SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File Number 1-3491
PENNSYLVANIA POWER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 25-0718810
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1 EAST WASHINGTON STREET
P.O. BOX 891,
NEW CASTLE, PENNSYLVANIA 16103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 652-5531
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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4.24% Preferred Stock, $100 par value Philadelphia Stock Exchange, Inc.
4.25% Preferred Stock, $100 par value Philadelphia Stock Exchange, Inc.
4.64% Preferred Stock, $100 par value Philadelphia Stock Exchange, Inc.
7.64% Preferred Stock, $100 par value Philadelphia Stock Exchange, Inc.
8.00% Preferred Stock, $100 par value Philadelphia Stock Exchange, Inc.
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: None
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date:
$30 par value - 6,290,000 shares outstanding at March 22, 1995.
Documents incorporated by reference PART OF FORM 10-K INTO WHICH
(to the extent indicated herein): DOCUMENT IS INCORPORATED
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1994 Annual Report to Stockholders Part II
(Pages 1-4 and 6-19)
TABLE OF CONTENTS
Page
----
Part I
Item 1. Business 1
The Company 1
Central Area Power Coordination Group 1
Financing and Construction 2
Future Financing 2
Coverage Requirements 3
Utility Regulation 3
Nuclear Regulation 4
Nuclear Insurance 4
Environmental Matters 6
Air Regulation 6
Water Regulation 6
Waste Disposal 7
Summary 7
Fuel Supply 7
Nuclear Fuel 8
Capacity and Reserves 8
Regional Reliability 9
Competition 9
Employees 9
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security
Holders 11
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 11
Part III
Item 10. Directors and Executive Officers of the
Registrant 11
Item 11. Executive Compensation 13
Summary Executive Compensation Table 13
Long-Term Incentive Plan Table 14
Supplemental Executive Retirement Plan 14
Pension Plan 15
Additional Information Regarding Compensation 15
Compensation of Directors 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 16
PART I
ITEM 1. BUSINESS
The Company
Pennsylvania Power Company (Company) was organized under
the laws of the Commonwealth of Pennsylvania in 1930 and owns property
and does business as an electric public utility in that state. The
Company is authorized to do business and owns property in the State of
Ohio. It is a wholly owned subsidiary of Ohio Edison Company (Edison),
an Ohio corporation which does business as an electric public utility
in Ohio. The Company and Edison are referred to herein collectively as
Companies.
The Company furnishes electric service to communities in a
1,500 square mile area of western Pennsylvania. The Company also
provides transmission services and electric energy for resale to
certain municipalities in Pennsylvania. The area served by the Company
has a population of approximately 340,000.
Central Area Power Coordination Group (CAPCO)
In September 1967, the CAPCO companies, consisting of the
Company, Edison, The Cleveland Electric Illuminating Company (CEI),
Duquesne Light Company (Duquesne) and The Toledo Edison Company,
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, Units 1, 2 and 3 at the Bruce Mansfield Plant,
Unit 1 at the Beaver Valley Power Station and Unit 1 at the Perry
Nuclear Power Plant, each now in service.
The present CAPCO Basic Operating Agreement provides,
among other things, for coordinated maintenance responsibilities among
the CAPCO companies, a limited and qualified mutual backup arrangement
in the event of outage of CAPCO units and certain capacity and energy
transactions among the CAPCO companies.
The agreements among the CAPCO companies generally treat
the Companies as a single system as between them and the other three
CAPCO companies, but, in agreements between the CAPCO companies and
others, all five companies are treated as separate entities. Subject
to any rights that might arise among the CAPCO companies as such, each
member company, severally and not jointly, is obligated to pay the
cost of constructing and operating only its proportionate share of the
facilities and the cost of required fuel. The CAPCO companies have
agreed that any modification of their arrangements or of their agreed-
upon programs requires their unanimous consent. Should any member
become unable to continue to pay its share of the costs associated
with a CAPCO facility, each of the other CAPCO companies could be
adversely affected in varying degrees because it may become necessary
for the remaining members to assume such costs for the account of the
defaulting member.
Under the agreements governing the construction and
operation of CAPCO generating units, the responsibility is assigned to
a specific CAPCO company. CEI has such responsibilities for Perry
Unit 1 and Duquesne is responsible for Beaver Valley Unit 1. The
Companies monitor activities in connection with these units but must
rely to a significant degree on the operating company for necessary
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information. The Companies in their oversight role as a practical
matter cannot be privy to every detail; it is the operating company
that must directly supervise activities and then exercise its
reporting responsibilities to the co-owners. The Companies critically
review the information given to them by the operating company, but
they cannot be absolutely certain that things that they would have
considered significant have been reported or that they would always
have reached exactly the same conclusion about matters that are
reported. In addition, the time that is necessarily part of the
compiling and analyzing process creates a lag between the occurrence
of events and the time the Companies become aware of their
significance. The Company has similar responsibilities to the other
CAPCO companies with respect to Bruce Mansfield Units 1, 2 and 3 and
Edison has those responsibilities with respect to W. H. Sammis Unit 7.
Financing and Construction
The Company accesses the capital markets from time to time
to provide funds for its construction program and to refinance
existing securities.
Future Financing
The Company's total construction costs, excluding nuclear
fuel, amounted to approximately $26,000,000 in 1994. Such costs
included expenditures for the betterment of existing facilities and
for the construction of transmission lines, distribution lines,
substations and other additions. For the years 1995-1999, such
construction costs are estimated to be approximately $138,000,000, of
which approximately $28,000,000 is applicable to 1995. See
"Environmental Matters" below with regard to possible environment-
related expenditures not included in this estimate.
During the 1995-1999 period, maturities of, and sinking
fund requirements for, long-term debt (excluding nuclear fuel) and
preferred stock will require the expenditure by the Company of
approximately $69,000,000, of which approximately $15,000,000 is
applicable to 1995.
The Company leases its nuclear fuel requirements from OES
Fuel, Incorporated (a wholly owned subsidiary of Edison). Investments
for additional nuclear fuel during the 1995-1999 period are estimated
to be approximately $29,000,000, of which approximately $4,000,000
applies to 1995. During the same periods, the Company's nuclear fuel
investments are expected to be reduced by approximately $39,000,000
and $9,000,000, respectively, as the nuclear fuel is consumed. The
Company recovers the cost of nuclear fuel consumed through its
electric rates.
Based on its present plans, the Company could provide for
its cash requirements in 1995 from the following sources: funds to be
received from operations; available cash and temporary cash
investments (approximately $42,000,000 as of December 31, 1994); funds
available under short-term bank credit arrangements presently
aggregating $5,000,000; and the ability to borrow up to $50,000,000
from Edison, if available, under a system funds pool agreement.
Additionally, the Company has $32,000,000 of unused bank facilities
which may be borrowed for up to several days at the banks' discretion.
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For the period 1995-1999, external financings may be used
to provide a portion of the Company's cash requirements. 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 Company to comply with
coverage requirements in order to issue first mortgage bonds and
preferred stock. The Company 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
its financial resources permit.
Except as otherwise indicated, the foregoing statements
with respect to construction expenditures are based on estimates made
in February 1995 and are subject to change based upon the progress of
and changes required in the construction program, including periodic
reviews of costs, changing customer requirements for electric energy,
the level of earnings and resulting changes in applicable coverage
requirements, conditions in capital markets, changes in regulatory
requirements and other relevant factors.
Coverage Requirements
The coverage requirements contained in the first mortgage
indenture under which the Company issues first mortgage bonds provide
that, except for certain refunding purposes, the Company may not issue
first mortgage bonds unless applicable net earnings (before income
taxes), calculated as provided in the indenture, 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. The Company's 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.
With respect to the issuance of first mortgage bonds,
other requirements also apply and are more restrictive than the
earnings test at the present time. The Company is currently able to
issue $96,000,000 principal amount of first mortgage bonds, with up to
$19,000,000 of such amount issuable against property additions; the
remainder could be issued against previously retired bonds. Based upon
earnings for 1994, the Company would be permitted, under the earnings
coverage test contained in the Company's charter, to issue at least
$56,000,000 of preferred stock at an assumed dividend rate of 9.50%.
If the Company were to issue additional debt at or prior to the time
it issued preferred stock, the amount of preferred stock which would
be issuable would be reduced.
To the extent that coverage requirements or market
conditions restrict the Company's ability to issue desired amounts of
first mortgage bonds or preferred stock, the Company may seek other
methods of financing. Such financings could include the sale of common
stock to Edison, or of such other types of securities as might be
authorized by the Pennsylvania Public Utility Commission (PPUC) 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.
