, the licensee is required to prepare and submit to the
NRC a cleanup plan for approval. The plan is required to identify all cleanup
operations necessary to decontaminate the reactor sufficiently to permit the
resumption of operations or to commence decommissioning. Any property
insurance proceeds not already expended to place the reactor in a safe and
stable condition must be used first to complete those decontamination
operations that are ordered by the NRC. The Companies are unable to predict
what effect these requirements may have on the availability of insurance
proceeds to the Companies for the Companies' bondholders.
Environmental Matters
Various federal, state and local authorities regulate the Companies
with regard to air and water quality and other environmental matters. The
Companies have estimated capital expenditures for environmental compliance of
approximately $292 million, which is included in the construction estimate
given under "Capital Requirements" for 2000 through 2004.
Air Regulation
Under the provisions of the Clean Air Act of 1970, both the State
of Ohio and the Commonwealth of Pennsylvania adopted ambient air quality
standards, and related emission limits, including limits for sulfur dioxide
(SO2) and particulates. In addition, the U.S. Environmental Protection Agency
(EPA) promulgated an SO2 regulatory plan for Ohio which became effective for
OE's, CEI's and TE's plants in 1977. Generating plants to be constructed in
the future and some future modifications of existing facilities will be
covered not only by the applicable state standards but also by EPA emission
performance standards for new sources. In both Ohio and Pennsylvania the
construction or modification of emission sources requires approval from
appropriate environmental authorities, and the facilities involved may not be
operated unless a permit or variance to do so has been issued by those same
authorities.
The Companies are in compliance with the current SO2 and nitrogen
oxides (NOx) reduction requirements under the Clean Air Act Amendments of
1990. SO2 reductions 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 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.
In March 2000, the U.S. Court of Appeals for the D.C. Circuit upheld EPA's
NOx Transport Rule except as applied to the State of Wisconsin and portions
of Georgia and Missouri. The Court's decision left in place a stay which
delays the requirement for states to submit revised State Implementation
Plans (SIP) which comply with individual state NOx budgets established by the
EPA contemplating an approximate 85% reduction in utility plant NOx emissions
from projected 2007 emissions. A proposed Federal Implementation Plan
accompanied the NOx Transport Rule and may be implemented by the EPA in
states which fail to revise their SIP. In another separate but related
action, eight states filed petitions with the EPA under Section 126 of the
Clean Air Act seeking reductions of NOx emissions which are alleged to
contribute to ozone pollution in the eight petitioning states. The EPA
suggests that the Section 126 petitions will be adequately addressed by the
NOx Transport Program, but a December 17, 1999 rulemaking established an
alternative program which would require nearly identical 85% NOx reductions
at 392 utility plants, including the Companies' Ohio and Pennsylvania plants,
by May 2003, in the event implementation of the NOx Transport Rule is
delayed. New Section 126 petitions were filed by New Jersey, Maryland,
Delaware and the District of Columbia in mid-1999 and are still under
evaluation by the EPA. The Companies continue to evaluate their compliance
plans and other compliance options.
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 $27,500
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, 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. In May 1999, the U.S. Court of
Appeals for the D.C. Circuit remanded both standards back to the EPA finding
constitutional and other defects in the new NAAQS rules. The D.C. Circuit
Court, on October 29, 1999, denied an EPA petition for rehearing. The
Companies cannot predict the EPA's action in response to the Court's remand
order. The cost of compliance with these regulations, if they are reinstated,
may be substantial and depends on the manner in which they are ultimately
implemented, if at all, by the states in which the Companies operate affected
facilities.
In September 1999, the Company received, and subsequently in
October 1999, OE and Penn received, a citizen suit notification letter from
the New York Attorney General's office alleging Clean Air Act violations at
the W. H. Sammis Plant. In November 1999, OE and Penn received a citizen suit
notification letter from the Connecticut Attorney General's office alleging
Clean Air Act violations at the Sammis Plant. In November 1999 and March
2000, the EPA issued Notices of Violation (NOV) or a Compliance Order to
eight utilities covering 36 power plants, including the Sammis Plant. In
addition, the U.S. Department of Justice filed seven civil complaints against
various investor-owned utilities, which included a complaint against OE and
Penn in the U.S. District Court for the Southern District of Ohio. On March
1, 2000, the Department of Justice added 12 additional plants owned by the
other utilities to the complaints. The NOV and complaint allege violations of
the Clean Air Act based on operation and maintenance of the Sammis Plant
dating back to 1984. The complaint requests permanent injunctive relief to
require the installation of "best available control technology" and civil
penalties of up to $27,500 per day of violation. Although unable to predict
the outcome of this litigation, the Company believes the Sammis Plant is in
full compliance with the Clean Air Act and the NOV and complaint are without
merit. Penalties could be imposed if the Sammis Plant continues to operate
without correcting the alleged violations and a court determines that the
allegations are valid. It is anticipated at this time that the Sammis Plant
will continue to operate while the matter is being decided.
Water Regulation
Various water quality regulations, the majority of which are the
result of the federal Clean Water Act and its amendments, apply to the
Companies' plants. In addition, Ohio and Pennsylvania have water quality
standards applicable to the Companies' operations. As provided in the Clean
Water Act, authority to grant federal National Pollutant Discharge
Elimination System (NPDES) water discharge permits can be assumed by a state.
Ohio and Pennsylvania have assumed such authority.
Waste Disposal
As a result of the Resource Conservation and Recovery Act of 1976,
as amended, and the Toxic Substances Control Act of 1976, federal and state
hazardous waste regulations have been promulgated. Certain fossil-fuel
combustion waste products, such as coal ash, were exempted from hazardous
waste disposal requirements pending EPA's evaluation of the need for future
regulation. EPA has issued its final regulatory determination that regulation
of coal ash as a hazardous waste is unnecessary.
CEI and TE have been named as "potentially responsible parties"
(PRPs) at waste disposal sites which may require cleanup under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980.
Federal law provides that all PRPs for a particular site be held liable on a
joint and several basis. CEI and TE have accrued a liability totaling $5.4
million at December 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.
In 1980, Congress passed the Low-Level Radioactive Waste Policy Act
which provides that the disposal of low-level radioactive waste is the
responsibility of the state where such waste is generated. The Act encourages
states to form compacts among themselves to develop regional disposal
facilities. Failure by a state or compact to begin implementation of a
program could result in access denial to the two facilities currently
accepting low-level radioactive waste. Ohio is part of the Midwest Compact
and has responsibility for siting and constructing a disposal facility. On
June 26, 1997, the Midwest Compact Commission (Compact) voted to cease all
siting activities in the host state of Ohio and to dismantle the Ohio Low-
Level Radioactive Waste Facility Development Authority, the statutory agency
charged with siting and constructing the low-level radioactive waste disposal
facility. While the Compact remains intact, it has no plans to site or
construct a low-level radioactive waste disposal facility in the Midwest. The
Companies continue to ship low-level radioactive waste from their nuclear
facilities to the Barnwell, South Carolina waste disposal facility.
Summary
Environmental controls are still in the process of development and
require, in many instances, balancing the needs for additional quantities of
energy in future years and the need to protect the environment. As a result,
the Companies cannot now estimate the precise effect of existing and
potential regulations and legislation upon any of their existing and proposed
facilities and operations or upon their ability to issue additional first
mortgage bonds under their respective mortgages. These mortgages contain
covenants by the Companies to observe and conform to all valid governmental
requirements at the time applicable unless in course of contest, and
provisions which, in effect, prevent the issuance of additional bonds if
there is a completed default under the mortgage. The provisions of each of
the mortgages, in effect, also require, in the opinion of counsel for the
respective Companies, that certification of property additions as the basis
for the issuance of bonds or other action under the mortgages be accompanied
by an opinion of counsel that the company certifying such property additions
has all governmental permissions at the time necessary for its then current
ownership and operation of such property additions. The Companies intend to
contest any requirements they deem unreasonable or impossible for compliance
or otherwise contrary to the public interest. Developments in these and other
areas of regulation may require the Companies to modify, supplement or
replace equipment and facilities, and may delay or impede the construction
and operation of new facilities, at costs which could be substantial.
Fuel Supply
The Companies' sources of generation during 1999 were:
<TABLE>
<CAPTION>
Coal Nuclear
---- -------
<S> <C> <C>
OE 75.2% 24.8%
Penn 61.1% 38.9%
CEI 59.0% 41.0%
TE 42.3% 57.7%
</TABLE>
The Company currently has long-term coal contracts which will
provide approximately 6,300,000 tons for the year 2000. The contracts are
shared between the Companies based on various economic considerations and the
coal is produced primarily from mines located in Pennsylvania, Kentucky and
West Virginia. The contracts expire at various times through December 31,
2004.
The Companies estimate their 2000 coal requirements to be
approximately 17,950,000 tons (OE - 8,420,000, Penn - 1,160,000, CEI -
6,030,000, and TE - 2,340,000). See "Environmental Matters" for factors
pertaining to meeting environmental regulations affecting coal-fired
generating units.
OES Fuel is the sole lessor for OE's and Penn's nuclear fuel
requirements (see "Capital Requirements" and Note 3G of Notes to OE's
Consolidated Financial Statements). Nuclear fuel is currently financed for
CEI and TE through leases with a special-purpose corporation.
The Company has contracts for uranium material through 2002 and
conversion services through 2002. The enrichment services are contracted for
the majority of the enrichment requirements for nuclear fuel through 2005.
Fabrication services for fuel assemblies are contracted for the next four
reloads for Beaver Valley Unit 1, three reloads for Beaver Valley Unit 2
(through approximately 2006 and 2005, respectively), the next four reloads
for Davis-Besse (through approximately 2005) and through the life of the
plant for Perry (through approximately 2026). In addition to the existing
commitments, the Company intends to make additional arrangements for the
supply of uranium and for the subsequent conversion, enrichment, fabrication,
and waste disposal services.
Due to the present lack of availability of domestic reprocessing
services, to the continuing absence of any program to begin development of
such reprocessing capability and questions as to the economics of
reprocessing, nuclear fuel costs are calculated based on the assumption that
spent fuel will not be reprocessed. On-site spent fuel storage facilities are
expected to be adequate for Perry through 2011; facilities at Beaver Valley
Units 1 and 2 are expected to be adequate through 2018 and 2009,
respectively. After scheduled plant modifications are completed in 2002,
Davis-Besse will have adequate storage through 2022. After on-site storage
capacity is exhausted, additional storage capacity will have to be obtained
which could result in significant additional costs unless reprocessing
services, interim off-site disposal, or permanent waste disposal facilities
become available. The Federal Nuclear Waste Policy Act of 1982 provides for
the construction of facilities for the disposal of high-level nuclear wastes,
including spent fuel from nuclear power plants operated by electric
utilities; however, the selection of a suitable site has become embroiled in
the political process. The Company has contracts with the U.S. Department of
Energy (DOE) for the disposal of spent fuel. On December 17, 1996, the DOE
notified the Companies that it would be unable to begin acceptance of spent
fuel for disposal by January 31, 1998 as mandated by Section 302(a)(5)(B) of
the Nuclear Waste Policy Act (NPA). Based on the DOE schedule published in
the July 1999 Draft Environmental Impact Statement, the Yucca Mountain
Repository is currently projected to start receiving spent fuel in 2010.
System Capacity and Reserves
The respective 1999 net maximum hourly demand on each of the
Companies was OE-5,750,000 kilowatts (kW) (including 301,000 kW of firm power
sales which extend through 2005 as discussed under "Competition") on July 30,
1999; Penn-905,000 kW (including 63,000 kW of firm power sales which extend
through 2005 as discussed under "Competition") on September 2, 1999; CEI-
4,451,000 kW (including 18,000 kW of firm power sales which extend through
2002 as discussed under "Competition") on July 30, 1999; and TE-2,085,000 kW
on July 30, 1999.
During the next three years, twelve combustion turbines (CT) are
scheduled to be added to the FirstEnergy system. The timing of the capacity
additions is: three CTs (390 MW) in 2000; five CTs (425 MW) in 2001; and four
CTs (340 MW) in 2002. Based on existing capacity plans, the load forecast
made in November 1999, and anticipated term power sales to other utilities,
the capacity margin anticipated for the year 2000 is 13%. With the start of
electric utility industry deregulation in Ohio in 2001, the Company's risk
management strategy with respect to power supply is addressing existing
capacity, new capacity additions, retail risk products such as interruptible
contracts and demand-side management options, and financial hedges such as
call options, futures and forwards.
Regional Reliability
The Companies participate with 24 other electric companies
operating in nine states in the East Central Area Reliability Coordination
Agreement (ECAR), which was organized for the purpose of furthering the
reliability of bulk power supply in the area through coordination of the
planning and operation by the ECAR members of their bulk power supply
facilities. The ECAR members have established principles and procedures
regarding matters affecting the reliability of the bulk power supply within
the ECAR region. Procedures have been adopted regarding: i) the evaluation
and simulated testing of systems' performance; ii) the establishment of
minimum levels of daily operating reserves; iii) the development of a program
regarding emergency procedures during conditions of declining system
frequency; and iv) the basis for uniform rating of generating equipment.
Competition
The Companies have traditionally competed with other utilities for
intersystem bulk power sales and for sales to municipalities and
cooperatives. The Companies compete with suppliers of natural gas and other
forms of energy in connection with their industrial and commercial sales and
in the home climate control market, both with respect to new customers and
conversions, and with all other suppliers of electricity. To date, there has
been no substantial cogeneration by the Companies' customers.
In an effort to more fully utilize their facilities and hold down
rates to their other customers, OE and Penn have entered into a long-term
power sales agreement with another utility. Currently, OE and Penn are
selling 450,000 kW annually under this contract through December 31, 2005. OE
and Penn have the option to reduce this commitment by 150,000 kW, with three
years' advance notice. In addition, CEI has entered into a long-term power
sales contract with another utility and is currently selling up to 20,000 kW
under this contract through December 31, 2002.
As a result of the actions taken by state legislative bodies over
the last few years, major changes in the retail utility business are now
occurring in some parts of the United States, including states in which the
Company's utility companies operate. Although it is too early to accurately
predict all of the effects of the changes that are beginning to take place in
the retail energy market, it is anticipated that these changes will result in
fundamental alterations in the way traditional integrated utilities and
holding company systems, like FirstEnergy, conduct their business. These
changes will likely result in increased costs associated with utility
unbundling and transitioning to new organizational structures and ways of
conducting business.
Sales of electricity in these deregulated markets are diversifying
the Company's revenue sources through its competitive subsidiaries in areas
outside of its traditional native load. This strategy has positioned the
Company to compete in the northeast quadrant of the United States - the
region targeted by the Company for growth. The Company's competitive
subsidiaries have actively participated in three of the deregulated energy
markets: Pennsylvania, New Jersey and Delaware. Currently, FE Services is
providing electric generation to more than 20,000 accounts within these
states. As additional states within the northeast region of the United States
become deregulated, FE Services is preparing to enter into these markets.
Research and Development
The Companies participate in funding the Electric Power Research
Institute (EPRI), which was formed for the purpose of expanding electric
research and development under the voluntary sponsorship of the nation's
electric utility industry - public, private and cooperative. Its goal is to
mutually benefit utilities and their customers by promoting the development
of new and improved technologies to help the utility industry meet present
and future electric energy needs in environmentally and economically
acceptable ways. EPRI conducts research on all aspects of electric power
production and use, including fuels, generating, delivery, energy management
and conservation, environment effects and energy analysis. The major portion
of EPRI research and development projects is directed toward practical
solutions and their applications to problems currently facing the electric
utility industry. In 1999, approximately 60% of the Companies' research and
development expenditures were related to EPRI.
<PAGE>
Executive Officers
The executive officers are elected at the annual organization
meeting of the Board of Directors, held immediately after the annual meeting
of stockholders, and hold office until the next such organization meeting,
unless the Board of Directors shall otherwise determine, or unless a
resignation is submitted.
Position Held During
Name Age Past Five Years Dates
---- --- ------------------------------------- -----------
H. P. Burg 53 Chairman of the Board and Chief
Executive Officer 2000-present
President and Chief Executive Officer 1999-2000
President and Chief Operating Officer 1998-1999
President and Chief Financial Officer 1997-1998
President, Chief Operating Officer and
Chief Financial Officer-OE 1996-1997
Senior Vice President and Chief
Financial Officer-OE *-1996
A. J. Alexander 48 President 2000-present
Executive Vice President and
General Counsel 1997-2000
Senior Vice President and General
Counsel-OE *-1997
E. T. Carey 57 Vice President - Distribution 1997-present
Vice President - Regional Operations
and Customer Service-OE 1995-1997
Vice President - Marketing and
Customer Service Support-OE *-1995
M. B. Carroll 48 Vice President - Corporate Affairs 1997-present
Manager - Sandusky Area-OE *-1997
K. W. Dindo 50 Vice President - Energy Services 1998-present
Vice President and Controller -
Caliber System, Inc. *-1998
D. S. Elliott 45 Vice President - Sales and Marketing 1997-present
Manager - FirstEnergy Services - OE 1997
Manager - Eastern Division - OE 1996-1997
Manager - Youngstown Division - OE *-1996
A. R. Garfield 61 Senior Vice President 2000-present
Vice President - Business Development 1997-2000
Vice President - System Operations - OE *-1997
J. A. Gill 63 Senior Vice President - Administrative
Services 1998-present
Vice President - Administrative Services 1997-1998
Vice President - Administration - OE *-1997
R. H. Marsh 49 Vice President and Chief Financial
Officer 1998-present
Vice President - Finance 1997-1998
Treasurer - OE *-1997
G. L. Pipitone 50 Vice President - Fossil Production 1997-present
Vice President - Generation and
Transmission - OE 1996-1997
Manager - Akron Division - OE *-1996
S. F. Szwed 47 Vice President - Transmission 1997-present
Vice President - Engineering & Planning
- Centerior Service Company 1995-1997
Director - System Planning & Operations
- Centerior Service Company *-1995
L. L. Vespoli 40 Vice President and General Counsel 2000-present
Associate General Counsel 1997-2000
Senior Attorney - OE 1995-1997
Attorney - OE *-1995
N. C. Ashcom 52 Corporate Secretary 1997-present
Secretary - OE *-1997
T. C. Navin 42 Treasurer 1998-present
Assistant Treasurer 1998-1998
Director, Treasury Services 1998-1998
Director, Asset Strategy 1997-1998
Staff Business Analyst - OE 1997-1997
Senior Business Analyst - OE 1995-1997
Senior Planning Analyst - OE *-1995
H. L. Wagner 47 Controller 1997-present
Comptroller - OE *-1997
Except for H. P. Burg, A. J. Alexander, M. B. Carroll, K. W. Dindo and D. S.
Elliott, the officers above hold the same office for FirstEnergy, OE, CEI and
TE.
Except for R. Joseph Hrach holding the office of President and J. A. Gill and
A. R. Garfield holding the offices of Vice President, and except for H. P.
Burg, A. J. Alexander, M. B. Carroll, K. W. Dindo and D. S. Elliott, the
officers above hold the same offices for Penn.
* Indicates position held at least since January 1, 1995.
At December 31, 1999, the Company's nonutility subsidiaries and the
Companies had a total of 13,461 employees consisting of the following:
Company - 1,942, OE - 1,839, CEI - 1,694, TE - 977, Penn - 895, FE Services -
409, FENOC - 2,278, FE Facilities - 3,383 and MARBEL - 44 employees.
ITEM 2. PROPERTIES
The Companies' respective first mortgage indentures constitute, in
the opinion of the Companies' counsel, direct first liens on substantially
all of the respective Companies' physical property, subject only to excepted
encumbrances, as defined in the indentures. See "Leases" and "Capitalization"
notes to the respective financial statements for information concerning
leases and financing encumbrances affecting certain of the Companies'
properties.
The Companies own, individually or together as tenants in common,
and/or lease, the generating units in service as of March 1, 2000, shown on
the table below.
<TABLE>
<CAPTION>
Net
Demonstrated
Capacity (MW)
-------------
OE Penn CEI TE
------------- ----------- ------------- --------------
Unit Total % MW % MW % MW % MW
---- ----- --- -- --- -- --- -- --- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Plant - Location
- ----------------
Coal-Fired Units
- ----------------
Ashtabula- 5,7,8,9 376 -- -- -- -- 100.00% 376 -- --
Ashtabula, OH
Bay Shore- 1-4 631 -- -- -- -- -- -- 100.00% 631
Toledo, OH
R. E. Burger- 3-5 406 100.00% 406 -- -- -- -- -- --
Shadyside, OH
Eastlake-Eastlake, OH 1-5 1,233 -- -- -- -- 100.00% 1,233 -- --
Lakeshore- 18 245 -- -- -- -- 100.00% 245 -- --
Cleveland, OH
B. Mansfield- 1 780 60.00% 468 33.50% 261 6.50%(b) 51 -- --
Shippingport, PA 2 780 43.06% 336 9.36% 73 30.28%(b) 236 17.30%(b) 135
3 800 49.34% 395 6.28% 50 24.47%(b) 196 19.91%(b) 159
W. H. Sammis- 1-6 1,620 100.00% 1,620 -- -- -- -- -- --
Stratton, OH 7 600 48.00% 288 20.80% 125 31.20% 187 -- --
------ ----- ----- ----- -----
Total 7,471 3,513 509 2,524 925
------ ----- ----- ----- -----
Nuclear Units
- -------------
Beaver Valley- 1 810 35.00% 283 65.00% 527 -- -- -- --
Shippingport, PA 2 820 41.88%(a) 343 13.74% 113 24.47% 201 19.91%(c) 163
Davis-Besse- 1 883 -- -- -- -- 51.38% 454 48.62% 429
Oak Harbor, OH
Perry- 1 1,194 30.00%(a) 358 5.24% 63 44.85% 535 19.91% 238
N. Perry Village, OH (d)
------ ----- ----- ----- -----
Total 3,707 984 703 1,190 830
------ ----- ----- ----- -----
Oil/Gas-Fired/
Pumped Storage Units
Edgewater-Lorain, OH 4 100 100.00% 100 -- -- -- -- -- --
Seneca-Warren, PA 435 -- -- -- -- 100.00% 435 -- --
West Lorain-
Lorain, OH 1 120 100.00% 120 -- -- -- -- -- --
Other 238 109 19 33 77
------ ----- ----- ----- -----
Total 893 329 19 468 77
------ ----- ----- ----- -----
Total 12,071 4,826 1,231 4,182 1,832
====== ===== ===== ===== =====
<FN>
Notes: (a) OE's interests consist of 20.22% owned and 21.66% leased for Beaver Valley Unit 2; and 17.42%
owned (representing portion leased from a wholly owned subsidiary of OE) and 12.58% leased for Perry.
(b) CEI's interests consist of 1.68% owned and 28.60% leased and TE's interests are leased.
(c) TE's interests consist of 1.65% owned and 18.26% leased.
</TABLE>
Prolonged outages of existing generating units might make it
necessary for the Companies, depending upon the demand for electric service
upon their system, to use to a greater extent than otherwise, less efficient
and less economic generating units, or purchased power, and in some cases may
require the reduction of load during peak periods under the Companies'
interruptible programs, all to an extent not presently determinable.
The Companies' generating plants and load centers are connected by
a transmission system consisting of elements having various voltage ratings
ranging from 23 kilovolts (kV) to 345 kV. The Companies' overhead and
underground transmission lines aggregate 8,752 miles.
The Companies' electric distribution systems include 55,932 miles
of overhead pole line and underground conduit carrying primary, secondary and
street lighting circuits. They own substations with a total installed
transformer capacity of 50,456,000 kilovolt-amperes.
The Companies' transmission lines also interconnect with those of
AEP, The Dayton Power and Light Company, Duquesne, Monogahela Power Company,
West Penn Power Company, Detroit Edison Company and Pennsylvania Electric
Company. These interconnections make possible utilization by the Companies of
generating capacity constructed as a part of the CAPCO program, as well as
providing opportunities for the sale of power to other utilities.
<TABLE>
<CAPTION>
Substation
Distribution Transmission Transformer
Lines Lines Capacity
------------ ------------ -----------
(Miles) (kV-amperes)
<S> <C> <C> <C>
OE 26,668 4,040 20,468,000
Penn 5,183 651 4,282,000
CEI 23,518 3,013 17,304,000
TE 563 1,048 8,402,000
------ ----- ----------
Total 55,932 8,752 50,456,000
</TABLE
MARBEL is a company owning interests in crude oil and natural gas
production, as well as natural gas distribution and transmission facilities.
MARBEL's subsidiaries include Marbel HoldCo, Inc. a holding company which has
a 50% ownership in Great Lakes Energy Partners, LLC, an oil and natural gas
exploration and production venture and Northeast Ohio Operating Companies,
Inc. which has as subsidiaries Gas Transport, Inc. and NEO Construction
Company. The joint venture in Great Lakes Energy Partners, LLC includes
interests in more than 7,700 oil and natural gas wells, drilling rights to
nearly one million acres, proved reserves of 450 billion cubic feet
equivalent of natural gas and oil and 5,000 miles of pipelines in the
Appalachian Basin.
ITEM 3. LEGAL PROCEEDINGS
See Environmental Matters section.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required for this item for FirstEnergy is included
on page 17 of FirstEnergy's 1999 Annual Report to Stockholders (Exhibit 13).
The information required for OE, CEI, TE and Penn is not applicable because
they are wholly owned subsidiaries.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by items 6 through 8 is incorporated
herein by reference to Selected Financial Data, Management's Discussion and
Analysis of Results of Operations and Financial Condition, and Financial
Statements included on the pages shown in the following table in the
respective company's 1999 Annual Report to Stockholders (Exhibit 13).
Item 6 Item 7 Item 8
------ ------ ------
FirstEnergy 17 18-24 25-47
OE 1 2-6 7-25
Penn 1 2-5 6-21
CEI 1 2-7 8-27
TE 1 2-7 8-27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
FirstEnergy
-----------
The information required by Item 10, with respect to Identification
of FirstEnergy's Directors and with respect to reports required to be filed
under Section 16 of the Securities Exchange Act of 1934, is incorporated
herein by reference to the Company's 2000 Proxy Statement filed with the
Securities and Exchange Commission (SEC) pursuant to Regulation 14A and, with
respect to Identification of Executive Officers, to "Part I, Item 1. Business
- - Executive Officers" herein.
OE, Penn, CEI and TE
--------------------
H. P. Burg, A. J. Alexander and R. H. Marsh are the Directors of
OE, Penn, CEI and TE. Information concerning these individuals is shown in
the "Executive Officers" section of Item 1.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FirstEnergy, OE, CEI, TE and Penn -
The information required by Items 11, 12 and 13 is incorporated
herein by reference to the Company's 2000 Proxy Statement filed with the SEC
pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included in Part II of this report and incorporated herein by
reference to the respective company's 1999 Annual Report to Stockholders
(Exhibit 13 below) at the pages indicated.
</TABLE>
<TABLE>
<CAPTION>
FE OE Penn CEI TE
-- -- ---- --- --
<S> <C> <C> <C> <C> <C>
Report of Independent Public
Accountants 16 25 21 27 27
Statements of Income-Three Years
Ended December 31, 1999 25 7 6 8 8
Balance Sheets-December 31, 1999
and 1998 26 8 7 9 9
Statements of Capitalization-
December 31, 1999 and 1998 27-29 9-10 8 10-11 10-11
Statements of Common Stockholders'
Equity-Three Years
Ended December 31, 1999 30 11 9 12 12
Statements of Preferred Stock-Three
Years Ended December 31, 1999 30 11 9 12 12
Statements of Cash Flows-Three Years
Ended December 31, 1999 31 12 10 13 13
Statements of Taxes-Three Years
Ended December 31, 1999 32 13 11 14 14
Notes to Financial Statements 33-47 14-24 12-20 15-26 15-26
</TABLE>
2. Financial Statement Schedules
Included in Part IV of this report:
<TABLE>
<CAPTION>
FE OE Penn CEI TE
-- -- ---- --- --
<S> <C> <C> <C> <C> <C>
Report of Independent
Public Accountants 47 48 51 49 50
Schedule - Three Years
Ended December 31, 1999:
II - Consolidated Valua-
tion and Qualifying
Accounts 52 53 56 54 55
</TABLE>
Schedules other than the schedule listed above are omitted for the
reason that they are not required or are not applicable, or the required
information is show in the financial statements or notes thereto.
3. Exhibits - FirstEnergy
Exhibit
Number
- -------
3-1 - Articles of Incorporation constituting FirstEnergy
Corp.'s Articles of Incorporation, dated September 17,
1996. (September 17, 1996 Form 8-K, Exhibit C)
3-1(a) - Amended Articles of Incorporation of FirstEnergy Corp.
(Registration No. 333-21011, Exhibit (3)-1.)
3-2 - Regulations of FirstEnergy Corp. (September 17, 1996
Form 8-K, Exhibit D)
3-2(a) - FirstEnergy Corp. Amended Code of Regulations.
(Registration No. 333-21011, Exhibit (3)-2.)
4-1 - Rights Agreement (December 1, 1997 Form 8-K, Exhibit
4.1)
(A) 10-1 - FirstEnergy Corp. Executive and Director Incentive
Compensation Plan, revised November 15, 1999.
(A) 10-2 - Amended FirstEnergy Corp. Deferred Compensation Plan
for Directors, revised November 15, 1999.
(A) 10-3 - Employment, severance and change of control agreement
between FirstEnergy Corp. and executive officers.
(A) 10-4 - FirstEnergy Corp. Supplemental Executive Retirement
Plan, amended January 1, 1999.
(A) 10-5 - FirstEnergy Corp. Executive Incentive Compensation Plan.
(A) 10-6 - Restricted stock agreement between FirstEnergy Corp. and
A. J. Alexander.
10-7 - FirstEnergy Corp. Executive and Director Incentive
Compensation Plan. (1998 Form 10-K, Exhibit 10-1)
10-8 - Amended FirstEnergy Corp. Deferred Compensation Plan for
Directors, amended February 15, 1999. (1998 Form 10-K,
Exhibit 10-2)
(A) 12.1 - Consolidated fixed charge ratios.
(A) 13 - 1999 Annual Report to Stockholders. (Only those portions
expressly incorporated by reference in this Form 10-K
are to be deemed "filed" with the SEC.)
(A) 21 - List of Subsidiaries of the Registrant at December 31,
1999.
(A) 23 - Consent of Independent Public Accountants.
(A) 27 - Financial Data Schedule.
(A) - Provided herein in electronic format as an exhibit.
3. Exhibits - Ohio Edison
2-1 - Agreement and Plan of Merger, dated as of September 13,
1996, between Ohio Edison Company (OE) and Centerior
Energy Corporation. (September 17, 1996 Form 8-K,
Exhibit 2-1).
3-1 - Amended Articles of Incorporation, Effective June 21,
1994, constituting OE's Articles of Incorporation. (1994
Form 10-K, Exhibit 3-1.)
3-2 - Code of Regulations of OE as amended April 24, 1986.
(Registration No. 33-5081, Exhibit (4)(d).)
(A) 3-3 - Code of Regulations of OE as amended September 27, 1999.
(B) 4-1 - Indenture dated as of August 1, 1930 between OE and
Bankers Trust Company, (now the Bank of New York), as
Trustee, as amended and supplemented by Supplemental
Indentures:
Dated as of File Reference Exhibit No.
- ---------- -------------- -----------
March 3, 1931 2-1725 B1, B-1(a),B-1(b)
November 1, 1935 2-2721 B-4
January 1, 1937 2-3402 B-5
September 1, 1937 Form 8-A B-6
June 13, 1939 2-5462 7(a)-7
August 1, 1974 Form 8-A, August 28, 1974 2(b)
July 1, 1976 Form 8-A, July 28, 1976 2(b)
December 1, 1976 Form 8-A, December 15, 1976 2(b)
June 15, 1977 Form 8-A, June 27, 1977 2(b)
Supplemental Indentures:
September 1, 1944 2-61146 2(b)(2)
April 1, 1945 2-61146 2(b)(2)
September 1, 1948 2-61146 2(b)(2)
May 1, 1950 2-61146 2(b)(2)
January 1, 1954 2-61146 2(b)(2)
May 1, 1955 2-61146 2(b)(2)
August 1, 1956 2-61146 2(b)(2)
March 1, 1958 2-61146 2(b)(2)
April 1, 1959 2-61146 2(b)(2)
June 1, 1961 2-61146 2(b)(2)
September 1, 1969 2-34351 2(b)(2)
May 1, 1970 2-37146 2(b)(2)
September 1, 1970 2-38172 2(b)(2)
June 1, 1971 2-40379 2(b)(2)
August 1, 1972 2-44803 2(b)(2)
September 1, 1973 2-48867 2(b)(2)
May 15, 1978 2-66957 2(b)(4)
February 1, 1980 2-66957 2(b)(5)
April 15, 1980 2-66957 2(b)(6)
June 15, 1980 2-68023 (b)(4)(b)(5)
October 1, 1981 2-74059 (4)(d)
October 15, 1981 2-75917 (4)(e)
February 15, 1982 2-75917 (4)(e)
July 1, 1982 2-89360 (4)(d)
March 1, 1983 2-89360 (4)(e)
March 1, 1984 2-89360 (4)(f)
September 15, 1984 2-92918 (4)(d)
September 27, 1984 33-2576 (4)(d)
November 8, 1984 33-2576 (4)(d)
December 1, 1984 33-2576 (4)(d)
December 5, 1984 33-2576 (4)(e)
January 30, 1985 33-2576 (4)(e)
February 25, 1985 33-2576 (4)(e)
July 1, 1985 33-2576 (4)(e)
October 1, 1985 33-2576 (4)(e)
January 15, 1986 33-8791 (4)(d)
May 20, 1986 33-8791 (4)(d)
June 3, 1986 33-8791 (4)(e)
October 1, 1986 33-29827 (4)(d)
August 25, 1989 33-34663 (4)(d)
February 15, 1991 33-39713 (4)(d)
May 1, 1991 33-45751 (4)(d)
May 15, 1991 33-45751 (4)(d)
September 15, 1991 33-45751 (4)(d)
April 1, 1992 33-48931 (4)(d)
June 15, 1992 33-48931 (4)(d)
September 15, 1992 33-48931 (4)(e)
April 1, 1993 33-51139 (4)(d)
June 15, 1993 33-51139 (4)(d)
September 15, 1993 33-51139 (4)(d)
November 15, 1993 1-2578 (4)(2)
April 1, 1995 1-2578 (4)(2)
May 1, 1995 1-2578 (4)(2)
July 1, 1995 1-2578 (4)(2)
June 1, 1997 1-2578 (4)(2)
April 1, 1998 1-2578 (4)(2)
June 1, 1998 1-2578 (4)(2)
September 29, 1999 (A) (4)(2)
(B) 4-2 - General Mortgage Indenture and Deed of Trust dated as of
January 1, 1998 between OE and the Bank of New York, as
Trustee. (Registration No. 333-05277, Exhibit 4(g).)
10-1 - Administration Agreement between the CAPCO Group dated
as of September 14, 1967. (Registration No. 2-43102,
Exhibit 5(c)(2)
10-2 - Amendment No. 1 dated January 4, 1974 to Administration
Agreement between the CAPCO Group dated as of September
14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3).)
10-3 - Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (Registration No.
2-43102, Exhibit 5(c)(3).)
10-4 - Amendment No. 1 dated as of January 1, 1993 to
Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (1993 Form 10-K,
Exhibit 10-4.)
10-5 - Agreement for the Termination or Construction of Certain
Agreements effective September 1, 1980 among the CAPCO
Group. (Registration No. 2-68906, Exhibit 10-4.)
10-6 - Amendment dated as of December 23, 1993 to Agreement for
the Termination or Construction of Certain Agreements
effective September 1, 1980 among the CAPCO Group. (1993
Form 10-K, Exhibit 10-6).
10-7 - CAPCO Basic Operating Agreement, as amended September 1,
1980. (Registration No. 2-68906, Exhibit 10-5.)
10-8 - Amendment No. 1 dated August 1, 1981, and Amendment No.
2 dated September 1, 1982 to CAPCO Basic Operating
Agreement, as amended September 1, 1980. (September 30,
1981 Form 10-Q, Exhibit 20-1 and 1982 Form 10-K, Exhibit
19-3, respectively.)
10-9 - Amendment No. 3 dated July 1, 1984 to CAPCO Basic
Operating Agreement, as amended September 1, 1980. (1985
Form 10-K, Exhibit 10-7.)
10-10 - Basic Operating Agreement between the CAPCO Companies as
amended October 1, 1991. (1991 Form 10-K, Exhibit 10-8.)
10-11 - Basic Operating Agreement between the CAPCO Companies as
amended January 1, 1993. (1993) Form 10-K, Exhibit 10-
11.)
10-12 - Memorandum of Agreement effective as of September 1,
1980 among the CAPCO Group. (1982 Form 10-K, Exhibit 19-
2.)
10-13 - Operating Agreement for Beaver Valley Power Station
Units Nos. 1 and 2 as Amended and Restated September 15,
1987, by and between the CAPCO Companies. (1987 Form 10-
K, Exhibit 10-15.)
10-14 - Construction Agreement with respect to Perry Plant
between the CAPCO Group dated as of July 22, 1974.
(Registration No. 2-52251 of Toledo Edison Company,
Exhibit 5(yy).)
10-15 - Participation Agreement No. 1 relating to the financing
of the development of certain coal mines, dated as of
October 1, 1973, among Quarto Mining Company, the CAPCO
Group, Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules A
and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration No.
2-61146, Exhibit 5(e)(1).
10-16 - Amendment No. 1 dated as of September 15, 1978 to
Participation Agreement No. 1 dated as of October 1,
1973 among Quarto Mining Company, the CAPCO Group,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules A
and B thereto, Central National Bank of Cleveland as
Owner Trustee, National City Bank as Loan Trustee and
National City Bank as Bond Trustee. (Registration No. 2-
68906 of Pennsylvania Power Company, Exhibit 5(e)(2).)
10-17 - Participation Agreement No. 2 relating to the financing
of the development of certain coal mines, dated as of
August 1, 1974, among Quarto Mining Company, the CAPCO
Group, Energy Properties, Inc. General Electric Credit
Corporation, the Loan Participants listed in Schedules A
and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration No.
2-53059, Exhibit 5(h)(2).)
10-18 - Amendment No. 1 dated as of September 15, 1978 to
Participation Agreement No. 2 dated as of August 1, 1974
among Quarto Mining Company, the CAPCO Group, Energy
Properties, Inc., General Electric Credit Corporation,
the Loan Participants listed in Schedules A and B
thereto, Central National Bank of Cleveland as Owner
Trustee, National City Bank as Loan Trustee and National
City Bank as Bond Trustee. (Registration No. 2-68906 of
Pennsylvania Power Company, Exhibit 5(e)(4).)
10-19 - Participation Agreement No. 3 dated as of September 15,
1978 among Quarto Mining Company, the CAPCO Companies,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules A
and B thereto, Central National Bank of Cleveland as
Owner Trustee, and National City Bank as Loan Trustee
and Bond Trustee. (Registration No. 2-68906 of
Pennsylvania Power Company, Exhibit 5(e)(5).)
10-20 - Participation Agreement No. 4 dated as of October 31,
1980 among Quarto Mining Company, the CAPCO Group, the
Loan Participants listed in Schedule A thereto and
National City Bank as Bond Trustee. (Registration No. 2-
68906 of Pennsylvania Power Company, Exhibit 10-16.)
10-21 - Participation Agreement dated as of May 1, 1986, among
Quarto Mining Company, the CAPCO Companies, the Loan
Participants thereto, and National City Bank as Bond
Trustee. (1986 Form 10-K, Exhibit 10-22.)
10-22 - Participation Agreement No. 6 dated as of December 1,
1991 among Quarto Mining Company, The Cleveland Electric
Illuminating Company, Duquesne Light Company, Ohio
Edison Company, Pennsylvania Power Company, the Toledo
Edison Company, the Loan Participants listed in Schedule
A thereto, National City Bank, as Mortgage Bond Trustee
and National City Bank, as Refunding Bond Trustee. (1991
Form 10-K, Exhibit 10-19.)
10-23 - Agreement entered into as of October 20, 1981 among the
CAPCO Companies regarding the use of Quarto coal at
Mansfield Units 1, 2 and 3. (1981 Form 10-K, Exhibit 20-
1.)
10-24 - Restated Option Agreement dated as of May 1, 1983 by and
between the North American Coal Corporation and the
CAPCO Companies. (1983 Form 10-K, Exhibit 19-1.)
10-25 - Trust Indenture and Mortgage dated as of October 1, 1973
between Quarto Mining Company and National City Bank, as
Bond Trustee, together with Guaranty dated as of October
1, 1973 with respect thereto by the CAPCO Group.
(Registration No. 2-61146, Exhibit 5(e)(5).)
10-26 - Amendment No. 1 dated August 1, 1974 to Trust Indenture
and Mortgage dated as of October 1, 1973 between Quarto
Mining Company and National City Bank, as Bond Trustee,
together with Amendment No. 1 dated August 1, 1974 to
Guaranty dated as of October 1, 1973 with respect
thereto by the CAPCO Group. (Registration No. 2-53059,
Exhibit 5(h)(2).)
10-27 - Amendment No. 2 dated as of September 15, 1978 to the
Trust Indenture and Mortgage dated as of October 1,
1973, as amended, between Quarto Mining Company and
National City Bank, as Bond Trustee, together with
Amendment No. 2 dated as of September 15, 1978 to
Guaranty dated as of October 1, 1973 with respect to the
CAPCO Group. (Registration No. 2-68906 of Pennsylvania
Power Company, Exhibits 5(e)(11) and 5(e)(12).)
10-28 - Amendment No. 3 dated as of October 31, 1980, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended between Quarto Mining Company and National City
Bank as Bond Trustee. (Registration No. 2-68906 of
Pennsylvania Power Company, Exhibit 10-16.)
10-29 - Amendment No. 4 dated as of July 1, 1985 to the Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended between Quarto Mining Company and National City
Bank as Bond Trustee. (1985 Form 10-K, Exhibit 10-28.)
10-30 - Amendment No. 5 dated as of May 1,1986, to the Trust
Indenture and Mortgage between Quarto and National City
Bank as Bond Trustee. (1986 Form 10-K, Exhibit 10-30.)
10-31 - Amendment No. 6 dated as of December 1, 1991, to the
Trust Indenture and Mortgage dated as of October 1,
1973, between Quarto Mining Company and National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-28.)
10-32 - Trust Indenture dated as of December 1, 1991, between
Quarto Mining Company and National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-29.)
10-33 - Amendment No. 3 dated as of October 31, 1980 to the Bond
Guaranty dated as of October 1, 1973, as amended, with
respect to the CAPCO Group. (Registration No. 2-68906 of
Pennsylvania Power Company, Exhibit 10-16.)
10-34 - Amendment No. 4 dated as of July 1, 1985 to the Bond
Guaranty dated as October 1, 1973, as amended, by the
CAPCO Companies to National City Bank as Bond Trustee.
(1985 Form 10-K, Exhibit 10-30.)
10-35 - Amendment No. 5 dated as of May 1, 1986, to the Bond
Guaranty by the CAPCO Companies to National City Bank as
Bond Trustee. (1986 Form 10-K, Exhibit 10-33.)
10-36 - Amendment No. 6A dated as of December 1, 1991, to the
Bond Guaranty dated as of October 1, 1973, by The
Cleveland Electric Illuminating Company, Duquesne Light
Company, Ohio Edison Company, Pennsylvania Power
Company, the Toledo Edison Company to National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-33.)
10-37 - Amendment No. 6B dated as of December 30, 1991, to the
Bond Guaranty dated as of October 1, 1973 by The
Cleveland Electric Illuminating Company, Duquesne Light
Company, Ohio Edison Company, Pennsylvania Power
Company, the Toledo Edison Company to National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-34.)
10-38 - Bond Guaranty dated as of December 1, 1991, by The
Cleveland Electric Illuminating Company, Duquesne Light
Company, Ohio Edison Company, Pennsylvania Power
Company, the Toledo Edison Company to National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-35.)
10-39 - Open end Mortgage dated as of October 1, 1973 between
Quarto Mining Company and the CAPCO Companies and
Amendment No. 1 thereto, dated as of September 15, 1978.
(Registration No. 2-68906 of Pennsylvania Power Company,
Exhibit 10-23.)
10-40 - Repayment and Security Agreement and Assignment of Lease
dated as of October 1, 1973 between Quarto Mining
Company and Ohio Edison Company as Agent for the CAPCO
Companies and Amendment No. 1 thereto, dated as of
September 15, 1978. (1980 Form 10-K, Exhibit 20-2.)
10-41 - Restructuring Agreement dated as of April 1, 1985 among
Quarto Mining Company, the Company and the other CAPCO
Companies, Energy Properties, Inc., General Electric
Credit Corporation, the Loan Participants signatories
thereto, Central National Bank of Cleveland, as Owner
Trustee and National City Bank as Loan Trustee and Bond
Trustee. (1985 Form 10- K, Exhibit 10-33.)
10-42 - Unsecured Note Guaranty dated as of July 1, 1985 by the
CAPCO Companies to General Electric Credit Corporation.
(1985 Form 10-K, Exhibit 10-34.)
10-43 - Memorandum of Understanding dated March 31, 1985 among
the CAPCO Companies. (1985 Form 10-K, Exhibit 10-35.)
(C) 10-44 - Ohio Edison System Executive Supplemental Life Insurance
Plan. (1995 Form 10-K, Exhibit 10- 44.)
(C) 10-45 - Ohio Edison System Executive Incentive Compensation
Plan. (1995 Form 10-K, Exhibit 10-45.)
(C) 10-46 - Ohio Edison System Restated and Amended Executive
Deferred Compensation Plan. (1995 Form 10-K, Exhibit 10-
46.)
(C) 10-47 - Ohio Edison System Restated and Amended Supplemental
Executive Retirement Plan. (1995 Form 10-K, Exhibit 10-
47.)
(C) 10-48 - Severance pay agreement between Ohio Edison Company and
W. R. Holland. (1995 Form 10-K, Exhibit 10-48.)
(C) 10-49 - Severance pay agreement between Ohio Edison Company and
H. P. Burg. (1995 Form 10-K, Exhibit 10-49.)
(C) 10-50 - Severance pay agreement between Ohio Edison Company and
A. J. Alexander. (1995 Form 10-K, Exhibit 10-50.)
(C) 10-51 - Severance pay agreement between Ohio Edison Company and
J. A. Gill. (1995 Form 10K, Exhibit 10.51.)
(D) 10-52 - Participation Agreement dated as of March 16, 1987 among
Perry One Alpha Limited Partnership, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 Hereto, as Original Loan Participants, PNPP
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee and Ohio Edison Company
,as Lessee. (1986 Form 10-K, Exhibit 28-1.)
(D) 10-53 - Amendment No. 1 dated as of September 1, 1987 to
Participation Agreement dated as of March 16, 1987 among
Perry One Alpha Limited Partnership, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 thereto, as Original Loan Participants, PNPP
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company (now The Bank of New York), as Indenture
Trustee, and Ohio Edison Company, as Lessee. (1991 Form
10-K, Exhibit 10-46.)
(D) 10-54 - Amendment No. 3 dated as of May 16, 1988 to
Participation Agreement dated as of March 16, 1987, as
amended among Perry One Alpha Limited Partnership, as
Owner Participant, PNPP Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and Ohio Edison Company,
as Lessee. (1992 Form 10-K, Exhibit 10-47.)
(D) 10-55 - Amendment No. 4 dated as of November 1, 1991 to
Participation Agreement dated as of March 16, 1987 among
Perry One Alpha Limited Partnership, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, The Bank of New York, as Indenture Trustee and
Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit
10-47.)
(D) 10-56 - Amendment No. 5 dated as of November 24, 1992 to
Participation Agreement dated as of March 16, 1987, as
amended, among Perry One Alpha Limited Partnership, as
Owner Participant, PNPP Funding Corporation, as Funding
Corporation, PNPPII Funding Corporation, as New Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, The Bank of New York, as Indenture Trustee and
Ohio Edison Company as Lessee. (1992 Form 10-K, Exhibit
10-49.)
(D) 10-57 - Amendment No. 6 dated as of January 12, 1993 to
Participation Agreement dated as of March 16, 1987 among
Perry One Alpha Limited Partnership, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, The Bank of New York, as Indenture Trustee and
Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit
10-50.)
(D) 10-58 - Amendment No. 7 dated as of October 12, 1994 to
Participation Agreement dated as of March 16, 1987 as
amended, among Perry One Alpha Limited Partnership, as
Owner Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, The Bank of New York, as Indenture Trustee and
Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit
10-54.)
(D) 10-59 - Facility Lease dated as of March 16, 1987 between The
First National Bank of Boston, as Owner Trustee, with
Perry One Alpha Limited Partnership, Lessor, and Ohio
Edison Company, Lessee. (1986 Form 10-K, Exhibit 28-2.)
(D) 10-60 - Amendment No. 1 dated as of September 1, 1987 to
Facility Lease dated as of March 16, 1997 between The
First National Bank of Boston, as Owner Trustee, Lessor
and Ohio Edison Company, Lessee. (1991 Form 10-K,
Exhibit 10-49.)
(D) 10-61 - Amendment No. 2 dated as of November 1, 1991, to
Facility Lease dated as of March 16, 1987, between The
First National Bank of Boston, as Owner Trustee, Lessor
and Ohio Edison Company, Lessee. (1991 Form 10-K,
Exhibit 10-50.)
(D) 10-62 - Amendment No. 3 dated as of November 24, 1992 to
Facility Lease dated as March 16, 1987 as amended,
between The First National Bank of Boston, as Owner
Trustee, with Perry One Alpha Limited partnership, as
Owner Participant and Ohio Edison Company, as Lessee.
(1992 Form 10-K, Exhibit 10-54.)
(D) 10-63 - Amendment No. 4 dated as of January 12, 1993 to Facility
Lease dated as of March 16, 1987 as amended, between,
The First National Bank of Boston, as Owner Trustee,
with Perry One Alpha Limited Partnership, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
Form 10-K, Exhibit 10-59.)
(D) 10-64 - Amendment No. 5 dated as of October 12, 1994 to Facility
Lease dated as of March 16, 1987 as amended, between,
The First National Bank of Boston, as Owner Trustee,
with Perry One Alpha Limited Partnership, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
Form 10-K, Exhibit 10-60.)
(D) 10-65 - Letter Agreement dated as of March 19, 1987 between Ohio
Edison Company, Lessee, and The First National Bank of
Boston, Owner Trustee under a Trust dated March 16, 1987
with Chase Manhattan Realty Leasing Corporation,
required by Section 3(d) of the Facility Lease. (1986
Form 10-K, Exhibit 28-3.)
(D) 10-66 - Ground Lease dated as of March 16, 1987 between Ohio
Edison Company, Ground Lessor, and The First National
Bank of Boston, as Owner Trustee under a Trust
Agreement, dated as of March 16, 1987, with the Owner
Participant, Tenant. (1986 Form 10-K, Exhibit 28-4.)
(D) 10-67 - Trust Agreement dated as of March 16, 1987 between Perry
One Alpha Limited Partnership, as Owner Participant, and
The First National Bank of Boston. (1986 Form 10-K,
Exhibit 28-5.)
(D) 10-68 - Trust Indenture, Mortgage, Security Agreement and
Assignment of Facility Lease dated as of March 16, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement dated as of March 16,
1987 with Perry One Alpha Limited Partnership, and
Irving Trust Company, as Indenture Trustee. (1986 Form
10-K, Exhibit 28-6.)
(D) 10-69 - Supplemental Indenture No. 1 dated as of September 1,
1987 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of March 16,
1987 between The First National Bank of Boston as Owner
Trustee and Irving Trust Company (now The Bank of New
York), as Indenture Trustee. (1991 Form 10-K, Exhibit
10-55.)
(D) 10-70 - Supplemental Indenture No. 2 dated as of November 1,
1991 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of March 16,
1987 between The First National Bank of Boston, as Owner
Trustee and The Bank of New York, as Indenture Trustee.
(1991 Form 10-K, Exhibit 10-56.)
(D) 10-71 - Tax Indemnification Agreement dated as of March 16, 1987
between Perry One, Inc. and PARock Limited Partnership
as General Partners and Ohio Edison Company, as Lessee.
(1986 Form 10- K, Exhibit 28-7.)
(D) 10-72 - Amendment No. 1 dated as of November 1, 1991 to Tax
Indemnification Agreement dated as of March 16, 1987
between Perry One, Inc. and PARock Limited Partnership
and Ohio Edison Company. (1991 Form 10-K, Exhibit 10-
58.)
(D) 10-73 - Amendment No. 2 dated as of January 12, 1993 to Tax
Indemnification Agreement dated as of March 16, 1987
between Perry One, Inc. and PARock Limited Partnership
and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-
69.)
(D) 10-74 - Amendment No. 3 dated as of October 12, 1994 to Tax
Indemnification Agreement dated as of March 16, 1987
between Perry One, Inc. and PARock Limited Partnership
and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-
70.)
(D) 10-75 - Partial Mortgage Release dated as of March 19,
under the Indenture between Ohio Edison Company and
Bankers Trust Company, as Trustee, dated as of the 1st
day of August, 1930. (1986 Form 10-K, Exhibit 28-8.)
(D) 10-76 - Assignment, Assumption and Further Agreement dated as of
March 16, 1987 among The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of
March 16, 1987, with Perry One Alpha Limited
Partnership, The Cleveland Electric Illuminating
Company, Duquesne Light Company, Ohio Edison Company,
Pennsylvania Power Company and Toledo Edison Company.
(1986 Form 10-K, Exhibit 28-9.)
(D) 10-77 - Additional Support Agreement dated as of March 16, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of March 16,
1987, with Perry One Alpha Limited Partnership, and Ohio
Edison Company. (1986 Form 10-K, Exhibit 28-10.)
(D) 10-78 - Bill of Sale, Instrument of Transfer and Severance
Agreement dated as of March 19, 1987 between Ohio Edison
Company, Seller, and The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of
March 16, 1987, with Perry One Alpha Limited
Partnership. (1986 Form 10-K, Exhibit 28-11.)
(D) 10-79 - Easement dated as of March 16, 1987 from Ohio Edison
Company, Grantor, to The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of
March 16, 1987, with Perry One Alpha Limited
Partnership, Grantee. (1986 Form 10-K, File Exhibit 28-
12.)
10-80 - Participation Agreement dated as of March 16, 1987 among
Security Pacific Capital Leasing Corporation, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 Hereto, as Original Loan Participants, PNPP
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1986 Form 10-K, as Exhibit 28-13.)
10-81 - Amendment No. 1 dated as of September 1, 1987 to
Participation Agreement dated as of March 16, 1987 among
Security Pacific Capital Leasing Corporation, as Owner
Participant, The Original Loan Participants Listed in
Schedule 1 thereto, as Original Loan Participants, PNPP
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1991 Form 10-K, Exhibit 10-65.)
10-82 - Amendment No. 4 dated as of November 1, 1991, to
Participation Agreement dated as of March 16, 1987 among
Security Pacific Capital Leasing Corporation, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, The Bank of New York, as Indenture Trustee and
Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit
10-66.)
10-83 - Amendment No. 5 dated as of November 24, 1992 to
Participation Agreement dated as of March 16, 1987 as
amended among Security Pacific Capital Leasing
Corporation, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNNP II Funding
Corporation, as New Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1992 Form 10-K, Exhibit 10-71.)
10-84 - Amendment No. 6 dated as of January 12, 1993 to
Participation Agreement dated as of March 16, 1987 as
amended among Security Pacific Capital Leasing
Corporation, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1994 Form 10-K, Exhibit 10-80.)
10-85 - Amendment No. 7 dated as of October 12, 1994 to
Participation Agreement dated as of March 16, 1987 as
amended among Security Pacific Capital Leasing
Corporation, as Owner Participant, PNPP Funding
Corporation, as Funding Corporation, PNPP II Funding
Corporation, as New Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1994 Form 10-K, Exhibit 10-81.)
10-86 - Facility Lease dated as of March 16, 1987 between The
First National Bank of Boston, as Owner Trustee, with
Security Pacific Capital Leasing Corporation, Lessor,
and Ohio Edison Company, as Lessee. (1986 Form 10-K,
Exhibit 28-14.)
10-87 - Amendment No. 1 dated as of September 1, 1987 to
Facility Lease dated as of March 16, 1987 between The
First National Bank of Boston as Owner Trustee, Lessor
and Ohio Edison Company, Lessee. (1991 Form 10-K,
Exhibit 10-68.)
10-88 - Amendment No. 2 dated as of November 1, 1991 to Facility
Lease dated as of March 16, 1987 between The First
National Bank of Boston as Owner Trustee, Lessor and
Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit
10-69.)
10-89 - Amendment No. 3 dated as of November 24, 1992 to
Facility Lease dated as of March 16, 1987, as amended,
between, The First National Bank of Boston, as Owner
Trustee, with Security Pacific Capital Leasing
Corporation, as Owner Participant and Ohio Edison
Company, as Lessee. (1992 Form 10-K, Exhibit 10-75.)
10-90 - Amendment No. 4 dated as of January 12, 1993 to Facility
Lease dated as of March 16, 1987 as amended between, The
First National Bank of Boston, as Owner Trustee, with
Security Pacific Capital Leasing Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1992
Form 10-K, Exhibit 10-76.)
10-91 - Amendment No. 5 dated as of October 12, 1994 to Facility
Lease dated as of March 16, 1987 as amended between, The
First National Bank of Boston, as Owner Trustee, with
Security Pacific Capital Leasing Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
From 10-K, Exhibit 10-87.)
10-92 - Letter Agreement dated as of March 19, 1987 between Ohio
Edison Company, as Lessee, and The First National Bank
of Boston, as Owner Trustee under a Trust, dated as of
March 16, 1987, with Security Pacific Capital Leasing
Corporation, required by Section 3(d) of the Facility
Lease. (1986 Form 10-K, Exhibit 28-15.)
10-93 - Ground Lease dated as of March 16, 1987 between Ohio
Edison Company, Ground Lessor, and The First National
Bank of Boston, as Owner Trustee under a Trust
Agreement, dated as of March 16, 1987, with Perry One
Alpha Limited Partnership, Tenant. (1986 Form 10-K,
Exhibit 28-16.)
10-94 - Trust Agreement dated as of March 16, 1987 between
Security Pacific Capital Leasing Corporation, as Owner
Participant, and The First National Bank of Boston.
(1986 Form 10-K, Exhibit 28-17.)
10-95 - Trust Indenture, Mortgage, Security Agreement and
Assignment of Facility Lease dated as of March 16, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of March 16,
and Irving Trust Company, as Indenture Trustee. (1986
Form 10-K, Exhibit 28-18.)
10-96 - Supplemental Indenture No. 1 dated as of September 1,
1987 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of March 16,
1987 between The First National Bank of Boston, as Owner
Trustee and Irving Trust Company (now The Bank of New
York), as Indenture Trustee. (1991 Form 10-K, Exhibit
10-74.)
10-97 - Supplemental Indenture No. 2 dated as of November 1,
1991 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of March 16,
1987 between The First National Bank of Boston, as Owner
Trustee and The Bank of New York, as Indenture Trustee.
(1991 Form 10-K, Exhibit 10-75.)
10-98 - Tax Indemnification Agreement dated as of March 16, 1987
between Security Pacific Capital Leasing Corporation, as
Owner Participant, and Ohio Edison Company, as Lessee.
(1986 Form 10-K, Exhibit 28-19.)
10-99 - Amendment No. 1 dated as of November 1, 1991 to Tax
Indemnification Agreement dated as of March 16, 1987
between Security Pacific Capital Leasing Corporation and
Ohio Edison Company. (1991 Form 10-K, Exhibit 10-77.)
10-100 - Amendment No. 2 dated as of January 12, 1993 to Tax
Indemnification Agreement dated as of March 16, 1987
between Security Pacific Capital Leasing Corporation and
Ohio Edison Company. (1994 Form 10-K, Exhibit 10-96.)
10-101 - Amendment No. 3 dated as of October 12, 1994 to Tax
Indemnification Agreement dated as of March 16, 1987
between Security Pacific Capital Leasing Corporation and
Ohio Edison Company. (1994 Form 10-K, Exhibit 10-97.)
10-102 - Assignment, Assumption and Further Agreement dated as of
March 16, 1987 among The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of
March 16, 1987, with Security Pacific Capital Leasing
Corporation, The Cleveland Electric Illuminating
Company, Duquesne Light Company, Ohio Edison Company,
Pennsylvania Power Company and Toledo Edison Company.
(1986 Form 10-K, Exhibit 28-20.)
10-103 - Additional Support Agreement dated as of March 16, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of March 16,
1987, with Security Pacific Capital Leasing Corporation,
and Ohio Edison Company. (1986 Form 10-K, Exhibit 28-
21.)
10-104 - Bill of Sale, Instrument of Transfer and Severance
Agreement dated as of March 19, 1987 between Ohio Edison
Company, Seller, and The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of
March 16, 1987, with Security Pacific Capital Leasing
Corporation, Buyer. (1986 Form 10-K, Exhibit 28-22.)
10-105 - Easement dated as of March 16, 1987 from Ohio Edison
Company, Grantor, to The First National Bank of Boston,
as Owner Trustee under a Trust Agreement, dated as of
March 16, 1987, with Security Pacific Capital Leasing
Corporation, Grantee. (1986 Form 10-K, Exhibit 28-23.)
10-106 - Refinancing Agreement dated as of November 1, 1991 among
Perry One Alpha Limited Partnership, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, The Bank of New York, as Indenture Trustee, The
Bank of New York, as Collateral Trust Trustee, The Bank
of New York, as New Collateral Trust Trustee and Ohio
Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-
82.)
10-107 - Refinancing Agreement dated as of November 1, 1991 among
Security Pacific Leasing Corporation, as Owner
Participant, PNPP Funding Corporation, as Funding
Corporation, PNPP II Funding Corporation, as New Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, The Bank of New York, as Indenture Trustee, The
Bank of New York, as Collateral Trust Trustee, The Bank
of New York as New Collateral Trust Trustee and Ohio
Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-
83.)
10-108 - Ohio Edison Company Master Decommissioning Trust
Agreement for Perry Nuclear Power Plant Unit One,
Station Unit One and Beaver Valley Power Station Unit
Two dated July 1, 1993. (1993 Form 10-K, Exhibit 10-94.)
10-109 - Nuclear Fuel Lease dated as of March 31, 1989, between
OES Fuel, Incorporated, as Lessor, and Ohio Edison
Company, as Lessee. (1989 Form 10-K, Exhibit 10-62.)
10-110 - Receivables Purchase Agreement dated as November 28,
1989, as amended and restated as of April 23, 1993,
between OES Capital, Incorporated, Corporate Asset
Funding Company, Inc. and Citicorp North America, Inc.
(1994 Form 10-K, Exhibit 10-106.)
10-111 - Guarantee Agreement entered into by Ohio Edison Company
dated as of January 17, 1991. (1990 Form 10-K, Exhibit
10-64.)
10-112 - Transfer and Assignment Agreement among Ohio Edison
Company and Chemical Bank, as trustee under the OE Power
Contract Trust. (1990 Form 10-K, Exhibit 10-65.)
10-113 - Renunciation of Payments and Assignment among Ohio
Edison Company, Monongahela Power Company, West Penn
Power Company, and the Potomac Edison Company dated as
of January 4, 1991. (1990 Form 10-K, Exhibit 10-66.)
10-114 - Transfer and Assignment Agreement dated May 20, 1994
among Ohio Edison Company and Chemical Bank, as trustee
under the OE Power Contract Trust. (1994 Form 10-K,
Exhibit 10-110.)
10-115 - Renunciation of Payments and Assignment among Ohio
Edison Company, Monongahela Power Company, West Penn
Power Company, and the Potomac Edison Company dated as
of May 20, 1994. (1994 Form 10-K, Exhibit 10-111.)
10-116 - Transfer and Assignment Agreement dated October 12, 1994
among Ohio Edison Company and Chemical Bank, as trustee
under the OE Power Contract Trust. (1994 Form 10-K,
Exhibit 10-112.)
10-117 - Renunciation of Payments and Assignment among Ohio
Edison Company, Monongahela Power Company, West Penn
Power Company, and the Potomac Edison Company dated as
of October 12, 1994. (1994 Form 10-K, Exhibit 10-113.)
(E) 10-118 - Participation Agreement dated as of September 15, 1987,
among Beaver Valley Two Pi Limited Partnership, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 Thereto, as Original Loan Participants, BVPS
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee and Ohio Edison Company as
Lessee. (1987 Form 10-K, Exhibit 28-1.)
(E) 10-119 - Amendment No. 1 dated as of February 1, 1988, to
Participation Agreement dated as of September 15, 1987,
among Beaver Valley Two Pi Limited Partnership, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 Thereto, as Original Loan Participants, BVPS
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1987 Form 10-K, Exhibit 28-2.)
(E) 10-120 - Amendment No. 3 dated as of March 16, 1988 to
Participation Agreement dated as of September 15, 1987,
as amended, among Beaver Valley Two Pi Limited
Partnership, as Owner Participant, BVPS Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, Irving Trust Company, as Indenture Trustee and
Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit
10-99.)
(E) 10-121 - Amendment No. 4 dated as of November 5, 1992 to
Participation Agreement dated as of September 15, 1987,
as amended, among Beaver Valley Two Pi Limited
Partnership, as Owner Participant, BVPS Funding
Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1992 Form 10-K, Exhibit 10-100.)
(E) 10-122 - Amendment No. 5 dated as of September 30, 1994 to
Participation Agreement dated as of September 15, 1987,
as amended, among Beaver Valley Two Pi Limited
Partnership, as Owner Participant, BVPS Funding
Corporation, BVPS II Funding Corporation, The First
National Bank of Boston, as Owner Trustee, The Bank of
New York, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1994 Form 10-K, Exhibit 10-118.)
(E) 10-123 - Facility Lease dated as of September 15, 1987, between
The First National Bank of Boston, as Owner Trustee,
with Beaver Valley Two Pi Limited Partnership, Lessor,
and Ohio Edison Company, Lessee. (1987 Form 10-K,
Exhibit 28-3.)
(E) 10-124 - Amendment No. 1 dated as of February 1, 1988, to
Facility Lease dated as of September 15, 1987, between
The First National Bank of Boston, as Owner Trustee,
with Beaver Valley Two Pi Limited Partnership, Lessor,
and Ohio Edison Company, Lessee. (1987 Form 10-K,
Exhibit 28-4.)
(E) 10-125 - Amendment No. 2 dated as of November 5, 1992, to
Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as
Owner Trustee, with Beaver Valley Two Pi Limited
Partnership, as Owner Participant, and Ohio Edison
Company, as Lessee. (1992 Form 10-K, Exhibit 10-103.)
(E) 10-126 - Amendment No. 3 dated as of September 30, 1994 to
Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as
Owner Trustee, with Beaver Valley Two Pi Limited
Partnership, as Owner Participant, and Ohio Edison
Company, as Lessee. (1994 Form 10-K, Exhibit 10-122.)
(E) 10-127 - Ground Lease and Easement Agreement dated as of
September 15, 1987, between Ohio Edison Company, Ground
Lessor, and The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of September
15, 1987, with Beaver Valley Two Pi Limited Partnership,
Tenant. (1987 Form 10-K, Exhibit 28-5.)
(E) 10-128 - Trust Agreement dated as of September 15, 1987, between
Beaver Valley Two Pi Limited Partnership, as Owner
Participant, and The First National Bank of Boston.
(1987 Form 10-K, Exhibit 28-6.)
(E) 10-129 - Trust Indenture, Mortgage, Security Agreement and
Assignment of Facility Lease dated as of September 15,
1987, between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement dated as of
September 15, 1987, with Beaver Valley Two Pi Limited
Partnership, and Irving Trust Company, as Indenture
Trustee. (1987 Form 10-K, Exhibit 28-7.)
(E) 10-130 - Supplemental Indenture No. 1 dated as of February 1,
1988 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of September
15, 1987 between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement dated as of
September 15, 1987 with Beaver Valley Two Pi Limited
Partnership and Irving Trust Company, as Indenture
Trustee. (1987 Form 10-K, Exhibit 28-8.)
(E) 10-131 - Tax Indemnification Agreement dated as of September 15,
1987, between Beaver Valley Two Pi Inc. and PARock
Limited Partnership as General Partners and Ohio Edison
Company, as Lessee. (1987 Form 10-K, Exhibit 28-9.)
(E) 10-132 - Amendment No. 1 dated as of November 5, 1992 to Tax
Indemnification Agreement dated as of September 15,
1987, between Beaver Valley Two Pi Inc. and PARock
Limited Partnership as General Partners and Ohio Edison
Company, as Lessee. (1994 Form 10-K, Exhibit 10-128.)
(E) 10-133 - Amendment No. 2 dated as of September 30, 1994 to Tax
Indemnification Agreement dated as of September 15,
1987, between Beaver Valley Two Pi Inc. and PARock
Limited Partnership as General Partners and Ohio Edison
Company, as Lessee. (1994 Form 10-K, Exhibit 10-129.)
(E) 10-134 - Tax Indemnification Agreement dated as of September 15,
1987, between HG Power Plant, Inc., as Limited Partner
and Ohio Edison Company, as Lessee. (1987 Form 10-K,
Exhibit 28-10.)
(E) 10-135 - Amendment No. 1 dated as of November 5, 1992 to Tax
Indemnification Agreement dated as of September 15,
1987, between HG Power Plant, Inc., as Limited Partner
and Ohio Edison Company, as Lessee. (1994 Form 10-K,
Exhibit 10-131.)
(E) 10-136 - Amendment No. 2 dated as of September 30, 1994 to Tax
Indemnification Agreement dated as of September 15,
1987, between HG Power Plant, Inc., as Limited Partner
and Ohio Edison Company, as Lessee. (1994 Form 10-K,
Exhibit 10-132.)
(E) 10-137 - Assignment, Assumption and Further Agreement dated as of
September 15, 1987, among The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated
as of September 15, 1987, with Beaver Valley Two Pi
Limited Partnership, The Cleveland Electric Illuminating
Company, Duquesne Light Company, Ohio Edison Company,
Pennsylvania Power Company and Toledo Edison Company.
(1987 Form 10-K, Exhibit 28-11.)
(E) 10-138 - Additional Support Agreement dated as of September 15,
1987, between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement, dated as of
September 15, 1987, with Beaver Valley Two Pi Limited
Partnership, and Ohio Edison Company. (1987 Form 10-K,
Exhibit 28-12.)
(F) 10-139 - Participation Agreement dated as of September 15, 1987,
among Chrysler Consortium Corporation, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 Thereto, as Original Loan Participants, BVPS
Funding Corporation as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee and Ohio Edison Company,
as Lessee. (1987 Form 10-K, Exhibit 28-13.)
(F) 10-140 - Amendment No. 1 dated as of February 1, 1988, to
Participation Agreement dated as of September 15, 1987,
among Chrysler Consortium Corporation, as Owner
Participant, the Original Loan Participants listed in
Schedule 1 Thereto, as Original Loan Participants, BVPS
Funding Corporation, as Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and Ohio Edison Company,
as Lessee. (1987 Form 10-K, Exhibit 28-14.)
(F) 10-141 - Amendment No. 3 dated as of March 16, 1988 to
Participation Agreement dated as of September 15, 1987,
as amended, among Chrysler Consortium Corporation, as
Owner Participant, BVPS Funding Corporation, The First
National Bank of Boston, as Owner Trustee, Irving Trust
Company, as Indenture Trustee, and Ohio Edison Company,
as Lessee. (1992 Form 10-K, Exhibit 10-114.)
(F) 10-142 - Amendment No. 4 dated as of November 5, 1992 to
Participation Agreement dated as of September 15, 1987,
as amended, among Chrysler Consortium Corporation, as
Owner Participant, BVPS Funding Corporation, BVPS II
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1992 Form
10-K, Exhibit 10-115.)
(F) 10-143 - Amendment No. 5 dated as of January 12, 1993 to
Participation Agreement dated as of September 15, 1987,
as amended, among Chrysler Consortium Corporation, as
Owner Participant, BVPS Funding Corporation, BVPS II
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1994 Form
10-K, Exhibit 10-139.)
(F) 10-144 - Amendment No. 6 dated as of September 30, 1994 to
Participation Agreement dated as of September 15, 1987,
as amended, among Chrysler Consortium Corporation, as
Owner Participant, BVPS Funding Corporation, BVPS II
Funding Corporation, The First National Bank of Boston,
as Owner Trustee, The Bank of New York, as Indenture
Trustee and Ohio Edison Company, as Lessee. (1994 Form
10-K, Exhibit 10-140.)
(F) 10-145 - Facility Lease dated as of September 15, 1987, between
The First National Bank of Boston, as Owner Trustee,
with Chrysler Consortium Corporation, Lessor, and Ohio
Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-
15.)
(F) 10-146 - Amendment No. 1 dated as of February 1, 1988, to
Facility Lease dated as of September 15, 1987, between
The First National Bank of Boston, as Owner Trustee,
with Chrysler Consortium Corporation, Lessor, and Ohio
Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-16.)
(F) 10-147 - Amendment No. 2 dated as of November 5, 1992 to Facility
Lease dated as of September 15, 1987, as amended,
between The First National Bank of Boston, as Owner
Trustee, with Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1992
Form 10-K, Exhibit 118.)
(F) 10-148 - Amendment No. 3 dated as of January 12, 1993 to Facility
Lease dated as of September 15, 1987, as amended,
between The First National Bank of Boston, as Owner
Trustee, with Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1992
Form 10-K, Exhibit 10-119.)
(F) 10-149 - Amendment No. 4 dated as of September 30, 1994 to
Facility Lease dated as of September 15, 1987, as
amended, between The First National Bank of Boston, as
Owner Trustee, with Chrysler Consortium Corporation, as
Owner Participant, and Ohio Edison Company, as Lessee.
(1994 Form 10-K, Exhibit 10-145.)
(F) 10-150 - Ground Lease and Easement Agreement dated as of
September 15, 1987, between Ohio Edison Company, Ground
Lessor, and The First National Bank of Boston, as Owner
Trustee under a Trust Agreement, dated as of September
15, 1987, with Chrysler Consortium Corporation, Tenant.
(1987 Form 10-K, Exhibit 28-17.)
(F) 10-151 - Trust Agreement dated as of September 15, 1987, between
Chrysler Consortium Corporation, as Owner Participant,
and The First National Bank of Boston. (1987 Form 10-K,
Exhibit 28-18.)
(F) 10-152 - Trust Indenture, Mortgage, Security Agreement and
Assignment of Facility Lease dated as of September 15,
1987, between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement, dated as of
September 15, 1987, with Chrysler Consortium Corporation
and Irving Trust Company, as Indenture Trustee. (1987
Form 10-K, Exhibit 28-19.)
(F) 10-153 - Supplemental Indenture No. 1 dated as of February 1,
1988 to Trust Indenture, Mortgage, Security Agreement
and Assignment of Facility Lease dated as of September
15, 1987 between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement dated as of
September 15, 1987 with Chrysler Consortium Corporation
and Irving Trust Company, as Indenture Trustee. (1987
Form 10-K, Exhibit 28-20.)
(F) 10-154 - Tax Indemnification Agreement dated as of September 15,
1987, between Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, Lessee. (1987 Form
10-K, Exhibit 28-21.)
(F) 10-155 - Amendment No. 1 dated as of November 5, 1992 to Tax
Indemnification Agreement dated as of September 15,
1987, between Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
Form 10-K, Exhibit 10-151.)
(F) 10-156 - Amendment No. 2 dated as of January 12, 1993 to Tax
Indemnification Agreement dated as of September 15,
1987, between Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
Form 10-K, Exhibit 10-152.)
(F) 10-157 - Amendment No. 3 dated as of September 30, 1994 to Tax
Indemnification Agreement dated as of September 15,
1987, between Chrysler Consortium Corporation, as Owner
Participant, and Ohio Edison Company, as Lessee. (1994
Form 10-K, Exhibit 10-153.)
(F) 10-158 - Assignment, Assumption and Further Agreement dated as of
September 15, 1987, among The First National Bank of
Boston, as Owner Trustee under a Trust Agreement, dated
as of September 15, 1987, with Chrysler Consortium
Corporation, The Cleveland Electric Illuminating
Company, Duquesne Light Company, Ohio Edison Company,
Pennsylvania Power Company, and Toledo Edison Company.
(1987 Form 10-K, Exhibit 28-22.)
(F) 10-159 - Additional Support Agreement dated as of September 15,
1987, between The First National Bank of Boston, as
Owner Trustee under a Trust Agreement, dated as of
September 15, 1987, with Chrysler Consortium
Corporation, and Ohio Edison Company. (1987 Form 10-K,
Exhibit 28-23.)
10-160 - Operating Agreement dated March 10, 1987 with respect to
Perry Unit No. 1 between the CAPCO Companies. (1987 Form
10-K, Exhibit 28-24.)
10-161 - Operating Agreement for Bruce Mansfield Units Nos. 1, 2
and 3 dated as of June 1, 1976, and executed on
September 15, 1987, by and between the CAPCO Companies.
(1987 Form 10-K, Exhibit 28-25.)
10-162 - Operating Agreement for W. H. Sammis Unit No. 7 dated as
of September 1, 1971 by and between the CAPCO Companies.
(1987 Form 10-K, Exhibit 28-26.)
10-163 - OE-APS Power Interchange Agreement dated March 18, 1987,
by and among Ohio Edison Company and Pennsylvania Power
Company, and Monongahela Power Company and West Penn
Power Company and The Potomac Edison Company. (1987 Form
10-K, Exhibit 28-27.)
10-164 - OE-PEPCO Power Supply Agreement dated March 18, 1987, by
and among Ohio Edison Company and Pennsylvania Power
Company and Potomac Electric Power Company. (1987 Form
10-K, Exhibit 28-28.)
10-165 - Supplement No. 1 dated as of April 28, 1987, to the OE-
PEPCO Power Supply Agreement dated March 18, 1987, by
and among Ohio Edison Company, Pennsylvania Power
Company, and Potomac Electric Power Company. (1987 Form
10-K, Exhibit 28-29.)
10-166 - APS-PEPCO Power Resale Agreement dated March 18, 1987,
by and among Monongahela Power Company, West Penn Power
Company, and The Potomac Edison Company and Potomac
Electric Power Company. (1987 Form 10-K, Exhibit 28-30.)
(A) 12.2 - Consolidated fixed charge ratios.
(A) 13.1 - 1999 Annual Report to Stockholders (Only those portions
expressly incorporated by reference in this Form 10-K
are to be deemed "filed" with the SEC.)
(A) 21.1 - List of Subsidiaries of the Registrant at December 31,
1999.
(A) 23.1 - Consent of Independent Public Accountants.
(A) 27.1 - Financial Data Schedule.
(A) Provided herein in electronic format as an exhibit.
(B) Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K,
OE has not filed as an exhibit to this Form 10-K any instrument with
respect to long-term debt if the total amount of securities
authorized thereunder does not exceed 10% of the total assets of OE
and its subsidiaries on a consolidated basis, but hereby agrees to
furnish to the SEC on request any such instruments.
(C) Management contract or compensatory plan contract or arrangement
filed pursuant to Item 601 of Regulation S-K.
(D) Substantially similar documents have been entered into relating to
three additional Owner Participants.
(E) Substantially similar documents have been entered into relating to
five additional Owner Participants.
(F) Substantially similar documents have been entered into relating to
two additional Owner Participants.
Note: Reports of OE on Forms 10-Q and 10-K are on file with the SEC
under number 1-2578.
Pursuant to Rule 14a - 3 (10) of the Securities Exchange Act of
1934, the Company will furnish any exhibit in this Report upon the
payment of the Company's expenses in furnishing such exhibit.
3. Exhibits - Penn
3-1 - Agreement of Merger and Consolidation dated April 1,
1929, among Pennsylvania Power Company (Penn), Harmony
Electric Company and Peoples Power Company (consummated
May 31, 1930), copies of Letters Patent issued thereon,
together with the Election Return and Treasurer's
Return, relative to decrease of capital stock; Election
Return authorizing change of capital stock and increase
of indebtedness; Election Return authorizing change of
capital stock; Election Return establishing 4.24%
Preferred Stock; Certificate with respect to the
establishment of 4.64% Preferred Stock; Election Returns
and Certificates of Actual Sale in connection with the
purchase by Penn Power of all the property of Pine-
Mercer Electric Company, Industry Borough Electric
Company, Ohio Township Electric Company, and
Shippingport Borough Electric Company; Certificate of
Change of Location of Penn Power's principal office;
Certificate of Consent authorizing increase in
authorized Common Stock; Certificate of Consent with
respect to the removal of limitations on the authorized
amount of indebtedness of Penn Power; Election Returns
and Certificates of Actual Sale in connection with the
purchase by Penn Power of all the property of Borolak
Public Service Company, Eastfax Public Service Company,
Norango Public Service Company, Sadwick Public Service
Company, Sosango Public Service Company, Surrick Public
Service Company, Wesango Public Service Company, and
Westfax Public Service Company; Certificate of Change of
Location of Penn Power's principal office; Amendment to
the Charter extending the territory in which Penn Power
may operate in the Borough of Shippingport, Beaver
County, Pennsylvania; Certificate of Consent authorizing
increase in authorized Common Stock; Certificate with
respect to the establishment of the 8% Preferred Stock;
Certificate accepting Business Corporation Law of
Pennsylvania for government and regulation of affairs of
Penn Power; Articles of Amendment incorporating certain
protective provisions relating to Preferred Stock,
increasing amount of authorized Preferred Stock and
authorizing future increases in amounts of authorized
Preferred Stock without a vote of the holders of
Preferred Stock; Articles of Amendment increasing the
authorized number of shares of Common Stock; Statement
Affecting Class or Series of Shares with respect to the
establishment of the 7.64% Preferred Stock; Articles of
Amendment increasing the authorized number of shares of
Common Stock; Articles of Amendment increasing the
number of authorized shares of Preferred Stock;
Statement Affecting Class or Series of Shares with
respect to the establishment of the 8.48% Preferred
Stock; Articles of Amendment authorizing sinking fund
requirements for Preferred Stock; Statement Affecting
Class or Series of Shares with respect to the
establishment of the 11% Preferred Stock; Articles of
Amendment increasing the authorized number of shares of
Common Stock; Statement Affecting Class or Series of
Shares with respect to the establishment of the 9.16%
Preferred Stock; Articles of Amendment increasing
authorized number of shares of Common Stock; Articles of
Amendment increasing authorized number of shares of
Preferred Stock; Statement Affecting Class or Series of
Shares with respect to the establishment of the 8.24%
Preferred Stock; Statement Affecting Class or Series of
Shares with respect to the establishment of the 10.50%
Preferred Stock; Articles of Amendment increasing
authorized number of shares of Common Stock; Articles of
Amendment increasing authorized number of shares of
Preferred Stock; Statement Affecting Class or Series of
Shares with respect to the establishment of the 15.00%
Preferred Stock; Statement Affecting Class or Series of
Shares with respect to the establishment of the 11.50%
Preferred Stock; Articles of Amendment increasing
authorized number of shares of Preferred Stock;
Statement Affecting Class or Series of Shares with
respect to the establishment of the 13.00% Preferred
Stock; Statement Affecting Class or Series of Shares
with respect to the establishment of the 11.50%
Preferred Stock, Series B; Articles of Amendment
effective April 2, 1987, adding a standard of care for,
and limiting the personal liability of, officers and
directors; Articles of Amendment effective April 1,
1992, setting forth corporate purposes of the Company;
Statement With Respect to Shares with respect to the
establishment of the 7.625% Preferred Stock and
Statement with Respect to Shares with respect to the
establishment of the 7.75% Preferred Stock. (Physically
filed and designated respectively, as follows: in Form
A-2, Registration No. 2-3889, as Exhibit A-1; in Form 1-
MD for 1938, File No. 2-3889, as Exhibit (a)-1; in Form
1-MD for 1945, File No. 2-3889, as Exhibit A; in Form U-
1, File No. 70-2310, as Exhibit A-3 (d); in Form 8-K for
March 1951, File No. 1-3491, as Exhibit B; in Form 8-K
for June 1958, File No. 1-3491B, as Exhibit 1; in Form
10-K for 1959 as Exhibits 1, 2, 3 and 4; in Form 8-K for
March 1960, File No. 1-3491B as Exhibit A; in Form U-1,
File No. 70-3971, as Exhibit A-2; in Form U-1, File No.
70-4055, as Exhibit A-2; as Exhibits 1 through 8 in Form
8-K for January 1962, File No. 1-3491; as Exhibit A in
Form 8-K for August 1963, File No. 1-3491; as Exhibits A
and B in Form 8-K for September 1969, File No. 1-3491;
as Exhibit B in Form 8-K for April 1971, File No. 1-
3491; as Exhibit B in Form 8-K for September 1971, File
No. 1-3491; in Form U-1, File No. 70-5264, as Exhibit A-
2; as Exhibit A in Form 8-K for September 1972, File No.
1-3491; as Exhibit A in Form 8-K for December 1972, File
No. 1-3491; as Exhibit A in Form 8-K for March 1973,
File No. 1-3491; as Exhibit A in Form 8-K for December
1973, File No. 1-3491; as Exhibits A and C in Form 8-K
for February 1974, File No. 1-3491; as Exhibits A and B
in Form 8-K for January 1975, File No. 1-3491; as
Exhibit F in Form 8-K for May 1975, File No. 1-3491; as
Exhibit A in Form 8-K for April 1976, File No. 1-3491;
as Exhibit G in Form 10-Q for quarter ended June 30,
1977, File No. 1-3491; as Exhibit C in Form 10-K for
1977, File No. 1-3491; as Exhibit A in Form 10-K for
1977, File No. 1-3491, as Exhibit D in Form 10-Q for
quarter ended June 30, 1980, File No. 1-3491; as Exhibit
(4) in Form 10-Q for quarter ended June 30, 1981, File
No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended
June 30, 1982, File No. 1-3491; as Exhibit 4 in Form 10-
Q for quarter ended September 30, 1982, File No. 1-3491;
as Exhibit 4 in Form 10-Q for quarter ended September
30, 1983, File No. 1-3491; as Exhibit 4 in Form 10-Q for
quarter ended March 31, 1984, File No. 1-3491; as
Exhibit 4 in Form 10-Q for quarter ended June 30, 1984,
File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter
ended September 30, 1985, File No. 1-3491; as Exhibit 3-
2 in Form 10-K for 1987 File No. 1-3491; as Exhibit 3-2
in Form 10-K for 1992 File No. 1-3491; as Exhibit 19-2
in Form 10-K for 1992 File No. 1-3491; and as Exhibit 3-
2 in Form 10-K for 1993 File No. 1-3491.)
3-2 - By-Laws of Penn as amended March 25, 1992. (1992 Form
10-K, Exhibit 3-3, File No. 1-3491.)
(A) 3-3 - By-Laws of Penn as amended September 27, 1999.
4-1* - Indenture dated as of November 1, 1945, between Penn and
The First National Bank of the City of New York (now
Citibank, N.A.), as Trustee, as supplemented and amended
by Supplemental Indentures dated as of May 1, 1948,
March 1, 1950, February 1, 1952, October 1, 1957,
September 1, 1962, June 1, 1963, June 1, 1969, May 1,
1970, April 1, 1971, October 1, 1971, May 1, 1972,
December 1, 1974, October 1, 1975, September 1, 1976,
April 15, 1978, June 28, 1979, January 1, 1980, June 1,
1981, January 14, 1982, August 1, 1982, December 15,
1982, December 1, 1983, September 6, 1984, December 1,
1984, May 30, 1985, October 29, 1985, August 1, 1987,
May 1, 1988, November 1, 1989, December 1, 1990,
September 1, 1991, May 1, 1992, July 15, 1992, August 1,
1992, and May 1, 1993, July 1, 1993, August 31, 1993,
September 1, 1993, September 15, 1993, October 1, 1993,
November 1, 1993, and August 1, 1994. (Physically filed
and designated as Exhibits 2(b) (1)-1 through 2(b) (1)-
15 in Registration Statement File No. 2-60837; as
Exhibits 2(b) (2), 2(b) (3), and 2 (b) (4) in
Registration Statement File No. 2-68906; as Exhibit 4-2
in Form 10-K for 1981 File No. 1-3491; as Exhibit 19-1
in Form 10-K for 1982 File No. 1-3491; as Exhibit 19-1
in Form 10-K for 1983 File No. 1-3491; as Exhibit 19-1
in Form 10-K for 1984 File No. 1-3491; as Exhibit 19-1
in Form 10-K for 1985 File No. 1-3491; as Exhibit 19-1
in Form 10-K for 1987 File No. 1-3491; as Exhibit 19-1
in Form 10-K for 1988 File No. 1-3491; as Exhibit 19 in
Form 10-K for 1989 File No. 1-3491; as Exhibit 19 in
Form 10-K for 1990 File No. 1-3491; as Exhibit 19 in
Form 10-K for 1991 File No. 1-3491; as Exhibit 19-1 in
Form 10-K for 1992 File No. 1-3491; as Exhibit 4-2 in
Form 10-K for 1993 File No. 1-3491; and as Exhibit 4-2
in Form 10-K for 1994 File No. 1-3491.)
- ----------------------
* Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K,
Penn has not filed as an exhibit to this Form 10-K any instrument with
respect to long-term debt if the total amount of securities authorized
thereunder does not exceed 10% of the total assets of Penn, but hereby
agrees to furnish to the Commission on request any such instruments.
4-2 - Supplemental Indenture dated as of September 1, 1995,
between Penn and Citibank, N.A., as Trustee. (1995 Form
10-K, Exhibit 4-2.)
4-3 - Supplemental Indenture dated as of June 1, 1997, between
Penn and Citibank, N.A., as Trustee. (1997 Form 10-K,
Exhibit 4-3.)
4-4 - Supplemental Indenture dated as of June 1, 1998, between
Penn and Citibank, N. A., as Trustee. (1998 Form 10-K,
Exhibit 4-4.)
(A) 4-5 - Supplemental Indenture dated as of September 29, 1999,
between Penn and Citibank, N.A., as Trustee.
(A) 4-6 - Supplemental Indenture dated as of November 15, 1999,
between Penn and Citibank, N.A., as Trustee.
10-1 - Administration Agreement between the CAPCO Group dated
as of September 14, 1967. (Registration Statement of
Ohio Edison Company, File No. 2-43102, Exhibit 5 (c)
(2).)
10-2 - Amendment No. 1 dated January 4, 1974 to Administration
Agreement between the CAPCO Group dated as of September
14, 1967. (Registration Statement No. 2-68906, Exhibit 5
(c) (3).)
10-3 - Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (Registration
Statement of Ohio Edison Company, File No. 2-43102,
Exhibit 5 (c) (3).)
10-4 - Amendment No. 1 dated as of January 1, 1993 to
Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (1993 Form 10-K,
Exhibit 10-4, Ohio Edison Company.)
10-5 - Agreement for the Termination or Construction of Certain
Agreements effective September 1, 1980 among the CAPCO
Group. (Registration Statement No. 2-68906, Exhibit 10-
4.)
10-6 - Amendment dated as of December 23, 1993 to Agreement for
the Termination or Construction of Certain Agreements
effective September 1, 1980 among the CAPCO Group. (1993
Form 10-K, Exhibit 10-6, Ohio Edison Company.)
10-7 - CAPCO Basic Operating Agreement, as amended September 1,
1980. (Registration Statement No. 2-68906, as Exhibit
10-5.)
10-8 - Amendment No. 1 dated August 1, 1981 and Amendment No. 2
dated September 1, 1982, to CAPCO Basic Operating
Agreement as amended September 1, 1980. (September 30,
1981 Form 10-Q, Exhibit 20-1 and 1982 Form 10-K, Exhibit
19-3, File No. 1-2578, of Ohio Edison Company.)
10-9 - Amendment No. 3 dated as of July 1, 1984, to CAPCO Basic
Operating Agreement as amended September 1, 1980. (1985
Form 10-K, Exhibit 10-7, File No 1-2578, of Ohio Edison
Company.)
10-10 - Basic Operating Agreement between the CAPCO Companies as
amended October 1, 1991. (1991 Form 10-K, Exhibit 10-8,
File No. 1-2578, of Ohio Edison Company.)
10-11 - Basic Operating Agreement between the CAPCO Companies as
amended January 1, 1993. (1993 Form 10-K, Exhibit 10-11,
Ohio Edison.)
10-12 - Memorandum of Agreement effective as of September 1,
1980, among the CAPCO Group. (1991 Form 10-K, Exhibit
19-2, Ohio Edison Company.)
10-13 - Operating Agreement for Beaver Valley Power Station
Units Nos. 1 and 2 as Amended and Restated September 15,
1987, by and between the CAPCO Companies. (1987 Form 10-
K, Exhibit 10-15, File No. 1-2578, of Ohio Edison
Company.)
10-14 - Construction Agreement with respect to Perry Plant
between the CAPCO Group dated as of July 22, 1974.
(Registration Statement of Toledo Edison Company, File
No. 2-52251, as Exhibit 5 (yy).)
10-15 - Participation Agreement No. 1 relating to the financing
of the development of certain coal mines, dated as of
October 1, 1973, among Quarto Mining Company, the CAPCO
Group, Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules A
and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration
Statement of Ohio Edison Company, File No. 2-61146,
Exhibit 5 (e) (1).)
10-16 - Amendment No. 1 dated as of September, 15, 1978, to
Participation Agreement No. 1 dated as of October 1,
1973, among Quarto Mining Company, the CAPCO Group,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules A
and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration
Statement No. 2-68906, Exhibit 5 (e) (2).)
10-17 - Participation Agreement No. 2 relating to the financing
of the development of certain coal mines, dated as of
August 1, 1974, among Quarto Mining Company, the CAPCO
Group, Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules A
and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Ohio Edison
Company, File No. 2-53059, Exhibit 5 (h) (2).)
10-18 - Amendment No. 1 dated as of September 15, 1978, to
Participation Agreement No. 2 dated as of August 1,
1974, among Quarto Mining Company, the CAPCO Group,
Energy Properties, Inc., General Electric Credit
Corporation, the Loan Participants listed in Schedules A
and B thereto, Central National Bank of Cleveland, as
Owner Trustee, National City Bank, as Loan Trustee, and
National City Bank, as Bond Trustee. (Registration
Statement No. 2-68906, Exhibit 5(e) (4).)
10-19 - Participation Agreement No. 3 relating to the financing
of the development of certain coal mines, dated as of
September 15, 1978, among Quarto Mining Company, the
CAPCO Group, Energy Properties, Inc., General Electric
Credit Corporation, the Loan Participants listed in
Schedules A and B thereto, Central National Bank of
Cleveland, as Owner Trustee, National City Bank, as Loan
Trustee, and National City Bank, as Bond Trustee.
(Registration Statement No. 2-68906, Exhibit 5 (e) (5).)
10-20 - Participation Agreement No. 4 relating to the financing
of the development of certain coal mines, dated as of
October 31, 1980, among Quarto Mining Company, the CAPCO
Group, the Loan Participants listed in Schedule A
thereto and National City Bank, as Bond Trustee.
(Registration Statement No. 2-68906, Exhibit 10-16.)
10-21 - Participation Agreement No. 5 dated as of May 1, 1986,
among Quarto Mining Company, the CAPCO Companies, the
Loan Participants listed in Schedule A thereto, and
National City Bank, as Bond Trustee. (1986 Form 10-K,
Exhibit 10-22, File No. 1-2578, Ohio Edison Company.)
10-22 - Participation Agreement No. 6 dated as of December 1,
1991, among Quarto Mining Company, the CAPCO Companies,
the Loan Participants listed in Schedule A thereto,
National City Bank, as Mortgage Bond Trustee, and
National City Bank, as Refunding Bond Trustee. (1991
Form 10-K, Exhibit 10-19, File No. 1-2578, Ohio Edison
Company.)
10-23 - Agreement entered into as of October 20, 1981, among the
CAPCO Companies regarding the use of Quarto Coal at
Mansfield Units Nos. 1, 2 and 3. (1981 Form 10-K,
Exhibit 20-1, File No. 1-2578, Ohio Edison Company.)
10-24 - Restated Option Agreement dated as of May 1, 1983, by
and between The North American Coal Corporation and the
CAPCO Companies. (1983 Form 10-K, Exhibit 19-1, File No.
1-2578, Ohio Edison Company.)
10-25 - Trust Indenture and Mortgage dated as of October 1,
1973, between Quarto Mining Company and National City
Bank, as Bond Trustee, together with Guaranty, dated as
of October 1, 1973, with respect thereto by the CAPCO
Group. (Registration Statement of Ohio Edison Company,
File No. 2-61146, Exhibit 5 (e) (5).)
10-26 - Amendment No. 1 dated August 1, 1974, to Trust Indenture
and Mortgage dated as of October 1, 1973, between Quarto
Mining Company and National City Bank, as Bond Trustee,
together with Amendment No. 1 dated August 1, 1974, to
Guaranty dated as of October 1, 1973, with respect
thereto by the CAPCO Group. (Registration Statement of
Ohio Edison Company, File No. 2-53059, Exhibit 5 (h)
(2).)
10-27 - Amendment No. 2 dated as of September 15, 1978, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National City
Bank, as Bond Trustee, together with Amendment No. 2
dated as of September 15, 1978, to Bond Guaranty dated
as of October 1, 1973, as amended, between the CAPCO
Group and National City Bank, as Bond Trustee.
(Registration Statement No. 2-68906, Exhibits 5 (e) (11)
and 5 (e) (12).)
10-28 - Amendment No. 3 dated as of October 31, 1980, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National City
Bank, as Bond Trustee. (Registration Statement No. 2-
68906, Exhibit 10-16.)
10-29 - Amendment No. 4 dated as of July 1, 1985, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National City
Bank, as Bond Trustee. (1985 Form 10-K, Exhibit 10-28,
File No. 1-2578, Ohio Edison Company.)
10-30 - Amendment No 5 dated as of May 1, 1986, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National City
Bank, as Bond Trustee. (1986 Form 10-K, Exhibit 10-30,
File No. 1-2578, Ohio Edison Company.)
10-31 - Amendment No. 6 dated as of December 1, 1991, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National City
Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-28,
File No. 1-2578, Ohio Edison Company.)
10-32 - Trust Indenture dated as of December 1, 1991, between
Quarto Mining Company and National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-29, File No. 1-25-
78, Ohio Edison Company.)
10-33 - Amendment No. 3 dated as of October 31, 1980, to the
Bond Guaranty dated as of October 1, 1973, as amended,
with respect to the CAPCO Group. (Registration Statement
No. 2-68906, Exhibit 10-16.)
10-34 - Amendment No. 4 dated as of July 1, 1985, to the Bond
Guaranty dated as of October 1, 1973, as amended, by the
CAPCO Companies to National City Bank, as Bond Trustee.
(1985 Form 10-K, Exhibit 10-30, File No. 1-2578, Ohio
Edison Company.)
10-35 - Amendment No. 5 dated as of May 1, 1986, to the Bond
Guaranty dated as of October 1, 1973, as amended, by the
CAPCO Companies to National City Bank, as Bond Trustee.
(1986 Form 10-K, Exhibit 10-33, File No. 1-2578, Ohio
Edison Company.)
10-36 - Amendment No. 6A dated as of December 1, 1991, to the
Bond Guaranty dated as of October 1, 1973, as amended,
by the CAPCO Companies to National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-33, File No. 1-
2578, Ohio Edison Company.)
10-37 - Amendment No. 6B dated as of December 30, 1991, to the
Bond Guaranty dated as of October 1, 1973, as amended,
by the CAPCO Companies to National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-34, File No. 1-
2578, Ohio Edison Company.)
10-38 - Bond Guaranty dated as of December 1, 1991, by the CAPCO
Companies to National City Bank, as Bond Trustee. (1991
Form 10-K, Exhibit 10-35, File No. 1-2578, Ohio Edison
Company.)
10-39 - Open End Mortgage dated as of October 1, 1973, between
Quarto Mining Company and the CAPCO Companies and
Amendment No. 1 thereto dated as of September 15, 1978.
(Registration Statement No. 2-68906, Exhibit 10-23.)
10-40 - Restructuring Agreement dated as of April 1, 1985, among
Quarto Mining Company, the CAPCO Companies, Energy
Properties, Inc., General Electric Credit Corporation,
the Loan Participants listed in schedules thereto,
Central National Bank of Cleveland, as Owner Trustee,
National City Bank, as Loan Trustee, and National City
Bank, as Bond Trustee. (1985 Form 10-K, Exhibit 10-33,
File No. 1-2578, Ohio Edison Company.)
10-41 - Unsecured Note Guaranty dated as of July 1, 1985, by the
CAPCO Companies to General Electric Credit Corporation.
(1985 Form 10-K, Exhibit 10-34, File No. 1-2578, Ohio
Edison Company.)
10-42 - Memorandum of Understanding dated as of March 31, 1985,
among the CAPCO Companies. (1985 Form 10-K, Exhibit 10-
35, File No. 1-2578, Ohio Edison Company.)
(B) 10-43 - Ohio Edison System Executive Supplemental Life Insurance
Plan. (1995 Form 10-K, Exhibit 10-44, File No. 1-2578,
Ohio Edison Company.)
(B) 10-44 - Ohio Edison System Executive Incentive Compensation
Plan. (1995 Form 10-K, Exhibit 10-45, File No. 1-2578,
Ohio Edison Company.)
(B) 10-45 - Ohio Edison System Restated and Amended Executive
Deferred Compensation Plan. (1995 Form 10-K, Exhibit 10-
46, File No. 1-2578, Ohio Edison Company.)
(B) 10-46 - Ohio Edison System Restated and Amended Supplemental
Executive Retirement Plan. (1995 Form 10-K, Exhibit 10-
47, File No. 1-2578, Ohio Edison Company.)
10-47 - Operating Agreement for Perry Unit No. 1 dated March 10,
1987, by and between the CAPCO Companies. (1987 Form 10-
K, Exhibit 28-24, File No. 1-2578, Ohio Edison Company.)
10-48 - Operating Agreement for Bruce Mansfield Units Nos. 1, 2
and 3 dated as of June 1, 1976, and executed on
September 15, 1987, by and between the CAPCO Companies.
(1987 Form 10-K, Exhibit 28-25, File No. 1-2578, Ohio
Edison Company.)