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Utility Regulation
The Company is subject to broad regulation as to rates and
other matters by the PPUC. With respect to its wholesale and
interstate electric operations and rates, the Company is subject to
regulation, including regulation of its accounting policies and
practices, by the Federal Energy Regulatory Commission (FERC).
The Energy Policy Act of 1992 (1992 Act) amends portions
of the Public Utility Holding Company Act of 1935, providing
independent power producers and other nonregulated generating
facilities easier entry into the electric generation markets. The 1992
Act also amends portions of the Federal Power Act, authorizing the
FERC, under certain circumstances, to mandate access to utility-owned
transmission facilities. The Company is currently unable to predict
the ultimate effects on its operations resulting from this
legislation.
The Company sells power to four wholesale customers under
agreements which were extended in 1994; two of the agreements expire
in March 1997, and the other two will be in effect until September
1999. The Company also sells power to a fifth municipality which
received bids from third parties for power and filed a request with
the FERC in September 1994 to require the Company to provide
transmission services. On January 25, 1995, FERC ordered the Company
to provide transmission services to the municipality and directed both
parties to resolve the pricing, terms and conditions of this service.
If the Company cannot reach an agreement with the municipality on
these issues by April 5, 1995, FERC will establish the final terms.
The Company uses a "levelized" energy cost rate (ECR) for
the recovery of fuel and net purchased power costs which are not
otherwise recovered through base rates from its customers. The ECR,
which includes adjustment for any over or under collection from
customers, is recalculated each year.
Nuclear Regulation
The construction and operation of nuclear generating units
are subject to the regulatory jurisdiction of the Nuclear Regulatory
Commission (NRC) including the issuance by it of construction permits
and operating licenses. The NRC's procedures with respect to
application for construction permits and operating licenses afford
opportunities for interested parties to request public hearings on
health, safety, environmental and antitrust issues. In this
connection, the NRC may require substantial changes in operation or
the installation of additional equipment to meet safety or
environmental standards with resulting delay and added costs. The
possibility also exists for modification, denial or revocation of
licenses or permits. Full power operating licenses were issued for
Beaver Valley Unit 1 and Perry Unit 1 on July 1, 1976 and November 13,
1986, respectively.
The construction permit and operating license issued by
the NRC applicable to Perry Unit 1 is conditioned to require, among
other things: (i) maintenance, emergency, economy and wholesale power
and reserve sharing to be made available to, (ii) interconnections to
be made with, and (iii) wheeling to be provided for, electric
generating and/or distribution systems (or
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municipalities or cooperatives with the right to engage in such
functions) if such entities so request and to permit such entities to
become members of CAPCO (subject to certain prerequisites with respect
to size), or to acquire a share of the capacity of Perry Unit 1 or any
other future nuclear units, if they so desire. In September 1987,
Edison asked the NRC to suspend these license conditions. In April
1991, the NRC Staff denied Edison's application; accordingly, Edison
petitioned the NRC for a hearing. Pursuant to this request the matter
was referred to the Atomic Safety and Licensing Board (ASLB). The ASLB
ruled against Edison in November 1992. Edison petitioned the NRC to
review the ASLB decision in December 1992. On August 3, 1993, the NRC
ruled that the license conditions will not be suspended. On October 1,
1993, Edison appealed the NRC decision in the United States Court of
Appeals for the District of Columbia Circuit. If these license
conditions are not suspended, they could have a materially adverse but
presently undeterminable effect on the Company's future business
operations.
The NRC has promulgated and continues to promulgate
additional regulations related to the safe operation of nuclear power
plants. The Company cannot predict what additional regulations will be
promulgated or design changes required or the effect that any such
regulations or design changes, or the consideration thereof, may have
upon Beaver Valley Unit 1 and Perry Unit 1. Although the Company has
no reason to anticipate an accident at any nuclear plant in which it
has an interest, if such an accident did happen, it could have a
material but presently undeterminable adverse effect on the Company's
financial position. In addition, such an accident at any operating
nuclear plant, whether or not owned by the Company, could result in
regulations or requirements that could affect the operation or
licensing of plants that the Company does own with a consequent but
presently undeterminable adverse impact, and could affect the
Company's ability 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
$8,920,000,000 (assuming 110 units licensed to operate) for a single
nuclear incident, which amount is covered by: (i) private insurance
amounting to $200,000,000; and (ii) $8,720,000,000 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 $75,500,000 (but not more than
$10,000,000 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 its present ownership interest in Beaver Valley
Unit 1 and the Perry Plant, the Company's maximum potential assessment
under these provisions (assuming the other CAPCO companies were to
contribute their proportionate share of any assessments under the
retrospective rating plan) would be $18,000,000 per incident but not
more than $2,300,000 in any one year for each incident.
In addition to the public liability insurance provided
pursuant to the Price-Anderson Act, the Company has also obtained
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insurance coverage in limited amounts for economic loss and property
damage arising out of nuclear incidents. The Company is a member 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
Company has policies, renewable yearly, corresponding to its interest
in Beaver Valley Unit 1 and the Perry Plant, which provide an
aggregate indemnity of up to approximately $53,100,000 for replacement
power costs incurred during an outage after an initial 21-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 Company's present maximum aggregate assessment for
incidents occurring during a policy year would be approximately
$500,000.
The Company is insured as to its interest in Beaver Valley
Unit 1 and the Perry Plant under property damage insurance provided by
American Nuclear Insurers (ANI) and Mutual Atomic Energy Liability
Underwriters (MAELU) to the operating company for each plant. Under
the ANI/MAELU arrangements, $500,000,000 of primary coverage and
$850,000,000 of excess coverage for decontamination costs, debris
removal and repair and/or replacement of property is provided for
Beaver Valley Unit 1 and the Perry Plant. The Company pays annual
premiums for this coverage and is not liable for retrospective
assessments.
A secondary level of coverage for Beaver Valley Unit 1 and
the Perry Plant over and above the ANI/MAELU policy is provided by a
decontamination liability, excess property and decommissioning
liability insurance policy issued to each operating company by NEIL
(NEIL II). Under NEIL II a minimum of $1,400,000,000 of coverage is
available to pay costs required for decontamination operations in
excess of the $1,350,000,000 provided by the primary ANI/MAELU policy.
Additionally, a maximum of $250,000,000, as provided by NEIL II, would
cover decommissioning costs in excess of funds already collected for
decommissioning. Any remaining portion of the NEIL II proceeds after
payment of decontamination costs will be available to pay excess
property damage losses.Members of NEIL II pay annual premiums and are
subject to assessments if losses exceed the accumulated funds
available to the insurer. The Company's present maximum assessment for
NEIL II coverage for accidents occurring during a policy year would be
approximately $2,100,000. The NEIL II policy is renewable yearly.
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 from time to time 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.
The NRC requires nuclear power plant licensees to obtain
minimum property insurance coverage of $1,060,000,000 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
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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 Company is
unable to predict what effect these requirements may have on the
availability of insurance proceeds to the Company for the Company's
bondholders.
Environmental Matters
Various federal, state and local authorities regulate the
Company with regard to air and water quality and other environmental
matters. The Company has estimated capital expenditures for
environmental compliance of approximately $12,000,000, which is
included in the construction estimate given under "Financing and
Construction - Future Financing" for 1995 through 1999.
Air Regulation
Under the provisions of the Clean Air Act of 1970, both
the Commonwealth of Pennsylvania and the State of Ohio 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 W. H. Sammis Unit 7 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 Pennsylvania and Ohio 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 Clean Air Act Amendments of 1990 require significant
reductions of SO2 and nitrogen oxides (NOx) from the Company's coal-
fired generating units by 1995 and additional emission reductions by
2000. Compliance options include, but are not limited to, installing
additional pollution control equipment, burning less-polluting fuel,
purchasing emission allowances, operating facilities in a manner that
minimizes pollution, and retiring facilities. In a system compliance
plan for the Company and Edison submitted to the PPUC and to the EPA,
the Company stated that SO2 reductions for the years 1995 through 1999
likely will be achieved by burning lower-sulfur fuel, generating more
electricity from lower-emitting plants, and/or purchasing emission
allowances. Equipment already installed, or to be installed by May
1995, is expected to provide NOx reductions sufficient to meet 1995
requirements. Plans for complying with the year 2000 and later
reductions have not been finalized. The EPA is conducting additional
studies which could indicate the need for additional NOx reductions
from the Company's Pennsylvania facilities by the year 2003. The cost
of such reductions, if required, may be substantial. The Company
continues to evaluate its compliance plan and other compliance
options.