10-49 - Operating Agreement for W. H. Sammis Unit No. 7 dated as
of September 1, 1971, by and between the CAPCO
Companies. (1987 Form 10-K, Exhibit 28-26, File No. 1-
2578, Ohio Edison Company.)
10-50 - OE-APS Power Interchange Agreement dated March 18, 1987,
by and among Ohio Edison Company and Pennsylvania Power
Company, and Monongahela Power Company and West Penn
Power Company and The Potomac Edison Company. (1987 Form
10-K, Exhibit 28-27, File No. 1-2578, of Ohio Edison
Company.)
10-51 - OE-PEPCO Power Supply Agreement dated March 18, 1987, by
and among Ohio Edison Company and Pennsylvania Power
Company and Potomac Electric Power Company. (1987 Form
10-K, Exhibit 28-28, File No. 1-2578, of Ohio Edison
Company.)
10-52 - Supplement No. 1 dated as of April 28, 1987, to the OE-
PEPCO Power Supply Agreement dated March 18, 1987, by
and among Ohio Edison Company, Pennsylvania Power
Company and Potomac Electric Power Company. (1987 Form
10-K, Exhibit 28-29, File No. 1-2578, of Ohio Edison
Company.)
10-53 - APS-PEPCO Power Resale Agreement dated March 18, 1987,
by and among Monongahela Power Company, West Penn Power
Company, and The Potomac Edison Company and Potomac
Electric Power Company. (1987 Form 10-K, Exhibit 28-30,
File No. 1-2578, of Ohio Edison Company.)
10-54 - Pennsylvania Power Company Master Decommissioning Trust
Agreement for Beaver Valley Power Station and Perry
Nuclear Power Plant dated as of April 21, 1995. (Quarter
ended June 30, 1995 Form 10-Q, Exhibit 10, File No. 1-
3491.)
10-55 - Nuclear Fuel Lease dated as of March 31, 1989, between
OES Fuel, Incorporated, as Lessor, and Pennsylvania
Power Company, as Lessee. (1989 Form 10-K, Exhibit 10-
39, File No. 1-3491.)
(A) 12.5 - Fixed charge ratios.
(A) 13.4 - 1999 Annual Report to Stockholders. (Only those portions
expressly incorporated by reference in this Form 10-K
are to be deemed "filed" with the Securities and
Exchange Commission.)
(A) 23.3 - Consent of Independent Public Accountants.
(A) 27.4 - Financial Data Schedule.
(A) - Provided herein in electronic format as an exhibit.
(B) - Management contract or compensatory plan contract or
arrangement filed pursuant to Item 601 of Regulation S-
K.
Pursuant to Rule 14a-3(10) of the Securities Exchange
Act of 1934, the Company will furnish any exhibit in
this Report upon the payment of the Company's expenses
in furnishing such exhibit.
3. Exhibits - Common Exhibits to CEI and TE
Exhibit
Number
- -------
2(a) - Agreement and Plan of Merger between Ohio Edison and
Centerior Energy dated as of September 13, 1996 (Exhibit
(2)-1, Form S-4 File No. 333-21011, filed by
FirstEnergy).
2(b) - Merger Agreement by and among Centerior Acquisition
Corp., FirstEnergy and Centerior (Exhibit (2)-3, Form S-
4 File No. 333-21011, filed by FirstEnergy).
4(a) - Rights Agreement (Exhibit 4, June 25, 1996 Form 8-K,
File Nos. 1-9130, 1-2323 and 1-3583).
4(b)(1) - Form of Note Indenture between Cleveland Electric,
Toledo Edison and The Chase Manhattan Bank, as Trustee
dated as of June 13, 1997 (Exhibit 4(c), Form S-4 File
No. 333-35931, filed by Cleveland Electric and Toledo
Edison).
4(b)(2) - Form of First Supplemental Note Indenture between
Cleveland Electric, Toledo Edison and The Chase
Manhattan Bank, as Trustee dated as of June 13, 1997
(Exhibit 4(d), Form S-4 File No. 333-35931, filed by
Cleveland Electric and Toledo Edison).
10b(1)(a) - CAPCO Administration Agreement dated November 1, 1971,
as of September 14, 1967, among the CAPCO Group members
regarding the organization and procedures for
implementing the objectives of the CAPCO Group (Exhibit
5(p), Amendment No. 1, File No. 2-42230, filed by
Cleveland Electric).
10b(1)(b) - Amendment No. 1, dated January 4, 1974, to CAPCO
Administration Agreement among the CAPCO Group members
(Exhibit 5(c)(3), File No. 2-68906, filed by Ohio
Edison).
10b(2) - CAPCO Transmission Facilities Agreement dated November
1, 1971, as of September 14, 1967, among the CAPCO Group
members regarding the installation, operation and
maintenance of transmission facilities to carry out the
objectives of the CAPCO Group (Exhibit 5(q), Amendment
No. 1, File No. 2-42230, filed by Cleveland Electric).
10b(2)(1) - Amendment No. 1 to CAPCO Transmission Facilities
Agreement, dated December 23, 1993 and effective as of
January 1, 1993, among the CAPCO Group members regarding
requirements for payment of invoices at specified times,
for payment of interest on non-timely paid invoices, for
restricting adjustment of invoices after a four-year
period, and for revising the method for computing the
Investment Responsibility charge for use of a member's
transmission facilities (Exhibit 10b(2)(1), 1993 Form
10-K, File Nos. 1-9130, 1-2323 and 1-3583).
10b(3) - CAPCO Basic Operating Agreement As Amended January 1,
1993 among the CAPCO Group members regarding coordinated
operation of the members' systems (Exhibit 10b(3), 1993
Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583).
10b(4) - Agreement for the Termination or Construction of Certain
Agreement By and Among the CAPCO Group members, dated
December 23, 1993 and effective as of September 1, 1980
(Exhibit 10b(4), 1993 Form 10-K, File Nos. 1-9130, 1-
2323 and 1-3583).
10b(5) - Construction Agreement, dated July 22, 1974, among the
CAPCO Group members and relating to the Perry Nuclear
Plant (Exhibit 5 (yy), File No. 2-52251, filed by Toledo
Edison).
10b(6) - Contract, dated as of December 5, 1975, among the CAPCO
Group members for the construction of Beaver Valley Unit
No. 2 (Exhibit 5 (g), File No. 2-52996, filed by
Cleveland Electric).
10b(7) - Amendment No. 1, dated May 1, 1977, to Contract, dated
as of December 5, 1975, among the CAPCO Group members
for the construction of Beaver Valley Unit No. 2
(Exhibit 5(d)(4), File No. 2-60109, filed by Ohio
Edison).
10d(1)(a) - Form of Collateral Trust Indenture among CTC Beaver
Valley Funding Corporation, Cleveland Electric, Toledo
Edison and Irving Trust Company, as Trustee (Exhibit
4(a), File No. 33-18755, filed by Cleveland Electric and
Toledo Edison).
10d(1)(b) - Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10d(1)(a) above,
including form of Secured Lease Obligation bond (Exhibit
4(b), File No. 33-18755, filed by Cleveland Electric and
Toledo Edison).
10d(1)(c) - Form of Collateral Trust Indenture among Beaver Valley
II Funding Corporation, The Cleveland Electric
Illuminating Company and The Toledo Edison Company and
The Bank of New York, as Trustee (Exhibit (4) (a), File
No. 33-46665, filed by Cleveland Electric and Toledo
Edison).
10d(1)(d) - Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10d(1)(c) above,
including form of Secured Lease Obligation Bond (Exhibit
(4) (b), File No. 33-46665, filed by Cleveland Electric
and Toledo Edison).
10d(2)(a) - Form of Collateral Trust Indenture among CTC Mansfield
Funding Corporation, Cleveland Electric, Toledo Edison
and IBJ Schroder Bank & Trust Company, as Trustee
(Exhibit 4(a), File No. 33-20128, filed by Cleveland
Electric and Toledo Edison).
10d(2)(b) - Form of Supplemental Indenture to Collateral Trust
Indenture constituting Exhibit 10d(2)(a) above,
including forms of Secured Lease Obligation bonds
(Exhibit 4(b), File No. 33-20128, filed by Cleveland
Electric and Toledo Edison).
10d(3)(a) - Form of Facility Lease dated as of September 15, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement dated as of September
15, 1987 with the limited partnership Owner Participant
named therein, Lessor, and Cleveland Electric and Toledo
Edison, Lessee (Exhibit 4(c), File No. 33-18755, filed
by Cleveland Electric and Toledo Edison).
10d(3)(b) - Form of Amendment No. 1 to Facility Lease constituting
Exhibit 10d(3)(a) above (Exhibit 4(e), File No. 33-
18755, filed by Cleveland Electric and Toledo Edison).
10d(4)(a) - Form of Facility Lease dated as of September 15, 1987
between The First National Bank of Boston, as Owner
Trustee under a Trust Agreement dated as of September
15, 1987 with the corporate Owner Participant named
therein, Lessor, and Cleveland Electric and Toledo
Edison, Lessees (Exhibit 4(d), File No. 33-18755, filed
by Cleveland Electric and Toledo Edison).
10d(4)(b) - Form of Amendment No. 1 to Facility Lease constituting
Exhibit 10d(4)(a) above (Exhibit 4(f), File No. 33-
18755, filed by Cleveland Electric and Toledo Edison).
10d(5)(a) - Form of Facility Lease dated as of September 30, 1987
between Meridian Trust Company, as Owner Trustee under a
Trust Agreement dated as of September 30, 1987 with the
Owner Participant named therein, Lessor, and Cleveland
Electric and Toledo Edison, Lessees (Exhibit 4(c), File
No. 33-20128, filed by Cleveland Electric and Toledo
Edison).
10d(5)(b) - Form of Amendment No. 1 to the Facility Lease
constituting Exhibit 10d(5)(a) above (Exhibit 4(f), File
No. 33-20128, filed by Cleveland Electric and Toledo
Edison).
10d(6)(a) - Form of Participation Agreement dated as of September
15, 1987 among the limited partnership Owner Participant
named therein, the Original Loan Participants listed in
Schedule 1 thereto, as Original Loan Participants, CTC
Beaver Valley Fund Corporation, as Funding Corporation,
The First National Bank of Boston, as Owner Trustee,
Irving Trust Company, as Indenture Trustee, and
Cleveland Electric and Toledo Edison, as Lessees
(Exhibit 28(a), File No. 33-18755, filed by Cleveland
Electric And Toledo Edison).
10d(6)(b) - Form of Amendment No. 1 to Participation Agreement
constituting Exhibit 10d(6)(a) above (Exhibit 28(c),
File No. 33-18755, filed by Cleveland Electric and
Toledo Edison).
10d(7)(a) - Form of Participation Agreement dated as of September
15, 1987 among the corporate Owner Participant named
therein, the Original Loan Participants listed in
Schedule 1 thereto, as Owner Loan Participants, CTC
Beaver Valley Funding Corporation, as Funding
Corporation, The First National Bank of Boston, as Owner
Trustee, Irving Trust Company, as Indenture Trustee, and
Cleveland Electric and Toledo Edison, as Lessees
(Exhibit 28(b), File No. 33-18755, filed by Cleveland
Electric and Toledo Edison).
10d(7)(b) - Form of Amendment No. 1 to Participation Agreement
constituting Exhibit 10d(7)(a) above (Exhibit 28(d),
File No. 33-18755, filed by Cleveland Electric and
Toledo Edison).
10d(8)(a) - Form of Participation Agreement dated as of September
30, 1987 among the Owner Participant named therein, the
Original Loan Participants listed in Schedule II
thereto, as Owner Loan Participants, CTC Mansfield
Funding Corporation, Meridian Trust Company, as Owner
Trustee, IBJ Schroder Bank & Trust Company, as Indenture
Trustee, and Cleveland Electric and Toledo Edison, as
Lessees (Exhibit 28(a), File No. 33-20128, filed by
Cleveland Electric and Toledo Edison).
10d(8)(b) - Form of Amendment No. 1 to the Participation Agreement
constituting Exhibit 10d(8)(a) above (Exhibit 28(b),
File No. 33-20128, filed by Cleveland Electric and
Toledo Edison).
10d(9) - Form of Ground Lease dated as of September 15, 1987
between Toledo Edison, Ground Lessor, and The First
National Bank of Boston, as Owner Trustee under a Trust
Agreement dated as of September 15, 1987 with the Owner
Participant named therein, Tenant (Exhibit 28(e), File
No. 33-18755, filed by Cleveland Electric and Toledo
Edison).
10d(10) - Form of Site Lease dated as of September 30, 1987
between Toledo Edison, Lessor, and Meridian Trust
Company, as Owner Trustee under a Trust Agreement dated
as of September 30, 1987 with the Owner Participant
named therein, Tenant (Exhibit 28(c), File No. 33-20128,
filed by Cleveland Electric and Toledo Edison).
10d(11) - Form of Site Lease dated as of September 30, 1987
between Cleveland Electric, Lessor, and Meridian Trust
Company, as Owner Trustee under a Trust Agreement dated
as of September 30, 1987 with the Owner Participant
named therein, Tenant (Exhibit 28(d), File No. 33-20128,
filed by Cleveland Electric and Toledo Edison).
10d(12) - Form of Amendment No. 1 to the Site Leases constituting
Exhibits 10d(10) and 10d(11) above (Exhibit 4(f), File
No. 33-20128, filed by Cleveland Electric and Toledo
Edison).
10d(13) - Form of Assignment, Assumption and Further Agreement
dated as of September 15, 1987 among The First National
Bank of Boston, as Owner Trustee under a Trust Agreement
dated as of September 15, 1987 with the Owner
Participant named therein, Cleveland Electric, Duquesne,
Ohio Edison, Pennsylvania Power and Toledo Edison
(Exhibit 28(f), File No. 33-18755, filed by Cleveland
Electric and Toledo Edison).
10d(14) - Form of Additional Support Agreement dated as of
September 15, 1987 between The First National Bank of
Boston, as Owner Trustee under a Trust Agreement dated
as of September 15, 1987 with the Owner Participant
named therein, and Toledo Edison (Exhibit 28(g), File
No. 33-18755, filed by Cleveland Electric and Toledo
Edison).
10d(15) - Form of Support Agreement dated as of September 30, 1987
between Meridian Trust Company, as Owner Trustee under a
Trust Agreement dated as of September 30, 1987 with the
Owner Participant named therein, Toledo Edison,
Cleveland Electric, Duquesne, Ohio Edison and
Pennsylvania Power (Exhibit 28(e), File No. 33-20128,
filed by Cleveland Electric and Toledo Edison).
10d(16) - Form of Indenture, Bill of Sale, Instrument of Transfer
and Severance Agreement dated as of September 30, 1987
between Toledo Edison, Seller, and The First National
Bank of Boston, as Owner Trustee under a Trust Agreement
dated as of September 15, 1987 with the Owner
Participant named therein, Buyer (Exhibit 28(h), File
No. 33-18755, filed by Cleveland Electric and Toledo
Edison).
10d(17) - Form of Bill of Sale, Instrument of Transfer and
Severance Agreement dated as of September 30, 1987
between Toledo Edison, Seller, and Meridian Trust
Company, as Owner Trustee under a Trust Agreement dated
as of September 30, 1987 with the Owner Participant
named therein, Buyer (Exhibit 28(f), File No. 33-20128,
filed by Cleveland Electric and Toledo Edison).
10d(18) - Form of Bill of Sale, Instrument of Transfer and
Severance Agreement dated as of September 30, 1987
between Cleveland Electric, Seller, and Meridian Trust
Company, as Owner Trustee under a Trust Agreement dated
as of September 30, 1987 with the Owner Participant
named therein, Buyer (Exhibit 28(g), File No. 33-20128,
filed by Cleveland Electric and Toledo Edison).
10d(19) - Forms of Refinancing Agreement, including exhibits
thereto, among the Owner Participant named therein, as
Owner Participant, CTC Beaver Valley Funding
Corporation, as Funding Corporation, Beaver Valley II
Funding Corporation, as New Funding Corporation, The
Bank of New York, as Indenture Trustee, The Bank of New
York, as New Collateral Trust Trustee, and The Cleveland
Electric Illuminating Company and The Toledo Edison
Company, as Lessees (Exhibit (28)(e)(i), File No. 33-
46665, filed by Cleveland Electric and Toledo Edison).
10d(20)(a) - Form of Amendment No. 2 to Facility Lease among Citicorp
Lescaman, Inc., Cleveland Electric and Toledo Edison
(Exhibit 10(a), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
10d(20)(b) - Form of Amendment No. 3 to Facility Lease among Citicorp
Lescaman, Inc., Cleveland Electric and Toledo Edison
(Exhibit 10(b), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
10d(21)(a) - Form of Amendment No. 2 to Facility Lease among US West
Financial Services, Inc., Cleveland Electric and Toledo
Edison (Exhibit 10(c), Form S-4 File No. 333-47651,
filed by Cleveland Electric).
10d(21)(b) - Form of Amendment No. 3 to Facility Lease among US West
Financial Services, Inc., Cleveland Electric and Toledo
Edison (Exhibit 10(d), Form S-4 File No. 333-47651,
filed by Cleveland Electric).
10d(22) - Form of Amendment No. 2 to Facility Lease among Midwest
Power Company, Cleveland Electric and Toledo Edison
(Exhibit 10(e), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
10e(1) - Centerior Energy Corporation Equity Compensation Plan
(Exhibit 99, Form S-8, File No. 33-59635).
3. Exhibits - Cleveland Electric Illuminating (CEI)
3a - Amended Articles of Incorporation of CEI, as amended,
effective May 28, 1993 (Exhibit 3a, 1993 Form 10-K,
File No. 1-2323).
3b - Regulations of CEI, dated April 29, 1981, as amended
effective October 1, 1988 and April 24, 1990 (Exhibit
3b, 1990 Form 10-K, File No. 1-2323).
(B)4b(1) - Mortgage and Deed of Trust between CEI and Guaranty
Trust Company of New York (now The Chase Manhattan Bank
(National Association)), as Trustee, dated July 1, 1940
(Exhibit 7(a), File No. 2-4450).
Supplemental Indentures between CEI and the Trustee,
supplemental to Exhibit 4b(1), dated as follows:
4b(2) - July 1, 1940 (Exhibit 7(b), File No. 2-4450).
4b(3) - August 18, 1944 (Exhibit 4(c), File No. 2-9887).
4b(4) - December 1, 1947 (Exhibit 7(d), File No. 2-7306).
4b(5) - September 1, 1950 (Exhibit 7(c), File No. 2-8587).
4b(6) - June 1, 1951 (Exhibit 7(f), File No. 2-8994).
4b(7) - May 1, 1954 (Exhibit 4(d), File No. 2-10830).
4b(8) - March 1, 1958 (Exhibit 2(a)(4), File No. 2-13839).
4b(9) - April 1, 1959 (Exhibit 2(a)(4), File No. 2-14753).
4b(10) - December 20, 1967 (Exhibit 2(a)(4), File No. 2-30759).
4b(11) - January 15, 1969 (Exhibit 2(a)(5), File No. 2-30759).
4b(12) - November 1, 1969 (Exhibit 2(a)(4), File No. 2-35008).
4b(13) - June 1, 1970 (Exhibit 2(a)(4), File No. 2-37235).
4b(14) - November 15, 1970 (Exhibit 2(a)(4), File No. 2-38460).
4b(15) - May 1, 1974 (Exhibit 2(a)(4), File No. 2-50537).
4b(16) - April 15, 1975 (Exhibit 2(a)(4), File No. 2-52995).
4b(17) - April 16, 1975 (Exhibit 2(a)(4), File No. 2-53309).
4b(18) - May 28, 1975 (Exhibit 2(c), June 5, 1975 Form 8-A, File
No. 1-2323).
4b(19) - February 1, 1976 (Exhibit 3(d)(6), 1975 Form 10-K, File
No. 1-2323).
4b(20) - November 23, 1976 (Exhibit 2(a)(4), File No. 2-57375).
4b(21) - July 26, 1977 (Exhibit 2(a)(4), File No. 2-59401).
4b(22) - September 27, 1977 (Exhibit 2(a)(5), File No. 2-67221).
4b(23) - May 1, 1978 (Exhibit 2(b), June 30, 1978 Form 10-Q, File
No. 1-2323).
4b(24) - September 1, 1979 (Exhibit 2(a), September 30, 1979
Form 10-Q, File No. 1-2323).
4b(25) - April 1, 1980 (Exhibit 4(a)(2), September 30, 1980 Form
10-Q, File No. 1-2323).
4b(26) - April 15, 1980 (Exhibit 4(b), September 30, 1980 Form
10-Q, File No. 1-2323).
4b(27) - May 28, 1980 (Exhibit 2(a)(4), Amendment No. 1, File No.
2-67221).
4b(28) - June 9, 1980 (Exhibit 4(d), September 30, 1980 Form 10-
Q, File No. 1-2323).
4b(29) - December 1, 1980 (Exhibit 4(b)(29), 1980 Form 10-K, File
No. 1-2323).
4b(30) - July 28, 1981 (Exhibit 4(a), September 30, 1981, Form
10-Q, File No. 1-2323).
4b(31) - August 1, 1981 (Exhibit 4(b), September 30, 1981, Form
10-Q, File No. 1-2323).
4b(32) - March 1, 1982 (Exhibit 4(b)(3), Amendment No. 1, File
No. 2-76029).
4b(33) - July 15, 1982 (Exhibit 4(a), September 30, 1982 Form 10-
Q, File No. 1-2323).
4b(34) - September 1, 1982 (Exhibit 4(a)(1), September 30, 1982
Form 10-Q, File No. 1-2323).
4b(35) - November 1, 1982 (Exhibit 4(a)(2), September 30, 1982
Form 10-Q, File No. 1-2323).
4b(36) - November 15, 1982 (Exhibit 4(b)(36), 1982 Form 10-K,
File No. 1-2323).
4b(37) - May 24, 1983 (Exhibit 4(a), June 30, 1983 Form 10-Q,
File No. 1-2323).
4b(38) - May 1, 1984 (Exhibit 4, June 30, 1984 Form 10-Q, File
No. 1-2323).
4b(39) - May 23, 1984 (Exhibit 4, May 22, 1984 Form 8-K, File No.
1-2323).
4b(40) - June 27, 1984 (Exhibit 4, June 11, 1984 Form 8-K, File
No. 1-2323).
4b(41) - September 4, 1984 (Exhibit 4b(41), 1984 Form 10-K, File
No. 1-2323).
4b(42) - November 14, 1984 (Exhibit 4b(42), 1984 Form 10-K, File
No. 1-2323).
4b(43) - November 15, 1984 (Exhibit 4b(43), 1984 Form 10-K, File
No. 1-2323).
4b(44) - April 15, 1985 (Exhibit 4(a), May 8, 1985 Form 8-K, File
No. 1-2323).
4b(45) - May 28, 1985 (Exhibit 4(b), May 8, 1985 Form 8-K, File
No. 1-2323).
4b(46) - August 1, 1985 (Exhibit 4, September 30, 1985 Form 10-Q,
File No. 1-2323).
4b(47) - September 1, 1985 (Exhibit 4, September 30, 1985 Form 8-
K, File No. 1-2323).
4b(48) - November 1, 1985 (Exhibit 4, January 31, 1986 Form 8-K,
File No. 1-2323).
4b(49) - April 15, 1986 (Exhibit 4, March 31, 1986 Form 10-Q,
File No. 1-2323).
4b(50) - May 14, 1986 (Exhibit 4(a), June 30, 1986 Form 10-Q,
File No. 1-2323).
4b(51) - May 15, 1986 (Exhibit 4(b), June 30, 1986 Form 10-Q,
File No. 1-2323).
4b(52) - February 25, 1987 (Exhibit 4b(52), 1986 Form 10-K, File
No. 1-2323).
4b(53) - October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-
Q, File No. 1-2323).
4b(54) - February 24, 1988 (Exhibit 4b(54), 1987 Form 10-K, File
No. 1-2323).
4b(55) - September 15, 1988 (Exhibit 4b(55), 1988 Form 10-K, File
No. 1-2323).
4b(56) - May 15, 1989 (Exhibit 4(a)(2)(i), File No. 33-32724).
4b(57) - June 13, 1989 (Exhibit 4(a)(2)(ii), File No. 33-32724).
4b(58) - October 15, 1989 (Exhibit 4(a)(2)(iii), File No. 33-
32724).
4b(59) - January 1, 1990 (Exhibit 4b(59), 1989 Form 10-K, File
No. 1-2323).
4b(60) - June 1, 1990 (Exhibit 4(a). September 30, 1990 Form 10-
Q, File No. 1-2323).
4b(61) - August 1, 1990 (Exhibit 4(b), September 30, 1990 Form
10-Q, File No. 1-2323).
4b(62) - May 1, 1991 (Exhibit 4(a), June 30, 1991 Form 10-Q,
File No. 1-2323).
4b(63) - May 1, 1992 (Exhibit 4(a)(3), File No. 33-48845).
4b(64) - July 31, 1992 (Exhibit 4(a)(3), File No. 33-57292).
4b(65) - January 1, 1993 (Exhibit 4b(65), 1992 Form 10-K, File
No. 1-2323).
4b(66) - February 1, 1993 (Exhibit 4b(66), 1992 Form 10-K, File
No. 1-2323).
4b(67) - May 20, 1993 (Exhibit 4(a), July 14, 1993 Form 8-K, File
No. 1-2323).
4b(68) - June 1, 1993 (Exhibit 4(b), July 14, 1993 Form 8-K, File
No. 1-2323).
4b(69) - September 15, 1994 (Exhibit 4(a), September 30, 1994
Form 10-Q, File No. 1-2323).
4b(70) - May 1, 1995 (Exhibit 4(a), September 30, 1995 Form 10-Q,
File No. 1-2323).
4b(71) - May 2, 1995 (Exhibit 4(b), September 30, 1995 Form 10-Q,
File No. 1-2323).
4b(72) - June 1, 1995 (Exhibit 4(c), September 30, 1995 Form 10-
Q, File No. 1-2323).
4b(73) - July 15, 1995 (Exhibit 4b(73), 1995 Form 10-K, File No.
1-2323).
4b(74) - August 1, 1995 (Exhibit 4b(74), 1995 Form 10-K, File No.
1-2323).
4b(75) - June 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-
35931, filed by Cleveland Electric and Toledo Edison).
4b(76) - October 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-
47651, filed by Cleveland Electric).
4b(77) - June 1, 1998 (Exhibit 4b(77), Form S-4 File No. 333-
72891).
4b(78) - October 1, 1998 (Exhibit 4b(78), Form S-4 File No. 333-
72891).
4b(79) - October 1, 1998 (Exhibit 4b(79), Form S-4 File No. 333-
72891).
4b(80) - February 24, 1999 (Exhibit 4b(80), Form S-4 File No.
333-72891).
(A) 4b(81) - September 29, 1999.
(A) 4b(82) - January 15, 2000.
4c - Open-End Subordinate Indenture of Mortgage between The
Cleveland Electric Illuminating Company and Bank One,
Columbus N.A., as Trustee, Dated as of June 1, 1994
(Exhibit 4(a), August 26, 1994 Form 8-K, File No. 1-
2323).
4d - Form of Note Indenture between Cleveland Electric and
The Chase Manhattan Bank, as Trustee dated as of October
24, 1997 (Exhibit 4(b), Form S-4 File No. 333-47651,
filed by Cleveland Electric).
4d(1) - Form of Supplemental Note Indenture between Cleveland
Electric and The Chase Manhattan Bank, as Trustee dated
as of October 24, 1997 (Exhibit 4(c), Form S-4 File No.
333-47651, filed by Cleveland Electric).
10-1 - Administration Agreement between the CAPCO Group dated
as of September 14, 1967. (Registration No. 2-43102,
Exhibit 5(c)(2).)
10-2 - Amendment No. 1 dated January 4, 1974 to Administration
Agreement between the CAPCO Group dated as of September
14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3).)
10-3 - Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (Registration No.
2-43102, Exhibit 5(c)(3).)
10-4 - Amendment No. 1 dated as of January 1, 1993 to
Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (1993 Form 10-K,
Exhibit 10-4.)
10-5 - Agreement for the Termination or Construction of Certain
Agreements effective September 1, 1980, October 15, 1997
(Exhibit 4(a), Form S-4 File No. 333-47651, filed by
Cleveland Electric).
(A)12.3 - Consolidated fixed charge ratios.
(A)13.2 - 1999 Annual Report to Stockholders. (Only those portions
expressly incorporated by reference in this Form 10-K
are to be deemed "filed" with the SEC.)
(A)21.2 - List of Subsidiaries of the Registrant at December 31,
1999.
(A)23.2 - Consent of Independent Public Accountants.
(A)27.2 - Financial Data Schedule.
(A) - Provided herein in electronic format as an exhibit.
(B) - Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of
Regulation S-K, CEI has not filed as an exhibit to this
Form 10-K any instrument with respect to long-term debt
if the total amount of securities authorized thereunder
does not exceed 10% of the total assets of CEI, but
hereby agrees to furnish to the Commission on request
any such instruments.
3. Exhibits - Toledo Edison (TE)
Exhibit
Number
- -------
3a - Amended Articles of Incorporation of TE, as amended
effective October 2, 1992 (Exhibit 3a, 1992 Form 10-K,
File No. 1-3583).
3b - Code of Regulations of TE dated January 28, 1987, as
amended effective July 1 and October 1, 1988 and April
24, 1990 (Exhibit 3b, 1990 Form 10-K, File No. 1-3583).
(B)4b(1) - Indenture, dated as of April 1, 1947, between TE and The
Chase National Bank of the City of New York (now The
Chase Manhattan Bank (National Association)) (Exhibit
2(b), File No. 2-26908).
4b(2) - September 1, 1948 (Exhibit 2(d), File No. 2-26908).
4b(3) - April 1, 1949 (Exhibit 2(e), File No. 2-26908).
4b(4) - December 1, 1950 (Exhibit 2(f), File No. 2-26908).
4b(5) - March 1, 1954 (Exhibit 2(g), File No. 2-26908).
4b(6) - February 1, 1956 (Exhibit 2(h), File No. 2-26908).
4b(7) - May 1, 1958 (Exhibit 5(g), File No. 2-59794).
4b(8) - August 1, 1967 (Exhibit 2(c), File No. 2-26908).
4b(9) - November 1, 1970 (Exhibit 2(c), File No. 2-38569).
4b(10) - August 1, 1972 (Exhibit 2(c), File No. 2-44873).
4b(11) - November 1, 1973 (Exhibit 2(c), File No. 2-49428).
4b(12) - July 1, 1974 (Exhibit 2(c), File No. 2-51429).
4b(13) - October 1, 1975 (Exhibit 2(c), File No. 2-54627).
4b(14) - June 1, 1976 (Exhibit 2(c), File No. 2-56396).
4b(15) - October 1, 1978 (Exhibit 2(c), File No. 2-62568).
4b(16) - September 1, 1979 (Exhibit 2(c), File No. 2-65350).
4b(17) - September 1, 1980 (Exhibit 4(s), File No. 2-69190).
4b(18) - October 1, 1980 (Exhibit 4(c), File No. 2-69190).
4b(19) - April 1, 1981 (Exhibit 4(c), File No. 2-71580).
4b(20) - November 1, 1981 (Exhibit 4(c), File No. 2-74485).
4b(21) - June 1, 1982 (Exhibit 4(c), File No. 2-77763).
4b(22) - September 1, 1982 (Exhibit 4(x), File No. 2-87323).
4b(23) - April 1, 1983 (Exhibit 4(c), March 31, 1983, Form 10-Q,
File No. 1-3583).
4b(24) - December 1, 1983 (Exhibit 4(x), 1983 Form 10-K, File No.
1-3583).
4b(25) - April 1, 1984 (Exhibit 4(c), File No. 2-90059).
4b(26) - October 15, 1984 (Exhibit 4(z), 1984 Form 10-K, File No.
1-3583).
4b(27) - October 15, 1984 (Exhibit 4(aa), 1984 Form 10-K, File
No. 1-3583).
4b(28) - August 1, 1985 (Exhibit 4(dd), File No. 33-1689).
4b(29) - August 1, 1985 (Exhibit 4(ee), File No. 33-1689).
4b(30) - December 1, 1985 (Exhibit 4(c), File No. 33-1689).
4b(31) - March 1, 1986 (Exhibit 4b(31), 1986 Form 10-K, File No.
1-3583).
4b(32) - October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-
Q, File No. 1-3583).
4b(33) - September 15, 1988 (Exhibit 4b(33), 1988 Form 10-K, File
No. 1-3583).
4b(34) - June 15, 1989 (Exhibit 4b(34), 1989 Form 10-K, File No.
1-3583).
4b(35) - October 15, 1989 (Exhibit 4b(35), 1989 Form 10-K, File
No. 1-3583).
4b(36) - May 15, 1990 (Exhibit 4, June 30, 1990 Form 10-Q, File
No. 1-3583).
4b(37) - March 1, 1991 (Exhibit 4(b), June 30, 1991 Form 10-Q,
File No. 1-3583).
4b(38) - May 1, 1992 (Exhibit 4(a)(3), File No. 33-48844).
4b(39) - August 1, 1992 (Exhibit 4b(39), 1992 Form 10-K, File No.
1-3583).
4b(40) - October 1, 1992 (Exhibit 4b(40), 1992 Form 10-K, File
No. 1-3583).
4b(41) - January 1, 1993 (Exhibit 4b(41), 1992 Form 10-K, File
No. 1-3583).
4b(42) - September 15, 1994 (Exhibit 4(b), September 30, 1994
Form 10-Q, File No. 1-3583).
File No. 1-3583).
4b(43) - May 1, 1995 (Exhibit 4(d), September 30, 1995 Form 10-Q,
File No. 1-3583).
4b(44) - June 1, 1995 (Exhibit 4(e), September 30, 1995 Form 10-
Q, File No. 1-3583).
4b(45) - July 14, 1995 (Exhibit 4(f), September 30, 1995 Form 10-
Q, File No. 1-3583).
4b(46) - July 15, 1995 (Exhibit 4(g), September 30, 1995 Form 10-
Q, File No. 1-3583).
4b(47) - August 1, 1997 (Exhibit 4b(47), 1998 Form 10-K, File No.
1-3583).
4b(48) - June 1, 1998 (Exhibit 4b (48), 1998 Form 10-K, File No.
1-3583).
(A) 4b(49) - January 15, 2000.
4c - Open-End Subordinate Indenture of Mortgage between The
Toledo Edison Company and Bank One, Columbus, N.A., as
Trustee, dated as of June 1, 1994 (Exhibit 4(b), August
26, 1994 Form 8-K, File No. 1-3583).
(A) 12.4 - Consolidated fixed charge ratios.
(A) 13.3 - 1999 Annual Report to Stockholders. (Only those portions
expressly incorporated by reference in this Form 10-K
are to be deemed "filed" with the SEC.)
(A) 21.3 - List of Subsidiaries of the Registrant at December 31,
1999.
(A) 27.3 - Financial Data Schedule.
(A) - Provided herein in electronic format as an exhibit.
(B) - Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of
Regulation S-K, TE has not filed as an exhibit to this
Form 10-K any instrument with respect to long-term debt
if the total amount of securities authorized thereunder
does not exceed 10% of the total assets of TE, but
hereby agrees to furnish to the Commission on request
any such instruments.
(b) Reports on Form 8-K
FirstEnergy, OE, CEI, TE, Penn-
-------------------------------
None.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of FirstEnergy Corp.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in FirstEnergy
Corp.'s Annual Report to Stockholders incorporated by reference in this Form
10-K and have issued our report thereon dated February 11, 2000. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule of consolidated valuation and qualifying accounts listed
in Item 14 is the responsibility of the Company's management and is presented
for the purpose of complying with the Securities and Exchange Commission's
rules and is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in the audit
of the basic consolidated financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Ohio Edison Company:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Ohio Edison
Company's Annual Report to Stockholders incorporated by reference in this
Form 10-K and have issued our report thereon dated February 11, 2000. Our
audit was made for the purpose of forming an opinion on those statements
taken as a whole. The schedule of consolidated valuation and qualifying
accounts listed in Item 14 is the responsibility of the Company's management
and is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Cleveland Electric
Illuminating Company:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in The Cleveland
Electric Illuminating Company's Annual Report to Stockholders incorporated by
reference in this Form 10-K and have issued our report thereon dated February
11, 2000. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule of consolidated valuation and
qualifying accounts listed in Item 14 is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Toledo Edison Company:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in The Toledo
Edison Company's Annual Report to Stockholders incorporated by reference in
this Form 10-K and have issued our report thereon dated February 11, 2000.
Our audit was made for the purpose of forming an opinion on those statements
taken as a whole. The schedule of consolidated valuation and qualifying
accounts listed in Item 14 is the responsibility of the Company's management
and is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Pennsylvania Power Company:
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in Pennsylvania Power Company's
Annual Report to Stockholders incorporated by reference in this Form 10-K and
have issued our report thereon dated February 11, 2000. Our audit was made
for the purpose of forming an opinion on those statements taken as a whole.
The schedule of valuation and qualifying accounts listed in Item 14 is the
responsibility of the Company's management and is presented for the purpose
of complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
<TABLE>
SCHEDULE II
FIRSTENERGY CORP.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
Additions
-------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Accumulated provision for
uncollectible accounts - customers $ 6,397 $ 8,668 $2,313 (a) $10,659 (b) $ 6,719
======= ======= ====== ======= =======
- other $46,251 $ 4,039 $ 18 (a) $44,949 (b) $ 5,359
======= ======= ====== ======= =======
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts - customers $ 5,618 $28,984 $2,290 (a) $30,495 (b) $ 6,397
======= ======= ====== ======= =======
- other $ 4,026 $45,836 $ 42 (a) $ 3,653 (b) $46,251
======= ======= ====== ======= =======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts - customers $ 2,306 $13,565 $2,277 (a) $12,530 (b) $ 5,618
======== ======= ====== ======= =======
- other $ -- $ 941 $4,808 (c) $ 1,723 $ 4,026
======== ======= ====== ======= =======
<FN>
- ---------------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
(c) Includes the $4,026,000 effect of the FirstEnergy merger on November 8, 1997.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
OHIO EDISON COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
Additions
-------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Accumulated provision for
uncollectible accounts - customers $6,397 $ 8,401 $2,313 (a) $10,659 (b) $6,452
====== ======= ====== ======= ======
- other $ -- $ 1,000 $ -- $ -- $1,000
====== ======= ====== ======= =======
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts $5,618 $ 7,933 $2,290 (a) $ 9,444 (b) $6,397
====== ======= ====== ======= ======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts $2,306 $10,979 $2,277 (a) $ 9,944 (b) $5,618
====== ======= ====== ======= ======
<FN>
- ------------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
Additions
-------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Accumulated provision for
uncollectible accounts $ 491 $ 1,180 $ 18 (a) $ 689 (b) $1,000
====== ======= ====== ======= ======
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts $1,226 $ (16) $ 42 (a) $ 761 (b) $ 491
====== ======= ====== ======= ======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts:
Nov. 8 - Dec. 31, 1997 $1,226 $ 2,331 $ 216 (a) $ 2,547 (b) $1,226
====== ======= ====== ======= ======
- -----------------------------------------------------------------------------------------------------
Jan. 1 - Nov. 7, 1997 $ 58 $12,853 $1,366 (a) $13,051 (b) $1,226
====== ======= ====== ======= ======
<FN>
- ---------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
THE TOLEDO EDISON COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
Additions
-------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Accumulated provision for
uncollectible accounts $ 100 $ -- $ -- $ 100 (b) $ --
====== ====== ====== ====== ======
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts $2,800 $ 192 $ -- $2,892 (b) $ 100
====== ====== ====== ====== ======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts:
Nov. 8 - Dec. 31, 1997 $2,800 $1,196 $ 566 (a) $1,762 (b) $2,800
====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------
Jan. 1 - Nov. 7, 1997 $ 100 $9,367 $1,797 (a) $8,464 (b) $2,800
====== ====== ====== ====== ======
<FN>
- ------------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
PENNSYLVANIA POWER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<CAPTION>
Additions
-------------------
Charged
Beginning Charged to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- --------- -------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Accumulated provision for
uncollectible accounts $3,599 $1,289 $300 (a) $1,651 (b) $3,537
====== ====== ==== ====== ======
Year Ended December 31, 1998:
Accumulated provision for
uncollectible accounts $3,609 $1,242 $409 (a) $1,661 (b) $3,599
====== ====== ==== ====== ======
Year Ended December 31, 1997:
Accumulated provision for
uncollectible accounts $ 569 $4,409 $397 (a) $1,766 (b) $3,609
====== ====== ==== ====== ======
<FN>
- ------------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FIRSTENERGY CORP.
BY /s/ H. Peter Burg
-------------------------------
H. Peter Burg
Chairman of the Board
and Chief Executive Officer
Date: March 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
/s/ H. Peter Burg /s/ Anthony J. Alexander
- ------------------------------------- ------------------------------------
H. Peter Burg Anthony J. Alexander
Chairman of the Board President and Director
and Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Richard H. Marsh /s/ Harvey L. Wagner
- ------------------------------------- ------------------------------------
Richard H. Marsh Harvey L. Wagner
Vice President and Controller
Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
/s/ Carol A. Cartwright /s/ Glenn H. Meadows
- ------------------------------------- ------------------------------------
Carol A. Cartwright Glenn H. Meadows
Director Director
/s/ William F. Conway /s/ Paul J. Powers
- ------------------------------------- ------------------------------------
William F. Conway Paul J. Powers
Director Director
/s/ Robert B. Heisler, Jr. /s/ Robert C. Savage
- ------------------------------------- ------------------------------------
Robert B. Heisler, Jr. Robert C. Savage
Director Director
/s/ Robert L. Loughhead /s/ George M. Smart
- ------------------------------------- ------------------------------------
Robert L. Loughhead George M. Smart
Director Director
/s/ Russell W. Maier /s/ Jesse T. Williams, Sr.
- ------------------------------------- ------------------------------------
Russell W. Maier Jesse T. Williams, Sr.
Director Director
Date: March 21, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
OHIO EDISON COMPANY
BY /s/ H. Peter Burg
------------------------------
H. Peter Burg
President
Date: March 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
/s/ H. Peter Burg /s/ Richard H. Marsh
- ------------------------------------- ------------------------------------
H. Peter Burg Richard H. Marsh
President and Director Vice President and Director
(Principal Executive Officer) (Principal Financial Officer)
/s/ Harvey L. Wagner /s/ Anthony J. Alexander
- ------------------------------------- ------------------------------------
Harvey L. Wagner Anthony J. Alexander
Controller Director
(Principal Accounting Officer)
Date: March 21, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY
BY /s/ H. Peter Burg
-----------------------------------
H. Peter Burg
President
Date: March 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
/s/ H. Peter Burg /s/ Richard H. Marsh
- ------------------------------------- ------------------------------------
H. Peter Burg Richard H. Marsh
President and Director Vice President and Director
(Principal Executive Officer) (Principal Financial Officer)
/s/ Harvey L. Wagner /s/ Anthony J. Alexander
- ------------------------------------- ------------------------------------
Harvey L. Wagner Anthony J. Alexander
Controller Director
(Principal Accounting Officer)
Date: March 21, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE TOLEDO EDISON COMPANY
BY /s/ H. Peter Burg
-----------------------------------
H. Peter Burg
President
Date: March 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
/s/ H. Peter Burg /s/ Richard H. Marsh
- ------------------------------------- ------------------------------------
H. Peter Burg Richard H. Marsh
President and Director Vice President and Director
(Principal Executive Officer) (Principal Financial Officer)
/s/ Harvey L. Wagner /s/ Anthony J. Alexander
- ------------------------------------- ------------------------------------
Harvey L. Wagner Anthony J. Alexander
Controller Director
(Principal Accounting Officer)
Date: March 21, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PENNSYLVANIA POWER COMPANY
BY /s/ H. Peter Burg
-----------------------------------
H. Peter Burg
Chairman of the Board and
Chief Executive Officer
Date: March 21, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
/s/ H. Peter Burg /s/ Richard H. Marsh
- ------------------------------------- ------------------------------------
H. Peter Burg Richard H. Marsh
Chairman of the Board and Vice President and Director
Chief Executive Officer (Principal Financial Officer)
(Principal Executive Officer)
/s/ Harvey L. Wagner /s/ Anthony J. Alexander
- ------------------------------------- ------------------------------------
Harvey L. Wagner Anthony J. Alexander
Controller Director
(Principal Accounting Officer)
Date: March 21, 2000
FIRSTENERGY CORP.
EXECUTIVE AND DIRECTOR INCENTIVE COMPENSATION PLAN
FE Plan effective May 1, 1998
Revised November 16, 1998
Revised November 16, 1999
<PAGE>
Table of Contents
Page
----
Article 1 Establishment, Purpose, and Duration 1
1.1 Establishment of the Plan 1
1.2 Purpose of the Plan 1
1.3 Duration of the Plan 1
Article 2 Definitions and Construction 1
2.1 Definitions
2.1.1 Award 1
2.1.2 Beneficial Owner 1
2.1.3 Black-Scholes Value 1
2.1.4 Board or Board of Directors 1
2.1.5 Cash Award 1
2.1.6 Cause 1
2.1.7 Change in Control 2
2.1.8 Code 4
2.1.9 Committee 4
2.1.10 Company 4
2.1.11 Covered Employee 4
2.1.12 Directors' Award 4
2.1.13 Exchange Act 4
2.1.14 Fair Market Value 4
2.1.15 Incentive Stock Option or ISO 4
2.1.16 Key Employee 4
2.1.17 Nonqualified Stock Option or NSO 4
2.1.18 Option 4
2.1.19 Outside Director 4
2.1.20 Participant 4
2.1.21 Performance Share 5
2.1.22 Period of Restriction 5
2.1.23 Person 5
2.1.24 Plan 5
2.1.25 Restricted Stock 5
2.1.26 Subsidiary 5
2.1.27 Standard Rate 5
2.1.28 Stock 5
2.1.29 Stock Appreciation Right or SAR 5
2.1.30 Voting Stock 5
2.2 Gender and Number 5
2.3 Severability 5
Article 3 Administration
3.1 The Committee 5
3.2 Authority of the Committee 5
3.3 Selection of Participants 6
3.4 Decisions Binding 6
3.5 Delegation of Certain Responsibilities 6
<PAGE>
Table of Contents
Page
----
3.6 Procedures of the Committee 6
3.7 Award Agreements 7
Conditions on Awards 7
Saturdays, Sundays, and Holidays 7
Article 4 Stock Subject to the Plan
Number of Shares 7
Lapsed Awards 8
Adjustments in Authorized Shares 8
Article 5 Eligibility and Participation
Eligibility 8
Actual Participation 8
Article 6 Stock Options
Grant of Options 8
Option Agreement 9
Option Price 9
Duration of Options 9
Exercise of Options 9
Payment 9
Restrictions on Stock Transferability 10
Termination of Employment Due to Death, Disability, 10
or Retirement
Termination of Employment for Other Reasons 10
Nontransferability of Options 10
Article 7 Stock Appreciation Rights
Grant of Stock Appreciation Rights 11
Exercise of SARS in Lieu of Options 11
Exercise of SARS in Addition to Options 11
Exercise of SARS Independent of Options 11
Payment of SAR Amount 12
Form and Timing of Payment 12
Term of SAR 12
Termination of Employment 12
Nontransferability of SARs 12
Article 8 Restricted Stock
Grant of Restricted Stock 12
Restricted Stock Agreement 12
Transferability 12
Other Restrictions 13
Certificate Legend 13
Removal of Restrictions 13
Voting Rights 13
Dividends and Other Distributions 13
<PAGE>
Table of Contents
Page
----
Termination of Employment Due to Retirement 13
Termination of Employment Due to Death or Disability 14
Termination of Employment for Other Reasons 14
Article 9 Performance Shares
Grant of Performance Shares 14
Value of Performance Shares 14
Payment of Performance Shares 15
Committee Discretion to Adjust Awards 15
Form and Timing of Payment 15
Termination of Employment Due to Death, Disability, 15
or Retirement
Termination of Employment for Other Reasons 15
Nontransferability 16
Article 10 Cash Awards
Grant of Cash Award 16
Cash Award Performance Criteria 16
Payout of Cash awards 16
Conversion of Cash Award Payout to Restricted Stock 16
Article 11 Directors' Awards
Grant of Director's Awards 17
Conversion of Retainer to Stock 17
Conversion of Retainer to Restricted Stock 17
Conversion of Retainer to Stock Options 17
Article 12 Beneficiary Designation 17
Article 13 Rights of Employees
Employment 18
Participation 18
No Implied Rights; Rights on Termination of Service 18
No Right to Company Assets 18
Article 14 Change in Control
Stock Based Awards 18
All Awards Other than Stock Based Awards 18
Article 15 Amendment, Modification, and Termination
Amendment, Modification, and Termination 19
Awards Previously Granted 19
Deferral of Payments and Distributions 19
Article 16 Withholding and Deferral
Tax Withholding 19
<PAGE>
Table of Contents
Page
----
Stock Delivery or Withholding 19
Article 17 Successors 20
Article 18 Requirements of Law
Requirements of Law 20
Governing Law 20
<PAGE>
Scope of Revision
Rev. 2
Change definition of Fair Market Value from 20 day average to high and low on
date of grant.
Rev. 1
Reformatted from Landscape to Portrait, made numbering consistence throughout
document.
Included Table of Contents and Scope of Revision pages.
Changed the NQSO acronym to NSO throughout.
Clarified that the Chief Executive Officer could grant awards for all Key
employees, except those defined as Covered Employees.
Incorporated the changes to Rule 16b-3 requirements.
Clarified how dates referenced in the Agreements are to be handled when the
date falls on a Saturday, Sunday, or Holiday.
Clarified how cashless exercises are handled.
Clarified that exercising portions of grants are permissible.
Added language to 18.2 regarding conflicts of law.
Rev. 0
Plan approved by FirstEnergy Board of Directors on February 17, 1998
Plan approved by common shareholders on April 30, 1998
Plan became effective on May 1, 1998
<PAGE>
ARTICLE 1 ESTABLISHMENT, PURPOSE, AND DURATION
------------------------------------
1.1 ESTABLISHMENT OF THE PLAN. FirstEnergy Corp. (hereinafter referred to
as "FirstEnergy"), established, effective May 1, 1998, an incentive
compensation plan known as the "Executive and Director Incentive Compensation
Plan" (hereinafter referred to as the "Plan"), which permits the grant of
Incentive Stock Options, Non-qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares, Cash Awards and Directors'
Awards.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote the success
of the Company and its Subsidiaries by providing incentives to Key Employees
and Directors that will link their personal interests to the long-term
financial success of the Company and its Subsidiaries, and to growth in
shareholder value. The Plan is designed to provide flexibility to the Company
and its Subsidiaries in their ability to motivate, attract, and retain the
services of Key Employees upon whose judgment, interest, and special effort
the successful conduct of their operations is largely dependent. The Plan is
intended to preserve maximum deductibility of all awards made under the plan
within the structure of Section 162(m) of the Internal Revenue Code of 1986 as
amended "the Code".
1.3 DURATION OF THE PLAN. The Plan will commence on May 1, 1998, as
described in Section 1.1 herein. The Plan shall remain in effect, subject to
the right of the Board of Directors to terminate the Plan at any time, until
all Shares subject to it shall have been purchased or acquired according to
the provisions herein.
ARTICLE 2 DEFINITIONS AND CONSTRUCTION
----------------------------
2.1. DEFINITIONS. Whenever used in the Plan, the following terms shall have
the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized:
2.1.1 "Award" means, individually or collectively, a grant under this Plan of
Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares, Cash Awards or Directors'
Awards.
2.1.2 "Beneficial Owner" shall have the meaning ascribed to such term in Rule
13d-3 of the General Rules and Regulations under the Exchange Act.
2.1.3 "Black-Scholes Value" means the value of one stock option as calculated
by the Black-Scholes Valuation Model as prescribed under Financial Accounting
Standard 123.
2.1.4 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.1.5 "Cash Award" means an award in the form of cash that is a bonus made
pursuant to the terms of Article 10.
<PAGE>
2.1.6 "Cause" shall mean the occurrence of any one of the following:
(i) the willful and continued failure by a Participant to substantially
perform his/her duties (other than any such failure resulting from the
Participant's disability), after a written demand for substantial performance
is delivered to the Participant that specifically identifies the manner in
which the Company or any of its Subsidiaries, as the case may be, believes
that the Participant has not substantially performed his/her duties, and the
Participant has failed to remedy the situation within ten (10) business days
of receiving such notice; or
(ii) the Participant's conviction for committing a felony or a crime
involving an act of moral turpitude, dishonesty or misfeasance; or
(iii) the willful engaging by the Participant in gross misconduct materially
and demonstrably injurious to the Company or any of its Subsidiaries. However,
no act, or failure to act, on the Participant's part shall be considered
"willful" unless done, or omitted to be done, by the Participant not in good
faith and without reasonable belief that his/her action or omission was in the
best interest of the Company or any of its Subsidiaries.
2.1.7 "Change in Control" shall mean:
(i) The acquisition by Person of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% (25% if such Person
proposes any individual for election to the Board or any member of the Board
is the representative of such Person) or more of either
(a) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change in Control:
(1) any acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege),
(2) any acquisition by the Company,
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or
(4) any acquisition by any corporation pursuant to a reorganization, merger
or consolidation, if, following such reorganization, merger or consolidation,
the conditions described in clauses (a), (b) and (c) of subsection (iii) of
this subsection 2.1.7 are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of the Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
Approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
<PAGE>
consolidation,
(a) more than 75% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be,
no Person (excluding the Company, an employee benefit plan (or related trust)
of the Company or such corporation resulting from such reorganization, merger
or consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 25% or more
of the Outstanding Company Common Stock or Outstanding Voting Securities, as
the case may be) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and
at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(iv) Approval by the shareholders of the Company of (a) a complete liquidation
or dissolution of the Company or (b) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition (1) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition
in substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 25% or more
of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 25%
or more of, respectively, the then outstanding share of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (3) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the time of the
<PAGE>
execution of the initial agreement or action of the Board providing for such
sale or other disposition of assets of the Company.
However, in no event shall a Change in Control be deemed to have occurred,
with respect to a Participant, if the Participant is part of a purchasing
group, which consummates the Change in Control transaction. The Participant
shall be deemed "part of a purchasing group. . . " for purposes of the
preceding sentence if the Participant is an equity participant or has agreed
to become an equity participant in the purchasing company or group (except for
(i) passive ownership of less than 5% of the voting securities of the
purchasing company or (ii) ownership of equity participation in the purchasing
company or group which is otherwise not deemed to be significant, as
determined prior to the Change in Control by a majority of the non-employee
continuing members of the Board).
2.1.8 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.1.9 "Committee" means the Compensation Committee of the Board.
2.1.10 "Company" means FirstEnergy Corp., an Ohio corporation, or any
successor thereto as provided in Article 17 herein.
2.1.11 "Covered Employee" means any Participant designated prior to the grant
of Stock Options, Stock Appreciation Rights, Restricted Stock, Performance
Shares or Cash Award by the Committee who is or may be a "covered employee"
within the meaning of Section 162(m)(3) of the Code in the year in which such
Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares
or Cash Award are taxable to such Participant.
2.1.12 "Directors' Award" means an Award made pursuant to Article 11 of this
Plan.
2.1.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
2.1.14 "Fair Market Value" means the average of the high and low sale prices
of the common stock as reported on the composite tape of the New York Stock
Exchange for the date in which the determination of the fair market value is
made, or, if there are no sales of common stock on that date, then on the next
preceding date on which there were sales of common stock.
2.1.15 "Incentive Stock Option" or "ISO" means an option to purchase Stock,
granted under Article 6 herein, which is designated as an incentive stock
option and is intended to meet the requirements of Section 422 of the Code.
2.1.16 "Key Employee" means an employee of the Company or any of its
Subsidiaries, including an employee who is an officer or a director of the
Company or any of its Subsidiaries, who, in the opinion of the Committee, can
contribute significantly to the growth and profitability of the Company and
its Subsidiaries. "Key Employee" also may include any other employee,
identified by the Committee, in special situations involving extraordinary
performance, promotion, retention, or recruitment. The granting of an Award
under this Plan shall be deemed a determination by the Committee that such
employee is a Key Employee, but shall not create a right to remain a Key
Employee.
2.1.17 "Nonqualified Stock Option" or "NSO" means an option to purchase
Stock, granted under Article 6 herein, which is not intended to be an
Incentive Stock Option.
2.1.18 "Option" means an Incentive Stock Option or a Nonqualified Stock
<PAGE>
Option.
2.1.19 "Outside Director" means any director who qualifies as an "outside
director" as that term is defined in Code Section 162(m) and the regulations
issued thereunder.
2.1.20 "Participant" means a Key Employee or Director who has been granted an
Award under the Plan.
2.1.21 "Performance Share" means an Award, designated as a performance share,
granted to a Participant pursuant to Article 9 herein.
2.1.22 "Period of Restriction" means the period during which the transfer or
sale of Shares of Restricted Stock by the participant is restricted.
2.1.23 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.1.24 "Plan" means this Executive and Director Incentive Compensation Plan
of FirstEnergy Corp., as herein described and as hereafter from time to time
amended.
2.1.25 "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Article 8 herein.
2.1.26 "Subsidiary" shall mean any corporation of which more than 50% (by
number of votes) of the Voting Stock at the time outstanding is owned,
directly or indirectly, by the Company.
2.1.27 "Standard Rate" means the electric utility median base salary level
for a given position as determined in the judgment of the Committee.
2.1.28 "Stock" or "Shares" means the common stock with a 10 cent par value of
the Company.
2.1.29 "Stock Appreciation Right" or "SAR" means an Award, designated as a
Stock Appreciation Right, granted to a Participant pursuant to Article 7
herein.
2.1.30 "Voting Stock" shall mean securities of any class or classes of stock
of a corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
2.3. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
ARTICLE 3 ADMINISTRATION
--------------
3.1 THE COMMITTEE. The Plan shall be administered by the Committee, which
consists of not less than three Directors who shall be appointed from time to
time by, and shall serve at the discretion of, the Board of Directors. To the
extent required to comply with Rule 16b-3 under the Exchange Act, each member
of the Committee shall qualify as a "Non-Employee Director" as defined in Rule
16b-3 or any successor definition adopted by the Securities and Exchange
<PAGE>
Commission. To the extent required to comply with Code Section 162(m), each
member of the Committee shall also be an Outside Director.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have full power to construe and interpret the Plan; to
establish, amend or waive rules and regulations for its administration; to
accelerate the exercisability of any Award or the end of a performance period
or the termination of any Period of Restriction or any award agreement, or any
other instrument relating to an Award under the Plan; and (subject to the
provisions of Article 15 herein) to amend the terms and conditions of any
outstanding Option, Stock Appreciation Right or other Award to the extent such
terms and conditions are within the discretion of the Committee as provided in
the Plan. Notwithstanding the foregoing, the Committee shall have no authority
to adjust upwards the amount payable to a Covered Employee with respect to a
particular Award, to take any of the foregoing actions, or to take any other
action to the extent that such action or the Committee's ability to take such
action would cause any Award under the Plan to any Covered Employee to fail to
qualify as "performance-based compensation" within the meaning of Code Section
162(m)(4) and the regulations issued thereunder. Subject to section 4.3, in no
event shall the Committee have the right to i) cancel outstanding Options or
SARs for the purpose of replacing or regranting such Options or SARs with an
exercise price that is less than the original exercise price of the Option or
SAR, or ii) change the Option Price of an Option or SAR to an exercise price
that is less than the original Option or SAR exercise price, without first
obtaining the approval of shareholders. Also notwithstanding the foregoing,
no action of the Committee (other than pursuant to Section 4.3 hereof or
Section 9.4 hereof) may, without the consent of the person or persons entitled
to exercise any outstanding Option or Stock Appreciation Right or to receive
payment of any other outstanding Award, adversely affect the rights of such
person or persons.
3.3 SELECTION OF PARTICIPANTS. The Committee shall have the authority to
grant Awards under the Plan, from time to time, to such Key Employees and
Directors as may be selected by it. The Committee shall select Participants
from among those who they have identified as being Key Employees or Directors.
3.4 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive and binding
on all persons, including the Company and its Subsidiaries, its stockholders,
employees, and Participants and their estates and beneficiaries, and such
determinations and decisions shall not be reviewable.
3.5 DELEGATION OF CERTAIN RESPONSIBILITIES. The Committee may, in its sole
discretion, delegate to an officer or officers of the Company the
administration of the Plan under this Article 3; provided, however, that no
such delegation by the Committee shall be made with respect to the
administration of the Plan as it affects Directors of the Company or Covered
Employees and provided further that the Committee may not delegate its
authority to correct errors, omissions or inconsistencies in the Plan. The
Committee may delegate to the Chief Executive Officer of the Company its
<PAGE>
authority under this Article 3 to grant Awards to Key Employees who are not
Covered Employees. All authority delegated by the Committee under this
Section 3.5 shall be exercised in accordance with the provisions of the Plan
and any guidelines for the exercise of such authority that may from time to
time be established by the Committee.
3.6 PROCEDURES OF THE COMMITTEE. All determinations of the Committee shall
be made by not less than a majority of its members present at the meeting (in
person or otherwise) at which a quorum is present. A majority of the entire
Committee shall constitute a quorum for the transaction of business. Any
action required or permitted to be taken at a meeting of the Committee may be
taken without a meeting if a unanimous written consent, which sets forth the
action, is signed by each member of the Committee and filed with the minutes
for proceedings of the Committee. Service on the Committee shall constitute
service as a director of the Company so that members of the Committee shall be
entitled to indemnification, limitation of liability and reimbursement of
expenses with respect to their services as members of the Committee to the
same extent that they are entitled under the Company's Articles of
Incorporation and Ohio law for their services as directors of the Company.
3.7 AWARD AGREEMENTS. Stock-based Awards under the Plan shall be evidenced
by an award agreement, which shall be signed by an authorized officer of the
Company or delegate and by the Participant, and shall contain such terms and
conditions as may be approved by the Committee. Such terms and conditions need
not be the same in all cases.
3.8 CONDITIONS ON AWARDS. Notwithstanding any other provision of the Plan,
the Board or the Committee may impose such conditions on any Award (including,
without limitation, the right of the Board or the Committee to limit the time
of exercise to specified periods).
Notwithstanding any other provisions of the Plan, all Awards under this Plan
shall be subject to the following conditions:
Except in the case of death, no SAR, ISO, NSO or other option granted pursuant
to Article 6 shall be exercisable for at least six months after its grant; and
Except in the case of death, no Restricted Stock or Performance Share (or a
Share issued in payment thereof) shall be sold for at least six months after
its grant.
SATURDAYS, SUNDAYS AND HOLIDAYS. When a date referenced in an award Agreement
falls on a Saturday, Sunday or other day when the FirstEnergy General Office
is closed, the date reference will revert back to the day prior to such date.
ARTICLE 4 STOCK SUBJECT TO THE PLAN
-------------------------
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the aggregate number of Shares that may be delivered under the Plan at
any time shall not exceed 7,500,000 Shares of common stock of the Company. No
<PAGE>
more than three-quarters of such aggregate number of such Shares shall be
issued as Restricted Stock under Article 8 of the Plan or as Performance
Shares under Article 9. Stock delivered under the Plan may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
purchased on the open market. The exercise of a Stock Appreciation Right,
whether paid in cash or Stock, shall be deemed to be an issuance of Stock
under the Plan.
4.2 LAPSED AWARDS. If any Award granted under this Plan terminates,
expires, or lapses for any reason, any Stock subject to such Award again shall
be available for the grant of an Award under the Plan, subject to Section 7.2
herein. If the value of any Performance Shares issued under Article 9 are paid
in cash after a Performance Period has ended, such stock subject to such award
shall again be available for the grant of an award under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation,
stock dividend, split-up, share combination, or other change in the corporate
structure of the Company affecting the Stock, such adjustment shall be made in
the number and class of shares which may be delivered under the Plan, and in
the number and class of and/or price of shares subject to outstanding Options,
Stock Appreciation Rights, Restricted Stock Awards and Performance Shares,
granted under the Plan, as may be determined to be appropriate and equitable
by the Committee, in its sole discretion, to prevent dilution or enlargement
of rights; and provided that the number of shares subject to any Award shall
always be a whole number. Any adjustment of an Incentive Stock Option under
this paragraph shall be made in such a manner so as not to constitute a
modification within the meaning of Section 425(h)(3) of the Code.
ARTICLE 5 ELIGIBILITY AND PARTICIPATION
-----------------------------
5.1 ELIGIBILITY. Persons eligible to receive Awards under all Articles of
this Plan except Article 11 include all employees of the Company and its
Subsidiaries who, in the opinion of the Committee, are Key Employees. Key
Employees may include employees who are members of the Board, but may not
include Directors who are not employees. Directors who are not employees may
receive Awards under this Plan exclusively under Articles 6 and 8, subject to
Article 11.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may from time to time select those Key Employees to whom Awards
shall be granted and determine the nature and amount of each Award. No
employee shall have any right to be granted an Award under this Plan even if
previously granted an Award.
ARTICLE 6 STOCK OPTIONS
-------------
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants at any time and from time to time as
<PAGE>
shall be determined by the Committee. The maximum number of Shares subject to
Options granted to any individual Participant in any calendar year shall be
two hundred thousand (200,000) Shares. The Committee shall have the sole
discretion, subject to the requirements of the Plan, to determine the actual
number of Shares subject to Options granted to any Participant. The Committee
may grant any type of Option to purchase Stock that is permitted by law at the
time of grant, including, but not limited to, ISO's and NSO's. However, no
employee may receive an Award of Incentive Stock Options that are first
exercisable during any calendar year to the extent that the aggregate Fair
Market Value of the Stock (determined at the time the options are granted)
exceeds $100,000. Nothing in this Article 6 shall be deemed to prevent the
grant of NSO's in excess of the maximum established by Section 422 of the
Code. Unless otherwise expressly provided at the time of grant, Options
granted under the Plan will be NSO's. Notwithstanding any other provision of
the Plan, no ISO shall be granted after May 1, 2008.
6.2 OPTION AGREEMENT. Each Option grant shall be evidenced by an Option
agreement that shall specify the type of Option granted, the Option price, the
duration of the Option, the number of Shares to which the Option pertains, and
such other provisions as the Committee shall determine. The Option agreement
shall specify whether the Option is intended to be an Incentive Stock Option
within the meaning of Section 422 of the Code, or a Nonqualified Stock Option
whose grant is not intended to be subject to the provisions of Code Section
422.
6.3 OPTION PRICE. The purchase price per share of Stock covered by an
Option shall be determined by the Committee but shall not be less than 100% of
the Fair Market Value of such Stock on the date the Option is granted.
An Incentive Stock Option granted to an Employee who, at the time of grant,
owns (within the meaning of Section 425(d) of the Code) Stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, shall have an exercise price which is at least 110% of the Fair
Market Value of the Stock subject to the Option.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date of
its grant.
6.5 EXERCISE OF OPTIONS. Subject to Section 3.8 herein, Options granted
under the Plan shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance approve,
which need not be the same for all Participants. All options within a single
grant need not be exercised at one time.
6.6 PAYMENT. Options shall be exercised by the delivery of a written notice
to the Company setting forth the number of Shares with respect to which the
Option is to be exercised, accompanied by full payment for the Shares. The
Option price upon exercise of any Option shall be payable to the Company in
full either:
<PAGE>
in cash or its equivalent;
by tendering Shares of previously acquired Stock having a Fair Market Value at
the time of exercise equal to the total Option price,
by foregoing compensation under rules established by the Committee,
by delivery by the Participant of irrevocable instructions to an approved
broker to promptly deliver to the Company the amount of the sale or loan
proceeds to pay the exercise price, or
such other consideration as the Committee may deem appropriate.
The proceeds from such a payment shall be added to the general funds of the
Company and shall be used for general corporate purposes. As soon as
practicable, after the Company's receipt of written notification and payment,
the Participant shall receive either:
stock certificates in an appropriate amount based upon the number of Options
exercised, issued in the Participant's name:
cash in an amount equal to the difference between the sale price of such
Shares and the Option price less taxes and administrative expenses; or
a combination of the foregoing.
6.7 RESTRICTIONS ON STOCK TRANSFERABILITY. The Committee shall impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
under the Plan as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities law, under the requirements
of any stock exchange upon which such Shares are then listed and under any
blue sky or state securities laws applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the event the employment of a Participant is terminated by reason of death,
any of such Participant's outstanding Options shall become immediately
exercisable at any time prior to the expiration date of the Options or within
one year after such date of termination of employment, whichever period is
shorter, by such person or persons as shall have acquired the Participant's
rights under the Option pursuant to Article 12 hereof or by will or by the
laws of descent and distribution. In the event the employment of a Participant
is terminated by reason of disability or retirement (as defined under the then
established rules of the Company or any of its Subsidiaries, as the case may
be), any of such Participant's outstanding Options shall become immediately
exercisable, at any time prior to the expiration date of the Options or within
one year after such date of termination of employment, whichever period is
shorter. Notwithstanding the foregoing to the contrary, the Committee may, in
its sole discretion, lengthen the exercise period up to the expiration date
for an individual participant if it deems this is in the best interest of the
Company. In the case of Incentive Stock Options, the favorable tax treatment
prescribed under Section 422 of the Internal Revenue Code of l986, as amended,
may not be available if the Options are not exercised within the Code Section
422 prescribed time period after termination of employment for death,
disability, or retirement.
6.9 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. If the employment of a
Participant shall terminate for any reason other than death, disability,
retirement or for Cause, the Participant shall have the right to exercise such
<PAGE>
Participant's outstanding Options within 90 days after the date of his
termination, but in no event beyond the expiration of the term of the Options
and only to the extent that the Participant was entitled to exercise the
Options at the date of his termination of employment. In its sole discretion,
the Committee may extend the 90 days to up to one year but, however, in no
event beyond the expiration date of the Option.
If the employment of the Participant shall terminate for Cause, all of the
Participant's outstanding Options shall be immediately forfeited back to the
Company.
6.10 NONTRANSFERABILITY OF OPTIONS. No Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution. Further,
all Options granted to a Participant under the Plan shall be exercisable
during his lifetime only by such Participant.
ARTICLE 7 STOCK APPRECIATION RIGHTS
-------------------------
7.1 GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and conditions
of the Plan, Stock Appreciation Rights may be granted to Participants, at the
discretion of the Committee, in any of the following forms:
in lieu of Options;
in addition to Options;
independent of Options; or
in any combination of (a), (b), or (c).
The maximum numbers of Shares subject to SARs granted to any individual
Participant in any calendar year shall be two hundred thousand (200,000)
Shares. Subject to the immediately preceding sentence, the Committee shall
have the sole discretion, subject to the requirements of the Plan, to
determine the actual number of Shares subject to SARs granted to any
Participant.
7.2 EXERCISE OF SARS IN LIEU OF OPTIONS. SARs granted in lieu of Options may
be exercised for all or part of the Shares subject to the related Option upon
the surrender of the related Options representing the right to purchase an
equivalent number of Shares. The SAR may be exercised only with respect to the
Shares of Stock for which its related Option is then exercisable. Option Stock
with respect to which the SAR shall have been exercised may not be subject
again to an Award under the Plan.
Notwithstanding any other provision of the Plan to the contrary, with respect
to a SAR granted in lieu of an Incentive Stock Option:
(i) the SAR will expire no later than the expiration of the underlying
Incentive Stock Option;
the SAR amount may be for no more than one hundred percent (100%) of the
difference between the exercise price of the underlying Incentive Stock Option
and the Fair Market Value of the Stock subject to the underlying Incentive
<PAGE>
Stock Option at the time the SAR is exercised; and
the SAR may be exercised only when the Fair Market Value of the Stock subject
to the Incentive Stock Option exceeds the exercise price of the Incentive
Stock Option.
7.3 EXERCISE OF SARS IN ADDITION TO OPTIONS. SARs granted in addition to
Options shall be deemed to be exercised upon the exercise of the related
Options. The deemed exercise of SARs granted in addition to Options shall not
necessitate a reduction in the number of related Options.
7.4 EXERCISE OF SARS INDEPENDENT OF OPTIONS. Subject to Section 3.8 herein
and Section 7.5 herein, SARs granted independently of Options may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon the SARs, including, but not limited to, a corresponding
proportional reduction in previously granted Options.
7.5 PAYMENT OF SAR AMOUNT. Upon exercise of the SAR, the holder shall be
entitled to receive payment of an amount determined by multiplying:
The difference between the market price of a Share on the date of exercise
over the price fixed by the Committee at the date of grant (which price shall
not be less than 100% of the market price of a Share on the date of grant)
(the Exercise Price); by
The number of Shares with respect to which the SAR is exercised.
7.6 FORM AND TIMING OF PAYMENT. Payment to a Participant, upon SAR
exercise, will be made in cash or stock, at the discretion of the Committee,
as soon as administratively possible after exercise.
7.7 TERM OF SAR. The term of an SAR granted under the Plan shall not exceed
ten years.
7.8 TERMINATION OF EMPLOYMENT. In the event the employment of a Participant
is terminated by reason of death, disability, retirement, or any other reason,
the exercisability of any outstanding SAR granted in lieu of or in addition to
an Option shall terminate in the same manner as its related Option as
specified under Sections 6.8 and 6.9 herein. The exercisability of any
outstanding SARs granted independent of Options also shall terminate in the
manner provided under Sections 6.8 and 6.9 hereof.
7.9 NONTRANSFERABILITY OF SARS. No SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all SARs
granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant.
ARTICLE 8 RESTRICTED STOCK
----------------
8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
<PAGE>
Restricted Stock under the Plan to such Participants and in such amounts, as
it shall determine. The Committee may condition the vesting or lapse of the
Period of Restriction established pursuant to Section 8.3 upon the attainment
of one or more of the performance goals utilized for purposes of Performance
Shares pursuant to Article 9 hereof. As required for valuation of grants under
the Plan, Restricted Stock will be valued at its Fair Market Value. The
maximum number of Shares subject to issuance as Restricted Stock granted to
any individual Participant in any calendar year is one hundred thousand
(100,000) Shares.
8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock agreement that shall specify the Period of
Restriction, or periods, the number of Shares of Restricted Stock granted, and
such other provisions as the Committee shall determine.
8.3 TRANSFERABILITY. Except as provided in this Article 8 or in Section 3.8
herein, the Shares of Restricted Stock granted hereunder may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until
the termination of the applicable Period of Restriction or for such period of
time as shall be established by the Committee and as shall be specified in the
Restricted Stock agreement, or upon earlier satisfaction of other conditions
(including any performance goals) as specified by the Committee in its sole
discretion and set forth in the Restricted Stock agreement. All rights with
respect to the Restricted Stock granted to a Participant under the Plan shall
be exercisable during his lifetime only by such Participant.
8.4 OTHER RESTRICTIONS. The Committee shall impose such other restrictions
on any Shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including, without limitation, restrictions under applicable Federal
or state securities laws, and the Committee may legend certificates
representing Restricted Stock to give appropriate notice of such restrictions.
8.5 CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Section 8.4 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer set forth in the Executive and
Director Incentive Compensation Plan of FirstEnergy Corp., in the rules and
administrative procedures adopted pursuant to such Plan, and in a Restricted
Stock Agreement dated __________. A copy of the Plan, such rules and
procedures, and such Restricted Stock agreement may be obtained from the
Secretary of FirstEnergy Corp."
8.6 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this Article,
Shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable by the Participant after the last
day of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 8.5 removed from his Stock certificate.
<PAGE>
8.7 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.8 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares while they are so held. If any such dividends or distributions
are paid in Shares, the Shares shall be subject to the same restrictions on
transferability as the Shares of Restricted Stock with respect to which they
were paid.
8.9 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event that a
Participant terminates his employment with the Company or any of its
Subsidiaries because of retirement (as defined under the then established
rules of the Company or any of its Subsidiaries, as the case may be), the
Committee in its sole discretion (subject to Section 3.8 herein) may waive or
modify the restrictions remaining on any or all Shares of Restricted Stock as
it deems appropriate.
8.10 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. In the event a
Participant's employment is terminated because of death or disability (as
defined under the then established rules of the Company or any of its
Subsidiaries, as the case may be) during the Period of Restriction, any
remaining Period of Restriction applicable to the Restricted Stock shall
automatically terminate and, except as otherwise provided in Section 8.4.
herein, the Shares of Restricted Stock shall thereby be free of restrictions
and be fully transferable.
8.11 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates his employment with the Company or any of its
Subsidiaries for any reason other than for death, disability, or retirement,
as set forth in Sections 8.9 and 8.10 herein, during the Period of
Restriction, then any Shares of Restricted Stock still subject to restrictions
as of the date of such termination shall automatically be forfeited and
returned to the Company; provided, however, that in the event of a termination
of the employment of a Participant by the Company or any of its Subsidiaries
other than for Cause, the Committee, in its sole discretion (subject to
Section 3.8 herein), may waive or modify the automatic forfeiture of any or
all such Shares as it deems appropriate.
ARTICLE 9 PERFORMANCE SHARES
------------------
9.1 GRANT OF PERFORMANCE SHARES. Subject to the terms and provisions of the
Plan, Performance Shares may be granted to Participants at any time and from
time to time as shall be determined by the Committee. The maximum number of
Shares that may be issued to any Participant in a calendar year shall not
exceed one hundred thousand (100,000), subject to adjustment as provided in
Section 4.3.
9.2 VALUE OF PERFORMANCE SHARES. The Committee shall set performance goals
over certain periods to be determined in advance by the Committee
("Performance Periods"). Prior to each grant of Performance Shares, the
Committee shall establish an initial number of Shares for each Performance
Share granted to each Participant for that Performance Period. Prior to each
grant of Performance Shares, the Committee also shall set the performance
goals that will be used to determine the extent to which the Participant
receives a payment of the number of Shares for the Performance Shares awarded
for such Performance Period. These goals will be based on the attainment by
the Company or its Subsidiaries of certain objective performance measures,
which may include, but are not limited to one or more of the following: total
shareholder return, return on equity, return on capital, earnings per share,
market share, stock price, sales, costs, net income, cash flow, retained
earnings, results of customer satisfaction surveys, aggregate product price
and other product price measures, safety record, service reliability, demand-
side management (including conservation and load management), operating and
maintenance cost management, and energy production availability performance
measures. Such performance goals also may be based upon the attainment of
specified levels of performance of the Company or one or more Subsidiaries
under one or more of the measures described above, relative to the performance
of other corporations. The Committee may provide for the crediting of dividend
equivalents during the performance period. With respect to each such
performance measure utilized during a Performance Period, the Committee shall
assign percentages to various levels of performance which shall be applied to
determine the extent to which the Participant shall receive a payout of the
number of Performance Shares awarded. With respect to Covered Employees, all
performance goals shall be objective performance goals satisfying the
requirements for "performance-based compensation" within the meaning of
Section 162(m)(4) of the Code, and shall be set by the Committee within the
time period prescribed by Section 162(m) of the Code and related regulations.
9.3 PAYMENT OF PERFORMANCE SHARES. After a Performance Period has ended,
the holder of a Performance Share shall be entitled to receive the value
thereof as determined by the Committee. The Committee shall make this
determination by first determining the extent to which the performance goals
set pursuant to Section 9.2 have been met. It will then determine the
applicable percentage (which may exceed 100%) to be applied to, and will apply
such percentage to, the number of Performance Shares to determine the payout
to be received by the Participant. In addition, with respect to Performance
Shares granted to any Covered Employee, no payout shall be made hereunder
except upon written certification by the Committee that the applicable
performance goal or goals have been satisfied to a particular extent. The
amount payable in cash in a calendar year to any Participant with respect to
any Performance Period pursuant to any Performance Share award shall not
exceed $1,000,000.
9.4 COMMITTEE DISCRETION TO ADJUST AWARDS. Subject to Section 3.2 regarding
Awards to Covered Employees, the Committee shall have the authority to modify,
amend or adjust the terms and conditions of any Performance Share award, at
any time or from time to time, including but not limited to the performance
goals.
9.5 FORM AND TIMING OF PAYMENT. The payment described in Section 9.3 herein
shall be made in cash, Stock, or a combination thereof as determined by the
Committee. Payment may be made in a lump sum or installments as
<PAGE>
prescribed by the Committee. If any payment is to be made on a deferred basis,
the Committee may provide for the payment of dividend equivalents or interest
during the deferral period. Any stock issued in payment of a Performance Share
shall be subject to the restrictions on transfer in Section 3.8 herein.
9.6 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT. In
the case of death, disability, or retirement (each of disability and
retirement as defined under the established rules of the Company or any of its
Subsidiaries, as the case may be), the holder of a Performance Share shall
receive a prorated payment based on the Participant's number of full months of
service during the Performance Period, further adjusted based on the
achievement of the performance goals, as computed by the Committee. The
Committee may require that a Participant have a minimum number of full months
of service during the Performance Period to qualify for an Award payout.
9.7 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant terminates employment with the Company or any of its Subsidiaries
for any reason other than death, disability, or retirement, all Performance
Shares shall be forfeited; provided, however, that in the event of a
termination of the employment of the Participant by the Company or any of its
Subsidiaries other than for Cause, the Committee in its sole discretion may
waive the automatic forfeiture provisions.
9.8 NONTRANSFERABILITY. No Performance Shares granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution until the
termination of the applicable Performance Period. All rights with respect to
Performance Shares granted to a Participant under the Plan shall be
exercisable during his/her lifetime only by such Participant.
ARTICLE 10 CASH AWARDS
------------
10.1 GRANT OF CASH AWARD. Subject to the terms of this Plan, Cash Awards may
be made to Participants at any time and from time to time as shall be
determined by the Committee. The Committee shall have complete discretion in
the determining the form of the Cash Awards granted to Participants.
10.2 CASH AWARD PERFORMANCE CRITERIA. All Cash Awards made under this Plan
shall be subject to pre-established, objective, business-related Performance
Measures. The performance measures shall be approved for use by the Committee
and the Committee shall certify their attainment and the resulting payout of
Cash Awards. Performance Measures for Cash Awards may be measurable for
periods of one year to five years (allowing for prorated periods for new
Participants). The Performance Measures may include, but shall not be limited
to: operational measures (e.g. attaining merger milestones, customer
satisfaction, service reliability, safety and tactical objectives), financial
measures (e.g. expense control, revenue, margins and shareholder value added
levels "SVA") and individual measures. Performance Measures can be made on
overlapping cycles, (i.e. one-year cycles could emphasize operational measures
<PAGE>
and three-year cycles could emphasize SVA Performance Measures.) Each cycle of
Performance Measures could have a distinct Cash Award associated with it.
10.3 PAYOUT OF CASH AWARDS. Payouts of Cash Awards are made in relationship
to a target payout level determined prior to each cycle on a per Participant
basis. Target levels under multiple cycles will be calibrated to provide, in
total, an annualized level of incentives consistent with the Company's
compensation philosophy as set by the Committee. Actual payouts of Cash Awards
will vary with performance results as follows: actual payouts based upon
operational or individual Performance Measures will vary from 50% (if
threshold performance is attained) to 150% of the target level; actual payouts
based upon Company SVA and other corporate financial measures will vary from
50% (if threshold performance is attained) up to 200% of the target level. The
maximum Cash Award payable in a calendar year to any Participant with respect
to any Performance Period shall not exceed $1,000,000.
10.4 CONVERSION OF CASH AWARD PAYOUT TO RESTRICTED STOCK. At the request of
the Participant, but subject to the discretion of the Committee, any Cash
Award payout may be converted to Restricted Stock at a discount. The
conversion to Restricted Stock will occur by multiplying the Cash Award by a
premium, but in no event more than 120% and dividing the product by the Fair
Market Value of the Restricted Stock on the date of conversion, which shall be
chosen by the Committee at least 10 days in advance, to determine the number
of shares of Restricted Stock that will be provided as full settlement of the
Cash Award. The shares of Restricted Stock provided to Participants in
settlement of Cash Awards shall be Restricted Stock subject to Article 8.
ARTICLE 11 DIRECTORS' AWARDS
-----------------
11.1 GRANT OF DIRECTORS' AWARDS. In lieu of a portion of their retainer,
Directors' Awards can be made in the form of Stock Options or Restricted Stock
under Articles 6 and 8 respectively. No other Awards may be made to Directors
under the Plan.
11.2 CONVERSION OF RETAINER TO STOCK. At the request of a Director but
subject to the election of the Committee, a Director may convert any retainer
otherwise due to be paid by the Company in cash to an aggregate equivalent
value of either Stock Options, Restricted Stock or both.
11.3 CONVERSION OF RETAINER TO RESTRICTED STOCK. Retainer, otherwise payable
in cash may be converted to Restricted Stock under Article 8. The conversion
to Restricted Stock will occur by multiplying the retainer by a premium, but
in no event more than 120% and dividing the product by the Fair Market Value
of the Restricted Stock on the date of conversion, which shall be chosen by
the Committee at least 10 days in advance, into the amount of the retainer to
determine the number of shares of Restricted Stock that will be provided as
full settlement of the retainer.
<PAGE>
11.4 CONVERSION OF RETAINER TO STOCK OPTIONS. Retainer otherwise due to be
paid in cash may be converted to Stock Options under Article 6 at the request
of the Participant but subject to the election of the Committee. Retainer
shall be converted by multiplying the retainer by a premium, but in no event
more than 120% and dividing the product by the amount equal to the Black-
Scholes Value of the Stock Option on the date of conversion. The quotient of
which is the number of Stock Options that shall be awarded.
ARTICLE 12 BENEFICIARY DESIGNATION
-----------------------
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively and who may
include a trustee under a will or living trust) to whom any benefit under the
Plan is to be paid in case of his/her death before he receives any or all of
such benefit. Each designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Committee, and will be
effective only when filed by the Participant in writing with the Committee
during his lifetime. In the absence of any such designation or if all
designated beneficiaries predecease the Participant, benefits remaining unpaid
at the Participant's death shall be paid to the Participant's estate.
ARTICLE 13 RIGHTS OF EMPLOYEES
-------------------
13.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way
the right of the Company or any of its Subsidiaries to terminate any
Participant's employment at any time, nor confer upon any Participant any
right to continue in the employ of the Company or any of its Subsidiaries.
13.2 PARTICIPATION. No employee shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a
Participant.
13.3 NO IMPLIED RIGHTS; RIGHTS ON TERMINATION OF SERVICE. Neither the
establishment of the Plan nor any amendment thereof shall be construed as
giving any Participant, beneficiary, or any other person any legal or
equitable right unless such right shall be specifically provided for in the
Plan or conferred by specific action of the Committee in accordance with the
terms and provisions of the Plan. Except as expressly provided in this Plan,
neither the Company nor any of its Subsidiaries shall be required or be liable
to make any payment under the Plan.
13.4 NO RIGHT TO COMPANY ASSETS. Neither the Participant nor any other person
shall acquire, by reason of the Plan, any right in or title to any assets,
funds or property of the Company or any of its Subsidiaries whatsoever
including, without limiting the generality of the foregoing, any specific
funds, assets, or other property which the Company or any of its Subsidiaries,
in its sole discretion, may set aside in anticipation of a liability
<PAGE>
hereunder. Any benefits which become payable hereunder shall be paid from the
general assets of the Company or the applicable subsidiary. The Participant
shall have only a contractual right to the amounts, if any, payable hereunder
unsecured by any asset of the Company or any of its Subsidiaries. Nothing
contained in the Plan constitutes a guarantee by the Company or any of its
Subsidiaries that the assets of the Company or the applicable subsidiary shall
be sufficient to pay any benefit to any person.
ARTICLE 14 CHANGE IN CONTROL
-----------------
14.1 STOCK BASED AWARDS. Notwithstanding any other provisions of the Plan, in
the event of a Change in Control, all Stock based awards granted under this
Plan shall immediately vest 100% in each Participant (subject to Section 3.8
herein), including Incentive Stock Options, Nonqualified Stock Options, Stock
Appreciation Rights, and Restricted Stock.
14.2 ALL AWARDS OTHER THAN STOCK BASED AWARDS. Notwithstanding any other
provisions of the Plan, in the event of a Change in Control, all Awards other
than Stock Based Awards granted under this Plan shall be immediately paid out
in cash, including Performance Shares. The amount of the payout shall be
based on the higher of: (i) the extent, as determined by the Committee, to
which performance goals, established for the Performance Period then in
progress have been met up through and including the effective date of the
Change in Control or (ii) 100% of the value on the date of grant of the number
of Performance Shares.
ARTICLE 15 AMENDMENT, MODIFICATION, AND TERMINATION
----------------------------------------
15.1 AMENDMENT, MODIFICATION, AND TERMINATION. At any time and from time to
time, the Board or Committee may terminate, amend, or modify the Plan.
However, without the approval of the stockholders of the Company if required
by the Code, by the insider trading rules of Section 16 of the Exchange Act,
by any national securities exchange or system on which the Stock is then
listed or reported, or by any regulatory body having jurisdiction with respect
hereto, no such termination, amendment, or modification may:
Increase the total amount of Stock which may be issued under this Plan, except
as provided in Section 4.3 herein; or
Change the class of Employees eligible to participate in the Plan;
Materially increase the cost of the Plan or materially increase the benefits
to Participants; or
Extend the maximum period after the date of grant during which Options or
Stock Appreciation Rights may be exercised.
15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or modification of
the Plan other than pursuant to Section 4.3 hereof shall in any manner
adversely affect any Award theretofore granted under the Plan, without the
<PAGE>
written consent of the Participant.
15.3 DEFERRAL OF PAYMENTS AND DISTRIBUTIONS. Cash Awards pursuant to Article
10 may be eligible for deferral by any plan(s) offered by the company, subject
to the approval of the Committee and any administrative requirements imposed
by the Committee.
ARTICLE 16 WITHHOLDING AND DEFERRAL
------------------------
16.1 TAX WITHHOLDING. The Company and any of its Subsidiaries shall have the
power and the right to deduct or withhold, or require a Participant to remit
to the Company or any of its Subsidiaries, an amount sufficient to satisfy
Federal, state and local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any grant, exercise, or payment
made under or as a result of this Plan.
16.2 STOCK DELIVERY OR WITHHOLDING. With respect to withholding required upon
the exercise of Stock Options, or upon the lapse of restrictions on Restricted
Stock, participants may elect, subject to the approval of the Committee, to
satisfy the withholding requirement, in whole or in part, by tendering to the
Company Shares of previously acquired Stock or by having the Company withhold
Shares of Stock, in each such case in an amount having a Fair Market Value
equal to the amount required to be withheld to satisfy the tax withholding
obligations described in Section 16.1. The value of the Shares to be tendered
or withheld is to be based on the Fair Market Value of the Stock on the date
that the amount of tax to be withheld is to be determined. All Stock
withholding elections shall be irrevocable and made in writing, signed by the
Participant on forms approved by the Committee in advance of the day that the
transaction becomes taxable.
Stock withholding elections made by Participants who are subject to the short-
swing profit restrictions of Section 16 of the Exchange Act must comply with
the additional restrictions of Section 16 and Rule 16b-3 in making their
elections.
ARTICLE 17 SUCCESSORS
----------
All obligations of the Company under the Plan, with respect to Awards granted
hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 18 REQUIREMENTS OF LAW
-------------------
<PAGE>
18.1 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
of Stock under this Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Ohio
without giving effect to the principles of the conflicts of laws.
Plan, Rev 2.doc
11/30/99 6:02 AM
AMENDED
FIRSTENERGY CORP.
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
ARTICLE I
---------
Director Election
-----------------
Any member of the Board of Directors ("Director") of FirstEnergy
Corp. (the "Company") may elect from time to time, by written notice to the
Company given on or before December 31 of any year, to defer receipt of all or
any specified part of his or her fees (cash or stock) for services as a
Director during succeeding calendar years, including retainer fees, fees for
attending meetings of the Board of Directors and its Committees and fees for
serving as Chairman or other official of the Board or a Committee
(collectively "Director's fees"). Any person elected to the Board who was not
a Director on the preceding December 31 may elect, by written notice to the
Company given within thirty (30) days after becoming a Director, to defer
receipt of all or any specified part of his or her Director's fees during the
balance of the calendar year following his or her becoming a Director and
succeeding calendar years.
With respect to the calendar year in which this Plan is adopted by
the Board of Directors of the Company, any Director may elect, by written
notice to the Company given within thirty (30) days after the date on which
this Plan is adopted or, if later, within thirty (30) days after first
becoming a Director, to defer receipt of all or any specified part of his or
her Director's fees during the balance of that calendar year and succeeding
calendar years. An election to defer Director's fees shall be irrevocable and
shall continue from year to year unless the Director terminates it by written
notice to the Company on or before December 31 of the year preceding the year
to which the termination applies.
Effective as of January 1, 2000, the Centerior Energy Corporation
Deferred Compensation Plan for Directors (the "Centerior Plan") shall be
merged into this Plan. Any election to defer director's fees made under the
Centerior Plan prior to such date shall, to the extent such deferred fees and
any earnings credited to such deferred fees have not been paid to the director
or to his or her beneficiary prior to such date, be treated as having been
made under this Plan and shall be subject to all of the rights and limitations
imposed on elections made under this Plan. The individuals who made such
elections shall be considered "Directors" for purposes of this Plan even if
they have not served on the Board of Directors of the Company.
ARTICLE II
----------
Deferred Fee Account--Balances
------------------------------
Any deferred Director's fees shall be credited by the Company to the
Director's deferred fee account to be maintained by the Company as of the date
the fees would otherwise be payable. Adjustments to the balance in the account
for deemed interest or deemed investment gains and losses shall be made from
time to time, as determined by the Compensation Committee of the Board of
Directors of FirstEnergy Corp. (the "Committee"), but at least annually. The
Committee, in its sole discretion shall determine whether adjustments to the
account shall be made based upon deemed interest or deemed investment
earnings. If deemed interest is selected by the Committee, the deemed interest
rate shall be the "prime rate" then in effect at The Chase Manhattan Bank,
N.A., of New York City, New York, or at another bank as the Committee may from
time to time designate. If the Committee elects to make adjustments to the
accounts in accordance with deemed investment gains and losses, the Committee,
in its sole discretion, shall determine the investment vehicles to be used. In
its the sole discretion, the Committee may permit the Director to designate
that the balance of his or her account be invested in one or more investment
vehicles selected by the Committee, and adjusted accordingly. The Company
shall provide an annual statement to each Director who has elected to defer
fees.
One of the investment options for stock and cash retainer fees,
meeting fees, and/or chairperson fees, shall be an account whose value will be
adjusted as if the deferred fees were invested in FirstEnergy Common Stock.
This account shall be called the Deferred Stock Account (DSA). At the time
fees are designated for investment into this account, the initial account
value shall be increased by 20 percent. If a Director separates from the Board
for any reason other than death, retirement, or disability as defined by
Section 22(e)(3) of the Internal Revenue Code and such retainer fees are not
kept in this account for a minimum of three years from January 1 of the year
of deferral, the Director shall forfeit the 20 percent bonus on such retainer
fees and any earnings associated with it. A Director shall be immediately
entitled to the 20 percent bonus and all associated earnings if a Change in
Control occurs as defined in Article IX. Initial unit valuation for cash
deferrals into this account shall be based on the Fair Market Value which is
the average of the high and low price of FirstEnergy Common Stock on the day
when payment would otherwise be received. Stock deferred into this account
shall be valued at the actual purchase price, including any commissions.
With respect to any Director who had a balance in his or her
deferred fee account under the Centerior Plan immediately prior to January 1,
2000, the balance of such account shall be transferred to a deferred fee
account under this Plan as of January 1, 2000. Such Directors shall be
permitted to designate how such transferred account balances shall be deemed
invested to the same extent that other Directors are permitted such
designations under this Plan with respect to their deferred fee accounts.
ARTICLE III
-----------
Payment to Director
-------------------
Amounts credited to a Director's deferred fee account, including
deemed interest and earnings shall be paid to the Director in cash, either in
a lump sum or in annual installments over a period not to exceed 10 years. For
this purpose, a designation by a Director of the form of payment will be
effective only if it is made at the time of his or her election to defer
Director's fees; provided, however, that if a Director makes a designation, he
or she may change that designation by filing a new superseding designation
with the Company during the period beginning 120 days prior and ending on the
day prior to the day on which the Director ceases to be a Director. Payment(s)
shall be made on or commencing with the January 1 next following the day the
Director ceases to be a Director unless during the foregoing 120 day election
period, the Director designates a later payment or commencement date (not
later than the January 1 next following the day he or she attains age 72).
Payment of the balance of the DSA to the Director will be in the
form of FirstEnergy Common Stock and will be paid out when a Director ceases
to be a Director unless a separate election for the DSA is made. The election
options are the same as described in the paragraph above. If a Director
requests any change in the date of the pay-out of his DSA, the request must be
approved by the Compensation Committee of the Board of Directors of the
Company.
A Director may at any time request an accelerated distribution of
his or her account balances, subject to a 10 percent penalty and, if
applicable, forfeiture of the 20 percent bonus and associated earnings
described above if the three-year criterion is not met. Such a request must be
made in writing, in a form and manner specified by the Committee. The Company
will distribute to the Director the balance of his or her account minus any
forfeitures and the 10 percent penalty as a lump sum within 90 days after the
end of the month in which the Committee receives the request. Such
distribution shall completely discharge the Company from all liability with
respect to the Director's account. If the Director is an active Director, the
Director may not resume any further deferrals into the Plan until January 1 of
the second calendar year following the calendar year in which the Director
receives such distribution. If a Director requests an accelerated distribution
of his DSA, the request must be approved by the Compensation Committee of the
Board of Directors of the Company.
A Director who is an active Director and who has been a Plan
Participant for at least five calendar years may request to withdraw a portion
of his or her deferred fees and associated earnings. For this purpose,
participation in the Centerior Plan shall be considered as participation in
this Plan. All deferred cash fees must be disbursed prior to the disbursement
of any deferred stock fees. Such request must be made in writing in a form and
manner specified by the Committee and must specify the amount to be withdrawn
and the future date or dates to be paid. The date(s) must be the first of a
month in the second calendar year following the calendar year in which the
request was made. The request will be irrevocable after December 31 of the
calendar in which it is made unless, prior to payment, the Director separates
from the Board or a Change in Control occurs as defined in Article IX. In
these instances, the request will become null and void and the account
balances will be paid as elected by the Director or as in the paragraph below.
In the instance of a Change in Control as defined in Article IX, all
cash account balances will be paid out immediately as a lump sum and the DSA
in stock as soon as practicable.
ARTICLE IV
----------
Payment to Beneficiary
----------------------
Upon the death of a Director or a former Director prior to the
distribution of the entire balance in the Director's or former Director's
deferred fee account, the balance including interest, shall be paid to the
beneficiary or beneficiaries designated by the Director or former Director in
writing filed with the Company, or in the absence of a designation, paid to
his or her estate, in a lump sum as soon as practicable, but no later than
January 1 of the year following the year in which the death occurred.
ARTICLE V
---------
Assignment
----------
Except to the extent that a Director or former Director may
designate a beneficiary to receive any payment to be made following his or her
death and except by will or the laws of descent and distribution, no rights
under this Plan shall be assignable or transferable, or subject to encumbrance
or charge of any nature.
ARTICLE VI
----------
Administration
--------------
This Plan shall be administered by the Committee as defined in
Article II. Except as otherwise provided by action of the Board of Directors
of the Company or the terms of the Plan: (a) a majority of the members of the
Committee shall constitute a quorum for the transaction of business, and (b)
all resolutions or other actions taken by the Committee at a meeting shall be
by the vote of the majority of the committee members present, or, without a
meeting, by an instrument in writing signed by all members of the Committee.
The powers of the Committee shall include the power to construe,
interpret, and apply this Plan, and to render nondiscriminatory rulings or
determinations. Constructions, interpretations, and decisions of the committee
shall be conclusive and binding on all persons.
ARTICLE VII
-----------
Amendment and Termination
-------------------------
The Board of Directors of the Company may from time to time amend,
suspend, terminate or reinstate any or all of the provisions of this Plan,
except that no amendment, suspension, termination or reinstatement shall
adversely affect the deferred fee account of any Director, former Director or
beneficiary (collectively, "Eligible Persons") as it existed immediately
before the amendment, suspension, termination or reinstatement or the manner
of payments, unless the Eligible Person shall have consented in writing.
The Board of Directors of the Company may at any time terminate its
participation in this Plan and/or transfer its liabilities under this Plan to
a similar plan established by the Committee. Upon the termination of its
participation in this Plan, amounts credited to deferred fee accounts of
Eligible Persons shall continue to be payable to those Eligible Persons in
accordance with the terms of this Plan. Upon termination of the participation
of the Company in this Plan, if the Board of Directors of the Company should
transfer its liabilities to another plan, such transfer of liabilities shall
not adversely affect the deferred fee account of any Eligible Person as it
existed immediately prior to that transfer or the manner of payments, unless
the Eligible Person shall have consented in writing.
All liabilities of the Ohio Edison Company Deferred Compensation
Plan for Directors shall be transferred to this Plan; and this Plan shall be
an amendment, restatement and continuation of that Plan. If any deferred fee
account is in pay status or is otherwise payable to an Eligible Person, it
shall continue to be payable to that person under the same terms and
conditions as were provided under the Plan. The balance in any deferred fee
account under that Plan maintained with respect to an individual who is a
Director of FirstEnergy Corp. at the time of the amendment or restatement of
this Plan shall become payable under the terms and conditions of this Plan;
provided, however, that the Director's deferral elections, commencement date
elections, and beneficiary elections made under the Prior Plan shall continue
to be effective under this Plan unless amended or changed under the terms of
this Plan.
All liabilities of the Centerior Plan shall be transferred to this
Plan as of January 1, 2000. If any deferred fee account under the Centerior
Plan is in pay status or is otherwise payable to an Eligible Person as of such
date, it shall continue to be payable to that person under the same terms and
conditions as were provided under the Centerior Plan. The balance of any
deferred fee account under the Centerior Plan shall become payable under the
terms and conditions of this Plan; provided, however, that the Director's
deferral elections, commencement date elections, and beneficiary elections
made under the Centerior Plan shall continue to be effective under this Plan
unless amended or changed under the terms of this Plan.