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The Company is required to meet federally approved SO2
regulations. Violation of such regulations can result in shutdown of
the generating unit involved and/or civil or criminal penalties of up
to $25,000 for each day the unit is in violation. The EPA has an
interim enforcement policy for SO2 regulations in Ohio that allows for
compliance based on a 30-day averaging period. The EPA has proposed
regulations that could change the interim enforcement policy,
including the method of determining compliance with emission limits.
The Company cannot predict what action the EPA may take in the future
with respect to proposed regulations or the interim enforcement
policy.
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 Company's plants. In addition, Pennsylvania and Ohio have
water quality standards applicable to the Company's 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. Pennsylvania and Ohio have assumed such
authority.
The Ohio Environmental Protection Agency (Ohio EPA) has
issued an NPDES Permit for the W.H. Sammis Plant. The plant is in
compliance with chemical limitations of the permit. The permit
conditions would have required the addition of cooling towers to the
W. H. Sammis Plant, however, the EPA and Ohio EPA have approved a
variance request eliminating the current need for cooling towers.
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.
These regulations may result in significantly increased costs to
dispose of waste materials. The ultimate effect of these requirements
cannot presently be determined.
The Pennsylvania Department of Environmental Resources has
issued regulations dealing with the storage, treatment, transportation
and disposal of residual waste such as coal ash and scrubber sludge.
These regulations impose additional requirements relating to
permitting, ground water monitoring, leachate collection systems,
closure, liability insurance and operating matters. The Company is
considering various compliance options but is presently unable to
determine the ultimate increase in capital and operating costs at
existing sites.
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 Company cannot now estimate
the precise effect of existing and potential regulations and
legislation upon any of its existing and proposed facilities and
operations or upon its ability to issue additional first mortgage
bonds under its mortgage. The mortgage contains covenants by the
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Company 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 the
mortgage, in effect, also require, in the opinion of counsel for the
Company, that certification of property additions as the basis for the
issuance of bonds or other action under the mortgage 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 Company intends to contest any requirements it deems unreasonable
or impossible for compliance or otherwise contrary to the public
interest. Developments in these and other areas of regulation may
require the Company 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. The Company
expects that the impact of any such costs would eventually be
reflected in its rate schedules.
Fuel Supply
The Company's sources of generation during 1994 were 69.6%
coal and 30.4% nuclear. All of the Company's coal supply for the New
Castle Plant is currently supplied through spot purchases of coal
produced from nearby reserves.
The Company estimates its 1995 coal requirement to be
1,300,000 tons (including its share of the coal requirements of
CAPCO's W. H. Sammis Unit 7 and the Bruce Mansfield Plant). The coal
requirements of W. H. Sammis Unit 7 are furnished from mines located
in Ohio, Pennsylvania and West Virginia through spot purchases and
Edison contracts which expire at various times through February 28,
2003. See "Environmental Matters" for factors pertaining to meeting
environmental regulations affecting coal-fired generating units.
The Company, together with the other CAPCO companies, has
several guarantees (the Company's composite percentage being
approximately 6.7%) of certain debt and lease obligations in
connection with a coal supply contract for the Bruce Mansfield Plant
(see Note 7 of Notes to Financial Statements). As of December 31,
1994, the Company's share of the guarantees was $10,952,000. The price
under the coal supply contract, which includes certain minimum
payments, has been determined to be sufficient to satisfy the debt and
lease obligations. This contract extends to December 31, 1999.
The Company's fuel costs (excluding disposal costs) for
each of the five years ended December 31, 1994, were as follows:
1994 1993 1992 1991 1990
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Cost of fuel consumed per
million BTUs:
Coal $1.34 $1.37 $1.42 $1.41 $1.39
Nuclear $ .88 $ .97 $ .94 $1.05 $ .98
Average fuel cost per
kilowatt-hour generated (cents) 1.29 1.36 1.34 1.41 1.38
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Nuclear Fuel
OES Fuel is the sole lessor for the Company's nuclear fuel
requirements (see "Financing and Construction - Future Financing" and
Note 1 of Notes to Financial Statements).
The Company and OES Fuel have contracts for the supply of
uranium sufficient to meet projected needs through 2000 and conversion
services sufficient to meet projected needs through 2001. Fabrication
services for fuel assemblies have been contracted by the CAPCO
companies for the next four reloads for Beaver Valley Unit 1 (through
approximately 2000), and the next six reloads for Perry Unit 1
(through approximately 2004). The CAPCO companies have a contract with
the U.S. Enrichment Corporation for enrichment services for all CAPCO
nuclear units through 2014.
Prior to the expiration of existing commitments, the Company
intends to make additional arrangements for the supply of uranium and
for the subsequent conversion, enrichment, fabrication, reprocessing
and/or waste disposal services, the specific prices and availability
of which are not known at this time. 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, the
Company is calculating nuclear fuel costs based on the assumption that
spent fuel will not be reprocessed. On-site spent fuel storage
facilities for the Perry Plant are expected to be adequate through
2010; facilities at Beaver Valley Unit 1 are expected to be adequate
through 2011. 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 or permanent
waste disposal facilities become available. The Federal Nuclear Waste
Policy Act of 1982 provides for the construction of facilities for the
disposal of high-level nuclear wastes, including spent fuel from
nuclear power plants operated by electric utilities; however, the
selection of a suitable site has become embroiled in the political
process. Duquesne and CEI have each previously entered into contracts
with the U.S. Department of Energy for the disposal of spent fuel from
Beaver Valley Unit 1 and the Perry Plant, respectively.
Capacity and Reserves
The 1994 net maximum hourly demand on the Company of 710,000
kilowatts (kW) (including 63,000 kW of firm power sales which extend
through 2005 as discussed under "Competition") occurred on June 20,
1994. The seasonal capability of the Company on that day was 824,000
kW. Of that capability, 13.8% was available to serve additional load,
after giving effect to term power sales to other utilities. Based on
existing capacity plans, the load forecast made in November 1994 and
anticipated term power sales to other utilities, the capacity margins
during the 1995-1999 period are expected to range from about 7% to
13%.
Regional Reliability
The Companies participate with 26 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
- 10 -
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 Company competes with other utilities for intersystem bulk
power sales and for sales to municipalities. The Company competes with
suppliers of natural gas and other forms of energy in connection with
its 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 Company's customers.
Technological advances and regulatory changes are driving
forces toward increasing competition in the energy market. In
addition, many large electricity users continue to push for some form
of retail wheeling, which would enable retail customers to purchase
electricity from producers other than the local utility. While
regulators appear to be increasingly reluctant to move in this
direction (primarily because of the adverse impact retail wheeling
would have on small users) the debate is expected to place downward
pressure on the Company's prices in the future.
In an effort to more fully utilize its facilities and hold
down rates to its other customers, the Company has entered into a
long-term power sales agreement with another utility. Currently, the
Company is selling 63,000 kW annually under this contract through
December 31, 2005. The Company has the option to reduce this
commitment by 21,000 kW, with three years advance notice.
Employees
At December 31, 1994, the Company had 1,255 employees.
ITEM 2. PROPERTIES
The Company's First Mortgage 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 amended and supplemented,
constitutes, in the opinion of the Company's counsel, a direct first
lien on substantially all of the Company's physical property, subject
only to excepted encumbrances, as defined in the Indenture. See Notes
4 and 5 of Notes to Financial Statements for information concerning
leases and financing encumbrances affecting certain of the Company's
properties.
The Company owns, individually or, together with one or more
of the other CAPCO companies as tenants in common, the generating
units in service shown below:
- 11 -
Net Demonstrated
Capacity (kW)
-----------------
Company's Ownership
Plant-Location Unit Total Entitlement Interest
- --------------- ---- ----- ----------- ---------
Coal-Fired Units
- ----------------
New Castle-
West Pittsburg, PA 3-5 333,000 333,000 100.00%
Bruce Mansfield-
Shippingport, PA 1 780,000 33,000 4.20%
2 780,000 53,000 6.80%
3 800,000 50,000 6.28%
W. H. Sammis-
Stratton, OH 7 600,000 125,000 20.80%
Nuclear Units
- -------------
Beaver Valley-
Shippingport, PA 1 810,000 142,000 17.50%
Perry-North
Perry Village, OH 1 1,194,000 63,000 5.24%
Oil-Fired Units
- ---------------
Various 164,000 25,000 15.18%
-------
Total 824,000
=======
Prolonged outages of existing generating units might make
it necessary for the Company, depending upon the state of demand from
time to time for electric service upon its 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 Company's interruptible
programs, all to an extent not presently determinable.