Notwithstanding any other provisions of the Plan, if the Plan is
terminated and the liabilities of this Plan are not transferred to another
plan, no subsequent Director's fees may be deferred under this Plan, the
balance in a Director's deferred account shall continue to be credited with
deemed interest or earnings in a manner similar to that described in Article
II, and the entire balance in the account (including interest) shall become
payable to the Director (or his or her beneficiary) in accordance with the
provisions of this Plan in effect at the date of termination.
ARTICLE VIII
------------
Unfunded Plan
-------------
Deferred fee accounts maintained for purposes of this Plan shall
constitute bookkeeping records of the Company and shall not constitute any
allocation of any assets of the Company or be deemed to create any trust or
special deposit with respect to any of the assets of the Company. The Company
shall not be under any obligation to any Director, former Director or
beneficiary to acquire, segregate or reserve any funds or other assets for
purposes relating to this Plan. No Eligible Person shall have any rights
whatsoever in or with respect to any funds or other assets owned or held by
the Company; the rights of an Eligible Person under this Plan are solely those
of a general creditor of the Company to the extent of the amount credited to
his or her deferred fee account with the Company.
The Company may, at its discretion, establish one or more trusts,
purchase one or more insurance contracts or otherwise invest or segregate
funds for purposes relating to this Plan, but the assets of such trusts,
rights and assets of such insurance contracts or otherwise invested or
segregated funds shall at all times remain subject to the claims of the
general creditors of the Company except to the extent and at the time any
payment is made to an Eligible Person under this Plan; and no Eligible Person
shall have any rights whatsoever in or with respect to any trust, insurance
contract or other investment or fund, or their assets.
ARTICLE IX
----------
Change In Control
-----------------
For purposes of the Plan, a "Change in Control" means any of the following:
1. An acquisition by any person or entity of at least 50% (25% if the
acquiring person or entity proposes any individual for election to the
Board of Directors or is represented by any member of the Board) of either
the Company's outstanding common stock ("Outstanding Common Stock") or the
combined voting power of the Company's outstanding voting securities
("Outstanding Voting Securities"). The following acquisitions will not
constitute a Change in Control:
a) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion
privilege);
b) any acquisition by the Company;
c) any acquisition by an employee benefit plan sponsored by the
Company or one of its affiliates (e.g., the FirstEnergy Corp.
Savings Plan);
d) any acquisition pursuant to a merger or other form of
reorganization or consolidation where the requirements of
paragraph 3 below are satisfied.
2. The current members of the Company's Board of Directors (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board. For this purpose, any individual whose election or nomination to
the Board was approved by at least a majority of the Directors then
comprising the Incumbent Board shall be considered as though he or she
were a member of the Incumbent board, unless the individual first assumed
office as a result of an actual or threatened proxy or election contest.
3. Approval by the Company's shareholders of a reorganization, merger or
consolidation, or of a sale or other disposition of all or substantially
all of the assets of the Company, unless after the transaction each of the
following requirements are satisfied:
a) all or substantially all of the holders of the Company's
Outstanding Common Stock and Outstanding Voting Securities
immediately prior the transaction, continue to hold at least 75%
of the outstanding common stock and the combined voting power of
outstanding voting securities of the corporation resulting from
the reorganization, merger or consolidation (or of the
corporation that purchased the assets of the Company, as the
case may be) in the same proportions as they held the Company's
Outstanding Common Stock and Outstanding Voting Securities
immediately before the transaction.
b) no person or entity owns 25% or more of the outstanding common
stock or the combined voting power of outstanding voting
securities of the corporation resulting from the reorganization,
merger or consolidation (or of the corporation that purchased
the assets of the Company, as the case may be). This 25%
limitation does not apply to the Company, any employee benefit
plan sponsored by the Company or such other corporation, or any
person or entity who owned at least 25% of the Company's
Outstanding Common Stock or Outstanding Voting Securities
immediately prior to the transaction; and
c) at least a majority of the members of the Board of Directors of
the corporation resulting from the reorganization, merger or
consolidation (or of the corporation that purchased the assets
of the Company, as the case may be), were members of the
Incumbent Board of the Company at the time of the initial
agreement providing for the reorganization, merger,
consolidation or sale or other disposition of all or
substantially all of the assets of the Company.
4. Approval by the Company's shareholders of the complete liquidation or
dissolution of the Company.
However in no event will a Change in Control be deemed to have occurred, with
respect to a Director, if the Director is part of a purchasing group which
consummates the Change in Control transaction. The Director will be deemed
"part of a purchasing group" for purposes of the preceding sentence if the
Director is an equity participant or has agreed to become an equity
participant in the purchasing company or group (excluding passive ownership of
less than 5% of the voting securities of the purchasing company or ownership
of equity participation in the purchasing company or group which is otherwise
not deemed to be significant, as determined prior to the Change in Control by
a majority of the nonemployee, continuing members of the Board of Directors).
ARTICLE X
---------
Miscellaneous
-------------
The invalidity or unenforceability of any particular provision of this Plan
shall not affect any other provision, and the Plan shall be construed in all
respects as if invalid or unenforceable provisions were omitted.
This Plan shall be construed and governed in accordance with the
laws of the State of Ohio without giving effect to principles of conflicts of
laws.
01/07/00 * * *
Deferred Plan (Rev. 3).doc
Scope of Changes
- ----------------
Rev. 3 approved by the Compensation Committee on September 19, 1999 and
November 15, 1999
1. Article III, 2nd paragraph revised to allow directors to defer meeting
fees and chairperson fees into the deferred stock account.
2. Changes made to Articles I, II, III, VII to allow the merging of the
Centerior Plan into the FirstEnergy Plan.
Rev. 2 approved by the Compensation Committee on February 15, 1999
1. Article III, added sentences to the end of paragraph 2 and 3 requiring
that approval of the Compensation Committee when changing the date of a
pay-out or when requesting an accelerated distribution. Unless these
changes are specifically approved in accordance with Rule 16b-3 of Section
16, the Director may inadvertently incur liability under Section 16(b) for
repayment to the Company of related profits involving the Company's equity
securities.
Rev. 1 approved by the Compensation Committee on November 16, 1998
1. Added the ability to defer stock and to receive a bonus for doing so.
2. Added the ability to withdrawal all funds from the Plan as long as there
was a 10% penalty and forfeiture of any bonus that is not yet vested.
3. Added the ability to withdrawal funds from the Plan as long as the
Director is an active Director and has been a Plan Participant for 5
years, and written notice is give 2 years in advance.
4. Added the ability to receive disbursement of funds in cash for the cash
portion of the Plan and in stock for the stock portion of the Plan.
5. Revised the Administration portion of the Plan to bring it in line with
the current Code.
6. Added Change in Control language to the Plan.
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Special Severance Agreement
---------------------------
Dear Mr. xxxxxx:
The Board of Directors (the "Board") of FirstEnergy (the "Company")
recognizes that, as is the case with many publicly held corporations, there
always exists the possibility of a change of control of the Company. This
possibility and the uncertainty it creates may result in the loss or
distraction of members of management of the Company and its subsidiaries to the
detriment of the Company and its shareholders.
The Board considers the establishment, maintenance, and continuity of
a sound and vital management to be essential to protecting and enhancing the
best interests of the Company and its shareholders. The Board also believes
that when a change of control is perceived as imminent, or is occurring, the
Board should be able to receive and rely on disinterested advice from
management regarding the best interests of the Company and its shareholders
without concern that members of management might be distracted or concerned by
the personal uncertainties and risks created by their perception of an imminent
or occurring change of control.
Accordingly, the Board has determined that appropriate steps should
be taken to assure the Company of the continued employment and attention and
dedication to duty of certain members of management of the Company and to
ensure the availability of their disinterested advice, notwithstanding the
possibility, threat or occurrence of a change of control.
Therefore, in order to fulfill the above purposes, the Board has
designated you as eligible for severance benefits as set forth below.
1. Offer
-----
In order to induce you to remain in the employ of the Company and
to provide continued services to the Company now and in the event that a
Change of Control is imminent or occurring, this letter agreement (the
"Agreement") sets forth severance benefits which the Company offers to pay to
you in the event of a termination of your employment (in the manner described
in Section 5 below) subsequent to a Change of Control of the Company (as
defined in Section 4 below).
2. Operation
---------
This Agreement shall be effective immediately upon its execution
but anything in this Agreement to the contrary notwithstanding, neither this
Agreement nor any of its provisions shall be operative unless and until there
has been a Change of Control while you are still an employee of the Company,
nor shall this Agreement govern or affect your employment relationship with
the Company except as explicitly set forth herein. Upon a Change of Control,
if you are still employed by the Company, this Agreement and all of its
provisions shall become operative immediately. If your employment
relationship with the Company is terminated before a Change of Control, you
shall have no rights or obligations under this Agreement.
3. Term
----
(a) Term of Agreement: The term of this Agreement shall commence
-----------------
immediately upon the date hereof and continue until December 31, 1999.
(b) One-Year Evergreen Provision: Subject to subsection (c)
----------------------------
below, this Agreement shall be reviewed annually by the Board at a regular
meeting held between October 1 and December 31 of each year. At such yearly
review, the Board shall consider whether or not to extend the term of this
Agreement for an additional year. Unless the Board affirmatively votes not to
extend this Agreement, the term of this Agreement shall be extended for a
period of one year from the previous termination date. In the event the Board
votes not to extend this Agreement, the termination date of this Agreement
shall be the later of December 31, 1999 or thirty-six full calendar months
from December 31st of the year in which this Agreement was last extended.
(c) Subsection (b) above notwithstanding, upon the occurrence of a
Change of Control, this Agreement shall be automatically extended for a
period of thirty-six full calendar months commencing on the date of such
Change of Control. At the end of such thirty-six month period, this Agreement
shall terminate.
4. Change of Control
-----------------
For the purpose of this Agreement, a "Change of Control" shall
mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50%
(25% if such Person proposes any individual for election to the Board or any
member of the Board is the representative of such Person) or more of either
(i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from the Company (excluding
an acquisition by virtue of the exercise of a conversion privilege), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (i), (ii) and (iii) of subsection (c) of this Section 4
are satisfied; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 75% of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation and the combined voting power of
the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger or consolidation, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 25% or more
of the Outstanding Company Common stock or Outstanding Voting Securities, as
the case may be) beneficially owns, directly or indirectly, 25% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 75% of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally
in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and any
Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 25% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 25% or more of, respectively, the
then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (C) at least a
majority of the members of the board of directors of such corporation were
members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition
of assets of the Company.
5. Termination
-----------
(a) Termination Following Change of Control: If, within a
---------------------------------------
period of thirty-six full calendar months after a Change of Control (as
defined above) of the Company, you are discharged without Cause or resign for
Good Reason (as defined below), you shall be entitled to the benefits
provided by this Agreement as set forth in Section 6 below.
(b) Good Reason: If any of the following events occurs
-----------
without your express consent and within thirty-six full calendar months after
a Change of Control, you may voluntarily terminate your employment within 30
days of the occurrence of such event and be entitled to the severance
benefits set forth in Section 6 below:
(1) The Company assigns any duties to you which are
inconsistent with your position, duties, offices, titles, status
(including membership on the Board of Directors) responsibilities
or reporting requirements in effect immediately prior to a Change
of Control, or your removal from or any failure to re-elect you to
any of such positions or offices, except in connection with
termination of your employment for Cause, Disability, Death or
Normal Retirement, or by you other than for Good Reason, or;
(2) Changes to your base salary are inconsistent with
your annual performance review and the salary program applicable to
other senior executives of the Company; or
(3) The Company discontinues any bonus or other
compensation plans or any other benefit, stock ownership plan,
stock purchase plan, stock option plan, life insurance plan, health
plan, disability plan or similar plan (as the same existed
immediately prior to the Change of Control) in which you
participated or were eligible to participate in immediately prior
to the Change of Control and in lieu thereof does not make
available plans providing at least comparable benefits; or
(4) The Company takes action which adversely affects your
participation in, or eligibility for, or materially reduces your
benefits otherwise earned or payable under, any of the plans
described in (3) above (unless such action is required by law), or
which deprives you of any material fringe benefit enjoyed by you
immediately prior to the Change of Control, or fails to provide you
with the number of paid vacation days to which you were entitled in
accordance with normal vacation policy immediately prior to the
Change of Control; or
(5) The Company requires you to be based at any office or
location other than one within a 50 mile radius of the office or
location at which you were based immediately prior to the Change of
Control; (except for required travel on the Company's business to
an extent substantially consistent with your business travel
obligations as they existed at the time of a Change of Control of
the Company); or, in the event you consent to being based anywhere
more than fifty miles from such location, the failure by the
Company to pay (or reimburse you for) all reasonable moving
expenses incurred by you relating to a change of your principal
residence in connection with such relocation and to indemnify you
against any loss (defined as the difference between the actual sale
price of such residence after the deduction of all real estate
brokerage charges and related selling expenses) and the higher of
(1) your aggregate investment in such residence or (2) the fair
market value of such residence (as determined by a real estate
appraiser designated by you and reasonably satisfactory to the
Company) realized upon the sale of such residence in connection
with any such change of residence; or
(6) The Company's requiring you to perform duties or
services which necessitate absence overnight from your place of
residence, because of travel involving the business or affairs of
the Company, to a degree not substantially consistent with the
extent of such absence necessitated by such travel during the
period of twelve months immediately preceding a Change of Control
of the Company; or
(7) The Company purports to terminate your employment
otherwise than as expressly permitted by this Agreement; or
(8) The Company fails to comply with and satisfy Section
9 below, provided that such successor has received at least ten
days prior written notice from the Company or from you of the
requirements of Section 9 below.
You shall have the sole right to determine, in good faith, whether
any of the above events has occurred.
(c) Cause: Cause shall mean: conviction of a felony or
-----
crime involving an act of moral turpitude, dishonesty, or misfeasance.
(d) Notice of Termination: Any termination by the Company
---------------------
for Cause, or by you for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11
hereof. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the Date of Termination.
(e) Date of Termination: "Date of Termination" means (1) if
-------------------
your employment is terminated by the Company for Cause or without Cause, or
by you for Good Reason or other than for Good Reason, the date of receipt by
the other of the Notice of Termination, and (2) if your employment is
terminated by reason of Death, Disability or Normal Retirement (as defined
below), the Date of Termination shall be the date of your death, the date of
receipt of your Notice of Termination, or the first of the month following
the month you reach the normal retirement age for employees in your position,
respectively.
(f) Normal Retirement: If your employment is terminated due
-----------------
to normal retirement, you shall not be entitled to severance benefits under
this Agreement, regardless of the occurrence of a Change of Control. A
termination by normal retirement shall have occurred where your termination
is caused by the fact that you have reached normal retirement age for
employees in your position.
(g) Termination for Cause: If subsequent to a Change of
---------------------
Control, your employment is terminated by the Company for Cause, the Company
shall pay you your full base salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given, and you shall also
receive all accrued or vested benefits of any kind to which you are, or would
otherwise have been, entitled throughout the Date of Termination (as defined
in subsection (e) of this Section 5), and the Company shall thereupon have no
further obligation to you under this Agreement.
(h) Disability or Death: If termination of your employment
-------------------
results from your Disability or death, you shall not be entitled to severance
benefits under this Agreement, regardless of the occurrence of a Change of
Control. You or your designated beneficiary, in the case of your death, shall
receive all accrued or vested benefits of any kind to which you are, or would
otherwise have been, entitled through the Date of Termination, and the
Company shall thereupon have no further obligation to you under this
Agreement.
"Disability" shall mean, for the purposes of this Agreement, your
total and permanent disability such that you would be entitled to receive
Disability Retirement Income under the Company's qualified pension plans,
except for purposes of this provision you need not have completed ten (10)
years of service with the Company, followed by the Company giving you thirty
days written notice of its intention to terminate your employment by reason
thereof, and your failure because of your Disability to resume the full-time
performance of your duties within such period of thirty days and thereafter
perform the same for a period of two consecutive months.
6. Severance Benefits
------------------
If, within a period of thirty-six full calendar months after a
Change of Control of the Company, you are discharged without Cause or resign
for Good Reason, the following shall be applicable:
(a) The Company shall pay to you within ten business days
following the Date of Termination a lump sum severance benefit, payable in
cash, the amounts determined as provided below:
(1) Your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination, is
given.
(2) In lieu of further salary payments to you for periods
subsequent to the Date of Termination, an amount equal to 2.99
multiplied by the sum of your annual base salary at the rate in
effect as of the Date of Termination (or, if higher, at the
rate in effect as of the time of the Change of Control) plus
the average annual short-term incentive amount awarded to you
under the Ohio Edison System Executive Incentive Compensation
Plan ("Executive Incentive Plan") for the three years
immediately preceding the year during which the Date of
Termination occurs whether or not fully paid.
(b) For purposes of the Executive Incentive Plan, you shall be
considered to have retired and will be paid the pro rata portion of your
short-term incentive award earned, if any, and any long-term deferred
incentive awards earned, if any, per the terms of the plan.
(c) For purposes of determining the amount of benefits you may
continue after the Date of Termination under the Company's group health and
life insurance plans, you shall be considered as having retired at your
current age or age 55, whichever is greater, and your current years of
service calculated as if you are age 55, whichever is greater.
(d) For purposes of the Ohio Edison System Executive Deferred
Compensation Plan ("Deferred Compensation Plan"), you shall be considered to
have retired at age 62, entitling you to the full amount of your Retirement
Account, if any, payable in accordance with the terms of the Deferred
Compensation Plan.
(e) For purposes of calculating your benefit under the Ohio
Edison System Supplemental Executive Retirement Plan ("SERP"), you shall be
considered as having retired from the Company at your current age or age 55,
whichever is greater, and your current years of service or 5 years of
service, whichever is greater. Your benefit under the SERP will commence on
the first of the month following the Date of Termination as follows:
(1) If, on the Date of Termination, you are less than age 55,
your monthly benefit from the SERP shall be calculated in
accordance with the terms of the SERP except that (a) until you
reach age 55, such SERP benefit shall be offset by any compensation
earned by you from a subsequent employer as provided in paragraph
(j) below; (b) at age 55, such SERP benefit shall only be offset by
the monthly amounts to which you will be entitled at age 55 from
the Company's tax-qualified pension plan, the supplementary pension
make-up benefit under the Deferred Compensation Plan and/or the
tax-qualified pension plan of any previous employers (collectively,
"Pension Income"), irrespective of whether you receive such
benefits at that time; and, (c) at age 62 such SERP benefit shall
be offset only by Pension Income and the monthly primary Social
Security Benefit to which you will be entitled at age 62,
irrespective of whether you receive such benefits at that time;
(2) If, on the Date of Termination, you are at least age 55
but less than age 62, your monthly benefit from the SERP shall
be calculated in accordance with the terms of the SERP, except that
(a) until you reach age 62, such SERP benefit shall be offset only
by your Pension Income, irrespective of whether you receive such
benefits at that time; and (b) at age 62 such SERP benefit shall be
offset only by Pension Income and the monthly primary Social
Security benefit to which you will be entitled at age 62,
irrespective of whether you receive such benefits at that time;
(3) If, on the Date of Termination, you are at least age 62,
your monthly benefit from the SERP shall be calculated and offset
in accordance with the terms of the SERP.
(f) For purposes of the Executive Supplemental Life Plan
("ESLP"), you may continue to participate as if you retired from the Company
prior to age 65 in accordance with the terms of the ESLP, irrespective of
your age at the Date of Termination.
(g) In the event that because of their relationship to you,
members of your family or other individuals are covered by any plan, program,
or arrangement described in subsection (b) above immediately prior to the
Date of Termination, the provisions set forth in subsection (b) shall apply
equally to require the continued coverage of such persons; provided, however,
that if under the terms of any such plan, program or arrangement, any such
person would have ceased to be eligible for coverage during the period in
which the Company is obligated to continue coverage for you, nothing set
forth herein shall obligate the Company to continue to provide coverage which
would have ceased even if you had remained an employee of the Company.
(h) The Company shall enable you to purchase the automobile,
if any, which the Company was providing for your use at the time Notice of
Termination was given at the wholesale value of such automobile at such time.
(i) Other Benefits Payable: The severance benefits described
----------------------
in Subsections (a), (b), (c), (d), (e), (f), (g) and (h) above shall be
payable in addition to, and not in lieu of, all other accrued or vested or
earned but deferred compensation, rights, options or other benefits which may
be owed to you following your discharge or resignation (and are not
contingent on any Change of Control preceding such termination), including
but not limited to, accrued and/or banked vacation, amounts or benefits
payable, if any, under any bonus or other compensation plans, stock option
plan, stock ownership plan, stock purchase plan, life insurance plan, health
plan, disability plan or similar plan.
(j) Payment Obligations: Other than as set forth in the
-------------------
Deferred Compensation Plan or the SERP, upon a Change of Control the
Company's obligations to pay the severance benefits or make any other
payments described in this Section 6 shall not be affected by any set-off,
counterclaim, recoupment, defense or other right which the Company or any of
its subsidiaries may have against the Executive or anyone else. If you are
less than age 55 at the time of your discharge without Cause or your
resignation for Good Reason, then, commencing 24 months after the Date of
Termination, you shall be required to seek employment elsewhere and thereby
mitigate the amount of SERP benefit payable under Paragraph (d)(1). You shall
not be required to accept a position other than as a senior executive of an
entity comparable in size to the Company and having duties, responsibilities
and authority substantially similar in scope and nature to your position with
the Company immediately prior to the Date of Termination. Upon obtaining such
employment, you shall promptly notify the Company of the compensation and
benefits you received or will receive from such new employer and of any
changes therein.
(k) Legal Fees and Expenses: Subject to and contingent upon
-----------------------
the occurrence of a Change of Control the Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses
which you may reasonably thereafter incur as a result of any contest,
litigation or arbitration (regardless of the outcome thereof) by the Company,
you or others of the validity or enforceability of, or liability under, any
provision of this Agreement, the Deferred Compensation Plan, or the SERP
(including any contest by you about the amount of any payment pursuant to
this Agreement, the Deferred Compensation Plan or the SERP), plus in each
case interest on any delayed payment at the rate of 150% of the Prime Rate as
published in the Wall Street Journal in the Money Rates Table on the business
day immediately preceding the conclusion of any such contest, litigation or
arbitration.
(l) Certain Additional Payments by the Company:
------------------------------------------
(1) Anything in this Agreement to the contrary
notwithstanding, in the event that the Executive becomes
entitled to severance benefits under this Section 6 hereof, the
Deferred Compensation Plan, the SERP or otherwise, and it shall be
determined that any payment or distribution by the Company to or for
the benefit of the Executive, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement, the
Deferred Compensation Plan, the SERP or otherwise (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") or any
interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(2) All determinations required to be made under this
subsection (i), including whether a Gross-Up Payment is required
and the amount of such Gross-Up Payment, shall be made in good faith
by the Company which shall provide detailed supporting calculations
to the Executive within 15 business days of the date of termination
of the Executive's employment, if applicable, or such earlier time
as is requested by the Company. If the Company determines that no
Excise Tax is payable by the Executive, it shall furnish the
Executive with an opinion of counsel that he has substantial
authority not to report any Excise Tax on his federal income tax
return. Except as hereinafter provided, any determination by the
Company shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Company
hereunder, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In
the event that the Executive is required to make a payment of any
Excise Tax, the Company shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
7. Assignability
-------------
This Agreement is binding on and is for the benefit of the parties
hereto and their respective successors, heirs, executors, administrators and
other legal representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except to any subsidiary
or affiliate) or by you.
8. Non-Competition
---------------
If subsequent to a Change of Control of the Company you should for
Good Reason terminate your employment, then for a period of two years after
the Date of Termination, you shall not on your own account without the
consent of the Company, or as a shareholder, employee, officer, director,
consultant or otherwise, engage directly or indirectly in any business or
enterprise which is in competition with the Company. For all purposes of this
agreement the words "competition with the Company" shall mean the provision
of gas and/or electric services on a retail and wholesale basis in the State
of Ohio and in any other state contiguous to the State of Ohio; provided,
however, that nothing herein contained shall prevent you from purchasing and
holding for investment less than 5% of the shares of any corporation the
shares of which are regularly traded either on a national securities exchange
or in the over-the-counter market.
9. Successor
---------
The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise. Failure of the Company to obtain such agreement prior to
the effectiveness of such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on
the same terms as you would be entitled hereunder if you terminated your
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
This agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die
while any amounts would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall
be paid to such beneficiary or beneficiaries as you shall have designated by
written notice delivered to the Company prior to your death or, failing such
written notice, to your estate.
10. Amendment; Waiver
-----------------
This Agreement may be amended only by an instrument in writing
signed by the parties hereto, and any provision hereof may be waived only by
an instrument in writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either party hereto at
any time to require the performance by the other party hereto of any
provision hereof shall in no way affect the full right to require such
performance at any time thereafter, nor shall the waiver by either party
hereto of a breach of any provision hereof be taken or held to be a waiver of
any succeeding breach of such provision or a waiver of the provision itself
or a waiver of any other provision of this Agreement.
11. Notices
-------
All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to you:
xxxxxxxxxxxxxxx
xxxxxxxxxxxxxxx
xxxxxxxxxxxxxxx
If to the Company:
-----------------
Secretary
FirstEnergy
76 South Main Street
Akron, Ohio 44308
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
12. Validity
--------
The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and
effect, nor shall the invalidity or unenforceability of a portion of any
provision of this Agreement affect the validity or enforceability of the
balance of such provision. If any provision of this Agreement, or portion
thereof is so broad, in scope or duration, as to be unenforceable, such
provision or portion thereof shall be interpreted to be only so broad as is
enforceable.
13. Withholding
-----------
The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
14. Entire Agreement
----------------
This Agreement contains the entire understanding of the Company and
you with respect to the subject matter hereof.
15. Applicable Law
--------------
This Agreement shall be governed by and construed in accordance
with the substantive internal law and not the conflict of law provisions of
the State of Ohio.
If the terms of the foregoing Agreement are acceptable to you,
please sign and return to the Company the enclosed copy of this Agreement
whereupon this Agreement shall become a valid and legally binding contract
between you and the Company.
Very truly yours,
FIRSTENERGY
By:
------------------------------
Accepted and Agreed as of the date
first above written:
---------------------------------
xxxxxxxxxxxxxxxx
FirstEnergy Corp.
Supplemental Executive Retirement Plan
Effective September 29, 1985
Amended and Restated as of January 1, 1999
TABLE OF CONTENTS
PAGE
----
ARTICLE I - PURPOSE 1
ARTICLE II - ELIGIBILITY AND PARTICIPATION 1
2.1 Eligibility 1
2.2 Participation 1
2.3 Designation of Participating Companies 1
2.4 Withdrawal From Plan of Participating Employer 1
2.5 Delegation of Authority 2
ARTICLE III - TYPE AND LEVEL OF BENEFITS 2
3.1 Supplemental Benefit After Termination of Employment 2
3.2 Month of Service; Year of Service 2
3.3 Eligible Spouse 2
3.4 Conditions of Benefits 3
3.5 Forfeiture of Benefits 5
3.6 Change of Control 6
ARTICLE IV - UNFUNDED PLAN 6
4.1 Unfunded Plan 6
4.2 Nontransferability 7
ARTICLE V - ADMINISTRATION 7
5.1 Committee; Duties 7
5.2 Agents 7
5.3 Indemnity of Committees 7
ARTICLE VI - CLAIMS PROCEDURES 8
6.1 Claim 8
6.2 Denial of Claim 8
6.3 Review of Claim 8
6.4 Final Decision 8
TABLE OF CONTENTS
PAGE
----
ARTICLE VII - MISCELLANEOUS 9
7.1 Unsecured General Creditor 9
7.2 Obligations to Company 9
7.3 Not a Contract of Employment 9
7.4 Protective Provisions 9
7.5 Captions 9
7.6 Governing Law 9
7.7 Validity 9
7.8 Mistaken Information 10
7.9 Taxes and Expenses 10
7.10 Notice 10
ARTICLE VIII - EFFECTIVE DATE, TERMINATION, AND AMENDMENT 10
ARTICLE IX - SUCCESSORS 10
APPENDIX A
APPENDIX B
FIRSTENERGY CORP.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I-PURPOSE
The Supplemental Executive Retirement Plan (the "Plan") was
established on September 29, 1985 as part of an integrated executive
compensation program that is intended to attract, retain, and motivate certain
key executives ("Executives") who are in positions to make significant
contributions to the operation and profitability of FirstEnergy Corp. (the
"Company") for the benefit of stockholders and customers.
The Plan provides for the payment of supplemental retirement, death,
and disability benefits to or in respect of key senior Executives designated
by the Chief Executive Officer of the FirstEnergy Corp. (the "Chief Executive
Officer").
The Chief Executive Officer shall appoint an Administrative
Committee (the "Committee") to administer this Plan. The Committee shall
consist of three or more individuals.
ARTICLE II - ELIGIBILITY AND PARTICIPATION
2.1 Eligibility
Eligibility to participate in the Plan shall be limited to those
Executives who are designated by the Chief Executive Officer.
2.2 Participation
An Executive's participation in the Plan shall be effective on January
1 of the year following the year in which he or she becomes eligible.
2.3 Designation of Participating Companies
The Compensation Committee of the Board of Directors of FirstEnergy
Corp. (the "Compensation Committee") or the Chief Executive Officer may allow
other corporations or other entities affiliated with or subsidiary to the
Company to participate in the Plan without approval or ratification by the
Company's Board of Directors. Such companies ("Participating Companies") and
their adoption dates shall be added to Appendix A, which is attached hereto
and incorporated herein by reference.
2.4 Withdrawal From Plan of Participating Employer
Any Participating Company may at any time, by resolution of its Board
of Directors (with notice thereof to the Company's Board of Directors if the
terminating company is not FirstEnergy Corp.), terminate its participation in
the Plan. Participating Companies which cease to be Participating Companies
shall be shown in Appendix A together with their adoption dates and
termination dates.
2.5 Delegation of Authority
The Company is hereby fully empowered to act on behalf of itself and
the other Participating Companies as it may deem appropriate in maintaining
the Plan. Furthermore, the adoption by the Company of any amendment to the
Plan or the termination thereof will constitute and represent, without any
further action on the part of any Participating Company, the approval,
adoption, ratification or confirmation by each Participating Company of any
such amendment or termination. In addition, the appointment of or removal by
the Company of any Committee member or other person under the Plan shall
constitute and represent, without any further action on the part of any
Participating Company, the appointment or removal by each Participating
Company of such person.
ARTICLE III - TYPE AND LEVEL OF BENEFITS
3.1 Supplemental Benefit After Termination of Employment
An Executive included in the Plan shall, subject to the terms and
conditions set forth herein, be eligible to receive a supplemental benefit
under the Plan after termination of employment due to retirement, death,
disability or involuntary separation that is directly related to either:
(a) The Executive's Highest Average Monthly Base Earnings which
is defined as the average of the highest twelve (12) consecutive full
months of base salary earnings paid to the Executive in the one
hundred twenty (120) consecutive full months prior to termination of
employment, including any salary deferred in the FirstEnergy Corp.
Executive Deferred Compensation Plan ("Deferred Plan") or the
FirstEnergy Corp. Savings Plan ("Savings Plan"), but excluding any
incentive payments, or
(b) The Executive's Highest Average Monthly Total Compensation
which is defined as the average of the highest thirty-six (36)
consecutive full months of base salary earnings paid to the Executive
in the one hundred twenty (120) consecutive full months prior to
termination of employment, including any salary deferred into the
Deferred Plan and Savings Plan. Highest Total Compensation shall also
include any Annual Incentive Award from the Executive Incentive
Compensation Plan either paid to the Executive or deferred into the
Deferred Plan after January 1, 1996.
3.2 Month of Service; Year of Service
For the purpose of this Plan, a "Month of Service" shall be a whole
month of service with a Participating Company based upon the Executive's
service anniversary date with the Company. Further, a "Year of Service"
shall be equal to a twelve "Months of Service," with a Participating Company
based upon the Executive's service anniversary date with the Company.
3.3 Eligible Spouse
For the purposes of this Plan, Eligible Spouse shall mean the spouse
to whom the Executive is married at the time payment of a supplemental benefit
from the Plan commences and who is so designated, or deemed to have been
designated in accordance with the FirstEnergy Corp. Pension Plan ("Pension
Plan").
3.4 Conditions of Benefits
A supplemental benefit under this Plan will be determined in
accordance with and shall be nonforfeitable upon the date the Executive
terminates employment under the conditions described in the following
sections:
(a) Retirement Benefits
(i) An Executive retiring from the Company on or after age
fifty-five (55) who has completed ten (10) Years of Service will
be entitled to receive, commencing at retirement, a monthly
supplemental retirement benefit under the Plan equal to sixty-
five percent (65%) of the Executive's Highest Average Monthly
Base Earnings or fifty-five percent (55%) of the Executive's
Highest Average Monthly Total Compensation, whichever is greater,
multiplied by the number of Months of Service the Executive has
completed after having completed ten (10) Years of Service, up to
a maximum of sixty (60) months, divided by sixty (60), less:
a) The monthly primary Social Security benefit to which
the Executive may be entitled at such retirement (or the
projected age sixty-two (62) benefit if retirement occurs
prior to age sixty-two (62)), irrespective of whether the
Executive actually receives such benefit at the time of
retirement, and
b) The monthly early, normal or deferred retirement
income benefit to which the Executive may be entitled at such
retirement, under the Pension Plan, the monthly supplemental
pension benefit under the Deferred Plan and the monthly
benefit, or actuarial equivalent, under the tax-qualified or
nonqualified defined benefit pension plans of previous
employers, all calculated by an actuary selected by the
Company, with the following assumptions based on the
Executive's marital status at the time of such retirement:
i) In the case of a married Executive in the form
of a fifty percent (50%) joint and survivor annuity.
ii) In the case of an unmarried Executive, in the
form of a single-life annuity.
For an Executive who retires prior to attaining age sixty-
five (65), the net dollar amount above shall be further reduced
by one-fourth (1/4) of one percent (1%) for each month the
commencement of benefits under this Plan precedes the month the
Executive attains age sixty-five (65).
(ii) After commencement of supplemental retirement benefits
to the Executive, such payments shall continue in monthly
installments thereafter ending with a payment for the month in
which such Executive's death occurs. At death, benefits under
Section 3.4(c)(ii) may be paid to the Executive's surviving
Eligible Spouse.
(b) Disability Benefits
(i) An Executive who becomes disabled while employed by the
Company will be entitled to receive, commencing at the time the
Executive's employment terminates by reason of disability, a
monthly supplemental disability benefit under the Plan equal to
sixty-five percent (65%) of the Executive's Highest Base Earnings
or fifty-five (55%) of the Executive's Highest Total Compensation,
whichever is greater, less:
a) The monthly Social Security disability benefit to
which the Executive may become entitled due to such
disability.
b) The monthly disability pension payment under the
Pension Plan, the monthly benefit provided by the Long-Term
Disability Plan of the Company and the monthly disability or
pension benefits, or actuarial equivalent, from plans of
previous employers to which the Executive may be entitled at
termination of employment.
"Disabled" means a disability such that an Executive would be
entitled to receive a monthly disability payment under the
Pension Plan, except for the purposes of this provision an
Executive need not have completed ten (10) Years of Service.
(ii) After commencement of supplemental disability benefits
to the Executive, such payments shall continue in monthly
installments thereafter ending with a payment in the month in
which the Executive attains age sixty-five (65) or retires from
the Company, dies, or is no longer disabled, whichever first
occurs. Upon retirement, benefits under Section 3.4(a) may be
paid. At death, benefits under Section 3.4(c)(i) may be paid to
the Executive's surviving Eligible Spouse.
(c) Death Benefits
(i) If an Executive, including an Executive receiving a
supplemental disability benefit under the Plan, dies prior to
retiring from the Company, the Executive's surviving Eligible
Spouse shall be entitled to receive commencing in the month
following the Executive's death, a monthly supplemental surviving
spouse benefit under the Plan equal to fifty percent (50%) of the
monthly supplemental retirement benefit, calculated in accordance
with Section 3.4(a), which the Executive would have received had
he or she retired in the month of death, except that if the
Executive dies prior to attaining age fifty-five (55), such
monthly supplemental retirement benefit will be calculated as if
the Executive had attained age fifty-five (55) and retired on the
date of his or her death. In addition, if at the time of his or
her death the deceased Executive had completed less than ten (10)
Years of Service with a Participating Company, the Death Benefit,
if any, shall be calculated as if the executive had been credited
with five(5) Years of Service at the time of his/her employment
with the Company.
The surviving spouse benefit payment shall be paid in monthly
installments thereafter ending with a payment for the month in
which such surviving Eligible Spouse's death occurs, or for a
period of one hundred eighty (180) payments less the number of
supplemental disability payments the Executive had received,
whichever first occurs.
(ii) If an Executive dies after retiring from the Company but
prior to receiving one hundred eighty (180) monthly supplemental
retirement and/or supplemental disability payments under the Plan,
the Executive's surviving Eligible Spouse shall be entitled to
receive a monthly supplemental surviving spouse benefit under the
Plan equal to fifty percent (50%) of the supplemental retirement
benefit which the deceased Executive was receiving on the day
before his or her death.
This monthly supplemental surviving spouse benefit payment
shall commence in the month following the Executive's death and
shall be paid in monthly installments thereafter ending with a
payment for the month in which such surviving Eligible Spouse's
death occurs, or for a period of one hundred eighty (180) payments
less the number of supplemental retirement and/or supplemental
disability payments the Executive had received, whichever first
occurs.
(d) Involuntary Separation Benefits
An Executive under age fifty-five (55) with ten or more years
of service at the time of an involuntary separation, due to the
closing of a facility, corporate restructuring, reduction in the
work force, or job elimination, will be entitled to receive,
beginning at age fifty-five (55), a supplemental retirement
benefit under the Plan calculated in accordance with
Section 3.4(a). If the Executive dies prior to or after
commencement of his or her supplemental retirement benefit, the
Executive's surviving Eligible Spouse shall be entitled to receive
a monthly supplemental surviving spouse benefit under the Plan
calculated in accordance with Section 3.4(c). Such supplemental
benefits will be calculated using the number of Months of Service
the Executive had with the Company at separation of employment.
However, the Executive will not be eligible for a supplemental
retirement benefit beginning at age fifty-five (55) if the
separation is due to any other reason including but not limited
to: voluntary resignation; discharge for misconduct or poor job
performance; failure to return from a leave of absence; or as a
result of a merger or acquisition of the Company or any of its
assets and the Executive's employment with the acquiring or
merging company is continued and the Executive does not suffer
unemployment.
3.5 Forfeiture of Benefits:
If it is determined, in the sole discretion of the Compensation
Committee (the "Committee") of the FirstEnergy Board of Directors or
its delegate, that the Executive has engaged in any of the following
enumerated actions, and unless such engagement has been approved by
the Committee or its delegate in writing, all future SERP benefit
payments shall be immediately forfeited. Notwithstanding any other
provision of this paragraph 3.4, the forfeiture of benefits will only
apply to those supplemental retirement benefits accrued on or after
January 1, 1999 and shall not apply to supplemental benefits accrued
before January 1, 1999.
1. Participate or engage, directly or indirectly, in the
business of selling, servicing, and/or manufacturing
products, supplies or services of the kind, nature or
description of those sold by the Company except pursuant to
his/her employment with Company;
2. Directly participate or engage, on the behalf of other
parties, in the purchase of products, supplies or services
of the kind, nature or description of those sold by the
Company except pursuant to his/her employment with the
Company;
3. Solicit, divert, take away or attempt to take away any of
the Company's Customers or the business or patronage of any
such Customers of the Company;
4. Solicit, entice, lure, employ or endeavor to employ any of
the Company's employees;
5. Divulge to others or use for his/her own benefit any
confidential information obtained during the course of
his/her employment with Company relative to sales, services,
processes, methods, machines, manufacturers, compositions,
ideas, improvements, patents, trademarks, or inventions
belonging to or relating to the affairs of Company;
6. Divulge to others or use to his/her own benefit any trade
secrets belonging to the Company obtained during the course
of his/her employment or that he/she became aware of as a
consequence of his/her employment.
The term "Customer" shall mean any person, firm, association,
corporation or other entity to which Executive or the Company has
sold the Company's products or services within the twenty-four (24)
month period immediately preceding the termination of Executive's
employment with Company or to which Executive or the Company is in
the process of selling its products or services, or to which
Executive or the Company has submitted a bid, or is in the process
of submitting a bid to sell the Company's products or services.
Should it be necessary for FE to initiate legal action to recover
any amounts due, FE shall be entitled to recover from Executive, in
addition to such amounts due, all costs, including reasonable
attorneys fees, incurred as a result of such legal action.
3.6 Change of Control
In the event of a Change in Control, as defined in Appendix B, the
Forfeiture of Benefit provisions in section 3.5 will not apply.
ARTICLE IV-Unfunded Plan
4.1 Unfunded Plan
The Plan shall be unfunded. The Plan is intended to benefit key senior
Executives who are considered to be a select group of management or highly
compensated employees within the meaning of the Employee Retirement Income
Security Act of 1974, as amended. The Chief Executive Officer reserves the
right to restrict participation to such Executives.
4.2 Nontransferability
Neither an Executive nor any other person shall have any right to
transfer, pledge, or otherwise encumber, in advance of actual receipt, any
amounts payable hereunder. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony, or separate maintenance owed by an Executive or any
other person, nor be transferable by operation of law in the event of an
Executive's or any other person's bankruptcy or insolvency.
ARTICLE V-ADMINISTRATION
5.1 Committee; Duties
This Plan shall be administered by and under the direction of the
Committee. Members of the Committee may be participants in this Plan. However,
no member of the Committee may participate in a review of his or her own claim
under Article VI. The Committee shall administer the Plan and shall have the
power and the duty to take all action and to make all decisions necessary or
proper to carry out the Plan. The determination of the Committee as to any
question involving the general administration and interpretation of the Plan
shall be final, conclusive, and binding except as otherwise provided in
Article VI. A majority vote of the Committee members shall control any
decision. Any discretionary actions to be taken under the Plan by the
Committee with respect to the Executives' contributions or benefits shall be
uniform in nature and applicable to all persons similarly situated. Without
limiting the generality of the foregoing, the Committee shall have the
following discretionary authority, powers and duties:
(a) To require any person to furnish such information as it may
request for the purpose of the proper administration of the Plan as a
condition to receiving any benefit under the Plan;
(b) To make and enforce such rules and regulations and prescribe
the use of such forms as it deems necessary for the efficient
administration of the Plan;
(c) To interpret the Plan and to resolve ambiguities,
inconsistencies and omissions;
(d) To decide all questions concerning the Plan and any questions
concerning the eligibility of any Employee to participate in the Plan;
and
(e) To determine the amount of benefits which will be payable to
any person in accordance with the provisions of the Plan.
5.2 Agents
In the administration of this Plan, the Committee may, from time to
time, employ agents and delegate to them such administrative duties as it sees
fit, and may from time to time consult with counsel, who may be counsel to the
Company.
5.3 Indemnity of Committees
The Company shall indemnify and hold harmless members of the Committee
and the Compensation Committee against any and all claims, loss, damage,
expense or liability arising from any action or failure to act with respect to
this Plan, except in the case of intentional misconduct.
ARTICLE VI-CLAIMS PROCEDURE
6.1 Claim
Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Committee, which shall respond in writing as soon as
practicable, but no more than sixty-three (63) days after the end of the month
the request is received. Payment of a claimed benefit shall also constitute a
written response.
6.2 Denial of Claim
If the claim or request is denied, the written notice of denial shall
state:
(a) The reasons for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information
required and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
For the purposes of this Section 6.2, the failure by the Committee to
deliver within the sixty-three (63) day period notice of a written denial of
claim shall constitute a written response of denial, unless the failure to
correspond was the result of clerical or administrative error.
6.3 Review of Claim
Any person whose claim or request is denied or who has not received a
response within sixty-three (63) days after the end of the month in which the
request was received may request review by notice given in writing to the
Compensation Committee. The claim or request shall be reviewed by the
Compensation Committee who may, but shall not be required to, grant the
claimant a hearing. On review, the claimant may have a representative examine
pertinent documents and submit issues and comments in writing.
6.4 Final Decision
The decision on review shall normally be made within sixty (60) days.
If an extension of time is required for a hearing or other special
circumstances, the claimant shall be notified and the time limit shall be one
hundred twenty (120) days. The decision shall be in writing and shall state
the reason and the relevant Plan provisions. All decisions on review shall be
final and bind all parties concerned.
ARTICLE VII-MISCELLANEOUS
7.1 Unsecured General Creditor
Participants and their Beneficiaries, heirs, successors and assigns
shall have no legal or equitable rights, interest or claims in any property or
assets of Company. Any and all Company's assets shall be, and remain, the
general, unpledged, unrestricted assets of Company. Company's obligation under
the Plan shall be merely that of an unfunded and unsecured promise of Company
to pay money in the future.
7.2 Obligations to Company
If an Executive or the Executive's surviving Eligible Spouse becomes
entitled to a benefit under the Plan and the Executive has outstanding any
debt, obligation, or other liability representing an amount owing to the
Company, then the Company may offset such amount owing to it or an affiliate
against the amount of benefits otherwise distributable. The determination of
the amount and duration of the offset shall be made by the Committee.
7.3 Not a Contract of Employment
The terms and conditions of the Plan shall not be deemed to constitute
a contract of employment between the Company and the Executive, and the
Executive (or his or her surviving Eligible Spouse) shall have no rights
against the Company except as may be otherwise provided specifically herein.
Moreover, nothing in the Plan shall be deemed to give an Executive the right
to be retained in the service of the Company or to interfere with the right of
the Company to discipline or discharge him or her at any time.
7.4 Protective Provisions
An Executive shall cooperate with the Company by furnishing any and
all information requested by the Company in order to evaluate a claim or to
facilitate the payment of benefits hereunder, and by taking such physical
examinations as the Company may deem necessary and taking such other action as
may be requested by the Company.
7.5 Captions
The captions of the articles, sections and paragraphs of the Plan are
for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
7.6 Governing Law
The provisions of the Plan shall be construed, administered, and
enforced according to and governed by the laws (other than conflict of law
provisions) of the state of Ohio, except to the extent such laws are
superseded by ERISA.
7.7 Validity
In case any provision of the Plan shall be illegal or invalid for any
reason, such illegality or invalidity shall not affect the remaining parts
hereof, but the Plan shall be construed and enforced as if such illegal and
invalid provision had never been included herein.
7.8 Mistaken Information
If any information upon which an Executive's benefit under the Plan is
misstated or otherwise mistaken, such benefit shall not be invalidated (unless
upon the basis of the correct information the Executive would not be entitled
to a benefit), but the amount of the benefit shall be adjusted to the proper
amount and any overpayments shall be charged against future payments.
7.9 Taxes and Expenses
Any taxes imposed on Plan benefits shall be the sole responsibility of
the Executive or surviving Eligible Spouse. The Company shall deduct from Plan
benefits any amounts required by applied law to be withheld. All Plan
administration expenses incurred by the Company or Committee shall be borne by
the Company.
7.10 Notice
Any notice or filing required or permitted to be given to the
Committee under the Plan shall be sufficient if in writing and hand delivered,
or sent by registered or certified mail to any member of the Committee, or to
the Statutory Agent of FirstEnergy Corp. Notice to the Committee may be given
to any member of the Committee and if mailed shall be addressed to the
principal executive offices of FirstEnergy Corp. Notice mailed to the
Participant shall be sent to the address set out in the Participant's most
recent Participation Agreement or such other address as is given to the
Committee by notice. Notices shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
ARTICLE VIII-EFFECTIVE DATE, TERMINATION, AND AMENDMENT
The effective date of the Plan shall be September 29, 1985. The
effective date of participation of an Executive in this Plan shall be
determined by the Chief Executive Officer. The Plan may be terminated at any
time and amended from time to time by action of the Board or the Compensation
Committee or by a writing executed on behalf of the Board or the Compensation
Committee by the Company's duly authorized officers, provided that neither
termination nor any amendment of the Plan may, without the written approval of
a participating Executive or surviving Eligible Spouse, reduce or terminate
any accrued benefit.
ARTICLE IX-SUCCESSORS
The provisions of this Plan shall bind and inure to the benefit of the
Company and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all
of the business and assets of the Company, and successors of any such
corporation or other business entity.
IN WITNESS WHEREOF, and pursuant to approval of the Compensation
Committee of the Board, on April 29, 1999, the Company has caused this
instrument to be executed by its duly authorized officers effective as of
January 1, 1999.
FOR THE COMPANY
By: Date
------------------------------------------------- ------------------
H. Peter Burg
President and Chief Executive Officer of
FirstEnergy Corp.
Witness: Date
------------------------------------------- -------------------
J. A. Gill
Sr. Vice President
APPENDIX A
1 2 3
Participating Company Adoption Date Termination Date
- -----------------------------------------------------------------------------
Ohio Edison Company September 29, 1985
Pennsylvania Power Company September 29, 1985
FirstEnergy Corp. January 1, 1999
Cleveland Electric Illuminating
Company January 1, 1999
Toledo Edison Company January 1, 1999
FirstEnergy Nuclear Operating Company January 1, 1999
FirstEnergy Fuel Marketing Company January 1, 1999
==============================================================================
FirstEnergy
Executive Incentive Compensation Plan
2000
Purpose
- -------
The purpose of the Executive Incentive Compensation Plan (EICP) is to
attract, retain and motivate skilled executives; to more closely align the
interests of the executives and shareholders; and to promote growth in
shareholder value.
Total Compensation Philosophy
- -----------------------------
FirstEnergy's total compensation philosophy is based on the following
principles:
. A "pay-for-performance" orientation under which total compensation
reflects corporate, business unit and individual success;
. A focus on total compensation wherein base salaries and incentives are
targeted generally at or near median competitive market levels, with
opportunities to achieve total compensation at the 75th percentile level
if both corporate and business unit performance are superior;
. A mix between short-term and long-term compensation opportunities designed
to reward both short and long-term strategic results and facilitate
executive retention;
. An escalating proportion of an executive's total compensation opportunity
at risk through performance incentives and stock as an executive's level
of responsibility increases; and
. The use of various equity based incentive vehicles to promote FirstEnergy
stock ownership and more closely align the interests of executives with
the long-term interests of shareholders.
General Eligibility
- -------------------
Employees in positions with a standard rate of $88,890 and who report to
members of the FirstEnergy Senior Management Committee, regional presidents,
consolidated plant managers, nuclear directors, and general office department
heads are eligible to participate in this plan.
Plan Components
- ---------------
The Plan consists of a Short-Term Incentive Program (STIP) for 2000, a Long-
Term Incentive Program (LTIP) for the period 2000 - 2002, and a Stock Option
Program. Target incentive opportunities for each program are shown in
Attachment 1.
Short-Term Incentive Program (STIP)
-----------------------------------
Eligibility
-----------
An employee hired into the executive group must perform the duties of his/her
job for a minimum of 1000 regular hours during the year. Thus, new hires must
be added during the first half of the year to be eligible for an annual
award. Likewise, separation due to retirement, death or disability generally
must occur during the second half of the year.
If an employee is promoted into the executive group or reassigned to another
position outside the executive group, all hours worked during the year are
counted toward the 1000-hour criterion.
Executives must be actively employed as of December 31, 2000 or have
separated employment during the year due to retirement, disability, death, or
under conditions in which the executive qualifies for and elects benefits
under the FirstEnergy Severance Benefits Plan. Thus, an executive who
voluntarily resigns or is involuntarily separated for cause is ineligible to
receive a short-term award.
Executives must receive or would have received a performance rating of Meets
Expectations or above. Thus, an executive with a rating Does Not Meet
Expectations is ineligible to receive an annual award.
Also, an executive who voluntarily resigns or has been involuntarily
separated for cause between December 31, 2000 and the date that any awards
are paid is ineligible to receive and award.
Key Performance Indicators (KPIs)
- ---------------------------------
Performance goals are allocated between FirstEnergy Financial KPIs and
Operational KPIs. FirstEnergy Financial KPIs apply to all executives.
Operational KPIs are established for each business group. The weighting of
Financial goals and Operational goals varies among executives depending upon
their job level.
Award Leverage
- --------------
Each goal has a threshold, target and maximum level of achievement. The
achievement of Financial KPIs at or above threshold will generate a payout
from 50% to 200% of the target award. The achievement of Operational KPIs at
or above threshold will generate a payout from 50% to 150% of target. Results
achieved between threshold and target, and target and maximum, will be
interpolated.
Award Payments
- --------------
Annual awards will be paid in March 2001. If an executive meets the
eligibility criteria and works in an executive position for less than the
full performance year, his/her annual award will be prorated to reflect the
number of months that he/she has worked in an eligible position.
If an executive changes his/her job within the executive group or is
reassigned to another position outside the executive group during the plan
year, the executive's total annual incentive award will be the sum of the
prorated awards earned in each position and incentive plan.
Plan participants may elect to defer the receipt of any STIP award under the
terms of the Executive Deferred Compensation Plan.
Shareowner and Customer Protection
- ----------------------------------
Short-term incentive awards will not be paid unless all of the following
shareowner and customer protection measures are met:
. FirstEnergy common stock dividends paid during the plan year are greater
than or equal to the previous year-end annualized rate;
. Total earnings exceed the amount of dividends paid plus the maximum annual
awards from all incentive plans; and
. The rate freeze as contained in each operating company's rate
stabilization and area development program remains in effect
Discretionary Incentive
- -----------------------
There may be instances where an executive has demonstrated extraordinary
responsiveness to an unforeseen circumstance or has had a unique
accomplishment of substantial importance which may not be properly recognized
in the normal award process. In these cases, FirstEnergy (the Compensation
Committee of the Board of Directors in the case of a member of the Senior
Management Committee), in its sole discretion, may grant a special incentive
award to the executive.
Long-Term Incentive Program (LTIP)
----------------------------------
Eligibility
- -----------
Employees who are classified as an executive as of January 1, 2000 are
eligible. An employee who is hired or promoted into the executive group
during the initial year of the performance cycle will not be eligible for the
LTIP until the following performance cycle.
An executive must work at least one year in an eligible position during the
three-year plan cycle to be eligible for an award. Thus, an executive who
separates for any reason during 2000 will be ineligible to receive a long-
term award from the 2000 program.
An executive must be actively employed as of December 31, 2002, or have
separated due to retirement, disability or death; or under conditions in
which the executive qualifies for and elects benefits under the FirstEnergy
Severance Benefits Plan between December 31, 2000 and the award payment date.
Thus, an executive who voluntarily resigns or who is involuntarily separated
for cause during this time frame will be ineligible to receive an LTIP award.
Performance Shares
- ------------------
On January 1, 2000, each executive's target long-term award will be converted
into hypothetical "Performance Shares" of FirstEnergy common stock based on
the average of the high and low stock prices of the common stock on the last
trading day in 1999. These shares are placed into a Performance Share Account
for three years (2000 - 2002).
During the 2000 - 2002 performance period, dividend equivalents will be
converted into additional shares based on the closing stock price on the date
the dividends are paid. At the end of the three-year performance period, the
executive's account will be valued based on the average of the high and low
prices on the last trading day in December 2002.
The value may be adjusted upward or downward based upon the total shareholder
return of FirstEnergy common stock relative to an energy services company
index during this three-year period. If the total shareholder return ranking
is below the 61st percentile, no long-term award will be paid. If the total
shareholder return rating is in the top 15%, the award payout will be 150% of
the account value. Award payouts for a ranking between the 60th and 15th
percentile will be interpolated between 50% and 150%. The purpose of this
award structure is to strengthen the linkage between an executive's total
compensation and the long-term growth of shareholder value.
Attachment 2 is an illustration of the Long-Term Incentive Program award
table.
Award Payments
- --------------
Awards for the 2000 - 2002 cycle will be paid in March 2003.
If an executive meets the eligibility criteria and is no longer employed in
an executive position, his/her original long-term target award will be
prorated to reflect the number of months worked in an eligible position
during the performance cycle.
Plan participants may elect to defer the receipt of any LTIP award under the
provisions of the Executive Deferred Compensation Plan.
Stock Option Program
--------------------
In 2000, eligible employees will receive stock option grants that will allow
them to purchase a specified number of common stock shares at a fixed grant
price over a defined period of time. Specific details about the program and
the number of stock options granted will be communicated to recipients at the
time of the grant.
Terms
-----
For the purposes of this Plan, the term FirstEnergy is defined as FirstEnergy
Corp. and all of its operating companies to which this Plan has been
extended. The term "Company" refers to FirstEnergy Corp. or its operating
companies individually, as appropriate.
Each employee's rights under the Plan are at all times governed by the
official text of the Executive and Directors Incentive Compensation Plan
Document and are in no way altered or modified by the contents of this
summary.
Each executive may, at any time, designate one or more persons as the
executive's primary or contingent beneficiary(ies) to whom awards earned
under this Plan shall be paid in the event of the executive's death prior to
payment of such awards to the executive. In the absence of an effective
beneficiary designation, or if all beneficiaries predecease the executive,
the executive's designated beneficiary shall be the person in the first of
the following classes in which there is a survivor: the executive's surviving
spouse; the executive's estate.
Right to Modify or Terminate Plan
- ---------------------------------
This Plan may be amended or terminated at any time with or without notice by
the Compensation Committee of the Board of Directors of FirstEnergy. The Plan
may change from year to year or even be discontinued in the future. If it is
determined that significant unusual events occurred that impacted the
FirstEnergy's reported earnings but do not truly reflect the achieved
operating results of the FirstEnergy, then the Compensation Committee may, in
its sole discretion, increase or decrease the amount of any awards determined
by this Plan or even determine that no awards will be paid. Not withstanding,
the Committee shall have no authority to adjust upwards the amount payable to
a Covered Employee with respect to a particular Award, to take any of the
foregoing actions or to take any other action to the extent that such action
or the Committee's ability to take such action would cause any Award under
the Plan to any Covered Employee to fail to qualify as "performance-based
compensation" within the meaning of Code Section 162(m)(4) and the
regulations issued thereunder.
No Guarantee of Future Employment
- ---------------------------------
Nothing in this Plan shall be construed as giving any participant the right
to be retained in the employ of any Company, nor shall any Company be
required, by virtue of the existence of this Plan, to maintain the employment
of any participant through any specified date.
No Funded Trust
- ---------------
All awards paid under this Plan shall at all times constitute general
unsecured liabilities of any Company, payable out of its own general assets.
In no event shall any Company be obliged to reserve any funds or assets to
secure the payment of such amounts and nothing contained in the Plan shall
confer upon any participant the right, title or interest of any assets of any
Company.
Administration
- --------------
The Plan is administered by the Human Resources Department.
FirstEnergy Corp.
-----------------
Executive and Directors Incentive Compensation Plan
---------------------------------------------------
Restricted Stock Agreement
--------------------------
Award No.: 1
Number of Shares Awarded: 20,000 shares
Date of Grant: July 1, 1998
This Restricted Stock Agreement ("Agreement") is entered into as of July 1,
1998, between FirstEnergy Corp. ("FE") and Anthony J. Alexander
("Recipient").
AWARD
On February 17, 1998, The Board of Directors ("Directors") of FE adopted the
FE Executive and Director Incentive Compensation Plan ("Plan), which was
approved by the common stock shareholders on April 30, 1998, and became
effective May 1, 1998. As of the date of this Agreement, per the terms of
the Plan, FE grants to the Recipient the above number of restricted shares
of FE Common Stock ("Restricted Shares") per the terms and conditions of
Article 8 of the Plan.
GENERAL TERMS
This Agreement is subject to the following terms and conditions as outlined
in the Plan:
Restricted Period
1. Restricted Shares shall not be sold, transferred, pledged, or assigned,
until the earliest of:
a) 5:00 p.m. Akron Time on the dates indicated in the following:
Date Restrictions Expire Number of shares
------------------------ ----------------
July 1, 2002 5,000
July 1, 2003 5,000
July 1, 2004 5,000
July 1, 2005 5,000
b) The date of the Recipient's death;
c) The date that the Recipient's employment is terminated due t
Disability;
d) The date that a Change in Control occurs.
Registration and Certificate Legend
FE shall register a certificate(s) in the name of the Recipient for the
number of Restricted Shares specified above. Each certificate will bear the
following legend until the time that the restrictions lapse:
"The sale or transfer of the shares of stock represented
by this certificate, whether voluntary, involuntary, or
by operation of law, is subject to certain restrictions
on transfer set forth in the Executive and Director
Incentive Compensation Plan of the FirstEnergy Corp., in
the rules and administrative procedures adopted pursuant
to such Plan, and in a Restricted Stock Agreement dated
_____________. A copy of the Plan, such rules and
procedures, and such Restricted Stock Agreement may be
obtained from the Corporate Secretary of FirstEnergy
Corp."
Forfeiture
Recipient shall forfeit the Restricted Shares upon the occurrence of the
following events:
. Termination of employment with FE or its subsidiaries for any reason other
than death, Disability, involuntary termination under conditions in which
the Recipient qualifies for and elects benefits under the FE Severance
Benefits Plan, or unless the restrictions are waived or modified in the
sole discretion of the Committee.
. Any attempt to sell, transfer, pledge, or assign the Restricted Shares in
violation of the above.
Under the occurrence of any of the above, the Restricted Shares shall be
forfeited to FE and the Recipient's interest in the Restricted Shares,
including the right to vote and receive dividends, shall terminate
immediately.
Voting and Dividend Rights
Subject to the above restrictions, the Recipient shall be entitled to all
other rights of ownership, including, but not limited to, the right to vote
the Restricted Shares and to receive dividends.
Expiration of Restricted Period
Upon termination of the restricted period, Recipient shall be entitled to
have the legend removed from the certificate. FE's obligation to remove the
legend is subject to Recipient making the necessary arrangements with FE to
satisfy any withholding obligations.
Effect on the Employment Relationship
Nothing in this Agreement guarantees employment with FE, nor does it confer
any special rights or privileges to the Optionee as to the terms of
employment.
Adjustments
In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, stock split, combination,
distribution, or other change in corporate structure of FE affecting the
Common Stock, the Committee will adjust the number and class of securities in
this restricted stock grant in a manner determined appropriate to prevent
dilution or diminution of the stock grant under this Agreement.
Administration
1. The administration of this Agreement and the Plan will be performed in
accordance with Article 3 of the Plan. All determinations and decisions
made by the Committee, the Board, or any delegate of the Committee as to
the provisions of the Plan shall be final, conclusive, and binding on all
persons.
2. The terms of this Agreement are governed at all times by the official
text of the Plan and in no way alter or modify the Plan.
3. If a term is capitalized but not defined in this Agreement, it has the
meaning given to it in the Plan.
4. To the extent a conflict exists between the terms of this Agreement and
the provisions of the Plan, the provisions of the Plan shall govern.
5. This Agreement is governed by the laws of the State of Ohio.
FirstEnergy Corp.
By
----------------------------
Corporate Secretary
I acknowledge receipt of this Restricted Stock Agreement and I
accept and agree with the terms and conditions stated above.
-----------------------------------_
(Signature of Recipient)
- ---------------------
(Date)
<TABLE>
EXHIBIT 12.1
Page 1
FIRSTENERGY CORP.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $317,241 $315,170 $318,166 $ 441,396 $ 568,299
Interest and other charges, before
reduction for amounts capitalized 273,719 255,572 299,606 608,618 585,648
Provision for income taxes 199,307 201,295 207,985 321,699 394,827
Interest element of rentals charged to income 111,534 114,093 142,363 283,869 279,519
-------- -------- -------- ---------- ----------
Earnings as defined $901,801 $886,130 $968,120 $1,655,582 $1,828,293
======== ======== ======== ========== ==========
FIXED CHARGES AS DEFINED IN REGULATION S-K:
Interest expense $266,514 $240,146 $284,180 $ 542,819 $ 509,169
Subsidiaries' preferred stock dividend
requirements 7,205 15,426 15,426 65,299 76,479
Adjustments to subsidiaries' preferred stock
dividends to state on a pre-income tax basis 2,956 2,910 2,918 43,370 44,829
Interest element of rentals charged to income 111,534 114,093 142,363 283,869 279,519
-------- -------- -------- ---------- ----------
Fixed charges as defined $388,209 $372,575 $444,887 $ 935,357 $ 909,996
======== ======== ======== ========== ==========
CONSOLIDATED RATIO OF EARNINGS TO FIXED
CHARGES 2.32 2.38 2.18 1.77 2.01
==== ==== ==== ==== ====
</TABLE>
<PAGE>
Management Report
The consolidated financial statements were prepared by the
management of FirstEnergy Corp., who takes responsibility for their integrity
and objectivity. The statements were prepared in conformity with generally
accepted accounting principles and are consistent with other financial
information appearing elsewhere in this report. Arthur Andersen LLP,
independent public accountants, have expressed an opinion on the Company's
consolidated financial statements.
The Company's internal auditors, who are responsible to the Audit
Committee of the Board of Directors, review the results and performance of
operating units within the Company for adequacy, effectiveness and
reliability of accounting and reporting systems, as well as managerial and
operating controls.
The Audit Committee consists of five nonemployee directors whose
duties include: consideration of the adequacy of the internal controls of the
Company and the objectivity of financial reporting; inquiry into the number,
extent, adequacy and validity of regular and special audits conducted by
independent public accountants and the internal auditors; recommendation to
the Board of Directors of independent accountants to conduct the normal
annual audit and special purpose audits as may be required; and reporting to
the Board of Directors the Committee's findings and any recommendation for
changes in scope, methods or procedures of the auditing functions. The
Committee also reviews the results of management's programs to monitor
compliance with the Company's policies on business ethics and risk
management. The Audit Committee held six meetings in 1999.
Richard H. Marsh
Vice President and
Chief Financial Officer
Harvey L. Wagner
Controller and
Chief Accounting Officer
Report of Independent Public Accountants
To the Stockholders and Board of Directors of FirstEnergy Corp.:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of FirstEnergy Corp. (an Ohio
corporation) and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, common stockholders' equity,
preferred stock, cash flows and taxes for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of FirstEnergy Corp.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
<TABLE>
FIRSTENERGY CORP.
SELECTED FINANCIAL DATA
<CAPTION>
For the Years Ended December 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 6,319,647 $ 5,874,906 $ 2,961,125 $2,521,788 $2,500,770
-------------------------------------------------------------
Income Before Extraordinary Item $ 568,299 $ 441,396 $ 305,774 $ 302,673 $ 294,747
-------------------------------------------------------------
Net Income $ 568,299 $ 410,874 $ 305,774 $ 302,673 $ 294,747
-------------------------------------------------------------
Earnings per Share of Common
Stock:
Before Extraordinary Item $2.50 $1.95 $1.94 $2.10 $2.05
After Extraordinary Item $2.50 $1.82 $1.94 $2.10 $2.05
-------------------------------------------------------------
Dividends Declared per Share
of Common Stock $1.50 $1.50 $1.50 $1.50 $1.50
-------------------------------------------------------------
Total Assets $18,224,047 $18,192,177 $18,261,481 $9,218,623 $9,035,112
-------------------------------------------------------------
Capitalization at December 31:
Common Stockholders' Equity $ 4,563,890 $ 4,449,158 $ 4,159,598 $2,503,359 $2,407,871
Preferred Stock:
Not Subject to Mandatory
Redemption 648,395 660,195 660,195 211,870 211,870
Subject to Mandatory
Redemption 256,246 294,710 334,864 155,000 160,000
Long-Term Debt 6,001,264 6,352,359 6,969,835 2,712,760 2,786,256
-------------------------------------------------------------
Total Capitalization $11,469,795 $11,756,422 $12,124,492 $5,582,989 $5,565,997
=============================================================
</TABLE>
<TABLE>
PRICE RANGE OF COMMON STOCK
FirstEnergy Corp.'s Common Stock is listed on the New York Stock Exchange and is traded on
other registered exchanges.
<CAPTION>
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter High-Low 33-3/16 27-15/16 31-5/8 27-7/8
----------------------------------------
Second Quarter High-Low 32-1/8 27-15/16 31-7/8 28-1/2
----------------------------------------
Third Quarter High-Low 31-5/16 24-3/4 31-5/16 27-1/16
----------------------------------------
Fourth Quarter High-Low 26-9/16 22-1/8 34-1/16 29-3/16
----------------------------------------
Yearly High-Low 33-3/16 22-1/8 34-1/16 27-1/16
- ------------------------------------------------------------------------
<FN>
Prices are based on reports published in The Wall Street Journal for New York Stock Exchange
-----------------------
Transactions.
</TABLE>
HOLDERS OF COMMON STOCK
There were 181,806 and 180,679 holders of the Company's Common Stock of the
232,454,287 shares as of December 31, 1999 and 231,959,541 shares as of
January 31, 2000, respectively. Information regarding retained earnings
available for payment of cash dividends is given in Note 3A.
FIRSTENERGY CORP.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
FirstEnergy Corp. was formed when the merger of Ohio Edison Company
(OE) and Centerior Energy Corporation (Centerior) became effective on
November 8, 1997. The merger was accounted for using purchase accounting
under the guidelines of Accounting Principles Board Opinion No. 16, "Business
Combinations." Under these guidelines, the results of operations for the
combined entity are reported from the point of consummation forward. As a
result, our financial statements for 1997 reflect 12 months of operations for
OE and its wholly owned subsidiary, Pennsylvania Power Company (Penn), but
include only 7 weeks (November 8, to December 31, 1997) for the former
Centerior companies - The Cleveland Electric Illuminating Company (CEI) and
The Toledo Edison Company (TE). Results for 1998 and 1999 include operations
for the entire year for OE and Penn (OE companies), CEI and TE.
During 1998 and 1999, we took additional steps to expand our
portfolio of energy-related products and services by completing a number of
acquisitions and forming a joint venture. During 1998, FirstEnergy Facilities
Services Group, LLC (FE Facilities), a wholly owned subsidiary, acquired
eight companies, which mainly provide heating, ventilating and air-
conditioning (HVAC) services. FE Facilities made one additional acquisition
in 1999, bringing its total number of acquisitions to 11 over the past three
years. On June 8, 1998, we acquired MARBEL Energy Corporation (MARBEL), a
fully integrated natural gas company. On September 30, 1999, MARBEL formed a
joint venture with Range Resources Corporation that combines both companies'
assets for the development of Appalachian Basin oil and natural gas
properties and related gas-gathering and transportation systems. This joint
venture is accounted for using the equity method of accounting with our
proportionate share of earnings reflected in our consolidated financial
results. During 1999, three additional retail gas acquisitions were added to
FirstEnergy Trading Services, Inc. (FETS). All acquisitions in 1998 and 1999
were accounted for using purchase accounting and are included in our
consolidated results from their respective acquisition dates.
As Ohio approaches customer choice of energy suppliers in 2001, we
continue to develop our unregulated retail sales strategy, in part through
acquisitions, which expand the products and services we can offer customers.
In addition, related changes to our sales and marketing activities were made
during 1999 to further support our retail sales strategy. As a result, we
increased our functional integration across organization lines to improve
economies and efficiencies to better serve customers in unregulated markets.
By taking advantage of the new markets made available by advancing
deregulation, we now cover a 13-state market area in the northeastern portion
of the U.S. This expanded market has yielded significant multi-year contracts
for us in 1999. We also completed major information systems during 1999,
which improve our capabilities while resolving Year 2000 concerns.
Total revenues increased by $445 million in 1999 and $2.9 billion
in 1998 compared to the prior year results. In 1999, the increased revenues
resulted primarily from contributions from the Electric Utility Operating
Companies' (EUOC) business segment and newly acquired businesses, which were
partially offset by reduced revenues from the FETS business segment due to
refocusing its activities to support our retail marketing activities. The
EUOC currently represent the more traditional vertically integrated electric
utility operations. In 1998, inclusion of a full 12 months of results for the
former Centerior companies in the EUOC business segment compared to only 7
weeks in 1997 was the largest factor contributing to the change in electric
sales, adding $2.2 billion. The sources of the increases in revenues during
1999 and 1998 are summarized in the following table.
<TABLE>
<CAPTION>
Sources of Revenue Changes 1999 1998
- ----------------------------------------------------
(In millions)
<S> <C> <C>
Electric sales $213.2 $2,204.7
Other electric utility
revenues 3.1 115.0
- ----------------------------------------------------
Total EUOC 216.3 2,319.7
FETS (220.1) 367.6
New businesses acquired 341.5 220.0
Unregulated electric sales 54.0 6.5
Gain on sale of investment 53.0 --
- ----------------------------------------------------
Net Revenue Increase $444.7 $2,913.8
- ----------------------------------------------------
</TABLE>
Electric Sales
EUOC revenues increased by $216.3 million in 1999, compared to
1998, benefiting from increased kilowatt-hour sales, offset in part by lower
unit prices. Residential, commercial and industrial customers all contributed
to higher EUOC retail sales. Retail kilowatt-hour sales increased due to
strong consumer-driven economic growth and, to a lesser extent, the weather.
Over 6,500 new EUOC customers were added in 1999. Weather-induced electricity
demand in the wholesale market and additional available internal generation
combined to increase sales to wholesale customers.
EUOC retail kilowatt-hour sales in 1998 increased substantially
over 1997 due to the merger with the former Centerior companies. Excluding
the impact of the merger, retail sales for the OE companies in 1998 were
approximately the same as the previous year after setting a new record in
1997. Residential and commercial kilowatt-hour sales benefited from continued
growth in the retail customer base, with over 11,000 new retail customers
added in 1998 compared to 1997. The closure of an electric arc furnace by a
large steel customer in the latter part of 1997 and a general decline in
electricity demand by steel manufacturers due to intense foreign competition
contributed to lower industrial sales in 1998, compared to the prior year.
Changes in EUOC kilowatt-hour sales by customer class in 1999 and 1998 are
summarized in the following table.
<TABLE>
<CAPTION>
EUOC KWH Sales Changes 1999 1998*
- --------------------------------------------
<S> <C> <C>
Residential 6.7% 1.7%
Commercial 3.9% 3.5%
Industrial 3.4% (3.6)%
- --------------------------------------------
Total Retail 4.4% --
Wholesale 28.4% 8.9%
- --------------------------------------------
Total Sales 6.6% 1.4%
- --------------------------------------------
<FN>
* Reflects OE companies only
</TABLE>
Unregulated kilowatt-hour sales showed strong sales growth in 1999,
with sales to commercial customers accounting for most of the increase.
Revenues from commercial customers represented $53.1 million of the $60.5
million of 1999 revenues from unregulated markets. Over 12,000 new
unregulated customers were served in 1999. Several major contracts were
entered into in 1999, including one with Republic Technologies International,
Inc. (RTI). On August 17, 1999, FirstEnergy Services Corporation (FSC), a
wholly owned subsidiary, signed a Master Energy Services and Supply Agreement
with RTI. They are expected to use more than $1 billion in energy and related
services over the five-year contract period. FSC will manage: the supply and
delivery of all of RTI's electricity and natural gas needs; RTI's HVAC
requirements; and other energy-related services for RTI. Although unregulated
kilowatt-hour sales comprised only 1% of total revenues in 1999, these sales
increased substantially compared to 1998 and are expected to be a major
source of electric sales growth in future years.
Nonelectric Sales
Following an initial expansion of its trading activities in 1998,
FETS revenues decreased significantly in 1999, compared to the prior year
because of refocusing its activities on supporting our retail marketing
activities. Revenues from new business acquisitions increased significantly
in both 1999 and 1998 due to acquisitions made by FE Facilities and FETS. In
addition, we recognized a gain of $53 million from the sale of a partnership
investment in the fourth quarter of 1999, which is reflected in other
revenues. This one-time gain was offset by nonrecurring expenses recognized
in the fourth quarter of 1999, as further described below.
Operating Expenses
Total expenses increased $255.5 million in 1999 compared to 1998
reflecting higher levels of other expenses for EUOC and facilities services
activities, as well as additional depreciation and amortization. This
increase in other expenses was partially offset by lower fuel and purchased
power costs, as well as reduced expenses for FETS. In 1998, total expenses
increased $2.4 billion from the previous year primarily due to the inclusion
of a full 12 months of expenses for the former Centerior companies, compared
to only 7 weeks of expenses in the 1997 results.
Fuel and purchased power costs were $106.7 million lower in 1999,
compared to 1998. The EUOC purchased power costs accounted for all of the
reduction. Much of the improvement occurred in the second quarter due to the
absence of unusual conditions experienced in 1998, which resulted in an
additional $77.4 million of purchased power costs. Those costs were incurred
during a period of record heat and humidity in late June 1998, which
coincided with a regional power shortage resulting in high prices for
purchased power. Unscheduled outages at several of our power plants at the
same time required the EUOC to purchase significant amounts of power on the
spot market. Although above normal temperatures were also experienced in
1999, the EUOC maintained a stronger capacity position compared to the
previous year and better met customer demand from their own internal
generation. In 1998, fuel and purchased power costs were up $497.5 million
compared to 1997. Excluding the merger impact of the Centerior companies in
1998, fuel and purchased power costs for the OE companies increased $74.4
million for the reasons discussed above.
Other expenses for the EUOC rose in 1999 compared to 1998 for
several reasons. Refueling outages at Beaver Valley Unit 2 and the Perry
Plant, as well as full ownership of those units and Beaver Valley Unit 1
following the Duquesne Light Company (Duquesne) asset swap in early December
1999 and nonrecurring swap-related liabilities assumed, increased our nuclear
expenses. The EUOC incurred additional costs in 1999 related to improving the
availability of their fossil generating units. Also contributing to the
increase in other EUOC expenses in 1999 were higher customer, sales and
marketing expenses resulting from marketing programs and information system
costs; higher distribution expenses from storm damage, as well as line and
meter maintenance; and a nonrecurring expense related to a change in employee
vacation benefits. In 1998, other expenses for the EUOC increased from the
previous year principally as a result of the Centerior merger. Excluding the
former Centerior companies, 1998 nonnuclear costs decreased from the previous
year due primarily to the absence of expenses related to a 1997 voluntary
retirement program and estimated severance costs which increased other
expenses for that year. Lower nonnuclear expenses in 1998 were partially
offset by higher nuclear costs at the Beaver Valley Plant.
With FETS activities changing in 1999 to support our retail
marketing efforts, other expenses in this business segment decreased
significantly from 1998. Also, FETS expenses were significantly lower in 1999
due to the absence of costs incurred in 1998 associated with credit losses
and related replacement power costs resulting from the period of sharp price
increases in the spot market for electricity in June 1998. The acquisitions
in the facility services and natural gas businesses, as well as costs
attributable to unregulated sales activity, combined to increase other
expenses in both 1999 and 1998 from the previous years.
Accelerated cost recovery in connection with the OE rate reduction
plan was the primary factor contributing $160.6 million to the increase in
depreciation and amortization in 1999, compared to the prior year. Excluding
the effect of the former Centerior companies, depreciation and amortization
in 1998 decreased $14.2 million from the prior year mainly due to the net
effect of the OE and Penn rate plans.
Interest Expense
Interest expense decreased $33.7 million in 1999, from the prior
year, because of long-term debt redemptions and refinancings. In 1998,
interest expense increased, compared to 1997, due to the inclusion of the
former Centerior companies. Excluding the impact of the merger, interest on
long-term debt for the OE companies continued to trend downward due to
refinancings and redemptions of long-term debt.
Extraordinary Item
The Pennsylvania Public Utility Commission's (PPUC) authorization
of Penn's rate restructuring plan led to the discontinued application of
Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for
the Effects of Certain Types of Regulation," to Penn's generation business in
1998. This resulted in a write-down of $30.5 million, or $.13 per common
share, of its nuclear generating unit investment and the recognition of a
portion of such investment -- recoverable through future customer rates -- as
a regulatory asset.
Net Income
As a result of higher sales revenues, the absence of unusually high
purchased power costs experienced in 1998 and lower interest costs, net
income increased significantly in 1999 to $568.3 million, compared to $410.9
million in 1998 and $305.8 million in 1997. Basic and diluted earnings per
share of common stock were $2.50 in 1999, compared to $1.82 in 1998 and $1.94
in 1997.
Capital Resources and Liquidity
We continue to pursue cost efficiencies to fund strategic
investments while also strengthening our financial position. During 1999, our
financing costs continued their downward trend. Net redemptions of long-term
debt and preferred stock totaled $528.9 million, including $18.3 million of
optional redemptions in 1999. In addition, we completed $359.6 million of
refinancings. Combined, these actions are expected to generate annual savings
of about $50 million. The average cost of long-term debt was reduced to 7.65%
in 1999 from 8.02% at the end of 1997. As of December 31, 1999, our common
equity as a percentage of capitalization increased to 40% from 34% at the end
of 1997, following the merger with Centerior.
We had approximately $111.8 million of cash and temporary
investments and $417.8 million of short-term indebtedness on December 31,
1999. Our unused borrowing capability included $136.5 million under revolving
lines of credit. At the end of 1999, the EUOC had the capability to issue
$2.1 billion of additional first mortgage bonds on the basis of property
additions and retired bonds. Based upon applicable earnings coverage tests
and their respective charters, OE, Penn and TE could issue $1.6 billion of
preferred stock (assuming no additional debt was issued). CEI has no
restrictions on the issuance of preferred stock.
Our cash requirements in 2000 for operating expenses, construction
expenditures, scheduled debt maturities, preferred stock redemptions, and
common stock repurchases are expected to be met without issuing new
securities. During 1999, we reduced our total debt by approximately $300.0
million. We have cash requirements of approximately $2.8 billion for the
2000-2004 period to meet scheduled maturities of long-term debt and sinking
fund requirements of preferred stock. Of that amount, approximately $494
million applies to 2000. During 1999, we repurchased and retired 4.6 million
shares of our common stock at an average price of $28.08 per share. We have
authority to repurchase up to 15 million shares of common stock. We also
entered into an equity forward purchase contract, which enables us to
purchase an additional 1.4 million shares in November 2000 at an average
price of $24.22 per share.
Our capital spending for the period 2000-2004 is expected to be
about $3.0 billion (excluding nuclear fuel), of which approximately $650
million applies to 2000. Investments for additional nuclear fuel during the
2000-2004 period are estimated to be approximately $497 million, of which
about $159 million applies to 2000. During the same period, our nuclear fuel
investments are expected to be reduced by approximately $480 million and $106
million, respectively, as the nuclear fuel is consumed. Also, we have
operating lease commitments, net of trust cash receipts, of nearly $782
million for the 2000-2004 period, of which approximately $146 million relates
to 2000.
Two transactions were completed in 1999, which modified our
portfolio of generation resources. On July 26, CEI completed its purchase of
the remaining 20 percent interest in the Seneca pumped- storage hydroelectric
generation plant from GPU, Inc. for $43 million. The purchase makes available
87 megawatts of additional capacity and provides CEI with full ownership of
the plant. On December 3, the generating asset transfer with Duquesne was
completed. Duquesne transferred 1,436 megawatts it owned at five generating
plants to us in exchange for 1,328 megawatts at three plants owned by our
EUOC. The transaction provides us with exclusive ownership and operating
control of all generating assets which were formerly jointly owned and
operated under the Central Area Power Coordination Group agreement.
Additional generating capacity is under construction, and is
expected to go into service in early June 2000 to supply electricity for peak
demand periods, reducing our requirements for purchased power. In total, we
will be adding 390 megawatts of gas-fired combustion turbines by the end of
2000 to meet this need. Another 150 megawatts of diesel generation will be
available to us on a limited basis during the summer of 2000.
We completed four acquisitions during 1999, which further expand
energy-related products and services available to our customers. FE
Facilities acquired one company having total annual revenues of approximately
$14 million. Collectively, the FE Facilities companies now produce more than
$500 million in annual revenues and have approximately 3,400 employees. In
addition, FETS acquired three retail gas companies having combined annual
revenues of $239 million and more than 43,000 customers. These three
acquisitions further expanded our retail natural gas business in Ohio and
surrounding states, bringing our total annual revenues in that business to
approximately $500 million.
MARBEL and Range Resources Corporation formed a joint venture,
Great Lakes Energy Partners L.L.C., on September 30, 1999. This joint venture
combined each company's Appalachian oil and natural gas properties and
related gas gathering and transportation systems with the objective of
lowering operating costs, and increasing natural gas market share in the
Appalachian Basin. As exclusive marketing agent for the new joint venture, we
continue to expand our network of gas assets to supply our retail customer
base.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is mitigated
since a significant portion of our debt has fixed interest rates, as noted in
the table below. We are subject to the inherent interest rate risks related
to refinancing maturing debt by issuing new debt securities. As discussed in
Note 2, our investments in capital trusts effectively reduce future lease
obligations, also reducing interest rate risk. Changes in the market value of
our nuclear decommissioning trust funds are recognized by making a
corresponding change to the decommissioning liability, as described in Note
1.
<TABLE>
<CAPTION>
Comparison of Carrying Value to Fair Value
- ----------------------------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
- ----------------------------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than Cash
and Cash Equivalents:
Fixed Income $111 $ 60 $ 84 $ 97 $314 $1,370 $2,036 $2,022
Average interest rate 6.5% 7.0% 7.7% 7.7% 7.8 7.5% 7.5%
- ------------------------------------------------------------------------------------------------
Liabilities
- ------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate $456 $105 $724 $459 $591 $3,009 $5,344 $5,307
Average interest rate 7.1% 8.6% 7.9% 8.0% 7.7% 7.5% 7.6%
Variable rate $190 $847 $1,037 $1,024
Average interest rate 7.5% 4.4% 5.0%
Short-term Borrowings $418 $418 $ 418
Average interest rate 6.5% 6.5%
- ------------------------------------------------------------------------------------------------
Preferred Stock $ 38 $ 85 $ 20 $ 2 $ 2 $137 $ 284 $ 280
Average dividend rate 8.9% 8.9% 8.9% 7.5% 7.5% 8.8% 8.8%
- ------------------------------------------------------------------------------------------------
</TABLE>
Market Risk - Commodity Prices
We are exposed to market risk due to fluctuations in electricity,
natural gas and oil prices. To manage the volatility relating to these
exposures, we use a variety of derivative instruments, including forward
contracts, options and futures contracts. These derivatives are used
principally for hedging purposes and, to a lesser extent, for trading
purposes. A sensitivity analysis has been prepared to estimate our exposure
to the market risk of our commodity position. A hypothetical 10 percent
adverse shift in quoted market prices in the near term on both our trading
and nontrading instruments would not have a material effect on our
consolidated financial position, results of operations or cash flows as of or
for the year ended December 31, 1999.
Outlook
We continue to face many competitive challenges as the electric
utility industry undergoes significant changes, including changing regulation
and the entrance of more energy suppliers into the marketplace. Retail
wheeling, which began in 1999 in our Pennsylvania service area, allows retail
customers to purchase electricity from alternative energy suppliers. Recent
legislation provides for similar changes beginning in 2001 in Ohio. Our
existing regulatory plans provide us with a solid foundation to position us
to meet the challenges we are facing by significantly reducing fixed costs
and lowering rates to a more competitive level. The transition plan
ultimately approved by the Public Utilities Commission of Ohio (PUCO) will
supersede our current Ohio rate plans.
OE's Rate Reduction and Economic Development Plan, approved by the
PUCO in 1995, and FirstEnergy's Rate Reduction and Economic Development Plan
for CEI and TE, approved in January 1997, provide interim rate credits to
customers during the periods covered by the plans. The OE regulatory plan
provides for accelerated capital recovery. The regulatory plan for CEI and TE
includes a commitment to accelerate depreciation on the regulatory books. The
CEI/TE plan does not provide for full recovery of nuclear operations;
accordingly, CEI and TE ceased application of SFAS 71 for their nuclear
operations when implementation of the FirstEnergy regulatory plan became
probable.
In July 1999, Ohio's new electric utility restructuring
legislation, which will allow Ohio electric customers to select their
generation suppliers beginning January 1, 2001, was signed into law. Among
other things, the new law provides for a 5% reduction on the generation
portion of residential customers' bills and the opportunity to recover
transition costs, including regulatory assets, from January 1, 2001 through
December 31, 2005. The period for the recovery of regulatory assets only can
be extended up to December 31, 2010. The PUCO was authorized to determine the
level of transition cost recovery, as well as the recovery period for the
regulatory assets portion of those costs, in considering each Ohio electric
utility's transition plan application.
On behalf of our Ohio electric utility operating companies -- OE,
CEI and TE, we refiled our transition plan on December 22, 1999. The plan was
originally filed with the PUCO on October 4, 1999, but was refiled to conform
to PUCO rules established on November 30, 1999. The new filing also included
additional information on our plans to turn over control, and perhaps
ownership, of our transmission assets to the Alliance Regional Transmission
Organization (Alliance), which is discussed below.
The transition plan itemizes, or unbundles, the current price of
electricity into separate components - including generation, transmission,
distribution and transition charges. As required by the PUCO's rules, our
filing also included our proposals on corporate separation of our regulated
and unregulated operations, operational and technical support changes needed
to accommodate customer choice, an education program to inform customers of
their options under the law, and how our transmission system will be operated
to ensure access to all users. Under the plan, customers who remain with OE,
CEI or TE as their generation provider will continue to receive savings under
our rate plans, expected to total $759 million between 2000 and 2005. In
addition, customers will save $358 million through reduced charges for taxes
and a 5% reduction in the price of generation for residential customers
beginning January 1, 2001. Customer prices are expected to be frozen through
a five-year market development period (2001-2005), except for certain limited
statutory exceptions including the 5% reduction in the price of generation
for residential customers. The plan proposes recovery of generation-related
transition costs of approximately $4.5 billion ($4.0 billion, net of deferred
income taxes) over the market development period; transition costs related to
regulatory assets aggregating approximately $4.2 billion ($2.9 billion, net
of deferred income taxes) are expected to be recovered over the period of
2001 through early 2004 for OE; 2001 through 2007 for TE; and 2001 through
2010 for CEI.
When the transition plan is approved by the PUCO, the application
of SFAS 71 to OE's generation business and the nonnuclear generation
businesses of CEI and TE will be discontinued. In the meantime, we will
continue to bill and collect cost-based rates relating to CEI's and TE's
nonnuclear operations and all of OE's operations through the end of 2000. If
the transition plans ultimately approved by the PUCO for OE, CEI and TE do
not provide adequate recovery of their nuclear generating unit investments
and regulatory assets, there would be a charge to earnings which could have a
material adverse effect on our results of operations and financial condition
and those of our Ohio EUOC. The EUOC believe they will continue to bill and
collect cost-based rates for their transmission and distribution services,
which will remain regulated; accordingly, it is appropriate that the EUOC
continue the application of SFAS 71 to those operations after December 31,
2000.
For Penn, application of SFAS 71 was discontinued for the
generation portion of its business in 1998 following PPUC approval of its
restructuring plan. Under the plan, a phase-in period for customer choice
began with 66% of Penn's customers able to select their energy supplier
beginning January 2, 1999, and all remaining customers able to select their
energy providers starting January 1, 2001. Penn is entitled to recover $236
million of stranded costs through a competitive transition charge that
started in 1999 and ends in 2006.
In the second half of 1999, we received notification of pending
legal actions based on alleged violations of the Clean Air Act at our W. H.
Sammis Plant involving the states of New York and Connecticut as well as the
U.S. Department of Justice. The civil complaint filed by the U.S. Department
of Justice requests installation of "best available control technology" as
well as civil penalties of up to $27,500 per day. We believe the Sammis Plant
is in full compliance with the Clean Air Act and the legal actions are
without merit. However, we are unable to predict the outcome of this
litigation. Penalties could be imposed if the Sammis Plant continues to
operate without correcting the alleged violations and a court determines that
the allegations are valid. We expect the Sammis Plant to continue to operate
while the matter is being decided.
CEI and TE have been named as "potentially responsible parties"
(PRPs) for three sites listed on the Superfund National Priorities List and
are aware of their potential involvement in the cleanup of several other
sites. Allegations that CEI and TE disposed of hazardous waste at these
sites, and the amount involved are often unsubstantiated and subject to
dispute. Federal law provides that all PRPs for a particular site be held
liable on a joint and several basis. If CEI and TE were held liable for 100%
of the cleanup costs of all sites, the ultimate liability could be as high as
$340 million. However, we believe that the actual cleanup costs will be
substantially lower than $340 million, that CEI's and TE's share of any
cleanup costs will be substantially less than 100% and that most of the other
PRPs are financially able to contribute their share. CEI and TE have accrued
liabilities of $5.4 million as of December 31, 1999, based on estimates of
the costs of cleanup and their proportionate responsibility for such costs.
CEI and TE believe that the waste disposal costs will not have a material
adverse effect on their financial condition, cash flows or results of
operations.
On October 27, 1999, the Federal Energy Regulatory Commission
(FERC) approved our plan to transfer our transmission assets to American
Transmission Systems Inc. (ATSI), a wholly owned subsidiary. The PUCO
approved the transfer in February 2000. PPUC and Securities and Exchange
Commission regulatory approvals are also required. The new subsidiary
represents a first step toward the goal of establishing or becoming part of a
larger independent, regional transmission organization (RTO). We believe that
such an entity better addresses the FERC's stated transmission objectives of
non-discriminatory service, while providing for streamlined and cost-
effective operation. In working toward that goal, we joined with four other
companies - American Electric Power, Consumers Energy, Detroit Edison and
Virginia Power - to form the Alliance RTO. On June 3, 1999, the Alliance
submitted an application to the FERC to form an independent, for profit RTO.
On December 15, 1999, the FERC issued an order conditionally approving the
Alliance's application.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards requiring that every
derivative instrument (including derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement. We have not completed quantifying the
impacts of adopting SFAS 133 on our financial statements or determined the
method of its adoption. However, SFAS 133 could increase volatility in
earnings and other comprehensive income. We anticipate adopting the new
statement on its amended effective date of January 1, 2001.
Year 2000 Update
Based on the results of our remediation and testing efforts, we
filed documents with the North American Electric Reliability Council, Nuclear
Regulatory Commission, PUCO and PPUC that as of June 30, 1999, our
generation, transmission, and distribution systems were ready to serve
customers in the year 2000. We have since experienced no failures or
interruptions of service to our customers resulting from the Year 2000 issue,
which was consistent with our expectations. We spent $84.9 million on Year
2000-related costs through December 31, 1999, which was slightly lower than
previously estimated. Of this total, $68.3 million was 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 $16.6 million
was expensed as incurred. We do not believe there are any continuing Year
2000 issues to be addressed, nor any additional material Year 2000
expenditures.
Forward-Looking Information
This discussion includes forward-looking statements based on
information currently available to management that are subject to certain
risks and uncertainties. These statements typically contain, but are not
limited to, the terms anticipate, potential, expect, believe, estimate and
similar words. Actual results may differ materially due to the speed and
nature of increased competition and deregulation in the electric utility
industry, economic or weather conditions affecting future sales and margins,
changes in markets for energy services, changing energy market prices,
legislative and regulatory changes, and the availability and cost of capital
and other similar factors.
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES:
Electric sales $5,192,876 $4,979,718 $2,774,996
Other-electric utilities 260,887 257,750 142,742
Facilities services 502,990 198,336 --
Trading services 190,634 410,728 43,145
Other 172,260 28,374 242
---------- ---------- ----------
Total revenues 6,319,647 5,874,906 2,961,125
---------- ---------- ----------
EXPENSES:
Fuel and purchased power 876,986 983,735 486,267
Other expenses:
Electric utilities 1,632,638 1,492,461 851,146
Facilities services 469,176 184,440 --
Trading services 196,474 517,001 44,032
Other 126,926 41,337 --
Provision for depreciation and amortization 937,976 758,865 474,679
General taxes 544,052 550,908 282,163
---------- ---------- ----------
Total expenses 4,784,228 4,528,747 2,138,287
---------- ---------- ----------
INCOME BEFORE INTEREST AND INCOME TAXES 1,535,419 1,346,159 822,838
---------- ---------- ----------
NET INTEREST CHARGES:
Interest expense 509,169 542,819 284,180
Allowance for borrowed funds used during
construction and capitalized interest (13,355) (7,642) (3,469)
Subsidiaries' preferred stock dividends 76,479 65,799 27,818
---------- ---------- ----------
Net interest charges 572,293 600,976 308,529
---------- ---------- ----------
INCOME TAXES 394,827 303,787 208,535
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 568,299 441,396 305,774
EXTRAORDINARY ITEM (NET OF INCOME TAX BENEFIT OF
$21,208,000) (Note 1) -- (30,522) --
---------- ---------- ----------
NET INCOME $ 568,299 $ 410,874 $ 305,774
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 227,227 226,373 157,464
========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE OF
COMMON STOCK (Note 3C):
Income before extraordinary item $2.50 $1.95 $1.94
Extraordinary item (Net of income taxes) (Note 1) -- (.13) --
----- ----- -----
Net income $2.50 $1.82 $1.94
===== ===== =====
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $1.50 $1.50 $1.50
===== ===== =====
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1999 1998
- ----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 111,788 $ 77,798
Receivables--
Customers (less accumulated provisions of $6,719,000 and
$6,397,000, respectively, for uncollectible accounts) 322,687 239,183
Other (less accumulated provisions of $5,359,000 and
$46,251,000, respectively, for uncollectible accounts) 445,242 322,186
Materials and supplies, at average cost--
Owned 154,834 145,926
Under consignment 99,231 110,109
Prepayments and other 167,894 171,931
----------- -----------
1,301,676 1,067,133
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
In service 14,645,131 14,961,664
Less--Accumulated provision for depreciation 5,919,170 6,012,761
----------- -----------
8,725,961 8,948,903
Construction work in progress 367,380 293,671
----------- -----------
9,093,341 9,242,574
----------- -----------
INVESTMENTS:
Capital trust investments (Note 2) 1,281,834 1,329,010
Letter of credit collateralization (Note 2) 277,763 277,763
Nuclear plant decommissioning trusts 543,694 358,371
Other 599,443 391,855
----------- -----------
2,702,734 2,356,999
----------- -----------
DEFERRED CHARGES:
Regulatory assets 2,543,427 2,887,437
Goodwill 2,129,902 2,167,968
Other 452,967 470,066
----------- -----------
5,126,296 5,525,471
----------- -----------
$18,224,047 $18,192,177
=========== ===========
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock $ 762,520 $ 876,470
Short-term borrowings (Note 4) 417,819 254,470
Accounts payable 360,379 247,353
Accrued taxes 409,724 401,688
Accrued interest 125,397 141,575
Other 301,572 255,158
----------- -----------
2,377,411 2,176,714
----------- -----------
CAPITALIZATION (See Consolidated Statements of
Capitalization):
Common stockholders' equity 4,563,890 4,449,158
Preferred stock of consolidated subsidiaries--
Not subject to mandatory redemption 648,395 660,195
Subject to mandatory redemption 136,246 174,710
Ohio Edison obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely Ohio Edison
subordinated debentures 120,000 120,000
Long-term debt 6,001,264 6,352,359
----------- -----------
11,469,795 11,756,422
----------- -----------
DEFERRED CREDITS:
Accumulated deferred income taxes 2,231,265 2,282,864
Accumulated deferred investment tax credits 269,083 286,154
Other postretirement benefits 498,184 463,642
Nuclear plant decommissioning costs 562,295 375,958
Other 816,014 850,423
----------- -----------
4,376,841 4,259,041
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 5) ----------- -----------
$18,224,047 $18,192,177
=========== ===========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.10 par value - authorized 300,000,000 shares
232,454,287 and 237,069,087 shares outstanding, respectively $ 23,245 $ 23,707
Other paid-in capital 3,722,375 3,846,513
Accumulated other comprehensive income (Note 3D) (195) (439)
Retained earnings (Note 3A) 945,241 718,409
Unallocated employee stock ownership plan common stock-
6,778,905 and 7,406,332 shares, respectively (Note 3B) (126,776) (139,032)
---------- ----------
Total common stockholders' equity 4,563,890 4,449,158
---------- ----------
<CAPTION>
Number of Shares Optional
Outstanding Redemption Price
---------------- --------------------
1999 1998 Per Share Aggregate
------ ------ --------- ---------
<S> <C> <C> <C> <C>
PREFERRED STOCK OF CONSOLIDATED
SUBSIDIARIES (Note 3E):
Ohio Edison Company (OE)
Cumulative, $100 par value-
Authorized 6,000,000 shares
Not Subject to Mandatory Redemption:
3.90% 152,510 152,510 $103.63 $ 15,804 15,251 15,251
4.40% 176,280 176,280 108.00 19,038 17,628 17,628
4.44% 136,560 136,560 103.50 14,134 13,656 13,656
4.56% 144,300 144,300 103.38 14,917 14,430 14,430
--------- --------- -------- ---------- -----------
609,650 609,650 63,893 60,965 60,965
--------- --------- -------- ---------- -----------
Cumulative, $25 par value-
Authorized 8,000,000 shares
Not Subject to Mandatory Redemption:
7.75% 4,000,000 4,000,000 25.00 100,000 100,000 100,000
--------- --------- -------- ---------- -----------
Total Not Subject to
Mandatory Redemption 4,609,650 4,609,650 $163,893 160,965 160,965
========= ========= ======== ---------- -----------
Cumulative, $100 par value-
Subject to Mandatory Redemption
(Note 3F):
8.45% 100,000 150,000 10,000 15,000
Redemption Within One Year (5,000) (5,000)
--------- --------- ---------- -----------
100,000 150,000 5,000 10,000
========= ========= ---------- -----------
Pennsylvania Power Company
Cumulative, $100 par value-
Authorized 1,200,000 shares
Not Subject to Mandatory Redemption:
4.24% 40,000 40,000 103.13 $ 4,125 4,000 4,000
4.25% 41,049 41,049 105.00 4,310 4,105 4,105
4.64% 60,000 60,000 102.98 6,179 6,000 6,000
7.64% -- 60,000 -- -- -- 6,000
7.75% 250,000 250,000 -- -- 25,000 25,000
8.00% -- 58,000 -- -- -- 5,800
--------- --------- -------- ---------- -----------
Total Not Subject to Mandatory
Redemption 391,049 509,049 $ 14,614 39,105 50,905
========= ========= ======== ---------- -----------
Subject to Mandatory Redemption
(Note 3F):
7.625% 150,000 150,000 106.10 $ 15,915 15,000 15,000
========= ========= ======== ---------- -----------
OE OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY OE SUBORDINATED
DEBENTURES (Note 3G):
Cumulative, $25 par value-
Authorized 4,800,000 shares
Subject to Mandatory Redemption:
9.00% 4,800,000 4,800,000 120,000 120,000
========= ========= ---------- -----------
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
<CAPTION>
At December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Number of Shares Optional
Outstanding Redemption Price
---------------- --------------------
1999 1998 Per Share Aggregate
------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK OF CONSOLIDATED
SUBSIDIARIES (Cont'd)
Cleveland Electric Illuminating Company
Cumulative, without par value-
Authorized 4,000,000 shares
Not Subject to Mandatory Redemption:
$ 7.40 Series A 500,000 500,000 $ 101.00 $ 50,500 $ 50,000 $ 50,000
$ 7.56 Series B 450,000 450,000 102.26 46,017 45,071 45,071
Adjustable Series L 474,000 474,000 100.00 47,400 46,404 46,404
$42.40 Series T 200,000 200,000 500.00 100,000 96,850 96,850
--------- --------- -------- ---------- ---------
Total Not Subject to Mandatory
Redemption 1,624,000 1,624,000 $243,917 238,325 238,325
========= ========= ======== ---------- ---------
Subject to Mandatory Redemption:
$ 7.35 Series C 90,000 100,000 101.00 $ 9,090 9,110 10,110
$88.00 Series E 3,000 6,000 1,000.00 3,000 3,000 6,000
$91.50 Series Q 21,430 32,144 1,000.00 21,430 21,430 32,144
$88.00 Series R 50,000 50,000 -- -- 55,000 55,000
$90.00 Series S 55,250 74,000 -- -- 61,170 79,920
--------- --------- -------- ---------- ---------
219,680 262,144 33,520 149,710 183,174
Redemption Within One Year (33,464) (33,464)
--------- --------- -------- ---------- ---------
Total Subject to Mandatory
Redemption 219,680 262,144 $ 33,520 116,246 149,710
========= ========= ======== ---------- ---------
Toledo Edison Company
Cumulative, $100 Par Value-
Authorized 3,000,000 shares
Not Subject to Mandatory Redemption:
$ 4.25 160,000 160,000 104.63 $ 16,740 16,000 16,000
$ 4.56 50,000 50,000 101.00 5,050 5,000 5,000
$ 4.25 100,000 100,000 102.00 10,200 10,000 10,000
$ 8.32 100,000 100,000 102.46 10,246 10,000 10,000
$ 7.76 150,000 150,000 102.44 15,366 15,000 15,000
$ 7.80 150,000 150,000 101.65 15,248 15,000 15,000
$10.00 190,000 190,000 101.00 19,190 19,000 19,000
--------- --------- -------- ---------- ---------
900,000 900,000 92,040 90,000 90,000
--------- --------- -------- ---------- ---------
Cumulative, $25 Par Value-
Authorized 12,000,000 shares
Not Subject to Mandatory Redemption:
$2.21 1,000,000 1,000,000 25.25 25,250 25,000 25,000
$2.365 1,400,000 1,400,000 27.75 38,850 35,000 35,000
Adjustable Series A 1,200,000 1,200,000 25.00 30,000 30,000 30,000
Adjustable Series B 1,200,000 1,200,000 25.00 30,000 30,000 30,000
--------- --------- -------- ---------- ---------
4,800,000 4,800,000 124,100 120,000 120,000
--------- --------- -------- ---------- ---------
Total Not Subject to Mandatory
Redemption 5,700,000 5,700,000 $216,140 210,000 210,000
========= ========= ======== ---------- ---------
Cumulative, $100 par value-
Subject to Mandatory Redemption:
$9.375 -- 16,900 $ -- -- 1,690
Redemption Within One Year -- (1,690)
--------- --------- -------- ---------- ---------
Total Subject to Mandatory
Redemption -- 16,900 $ -- -- --
========= ========= ======== ---------- ---------
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
<CAPTION>
LONG-TERM DEBT (Note 3H) (Interest rates reflect weighted average rates) (In thousands)
- --------------------------------------------------------------------------------------------------------------------------------
FIRST MORTGAGE BONDS SECURED NOTES UNSECURED NOTES TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
At December 31, 1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ohio Edison Co. -
Due 1999-2004 7.81% $ 509,265 $ 659,265 7.57% $ 269,152 $ 203,062 5.40% $ 742,225 $566,500
Due 2005-2009 6.88% 80,000 80,000 7.65% 49,534 48,194 -- -- --
Due 2010-2014 -- -- -- -- -- -- -- -- --
Due 2015-2019 -- -- -- 6.89% 66,000 113,725 -- -- --
Due 2020-2024 7.99% 219,460 225,960 7.02% 129,942 317,943 -- -- --
Due 2025-2029 -- -- -- 5.75% 119,734 119,734 -- -- --
Due 2030-2034 -- -- -- 5.45% 14,800 14,800 -- -- --
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
Total-Ohio Edison 808,725 965,225 649,162 817,458 742,225 566,500 $ 2,200,112 $ 2,349,183
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
Cleveland Electric
Illuminating Co. -
Due 1999-2004 7.54% 295,000 295,000 7.64% 559,650 704,180 5.58% 27,700 --
Due 2005-2009 8.72% 425,000 425,000 7.29% 271,700 271,700 -- -- --
Due 2010-2014 -- -- -- 8.00% 78,700 78,700 -- -- --
Due 2015-2019 -- -- -- 6.74% 412,630 412,630 -- -- --
Due 2020-2024 9.00% 150,000 150,000 6.66% 264,160 291,860 -- -- --
Due 2025-2029 -- -- -- 7.59% 148,843 148,843 -- -- --
Due 2030-2034 -- -- -- 4.56% 104,895 104,895 -- -- --
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
Total-Cleveland
Electric 870,000 870,000 1,840,578 2,012,808 27,700 -- 2,738,278 2,882,808
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
Toledo Edison Co. -
Due 1999-2004 7.90% 179,925 265,325 7.84% 266,000 284,500 7.28% 226,100 138,750
Due 2005-2009 -- -- -- 7.13% 30,000 30,000 10.00% 150 150
Due 2010-2014 -- -- -- 4.98% -- 31,250 10.00% 700 700
Due 2015-2019 -- -- -- 8.00% 67,300 67,300 -- -- --
Due 2020-2024 -- -- -- 7.89% 210,600 266,700 -- -- --
Due 2025-2029 -- -- -- 5.90% 13,851 13,851 -- -- --
Due 2030-2034 -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
Total-Toledo
Edison 179,925 265,325 587,751 693,601 226,950 139,600 994,626 1,098,526
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
Pennsylvania Power Co. -
Due 1999-2004 7.19% 79,370 79,857 6.45% 28,200 23,000 5.90% 5,200 --
Due 2005-2009 9.74% 4,870 4,870 -- -- -- -- -- --
Due 2010-2014 9.74% 4,870 4,870 5.40% 1,000 1,000 -- -- --
Due 2015-2019 9.74% 4,903 4,903 6.28% 45,325 45,325 -- -- --
Due 2020-2024 8.33% 33,750 33,750 6.68% 27,182 32,382 -- -- --
Due 2025-2029 -- -- -- 6.03% 47,972 47,972 -- -- --
Due 2030-2034 -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
Total-Penn Power 127,763 128,250 149,679 149,679 5,200 -- 282,642 277,929
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
OES Fuel -- -- 6.85% 81,260 79,524 -- -- -- 81,260 79,524
Bay Shore Power -- -- 6.72% 147,500 147,500 -- -- -- 147,500 147,500
MARBEL Energy Corp. -- -- 6.40% -- 12,418 8.00% 692 -- 692 12,418
Facilities Services
Group -- -- 6.61% 14,782 10,237 7.29% 1,887 3,917 16,669 14,154
---------- ---------- ---------- ---------- ---------- -------- ----------- -----------
Total $1,986,413 $2,228,800 $3,470,712 $3,923,225 $1,004,654 $710,017 6,461,779 6,862,042
========== ========== ========== ========== ========== ======== ----------- -----------
Capital lease
obligations 158,303 199,491
----------- -----------
Net unamortized
premium on debt 105,238 127,142
----------- -----------
Long-term debt due
within one year (724,056) (836,316)
----------- -----------
Total long-term debt 6,001,264 6,352,359
----------- -----------
TOTAL CAPITALIZATION $11,469,795 $11,756,422
=================================================================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
<CAPTION>
Accumulated
Other Unallocated
Comprehensive Other Comprehensive ESOP
Income- Number Par Paid-In Income- Retained Common
Note 3D of Shares Value Capital Note 3D Earnings Stock
------------- ----------- ---------- ---------- ------------ --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 152,569,437 $1,373,125 $ 728,261 $(659) $ 557,642 $(155,010)
Net income $305,774 305,774
Minimum liability for
unfunded retirement
benefits, net of
$26,000 of income taxes 45 45
--------
Comprehensive income $305,819
========
Centerior acquisition 77,637,704 (1,350,104) 2,907,387
Allocation of ESOP Shares 1,874 8,033
Cash dividends on common
stock (216,770)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 230,207,141 23,021 3,637,522 (614) 646,646 (146,977)
Net income $410,874 410,874
Minimum liability for
unfunded retirement
benefits, net of
$53,000 of income taxes 175 175
--------
Comprehensive income $411,049
========
Business acquisitions 6,861,946 686 203,496
Allocation of ESOP Shares 5,495 7,945
Cash dividends on common
stock (339,111)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 237,069,087 23,707 3,846,513 (439) 718,409 (139,032)
Net income $568,299 568,299
Minimum liability for unfunded
retirement benefits, net of
$160,000 of income taxes 244 244
--------
Comprehensive income $568,543
========
Reacquired common stock (4,614,800) (462) (129,671)
Centerior acquisition
adjustment (468)
Allocation of ESOP Shares 6,001 12,256
Cash dividends on common
stock (341,467)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 232,454,287 $ 23,245 $3,722,375 $(195) $ 945,241 $(126,776)
===========================================================================================================================
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
-------------------- --------------------
Par or Par or
Number Stated Number Stated
of Shares Value of Shares Value
---------- -------- --------- -------
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 5,118,699 $211,870 5,200,000 $160,000
Centerior acquisition 7,324,000 448,325 319,408 201,243
Redemptions-
8.45% Series (50,000) (5,000)
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1997 12,442,699 660,195 5,469,408 356,243
Redemptions-
8.45% Series (50,000) (5,000)
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$91.50 Series Q (10,714) (10,714)
$9.375 Series (16,650) (1,665)
- -----------------------------------------------------------------------------------------------
Balance, December 31, 1998 12,442,699 660,195 5,379,044 334,864
Redemptions-
7.64% Series (60,000) (6,000)
8.00% Series (58,000) (5,800)
8.45% Series (50,000) (5,000)
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$91.50 Series Q (10,714) (10,714)
$90.00 Series S (18,750) (18,750)
$9.375 Series (16,900) (1,690)
- -----------------------------------------------------------------------------------------------
Balance, December 31, 1999 12,324,699 $648,395 5,269,680 $294,710
================================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 568,299 $ 410,874 $ 305,774
Adjustments to reconcile net income to net
cash from operating activities:
Provision for depreciation and amortization 937,976 758,865 474,679
Nuclear fuel and lease amortization 104,928 94,348 61,960
Other amortization, net (10,730) (13,007) (1,187)
Deferred income taxes, net (45,054) (23,763) (29,093)
Investment tax credits, net (19,661) (22,070) (16,252)
Allowance for equity funds used during construction -- -- (201)
Extraordinary item -- 51,730 --
Receivables (203,567) 35,515 21,846
Materials and supplies 19,631 (14,235) (18,909)
Accounts payable 82,578 (73,205) 57,087
Other 53,906 (49,727) 733
---------- ---------- ----------
Net cash provided from operating activities 1,488,306 1,155,325 856,437
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Common stock -- 204,182 1,558,237
Long-term debt 364,832 499,975 89,773
Ohio Schools Council prepayment program -- 116,598 --
Short-term borrowings, net 163,327 -- --
Redemptions and Repayments-
Common stock 130,133 -- --
Preferred stock 52,159 21,379 5,000
Long-term debt 847,006 804,780 335,909
Short-term borrowings, net -- 48,354 47,251
Common Stock Dividend Payments 341,467 339,111 237,848
----------- ---------- ----------
Net cash provided from (used for) financing activities (842,606) (392,869) 1,022,002
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Centerior acquisition -- -- 1,582,459
Property additions 624,901 652,852 203,839
Cash investments (41,213) 47,804 8,934
Other 28,022 82,239 62,237
----------- ---------- ----------
Net cash used for investing activities 611,710 782,895 1,857,469
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 33,990 (20,439) 20,970
Cash and cash equivalents at beginning of period* 77,798 98,237 77,267
----------- ---------- ----------
Cash and cash equivalents at end of year $ 111,788 $ 77,798 $ 98,237
=========== ========== ==========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash Paid During the Year-
Interest (net of amounts capitalized) $ 520,072 $ 536,064 $ 281,670
Income taxes $ 441,067 $ 326,268 $ 265,615
<FN>
* 1997 beginning balance includes Centerior cash and cash equivalents as of the November 8, 1997 acquisition date.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
FIRSTENERGY CORP.
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
GENERAL TAXES:
Real and personal property $ 276,227 $ 292,503 $ 137,816
State gross receipts 220,117 217,633 118,390
Social security and unemployment 37,019 27,363 16,551
Other 10,689 13,409 9,406
---------- ---------- ----------
Total general taxes $ 544,052 $ 550,908 $ 282,163
========== ========== ==========
PROVISION FOR INCOME TAXES:
Currently payable-
Federal $ 433,872 $ 313,960 $ 235,728
State 25,670 14,452 18,152
---------- ---------- ----------
459,542 328,412 253,880
---------- ---------- ----------
Deferred, net-
Federal (36,021) (14,259) (23,204)
State (9,033) (9,504) (5,889)
---------- ---------- ----------
(45,054) (23,763) (29,093)
---------- ---------- ----------
Investment tax credit amortization (19,661) (22,070) (16,252)
---------- ---------- ----------
Total provision for income taxes $ 394,827 $ 282,579 $ 208,535
========== ========== ==========
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes $ 963,126 $ 693,453 $ 514,309
========== ========== ==========
Federal income tax expense at statutory rate $ 337,094 $ 242,709 $ 180,008
Increases (reductions) in taxes resulting from-
Amortization of investment tax credits (19,661) (22,070) (16,252)
State income taxes, net of federal income tax benefit 10,814 3,216 7,971
Amortization of tax regulatory assets 23,908 28,915 30,735
Amortization of goodwill 19,341 17,868 2,685
Preferred stock dividends 22,988 19,250 5,956
Other, net 343 (7,309) (2,568)
---------- ---------- ----------
Total provision for income taxes $ 394,827 $ 282,579 $ 208,535
========== ========== ==========
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Property basis differences $1,878,904 $1,938,735 $2,091,207
Deferred nuclear expense 421,837 436,601 454,902
Customer receivables for future income taxes 159,577 159,526 262,428
Competitive transition charge 115,277 135,730 --
Deferred sale and leaseback costs (129,775) (61,506) (121,974)
Unamortized investment tax credits (96,036) (102,085) (116,593)
Unused alternative minimum tax credits (101,185) (190,781) (243,039)
Other (17,334) (33,356) (22,626)
---------- ---------- ----------
Net deferred income tax liability $2,231,265 $2,282,864 $2,304,305
========== ========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include FirstEnergy Corp.
(Company) and its principal electric utility operating subsidiaries, Ohio
Edison Company (OE), The Cleveland Electric Illuminating Company (CEI),
Pennsylvania Power Company (Penn) and The Toledo Edison Company (TE). The
Company and its utility subsidiaries are referred to throughout as
"Companies." The Company's 1997 results of operations include the results of
CEI and TE for the period November 8, 1997 through December 31, 1997. The
consolidated financial statements also include the Company's other principal
subsidiaries: FirstEnergy Facilities Services Group, LLC. (FE Facilities);
FirstEnergy Trading Services, Inc. (FETS); and MARBEL Energy Corporation
(MARBEL). FE Facilities is the parent company of several heating,
ventilating, air conditioning and energy management companies. FETS markets
and trades electricity and natural gas in unregulated markets. MARBEL is a
fully integrated natural gas company. Significant intercompany transactions
have been eliminated. The Companies follow the accounting policies and
practices prescribed by the Public Utilities Commission of Ohio (PUCO), the
Pennsylvania Public Utility Commission (PPUC) and the Federal Energy
Regulatory Commission (FERC). The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make periodic estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Certain prior year amounts
have been reclassified to conform with the current year presentation.
REVENUES-
The Companies' principal business is providing electric service to
customers in central and northern Ohio and western Pennsylvania. The
Companies' retail customers are metered on a cycle basis. Revenue is
recognized for unbilled electric service through the end of the year.
Receivables from customers include sales to residential, commercial
and industrial customers located in the Companies' service area and sales to
wholesale customers. There was no material concentration of receivables at
December 31, 1999 or 1998, with respect to any particular segment of the
Companies' customers.
CEI and TE sell substantially all of their retail customer accounts
receivable to Centerior Funding Corp. under an asset-backed securitization
agreement which expires in 2001. Centerior Funding completed a public sale of
$150 million of receivables-backed investor certificates in 1996 in a
transaction that qualified for sale accounting treatment.
REGULATORY PLANS-
The PUCO approved OE's Rate Reduction and Economic Development Plan
in 1995 and FirstEnergy's Rate Reduction and Economic Development Plan for
CEI and TE in January 1997. These regulatory plans were to maintain current
base electric rates for OE, CEI and TE through December 31, 2005. At the end
of the regulatory plan periods, OE base rates were to be reduced by $300
million (approximately 20 percent below current levels) and CEI and TE base
rates were to be reduced by a combined $310 million (approximately 15 percent
below current levels). The plans also revised the Companies' fuel cost
recovery methods. The Companies formerly recovered fuel-related costs not
otherwise included in base rates from retail customers through separate
energy rates. In accordance with the respective regulatory plans, OE's, CEI's
and TE's fuel rates would be frozen through the regulatory plan period,
subject to limited periodic adjustments. As part of OE's and FirstEnergy's
regulatory plans, transition rate credits were implemented for customers,
which are expected to reduce operating revenues for OE by approximately $600
million and CEI and TE by approximately $391 million during the regulatory
plan period.
In July 1999, Ohio's new electric utility restructuring legislation
which will allow Ohio electric customers to select their generation suppliers
beginning January 1, 2001, was signed into law. Among other things, the new
law provides for a five percent reduction on the generation portion of
residential customers' bills and the opportunity to recover transition costs,
including regulatory assets, from January 1, 2001 through December 31, 2005.
The period for the recovery of regulatory assets only can be extended up to
December 31, 2010. The PUCO was authorized to determine the level of
transition cost recovery, as well as the recovery period for the regulatory
assets portion of those costs, in considering each Ohio electric utility's
transition plan application.
The Company, on behalf of its Ohio electric utility operating
companies -- OE, CEI and TE -- on December 22, 1999 refiled its transition
plan under Ohio's new electric utility restructuring law. The plan was
originally filed with the PUCO on October 4, 1999, but was refiled to conform
to PUCO rules established on November 30, 1999. The new filing also included
additional information on FirstEnergy's plans to turn over control, and
perhaps ownership, of its transmission assets to the Alliance Regional
Transmission Organization. The PUCO indicated that it will endeavor to issue
its order in the Company's case within 275 days of the initial October filing
date.
The transition plan itemizes, or unbundles, the current price of
electricity into its component elements - including generation, transmission,
distribution and transition charges. As required by the PUCO's rules, the
Company's filing also included its proposals on corporate separation of its
regulated and unregulated operations, operational and technical support
changes needed to accommodate customer choice, an education program to inform
customers of their options under the new law, and how the Company's
transmission system will be operated to ensure access to all users. Under the
plan, customers who remain with OE, CEI, or TE as their generation provider
will continue to receive savings under the Company's rate plans, expected to
total $759 million between 2000 and 2005. In addition, customers will save
$358 million through reduced charges for taxes and a five percent reduction
in the price of generation for residential customers beginning January 1,
2001. Customer prices are expected to be frozen through a five-year market
development period (2001-2005), except for certain limited statutory
exceptions including the five percent reduction in the price of generation
for residential customers. The plan proposes recovery of generation-related
transition costs of approximately $4.5 billion ($4.0 billion, net of deferred
income taxes) over the market development period; transition costs related to
regulatory assets aggregating approximately $4.2 billion ($2.9 billion, net
of deferred income taxes) will be recovered over the period of 2001 through
early 2004 for OE; 2001 through 2007 for TE; and 2001 through 2010 for CEI.
In June 1998, the PPUC authorized a rate restructuring plan for
Penn which essentially resulted in the deregulation of Penn's generation
business as of June 30, 1998. Penn was required to remove from its balance
sheet all regulatory assets and liabilities related to its generation
business and assess all other assets for impairment. The Securities and
Exchange Commission (SEC) issued interpretive guidance regarding asset
impairment measurement which concluded that any supplemental regulated cash
flows such as a competitive transition charge (CTC) should be excluded from
the cash flows of assets in a portion of the business not subject to
regulatory accounting practices. If those assets are impaired, a regulatory
asset should be established if the costs are recoverable through regulatory
cash flows. Consistent with the SEC guidance, Penn reduced its nuclear
generating unit investments by approximately $305 million, of which
approximately $227 million was recognized as a regulatory asset to be
recovered through a CTC over a seven-year transition period; the remaining
net amount of $78 million was written off. The charge of $51.7 million ($30.5
million after income taxes) for discontinuing the application of Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71), to Penn's generation business was
recorded as a 1998 extraordinary item on the Consolidated Statement of
Income.
All of the Companies' regulatory assets are being recovered under
provisions of the regulatory plans. In addition, the PUCO has authorized OE
to recognize additional capital recovery related to its generating assets
(which is reflected as additional depreciation expense) and additional
amortization of regulatory assets during the regulatory plan period of at
least $2 billion, and the PPUC had authorized Penn to accelerate at least
$358 million, more than the amounts that would have been recognized if the
regulatory plans were not in effect. These additional amounts are being
recovered through current rates. As of December 31, 1999, OE's and Penn's
cumulative additional capital recovery and regulatory asset amortization
amounted to $1.048 billion (including Penn's impairment discussed above and
CTC recovery). CEI and TE recognized a fair value purchase accounting
adjustment of $2.55 billion in connection with the FirstEnergy merger; that
fair value adjustment recognized for financial reporting purposes will
ultimately satisfy the $2 billion asset reduction commitment contained in the
CEI and TE regulatory plan. For regulatory purposes, CEI and TE will
recognize the accelerated amortization over the period that their rate plan
is in effect.
Application of SFAS 71 was discontinued in 1997 with respect to
CEI's and TE's nuclear operations (see "Regulatory Assets" below) and in 1998
with respect to Penn's generation operations (as described above). The
following summarizes net assets included in property, plant and equipment
relating to operations for which the application of SFAS 71 was discontinued,
compared with the respective company's total assets at December 31, 1999.
SFAS 71
Discontinued
Net Assets Total Assets
------------ ------------
(In millions)
CEI $977 $6,209
TE 530 2,667
Penn 76 1,016
PROPERTY, PLANT AND EQUIPMENT-
Property, plant and equipment reflects original cost (except for
CEI's, TE's and Penn's nuclear generating units which were adjusted to fair
value), including payroll and related costs such as taxes, employee benefits,
administrative and general costs, and interest costs.
The Companies provide for depreciation on a straight-line basis at
various rates over the estimated lives of property included in plant in
service. The annual composite rate for OE's electric plant was approximately
3.0% in 1999, 1998 and 1997. The annual composite rate for Penn's electric
plant was approximately 2.5% in 1999 and 3.0% in 1998 and 1997. CEI's and
TE's composite rates were both approximately 3.4% in 1999 and 1998. In
addition to the straight-line depreciation recognized in 1999, 1998 and 1997,
OE and Penn recognized additional capital recovery of $95 million, $141
million (excluding Penn's impairment) and $172 million, respectively, as
additional depreciation expense in accordance with their regulatory plans.
Such additional charges in the accumulated provision for depreciation were
$517 million and $422 million as of December 31, 1999 and 1998, respectively.
Annual depreciation expense in 1999 included approximately $31.0
million for future decommissioning costs applicable to the Companies'
ownership and leasehold interests in four nuclear generating units. The
Companies' future decommissioning costs reflect the increase in their
ownership interests related to the asset transfer with Duquesne Light Company
(Duquesne) discussed below in "Common Ownership of Generating Facilities."
The Companies' share of the future obligation to decommission these units is
approximately $1.8 billion in current dollars and (using a 4.0% escalation
rate) approximately $4.5 billion in future dollars. The estimated obligation
and the escalation rate were developed based on site specific studies.
Payments for decommissioning are expected to begin in 2016, when actual
decommissioning work begins. The Companies have recovered approximately $315
million for decommissioning through their electric rates from customers
through December 31, 1999. If the actual costs of decommissioning the units
exceed the funds accumulated from investing amounts recovered from customers,
the Companies expect that additional amount to be recoverable from their
customers. The Companies have approximately $543.7 million invested in
external decommissioning trust funds as of December 31, 1999. This includes
additions to the trust funds and the corresponding liability of $123 million
as a result of the asset transfer. Earnings on these funds are reinvested
with a corresponding increase to the decommissioning liability. The Companies
have also recognized an estimated liability of approximately $36.7 million
related to decontamination and decommissioning of nuclear enrichment
facilities operated by the United States Department of Energy (DOE), as
required by the Energy Policy Act of 1992.
The Financial Accounting Standards Board (FASB) issued a proposed
accounting standard for nuclear decommissioning costs in 1996. If the
standard is adopted as proposed: (1) annual provisions for decommissioning
could increase; (2) the net present value of estimated decommissioning costs
could be recorded as a liability; and (3) income from the external
decommissioning trusts could be reported as investment income. The FASB
subsequently expanded the scope of the proposed standard to include other
closure and removal obligations related to long-lived assets. A revised
proposal may be issued by the FASB in the first quarter of 2000.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Companies and Duquesne constituted the Central Area Power
Coordination Group (CAPCO). The CAPCO companies formerly owned and/or leased,
as tenants in common, various power generating facilities. Each of the
companies is obligated to pay a share of the costs associated with any
jointly owned facility in the same proportion as its interest. The companies'
portions of operating expenses associated with jointly owned facilities are
included in the corresponding operating expenses on the Consolidated
Statements of Income.
On March 26, 1999, FirstEnergy completed its agreements with
Duquesne to exchange certain generating assets. All regulatory approvals were
received by October 1999. In December 1999, Duquesne transferred 1,436
megawatts owned by Duquesne at eight CAPCO generating units in exchange for
1,328 megawatts at three non-CAPCO power plants owned by the Companies. The
agreements for the exchange of assets, which was structured as a like-kind
exchange for tax purposes, provides the Companies with exclusive ownership
and operating control of all CAPCO generating units. The three FirstEnergy
plants transferred are being sold by Duquesne to a wholly owned subsidiary of
Orion Power Holdings, Inc. (Orion). The Companies will continue to operate
those plants until the assets are transferred to the new owners. Duquesne
funded decommissioning costs equal to its percentage interest in the three
nuclear generating units that were transferred to FirstEnergy. The Duquesne
asset transfer to the Orion subsidiary could take place by the middle of
2000. Under the agreements, Duquesne is no longer a participant in the CAPCO
arrangements after the exchange.
NUCLEAR FUEL-
OE's and Penn's nuclear fuel is recorded at original cost, which
includes material, enrichment, fabrication and interest costs incurred prior
to reactor load. CEI and TE severally lease their respective portions of
nuclear fuel and pay for the fuel as it is consumed (see Note 2). The
Companies amortize the cost of nuclear fuel based on the rate of consumption.
The Companies' electric rates include amounts for the future disposal of
spent nuclear fuel based upon the formula used to compute payments to the
DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on the
Consolidated Statements of Taxes. Deferred income taxes result from timing
differences in the recognition of revenues and expenses for tax and
accounting purposes. Investment tax credits, which were deferred when
utilized, are being amortized over the recovery period of the related
property. The liability method is used to account for deferred income taxes.
Deferred income tax liabilities related to tax and accounting basis
differences are recognized at the statutory income tax rates in effect when
the liabilities are expected to be paid. Alternative minimum tax credits of
$101 million, which may be carried forward indefinitely, are available to
reduce future federal income taxes.
RETIREMENT BENEFITS-
The Companies' trusteed, noncontributory defined benefit pension
plan covers almost all full-time employees. Upon retirement, employees
receive a monthly pension based on length of service and compensation. In
1998, the Centerior Energy Corporation (Centerior) pension plan was merged
into the FirstEnergy pension plan. The Companies use the projected unit
credit method for funding purposes and were not required to make pension
contributions during the three years ended December 31, 1999. The assets of
the pension plan consist primarily of common stocks, United States government
bonds and corporate bonds.
The Companies provide a minimum amount of noncontributory life
insurance to retired employees in addition to optional contributory
insurance. Health care benefits, which include certain employee deductibles
and copayments, are also available to retired employees, their dependents
and, under certain circumstances, their survivors. The Companies pay
insurance premiums to cover a portion of these benefits in excess of set
limits; all amounts up to the limits are paid by the Companies. The Companies
recognize the expected cost of providing other postretirement benefits to
employees and their beneficiaries and covered dependents from the time
employees are hired until they become eligible to receive those benefits.
The following sets forth the funded status of the plans and amounts
recognized on the Consolidated Balance Sheets as of December 31:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- --------------------- -
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation as of January 1 $1,500.1 $1,327.5 $ 601.3 $ 534.1
Service cost 28.3 25.0 9.3 7.5
Interest cost 102.0 92.5 40.7 37.6
Plan amendments -- 44.3 -- 40.1
Actuarial loss (gain) (155.6) 101.6 (17.6) 10.7
Net increase from asset swap 14.8 -- 12.5 --
Benefits paid (95.5) (90.8) (37.8) (28.7)
- ---------------------------------------------------------------------------------------------------
Benefit obligation as of December 31 1,394.1 1,500.1 608.4 601.3
- ---------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of January 1 1,683.0 1,542.5 3.9 2.8
Actual return on plan assets 220.0 231.3 0.6 0.7
Company contribution -- -- 0.4 0.4
Benefits paid (95.5) (90.8) -- --
- ---------------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31 1,807.5 1,683.0 4.9 3.9
- ---------------------------------------------------------------------------------------------------
Funded status of plan 413.4 182.9 (603.5) (597.4)
Unrecognized actuarial loss (gain) (303.5) (110.8) 24.9 30.6
Unrecognized prior service cost 57.3 63.0 24.1 27.4
Unrecognized net transition obligation (asset) (10.1) (18.0) 120.1 129.3
- ---------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 157.1 $ 117.1 $(434.4) $(410.1)
====================================================================================================
Assumptions used as of December 31:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected long-term return on plan assets 10.25% 10.25% 10.25% 10.25%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
</TABLE>
Net pension and other postretirement benefit costs for the
three years ended December 31, 1999 were computed as follows:
<TABLE>
Other
Pension Benefits Postretirement Benefits
---------------------------- -----------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 28.3 $ 25.0 $ 15.2 $ 9.3 $ 7.5 $ 4.6
Interest cost 102.0 92.5 55.9 40.7 37.6 20.4
Expected return on plan assets (168.1) (152.7) (99.7) (0.4) (0.3) (0.2)
Amortization of transition obligation (asset) (7.9) (8.0) (8.0) 9.2 9.2 8.2
Amortization of prior service cost 5.7 2.3 2.1 3.3 (0.8) 0.3
Recognized net actuarial loss (gain) -- (2.6) (0.9) -- -- --
Voluntary early retirement program expense -- -- 54.5 -- -- 1.9
- -------------------------------------------------------------------------------------------------------------
Net benefit cost $ (40.0) $ (43.5) $ 19.1 $62.1 $53.2 $35.2
=============================================================================================================
</TABLE>
<PAGE>
The health care trend rate assumption is 5.3% in 2000, 5.2% in 2001
and 5.0% for 2002 and later years. Assumed health care cost trend rates have
a significant effect on the amounts reported for the health care plan. An
increase in the health care trend rate assumption by one percentage point
would increase the total service and interest cost components by $4.5 million
and the postretirement benefit obligation by $72.0 million. A decrease in the
same assumption by one percentage point would decrease the total service and
interest cost components by $3.5 million and the postretirement benefit
obligation by $58.2 million.
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial maturity
of three months or less are reported as cash equivalents on the Consolidated
Balance Sheets. At December 31, 1999 and 1998, cash and cash equivalents
included $83 million and $26 million, respectively, to be used for the
redemption of long-term debt in the first quarter of 2000 and in 1999,
respectively. The Companies reflect temporary cash investments at cost, which
approximates their fair market value. Noncash financing and investing
activities included capital lease transactions amounting to $36.2 million,
$61.8 million and $3.0 million for the years 1999, 1998 and 1997,
respectively. Commercial paper transactions of OES Fuel, Incorporated (OES
Fuel) (a wholly owned subsidiary of OE) that have initial maturity periods of
three months or less are reported net within financing activities under long-
term debt and are reflected as long-term debt on the Consolidated Balance
Sheets (see Note 3H).
All borrowings with initial maturities of less than one year are
defined as financial instruments under generally accepted accounting
principles and are reported on the Consolidated Balance Sheets at cost, which
approximates their fair market value. The following sets forth the
approximate fair value and related carrying amounts of all other long-term
debt, preferred stock subject to mandatory redemption and investments other
than cash and cash equivalents as of December 31:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $6,381 $6,331 $6,783 $7,247
Preferred stock $ 295 $ 280 $ 335 $ 340
Investments other than cash
and cash equivalents:
Debt securities
-Maturity (5-10 years) $ 475 $ 476 $ 481 $ 520
-Maturity (more than 10
years) 1,068 1,013 1,109 1,139
Equity securities 17 17 17 17
All other 852 874 520 533
- --------------------------------------------------------------------
$2,412 $2,380 $2,127 $2,209
====================================================================
</TABLE>
The fair values of long-term debt and preferred stock reflect the
present value of the cash outflows relating to those securities based on the
current call price, the yield to maturity or the yield to call, as deemed
appropriate at the end of each respective year. The yields assumed were based
on securities with similar characteristics offered by a corporation with
credit ratings similar to the Companies' ratings.
The fair value of investments other than cash and cash equivalents
represent cost (which approximates fair value) or the present value of the
cash inflows based on the yield to maturity. The yields assumed were based on
financial instruments with similar characteristics and terms. Investments
other than cash and cash equivalents include decommissioning trust
investments. Unrealized gains and losses applicable to the decommissioning
trusts have been recognized in the trust investment with a corresponding
change to the decommissioning liability. The debt and equity securities
referred to above are in the held-to-maturity category. The Companies have no
securities held for trading purposes.
Effective December 31, 1998, the Company began accounting for its
commodity price derivatives, entered into specifically for trading purposes,
on a mark-to-market basis in accordance with Emerging Issues Task Force Issue
98-10, "Accounting for Energy Trading and Risk Management Activities," with
gains and losses recognized currently in the Consolidated Statements of
Income. The contracts that were marked to market are included in the
Consolidated Balance Sheets as Deferred Charges and Deferred Credits at their
fair values. The impact on the consolidated financial statements was
immaterial.
REGULATORY ASSETS-
The Companies recognize, as regulatory assets, costs which the
FERC, PUCO and PPUC have authorized for recovery from customers in future
periods. Without such authorization, the costs would have been charged to
income as incurred. All regulatory assets are being recovered from customers
under the Companies' respective regulatory plans. Based on those regulatory
plans, at this time, the Companies are continuing 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 and they continue the
application of SFAS 71 to those respective operations. OE and Penn recognized
additional cost recovery of $257 million, $50 million and $39 million in
1999, 1998 and 1997, respectively, as additional regulatory asset
amortization in accordance with their regulatory plans. FirstEnergy's
regulatory plan does not provide for full recovery of CEI's and TE's nuclear
operations. As a result, in October 1997, CEI and TE discontinued application
of SFAS 71 for their nuclear operations and decreased their regulatory assets
of customer receivables for future income taxes related to the nuclear assets
by $794 million.
The PUCO indicated that it will endeavor to issue its order related
to the Company's transition plan by mid-2000. The application of SFAS 71 to
OE's generation business and the nonnuclear generation businesses of CEI and
TE will be discontinued at that time. If the transition plans ultimately
approved by the PUCO for OE, CEI and TE do not provide adequate recovery of
their nuclear generating unit investments and regulatory assets, there would
be a charge to earnings which could have a material adverse effect on the
results of operations and financial condition for the Company, OE, CEI and
TE. The Companies will continue to bill and collect cost-based rates for
their transmission and distribution services, which will remain regulated;
accordingly, it is appropriate that the Companies continue the application of
SFAS 71 to those respective operations after December 31, 2000.
Net regulatory assets on the Consolidated Balance Sheets are
comprised of the following:
1999 1998
- -------------------------------------------------------------------
(In millions)
Nuclear unit expenses $1,123.0 $1,164.8
Customer receivables for future income taxes 444.3 444.0
Rate stabilization program deferrals 420.1 440.1
Sale and leaseback costs 17.8 218.7
Competitive transition charge 280.4 331.0
Loss on reacquired debt 173.9 183.5
Employee postretirement benefit costs 24.8 28.9
DOE decommissioning and decontamination costs 29.5 32.9
Other 29.6 43.5
- --------------------------------------------------------------------
Total $2,543.4 $2,887.4
====================================================================
2. LEASES:
The Companies lease certain generating facilities, nuclear fuel,
office space and other property and equipment under cancelable and
noncancelable leases.
OE sold portions of its ownership interests in Perry Unit 1 and
Beaver Valley Unit 2 and entered into operating leases on the portions sold
for basic lease terms of approximately 29 years. CEI and TE also sold
portions of their ownership interests in Beaver Valley Unit 2 and Bruce
Mansfield Units 1, 2 and 3 and entered into similar operating leases for
lease terms of approximately 30 years. During the terms of their respective
leases, OE, CEI and TE continue to be responsible, to the extent of their
individual combined ownership and leasehold interests, for costs associated
with the units including construction expenditures, operation and maintenance
expenses, insurance, nuclear fuel, property taxes and decommissioning. They
have the right, at the end of the respective basic lease terms, to renew
their respective leases. They also have the right to purchase the facilities
at the expiration of the basic lease term or renewal term (if elected) at a
price equal to the fair market value of the facilities. The basic rental
payments are adjusted when applicable federal tax law changes.
OES Finance, Incorporated (OES Finance), a wholly owned subsidiary
of OE, maintains deposits pledged as collateral to secure reimbursement
obligations relating to certain letters of credit supporting OE's obligations
to lessors under the Beaver Valley Unit 2 sale and leaseback arrangements.
The deposits pledged to the financial institution providing those letters of
credit are the sole property of OES Finance. In the event of liquidation, OES
Finance, as a separate corporate entity, would have to satisfy its
obligations to creditors before any of its assets could be made available to
OE as sole owner of OES Finance common stock.
Nuclear fuel is currently financed for CEI and TE through leases
with a special-purpose corporation. As of December 31, 1999, $116 million of
nuclear fuel was financed under a lease financing arrangement totaling $145
million ($30 million of intermediate-term notes and $115 million from bank
credit arrangements). The notes mature in August 2000 and the bank credit
arrangements expire in September 2000. Lease rates are based on intermediate-
term note rates, bank rates and commercial paper rates.
Consistent with the regulatory treatment, the rentals for capital
and operating leases are charged to operating expenses on the Consolidated
Statements of Income. Such costs for the three years ended December 31, 1999,
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Operating leases
Interest element $208.6 $201.2 $149.9
Other 110.3 147.8 45.2
Capital leases
Interest element 17.5 17.6 6.1
Other 76.1 66.3 6.0
- ----------------------------------------------------------
Total rentals $412.5 $432.9 $207.2
==========================================================
</TABLE>
The future minimum lease payments as of December 31, 1999, are:
<TABLE>
<CAPTION>
Operating Leases
-----------------------------
Capital Lease Capital
Leases Payments Trusts Net
- ------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
2000 $ 75.4 $ 296.5 $ 150.6 $ 145.9
2001 45.2 307.5 146.1 161.4
2002 29.7 312.7 169.5 143.2
2003 16.0 326.6 176.5 150.1
2004 12.1 291.8 110.7 181.1
Years thereafter 71.6 3,645.8 1,364.3 2,281.5
- -----------------------------------------------------------------------------------
Total minimum lease payments 250.0 $5,180.9 $2,117.7 $3,063.2
Executory costs 26.9 ======== ======== ========
- --------------------------------------------
Net minimum lease payments 223.1
Interest portion 64.8
- --------------------------------------------
Present value of net minimum
lease payments 158.3
Less current portion 55.2
- --------------------------------------------
Noncurrent portion $103.1
============================================
</TABLE>
OE invested in the PNBV Capital Trust, which was established to
purchase a portion of the lease obligation bonds issued on behalf of lessors
in OE's Perry Unit 1 and Beaver Valley Unit 2 sale and leaseback
transactions. CEI and TE established the Shippingport Capital Trust to
purchase the lease obligation bonds issued on behalf of lessors in their
Bruce Mansfield Units 1, 2 and 3 sale and leaseback transactions. The PNBV
and Shippingport capital trust arrangements effectively reduce lease costs
related to those transactions.
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
There are no restrictions on retained earnings for payment of cash
dividends on the Company's common stock.
(B) EMPLOYEE STOCK OWNERSHIP PLAN-
The Companies fund the matching contribution for their 401(k)
savings plan through an ESOP Trust. All full-time employees eligible for
participation in the 401(k) savings plan are covered by the ESOP. The ESOP
borrowed $200 million from OE and acquired 10,654,114 shares of OE's common
stock through market purchases; the shares were converted into the Company's
common stock in connection with the merger. Dividends on ESOP shares are used
to service the debt. Shares are released from the ESOP on a pro rata basis as
debt service payments are made. In 1999, 1998 and 1997, 627,427 shares,
423,206 shares and 429,515 shares, respectively, were allocated to employees
with the corresponding expense recognized based on the shares allocated
method. The fair value of 6,778,905 shares unallocated as of December 31,
1999, was approximately $153.8 million. Total ESOP-related compensation
expense was calculated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Base compensation $18.3 $13.5 $ 9.9
Dividends on common stock held by
the ESOP and used to service debt (4.5) (3.9) (3.4)
- -----------------------------------------------------------------
Net expense $13.8 $ 9.6 $ 6.5
==================================================================
</TABLE>
(C) STOCK COMPENSATION PLANS-
Under the Centerior Equity Compensation Plan (Centerior Plan)
adopted in 1994, common stock options were granted to management employees.
Upon consummation of the merger, outstanding options became exercisable for
the Company's common stock with option prices and the number of shares
adjusted to reflect the merger conversion ratio. All options under the
Centerior Plan expire on or before February 25, 2007.
On April 30, 1998, the Company adopted the Executive and Director
Incentive Compensation Plan (FE Plan). The FE Plan permits awards to be made
to key employees in the form of restricted stock, stock options, stock
appreciation rights, performance shares or cash. Common stock granted under
the FE Plan may not exceed 7.5 million shares. No stock appreciation rights
or performance shares have been issued under the FE Plan. A total of 20,000
shares of restricted stock were granted in 1998, with a per share market
price of $30.78. Restrictions on the restricted stock lapse in 25% annual
increments beginning in the fourth year from date of grant. Dividends on the
1998 grant are not restricted. An additional 8,000 shares of restricted stock
were granted in 1999, in five separate awards with a weighted average market
price per share of $30.89 and weighted average cliff vesting period of 5.8
years. Dividends on the 1999 grants are being restricted. Options were
granted in 1998 and 1999, and are exercisable after four years from the date
of grant with some acceleration of vesting possible based on performance.
Stock option activity for the converted Centerior Plan stock options and FE
Plan stock options was as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Stock Option Activity Options Exercise Price
- -------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996 -- $ --
Options granted (at merger) 743,086 23.85
Options exercised 222,023 22.13
Options forfeited 3,675 22.75
Balance at December 31, 1997 517,388 24.59
(517,388 options exercisable)
Options granted 189,491 29.82
Options exercised 335,058 24.67
Options forfeited 7,535 29.82
Balance at December 31, 1998 364,286 27.13
(182,330 options exercisable)
Options granted 1,811,658 24.90
Options exercised 22,575 21.42
Balance at December 31, 1999 2,153,369 25.32
(159,755 options exercisable)
- ----------------------------------------------------------------
</TABLE>
As of December 31, 1999, the weighted average remaining contractual
life of outstanding stock options was 6.2 years.
Under the Executive Deferred Compensation Plan, adopted January 1,
1999, employees can direct a portion of their Annual Incentive Award and/or
Long Term Incentive Award into an unfunded FirstEnergy Stock Account to
receive vested stock units. An additional 20% premium is received in the form
of stock units based on the amount allocated to the FirstEnergy Stock
Account. Dividends are calculated quarterly on stock units outstanding and
are paid in the form of additional stock units. Upon withdrawal, stock units
are converted to FirstEnergy shares. Payout occurs three years from the date
of deferral. As of December 31, 1999, there were 61,465.81 stock units
outstanding.
The Company continues to apply APB Opinion 25, "Accounting for
Stock Issued to Employees." As required by SFAS 123, "Accounting for Stock-
Based Compensation," the Company has determined pro forma earnings as though
the Company had accounted for employee stock options under the fair value
method. The weighted average assumptions used in valuing the options and
their resulting fair values are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Valuation assumptions:
Expected option term (years) 6.4 10 8
Expected volatility 20.03% 15.50% 16.00%
Expected dividend yield 5.97% 5.68% 5.80%
Risk-free interest rate 5.97% 5.65% 5.94%
Fair value per option $3.42 $3.25 $2.92
- --------------------------------------------------------------
</TABLE>
The pro forma effects of applying fair value accounting to the
Company's stock options would be to reduce net income and earnings per share.
The following table summarizes the pro forma effect.
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------
<S> <C> <C>
Net Income (000)
As Reported $568,299 $410,874
Pro Forma $567,876 $410,839
Earnings Per Share
of Common Stock -
Basic and Diluted
As Reported $2.50 $1.82
Pro Forma $2.50 $1.82
- -------------------------------------------
</TABLE>
(D) COMPREHENSIVE INCOME-
In 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," and applied the standard to all periods presented in the
Consolidated Statements of Common Stockholders' Equity. Comprehensive income
includes net income as reported on the Consolidated Statements of Income and
all other changes in common stockholders' equity except those resulting from
transactions with common stockholders.
(E) PREFERRED AND PREFERENCE STOCK-
Penn's 7.75% series of preferred stock has a restriction which
prevents early redemption prior to July 2003. OE's 8.45% series of preferred
stock has no optional redemption provision. CEI's $88.00 Series R preferred
stock is not redeemable before December 2001 and its $90.00 Series S has no
optional redemption provision. All other preferred stock may be redeemed by
the Companies in whole, or in part, with 30-90 days' notice.
Preference stock authorized for the Companies are 8 million shares
without par value for OE; 3 million shares without par value for CEI; and 5
million shares, $25 par value for TE. No preference shares are currently
outstanding.
(F) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
Annual sinking fund provisions for the Companies' preferred stock
are as follows:
<TABLE>
<CAPTION>
Redemption
Price Per
Series Shares Share Date Beginning
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OE 8.45% 50,000 $ 100 (i)
CEI $ 7.35 C 10,000 100 (i)
88.00 E 3,000 1,000 (i)
91.50 Q 10,714 1,000 (i)
90.00 S 18,750 1,000 (i)
88.00 R 50,000 1,000 December 1 2001
Penn 7.625% 7,500 100 October 1 2002
- ------------------------------------------------------------------
<FN>
(i) Sinking fund provisions are in effect.
</TABLE>
Annual sinking fund requirements for the next five years are $38
million in 2000, $85 million in 2001, $19 million in 2002, $2 million in 2003
and $2 million in 2004. A liability of $19 million was included in the net
assets acquired from CEI and TE for preferred dividends declared attributable
to the post-merger period. Accordingly, no accruals for CEI and TE preferred
dividends are included in the Company's Consolidated Statement of Income for
the period November 8, 1997 through December 31, 1997.
(G) OHIO EDISON OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY OHIO EDISON
SUBORDINATED DEBENTURES-
Ohio Edison Financing Trust, a wholly owned subsidiary of OE, has
issued $120 million of 9% Cumulative Trust Preferred Capital Securities. OE
purchased all of the Trust's Common Securities and simultaneously issued to
the Trust $123.7 million principal amount of 9% Junior Subordinated
Debentures due 2025 in exchange for the proceeds that the Trust received from
its sale of Preferred and Common Securities. The sole assets of the Trust are
the Subordinated Debentures whose interest and other payment dates coincide
with the distribution and other payment dates on the Trust Securities. Under
certain circumstances, the Subordinated Debentures could be distributed to
the holders of the outstanding Trust Securities in the event the Trust is
liquidated. The Subordinated Debentures may be optionally redeemed by OE
beginning December 31, 2000, at a redemption price of $25 per Subordinated
Debenture plus accrued interest, in which event the Trust Securities will be
redeemed on a pro rata basis at $25 per share plus accumulated distributions.
OE's obligations under the Subordinated Debentures along with the related
Indenture, amended and restated Trust Agreement, Guarantee Agreement and the
Agreement for expenses and liabilities, constitute a full and unconditional
guarantee by OE of payments due on the Preferred Securities.
(H) LONG-TERM DEBT-
The first mortgage indentures and their supplements, which secure
all of the Companies' first mortgage bonds, serve as direct first mortgage
liens on substantially all property and franchises, other than specifically
excepted property, owned by the Companies.
Based on the amount of bonds authenticated by the Trustees through
December 31, 1999, OE's, TE's and Penn's annual sinking and improvement fund
requirements for all bonds issued under the mortgage amounts to $31 million.
OE, TE and Penn expect to deposit funds in 2000 that will be withdrawn upon
the surrender for cancellation of a like principal amount of bonds, which are
specifically authenticated for such purposes against unfunded property
additions or against previously retired bonds. This method can result in
minor increases in the amount of the annual sinking fund requirement.
Sinking fund requirements for first mortgage bonds and maturing
long-term debt (excluding capital leases) for the next five years are:
(In millions)
---------------------------
2000 $668.8
2001 375.7
2002 945.8
2003 459.0
2004 833.3
---------------------------
The Companies' obligations to repay certain pollution control
revenue bonds are secured by several series of first mortgage bonds and, in
some cases, by subordinate liens on the related pollution control facilities.
Certain pollution control revenue bonds are entitled to the benefit of
irrevocable bank letters of credit of $397.3 million. To the extent that
drawings are made under those letters of credit to pay principal of, or
interest on, the pollution control revenue bonds, OE, Penn and/or CEI are
entitled to a credit against their obligation to repay those bonds. The
Companies pay annual fees of 0.43% to 1.10% of the amounts of the letters of
credit to the issuing banks and are obligated to reimburse the banks for any
drawings thereunder.
OE had unsecured borrowings of $190 million at December 31, 1999,
supported by a $250 million long-term revolving credit facility agreement
which expires November 18, 2002. OE must pay an annual facility fee of 0.20%
on the total credit facility amount. In addition, the credit agreement
provides that OE maintain unused first mortgage bond capability for the full
credit agreement amount under OE's indenture as potential security for the
unsecured borrowings.
CEI and TE have letters of credit of approximately $222 million in
connection with the sale and leaseback of Beaver Valley Unit 2 that expire in
May 2002. The letters of credit are secured by first mortgage bonds of CEI
and TE in the proportion of 40% and 60%, respectively (see Note 2).
OE's and Penn's nuclear fuel purchases are financed through the
issuance of OES Fuel commercial paper and loans, both of which are supported
by a $180.5 million long-term bank credit agreement which expires March 31,
2001. Accordingly, the commercial paper and loans are reflected as long-term
debt on the Consolidated Balance Sheets. OES Fuel must pay an annual facility
fee of 0.20% on the total line of credit and an annual commitment fee of
0.0625% on any unused amount.
4. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT:
Short-term borrowings outstanding at December 31, 1999, consisted
of $257.8 million of bank borrowings and $160.0 million of OES Capital,
Incorporated (OES Capital) commercial paper. OES Capital is a wholly owned
subsidiary of OE whose borrowings are secured by customer accounts
receivable. OES Capital can borrow up to $170 million under a receivables
financing agreement at rates based on certain bank commercial paper and is
required to pay an annual fee of 0.20% on the amount of the entire finance
limit. The receivables financing agreement expires in 2002.
The Companies have various credit facilities with domestic banks
that provide for borrowings of up to $205 million under various interest rate
options. OE's short-term borrowings may be made under its lines of credit on
its unsecured notes. To assure the availability of these lines, the Companies
are required to pay annual commitment fees that vary from 0.125% to 0.50%.
These lines expire at various times during 2000. The weighted average
interest rates on short-term borrowings outstanding at December 31, 1999 and
1998, were 6.51% and 5.67%, respectively.
5. COMMITMENTS AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Companies' current forecasts reflect expenditures of
approximately $3.0 billion for property additions and improvements from 2000-
2004, of which approximately $650 million is applicable to 2000. Investments
for additional nuclear fuel during the 2000-2004 period are estimated to be
approximately $497 million, of which approximately $159 million applies to
2000. During the same periods, the Companies' nuclear fuel investments are
expected to be reduced by approximately $480 million and $106 million,
respectively, as the nuclear fuel is consumed.
STOCK REPURCHASE PROGRAM-
On November 17, 1998, the Board of Directors authorized the
repurchase of up to 15 million shares of the Company's common stock over a
three-year period beginning in 1999. Repurchases are made on the open market,
at prevailing prices, and are funded primarily through the use of operating
cash flows. During 1999, the Company repurchased and retired 4.6 million
shares of its common stock at an average price of $28.08 per share. The
Company also entered into a forward contract with Credit Suisse First Boston
Corporation for the purchase of 1.4 million shares of the Company's common
stock at an average price of $24.22 per share to be settled on November 3,
2000. The contract may be settled through gross physical settlement, net
share settlement or net cash settlement at the Company's election.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative to a
single incident at a nuclear power plant to $9.5 billion. The amount is
covered by a combination of private insurance and an industry retrospective
rating plan. The Companies' maximum potential assessment under the industry
retrospective rating plan would be $352.4 million per incident but not more
than $40 million in any one year for each incident.
The Companies are also insured under policies for each nuclear
plant. Under these policies, up to $2.75 billion is provided for property
damage and decontamination and decommissioning costs. The Companies have also
obtained approximately $1.43 billion of insurance coverage for replacement
power costs. Under these policies, the Companies can be assessed a maximum of
approximately $44 million for incidents at any covered nuclear facility
occurring during a policy year which are in excess of accumulated funds
available to the insurer for paying losses.
The Companies intend to maintain insurance against nuclear risks as
described above as long as it is available. To the extent that replacement
power, property damage, decontamination, decommissioning, repair and
replacement costs and other such costs arising from a nuclear incident at any
of the Companies' plants exceed the policy limits of the insurance in effect
with respect to that plant, to the extent a nuclear incident is determined
not to be covered by the Companies' insurance policies, or to the extent such
insurance becomes unavailable in the future, the Companies would remain at
risk for such costs.
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 $292 million, which is included in the
construction forecast provided under "Capital Expenditures" for 2000 through
2004.
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. In May 1999, the U.S. Court of
Appeals for the D.C. Circuit issued a stay which delays implementation of
EPA's NOx Transport Rule until the Court has ruled on the merits of various
appeals. Under the NOx Transport Rule, 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 contemplating an
approximate 85% reduction in utility plant NOx emissions from projected 2007
emissions. A proposed Federal Implementation Plan accompanied the NOx
Transport Rule and may be implemented by the EPA in states which fail to
revise their SIP. In another separate but related action, eight states filed
petitions with the EPA under Section 126 of the Clean Air Act seeking
reductions of NOx emissions which are alleged to contribute to ozone
pollution in the eight petitioning states. The EPA suggests that the Section
126 petitions will be adequately addressed by the NOx Transport Program, but
a December 17, 1999 rulemaking established an alternative program which would
require nearly identical 85% NOx reductions at 392 utility plants, including
the Companies' Ohio and Pennsylvania plants, by May 2003, in the event
implementation of the NOx Transport Rule is delayed. New Section 126
petitions were filed by New Jersey, Maryland, Delaware and the District of
Columbia in mid-1999 and are still under evaluation by the EPA. The Companies
continue to evaluate their compliance plans and other compliance options.
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 $27,500
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. In May 1999, the U.S.
Court of Appeals for the D.C. Circuit remanded both standards back to the EPA
finding constitutional and other defects in the new NAAQS rules. The D.C.
Circuit Court, on October 29, 1999, denied an EPA petition for rehearing. The
Companies cannot predict the EPA's action in response to the Court's remand
order. The cost of compliance with these regulations, if they are reinstated,
may be substantial and depends on the manner in which they are ultimately
implemented, if at all, by the states in which the Companies operate affected
facilities.
In September 1999, FirstEnergy received, and subsequently in
October 1999, OE and Penn received, a citizen suit notification letter from
the New York Attorney General's office alleging Clean Air Act violations at
the W. H. Sammis Plant. In November 1999, OE and Penn received a citizen suit
notification letter from the Connecticut Attorney General's office alleging
Clean Air Act violations at the Sammis Plant. On November 3, 1999, the EPA
issued Notices of Violation (NOV) or a Compliance Order to eight utilities
covering 32 power plants, including the Sammis Plant. In addition, the U.S.
Department of Justice filed seven civil complaints against various investor-
owned utilities, which included a complaint against OE and Penn in the U.S.
District Court for the Southern District of Ohio. The NOV and complaint
allege violations of the Clean Air Act based on operation and maintenance of
the Sammis Plant dating back to 1984. The complaint requests permanent
injunctive relief to require the installation of "best available control
technology" and civil penalties of up to $27,500 per day of violation.
Although unable to predict the outcome of this litigation, the Company
believes the Sammis Plant is in full compliance with the Clean Air Act and
the NOV and complaint are without merit. Penalties could be imposed if the
Sammis Plant continues to operate without correcting the alleged violations
and a court determines that the allegations are valid. It is anticipated at
this time that the Sammis Plant will continue to operate while the matter is
being decided.
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 totaling $5.4 million
as of December 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.
6. SEGMENT INFORMATION:
The Company's primary segment is its Electric Utility Operating
Companies which includes four regulated electric utility operating companies
that provide electric service in Ohio and Pennsylvania. Its other material
business segment is FETS which markets and trades electricity in nonregulated
markets. Financial data for these business segments and products and services
are as shown on the following page:
<TABLE>
Segment Financial Information
- -----------------------------
<CAPTION>
Electric FE Trading All Reconciling
Utilities Services Other Eliminations Totals
--------- ---------- ------- ------------ --------
(In millions)
1999
----
<S> <C> <C> <C> <C>
External revenues $ 5,421 $191 $ 708 $ -- $ 6,320
Intersegment revenues 32 60 102 (194) --
Total revenues 5,453 251 810 (194) 6,320
Depreciation and amortization 913 -- 25 -- 938
Net interest charges 549 6 66 (49) 572
Income taxes 377 (5) 23 -- 395
Net income/Earnings on
common stock 545 (8) 35 (4) 568
Total assets 17,105 181 1,864 (926) 18,224
Property additions 417 -- 130 -- 547
Acquisitions -- 25 53 -- 78
1998
----
External revenues $ 5,215 $411 $ 249 $ -- $ 5,875
Intersegment revenues 32 26 97 (155) --
Total revenues 5,247 437 346 (155) 5,875
Depreciation and
amortization 748 -- 11 -- 759
Net interest charges 590 2 69 (60) 601
Income taxes 320 (35) (2) -- 283
Extraordinary item:
Pennsylvania restructuring (31) -- -- -- (31)
Net income/Earnings on
common stock 478 (52) 1 (16) 411
Total assets 18,316 54 1,742 (1,920) 18,192
Property additions 304 -- 64 -- 368
Acquisitions -- -- 285 -- 285
1997
----
External revenues $ 2,844 $ 43 $ 74 $ -- $ 2,961
Intersegment revenues 33 -- 106 (139) --
Total revenues 2,877 43 180 (139) 2,961
Depreciation and
amortization 470 -- 5 -- 475
Net interest charges 300 -- 60 (51) 309
Income taxes 206 -- 3 -- 209
Net income/Earnings on
common stock 335 (1) 4 (32) 306
Total assets 18,700 32 1,209 (1,680) 18,261
Property additions 166 -- 38 -- 204
Acquisitions -- -- 1,582 -- 1,582
</TABLE>
<PAGE>
<TABLE>
Products and Services
- ---------------------
<CAPTION>
Oil & Gas Energy Related
Electricity Sales and Sales and
Year Sales Production Services
---- ----------- ---------- ---------------
(In millions)
<S> <C> <C> <C>
1999 $5,253 $203 $503
1998 4,980 26 198
1997 2,775 -- --
</TABLE
7. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain consolidated operating results
by quarter for 1999 and 1998.
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1999 1999 1999 1999
- ------------------------------------------------------------------------------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $1,417.4 $1,523.9 $1,732.4 $1,645.9
Expenses 1,041.7 1,149.8 1,291.0 1,301.7
- ------------------------------------------------------------------------------------
Income Before Interest and
Income Taxes 375.7 374.1 441.4 344.2
Net Interest Charges 146.1 147.4 141.3 137.5
Income Taxes 92.9 101.4 114.3 86.2
- ------------------------------------------------------------------------------------
Net Income $ 136.7 $ 125.3 $ 185.8 $ 120.5
=====================================================================================
Earnings per Share of Common
Stock $ .60 $ .55 $ .82 $ .53
=====================================================================================
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- ------------------------------------------------------------------------------------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Revenues $1,367.1 $1,464.0 $1,722.0 $1,321.8
Expenses 1,016.8 1,197.1 1,294.0 1,020.8
- ------------------------------------------------------------------------------------
Income Before Interest and
Income Taxes 350.3 266.9 428.0 301.0
Net Interest Charges 143.6 154.7 153.3 149.4
Income Taxes 83.0 52.2 111.7 56.9
- ------------------------------------------------------------------------------------
Income Before Extraordinary Item 123.7 60.0 163.0 94.7
Extraordinary Item
(Net of Income Taxes)
(Note 1) -- (30.5) -- --
- ------------------------------------------------------------------------------------
Net Income $ 123.7 $ 29.5 $ 163.0 $ 94.7
=======================================================================-=============
Earnings per Share of Common
Stock
Before Extraordinary Item $ .56 $ .27 $ .71 $ .41
Extraordinary Item
(Net of Income Taxes)
(Note 1) -- (.14) -- --
- ------------------------------------------------------------------------------------
Earnings per Share of
Common Stock $ .56 $ .13 $ .71 $ .41
=====================================================================================
</TABLE>
8. PRO FORMA COMBINED CONDENSED FIRSTENERGY STATEMENT OF INCOME
(UNAUDITED):
The Company was formed on November 8, 1997 by the merger of OE and
Centerior. The merger was accounted for as a purchase of Centerior's net
assets with 77,637,704 shares of FirstEnergy Common Stock through the
conversion of each outstanding Centerior Common Stock share into 0.525 of a
share of FirstEnergy Common Stock (fractional shares were paid in cash).
Based on an imputed value of $20.125 per share, the purchase price was
approximately $1.582 billion, which also included approximately $20 million
of merger related costs. Goodwill of approximately $2.0 billion was
recognized (to be amortized on a straight-line basis over forty years), which
represented the excess of the purchase price over Centerior's net assets
after fair value adjustments.
Accumulated amortization of goodwill was approximately $109 million
as of December 31, 1999. The merger purchase accounting adjustments, which
were recorded in the records of Centerior's direct subsidiaries, included
recognizing estimated severance and other compensation liabilities ($80
million). The amount charged against the liability in 1998 relating to the
costs of involuntary employee separation was $41 million. In addition, the
liability was reduced to approximately $9 million as of December 31, 1998 to
represent potential costs associated with the separation of 493 CEI
employees. The liability adjustment was offset by a corresponding reduction
to goodwill recognized in connection with the Centerior acquisition.
The following pro forma statement of income of FirstEnergy gives
effect to the OE/Centerior merger as if it had been consummated on January 1,
1997, with the purchase accounting adjustments actually recognized in the
business combination.
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
- ------------------------------------------------------------
(In millions, except per share amounts)
<S> <C>
Revenues $5,206
Expenses 3,800
- ------------------------------------------------------------
Income Before Interest and Income Taxes 1,406
Net Interest Charges 643
Income Taxes 336
- ------------------------------------------------------------
Net Income $ 427
============================================================
Earnings per Share of Common Stock $ 1.92
============================================================
</TABLE>
Pro forma adjustments reflected above include: (1) adjusting CEI
and TE nuclear generating units to fair value based upon independent
appraisals and estimated discounted future cash flows based on management's
estimate of cost recovery; (2) goodwill recognized representing the excess of
the purchase price over Centerior's adjusted net assets; (3) elimination of
revenue and expense transactions between OE and Centerior; (4) amortization
of the fair value adjustment for long-term debt; and (5) adjustments for
estimated tax effects on the above adjustments.
EXHIBIT 21
FIRSTENERGY CORP.
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1999
Ohio Edison Company - Incorporated in Ohio
The Cleveland Electric Illuminating Company - Incorporated in
Ohio
The Toledo Edison Company - Incorporated in Ohio
Centerior Service Company - Incorporated in Ohio
FirstEnergy Properties Company - Incorporated in Ohio
FirstEnergy Ventures Corporation - Incorporated in Ohio
FirstEnergy Trading Services, Inc. - Incorporated in Delaware
FirstEnergy Facilities Services Group, Inc. - Incorporated in
Ohio
FirstEnergy Securities Transfer Company - Incorporated in Ohio
FirstEnergy Services Corp. - Incorporated in Ohio
MARBEL Energy Corporation - Incorporated in Ohio
FirstEnergy Nuclear Operating Company - Incorporated in Ohio
FirstEnergy Holdings, LLC - Incorporated in Ohio
FE Acquisition Corp. - Incorporated in Ohio
American Transmission Systems, Inc. - Incorporated in Ohio
Statement of Differences
------------------------
Exhibit Number 21, List of Subsidiaries of the Registrant at
December 31, 1999, is not included in the printed document.
EXHIBIT 23
FIRSTENERGY CORP.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this
Form 10-K, into FirstEnergy Corp.'s previously filed Registration Statements,
File No. 333-40065, No. 333-48587, No. 333-48651, No. 333-58279, No. 333-
65409 and No. 333-75985.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-K financial statements for FirstEnergy Corp. and is
qualified in its entirety by reference to such financial statements.
(Amounts in 1,000's, except earnings per share.)
</LEGEND>
<CIK> 0001031296
<NAME> FIRSTENERGY CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,093,341
<OTHER-PROPERTY-AND-INVEST> 2,702,734
<TOTAL-CURRENT-ASSETS> 1,301,676
<TOTAL-DEFERRED-CHARGES> 5,126,296
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,224,047
<COMMON> 23,245
<CAPITAL-SURPLUS-PAID-IN> 3,595,404
<RETAINED-EARNINGS> 945,241
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,563,890
256,246
648,395
<LONG-TERM-DEBT-NET> 6,001,264
<SHORT-TERM-NOTES> 257,845
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 159,974
<LONG-TERM-DEBT-CURRENT-PORT> 668,837
38,464
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 55,219
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,573,913
<TOT-CAPITALIZATION-AND-LIAB> 18,224,047
<GROSS-OPERATING-REVENUE> 6,319,647
<INCOME-TAX-EXPENSE> 394,827
<OTHER-OPERATING-EXPENSES> 4,784,228
<TOTAL-OPERATING-EXPENSES> 5,179,055
<OPERATING-INCOME-LOSS> 1,140,592
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 1,140,592
<TOTAL-INTEREST-EXPENSE> 572,293
<NET-INCOME> 568,299
0
<EARNINGS-AVAILABLE-FOR-COMM> 0
<COMMON-STOCK-DIVIDENDS> 341,467
<TOTAL-INTEREST-ON-BONDS> 477,059
<CASH-FLOW-OPERATIONS> 1,488,306
<EPS-BASIC> 2.50
<EPS-DILUTED> 2.50
</TABLE>
Extract From the Annual Action of the Stockholder of
Ohio Edison Company dated September 27, 1999
---------------
RESOLVED: The sole shareholder amends the Code of Regulations of
the Company to read as follows:
Article 10 is amended by deleting the second paragraph of such
Article.
Article 11 is amended by changing the minimum number of Directors
from "thirteen" to "three."
---------------
I, Edward J. Udovich, Assistant Corporate Secretary of Ohio Edison
Company do hereby certify that the foregoing is a true and correct copy of
resolutions duly adopted by the Board of Directors of Ohio Edison Company,
and that said resolutions have not since been rescinded but are still in full
force and effect
Executed as of this 23rd day of February 2000.
-----------------------------
Assistant Corporate Secretary
- ---------------------------------------------------------------------------
OHIO EDISON COMPANY
with
THE BANK OF NEW YORK,
As Trustee
-------------------------
Seventy-first Supplemental Indenture
Providing among other things for
First Mortgage Bonds
Pledge Series of 1999 due 2000
------------
Dated as of September 29, 1999
- -------------------------------------------------------------------------
SUPPLEMENTAL INDENTURE, dated as of September 29, 1999 between Ohio
Edison Company, a corporation organized and existing under the laws of the
State of Ohio (hereinafter called the "Company"), party of the first part,
and The Bank of New York, a banking corporation organized and existing under
the laws of the State of New York, as Trustee under the Indenture hereinafter
referred to, party of the second part.
WHEREAS, the Company has heretofore executed and delivered to
Bankers Trust Company (hereinafter called the "Old Trustee"), as trustee, a
certain Indenture, dated as of August 1, 1930, to secure an issue of bonds of
the Company, issued and to be issued in series, from time to time, in the
manner and subject to the conditions set forth in the said Indenture; and the
said Indenture has been supplemented by seventy supplemental indentures,
which Indenture as so supplemented and to be hereby supplemented is
hereinafter referred to as the "Indenture"; and
WHEREAS, The Bank of New York has succeeded the Old Trustee as
trustee under the Indenture (hereinafter called the "Trustee") pursuant to
Article XVI thereof; and
WHEREAS, the Indenture provides for the issuance of bonds
thereunder in one or more series, the form of each series of bonds and of the
coupons to be attached to the coupon bonds, if any, to be substantially in
the forms set forth therein with such insertions, omissions and variations as
the Board of Directors of the Company may determine; and
WHEREAS, the Company, by appropriate corporate action in conformity
with the terms of the Indenture, has duly determined to create a new series
of bonds under the Indenture, consisting of $90,000,000 in principal amount
to be designated as "First Mortgage Bonds Pledge Series of 1999 due 2000"
(hereinafter sometimes referred to as the "bonds of Third Pledge Series"),
the bonds of which series are to bear interest from the Initial Interest
Accrual Date (as defined in the form of bond hereinbelow set forth) at the
rate of 12% per annum, are to mature March 1, 2000, and are to be
substantially in the following form:
[Form of Bond of Third Pledge Series]
This Bond is not transferable except to a successor trustee under
the General Mortgage Indenture and Deed of Trust, dated as of January 1,
1998, between the Company and The Bank of New York, as Trustee, or in
connection with the exercise of the rights and remedies of the holder hereof
consequent upon a "default" as defined in the Mortgage referred to herein.
OHIO EDISON COMPANY
First Mortgage Bond Pledge Series of 1999 due 2000
Due March 1, 2000
$ No.
Ohio Edison Company, a corporation of the State of Ohio
(hereinafter called the Company), for value received, hereby promises to pay
to , or registered assigns,
dollars at an office or agency of the Company in the
Borough of Manhattan, The City of New York, N.Y. or in the City of Akron,
Ohio, on March 1, 2000 in any coin or currency of the United States of
America which at the time of payment is legal tender for public and private
debts, and to pay at said offices or agencies to the registered owner hereof,
in like coin or currency, interest thereon from the Initial Interest Accrual
Date (hereinbelow defined) at the rate of twelve per centum per annum on
March 1, 2000. Payments of principal of and interest on this bond shall be
made at an office or agency of the Company in the Borough of Manhattan, The
City of New York, N.Y. or in the City of Akron, Ohio.
Payment of principal of, or interest on, the Company's Mortgage
Bonds 12% Series of 1999 due 2000 (the "General Mortgage Bonds") issued under
the Company's General Mortgage Indenture and Deed of Trust to The Bank of New
York, as Trustee, dated as of January 1, 1998, shall, to the extent thereof,
be deemed to satisfy and discharge the obligation of the Company, if any, to
make a payment of principal or interest, as the case may be, in respect of
this bond which is then due.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
This bond shall not become obligatory until The Bank of New York,
the Trustee under the Mortgage referred to on the reverse hereof, or its
successor thereunder, shall have authenticated the form of certificate
endorsed hereon.
In witness whereof, Ohio Edison Company has caused this bond to be
signed in its name by its President or a Vice President, by his signature or
a facsimile thereof, and its corporate seal to be printed hereon, attested by
its Secretary or an Assistant Secretary, by his signature or a facsimile
thereof.
Dated:
Ohio Edison Company,
By:
---------------------
Title:
Attest:
- ----------------------------
Title:
[Form of Trustee's Authentication Certificate]
Trustee's Authentication Certificate
This bond is one of the bonds of the series designated therein,
described in the within-mentioned Mortgage.
The Bank of New York,
as Trustee,
By:
------------------------
Authorized Officer
[Form of Bond of Third Pledge Series]
[Reverse]
OHIO EDISON COMPANY
First Mortgage Bond Pledge Series of 1999 due 2000
This bond is one of an issue of bonds of the Company, issuable in
series, and is one of a series known as its First Mortgage Bonds of the
series designated in its title, all issued and to be issued under and equally
secured (except as to any sinking fund established in accordance with the
provisions of the Mortgage hereinafter mentioned for the bonds of any
particular series) by an Indenture, dated as of August 1, 1930, executed by
the Company to The Bank of New York, as Trustee, as amended and supplemented
by indentures supplemental thereto, to which Indenture as so amended and
supplemented (herein referred to as the "Mortgage") reference is made for a
description of the property mortgaged and pledged, the nature and extent of
the security, the rights of the holders of the bonds in respect thereof and
the terms and conditions upon which the bonds are secured.
Bonds of this series are not redeemable at the option of the
Company prior to their maturity.
The Initial Interest Accrual Date for the bonds of this series
shall be the date that interest begins to accrue on the General Mortgage
Bonds.
As more fully described in the supplemental indenture establishing
the terms and provisions of the bonds of this series, the Company reserves
the right, without any consent or other action by holders of the bonds of
this series, to amend the Mortgage to provide (a) that the Mortgage, the
rights and obligations of the Company and the rights of the bondholders may
be modified with the consent of the holders of not less than 60% in principal
amount of the bonds adversely affected; provided, however, that no
modification shall (1) extend the time, or reduce the amount, of any payment
on any bond, without the consent of the holder of each bond so affected,
(2) permit the creation of any lien, not otherwise permitted, prior to or on
a parity with the lien of the Mortgage, without the consent of the holders of
all bonds then outstanding, or (3) reduce the above percentage of the
principal amount of bonds the holders of which are required to approve any
such modification without the consent of the holders of all bonds then
outstanding and (b) that (i) additional bonds may be issued against 70% of
the value of the property which forms the basis for such issuance and
(ii) the charge against property subject to a prior lien which is used to
effectuate the release of property under the Mortgage be similarly based.
The principal hereof may be declared or may become due on the
conditions, in the manner and at the time set forth in the Mortgage, upon the
occurrence of a completed default as in the Mortgage provided.
No recourse shall be had for the payment of the principal of or
interest on this bond against any incorporator or any past, present or future
subscriber to the capital stock, stockholder, officer or director of the
Company or of any predecessor or successor corporation, either directly or
through the Company or a predecessor or successor corporation, under any rule
of law, statute or constitution or by the enforcement of any assessment or
otherwise, all such liability of incorporators, subscribers, stockholders,
officers and directors being released by the registered owner hereof by the
acceptance of this bond and being likewise waived and released by the terms
of the Mortgage.
The bonds of this series are issuable only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The
Company and the Trustee may deem and treat the person in whose name this bond
is registered as the absolute owner for the purpose of receiving payment of
or on account of the principal and interest due hereon and for all other
purposes. Registered bonds of this series shall be exchangeable at said
offices or agencies of the Company for registered bonds of other authorized
denominations having the same aggregate principal amount, in the manner and
upon the conditions prescribed in the Mortgage. Notwithstanding any
provision of the Mortgage, (a) neither the Company nor the Trustee shall be
required to make transfers or exchanges of bonds of this series during the
period between any interest payment date for such series and the record date
next preceding such interest payment date, and (b) no charge shall be made
upon any transfer or exchange of bonds of this series other than for any tax
or taxes or other governmental charge required to be paid by the Company.
[end of form of bond of third pledge series]
and
Whereas, Section 115 of the Indenture provides that the Company and
the Trustee may, from time to time and at any time, enter into such
indentures supplemental thereto as shall be deemed necessary or desirable for
one or more purposes, including, among others, to describe and set forth the
particular terms and the form of additional series of bonds to be issued
under the Indenture, to add other limitations on the issue of bonds,
withdrawal of cash or release of property, to add to the covenants and
agreements of the Company for the protection of the holders of the bonds and
of the mortgaged and pledged property, to supplement defective or
inconsistent provisions contained in the Indenture, and for any other purpose
not inconsistent with the terms of the Indenture; and
Whereas, all things necessary to make the bonds of Third Pledge
Series when authenticated by the Trustee and issued as in the Indenture
provided, the valid, binding and legal obligations of the Company, entitled
in all respects to the security of the Indenture, have been done and
performed, and the creation, execution and delivery of this Supplemental
Indenture have in all respects been duly authorized; and
Whereas, the Company and Trustee deem it advisable to enter into
this Supplemental Indenture for the purposes of describing the bonds of Third
Pledge Series and of establishing the terms and provisions thereof,
confirming the mortgaging under the Indenture of additional property for the
equal and proportionate benefit and security of the holders of all bonds at
any time issued thereunder, amplifying the description of the property
mortgaged, adding other limitations to the Indenture on the issue of bonds,
withdrawal of cash or release of property, and adding to the covenants and
agreements of the Company for the protection of the holders of bonds and of
mortgaged and pledged property;
Now, therefore, this supplemental indenture witnessth: That Ohio
Edison Company, in consideration of the premises and of one dollar to it duly
paid by the Trustee at or before the ensealing and delivery of these
presents, the receipt whereof is hereby acknowledged, and of the purchase and
acceptance of the bonds issued or to be issued hereunder by the holders
thereof, and in order to secure the payment both of the principal and
interest of all bonds at any time issued and outstanding under the Indenture,
according to their tenor and effect, and the performance of all the
provisions of the Indenture and of said bonds, hath granted, bargained, sold,
released, conveyed, assigned, transferred, pledged, set over and confirmed
and by these presents doth grant, bargain, sell, release, convey, assign,
transfer, pledge, set over and confirm unto The Bank of New York, as Trustee,
and to its successor or successors in said trust, and to its and their
assigns forever, all the properties of the Company, wherever located,
described in the Indenture and not therein expressly excepted.
Together with all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the aforesaid property
or any part thereof, with the reversion and reversions, remainder and
remainders and (subject to the provisions of Article XI of the Indenture) the
tolls, rents, revenues, issues, earnings, income, product and profits
thereof, and all the estate, right, title and interest and claim whatsoever,
at law as well as in equity, which the Company now has or may hereafter
acquire in and to the aforesaid property and franchises and every part and
parcel thereof.
The Company does hereby agree and does hereby confirm and reaffirm
the agreement made by it in the Indenture, dated as of August 1, 1930, that
all property, rights and franchises acquired by the Company after the date of
the Indenture, dated as of August 1, 1930 (except any hereinafter expressly
excepted), shall be as fully embraced within the lien of the Indenture as if
such property had been owned by the Company on the date of the Indenture,
dated as of August 1, 1930 and was specifically described therein and
conveyed thereby and does hereby confirm that the Company will not cause or
consent to a partition, whether voluntary or through legal proceedings, of
property, whether herein described or heretofore or hereafter acquired, in
which its ownership shall be as a tenant in common except as permitted by and
in conformity with the provisions of the Indenture and particularly of
Article XI thereof.
Provided that the following are not and are not intended to be now
or hereafter granted, bargained, sold, released, conveyed, assigned,
transferred, mortgaged, pledged, set over or confirmed hereunder and are
hereby expressly excepted from the lien and operation of the Indenture, viz.:
cash, shares of stock and obligations (including bonds, notes and other
securities) not heretofore or hereafter specifically pledged, paid or
deposited or delivered under the Indenture or covenanted so to be.
To have and to hold all such properties, real, personal and mixed,
mortgaged, pledged or conveyed by the Company as aforesaid, or intended so to
be, unto the Trustee and its successors and assigns forever.
In trust, nevertheless, upon the terms and trusts of the Indenture
for those who shall hold the bonds and coupons issued and to be issued
thereunder, or any of them, without preference, priority or distinction as to
lien of any of said bonds and coupons over any others thereof by reason of
priority in the time of the issue or negotiations thereof, or otherwise
howsoever, subject, however, to the provisions in reference to extended,
transferred or pledged coupons and claims for interest set forth in the
Indenture (and subject to any sinking funds that may be hereafter created for
the benefit of any particular series).
Provided, however, and these presents are upon the condition that
if the Company, its successors or assigns, shall pay or caused to be paid,
the principal of and interest on said bonds, at the times and in the manner
stipulated therein and herein, and shall keep, perform and observe all and
singular the covenants and promises in said bonds and in the Indenture
expressed to be kept, performed and observed by or on the part of the
Company, then this Supplemental Indenture and the estate and rights hereby
granted shall cease, determine and be void, otherwise to be and remain in
full force and effect.
It is hereby covenanted, declared and agreed, by the Company, that
all such bonds and coupons are to be issued, authenticated and delivered, and
that all property subject or to become subject hereto is to be held, subject
to the further covenants, conditions, uses and trusts in the Indenture set
forth, and the parties hereto mutually agree as follows:
SECTION 1. Bonds of Third Pledge Series shall mature on March 1,
2000, and shall be designated as the Company's "First Mortgage Bonds Pledge
Series of 1999 due 2000." The bonds of Third Pledge Series shall bear
interest from the Initial Interest Accrual Date (as defined in the form of
the bond hereinabove set forth) at the rate of twelve per centum per annum.
Principal and interest on the bonds of Third Pledge Series shall be payable
in any coin or currency of the United States of America which at the time of
payment is legal tender for public and private debts, at an office or agency
of the Company in the Borough of Manhattan, The City of New York, N.Y. or in
the City of Akron, Ohio.
Definitive bonds of Third Pledge Series may be issued, originally
or otherwise, only as registered bonds, substantially in the form of bond
hereinbefore recited, and in the denominations of $1,000 and any multiple
thereof. Delivery of a bond of Third Pledge Series to the Trustee for
authentication shall be conclusive evidence that its serial number has been
duly approved by the Company.
The bonds of Third Pledge Series shall not be redeemable at the
option of the Company prior to their maturity.
SECTION 2. Bonds of Third Pledge Series shall be deemed to be paid
and no longer outstanding under the Indenture to the extent that General
Mortgage Bonds (as defined in the form of bonds hereinabove set forth) to
which they relate are paid or deemed to be paid and are no longer outstanding
and the Trustee has been notified to such effect by the Company.
SECTION 3. Bonds of Third Pledge Series may be transferred by the
registered owners thereof, in person or by attorney duly authorized, at an
office or agency of the Company in the Borough of Manhattan, The City of New
York, N.Y. or in the City of Akron, Ohio but only in the manner and upon the
conditions prescribed in the Indenture and in the form of bond hereinbefore
recited. Bonds of Third Pledge Series shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, and in the form of bond hereinbefore recited,
upon the surrender of such bonds at said offices or agencies of the Company.
However, notwithstanding the provisions of Section 14 or 15 of the Indenture,
no charge shall be made upon any transfer or exchange of bonds of said series
other than for any tax or taxes or other governmental charge required to be
paid by the Company.
SECTION 4. The Company reserves the right, without any consent or
other action by holders of the bonds of Second Pledge Series, or any
subsequent series of bonds, to amend the Indenture by inserting the following
language as Section 115A immediately following current Section 115 of the
Indenture.
With the consent of the holders of not less than
sixty per centum (60%) in principal amount of the bonds
at the time outstanding or their attorneys-in-fact duly
authorized, or, if the rights of the holders of one or
more, but not all, series then outstanding are affected,
the consent of the holders of not less than sixty per
centum (60%) in aggregate principal amount of the bonds
at the time outstanding of all affected series, taken
together, and not any other series, the Company, when
authorized by a resolution, and the Trustee may from time
to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions
to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture
or modifying the rights and obligations of the Company and
the rights of the holders of any of the bonds and coupons;
provided, however, that no such supplemental indenture shall
(1) extend the maturity of any of the bonds or reduce the
rate or extend the time of payment of interest thereon, or
reduce the amount of the principal thereof, or reduce any
premium, payable on the redemption thereof or change the
coin or currency in which any bond or interest thereon is
payable, without the consent of the holder of each bond so
affected, or (2) permit the creation of any lien, not
otherwise permitted, prior to or on a parity with the lien
of this Indenture, without the consent of the holders of all
of the bonds then outstanding, or (3) reduce the aforesaid
percentage of the principal amount of bonds the holders of
which are required to approve any such supplemental indenture,
without the consent of the holders of all the bonds then
outstanding. For the purposes of this Section, bonds shall
be deemed to be affected by a supplemental indenture if such
supplemental indenture adversely affects or diminishes the
right of holders thereof against the Company or against its
property.
Upon the written request of the Company, accompanied
by a resolution authorizing the execution of any such
supplemental indenture, and upon the filling with the
Trustee of evidence of the consent of bondholders as
aforesaid (the instrument or instruments evidencing such
consent to be dated within one year of such request), the
Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture
affects the Trustee's owns rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee
may in its discretion but shall not be obligated to enter
into such supplemental indenture. The Trustee shall be
entitled to receive and, subject to Section 102 of the
Indenture and Article Five of the Seventh Supplemental
Indenture, may rely upon an opinion of counsel as conclusive
evidence that any such supplemental indenture is authorized
or permitted by the provisions of this Section.
It shall not be necessary for the consent of the
bondholders under this Section to approve the particular
form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance
thereof.
The Company and the Trustee, if they so elect, and
either before or after such 60% or greater consent has
been obtained, may require the holder of any bond consenting
to the execution of any such supplemental indenture to submit
his bond to the Trustee or to such bank, banker or trust
company as may be designated by the Trustee for the purpose,
for the notation thereon of the fact that the holder of such
bond has consented to the execution of such supplemental
indenture, and in such case such notation, in form
satisfactory to the Trustee, shall be made upon all bonds
so submitted, and such bonds bearing such notation shall
forthwith be returned to the persons entitled thereto. All
subsequent holders of bonds bearing such notation shall be
deemed to have consented to the execution of such supplemental
indenture, and consent, once given or deemed to be given, may
not be withdrawn.
Prior to the execution by the Company and the Trustee
of any supplemental indenture pursuant to the provisions of
this Section, the Company shall publish a notice, setting
forth in general terms the substance of such supplemental
indenture, at least once in one daily newspaper of general
circulation in each city in which the principal of any of
the bonds shall be payable, or, if all bonds outstanding
shall be registered bonds without coupons or coupon bonds
registered as to principal, such notice shall be sufficiently
given if mailed, first class, postage prepaid, and registered
if the Company so elects, to each registered holder of bonds
at the last address of such holder appearing on the registry
books, such publication or mailing, as the case may be, to be
made not less than thirty days prior to such execution. Any
failure of the Company to give such notice, or any defect
therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 5. The Company reserves the right, without any consent or
other action by the holders of the bonds of Third Pledge Series, or any
subsequent series of bonds, to amend the Indenture by deleting the phrase
"sixty per centum (60%)" in Section 28 of the Indenture and substituting
therefor the phrase "seventy per centum (70%)" and by deleting the phrase
"One hundred sixty-six and two-thirds per cent. (166 2/3%)" in Sections 65
and 67 of the Indenture and substituting therefor the phrase "One hundred and
forty-two and eighty-six hundredths per cent. (142.86%)".
SECTION 6. Except as herein otherwise expressly provided, no
duties, responsibilities or liabilities are assumed, or shall be construed to
be assumed, by the Trustee by reason of this Supplemental Indenture; the
Trustee shall not be responsible for the recitals herein or in the bonds
(except the Trustee's authentication certificate), all of which are made by
the Company solely; and this Supplemental Indenture is executed and accepted
by the Trustee, subject to all the terms and conditions set forth in the
Indenture, as fully to all intents and purposes as if the terms and
conditions of the Indenture were herein set forth at length.
SECTION 7. As supplemented by this Supplemental Indenture, the
Indenture is in all respects ratified and confirmed, and the Indenture as
herein defined, and this Supplemental Indenture, shall be read, taken and
construed as one and the same instrument.
SECTION 8. Nothing in this Supplemental Indenture contained shall
or shall be construed to confer upon any person other than a holder of bonds
issued under the Indenture, the Company and the Trustee any right or interest
to avail himself of any benefit under any provision of the Indenture or of
this Supplemental Indenture.
SECTION 9. This Supplemental Indenture may be simultaneously
executed in several counterparts and all such counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.
In Witness Whereof, Ohio Edison Company and The Bank of New York
have caused these presents to be executed in their respective names by their
respective Presidents or one of their Vice Presidents or Assistant Vice
Presidents and their respective seals to be hereunto affixed and attested by
their respective Secretaries or one of their Assistant Secretaries or
Assistant Treasurers, all as of the day and year first above written.
Ohio Edison Company
By:
--------------------------------
Richard H. Marsh, Vice President
[Seal]
Attest:
------------------------------------
Nancy C. Ashcom, Corporate Secretary
Signed, Sealed and Acknowledged on behalf of
Ohio Edison Company in the presence of:
- --------------------------------
Richard L. Anthony
- --------------------------------
Nancy L. Chancey
The Bank of New York
By:
----------------------------
Mary Lewicki, Vice President
[Seal]
Attest:
----------------------------------
Michele Russo, Assistant Treasurer
Signed, Sealed and Acknowledged on behalf of
The Bank of New York in the presence of:
- ---------------------------------------
- ---------------------------------------
STATE OF OHIO )
: ss.:
COUNTY OF SUMMIT )
On the 29th day of September, 1999, personally appeared before me,
a Notary Public in and for the said County and State aforesaid, Richard H.
Marsh and Nancy C. Ashcom, to me known and known to me to be a Vice President
and Corporate Secretary, respectively, of OHIO EDISON COMPANY, the
corporation which executed the foregoing instrument, and who severally
acknowledged that they did sign and seal such instrument as such Vice
President and Corporate Secretary, respectively, of OHIO EDISON COMPANY, the
same is their free act and deed and the free and corporate act and deed of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 29th
day of September, 1999.
------------------------------------
Susie M. Hoisten, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires Nov. 19, 2001
[SEAL]
STATE OF OHIO )
:ss.:
COUNTY OF SUMMIT )
On the 29th day of September, 1999, before me personally came
Richard H. Marsh, to me known, who, being by me duly sworn, did dispose and
say that he resides at 1126 Woodhaven Boulevard, Fairlawn, Ohio 44333; that
he is a Vice President of OHIO EDISON COMPANY, one of the corporations
described in and which executed the above instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
------------------------------------
Susie M. Hoisten, Notary Public
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission Expires Nov. 19, 2001
[SEAL]
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 29th day of September, 1999, personally appeared before me,
a Notary Public in and for the said County and State aforesaid, Mary Lewicki
and Michele Russo, to me known and known to me to be a Vice President and
Assistant Treasurer, respectively, of The Bank of New York, the corporation
which executed the foregoing instrument, and who severally acknowledged that
they did sign and seal such instrument as such Vice President and Assistant
Treasurer for and on behalf of said corporation and that the same is their
free act and deed and the free and corporation act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 29th
day of September, 1999.
--------------------------------
William J. Cassels
Notary Public, State of New York
No.: 0ICA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 2000
[SEAL]
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 29th day of September, 1999, before me personally came Mary
Lewicki, to me known, who, being by me duly sworn, did dispose and say that
she resides at [address] ; that
she is a Vice President of THE BANK OF NEW YORK, one of the parties described
in and which executed the above instrument; that she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said
corporation, and that she signed her name thereto by like authority.
--------------------------------
William J. Cassels
Notary Public, State of New York
No.: 0ICA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 2000
[SEAL]
The Bank of New York hereby certifies that its precise name and
address as Trustee hereunder are:
The Bank of New York
101 Barclay Street
City, County and State of New York
Postal Zip Code: 10286
The Bank of New York
By:
----------------------------------
Michele Russo, Assistant Treasurer
<TABLE>
EXHIBIT 12.2
Page 1
OHIO EDISON COMPANY
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $317,241 $315,170 $293,194 $301,320 $297,689
Interest and other charges, before
reduction for amounts capitalized 273,719 255,572 250,920 235,317 225,358
Provision for income taxes 199,307 201,295 187,805 191,261 191,835
Interest element of rentals charged to
income (a) 111,534 114,093 117,409 115,310 113,804
-------- -------- -------- -------- --------
Earnings as defined $901,801 $886,130 $849,328 $843,208 $828,686
======== ======== ======== ======== ========
FIXED CHARGES AS DEFINED IN REGULATION S-K:
Interest on long-term debt $243,570 $211,935 $204,285 $184,915 $178,217
Other interest expense 22,944 28,211 31,209 34,976 31,971
Subsidiaries' preferred stock dividend
requirements 7,205 15,426 15,426 15,426 15,170
Adjustments to subsidiaries' preferred
stock dividends to state on a pre-income
tax basis 2,956 2,910 2,918 2,892 2,770
Interest element of rentals charged to
income (a) 111,534 114,093 117,409 115,310 113,804
-------- -------- -------- -------- --------
Fixed charges as defined $388,209 $372,575 $371,247 $353,519 $341,932
======== ======== ======== ======== ========
CONSOLIDATED RATIO OF EARNINGS TO FIXED
CHARGES (b) 2.32 2.38 2.29 2.39 2.42
==== ==== ==== ==== ====
<FN>
- -----------------------
(a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no
readily defined interest element can be determined.
(b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier
aggregating $6,315,000, $5,093,000, $3,828,000 and $2,209,000 for each of the four years ended
December 31, 1998, respectively. The guarantee and related coal supply contract debt expired
December 31, 1999.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12.2
Page 2
OHIO EDISON COMPANY
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED AND
PREFERENCE STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $317,241 $315,170 $293,194 $301,320 $297,689
Interest and other charges, before
reduction for amounts capitalized 273,719 255,572 250,920 235,317 225,358
Provision for income taxes 199,307 201,295 187,805 191,261 191,835
Interest element of rentals charged to
income (a) 111,534 114,093 117,409 115,310 113,804
-------- -------- -------- -------- --------
Earnings as defined $901,801 $886,130 $849,328 $843,208 $828,686
======== ======== ======== ======== ========
FIXED CHARGES AS DEFINED IN REGULATION S-K
PLUS PREFERRED AND PREFERENCE STOCK
DIVIDEND REQUIREMENTS(PRE-INCOME TAX BASIS):
Interest on long-term debt $243,570 $211,935 $204,285 $184,915 $178,217
Other interest expense 22,944 28,211 31,209 34,976 31,971
Preferred and preference stock dividend
requirements 29,699 27,923 27,817 27,395 26,717
Adjustments to preferred and preference
stock dividends to state on a pre-income
tax basis 16,745 10,542 10,503 10,140 9,859
Interest element of rentals charged
to income (a) 111,534 114,093 117,409 115,310 113,804
-------- -------- -------- -------- --------
Fixed charges as defined plus preferred
and preference stock dividend
requirements (pre-income tax basis) $424,492 $392,704 $391,223 $372,736 $360,568
======== ======== ======== ======== ========
CONSOLIDATED RATIO OF EARNINGS TO FIXED
CHARGES PLUS PREFERRED AND PREFERENCE
STOCK DIVIDEND REQUIREMENTS (PRE-INCOME
TAX BASIS) (b) 2.12 2.26 2.17 2.26 2.30
==== ==== ==== ==== ====
<FN>
- --------------------
(a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no
readily defined interest element can be determined.
(b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier
aggregating $6,315,000, $5,093,000, $3,828,000 and $2,209,000 for each of the four years ended
December 31, 1998, respectively. The guarantee and related coal supply contract debt expired
December 31, 1999.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
SELECTED FINANCIAL DATA
<CAPTION>
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Operating Revenues $2,686,949 $2,519,662 $2,473,582 $2,469,785 $2,465,846
------------------------------------------------------------------
Operating Income $ 473,042 $ 486,920 $ 488,568 $ 530,069 $ 566,618
------------------------------------------------------------------
Income Before Extraordinary Item $ 297,689 $ 301,320 $ 293,194 $ 315,170 $ 317,241
------------------------------------------------------------------
Net Income $ 297,689 $ 270,798 $ 293,194 $ 315,170 $ 317,241
------------------------------------------------------------------
Earnings on Common Stock $ 286,142 $ 258,828 $ 280,802 $ 302,673 $ 294,747
------------------------------------------------------------------
Total Assets $8,700,746 $8,923,826 $9,158,141 $9,218,623 $9,035,112
------------------------------------------------------------------
Capitalization at December 31:
Common Stockholder's Equity $2,624,460 $2,681,873 $2,724,319 $2,503,359 $2,407,871
Preferred Stock:
Not Subject to Mandatory
Redemption 200,070 211,870 211,870 211,870 211,870
Subject to Mandatory
Redemption 140,000 145,000 150,000 155,000 160,000
Long-Term Debt 2,175,812 2,215,042 2,569,802 2,712,760 2,786,256
------------------------------------------------------------------
Total Capitalization $5,140,342 $5,253,785 $5,655,991 $5,582,989 $5,565,997
------------------------------------------------------------------
Capitalization Ratios:
Common Stockholder's Equity 51.1% 51.0% 48.2% 44.8% 43.3%
Preferred Stock:
Not Subject to Mandatory
Redemption 3.9 4.0 3.7 3.8 3.8
Subject to Mandatory
Redemption 2.7 2.8 2.7 2.8 2.9
Long-Term Debt 42.3 42.2 45.4 48.6 50.0
------------------------------------------------------------------
Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
------------------------------------------------------------------
Kilowatt-Hour Sales (Millions):
Residential 9,483 8,773 8,631 8,704 8,546
Commercial 8,238 7,590 7,335 7,246 7,151
Industrial 11,310 10,803 11,202 11,089 10,513
Other 151 150 150 147 146
------------------------------------------------------------------
Total Retail 29,182 27,316 27,318 27,186 26,356
Total Wholesale 6,881 5,706 5,241 7,076 6,920
------------------------------------------------------------------
Total 36,063 33,022 32,559 34,262 33,276
------------------------------------------------------------------
Customers Served:
Residential 1,016,793 1,004,552 995,605 988,179 978,118
Commercial 115,581 113,820 111,189 113,795 111,978
Industrial 4,627 4,598 4,568 4,590 4,268
Other 1,539 1,476 1,415 1,331 1,308
------------------------------------------------------------------
Total 1,138,540 1,124,446 1,112,777 1,107,895 1,095,672
------------------------------------------------------------------
Number of Employees 2,734 2,832 4,215 4,273 4,812
</TABLE>
<PAGE>
OHIO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Operating revenues increased by $167.3 million in 1999 following a
$46.1 million increase in 1998. This represents the fifth consecutive year of
record operating revenues. The sources of the increases in operating revenues
during 1999 and 1998 are summarized in the following table.
<TABLE>
<CAPTION>
Sources of Revenue Changes 1999 1998
- ------------------------------------------------------------
(In millions)
<S> <C> <C>
Change in retail kilowatt-hour sales 151.3 (0.1)
Change in average retail price $(36.3) $27.0
Increase in wholesale sales 54.6 13.3
Other (2.3) 5.9
- -------------------------------------------------------------
Net Increase in Operating Revenues $167.3 $46.1
=============================================================
</TABLE>
Electric Sales
Operating revenues increased in 1999 from 1998 as a result of
kilowatt-hour sales growth in both the retail and wholesale markets.
Increases in sales to residential, commercial and industrial customers
produced the higher retail sales. Strong consumer-driven economic growth and,
to a lesser extent, the weather contributed to the increased retail sales.
Weather-induced electricity demand in the wholesale market and additional
available internal generation combined to increase sales to wholesale
customers.
After setting a new record in 1997, total retail kilowatt-hour
sales in 1998 were about the same as 1997. Residential and commercial sales
benefited from continued growth in the retail customer base. The closure of
an electric arc furnace by a large steel customer in the latter part of 1997
and a general decline in electricity demand by steel manufacturers due to
intense foreign competition contributed to the lower industrial sales in
1998, compared to the prior year. Changes in kilowatt-hour sales by customer
class in 1999 and 1998 are summarized in the following table.
<TABLE>
<CAPTION>
Changes in KWH Sales 1999 1998
- -----------------------------------------------------
<S> <C> <C>
Residential 8.1% 1.7%
Commercial 8.6% 3.5%
Industrial 4.7% (3.6%)
- ------------------------------------------------------
Total Retail 6.8% --
Wholesale 20.6% 8.9%
- ------------------------------------------------------
Total Sales 9.2% 1.4%
- ------------------------------------------------------
</TABLE>
Operating Expenses and Taxes
Total operating expense and taxes increased $181.2 million in 1999,
compared to 1998, primarily due to additional depreciation and amortization.
Higher operation and maintenance costs also contributed to the increase. In
1998, total operating expenses and taxes increased $47.7 million due
primarily to unusually high purchased power costs.
The increase in operation and maintenance costs in 1999 from 1998
occurred despite a reduction in fuel and purchased power costs, which were
$35.9 million lower than the previous year. Purchased power costs accounted
for all of the reduction in 1999. Much of the decrease in purchased power
costs occurred in the second quarter of 1999 due to the absence of unusual
conditions experienced in 1998. Those costs were incurred during a period of
record heat and humidity in late June 1998, which coincided with a regional
power shortage resulting in high prices for purchased power. Unscheduled
outages at Beaver Valley Units 1 and 2 at the same time required us to
purchase significant amounts of power on the spot market. Although above
normal temperatures were also experienced in 1999, we maintained a stronger
capacity position compared to the previous year and better met customer
demand from our own internal generation. In 1998, fuel and purchased power
increased $74.4 million from 1997 for the reasons discussed above.