The Company's 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
Company's overhead and underground transmission lines aggregate 606
miles.
The Company's electric distribution systems include 5,071
miles of overhead pole line and underground conduit carrying primary,
secondary and street lighting circuits. It owns, individually or,
together with one or more of the other CAPCO companies as tenants in
common, 84 substations with a total installed transformer capacity of
3,717,505 kilovolt-amperes, of which 16 are transmission substations,
including 8 located at generating plants.
The Company's transmission lines also interconnect with
those of Edison, Duquesne and West Penn Power Company. These
interconnections make possible utilization by the Company of
generating capacity constructed as a part of the CAPCO program, as
- 12 -
well as providing opportunities for the sale of power to other
utilities.
ITEM 3. LEGAL PROCEEDINGS
In 1991, the CAPCO companies, as co-plaintiffs, filed suit
against Westinghouse Electric Corporation in the United States
District Court for the Western District of Pennsylvania, for design
flaws relating to Beaver Valley Units 1 and 2 steam generators
supplied by Westinghouse. The suit principally alleged that the
Westinghouse steam generators contain serious design defects causing
such problems as tube corrosion and cracking, which has led to higher
maintenance costs and the possible replacement of the steam generators
earlier than the 40-year design life. The Court rejected the claims of
the CAPCO companies in December 1994. The CAPCO companies have
appealed the verdict to the United States Court of Appeals for the
Third Circuit.
See "Item 1 - Business - Nuclear Regulation" for information
with respect to legal proceedings.
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 Company is a wholly owned subsidiary of Edison. Quarterly
dividends of $.85 per share were paid on the Company's common stock
during 1994 and 1993.
For information with respect to certain restrictions on the
payment of cash dividends on common stock, see Note 5(a) of Notes to
Financial Statements.
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 the Selected Financial Data,
Management's Discussion and Analysis of Results of Operations and
Financial Condition, and Financial Statements included on pages 1
through 4 and 6 through 19 in the Company's 1994 Annual Report to
Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 13 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The present term of office of each director extends until the
next succeeding annual meeting of stockholders and until his successor
is elected and shall qualify.
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.
H. Peter Burg-Age 48
President of the Company since August 3, 1994. Senior Vice
President and Chief Financial Officer of Edison since 1989.
Director of the Company since 1988. Mr. Burg is also a director
of Edison.
Robert H. Carlson-Age 68
Retired in 1989 as President and Chief Executive Officer of
Universal-Rundle Corporation, a manufacturer of plumbing
fixtures. Director of the Company since 1983. Mr. Carlson is
also a director of Edison and First Shenango Bancorp, Inc.
J. R. Edgerly-Age 64
Vice President of the Company since 1980; Secretary and General
Counsel of the Company from 1987 to 1994. Director of the
Company since 1973.
Willard R. Holland-Age 58
Chairman of the Board, Chief Executive Officer, and Chief
Financial Officer of the Company and President and Chief
Executive Officer of Edison, since 1993. President and Chief
Operating Officer of Edison from 1991 to 1993. Senior Vice
President from 1988 to 1991 of Detroit Edison Company, an
electric utility. Director of the Company since 1991. Mr.
Holland is also a director of Edison.
Joseph J. Nowak-Age 63
Retired. Consultant during 1993 and Vice President during 1992
of Armco Inc., and Executive Vice President-Operations from 1988
to 1992 of Cyclops Industries, Inc., manufacturers of steel
products. Cyclops Industries, Inc. merged with Armco Inc. in
1992. Director of the Company since 1982.
Jack E. Reed-Age 52
Vice President of the Company since 1992. Manager, Substation
and Distribution, from 1991 to 1992 and Manager, Transmission
and Distribution Maintenance, from 1988 to 1991 of Edison.
Director of the Company since 1992.
- 14 -
Richard L. Werner-Age 63
Chairman of the Board, President, and Chief Executive Officer
since 1980 of Werner Co., Inc., manufacturer of aluminum
extrusions, ladders and scaffolding. Director of the Company
since 1993.
Robert P. Wushinske-Age 55
Secretary and General Counsel of the Company since 1994 and Vice
President and Treasurer of the Company since 1987.
David W. McKean-Age 42
Comptroller of the Company since 1992. Director of Financial
Reporting of Edison from 1985 to 1992.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY EXECUTIVE COMPENSATION TABLE
Annual Compensation
------------------------
Name and All Other
Principal Position Year Salary Bonus(1) Other(2) Compensation (3)
- ------------------ ---- ------ -------- -------- ----------------
W. R. Holland 1994 $ 92,346 $18,500 $ 178 $ 8,917
Chairman of the
Board and Chief 1993 67,280 16,427 892 4,337
Executive Officer 1992 -0- -0- -0- -0-
R. L. Kensinger (4) 1994 96,324 14,847 195 93,367
President 1993 151,610 18,551 588 11,214
1992 146,292 16,010 3,302 10,241
J. R. Edgerly (5) 1994 103,437 6,500 -0- 9,340
Vice President 1993 99,986 8,487 189 7,409
1992 98,516 8,769 234 7,126
J. E. Reed 1994 109,532 9,666 12 6,214
Vice President 1993 103,951 5,267 7,994 6,518
1992 99,067 5,487 215 5,448
R. P. Wushinske (5) 1994 103,747 10,170 -0- 5,529
Vice President,
Secretary, 1993 97,386 9,222 180 4,149
Treasurer, and
General Counsel 1992 94,966 9,225 305 3,990
(1) See Long-Term Incentive Plan Table for Incentive Compensation
Plan awards deferred into the Common Stock Equivalent Account.
(2) Consists of reimbursement for income tax obligations on
Executive Indemnity Program premium and on certain executive
perquisites.
- 15 -
(3) For 1994, amount is comprised of (1) matching Edison Common
Stock contributions under the tax qualified Savings Plan:
Holland - $1,261; Kensinger - $2,099; Edgerly - $4,348; Reed
- $4,437; Wushinske - $3,991; (2) the current dollar value of
the Company's portion of the premiums paid in 1994 for
insurance policies under the Executive Supplemental Life Plan
(In accordance with recent interpretive guidance issued by
the Securities and Exchange Commission, the methodology used
to calculate these amounts has been changed to the interest-
free loan method.): Holland - $3,773; Kensinger - $0;
Edgerly - $4,992; Reed - $1,416; Wushinske - $1,538; (3)
above market interest earned under the Executive Deferred
Compensation Plan: Holland - $3,883; Kensinger - $5,164;
Edgerly - $0; Reed - $340; Wushinske - $0; (4) a portion of
the Executive Indemnity Program premium reportable as income:
Holland - $0; Kensinger - $72; Edgerly - $0; Reed - $21;
Wushinske - $0; and (5) banked vacation paid at end of
service: Kensinger - $86,032.
(4) Mr. Kensinger passed away August 2, 1994. Mr. H. Peter Burg,
Senior Vice President of Edison, was elected President
effective August 3, 1994.
(5) Mr. Wushinske replaced Mr. Edgerly as Secretary and General
Counsel effective October 1, 1994.
<TABLE>
LONG-TERM INCENTIVE PLAN TABLE
AWARDS IN LAST FISCAL YEAR
<CAPTION>
Estimated Future Payouts Under
Dollar Number of Performance or Other Non-Stock Price Based Plan
Amount Performance Period Units (Number of Performance Shares)
--------------------------------
Name Deferred Shares Maturation or Payout Threshold Target Maximum
- --------------------- -------- ------ -------------------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
W. R. Holland-CEO $17,266 820 4 years 779 1,037 1,281
J. E. Reed 2,834 135 4 years 128 148 163
J. R. Edgerly -0- -0- 4 years -0- -0- -0-
R. P. Wushinske -0- -0- 4 years -0- -0- -0-
</TABLE>
- 17 -
Mr. Holland must defer 50% of his annual Executive Incentive
Compensation Plan award into a Common Stock Equivalent Account.