Nuclear operating costs increased in 1999, compared to 1998, for
several reasons. Refueling outages at Beaver Valley Unit 2 and the Perry
Plant, as well as increased ownership of the Beaver Valley Plant following
the Duquesne Light Company (Duquesne) asset swap in early December 1999
(including nonrecurring swap-related liabilities assumed) increased 1999
nuclear operating expenses compared to 1998. Nuclear operating costs
increased in 1998 reflecting higher costs at the Beaver Valley Plant. Other
operating costs also rose in 1999 from the prior year primarily due to higher
customer and sales expenses including expenditures for energy marketing
programs, information system requirements and other customer-related costs,
as well as higher distribution costs from storm repairs and overhead line
maintenance. Offsetting a portion of the increase in other operating costs
were lower nonnuclear production costs from the Sammis generating plant.
Other operating costs decreased in 1998 from the previous year due
principally to the absence of expenses related to a 1997 voluntary retirement
program and estimated severance costs which increased other operating costs
for that year.
Accelerated cost recovery in connection with our rate plan was the
primary factor contributing $160.6 million of the increase in depreciation
and amortization in 1999, compared to the prior year. In 1998, depreciation
and amortization decreased $14.2 million from 1997 primarily due to the net
effect of the Ohio Edison Company (OE) and Pennsylvania Power Company (Penn)
rate plans. In 1998, general taxes increased from the prior year in part
because of gross receipts taxes on increased operating revenues.
Net Interest Charges
Net interest charges continued to trend downward in 1999 and 1998
primarily due to redemptions and refinancings of long-term debt.
Extraordinary Item
The Pennsylvania Public Utility Commission's (PPUC) authorization
of Penn's rate restructuring plan led to the discontinued application of
Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for
the Effects of Certain Types of Regulation," to Penn's generation business in
1998. This resulted in an after-tax write-down in 1998 of $30.5 million of
its nuclear generating unit investment and the recognition of a portion of
such investment -- recoverable through future customer rates -- as a
regulatory asset.
Earnings on Common Stock
Earnings on common stock increased to $286.1 million in 1999 from
$258.8 million in 1998. Results for 1999 were favorably affected by higher
sales revenues, the absence of the 1998 extraordinary charge and unusually
high purchased power costs experienced in 1998 and lower interest costs that
were principally offset by an increase in depreciation and amortization
expense. The decrease to $258.8 million experienced in 1998 from $280.8
million in 1997 was due in large part to the extraordinary charge in 1998
resulting from the discontinued application of SFAS 71 to Penn's generation
business discussed above.
Capital Resources and Liquidity
With the July 1999 passage of legislation in Ohio allowing retail
customers to purchase electricity from alternative energy suppliers beginning
January 2001, the arrival of new participants in the Ohio electricity market
is expected in the near future. We continue to take steps designed to enhance
our competitive position while seeking additional efficiencies.
Our improving financial position reflects ongoing efforts to
increase competitiveness and enhance shareholder value. We have continued to
strengthen our financial position over the past five years by improving our
fixed charge coverage ratios. Our corporate indenture ratio, which is used to
measure our ability to issue first mortgage bonds, increased from 5.34 in
1994 to 6.89 in 1999, which enhances our financial flexibility. Over the same
period, our charter ratio, a measure of our ability to issue preferred stock,
improved from 2.11 to 2.62 and our common stockholder's equity as a
percentage of capitalization rose from approximately 40% at the end of 1994
to 51% at the end of 1999. Net redemptions of long-term debt and preferred
stock totaled $245.3 million, including $18.3 million of optional redemptions
in 1999. In addition, we completed $240.9 million of refinancings. Over the
last five years, we have reduced the average cost of long-term debt from
8.17% in 1994 to 7.22% at the end of 1999.
We had about $87.2 million of cash and temporary investments and
$358.3 million of short-term indebtedness as of December 31, 1999. Our unused
borrowing capability included $76.5 million under revolving lines of credit
and a $7.0 million bank facility that provides for borrowings on a short-term
basis at the bank's discretion. At the end of 1999, we had the capability to
issue $1.1 billion of additional first mortgage bonds on the basis of
property additions and retired bonds. Based upon applicable earnings coverage
tests and our respective charters, we could issue $1.3 billion of preferred
stock (assuming no additional debt were issued).
Our cash requirements in 2000 for operating expenses, construction
expenditures, scheduled debt maturities and preferred stock redemptions are
expected to be met without issuing new securities. During 1999, we reduced
our total debt by approximately $125 million. We have cash requirements of
approximately $1.2 billion for the 2000-2004 period to meet scheduled
maturities of long-term debt and preferred stock. Of that amount,
approximately $206 million relates to 2000.
Our capital spending for the period 2000-2004 is expected to be
about $1.0 billion (excluding nuclear fuel), of which approximately $251
million applies to 2000. Investments for additional nuclear fuel during the
2000-2004 period are estimated to be approximately $218 million, of which
about $65 million relates to 2000. During the same periods, our nuclear fuel
investments are expected to be reduced by approximately $215 million and $46
million, respectively, as the nuclear fuel is consumed. Also, we have
operating lease commitments, net of PNBV Capital Trust cash receipts, of
approximately $358 million for the 2000-2004 period, of which approximately
$71 million relates to 2000.
On December 3, 1999, we completed the exchange of generating assets
between Duquesne and FirstEnergy, which increased FirstEnergy's portfolio of
generation resources. Duquesne transferred 1,436 megawatts at five generating
plants in exchange for 1,328 megawatts at three plants owned by FirstEnergy
operating companies. In the exchange, we received all of Duquesne's ownership
interest in the Beaver Valley Plant, and an additional interest in the Bruce
Mansfield Plant while providing Duquesne with our ownership interest in the
New Castle and Niles generating plants.
At the end of 1999, Penn transferred its interest in Penn Power
Energy, Inc., a wholly owned subsidiary selling energy in Pennsylvania's
unregulated generation market, to FirstEnergy Services Corp., an affiliated
company. For FirstEnergy, the transaction centralized unregulated electricity
sales and marketing activities in one entity.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is mitigated
since a significant portion of our debt has fixed interest rates, as noted in
the table below. We are subject to the inherent interest rate risks related
to refinancing maturing debt by issuing new debt securities. As discussed in
Note 2, our investment in the PNBV Capital Trust effectively reduces future
lease obligations, also reducing interest rate risk. Changes in the market
value of our nuclear decommissioning trust funds are recognized by making a
corresponding change to the decommissioning liability, as described in Note
1.
The table below presents principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio, debt
obligations and preferred stock with mandatory redemption provisions.
<TABLE>
<CAPTION>
Comparison of Carrying Value to Fair Value
- --------------------------------------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
- --------------------------------------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than
Cash and Cash Equivalents:
Fixed Income $ 17 $ 23 $ 26 $ 30 $305 $511 $ 912 $ 922
Average interest rate 7.3% 7.6% 7.8% 7.9% 7.8% 7.8% 7.8%
- ---------------------------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate $201 $ 17 $327 $246 $ 95 $839 $1.725 $1,710
Average interest rate 7.0% 8.0% 7.8% 8.2% 7.3% 7.1% 7.4%
Variable rate $190 $568 $ 758 $ 749
Average interest rate 7.5% 4.3% 5.1%
Short-term Borrowings $358 $ 358 $ 358
Average interest rate 6.3% 6.3%
- ---------------------------------------------------------------------------------------------------------
Preferred Stock $ 5 $ 5 $ 1 $ 1 $ 1 $132 $ 145 $ 142
Average dividend rate 8.5% 8.5% 7.6% 7.6% 7.6% 8.9% 8.8%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Outlook
We continue to face many competitive challenges as the electric
utility industry undergoes significant changes, including changing regulation
and the entrance of more energy suppliers into the marketplace. Retail
wheeling, which began in 1999 in our Pennsylvania service area, allows retail
customers to purchase electricity from alternative energy suppliers. Recent
legislation provides for similar changes beginning in 2001 in Ohio. Our
existing Ohio regulatory plan provides us with a solid foundation to meet the
challenges we are facing by significantly reducing fixed costs and lowering
rates to a more competitive level. Our Rate Reduction and Economic
Development Plan, approved by the PUCO in 1995, provides for accelerated
capital recovery and interim rate credits to customers during the period
covered by the plan. The transition plan ultimately approved by the Public
Utilities Commission of Ohio (PUCO) will supersede our current Ohio rate
plan; however, rate reductions under the existing regulatory plan will
continue.
In July 1999, Ohio's new electric utility restructuring
legislation, which will allow Ohio electric customers to select their
generation suppliers beginning January 1, 2001, was signed into law. Among
other things, the new law provides for a 5% reduction on the generation
portion of residential customers' bills and the opportunity to recover
transition costs, including regulatory assets, from January 1, 2001 through
December 31, 2005. The period for the recovery of regulatory assets only can
be extended up to December 31, 2010. The PUCO was authorized to determine the
level of transition cost recovery, as well as the recovery period for the
regulatory assets portion of those costs, in considering each Ohio electric
utility's transition plan application.
FirstEnergy refiled a transition plan on our behalf, as well as for
its other Ohio electric utility operating companies -- The Cleveland Electric
Illuminating Company (CEI) and The Toledo Edison Company (TE) -- on December
22, 1999. The plan was originally filed with the PUCO on October 4, 1999, but
was refiled to conform to PUCO rules established on November 30, 1999. The
new filing also included additional information on our plan to turn over
control, and perhaps ownership, of our transmission assets to the Alliance
Regional Transmission Organization (Alliance), which is discussed below.
The transition plan itemizes, or unbundles, the current price of
electricity into separate components -- including generation, transmission,
distribution and transition charges. As required by the PUCO's rules,
FirstEnergy's filing also included proposals on corporate separation of
regulated and unregulated operations, operational and technical support
changes needed to accommodate customer choice, an education program to inform
customers of their options under the law, and how our transmission system
will be operated to ensure access to all users. Under our transition plan,
customers who remain with us as their generation provider will continue to
receive savings under our rate plan, expected to total $422 million between
2000 and 2005. In addition, FirstEnergy's Ohio utility customers will save
$358 million through reduced charges for taxes and a 5% reduction in the
price of generation for residential customers beginning January 1, 2001.
Customer prices are expected to be frozen through a five-year market
development period (2001-2005), except for certain limited statutory
exceptions including the 5% reduction in the price of generation for
residential customers. The plan proposes recovery of generation-related
transition costs of approximately $1.8 billion ($1.6 billion, net of deferred
income taxes) over the market development period; transition costs related to
regulatory assets aggregating approximately $1.5 billion ($1.0 billion, net
of deferred income taxes) are expected to be recovered over the period 2001
through 2004.
When the transition plan is approved by the PUCO, the application
of SFAS 71 to our Ohio generation business will be discontinued. In the
meantime, we will continue to bill and collect cost-based rates in Ohio
through the end of 2000. If the transition plan ultimately approved by the
PUCO does not provide adequate recovery of our nuclear generating unit
investments and regulatory assets, there would be a charge to earnings which
could have a material adverse effect on our results of operations and
financial condition. We believe that we will continue to bill and collect
cost-based rates for our transmission and distribution services, which will
remain regulated; accordingly, it is appropriate that we continue the
application of SFAS 71 to those operations after December 31, 2000.
For Penn, application of SFAS 71 was discontinued for the
generation portion of its business in 1998 following PPUC approval of its
restructuring plan. Under the plan, a phase-in period for customer choice
began with 66% of Penn's customers able to select their energy supplier
beginning January 2, 1999, and all remaining customers able to select their
energy providers starting January 1, 2001. Penn is entitled to recover $236
million of stranded costs through a competitive transition charge that
started in 1999 and ends in 2006.
In the second half of 1999, we received notification of pending
legal actions based on alleged violations of the Clean Air Act at our Sammis
Plant involving the states of New York and Connecticut, as well as the U.S.
Department of Justice. The civil complaint filed by the U.S. Department of
Justice requests installation of "best available control technology" as well
as civil penalties of up to $27,500 per day. We believe the Sammis Plant is
in full compliance with the Clean Air Act and the legal actions to be without
merit. However, we are unable to predict the outcome of this litigation.
Penalties could be imposed if the Sammis Plant continues to operate without
correcting the alleged violations and a court determines that the allegations
are valid. We expect the Sammis Plant to continue to operate while the matter
is being decided.
On October 27, 1999, the Federal Energy Regulatory Commission
(FERC) approved FirstEnergy's plan to transfer our transmission assets and
those of CEI and TE to American Transmission Systems Inc. (ATSI). The PUCO
approved the transfer in February 2000. PPUC and Securities and Exchange
Commission regulatory approvals are also required. The new FirstEnergy
subsidiary represents a first step toward the goal of establishing or
becoming part of a larger independent, regional transmission organization
(RTO). In working toward that goal, FirstEnergy joined with four other
companies -- American Electric Power, Consumers Energy, Detroit Edison and
Virginia Power -- to form the Alliance RTO. On June 3, 1999, the Alliance
submitted an application to FERC to form an independent, for profit RTO. On
December 15, 1999, FERC issued an order conditionally approving the
Alliance's application.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards requiring that every
derivative instrument (including derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement. We have not completed quantifying the
impacts of adopting SFAS 133 on our financial statements or determined the
method of its adoption. However, SFAS 133 could increase volatility in
earnings and other comprehensive income. We anticipate adopting the new
statement on its amended effective date of January 1, 2001.
Year 2000 Update
Based on the results of our remediation and testing efforts, we
filed documents with the North American Electric Reliability Council, Nuclear
Regulatory Commission, PUCO and PPUC that as of June 30, 1999, our
generation, transmission, and distribution systems were ready to serve
customers in the year 2000. We have since experienced no failures or
interruptions of service to our customers resulting from the Year 2000 issue,
which was consistent with our expectations. We spent $41.4 million on Year
2000 related costs through December 31, 1999, which was slightly lower than
previously estimated. Of this total, $32.9 million was 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 $8.5 million
was expensed as incurred. We do not believe there are any continuing Year
2000 issues to be addressed, nor any additional material Year 2000
expenditures.
Forward-Looking Information
This discussion includes forward-looking statements based on
information currently available to management that are subject to certain
risks and uncertainties. These statements typically contain, but are not
limited to, the terms anticipate, potential, expect, believe, estimate and
similar words. Actual results may differ materially due to the speed and
nature of increased competition and deregulation in the electric utility
industry, economic or weather conditions affecting future sales and margins,
changes in markets for energy services, changing energy market prices,
legislative and regulatory changes, and the availability and cost of capital
and other similar factors.
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING REVENUES $2,686,949 $2,519,662 $2,473,582
---------- ---------- ----------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 475,792 511,645 437,223
Nuclear operating costs 312,289 279,917 267,681
Other operating costs 432,476 411,985 446,778
---------- ---------- ----------
Total operation and maintenance expenses 1,220,557 1,203,547 1,151,682
Provision for depreciation and amortization 582,197 411,979 426,205
General taxes 240,281 242,524 234,964
Income taxes 170,872 174,692 172,163
---------- ---------- ----------
Total operating expenses and taxes 2,213,907 2,032,742 1,985,014
---------- ---------- ----------
OPERATING INCOME 473,042 486,920 488,568
OTHER INCOME 45,846 47,621 52,847
---------- ---------- ----------
INCOME BEFORE NET INTEREST CHARGES 518,888 534,541 541,415
---------- ---------- ----------
NET INTEREST CHARGES:
Interest on long-term debt 178,217 184,915 204,285
Allowance for borrowed funds used during
construction and capitalized interest (4,159) (2,096) (2,699)
Other interest expense 31,971 34,976 31,209
Subsidiaries' preferred stock dividend
requirements 15,170 15,426 15,426
---------- ---------- ----------
Net interest charges 221,199 233,221 248,221
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 297,689 301,320 293,194
EXTRAORDINARY ITEM (NET OF INCOME TAXES)
(Note 1) -- (30,522) --
---------- ---------- ----------
NET INCOME 297,689 270,798 293,194
PREFERRED STOCK DIVIDEND REQUIREMENTS 11,547 11,970 12,392
---------- ---------- ----------
EARNINGS ON COMMON STOCK $ 286,142 $ 258,828 $ 280,802
========== ========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1999 1998
- ------------------------------------------------------------------------------------
(In thousands)
ASSETS
<S> <C> <C>
UTILITY PLANT:
In service $8,118,783 $8,158,763
Less-Accumulated provision for depreciation 3,713,781 3,610,155
---------- ----------
4,405,002 4,548,608
---------- ----------
Construction work in progress-
Electric plant 205,671 174,418
Nuclear Fuel 10,059 17,003
---------- ----------
215,730 191,421
---------- ----------
4,620,732 4,740,029
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
PNBV Capital Trust (Note 2) 469,124 475,087
Letter of credit collateralization (Note 2) 277,763 277,763
Nuclear plant decommissioning trusts 236,903 130,572
Other (Note 3B) 425,872 407,839
---------- ----------
1,409,662 1,291,261
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 87,175 33,213
Receivables-
Customers (less accumulated provisions of $6,452,000
and $6,397,000, respectively, for uncollectible
accounts) 278,484 215,257
Associated companies 221,653 229,854
Other (less accumulated provision of $1,000,000
for uncollectible accounts in 1999) 36,281 47,684
Materials and supplies, at average cost-
Owned 69,119 76,756
Under consignment 55,278 48,341
Prepayments and other 73,682 78,618
---------- ----------
821,672 729,723
---------- ----------
DEFERRED CHARGES:
Regulatory assets 1,618,319 1,913,808
Property taxes 100,906 101,360
Unamortized sale and leaseback costs 85,100 90,098
Other 44,355 57,547
---------- ----------
1,848,680 2,162,813
---------- ----------
$8,700,746 $8,923,826
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Consolidated Statements of
Capitalization):
Common stockholder's equity $2,624,460 $2,681,873
Preferred stock-
Not subject to mandatory redemption 160,965 160,965
Subject to mandatory redemption 5,000 10,000
Preferred stock of consolidated subsidiary-
Not subject to mandatory redemption 39,105 50,905
Subject to mandatory redemption 15,000 15,000
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
Company subordinated debentures 120,000 120,000
Long-term debt 2,175,812 2,215,042
---------- ----------
5,140,342 5,253,785
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 422,838 528,792
Short-term borrowings (Note 4)-
Associated companies 35,583 88,732
Other 322,713 249,451
Accounts payable 114,102 99,659
Accrued taxes 207,362 188,295
Accrued interest 37,572 45,221
Other 94,967 114,162
---------- ----------
1,235,137 1,314,312
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 1,468,478 1,601,887
Accumulated deferred investment tax credits 143,336 154,538
Nuclear plant decommissioning costs 239,695 132,349
Other postretirement benefits 148,421 136,856
Other 325,337 330,099
---------- ----------
2,325,267 2,355,729
---------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Notes 2 and 5) ---------- ----------
$8,700,746 $8,923,826
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
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 (Note 3A) 525,731 583,144
---------- ----------
Total common stockholder's equity 2,624,460 2,681,873
---------- ----------
<CAPTION>
Number of Shares Optional
Outstanding Redemption Price
----------------------- -----------------------
1999 1998 Per Share Aggregate
---- ---- ---------- ----------
<S> <C> <C> <C> <C>
PREFERRED STOCK (Note 3D):
Cumulative, $100 par value-
Authorized 6,000,000 shares
Not Subject to Mandatory Redemption:
3.90% 152,510 152,510 $103.63 $ 15,804 15,251 15,251
4.40% 176,280 176,280 108.00 19,038 17,628 17,628
4.44% 136,560 136,560 103.50 14,134 13,656 13,656
4.56% 144,300 144,300 103.38 14,917 14,430 14,430
--------- --------- -------- ---------- ----------
609,650 609,650 63,893 60,965 60,965
--------- --------- -------- ---------- ----------
Cumulative, $25 par value-
Authorized 8,000,000 shares
Not Subject to Mandatory Redemption:
7.75% 4,000,000 4,000,000 25.00 100,000 100,000 100,000
--------- --------- -------- ---------- ----------
Total Not Subject to Mandatory
Redemption 4,609,650 4,609,650 $163,893 160,965 160,965
========= ========= ======== ---------- ----------
Cumulative, $100 par value-
Subject to Mandatory Redemption
(Note 3E):
8.45% 100,000 150,000 10,000 15,000
Redemption Within One Year (5,000) (5,000)
--------- --------- ---------- ----------
Total Subject to
Mandatory Redemption 100,000 150,000 5,000 10,000
========= ========= ---------- ----------
PREFERRED STOCK OF CONSOLIDATED
SUBSIDIARY (Note 3D):
Pennsylvania Power Company-
Cumulative, $100 par value-
Authorized 1,200,000 shares
Not Subject to Mandatory Redemption:
4.24% 40,000 40,000 $103.13 $ 4,125 4,000 4,000
4.25% 41,049 41,049 105.00 4,310 4,105 4,105
4.64% 60,000 60,000 102.98 6,179 6,000 6,000
7.64% -- 60,000 -- -- -- 6,000
7.75% 250,000 250,000 -- -- 25,000 25,000
8.00% -- 58,000 -- -- -- 5,800
--------- --------- -------- ---------- ----------
Total Not Subject to Mandatory
Redemption 391,049 509,049 $ 14,614 39,105 50,905
========= ========= ======== ---------- ----------
Subject to Mandatory Redemption
(Note 3E):
7.625% 150,000 150,000 106.10 $ 15,915 15,000 15,000
========= ========= ======== ---------- ----------
COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY COMPANY SUBORDINATED
DEBENTURES (Note 3F):
Cumulative, $25 par value-
Authorized 4,800,000 shares
Subject to Mandatory Redemption:
9.00% 4,800,000 4,800,000 120,000 120,000
========= ========= ---------- ----------
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31, 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT (Note 3G):
First mortgage bonds:
Ohio Edison Company- Pennsylvania Power Company-
6.875% due 1999 -- 150,000 9.740% due 2000-2019 19,513 20,000
6.375% due 2000 80,000 80,000 7.500% due 2003 40,000 40,000
7.375% due 2002 120,000 120,000 6.375% due 2004 20,500 20,500
7.500% due 2002 34,265 34,265 6.625% due 2004 14,000 14,000
8.250% due 2002 125,000 125,000 8.500% due 2022 27,250 27,250
8.625% due 2003 150,000 150,000 7.625% due 2023 6,500 6,500
6.875% due 2005 80,000 80,000 ------- -------
8.750% due 2022 50,960 50,960
7.625% due 2023 75,000 75,000
7.875% due 2023 93,500 100,000
------- -------
Total first mortgage bonds. 808,725 965,225 127,763 128,250 936,488 1,093,475
------- ------- ------- ------- ---------- ----------
Secured notes:
Ohio Edison Company- Pennsylvania Power Company-
7.450% due 2000 47,725 47,725 6.080% due 2000 23,000 23,000
8.100% due 2000 30,000 30,000 8.100% due 2000 5,200 5,200
7.930% due 2002 28,386 39,936 5.400% due 2013 1,000 1,000
7.680% due 2005 200,000 200,000 5.400% due 2017 10,600 10,600
6.750% due 2015 40,000 40,000 7.150% due 2017 17,925 17,925
7.100% due 2018 26,000 26,000 5.900% due 2018 16,800 16,800
7.050% due 2020 60,000 60,000 7.150% due 2021 14,482 14,482
7.000% due 2021 69,500 69,500 6.150% due 2023 12,700 12,700
7.150% due 2021 443 443 * 5.450% due 2027 10,300 10,300
7.625% due 2023 -- 50,000 6.450% due 2027 14,500 14,500
7.750% due 2024 -- 108,000 5.375% due 2028 1,734 1,734
5.375% due 2028 13,522 13,522 5.450% due 2028 6,950 6,950
5.625% due 2029 50,000 50,000 6.000% due 2028 14,250 14,250
5.950% due 2029 56,212 56,212 5.950% due 2029 238 238
5.450% due 2033 14,800 14,800 ------- -------
Limited Partnerships-
7.59% weighted average
interest rate due
2000-2007 12,574 11,320
------- -------
649,162 817,458 149,679 149,679 798,841 967,137
------- ------- ------- ------- ---------- ----------
OES Fuel-
6.85% weighted average
interest rate 81,260 79,524
---------- ----------
Total secured notes 880,101 1,046,661
---------- ----------
Unsecured notes:
Ohio Edison Company- Pennsylvania Power Company-
*5.963% due 1999 -- 115,000 *5.900% due 2033 5,200 --
*6.025% due 1999 -- 85,000 ------- -------
*6.088% due 1999 -- 50,000
*7.300% due 2002 140,000 --
*8.113% due 2002 50,000 --
*4.300% due 2012 50,000 50,000
*3.950% due 2014 50,000 50,000
*2.950% due 2015 50,000 50,000
*5.800% due 2016 47,725 --
*4.200% due 2018 57,100 57,100
*3.750% due 2018 56,000 56,000
*3.100% due 2032 53,400 53,400
*4.250% due 2033 50,000 --
*4.650% due 2033 108,000 --
*5.400% due 2033 30,000 --
------- -------
Total unsecured notes 742,225 566,500 5,200 -- 747,425 566,500
------- ------- ------- ------- ---------- ----------
Capital lease obligations
(Note 2) 33,852 36,891
---------- ----------
Net unamortized discount on debt (4,216) (4,693)
---------- ----------
Long-term debt due within one year (417,838) (523,792)
---------- ----------
Total long-term debt 2,175,812 2,215,042
---------- ----------
TOTAL CAPITALIZATION $5,140,342 $5,253,785
========== ==========
<FN>
* Denotes variable rate issue with December 31, 1999 interest rate shown for only December 31, 1999
balances and December 31, 1998 interest rate shown for only December 31, 1998 balances.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
Accumulated
Other Unallocated
Comprehensive Other Comprehensive ESOP
Income Number Par Paid-In Income Retained Common
(Note 3C) of Shares Value Capital (Note 3C) Earnings Stock
------------- --------- ----- -------- ------------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 152,569,437 $1,373,125 $ 728,261 $(659) $ 557,642 $(155,010)
Net income $293,194 293,194
Minimum liability for unfunded
retirement benefits, net of
$26,000 of income taxes 44 44
--------
Comprehensive income $293,238
========
FirstEnergy merger (152,569,337) (1,373,124) 1,373,124 146,977
Allocation of ESOP shares 1,874 8,033
Cash dividends on preferred
stock (12,392)
Cash dividends on common stock (216,770)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 100 1 2,103,259 (615) 621,674 --
Net income $270,798 270,798
Transfer of minimum liability
for unfunded retirement
benefits to parent 615 615
--------
Comprehensive income $271,413
========
Transfer of ESOP premium to
parent (4,531)
Cash dividends on preferred
stock (11,952)
Cash dividends on common stock (297,376)
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 100 1 2,098,728 -- 583,144 --
Net income $297,689 297,689
========
Transfer of Penn Power
Energy to FirstEnergy
Services Corp. 3,302
Cash dividends on preferred stock (11,401)
Cash dividends on common stock (347,003)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 100 $ 1 $2,098,728 $ -- $ 525,731 $ --
================================================================================================================================
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
-------------------- --------------------
Par or Par or
Number Stated Number Stated
of Shares Value of Shares Value
--------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1997 5,118,699 $211,870 5,200,000 $160,000
Redemptions-
8.45% Series (50,000) (5,000)
- ---------------------------------------------------------------------------------
Balance, December 31, 1997 5,118,699 211,870 5,150,000 155,000
Redemptions-
8.45% Series (50,000) (5,000)
- ---------------------------------------------------------------------------------
Balance, December 31, 1998 5,118,699 211,870 5,100,000 150,000
Redemptions-
7.64% Series (60,000) (6,000)
8.00% Series (58,000) (5,800)
8.45% Series (50,000) (5,000)
- ----------------------------------------------------------------------------------
Balance, December 31, 1999 5,000,699 $200,070 5,050,000 $145,000
===================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $297,689 $270,798 $293,194
Adjustments to reconcile net income to net
cash from operating activities:
Provision for depreciation and amortization 582,197 411,979 426,205
Nuclear fuel and lease amortization 45,850 35,086 49,251
Deferred income taxes, net (120,149) (55,817) (36,741)
Investment tax credits, net (13,793) (14,290) (15,031)
Extraordinary item -- 51,730 --
Receivables (43,623) (144,549) (23,887)
Materials and supplies 18,257 (1,627) (10,557)
Accounts payable 14,443 (8,455) 32,531
Other 14,442 64,552 21,755
-------- -------- --------
Net cash provided from operating activities 795,313 609,407 736,720
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 242,601 117,265 89,773
Short-term borrowings, net 20,113 35,954 --
Redemptions and Repayments-
Preferred stock 17,005 5,000 5,000
Long-term debt 396,410 225,241 292,409
Short-term borrowings, net -- -- 47,251
Dividend Payments-
Common stock 347,003 297,746 237,848
Preferred stock 11,512 11,865 12,559
-------- -------- --------
Net cash used for financing activities 509,216 386,633 505,294
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 237,199 186,139 179,328
Other (5,064) 8,102 52,671
-------- -------- --------
Net cash used for investing activities 232,135 194,241 231,999
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 53,962 28,533 (573)
Cash and cash equivalents at beginning of year 33,213 4,680 5,253
-------- -------- --------
Cash and cash equivalents at end of year $ 87,175 $ 33,213 $ 4,680
======== ======== ========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash Paid During the Year-
Interest (net of amounts capitalized) $203,749 $201,064 $212,987
======== ======== ========
Income taxes $308,052 $219,226 $228,399
======== ======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
OHIO EDISON COMPANY
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
GENERAL TAXES:
Real and personal property $ 111,222 $ 116,868 $ 114,111
State gross receipts 106,926 104,175 99,262
Social security and unemployment 14,432 12,701 14,113
Other 7,701 8,780 7,478
---------- ---------- ----------
Total general taxes $ 240,281 $ 242,524 $ 234,964
========== ========== ==========
PROVISION FOR INCOME TAXES:
Currently payable-
Federal $ 307,462 $ 229,164 $ 225,529
State 18,315 14,732 17,784
---------- ---------- ----------
325,777 243,896 243,313
---------- ---------- ----------
Deferred, net-
Federal (113,347) (50,310) (30,791)
State (6,802) (5,507) (5,950)
---------- ---------- ----------
(120,149) (55,817) (36,741)
---------- ---------- ----------
Investment tax credit amortization (13,793) (14,290) (15,031)
---------- ---------- ----------
Total provision for income taxes $ 191,835 $ 173,789 $ 191,541
========== ========== ==========
INCOME STATEMENT CLASSIFICATION
OF PROVISION FOR INCOME TAXES:
Operating income $ 170,872 $ 174,692 $ 172,163
Other income 20,963 20,305 19,378
Extraordinary item -- (21,208) --
---------- ---------- ----------
Total provision for income taxes $ 191,835 $ 173,789 $ 191,541
========== ========== ==========
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes $ 489,524 $ 444,587 $ 484,735
========== ========== ==========
Federal income tax expense at statutory rate $ 171,333 $ 155,605 $ 169,657
Increases (reductions) in taxes resulting from-
Amortization of investment tax credits (13,793) (14,290) (15,031)
State income taxes, net of federal income tax
benefit 7,483 5,996 7,692
Amortization of tax regulatory assets 24,950 29,961 30,642
Other, net 1,862 (3,483) (1,419)
---------- ---------- ----------
Total provision for income taxes $ 191,835 $ 173,789 $ 191,541
========== ========== ==========
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Property basis differences $ 847,479 $ 880,645 $1,019,952
Allowance for equity funds used during construction 152,846 169,780 210,136
Deferred nuclear expense 229,366 237,602 252,946
Competitive transition charge 115,277 135,730 --
Customer receivables for future income taxes 163,500 164,618 204,643
Deferred sale and leaseback costs (26,966) 45,521 47,796
Unamortized investment tax credits (51,521) (55,495) (67,208)
Other 38,497 23,486 30,089
---------- ---------- ----------
Net deferred income tax liability $1,468,478 $1,601,887 $1,698,354
========== ========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include Ohio Edison Company
(Company), and its wholly owned subsidiaries. Pennsylvania Power Company
(Penn) is the Company's principal operating subsidiary. All significant
intercompany transactions have been eliminated. The Company became a wholly
owned subsidiary of FirstEnergy Corp. (FirstEnergy) on November 8, 1997.
FirstEnergy was formed on that date by the merger of the Company and
Centerior Energy Corporation (Centerior). FirstEnergy holds directly all of
the issued and outstanding common shares of the Company and all of the issued
and outstanding common shares of Centerior's former direct subsidiaries,
which include, among others, The Cleveland Electric Illuminating Company
(CEI) and The Toledo Edison Company (TE). The Company and Penn (Companies)
follow the accounting policies and practices prescribed by the Public
Utilities Commission of Ohio (PUCO), the Pennsylvania Public Utility
Commission (PPUC) and the Federal Energy Regulatory Commission (FERC). The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make periodic estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Certain prior year amounts have been reclassified to conform
with the current year presentation.
REVENUES-
The Companies' principal business is providing electric service to
customers in central and northeastern Ohio and western Pennsylvania. The
Companies' retail customers are metered on a cycle basis. Revenue is
recognized for unbilled electric service through the end of the year.
Receivables from customers include sales to residential, commercial
and industrial customers located in the Companies' service area and sales to
wholesale customers. There was no material concentration of receivables at
December 31, 1999 or 1998, with respect to any particular segment of the
Companies' customers.
REGULATORY PLANS-
The PUCO approved the Company's Rate Reduction and Economic
Development Plan in 1995. This regulatory plan was to maintain current base
electric rates for the Company through December 31, 2005. At the end of the
regulatory plan period, the Company's base rates were to be reduced by $300
million (approximately 20 percent below current levels). The plan also
revised the Company's fuel cost recovery method. The Company formerly
recovered fuel-related costs not otherwise included in base rates from retail
customers through separate energy rates. In accordance with the regulatory
plan, the Company's fuel rates will be frozen through the regulatory plan
period, subject to limited periodic adjustments. As part of the Company's
regulatory plan, transition rate credits were implemented for customers,
which are expected to reduce operating revenues for the Company by
approximately $600 million.
In July 1999, Ohio's new electric utility restructuring legislation
which will allow Ohio electric customers to select their generation suppliers
beginning January 1, 2001, was signed into law. Among other things, the new
law provides for a five percent reduction on the generation portion of
residential customers' bills and the opportunity to recover transition costs,
including regulatory assets, from January 1, 2001 through December 31, 2005.
The period for the recovery of regulatory assets only can be extended up to
December 31, 2010. The PUCO was authorized to determine the level of
transition cost recovery, as well as the recovery period for the regulatory
assets portion of those costs, in considering each Ohio electric utility's
transition plan application.
FirstEnergy, on behalf of its Ohio electric utility operating
companies - the Company, CEI and TE - on December 22, 1999 refiled its
transition plan under Ohio's new electric utility restructuring law. The plan
was originally filed with the PUCO on October 4, 1999, but was refiled to
conform to PUCO rules established on November 30, 1999. The new filing also
included additional information on FirstEnergy's plans to turn over control,
and perhaps ownership, of its transmission assets to the Alliance Regional
Transmission Organization. The PUCO indicated that it will endeavor to issue
its order in FirstEnergy's case within 275 days of the initial October filing
date.
The transition plan itemizes, or unbundles, the current price of
electricity into its component elements - including generation, transmission,
distribution and transition charges. As required by the PUCO's rules,
FirstEnergy's filing also included its proposals on corporate separation of
its regulated and unregulated operations, operational and technical support
changes needed to accommodate customer choice, an education program to inform
customers of their options under the new law, and how FirstEnergy's
transmission system will be operated to ensure access to all users. Under the
plan, customers who remain with the Company as their generation provider will
continue to receive savings under the Company's rate plans, expected to total
$422 million between 2000 and 2005. In addition, FirstEnergy's Ohio utility
customers will save $358 million through reduced charges for taxes and a five
percent reduction in the price of generation for residential customers
beginning January 1, 2001. Customer prices are expected to be frozen through
a five-year market development period (2001-2005), except for certain limited
statutory exceptions including the five percent reduction in the price of
generation for residential customers. The plan proposes recovery of the
Company's generation-related transition costs of approximately $1.8 billion
($1.6 billion, net of deferred income taxes) over the market development
period; its transition costs related to regulatory assets aggregating
approximately $1.5 billion ($1.0 billion, net of deferred income taxes) will
be recovered over the period of 2001 through 2004.
In June 1998, the PPUC authorized a rate restructuring plan for
Penn, which essentially resulted in the deregulation of Penn's generation
business as of June 30, 1998. Penn was required to remove from its balance
sheet all regulatory assets and liabilities related to its generation
business and assess all other assets for impairment. The Securities and
Exchange Commission (SEC) issued interpretive guidance regarding asset
impairment measurement which concluded that any supplemental regulated cash
flows such as a competitive transition charge (CTC) should be excluded from
the cash flows of assets in a portion of the business not subject to
regulatory accounting practices. If those assets are impaired, a regulatory
asset should be established if the costs are recoverable through regulatory
cash flows. Consistent with the SEC guidance, Penn reduced its nuclear
generating unit investments by approximately $305 million, of which
approximately $227 million was recognized as a regulatory asset to be
recovered through a CTC over a seven-year transition period; the remaining
net amount of $78 million was written off. The charge of $51.7 million ($30.5
million after income taxes) for discontinuing the application of Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71), to Penn's generation business was
recorded as a 1998 extraordinary item on the Consolidated Statement of
Income. Penn's net assets included in utility plant relating to the
operations for which the application of SFAS 71 was discontinued and Penn's
total assets as of December 31, 1999 were $76 million and $1.016 billion,
respectively.
All of the Companies' regulatory assets are being recovered under
provisions of the regulatory plans. In addition, the PUCO has authorized the
Company to recognize additional capital recovery related to its generating
assets (which is reflected as additional depreciation expense) and additional
amortization of regulatory assets during the regulatory plan period of at
least $2 billion, and the PPUC had authorized Penn to accelerate at least
$358 million more than the amounts that would have been recognized if the
regulatory plans were not in effect. These additional amounts are being
recovered through current rates. As of December 31, 1999, the Companies'
cumulative additional capital recovery and regulatory asset amortization
amounted to $1.048 billion (including Penn's impairment discussed above and
CTC recovery).
UTILITY PLANT AND DEPRECIATION-
Utility plant reflects the original cost of construction, (except
for Penn's nuclear generating units which were adjusted to fair value as
discussed above), including payroll and related costs such as taxes, employee
benefits, administrative and general costs, and interest costs.
The Companies provide for depreciation on a straight-line basis at
various rates over the estimated lives of property included in plant in
service. The annual composite rate for OE's electric plant was approximately
3.0% in 1999, 1998 and 1997. The annual composite rate for Penn's electric
plant was approximately 2.5% in 1999 and 3.0% in 1998 and 1997. In addition
to the straight-line depreciation recognized in 1999, 1998 and 1997, the
Companies recognized additional capital recovery of $95 million, $141 million
(excluding Penn's impairment) and $172 million, respectively, as additional
depreciation expense in accordance with their regulatory plans. Such
additional charges in the accumulated provision for depreciation were $517
million and $422 million as of December 31, 1999 and 1998, respectively.
Annual depreciation expense includes approximately $9.4 million for
future decommissioning costs applicable to the Companies' ownership and
leasehold interests in three nuclear generating units. The Companies' future
decommissioning costs reflect the increase in Penn's ownership interest
related to the asset transfer with Duquesne Light Company (Duquesne)
discussed below in "Common Ownership of Generating Facilities." The
Companies' share of the future obligation to decommission these units is
approximately $777 million in current dollars and (using a 4.0% escalation
rate) approximately $1.9 billion in future dollars. The estimated obligation
and the escalation rate were developed based on site specific studies.
Payments for decommissioning are expected to begin in 2016, when actual
decommissioning work begins. The Companies have recovered approximately $92
million for decommissioning through their electric rates from customers
through December 31, 1999. If the actual costs of decommissioning the units
exceed the funds accumulated from investing amounts recovered from customers,
the Companies expect that additional amount to be recoverable from their
customers. The Companies have approximately $236.9 million invested in
external decommissioning trust funds as of December 31, 1999. This includes
additions to the trust funds and the corresponding liability of $89 million
as a result of the asset transfer. Earnings on these funds are reinvested
with a corresponding increase to the decommissioning liability. The Companies
have also recognized an estimated liability of approximately $18.7 million
related to decontamination and decommissioning of nuclear enrichment
facilities operated by the United States Department of Energy (DOE), as
required by the Energy Policy Act of 1992.
The Financial Accounting Standards Board (FASB) issued a proposed
accounting standard for nuclear decommissioning costs in 1996. If the
standard is adopted as proposed: (1) annual provisions for decommissioning
could increase; (2) the net present value of estimated decommissioning costs
could be recorded as a liability; and (3) income from the external
decommissioning trusts could be reported as investment income. The FASB
subsequently expanded the scope of the proposed standard to include other
closure and removal obligations related to long-lived assets. A revised
proposal may be issued by the FASB in the first quarter of 2000.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Companies, together with the other FirstEnergy utilities, CEI
and TE, and Duquesne constituted the Central Area Power Coordination Group
(CAPCO). The CAPCO companies formerly owned and/or leased, as tenants in
common, various power generating facilities. Each of the companies is
obligated to pay a share of the costs associated with any jointly owned
facility in the same proportion as its interest. The Companies' portions of
operating expenses associated with jointly owned facilities are included in
the corresponding operating expenses on the Consolidated Statements of
Income.
On March 26, 1999, FirstEnergy completed its agreements with
Duquesne to exchange certain generating assets. All regulatory approvals were
received by October 1999. In December 1999, Duquesne transferred 1,436
megawatts owned by Duquesne at eight CAPCO generating units in exchange for
1,328 megawatts at three non-CAPCO power plants owned by the Companies and
CEI. As part of this exchange, the Companies transferred their 246-megawatt
Niles Plant and 339-megawatt New Castle Plant to Duquesne. The Companies
acquired Duquesne's ownership interest in the Beaver Valley Station and
acquired, with CEI, Duquesne's ownership interest in the Bruce Mansfield
Plant. The agreements for the exchange of assets, which was structured as a
like-kind exchange for tax purposes, provides FirstEnergy's utility operating
companies with exclusive ownership and operating control of all CAPCO
generating units. The three FirstEnergy plants transferred are being sold by
Duquesne to a wholly owned subsidiary of Orion Power Holdings, Inc. (Orion).
The Companies and CEI will continue to operate those plants until the assets
are transferred to the new owners. Duquesne funded decommissioning costs
equal to its percentage interest in the three nuclear generating units that
were transferred to FirstEnergy. The Duquesne asset transfer to the Orion
subsidiary could take place by the middle of 2000. Under the agreements,
Duquesne was no longer a participant in the CAPCO arrangements after the
exchange. The amounts reflected on the Consolidated Balance Sheet under
utility plant at December 31, 1999 include the following:
<TABLE>
<CAPTION>
Companies'
Utility Accumulated Construction Ownership/
Plant Provision for Work in Leasehold
Generating Units in Service Depreciation Progress Interest
- ----------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
W. H. Sammis #7 $ 307.4 $ 134.9 $ 6.7 68.80%
Bruce Mansfield #1,
#2 and #3 1,010.7 538.0 19.7 67.18%
Beaver Valley
#1 and #2 1,665.6 653.2 22.8 77.81%
Perry 1,281.7 853.1 8.7 35.24%
- --------------------------------------------------------------------------------
Total $4,265.4 $2,179.2 $57.9
================================================================================
</TABLE>
NUCLEAR FUEL-
Nuclear fuel is recorded at original cost, which includes material,
enrichment, fabrication and interest costs incurred prior to reactor load.
The Companies amortize the cost of nuclear fuel based on the rate of
consumption. The Companies' electric rates include amounts for the future
disposal of spent nuclear fuel based upon the formula used to compute
payments to the DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on the
Consolidated Statements of Taxes. Deferred income taxes result from timing
differences in the recognition of revenues and expenses for tax and
accounting purposes. Investment tax credits, which were deferred when
utilized, are being amortized over the recovery period of the related
property. The liability method is used to account for deferred income taxes.
Deferred income tax liabilities related to tax and accounting basis
differences are recognized at the statutory income tax rates in effect when
the liabilities are expected to be paid. Since November 8, 1997, the
Companies are included in FirstEnergy's consolidated federal income tax
return. The consolidated tax liability is allocated on a "stand-alone"
company basis, with the Companies recognizing any tax losses or credits they
contributed to the consolidated return.
RETIREMENT BENEFITS-
FirstEnergy's trusteed, noncontributory defined benefit pension
plan covers almost all of the Companies' full-time employees. Upon
retirement, employees receive a monthly pension based on length of service
and compensation. In 1998, the Companies' pension plans and the Centerior
pension plan were merged into the FirstEnergy pension plan. The Companies use
the projected unit credit method for funding purposes and were not required
to make pension contributions during the three years ended December 31, 1999.
The assets of the FirstEnergy pension plan consist primarily of common
stocks, United States government bonds and corporate bonds.
The Companies provide a minimum amount of noncontributory life
insurance to retired employees in addition to optional contributory
insurance. Health care benefits, which include certain employee deductibles
and copayments, are also available to retired employees, their dependents
and, under certain circumstances, their survivors. The Companies pay
insurance premiums to cover a portion of these benefits in excess of set
limits; all amounts up to the limits are paid by the Companies. The Companies
recognize the expected cost of providing other postretirement benefits to
employees and their beneficiaries and covered dependents from the time
employees are hired until they become eligible to receive those benefits.
The following sets forth the funded status of the FirstEnergy plans
in 1999 and 1998 on the Consolidated Balance Sheets as of December 31 (which
includes the Companies' share of the FirstEnergy 1999 plans' net prepaid
pension cost and accrued other postretirement benefits cost of $194.8 million
and $145.7 million, respectively, and the Companies' share of the FirstEnergy
1998 plans' net prepaid pension cost and accrued other postretirement
benefits cost of $175.9 million and $132.8 million, respectively):
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
-------------------- -----------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation as of January 1 $1,500.1 $1,327.5 $ 601.3 $ 534.1
Service cost 28.3 25.0 9.3 7.5
Interest cost 102.0 92.5 40.7 37.6
Plan amendments -- 44.3 -- 40.1
Actuarial loss (gain) (155.6) 101.6 (17.6) 10.7
Net increase from asset swap 14.8 -- 12.5 --
Benefits paid (95.5) (90.8) (37.8) (28.7)
- -----------------------------------------------------------------------------------------------
Benefit obligation as of December 31 1,394.1 1,500.1 608.4 601.3
- -----------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of January 1 1,683.0 1,542.5 3.9 2.8
Actual return on plan assets 220.0 231.3 0.6 0.7
Company contribution -- -- 0.4 0.4
Benefits paid (95.5) (90.8) -- --
- -----------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31 1,807.5 1,683.0 4.9 3.9
- -----------------------------------------------------------------------------------------------
Funded status of plan 413.4 182.9 (603.5) (597.4)
Unrecognized actuarial loss (gain) (303.5) (110.8) 24.9 30.6
Unrecognized prior service cost 57.3 63.0 24.1 27.4
Unrecognized net transition obligation (asset) (10.1) (18.0) 120.1 129.3
- -----------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 157.1 $ 117.1 $(434.4) $(410.1)
===============================================================================================
Assumptions used as of December 31:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected long-term return on plan assets 10.25% 10.25% 10.25% 10.25%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
<FN>
Net pension and other postretirement benefit costs for the three years ended December 31, 1999
(FirstEnergy plans in 1999 and 1998 and the Companies' plans in 1997) were computed as follows:
</TABLE>
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
--------------------- ----------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 28.3 $ 25.0 $ 12.9 $ 9.3 $ 7.5 $ 4.1
Interest cost 102.0 92.5 49.8 40.7 37.6 17.6
Expected return on plan assets (168.1) (152.7) (91.9) (0.4) (0.3) (0.2)
Amortization of transition obligation (asset) (7.9) (8.0) (8.0) 9.2 9.2 8.2
Amortization of prior service cost 5.7 2.3 2.1 3.3 (0.8) 0.3
Recognized net actuarial loss (gain) -- (2.6) (0.9) -- -- --
Voluntary early retirement program expense -- -- 31.5 -- -- 1.9
- -------------------------------------------------------------------------------------------------------
Net benefit cost $ (40.0) $ (43.5) $ (4.5) $62.1 $53.2 $31.9
=======================================================================================================
Companies' share of total plan costs $ (16.9) $ (39.7) $ (4.5) $25.5 $31.2 $31.9
- -------------------------------------------------------------------------------------------------------
</TABLE>
The FirstEnergy plan's health care trend rate assumption is 5.3% in
2000, 5.2% in 2001 and 5.0% for 2002 and later years. Assumed health care
cost trend rates have a significant effect on the amounts reported for the
health care plan. An increase in the health care trend rate assumption by one
percentage point would increase the total service and interest cost
components by $4.5 million and the postretirement benefit obligation by $72.0
million. A decrease in the same assumption by one percentage point would
decrease the total service and interest cost components by $3.5 million and
the postretirement benefit obligation by $58.2 million.
TRANSACTIONS WITH AFFILIATED COMPANIES-
Operating revenues and operating expenses include amounts for
affiliated transactions with CEI and TE since the November 8, 1997 merger
date. The Companies' transactions with CEI and TE from the merger date were
primarily for electric sales. The amounts related to CEI and TE were $27.7
million and $18.1 million, respectively, for 1999, $17.8 million and $12.7
million, respectively, for 1998 and $4.3 million and $0.4 million,
respectively, for the November 8-December 31, 1997 period.
FirstEnergy provided support services at cost to the Companies and
other affiliated companies. FirstEnergy billed the Companies $118.2 million
and $114.2 million in 1999 and 1998, respectively.
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial maturity
of three months or less are reported as cash equivalents on the Consolidated
Balance Sheets. At December 31, 1999 and 1998, cash and cash equivalents
included $83 million and $16 million, respectively, to be used for the
redemption of long-term debt in the first quarter of 2000 and in 1999,
respectively. The Companies reflect temporary cash investments at cost, which
approximates their market value. Noncash financing and investing activities
included capital lease transactions amounting to $1.4 million, $1.6 million
and $3.0 million for the years 1999, 1998 and 1997, respectively. Commercial
paper transactions of OES Fuel, Incorporated (OES Fuel) (a wholly owned
subsidiary of the Company) that have initial maturity periods of three months
or less are reported net within financing activities under long-term debt and
are reflected as long-term debt on the Consolidated Balance Sheets (see Note
3G).
All borrowings with initial maturities of less than one year are
defined as financial instruments under generally accepted accounting
principles and are reported on the Consolidated Balance Sheets at cost, which
approximates their fair market value. The following sets forth the
approximate fair value and related carrying amounts of all other long-term
debt, preferred stock subject to mandatory redemption and investments other
than cash and cash equivalents as of December 31:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $2,483 $2,459 $2,627 $2,775
Preferred stock $ 145 $ 142 $ 150 $ 155
Investments other than cash
and cash equivalents:
Debt securities
-Maturity (5-10 years) $ 475 $ 476 $ 481 $ 520
-Maturity (more than 10 years) 258 267 258 305
Equity securities 14 14 14 14
All other 301 311 170 179
- --------------------------------------------------------------------
$1,048 $1,068 $ 923 $1,018
====================================================================
</TABLE>
The fair values of long-term debt and preferred stock reflect the
present value of the cash outflows relating to those securities based on the
current call price, the yield to maturity or the yield to call, as deemed
appropriate at the end of each respective year. The yields assumed were based
on securities with similar characteristics offered by a corporation with
credit ratings similar to the Companies' ratings.
The fair value of investments other than cash and cash equivalents
represent cost (which approximates fair value) or the present value of the
cash inflows based on the yield to maturity. The yields assumed were based on
financial instruments with similar characteristics and terms. Investments
other than cash and cash equivalents include decommissioning trust
investments. Unrealized gains and losses applicable to the decommissioning
trusts have been recognized in the trust investment with a corresponding
change to the decommissioning liability. The other debt and equity securities
referred to above are in the held-to-maturity category. The Companies have no
securities held for trading purposes.
REGULATORY ASSETS-
The Companies recognize, as regulatory assets, costs which the
FERC, PUCO and PPUC have authorized for recovery from customers in future
periods. Without such authorization, the costs would have been charged to
income as incurred. All regulatory assets are being recovered from customers
under the Companies' respective regulatory plans. Based on those regulatory
plans, at this time, the Companies are continuing to bill and collect cost-
based rates relating to all of the Company's operations and Penn's
nongeneration operations and they continue the application of SFAS 71 to
those respective operations. The Companies also recognized additional cost
recovery of $257 million, $50 million and $39 million in 1999, 1998 and 1997,
respectively, as additional regulatory asset amortization in accordance with
their regulatory plans.
The PUCO indicated that it will endeavor to issue its order related
to FirstEnergy's transition plan by mid-2000. The application of SFAS 71 to
the Company's generation business will be discontinued at that time. If the
transition plan ultimately approved by the PUCO for the Company does not
provide adequate recovery of its nuclear generating unit investments and
regulatory assets, there would be a charge to earnings which could have a
material adverse effect on the results of operations and financial condition
for the Company. The Companies will continue to bill and collect cost-based
rates for their transmission and distribution services, which will remain
regulated; accordingly, it is appropriate that the Companies continue the
application of SFAS 71 to those respective operations after December 31,
2000.
Regulatory assets on the Consolidated Balance Sheets are comprised
of the following:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------
(In millions)
<S> <C> <C>
Nuclear unit expenses $ 643.0 $ 666.7
Customer receivables for future income taxes 455.3 458.3
Competitive transition charge 280.4 331.0
Sale and leaseback costs 120.5 318.4
Loss on reacquired debt 79.7 81.9
Employee postretirement benefit costs 24.8 28.9
DOE decommissioning and decontamination costs 10.7 12.2
Other 3.9 16.4
- -----------------------------------------------------------------------
Total $1,618.3 $1,913.8
=======================================================================
</TABLE>
2. LEASES
The Companies lease certain generating facilities, certain
transmission facilities, office space and other property and equipment under
cancelable and noncancelable leases.
The Company sold portions of its ownership interest in Perry Unit 1
and Beaver Valley Unit 2 and entered into operating leases on the portions
sold for basic lease terms of approximately 29 years. During the terms of the
leases, the Company continues to be responsible, to the extent of its
individual combined ownership and leasehold interests, for costs associated
with the units including construction expenditures, operation and maintenance
expenses, insurance, nuclear fuel, property taxes and decommissioning. The
Company has the right, at the end of the respective basic lease terms, to
renew the leases for up to two years. The Company also has the right to
purchase the facilities at the expiration of the basic lease term or renewal
term (if elected) at a price equal to the fair market value of the
facilities. The basic rental payments are adjusted when applicable federal
tax law changes.
OES Finance, Incorporated (OES Finance), a wholly owned subsidiary
of the Company, maintains deposits pledged as collateral to secure
reimbursement obligations relating to certain letters of credit supporting
the Company's obligations to lessors under the Beaver Valley Unit 2 sale and
leaseback arrangements. The deposits pledged to the financial institution
providing those letters of credit are the sole property of OES Finance. In
the event of liquidation, OES Finance, as a separate corporate entity, would
have to satisfy its obligations to creditors before any of its assets could
be made available to the Company as sole owner of OES Finance common stock.
Consistent with the regulatory treatment, the rentals for capital
and operating leases are charged to operating expenses on the Consolidated
Statements of Income. Such costs for the three years ended December 31, 1999,
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Operating leases
Interest element $108.5 $110.0 $111.3
Other 34.4 28.9 23.2
Capital leases
Interest element 5.3 5.3 6.1
Other 4.4 4.8 6.0
- --------------------------------------------------------
Total rentals $152.6 $149.0 $146.6
========================================================
<FN>
The future minimum lease payments as of December 31, 1999, are:
</TABLE>
<TABLE>
<CAPTION>
Operating Leases
-----------------------------
Capital Lease PNBV Capital
Leases Payments Trust Net
- --------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
2000 $ 10.4 $ 125.1 $ 54.6 $ 70.5
2001 9.7 127.7 59.5 68.2
2002 8.8 125.2 61.0 64.2
2003 8.6 137.4 62.6 74.8
2004 8.4 138.3 58.3 80.0
Years thereafter 62.6 1,704.9 530.9 1,174.0
- --------------------------------------------------------------------
Total minimum lease payments 108.5 $2,358.6 $826.9 $1,531.7
Executory costs 26.9 ======== ====== ========
- -------------------------------------
Net minimum lease payments 81.6
Interest portion 47.7
- -------------------------------------
Present value of net minimum
lease payments 33.9
Less current portion 3.3
- -------------------------------------
Noncurrent portion $ 30.6
=====================================
</TABLE>
The Company invested in the PNBV Capital Trust, which was
established to purchase a portion of the lease obligation bonds issued on
behalf of lessors in the Company's Perry Unit 1 and Beaver Valley Unit 2 sale
and leaseback transactions. The PNBV capital trust arrangement effectively
reduces lease costs related to those transactions.
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
Under the Company's first mortgage indenture, the Company's
consolidated retained earnings unrestricted for payment of cash dividends on
the Company's common stock were $460.9 million at December 31, 1999.
(B) EMPLOYEE STOCK OWNERSHIP PLAN-
The Companies were funding the matching contribution for their
401(k) savings plan through an ESOP Trust. All full-time employees eligible
for participation in the 401(k) savings plan are covered by the ESOP. The
ESOP borrowed $200 million from the Company and acquired 10,654,114 shares of
the Company's common stock through market purchases; the shares were
converted into FirstEnergy's common stock in connection with the OE-Centerior
merger. The ESOP loan is included in Other Property and Investments on the
Consolidated Balance Sheets as of December 31, 1999 and 1998 as an investment
with FirstEnergy related to the FirstEnergy savings plan. Dividends on ESOP
shares are used to service the debt. Shares are released from the ESOP on a
pro rata basis as debt service payments are made. In 1997, 429,515 shares
were allocated to the Companies' employees with the corresponding expense
recognized based on the shares allocated method. Total ESOP-related
compensation expense reflected on the 1997 Consolidated Statement of Income
was calculated as follows:
<TABLE>
<CAPTION>
- -----------------------------------------
1997
- -----------------------------------------
(In millions)
<S> <C>
Base compensation $ 9.9
Dividends on common stock
held by the ESOP and used to
service debt (3.4)
- -----------------------------------------
Net expense $ 6.5
=========================================
</TABLE>
(C) COMPREHENSIVE INCOME-
In 1998, the Companies adopted SFAS 130, "Reporting Comprehensive
Income," and applied the standard to all periods presented in the
Consolidated Statements of Common Stockholder's Equity. Comprehensive income
includes net income as reported on the Consolidated Statements of Income and
all other changes in common stockholder's equity except dividends to
stockholders.
(D) PREFERRED AND PREFERENCE STOCK-
Penn's 7.75% series of preferred stock has a restriction which
prevents early redemption prior to July 2003. The Company's 8.45% series of
preferred stock has no optional redemption provision. All other preferred
stock may be redeemed by the Companies in whole, or in part, with 30-60 days'
notice.
The Company has 8 million authorized and unissued shares of
preference stock having no par value.
(E) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
The Company's 8.45% series of preferred stock has an annual sinking
fund requirement for 50,000 shares. Penn's 7.625% series has an annual
sinking fund requirement for 7,500 shares beginning on October 1, 2002.
The Companies' preferred shares are retired at $100 per share plus
accrued dividends. Annual sinking fund requirements are $5 million in each
year 2000-2001 and $1 million in each year 2002-2004.
(F) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY
SUBORDINATED DEBENTURES-
Ohio Edison Financing Trust, a wholly owned subsidiary of the
Company, has issued $120 million of 9% Cumulative Trust Preferred Capital
Securities. The Company purchased all of the Trust's Common Securities and
simultaneously issued to the Trust $123.7 million principal amount of 9%
Junior Subordinated Debentures due 2025 in exchange for the proceeds that the
Trust received from its sale of Preferred and Common Securities. The sole
assets of the Trust are the Subordinated Debentures whose interest and other
payment dates coincide with the distribution and other payment dates on the
Trust Securities. Under certain circumstances the Subordinated Debentures
could be distributed to the holders of the outstanding Trust Securities in
the event the Trust is liquidated. The Subordinated Debentures may be
optionally redeemed by the Company beginning December 31, 2000, at a
redemption price of $25 per Subordinated Debenture plus accrued interest, in
which event the Trust Securities will be redeemed on a pro rata basis at $25
per share plus accumulated distributions. The Company's obligations under the
Subordinated Debentures along with the related Indenture, amended and
restated Trust Agreement, Guarantee Agreement and the Agreement for expenses
and liabilities, constitute a full and unconditional guarantee by the Company
of payments due on the Preferred Securities.
(G) LONG-TERM DEBT-
The first mortgage indentures and their supplements, which secure
all of the Companies' first mortgage bonds, serve as direct first mortgage
liens on substantially all property and franchises, other than specifically
excepted property, owned by the Companies.
Based on the amount of bonds authenticated by the Trustees through
December 31, 1999, the Companies' annual sinking and improvement fund
requirements for all bonds issued under the mortgage amounts to $31 million.
The Companies expect to deposit funds in 2000 that will be withdrawn upon the
surrender for cancellation of a like principal amount of bonds, which are
specifically authenticated for such purposes against unfunded property
additions or against previously retired bonds. This method can result in
minor increases in the amount of the annual sinking fund requirement.
Sinking fund requirements for first mortgage bonds and maturing
long-term debt (excluding capital leases) for the next five years are:
<TABLE>
<CAPTION>
(In millions)
- --------------------
<S> <C>
2000 $414.5
2001 281.4
2002 516.8
2003 246.3
2004 255.6
- --------------------
</TABLE>
The Companies' obligations to repay certain pollution control
revenue bonds are secured by several series of first mortgage bonds and, in
some cases, by subordinate liens on the related pollution control facilities.
Certain pollution control revenue bonds are entitled to the benefit of
irrevocable bank letters of credit of $349.3 million. To the extent that
drawings are made under those letters of credit to pay principal of, or
interest on, the pollution control revenue bonds, the Companies are entitled
to a credit against their obligation to repay those bonds. The Companies pay
annual fees of 0.43% to 0.75% of the amounts of the letters of credit to the
issuing banks and are obligated to reimburse the banks for any drawings
thereunder.
The Company had unsecured borrowings of $190 million at December
31, 1999, supported by a $250 million long-term revolving credit facility
agreement which expires November 18, 2002. The Company must pay an annual
facility fee of 0.20% on the total credit facility amount. In addition, the
credit agreement provides that the Company maintain unused first mortgage
bond capability for the full credit agreement amount under the Company's
indenture as potential security for the unsecured borrowings.
Nuclear fuel purchases are financed through the issuance of OES
Fuel commercial paper and loans, both of which are supported by a $180.5
million long-term bank credit agreement which expires March 31, 2001.
Accordingly, the commercial paper and loans are reflected as long-term debt
on the Consolidated Balance Sheets. OES Fuel must pay an annual facility fee
of 0.20% on the total line of credit and an annual commitment fee of 0.0625%
on any unused amount.
4. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT:
Short-term borrowings outstanding at December 31, 1999, consisted
of $162.7 million of bank borrowings and $160.0 million of OES Capital,
Incorporated (OES Capital) commercial paper. OES Capital is a wholly owned
subsidiary of the Company whose borrowings are secured by customer accounts
receivable. OES Capital can borrow up to $170 million under a receivables
financing agreement at rates based on certain bank commercial paper and is
required to pay an annual fee of 0.20% on the amount of the entire finance
limit. The receivables financing agreement expires in 2002. At December 31,
1999, the Company also had total short-term borrowings of $35.6 million from
its affiliates.
The Company has lines of credit with domestic banks that provide
for borrowings of up to $55 million under various interest rate options.
Short-term borrowings may be made under these lines of credit on its
unsecured notes. To assure the availability of these lines, the Company is
required to pay annual commitment fees of 0.125% to 0.20%. These lines expire
at various times during 2000. The weighted average interest rates on short-
term borrowings outstanding at December 31, 1999 and 1998, were 6.27% and
5.61%, respectively.
5. COMMITMENTS AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Companies' current forecasts reflect expenditures of
approximately $1 billion for property additions and improvements from 2000-
2004, of which approximately $251 million is applicable to 2000. Investments
for additional nuclear fuel during the 2000-2004 period are estimated to be
approximately $218 million, of which approximately $65 million applies to
2000. During the same periods, the Companies' nuclear fuel investments are
expected to be reduced by approximately $215 million and $46 million,
respectively, as the nuclear fuel is consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative to a
single incident at a nuclear power plant to $9.5 billion. The amount is
covered by a combination of private insurance and an industry retrospective
rating plan. Based on their present ownership and leasehold interests in the
Beaver Valley Station and the Perry Plant, the Companies' maximum potential
assessment under the industry retrospective rating plan (assuming the other
affiliate co-owners contribute their proportionate shares of any assessments
under the retrospective rating plan) would be $168.2 million per incident but
not more than $19.1 million in any one year for each incident.
The Companies are also insured as to their respective interests in
Beaver Valley and Perry under policies issued to the operating company for
each plant. Under these policies, up to $2.75 billion is provided for
property damage and decontamination and decommissioning costs. The Companies
have also obtained approximately $706.3 million of insurance coverage for
replacement power costs for their respective interests in Beaver Valley and
Perry. Under these policies, the Companies can be assessed a maximum of
approximately $22 million for incidents at any covered nuclear facility
occurring during a policy year which are in excess of accumulated funds
available to the insurer for paying losses.
The Companies intend to maintain insurance against nuclear risks as
described above as long as it is available. To the extent that replacement
power, property damage, decontamination, decommissioning, repair and
replacement costs and other such costs arising from a nuclear incident at any
of the Companies' plants exceed the policy limits of the insurance in effect
with respect to that plant, to the extent a nuclear incident is determined
not to be covered by the Companies' insurance policies, or to the extent such
insurance becomes unavailable in the future, the Companies would remain at
risk for such costs.
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 $175 million, which is included in the
construction forecast provided under "Capital Expenditures" for 2000 through
2004.
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. In May 1999, the U.S. Court of
Appeals for the D.C. Circuit issued a stay which delays implementation of
EPA's NOx Transport Rule until the Court has ruled on the merits of various
appeals. Under the NOx Transport Rule, 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 contemplating an
approximate 85% reduction in utility plant NOx emissions from projected 2007
emissions. A proposed Federal Implementation Plan accompanied the NOx
Transport Rule and may be implemented by the EPA in states which fail to
revise their SIP. In another separate but related action, eight states filed
petitions with the EPA under Section 126 of the Clean Air Act seeking
reductions of NOx emissions which are alleged to contribute to ozone
pollution in the eight petitioning states. The EPA suggests that the Section
126 petitions will be adequately addressed by the NOx Transport Program, but
a December 17, 1999 rulemaking established an alternative program which would
require nearly identical 85% NOx reductions at 392 utility plants, including
the Companies' Ohio and Pennsylvania plants, by May 2003 in the event
implementation of the NOx Transport Rule is delayed. New Section 126
petitions were filed by New Jersey, Maryland, Delaware and the District of
Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy
continues to evaluate its compliance plans and other compliance options.
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 $27,500
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. In May 1999, the U.S.
Court of Appeals for the D.C. Circuit remanded both standards back to the EPA
finding constitutional and other defects in the new NAAQS rules. The D.C.
Circuit Court, on October 29, 1999, denied an EPA petition for rehearing. The
Companies cannot predict the EPA's action in response to the Court's remand
order. The cost of compliance with these regulations, if they are reinstated,
may be substantial and depends on the manner in which they are ultimately
implemented, if at all, by the states in which the Companies operate affected
facilities.
In September 1999, FirstEnergy received, and subsequently in
October 1999, the Companies received a citizen suit notification letter from
the New York Attorney General's office alleging Clean Air Act violations at
the W. H. Sammis Plant. In November 1999, the Companies received a citizen
suit notification letter from the Connecticut Attorney General's office
alleging Clean Air Act violations at the Sammis Plant. On November 3, 1999,
the EPA issued Notices of Violation (NOV) or a Compliance Order to eight
utilities covering 32 power plants, including the Sammis Plant. In addition,
the U.S. Department of Justice filed seven civil complaints against various
investor-owned utilities, which included a complaint against the Companies in
the U.S. District Court for the Southern District of Ohio. The NOV and
complaint allege violations of the Clean Air Act based on operation and
maintenance of the Sammis Plant dating back to 1984. The complaint requests
permanent injunctive relief to require the installation of "best available
control technology" and civil penalties of up to $27,500 per day of
violation. The Companies believe the Sammis Plant is in full compliance with
the Clean Air Act and the NOV and complaint are without merit. However, the
Companies are unable to predict the outcome of this litigation. Penalties
could be imposed if the Sammis Plant continues to operate without correcting
the alleged violations and a court determines that the allegations are valid.
It is anticipated at this time that the Sammis Plant will continue to operate
while the matter is being decided.
6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain consolidated operating results by
quarter for 1999 and 1998.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1999 1999 1999 1999
- -----------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $633.1 $646.7 $770.5 $636.6
Operating Expenses and Taxes 498.1 532.7 650.2 532.8
- ---------------------------------------------------------------------------------------
Operating Income 135.0 114.0 120.3 103.8
Other Income 9.3 13.1 10.2 13.2
Net Interest Charges 56.5 58.4 53.9 52.5
- ---------------------------------------------------------------------------------------
Net Income $ 87.8 $ 68.7 $ 76.6 $ 64.5
=======================================================================================
Earnings on Common Stock $ 84.9 $ 65.8 $ 73.7 $ 61.7
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- -----------------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $597.8 $618.5 $696.2 $607.0
Operating Expenses and Taxes 486.7 524.9 555.5 465.5
- ---------------------------------------------------------------------------------------
Operating Income 111.1 93.6 140.7 141.5
Other Income 12.5 11.8 12.6 10.7
Net Interest Charges 59.3 59.1 58.6 56.2
- ---------------------------------------------------------------------------------------
Income Before Extraordinary Item 64.3 46.3 94.7 96.0
Extraordinary Item (Net of Income
Taxes) (Note 1) -- (30.5) -- --
- ---------------------------------------------------------------------------------------
Net Income $ 64.3 $ 15.8 $ 94.7 $ 96.0
=======================================================================================
Earnings on Common Stock $ 61.3 $ 12.8 $ 91.7 $ 93.0
=======================================================================================
</TABLE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Ohio Edison Company:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Ohio Edison Company (an Ohio corporation and
wholly owned subsidiary of FirstEnergy Corp.) and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of income, common
stockholder's equity, preferred stock, cash flows and taxes for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ohio Edison Company and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
EXHIBIT 21.1
OHIO EDISON COMPANY
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1999
Pennsylvania Power Company - Incorporated in Pennsylvania
OES Fuel, Incorporated - Incorporated in Ohio
OES Ventures, Incorporated - Incorporated in Ohio
OES Capital, Incorporated - Incorporated in Ohio
OES Finance, Incorporated - Incorporated in Ohio
OES Nuclear, Incorporated - Incorporated in Ohio
Ohio Edison Financing Trust - Incorporated in Delaware
Ohio Edison Financing Trust II - Incorporated in Delaware
Statement of Differences
------------------------
Exhibit Number 21, List of Subsidiaries of the Registrant at
December 31, 1999, is not included in the printed document.
EXHIBIT 23.1
OHIO EDISON COMPANY
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this
Form 10-K, into Ohio Edison Company's previously filed Registration
Statements, File No. 33-49135, No. 33-49259, No. 33-49413, No. 33-51139,
No. 333-01489 and No. 333-05277.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-K financial statements for Ohio Edison Company and is
qualified in its entirety by reference to such financial statements.
(Amounts in 1,000's.) Income tax expense includes $20,963,000 related
to other income.
</LEGEND>
<CIK> 0000073960
<NAME> OHIO EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,620,732
<OTHER-PROPERTY-AND-INVEST> 1,409,662
<TOTAL-CURRENT-ASSETS> 821,672
<TOTAL-DEFERRED-CHARGES> 1,848,680
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,700,746
<COMMON> 1
<CAPITAL-SURPLUS-PAID-IN> 2,098,728
<RETAINED-EARNINGS> 525,731
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,624,460
140,000
200,070
<LONG-TERM-DEBT-NET> 2,175,812
<SHORT-TERM-NOTES> 198,322
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 159,974
<LONG-TERM-DEBT-CURRENT-PORT> 414,544
5,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 3,294
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,779,270
<TOT-CAPITALIZATION-AND-LIAB> 8,700,746
<GROSS-OPERATING-REVENUE> 2,686,949
<INCOME-TAX-EXPENSE> 191,835
<OTHER-OPERATING-EXPENSES> 2,043,035
<TOTAL-OPERATING-EXPENSES> 2,213,907
<OPERATING-INCOME-LOSS> 473,042
<OTHER-INCOME-NET> 45,846
<INCOME-BEFORE-INTEREST-EXPEN> 518,888
<TOTAL-INTEREST-EXPENSE> 221,199
<NET-INCOME> 297,689
11,547
<EARNINGS-AVAILABLE-FOR-COMM> 286,142
<COMMON-STOCK-DIVIDENDS> 347,003
<TOTAL-INTEREST-ON-BONDS> 184,707
<CASH-FLOW-OPERATIONS> 791,901
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY
TO
THE CHASE MANHATTAN BANK,
as Trustee
Eighty-first Supplemental Indenture
Dated as of September 29, 1999
Eighty-first Supplemental Indenture, dated as of September 29,
1999, made by and between THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a
corporation organized and existing under the laws of the State of Ohio (the
"Company"), and THE CHASE MANHATTAN BANK (successor by merger to The Chase
Manhattan Bank (National Association), which in turn was successor to Morgan
Guaranty Trust Company of New York, formerly Guaranty Trust Company of New
York), a corporation organized and existing under the laws of the State of
New York (the "Trustee"), as Trustee under the Mortgage and Deed of Trust
dated July 1, 1940, hereinafter mentioned:
RECITALS
In order to secure first mortgage bonds of the Company ("Bonds"),
the Company has heretofore executed and delivered to the Trustee the Mortgage
and Deed of Trust dated July 1, 1940 (the "1940 Mortgage") and eighty
supplemental indentures thereto ("Supplemental Indentures"); and
The 1940 Mortgage, as supplemented and modified by said
Supplemental Indentures and by this Eighty-first Supplemental Indenture, will
be hereinafter collectively referred to as the "Indenture" and this Eighty-
first Supplemental Indenture will be hereinafter referred to as "this
Supplemental Indenture"; and
In the Nineteenth Supplemental Indenture, dated November 23, 1976
(the "Nineteenth Supplemental Indenture"), the Company reserved the right,
without any vote, consent or other action by holders of Bonds of any series
established or created in the Nineteenth Supplemental Indenture or any
subsequent supplemental indenture, to amend and modify, in the manner
specified therein, certain provisions of the Indenture (the "Affected
Provisions"), and the Company has determined to exercise that right as to
certain of the Affected Provisions without prejudice to its right to amend
and modify the balance of the Affected Provisions at a later date; and
The Company, in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Indenture, and pursuant
to appropriate resolutions of its Board of Directors, has duly resolved and
determined to make, execute and deliver to the Trustee this Supplemental
Indenture in the form hereof for the purposes herein provided; and
All conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled and the execution and delivery hereof have been in all respects
duly authorized.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
ARTICLE I
CONFIRMATION OF 1940
MORTGAGE AND SUPPLEMENTAL INDENTURES
------------------------------------
The 1940 Mortgage (as modified in Article V of the Supplemental
Indenture dated December 1, 1947, Article V of the Supplemental Indenture
dated May 1, 1954, Article V of the Supplemental Indenture dated March 1,
1958, Article V of the Supplemental Indenture dated January 15, 1969, Article
III of the Supplemental Indenture dated November 23, 1976 and Article III of
the Supplemental Indenture dated April 15, 1985) and the Supplemental
Indentures dated July 1, 1940, August 18, 1944, December 1, 1947, September
1, 1950, June 1, 1951, May 1, 1954, March 1, 1958, April 1, 1959, December
20, 1967, January 15, 1969, November 1, 1969, June 1, 1970, November 15,
1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28, 1975, February 1,
1976, November 23, 1976, July 26, 1977, September 27, 1977, May 1, 1978,
September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980, June 9, 1980,
December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982, July 15,
1982, September 1, 1982, November 1, 1982, November 15, 1982, May 24, 1983,
May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14,
1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985,
September 1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15,
1986, February 25, 1987, October 15, 1987, February 24, 1988, September 15,
1988, May 15, 1989, June 13, 1989, October 15, 1989, January 1, 1990, June 1,
1990, August 1, 1990, May 1, 1991, May 1, 1992, July 31, 1992, January 1,
1993, February 1, 1993, May 20, 1993, June 1, 1993, September 15, 1994, May
1, 1995, May 2, 1995, June 1, 1995, July 15, 1995, August 1, 1995, June 15,
1997, August 1, 1997, October 15, 1997, June 1, 1998, October 1, 1998,
October 1, 1998, and April 1, 1999, respectively, are hereby in all respects
confirmed.
ARTICLE II
AMENDMENT AND MODIFICATION OF INDENTURE
---------------------------------------
Section 2.01 Pursuant to the right conferred upon and reserved to it
under Section 2 of Article III of Nineteenth Supplemental Indenture, the
Company, without any vote, consent or other action by holders of Bonds of any
series established or created in the Nineteenth Supplemental Indenture or any
subsequent supplemental indenture (all Bonds created in any supplemental
indenture prior to the Nineteenth Supplemental Indenture being no longer
outstanding), hereby adds a definition of "Nuclear Fuel" in, and amends and
modifies the definition of "Property Additions" in, Article I of the
Indenture, as follows:
"Nuclear Fuel:
The term `Nuclear Fuel' shall mean (a) any substance, material
or fuel element, including nuclear fuel and associated means (and
any similar or analogous substance or device), whether or not
classified as fuel and whether or not chargeable to operating
expenses, comprising or intended to comprise, or formerly
comprising, the core, or other part, of a nuclear reactor or any
similar or analogous device, (b) any substance, material or fuel
element, including nuclear fuel and associated means (and any
similar or analogous substance or device) while in the process of
fabrication or preparation and special nuclear or other materials
held for use in such fabrication or preparation, (c) any substance,
material or fuel element formerly comprising such nuclear fuel and
associated means (or any similar or analogous substance or device)
and which are undergoing or have undergone, reprocessing and (b)
uranium, thorium, plutonium and any other substance or material
from time to time used or selected for use by the Company as fuel
material, or as potential fuel material, in a nuclear reactor or
any similar or analogous device."
"Property Additions:
The term `property additions' shall mean any new or additional
property, real or personal (including separate and distinct units,
plants, systems and properties), located within, or subject to the
laws of, the United States of America or Canada, and improvements,
extensions or additions (including in these terms equipment and
appliances installed as a part of the fixed property of the
Company) to or about the plants or properties of the Company
purchased, constructed or otherwise acquired by the Company after
June 30, 1940, and in every case used or useful in the business of
generating, manufacturing, developing, producing, creating,
transmitting, transporting, distributing or supplying any kind or
form of matter, electricity, energy, radiation, light,
refrigeration, heat, water, steam, gas or fuel, including, without
limitation of the general import of the foregoing, electricity or
gas for light, heat, refrigeration, power, or any other purposes or
water for drinking, power, heat, refrigeration or any other
purposes or steam for heat, power, refrigeration or any other
purposes, and in every case properly chargeable to fixed property
accounts under the regulations, rules and orders, if any, with
respect to such matters, in force at the time, of The Public
Utilities Commission of Ohio or other public body or authority
having jurisdiction or supervisory authority over the accounts of
the Company, or, if there are no such regulations, rules and
orders, in the opinion of the signers of a certificate of the
nature required by Section 5(a) of Article III or Section 1(b) of
Article VIII."
" `Property additions' as so defined, without limitation of the
general import of such term, shall include property and interests
and rights therein in any one or more of the following categories:
(a) subject to Article XII, property acquired by the Company
or by a successor corporation as a result of any consolidation or
merger to which the Company or any successor corporation may be a
party;
(b) permanent improvements, extensions or additions to or
about the properties of the Company in the process of construction
or partially completed, insofar as actually constructed or
completed;
(c) property purchased, constructed or otherwise acquired to
replace property retired;
(d) easements, rights-of-way and leases over any privately or
publicly owned real, personal or mixed property or highway property
for towers, poles, wires, cables, conduits or mains or for
generating plant or transmission line or distribution line purposes
and rights, permits, licenses, franchises or any other forms of
permission to use or appropriate water or to overflow any such
property by the erection of dams or otherwise or to maintain
generating, transmission or distribution facilities or appliances
or dams or other similar structures on any such property and
generating, transmission and distribution facilities and appliances
and dams and other similar structures maintained by the Company on
any such property, provided that, in the opinion of counsel, such
easements, rights-of-way or leases, or rights, permits, licenses,
franchises or other forms of permission, as the case may be, shall
run for an unlimited or indeterminate or indefinite period of time
or for a period of time extending beyond the date of maturity of
all Bonds then outstanding under this Indenture and all additional
Bonds applied for at the particular time in question or the Company
has power under eminent domain or similar statutes to condemn and
acquire, adjacent thereto or in lieu thereof, such easements,
rights-of-way or leases, rights, permits, licenses, franchises or
other forms of permission sufficient for its purposes;
(e) any structures and any other property, including, but not
limited to, towers, poles, wires, cables, conduits, mains, dams and
other similar structures and generating, transmission and
distribution facilities and appliances located on, over, under or
in any privately or publicly owned real, personal or mixed property
or highway property pursuant to any easement, right-of-way or
or right, permit, license, franchise or any other form of
permission, whether or not such easement, right-of-way or lease or
right, permit, license, franchise or other form of permission runs
for an unlimited or indeterminate or indefinite period of time
extending beyond the date of maturity of all Bonds then outstanding
under this Indenture or then being applied for, provided that in
the opinion of counsel, the Company has the right to remove any
such property additions which are so located on any such property
prior to or upon the termination of such easement, right-of-way or
lease or right, permit, license, franchise or other form of
permission without compensation or other remuneration to anyone and
free of any lien prior or equal to the lien of the Indenture,
except permitted liens;
(f) generating, transmission or distribution facilities or
appliances or dams or other similar structures located or
constructed on, over, under or in public highways or other public
property, provided that the Company shall, in the opinion of
counsel, have the lawful right under rights, permits, licenses,
franchises or other forms of permission granted by a governmental
body having jurisdiction in the premises or by the law of the State
in which such property is located to maintain and operate such
property additions for an unlimited, indeterminate or indefinite
period of time or for the period, if any, specified in such right,
permit, license, franchise or other form of permission or law and
that the terms of such right, permit, license, franchise or other
form of permission or law do not contain any provisions giving to
any public authority the right to take over such property additions
without the payment of fair consideration therefor;
(g) provided that the Company shall have acquired good title
to the artificially filled land extending beyond the natural shore
line of Lake Erie in front of the land owned by the Company
described in this Indenture as Parcels Nos. 1 to 18, inclusive, of
the kind described in Subdivision (e) (1) of Section 5 of Article
III or shall have acquired the right to occupy said land as
described in Subdivision (e) (4) of said Section 5, permanent
improvements, extensions or additions to or about the plant and
property of the Company located on the site of said artificially
filled land (but only those constructed or installed after June 30,
1940), provided, however, that until the Company shall have
delivered to the Trustee an opinion of counsel of the nature
required by Subdivision (e) (1) of Section 5 of Article III with
respect to good title to such artificially filled land, the
aggregate amount with respect to any such improvements, extensions
or additions which shall be deemed to be property additions and
which may be made the basis of authentication and delivery of any
additional Bonds or the withdrawal or reduction of cash under any
of the provisions of this Indenture shall not exceed Fourteen
Million Two Hundred Fifty Thousand Dollars ($14,250,000). The
foregoing provisions shall not, however, limit the use of any such
improvements, extensions or additions for the purpose of
Subdivision (g) of the definition of net bondable value of property
additions not subject to an unfunded prior lien; and
(h) space satellites, space stations and other analogous
facilities whether or not in the Earth's atmosphere and whether or
not subject to the laws of the United States of America."
" `Property additions' as so defined shall not include:
(aa) good will or going concern value as such, separate and
distinct from the property operated thereunder or in connection
therewith or incident thereto;
(bb) any contracts or operating agreements or franchises or
governmental permits, granted or acquired, as such, separate and
distinct from the property operated thereunder or in connection
therewith or incident thereto;
(cc) any shares of stock or certificates or evidences of
interest therein, or any bonds, notes or other evidences of
indebtedness or certificates of interest therein or any other
securities;
(dd) any materials, merchandise, appliances or supplies
acquired for the purpose of resale or leasing to its customers in
the ordinary course and conduct of the business of the Company, or
any materials or supplies held for consumption in operation or held
in advance of use thereof for fixed capital purposes;
(ee) easements, rights-of-way and leases and rights, permits,
licenses, franchises and other forms of permission with respect to
publicly or privately owned real, personal or mixed property or
highway property and additions installed by the Company on any such
property pursuant thereto, except as permitted in Subdivisions (d),
(e) and (f) of this definition; or
(ff) any natural gas wells or natural gas leases or natural
gas transportation lines (other than natural gas transportation
lines for the purpose of supplying fuel to the Company's plants) or
other works or property used primarily and principally in the
production of natural gas or its transportation up to the point of
connection with any distribution system."
Section 2.02 Pursuant to the right conferred upon and reserved to it
under Section 3 of Article III of Nineteenth Supplemental Indenture, the
Company, without any vote, consent or other action by holders of Bonds of any
series established or created in the Nineteenth Supplemental Indenture or any
subsequent supplemental indenture (all Bonds created in any supplemental
indenture prior to the Nineteenth Supplemental Indenture being no longer
outstanding), hereby amends and modifies clauses (2) and (3) of Subdivision
(e) of Section 5 of Article III of the Indenture to read as follows:
"(2) If such property additions (i) include any easements,
rights-of-way or leases over any privately or publicly owned real,
personal or mixed property or highway property for towers, poles, wires,
cables, conduits or mains or for generating plant or transmission line
or distribution line purposes or rights, permits, licenses, franchises
or any other forms of permission to use or appropriate water or to
overflow any such property by the erection of dams or otherwise or to
maintain generating, transmission or distribution facilities or
appliances or dams or other similar structures on any such property or
generating, transmission or distribution facilities or appliances or
dams or other similar structures maintained by the Company on any such
property, the Company is entitled to such easements, rights-of-way or
leases or such rights, permits, licenses, franchises or other forms of
permission, as the case may be, for an unlimited or indeterminate or
indefinite period of time or for a period extending beyond the date of
maturity of the additional Bonds applied for and also beyond the date of
maturity of all Bonds then outstanding under this Indenture or the
Company has power under eminent domain or similar statutes to condemn
and acquire, adjacent thereto or in lieu thereof, such easements,
rights-of-way or leases or rights, permits, licenses, franchises or
other forms of permission sufficient for its purposes, or (ii) include
any structures or any other property, including, but not limited to,
towers, poles, wires, cables, conduits, mains, dams or other similar
structures or generating, transmission or distribution facilities or
appliances located on, over, under or in any privately or publicly owned
real, personal or mixed property or highway property pursuant to any
easement, right-of-way or lease or right, permit, license, franchise or
any other form of permission whether or not such easement, right-of-way
or lease or right, permit, license, franchise or other form of
permission, runs for an unlimited or indeterminate or indefinite period
of time extending beyond the date of maturity of all Bonds then
outstanding under this Indenture or then being applied for, the Company
has the right to remove any such property additions which are so located
on any such property prior to or upon the termination of such easement,
right-of-way or lease or right, permit, license, franchise or any other
form of permission without compensation or other remuneration to anyone
and free of any lien prior or equal to the lien of the Indenture, except
permitted liens;
(3) If such property additions include any generating,
transmission or distribution facilities or appliances or dams or other
similar structures located or constructed on, over or under public
highways or other public property, the Company has the lawful right
under rights, permits, licenses, franchises or other forms of permission
granted by a governmental body having jurisdiction in the premises or by
the law of the State in which such property is located to maintain and
operate such property additions for an unlimited, indeterminate or
indefinite period of time or for the period, if any, specified in such
right, permit, license, franchise or other form of permission or law and
that the terms of such right, permit, license, franchise or other form
of permission or law do not contain any provisions giving to any public
authority the right to take over such property additions without the
payment of fair consideration therefor;".
Section 2.03 Pursuant to the right conferred upon and reserved to it
under Section 5 of Article III of Nineteenth Supplemental Indenture, the
Company, without any vote, consent or other action by holders of Bonds of any
series established or created in the Nineteenth Supplemental Indenture or any
subsequent supplemental indenture (all Bonds created in any supplemental
indenture prior to the Nineteenth Supplemental Indenture being no longer
outstanding), hereby amends and modifies the definition of the term
"permitted liens" contained in Article I of the Indenture by inserting the
following as a new paragraph at the end of such definition:
"The term `permitted liens' shall also mean and include
as of any particular time any controls, liens, restrictions,
regulations, easements, exceptions or reservations of any
governmental authority to the extent applicable to Nuclear Fuel.".
Section 2.04 Pursuant to the right conferred upon and reserved to it
under Section 6 of Article III of Nineteenth Supplemental Indenture, the
Company, without any vote, consent or other action by holders of Bonds of any
series established or created in the Nineteenth Supplemental Indenture or any
subsequent supplemental indenture (all Bonds created in any supplemental
indenture prior to the Nineteenth Supplemental Indenture being no longer
outstanding), hereby amends and modifies Subdivision (a) of Section 2 of
Article VII of the Indenture by adding the words "or Nuclear Fuel" after the
words "or equipment" each time such words appear in said Subdivision (a).
ARTICLE III
THE TRUSTEE
-----------
Section 3.01 The Trustee hereby accepts the trusts hereby declared and
provided upon the terms and conditions in the Indenture set forth and upon
the terms and conditions set forth in this Article III.
Section 3.02 The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or the due execution hereof by the Company or for or
in respect of the recitals contained herein, all of which recitals are made
by the Company solely. In general, each and every term and condition
contained in Article XIII of the Indenture shall apply to this Supplemental
Indenture with the same force and effect as if the same were herein set forth
in full, with such omissions, variations and modifications thereof as may be
appropriate.
ARTICLE IV
MISCELLANEOUS PROVISIONS
------------------------
This Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the
same instrument.
EXECUTION
IN WITNESS WHEREOF, said The Cleveland Electric Illuminating
Company has caused this Supplemental Indenture to be executed on its behalf
by its President or one of its Vice Presidents and its corporate seal to be
hereto affixed and said seal and this Supplemental Indenture to be attested
by its Corporate Secretary or an Assistant Secretary, and said The Chase
Manhattan Bank, in evidence of its acceptance of the trust hereby created,
has caused this Supplemental Indenture to be executed on its behalf by one of
its Vice Presidents or one of its Corporate Trust Officers, and its corporate
seal to be hereto affixed and said seal and this Supplemental Indenture to be
attested by one of its Assistant Secretaries, all as of the day and year
first above written.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
By:
---------------------------------------
Richard H. Marsh, Vice President
Attest:
- ------------------------------------
Nancy C. Ashcom, Corporate Secretary
Signed, sealed and acknowledged by
The Cleveland Electric Illuminating Company
in the presence of
- -----------------------------------
Edward J. Udovich
- -----------------------------------
Nancy L. Chancey
THE CHASE MANHATTAN BANK, AS TRUSTEE
By:
---------------------------------
James P. Freeman, Vice President
Attest:
- -------------------------------------
R. Lorenzen, Senior Trust Officer
Signed, sealed and acknowledged by
The Chase Manhattan Bank
in the presence of
- --------------------------------------
William Keenan
- --------------------------------------
Donna Fitzsimmons
As witnesses
STATE OF OHIO
COUNTY OF SUMMIT
On this 29th day of September, 1999, before me personally appeared
Richard H. Marsh and Nancy C. Ashcom, to me personally known, who being by me
severally duly sworn, did say that they are a Vice President and the
Corporate Secretary, respectively, of The Cleveland Electric Illuminating
Company, that the seal affixed to the foregoing instrument is the corporate
seal of said corporation and that said instrument was signed and sealed in
behalf of said corporation by authority of its Board of Directors; and said
officers severally acknowledged said instrument to the free act and deed of
said corporation.
--------------------------------------
Notary Public
Susie M. Hoisten
Residence - Summit County
State Wide Jurisdiction, Ohio
My Commission expires November 19, 2001
STATE OF NEW YORK
COUNTY OF NEW YORK
On this ___ day of _____, 1999, before me personally appeared James P.
Freeman and R. Lorenzen, to me personally known, who being by me severally
duly sworn, did say that they are a Vice President and a Senior Trust
Officer, respectively, of The Chase Manhattan Bank, that the seal affixed to
the foregoing instrument is the corporate seal of said corporation and that
said instrument was signed and sealed in behalf of said corporation by
authority of its Board of Directors; and said officers severally acknowledged
said instrument to the free act and deed of said corporation.
-------------------------
Notary Public
Emily Fayan
This instrument prepared by: FirstEnergy Corp., 76 South Main Street,
Akron, Ohio 44308.
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY
TO
THE CHASE MANHATTAN BANK
(successor to Morgan Guaranty Trust Company
of New York,
formerly Guaranty Trust Company of New York)
As Trustee under
The Cleveland Electric Illuminating Company's
Mortgage and Deed of Trust,
Dated July 1, 1940
-------------
Eighty-second Supplemental Indenture
DATED AS OF JANUARY 15, 2000
First Mortgage Bonds, 2000 Collateral Series A
Eighty-second Supplemental Indenture, dated as of January 15, 2000, made
by and between THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation
organized and existing under the laws of the State of Ohio (the "Company"),
and THE CHASE MANHATTAN BANK (successor to MORGAN GUARANTY TRUST COMPANY OF
NEW YORK), a corporation organized and existing under the laws of the State
of New York (the "Trustee"), as Trustee under the Mortgage and Deed of Trust
dated July 1, 1940, hereinafter mentioned:
RECITALS
In order to secure First Mortgage Bonds of the Company ("Bonds"), the
Company has heretofore executed and delivered to the Trustee the Mortgage and
Deed of Trust dated July 1, 1940 (the "1940 Mortgage") and 81 Supplemental
Indentures thereto ("Supplemental Indentures"); and
The 1940 Mortgage, as supplemented and modified by said Supplemental
Indentures and by this Eighty-second Supplemental Indenture, will be
hereinafter collectively referred to as the "Indenture" and this Eighty-
second Supplemental Indenture will be hereinafter referred to as "this
Supplemental Indenture"; and
The Indenture provides among other things that the Company, from time to
time, in addition to the Bonds authorized to be executed, authenticated and
delivered pursuant to other provisions therein, may execute and deliver
additional Bonds to the Trustee and the Trustee shall thereupon authenticate
and deliver such Bonds to or upon the order of the Company; and
The Company has determined to create pursuant to the provisions of the
Indenture a new series of Bonds designated as "First Mortgage Bonds, 2000
Collateral Series A" (the "Bonds of 2000 Collateral Series A"), with the
denominations, rates of interest, dates of maturity, redemption provisions
and other provisions and agreements in respect thereof as in this
Supplemental Indenture set forth; and
The Bonds of 2000 Collateral Series A are to be delivered to the
Revolver Agent Bank (hereinafter defined) to (i) provide for the payment of
the Company's obligations to make payments to any person under the Amended
and Restated Guaranty of the Company and The Toledo Edison Company dated
November 4, 1999 (such guaranty, as amended from time to time herein called
the "Guaranty"), in favor of the Lenders party to the Second Amended and
Restated Credit Agreement dated as of November 4, 1999 among FirstEnergy
Corp. (the "Borrower") and Citibank, N.A., as Administrative Agent, the other
banks named therein and Salomon Smith Barney Inc., as Arranger, (such credit
agreement, as amended from time to time, herein called the "Revolving Credit
Agreement") and (ii) to provide to such persons the benefits of the security
provided for the Bonds of 2000 Collateral Series A. As used herein, the term
"Lenders" shall refer collectively to all banks which are parties to the
Revolving Credit Agreement and the term "Revolver Agent Bank" shall refer to
the bank designated in the Revolving Credit Agreement as the party
responsible for holding the Bonds of 2000 Collateral Series A as agent for
the benefit of the Lenders.
The Company, in the exercise of the powers and authority conferred upon
and reserved to it under the provisions of the Indenture, and pursuant to
appropriate resolutions of the Board of Directors, has duly resolved and
determined to make, execute and deliver to the Trustee this Supplemental
Indenture in the form hereof for the purposes herein provided; and
All conditions and requirements necessary to make this Supplemental
Indenture a valid, binding and legal instrument have been done, performed and
fulfilled and the execution and delivery hereof have been in all respects
duly authorized.
Now, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
That The Cleveland Electric Illuminating Company, in consideration of
the premises and of the mutual covenants herein contained and of the sum of
One Dollar ($1.00) to it duly paid by the Trustee at or before the ensealing
and delivery of these presents and for other valuable considerations, the
receipt whereof is hereby acknowledged, hereby covenants and agrees to and
with the Trustee and its successors in the Trust under the Indenture, for the
benefit of those who shall hold the Bonds and coupons, if any, issued and to
be issued thereunder and under this Supplemental Indenture as hereinafter
provided, as follows:
ARTICLE I
CONFIRMATION OF 1940 MORTGAGE AND
SUPPLEMENTAL INDENTURES
The 1940 Mortgage (as modified in Article V of the Supplemental
Indenture dated December 1, 1947, Article V of the Supplemental Indenture
dated May 1, 1954, Article V of the Supplemental Indenture dated March 1,
1958, Article V of the Supplemental Indenture dated January 15, 1969, Article
III of the Supplemental Indenture dated November 23, 1976, Article III of the
Supplemental Indenture dated April 15, 1985 and Article II of the
Supplemental Indenture dated as of June 30, 1999) and the Supplemental
Indentures dated July 1, 1940, August 18, 1944, December 1, 1947, September
1, 1950, June 1, 1951, May 1, 1954, March 1, 1958, April 1, 1959, December
20, 1967, January 15, 1969, November 1, 1969, June 1, 1970, November 15,
1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28, 1975, February 1,
1976, November 23, 1976, July 26, 1977, September 27, 1977, May 1, 1978,
September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980, June 9, 1980,
December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982, July 15,
1982, September 1, 1982, November 1, 1982, November 15, 1982, May 24, 1983,
May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14,
1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985,
September 1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15,
1986, February 25, 1987, October 15, 1987, February 24, 1988, September 15,
1988, May 15, 1989, June 13, 1989, October 15, 1989, January 1, 1990, June 1,
1990, August 1, 1990, May 1, 1991, May 1, 1992, July 31, 1992, January 1,
1993, February 1, 1993, May 20, 1993, June 1, 1993, September 15, 1994, May
1, 1995, May 2, 1995, June 1, 1995, July 15, 1995, August 1, 1995, June 15,
1997, August 1, 1997, October 15, 1997, June 1, 1998, October 1, 1998,
October 1, 1998, April 1, 1999 and June 30, 1999, respectively, are hereby in
all respects confirmed.
ARTICLE II
CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT
AND FORM OF BONDS OF 2000 COLLATERAL SERIES A
SECTION 1. The Company hereby creates a new series of Bonds to be
issued under and secured by the Indenture and to be designated as "First
Mortgage Bonds, 2000 Collateral Series A" of the Company and hereinabove and
hereinafter called the "Bonds of 2000 Collateral Series A". The Bonds of 2000
Collateral Series A shall be limited to an aggregate principal amount of
$10,000,000 but the aggregate principal amount thereof outstanding at any
time shall not exceed such lesser amount as is equal to 40% of the aggregate
amount from time to time of the Lenders' Commitments (as defined in the
Revolving Credit Agreement) in excess of $125,000,000. The Bonds of 2000
Collateral Series A shall be executed, authenticated and delivered in
accordance with the provisions of, and shall in all respects be subject to,
all of the terms, conditions and covenants of the Indenture.
SECTION 2. The Bonds of 2000 Collateral Series A shall be dated the
date of authentication, shall be payable in whole or in installments on such
date or dates as the Company has any obligations under the Guaranty to make
any payment to the Lenders, but not later than June 1, 2006, and shall bear
interest from the time hereinafter provided at such rate per annum on each
interest payment date (hereinafter defined) as shall cause the amount of
interest payable on each interest payment date on the Bonds of 2000
Collateral Series A to equal 40% of the amount of interest and fees payable
on such interest payment date under the Revolving Credit Agreement with
respect to borrowings or Commitments thereunder in excess of $125,000,000.
Such interest shall be payable on the same dates as interest or fees are
payable from time to time pursuant to the Revolving Credit Agreement (each
such date herein called an "interest payment date"), until the maturity of
the Bonds of 2000 Collateral Series A, or, in the case the Revolver Agent
Bank shall demand redemption of any such Bonds, until the redemption date,
or, in the case of any default by the Company in the payment of the principal
due on any such Bonds, until the Company's obligation with respect to the
payment of such principal shall be discharged as provided in the Indenture.
The amount of interest and fees payable from time to time under the Revolving
Credit Agreement, the basis on which such interest and fees are computed and
the dates on which such interest and fees are payable are set forth in the
Revolving Credit Agreement.
Except as hereinafter provided, each Bond of 2000 Collateral Series A
shall bear interest (a) from the interest payment date next preceding the
date of such Bond to which interest has been paid, or (b) if the date of such
Bond is an interest payment date to which interest has been paid, then from
such date, or (c) if no interest has been paid thereon, then from the date of
initial issue.
SECTION 3. The Bonds of 2000 Collateral Series A shall be payable as to
principal and interest at the same place or places as payments are required
to be made by the Company under the Guaranty; and both principal and interest
shall be payable in any coin or currency of the United States of America
which at the time of payment shall be legal tender for the payment of public
and private debts.
SECTION 4. The Bonds of 2000 Collateral Series A shall be issued only
as one fully registered Bond in the denomination of $10,000,000.
SECTION 5. In the manner and subject to the limitations provided in the
Indenture, Bonds of 2000 Collateral Series A may be transferred only to a
successor to the Revolver Agent Bank under the Revolving Credit Agreement,
without charge, except for any tax or taxes or other governmental charges
incident to such transfer or exchange, at the agency of the Company in the
Borough of Manhattan, The City of New York.
SECTION 6. The Bonds of 2000 Collateral Series A shall be registered in
the name of the Revolver Agent Bank.
SECTION 7. Any payment made in respect of the Company's obligations
under the Guaranty or by the Borrower under the Revolving Credit Agreement
shall be deemed a payment in respect of the Bonds of 2000 Collateral Series
A, but such payment shall not reduce the principal amount of the Bonds of
2000 Collateral Series A unless the aggregate amount of the Lenders'
Commitments in excess of $125,000,000 is irrevocably reduced concurrently
with such payment. In the event that all of the Company's obligations under
the Guaranty and the obligations of the Borrower under the Revolving Credit
Agreement have been discharged, the Bonds of 2000 Collateral Series A shall
be deemed to be paid in full.
SECTION 8. The Bonds of 2000 Collateral Series A shall be redeemable
only to the extent provided in this Article II, subject to the provisions
contained in the form of Bond of 2000 Collateral Series A.
SECTION 9. The Bonds of 2000 Collateral Series A shall be redeemed by
the Company in whole at any time prior to maturity at a redemption price of
100% of the principal amount to be redeemed, plus any accrued and unpaid
interest to the redemption date and all other amounts payable by the Company
under the Guaranty, but only if the Trustee shall receive a written demand
from the Revolver Agent Bank for redemption of all Bonds of 2000 Collateral
Series A held by the Revolver Agent Bank stating that an "Event of Default"
under the Revolving Credit Agreement has occurred and is continuing and that
payment of the principal amount outstanding under the Revolving Credit
Agreement, all interest thereon and all other amounts payable thereunder are
immediately due and payable and demanding payment thereof; provided, however,
that the Bonds of 2000 Collateral Series A shall not be redeemed in the event
that prior to the date of such redemption the Trustee shall have received a
certificate of the Revolver Agent Bank (a) stating that there has been a
waiver of such Event of Default or (b) withdrawing said written demand. The
redemption of the Bonds of 2000 Collateral Series A shall be made forthwith
upon receipt of such demand by the Company from the Majority Banks (as
defined in the Revolving Credit Agreement), the Revolver Agent Bank on behalf
of the Majority Banks, or the Trustee.
SECTION 10. The form of the fully registered Bonds of 2000 Collateral
Series A and of the Trustee's certificate of authentication thereon, shall be
substantially as follows:
[Form of Fully Registered Bond of 2000 Collateral Series A]
This bond is not transferable except to a successor Agent Bank under the
second amended and restated credit agreement dated as of November 4, 1999
among FirstEnergy Corp. (the "Borrower"), Citibank, N.A., as
administrative agent, the banks named therein and Salomon Smith Barney
Inc., as Arranger, *such credit agreement, as amended from time to time,
the "Revolving Credit Agreement").
The Cleveland Electric Illuminating Company
Incorporated under the laws of the State of Ohio
First Mortgage Bond, 2000 Collateral Series A
No. $
The Cleveland Electric Illuminating Company, a corporation organized and
existing under the laws of the State of Ohio (hereinafter called the
"Company", which term shall include any successor corporation as defined in
the Indenture hereinafter referred to), for value received, hereby promises
to pay to
, or registered assigns, the sum of
Ten Million Dollars ($10,000,000) or such lesser principal amount as is equal
to 40% of the aggregate amount from time to time of the Lenders' Commitments
(as defined in the Revolving Credit Agreement) in excess of $125,000,000, in
whole or in installments on such date or dates as the Company has any
obligation to make payments under the Amended and Restated Guaranty of the
Company and The Toledo Edison Company dated November 4, 1999 (the
"Guaranty"), in favor of the Lenders (as defined in the Revolving Credit
Agreement), but not later than June 1, 2006, in any coin or currency of the
United States of America which at the time of payment is legal tender for the
payment of public and private debts, and to pay interest on the unpaid
principal amount hereof in like coin or currency from the time hereinafter
provided at such rate per annum on each interest payment date (hereinafter
defined) as shall cause the amount of interest payable on such interest
payment date on the Bonds of 2000 Collateral Series A (hereinafter defined)
to equal 40% of the amount of interest and fees payable on such interest
payment date under the Revolving Credit Agreement with respect to borrowings
or Commitments thereunder in excess of $125,000,000. Such interest shall be
payable on the same dates as interest or fees are payable from time to time
pursuant to the Revolving Credit Agreement (each such date herein called an
"interest payment date"), until the maturity of this Bond, or, if the Agent
Bank shall demand redemption of this Bond, until the redemption date, or, if
the Company shall default in the payment of the principal due on this Bond,
until the Company's obligation with respect to the payment of such principal
shall be discharged as provided in said Indenture. The amount of interest and
fees payable from time to time under the Revolving Credit Agreement, the
basis on which such interest and fees are computed and the dates on which
such interest and fees are payable are set forth in the Revolving Credit
Agreement.
Except as hereinafter provided, this Bond shall bear interest (a) from
the interest payment date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an interest
payment date to which interest has been paid, then from such date, or (c) if
no interest has been paid on this Bond, then from the date of initial issue.
This Bond is one of the duly authorized Bonds of the Company (herein
called the "Bonds"), all issued and to be issued under and equally secured by
a Mortgage and Deed of Trust dated July 1, 1940, executed by the Company to
Guaranty Trust Company of New York as Trustee under which The Chase Manhattan
Bank is successor trustee (herein called the "Trustee"), and all indentures
supplemental thereto (said Mortgage as so supplemented herein called the
"Indenture") to which reference is hereby made for a description of the
properties mortgaged and pledged, the nature and extent of the security, the
rights of the registered owner or owners of the Bonds and of the Trustee in
respect thereof and the terms and conditions upon which the Bonds are, and
are to be, secured. The Bonds may be issued in series, for various principal
sums, may mature at different times, may bear interest at different rates and
may otherwise vary as in the Indenture provided. This Bond is the only Bond
of a series designated as the First Mortgage Bonds, 2000 Collateral Series A
(herein called the "Bonds of 2000 Collateral Series A") limited, except as
otherwise provided in the Indenture, in aggregate principal amount to
$10,000,000 but the aggregate principal amount hereof outstanding at any time
shall not exceed such lesser amount as is equal to 40% of the aggregate
amount of the Lenders' Commitments in excess of $125,000,000 and is issued
under and secured by the Indenture and described in the Eighty-second
Supplemental Indenture dated as of January 15, 2000, between the Company and
the Trustee (herein called the "Supplemental Indenture").
The Bonds of 2000 Collateral Series A have been issued by the Company to
the Agent Bank (i) to provide for the payment of the Company's obligations to
make payments to any person under the Guaranty, and (ii) to provide to such
persons the benefits of the security provided for the Bonds of 2000
Collateral Series A.
As used herein, the term "Agent Bank" shall refer to the bank designated
in the Revolving Credit Agreement as the party responsible for holding the
Bonds of 2000 Collateral Series A as agent for the benefit of the Lenders.
The Bonds of 2000 Collateral Series A have been delivered to the Agent Bank
as agent for the benefit of the Lenders.
Any payment made in respect of the Company's obligations under the
Guaranty or by the Borrower under the Revolving Credit Agreement shall be
deemed a payment in respect of the Bonds of 2000 Collateral Series A, but
such payment shall not reduce the principal amount of the Bonds of 2000
Collateral Series A unless the aggregate amount of the Lenders' Commitments
in excess of $125,000,000 is irrevocably reduced concurrently with such
payment. In the event that all of the Company's obligations under the
Guaranty and the obligations of the Borrower under the Revolving Credit
Agreement have been discharged, this Bond shall be deemed to have been paid
in full and shall be surrendered to the Trustee for cancellation.
The Bonds of 2000 Collateral Series A are subject to redemption prior to
maturity at the demand of the Agent Bank as provided in Section 9 of Article
II of the Supplemental Indenture at a redemption price of 100% of the
principal amount to be redeemed and any accrued and unpaid interest and all
other amounts payable by the Company under the Guaranty.
To the extent permitted by and as provided in the Indenture,
modifications or alterations of the Indenture, or of any indenture
supplemental thereto, and of the rights and obligations of the Company and of
the holders of the Bonds and coupons may be made with the consent of the
Company by an affirmative vote of not less than 60% in principal amount of
the Bonds entitled to vote then outstanding, at a meeting of Bondholders
called and held as provided in the Indenture, and, in case one or more but
less than all of the series of Bonds then outstanding under the Indenture are
so affected, by an affirmative vote of not less than 60% in principal amount
of the Bonds of any series entitled to vote then outstanding and affected by
such modification or alteration; provided, however, that no such modification
or alteration shall be made which will affect the terms of payment of the
principal of or premium, if any, or interest on this Bond. Pursuant to the
Nineteenth Supplemental Indenture dated November 23, 1976 between the Company
and the Trustee, the Company has reserved the right to modify the Indenture
to except and exclude nuclear fuel (to the extent, if any, not otherwise
excepted and excluded) from the lien and operation thereof without any vote,
consent or other action by the holders of Bonds.
If an event of default, as defined in the Indenture, shall occur, the
principal of all the Bonds at any such time outstanding under the Indenture
may be declared or may become due and payable, upon the conditions and in the
manner and with the effect provided in the Indenture. The Indenture provides
that such declaration may in certain events be waived by the holders of a
majority in principal amount of the Bonds outstanding.
No recourse shall be had for the payment of the principal of or the
interest or premium, if any, on this Bond, or for any claim based hereon or
on the Indenture or any indenture supplemental thereto, against any
incorporator, or against any stockholder, director or officer, past, present
or future, of the Company, or of any predecessor or successor corporation, as
such, either directly or through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether at common law, in equity, by any constitution or
statute or otherwise, of incorporators, stockholders, directors or officers
being released by every owner hereof by the acceptance of this Bond and as
part of the consideration for the issue hereof, and being likewise released
by the terms of the Indenture.
This Bond shall not be entitled to any benefit under the Indenture or
any indenture supplemental thereto, or become valid or obligatory for any
purpose, until the Trustee under the Indenture, or a successor trustee
thereto under the Indenture, shall have signed the form of certificate of
authentication endorsed hereon.
In Witness Whereof, The Cleveland Electric Illuminating Company has
caused this Bond to be signed in its name by its President or a Vice
President and its corporate seal to be hereto affixed and attested by its
Secretary or an Assistant Secretary.
Dated:
THE CLEVELAND ELECTRIC ILLUMINATING
COMPANY
By:
--------------------------------
Vice President
ATTEST:
By:
---------------------
Secretary
[Form of Trustee's Certificate of Authentication]
This Bond is one of the Bonds of the series designated and described in
the within-mentioned Indenture and Supplemental Indenture.
THE CHASE MANHATTAN BANK
Trustee
By:
-----------------------------
Authorized Officer
[End of Form of Fully Registered Bond of 2000 Collateral Series A]
ARTICLE III
THE TRUSTEE
SECTION 1. The Trustee hereby accepts the trusts hereby declared and
provided upon the terms and conditions in the Indenture set forth and upon
the terms and conditions set forth in this Article III.
SECTION 2. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or the due execution hereof by the Company or for or
in respect of the recitals contained herein, all of which recitals are made
by the Company solely. In general, each and every term and condition
contained in Article XIII of the Indenture shall apply to this Supplemental
Indenture with the same force and effect as if the same were herein set forth
in full, with such omissions, variations and modifications thereof as may be
appropriate.
SECTION 3. For purposes of this Supplemental Indenture (a) the Trustee
may conclusively rely and shall be protected in acting upon the written
demand from, or certificate of, the Revolver Agent Bank or any officers'
certificate or opinion of counsel, as to the truth of the statements and the
correctness of the opinions expressed therein, without independent
investigation or verification thereof, subject to Article XIII of the
Indenture and (b) a written demand from, or certificate of, the Revolver
Agent Bank shall mean a written demand or certificate executed by the
president, any vice president or any authorized officer of the Revolver Agent
Bank.
ARTICLE IV
MISCELLANEOUS PROVISIONS
This Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the
same instrument.
EXECUTION
IN WITNESS WHEREOF, said The Cleveland Electric Illuminating Company has
caused this Supplemental Indenture to be executed on its behalf by its
President or one of its Vice Presidents and its corporate seal to be hereto
affixed and said seal and this Supplemental Indenture to be attested by its
Secretary or an Assistant Secretary, and said The Chase Manhattan Bank, in
evidence of its acceptance of the trust hereby created, has caused this
Supplemental Indenture to be executed on its behalf by one of its Vice
Presidents or one of its Trust Officers and its corporate seal to be hereto
affixed and said seal and this Supplemental Indenture to be attested by one
of its Assistant Trust Officers or Assistant Secretaries, all as of the day
and year first above written.
The Cleveland Electric Illuminating Company
By:
----------------------------
Vice President
Attest:
--------------------
Corporate Secretary
Signed, sealed and acknowledged by
The Cleveland Electric Illuminating Company
in the presence of
- --------------------------
- --------------------------
As witnesses
The Chase Manhattan Bank
By:
---------------------------
Attest:
----------------------------
Signed, sealed and acknowledged by
The Chase Manhattan Bank
In the presence of
- -----------------------------
- -----------------------------
As witnesses
State of Ohio )
) ss.:
County of Summit )
On this day of January, 2000, before me personally appeared
[________] and Nancy C. Ashcom to me personally known, who being by me
severally duly sworn, did say that they are a Vice President and Corporate
Secretary, respectively, of The Cleveland Electric Illuminating Company, that
the seal affixed to the foregoing instrument is the corporate seal of said
corporation and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors; and said officers
severally acknowledged said instrument to be the free act and deed of said
corporation.
- --------------------------------
Notary Public, State of Ohio
State of New York )
) ss.:
County of New York )
On this day of November, 1999, before me personally appeared
[________] and [________] to me personally known, who being by me severally
duly sworn, did say that they are a [_____________] and [_____________],
respectively, of The Chase Manhattan Bank, that the seal affixed to the
foregoing instrument is the corporate seal of said corporation and that said
instrument was signed and sealed in behalf of said corporation by authority
of its Board of Directors; and said officers severally acknowledged said
instrument to be the free act and deed of said corporation.
---------------------------------
Notary Public
Notary Public, State of New York
This Instrument Prepared by FirstEnergy Corp., 76 South Main Street, Akron,
Ohio 44308
<TABLE>
EXHIBIT 12.3
Page 1
CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $183,719 $116,553 $114,481 $164,891 $194,089
Interest and other charges, before
reduction for
amounts capitalized 251,793 244,789 248,429 232,727 211,960
Provision for income taxes 95,561 69,120 92,969 110,611 123,869
Interest element of rentals charged
to income (a) 79,642 79,503 69,086 68,314 66,680
-------- -------- -------- -------- --------
Earnings as defined $610,715 $509,965 $524,965 $576,543 $596,598
======== ======== ======== ======== ========
FIXED CHARGES AS DEFINED IN REGULATION S-K:
Interest expense $251,793 $244,789 $248,429 $232,727 $211,960
Interest element of rentals charged
to income (a) 79,642 79,503 69,086 68,314 66,680
-------- -------- -------- -------- --------
Fixed charges as defined $331,435 $324,292 $317,515 $301,041 $278,640
======== ======== ======== ======== ========
CONSOLIDATED RATIO OF EARNINGS TO FIXED
CHARGES 1.84 1.57 1.65 1.92 2.14
==== ==== ==== ==== ====
<FN>
- ------------------------
(a) Includes the interest component of Bruce Mansfield sale and leaseback rentals, leased nuclear fuel
in the reactor, and other miscellaneous rentals.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12.3
Page 2
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED
STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $183,719 $116,553 $114,481 $164,891 $194,089
Interest and other charges, before
reduction for amounts capitalized 95,561 69,120 92,969 110,611 123,869
Provision for income taxes 251,793 244,789 248,429 232,727 211,960
Interest element of rentals charged to
income (a) 79,642 79,503 69,086 68,314 66,680
-------- -------- -------- -------- ---------
Earnings as defined $610,715 $509,965 $524,965 $576,543 $596,598
======== ======== ======== ======== ========
FIXED CHARGES AS DEFINED IN REGULATION
S-K PLUS PREFERRED STOCK DIVIDEND
REQUIREMENTS
(PRE-INCOME TAX BASIS):
Interest expense $251,793 $244,789 $248,429 $232,727 $211,960
Preferred stock dividend requirements 42,444 38,743 45,029 24,794 33,524
Adjustments to preferred stock dividends
to state on a pre-income tax basis 22,077 22,976 36,568 16,632 21,395
Interest element of rentals charged to
income (a) 79,642 79,503 69,086 68,314 66,680
-------- -------- -------- -------- ---------
Fixed charges as defined plus
preferred stock dividend requirements
(pre-income tax basis) $395,956 $386,011 $399,112 $342,467 $333,559
======== ======== ======== ======== ========
CONSOLIDATED RATIO OF EARNINGS TO
FIXED CHARGES PLUS PREFERRED STOCK
DIVIDEND REQUIREMENTS
(PRE-INCOME TAX BASIS) 1.54 1.32 1.32 1.68 1.79
==== ==== ==== ==== ====
<FN>
- ----------------------------
(a) Includes the interest component of Bruce Mansfield sale and leaseback rentals, leased nuclear fuel
in the reactor, and other miscellaneous rentals.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
SELECTED FINANCIAL DATA
<CAPTION>
Nov. 8- Jan. 1-
1999 1998 Dec. 31, 1997 Nov. 7, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
|
GENERAL FINANCIAL INFORMATION: |
|
Operating Revenues $1,864,954 $1,795,997 $ 254,892 | $1,537,459 $1,798,850 $1,768,737
========== ========== ========== | ========== ========== ==========
Operating Income $ 394,766 $ 382,523 $ 50,431 | $ 315,777 $ 367,509 $ 397,899
========== ========== ========== | ========== ========== ==========
Income Before Extraordinary Item $ 194,089 $ 164,891 $ 19,290 | $ 95,191 $ 116,553 $ 183,719
========== ========== ========== | ========== ========== ==========
Net Income (Loss) $ 194,089 $ 164,891 $ 19,290 | $ (229,247) $ 116,553 $ 183,719
========== ========== ========== | ========== ========== ==========
Earnings (Loss) on Common Stock $ 160,565 $ 140,097 $ 19,290 | $ (274,276) $ 77,810 $ 141,275
========== ========== ========== | ========== ========== ==========
Total Assets $6,208,761 $6,318,183 $6,440,284 | $6,962,297 $7,222,416
========== ========== ========== | ========== ==========
|
CAPITALIZATION: |
Common Stockholder's Equity $ 966,616 $1,008,238 $ 950,904 | $1,044,283 $1,126,762
Preferred Stock- |
Not Subject to Mandatory Redemption 238,325 238,325 238,325 | 238,325 240,871
Subject to Mandatory Redemption 116,246 149,710 183,174 | 186,118 215,420
Long-Term Debt 2,682,795 2,888,202 3,189,590 | 2,523,030 2,759,492
---------- ---------- ---------- | ---------- ----------
Total Capitalization $4,003,982 $4,284,475 $4,561,993 | $3,991,756 $4,342,545
========== ========== ========== | ========== ==========
|
CAPITALIZATION RATIOS: |
Common Stockholder's Equity 24.1% 23.5% 20.9%| 26.2% 25.9%
Preferred Stock- |
Not Subject to Mandatory Redemption 6.0 5.6 5.2 | 6.0 5.6
Subject to Mandatory Redemption 2.9 3.5 4.0 | 4.6 5.0
Long-Term Debt 67.0 67.4 69.9 | 63.2 63.5
----- ----- ----- | ----- -----
Total Capitalization 100.0% 100.0% 100.0%| 100.0% 100.0%
===== ===== ===== | ===== =====
|
KILOWATT-HOUR SALES (Millions): |
Residential 5,278 4,949 790 | 4,062 4,958 5,063
Commercial 6,509 6,353 893 | 4,990 5,908 5,946
Industrial 8,069 8,024 1,285 | 6,710 7,977 7,994
Other 166 165 89 | 476 522 550
------ ------ ----- | ------ ------ ------
Total Retail 20,022 19,491 3,057 | 16,238 19,365 19,553
Total Wholesale 2,607 1,275 575 | 2,408 2,155 1,694
------ ------ ----- | ------ ------ ------
Total 22,629 20,766 3,632 | 18,646 21,520 21,247
====== ====== ===== | ====== ====== ======
|
CUSTOMERS SERVED: |
Residential 667,954 668,470 671,265 | 663,130 669,725
Commercial 69,954 68,896 74,751 | 70,886 72,259
Industrial 5,090 5,336 6,515 | 6,545 6,649
Other 223 221 278 | 446 442
------- ------- ------- | ------- -------
Total 743,221 742,923 752,809 | 741,007 749,075
======= ======= ======= | ======= =======
|
Number of Employees 1,694 1,798 3,162 | 3,282 3,636
</TABLE>
<PAGE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Financial results reflect the application of purchase accounting to
the merger of our former parent company, Centerior Energy Corporation
(Centerior), and Ohio Edison Company (OE)on November 8, 1997. This accounting
resulted in fair value adjustments which were "pushed down" or reflected on
the separate financial statements of Centerior's direct subsidiaries as of
the merger date, including our financial statements. As a result, we recorded
purchase accounting fair value adjustments to: (1) revalue our nuclear
generating units to fair value, (2) adjust long-term debt to fair value, (3)
adjust our retirement and severance benefit liabilities, and (4) record
goodwill. Accordingly, the post-merger financial statements reflect a new
basis of accounting, and separate financial statements are presented for the
pre-merger and post-merger periods. For the remainder of this discussion
(including categories substantially unaffected by the merger or with no
significant pre-merger or post-merger accounting events), we have combined
the 1997 pre-merger and post-merger periods and have compared the total to
1998.
Operating revenues increased by $69.0 million in 1999 following a
$13.0 million increase in 1998. The sources of increases in operating
revenues during 1999 and 1998, as compared to the prior year, are summarized
in the following table.
<TABLE>
<CAPTION>
Sources of Revenue Changes 1999 1998
- -------------------------------------------------------------
(In millions)
<S> <C> <C>
Increase in retail kilowatt-hour sales $46.1 $ 12.7
Change in average retail price (1.5) 5.9
Change in wholesale sales 15.2 (15.7)
Other 9.2 0.7
- -------------------------------------------------------------
Net Increase in Operating Revenues $69.0 $ 3.6
==============================================================
</TABLE>
Electric Sales
Operating revenues increased in 1999 from 1998 as a result of
kilowatt-hour sales growth in both retail and wholesale markets. Increases in
sales to residential, commercial and industrial customers produced the higher
retail sales. Strong consumer-driven economic growth, and to a lesser extent
the weather, contributed to the increased retail sales. Weather-induced
electricity demand in the wholesale market and additional available internal
generation combined to more than double sales to wholesale customers in 1999
compared to 1998.
After setting a new record in 1997, total kilowatt-hour sales were
down in 1998 from the previous year. The decrease was due to a decrease in
sales to wholesale customers. Several generating unit outages (described
below) reduced energy available for sale to the wholesale market. Retail
sales increased in 1998, compared to 1997, with higher kilowatt-hour sales to
residential and commercial customers and sales to industrial customers nearly
unchanged.
<TABLE>
<CAPTION>
Changes in KWH Sales 1999 1998
- -----------------------------------------------
<S> <C> <C>
Residential 6.6% 1.5%
Commercial 2.5% 0.3%
Industrial 0.6% --
- -----------------------------------------------
Total Retail 2.7% 0.5%
Wholesale 104.5% (57.5%)
- -----------------------------------------------
Total Sales 9.0% (7.3%)
- -----------------------------------------------
</TABLE>
Operating Expenses and Taxes
Total operating expense and taxes increased $56.7 million in 1999
compared to 1998. The increase resulted primarily from an increase in
operation and maintenance expenses from higher nuclear operating costs and
other operating costs, which were partially offset by lower fuel and
purchased power. The comparison of 1998 to 1997 includes various merger-
related differences, which are discussed below.
The increase in operation and maintenance costs in 1999 from 1998
occurred despite a reduction in fuel and purchased power costs, which were
$26.5 million lower than the previous year. Purchased power costs accounted
for almost all of the reduction. Much of the decrease in purchased power
costs occurred in the second quarter of 1999 due to the absence of unusual
conditions experienced in 1998. Those costs were incurred during a period of
record heat and humidity in late June 1998, which coincided with a regional
power shortage resulting in high prices for purchased power. Unscheduled
outages at Beaver Valley Unit 2, the Davis-Besse Plant and Avon Lake Unit 9
required us to purchase significant quantities of power on the spot market
during that period. Although above normal temperatures were also experienced
in 1999, we maintained a stronger capacity position compared to the previous
year and better met customer demand from our own internal generation. In
1998, fuel and purchased power increased $14.3 million from 1997 for the
reasons discussed above.
Nuclear operating costs increased in 1999 from the prior year
primarily due to expenses associated with the refueling outages at Beaver
Valley Unit 2 and the Perry Plant. Reduced nuclear operating costs in 1998
resulted from lower costs at the Perry Plant which were partially offset by
higher costs at the Beaver Valley and Davis-Besse plants. Other operating
costs increased in 1999 from 1998 due to higher customer and sales expenses
including expenditures for energy marketing programs, information system
requirements and other customer-related costs. In 1998, other operating costs
were lower partially due to the absence of a 1997 pre-merger charge for
estimated severance costs.
Lower depreciable asset balances, resulting from the purchase
accounting adjustment, reduced depreciation and amortization in 1998 and the
1997 post-merger period. These reductions were partially offset by the
amortization of goodwill recognized with the application of purchase
accounting. In 1999, general taxes decreased from the prior year as a result
of an adjustment made to real estate taxes resulting from new Pennsylvania
legislation and a favorable outcome to an Ohio tax settlement affecting
personal property taxes.
Other Income (Expense)
Interest income on trust notes acquired in connection with the
Bruce Mansfield Plant lease refinancing (see Note 2), which began in June
1997, increased other income in 1998 and the 1997 post-merger period. In the
pre-merger period of 1997, merger-related expenses partially offset the
interest income on trust notes.
Net Interest Charges
Net interest charges decreased in 1999 from the preceding year
primarily due to redemptions and refinancings of long-term debt. In 1998, net
interest charges decreased principally due to the amortization of premiums
associated with the revaluation of long-term debt in connection with the
merger, which also contributed to the decrease in interest charges in the
post-merger period of 1997. In the pre-merger period of 1997, interest
charges were higher because interest on new secured notes and short-term
borrowings for the Bruce Mansfield Plant lease refinancing exceeded the
expense reduction from the redemption and refinancing of debt securities.
Extraordinary Item
The pre-merger period of 1997 includes an after-tax write-off of
$324.4 million in regulatory assets attributable to nuclear operations
resulting from the discontinued application of Statement of Financial
Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain
Types of Regulation" which is discussed in Note 1 - Regulatory Assets.
Preferred Stock Dividend Requirements
Preferred stock dividend requirements reported in 1999 were higher
due to a reduction in 1998 resulting from the declaration of $9 million of
preferred dividends as of the 1997 merger date, for dividends attributable to
1998 (see Note 3c).
Earnings on Common Stock
Earnings on common stock increased to $160.6 million in 1999 from
$140.1 million in 1998. Results in 1999 were favorably affected by higher
sales revenues, the absence of unusually high purchased power costs
experienced in 1998, reduced general taxes and lower interest costs. Pre-
merger earnings on common stock in 1997 include an extraordinary item
resulting from the write-off of certain regulatory assets. Excluding this
write-off, pre-merger earnings on common stock were $50.2 million. For the
seven-week post-merger period, earnings on common stock were $19.3 million.
Capital Resources and Liquidity
With the July 1999 passage of legislation in Ohio allowing retail
customers to purchase electricity from alternative energy suppliers beginning
January 2001, the arrival of new participants in the Ohio electricity market
is expected in the near future. We continue to take steps designed to enhance
our competitive position while seeking additional efficiencies.
Through economic refinancings and redemptions, we continued to
reduce the cost of debt and preferred stock, and improve our financial
position in 1999. Net redemptions of long-term debt and preferred stock
totaled $178.0 million in 1999 and we refinanced $27.7 million of long-term
debt. During 1999, we reduced our total debt by approximately $150 million.
Our common stockholder's equity percentage of capitalization increased to 24%
at December 31, 1999 from 21% at the end of 1997. The merger resulted in
improved credit ratings in 1997, which have lowered the cost of new
borrowings. The following table summarizes changes in credit ratings
resulting from the merger:
Credit Ratings Before and After Merger
<TABLE>
<CAPTION>
Pre-Merger Post-Merger
- ----------------------------------------------------------------------------
Standard Moody's Standard Moody's
& Poor's Investors & Poor's Investors
Corporation Service, Inc. Corporation Service, Inc.
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First mortgage bonds BB Ba2 BB+ Ba1
Subordinated debt B+ Ba3 BB- Ba3
Preferred stock B b2 BB- b1
- ----------------------------------------------------------------------------
Through economic refinancings and redemptions of higher cost debt
we have reduced the average cost of outstanding debt from 8.96% in 1994 to
7.92% in 1999. Long-term debt redemptions and refinancings completed in 1999
are expected to generate annual savings of about $13 million.
Our cash requirements in 2000 for operating expenses, construction
expenditures and scheduled debt maturities are expected to be met without
issuing additional securities. We have cash requirements of approximately
$988.6 million for the 2000-2004 period to meet scheduled maturities of long-
term debt and preferred stock. Of that amount, approximately $208.5 million
relates to 2000.
We had about $0.4 million of cash and temporary investments and
$103.5 million of short-term indebtedness to associated companies on December
31, 1999. Under our first mortgage indenture, as of December 31, 1999, we
would have been permitted to issue up to $615 million of additional first
mortgage bonds on the basis of property additions and retired bonds. We have
no restrictions on the issuance of preferred stock.
Our capital spending for the period 2000-2004 is expected to be
about $529 million (excluding nuclear fuel), of which approximately $112
million applies to 2000. Investments for additional nuclear fuel during the
2000-2004 period are estimated to be approximately $166 million, of which
about $56 million relates to 2000. During the same periods, our nuclear fuel
investments are expected to be reduced by approximately $158 million and $36
million, respectively, as the nuclear fuel is consumed. Also, we have
operating lease commitments net of trust cash receipts of approximately $61
million for the 2000-2004 period, of which approximately $6 million relates
to 2000. We recover the cost of nuclear fuel consumed and operating leases
through our electric rates.
Two transactions were completed in 1999, which modified our
portfolio of generation resources in 1999. On July 26, 1999, we completed our
purchase of the remaining 20 percent interest in the Seneca pumped storage
hydroelectric generation plant from GPU, Inc. for $43 million. The purchase
makes available 87 megawatts of additional capacity and provides us with full
ownership of the plant. On December 3, 1999, we completed the exchange of
generating assets between Duquesne Light Company (Duquesne) and FirstEnergy.
Duquesne transferred 1,436 megawatts at five generating plants in exchange
for 1,328 megawatts at three plants owned by FirstEnergy operating companies.
In the exchange, we received all of Duquesne's ownership interest in the
Perry Plant, Sammis Unit 7, Eastlake Unit 5, and an additional interest in
the Bruce Mansfield Plant while providing Duquesne with our ownership
interest in the Avon Lake Plant.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is mitigated
since a significant portion of our debt has fixed interest rates, as noted in
the table below. We are subject to the inherent interest rate risks related
to refinancing maturing debt by issuing new debt securities. As discussed in
Note 2, our investment in the Shippingport Capital Trust effectively reduces
future lease obligations, also reducing interest rate risk. Changes in the
market value of our nuclear decommissioning trust funds are recognized by
making a corresponding change to the decommissioning liability, as described
in Note 1.
The table below presents principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio, debt
obligations and preferred stock with mandatory redemption provisions.
</TABLE>
<TABLE>
<CAPTION>
Comparison of Carrying Value to Fair Value
- --------------------------------------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
- --------------------------------------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than
Cash and Cash Equivalents:
Fixed Income $ 24 $ 15 $ 38 $ 48 $ -- $442 $ 567 $ 552
Average interest rate 7.6% 7.8% 7.7% 7.6% 8.1% 7.3% 7.4%
- ---------------------------------------------------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate $175 $ 57 $228 $115 $280 $1,695 $2,550 $2,524
Average interest rate 7.2% 8.6% 7.7% 7.4% 7.7% 7.7% 7.7%
Variable rate $ 188 $ 188 $ 187
Average interest rate 4.4% 4.4%
Short-term Borrowings $103 $ 103 $ 103
Average interest rate 6.4% 6.4%
- ---------------------------------------------------------------------------------------------------------
Preferred Stock $ 33 $ 81 $ 19 $ 1 $ 1 $ 4 $ 139 $ 139
Average dividend rate 9.0% 8.9% 8.9% 7.4% 7.4% 7.4% 8.8%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Outlook
We continue to face many competitive challenges as the electric
utility industry undergoes significant changes, including changing regulation
and the entrance of more energy suppliers into the marketplace. Recent
legislation allows retail customers in Ohio to purchase electricity from
alternative energy suppliers beginning in 2001. Our existing regulatory plan
provides us with a solid foundation to position us to meet the challenges we
are facing by significantly reducing fixed costs and lowering rates to a more
competitive level. The transition plan ultimately approved by the Public
Utilities Commission of Ohio (PUCO) will supersede our current Ohio rate
plan.
FirstEnergy's Rate Reduction and Economic Development Plan,
approved in January 1997, provides interim rate credits to our customers
during the periods covered by the plan. Our regulatory plan includes a
commitment to accelerate depreciation on our regulatory books by recording an
additional $1.34 billion of depreciation over the plan period ending in 2005.
The plan does not provide for full recovery of nuclear operations;
accordingly, we ceased application of SFAS 71 for our nuclear operations when
implementation of the FirstEnergy regulatory plan became probable in October
1997.
In July 1999, Ohio's new electric utility restructuring
legislation, which will allow Ohio electric customers to select their
generation suppliers beginning January 1, 2001, was signed into law. Among
other things, the new law provides for a 5% reduction on the generation
portion of residential customers' bills and the opportunity to recover
transition costs, including regulatory assets, from January 1, 2001 through
December 31, 2005. The period for the recovery of regulatory assets only can
be extended up to December 31, 2010. The PUCO was authorized to determine the
level of transition cost recovery, as well as the recovery period for the
regulatory assets portion of those costs, in considering each Ohio electric
utility's transition plan application.
FirstEnergy filed a transition plan on our behalf as well as for
its other Ohio electric utility operating companies - OE and The Toledo
Edison Company (TE) -- on December 22, 1999. The plan was originally filed
with the PUCO on October 4, 1999, but was refiled to conform to PUCO rules
established on November 30, 1999. The new filing also included additional
information on our plan to turn over control, and perhaps ownership, of our
transmission assets to the Alliance Regional Transmission Organization
(Alliance), which is discussed below.
The transition plan itemizes, or unbundles, the current price of
electricity into separate components -- including generation, transmission,
distribution and transition charges. As required by the PUCO's rules,
FirstEnergy's filing also included proposals on corporate separation of
regulated and unregulated operations, operational and technical support
changes needed to accommodate customer choice, an education program to inform
customers of their options under the law, and how our transmission system
will be operated to ensure access to all users. Under our transition plan,
customers who remain with us as their generation provider will continue to
receive savings under our rate plan, expected to total $241.2 million between
2000 and 2005. In addition, FirstEnergy's Ohio utility customers will save
$358 million through reduced charges for taxes and a 5% reduction in the
price of generation for residential customers beginning January 1, 2001.
Customers' prices are expected to be frozen through a five-year market
development period (2001-2005), except for certain limited statutory
exceptions including the 5% reduction in the price of generation for
residential customers. The plan proposes recovery of generation-related
transition costs of approximately $1.9 billion ($1.6 billion, net of deferred
income taxes) over the market development period; transition costs related to
regulatory assets aggregating approximately $1.9 billion ($1.4 billion, net
of deferred income taxes) are expected to be recovered over the period of
2001 through 2010.
When the transition plan is approved by the PUCO, the application
of SFAS 71 to our nonnuclear generation business will be discontinued. In the
meantime, we will continue to bill and collect cost-based rates related to
that business through the end of 2000. If the transition plan ultimately
approved by the PUCO does not provide adequate recovery of our nuclear
generating unit investments and regulatory assets, there would be a charge to
earnings which could have a material adverse effect on our results of
operations and financial condition. We believe that we will continue to bill
and collect cost-based rates for our transmission and distribution services,
which will remain regulated; accordingly, it is appropriate that we continue
the application of SFAS 71 to those operations after December 31, 2000.
We have been named as a "potentially responsible party" (PRP) for
three sites listed on the Superfund National Priorities List and are aware of
our potential involvement in the cleanup of several other sites. Allegations
that we disposed of hazardous waste at these sites, and the amount involved
are often unsubstantiated and subject to dispute. Federal law provides that
all PRPs for a particular site be held liable on a joint and several basis.
If we were held liable for 100% of the cleanup costs of all the sites
referred to above, the cost could be as high as $239 million. However, we
believe that the actual cleanup costs will be substantially less than 100%
and that most of the other parties involved are financially able to
contribute their share. We have accrued a $4.7 million liability as of
December 31, 1999, based on estimates of the costs of cleanup and our
proportionate responsibility for such costs. We believe that the ultimate
outcome of these matters will not have a material adverse effect on our
financial condition, cash flows or results of operations.
On October 27, 1999, the Federal Energy Regulatory Commission
(FERC) approved FirstEnergy's plan to transfer our transmission assets and
those of OE, TE and Pennsylvania Power Company to American Transmission
Systems Inc. (ATSI). We subsequently received approval from the PUCO in
February 2000. Regulatory approval is also required from the Securities and
Exchange Commission. The new subsidiary represents a first step toward the
goal of establishing or becoming part of a larger independent, regional
transmission organization (RTO). In working toward that goal, FirstEnergy
joined with four other companies -- American Electric Power, Consumers
Energy, Detroit Edison and Virginia Power -- to form the Alliance RTO. On
June 3, 1999, the Alliance submitted an application to FERC to form an
independent, for profit RTO. On December 15, 1999, FERC issued an order
conditionally approving the Alliance's application.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards requiring that every
derivative instrument (including derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement. We have not completed quantifying the
impacts of adopting SFAS 133 on our financial statements or determined the
method of its adoption. However, SFAS 133 could increase volatility in
earnings and other comprehensive income. We anticipate adopting the new
statement on its amended effective date of January 1, 2001.
Year 2000 Update
Based on the results of our remediation and testing efforts, we
filed documents with the North American Electric Reliability Council, Nuclear
Regulatory Commission and PUCO that as of June 30, 1999, our generation,
transmission, and distribution systems were ready to serve customers in the
year 2000. We have since experienced no failures or interruptions of service
to our customers resulting from the Year 2000 issue, which was consistent
with our expectations. We spent $28.5 million on Year 2000 related costs
through December 31, 1999, which was slightly lower than previously
estimated. Of this total, $23.1 million was 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 $5.4 million was
expensed as incurred. We do not believe there are any continuing Year 2000
issues to be addressed, nor any additional material Year 2000 expenditures.
Forward-Looking Information
This discussion includes forward-looking statements based on
information currently available to management that are subject to certain
risks and uncertainties. These statements typically contain, but are not
limited to, the terms anticipate, potential, expect, believe, estimate and
similar words. Actual results may differ materially due to the speed and
nature of increased competition and deregulation in the electric utility
industry, economic or weather conditions affecting future sales and margins,
changes in markets for energy services, changing energy market prices,
legislative and regulatory changes, and the availability and cost of capital
and other similar factors.
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Years Ended
December 31,
---------------------- Nov. 8- Jan. 1-
1999 1998 Dec. 31, 1997 Nov. 7, 1997
- ----------------------------------------------------------------------------------------------------
(In thousands) |
<S> <C> <C> <C> | <C>
|
OPERATING REVENUES $1,864,954 $1,795,997 $254,892 | $1,537,459
|
OPERATING EXPENSES AND TAXES: |
Fuel and purchased power 409,282 435,752 53,239 | 368,243
Nuclear operating costs 138,686 97,914 16,791 | 85,207
Other operating costs 368,103 335,621 57,852 | 286,384
---------- ---------- -------- | ----------
Total operation and maintenance expenses 916,071 869,287 127,882 | 739,834
Provision for depreciation and |
amortization 231,225 234,348 33,438 | 211,827
General taxes 211,636 221,077 33,912 | 194,400
Income taxes 111,256 88,762 9,229 | 75,621
---------- ---------- -------- | ----------
Total operating expenses and taxes 1,470,188 1,413,474 204,461 | 1,221,682
---------- ---------- -------- | ----------
OPERATING INCOME 394,766 382,523 50,431 | 315,777
|
OTHER INCOME (EXPENSE) 9,141 11,772 3,643 | (10,921)
---------- ---------- -------- | ----------
|
INCOME BEFORE NET INTEREST CHARGES 403,907 394,295 54,074 | 304,856
---------- ---------- -------- | ----------
|
NET INTEREST CHARGES: |
Interest on long-term debt 211,842 234,795 35,300 | 197,323
Allowance for borrowed funds used during |
construction (1,755) (2,079) (631) | (1,928)
Other interest expense (credit) (269) (3,312) 115 | 14,270
---------- ---------- -------- | ----------
Net interest charges 209,818 229,404 34,784 | 209,665
---------- ---------- -------- | ----------
|
INCOME BEFORE EXTRAORDINARY ITEM 194,089 164,891 19,290 | 95,191
|
EXTRAORDINARY ITEM (NET OF INCOME |
TAXES) (Note 1) -- -- -- | (324,438)
---------- ---------- -------- | ----------
NET INCOME (LOSS) 194,089 164,891 19,290 | (229,247)
|
PREFERRED STOCK DIVIDEND |
REQUIREMENTS 33,524 24,794 -- | 45,029
---------- ---------- -------- | ----------
|
EARNINGS (LOSS) ON COMMON STOCK $ 160,565 $ 140,097 $ 19,290 | $ (274,276)
========== ========== ======== | ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1999 1998
- ----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
In service $4,479,098 $4,648,725
Less-Accumulated provision for depreciation 1,498,798 1,631,974
---------- ----------
2,980,300 3,016,751
---------- ----------
Construction work in progress-
Electric plant 55,002 42,428
Nuclear fuel 408 14,864
---------- ----------
55,410 57,292
---------- ----------
3,035,710 3,074,043
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Shippingport Capital Trust (Note 2) 517,256 543,161
Nuclear plant decommissioning trusts 183,291 125,050
Other 20,708 21,059
---------- ----------
721,255 689,270
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 376 19,526
Receivables-
Customers 17,010 16,588
Associated companies 18,318 15,636
Other (less accumulated provisions of $1,000,000
and $491,000, respectively, for uncollectible
accounts) 171,274 142,834
Notes receivable from associated companies -- 53,509
Materials and supplies, at average cost-
Owned 39,294 38,213
Under consignment 23,721 43,620
Prepayments and other 56,447 58,342
---------- ----------
326,440 388,268
---------- ----------
DEFERRED CHARGES:
Regulatory assets 539,824 555,925
Goodwill 1,440,283 1,471,563
Property taxes 132,643 126,464
Other 12,606 12,650
---------- ----------
2,125,356 2,166,602
---------- ----------
$6,208,761 $6,318,183
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Consolidated Statements of Capitalization):
Common stockholder's equity $ 966,616 $1,008,238
Preferred stock-
Not subject to mandatory redemption 238,325 238,325
Subject to mandatory redemption 116,246 149,710
Long-term debt 2,682,795 2,888,202
---------- ----------
4,003,982 4,284,475
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and preferred stock 240,684 208,050
Accounts payable-
Associated companies 85,950 47,680
Other 50,570 62,315
Notes payable to associated companies 103,471 80,618
Accrued taxes 177,006 192,359
Accrued interest 60,740 66,685
Other 83,292 64,199
---------- ----------
801,713 721,906
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 567,478 524,285
Accumulated deferred investment tax credits 86,999 90,946
Nuclear plant decommissioning costs 192,484 134,243
Pensions and other postretirement benefits 220,731 217,719
Other 335,374 344,609
---------- ----------
1,403,066 1,311,802
---------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Notes 2 and 5) ---------- ----------
$6,208,761 $6,318,183
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDER'S EQUITY:
Common stock, without par value, authorized 105,000,000 shares
79,590,689 shares outstanding $ 931,962 $ 931,962
Retained earnings (Note 3A) 34,654 76,276
---------- ----------
Total common stockholder's equity 966,616 1,008,238
---------- ----------
<CAPTION>
Number of Shares Optional
Outstanding Redemption Price
---------------- --------------------
1999 1998 Per Share Aggregate
---- ---- --------- ---------
<S> <C> <C> <C> <C>
PREFERRED STOCK (Note 3C):
Cumulative, without par value-
Authorized 4,000,000 shares
Not Subject to Mandatory Redemption:
$ 7.40 Series A 500,000 500,000 $ 101.00 $ 50,500 50,000 50,000
$ 7.56 Series B 450,000 450,000 102.26 46,017 45,071 45,071
Adjustable Series L 474,000 474,000 100.00 47,400 46,404 46,404
$42.40 Series T 200,000 200,000 500.00 100,000 96,850 96,850
--------- --------- -------- ---------- ----------
Total Not Subject to Mandatory
Redemption 1,624,000 1,624,000 $243,917 238,325 238,325
========= ========= ======== ---------- ----------
Subject to Mandatory Redemption (Note 3D):
$ 7.35 Series C 90,000 100,000 101.00 $ 9,090 9,110 10,110
$88.00 Series E 3,000 6,000 1,000.00 3,000 3,000 6,000
$91.50 Series Q 21,430 32,144 1,000.00 21,430 21,430 32,144
$88.00 Series R 50,000 50,000 -- -- 55,000 55,000
$90.00 Series S 55,250 74,000 -- -- 61,170 79,920
Redemption Within One Year (33,464) (33,464)
--------- --------- -------- ---------- ----------
Total Subject to Mandatory
Redemption 219,680 262,144 $ 33,520 116,246 149,710
========= ========= ======== ---------- ----------
LONG-TERM DEBT (Note 3E):
First mortgage bonds:
7.625% due 2002 195,000 195,000
7.375% due 2003 100,000 100,000
9.500% due 2005 300,000 300,000
6.860% due 2008 125,000 125,000
9.000% due 2023 150,000 150,000
---------- ----------
Total first mortgage bonds 870,000 870,000
---------- ----------
Unsecured notes:
*5.580% due 2033 27,700 --
---------- ----------
</TABLE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
LONG-TERM DEBT (Cont.):
Secured notes:
7.250% due 1999 -- 12,000
7.670% due 1999 -- 3,000
7.770% due 1999 -- 17,000
7.850% due 1999 -- 25,000
8.290% due 1999 -- 10,000
9.250% due 1999 -- 52,500
9.300% due 1999 -- 25,000
7.000% due 2000-2009 1,850 1,880
7.190% due 2000 175,000 175,000
7.420% due 2001 10,000 10,000
8.540% due 2001 3,000 3,000
8.550% due 2001 5,000 5,000
8.560% due 2001 3,500 3,500
8.680% due 2001 15,000 15,000
9.050% due 2001 5,000 5,000
9.200% due 2001 15,000 15,000
7.850% due 2002 5,000 5,000
8.130% due 2002 28,000 28,000
7.750% due 2003 15,000 15,000
7.670% due 2004 280,000 280,000
7.130% due 2007 120,000 120,000
7.430% due 2009 150,000 150,000
8.000% due 2013 78,700 78,700
* 3.715% due 2015 39,835 39,835
7.880% due 2017 300,000 300,000
* 3.679% due 2018 72,795 72,795
* 5.350% due 2020 47,500 47,500
6.000% due 2020 62,560 62,560
6.100% due 2020 70,500 70,500
9.520% due 2021 7,500 7,500
6.850% due 2023 30,000 30,000
8.000% due 2023 46,100 73,800
7.625% due 2025 53,900 53,900
7.700% due 2025 43,800 43,800
7.750% due 2025 45,150 45,150
5.375% due 2028 5,993 5,993
4.400% due 2030 23,255 23,255
4.600% due 2030 81,640 81,640
---------- ----------
Total secured notes 1,840,578 2,012,808
---------- ----------
Capital lease obligations (Note 2) 79,204 94,568
---------- ----------
Net unamortized premium on debt 72,533 85,412
---------- ----------
Long-term debt due within one year (207,220) (174,586)
---------- ----------
Total long-term debt 2,682,795 2,888,202
---------- ----------
TOTAL CAPITALIZATION $4,003,982 $4,284,475
========== ==========
<FN>
* Denotes variable rate issue with December 31, 1999 interest rate shown.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
Comprehensive Other Retained
Income (Loss) Number Carrying Paid-In Earnings
(Note 3B) of Shares Value Capital (Deficit)
------------- ---------- ---------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 79,590,689 $1,241,287 $ 79,454 $(276,458)
Net (loss) $(229,247) (229,247)
=========
Equity contributions from parent 4,500
Carrying value adjustments for preferred
stock redemptions 25
Cash dividends on preferred stock (35,848)
Cash dividends on common stock (123,602)
Other, primarily preferred stock
redemption expenses (232)
___________________________________________________________________________________________________________________
Purchase accounting fair value adjustment (309,698) (83,954) 665,387
Net income $ 19,290 19,290
=========
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 79,590,689 931,614 -- 19,290
Purchase accounting fair value adjustment 348
Net income $ 164,891 164,891
=========
Cash dividends on preferred stock (21,947)
Cash dividends on common stock (85,958)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 79,590,689 931,962 -- 76,276
Net income $ 194,089 194,089
=========
Cash dividends on preferred stock (36,737)
Cash dividends on common stock (198,974)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 79,590,689 $ 931,962 $ -- $ 34,654
===================================================================================================================
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
-------------------- --------------------
Number Carrying Number Carrying
of Shares Value of Shares Value
--------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1997 1,624,000 $238,325 459,572 $215,626
Redemptions-
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$9.125 Series N (150,000) (14,794)
$91.50 Series Q (10,714) (10,714)
_________________________________________________________________________________________________
Purchase accounting fair value
adjustment-
$ 7.35 Series C 110
$88.00 Series R 5,000
$90.00 Series S 6,660
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,624,000 238,325 285,858 197,888
Redemptions-
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$91.50 Series Q (10,714) (10,714)
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1998 1,624,000 238,325 262,144 183,174
Redemptions-
$ 7.35 Series C (10,000) (1,000)
$88.00 Series E (3,000) (3,000)
$91.50 Series Q (10,714) (10,714)
$90.00 Series S (18,750) (18,750)
- -------------------------------------------------------------------------------------------------
Balance, December 31, 1999 1,624,000 $238,325 219,680 $149,710
=================================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended
December 31,
-------------------- Nov. 8- Jan. 1-
1999 1998 Dec. 31, 1997 Nov. 7, 1997
- ---------------------------------------------------------------------------------------------------------------
(In thousands) |
<S> <C> <C> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net Income (Loss) $ 194,089 $ 164,891 $ 19,290 | $ (229,247)
Adjustments to reconcile net income (loss) |
to net cash from operating activities: |
Provision for depreciation and amortization 231,225 234,348 33,438 | 211,827
Nuclear fuel and lease amortization 33,912 35,361 7,393 | 42,577
Other amortization (10,730) (12,677) -- | --
Deferred income taxes, net 33,060 13,031 6,263 | (126,693)
Investment tax credits, net (3,947) (5,185) (822) | (6,670)
Allowance for equity funds used during |
construction -- -- (140) | (1,647)
Extraordinary item -- -- -- | 499,135
Receivables (31,544) (38,527) 51,213 | (3,974)
Materials and supplies 18,818 (8,933) (3,922) | 6,363
Accounts payable 26,525 (10,481) (777) | (7,938)
Other (11,283) (22,772) 18,839 | (2,566)
--------- --------- -------- | ----------
Net cash provided from operating activities 480,125 349,056 130,775 | 381,167
--------- --------- -------- | ----------
CASH FLOWS FROM FINANCING ACTIVITIES: |
New Financing- |
Long-term debt 26,355 232,919 -- | 1,176,781
Ohio Schools Council prepayment program -- 116,598 -- | --
Short-term borrowings, net 22,853 23,816 703 | --
Redemptions and Repayments- |
Preferred stock 33,464 14,714 -- | 29,714
Long-term debt 214,405 488,610 43,500 | 701,843
Short-term borrowings, net -- -- -- | 55,519
Dividend Payments- |
Common stock 198,974 85,958 34,785 | 88,816
Preferred stock 33,524 34,841 7,191 | 29,311
--------- --------- -------- | ----------
Net cash provided from (used for) financing |
activities (431,159) (250,790) (84,773) | 271,578
--------- --------- -------- | ----------
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Property additions 122,194 72,130 17,943 | 104,230
Loans to associated companies -- 53,509 -- | --
Loan payments from associated companies (53,509) -- -- | --
Capital trust investments (25,905) (31,923) 16,248 | 558,836
Other 25,336 18,799 (4,288) | 2,276
--------- --------- -------- | ----------
Net cash used for investing activities 68,116 112,515 29,903 | 665,342
--------- --------- -------- | ----------
Net increase (decrease) in cash and cash equivalents (19,150) (14,249) 16,099 | (12,597)
Cash and cash equivalents at beginning of period 19,526 33,775 17,676 | 30,273
--------- --------- -------- | ----------
Cash and cash equivalents at end of period $ 376 $ 19,526 $ 33,775 | $ 17,676
========= ========= ======== | ==========
|
SUPPLEMENTAL CASH FLOWS INFORMATION: |
Cash Paid During the Period- |
Interest (net of amounts capitalized) $ 221,360 $ 239,950 $ 35,598 | $ 188,044
========= ========= ======== | ==========
Income taxes $ 92,555 $ 100,107 $ 9,000 | $ 26,300
========= ========= ======== | ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
For the Years Ended
December 31,
------------------- Nov. 8- Jan. 1-
1999 1998 Dec. 31, 1997 Nov. 7, 1997
- -----------------------------------------------------------------------------------------------------------------
(In thousands) |
<S> <C> <C> <C> | <C>
GENERAL TAXES: |
Real and personal property $ 120,725 $ 130,642 $ 17,707 | $ 114,393
State gross receipts 78,197 78,344 13,302 | 65,966
Social security and unemployment 10,941 9,029 1,548 | 6,296
Other 1,773 3,062 1,355 | 7,745
--------- --------- -------- | ---------
Total general taxes $ 211,636 $ 221,077 $ 33,912 | $ 194,400
========= ========= ======== | =========
|
PROVISION FOR INCOME TAXES: |
Currently payable- |
Federal $ 92,627 $ 90,690 $ 6,969 | $ 37,605
State * 2,129 2,158 159 | --
--------- --------- -------- | ---------
94,756 92,848 7,128 | 37,605
--------- --------- -------- | ---------
Deferred, net- |
Federal 33,369 12,981 6,183 | (126,693)
State * (309) 50 80 | --
--------- --------- -------- | ---------
33,060 13,031 6,263 | (126,693)
--------- --------- -------- | ---------
Investment tax credit amortization (3,947) (5,185) (822) | (6,670)
--------- --------- -------- | ---------
Total provision for income taxes $ 123,869 $ 100,694 $ 12,569 | $ (95,758)
========= ========= ======== | =========
INCOME STATEMENT CLASSIFICATION |
OF PROVISION FOR INCOME TAXES: |
Operating income $ 111,256 $ 88,762 $ 9,229 | $ 75,621
Other income 12,613 11,932 3,340 | 3,318
Extraordinary item -- -- -- | (174,697)
--------- --------- -------- | ---------
Total provision for income taxes $ 123,869 $ 100,694 $ 12,569 | $ (95,758)
========= ========= ======== | =========
|
RECONCILIATION OF FEDERAL INCOME TAX |
EXPENSE AT STATUTORY RATE TO TOTAL |
PROVISION FOR INCOME TAXES: |
Book income before provision for income taxes $ 317,958 $ 265,585 $ 31,859 | $(325,005)
========= ========= ======== | =========
Federal income tax expense at statutory rate $ 111,285 $ 92,955 $ 11,151 | $(113,752)
Increases (reductions) in taxes resulting from- |
Amortization of investment tax credits (3,947) (5,185) (822) | (6,670)
Depreciation -- -- -- | 14,780
Amortization of tax regulatory assets 693 693 238 | --
Amortization of goodwill 13,282 13,447 2,015 | --
Other, net 2,556 (1,216) (13) | 9,884
--------- --------- -------- | ---------
Total provision for income taxes $ 123,869 $ 100,694 $ 12,569 | $ (95,758)
========= ========= ======== | =========
|
ACCUMULATED DEFERRED INCOME TAXES AT |
DECEMBER 31: |
Property basis differences $ 663,294 $ 672,283 $676,853 |
Deferred nuclear expense 128,008 132,818 133,281 |
Deferred sale and leaseback costs (106,611) (113,884) (118,611) |
Unamortized investment tax credits (38,172) (40,241) (42,743) |
Unused alternative minimum tax credits (71,130) (124,459) (133,442) |
Other (7,911) (2,232) (18,901) |
--------- --------- -------- |
Net deferred income tax liability $ 567,478 $ 524,285 $496,437 |
========= ========= ======== |
<FN>
* For the period prior to November 8, 1997, state income taxes are included in the General Taxes section above.
These amounts are not material and no restatement was made.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include The Cleveland
Electric Illuminating Company (Company) and its wholly owned subsidiary,
Centerior Funding Corporation (Centerior Funding). The subsidiary was formed
in 1995 to serve as the transferor in connection with an accounts receivable
securitization completed in 1996. All significant intercompany transactions
have been eliminated. The Company is a wholly owned subsidiary of FirstEnergy
Corp. (FirstEnergy). Prior to the merger in November 1997 (see Note 7), the
Company and The Toledo Edison Company (TE) were the principal operating
subsidiaries of Centerior Energy Corporation (Centerior). The merger was
accounted for using the purchase method of accounting in accordance with
generally accepted accounting principles, and the applicable effects were
reflected on the separate financial statements of Centerior's direct
subsidiaries as of the merger date. Accordingly, the post-merger financial
statements reflect a new basis of accounting and pre-merger period and post-
merger period financial results (separated by a heavy black line) are
presented. The Company follows the accounting policies and practices
prescribed by the Public Utilities Commission of Ohio (PUCO) and the Federal
Energy Regulatory Commission (FERC). The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make periodic estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Certain prior
year amounts have been reclassified to conform with the current year
presentation.
REVENUES-
The Company's principal business is providing electric service to
customers in northeastern Ohio. The Company's retail customers are metered on
a cycle basis. Revenue is recognized for unbilled electric service through
the end of the year.
Receivables from customers include sales to residential, commercial
and industrial customers located in the Company's service area and sales to
wholesale customers. There was no material concentration of receivables at
December 31, 1999 or 1998, with respect to any particular segment of the
Company's customers.
The Company and TE sell on a daily basis substantially all of their
retail customer accounts receivable to Centerior Funding under an asset-
backed securitization agreement which expires in 2001. In July 1996,
Centerior Funding completed a public sale of $150 million of receivables-
backed investor certificates in a transaction that qualified for sale
accounting treatment.
REGULATORY PLAN-
FirstEnergy's Rate Reduction and Economic Development Plan for the
Company was approved in January 1997, to become effective upon consummation
of the merger. The regulatory plan was to maintain current base electric
rates for the Company through December 31, 2005. At the end of the regulatory
plan period, the Company's base rates were to be reduced by $217 million
(approximately 15 percent below current levels). The regulatory plan also
revised the Company's fuel cost recovery method. The Company formerly
recovered fuel-related costs not otherwise included in base rates from retail
customers through a separate energy rate. In accordance with the regulatory
plan, the Company's fuel rate would be frozen through the regulatory plan
period, subject to limited periodic adjustments. As part of the regulatory
plan, transition rate credits were implemented for customers, which are
expected to reduce operating revenues for the Company by approximately $280
million during the regulatory plan period.
In July 1999, Ohio's new electric utility restructuring legislation
which will allow Ohio electric customers to select their generation suppliers
beginning January 1, 2001, was signed into law. Among other things, the new
law provides for a five percent reduction on the generation portion of
residential customers' bills and the opportunity to recover transition costs,
including regulatory assets, from January 1, 2001 through December 31, 2005.
The period for the recovery of regulatory assets only can be extended up to
December 31, 2010. The PUCO was authorized to determine the level of
transition cost recovery, as well as the recovery period for the regulatory
assets portion of those costs, in considering each Ohio electric utility's
transition plan application.
FirstEnergy, on behalf of its Ohio electric utility operating
companies - the Company, Ohio Edison Company (OE) and TE - on December 22,
1999 refiled its transition plan under Ohio's new electric utility
restructuring law. The plan was originally filed with the PUCO on October 4,
1999, but was refiled to conform to PUCO rules established on November 30,
1999. The new filing also included additional information on FirstEnergy's
plans to turn over control, and perhaps ownership, of its transmission assets
to the Alliance Regional Transmission Organization. The PUCO indicated that
it will endeavor to issue its order in FirstEnergy's case within 275 days of
the initial October filing date.
The transition plan itemizes, or unbundles, the current price of
electricity into its component elements - including generation, transmission,
distribution and transition charges. As required by the PUCO's rules,
FirstEnergy's filing also included its proposals on corporate separation of
its regulated and unregulated operations, operational and technical support
changes needed to accommodate customer choice, an education program to inform
customers of their options under the new law, and how FirstEnergy's
transmission system will be operated to ensure access to all users. Under the
plan, customers who remain with the Company as their generation provider will
continue to receive savings under the Company's rate plans, expected to total
$241 million between 2000 and 2005. In addition, FirstEnergy's Ohio utility
customers will save $358 million through reduced charges for taxes and a five
percent reduction in the price of generation for residential customers
beginning January 1, 2001. Customer prices are expected to be frozen through
a five-year market development period (2001-2005), except for certain limited
statutory exceptions including the five percent reduction in the price of
generation for residential customers. The plan proposes recovery of the
Company's generation-related transition costs of approximately $1.9 billion
($1.6 billion, net of deferred income taxes) over the market development
period; its transition costs related to regulatory assets aggregating
approximately $1.9 billion ($1.4 billion, net of deferred income taxes) will
be recovered over the period of 2001 through 2010.
All of the Company's regulatory assets related to its nonnuclear
operations are being recovered under provisions of the regulatory plan (see
"Regulatory Assets"). The Company recognized a fair value purchase accounting
adjustment to reduce nuclear plant by $1.71 billion in connection with the
FirstEnergy merger (see Note 7); that fair value adjustment recognized for
financial reporting purposes will ultimately satisfy the $1.4 billion asset
reduction commitment contained in the regulatory plan. For regulatory
purposes, the Company will recognize the $1.4 billion of accelerated
amortization over the regulatory plan period.
Application of Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS
71), was discontinued in 1997 with respect to the Company's nuclear
operations. The Company's net assets included in utility plant relating to
the operations for which the application of SFAS 71 was discontinued were
$977 million as of December 31, 1999.
UTILITY PLANT AND DEPRECIATION-
Utility plant reflects the original cost of construction (except
for the Company's nuclear generating units which were adjusted to fair value
in 1997), including payroll and related costs such as taxes, employee
benefits, administrative and general costs, and interest costs.
The Company provides for depreciation on a straight-line basis at
various rates over the estimated lives of property included in plant in
service. The annualized composite rate was approximately 3.4% (reflecting the
nuclear asset fair value adjustment discussed above) in 1999 and 1998 and
2.8% in the post-merger period in 1997.
Annual depreciation expense includes approximately $11.7 million
for future decommissioning costs applicable to the Company's ownership
interests in three nuclear generating units. The Company's future
decommissioning costs reflect the increase in its ownership interests related
to the asset transfer with Duquesne Light Company (Duquesne) discussed below
in "Common Ownership of Generating Facilities." The Company's share of the
future obligation to decommission these units is approximately $606 million
in current dollars and (using a 4.0% escalation rate) approximately $1.6
billion in future dollars. The estimated obligation and the escalation rate
were developed based on site specific studies. Payments for decommissioning
are expected to begin in 2016, when actual decommissioning work begins. The
Company has recovered approximately $122 million for decommissioning through
its electric rates from customers through December 31, 1999. If the actual
costs of decommissioning the units exceed the funds accumulated from
investing amounts recovered from customers, the Company expects that
additional amount to be recoverable from its customers. The Company has
approximately $183.3 million invested in external decommissioning trust funds
as of December 31, 1999. This includes additions to the trust funds and the
corresponding liability of $33.5 million as a result of the asset transfer.
Earnings on these funds are reinvested with a corresponding increase to the
decommissioning liability. The Company has also recognized an estimated
liability of approximately $10.3 million at December 31, 1999 related to
decontamination and decommissioning of nuclear enrichment facilities operated
by the United States Department of Energy (DOE), as required by the Energy
Policy Act of 1992.
The Financial Accounting Standards Board (FASB) issued a proposed
accounting standard for nuclear decommissioning costs in 1996. If the
standard is adopted as proposed: (1) annual provisions for decommissioning
could increase; (2) the net present value of estimated decommissioning costs
could be recorded as a liability; and (3) income from the external
decommissioning trusts could be reported as investment income. The FASB
subsequently expanded the scope of the proposed standard to include other
closure and removal obligations related to long-lived assets. A revised
proposal may be issued by the FASB in the first quarter of 2000.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Company, TE, Duquesne, OE and its wholly owned subsidiary,
Pennsylvania Power Company (Penn), constituted the Central Area Power
Coordination Group (CAPCO). The CAPCO companies formerly owned and/or leased,
as tenants in common, various power generating facilities. Each of the
companies is obligated to pay a share of the costs associated with any
jointly owned facility in the same proportion as its interest. The Company's
portion of operating expenses associated with jointly owned facilities is
included in the corresponding operating expenses on the Consolidated
Statements of Income.
On March 26, 1999, FirstEnergy completed its agreements with
Duquesne to exchange certain generating assets. All regulatory approvals were
received by October 1999. In December 1999, Duquesne transferred 1,436
megawatts owned by Duquesne at eight CAPCO generating units in exchange for
1,328 megawatts at three non-CAPCO power plants owned by the Company, OE and
Penn. As part of this exchange, the Company transferred the 743-megawatt Avon
Lake Plant to Duquesne. The Company acquired Duquesne's ownership interest in
the Perry Plant, Sammis Unit 7 and Eastlake Unit 5. The Company also
acquired, with OE and Penn, Duquesne's ownership interest in the Bruce
Mansfield Plant. The agreements for the exchange of assets, which was
structured as a like-kind exchange for tax purposes, provides FirstEnergy's
utility operating companies with exclusive ownership and operating control of
all CAPCO generating units. The three FirstEnergy plants transferred are
being sold by Duquesne to a wholly owned subsidiary of Orion Power Holdings,
Inc. (Orion). The Company, OE and Penn will continue to operate those plants
until the assets are transferred to the new owners. Duquesne funded
decommissioning costs equal to its percentage interest in the three nuclear
generating units that were transferred to FirstEnergy. The Duquesne asset
transfer to the Orion subsidiary could take place by the middle of 2000.
Under the agreements, Duquesne is no longer a participant in the CAPCO
arrangements after the exchange. The amounts reflected on the Consolidated
Balance Sheet under utility plant at December 31, 1999 include the following:
<TABLE>
<CAPTION>
Utility Accumulated Construction Ownership/
Plant Provision for Work in Leasehold
Generating Units in Service Depreciation Progress Interest
- ----------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
W. H. Sammis Unit 7 $ 196.7 $114.5 $ 0.7 31.20%
Bruce Mansfield
Units 1, 2 and 3 75.0 30.2 7.2 20.42%
Beaver Valley
Unit 2 343.2 33.3 4.1 24.47%
Davis-Besse 206.6 2.9 4.3 51.38%
Perry 632.2 91.2 8.2 44.85%
- --------------------------------------------------------------------
Total $1,453.7 $272.1 $24.5
====================================================================
</TABLE>
The Bruce Mansfield Plant is being leased through a sale and
leaseback transaction (see Note 2) and the above-related amounts represent
construction expenditures subsequent to the transaction.
The Company acquired the remaining 20% share of the Seneca pumped-
storage unit in 1999 from a non-CAPCO Company.
NUCLEAR FUEL-
The Company leases its nuclear fuel and pays for the fuel as it is
consumed (see Note 2). The Company amortizes the cost of nuclear fuel based
on the rate of consumption. The Company's electric rates include amounts for
the future disposal of spent nuclear fuel based upon the payments to the DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on the
Consolidated Statements of Taxes. Deferred income taxes result from timing
differences in the recognition of revenues and expenses for tax and
accounting purposes. Investment tax credits, which were deferred when
utilized, are being amortized over the recovery period of the related
property. The liability method is used to account for deferred income taxes.
Deferred income tax liabilities related to tax and accounting basis
differences are recognized at the statutory income tax rates in effect when
the liabilities are expected to be paid. Alternative minimum tax credits of
$71 million, which may be carried forward indefinitely, are available to
reduce future federal income taxes. Since the Company became a wholly owned
subsidiary of FirstEnergy on November 8, 1997, the Company is included in
FirstEnergy's consolidated federal income tax return. The consolidated tax
liability is allocated on a "stand-alone" company basis, with the Company
recognizing any tax losses or credits it contributed to the consolidated
return.
RETIREMENT BENEFITS-
Centerior had sponsored jointly with the Company, TE and Centerior
Service Company (Service Company) a noncontributory pension plan (Centerior
Pension Plan) which covered all employee groups. Upon retirement, employees
receive a monthly pension generally based on the length of service and
compensation. In 1998, the Centerior Pension Plan was merged into the
FirstEnergy pension plan. In connection with the OE-Centerior merger, the
Company recorded fair value purchase accounting adjustments to recognize the
net gain, prior service cost, and net transition asset (obligation)
associated with the pension and postretirement benefit plans. The assets of
the FirstEnergy pension plan consist primarily of common stocks, United
States government bonds and corporate bonds.
The Company provides a minimum amount of noncontributory life
insurance to retired employees in addition to optional contributory
insurance. Health care benefits, which include certain employee deductibles
and copayments, are also available to retired employees, their dependents
and, under certain circumstances, their survivors. The Company pays insurance
premiums to cover a portion of these benefits in excess of set limits; all
amounts up to the limits are paid by the Company. The Company recognizes the
expected cost of providing other postretirement benefits to employees and
their beneficiaries and covered dependents from the time employees are hired
until they become eligible to receive those benefits.
The following sets forth the funded status of the FirstEnergy plans
in 1999 and 1998 and amounts recognized on the Consolidated Balance Sheets as
of December 31:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
------------------ -----------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit
obligation:
Benefit obligation as
of January 1 $1,500.1 $1,327.5 $ 601.3 $ 534.1
Service cost 28.3 25.0 9.3 7.5
Interest cost 102.0 92.5 40.7 37.6
Plan amendments -- 44.3 -- 40.1
Actuarial loss (gain) (155.6) 101.6 (17.6) 10.7
Net increase from asset
swap 14.8 -- 12.5 --
Benefits paid (95.5) (90.8) (37.8) (28.7)
- ----------------------------------------------------------------------
Benefit obligation as
of December 31 1,394.1 1,500.1 608.4 601.3
- ----------------------------------------------------------------------
Change in plan assets:
Fair value of plan
assets as of January 1 1,683.0 1,542.5 3.9 2.8
Actual return on plan
assets 220.0 231.3 0.6 0.7
Company contribution -- -- 0.4 0.4
Benefits paid (95.5) (90.8) -- --
- ----------------------------------------------------------------------
Fair value of plan assets
as of December 31 1,807.5 1,683.0 4.9 3.9
- ----------------------------------------------------------------------
Funded status of plan 413.4 182.9 (603.5) (597.4)
Unrecognized actuarial
loss (gain) (303.5) (110.8) 24.9 30.6
Unrecognized prior
service cost 57.3 63.0 24.1 27.4
Unrecognized net tran-
sition obligation (asset) (10.1) (18.0) 120.1 129.3
- ----------------------------------------------------------------------
Prepaid (accrued) benefit
cost $ 157.1 $ 117.1 $(434.4) $(410.1)
======================================================================
Assumptions used as of
December 31:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected long-term
return on plan assets 10.25% 10.25% 10.25% 10.25%
Rate of compensation
increase 4.00% 4.00% 4.00% 4.00%
</TABLE>
The Consolidated Balance Sheet classification of Pensions and Other
Postretirement Benefits at December 31, 1999 and 1998 includes the Company's
share of the net pension liability of $39.9 million and $47.7 million,
respectively; and the Company's share of the accrued postretirement benefit
liability of $179.0 million and $170.0 million, respectively.
Net pension and other postretirement benefit costs for the three
years ended December 31, 1999 (FirstEnergy plans in 1999 and 1998 and
Centerior plans in 1997) were computed as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
---------------------------- ------------------------------
1997 1997
---------------- ----------------
Nov. 8- Jan. 1- Nov. 8- Jan. 1-
1999 1998 Dec. 31 Nov. 7 1999 1998 Dec. 31 Nov. 7
- -------------------------------------------------------------------------------------------------------------
| (In millions) |
<S> <C> <C> <C> | <C> <C> <C> <C> | <C>
Service cost $ 28.3 $ 25.0 $ 2.3 | $ 11.1 $ 9.3 $ 7.5 $0.5 | $ 1.8
Interest cost 102.0 92.5 6.1 | 25.4 40.7 37.6 2.8 | 13.5
Expected return on plan assets (168.1) (152.7) (7.7) | (38.0) (0.4) (0.3) -- | --
Amortization of transition | |
obligation (asset) (7.9) (8.0) -- | (3.0) 9.2 9.2 -- | 6.4
Amortization of prior service cost 5.7 2.3 -- | 1.1 3.3 (0.8) -- | --
Recognized net actuarial loss (gain) -- (2.6) -- | (0.5) -- -- -- | (0.9)
Voluntary early retirement program | |
expense -- -- 23.0 | 4.8 -- -- -- | --
- ------------------------------------------------------------------------------------------------------------
Net benefit cost $ (40.0) $(43.5) $23.7 | $ 0.9 $62.1 $53.2 $3.3 | $20.8
=================================================================|==================================|=======
Company's share of total plan costs $ (14.4) $( 2.7) $16.5 | $ (2.5) $22.0 $14.5 $2.6 | $11.4
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The FirstEnergy plan's health care trend rate assumption is 5.3% in
2000, 5.2% in 2001 and 5.0% for 2002 and later years. Assumed health care
cost trend rates have a significant effect on the amounts reported for the
health care plan. An increase in the health care trend rate assumption by one
percentage point would increase the total service and interest cost
components by $4.5 million and the postretirement benefit obligation by $72.0
million. A decrease in the same assumption by one percentage point would
decrease the total service and interest cost components by $3.5 million and
the postretirement benefit obligation by $58.2 million.
TRANSACTIONS WITH AFFILIATED COMPANIES-
Operating revenues, operating expenses and interest charges
include amounts for transactions with affiliated companies in the ordinary
course of business operations.
The Company's transactions with TE and the other FirstEnergy
operating subsidiaries (OE and Penn) from the November 8, 1997 merger date
are primarily for firm power, interchange power, transmission line rentals
and jointly owned power plant operations and construction (see Note 7).
Beginning in May 1996, Centerior Funding began serving as the transferor in
connection with the accounts receivable securitization for the Company and
TE.
The Company is buying 150 megawatts of TE's Beaver Valley Unit 2
leased capacity entitlement. Purchased power expense for this transaction was
$104.3 million, $98.5 million, $16.8 million and $87.4 million in 1999, in
1998, the November 8-December 31, 1997 period and the January 1-November 7,
1997 period, respectively. This purchase is expected to continue through the
end of the lease period. (See Note 2.)
FirstEnergy and, prior to 1999, the Service Company (formerly a
wholly owned subsidiary of Centerior and now a wholly owned subsidiary of
FirstEnergy) provided support services at cost to the Company and other
affiliated companies. FirstEnergy billed the Company $109.1 million in 1999
and the Service Company billed the Company $80.6 million, $34.1 million and
$130.8 million in 1998, the November 8-December 31, 1997 period and the
January 1-November 7, 1997 period, respectively, for such services.
Fuel and purchased power expenses on the Consolidated Statements
of Income include the cost of power purchased from TE of $106.1 million,
$104.7 million, $17.7 million and $98.5 million in 1999, 1998, the November
8-December 31, 1997 period and the January 1-November 7, 1997 period,
respectively.
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial maturity
of three months or less are reported as cash equivalents on the Consolidated
Balance Sheets. At December 31, 1998, cash and cash equivalents included $6
million to be used for the redemption of long-term debt in 1999. The Company
reflects temporary cash investments at cost, which approximates their fair
market value. Noncash financing and investing activities included capital
lease transactions amounting to $26.2 million, $32.3 million, $3.2 million
and $12.9 million in 1999, 1998, the November 8-December 31, 1997 period and
the January 1-November 7, 1997 period, respectively.
All borrowings with initial maturities of less than one year are
defined as financial instruments under generally accepted accounting
principles and are reported on the Consolidated Balance Sheets at cost, which
approximates their fair market value. The following sets forth the
approximate fair value and related carrying amounts of all other long-term
debt, preferred stock subject to mandatory redemption and investments other
than cash and cash equivalents as of December 31:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- ---------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $2,738 $2,711 $2,883 $3,120
Preferred stock $ 150 $ 139 $ 183 $ 184
Investments other than cash
and cash equivalents:
Debt securities
- (Maturing in more than
10 years) $ 517 $ 476 $ 543 $ 533
All other 193 200 135 136
- ---------------------------------------------------------------------
$ 710 $ 676 $ 678 $ 669
======================================================================
</TABLE>
The carrying value of long-term debt and preferred stock subject to
mandatory redemption were adjusted to fair value in connection with the OE-
Centerior merger and reflect the present value of the cash outflows relating
to those securities based on the current call price, the yield to maturity or
the yield to call, as deemed appropriate at the end of each respective year.
The yields assumed were based on securities with similar characteristics
offered by a corporation with credit ratings similar to the Company's
ratings.
The fair value of investments other than cash and cash equivalents
represent cost (which approximates fair value) or the present value of the
cash inflows based on the yield to maturity. The yields assumed were based on
financial instruments with similar characteristics and terms. Investments
other than cash and cash equivalents include decommissioning trust
investments. Unrealized gains and losses applicable to the decommissioning
trusts have been recognized in the trust investment with a corresponding
change to the decommissioning liability. The debt securities referred to
above are in the held-to-maturity category. The Company has no securities
held for trading purposes.
REGULATORY ASSETS-
The Company recognizes, as regulatory assets, costs which the FERC
and PUCO have authorized for recovery from customers in future periods.
Without such authorization, the costs would have been charged to income as
incurred. All regulatory assets related to nonnuclear operations are being
recovered from customers under the Company's regulatory plan. Based on the
regulatory plan, at this time, the Company is continuing to bill and collect
cost-based rates relating to nonnuclear operations and continues the
application of SFAS 71 to those operations. The PUCO indicated that it will
endeavor to issue its order related to FirstEnergy's transition plan by mid-
2000. The application of SFAS 71 to the Company's nonnuclear generation
businesses will be discontinued at that time. If the transition plan
ultimately approved by the PUCO for the Company does not provide adequate
recovery of its nuclear generating unit investments and regulatory assets,
there would be a charge to earnings which could have a material adverse
effect on the results of operations and financial condition for the Company.
The Company will continue to bill and collect cost-based rates for its
transmission and distribution services, which will remain regulated;
accordingly, it is appropriate that the Company continues the application of
SFAS 71 to those respective operations after December 31, 2000.
The Company discontinued the application of SFAS 71 for its nuclear
operations in October 1997 when implementation of the regulatory plan became
probable. The regulatory plan does not provide for full recovery of the
Company's nuclear operations. In accordance with SFAS No. 101, "Regulated
Enterprises - Accounting for the Discontinuation of Application of SFAS 71,"
the Company was required to remove from its balance sheet all regulatory
assets and liabilities related to the portion of its business for which SFAS
71 was discontinued and to assess all other assets for impairment. Regulatory
assets attributable to nuclear operations of $499.1 million ($324.4 million
after taxes) were written off as an extraordinary item in October 1997. The
regulatory assets attributable to nuclear operations written off represent
the net amounts due from customers for future federal income taxes when the
taxes become payable, which, under the regulatory plan, are no longer
recoverable from customers. The remainder of the Company's business continues
to comply with the provisions of SFAS 71. All remaining regulatory assets of
the Company continue to be recovered through rates applicable to the
nonnuclear portion of the Company's business. For financial reporting
purposes, the net book value of the nuclear generating units was not impaired
as a result of the regulatory plan.
Net regulatory assets on the Consolidated Balance Sheets are
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------
(In millions)
<S> <C> <C>
Nuclear unit expenses $287.1 $298.0
Customer receivables for future income taxes 23.0 13.0
Rate stabilization program deferrals 263.9 276.0
Sale and leaseback costs (136.4) (140.9)
Loss on reacquired debt 75.9 81.6
Other 26.3 28.2
- ----------------------------------------------------------------------
Total $539.8 $555.9
======================================================================
</TABLE>
2. LEASES:
The Company leases certain generating facilities, nuclear fuel,
certain transmission facilities, office space and other property and
equipment under cancelable and noncancelable leases.
The Company and TE sold their ownership interests in Bruce
Mansfield Units 1, 2 and 3 and TE sold a portion of its ownership interest in
Beaver Valley Unit 2. In connection with these sales, which were completed in
1987, the Company and TE entered into operating leases for lease terms of
approximately 30 years as co-lessees. During the terms of the leases, the
Company and TE continue to be responsible, to the extent of their combined
ownership and leasehold interest, for costs associated with the units
including construction expenditures, operation and maintenance expenses,
insurance, nuclear fuel, property taxes and decommissioning. The Company and
TE have the right, at the end of the respective basic lease terms, to renew
the leases. The Company and TE also have the right to purchase the facilities
at the expiration of the basic lease term or renewal term (if elected) at a
price equal to the fair market value of the facilities.
As co-lessee with TE, the Company is also obligated for TE's lease
payments. If TE is unable to make its payments under the Beaver Valley Unit 2
and Bruce Mansfield Plant leases, the Company would be obligated to make such
payments. No such payments have been made on behalf of TE. (TE's future
minimum lease payments as of December 31, 1999 were approximately $1.8
billion.)
Nuclear fuel is currently financed for the Company and TE through
leases with a special-purpose corporation. As of December 31, 1999, $116
million of nuclear fuel ($72 million for the Company) was financed under a
lease financing arrangement totaling $145 million ($30 million of
intermediate-term notes and $115 million from bank credit arrangements). The
notes mature in August 2000 and the bank credit arrangements expire in
September 2000. Lease rates are based on intermediate-term note rates, bank
rates and commercial paper rates.
Consistent with the regulatory treatment, the rentals for capital
and operating leases are charged to operating expenses on the Consolidated
Statements of Income. Such costs for the three years ended December 31, 1999
and are summarized as follows:
<TABLE>
<CAPTION>
Nov. 8 - Jan. 1 -
1999 1998 Dec. 31, 1997 Nov. 7, 1997
- ----------------------------------------------------------------------
(In millions) |
<S> <C> <C> <C> | <C>
Operating leases |
Interest element $ 38.6 $ 32.4 $10.6 | $ 56.0
Other 30.7 74.4 8.4 | 18.3
Capital leases |
Interest element 6.9 7.0 1.5 | 8.5
Other 41.3 36.1 7.5 | 43.4
- -------------------------------------------------------|-------------
Total rentals $117.5 $149.9 $28.0 | $126.2
=====================================================================
</TABLE>
The future minimum lease payments as of December 31, 1999 are:
<TABLE>
<CAPTION>
Operating Leases
-------------------------
Capital Lease Capital
Leases Payments Trust Net
- -----------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
2000 $40.4 $ 66.6 $ 60.5 $ 6.1
2001 21.4 71.7 50.2 21.5
2002 13.6 76.4 70.6 5.8
2003 5.0 77.5 77.9 (0.4)
2004 2.8 55.7 28.1 27.6
Years thereafter 8.6 720.5 536.2 184.3
- ----------------------------------------------------------------
Total minimum lease payments 91.8 $1,068.4 $823.5 $244.9
Interest portion 12.6 ======== ====== ======
- ------------------------------------
Present value of net minimum
lease payments 79.2
Less current portion 32.2
- ------------------------------------
Noncurrent portion $47.0
====================================
</TABLE>
The Company and TE refinanced high-cost fixed obligations related
to their 1987 sale and leaseback transaction for the Bruce Mansfield Plant
through a lower cost transaction in June and July 1997. In a June 1997
offering (Offering), the two companies pledged $720 million aggregate
principal amount ($575 million for the Company and $145 million for TE) of
first mortgage bonds due in 2000, 2004 and 2007 to a trust as security for
the issuance of a like principal amount of secured notes due in 2000, 2004
and 2007. The obligations of the two companies under these secured notes are
joint and several. Using available cash, short-term borrowings and the net
proceeds from the Offering, the two companies invested $906.5 million ($569.4
million for the Company and $337.1 million for TE) in a business trust, in
June 1997. The trust used these funds in July 1997 to purchase lease notes
and redeem all $873.2 million aggregate principal amount of 10-1/4% and 11-
1/8% secured lease obligation bonds (SLOBs) due 2003 and 2016. The SLOBs were
issued by a special-purpose-funding corporation in 1988 on behalf of lessors
in the two companies' 1987 sale and leaseback transaction. The Shippingport
capital trust arrangement effectively reduces lease costs related to that
transaction.
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
There are no restrictions on retained earnings for payment of cash
dividends on the Company's common stock. The merger purchase accounting
adjustments included resetting the retained earnings balance to zero at the
November 8, 1997 merger date.
(B) COMPREHENSIVE INCOME-
In 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," and applied the standard to all periods presented in the
Consolidated Statements of Common Stockholder's Equity. Comprehensive income
includes net income as reported on the Consolidated Statements of Income and
all other changes in common stockholder's equity except dividends to
stockholders. Net income and comprehensive income are the same for each
period presented.
(C) PREFERRED AND PREFERENCE STOCK-
The Company's $88.00 Series R preferred stock is not redeemable
before December 2001 and its $90.00 Series S has no optional redemption
provision. All other preferred stock may be redeemed by the Company in whole,
or in part, with 30-90 days' notice.
The preferred dividend rate on the Company's Series L fluctuates
based on prevailing interest rates and market conditions. The dividend rate
for this issue was 7% in 1999.
The Company has 3 million authorized and unissued shares of
preference stock having no par value
A liability of $14 million was included in the Company's net assets
as of the merger date for preferred dividends declared attributable to the
post-merger period. Accordingly, no accrual for preferred stock dividend
requirements was included on the Company's November 8, 1997 to December 31,
1997 Consolidated Statement of Income. This liability was subsequently
reduced to zero in 1998.
(D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
Annual sinking fund provisions for preferred stock are as follows:
<TABLE>
<CAPTION>
Redemption
Price Per
Series Shares Share Date Beginning
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7.35 C 10,000 $ 100 (i)
88.00 E 3,000 1,000 (i)
91.50 Q 10,714 1,000 (i)
90.00 S 18,750 1,000 (i)
88.00 R 50,000 1,000 December 1 2001
- ----------------------------------------------------------------
<FN>
(i) Sinking fund provisions are in effect.
</TABLE>
Annual sinking fund requirements for the next five years are $33.5
million in 2000, $80.5 million in 2001, $18.0 million in 2002 and $1.0
million in each year 2003 and 2004.
(E) LONG-TERM DEBT-
The first mortgage indenture and its supplements, which secure all
of the Company's first mortgage bonds, serve as direct first mortgage liens
on substantially all property and franchises, other than specifically
excepted property, owned by the Company.
Sinking fund requirements for first mortgage bonds and maturing
long-term debt (excluding capital leases) for the next five years are:
<TABLE>
<CAPTION>
(In millions)
- --------------------------
<S> <C>
2000 $175.0
2001 56.5
2002 228.0
2003 115.0
2004 307.7
- ---------------------------
</TABLE>
The Company's obligations to repay certain pollution control
revenue bonds are secured by several series of first mortgage bonds. One
pollution control revenue bond is entitled to the benefit of an irrevocable
bank letter of credit of $48.1 million. To the extent that drawings are made
under this letter of credit to pay principal of, or interest on, the
pollution control revenue bond, the Company is entitled to a credit against
its obligation to repay this bond. The Company pays an annual fee of 1.1% of
the amount of the letter of credit to the issuing bank and is obligated to
reimburse the bank for any drawings thereunder.
The Company and TE have letters of credit of approximately $222
million in connection with the sale and leaseback of Beaver Valley Unit 2
that expire in May 2002. The letters of credit are secured by first mortgage
bonds of the Company and TE in the proportion of 40% and 60%, respectively
(see Note 2).
4. SHORT-TERM BORROWINGS:
FirstEnergy has a $150 million revolving credit facility that
expires in November 2000. FirstEnergy may borrow under the facility and could
transfer any of its borrowed funds to the Company and TE, with all borrowings
jointly and severally guaranteed by the Company and TE. The credit agreement
is secured with first mortgage bonds of the Company and TE in the proportion
of 40% and 60%, respectively. The credit agreement also provides the
participating banks with a subordinate mortgage security interest in the
properties of the Company and TE. The banks' fee is 0.50% per annum payable
quarterly in addition to interest on any borrowings. (FirstEnergy had $90
million of borrowings under the facility at December 31, 1999.) Also, the
Company may borrow from its affiliates on a short-term basis. At December 31,
1999, the Company had total short-term borrowings of $103.5 million from its
affiliates with a weighted average interest rate of approximately 6.4%.
5. COMMITMENTS AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Company's current forecast reflects expenditures of
approximately $529 million for property additions and improvements from 2000-
2004, of which approximately $112 million is applicable to 2000. Investments
for additional nuclear fuel during the 2000-2004 period are estimated to be
approximately $166 million, of which approximately $56 million applies to
2000. During the same periods, the Company's nuclear fuel investments are
expected to be reduced by approximately $158 million and $36 million,
respectively, as the nuclear fuel is consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative to a
single incident at a nuclear power plant to $9.5 billion. The amount is
covered by a combination of private insurance and an industry retrospective
rating plan. Based on its present ownership and leasehold interests in Beaver
Valley Unit 2, the Davis-Besse Station and the Perry Plant, the Company's
maximum potential assessment under the industry retrospective rating plan
(assuming the other affiliate co-owners contribute their proportionate shares
of any assessments under the retrospective rating plan) would be $106.3
million per incident but not more than $12.1 million in any one year for each
incident.
The Company is also insured as to its respective interests in
Beaver Valley Unit 2, Davis-Besse and Perry under policies issued to the
operating company for each plant. Under these policies, up to $2.75 billion
is provided for property damage and decontamination and decommissioning
costs. The Company has also obtained approximately $442.7 million of
insurance coverage for replacement power costs for its respective interests
in Beaver Valley Unit 2, Davis-Besse and Perry. Under these policies, the
Company can be assessed a maximum of approximately $13.1 million for incidents
at any covered nuclear facility occurring during a policy year which are in
excess of accumulated funds available to the insurer for paying losses.
The Company intends to maintain insurance against nuclear risks as
described above as long as it is available. To the extent that replacement
power, property damage, decontamination, decommissioning, repair and
replacement costs and other such costs arising from a nuclear incident at any
of the Company's plants exceed the policy limits of the insurance in effect
with respect to that plant, to the extent a nuclear incident is determined
not to be covered by the Company's insurance policies, or to the extent such
insurance becomes unavailable in the future, the Company would remain at risk
for such costs.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the Company
with regard to air and water quality and other environmental matters. The
Company estimates additional capital expenditures for environmental
compliance of approximately $84 million, which is included in the
construction forecast provided under "Capital Expenditures" for 2000 through
2004.
The Company is in compliance with the current sulfur dioxide (SO2)
and nitrogen oxides (NOx) reduction requirements under the Clean Air Act
Amendments of 1990. SO2 reductions 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 Company's
Ohio and Pennsylvania facilities by May 2003. The EPA's NOx Transport Rule
imposes uniform reductions of NOx emissions across a region of twenty-two
states and the District of Columbia, including Ohio and Pennsylvania, based
on a conclusion that such NOx emissions are contributing significantly to
ozone pollution in the eastern United States. In May 1999, the U.S. Court of
Appeals for the D.C. Circuit issued a stay which delays implementation of
EPA's NOx Transport Rule until the Court has ruled on the merits of various
appeals. Under the NOx Transport Rule, 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 contemplating an
approximate 85% reduction in utility plant NOx emissions from projected 2007
emissions. A proposed Federal Implementation Plan accompanied the NOx
Transport Rule and may be implemented by the EPA in states which fail to
revise their SIP. In another separate but related action, eight states filed
petitions with the EPA under Section 126 of the Clean Air Act seeking
reductions of NOx emissions which are alleged to contribute to ozone
pollution in the eight petitioning states. The EPA suggests that the Section
126 petitions will be adequately addressed by the NOx Transport Program, but
a December 17, 1999 rulemaking established an alternative program which would
require nearly identical 85% NOx reductions at 392 utility plants, including
the Company's Ohio and Pennsylvania plants, by May 2003 in the event
implementation of the NOx Transport Rule is delayed. New Section 126
petitions were filed by New Jersey, Maryland, Delaware and the District of
Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy
continues to evaluate its compliance plans and other compliance options.
The Company is required to meet federally approved SO2 regulations.
Violations of such regulations can result in shutdown of the generating unit
involved and/or civil or criminal penalties of up to $27,500 for each day the
unit is in violation. The EPA has an interim enforcement policy for SO2
regulations in Ohio that allows for compliance based on a 30-day averaging
period. The Company cannot predict what action the EPA may take in the future
with respect to the interim enforcement policy.
In July 1997, the EPA promulgated changes in the National Ambient
Air Quality Standard (NAAQS) for ozone and proposed a new NAAQS for
previously unregulated ultra-fine particulate matter. In May 1999, the U.S.
Court of Appeals for the D.C. Circuit remanded both standards back to the EPA
finding constitutional and other defects in the new NAAQS rules. The D.C.
Circuit Court, on October 29, 1999, denied an EPA petition for rehearing. The
Company cannot predict the EPA's action in response to the Court's remand
order. The cost of compliance with these regulations, if they are reinstated,
may be substantial and depends on the manner in which they are ultimately
implemented, if at all, by the states in which the Company operates affected
facilities.
The Company has been named as a "potentially responsible party"
(PRP) at waste disposal sites which may require cleanup under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980.
Allegations 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. The Company has accrued a liability of $4.8 million as of
December 31, 1999, based on estimates of the costs of cleanup and the
proportionate responsibility of other PRPs for such costs. The Company
believes that waste disposal costs will not have a material adverse effect on
its financial condition, cash flows or results of operations.
6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain consolidated operating results by
quarter for 1999 and 1998.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1999 1999 1999 1999
- ----------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $418.8 $481.9 $534.5 $429.7
Operating Expenses and Taxes 337.3 375.3 395.6 362.0
- ----------------------------------------------------------------------------
Operating Income 81.5 106.6 138.9 67.7
Other Income (Expense) 6.5 (1.2) 1.3 2.7
Net Interest Charges 53.1 52.8 52.2 51.8
- ----------------------------------------------------------------------------
Net Income $ 34.9 $ 52.6 $ 88.0 $ 18.6
============================================================================
Earnings on Common Stock $ 26.4 $ 44.1 $ 79.7 $ 10.4
============================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- ----------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $415.0 $474.6 $514.6 $391.8
Operating Expenses and Taxes 324.3 377.8 389.5 321.9
- ----------------------------------------------------------------------------
Operating Income 90.7 96.8 125.1 69.9
Other Income (Expense) 7.6 (3.5) 6.2 1.4
Net Interest Charges 58.7 58.5 56.3 55.9
- ----------------------------------------------------------------------------
Net Income $ 39.6 $ 34.8 $ 75.0 $ 15.4
============================================================================
Earnings on Common Stock $ 38.6 $ 27.4 $ 66.5 $ 7.6
============================================================================
</TABLE>
7. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED):
FirstEnergy was formed on November 8, 1997 by the merger of OE and
Centerior. The merger was accounted for as a purchase of Centerior's net
assets with 77,637,704 shares of FirstEnergy Common Stock through the
conversion of each outstanding Centerior Common Stock share into 0.525 of a
share of FirstEnergy Common Stock (fractional shares were paid in cash).
Based on an imputed value of $20.125 per share, the purchase price was
approximately $1.582 billion, which also included approximately $20 million
of merger related costs. Goodwill of approximately $2.0 billion was
recognized (to be amortized on a straight-line basis over forty years), which
represented the excess of the purchase price over Centerior's net assets
after fair value adjustments.
Accumulated amortization of goodwill was approximately $82
million as of December 31, 1999. The merger purchase accounting adjustments
included recognizing estimated severance and other compensation liabilities
($56 million). The amount charged against the liability in 1998 relating to
the costs of involuntary employee separation was $30 million. The liability
was subsequently reduced to approximately $9 million as of December 31, 1998
to represent potential costs associated with the separation of 493 Company
employees. The liability adjustment was offset by a corresponding reduction
to goodwill recognized in connection with the Centerior acquisition.
The following pro forma statement of income for the Company gives
effect to the OE-Centerior merger as if it had been consummated on January 1,
1996, with the purchase accounting adjustments actually recognized in the
business combination.
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
- -----------------------------------------------
(In millions)
<S> <C>
Operating Revenues $1,783
Operating Expenses and Taxes 1,418
------
Operating Income 365
Other Income 15
Net Interest Charges 232
------
Net Income $ 148
==============================================
</TABLE>
Pro forma adjustments reflected above include: (1) adjusting the
Company's nuclear generating units to fair value based upon independent
appraisals and estimated discounted future cash flows based on management's
estimate of cost recovery; (2) the effect of discontinuing SFAS 71 for the
Company's nuclear operations; (3) amortization of the fair value adjustment
for long-term debt; (4) goodwill recognized representing the excess of the
Company's portion of the purchase price over the Company's adjusted net
assets; (5) the elimination of merger costs; and (6) adjustments for
estimated tax effects of the above adjustments.
8. TERMINATION OF PROPOSED MERGER OF TE INTO THE COMPANY:
In March 1994, Centerior announced a plan to merge TE into the
Company. All regulatory approvals were granted (with the exception of the
Nuclear Regulatory Commission (NRC) as that application was withdrawn at the
NRC's request pending the decision whether to complete this merger). In
addition, the preferred shareholders of TE approved the merger and the
preferred shareholders of the Company approved the authorization of
additional shares of preferred stock. However, the management of FirstEnergy
and the Company have decided not to complete the proposed merger.
Report of Independent Public Accountants
To the Stockholders and Board Directors of The Cleveland Illuminating
Company:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of The Cleveland Electric Illuminating Company
(an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and
subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of income, common stockholder's equity, preferred stock, cash
flows and taxes for the years ended December 31, 1999 and 1998, the period
from January 1, 1997 to November 7, 1997 (pre-merger), and the period from
November 8, 1997 to December 31, 1997 (post-merger). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Cleveland Electric
Illuminating Company and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years ended December
31, 1999 and 1998, the period from January 1, 1997 to November 7, 1997 (pre-
merger), and the period from November 8, 1997 to December 31, 1997 (post-
merger), in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
EXHIBIT 21.2
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1999
Centerior Funding Corporation - Incorporated in Ohio
Statement of Differences
------------------------
Exhibit Number 21, List of Subsidiaries of the Registrant at
December 31, 1999, is not included in the printed document.
EXHIBIT 23.2
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this
Form 10-K, into The Cleveland Electric Illuminating Company's previously
filed Registration Statements, File No. 33-55513, No. 333-47651 and No. 333-
72891.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-K financial statements for The Cleveland Electric
Illuminating Company and is qualified in its entirety by reference to such
financial statements. (Amounts in 1,000's). Income tax expense includes
$12,613,000 related to other income.
</LEGEND>
<CIK> 0000020947
<NAME> THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,035,710
<OTHER-PROPERTY-AND-INVEST> 721,255
<TOTAL-CURRENT-ASSETS> 326,440
<TOTAL-DEFERRED-CHARGES> 2,125,356
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 6,208,761
<COMMON> 931,962
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 34,654
<TOTAL-COMMON-STOCKHOLDERS-EQ> 966,616
116,246
238,325
<LONG-TERM-DEBT-NET> 2,682,795
<SHORT-TERM-NOTES> 103,471
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 175,030
33,464
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 32,190
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,860,624
<TOT-CAPITALIZATION-AND-LIAB> 6,208,761
<GROSS-OPERATING-REVENUE> 1,864,954
<INCOME-TAX-EXPENSE> 123,869
<OTHER-OPERATING-EXPENSES> 1,358,932
<TOTAL-OPERATING-EXPENSES> 1,470,188
<OPERATING-INCOME-LOSS> 394,766
<OTHER-INCOME-NET> 9,141
<INCOME-BEFORE-INTEREST-EXPEN> 403,907
<TOTAL-INTEREST-EXPENSE> 209,818
<NET-INCOME> 194,089
33,524
<EARNINGS-AVAILABLE-FOR-COMM> 160,565
<COMMON-STOCK-DIVIDENDS> 198,974
<TOTAL-INTEREST-ON-BONDS> 204,702
<CASH-FLOW-OPERATIONS> 480,125
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
======================================================
THE TOLEDO EDISON COMPANY
TO
THE CHASE MANHATTAN BANK,
Trustee.
--------------
Forty-ninth Supplemental Indenture
Dated as of January 15, 2000
--------------
(Supplemental to Indenture dated as of April 1, 1947)
--------------
First Mortgage Bonds, Collateral Series E
========================================================
Forty-ninth Supplemental Indenture, dated as of January 15, 2000,
between The Toledo Edison Company, a corporation organized and existing under
the laws of the State of Ohio (hereinafter called the "Company"), and The
Chase Manhattan Bank, a corporation existing under the laws of the State of
New York (hereinafter called the "Trustee"), as Trustee.