Messrs. Reed, Edgerly, and Wushinske may voluntarily defer a
portion of their annual incentive award into the Common Stock
Equivalent Account. At the end of a four-year performance period,
the Common Stock Equivalent Account attributed to the deferred
award for that period will be valued as if the compensation
deferred into the account had been invested in Edison's Common
Stock and any dividends that would have been paid on such stock
were reinvested on the date paid. This value may be increased or
decreased based upon the total return of Edison's Common Stock
relative to the Edison Electric Institute's Index of 100 Investor-
Owned Electric Utility Companies during the period and the
Companies' price change to residential customers relative to a peer
group of twenty electric utilities selected from the Edison
Electric Institute's Index of 100 Investor-Owned Electric Utility
Companies. The final value of an executive's account will be paid
to the executive in cash. If an executive retires, dies or
otherwise leaves the employment of the Company prior to the end of
the four-year deferral period, the executive's account will be
valued and paid to the executive or the executive's beneficiary in
the year following such event. Mr. R. L. Kensinger passed away on
August 2, 1994. His account was valued and paid on March 1, 1995.
The maximum amount in the above table will be earned if the
Companies' price change to residential customers is ranked in the
lowest (fifth) quintile of the peer group (i.e., the lowest 20
percent of the peer group) and Edison's total shareholder return is
in the top (first) quintile compared to the index. The target
amount will be earned if the Companies' price change to residential
customers is in the fourth quintile and Edison's total shareholder
return is in the second quintile. The threshold amount will be
earned if the Companies' price change to residential customers is
in or above the third quintile and Edison's total shareholder
return is in or below the third quintile.
Supplemental Executive Retirement Plan
The Company participates in the Ohio Edison System
Supplemental Executive Retirement Plan. Mr. Holland is the only
executive officer listed above who is eligible to participate in
the Plan. At normal retirement, eligible senior executives of the
Company who have five or more years of service with the Ohio Edison
System are provided a retirement benefit equal to 65 percent of
their highest annual salary from the Company, reduced by the
executive's pensions under tax-qualified pension plans of the
Company or other employers, any supplementary pension under the
Company's Executive Deferred Compensation Plan, and Social Security
benefits. Subject to exceptions that might be made in specific
cases, senior executives retiring prior to age 65, or with less
than five years of service, or both, may receive a similar but
reduced benefit. This Plan also provides for disability and
surviving spouse benefits. As of the end of 1994, the estimated
annual retirement benefits of Mr. Holland from all of the above
sources were $60,025.
Pension Plan
The Company's trusteed noncontributory Pension Plan covers
substantially all full-time employees including officers of the
- 18 -
Company. Pension benefits are determined using a formula based on
a Pension Plan participant's years of accrued service and average
rate of monthly earnings for the highest 60 months of the last 120
months of accrued service immediately preceding retirement or
termination of service.
Compensation covered by the Pension Plan consists of basic
cash wages and compensation deferred through the Savings Plan up to
the maximum amount permitted under the Internal Revenue Code of
1986, as adjusted in accordance with regulations. This amount was
$150,000 per year for 1994 and is $150,000 per year for 1995. In
addition, a supplementary pension benefit may be payable to
participants in the Executive Deferred Compensation Plan.
Compensation for 1994 covered by these two plans for the officers
shown in the Executive Compensation Table who are not currently
participants in the Ohio Edison System Supplemental Executive
Retirement Plan is shown under the Salary column of the Table. The
credited years of service for these same officers are as follows:
J. E. Reed-28 years; J. R. Edgerly-29 years and R. P. Wushinske-21
years.
The following table shows the estimated annual amounts payable
upon retirement as pension benefits under the Pension Plan and the
supplemental pension benefit under the Executive Deferred
Compensation Plan, based on specified compensation and years of
credited service classifications, assuming continuation of both
such present Plans and employment until age 65. Retirement prior to
age 62 results in a reduction of pension benefits. The amounts
shown are subject to a reduction based on an individual's covered
compensation, date of birth and years of credited service as
defined by the Pension Plan and its optional survivorship provision
and to limitations based on requirements contained in the Internal
Revenue Code of 1986, as amended, which limited the maximum annual
retirement benefits under the Plans to $118,800 in 1994 and would
limit benefits to $120,000 in 1995.
Estimated Annual Retirement Payment from the
Pension Plan and the Annual Supplementary
Pension Benefit under the Executive
Deferred Compensation Plan
---------------------------------------------
15 25 35 45
Applicable Years Years Years Years
Annual Earnings Service Service Service Service
- --------------- ------- ------- ------- -------
$ 90,000 $25,700 $40,100 $52,700 $62,600
100,000 28,500 45,500 58,500 69,500
110,000 31,400 50,100 64,400 76,500
120,000 34,200 54,600 70,200 83,400
130,000 37,100 59,200 76,100 90,400
140,000 39,900 63,700 81,900 97,300
Additional Information Regarding Compensation
The Board of Directors has no compensation committee. The
Board of Directors, other than Mr. Holland, establishes the
compensation of Mr. Holland as chief executive officer; Mr. Holland
establishes the compensation of the other executive officers of the
Company.
- 19 -
Compensation of Directors
Directors who are not employees of the Companies receive an
annual retainer of $4,200 and 100 shares of Edison Common Stock for
each full year of service. Such directors are also paid a meeting
fee of $375 for each board meeting attended and are reimbursed for
expenses for the attendance thereof, if any. Directors who are also
employees of the Company or of Edison receive no compensation for
serving as directors.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners at March
22, 1995:
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------- -------------------- --------
Common Stock, Ohio Edison Company 6,290,000 shares 100%
$30 par value 76 South Main Street held directly
Akron, Ohio 44308
(b)Security Ownership of Management at December 31, 1994:
Title of Class
-------------- Percent of Class
Edison ----------------
Common Stock Nature of Edison
------------ Beneficial Common
No. of Shares Ownership Stock
------------- --------- -----
H. P. Burg 8,587 Direct or Less than
Indirect one percent
R. H. Carlson 3,418 " "
J. R. Edgerly 2,015 " "
W. R. Holland 5,356 " "
J. J. Nowak 837 " "
J. E. Reed 3,468 " "
R. L. Werner 194
R. P. Wushinske 1,520 " "
All directors and
officers as a
group 30,709 " "
(c) Changes in Control: Not applicable
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
- 20 -
(a) 1. Financial Statements
Included in Part II of this report and incorporated herein by
reference to the Company's 1994 Annual Report to Stockholders
(Exhibit 13 below) at the pages indicated.
Page No.
--------
Statements of Income-Three Years Ended
December 31, 1994 . . . . . . . . . . . . . . . . . 6
Balance Sheets-December 31, 1994 and 1993. . . . . . . 7
Statements of Capitalization-December 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . 8
Statements of Retained Earnings-Three Years
Ended December 31, 1994 . . . . . . . . . . . . . . 9
Statements of Capital Stock and Other Paid-In
Capital-Three Years Ended December 31, 1994 . . . . 9
Statements of Cash Flows-Three Years Ended
December 31, 1994. . . . . . . . . . . . . . . . . . 10
Statements of Taxes-Three Years Ended
December 31, 1994. . . . . . . . . . . . . . . . . . 11
Notes to Financial Statements. . . . . . . . . . . . . 12-18
Report of Independent Public Accountants . . . . . . . 19
2. Financial Statement Schedules
Included in Part IV of this report:
Page No.
--------
Report of Independent Public Accountants . . . . . . . 23
Schedule - Three Years Ended December 31, 1994:
II - Valuation and Qualifying Accounts. . . . . . . 24
Schedules other than the schedule listed above are omitted for
the reason that they are not required or are not applicable, or the
required information is shown in the financial statements or notes
thereto.
3. Exhibits
Exhibit
Number
- -------
3-1 - Agreement of Merger and Consolidation dated April 1,
1929, among Pennsylvania Power Company ("Penn Power"),
Harmony Electric Company and Peoples Power Company
(consummated May 31, 1930), copies of Letters Patent
issued thereon, together with the Election Return and
Treasurer's Return, relative to decrease of capital
stock; Election Return authorizing change of capital
stock and increase of indebtedness; Election Return
authorizing change of capital stock; Election Return
authorizing increase of capital stock; Election Return
establishing 4.24% Preferred Stock; Certificate with
respect to the establishment of the 4.64% Preferred
Stock; Election Returns and Certificates of Actual
Sale in connection with the purchase by Penn Power of
all the property of Pine-Mercer Electric Company,
- 21 -
Exhibit
Number
- -------
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
- 22 -
Exhibit
Number
- -------
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
- 23 -
Exhibit
Number
- -------
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 the Company as amended March 25, 1992.(1992
Form 10-K, Exhibit 3-3, File No. 1-3491.)