RECITALS
The Company has heretofore executed and delivered an Indenture of
Mortgage and Deed of Trust dated as of April 1, 1947 (hereinafter referred to
as the "Original Indenture") to The Chase National Bank of the City of New
York, predecessor Trustee, to secure an issue of First Mortgage Bonds of the
Company, issuable in series, and created thereunder an initial series of
bonds designated as First Mortgage Bonds, 2?% Series due 1977, being the
initial series of bonds issued under the Original Indenture; and
The Company has heretofore executed and delivered to The Chase National
Bank of the City of New York, predecessor Trustee, four Supplemental
Indentures supplementing the Original Indenture dated, respectively,
September 1, 1948, April 1, 1949, December 1, 1950 and March 1, 1954 and has
heretofore executed and delivered to The Chase Manhattan Bank, which on March
31, 1955, became the Trustee under the Original Indenture by virtue of the
merger of The Chase National Bank of the City of New York into President and
Directors of The Manhattan Company under the name of The Chase Manhattan
Bank, the Fifth and the Sixth Supplemental Indentures dated, respectively,
February 1, 1956, and May 1, 1958, supplementing the Original Indenture; and
The Chase Manhattan Bank was converted into a national banking
association under the name The Chase Manhattan Bank (National Association),
effective September 23, 1965; and by virtue of said conversion the continuity
of the business of The Chase Manhattan Bank, including its business of acting
as corporate trustee, and its corporate existence, have not been affected, so
that The Chase Manhattan Bank (National Association) was vested with all the
trusts, powers, discretion, immunities, privileges and all other matters as
were vested in said The Chase Manhattan Bank under the Indenture (hereinafter
defined), with like effect as if originally named as Trustee therein; and
The Company has heretofore executed and delivered to the Trustee 38
Supplemental Indentures dated, respectively, as follows: Seventh, August 1,
1967, Eighth, November 1, 1970, Ninth, August 1, 1972, Tenth, November 1,
1973, Eleventh, July 1, 1974, Twelfth, October 1, 1975, Thirteenth, June 1,
1976, Fourteenth, October 1, 1978, Fifteenth, September 1, 1979, Sixteenth,
September 1, 1980, Seventeenth, October 1, 1980, Eighteenth, April 1, 1981,
Nineteenth, November 1, 1981, Twentieth, June 1, 1982, Twenty-first,
September 1, 1982, Twenty-second, April 1, 1983, Twenty-third, December 1,
1983, Twenty-fourth, April 1, 1984, Twenty-fifth, October 15, 1984, Twenty-
sixth, October 15, 1984, Twenty-seventh, August 1, 1985, Twenty-eighth,
August 1, 1985, Twenty-ninth, December 1, 1985, Thirtieth, March 1, 1986,
Thirty-first, October 15, 1987, Thirty-second, September 15, 1988, Thirty-
third, June 15, 1989, Thirty-fourth, October 15, 1989, Thirty-fifth, May 15,
1990, Thirty-sixth, March 1, 1991, Thirty-seventh, May 1, 1992, Thirty-
eighth, August 1, 1992, Thirty-ninth, October 1, 1992, Fortieth, January 1,
1993, Forty-first, September 15, 1994, Forty-second, May 1, 1995, Forty-
third, June 1, 1995, Forty-fourth, July 14, 1995, Forty-fifth, July 15, 1995,
Forty-sixth, June 15, 1997 and Forty-seventh, August 1, 1997 supplementing
the Original Indenture; and
The Chase Manhattan Bank (National Association), Successor Trustee, was
merged on July 1, 1996, with and into Chemical Bank, a New York banking
corporation, which changed its name to The Chase Manhattan Bank, and which
became the Trustee under the Original Indenture by virtue of such merger; and
The Company has heretofore executed and delivered to The Chase Manhattan
Bank 1 Supplemental Indenture dated as follows: Forty-eighth June 1, 1998
supplementary to Original Indenture (the Original Indenture, all the
aforementioned Supplemental Indentures, this Forty-ninth Supplemental
Indenture and any other indentures supplemental to the Original Indenture are
herein collectively called the "Indenture" and this Forty-ninth Supplemental
Indenture is hereinafter called "this Supplemental Indenture"); and
The Company covenanted in and by the Original Indenture to execute and
deliver such further instruments and do such further acts as may be necessary
or proper to carry out more effectually the purposes of the Original
Indenture and to make subject to the lien thereof property acquired after the
execution and delivery of the Original Indenture; and
Under Article 3 of the Original Indenture, the Company is authorized to
issue additional bonds upon the terms and conditions expressed in the
Original Indenture; and
The Company proposes to create a new series of First Mortgage Bonds to
be designated as First Mortgage Bonds, Collateral Series E (hereinafter
called the "Collateral Series E Bonds") with the denominations, rates of
interest, date of maturity, redemption provisions and other provisions and
agreements in respect thereof as in this Supplemental Indenture set forth;
and
The Collateral Series E Bonds are to be issued by the Company and
delivered to the Revolver Agent Bank (hereinafter defined) to (i) provide for
the payment of the Company's obligations to make payments to any person under
the Amended and Restated Guaranty dated November 4, 1999 of the Company and
The Cleveland Electric Illuminating Company (such guaranty, as amended from
time to time, herein called the "Guaranty"), in favor of the Lenders party to
the Second Amended and Restated Credit Agreement dated as of November 4, 1999
among FirstEnergy Corp. (the "Borrower") and Citibank, N.A., as
Administrative Agent, the other banks named therein and Salomon Smith Barney
Inc., as Arranger (such credit agreement, as amended from time to time,
herein called the "Revolving Credit Agreement"), and (ii) to provide to such
persons the benefits of the security provided for the Collateral Series E
Bonds. As used herein, the term "Lenders" shall refer collectively to all
banks which are parties to the Revolving Credit Agreement and the term
"Revolver Agent Bank" shall refer to the bank designated in the Revolving
Credit Agreement as the party responsible for holding the Collateral Series E
Bonds as agent for the benefit of the Lenders.
The text of the Collateral Series E Bonds is to be substantially in the
form following:
[Form of Fully Registered Collateral Series E Bond)
This bond is not transferable except to a successor agent bank under the
second amended and restated credit agreement dated as of November 4, 1999
among First Energy Corp. (the "Borrower") and Citibank, N.A., as
administrative agent, the banks named therein and Salomon Smith Barney Inc.,
as Arranger (such credit agreement as amended from time to time, the
"Revolving Credit Agreement").
The Toledo Edison Company
First Mortgage Bond, Collateral Series E
No. - $
The Toledo Edison Company, an Ohio corporation (hereinafter called the
"Company"), for value received, hereby promises to pay to
or registered
assigns, the principal sum of Fifteen Million Dollars ($15,000,000) or such
lesser principal amount as is equal to 60% of the aggregate amount from time
to time of the Lenders' Commitments (as defined in the Revolving Credit
Agreement) in excess of $125,000,000, in whole or in installments on such
date or dates as the Company has any obligation to make payments under the
Amended and Restated Guaranty of the Company and The Cleveland Electric
Illuminating Company dated November 4, 1999 (the "Guaranty") in favor of the
Lenders (as defined in the Revolving Credit Agreement), but not later than
June 1, 2006, at the same place or places as payments are required to be made
by the Company under the Guaranty, in any coin or currency of the United
States of America which at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest on the unpaid
principal amount hereof in like coin or currency to the registered owner
hereof at said place or places at such rate per annum on each interest
payment date (hereinafter defined) as shall cause the amount of interest
payable on such interest payment date on the Bonds of this Series
(hereinafter defined) to equal 60% of the amount of interest and fees payable
on such interest payment date under the Revolving Credit Agreement with
respect to borrowings or Commitments thereunder in excess of $125,000,000.
Such interest shall be payable on the same dates as interest or fees are
payable from time to time pursuant to the Revolving Credit Agreement (each
such date herein called an "interest payment date"), until maturity of this
Bond, or, if the Agent Bank shall demand redemption of this Bond, until the
redemption date, or, if the Company shall default in the payment of the
principal due on this Bond, until the Company's obligation with respect to
the payment of such principal shall be discharged as provided in the
Indenture (hereinafter defined). The amount of interest and fees payable from
time to time under the Revolving Credit Agreement, the basis on which such
interest and fees are computed and the dates on which such interest and fees
are payable are set forth in the Revolving Credit Agreement.
Except as hereinafter provided, this Bond shall bear interest (a) from
the interest payment date next preceding the date of this Bond to which
interest has been paid, or (b) if the date of this Bond is an interest
payment date to which interest has been paid, then from such date, or (c) if
no interest has been paid on this Bond, then from the date of initial issue.
This Bond is one of the Bonds of the Company, known as its First
Mortgage Bonds, issued and to be issued in one or more series under and
equally and ratably secured (except as any sinking, amortization, improvement
or other fund, established in accordance with the provisions of said
Indenture, may afford additional security for the Bonds of any particular
series) by a certain Indenture of Mortgage and Deed of Trust, dated as of
April 1, 1947 (hereinafter called the "Original Indenture"), made by the
Company to The Chase National Bank of the City of New York (The Chase
Manhattan Bank, successor), as Trustee (hereinafter called the "Trustee"),
and by certain indentures supplemental thereto, including the Forty-ninth
Supplemental Indenture dated as of January 15, 2000 (the Original Indenture
and said indentures supplemental thereto herein collectively called the
"Indenture" and said Forty-ninth Supplemental Indenture hereinafter called
the "Supplemental Indenture"), to which Indenture reference is hereby made
for a description of the property mortgaged, the nature and extent of the
security, the rights and limitations of rights of the Company, the Trustee
and the holders of said Bonds and of the coupons appurtenant to coupon Bonds
under the Indenture and the terms and conditions upon which said Bonds are
and are to be issued and secured, to all of the provisions of which Indenture
and of all such supplemental indentures in respect of such security,
including the provisions of the Indenture permitting the issue of Bonds of
any series for property which, under the restrictions and limitations therein
specified, may be subject to liens prior to the lien of the Indenture, the
holder, by accepting this Bond, assents. To the extent permitted by and as
provided in the Indenture, the rights and obligations of the Company and of
the holders of said Bonds and coupons (including those pertaining to any
sinking or other fund) may be changed and modified, with the consent of the
Company, by the holders of at least 75% in aggregate principal amount of the
Bonds then outstanding, such percentage being determined as provided in the
Indenture; provided, however, that in case such changes and modifications
affect one or more but less than all series of Bonds then outstanding, they
shall be required to be adopted only by the affirmative vote of the holders
of at least 75% in aggregate principal amount of outstanding Bonds of such
one or more series so affected; and further provided, that without the
consent of the holder hereof no such change or modification shall be made
which will extend the time of payment of the principal of, or of the interest
or premium, if any, on this Bond or reduce the principal amount hereof or the
rate of interest or the premium, if any, hereon, or affect any other
modification of the terms of payment of such principal or interest, or
premium, if any, or will permit the creation of any lien ranking prior to or
on a parity with the lien of the Indenture on any of the mortgaged property,
or will deprive the holder hereof of the benefit of a lien upon the mortgaged
property for the security of this Bond, or will reduce the percentage of
Bonds required for the adoption of changes or modifications as aforesaid.
This Bond is the only Bond of a series of Bonds designated as the First
Mortgage Bonds, Collateral Series E, of the Company (herein called "Bonds of
this Series") limited, except as otherwise provided in the Indenture, in
aggregate principal amount to $15,000,000 but the aggregate principal amount
hereof outstanding at any time shall not exceed such lesser amount as is
equal to 60% of the amount of the Lenders' Commitments in excess of
$125,000,000 and is issued under and secured by the Supplemental Indenture.
The Bonds of this Series have been issued by the Company to the Agent
Bank to (i) provide for the payment of the Company's obligations to make
payments to any person under the Guaranty, and (ii) to provide to such
persons the benefits of the security provided for the Bonds of this Series.
As used herein, the term "Agent Bank" shall refer to the bank designated
in the Revolving Credit Agreement as the party responsible for holding the
Bonds of this Series as agent for the benefit of the Lenders. The Bonds of
this Series have been delivered to the Agent Bank as agent for the benefit of
the Lenders.
Any payment made in respect of the Company's obligations under the
Guaranty or by the Borrower under the Revolving Credit Agreement with respect
to Commitments or borrowings under the Revolving Credit Agreement in excess
of $125,000,000 shall be deemed a payment in respect of the Bonds of this
Series, but such payment shall not reduce the principal amount of the Bonds
of this Series unless the aggregate amount of the Lenders' Commitments in
excess of $125,000,000 is irrevocably reduced concurrently with such payment.
In the event that all of the Company's obligations under the Guaranty and the
obligations of the Borrower under the Revolving Credit Agreement have been
discharged, this Bond shall be deemed to have been paid in full and shall be
surrendered to the Trustee for cancellation.
The Bonds of this Series are subject to redemption prior to maturity as
provided in Section 9 of Article I of the Supplemental Indenture at a
redemption price of 100% of the principal amount to be redeemed and any
accrued and unpaid interest and all other amounts payable by the Company
under the Guaranty with respect to Commitments or borrowings under the
Revolving Credit Agreement in excess of $125,000,000.
The principal of this Bond may be declared or may become due before the
maturity hereof, on the conditions, in the manner and at the times set forth
in the Indenture, upon the happening of a default as therein defined.
No recourse under or upon any covenant or obligation of the Indenture,
or of any indenture supplemental thereto, or of this Bond, for the payment of
the principal of or the interest on this Bond, or for any claim based
thereon, or otherwise in any manner in respect thereof, shall be had against
any incorporator, subscriber to the capital stock, stockholder, officer or
director, as such, of the Company, whether former, present or future, either
directly or indirectly through the Company or any predecessor or successor
corporation or the Trustee, by the enforcement of any subscription to capital
stock, assessment or otherwise, or by any legal or equitable proceeding by
virtue of any constitution, statute, or otherwise (including, without
limiting the generality of the foregoing, any proceeding to enforce any
claimed liability of stockholders of the Company based upon any theory of
disregarding the corporate entity of the Company or upon any theory that the
Company was acting as the agent or instrumentality of the stockholders), any
and all such liability of incorporators, stockholders, subscribers, officers
and directors, as such, being released by the holder hereof, by the
acceptance of this Bond, and being likewise waived and released by the terms
of the Indenture.
This Bond shall not be valid or become obligatory for any purpose until
the certificate of authentication endorsed hereon shall have been signed by
The Chase Manhattan Bank or its successor, as Trustee under the Indenture.
In Witness Whereof, The Toledo Edison Company has caused this Bond to be
signed in its name by its President or a Vice-President and its corporate
seal to be impressed or imprinted hereon and attested by its Secretary or an
Assistant Secretary.
Dated THE TOLEDO EDISON COMPANY
By
-----------------------------
Vice President.
Attest:
- ----------------------------
Secretary.
[Form of Trustee's Certificate of Authentication]
This Bond is one of the Bonds of the series designated herein, described
in the within-mentioned Indenture.
The Chase Manhattan Bank
By
-------------------------------
Authorized Officer.
[End of Form of Collateral Series E Bond]
All conditions and requirements necessary to make this Supplemental
Indenture a valid, legal and binding instrument in accordance with its terms
and to make the Collateral Series E Bonds, when duly executed by the Company
and authenticated and delivered by the Trustee, and duly issued, the valid,
binding and legal obligations of the Company, have been done and performed,
and the execution and delivery of this Supplemental Indenture have been in
all respects duly authorized.
Now, Therefore, This Supplemental Indenture Witnesseth: That The Toledo
Edison Company, the Company herein named, in consideration of the premises
and of One Dollar ($1.00) to it duly paid by the Trustee at or before the
ensealing and delivery of these presents, the receipt whereof is hereby
acknowledged, does hereby covenant and agree to and with the Trustee and its
successors in the trust under the Indenture, for the benefit of those who
shall hold the bonds to be issued hereunder and thereunder, as hereinafter
provided, as follows:
ARTICLE I
CREATION AND DESCRIPTION OF COLLATERAL SERIES E BONDS
SECTION 1. A new series of bonds to be issued under and secured by the
Indenture is hereby created, to be designated as "First Mortgage Bonds,
Collateral Series E" (such bonds herein referred to as the "Collateral Series
E Bonds"). The Collateral Series E Bonds shall be limited to an aggregate
principal amount of $15,000,000 but the aggregate principal amount thereof
outstanding at any time shall not exceed such lesser amount as is equal to
60% of the aggregate amount of the Lenders' Commitments (as defined in the
Revolving Credit Agreement) in excess of $125,000,000. The Collateral Series
E Bonds shall be substantially in the form hereinbefore recited.
SECTION 2. The principal of all Collateral Series E Bonds shall be
payable in whole or in installments on such date or dates as the Company has
any obligations under the Guaranty to make any payment to the Lenders, but
not later than June 1, 2006, and shall bear interest from the time
hereinafter provided at such rate per annum on each interest payment date
(hereinafter defined) as shall cause the amount of interest payable on each
interest payment date on the Collateral Series E Bonds to equal 60% of the
amount of interest and fees payable on such interest payment date under the
Revolving Credit Agreement with respect to borrowings or Commitments
thereunder in excess of $125,000,000. Such interest shall be payable on the
same dates as interest or fees are payable from time to time pursuant to the
Revolving Credit Agreement (each such date herein called an "interest payment
date"), until the maturity of the Collateral Series E Bonds, or, in the case
the Revolver Agent Bank shall demand redemption of any such Bonds, until the
redemption date, or, in the case of any default by the Company in the payment
of the principal due on any such Bonds, until the Company's obligation with
respect to the payment of such principal shall be discharged as provided in
the Indenture. The amount of interest and fees payable from time to time
under the Revolving Credit Agreement, the basis on which such interest and
fees are computed and the dates on which such interest and fees are payable
are set forth in the Revolving Credit Agreement.
Except as hereinafter provided, each Collateral Series E Bonds shall
bear interest from the later of the date of initial authentication of such
Bond or the most recent date to which interest has been paid until the
principal of such Bond is paid.
SECTION 3. The Collateral Series E Bonds shall be payable as to
principal and interest at the same place or places as payments are required
to be made by the Company under the Guaranty; and both principal and interest
shall be payable in any coin or currency of the United States of America
which at the time of payment shall be legal tender for the payment of public
and private debts.
SECTION 4. The Collateral Series E Bonds shall be issued only as one
fully registered Bond in the denomination of $15,000,000.
SECTION 5. Collateral Series E Bonds shall be transferable only to a
successor Revolver Agent Bank under the Revolving Credit Agreement in the
manner and upon the terms set forth in Section 2.05 of the Original
Indenture, but notwithstanding the provisions of Section 2.08 of the Original
Indenture, no charge shall be made upon any transfer or exchange of
Collateral Series E Bonds other than for any tax or taxes or other
governmental charge required to be paid by the Company.
SECTION 6. The Collateral Series E Bonds shall be registered in the
name of the Revolver Agent Bank.
SECTION 7. Any payment made in respect of the Company's obligations
under the Guaranty or by the Borrower under the Revolving Credit Agreement
with respect to Commitments or borrowings under the Revolving Credit
Agreement in excess of $125,000,000 shall be deemed a payment in respect of
the Collateral Series E Bonds but such payment shall not reduce the principal
amount of the Collateral Series E Bonds unless the aggregate amount of the
Lenders' Commitments in excess of $125,000,000 is irrevocably reduced
concurrently with such payment. In the event that all of the Company's
obligations under the Guaranty and the obligations of the Borrower under the
Revolving Credit Agreement have been discharged, the Collateral Series E
Bonds shall be deemed to be paid in full.
SECTION 8. The Collateral Series E Bonds may be executed by the Company
and delivered to the Trustee and, upon compliance with all applicable
provisions and requirements of the Original Indenture in respect thereof,
shall be authenticated by the Trustee and delivered (without awaiting the
filing or recording of this Supplemental Indenture) in accordance with the
written order or orders of the Company.
SECTION 9. The Collateral Series E Bonds shall be redeemed by the
Company in whole at any time prior to maturity at a redemption price of 100%
of the principal amount to be redeemed, plus any accrued and unpaid interest
to the redemption date, but only if the Trustee shall receive a written
demand from the Revolver Agent Bank for redemption of all Collateral Series E
Bonds held by the Revolver Agent Bank stating that an "Event of Default"
under the Revolving Credit Agreement has occurred and is continuing and that
payment of the principal amount outstanding under the Revolving Credit
Agreement, all interest thereon and all other amounts payable thereunder are
immediately due and payable and demanding payment thereof; provided, however,
that the Collateral Series E Bonds shall not be redeemed in the event that
prior to the date of such redemption the Trustee shall have received a
certificate of the Revolver Agent Bank (a) stating that there has been a
waiver of such Event of Default, or (b) withdrawing said written demand. The
redemption of the Collateral Series E Bonds shall be made forthwith upon
receipt of such demand by the Company from the Majority Banks (as defined in
the Revolving Credit Agreement), the Revolver Agent Bank on behalf of the
Majority Banks, or the Trustee.
ARTICLE II
THE TRUSTEE
The Trustee accepts the trusts created by this Supplemental Indenture
upon the terms and conditions in the Original Indenture and in this
Supplemental Indenture set forth. The recitals in this Supplemental Indenture
are made by the Company only and not by the Trustee. Each and every term and
condition contained in Article 13 of the Original Indenture shall apply to
this Supplemental Indenture with the same force and effect as if the same
were herein set forth in full, with such omissions, variations and
modifications thereof as may be appropriate to make the same conform to this
Supplemental Indenture.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 1. The Original Indenture, as heretofore supplemented, is in
all respects ratified and confirmed, and the Original Indenture, this
Supplemental Indenture and all other indentures supplemental to the Original
Indenture shall be read, taken and construed as one and the same instrument.
Neither the execution of this Supplemental Indenture nor anything herein
contained shall be construed to impair the lien of the Indenture on any of
the property subject thereto, and such lien shall remain in full force and
effect as security for all bonds now outstanding or hereafter issued under
the Indenture. All covenants and provisions of the Original Indenture,
except as modified by this Supplemental Indenture and all other indentures
supplemental to the Original Indenture, shall continue in full force and
effect for the respective periods of time therein specified, and this
Supplemental Indenture shall form part of the Indenture. All terms defined
in Article 1 of the Original Indenture shall, for all purposes of this
Supplemental Indenture, have the meanings in said Article 1 specified, except
as modified by this Supplemental Indenture and all other indentures
supplemental to the Original Indenture and unless the context otherwise
requires.
SECTION 2. This Supplemental Indenture may be simultaneously executed
in any number of counterparts, and all said counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.
In Witness Whereof, The Toledo Edison Company has caused its corporate
name to be hereunto affixed and this instrument to be signed by its President
or a Vice President and its corporate seal to be hereunto affixed and
attested by its Secretary or an Assistant Secretary for and in its behalf and
The Chase Manhattan Bank, as Trustee, in evidence of its acceptance of the
trust hereby created, has caused its corporate name to be hereunto affixed,
this instrument to be signed by its President or a Vice President and its
corporate seal to be hereunto affixed and attested by its Secretary or an
Assistant Secretary for and in its behalf, all as of the day and year first
above written.
THE TOLEDO EDISON COMPANY
By
----------------------------
Vice President
Attest:
-------------------------------
Corporate Secretary
Signed, sealed and acknowledged on behalf
of THE TOLEDO EDISON COMPANY in the
presence of
- -------------------------------------
- -------------------------------------
As witnesses
THE CHASE MANHATTAN BANK,AS TRUSTEE
By
--------------------------------
Attest:
------------------------
Signed, sealed and acknowledged
on behalf of THE CHASE MANHATTAN
BANK (NATIONAL ASSOCIATED) in the
presence of
- -----------------------------
- -----------------------------
As witnesses
STATE OF OHIO )
) SS.:
COUNTY OF SUMMIT )
On this day of January, 2000, before me personally appeared
[________] and Nancy C. Ashcom to me personally known, who being by me
severally duly sworn, did say that they are a Vice President and the
Corporate Secretary, respectively, of The Toledo Edison Company, that the
seal affixed to the foregoing instrument is the corporate seal of said
corporation and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors; and said officers
severally acknowledged said instrument to be the free act and deed of said
corporation.
-------------------------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this day of January, 2000, before me personally appeared
[________] and [________] to me personally known, who being by me severally
duly sworn, did say that they are a [_________________] and a
[_________________], respectively, of The Chase Manhattan Bank, that the seal
affixed to the foregoing instrument is the corporate seal of said corporation
and that said instrument was signed and sealed in behalf of said corporation
by authority of its Board of Directors; and said officers severally
acknowledged said instrument to be the free act and deed of said corporation.
------------------------------- [Seal]
This instrument prepared by FirstEnergy Corp., 76 South Main Street, Akron,
Ohio 44308
<TABLE>
EXHIBIT 12.4
Page 1
THE TOLEDO EDISON COMPANY
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $96,762 $57,289 $49,385 $106,582 $99,945
Interest and other charges, before
reduction for amounts capitalized 112,344 97,329 98,423 88,263 78,496
Provision for income taxes 43,828 31,501 39,703 72,696 56,821
Interest element of rentals charged
to income (a) 110,977 109,935 102,795 100,245 98,445
-------- -------- -------- -------- --------
Earnings as defined $363,911 $296,054 $290,306 $367,786 $333,707
======== ======== ======== ======== ========
FIXED CHARGES AS DEFINED IN REGULATION S-K:
Interest expense $112,344 $97,329 $98,423 $88,263 $78,496
Interest element of rentals charged to
income (a) 110,977 109,935 102,795 100,245 98,445
-------- -------- -------- -------- --------
Fixed charges as defined $223,321 $207,264 $201,218 $188,508 $176,941
======== ======== ======== ======== ========
CONSOLIDATED RATIO OF EARNINGS TO FIXED
CHARGES 1.63 1.43 1.44 1.95 1.89
==== ==== ==== ==== ====
<FN>
- ---------------------
(a) Includes the interest component of Beaver Valley and Bruce Mansfield sale and leaseback rentals,
leased nuclear fuel in the reactor, and other miscellaneous rentals.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12.4
Page 2
THE TOLEDO EDISON COMPANY
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED
STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $96,762 $57,289 $49,385 $106,582 $99,945
Interest and other charges, before
reduction for amounts capitalized 43,828 31,501 39,703 72,696 56,821
Provision for income taxes 112,344 97,329 98,423 88,263 78,496
Interest element of rentals charged
to income (a) 110,977 109,935 102,795 100,245 98,445
-------- -------- -------- -------- --------
Earnings as defined $363,911 $296,054 $290,306 $367,786 $333,707
======== ======== ======== ======== ========
FIXED CHARGES AS DEFINED IN REGULATION
S-K PLUS PREFERRED STOCK DIVIDEND
REQUIREMENTS
(PRE-INCOME TAX BASIS):
Interest expense $112,344 $ 97,329 $ 98,423 $ 88,263 $ 78,496
Preferred stock dividend requirements 18,252 16,926 19,435 13,609 16,238
Adjustments to preferred stock dividends
to state on a pre-income tax basis 8,266 9,307 15,783 8,335 10,363
Interest element of rentals charged to
income (a) 110,977 109,935 102,795 100,245 98,445
-------- -------- -------- -------- --------
Fixed charges as defined plus preferred
stock dividend requirements
(pre-income tax basis) $249,839 $233,497 $236,436 $210,452 $203,542
======== ======== ======== ======== ========
CONSOLIDATED RATIO OF EARNINGS TO FIXED
CHARGES PLUS PREFERRED STOCK DIVIDEND
REQUIREMENTS
(PRE-INCOME TAX BASIS) 1.46 1.27 1.23 1.75 1.64
==== ==== ==== ==== ====
<FN>
- ------------------------
(a) Includes the interest component of Beaver Valley and Bruce Mansfield sale and leaseback rentals,
leased nuclear fuel in the reactor, and other miscellaneous rentals.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
SELECTED FINANCIAL DATA
<CAPTION>
Nov. 8- Jan. 1-
1999 1998 Dec. 31, 1997 Nov. 7, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GENERAL FINANCIAL INFORMATION: |
|
Operating Revenues $ 921,159 $ 957,037 $ 122,669 | $ 772,707 $ 897,259 $ 873,675
========== ========== ========== | ========== ========== ==========
Operating Income $ 163,772 $ 180,261 $ 19,055 | $ 123,282 $ 156,815 $ 188,068
========== ========== ========== | ========== ========== ==========
Income Before Extraordinary Item $ 99,945 $ 106,582 $ 7,616 | $ 41,769 $ 57,289 $ 96,762
========== ========== ========== | ========== ========== ==========
Net Income (Loss) $ 99,945 $ 106,582 $ 7,616 | $ (150,132) $ 57,289 $ 96,762
========== ========== ========== | ========== ========== ==========
Earnings (Loss) on Common Stock $ 83,707 $ 92,972 $ 7,616 | $ (169,567) $ 40,363 $ 78,510
========== ========== ========== | ========== ========== ==========
Total Assets $2,666,928 $2,768,765 $2,758,152 | $3,428,175 $3,532,714
========== ========== ========== | ========== ==========
|
CAPITALIZATION: |
Common Stockholder's Equity $ 551,704 $ 575,692 $ 531,650 | $ 803,237 $ 762,877
Preferred Stock- |
Not Subject to Mandatory |
Redemption 210,000 210,000 210,000 | 210,000 210,000
Subject to Mandatory Redemption -- -- 1,690 | 3,355 5,020
Long-Term Debt 981,029 1,083,666 1,210,190 | 1,051,517 1,119,294
---------- ---------- ---------- | ---------- ----------
Total Capitalization $1,742,733 $1,869,358 $1,953,530 | $2,068,109 $2,097,191
========== ========== ========== | ========== ==========
|
CAPITALIZATION RATIOS: |
Common Stockholder's Equity 31.7% 30.8% 27.2% | 38.8% 36.4%
Preferred Stock- |
Not Subject to Mandatory |
Redemption 12.0 11.2 10.8 | 10.2 10.0
Subject to Mandatory Redemption -- -- 0.1 | 0.2 0.2
Long-Term Debt 56.3 58.0 61.9 | 50.8 53.4
----- ----- ----- | ----- -----
Total Capitalization 100.0% 100.0% 100.0% | 100.0% 100.0%
===== ===== ===== | ===== =====
|
KILOWATT-HOUR SALES (Millions): |
Residential 2,127 2,252 355 | 1,718 2,145 2,164
Commercial 2,236 2,425 284 | 1,498 1,790 1,748
Industrial 5,449 5,317 847 | 4,003 4,301 4,174
Other 54 63 79 | 413 488 500
------ ------ ----- | ----- ------ ------
Total Retail 9,866 10,057 1,565 | 7,632 8,724 8,586
Total Wholesale 2,409 1,617 435 | 2,218 2,330 2,563
------ ------ ----- | ----- ------ ------
Total 12,275 11,674 2,000 | 9,850 11,054 11,149
====== ====== ===== | ===== ====== ======
|
CUSTOMERS SERVED: |
Residential 266,900 265,237 262,501 | 261,541 260,007
Commercial 32,481 31,982 29,367 | 27,411 26,508
Industrial 1,937 1,954 1,835 | 1,839 1,846
Other 398 359 347 | 2,136 2,119
------- ------- ------- | ------- -------
Total 301,716 299,532 294,050 | 292,927 290,480
======= ======= ======= | ======= =======
|
Number of Employees 977 997 1,532 | 1,643 1,809
</TABLE>
<PAGE>
THE TOLEDO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Financial results reflect the application of purchase accounting to
the merger of our former parent company, Centerior Energy Corporation
(Centerior), and Ohio Edison Company on November 8, 1997. This accounting
resulted in fair value adjustments which were "pushed down" or reflected on
the separate financial statements of Centerior's direct subsidiaries as of
the merger date, including our financial statements. As a result, we recorded
purchase accounting fair value adjustments to: (1) revalue our nuclear
generating units to fair value, (2) adjust long-term debt to fair value, (3)
adjust our retirement and severance benefit liabilities, and (4) record
goodwill. Accordingly, the post-merger financial statements reflect a new
basis of accounting, and separate financial statements are presented for the
pre-merger and post-merger periods. For the remainder of this discussion
(including categories substantially unaffected by the merger or with no
significant pre-merger or post-merger accounting events), we have combined
the 1997 pre-merger and post-merger periods and have compared the total to
1998.
Operating revenues decreased by $35.9 million in 1999 following a
$61.7 million increase in 1998. The sources of changes in operating revenues
during 1999 and 1998, as compared to the prior year, are summarized in the
following table.
<TABLE>
<CAPTION>
Sources of Revenue Changes 1999 1998
- ----------------------------------------------------------
(In millions)
<S> <C> <C>
Change in retail kilowatt-hour sales $(14.8) $68.2
Decrease in average retail price (20.7) (8.8)
Change in wholesale sales 2.0 (6.6)
Other (2.4) 8.9
- -----------------------------------------------------------
Change in Operating Revenues $(35.9) $61.7
===========================================================
</TABLE>
Electric Sales
After achieving record levels in 1998, operating revenues decreased
in 1999. Lower average retail prices and reduced kilowatt-hour sales
contributed to the decline. Kilowatt-hour sales to residential and commercial
customers were both lower in 1999, compared to 1998, with sales to industrial
customers increasing over the previous year. Despite the lower retail sales
in 1999, total sales increased as a result of a strong increase in sales to
the wholesale market resulting from weather-induced demand and available
internal generation. However, the increase in wholesale revenues did not
fully offset the decrease in retail revenues resulting from lower retail
kilowatt-hour sales and the impact from lower unit prices experienced in
1999.
In 1998, retail kilowatt-hour sales increased in all customer
groups compared to 1997. Retail sales benefited from moderate growth in the
customer base. Expanded production at the North Star BHP Steel (North Star)
facility was a major contributor to the increase in industrial kilowatt-hour
sales. The decrease in wholesale sales in 1998, compared to 1997, was
primarily related to generating unit outages (described below) which reduced
energy available for sale to the wholesale market. Changes in kilowatt-hour
sales by customer class in 1999 and 1998 are summarized in the following
table.
<TABLE>
<CAPTION>
Changes in KWH Sales 1999 1998
- -----------------------------------------------
<S> <C> <C>
Residential (5.6%) 8.6%
Commercial (7.8%) 9.5%
Industrial 2.5% 9.6%
- -----------------------------------------------
Total Retail (1.9%) 9.4%
Wholesale 49.0% (39.1%)
Total Sales 5.1% (1.5)%
- -----------------------------------------------
</TABLE>
Operating Expenses and Taxes
Total operating expenses and taxes decreased $19.4 million in 1999,
compared to 1998, and increased $23.7 million in 1998 from the preceding
year. Fuel and purchased power were the primary factors contributing to the
change in both years. The comparison of 1998 to 1997 also included various
merger-related differences, which are discussed below.
Purchased power costs accounted for all of the reduction in fuel
and purchased power in 1999. Much of the improvement in purchased power costs
occurred in the second quarter of 1999 due to the absence of unusual
conditions experienced in 1998. Those costs were incurred during a period of
record heat and humidity in late June 1998, which coincided with a regional
power shortage resulting in high prices for purchased power. During this
period, unscheduled outages at Beaver Valley Unit 2 and the Davis-Besse Plant
required us to purchase significant quantities of power on the spot market.
Although above normal temperatures were also experienced in 1999, we
maintained a stronger capacity position compared to the previous year and
better met customer demand from our own internal generation. In 1998, fuel
and purchased power increased $21.3 million from 1997 for the reasons
discussed above.
Nuclear operating costs increased in 1999 from the prior year
primarily due to expenses associated with the refueling outages at Beaver
Valley Unit 2 and the Perry Plant. Reduced nuclear operating costs in 1998
resulted from lower costs at the Perry Plant which were partially offset by
higher costs at the Beaver Valley and Davis-Besse plants. Other operating
costs increased in 1999 from 1998 principally due to higher customer and
sales expenses including expenditures for energy marketing programs,
information system requirements and other customer-related costs.
Lower depreciable asset balances, resulting from the purchase
accounting adjustment, reduced depreciation and amortization in 1998 and the
1997 post-merger period. These reductions were partially offset by the
amortization of goodwill recognized with the application of purchase
accounting.
Other Income
Interest income on trust notes acquired in connection with the
Bruce Mansfield Plant lease refinancing (see Note 2), which began in June
1997, increased other income in 1998 and the 1997 post-merger period. In the
pre-merger period of 1997, interest income on the trust notes was
substantially offset by merger-related expenses.
Net Interest Charges
Net interest charges decreased in 1999 from the preceding year
primarily due to redemptions and refinancings of long-term debt. In 1998, net
interest charges decreased principally due to the amortization of net
premiums associated with the revaluation of long-term debt in connection with
the merger, which also contributed to the decrease in interest charges in the
post-merger period of 1997. In the pre-merger period of 1997, interest
charges were higher because interest on new secured notes and short-term
borrowings from the Bruce Mansfield Plant lease financing exceeded the
expense reduction from the redemption and refinancing of debt securities.
Extraordinary Item
The pre-merger period of 1997 includes an after-tax write-off of
$191.9 million in regulatory assets attributable to nuclear operations
resulting from the discontinued application of Statement of Financial
Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain
Types of Regulation" which is discussed in Note 1 - Regulatory Assets.
Preferred Stock Dividend Requirements
Preferred stock dividend requirements in 1999 were increased and in
1998 were reduced due to the declaration of $3 million of preferred dividends
as of the 1997 merger date for dividends attributable to 1998 (see Note 3c).
Earnings on Common Stock
Although purchased power costs and interest costs decreased in
1999, the lower sales revenues and increased nuclear and other operating
costs more than offset these reduced costs which resulted in lower earnings
on common stock in 1999 compared to 1998. Earnings on common stock decreased
to $83.7 million in 1999 from $93.0 million in 1998. Pre-merger earnings on
common stock in 1997 include an October 1997 write-off of certain regulatory
assets. Excluding this write-off, pre-merger earnings on common stock were
$22.3 million. For the seven-week post-merger period, earnings on common
stock were $7.6 million.
Capital Resources and Liquidity
With the July 1999 passage of legislation in Ohio allowing retail
customers to purchase electricity from alternative energy suppliers beginning
January 2001, the arrival of new participants in the Ohio electricity market
is expected in the near future. We continue to take steps designed to enhance
our competitive position while seeking additional efficiencies.
Through economic refinancings and redemptions, we continued to
reduce the cost of debt and preferred stock, and improve our financial
position in 1999. Net redemptions of long-term debt and preferred stock
totaled $105.6 million in 1999, and we refinanced $91.0 million of long-term
debt. During 1999, we reduced our total debt by approximately $102 million.
Our common stockholder's equity percentage of capitalization increased to 32%
at December 31, 1999 from 27% at the end of 1997. The merger resulted in
improved credit ratings in 1997, which lowered the cost of new borrowings.
The following table summarizes changes in credit ratings resulting from the
merger:
Credit Ratings Before and After Merger
<TABLE>
<CAPTION>
Pre-Merger Post-Merger
- ----------------------------------------------------------------------------
Standard Moody's Standard Moody's
& Poor's Investors & Poor's Investors
Corporation Service, Inc. Corporation Service, Inc.
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First mortgage bonds BB Ba2 BB+ Ba1
Subordinated debt B+ B1 BB- Ba3
Preferred stock B b2 BB- b1
- -----------------------------------------------------------------------------
</TABLE>
Through economic refinancings and redemptions of higher cost debt,
we have reduced the average cost of outstanding debt from 9.48% in 1994 to
8.01% in 1999. Long-term debt redemptions and refinancings completed in 1999
are expected to generate annual savings of about $9 million.
Our cash requirements in 2000 for operating expenses, construction
expenditures, preferred stock redemptions and scheduled debt maturities are
expected to be met without issuing additional securities. We have cash
requirements of approximately $581.1 million for the 2000-2004 period to meet
scheduled maturities of long-term debt and preferred stock. Of that amount,
approximately $76.0 million relates to 2000.
We had about $8.2 million of cash and temporary investments and
$33.9 million of indebtedness to associated companies as of December 31,
1999. Under our first mortgage indenture, as of December 31, 1999, we would
have been permitted to issue up to $367.4 million of additional first
mortgage bonds on the basis of bondable property additions and retired bonds.
Based on our earnings coverage test and our charter, we could issue $250.3
million of preferred stock (assuming no additional debt was issued).
Our capital spending for the period 2000-2004 is expected to be
about $259 million (excluding nuclear fuel), of which approximately $97
million relates to 2000. Investments in additional nuclear fuel during the
2000-2004 period are estimated to be approximately $113 million, of which
about $39 million applies to 2000. During the same periods, our nuclear fuel
investments are expected to be reduced by approximately $106 million and $23
million, respectively, as the nuclear fuel is consumed. Also, we have
operating lease commitments, net of trust cash receipts, of approximately
$363 million for the 2000-2004 period of which approximately $69 million
relates to 2000. We recover the cost of nuclear fuel consumed and operating
leases through our electric rates.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is mitigated
since a significant portion of our debt has fixed interest rates, as noted in
the table below. We are subject to the inherent interest rate risks related
to refinancing maturing debt by issuing new debt securities. As discussed in
Note 2, our investment in the Shippingport Capital Trust effectively reduces
future lease obligations, also reducing interest rate risk. Changes in the
market value of our nuclear decommissioning trust funds are recognized by
making a corresponding change to the decommissioning liability, as described
in Note 1.
The table below presents principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio, debt
obligations and preferred stock with mandatory redemption provisions.
<TABLE>
<CAPTION>
Comparison of Carrying Value to Fair Value
- -------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
- -------------------------------------------------------------------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments other than
Cash and Cash
Equivalents:
Fixed Income $ 15 $ 17 $ 20 $ 19 $ 9 $243 $323 $315
Average interest
rate 7.6% 7.6% 7.6% 7.6% 7.6% 7.2% 7.3%
- -------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------
Long-term Debt:
Fixed rate $ 76 $ 29 $164 $ 96 $215 $324 $904 $914
Average interest
rate 7.3% 9.2% 8.6% 7.9% 7.8% 7.8% 8.0%
Variable rate $ 91 $ 91 $ 88
Average interest
rate 5.2% 5.2%
Short-term Borrowings $ 34 $ 34 $ 34
Average interest
rate 6.5% 6.5%
- -------------------------------------------------------------------------
</TABLE>
Outlook
We continue to face many competitive challenges as the electric
utility industry undergoes significant changes, including changing regulation
and the entrance of more energy suppliers into the marketplace. Recent
legislation allows retail customers in Ohio to purchase electricity from
alternative energy suppliers beginning in 2001. Our existing regulatory plan
provides us with a solid foundation to position us to meet the challenges we
are facing by significantly reducing fixed costs and lowering rates to a more
competitive level. The transition plan ultimately approved by the Public
Utilities Commission of Ohio (PUCO) will supersede our current Ohio rate
plan.
FirstEnergy's Rate Reduction and Economic Development Plan,
approved in January 1997, provides interim rate credits to our customers
during the periods covered by the plan. Our regulatory plan includes a
commitment to accelerate depreciation on our regulatory books by recording an
additional $660 million of depreciation over the plan period ending 2005. The
plan does not provide for full recovery of nuclear operations; accordingly,
we ceased application of SFAS 71 for our nuclear operations when
implementation of the FirstEnergy regulatory plan became probable in October
1997.
In July 1999, Ohio's new electric utility restructuring
legislation, which will allow Ohio electric customers to select their
generation suppliers beginning January 1, 2001, was signed into law. Among
other things, the new law provides for a 5% reduction on the generation
portion of residential customers' bills and the opportunity to recover
transition costs, including regulatory assets, from January 1, 2001 through
December 31, 2005. The period for the recovery of regulatory assets only can
be extended up to December 31, 2010. The PUCO was authorized to determine the
level of transition cost recovery, as well as the recovery period for the
regulatory assets portion of those costs, in considering each Ohio electric
utility's transition plan application.
FirstEnergy filed a transition plan on our behalf as well as for
its other Ohio electric utility operating companies -- Ohio Edison Company
(OE) and The Cleveland Electric Illuminating Company (CEI) -- on December 22,
1999. The plan was originally filed with the PUCO on October 4, 1999, but was
refiled to conform to PUCO rules established on November 30, 1999. The new
filing also included additional information on our plan to turn over control,
and perhaps ownership, of our transmission assets to the Alliance Regional
Transmission Organization (Alliance), which is discussed below.
The transition plan itemizes, or unbundles, the current price of
electricity into separate components -- including generation, transmission,
distribution and transition charges. As required by the PUCO's rules,
FirstEnergy's filing also included proposals on corporate separation of
regulated and unregulated operations, operational and technical support
changes needed to accommodate customer choice, an education program to inform
customers of their options under the law, and how our transmission system
will be operated to ensure access to all users. Under our transition plan,
customers who remain with us as their generation provider will continue to
receive savings under our rate plan, expected to total $96.3 million between
2000 and 2005. In addition, FirstEnergy's Ohio utility customers will save
$358 million through reduced charges for taxes and a 5% reduction in the
price of generation for residential customers beginning January 1, 2001.
Customers' prices are expected to be frozen through a five-year market
development period (2001-2005), except for certain limited statutory
exceptions including the 5% reduction in the price of generation for
residential customers. The plan proposes recovery of generation-related
transition costs of approximately $859 million ($764 million, net of deferred
income taxes) over the market development period; transition costs related to
regulatory assets aggregating approximately $842 million ($573 million, net
of deferred income taxes) are expected to recovered over the period of 2001
through 2007.
When the transition plan is approved by the PUCO, the application
of SFAS 71 to our nonnuclear generation business will be discontinued. In the
meantime, we will continue to bill and collect cost-based rates related to
that business through the end of 2000. If the transition plan ultimately
approved by the PUCO does not provide adequate recovery of our nuclear
generating unit investments and regulatory assets, there would be a charge to
earnings which could have a material adverse effect on our results of
operations and financial condition. We believe that we will continue to bill
and collect cost-based rates for our transmission and distribution services,
which will remain regulated; accordingly, it is appropriate that we continue
the application of SFAS 71 to those operations after December 31, 2000.
We have been named as a "potentially responsible party" (PRP) for
three sites listed on the Superfund National Priorities List and are aware of
our potential involvement in the cleanup of several other sites. Allegations
that we disposed of hazardous waste at these sites, and the amount involved
are often unsubstantiated and subject to dispute. Federal law provides that
all PRPs for a particular site be held liable on a joint and several basis.
If we were held liable for 100% of the cleanup costs of all the sites
referred to above, the cost could be as high as $101 million. However, we
believe that the actual cleanup costs will be substantially less than 100%
and that most of the other parties involved are financially able to
contribute their share. We have accrued a $627,000 liability as of December
31, 1999, based on estimates of the costs of cleanup and our proportionate
responsibility for such costs. We believe that the ultimate outcome of these
matters will not have a material adverse effect on our financial condition,
cash flows or results of operations.
On October 27, 1999, the Federal Energy Regulatory Commission
(FERC) approved FirstEnergy's plan to transfer our transmission assets and
those of OE, CEI and Pennsylvania Power Company to American Transmission
Systems Inc. (ATSI). We subsequently received approval from the PUCO in
February 2000. Regulatory approval is also required from the Securities and
Exchange Commission. The new subsidiary represents a first step toward the
goal of establishing or becoming part of a larger independent, regional
transmission organization (RTO). In working toward that goal, FirstEnergy
joined with four other companies -- American Electric Power, Consumers
Energy, Detroit Edison and Virginia Power -- to form the Alliance RTO. On
June 3, 1999, the Alliance submitted an application to FERC to form an
independent, for profit RTO. On December 15, 1999, FERC issued an order
conditionally approving the Alliance's application.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards requiring that every
derivative instrument (including derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement. We have not completed quantifying the
impacts of adopting SFAS 133 on our financial statements or determined the
method of its adoption. However, SFAS 133 could increase volatility in
earnings and other comprehensive income. We anticipate adopting the new
statement on its amended effective date of January 1, 2001.
Year 2000 Update
Based on the results of our remediation and testing efforts, we
filed documents with the North American Electric Reliability Council, Nuclear
Regulatory Commission, and PUCO that as of June 30, 1999, our generation,
transmission, and distribution systems were ready to serve customers in the
year 2000. We have since experienced no failures or interruptions of service
to our customers resulting from the Year 2000 issue, which was consistent
with our expectations. We spent $15.0 million on Year 2000 related costs
through December 31, 1999, which was slightly lower than previously
estimated. Of this total, $12.3 million was 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 $2.7 million was
expensed as incurred. We do not believe there are any continuing Year 2000
issues to be addressed, nor any additional material Year 2000 expenditures.
Forward-Looking Information
This discussion includes forward-looking statements based on
information currently available to management that are subject to certain
risks and uncertainties. These statements typically contain, but are not
limited to, the terms anticipate, potential, expect, believe, estimate and
similar words. Actual results may differ materially due to the speed and
nature of increased competition and deregulation in the electric utility
industry, economic or weather conditions affecting future sales and margins,
changes in markets for energy services, changing energy market prices,
legislative and regulatory changes, and the availability and cost of capital
and other similar factors.
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Years Ended
December 31,
------------------- Nov. 8- Jan. 1-
1999 1998 Dec. 31, 1997 Nov. 7, 1997
- ------------------------------------------------------------------------------------------------------------
(In thousands)|
<S> <C> <C> <C> | <C>
OPERATING REVENUES (1) $921,159 $957,037 $122,669 | $ 772,707
-------- -------- -------- | ---------
OPERATING EXPENSES AND TAXES: |
Fuel and purchased power 169,153 202,239 22,926 | 158,027
Nuclear operating costs 175,015 160,080 29,372 | 138,559
Other operating costs 171,427 166,935 20,608 | 145,174
-------- -------- -------- | ---------
Total operation and maintenance expenses 515,595 529,254 72,906 | 441,760
Provision for depreciation and amortization 103,725 106,433 14,860 | 98,986
General taxes 87,862 86,661 13,126 | 77,426
Income taxes 50,205 54,428 2,722 | 31,253
-------- -------- -------- | --------
Total operating expenses and taxes 757,387 776,776 103,614 | 649,425
-------- -------- -------- | --------
|
OPERATING INCOME 163,772 180,261 19,055 | 123,282
|
OTHER INCOME 12,744 12,225 2,153 | 2,153
-------- -------- -------- | -------
|
INCOME BEFORE NET INTEREST CHARGES 176,516 192,486 21,208 | 125,435
-------- -------- -------- | -------
|
NET INTEREST CHARGES: |
Interest on long-term debt 82,204 88,364 13,689 | 74,264
Allowance for borrowed funds used during |
construction (1,443) (1,273) (138) | (259)
Other interest expense (credit) (4,190) (1,187) 41 | 9,661
-------- -------- -------- | --------
Net interest charges 76,571 85,904 13,592 | 83,666
-------- -------- -------- | --------
|
INCOME BEFORE EXTRAORDINARY ITEM 99,945 106,582 7,616 | 41,769
|
EXTRAORDINARY ITEM (NET OF INCOME |
TAXES) (Note 1) -- -- -- | (191,901)
-------- -------- -------- | --------
|
NET INCOME (LOSS) 99,945 106,582 7,616 | (150,132)
|
PREFERRED STOCK DIVIDEND |
REQUIREMENTS 16,238 13,610 -- | 19,435
-------- -------- -------- | ---------
EARNINGS (LOSS) ON COMMON STOCK $ 83,707 $ 92,972 $ 7,616 | $(169,567)
======== ======== ======== | =========
<FN>
(1) Includes electric sales to associated companies of $123.3 million, $123.6 million, $17.7 million
and $98.5 million in 1999, 1998, the November 8 - December 31, 1997 period and the
January 1-November 7, 1997 period, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
At December 31, 1999 1998
- ---------------------------------------------------------------------------
(In thousands)
ASSETS
<S> <C> <C>
UTILITY PLANT:
In service $1,776,534 $1,757,364
Less-Accumulated provision for depreciation 670,866 626,942
---------- ----------
1,105,668 1,130,422
---------- ----------
Construction work in progress-
Electric plant 95,854 26,603
Nuclear fuel 386 11,191
---------- ----------
96,240 37,794
---------- ----------
1,201,908 1,168,216
---------- ----------
OTHER PROPERTY AND INVESTMENTS:
Shippingport Capital Trust (Note 2) 295,454 310,762
Nuclear plant decommissioning trusts 123,500 102,749
Other 4,678 3,656
---------- ----------
423,632 417,167
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 312 4,140
Receivables-
Customers 12,965 7,338
Associated companies 40,998 30,006
Other (less accumulated provision of
$100,000 for uncollectible accounts
in 1998) 9,827 31,688
Notes receivable from associated companies 7,863 101,236
Materials and supplies, at average cost-
Owned 23,243 25,745
Under consignment 20,232 18,148
Prepayments and other 25,931 25,647
---------- ----------
141,371 243,948
---------- ----------
DEFERRED CHARGES:
Regulatory assets 385,284 417,704
Goodwill 465,169 474,593
Property taxes 43,448 42,842
Other 6,116 4,295
---------- ----------
900,017 939,434
---------- ----------
$2,666,928 $2,768,765
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Consolidated Statements
of Capitalization):
Common stockholder's equity $ 551,704 $ 575,692
Preferred stock-
Not subject to mandatory redemption 210,000 210,000
Long-term debt 981,029 1,083,666
---------- ----------
1,742,733 1,869,358
---------- ----------
CURRENT LIABILITIES:
Currently payable long-term debt and
preferred stock 95,765 130,426
Accounts payable-
Associated companies 20,537 34,260
Other 27,100 34,275
Notes payable to associated companies 33,876 --
Accrued taxes 57,742 62,288
Accrued interest 21,961 24,965
Other 60,414 39,639
---------- ----------
317,395 325,853
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 172,236 151,321
Accumulated deferred investment tax credits 38,748 40,670
Nuclear plant decommissioning costs 130,116 109,366
Pensions and other postretirement benefits 122,986 122,314
Other 142,714 149,883
---------- ----------
606,800 573,554
---------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Notes 2 and 5) ---------- ----------
$2,666,928 $2,768,765
========== ==========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDER'S EQUITY:
Common stock, $5 par value, authorized 60,000,000 shares
39,133,887 shares outstanding $ 195,670 $ 195,670
Other paid-in capital 328,559 328,559
Retained earnings (Note 3A) 27,475 51,463
---------- ----------
Total common stockholder's equity 551,704 575,692
---------- ----------
<CAPTION>
Number of Shares Optional
Outstanding Redemption Price
---------------- -------------------
1999 1998 Per Share Aggregate
---- ---- --------- ---------
<S> <C> <C> <C> <C>
PREFERRED STOCK (Note 3C):
Cumulative, $100 par value-
Authorized 3,000,000 shares
Not Subject to Mandatory Redemption:
$ 4.25 160,000 160,000 $104.63 $ 16,740 16,000 16,000
$ 4.56 50,000 50,000 101.00 5,050 5,000 5,000
$ 4.25 100,000 100,000 102.00 10,200 10,000 10,000
$ 8.32 100,000 100,000 102.46 10,246 10,000 10,000
$ 7.76 150,000 150,000 102.44 15,366 15,000 15,000
$ 7.80 150,000 150,000 101.65 15,248 15,000 15,000
$ 10.00 190,000 190,000 101.00 19,190 19,000 19,000
--------- --------- -------- ---------- ----------
900,000 900,000 92,040 90,000 90,000
--------- --------- -------- ---------- ----------
Cumulative, $25 par value-
Authorized 12,000,000 shares
Not Subject to Mandatory Redemption:
$2.21 1,000,000 1,000,000 25.25 25,250 25,000 25,000
$2.365 1,400,000 1,400,000 27.75 38,850 35,000 35,000
Adjustable Series A 1,200,000 1,200,000 25.00 30,000 30,000 30,000
Adjustable Series B 1,200,000 1,200,000 25.00 30,000 30,000 30,000
--------- --------- -------- ---------- ----------
4,800,000 4,800,000 124,100 120,000 120,000
--------- --------- -------- ---------- ----------
Total Not Subject to Mandatory
Redemption 5,700,000 5,700,000 $216,140 210,000 210,000
========= ========= ======== ---------- ----------
Cumulative, $100 par value-
Subject to Mandatory Redemption
(Note 3D):
$9.375 -- 16,900 $ -- -- 1,690
Redemption Within One Year -- (1,690)
--------- --------- -------- ---------- ----------
Total Subject to Mandatory
Redemption -- 16,900 $ -- -- --
========= ========= ======== ---------- ----------
LONG-TERM DEBT (Note 3E):
First mortgage bonds:
7.250% due 1999 -- 85,000
8.000% due 2000-2003 34,925 35,325
7.875% due 2004 145,000 145,000
---------- ----------
Total first mortgage bonds 179,925 265,325
---------- ----------
Unsecured notes and debentures:
5.750% due 2000-2003 -- 3,600
10.000% due 2000-2010 1,000 1,000
8.700% due 2002 135,000 135,000
* 4.850% due 2030 34,850 --
* 5.100% due 2033 5,700 --
* 5.250% due 2033 31,600 --
* 5.580% due 2033 18,800 --
---------- ----------
Total unsecured notes and debentures 226,950 139,600
---------- ----------
</TABLE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont.)
<CAPTION>
At December 31 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
LONG-TERM DEBT (Cont.):
Secured notes:
7.720% due 1999 -- 15,000
8.470% due 1999 -- 3,500
7.190% due 2000 45,000 45,000
7.380% due 2000 14,000 14,000
7.460% due 2000 16,500 16,500
7.500% due 2000 100 100
8.500% due 2001 8,000 8,000
9.500% due 2001 21,000 21,000
8.180% due 2002 17,000 17,000
8.620% due 2002 7,000 7,000
8.650% due 2002 5,000 5,000
7.760% due 2003 5,000 5,000
7.780% due 2003 1,000 1,000
7.820% due 2003 38,400 38,400
7.850% due 2003 15,000 15,000
7.910% due 2003 3,000 3,000
7.670% due 2004 70,000 70,000
7.130% due 2007 30,000 30,000
* 3.050% due 2011 -- 31,250
8.000% due 2019 67,300 67,300
7.625% due 2020 45,000 45,000
7.750% due 2020 54,000 54,000
9.220% due 2021 15,000 15,000
10.000% due 2021 15,000 15,000
7.400% due 2022 30,900 30,900
6.875% due 2023 20,200 20,200
7.550% due 2023 -- 37,300
8.000% due 2023 30,500 49,300
6.100% due 2027 10,100 10,100
5.375% due 2028 3,751 3,751
---------- ----------
Total secured notes 587,751 693,601
---------- ----------
Capital lease obligations (Note 2) 45,247 67,453
---------- ----------
Net unamortized premium on debt 36,921 46,423
---------- ----------
Long-term debt due within one year (95,765) (128,736)
---------- ----------
Total long-term debt 981,029 1,083,666
---------- ----------
TOTAL CAPITALIZATION $1,742,733 $1,869,358
========== ==========
<FN>
* Denotes variable rate issue with December 31, 1999 interest rate shown for only December 31, 1999
balances and December 31, 1998 interest rate shown for only December 31, 1998 balances.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
Comprehensive Other
Income (Loss) Number Par Paid-In Retained
(Note 3B) of Shares Value Capital Earnings
------------- --------- ----- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 39,133,887 $195,687 $ 602,113 $ 5,437
Net loss $(150,132) (150,132)
=========
Cash dividends on preferred stock (20,973)
___________________________________________________________________________________________________________
Purchase accounting fair value
adjustment (17) (273,749) 165,668
Net income $ 7,616 7,616
=========
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 39,133,887 195,670 328,364 7,616
Purchase accounting fair value
adjustment 195
Net income $ 106,582 106,582
=========
Cash dividends on preferred stock (12,252)
Cash dividends on common stock (50,483)
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 39,133,887 195,670 328,559 51,463
Net income $ 99,945 99,945
=========
Cash dividends on preferred stock (17,582)
Cash dividends on common stock (106,351)
- ---------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 39,133,887 $195,670 $ 328,559 $ 27,475
==========================================================================================================
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
--------------------- --------------------
Number Par Number Par
of Shares Value of Shares Value
--------- ----- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1997 5,700,000 $210,000 50,200 $ 5,020
Redemptions-
$100 par $9.375 (16,650) (1,665)
_____________________________________________________________________________________________________
Balance, December 31, 1997 5,700,000 210,000 33,550 3,355
Redemptions-
$100 par $9.375 (16,650) (1,665)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,700,000 210,000 16,900 1,690
Redemptions-
$100 par $9.375 (16,900) (1,690)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 1999 5,700,000 $210,000 -- $ --
=====================================================================================================
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended
December 31,
------------------- Nov. 8- Jan. 1-
1999 1998 Dec. 31, 1997 Nov. 7, 1997
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands) |
<S> <C> <C> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net Income (Loss) $ 99,945 $ 106,582 $ 7,616 | $(150,132)
Adjustments to reconcile net income (loss) to net |
cash from operating activities: |
Provision for depreciation and amortization 103,725 106,433 14,860 | 98,986
Nuclear fuel and lease amortization 25,166 24,071 5,316 | 30,354
Deferred income taxes, net 27,551 38,840 1,386 | (121,002)
Investment tax credits, net (1,922) (2,595) (400) | (3,601)
Allowance for equity funds used during construction -- -- (61) | (776)
Extraordinary item -- -- -- | 295,233
Receivables 5,242 (32,169) 1,923 | 317
Materials and supplies 418 (2,463) (4,430) | 6,543
Accounts payable (20,898) 4,559 (12,989) | 18,679
Other 1,427 19,172 (29,443) | 55,233
--------- -------- -------- | --------
Net cash provided from (used for) operating activities 240,654 262,430 (16,222) | 229,834
--------- -------- -------- | --------
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
New Financing- |
Long-term debt 89,330 3,629 -- | 149,804
Short-term borrowings, net 33,876 -- -- | --
Redemptions and Repayments- |
Preferred stock 1,690 1,665 -- | 1,665
Long-term debt 226,695 90,929 -- | 85,419
Dividend Payments- |
Common stock 106,351 50,483 -- | --
Preferred stock 16,238 16,378 4,156 | 12,589
--------- -------- -------- | --------
Net cash provided from (used for) financing |
activities (227,768) (155,826) (4,156) | 50,131
--------- -------- -------- | --------
CASH FLOWS FROM INVESTING ACTIVITIES: |
Property additions 107,338 45,870 6,568 | 36,680
Loans to associated companies -- 60,434 -- | --
Loan payments from associated companies (93,373) -- (15,297) | (25,718)
Capital trust investments (15,308) (2,111) (7,314) | 320,187
Other 18,057 20,441 (6,585) | 10,350
--------- --------- -------- | ---------
Net cash used for (provided from) investing activities 16,714 124,634 (22,628) | 341,499
--------- --------- -------- | ---------
Net increase (decrease) in cash and cash equivalents (3,828) (18,030) 2,250 | (61,534)
Cash and cash equivalents at beginning of period 4,140 22,170 19,920 | 81,454
--------- --------- -------- | ---------
Cash and cash equivalents at end of period $ 312 $ 4,140 $ 22,170 | $ 19,920
========= ========= ======== | =========
SUPPLEMENTAL CASH FLOWS INFORMATION: |
Cash Paid During the Period- |
Interest (net of amounts capitalized) $ 84,538 $ 93,828 $ 16,652 | $ 72,757
========= ========= ======== | =========
Income taxes $ 40,461 $ 6,935 $ 28,000 | $ 25,300
========= ========= ======== | =========
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
THE TOLEDO EDISON COMPANY
CONSOLIDATED STATEMENTS OF TAXES
<CAPTION>
For the Years Ended
December 31,
-------------------- Nov. 8- Jan. 1-
1999 1998 Dec. 31, 1997 Nov. 7, 1997
- ------------------------------------------------------------------------------------------------------------------
(In thousands) |
<S> <C> <C> <C> | <C>
GENERAL TAXES: |
Real and personal property $ 44,280 $ 44,993 $ 5,998 | $ 40,495
State gross receipts 35,706 35,114 5,826 | 28,590
Social security and unemployment 6,801 5,065 818 | 4,444
Other 1,075 1,489 484 | 3,897
-------- -------- --------- | ---------
Total general taxes $ 87,862 $ 86,661 $ 13,126 | $ 77,426
======== ======== ========= | =========
PROVISION FOR INCOME TAXES: |
Currently payable- |
Federal $ 29,728 $ 22,767 $ 2,859 | $ 55,192
State* 1,489 1,954 209 | --
-------- -------- --------- | ---------
31,217 24,721 3,068 | 55,192
-------- -------- --------- | ---------
Deferred, net- |
Federal 27,745 38,851 1,404 | (121,002)
State* (194) (11) (18) | --
-------- -------- --------- | ---------
27,551 38,840 1,386 | (121,002)
-------- -------- --------- | ---------
Investment tax credit amortization (1,922) (2,595) (400) | (3,601)
-------- -------- --------- | ---------
Total provision for income taxes $ 56,846 $ 60,966 $ 4,054 | $ (69,411)
======== ======== ========= | =========
INCOME STATEMENT CLASSIFICATION |
OF PROVISION FOR INCOME TAXES: |
Operating income $ 50,205 $ 54,428 $ 2,722 | $ 31,253
Other income 6,641 6,538 1,332 | 2,667
Extraordinary item -- -- -- | (103,331)
-------- -------- --------- | ---------
Total provision for income taxes $ 56,846 $ 60,966 $ 4,054 | $ (69,411)
======== ======== ========= | =========
RECONCILIATION OF FEDERAL INCOME TAX |
EXPENSE AT STATUTORY RATE TO TOTAL |
PROVISION FOR INCOME TAXES: |
Book income before provision for income taxes $156,791 $167,548 $ 11,670 | $(219,543)
======== ======== ========= | =========
Federal income tax expense at statutory rate $ 54,877 $ 58,642 $ 4,085 | $ (76,840)
Increases (reductions) in taxes resulting from- |
Amortization of investment tax credits (1,922) (2,595) (400) | (3,601)
Depreciation -- -- -- | 3,428
Amortization of tax regulatory assets (1,735) (1,739) (145) | --
Amortization of goodwill 4,280 4,421 670 | --
Other, net 1,346 2,237 (156) | 7,602
-------- -------- --------- | ---------
Total provision for income taxes $ 56,846 $ 60,966 $ 4,054 | $ (69,411)
======== ======== ========= | =========
ACCUMULATED DEFERRED INCOME TAXES |
AT DECEMBER 31: |
Property basis differences $195,326 $195,948 $ 190,636 |
Deferred nuclear expense 76,449 79,355 83,052 |
Deferred sale and leaseback costs (21,443) (20,623) (17,431) |
Unamortized investment tax credits (18,324) (19,515) (20,960) |
Unused alternative minimum tax credits (30,055) (66,322) (108,156) |
Other (29,717) (17,522) (22,598) |
-------- -------- --------- |
Net deferred income tax liability $172,236 $151,321 $ 104,543 |
======== ======== ========= |
<FN>
* For the period prior to November 8, 1997, state income taxes are included in the General
Taxes section above. These amounts are not material and no restatement was made.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include The Toledo Edison
Company (Company) and its 90% owned subsidiary, The Toledo Edison Capital
Corporation (TECC). The subsidiary was formed in 1997 to make equity
investments in a business trust in connection with the financing
transactions related to the Bruce Mansfield Plant sale and leaseback (see
Note 2). The Cleveland Electric Illuminating Company (CEI), an affiliate,
has a 10% interest in TECC. All significant intercompany transactions have
been eliminated. The Company is a wholly owned subsidiary of FirstEnergy
Corp. (FirstEnergy). Prior to the merger in November 1997 (see Note 7), the
Company and CEI were the principal operating subsidiaries of Centerior
Energy Corporation (Centerior). The merger was accounted for using the
purchase method of accounting in accordance with generally accepted
accounting principles, and the applicable effects were reflected on the
separate financial statements of Centerior's direct subsidiaries as of the
merger date. Accordingly, the post-merger financial statements reflect a new
basis of accounting and pre-merger period and post-merger period financial
results (separated by a heavy black line) are presented. The Company follows
the accounting policies and practices prescribed by the Public Utilities
Commission of Ohio (PUCO) and the Federal Energy Regulatory Commission
(FERC). The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make periodic
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Certain prior year amounts have been
reclassified to conform with the current year presentation.
REVENUES-
The Company's principal business is providing electric service to
customers in northwestern Ohio. The Company's retail customers are metered
on a cycle basis. Revenue is recognized for unbilled electric service
through the end of the year.
Receivables from customers include sales to residential,
commercial and industrial customers located in the Company's service area
and sales to wholesale customers. There was no material concentration of
receivables at December 31, 1999 or 1998, with respect to any particular
segment of the Company's customers.
The Company and CEI sell on a daily basis substantially all of
their retail customer accounts receivable to Centerior Funding Corporation
(Centerior Funding), a wholly owned subsidiary of CEI, under an asset-backed
securitization agreement which expires in 2001. In July 1996, Centerior
funding completed a public sale of $150 million of receivables-backed
investor certificates in a transaction that qualified for sale accounting
treatment.
REGULATORY PLAN-
FirstEnergy's Rate Reduction and Economic Development Plan for the
Company was approved in January 1997, to be effective upon consummation of
the merger. The regulatory plan was to maintain current base electric rates
for the Company through December 31, 2005. At the end of the regulatory plan
period, the Company's base rates were to be reduced by $93 million
(approximately 15 percent below current levels). The regulatory plan also
revised the Company's fuel cost recovery method. The Company formerly
recovered fuel-related costs not otherwise included in base rates from
retail customers through a separate energy rate. In accordance with the
regulatory plan, the Company's fuel rate would be frozen through the
regulatory plan period, subject to limited periodic adjustments. As part of
the regulatory plan, transition rate credits were implemented for customers,
which are expected to reduce operating revenues for the Company by
approximately $111 million during the regulatory plan period.
In July 1999, Ohio's new electric utility restructuring
legislation which will allow Ohio electric customers to select their
generation suppliers beginning January 1, 2001, was signed into law. Among
other things, the new law provides for a five percent reduction on the
generation portion of residential customers' bills and the opportunity to
recover transition costs, including regulatory assets, from January 1, 2001
through December 31, 2005. The period for the recovery of regulatory assets
only can be extended up to December 31, 2010. The PUCO was authorized to
determine the level of transition cost recovery, as well as the recovery
period for the regulatory assets portion of those costs, in considering each
Ohio electric utility's transition plan application.
FirstEnergy, on behalf of its Ohio electric utility operating
companies - the Company, CEI and Ohio Edison Company (OE) - on December 22,
1999 refiled its transition plan under Ohio's new electric utility
restructuring law. The plan was originally filed with the PUCO on October 4,
1999, but was refiled to conform to PUCO rules established on November 30,
1999. The new filing also included additional information on FirstEnergy's
plans to turn over control, and perhaps ownership, of its transmission
assets to the Alliance Regional Transmission Organization. The PUCO
indicated that it will endeavor to issue its order in FirstEnergy's case
within 275 days of the initial October filing date.
The transition plan itemizes, or unbundles, the current price of
electricity into its component elements - including generation,
transmission, distribution and transition charges. As required by the PUCO's
rules, FirstEnergy's filing also included its proposals on corporate
separation of its regulated and unregulated operations, operational and
technical support changes needed to accommodate customer choice, an
education program to inform customers of their options under the new law,
and how FirstEnergy's transmission system will be operated to ensure access
to all users. Under the plan, customers who remain with the Company as their
generation provider will continue to receive savings under the Company's
rate plans, expected to total $96 million between 2000 and 2005. In
addition, FirstEnergy's Ohio utility customers will save $358 million
through reduced charges for taxes and a five percent reduction in the price
of generation for residential customers beginning January 1, 2001. Customer
prices are expected to be frozen through a five-year market development
period (2001-2005), except for certain limited statutory exceptions
including the five percent reduction in the price of generation for
residential customers. The plan proposes recovery of the Company's
generation-related transition costs of approximately $859 million ($764
million, net of deferred income taxes) over the market development period;
its transition costs related to regulatory assets aggregating approximately
$842 million ($573 million, net of deferred income taxes) will be recovered
over the period of 2001 through 2007.
All of the Company's regulatory assets related to its nonnuclear
operations are being recovered under provisions of the regulatory plan (see
"Regulatory Assets"). The Company recognized a fair value purchase
accounting adjustment to reduce nuclear plant by $842 million in connection
with the FirstEnergy merger (see Note 7); that fair value adjustment
recognized for financial reporting purposes will ultimately satisfy the $647
million asset reduction commitment contained in the regulatory plan. For
regulatory purposes, the Company will recognize the $647 million of
accelerated amortization over the regulatory plan period.
Application of Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS
71), was discontinued in 1997 with respect to the Company's nuclear
operations. The Company's net assets included in utility plant relating to
the operations for which the application of SFAS 71 was discontinued were
$530 million as of December 31, 1999.
UTILITY PLANT AND DEPRECIATION-
Utility plant reflects the original cost of construction (except
for the Company's nuclear generating units which were adjusted to fair value
in 1997), including payroll and related costs such as taxes, employee
benefits, administrative and general costs, and interest costs.
The Company provides for depreciation on a straight-line basis at
various rates over the estimated lives of property included in plant in
service. The annualized composite rate was approximately 3.4% (reflecting
the nuclear asset fair value adjustment discussed above) in 1999 and 1998
and 2.6% in the post-merger period in 1997.
Annual depreciation expense includes approximately $9.8 million
for future decommissioning costs applicable to the Company's ownership
interests in three nuclear generating units. The Company's share of the
future obligation to decommission these units is approximately $422 million
in current dollars and (using a 4.0% escalation rate) approximately $1.0
billion in future dollars. The estimated obligation and the escalation rate
were developed based on site specific studies. Payments for decommissioning
are expected to begin in 2016, when actual decommissioning work begins. The
Company has recovered approximately $101 million for decommissioning through
its electric rates from customers through December 31, 1999. If the actual
costs of decommissioning the units exceed the funds accumulated from
investing amounts recovered from customers, the Company expects that
additional amount to be recoverable from its customers. The Company has
approximately $123.5 million invested in external decommissioning trust
funds as of December 31, 1999. Earnings on these funds are reinvested with a
corresponding increase to the decommissioning liability. The Company has
also recognized an estimated liability of approximately $7.7 million at
December 31, 1999 related to decontamination and decommissioning of nuclear
enrichment facilities operated by the United States Department of Energy
(DOE), as required by the Energy Policy Act of 1992.
The Financial Accounting Standards Board (FASB) issued a proposed
accounting standard for nuclear decommissioning costs in 1996. If the
standard is adopted as proposed: (1) annual provisions for decommissioning
could increase; (2) the net present value of estimated decommissioning costs
could be recorded as a liability; and (3) income from the external
decommissioning trusts could be reported as investment income. The FASB
subsequently expanded the scope of the proposed standard to include other
closure and removal obligations related to long-lived assets. A revised
proposal may be issued by the FASB in the first quarter of 2000.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Company, CEI, Duquesne Light Company (Duquesne), OE and its
wholly owned subsidiary, Pennsylvania Power Company (Penn), constituted the
Central Area Power Coordination Group (CAPCO). The CAPCO companies formerly
owned and/or leased, as tenants in common, various power generating
facilities. Each of the companies is obligated to pay a share of the costs
associated with any jointly owned facility in the same proportion as its
interest. The Company's portion of operating expenses associated with
jointly owned facilities is included in the corresponding operating expenses
on the Consolidated Statements of Income.
On March 26, 1999, FirstEnergy completed its agreements with
Duquesne to exchange certain generating assets. All regulatory approvals
were received by October 1999. In December 1999, Duquesne transferred 1,436
megawatts owned by Duquesne at eight CAPCO generating units in exchange for
1,328 megawatts at three non-CAPCO power plants owned by CEI, OE and Penn.
Under the agreements, Duquesne was no longer a participant in the CAPCO
arrangements after the exchange. The amounts reflected on the Consolidated
Balance Sheet under utility plant at December 31, 1999 include the
following:
<TABLE>
<CAPTION>
Utility Accumulated Construction Ownership/
Plant Provision for Work in Leasehold
Generating Units in Service Depreciation Progress Interest
- ---------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Bruce Mansfield
Units 2 and 3 $ 40.6 $12.6 $ 4.4 18.61%
Beaver Valley Unit 2 58.2 5.7 3.2 19.91%
Davis-Besse 212.1 15.7 4.4 48.62%
Perry 332.7 26.0 4.9 19.91%
- ------------------------------------------------------------------------
Total $643.6 $60.0 $16.9
========================================================================
</TABLE>
The Bruce Mansfield Plant and Beaver Valley Unit 2 are being
leased through sale and leaseback transactions (see Note 2) and the above-
related amounts represent construction expenditures subsequent to the
transaction.
NUCLEAR FUEL-
The Company leases its nuclear fuel and pays for the fuel as it is
consumed (see Note 2). The Company amortizes the cost of nuclear fuel based
on the rate of consumption. The Company's electric rates include amounts for
the future disposal of spent nuclear fuel based upon the payments to the
DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on the
Consolidated Statements of Taxes. Deferred income taxes result from timing
differences in the recognition of revenues and expenses for tax and
accounting purposes. Investment tax credits, which were deferred when
utilized, are being amortized over the recovery period of the related
property. The liability method is used to account for deferred income taxes.
Deferred income tax liabilities related to tax and accounting basis
differences are recognized at the statutory income tax rates in effect when
the liabilities are expected to be paid. Alternative minimum tax credits of
$30 million, which may be carried forward indefinitely, are available to
reduce future federal income taxes. Since the Company became a wholly owned
subsidiary of FirstEnergy on November 8, 1997, the Company is included in
FirstEnergy's consolidated federal income tax return. The consolidated tax
liability is allocated on a "stand-alone" company basis, with the Company
recognizing any tax losses or credits it contributed to the consolidated
return.
RETIREMENT BENEFITS-
Centerior had sponsored jointly with the Company, CEI and
Centerior Service Company (Service Company) a noncontributory pension plan
(Centerior Pension Plan) which covered all employee groups. Upon retirement,
employees receive a monthly pension generally based on the length of service
and compensation. In 1998, the Centerior Pension Plan was merged into the
FirstEnergy pension plan. In connection with the OE-Centerior merger, the
Company recorded fair value purchase accounting adjustments to recognize the
net gain, prior service cost, and net transition asset (obligation)
associated with the pension and postretirement benefit plans. The assets of
the FirstEnergy pension plan consist primarily of common stocks, United
States government bonds and corporate bonds.
The Company provides a minimum amount of noncontributory life
insurance to retired employees in addition to optional contributory
insurance. Health care benefits, which include certain employee deductibles
and copayments, are also available to retired employees, their dependents
and, under certain circumstances, their survivors. The Company pays
insurance premiums to cover a portion of these benefits in excess of set
limits; all amounts up to the limits are paid by the Company. The Company
recognizes the expected cost of providing other postretirement benefits to
employees and their beneficiaries and covered dependents from the time
employees are hired until they become eligible to receive those benefits.
The following sets forth the funded status of the FirstEnergy
plans in 1999 and 1998 and amounts recognized on the Consolidated Balance
Sheets as of December 31:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
-------------------- -----------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit
obligation:
Benefit obligation as
of January 1 $1,500.1 $1,327.5 $ 601.3 $ 534.1
Service cost 28.3 25.0 9.3 7.5
Interest cost 102.0 92.5 40.7 37.6
Plan amendments -- 44.3 -- 40.1
Actuarial loss (gain) (155.6) 101.6 (17.6) 10.7
Net increase from
asset swap 14.8 -- 12.5 --
Benefits paid (95.5) (90.8) (37.8) (28.7)
- -------------------------------------------------------------------------
Benefit obligation
as of December 31 1,394.1 1,500.1 608.4 601.3
- -------------------------------------------------------------------------
Change in plan assets:
Fair value of plan
assets as of
January 1 1,683.0 1,542.5 3.9 2.8
Actual return on
plan assets 220.0 231.3 0.6 0.7
Company contribution -- -- 0.4 0.4
Benefits paid (95.5) (90.8) -- --
- -------------------------------------------------------------------------
Fair value of plan
assets as of
December 31 1,807.5 1,683.0 4.9 3.9
- -------------------------------------------------------------------------
Funded status of plan 413.4 182.9 (603.5) (597.4)
Unrecognized
actuarial loss (gain) (303.5) (110.8) 24.9 30.6
Unrecognized prior service
cost 57.3 63.0 24.1 27.4
Unrecognized net transition
obligation (asset) (10.1) (18.0) 120.1 129.3
- -------------------------------------------------------------------------
Prepaid (accrued) benefit
cost $ 157.1 $ 117.1 $(434.4) $(410.1)
=========================================================================
Assumptions used as of
December 31:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected long-term return
on plan assets 10.25% 10.25% 10.25% 10.25%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
</TABLE>
The Consolidated Balance Sheet classification of Pensions and
Other Postretirement Benefits at December 31, 1999 and 1998 includes the
Company's share of the net pension liability of $11.8 million and $17.3
million, respectively; and the Company's share of the accrued postretirement
benefit liability of $110.2 million and $105.0 million, respectively.
Net pension and other postretirement benefit costs for the three
years ended December 31, 1999 (FirstEnergy plans in 1999 and 1998 and
Centerior plans in 1997) were computed as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
------------------------------- -----------------------------
1997 1997
----------------- -------------------
Nov. 8- Jan. 1- Nov. 8- Jan. 1-
1999 1998 Dec. 31 Nov. 7 1999 1998 Dec. 31 Nov. 7
- --------------------------------------------------------------------------------------------------------
| (In millions) |
<S> <C> <C> <C> | <C> <C> <C> <C> | <C>
Service cost $ 28.3 $ 25.0 $ 2.3 | $ 11.1 $ 9.3 $ 7.5 $0.5 | $ 1.8
Interest cost 102.0 92.5 6.1 | 25.4 40.7 37.6 2.8 | 13.5
Expected return on plan assets (168.1) (152.7) (7.7) | (38.0) (0.4) (0.3) -- | --
Amortization of transition | |
obligation (asset) (7.9) (8.0) -- | (3.0) 9.2 9.2 -- | 6.4
Amortization of prior service cost 5.7 2.3 -- | 1.1 3.3 (0.8) -- | --
Recognized net actuarial loss (gain) -- (2.6) -- | (0.5) -- -- -- | (0.9)
Voluntary early retirement | |
program expense -- -- 23.0 | 4.8 -- -- -- | --
- ----------------------------------------------------------------|--------------------------------------
Net benefit cost $(40.0) $(43.5) $23.7 | $ 0.9 $62.1 $53.2 $3.3 | $20.8
================================================================|==============================|=======
Company's share of total plan | |
costs $ (8.3) $ (1.1) $ 5.7 | $ 3.5 $12.6 $ 7.5 $1.5 | $ 8.9
- -------------------------------------------------------------------------------------------------------
</TABLE>
The FirstEnergy plan's health care trend rate assumption is 5.3%
in 2000, 5.2% in 2001 and 5.0% for 2002 and later years. Assumed health care
cost trend rates have a significant effect on the amounts reported for the
health care plan. An increase in the health care trend rate assumption by
one percentage point would increase the total service and interest cost
components by $4.5 million and the postretirement benefit obligation by
$72.0 million. A decrease in the same assumption by one percentage point
would decrease the total service and interest cost components by $3.5
million and the postretirement benefit obligation by $58.2 million.
TRANSACTIONS WITH AFFILIATED COMPANIES-
Operating revenues, operating expenses and interest charges
include amounts for transactions with affiliated companies in the ordinary
course of business operations.
The Company's transactions with CEI and the other FirstEnergy
operating subsidiaries (OE and Penn) from the November 8, 1997 merger date
are primarily for firm power, interchange power, transmission line rentals
and jointly owned power plant operations and construction (see Note 7).
Beginning in May 1996, Centerior Funding began serving as the transferor in
connection with the accounts receivable securitization for the Company and
CEI.
The Company is selling 150 megawatts of its Beaver Valley Unit 2
leased capacity entitlement to CEI. Operating revenues for this transaction
were $104.3 million, $98.5 million, $16.8 million and $87.4 million in 1999,
in 1998, the November 8-December 31, 1997 period and the January 1-November
7, 1997 period, respectively. This sale is expected to continue through the
end of the lease period. (See Note 2.)
FirstEnergy and, prior to 1999, the Service Company (formerly a
wholly owned subsidiary of Centerior and now a wholly owned subsidiary of
FirstEnergy) provided support services at cost to the Company and other
affiliated companies. FirstEnergy billed the Company $59.4 million in 1999
and the Service Company billed the Company $39.0 million, $13.9 million and
$51.5 million in 1998, the November 8-December 31, 1997 period and the
January 1-November 7, 1997 period, respectively, for such services.
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial maturity
of three months or less are reported as cash equivalents on the Consolidated
Balance Sheets. At December 31, 1998, cash and cash equivalents included $4
million to be used for the redemption of long-term debt in 1999. The Company
reflects temporary cash investments at cost, which approximates their fair
market value. Noncash financing and investing activities included capital
lease transactions amounting to $8.5 million, $27.9 million, $2.7 million
and $11.7 million in 1999, 1998, the November 8-December 31, 1997 period and
the January 1-November 7, 1997 period, respectively.
All borrowings with initial maturities of less than one year are
defined as financial instruments under generally accepted accounting
principles and are reported on the Consolidated Balance Sheets at cost,
which approximates their fair market value. The following sets forth the
approximate fair value and related carrying amounts of all other long-term
debt, preferred stock subject to mandatory redemption and investments other
than cash and cash equivalents as of December 31:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $995 $1,002 $1,098 $1,174
Preferred stock $ -- $ -- $ 2 $ 2
Investments other than cash and
cash equivalents:
Debt securities
- (Maturing in more than 10 years) $293 $ 270 $ 308 $ 301
Equity securities 3 3 3 3
All other 124 128 103 105
- --------------------------------------------------------------------------
$420 $ 401 $ 414 $ 409
==========================================================================
</TABLE>
The carrying value of long-term debt was adjusted to fair value in
connection with the OE-Centerior merger and reflects the present value of
the cash outflows relating to those securities based on the current call
price, the yield to maturity or the yield to call, as deemed appropriate at
the end of each respective year. The yields assumed were based on securities
with similar characteristics offered by a corporation with credit ratings
similar to the Company's ratings.
The fair value of investments other than cash and cash equivalents
represent cost (which approximates fair value) or the present value of the
cash inflows based on the yield to maturity. The yields assumed were based
on financial instruments with similar characteristics and terms. Investments
other than cash and cash equivalents include decommissioning trust
investments. Unrealized gains and losses applicable to the decommissioning
trusts have been recognized in the trust investment with a corresponding
change to the decommissioning liability. The other debt and equity
securities referred to above are in the held-to-maturity category. The
Company has no securities held for trading purposes.
REGULATORY ASSETS-
The Company recognizes, as regulatory assets, costs which the FERC
and PUCO have authorized for recovery from customers in future periods.
Without such authorization, the costs would have been charged to income as
incurred. All regulatory assets related to nonnuclear operations are being
recovered from customers under the Company's regulatory plan. Based on the
regulatory plan, at this time, the Company is continuing to bill and collect
cost-based rates relating to nonnuclear operations and continues the
application of SFAS 71 to those operations. The PUCO indicated that it will
endeavor to issue its order related to FirstEnergy's transition plan by mid-
2000. The application of SFAS 71 to the Company's nonnuclear generation
businesses will be discontinued at that time. If the transition plan
ultimately approved by the PUCO for the Company does not provide adequate
recovery of its nuclear generating unit investments and regulatory assets,
there would be a charge to earnings which could have a material adverse
effect on the results of operations and financial condition for the Company.
The Company will continue to bill and collect cost-based rates for its
transmission and distribution services, which will remain regulated;
accordingly, it is appropriate that the Company continues the application of
SFAS 71 to those respective operations after December 31, 2000.
The Company discontinued the application of SFAS 71 for its
nuclear operations in October 1997 when implementation of the regulatory
plan became probable. The regulatory plan does not provide for full recovery
of the Company's nuclear operations. In accordance with SFAS No. 101,
"Regulated Enterprises - Accounting for the Discontinuation of Application
of SFAS 71," the Company was required to remove from its balance sheet all
regulatory assets and liabilities related to the portion of its business for
which SFAS 71 was discontinued and to assess all other assets for
impairment. Regulatory assets attributable to nuclear operations of $295.2
million ($191.9 million after taxes) were written off as an extraordinary
item in October 1997. The regulatory assets attributable to nuclear
operations written off represent the net amounts due from customers for
future federal income taxes when the taxes become payable, which, under the
regulatory plan, are no longer recoverable from customers. The remainder of
the Company's business continues to comply with the provisions of SFAS 71.
All remaining regulatory assets of the Company continue to be recovered
through rates applicable for the nonnuclear portion of the Company's
business. For financial reporting purposes, the net book value of the
nuclear generating units was not impaired as a result of the regulatory
plan.
Net regulatory assets on the Consolidated Balance Sheets are
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------
(In millions)
<S> <C> <C>
Nuclear unit expenses $192.8 $200.1
Rate stabilization program deferrals 156.2 164.1
Sale and leaseback costs 33.7 41.3
Loss on reacquired debt 18.3 20.0
Other (15.7) (7.8)
- -----------------------------------------------------------------
Total $385.3 $417.7
=================================================================
</TABLE>
2. LEASES:
The Company leases certain generating facilities, nuclear fuel,
certain transmission facilities, office space and other property and
equipment under cancelable and noncancelable leases.
The Company and CEI sold their ownership interests in Bruce
Mansfield Units 1, 2 and 3 and the Company sold a portion of its ownership
interest in Beaver Valley Unit 2. In connection with these sales, which were
completed in 1987, the Company and CEI entered into operating leases for
lease terms of approximately 30 years as co-lessees. During the terms of the
leases, the Company and CEI continue to be responsible, to the extent of
their combined ownership and leasehold interest, for costs associated with
the units including construction expenditures, operation and maintenance
expenses, insurance, nuclear fuel, property taxes and decommissioning. The
Company and CEI have the right, at the end of the respective basic lease
terms, to renew the leases. The Company and CEI also have the right to
purchase the facilities at the expiration of the basic lease term or renewal
term (if elected) at a price equal to the fair market value of the
facilities.
As co-lessee with CEI, the Company is also obligated for CEI's
lease payments. If CEI is unable to make its payments under the Bruce
Mansfield Plant lease, the Company would be obligated to make such payments.
No such payments have been made on behalf of CEI. (CEI's future minimum
lease payments as of December 31, 1999 were approximately $1.1 billion.)
Nuclear fuel is currently financed for the Company and CEI through
leases with a special-purpose corporation. As of December 31, 1999, $116
million of nuclear fuel ($44 million for the Company) was financed under a
lease financing arrangement totaling $145 million ($30 million of
intermediate-term notes and $115 million from bank credit arrangements). The
notes mature in August 2000 and the bank credit arrangements expire in
September 2000. Lease rates are based on intermediate-term note rates, bank
rates and commercial paper rates.
Consistent with the regulatory treatment, the rentals for capital
and operating leases are charged to operating expenses on the Consolidated
Statements of Income. Such costs for the three years ended December 31, 1999
are summarized as follows:
<TABLE>
<CAPTION>
Nov. 8 - Jan. 1 -
1999 1998 Dec. 31, 1997 Nov. 7, 1997
- ------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating leases
Interest element $ 61.4 $ 59.2 $28.0 $ 57.4
Other 45.3 44.9 13.5 23.1
Capital leases
Interest element 5.3 4.9 1.0 6.0
Other 30.4 25.1 5.3 30.4
- ----------------------------------------------------------------------
Total rentals $142.4 $134.1 $47.8 $116.9
======================================================================
</TABLE>
The future minimum lease payments as of December 31, 1999 are:
<TABLE>
<CAPTION>
Operating Leases
----------------------------
Capital Lease Capital
Leases Payments Trust Net
- --------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
2000 $24.6 $ 104.8 $ 35.4 $ 69.4
2001 14.0 108.0 36.4 71.6
2002 7.3 111.0 37.9 73.1
2003 2.4 111.7 36.0 75.7
2004 0.9 97.9 24.3 73.6
Years thereafter 0.4 1,220.5 297.2 923.3
- --------------------------------------------------------------------
Total minimum lease payments 49.6 $1,753.9 $467.2 $1,286.7
Interest portion 4.4 ======== ====== ========
- -------------------------------------
Present value of net minimum
lease payments 45.2
Less current portion 19.7
- ------------------------------------
Noncurrent portion $ 25.5
====================================
</TABLE>
The Company and CEI refinanced high-cost fixed obligations related
to their 1987 sale and leaseback transaction for the Bruce Mansfield Plant
through a lower cost transaction in June and July 1997. In a June 1997
offering (Offering), the two companies pledged $720 million aggregate
principal amount ($145 million for the Company and $575 million for CEI) of
first mortgage bonds due in 2000, 2004 and 2007 to a trust as security for
the issuance of a like principal amount of secured notes due in 2000, 2004
and 2007. The obligations of the two companies under these secured notes are
joint and several. Using available cash, short-term borrowings and the net
proceeds from the Offering, the two companies invested $906.5 million
($337.1 million for the Company and $569.4 million for CEI) in a business
trust, in June 1997. The trust used these funds in July 1997 to purchase
lease notes and redeem all $873.2 million aggregate principal amount of 10-
1/4% and 11-1/8% secured lease obligations bonds (SLOBs) due 2003 and 2016.
The SLOBs were issued by a special-purpose funding corporation in 1988 on
behalf of lessors in the two companies' 1987 sale and leaseback transaction.
The Shippingport capital trust arrangement effectively reduce lease costs
related to that transaction.
3. CAPITALIZATION:
(A) RETAINED EARNINGS-
The Company has a provision in its mortgage applicable to $34.925
million of its 8.00% First Mortgage Bonds due 2003 that requires common
stock dividends to be paid out of its total balance of retained earnings.
The merger purchase accounting adjustments included resetting the retained
earnings balance to zero at the November 8, 1997 merger date.
(B) COMPREHENSIVE INCOME-
In 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," and applied the standard to all periods presented in the
Consolidated Statements of Common Stockholder's Equity. Comprehensive income
includes net income as reported on the Consolidated Statements of Income and
all other changes in common stockholder's equity except dividends to
stockholders. Net income and comprehensive income are the same for each
period presented.
(C) PREFERRED AND PREFERENCE STOCK-
Preferred stock may be redeemed by the Company in whole, or in
part, with 30-90 days' notice.
The preferred dividend rates on the Company's Series A and Series
B fluctuate based on prevailing interest rates and market conditions. The
dividend rates for these issues averaged 7.00% and 7.13%, respectively, in
1999.
The Company has 5 million authorized and unissued shares of
preference stock with a $25 par value.
A liability of $5 million was included in the Company's net assets
as of the merger date for preferred dividends declared attributable to the
post-merger period. Accordingly, no accrual for preferred stock dividend
requirements was included on the Company's November 8, 1997 to December 31,
1997 Consolidated Statement of Income. This liability was subsequently
reduced to zero in 1998.
(D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
All preferred stock subject to mandatory redemption outstanding as
of December 31, 1998 was redeemed during 1999.
(E) LONG-TERM DEBT-
The first mortgage indenture and its supplements, which secure all
of the Company's first mortgage bonds, serve as direct first mortgage liens
on substantially all property and franchises, other than specifically
excepted property, owned by the Company.
Based on the amount of bonds authenticated by the Trustee through
December 31, 1999, the Company's annual sinking and improvement fund
requirements for all bonds issued under the mortgage amounts to $0.4
million. The Company expects to deposit funds in 2000 that will be withdrawn
upon the surrender for cancellation of a like principal amount of bonds,
which are specifically authenticated for such purposes against unfunded
property additions or against previously retired bonds. This method can
result in minor increases in the amount of the annual sinking fund
requirement.
Sinking fund requirements for first mortgage bonds and maturing
long-term debt (excluding capital leases) for the next five years are:
<TABLE>
<CAPTION>
(In millions)
--------------------
<S> <C>
2000 $ 76.0
2001 35.1
2002 196.0
2003 96.2
2004 268.7
--------------------
</TABLE>
The Company and CEI have letters of credit of approximately $222
million in connection with the sale and leaseback of Beaver Valley Unit 2
that expire in May 2002. The letters of credit are secured by first mortgage
bonds of the Company and CEI in the proportion of 60% and 40%, respectively
(see Note 2).
4. SHORT-TERM BORROWINGS:
FirstEnergy has a $150 million revolving credit facility that
expires in November 2000. FirstEnergy may borrow under the facility and
could transfer any of its borrowed funds to the Company and CEI, with all
borrowings jointly and severally guaranteed by the Company and CEI. The
credit agreement is secured with first mortgage bonds of the Company and CEI
in the proportion of 60% and 40%, respectively. The credit agreement also
provides the participating banks with a subordinate mortgage security
interest in the properties of the Company and CEI. The banks' fee is 0.50%
per annum payable quarterly in addition to interest on any borrowings.
(FirstEnergy had $90 million of borrowings under the facility at December
31, 1999.) Also, the Company may borrow from its affiliates on a short-term
basis. At December 31, 1999, the Company had total short-term borrowings of
$33.9 million from its affiliates with a weighted average interest rate of
approximately 6.5%.
5. COMMITMENTS AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Company's current forecast reflects expenditures of
approximately $259 million for property additions and improvements from
2000-2004, of which approximately $97 million is applicable to 2000.
Investments for additional nuclear fuel during the 2000-2004 period are
estimated to be approximately $113 million, of which approximately $39
million applies to 2000. During the same periods, the Company's nuclear fuel
investments are expected to be reduced by approximately $106 million and $23
million, respectively, as the nuclear fuel is consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative to a
single incident at a nuclear power plant to $9.5 billion. The amount is
covered by a combination of private insurance and an industry retrospective
rating plan. Based on its present ownership and leasehold interests in
Beaver Valley Unit 2, the Davis-Besse Station and the Perry Plant, the
Company's maximum potential assessment under the industry retrospective
rating plan (assuming the other affiliate co-owners contribute their
proportionate shares of any assessments under the retrospective rating plan)
would be $77.9 million per incident but not more than $8.8 million in any
one year for each incident.
The Company is also insured as to its respective interests in
Beaver Valley Unit 2, Davis-Besse and Perry under policies issued to the
operating company for each plant. Under these policies, up to $2.75 billion
is provided for property damage and decontamination and decommissioning
costs. The Company has also obtained approximately $276.4 million of
insurance coverage for replacement power costs for its respective interests
in Beaver Valley Unit 2, Davis-Besse and Perry. Under these policies, the
Company can be assessed a maximum of approximately $8.8 million for
incidents at any covered nuclear facility occurring during a policy year
which are in excess of accumulated funds available to the insurer for paying
losses.
The Company intends to maintain insurance against nuclear risks as
described above as long as it is available. To the extent that replacement
power, property damage, decontamination, decommissioning, repair and
replacement costs and other such costs arising from a nuclear incident at
any of the Company's plants exceed the policy limits of the insurance in
effect with respect to that plant, to the extent a nuclear incident is
determined not to be covered by the Company's insurance policies, or to the
extent such insurance becomes unavailable in the future, the Company would
remain at risk for such costs.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the Company
with regard to air and water quality and other environmental matters. The
Company estimates additional capital expenditures for environmental
compliance of approximately $33 million, which is included in the
construction forecast provided under "Capital Expenditures" for 2000 through
2004.
The Company is in compliance with the current sulfur dioxide (SO2)
and nitrogen oxides (NOx) reduction requirements under the Clean Air Act
Amendments of 1990. SO2 reductions 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 Company's
Ohio and Pennsylvania facilities by May 2003. The EPA's NOx Transport Rule
imposes uniform reductions of NOx emissions across a region of twenty-two
states and the District of Columbia, including Ohio and Pennsylvania, based
on a conclusion that such NOx emissions are contributing significantly to
ozone pollution in the eastern United States. In May 1999, the U.S. Court of
Appeals for the D.C. Circuit issued a stay which delays implementation of
EPA's NOx Transport Rule until the Court has ruled on the merits of various
appeals. Under the NOx Transport Rule, 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 contemplating an
approximate 85% reduction in utility plant NOx emissions from projected 2007
emissions. A proposed Federal Implementation Plan accompanied the NOx
Transport Rule and may be implemented by the EPA in states which fail to
revise their SIP. In another separate but related action, eight states filed
petitions with the EPA under Section 126 of the Clean Air Act seeking
reductions of NOx emissions which are alleged to contribute to ozone
pollution in the eight petitioning states. The EPA suggests that the Section
126 petitions will be adequately addressed by the NOx Transport Program, but
a December 17, 1999 rulemaking established an alternative program which
would require nearly identical 85% NOx reductions at 392 utility plants,
including the Company's Ohio and Pennsylvania plants, by May 2003 in the
event implementation of the NOx Transport Rule is delayed. New Section 126
petitions were filed by New Jersey, Maryland, Delaware and the District of
Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy
continues to evaluate its compliance plans and other compliance options.
The Company is required to meet federally approved SO2
regulations. Violations of such regulations can result in shutdown of the
generating unit involved and/or civil or criminal penalties of up to $27,500
for each day the unit is in violation. The EPA has an interim enforcement
policy for SO2 regulations in Ohio that allows for compliance based on a 30-
day averaging period. The Company cannot predict what action the EPA may
take in the future with respect to the interim enforcement policy.
In July 1997, the EPA promulgated changes in the National Ambient
Air Quality Standard (NAAQS) for ozone and proposed a new NAAQS for
previously unregulated ultra-fine particulate matter. In May 1999, the U.S.
Court of Appeals for the D.C. Circuit remanded both standards back to the
EPA finding constitutional and other defects in the new NAAQS rules. The
D.C. Circuit Court, on October 29, 1999, denied an EPA petition for
rehearing. The Company cannot predict the EPA's action in response to the
Court's remand order. The cost of compliance with these regulations, if they
are reinstated, may be substantial and depends on the manner in which they
are ultimately implemented, if at all, by the states in which the Company
operates affected facilities.
The Company has been named as a "potentially responsible party"
(PRP) at waste disposal sites which may require cleanup under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980. Allegations 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. The Company has accrued a liability of
$0.6 million as of December 31, 1999, based on estimates of the costs of
cleanup and the proportionate responsibility of other PRPs for such costs.
The Company believes that waste disposal costs will not have a material
adverse effect on its financial condition, cash flows or results of
operations.
6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain consolidated operating results
by quarter for 1999 and 1998.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1999 1999 1999 1999
- -------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $224.3 $235.2 $233.7 $228.0
Operating Expenses and Taxes 175.6 195.7 191.0 195.2
Operating Income 48.7 39.5 42.7 32.8
Other Income 2.9 3.2 2.8 3.7
Net Interest Charges 19.5 19.5 19.2 18.2
- -----------------------------------------------------------------------------
Net Income $ 32.1 $ 23.2 $ 26.3 $ 18.3
=============================================================================
Earnings on Common Stock $ 28.1 $ 19.1 $ 22.3 $ 14.2
=============================================================================
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- -------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $221.1 $239.7 $253.3 $243.0
Operating Expenses and Taxes 169.1 201.9 202.1 203.7
Operating Income 52.0 37.8 51.2 39.3
Other Income 3.8 3.1 2.7 2.6
Net Interest Charges 21.8 21.8 21.2 21.1
- ----------------------------------------------------------------------------
Net Income $ 34.0 $ 19.1 $ 32.7 $ 20.8
============================================================================
Earnings on Common Stock $ 32.6 $ 15.0 $ 28.5 $ 16.9
============================================================================
</TABLE>
7. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED):
FirstEnergy was formed on November 8, 1997 by the merger of OE and
Centerior. The merger was accounted for as a purchase of Centerior's net
assets with 77,637,704 shares of FirstEnergy Common Stock through the
conversion of each outstanding Centerior Common Stock share into 0.525 of a
share of FirstEnergy Common Stock (fractional shares were paid in cash).
Based on an imputed value of $20.125 per share, the purchase price was
approximately $1.582 billion, which also included approximately $20 million
of merger related costs. Goodwill of approximately $2.0 billion was
recognized (to be amortized on a straight-line basis over forty years),
which represented the excess of the purchase price over Centerior's net
assets after fair value adjustments.
Accumulated amortization of goodwill was approximately $27 million
as of December 31, 1999. The merger purchase accounting adjustments included
recognizing estimated severance and other compensation liabilities ($24
million). The amount charged against the liability in 1998 relating to the
costs of involuntary employee separation was $11 million. The liability was
subsequently reduced to zero as of December 31, 1998. The liability
adjustment was offset by a corresponding reduction to goodwill recognized in
connection with the Centerior acquisition.
The following pro forma statement of income for the Company gives
effect to the OE-Centerior merger as if it had been consummated on January
1, 1996, with the purchase accounting adjustments actually recognized in the
business combination.
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
- -----------------------------------------------
(In millions)
<S> <C>
Operating Revenues $895
Operating Expenses and Taxes 742
----
Operating Income 153
Other Income 10
Net Interest Charges 91
----
Net Income $ 72
==============================================
</TABLE>
Pro forma adjustments reflected above include: (1) adjusting the
Company's nuclear generating units to fair value based upon independent
appraisals and estimated discounted future cash flows based on management's
estimate of cost recovery; (2) the effect of discontinuing SFAS 71 for the
Company's nuclear operations; (3) amortization of the fair value adjustment
for long-term debt; (4) goodwill recognized representing the excess of the
Company's portion of the purchase price over the Company's adjusted net
assets; (5) the elimination of merger costs; and (6) adjustments for
estimated tax effects of the above adjustments.
8. TERMINATION OF PROPOSED MERGER OF THE COMPANY INTO CEI:
In March 1994, Centerior announced a plan to merge the Company
into CEI. All regulatory approvals were granted (with the exception of the
Nuclear Regulatory Commission (NRC) as that application was withdrawn at the
NRC's request pending the decision whether to complete this merger). In
addition, the preferred shareholders of the Company approved the merger and
the preferred shareholders of CEI approved the authorization of additional
shares of preferred stock. However, the management of FirstEnergy and the
Company have decided not to complete the proposed merger.
<PAGE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of The Toledo Edison Company:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of The Toledo Edison Company (an
Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and
subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of income, common stockholder's equity, preferred stock, cash
flows and taxes for the years ended December 31, 1999 and 1998, the period
from January 1, 1997 to November 7, 1997 (pre-merger), and the period from
November 8, 1997 to December 31, 1997 (post-merger). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Toledo Edison
Company and subsidiary as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for the years ended December 31, 1999
and 1998, the period from January 1, 1997 to November 7, 1997 (pre-merger),
and the period from November 8, 1997 to December 31, 1997 (post-merger), in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
EXHIBIT 21.3
THE TOLEDO EDISON COMPANY
LIST OF SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1999
The Toledo Edison Capital Corporation
Statement of Differences
------------------------
Exhibit Number 21, List of Subsidiaries of the Registrant at
December 31, 1999, is not included in the printed document.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-K financial statements for The Toledo Edison Company and is
qualified in its entirety by refrence to such financial statements.
(Amounts in 1,000's.) Income tax expense includes $6,641,000 related to
other income.
</LEGEND>
<CIK> 0000352049
<NAME> THE TOLEDO EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,201,908
<OTHER-PROPERTY-AND-INVEST> 423,632
<TOTAL-CURRENT-ASSETS> 141,371
<TOTAL-DEFERRED-CHARGES> 900,017
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,666,928
<COMMON> 195,670
<CAPITAL-SURPLUS-PAID-IN> 328,559
<RETAINED-EARNINGS> 27,475
<TOTAL-COMMON-STOCKHOLDERS-EQ> 551,704
0
210,000
<LONG-TERM-DEBT-NET> 981,029
<SHORT-TERM-NOTES> 33,876
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 76,030
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 19,735
<OTHER-ITEMS-CAPITAL-AND-LIAB> 794,554
<TOT-CAPITALIZATION-AND-LIAB> 2,666,928
<GROSS-OPERATING-REVENUE> 921,159
<INCOME-TAX-EXPENSE> 56,846
<OTHER-OPERATING-EXPENSES> 707,182
<TOTAL-OPERATING-EXPENSES> 757,387
<OPERATING-INCOME-LOSS> 163,772
<OTHER-INCOME-NET> 12,744
<INCOME-BEFORE-INTEREST-EXPEN> 176,516
<TOTAL-INTEREST-EXPENSE> 76,571
<NET-INCOME> 99,945
16,238
<EARNINGS-AVAILABLE-FOR-COMM> 83,707
<COMMON-STOCK-DIVIDENDS> 106,351
<TOTAL-INTEREST-ON-BONDS> 76,563
<CASH-FLOW-OPERATIONS> 240,654
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
Extract From the Annual Action of the Stockholder of
Pennsylvania Power Company September 27, 1999
----------------
RESOLVED: The sole shareholder amends the By-Laws of the Company
to read as follows:
Article V, Section 1 is amended by changing the minimum number
of Directors from "thirteen" to "three" and removing the requirement that
one-third of the directors be residents of the Commonwealth of Pennsylvania.
Article VIII, Section 1 is amended to include an Executive
Vice President and General Counsel as an executive officer and to change all
references to "Comptroller" to "Controller."
Article XI is amended to include the "Executive Vice
President" with "Vice Presidents" throughout the Article.
Article XIII is amended to change all references to
"Comptroller" to "Controller."
Article XV is amended to change all references to "Assistant
Comptroller" to "Assistant Controller."
----------------
I, Edward J. Udovich, Assistant Corporate Secretary of
Pennsylvania Power Company, do hereby certify that the foregoing is a true
and correct copy of resolutions duly adopted by the Board of Directors of
Pennsylvania Power Company, and that said resolutions have not since been
rescinded but is still in full force and effect.
Executed as of this 23rd day of February 2000.
-----------------------------
Assistant Corporate Secretary
- ----------------------------------------------------------------------------
PENNSYLVANIA POWER COMPANY
to
CITIBANK, N.A.,
As Trustee
---------------
Forty-seventh Supplemental Indenture
Providing among other things for
FIRST MORTGAGE BONDS
12% Series of 1999 Due 2000
-------------------
Dated as of September 29, 1999
============================================================================
FORTY-SEVENTH SUPPLEMENTAL INDENTURE, dated as of September 29,
1999, made and entered into by and between PENNSYLVANIA POWER COMPANY, a
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania, with its principal place of business in New Castle, Lawrence
County, Pennsylvania (hereinafter sometimes referred to as the "Company") and
CITIBANK, N.A., a national banking association incorporated and existing
under the laws of the United States of America, with its principal office in
the Borough of Manhattan, The City, County and State of New York (hereinafter
sometimes referred to as the "Trustee"), as trustee under the Indenture dated
as of November 1, 1945 between the Company and CITIBANK, N.A. (successor to
The First National Bank of The City of New York), as trustee, as supplemented
and amended by Supplemental Indentures between the Company and the Trustee,
dated as of May 1, 1948, as of March 1, 1950, as of February 1, 1952, as of
October 1, 1957, as of September 1, 1962, as of June 1, 1963, as of June
1, 1969, as of May 1, 1970, as of April 1, 1971, as of October 1, 1971, as of
May 1, 1972, as of December 1, 1974, as of October 1, 1975, as of September
1, 1976, as of April 15, 1978, as of June 28, 1979, as of January 1, 1980, as
of June 1, 1981, as of January 14, 1982, as of August 1, 1982, as of
December 15, 1982, as of December 1, 1983, as of September 6, 1984, as of
December 1, 1984, as of May 30, 1985, as of October 29, 1985, as of August 1,
1987, as of May 1, 1988, as of November 1, 1989, as of December 1, 1990, as
of September 1, 1991, as of May 1, 1992, as of July 15, 1992, as of August 1,
1992, as of May 1, 1993, as of July 1, 1993, as of August 31, 1993, as of
September 1, 1993, as of September 15, 1993, as of October 1, 1993, as of
November 1, 1993, as of August 1, 1994, as of September 1, 1995, as of June
1, 1997 and as of June 1, 1998 (said Indenture as so supplemented and
amended, and as hereby supplemented and amended, being hereinafter sometimes
referred to as the "Indenture");
Whereas, the Company and the Trustee have executed and delivered
the Indenture for the purpose of securing an issue of bonds of the First
Series described therein and such additional bonds as may from time to time
be issued under and in accordance with the terms of the Indenture, the
aggregate principal amount of bonds to be secured thereby being not limited,
and the Indenture fully describes and sets forth the property conveyed
thereby and is filed with the Secretary of the Commonwealth of Pennsylvania
and the Secretary of State of the State of Ohio and will be of record in the
office of the recorder of deeds of each county in the Commonwealth of
Pennsylvania and the State of Ohio in which this Forty-seventh Supplemental
Indenture is to be recorded and is on file at the corporate trust office of
the Trustee, above referred to; and
Whereas the Indenture provides for the issuance of bonds thereunder
in one or more series and the Company, by appropriate corporate action in
conformity with the terms of the Indenture, has duly determined to create a
series of bonds under the Indenture to be designated as "First Mortgage
Bonds, 12% Series of 1999 due 2000" (hereinafter sometimes referred to as the
"46th Series"), the bonds of which series are to bear interest at the annual
rate designated in the title thereof and are to mature on March 1, 2000;
And Whereas each of the bonds of the 46th Series and the Trustee's
Authentication Certificate thereon are to be substantially in the following
form, to-wit:
FORM OF BOND OF THE 46th SERIES
[FACE]
Pennsylvania Power Company
First Mortgage Bond, 12% Series of 1999 due 2000
$ No.
Pennsylvania Power Company, a Pennsylvania corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to
or registered assigns, the principal sum of
Dollars on March 1, 2000, and to pay the registered holder hereof interest on
said sum from the date hereof, at the rate, until the principal hereof shall
have become due and payable, of twelve per centum per annum, payable on March
1, 2000. The principal of and interest on this bond shall be payable at the
office or agency of the Company in the Borough of Manhattan, The City, County
and State of New York, designated for that purpose, in any coin or currency
of the United States of America which at the time of payment is legal tender
for public and private debts.
The interest so payable date will, subject to certain exceptions
provided in the Indenture referred to on the reverse hereof, be paid to the
person in whose name this bond is registered at the close of business on the
record date, which shall be February 15, 2000.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate
hereon.
In Witness Whereof, Pennsylvania Power Company has caused this bond
to be executed in its name by its President or one of its Vice Presidents by
his or her signature or a facsimile thereof, and its corporate seal or a
facsimile thereof to be affixed hereto or imprinted hereon and attested by
its Secretary or one of its Assistant Secretaries by his or her signature or
a facsimile thereof.
Dated,
Pennsylvania Power Company
By:
--------------------------
President
Attest:
- -------------------------
Secretary
FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE
TRUSTEE'S AUTHENTICATION CERTIFICATE
This bond is one of the bonds, of the series designated therein,
described in the within-mentioned Indenture.
Citibank, N.A.,
as Trustee,
By
----------------------
Authorized Officer
FORM OF BOND OF THE 46th SERIES
[REVERSE]
Pennsylvania Power Company
First Mortgage Bond, 12% Series of 1999 due 2000
This bond is one of the bonds issued and to be issued from time to
time under and in accordance with and all secured by an indenture of mortgage
or deed of trust dated as of November 1, 1945, and indentures supplemental
thereto, given by the Company to Citibank, N.A. (successor to The First
National Bank of the City of New York), as trustee (hereinafter referred to
as the "Trustee"), to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of
the Trustee and the rights of the holders of the bonds and coupons and of the
Trustee and of the Company in respect of such security, and the limitations
of such rights. By the terms of the Indenture, the bonds to be secured
thereby are issuable in series which may vary as to date, amount, date of
maturity, rate of interest, terms of redemption and in other respects as in
the Indenture provided.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including,
if more than one series of bonds shall be at the time outstanding, not less
than sixty per centum in principal amount of each series affected, to effect,
by an indenture supplemental to the Indenture, modifications or alterations
of the Indenture and of the rights and obligations of the Company and the
rights of the holders of the bonds and coupons; provided, however, that no
such modification or alteration shall be made without the written approval or
consent of the holder hereof which will (a) extend the maturity of this bond
or reduce the rate or extend the time of payment of interest hereon or reduce
the amount of the principal hereof or reduce any premium payable on the
redemption hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c)
reduce the percentage of the principal amount of the bonds upon the approval
or consent of the holders of which modifications or alterations may be made
as aforesaid.
The bonds of this series are not redeemable prior to maturity.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this bond, or for any claim based hereon, or
otherwise in respect hereof or of the Indenture, to or against any
incorporator, stockholder, director or officer, past, present or future, as
such, of the Company, or of any predecessor or successor company, either
directly or through the Company, or such predecessor or successor company, or
otherwise, under any constitution or statute or rule of law, or by the
enforcement of any assessment or penalty, or otherwise, all such liability of
incorporators, stockholders, directors and officers, as such, being waived
and released by the holder and owner hereof by the acceptance of this bond
and being likewise waived and released by the terms of the Indenture.
The bonds of this series are issuable only as registered bonds
without coupons in denominations of $1,000 and, if higher, any authorized
multiple of $1.00. This bond is transferable by the registered holder hereof,
in person or by attorney duly authorized, at the corporate trust office of
the Trustee, in the Borough of Manhattan, The City, County and State of New
York, or at such other place or places as the Company may designate by
resolution of the Board of Directors, but only in the manner and upon the
conditions prescribed in the Indenture, upon the surrender and cancellation
of this bond and the payment of charges for transfer, and upon any such
transfer a new registered bond or bonds, without coupons, of the same series
and maturity date and for the same aggregate principal amount, in authorized
denominations, will be issued to the transferee in exchange herefor. The
Company, the Trustee and any agent designated to make transfers or exchanges
of bonds of this series may deem and treat the person in whose name this bond
is registered as the absolute owner for all purposes including the purpose of
the receipt of payment. Registered bonds of this series shall be exchangeable
at said corporate trust office of the Trustee, or at such other place or
places as the Company may designate by resolution of the Board of Directors,
for registered bonds of other authorized denominations having the same
aggregate principal amount, in the manner and upon the conditions prescribed
in the Indenture. Neither the Company nor the Trustee nor any other agent
designated for such purpose shall be required to make transfers or exchanges
of bonds of this series and the record date next preceding such interest
payment date. Notwithstanding any provisions of the Indenture, no charge
shall be made upon any transfer or exchange of Bonds of this series other
than for any tax or taxes or other governmental charge required to be paid by
the Company.
[END OF FORM OF BOND]
And Whereas all acts and things necessary to make the bonds, when
authenticated by the Trustee and issued as in the Indenture provided, the
valid, binding and legal obligations of the Company, and to constitute the
Indenture a valid, binding and legal instrument for the security thereof,
have been done and performed, and the creation, execution and delivery of the
Indenture and the creation, execution and issue of bonds subject to the terms
hereof and of the Indenture, have in all respects been duly authorized;
Now Therefore, in consideration of the premises, and of the
acceptance and purchase by holders thereof of the bonds issued and to be
issued under the Indenture, and of the sum of One Dollar duly paid by the
Trustee to the Company, and of other good and valuable considerations, the
receipt whereof is hereby acknowledged, and for the purpose of securing the
due and punctual payment of the principal of and premium, if any, and
interest on all bonds now outstanding under the Indenture and the $57,938,287
principal amount of bonds of the 46th Series proposed presently to be issued
and all other bonds which shall be issued under the Indenture, and for the
purpose of securing the faithful performance and observance of all covenants
and conditions therein and in any supplemental indenture set forth, the
Company has given, granted, bargained, sold, released, transferred, assigned,
hypothecated, pledged, mortgaged, confirmed, created a security interest in,
set over, warranted, aliened and conveyed and by these presents does give,
grant, bargain, sell, release, transfer, assign, hypothecate, pledge,
mortgage, confirm, create a security interest in, set over, warrant, alien
and convey unto Citibank, N.A., as Trustee as provided in the Indenture, and
its successor or successors in the trust thereby and hereby created and to
its or their assigns forever, all the right, title and interest of the
Company in and to the property described in the Indenture (and not therein
expressly excepted), together (subject to the provisions of Article X of the
Indenture) with the tolls, rents, revenues, issues, earnings, income,
products and profits thereof, and does hereby confirm that the Company will
not cause or consent to a partition, whether voluntary or through legal
proceedings, of property, whether herein described or heretofore or hereafter
acquired, in which its ownership shall be as a tenant in common except as
permitted by and in conformity with the provisions of the Indenture and
particularly of said Article X thereof.
Together with all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises,
property, franchises and rights, or any thereof, referred to in the Indenture
(and not therein expressly excepted) with the reversion and reversions,
remainder and remainders and (subject to the provisions of Article X of the
Indenture) the tolls, rents, revenues, issues, earnings, income, products and
profits thereof, and all the estate, right, title and interest and claim
whatsoever, at law as well as in equity, which the Company now has or may
hereafter acquire in and to such premises, property, franchises and rights
and every part and parcel thereof, subject to "excepted encumbrances" of the
original Indenture.
To have and to hold all said premises, property, franchises and
rights hereby conveyed, assigned, pledged, or mortgaged, or intended so to
be, unto the Trustee, its successor or successors in trust, and their assigns
forever.
But in trust, nevertheless, with power of sale, for the equal and
proportionate benefit and security of the holders of all bonds now or
hereafter authenticated and delivered under the Indenture, and interest
coupons appurtenant thereto, pursuant to the provisions thereof, and for the
enforcement of the payment of said bonds and coupons when payable and the
performance of and compliance with the covenants and conditions of the
Indenture, without any preference, distinction or priority as to lien or
otherwise of any bond or bonds over others by reason of the difference in
time of the actual authentication, delivery, issue, sale or negotiation
thereof or for any other reason whatsoever, except as otherwise expressly
provided in the Indenture; and so that each and every bond now or hereafter
authenticated and delivered thereunder shall have the same lien, and so that
the principal of and premium, if any, and interest on every such bond, shall,
subject to the terms of the Indenture, be equally and proportionately secured
thereby and hereby, as if it had been made, executed, authenticated,
delivered, sold and negotiated simultaneously with the execution and delivery
of the Indenture.
And It Is Expressly Declared that all bonds authenticated and
delivered and secured thereunder and hereunder are to be issued,
authenticated and delivered, and all said premises, property, franchises and
rights hereby and by the Indenture conveyed, assigned, pledged or mortgaged,
or intended so to be (including all the right, title and interest of the
Company in and to any and all premises, property, franchises and rights of
every kind and description, real, personal and mixed, tangible and
intangible, thereafter acquired by the Company and whether or not
specifically described in the Indenture, except any therein expressly
excepted), are to be dealt with and disposed of, under, upon and subject to
the terms, conditions, stipulations, covenants, agreements, trusts, uses and
purposes in the Indenture expressed, and it is hereby agreed as follows:
Section 1. There is hereby created a series of bonds designated
12% Series of 1999 due 2000, each of which shall also bear the descriptive
title "First Mortgage Bond" (said bonds being sometimes herein referred to as
the "bonds of the 46th Series"), and the form thereof shall be substantially
as hereinbefore set forth. Bonds of the 46th Series shall mature on March 1,
2000, and may be issued only as registered bonds without coupons in
denominations of $1,000 and, if higher, any multiple of $1.00 as the Board of
Directors shall approve, and delivery to the Trustee for authentication shall
be conclusive evidence of such approval. The serial numbers of bonds of the
46th Series shall be such as may be approved by any officer of the Company,
the execution thereof by any such officer, by facsimile signature or
otherwise, to be conclusive evidence of such approval. Bonds of the 46th
Series shall bear interest at the rate, until the principal thereof shall
have become due and payable, of twelve per centum per annum payable on March
1, 2000. The principal of and the interest on said bonds shall be payable in
any coin or currency of the United States of America which at the time of
payment is legal tender for public and private debts at the office or agency
of the Company in the Borough of Manhattan, The City, County and State of New
York, designated for that purpose.
Except as provided in this Section 1, bonds of the 46th Series
shall be dated and bear interest as provided in Section 2.03 of the
Indenture.
The bonds of the 46th Series shall not be redeemable prior to their
maturity.
The person in whose name any bond of the 46th Series is registered
at the close of business on February 15, 2000 shall be entitled to receive
the interest payable on March 1, 2000 notwithstanding the cancellation of
such registered bond upon any transfer or exchange thereof subsequent to
February 15, 2000 and prior to March 1, 2000.
Section 2. The Company covenants and agrees that the provisions of
Section 3 of the Fifth Supplemental Indenture dated as of September 1, 1962,
which are to remain in effect so long as any bonds of the Sixth Series shall
be outstanding under the Indenture, shall remain in full force and effect so
long as any bonds of the 46th Series shall be outstanding under the
Indenture.
Section 3. The Company covenants and agrees that the provisions of
Section 3 of the Nineteenth Supplemental Indenture dated as of January 14,
1982, which are to remain in effect so long as any bonds of the Twentieth
Series shall be outstanding under the Indenture, shall remain in full force
and effect so long as any bonds of the 46th Series shall be outstanding under
the Indenture.
Section 4. As supplemented and amended by this Supplemental
Indenture, the Indenture is in all respects ratified and confirmed, and the
Indenture and this Supplemental Indenture shall be read, taken and construed
as one and the same instrument.
Section 5. Nothing in this Supplemental Indenture contained shall,
or shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, the Company and the Trustee any right or interest
to avail himself of any benefit under any provision of the Indenture or of
this Supplemental Indenture.
Section 6. The Trustee assumes no responsibility for or in respect
of the validity or sufficiency of this Supplemental Indenture or the due
execution hereof by the Company or for or in respect of the recitals and
statements contained herein, all of which recitals and statements are made
solely by the Company.
Section 7. This Supplemental Indenture may be executed in several
counterparts and all such counterparts executed and delivered, each as an
original, shall constitute but one and the same instrument.
Pennsylvania Power Company hereby constitutes and appoints Richard
H. Marsh to be its attorney for it and in its name as and for its corporate
act and deed to acknowledge this Supplemental Indenture before any person
having authority to take such acknowledgement, to the intent that the same
may be duly recorded.
Citibank, N.A. hereby constitutes and appoints Patrick DeFelice to
be its attorney for it and in its name as and for its corporate act and deed
to acknowledge this Supplemental Indenture before any person having authority
to take such acknowledgement, to the intent that the same may be duly
recorded.
In Witness Whereof, Pennsylvania Power Company has caused its
corporate name to be hereunto affixed, and this instrument to be signed and
sealed by its President or a Vice President, and its corporate seal to be
attested by its Secretary or an Assistant Secretary for and in its behalf, in
the City of Akron, County of Summit and State of Ohio and CITIBANK, N.A., in
token of its acceptance of the trust, has caused its corporate name to be
hereunto affixed, and this instrument to be signed by a Vice President and
its corporate seal to be affixed and attested by its Corporate Secretary in
The City of New York, County of New York and State of New York, all as of the
day and year first above written.
Pennsylvania Power Company,
By:
------------------------------
Richard H. Marsh
Vice President
ATTEST:
By:
----------------------
Nancy C. Ashcom
Corporate Secretary
[Seal]
Signed, sealed and delivered by
Pennsylvania Power Company
in the presence of:
- -----------------------------
- -----------------------------
Citibank, N.A.
as Trustee as aforesaid
By:
----------------------
Patrick DeFelice
Vice President
ATTEST:
- -------------------------------
Assistant Vice President
[Seal]
Signed, sealed and delivered by
Citibank, N.A. in
the presence of:
- ------------------------
- ------------------------
State of Ohio )
) ss.:
County of Summit )
BE IT REMEMBERED that, on the 29th day of September, 1999 before
me, the undersigned, a Notary Public in said County of Summit, State of Ohio,
personally appeared Nancy C. Ashcom, who being duly sworn according to law,
doth depose and say that she was personally present and did see the common or
corporate seal of the above named PENNSYLVANIA POWER COMPANY affixed to the
foregoing Supplemental Indenture; that the seal so affixed is the common or
corporate seal of the said Pennsylvania Power Company and was so affixed by
the authority of the said corporation as the act and deed thereof; that the
above named Richard H. Marsh is a Vice President of said corporation and did
sign the said Supplemental Indenture as such in the presence of this
deponent; that this deponent is the Corporate Secretary of Pennsylvania Power
Company, and that the name of this deponent above signed is attestation of
the due execution of the said Supplemental Indenture is in this deponent's
own proper handwriting.
Sworn to and subscribed before me this 29th day of September, 1999.
[SEAL] -------------------------
State of Ohio )
) ss.:
County of Summit )
I HEREBY CERTIFY THAT on this 29th day of September, 1999, before
me, the subscriber, a Notary Public in and for the State and County
aforesaid, personally appeared Richard H. Marsh, the attorney for
PENNSYLVANIA POWER COMPANY, and the attorney named in the foregoing
Supplemental Indenture and, by virtue and in pursuance of the authority
therein conferred upon him, acknowledged the said Supplemental Indenture to
be the act and deed of said Pennsylvania Power Company.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL] ------------------------
State of Ohio )
) ss.:
County of Summit )
On the 29th day of September, 1999, before me, personally came
Richard H. Marsh to me known, who, being by me duly sworn, did depose and say
that he resides at ________________; that he is a Vice President of
PENNSYLVANIA POWER COMPANY, one of the corporations described in and which
executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was
so affixed by order of the Board of Directors of said corporation, and that
he signed his name thereto by like authority.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL] -----------------------
State of New York )
) ss.:
County of New York )
BE IT REMEMBERED that, on the ______ day of September, 1999 before
me, the undersigned, a Notary Public in said County of New York, State of New
York, personally appeared __________, who being duly sworn according to law,
doth depose and say that she was personally present and did see the common or
corporate seal of the above named CITIBANK, N.A. affixed to the foregoing
Supplemental Indenture; that the seal so affixed is the common or corporate
seal of the said CITIBANK, N.A. and was so affixed by the authority of the
said corporation as the act and deed thereof; that the above named, P.
DeFelice is one of the Vice Presidents of said association and did sign the
said Supplemental Indenture as such in the presence of this deponent; that
this deponent is an Assistant Vice President of said CITIBANK, N.A., and that
the name of this deponent above signed is attestation of the due execution of
the said Supplemental Indenture is in this deponent's own proper handwriting.
Sworn to and subscribed before me this ___ day of September, 1999.
[SEAL] --------------------------
State of New York )
) ss.:
County of New York )
I HEREBY CERTIFY that on this ___ day of September, 1999, before
me, the subscriber, a Notary Public in and for the State and County
aforesaid, personally appeared P. DeFelice, the attorney for CITIBANK, N.A.,
and the attorney named in the foregoing Supplemental Indenture and, by virtue
and in pursuance of the authority therein conferred upon him, acknowledged
the execution of said Supplemental Indenture to be the act and deed of said
CITIBANK, N.A.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL] ------------------------
State of New York )
) ss.:
County of New York )
On the ___ day of September, 1999 before me, personally came P.
DeFelice, to me known, who being by me duly sworn, did depose and say that he
resides at 47-09 169th Street, Flushing, New York 11358; that he is a Vice
President of CITIBANK, N.A., one of the parties described in and which
executed the above instrument; that he knows the seal of said association;
that the seal affixed to said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said association, and
that he signed his name thereto by like authority.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL] ------------------------
Citibank, N.A. hereby certifies that its precise name and address
as Trustee hereunder are:
Citibank, N.A.
111 Wall Street
Borough of Manhattan
City, County and State
of New York 10043
Citibank, N.A.
By:
--------------------------
Patrick DeFelice
Vice President
=========================================================================
PENNSYLVANIA POWER COMPANY
to
CITIBANK, N.A.,
As Trustee
---------------
Forty-eighth Supplemental
Indenture
Providing among other things for
AN AMENDMENT OF THE INDENTURE
-----------------
Dated as of November 15, 1999
=============================================================================
FORTY-EIGHTH SUPPLEMENTAL INDENTURE, dated as of November 15, 1999,
made and entered into by and between PENNSYLVANIA POWER COMPANY, a
corporation organized and existing under the laws of the Commonwealth of
Pennsylvania, with its principal place of business in Akron, Summit County,
Ohio (hereinafter sometimes referred to as the "Company") and CITIBANK, N.A.,
a national banking association incorporated and existing under the laws of
the United States of America, with its principal office in the Borough of
Manhattan, The City, County and State of New York (hereinafter sometimes
referred to as the "Trustee"), as trustee under the Indenture dated as of
November 1, 1945 between the Company and CITIBANK, N.A. (successor to The
First National Bank of The City of New York), as trustee, as supplemented and
amended by Supplemental Indentures between the Company and the Trustee, dated
as of May 1, 1948, as of March 1, 1950, as of February 1, 1952, as of October
1, 1957, as of September 1, 1962, as of June 1, 1963, as of June 1, 1969,
as of May 1, 1970, as of April 1, 1971, as of October 1, 1971, as of May 1,
1972, as of December 1, 1974, as of October 1, 1975, as of September 1, 1976,
as of April 15, 1978, as of June 28, 1979, as of January 1, 1980, as of June
1, 1981, as of January 14, 1982, as of August 1, 1982, as of December 15,
1982, as of December 1, 1983, as of September 6, 1984, as of December 1,
1984, as of May 30, 1985, as of October 29, 1985, as of August 1, 1987, as of
May 1, 1988, as of November 1, 1989, as of December 1, 1990, as of September
1, 1991, as of May 1, 1992, as of July 15, 1992, as of August 1, 1992, as of
May 1, 1993, as of July 1, 1993, as of August 31, 1993, as of September 1,
1993, as of September 15, 1993, as of October 1, 1993, as of November 1,
1993, as of August 1, 1994, as of September 1, 1995, as of June 1, 1997, as
of June 1, 1998 and as of September 29, 1999 (said Indenture as so
supplemented and amended, and as hereby supplemented and amended, being
hereinafter sometimes referred to as the "Indenture");
Whereas, the Company and the Trustee have executed and delivered
the Indenture for the purpose of securing an issue of bonds of the First
Series described therein and such additional bonds as may from time to time
be issued under and in accordance with the terms of the Indenture, the
aggregate principal amount of bonds to be secured thereby being not limited,
and the Indenture fully describes and sets forth the property conveyed
thereby and is filed with the Secretary of the Commonwealth of Pennsylvania
and the Secretary of State of the State of Ohio and will be of record in the
office of the recorder of deeds of each county in the Commonwealth of
Pennsylvania and the State of Ohio in which this Forty-eighth Supplemental
Indenture is to be recorded and is on file at the corporate trust office of
the Trustee, above referred to; and
Whereas the Indenture provides that the Company and the Trustee
may, from time to time and at any time, enter into indentures supplemental
thereto in order to change, alter, modify, vary or eliminate any of the
terms, provisions, restrictions or condition thereof;
Now Therefore, in consideration of the premises, and of the sum of
One Dollar duly paid by the Trustee to the Company, and of other good and
valuable considerations, the receipt whereof is hereby acknowledged, and for
the purpose of modifying the provisions of the Indenture insofar as they
prevent the Company from acquiring certain property from Duquesne Light
Company.
Section 1. The Indenture is hereby modified by excepting the
Company's acquisition from Duquesne Light Company's of any undivided interest
in the Beaver Valley Power Station, located in Shippingport, Pennsylvania,
from the provisions of Section 7.05 thereof and by excluding the prior lien
bonds relating to such undivided interest from the provisions of Section 7.14
thereof; and the Company hereby assigns and pledges to the Trustee the
Company's contractual rights to have Duquesne Light Company satisfy and
discharge all prior lien bonds relating to any interest in said Beaver Valley
Power Station that the Company acquires from Duquesne Light Company.
Section 2. As supplemented and amended by this Supplemental
Indenture, the Indenture is in all respects ratified and confirmed, and the
Indenture and this Supplemental Indenture shall be read, taken and construed
as one and the same instrument.
Section 3. Nothing in this Supplemental Indenture contained shall,
or shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, the Company and the Trustee any right or interest
to avail himself of any benefit under any provision of the Indenture or of
this Supplemental Indenture.
Section 4. The Trustee assumes no responsibility for or in respect
of the validity or sufficiency of this Supplemental Indenture or the due
execution hereof by the Company or for or in respect of the recitals and
statements contained herein, all of which recitals and statements are made
solely by the Company.
Section 5. This Supplemental Indenture may be executed in several
counterparts and all such counterparts executed and delivered, each as an
original, shall constitute but one and the same instrument.
Pennsylvania Power Company hereby constitutes and appoints Richard
H. Marsh to be its attorney for it and in its name as and for its corporate
act and deed to acknowledge this Supplemental Indenture before any person
having authority to take such acknowledgement, to the intent that the same
may be duly recorded.
Citibank, N.A. hereby constitutes and appoints Patrick DeFelice to
be its attorney for it and in its name as and for its corporate act and deed
to acknowledge this Supplemental Indenture before any person having authority
to take such acknowledgement, to the intent that the same may be duly
recorded.
In Witness Whereof, Pennsylvania Power Company has caused its
corporate name to be hereunto affixed, and this instrument to be signed and
sealed by its President or a Vice President, and its corporate seal to be
attested by its Secretary or an Assistant Secretary for and in its behalf, in
the City of Akron, County of Summit and State of Ohio and CITIBANK, N.A., in
token of its acceptance of the trust, has caused its corporate name to be
hereunto affixed, and this instrument to be signed by a Vice President and
its corporate seal to be affixed and attested by its Corporate Secretary in
The City of New York, County of New York and State of New York, all as of the
day and year first above written.
Pennsylvania Power Company,
By:
--------------------------
Richard H. Marsh
Vice President
ATTEST:
By:
---------------------------
Edward J. Udovich
Assistant Corporate Secretary
[Seal]
Signed, sealed and delivered by
Pennsylvania Power Company
in the presence of:
- -----------------------------
- -----------------------------
Citibank, N.A.
as Trustee as aforesaid
By:
----------------------
P. DeFelice
Vice President
ATTEST:
- ---------------------------
Senior Trust Officer
[Seal]
Signed, sealed and delivered by
Citibank, N.A. in
the presence of:
- --------------------------
- --------------------------
State of Ohio )
) ss.:
County of Summit )
BE IT REMEMBERED that, on the ____ day of November, 1999 before me,
the undersigned, a Notary Public in said County of Summit, State of Ohio,
personally appeared Edward J. Udovich, who being duly sworn according to law,
doth depose and say that she was personally present and did see the common or
corporate seal of the above named PENNSYLVANIA POWER COMPANY affixed to the
foregoing Supplemental Indenture; that the seal so affixed is the common or
corporate seal of the said Pennsylvania Power Company and was so affixed by
the authority of the said corporation as the act and deed thereof; that the
above named Richard H. Marsh is a Vice President of said corporation and did
sign the said Supplemental Indenture as such in the presence of this
deponent; that this deponent is the Corporate Secretary of Pennsylvania Power
Company, and that the name of this deponent above signed is attestation of
the due execution of the said Supplemental Indenture is in this deponent's
own proper handwriting.
Sworn to and subscribed before me this ____ day of November, 1999.
[SEAL] --------------------
State of Ohio )
) ss.:
County of Summit )
I HEREBY CERTIFY THAT on this ____ day of November, 1999, before
me, the subscriber, a Notary Public in and for the State and County
aforesaid, personally appeared Richard H. Marsh, the attorney for
PENNSYLVANIA POWER COMPANY, and the attorney named in the foregoing
Supplemental Indenture and, by virtue and in pursuance of the authority
therein conferred upon him, acknowledged the said Supplemental Indenture to
be the act and deed of said Pennsylvania Power Company.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL] ---------------------
State of Ohio )
) ss.:
County of Summit )
On the ____ day of November, 1999, before me, personally came
Richard H. Marsh to me known, who, being by me duly sworn, did depose and say
that he resides at ________________; that he is a Vice President of
PENNSYLVANIA POWER COMPANY, one of the corporations described in and which
executed the above instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was
so affixed by order of the Board of Directors of said corporation, and that
he signed his name thereto by like authority.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL] ----------------------
State of New York )
) ss.:
County of New York )
BE IT REMEMBERED that, on the ____ day of November, 1999 before me,
the undersigned, a Notary Public in said County of New York, State of New
York, personally appeared __________, who being duly sworn according to law,
doth depose and say that she was personally present and did see the common or
corporate seal of the above named CITIBANK, N.A. affixed to the foregoing
Supplemental Indenture; that the seal so affixed is the common or corporate
seal of the said CITIBANK, N.A. and was so affixed by the authority of the
said corporation as the act and deed thereof; that the above named, P.
DeFelice is one of the Vice Presidents of said association and did sign the
said Supplemental Indenture as such in the presence of this deponent; that
this deponent is a Senior Trust Officer of said CITIBANK, N.A., and that the
name of this deponent above signed is attestation of the due execution of the
said Supplemental Indenture is in this deponent's own proper handwriting.
Sworn to and subscribed before me this ___ day of November, 1999.
[SEAL] ----------------------
State of New York )
) ss.:
County of New York )
I HEREBY CERTIFY that on this ___ day of November, 1999, before me,
the subscriber, a Notary Public in and for the State and County aforesaid,
personally appeared P. DeFelice, the attorney for CITIBANK, N.A., and the
attorney named in the foregoing Supplemental Indenture and, by virtue and in
pursuance of the authority therein conferred upon him, acknowledged the
execution of said Supplemental Indenture to be the act and deed of said
CITIBANK, N.A.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL] --------------------
State of New York )
) ss.:
County of New York )
On the ___ day of November, 1999 before me, personally came P.
DeFelice, to me known, who being by me duly sworn, did depose and say that he
resides at 47-09 169th Street, Flushing, New York 11358; that he is a Vice
President of CITIBANK, N.A., one of the parties described in and which
executed the above instrument; that he knows the seal of said association;
that the seal affixed to said instrument is such corporate seal; that it was
so affixed by authority of the Board of Directors of said association, and
that he signed his name thereto by like authority.
WITNESS my hand and notarial seal the day and year aforesaid.
[SEAL] --------------------
Citibank, N.A. hereby certifies that its precise name and address
as Trustee hereunder are:
Citibank, N.A.
111 Wall Street
Borough of Manhattan
City, County and State
of New York 10043
Citibank, N.A.
By:
-----------------------------
P. DeFelice
Vice President
<TABLE>
EXHIBIT 12.5
Page 1
PENNSYLVANIA POWER COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $ 38,930 $ 40,587 $31,472 $39,748 $12,648
Interest before reduction for amounts
capitalized 31,350 27,889 22,438 21,073 21,317
Provision for income taxes 32,591 33,421 26,658 32,504 18,834
Interest element of rentals charged to
income (a) 1,865 1,868 1,750 1,920 1,887
-------- -------- ------- ------- -------
Earnings as defined $104,736 $103,765 $82,318 $95,245 $54,686
======== ======== ======= ======= =======
FIXED CHARGES AS DEFINED IN REGULATION S-K:
Interest on long-term debt $ 28,937 $ 25,715 $20,458 $19,255 $19,268
Interest on nuclear fuel obligations 407 219 276 28 90
Other interest expense 2,006 1,955 1,704 1,789 1,959
Interest element of rentals charged to
income (a) 1,865 1,868 1,750 1,920 1,887
-------- -------- ------- ------- -------
Fixed charges as defined $ 33,215 $ 29,757 $24,188 $22,992 $23,204
======== ======== ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES (b) 3.15 3.49 3.40 4.14 2.36
==== ==== ==== ==== ====
<FN>
- -------------------------
(a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where
no readily defined interest element can be determined.
(b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier
aggregating $795,000, $642,000, $483,000 and $273,000 for each of the four years ended
December 31, 1998, respectively. The guarantee and related coal supply contract debt expired
December 31, 1999.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12.5
Page 2
PENNSYLVANIA POWER COMPANY
RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED
STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items $ 38,930 $ 40,587 $31,472 $39,748 $12,648
Interest before reduction for amounts
capitalized 31,350 27,889 22,438 21,073 21,317
Provision for income taxes 32,591 33,421 26,658 32,504 18,834
Interest element of rentals charged to
income (a) 1,865 1,868 1,750 1,920 1,887
-------- -------- ------- ------- -------
Earnings as defined $104,736 $103,765 $82,318 $95,245 $54,686
======== ======= ======= ======= =======
FIXED CHARGES AS DEFINED IN REGULATION
S-K PLUS PREFERRED STOCK DIVIDEND
REQUIREMENTS (PRE-INCOME TAX BASIS):
Interest on long-term debt $ 28,937 $ 25,715 $20,458 $19,255 $19,268
Interest on nuclear fuel obligations 407 219 276 28 90
Other interest expense 2,006 1,955 1,704 1,789 1,959
Preferred stock dividend requirements 4,775 4,626 4,626 4,626 4,370
Adjustment to preferred stock dividends
to state on a pre-income tax basis 3,939 3,751 3,859 3,726 6,403
Interest element of rentals charged to
income (a) 1,865 1,868 1,750 1,920 1,887
-------- -------- ------- ------- --------
Fixed charges as defined plus preferred stock
dividend requirements (pre-income tax basis) $ 41,929 $ 38,134 $32,673 $31,344 $33,977
======== ======== ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED
STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX
BASIS) (b) 2.50 2.72 2.52 3.04 1.61
==== ==== ==== ==== ====
<FN>
- -------------------------
(a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no
readily defined interest element can be determined.
(b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier
aggregating $795,000, $642,000, $483,000 and $273,000 for each of the four years ended December 31,
1998, respectively. The guarantee and related coal supply contract debt expired December 31, 1999.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
SELECTED FINANCIAL DATA
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 329,234 $323,756 $ 323,381 $ 322,625 $ 314,642
========== ======== ========== ========== ==========
Operating Income $ 32,063 $ 58,041 $ 50,736 $ 62,329 $ 67,317
========== ======== ========== ========== ==========
Income Before Extraordinary Item $ 12,648 $ 39,748 $ 31,472 $ 40,587 $ 38,930
========== ======== ========== ========== ==========
Net Income $ 12,648 $ 9,226 $ 31,472 $ 40,587 $ 38,930
========== ======== ========== ========== ==========
Earnings on Common Stock $ 8,278 $ 4,600 $ 26,846 $ 35,961 $ 34,155
========== ======== ========== ========== ==========
Total Assets $1,015,616 $977,772 $1,034,457 $1,074,578 $1,151,990
========== ======== ========== ========== ==========
CAPITALIZATION:
Common Stockholder's Equity $ 199,608 $275,281 $ 291,977 $ 286,504 $ 271,920
Preferred Stock-
Not Subject to Mandatory Redemption 39,105 50,905 50,905 50,905 50,905
Subject to Mandatory Redemption 15,000 15,000 15,000 15,000 15,000
Long-Term Debt 274,821 287,689 289,305 310,996 338,670
---------- -------- ---------- ---------- ----------
Total Capitalization $ 528,534 $628,875 $ 647,187 $ 663,405 $ 676,495
========== ======== ========== ========== ==========
CAPITALIZATION RATIOS:
Common Stockholder's Equity 37.8% 43.8% 45.1% 43.2% 40.2%
Preferred Stock-
Not Subject to Mandatory Redemption 7.4 8.1 7.9 7.7 7.5
Subject to Mandatory Redemption 2.8 2.4 2.3 2.2 2.2
Long-Term Debt 52.0 45.7 44.7 46.9 50.1
----- ----- ----- ----- -----
Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
TRANSMISSION AND DISTRIBUTION
KILOWATT-HOUR SALES (Millions):
Residential 1,325 1,278 1,238 1,254 1,195
Commercial 1,105 1,069 1,013 996 938
Industrial 1,495 1,439 1,659 1,693 1,558
Other 6 6 6 6 6
----- ----- ----- ----- -----
Total Retail 3,931 3,792 3,916 3,949 3,697
Total Wholesale 1,118 964 901 1,106 1,080
----- ----- ----- ----- -----
Total 5,049 4,756 4,817 5,055 4,777
===== ===== ===== ===== =====
CUSTOMERS SERVED:
Residential 117,440 124,304 129,316 127,936 126,480
Commercial 16,307 16,924 16,738 16,531 16,317
Industrial 175 206 241 225 223
Other 87 86 97 99 97
------- ------- ------- ------- -------
Total 134,009 141,520 146,392 144,791 143,117
======= ======= ======= ======= =======
Generating Capability:
Coal 41.4% 72.1% 72.1% 72.1% 72.1%
Oil 1.5 3.0 3.0 3.0 3.0
Nuclear 57.1 24.9 24.9 24.9 24.9
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
SOURCES OF ELECTRIC GENERATION:
Coal 61.1% 76.9% 73.8% 67.6% 65.6%
Nuclear 38.9 23.1 26.2 32.4 34.4
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
NUMBER OF EMPLOYEES 895 888 997 1,015 1,220
=== === === ===== =====
</TABLE>
<PAGE>
PENNSYLVANIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Electric Sales
Operating revenues increased $5.5 million in 1999 from 1998 due
primarily to higher kilowatt-hour sales to wholesale customers. In 1999,
approximately 5% of our retail customers selected an alternative energy
supplier, which slightly decreased our operating revenues from retail
customers. Although we did not provide the generation of power to these
customers, we continue to provide the transmission and distribution of this
power through our system. As a result of increased service area demand, the
kilowatt-hour sales through our system increased to each of our retail
customer groups. Sales to residential, commercial and industrial customers
increased by 3.7%, 3.4% and 3.9%, respectively. Available internal generation
aided sales to wholesale customers which increased by $5.6 million in 1999
compared to 1998.
In 1998, residential and commercial kilowatt-hour sales increased
3.3% and 7.5%, respectively, but were more than offset by a 13.4% decrease in
industrial sales volume. Closure of an electric arc furnace at Caparo Steel
Company in August 1997 and a general decline in electricity demand by steel
manufacturers due to intense foreign competition contributed to lower
industrial kilowatt-hour sales in 1998.
Operating Expenses and Taxes
Total operating expenses and taxes increased $31.5 million in 1999
from 1998. The increase resulted from higher operation and maintenance
expenses in all major categories. In 1998, operating expenses and taxes
decreased $6.9 million reflecting lower operation and maintenance expenses,
as well as reduced depreciation and amortization expense.
Fuel and purchased power increased in 1999 from the prior year. The
Duquesne Light Company (Duquesne) asset swap resulted in one-time costs of
$6.8 million recorded as fuel expenses in 1999, which contributed to our
higher fuel and purchased power costs. In 1998, most of the increase in fuel
and purchased power occurred in the second quarter and resulted from a
combination of factors. Record heat and humidity in late June 1998, coincided
with a regional power shortage which resulted in high prices for purchased
power. Due in part to an unscheduled outage at Beaver Valley Unit 1, we
purchased significant amounts of power from the spot market during that
period resulting in higher purchased power costs.
Nuclear operating costs increased in 1999 from the prior year due
to a refueling outage at the Perry Plant and increased ownership of the
Beaver Valley Plant following the asset swap in early December 1999. Nuclear
costs were lower in 1998, compared to 1997, due primarily to lower refueling
outage cost levels. Other operating costs also increased in 1999 from the
prior year principally due to higher customer and sales expenses including
expenditures for energy marketing programs, information system requirements
and an increase in employee benefit expense as well as higher distribution
costs from storm repair and overhead line maintenance. The absence of costs
related to a 1997 voluntary retirement program and a charge for uncollectible
customer accounts in 1997 contributed to the reduction in other operating
costs in 1998.
Depreciation and amortization expense increased by $2.9 million in
1999 compared to the prior year. Amortization of regulatory assets related to
our rate restructuring plan, which began in 1999, more than offset the lower
depreciation expense resulting from reduced nuclear investments following an
extraordinary charge in June 1998 as discussed below. As a result of the
nuclear investment write-down, depreciation and amortization declined in 1998
as compared to 1997. General taxes increased in 1999 from the prior year
principally due to increased state gross receipts taxes resulting from
additional taxable receipts and an adjustment to real estate taxes resulting
from new Pennsylvania legislation.
Extraordinary Item
The Pennsylvania Public Utility Commission's (PPUC) authorization
of our rate restructuring plan led to the discontinued application of
Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for
the Effects of Certain Types of Regulation," to our generation business in
1998. This resulted in an after-tax write-down in 1998 of $30.5 million of
our nuclear generation unit investment and the recognition of a portion of
such investment -- recoverable through future customer rates -- as a
regulatory asset.
Earnings on Common Stock
Earnings on common stock increased to $8.3 million in 1999 from
$4.6 million in 1998. The increase was primarily due to the absence of the
extraordinary charge recognized in 1998, which was substantially offset by
increased operating expenses in 1999. The loss of a small portion of our
retail customers resulting from alternative energy suppliers also held back
our revenue growth. The asset swap with Duquesne resulted in one-time costs
and additional nuclear expenses related to increased ownership of the Beaver
Valley Plant in 1999. The decrease in earnings on common stock to $4.6
million in 1998 from $26.8 million in 1997 was due primarily to the
extraordinary charge in 1998.
Capital Resources and Liquidity
We had about $21.1 million of cash and temporary investments and no
short-term indebtedness as of December 31, 1999. Also we had a $2 million
bank facility that provides for borrowings on a short-term basis at the
bank's discretion. At the end of 1999, we had the capability to issue $114
million of additional first mortgage bonds on the basis of property additions
and retired bonds. Based on our earnings test under our charter, we could not
issue any additional preferred stock at year end.
Our cash requirements in 2000 for operating expenses, construction
expenditures and scheduled debt maturities are expected to be met without
issuing new securities. We have cash requirements of approximately $110
million for the 2000-2004 period to meet scheduled maturities of long-term
debt. Of that amount, approximately $29 million relates to 2000.
Our capital spending for the period 2000-2004 is expected to be
about $234 million (excluding nuclear fuel), of which approximately $38
million applies to 2000. Investments for additional nuclear fuel during the
2000-2004 period are estimated to be approximately $90 million, of which
about $24 million relates to 2000. During the same periods, our nuclear fuel
investments are expected to be reduced by approximately $86 million and $18
million, respectively, as the nuclear fuel is consumed.
On December 3, 1999, we completed the exchange of generating assets
between Duquesne and FirstEnergy, which increased FirstEnergy's portfolio of
generation resources. Duquesne transferred 1,436 megawatts at five generating
plants in exchange for 1,328 megawatts at three plants owned by FirstEnergy
operating companies. In the exchange, we received all of Duquesne's ownership
interest in the Beaver Valley Plant, and an additional interest in the Bruce
Mansfield Plant while providing Duquesne with our ownership interest in the
New Castle Plant.
At the end of 1999, we transferred our interest in Penn Power
Energy, Inc., a wholly owned subsidiary selling energy in Pennsylvania's
unregulated generation market, to FirstEnergy Services Corp., an affiliated
company. For FirstEnergy, the transaction centralized unregulated electricity
sales and marketing activities in one entity.
Interest Rate Risk
Our exposure to fluctuations in market interest rates is mitigated
since a significant portion of our debt has fixed interest rates, as noted in
the table below. We are subject to the inherent interest rate risks related
to refinancing maturing debt by issuing new debt securities. Changes in the
market value of our nuclear decommissioning trust funds are recognized by
making a corresponding change to the decommissioning liability, as described
in Note 1.
The table below presents principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio, debt
obligations and preferred stock with mandatory redemption provisions.
Comparison of Carrying Value to Fair Value
- ----------------------------------------------------------------------------
There- Fair
2000 2001 2002 2003 2004 after Total Value
- ----------------------------------------------------------------------------
(Dollars in millions)
Investments other
than Cash and
Cash Equivalents:
Fixed Income $ 73 $ 73 $ 73
Average interest
rate 5.2% 5.2%
- ----------------------------------------------------------------------------
Liabilities
- ----------------------------------------------------------------------------
Long-term Debt:
Fixed rate $ 29 $ 1 $ 1 $ 41 $ 35 $160 $267 $264
Average interest
rate 6.6% 9.7% 9.7% 7.6% 6.6% 7.0% 7.0%
Variable rate $ 16 $ 16 $ 15
Average interest rate 5.6% 5.6%
- ----------------------------------------------------------------------------
Preferred Stock $ 1 $ 1 $ 13 $ 15 $ 14
Average dividend rate 7.6% 7.6% 7.6% 7.6%
- ----------------------------------------------------------------------------
Outlook
We continue to face many competitive challenges as the electric
utility industry undergoes significant changes, including changing regulation
and the entrance of more energy suppliers into the marketplace. The increased
ownership interests in the Beaver Valley Plant and the Bruce Mansfield Plant
resulting from the Duquesne asset swap will result in increased operating
cost pressures in the future. Application of SFAS 71 was discontinued for the
generation portion of our business in 1998 following PPUC approval of our
restructuring plan. Under the plan, a phase-in period for customer choice
began with 66% of our customers able to select their energy supplier that
began on January 2, 1999, with all remaining customers able to select their
energy providers starting January 1, 2001. We are entitled to recover $236
million of stranded costs through a competitive transition charge that
started in 1999 and ends in 2006.
In the second half of 1999, we received notification of pending
legal actions based on alleged violations of the Clean Air Act at our Sammis
Plant involving the states of New York and Connecticut, as well as the U.S.
Department of Justice. The civil complaint filed by the U.S. Department of
Justice requests installation of "best available control technology" as well
as civil penalties of up to $27,500 per day. We believe the Sammis Plant is
in full compliance with the Clean Air Act and the legal actions to be without
merit. However, we are unable to predict the outcome of this litigation.
Penalties could be imposed if the Sammis Plant continues to operate without
correcting the alleged violations and a court determines that the allegations
are valid. We expect the Sammis Plant to continue to operate while the matter
is being decided.
On October 27, 1999, the Federal Energy Regulatory Commission
(FERC) approved FirstEnergy's plan to transfer our transmission assets and
those of OE, The Cleveland Electric Illuminating Company and The Toledo
Edison Company to American Transmission Systems Inc. (ATSI). PPUC and
Securities and Exchange Commission regulatory approvals are also required.
The new FirstEnergy subsidiary represents a first step toward the goal of
establishing or becoming part of a larger independent, regional transmission
organization (RTO). In working toward that goal, FirstEnergy joined with four
other companies -- American Electric Power, Consumers Energy, Detroit Edison
and Virginia Power -- to form the Alliance RTO. On June 3, 1999, the Alliance
submitted an application to FERC to form an independent, for profit RTO. On
December 15, 1999, FERC issued an order conditionally approving the
Alliance's application.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards requiring that every
derivative instrument (including derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement. We have not completed quantifying the
impacts of adopting SFAS 133 on our financial statements or determined the
method of its adoption. However, SFAS 133 could increase volatility in
earnings and other comprehensive income. We anticipate adopting the new
statement on its amended effective date of January 1, 2001.
Year 2000 Update
Based on the results of our remediation and testing efforts, we
filed documents with the North American Electric Reliability Council, Nuclear
Regulatory Commission and PPUC that as of June 30, 1999, our generation,
transmission, and distribution systems were ready to serve customers in the
year 2000. We have since experienced no failures or interruptions of service
to our customers resulting from the Year 2000 issue, which was consistent
with our expectations. We spent $4.6 million on Year 2000 related costs
through December 31, 1999, which was slightly lower than previously
estimated. Of this total, $3.4 million was 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 $1.2 million was
expensed as incurred. We do not believe there are any continuing Year 2000
issues to be addressed, nor any additional material Year 2000 expenditures.
Forward-Looking Information
This discussion includes forward-looking statements based on
information currently available to management that are subject to certain
risks and uncertainties. These statements typically contain, but are not
limited to, the terms anticipate, potential, expect, believe, estimate and
similar words. Actual results may differ materially due to the speed and
nature of increased competition and deregulation in the electric utility
industry, economic or weather conditions affecting future sales and margins,
changes in markets for energy services, changing energy market prices,
legislative and regulatory changes, and the availability and cost of capital
and other similar factors.
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENTS OF INCOME
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING REVENUES $329,234 $323,756 $323,381
-------- -------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 87,128 76,801 67,345
Nuclear operating costs 36,915 22,968 26,220
Other operating costs 65,079 52,348 66,518
-------- -------- --------
Total operation and maintenance expenses 189,122 152,117 160,083
Provision for depreciation and amortization 62,182 59,264 64,628
General taxes 28,110 22,540 22,379
Income taxes 17,757 31,794 25,555
-------- -------- --------
Total operating expenses and taxes 297,171 265,715 272,645
-------- -------- --------
OPERATING INCOME 32,063 58,041 50,736
OTHER INCOME 1,438 2,485 2,760
-------- -------- --------
INCOME BEFORE NET INTEREST CHARGES 33,501 60,526 53,496
-------- -------- --------
NET INTEREST CHARGES:
Interest on long-term debt 19,268 19,255 20,458
Interest on nuclear fuel obligations 90 28 276
Allowance for borrowed funds used during construction (464) (294) (414)
Other interest expense 1,959 1,789 1,704
-------- -------- --------
Net interest charges 20,853 20,778 22,024
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 12,648 39,748 31,472
EXTRAORDINARY ITEM (NET OF INCOME TAXES) (Note 1) -- (30,522) --
-------- -------- --------
NET INCOME 12,648 9,226 31,472
PREFERRED STOCK DIVIDEND REQUIREMENTS 4,370 4,626 4,626
-------- -------- --------
EARNINGS ON COMMON STOCK $ 8,278 $ 4,600 $ 26,846
======== ======== ========
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
BALANCE SHEETS
<CAPTION>
At December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
In service $ 646,186 $686,771
Less-Accumulated provision for depreciation 237,893 291,188
---------- --------
408,293 395,583
---------- --------
Construction work in progress-
Electric plant 18,558 17,187
Nuclear fuel 6,540 508
---------- --------
25,098 17,695
---------- --------
433,391 413,278
---------- --------
OTHER PROPERTY AND INVESTMENTS:
Nuclear plant decommissioning trusts (Note 1) 104,775 13,722
Other 19,784 15,455
---------- --------
124,559 29,177
---------- --------
CURRENT ASSETS:
Cash and cash equivalents 5,670 7,485
Notes receivable from parent company (Note 4) 15,423 50,000
Receivables-
Customers (less accumulated provisions of $3,537,000 and $3,599,000,
respectively, for uncollectible accounts) 34,568 34,737
Associated companies 38,565 34,430
Other 8,896 12,472
Materials and supplies, at average cost 32,483 15,515
Prepayments 2,208 2,657
---------- --------
137,813 157,296
---------- --------
DEFERRED CHARGES:
Regulatory assets 314,593 371,027
Other 5,260 6,994
---------- --------
319,853 378,021
---------- --------
$1,015,616 $977,772
========== ========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Statements of Capitalization):
Common stockholder's equity $ 199,608 $275,281
Preferred stock-
Not subject to mandatory redemption 39,105 50,905
Subject to mandatory redemption 15,000 15,000
Long-term debt-
Associated companies 18,007 6,617
Other 256,814 281,072
---------- --------
528,534 628,875
---------- --------
CURRENT LIABILITIES:
Currently payable long-term debt-
Associated companies 13,504 5,557
Other 29,521 984
Accounts payable-
Associated companies 26,220 9,676
Other 28,903 23,156
Accrued taxes 21,863 12,849
Accrued interest 6,592 6,519
Other 16,506 17,046
---------- --------
143,109 75,787
---------- --------
DEFERRED CREDITS:
Accumulated deferred income taxes 182,702 212,427
Accumulated deferred investment tax credits 7,266 7,787
Nuclear plant decommissioning costs 107,816 14,948
Other 46,189 37,948
---------- --------
343,973 273,110
---------- --------
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 2 and 5) ---------- --------
$1,015,616 $977,772
========== ========
<FN>
The accompanying Notes to Financial Statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENTS OF CAPITALIZATION
<CAPTION>
At December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
COMMON STOCKHOLDER'S EQUITY:
Common stock, $30 par value, 6,500,000 shares authorized, 6,290,000 shares outstanding $188,700 $188,700
Other paid-in capital (310) (310)
Retained earnings (Note 3A) 11,218 86,891
-------- --------
Total common stockholder's equity 199,608 275,281
-------- --------
<CAPTION>
Number of Shares Optional
Outstanding Redemption Price
---------------- -------------------
1999 1998 Per Share Aggregate
---- ---- --------- ---------
<S> <C> <C> <C> <C>
PREFERRED STOCK (Note 3C):
Cumulative, $100 par value-
Authorized 1,200,000 shares
Not Subject to Mandatory Redemption:
4.24% 40,000 40,000 $103.13 $ 4,125 4,000 4,000
4.25% 41,049 41,049 105.00 4,310 4,105 4,105
4.64% 60,000 60,000 102.98 6,179 6,000 6,000
7.64% -- 60,000 -- -- -- 6,000
7.75% 250,000 250,000 -- -- 25,000 25,000
8.00% -- 58,000 -- -- -- 5,800
------- ------- ------- -------- --------
Total not subject to mandatory
redemption 391,049 509,049 $14,614 39,105 50,905
======= ======= ======= -------- --------
Subject to Mandatory Redemption (Note 3D):
7.625% 150,000 150,000 106.10 $15,915 15,000 15,000
======= ======= ======= -------- --------
LONG-TERM DEBT (Note 3E):
First mortgage bonds-
9.740% due 2000-2019 19,513 20,000
7.500% due 2003 40,000 40,000
6.375% due 2004 20,500 20,500
6.625% due 2004 14,000 14,000
8.500% due 2022 27,250 27,250
7.625% due 2023 6,500 6,500
-------- --------
Total first mortgage bonds 127,763 128,250
-------- --------
Secured notes-
6.080% due 2000 23,000 23,000
8.100% due 2000 5,200 5,200
5.400% due 2013 1,000 1,000
5.400% due 2017 10,600 10,600
7.150% due 2017 17,925 17,925
5.900% due 2018 16,800 16,800
7.150% due 2021 14,482 14,482
6.150% due 2023 12,700 12,700
* 5.450% due 2027 10,300 10,300
6.450% due 2027 14,500 14,500
5.375% due 2028 1,734 1,734
5.450% due 2028 6,950 6,950
6.000% due 2028 14,250 14,250
5.950% due 2029 238 238
-------- --------
Total secured notes 149,679 149,679
-------- --------
Unsecured notes-
* 5.900% due 2033 5,200 --
-------- --------
Other obligations-
Nuclear fuel 31,511 12,174
Capital leases (Note 2) 4,160 4,635
-------- --------
Total other obligations 35,671 16,809
-------- --------
Net unamortized discount on debt (467) (508)
-------- --------
Long-term debt due within one year (43,025) (6,541)
-------- --------
Total long-term debt 274,821 287,689
-------- --------
TOTAL CAPITALIZATION $528,534 $628,875
======== ========
<FN>
*Denotes variable rate issue with December 31, 1999 interest rate shown.
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<CAPTION>
Accumulated
Other
Comprehensive Other Comprehensive
Income Number Par Paid-In Income Retained
(Note 3B) of Shares Value Capital (Note 3B) Earnings
------------- --------- ----- ------- ------------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 6,290,000 $188,700 $(310) $(103) $ 98,217
Net income $31,472 31,472
Minimum liability for unfunded
retirement benefits, net of $9,000
of income taxes 13 13
-------
Comprehensive income $31,485
=======
Cash dividends on common stock (21,386)
Cash dividends on preferred stock (4,626)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,290,000 188,700 (310) (90) 103,677
Net income $ 9,226 9,226
Transfer of minimum liability for
unfunded retirement benefits to
FirstEnergy 90 90
-------
Comprehensive income $ 9,316
=======
Cash dividends on common stock (21,386)
Cash dividends on preferred stock (4,626)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 6,290,000 188,700 (310) -- 86,891
Net income $12,648 12,648
=======
Transfer of Penn Power Energy
to FirstEnergy Services Corp. 3,302
Cash dividends on common stock (87,362)
Cash dividends on preferred stock (4,056)
Premium on redemption of preferred
stock (205)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 6,290,000 $188,700 $(310) $ -- $ 11,218
========================================================================================================================
</TABLE>
<TABLE>
STATEMENTS OF PREFERRED STOCK
<CAPTION>
Not Subject to Subject to
Mandatory Redemption Mandatory Redemption
-------------------- --------------------
Number Par Number Par
of Shares Value of Shares Value
--------- ----- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, January 1, 1997 509,049 $50,905 150,000 $15,000
- ------------------------------------------------------------------------------
Balance, December 31, 1997 509,049 50,905 150,000 15,000
- ------------------------------------------------------------------------------
Balance, December 31, 1998 509,049 50,905 150,000 15,000
- ------------------------------------------------------------------------------
Redemptions-
7.64% Series (60,000) (6,000)
8.00% Series (58,000) (5,800)
- ------------------------------------------------------------------------------
Balance, December 31, 1999 391,049 $39,105 150,000 $15,000
==============================================================================
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,648 $ 9,226 $31,472
Adjustments to reconcile net income to net cash
from operating activities:
Provision for depreciation and amortization 62,182 59,264 64,628
Nuclear fuel and lease amortization 8,423 5,418 7,172
Other amortization, net -- (330) (1,187)
Deferred income taxes, net (16,207) (20,007) (6,631)
Investment tax credits, net (3,111) (2,289) (2,331)
Extraordinary item -- 51,730 --
Receivables (390) (20,680) 6,515
Materials and supplies 389 (542) (704)
Accounts payable 22,291 3,293 (4,476)
Other 15,899 3,148 (5,707)
-------- -------- -------
Net cash provided from operating activities 102,124 88,231 88,751
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Long-term debt 5,200 1,563 9,942
Redemptions and Repayments-
Preferred stock 12,005 -- --
Long-term debt 8,675 6,088 39,464
Dividend Payments-
Common stock 87,362 21,386 21,386
Preferred stock 4,055 4,626 4,626
-------- -------- -------
Net cash used for financing activities 106,897 30,537 55,534
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 21,964 16,495 14,513
Loan to parent -- 32,500 15,000
Loan payment from parent (34,577) -- --
Other 9,655 1,874 4,431
-------- -------- -------
Net cash used for (provided from) investing activities (2,958) 50,869 33,944
-------- -------- -------
Net increase (decrease) in cash and cash equivalents (1,815) 6,825 (727)
Cash and cash equivalents at beginning of year 7,485 660 1,387
-------- -------- -------
Cash and cash equivalents at end of year $ 5,670 $ 7,485 $ 660
======== ======== =======
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid during the year-
Interest (net of amounts capitalized) $ 19,436 $ 19,057 $21,137
======== ======== =======
Income taxes $ 33,786 $ 32,290 $38,324
======== ======== =======
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA POWER COMPANY
STATEMENT OF TAXES
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
GENERAL TAXES:
State gross receipts $ 13,466 $ 10,830 $ 11,267
Real and personal property 8,626 6,893 6,060
State capital stock 3,067 2,774 2,566
Social security and unemployment 2,875 1,894 2,224
Other 76 149 262
-------- -------- --------
Total general taxes $ 28,110 $ 22,540 $ 22,379
======== ======== ========
PROVISION FOR INCOME TAXES:
Currently payable-
Federal $ 29,522 $ 25,938 $ 27,560
State 8,630 7,654 8,061
-------- -------- --------
38,152 33,592 35,621
-------- -------- --------
Deferred, net-
Federal (12,714) (15,454) (5,096)
State (3,493) (4,553) (1,535)
-------- -------- --------
(16,207) (20,007) (6,631)
-------- -------- --------
Investment tax credit amortization (3,111) (2,289) (2,331)
-------- -------- --------
Total provision for income taxes $ 18,834 $ 11,296 $ 26,659
======== ======== ========
INCOME STATEMENT CLASSIFICATION OF PROVISION FOR
INCOME TAXES:
Operating expenses $ 17,757 $ 31,794 $ 25,555
Other income 1,077 710 1,104
Extraordinary item -- (21,208) --
-------- -------- --------
Total provision for income taxes $ 18,834 $ 11,296 $ 26,659
======== ======== ========
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes $ 31,482 $ 20,522 $ 58,131
======== ======== ========
Federal income tax expense at statutory rate $ 11,019 $ 7,183 $ 20,346
Increases (reductions) in taxes resulting from:
State income taxes, net of federal income tax benefit 3,339 2,016 4,242
Amortization of investment tax credits (3,111) (2,289) (2,331)
Amortization of tax regulatory assets 7,059 4,745 4,554
Other, net 528 (359) (152)
-------- -------- --------
Total provision for income taxes $ 18,834 $ 11,296 $ 26,659
======== ======== ========
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Competitive transition charge $115,277 $135,730 $ --
Property basis differences 73,694 69,867 172,094
Allowance for equity funds used during construction 5,688 7,219 29,875
Deferred nuclear expense -- -- 7,163
Customer receivables for future income taxes 8,354 9,690 37,954
Unamortized investment tax credits (2,987) (3,193) (10,681)
Other (17,324) (6,886) 3,547
-------- -------- --------
Net deferred income tax liability $182,702 $212,427 $239,952
======== ======== ========
<FN>
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company, a wholly owned subsidiary of Ohio Edison Company
(Edison), follows the accounting policies and practices prescribed by the
Pennsylvania Public Utility Commission (PPUC) and the Federal Energy
Regulatory Commission (FERC). The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make periodic estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Certain prior year amounts
have been reclassified to conform with the current year presentation.
Results of operations for 1999 include Penn and its wholly owned
subsidiary, Penn Power Energy, Inc. (PPE). 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 Company transferred its 100% ownership in PPE to FirstEnergy Services
Corp., an affiliate, effective December 31, 1999.
REVENUES-
The Company's principal business is providing electric service to
customers in western Pennsylvania. The Company's retail customers are metered
on a cycle basis. Revenue is recognized for unbilled electric service through
the end of the year.
Receivables from customers include sales to residential, commercial
and industrial customers located in the Company's service area and sales to
wholesale customers. There was no material concentration of receivables at
December 31, 1999 or 1998, with respect to any particular segment of the
Company's customers.
REGULATORY PLAN-
In June 1998, the PPUC authorized a rate restructuring plan for the
Company, which essentially resulted in the deregulation of the Company's
generation business as of June 30, 1998. The Company was required to remove
from its balance sheet all regulatory assets and liabilities related to its
generation business and assess all other assets for impairment. The
Securities and Exchange Commission (SEC) issued interpretive guidance
regarding asset impairment measurement which concluded that any supplemental
regulated cash flows such as a competitive transition charge (CTC) should be
excluded from the cash flows of assets in a portion of the business not
subject to regulatory accounting practices. If those assets are impaired, a
regulatory asset should be established if the costs are recoverable through
regulatory cash flows. Consistent with the SEC guidance, the Company reduced
its nuclear generating unit investments by approximately $305 million, of
which approximately $227 million was recognized as a regulatory asset to be
recovered through a CTC over a seven-year transition period; the remaining
net amount of $78 million was written off. The charge of $51.7 million ($30.5
million after income taxes) for discontinuing the application of Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71), to the Company's generation business
was recorded as a 1998 extraordinary item on the Statement of Income. The
Company's net assets included in utility plant relating to the operations for
which the application of SFAS 71 was discontinued were $76 million as of
December 31, 1999.
All of the Company's regulatory assets are being recovered under
provisions of the regulatory plan. In addition, the PPUC had authorized the
Company to accelerate at least $358 million, more than the amounts that would
have been recognized if the regulatory plan was not in effect. These
additional amounts are being recovered through current rates. As of December
31, 1999, the Company's cumulative additional capital recovery and regulatory
asset amortization amounted to $225 million (including the impairment
discussed above and CTC recovery).
In December 1996, Pennsylvania enacted "The Electricity Generation
Customer Choice and Competition Act," which permitted customers, including
the Company's customers, to choose their electric generation supplier, while
transmission and distribution services would continue to be supplied by their
current providers. Customer choice began with 66% of each customer class able
to choose alternative suppliers of generation on January 2, 1999, and all
remaining customers having choice as of January 1, 2001. Under the rate
restructuring plan, the Company continues to deliver power to homes and
businesses through its transmission and distribution system, which remains
regulated by the PPUC. The Company's rates have been restructured to
establish separate charges for transmission and distribution; generation,
which is subject to competition; and stranded cost recovery. In the event
customers obtain power from an alternative source, the generation portion of
the Company's rates will be excluded from their bill and the customers will
receive a generation charge from the alternative supplier. The stranded cost
recovery portion of rates provides for recovery of certain amounts not
otherwise considered recoverable in a competitive generation market,
including regulatory assets. The Company is entitled to recover $236 million
of stranded costs through a CTC that began in 1999 and ends in 2006.
UTILITY PLANT AND DEPRECIATION-
Utility plant reflects the original cost of construction (except
for nuclear generating units which were adjusted to fair value as discussed
above), including payroll and related costs such as taxes, employee benefits,
administrative and general costs, and interest costs.
The Company provides for depreciation on a straight-line basis at
various rates over the estimated lives of property included in plant in
service. The annual composite rate for electric plant was approximately 2.5%
in 1999, 3.0% in 1998 and 2.7% in 1997. In addition to the straight-line
depreciation recognized in 1999, 1998 and 1997, the Company also recognized
additional capital recovery of $3 million, $15 million and $27 million,
respectively, as additional depreciation expense in accordance with the
regulatory plan.
Annual depreciation expense includes approximately $3.2 million for
future decommissioning costs applicable to the Company's ownership interest
in three nuclear generating units. The Company's future decommissioning costs
reflect the increase in its ownership interests related to the asset transfer
with Duquesne Light Company (Duquesne) discussed below in "Common Ownership
of Generating Facilities." The Company's share of the future obligation to
decommission these units is approximately $315 million in current dollars and
(using a 4.0% escalation rate) approximately $695 million in future dollars.
The estimated obligation and the escalation rate were developed based on site
specific studies. Payments for decommissioning are expected to begin in 2016,
when actual decommissioning work begins. The Company has recovered
approximately $15 million for decommissioning through its electric rates from
customers through December 31, 1999. If the actual costs of decommissioning
the units exceed the funds accumulated from investing amounts recovered from
customers, the Company expects that additional amount to be recoverable from
its customers. The Company has approximately $104.8 million invested in
external decommissioning trust funds as of December 31, 1999. This includes
additions to the trust funds and the corresponding liability of $89 million
as a result of the asset transfer. Earnings on these funds are reinvested
with a corresponding increase to the decommissioning liability. The Company
has also recognized an estimated liability of approximately $9.2 million at
December 31, 1999 related to decontamination and decommissioning of nuclear
enrichment facilities operated by the United States Department of Energy
(DOE), as required by the Energy Policy Act of 1992.
The Financial Accounting Standards Board (FASB) issued a proposed
accounting standard for nuclear decommissioning costs in 1996. If the
standard is adopted as proposed: (1) annual provisions for decommissioning
could increase; (2) the net present value of estimated decommissioning costs
could be recorded as a liability; and (3) income from the external
decommissioning trusts could be reported as investment income. The FASB
subsequently expanded the scope of the proposed standard to include other
closure and removal obligations related to long-lived assets. A revised
proposal may be issued by the FASB in the first quarter of 2000.
COMMON OWNERSHIP OF GENERATING FACILITIES-
The Company and other Central Area Power Coordination Group (CAPCO)
companies formerly owned, as tenants in common, various power generating
facilities. Each of the companies is obligated to pay a share of the costs
associated with any jointly owned facility in the same proportion as its
interest. The Company's portion of operating expenses associated with jointly
owned facilities is included in the corresponding operating expenses on the
Statements of Income.
On March 26, 1999, FirstEnergy completed its agreements with
Duquesne to exchange certain generating assets. All regulatory approvals were
received by October 1999. In December 1999, Duquesne transferred 1,436
megawatts owned by Duquesne at eight CAPCO generating units in exchange for
1,328 megawatts at three non-CAPCO power plants owned by the Company, Edison
and The Cleveland Electric Illuminating Company (CEI), an affiliate. As part
of this exchange, the Company transferred its 339-megawatt New Castle Plant
and its 4-megawatt interest in the Niles Plant to Duquesne. The Company
acquired Duquesne's ownership interest in the Beaver Valley Station and
acquired, with Edison and CEI, Duquesne's ownership interest in the Bruce
Mansfield Plant. The agreements for the exchange of assets, which was
structured as a like-kind exchange for tax purposes, provides FirstEnergy's
utility operating companies with exclusive ownership and operating control of
all CAPCO generating units. The three FirstEnergy plants transferred are
being sold by Duquesne to a wholly owned subsidiary of Orion Power Holdings,
Inc. (Orion). The Company, Edison and CEI will continue to operate those
plants until the assets are transferred to the new owners. Duquesne funded
decommissioning costs equal to its percentage interest in the three nuclear
generating units that were transferred to FirstEnergy. The Duquesne asset
transfer to the Orion subsidiary could take place by the middle of 2000.
Under the agreements, Duquesne was no longer a participant in the CAPCO
arrangements after the exchange. The amounts reflected on the Balance Sheet
under utility plant at December 31, 1999 include the following:
<TABLE>
<CAPTION>
Utility Accumulated Construction Company's
Plant in Provision for Work in Ownership
Generating Units Service Depreciation Progress Interest
- ---------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
W. H. Sammis #7 $ 58.2 $ 23.3 $ 1.7 20.80%
Bruce Mansfield
#1, #2 and #3 204.2 113.3 3.1 16.38%
Beaver Valley #1
and #2 31.0 9.7 5.8 39.37%
Perry #1 2.1 0.9 1.4 5.24%
- -------------------------------------------------------------------------
Total $295.5 $147.2 $12.0
=========================================================================
</TABLE>
NUCLEAR FUEL-
OES Fuel, Incorporated (OES Fuel), a wholly owned subsidiary of
Edison, is the sole lessor for the Company's nuclear fuel requirements.
Minimum lease payments during the next five years are estimated to
be as follows:
<TABLE>
<CAPTION>
(In millions)
- ---------------------------
<S> <C>
2000 $15.4
2001 11.5
2002 5.5
2003 1.7
2004 0.6
- ---------------------------
</TABLE>
The Company amortizes the cost of nuclear fuel based on the rate of
consumption. The Company's electric rates include amounts for the future
disposal of spent nuclear fuel based upon the formula used to compute
payments to the DOE.
INCOME TAXES-
Details of the total provision for income taxes are shown on the
Statements of Taxes. Deferred income taxes result from timing differences in
the recognition of revenues and expenses for tax and accounting purposes.
Investment tax credits, which were deferred when utilized, are being
amortized over the recovery period of the related property. The liability
method is used to account for deferred income taxes. Deferred income tax
liabilities related to tax and accounting basis differences are recognized at
the statutory income tax rates in effect when the liabilities are expected to
be paid. Since Edison became a wholly owned subsidiary of FirstEnergy on
November 8, 1997, the Company is included in FirstEnergy's consolidated
federal income tax return. The consolidated tax liability is allocated on a
"stand-alone" Company basis, with the Company recognizing any tax losses or
credits it contributed to the consolidated return.
RETIREMENT BENEFITS-
FirstEnergy's trusteed, noncontributory defined benefit pension
plan covers almost all of the Company's full-time employees. Upon retirement,
employees receive a monthly pension based on length of service and
compensation. In 1998, the Company's, Edison's and Centerior Energy
Corporation's pension plans were merged into the FirstEnergy pension plan.
The Company uses the projected unit credit method for funding purposes and
was not required to make pension contributions during the three years ended
December 31, 1999. The assets of the FirstEnergy pension plan consist
primarily of common stocks, United States government bonds and corporate
bonds.
The Company provides a minimum amount of noncontributory life
insurance to retired employees in addition to optional contributory
insurance. Health care benefits, which include certain employee deductibles
and copayments, are also available to retired employees, their dependents
and, under certain circumstances, their survivors. The Company pays insurance
premiums to cover a portion of these benefits in excess of set limits; all
amounts up to the limits are paid by the Company. The Company recognizes the
expected cost of providing other postretirement benefits to employees and
their beneficiaries and covered dependents from the time employees are hired
until they become eligible to receive those benefits.
The following sets forth the funded status of the FirstEnergy plans
in 1999 and 1998 and amounts recognized on the Balance Sheets as of December
31 (which includes the Company's share of the FirstEnergy 1999 plans' net
prepaid pension cost and accrued other postretirement benefit costs of $13.8
million and $31.7 million, respectively, and the Company's share of the
FirstEnergy 1998 plans' net prepaid pension cost and accrued other
postretirement benefits costs of $9.0 million and $28.4 million,
respectively):
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation as of
January 1 $1,500.1 $1,327.5 $ 601.3 $ 534.1
Service cost 28.3 25.0 9.3 7.5
Interest cost 102.0 92.5 40.7 37.6
Plan amendments -- 44.3 -- 40.1
Actuarial loss (gain) (155.6) 101.6 (17.6) 10.7
Net increase from asset swap 14.8 -- 12.5 --
Benefits paid (95.5) (90.8) (37.8) (28.7)
- ----------------------------------------------------------------------------
Benefit obligation as of
December 31 1,394.1 1,500.1 608.4 601.3
- ----------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as
of January 1 1,683.0 1,542.5 3.9 2.8
Actual return on plan assets 220.0 231.3 0.6 0.7
Company contribution -- -- 0.4 0.4
Benefits paid (95.5) (90.8) -- --
- ----------------------------------------------------------------------------
Fair value of plan assets as
of December 31 1,807.5 1,683.0 4.9 3.9
- ----------------------------------------------------------------------------
Funded status of plan 413.4 182.9 (603.5) (597.4)
Unrecognized actuarial loss
(gain) (303.5) (110.8) 24.9 30.6
Unrecognized prior service cost 57.3 63.0 24.1 27.4
Unrecognized net transition
obligation (asset) (10.1) (18.0) 120.1 129.3
- ----------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 157.1 $ 117.1 $(434.4) $(410.1)
============================================================================
Assumptions used as of
December 31:
Discount rate 7.75% 7.00% 7.75% 7.00%
Expected long-term return on
plan assets 10.25% 10.25% 10.25% 10.25%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
</TABLE>
Net pension and other postretirement benefit costs for the three
year ended December 31, 1999 (FirstEnergy plans in 1999 and 1998 and the
Company's plan in 1997) were computed as follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
-------------------- ----------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 28.3 $ 25.0 $ 2.7 $ 9.3 $ 7.5 $0.9
Interest cost 102.0 92.5 8.9 40.7 37.6 3.2
Expected return on
plan assets (168.1) (152.7) (14.7) (0.4) (0.3) --
Amortization of transition
obligation (asset) (7.9) (8.0) (1.0) 9.2 9.2 1.2
Amortization of prior
service cost 5.7 2.3 0.4 3.3 (0.8) --
Recognized net actuarial
gain -- (2.6) (0.4) -- -- --
Voluntary early retirement
program expense -- -- 5.8 -- -- 0.3
- ----------------------------------------------------------------------------
Net benefit cost $ (40.0) $ (43.5) $ 1.7 $62.1 $53.2 $5.6
============================================================================
Company's share of total
plan costs $ (4.8) $ (6.1) $ 1.7 $ 7.5 $ 5.4 $5.6
- ----------------------------------------------------------------------------
</TABLE>
The FirstEnergy plan's health care trend rate assumption is 5.3% in
2000, 5.2% in 2001 and 5.0% for 2002 and later years. Assumed health care
cost trend rates have a significant effect on the amounts reported for the
health care plan. An increase in the health care trend rate assumption by one
percentage point would increase the total service and interest cost
components by $4.5 million and the postretirement benefit obligation by $72.0
million. A decrease in the same assumption by one percentage point would
decrease the total service and interest cost components by $3.5 million and
the postretirement benefit obligation by $58.2 million.
TRANSACTIONS WITH AFFILIATED COMPANIES-
Transactions with affiliated companies are included on the
Statements of Income as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Operating revenues:
Electric sales $12.6 $ 9.8 $ 6.1
Bruce Mansfield Plant administrative and
general charges to affiliates 5.3 6.3 0.9
Other transactions 0.7 0.7 0.4
- -------------------------------------------------------------------------
$18.6 $16.8 $ 7.4
=========================================================================
Fuel and purchased power:
Purchased power $12.9 $20.9 $12.7
Nuclear fuel leased from OES Fuel 8.8 5.9 7.5
- -------------------------------------------------------------------------
$21.7 $26.8 $20.2
=========================================================================
Other operating costs:
Rental of transmission lines $ 1.3 $ 1.3 $ 1.0
Data processing services 6.2 2.8 2.9
Other transactions 8.2 5.4 4.4
- -------------------------------------------------------------------------
$15.7 $ 9.5 $ 8.3
=========================================================================
</TABLE>
SUPPLEMENTAL CASH FLOWS INFORMATION-
All temporary cash investments purchased with an initial maturity
of three months or less are reported as cash equivalents on the Balance
Sheets. At December 31, 1999 and 1998, cash and cash equivalents included $5
million and $2 million, respectively, to be used for the redemption of long-
term debt in the first quarter of 2000 and in 1999, respectively. The Company
reflects temporary cash investments at cost, which approximates their market
value. Noncash financing and investing activities included capital lease
transactions amounting to $27.1 million, $0.8 million and $8.5 million for
the years 1999, 1998 and 1997, respectively.
All borrowings with initial maturities of less than one year are
defined as financial instruments under generally accepted accounting
principles and are reported on the Balance Sheets at cost, which approximates
their fair market value. The following sets forth the approximate fair value
and related carrying amounts of all other long-term debt, preferred stock
subject to mandatory redemption and investments other than cash and cash
equivalents as of December 31:
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -----------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Long-term debt $283 $279 $278 $294
Preferred stock 15 14 15 16
Investments other than cash
and cash equivalents 108 116 17 21
- -----------------------------------------------------------------------
</TABLE>
The fair values of long-term debt and preferred stock reflect the
present value of the cash outflows relating to those securities based on the
current call price, the yield to maturity or the yield to call, as deemed
appropriate at the end of each respective year. The yields assumed were based
on securities with similar characteristics offered by a corporation with
credit ratings similar to the Company's ratings.
The fair value of investments other than cash and cash equivalents
represent cost (which approximates fair value) or the present value of the
cash inflows based on the yield to maturity. The yields assumed were based on
financial instruments with similar characteristics and terms. Investments
other than cash and cash equivalents consist primarily of decommissioning
trust investments. Unrealized gains and losses applicable to the
decommissioning trusts have been recognized in the trust investment with a
corresponding change to the decommissioning liability. The Company has no
securities held for trading purposes.
REGULATORY ASSETS-
The Company recognizes, as regulatory assets, costs which the FERC
and PPUC have authorized for recovery from customers in future periods.
Without such authorization, the costs would have been charged to income as
incurred. All regulatory assets are being recovered from customers under the
Company's regulatory plan. Based on the regulatory plan, at this time, the
Company is continuing to bill and collect cost-based rates relating to the
Company's nongeneration operations and continues the application of SFAS 71
to these operations. The Company recognized additional cost recovery of $39
million, $24 million and $11 million in 1999, 1998 and 1997, respectively, as
additional regulatory asset amortization in accordance with its regulatory
plan. Regulatory assets on the Balance Sheets are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------
(In millions)
<S> <C> <C>
Competitive transition charge $280.4 $331.0
Customer receivables for future
income taxes 20.3 23.6
Loss on reacquired debt 7.1 8.2
Employee postretirement benefit costs 5.4 6.2
Other 1.4 2.0
- -----------------------------------------------------------
Total $314.6 $371.0
===========================================================
</TABLE>
2. LEASES
The Company leases certain transmission facilities, office space
and other property and equipment under cancelable and noncancelable leases.
Consistent with the regulatory treatment, the rentals for capital and
operating leases are charged to operating expenses on the Statements of
Income. Such costs for the three years ended December 31, 1999, are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------
(In millions)
<S> <C> <C> <C>
Operating leases
Interest element $0.6 $0.5 $0.5
Other 1.6 1.3 1.5
Capital leases
Interest element 0.6 0.6 0.7
Other 0.5 0.7 0.8
- -------------------------------------------------------------
Total rental payments $3.3 $3.1 $3.5
=============================================================
</TABLE>
The future minimum lease payments as of December 31, 1999, are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
- -------------------------------------------------------------
(In millions)
<S> <C> <C>
2000 $ 1.2 $0.2
2001 1.0 0.2
2002 1.0 0.2
2003 0.9 0.2
2004 0.8 0.2
Years thereafter 9.0 3.0
- ----------------------------------------------------------
Total minimum lease payments 13.9 $4.0
Executory costs 2.9 ====
- -------------------------------------------
Net minimum lease payments 11.0
Interest portion 6.8
- -------------------------------------------
Present value of net minimum
lease payments 4.2
Less current portion 0.3
- -------------------------------------------
Noncurrent portion $3.9
===========================================
</TABLE>
3. CAPITALIZATION
(A) RETAINED EARNINGS-
Under the Company's Charter, the Company's retained earnings
unrestricted for payment of cash dividends on the Company's common stock were
$2.0 million as of December 31, 1999.
(B) COMPREHENSIVE INCOME-
In 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," and applied the standard to all periods presented in the Statements
of Common Stockholder's Equity. Comprehensive income includes net income as
reported on the Statements of Income and all other changes in common
stockholder's equity except dividends to stockholders.
(C) PREFERRED STOCK-
The Company's 7.75% series of preferred stock has a restriction
which prevents early redemption prior to July 2003. All other preferred stock
may be redeemed by the Company in whole, or in part, with 30-60 days' notice.
(D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION-
The Company's 7.625% series has an annual sinking fund requirement
for 7,500 shares beginning on October 1, 2002.
(E) LONG-TERM DEBT-
The first mortgage indenture and its supplements, which secure all
of the Company's first mortgage bonds, serve as a direct first mortgage lien
on substantially all property and franchises, other than specifically
excepted property, owned by the Company.
Based on the amount of bonds authenticated by the Trustee through
December 31, 1999, the Company's annual sinking and improvement fund
requirements for all bonds issued under the mortgage amounts to $0.4 million.
The Company expects to deposit funds in 2000 that will be withdrawn upon the
surrender for cancellation of a like principal amount of bonds, which are
specifically authenticated for such purposes against unfunded property
additions or against previously retired bonds. This method can result in
minor increases in the amount of the annual sinking fund requirement. Sinking
fund requirements for first mortgage bonds and maturing long-term debt
(excluding capital leases) during the next five years are $29.0 million in
2000, $1.0 million in 2001, $1.0 million in 2002, $41.0 million in 2003 and
$40.7 million in 2004.
The Company's obligations to repay certain pollution control
revenue bonds are secured by series of first mortgage bonds and, in some
cases, by subordinate liens on the related pollution control facilities. The
$10.3 million pollution control revenue bond is entitled to the benefit of
irrevocable bank letters of credit of $10.4 million. To the extent that
drawings are made under this letter of credit to pay principal of, or
interest on, the pollution control revenue bond, the Company is entitled to a
credit against its obligation to repay this bond. The Company pays an annual
fee of 0.525% of the amount of the letter of credit to the issuing bank and
is obligated to reimburse the bank for any drawings thereunder.
4. SHORT-TERM BORROWINGS:
The Company has a credit agreement with Edison whereby either
company can borrow funds from the other by issuing unsecured notes at the
prevailing prime or similar interest rate. Under the terms of this agreement,
the maximum borrowing is limited only by the availability of funds; however,
the Company's borrowing under this agreement is currently limited by the PPUC
to a total of $50 million. Either company can terminate the agreement with
six months' notice.
5. COMMITMENTS AND CONTINGENCIES:
CAPITAL EXPENDITURES-
The Company's current forecast reflects expenditures of
approximately $234 million for property additions and improvements from 2000-
2004, of which approximately $38 million is applicable to 2000. Investments
for additional nuclear fuel during the 2000-2004 period are estimated to be
approximately $90 million, of which approximately $24 million applies to
2000. During the same periods, the Company's nuclear fuel investments are
expected to be reduced by approximately $86 million and $18 million,
respectively, as the nuclear fuel is consumed.
NUCLEAR INSURANCE-
The Price-Anderson Act limits the public liability relative to a
single incident at a nuclear power plant to $9.5 billion. The amount is
covered by a combination of private insurance and an industry retrospective
rating plan. Based on its present ownership interests in the Beaver Valley
Station and the Perry Plant, the Company's maximum potential assessment under
the industry retrospective rating plan (assuming the other affiliate co-
owners contribute their proportionate shares of any assessments under the
retrospective rating plan) would be $74 million per incident but not more
than $8.4 million in any one year for each incident.
The Company is also insured as to its interest in Beaver Valley and
Perry under policies issued to the operating company for each plant. Under
these policies, up to $2.75 billion is provided for property damage and
decontamination and decommissioning costs. The Company has also obtained
approximately $367 million of insurance coverage for replacement power costs
for its interests in Beaver Valley and Perry. Under these policies, the
Company can be assessed a maximum of approximately $9.7 million for incidents
at any covered nuclear facility occurring during a policy year which are in
excess of accumulated funds available to the insurer for paying losses.
The Company intends to maintain insurance against nuclear risks as
described above as long as it is available. To the extent that replacement
power, property damage, decontamination, decommissioning, repair and
replacement costs and other such costs arising from a nuclear incident at any
of the Company's plants exceed the policy limits of the insurance in effect
with respect to that plant, to the extent a nuclear incident is determined
not to be covered by the Company's insurance policies, or to the extent such
insurance becomes unavailable in the future, the Company would remain at risk
for such costs.
ENVIRONMENTAL MATTERS-
Various federal, state and local authorities regulate the Company
with regard to air and water quality and other environmental matters. The
Company estimates additional capital expenditures for environmental
compliance of approximately $31 million, which is included in the
construction forecast provided under "Capital Expenditures" for 2000 through
2004.
The Company is in compliance with the current sulfur dioxide (SO2)
and nitrogen oxides (NOx) reduction requirements under the Clean Air Act
Amendments of 1990. SO2 reductions 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 Company's
Pennsylvania facilities by May 2003. The EPA's NOx Transport Rule imposes
uniform reductions of NOx emissions across a region of twenty-two states and
the District of Columbia, including Ohio and Pennsylvania, based on a
conclusion that such NOx emissions are contributing significantly to ozone
pollution in the eastern United States. In May 1999, the U.S. Court of
Appeals for the D.C. Circuit issued a stay which delays implementation of
EPA's NOx Transport Rule until the Court has ruled on the merits of various
appeals. Under the NOx Transport Rule, 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 contemplating an
approximate 85% reduction in utility plant NOx emissions from projected 2007
emissions. A proposed Federal Implementation Plan accompanied the NOx
Transport Rule and may be implemented by the EPA in states which fail to
revise their SIP. In another separate but related action, eight states filed
petitions with the EPA under Section 126 of the Clean Air Act seeking
reductions of NOx emissions which are alleged to contribute to ozone
pollution in the eight petitioning states. The EPA suggests that the Section
126 petitions will be adequately addressed by the NOx Transport Program, but
a December 17, 1999 rulemaking established an alternative program which would
require nearly identical 85% NOx reductions at 392 utility plants, including
the Company's Ohio and Pennsylvania plants, by May 2003 in the event
implementation of the NOx Transport Rule is delayed. New Section 126
petitions were filed by New Jersey, Maryland, Delaware and the District of
Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy
continues to evaluate its compliance plans and other compliance options.
The Company is required to meet federally approved SO2 regulations.
Violations of such regulations can result in shutdown of the generating unit
involved and/or civil or criminal penalties of up to $27,500 for each day the
unit is in violation. The EPA has an interim enforcement policy for SO2
regulations in Ohio that allows for compliance based on a 30-day averaging
period. The Company cannot predict what action the EPA may take in the future
with respect to the interim enforcement policy.
In July 1997, the EPA promulgated changes in the National Ambient
Air Quality Standard (NAAQS) for ozone and proposed a new NAAQS for
previously unregulated ultra-fine particulate matter. In May 1999, the U.S.
Court of Appeals for the D.C. Circuit remanded both standards back to the EPA
finding constitutional and other defects in the new NAAQS rules. The D.C.
Circuit Court, on October 29, 1999, denied an EPA petition for rehearing. The
Company cannot predict the EPA's action in response to the Court's remand
order. The cost of compliance with these regulations, if they are reinstated,
may be substantial and depends on the manner in which they are ultimately
implemented, if at all, by the states in which the Company operates affected
facilities.
In September 1999, FirstEnergy received, and subsequently in
October 1999, the Company and Edison received a citizen suit notification
letter from the New York Attorney General's office alleging Clean Air Act
violations at the W. H. Sammis Plant. In November 1999, the Company and
Edison received a citizen suit notification letter from the Connecticut
Attorney General's office alleging Clean Air Act violations at the Sammis
Plant. On November 3, 1999, the EPA issued Notices of Violation (NOV) or a
Compliance Order to eight utilities covering 32 power plants, including the
Sammis Plant. In addition, the U.S. Department of Justice filed seven civil
complaints against various investor-owned utilities, which included a
complaint against the Company and Edison in the U.S. District Court for the
Southern District of Ohio. The NOV and complaint allege violations of the
Clean Air Act based on operation and maintenance of the Sammis Plant dating
back to 1984. The complaint requests permanent injunctive relief to require
the installation of "best available control technology" and civil penalties
of up to $27,500 per day of violation. The Company and Edison believe the
Sammis Plant is in full compliance with the Clean Air Act and the NOV and
complaint are without merit. However, the Company and Edison are unable to
predict the outcome of this litigation. Penalties could be imposed if the
Sammis Plant continues to operate without correcting the alleged violations
and a court determines that the allegations are valid. It is anticipated at
this time that the Sammis Plant will continue to operate while the matter is
being decided.
6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain operating results by quarter for
1999 and 1998.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1999 1999 1999 1999
- ----------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $81.4 $82.1 $82.4 $83.4
Operating Expenses and Taxes 67.1 72.4 73.2 84.5
- ----------------------------------------------------------------------------
Operating Income (Loss) 14.3 9.7 9.2 (1.1)
Other Income 1.0 0.3 0.2 --
Net Interest Charges 5.0 5.9 4.9 5.1
- ----------------------------------------------------------------------------
Net Income (Loss) $10.3 $ 4.1 $ 4.5 $(6.2)
============================================================================
Earnings (Loss) on Common
Stock $ 9.2 $ 2.9 $ 3.3 $(7.2)
============================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Three Months Ended 1998 1998 1998 1998
- ----------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Operating Revenues $78.5 $ 80.3 $87.9 $77.0
Operating Expenses and
Taxes 65.9 70.3 71.5 58.0
- ----------------------------------------------------------------------------
Operating Income 12.6 10.0 16.4 19.0
Other Income 0.7 0.6 0.6 0.6
Net Interest Charges 5.4 5.2 5.2 5.1
- ----------------------------------------------------------------------------
Income Before Extraordinary
Item 7.9 5.4 11.8 14.5
Extraordinary Item
(Net of Income Taxes)
(Note 1) -- (30.5) -- --
- ----------------------------------------------------------------------------
Net Income (Loss) $ 7.9 $(25.1) $11.8 $14.5
============================================================================
Earnings (Loss) on
Common Stock $ 6.8 $(26.2) $10.7 $13.3
============================================================================
</TABLE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of Pennsylvania Power Company:
We have audited the accompanying balance sheets and statements of
capitalization of Pennsylvania Power Company (a Pennsylvania corporation and
wholly owned subsidiary of Ohio Edison Company) as of December 31, 1999 and
1998, and the related statements of income, common stockholder's equity,
preferred stock, cash flows and taxes for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pennsylvania Power Company
as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
February 11, 2000
EXHIBIT 23.3
PENNSYLVANIA POWER COMPANY
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this
Form 10-K, into Pennsylvania Power Company's previously filed Registration
Statements, File No. 33-62450 and No. 33-65156.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
related Form 10-K financial statements for Pennsylvania Power Company
and is qualified in its entirety by reference to such financial statements.
(Amounts in 1,000's.) Income tax expense includes $1,077,000 related to
other income.
</LEGEND>
<CIK> 0000077278
<NAME> PENNSYLVANIA POWER COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 433,391
<OTHER-PROPERTY-AND-INVEST> 124,559
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<TOTAL-DEFERRED-CHARGES> 319,853
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,015,616
<COMMON> 188,700
<CAPITAL-SURPLUS-PAID-IN> (310)
<RETAINED-EARNINGS> 11,218
<TOTAL-COMMON-STOCKHOLDERS-EQ> 199,608
15,000
39,105
<LONG-TERM-DEBT-NET> 274,821
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<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 29,174
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 13,851
<OTHER-ITEMS-CAPITAL-AND-LIAB> 444,057
<TOT-CAPITALIZATION-AND-LIAB> 1,015,616
<GROSS-OPERATING-REVENUE> 329,234
<INCOME-TAX-EXPENSE> 18,834
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<TOTAL-OPERATING-EXPENSES> 297,171
<OPERATING-INCOME-LOSS> 32,063
<OTHER-INCOME-NET> 1,438
<INCOME-BEFORE-INTEREST-EXPEN> 33,501
<TOTAL-INTEREST-EXPENSE> 20,853
<NET-INCOME> 12,648
4,370
<EARNINGS-AVAILABLE-FOR-COMM> 8,278
<COMMON-STOCK-DIVIDENDS> 87,362
<TOTAL-INTEREST-ON-BONDS> 19,627
<CASH-FLOW-OPERATIONS> 102,124
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