4-1* - Indenture dated as of November 1, 1945, between the
Company 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, and November 1,
1993. (Physically filed and designated as Exhibits
2(b) (1)-1 through 2(b) (l)-15 in Registration
Statement File No. 2-60837; as Exhibits 2(b) (2), 2(b)
(3), and 2 (b) (4) in Registration Statement File No.
2-68906; as Exhibit 4-2 in Form 10-K for 1981 File No.
1-3491; as Exhibit 19-1 in Form 10-K for 1982 File No.
1-3491; as Exhibit 19-1 in Form 10-K for 1983 File No.
1-3491; as Exhibit 19-1 in Form 10-K for 1984 File No.
1-3491; as Exhibit 19-1 in Form 10-K for 1985 File No.
1-3491; as Exhibit 19-1 in Form 10-K for 1987 File No.
1-3491; as Exhibit 19-1 in Form 10-K for 1988 File No.
1-3491; as Exhibit 19 in Form 10-K for 1989 File
No. 1-3491; as Exhibit 19 in Form 10-K for 1990 File
No. 1-3491; as Exhibit 19 in Form 10-K for 1991 File
No. 1-3491; as Exhibit 19-1 in Form 10-K for 1992 File
No. 1-3491; and as Exhibit 4-2 in Form 10-K for 1993
File No. 1-3491.)
(A) 4-2 - Supplemental Indenture dated as of August 1, 1994,
between the Company and Citibank, N.A., as Trustee.
- --------------------
* Pursuant to paragraph (b) (4) (iii) (A) of Item 601 of
Regulation S-K, the Company has not filed as an exhibit to this
Form 10-K any instrument with respect to long-term debt if the
total amount of securities authorized thereunder does not
exceed 10% of the total assets of the Company, but hereby
agrees to furnish to the Commission on request any such
instruments.
- 24 -
Exhibit
Number
- -------
10-1 - Administration Agreement between the CAPCO Group dated
as of September 14, 1967. (Registration Statement of
Ohio Edison Company, File No. 2-43102, Exhibit 5 (c)
(2).)
10-2 - Amendment No. 1 dated January 4, 1974 to
Administration Agreement between the CAPCO Group dated
as of September 14, 1967. (Registration Statement No.
2-68906, Exhibit 5 (c) (3).)
10-3 - Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (Registration
Statement of Ohio Edison Company, File No. 2-43102,
Exhibit 5 (c) (3).)
10-4 - Amendment No. 1 dated as of January 1, 1993 to
Transmission Facilities Agreement between the CAPCO
Group dated as of September 14, 1967. (1993 Form 10-K,
Exhibit 10-4, Ohio Edison Company.)
10-5 - Agreement for the Termination or Construction of
Certain Agreements effective September 1, 1980 among
the CAPCO Group. (Registration Statement No. 2-68906,
Exhibit 10-4.)
10-6 - Amendment dated as of December 23, 1993 to Agreement
for the Termination or Construction of Certain
Agreements effective September 1, 1980 among the CAPCO
Group. (1993 Form 10-K, Exhibit 10-6, Ohio Edison
Company.)
10-7 - CAPCO Basic Operating Agreement, as amended September
1, 1980. (Registration Statement No. 2-68906, as
Exhibit 10-5.)
10-8 - Amendment No. 1 dated August 1, 1981 and Amendment No.
2 dated September 1, 1982, to CAPCO Basic Operating
Agreement as amended September 1, 1980. (September 30,
1981 Form 10-Q, Exhibit 20-1, and 1982 Form 10-K,
Exhibit 19-3, File No. 1-2578, of Ohio Edison
Company.)
10-9 - Amendment No. 3 dated as of July 1, 1984, to CAPCO
Basic Operating Agreement as amended September 1,
1980. (1985 Form 10-K, Exhibit 10-7, File No. 1-2578,
of Ohio Edison Company.)
10-10 - Basic Operating Agreement between the CAPCO Companies
as amended October 1, 1991. (1991 Form 10-K, Exhibit
10-8, File No. 1-2578, of Ohio Edison Company.)
10-11 - Basic Operating Agreement between the CAPCO Companies,
as amended January 1, 1993. (1993 Form 10-K,
Exhibit 10-11, Ohio Edison Company.)
10-12 - Memorandum of Agreement effective as of September 1,
1980, among the CAPCO Group. (1991 Form 10-K, Exhibit
19-2, Ohio Edison Company.)
- 25 -
Exhibit
Number
- -------
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.,
- 26 -
Exhibit
Number
- -------
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,
- 27 -
Exhibit
Number
- -------
1973, as amended, between Quarto Mining Company and
National City Bank, as Bond Trustee, together with
Amendment No. 2 dated as of September 15, 1978, to
Bond Guaranty dated as of October 1, 1973, as amended,
between the CAPCO Group and National City Bank, as
Bond Trustee. (Registration Statement No. 2-68906,
Exhibits 5 (e) (11) and 5 (e) (12).)
10-28 - Amendment No. 3 dated as of October 31, 1980, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National
City Bank, as Bond Trustee. (Registration Statement
No. 2-68906, Exhibit 10-16.)
10-29 - Amendment No. 4 dated as of July 1, 1985, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National
City Bank, as Bond Trustee. (1985 Form 10-K, Exhibit
10-28, File No. 1-2578, Ohio Edison Company.)
10-30 - Amendment No. 5 dated as of May 1, 1986, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National
City Bank, as Bond Trustee. (1986 Form 10-K, Exhibit
10-30, File No. 1-2578, Ohio Edison Company.)
10-31 - Amendment No. 6 dated as of December 1, 1991, to Trust
Indenture and Mortgage dated as of October 1, 1973, as
amended, between Quarto Mining Company and National
City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit
10-28, File No. 1-2578, Ohio Edison Company.)
10-32 - Trust Indenture dated as of December 1, 1991, between
Quarto Mining Company and National City Bank, as Bond
Trustee. (1991 Form 10-K, Exhibit 10-29, File No. 1-
2578, Ohio Edison Company.)
10-33 - Amendment No. 3 dated as of October 31, 1980, to the
Bond Guaranty dated as of October 1, 1973, as amended,
with respect to the CAPCO Group. (Registration
Statement No. 2-68906, Exhibit 10-16.)
10-34 - Amendment No. 4 dated as of July 1, 1985, to the Bond
Guaranty dated as of October 1, 1973, as amended, by
the CAPCO Companies to National City Bank, as Bond
Trustee. (1985 Form 10-K, Exhibit 10-30 , File No. 1-
2578, Ohio Edison Company.)
10-35 - Amendment No. 5 dated as of May 1, 1986, to the Bond
Guaranty dated as of October 1, 1973, as amended, by
the CAPCO Companies to National City Bank, as Bond
Trustee. (1986 Form 10-K, Exhibit 10-33, File No. 1-
2578, Ohio Edison Company.)
10-36 - Amendment No. 6A dated as of December 1, 1991, to the
Bond Guaranty dated as of October 1, 1973, as amended,
by the CAPCO Companies to National City Bank, as Bond
- 28 -
Exhibit
Number
- -------
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 Company Executive Incentive Compensation
Plan (which includes, by definition, Pennsylvania
Power Company). (1984 Form 10-K, Exhibit 19-2, File
No. 1-2578, Ohio Edison Company.)
(B) 10-44 - Ohio Edison Company Executive Incentive Compensation
Plan as amended February 16, 1987. (1986 Form 10-K,
Exhibit 10-40, File No. 1-2578, Ohio Edison Company.)
(B) 10-45 - Ohio Edison System Restated and Amended Executive
Deferred Compensation Plan. (1989 Form 10-K, Exhibit
10-36, File No. 1-2578, Ohio Edison Company.)
(B) 10-46 - Ohio Edison System Restated and Amended Supplemental
Executive Retirement Plan. (1989 Form 10-K, Exhibit
10-37, 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.)
- 29 -
Exhibit
Number
- -------
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 Unit
No. 1 dated as of March 15, 1988. (1988 Form 10-K,
Exhibit 10-41, File No. 1-3491.)
10-55 - Pennsylvania Power Company Qualified Decommissioning
Trust Agreement for Perry Nuclear Power Plant Unit No.
1 dated March 10, 1989. (1988 Form 10-K, Exhibit 10-
42, File No. 1-3491.)
10-56 - First Amendment dated May 31, 1991 to Pennsylvania
Power Company Qualified Decommissioning Trust
Agreement for Perry Nuclear Power Plant Unit No. 1.
(1991 Form 10-K, Exhibit 10-46, File No. 1-3491.)
10-57 - 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.)
- 30 -
Exhibit
Number
- -------
12 - Fixed Charge Ratios
(A) 13 - 1994 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.)
23 - Consent of Independent Public Accountants.
27 - 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.
(b) Reports on Form 8-K
None
- 31 -
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 3, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole.
The schedule 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 3, 1995
- 32 -
<TABLE>
SCHEDULE II
PENNSYLVANIA POWER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
Additions
-------------------------
Charged Charged
Beginning (Credited) to Other Ending
Description Balance to Income Accounts Deductions Balance
----------- --------- ---------- -------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Accumulated provision for
uncollectible accounts. . . . . . $ 559 $ 1,020 $ 328(a) $ 1,392(b) $ 515
======== ======= ===== ======== ======
Year Ended December 31, 1993:
Accumulated provision for
uncollectible accounts. . . . . $ 429 $ 1,050 $ 288(a) $ 1,208(b) $ 559
======== ======= ===== ======== ======
Year Ended December 31, 1992:
Accumulated provision for
uncollectible accounts. . . . . $ 419 $14,548 $ 264(a) $14,802(b) $ 429
======== ======= ===== ======= ======
<FN>
- --------------------------
(a) Represents recoveries and reinstatements of accounts previously written off.
(b) Represents the write-off of accounts considered to be uncollectible.
</TABLE>
- 33 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PENNSYLVANIA POWER COMPANY
BY /s/Willard R. Holland
-----------------------------------
Willard R. Holland
Chairman of the Board and
Chief Executive Officer
Date: March 22, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated:
/s/ Willard R. Holland /s/ Robert P.Wushinske
- ------------------------------ ------------------------------
Willard R. Holland Robert P. Wushinske
Chairman of the Board and Vice President and Treasurer
Chief Executive Officer (Principal Accounting
(Principal Accounting Officer)
Officer)
/s/ H. Peter Burg /s/ Joseph J. Nowak
- ------------------------------ ------------------------------
H. Peter Burg Joseph J. Nowak
Director Director
/s/ Robert H. Carlson /s/ Jack E. Reed
- ----------------------------- ------------------------------
Robert H. Carlson Jack E. Reed
Director Director
/s/ J. R. Edgerly /s/ Richard L. Werner
- ----------------------------- ------------------------------
J. R. Edgerly Richard L. Werner
Director Director
Date: March 22, 1995
- 34 -
[CONFORMED WITH RECORDATION DATA]
=================================================================
PENNSYLVANIA POWER COMPANY
to
CITIBANK, N.A.,
As Trustee
------------
Forty-third Supplemental
Indenture
Providing among other things for
FIRST MORTGAGE BONDS
Guarantee Series A of 1994 due 2023
Guarantee Series B of 1994 due 2023
------------
Dated as of August 1, 1994
=================================================================
FORTY-THIRD SUPPLEMENTAL INDENTURE, dated as of
August 1, 1994, 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, and as of
November 1, 1993 (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-third 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 two such series of bonds
under the Indenture to be designated as "First Mortgage Bonds,
Guarantee Series A of 1994 due 2023" (hereinafter sometimes
referred to as the "bonds of the 1994 Guarantee Series A") and
"First Mortgage Bonds, Guarantee Series B of 1994 due 2023"
(hereinafter sometimes referred to as the "bonds of the 1994
Guarantee Series B") (bonds of the 1994 Guarantee Series A and B
collectively hereinafter sometimes referred to as the "bonds of
the 1994 Guarantee Series"), the bonds of which are to bear
interest at the annual rate of 6.15% per annum and are to mature
on August 1, 2023;
AND WHEREAS each of the bonds of the 1994 Guarantee
Series and the Trustee's Authentication Certificates thereon are
to be substantially in the following respective forms, to wit:
[FORM OF BOND OF THE 1994 GUARANTEE SERIES A]
[FACE]
This Bond is not transferable except to a successor
trustee under the Trust Indenture, dated as of August 1, 1994,
between the Ohio Water Development Authority and Society National
Bank, 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 Indenture referred to herein.
PENNSYLVANIA POWER COMPANY
First Mortgage Bond, Guarantee Series A of 1994 due 2023
$11,200,000 No. R-1
Pennsylvania Power Company, a Pennsylvania corporation
(hereinafter called the "Company"), for value received, hereby
promises to pay to Society National Bank or registered assigns,
the principal sum of $11,200,000 on August 1, 2023, and to pay
the registered holder hereof interest on said sum from the
Initial Interest Accrual Date (hereinbelow defined) at the rate
of 6.15 per centum per annum. The principal of and interest on
this bond shall be payable at the office or agency of the Company
in the Borough of Manhattan, The City, County and State of New
York, designated for that purpose, in any coin or currency of the
United States of America which at the time of payment is legal
tender for public and private debts.
The provisions of this bond are continued on the
reverse hereof and such continued provisions shall for all
purposes have the same effect as though fully set forth at this
place.
This bond shall not be valid or become obligatory for
any purpose unless and until it shall have been authenticated by
the execution by the Trustee or its successor in trust under the
Indenture of the certificate hereon.
-2-
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
-3-
[FORM OF BOND OF THE 1994 GUARANTEE SERIES A]
[REVERSE]
PENNSYLVANIA POWER COMPANY
First Mortgage Bond, Guarantee Series A of 1994 due 2023
This bond is one of the bonds issued and to be issued
from time to time under and in accordance with and all secured by
an indenture of mortgage or deed of trust dated as of November 1,
1945, and indentures supplemental thereto, given by the Company
to Citibank, N.A. (successor to The First National Bank of The
City of New York), as trustee (hereinafter referred to as the
"Trustee"), to which indenture and indentures supplemental
thereto (hereinafter referred to collectively as the "Indenture")
reference is hereby made for a description of the property
mortgaged and pledged, the nature and extent of the security and
the rights, duties and immunities thereunder of the Trustee and
the rights of the holders of the bonds and coupons and of the
Trustee and of the Company in respect of such security, and the
limitations on such rights. By the terms of the Indenture, the
bonds to be secured thereby are issuable in series which may vary
as to date, amount, date of maturity, rate of interest, terms of
redemption and in other respects as in the Indenture provided.
The Indenture contains provisions permitting the
Company and the Trustee, with the consent of the holders of not
less than seventy-five per centum in principal amount of the
bonds (exclusive of bonds disqualified by reason of the Company's
interest therein) at the time outstanding, including, if more
than one series of bonds shall be at the time outstanding, not
less than sixty per centum in principal amount of each series
affected, to effect, by an indenture supplemental to the
Indenture, modifications or alterations of the Indenture and of
the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such
-------- -------
modification or alteration shall be made without the written
approval or consent of the holder hereof which will (a) extend
the maturity of this bond or reduce the rate or extend the time
of payment of interest hereon or reduce the amount of the
principal hereof or reduce any premium payable on the redemption
hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the
Indenture, or (c) reduce the percentage of the principal amount
of the bonds upon the approval or consent of the holders of which
modifications or alterations may be made as aforesaid.
The bonds of this series shall be redeemed in whole, by
payment of the principal amount thereof plus accrued interest
thereon, if any, to the date fixed for redemption, upon receipt
-4-
by the Trustee of a written advice from the trustee under the
Trust Indenture (the "Revenue Bond Indenture") dated as of
August 1, 1994, between the Ohio Water Development Authority and
Society National Bank, as trustee (such trustee and any successor
trustee being hereinafter referred to as the "Revenue Bond
Trustee"), securing $11,200,000 of State of Ohio 6.15% Pollution
Control Revenue Refunding Bonds, Series 1994 (Pennsylvania Power
Company Project), stating that the principal amount of all the
pollution control revenue refunding bonds then outstanding under
the Revenue Bond Indenture has been declared due and payable
pursuant to the provisions of Section 9.02 of the Revenue Bond
Indenture, specifying the date of the accelerated maturity of
such pollution control revenue refunding bonds and the date from
which interest on the pollution control revenue refunding bonds
issued under the Revenue Bond Indenture has then accrued, stating
such declaration of maturity has not been annulled and demanding
payment of the principal amount hereof plus accrued interest
hereon to the date fixed for such redemption. As provided in the
Supplemental Indenture establishing the terms and provisions of
the bonds of this series, the date fixed for such redemption
shall be not earlier than the date specified in the aforesaid
written advice as the date of the accelerated maturity of the
pollution control revenue refunding bonds then outstanding under
the Revenue Bond Indenture and not later than the 45th day after
the receipt by the Trustee of such advice, unless such 45th day
is earlier than such date of accelerated maturity. The date
fixed for such redemption shall be specified in a notice of
redemption to be given not less than 30 days prior to the date so
fixed for such redemption. Upon mailing of such notice of
redemption, the date from which unpaid interest on the aforesaid
pollution control revenue refunding bonds has then accrued (as
specified by the Revenue Bond Trustee) shall become the initial
interest accrual date (the "Initial Interest Accrual Date") with
respect to the bonds of this series, and the date which is six
months after the Initial Interest Accrual Date shall be the first
interest payment date for the bonds of this series, provided,
--------
however, on any demand for payment of the principal amount hereof
- -------
at maturity as a result of the principal of the aforesaid
pollution control revenue refunding bonds becoming due and
payable on the maturity date of the bonds of this series, the
date from which unpaid interest on the aforesaid pollution
control revenue refunding bonds has then accrued shall become the
Initial Interest Accrual Date with respect to the bonds of this
series, such date to be as stated in a written notice from the
Revenue Bond Trustee to the Trustee. As provided in said
Supplemental Indenture, the aforementioned notice of redemption
shall become null and void for all purposes under the Indenture
(including the fixing of the Initial Interest Accrual Date with
respect to the bonds of this series) upon receipt by the Trustee
of written notice from the Revenue Bond Trustee of the annulment
of the acceleration of the maturity of the pollution control
revenue refunding bonds then outstanding under the Revenue Bond
Indenture and of the rescission of the aforesaid written advice
prior to the redemption date specified in such notice of
-5-
redemption, and thereupon no redemption of the bonds of this
series and no payment in respect thereof as specified in such
notice of redemption shall be effected or required. But no such
rescission shall extend to any subsequent written advice from the
Revenue Bond Trustee or impair any right consequent on such
subsequent written notice.
Bonds of this series are not otherwise redeemable prior
to their maturity.
In case of certain defaults as specified in the
Indenture, the principal of this bond may be declared or may
become due and payable on the conditions, at the time, in the
manner and with the effect provided in the Indenture.
No recourse shall be had for the payment of the
principal of or interest on this bond, or for any claim based
hereon, or otherwise in respect hereof or of the Indenture, to or
against any incorporator, stockholder, director or officer, past,
present or future, as such, of the Company, or of any predecessor
or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any
constitution or statute or rule of law, or by the enforcement of
any assessment or penalty, or otherwise, all such liability of
incorporators, stockholders, directors and officers, as such,
being waived and released by the holder and owner hereof by the
acceptance of this bond and being likewise waived and released by
the terms of the Indenture.
The bonds of this series are issuable only as
registered bonds without coupons in denominations of $1,000 and
authorized multiples thereof. Except as may be stated in any
legend written on the face of this bond, this bond is
transferable by the registered holder hereof, in person or by
attorney duly authorized, at the corporate trust office of the
Trustee, in the Borough of Manhattan, The City, County and State
of New York, or at such other place or places as the Company may
designate by resolution of the Board of Directors, but only in
the manner and upon the conditions prescribed in the Indenture,
upon the surrender and cancellation of this bond and the payment
of charges for transfer, and upon any such transfer a new
registered bond or bonds, without coupons, of the same series and
maturity date and for the same aggregate principal amount, in
authorized denominations, will be issued to the transferee in
exchange herefor. The Company, the Trustee and any agent
designated to make transfers or exchanges of bonds of this series
may deem and treat the person in whose name this bond is
registered as the absolute owner for all purposes including the
purpose of the receipt of payment. Registered bonds of this
series shall be exchangeable at said corporate trust office of
the Trustee, or at such other place or places as the Company may
designate by resolution of the Board of Directors, for registered
bonds of other authorized denominations having the same aggregate
principal amount, in the manner and upon the conditions
-6-
prescribed in the Indenture. Neither the Company nor the Trustee
nor any other agent designated for such purpose shall be required
to make transfers or exchanges of bonds of this series during the
period between any interest payment date for such series and the
record date next preceding such interest payment date.
Notwithstanding any provisions of the Indenture, no charge shall
be made upon any transfer or exchange of bonds of this series
other than for any tax or taxes or other governmental charge
required to be paid by the Company.
[END OF FORM OF BOND OF THE 1994 GUARANTEE SERIES A]
[FORM OF BOND OF THE 1994 GUARANTEE SERIES B]
[FACE]
This Bond is not transferable except to a successor
trustee under the Trust Indenture, dated as of August 1, 1994,
between the Ohio Air Quality Development Authority and Society
National Bank, 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 Indenture referred to herein.
PENNSYLVANIA POWER COMPANY
First Mortgage Bond, Guarantee Series B of 1994 due 2023
$1,500,000 No. R-1
Pennsylvania Power Company, a Pennsylvania corporation
(hereinafter called the "Company"), for value received, hereby
promises to pay to Society National Bank or registered assigns,
the principal sum of $1,500,000 on August 1, 2023, and to pay the
registered holder hereof interest on said sum from the Initial
Interest Accrual Date (hereinbelow defined) at the rate of 6.15
per centum per annum. The principal of and interest on this bond
shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City, County and State of New York,
designated for that purpose, in any coin or currency of the
United States of America which at the time of payment is legal
tender for public and private debts.
The provisions of this bond are continued on the
reverse hereof and such continued provisions shall for all
purposes have the same effect as though fully set forth at this
place.
This bond shall not be valid or become obligatory for
any purpose unless and until it shall have been authenticated by
the execution by the Trustee or its successor in trust under the
Indenture of the certificate hereon.
-7-
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
-8-
[FORM OF BOND OF THE 1994 GUARANTEE SERIES B]
[REVERSE]
PENNSYLVANIA POWER COMPANY
First Mortgage Bond, Guarantee Series B of 1994 due 2023
This bond is one of the bonds issued and to be issued
from time to time under and in accordance with and all secured by
an indenture of mortgage or deed of trust dated as of November 1,
1945, and indentures supplemental thereto, given by the Company
to Citibank, N.A. (successor to The First National Bank of The
City of New York), as trustee (hereinafter referred to as the
"Trustee"), to which indenture and indentures supplemental
thereto (hereinafter referred to collectively as the "Indenture")
reference is hereby made for a description of the property
mortgaged and pledged, the nature and extent of the security and
the rights, duties and immunities thereunder of the Trustee and
the rights of the holders of the bonds and coupons and of the
Trustee and of the Company in respect of such security, and the
limitations on such rights. By the terms of the Indenture, the
bonds to be secured thereby are issuable in series which may vary
as to date, amount, date of maturity, rate of interest, terms of
redemption and in other respects as in the Indenture provided.
The Indenture contains provisions permitting the
Company and the Trustee, with the consent of the holders of not
less than seventy-five per centum in principal amount of the
bonds (exclusive of bonds disqualified by reason of the Company's
interest therein) at the time outstanding, including, if more
than one series of bonds shall be at the time outstanding, not
less than sixty per centum in principal amount of each series
affected, to effect, by an indenture supplemental to the
Indenture, modifications or alterations of the Indenture and of
the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such
-------- -------
modification or alteration shall be made without the written
approval or consent of the holder hereof which will (a) extend
the maturity of this bond or reduce the rate or extend the time
of payment of interest hereon or reduce the amount of the
principal hereof or reduce any premium payable on the redemption
hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the
Indenture, or (c) reduce the percentage of the principal amount
of the bonds upon the approval or consent of the holders of which
modifications or alterations may be made as aforesaid.
The bonds of this series shall be redeemed in whole, by
payment of the principal amount thereof plus accrued interest
thereon, if any, to the date fixed for redemption, upon receipt
-9-
by the Trustee of a written advice from the trustee under the
Trust Indenture (the "Revenue Bond Indenture") dated as of
August 1, 1994, between the Ohio Air Quality Development
Authority and Society National Bank, as trustee (such trustee and
any successor trustee being hereinafter referred to as the
"Revenue Bond Trustee"), securing $1,500,000 of State of Ohio
6.15% Pollution Control Revenue Refunding Bonds, Series 1994
(Pennsylvania Power Company Project), stating that the principal
amount of all the pollution control revenue refunding bonds then
outstanding under the Revenue Bond Indenture has been declared
due and payable pursuant to the provisions of Section 9.02 of the
Revenue Bond Indenture, specifying the date of the accelerated
maturity of such pollution control revenue refunding bonds and
the date from which interest on the pollution control revenue
refunding bonds issued under the Revenue Bond Indenture has then
accrued, stating such declaration of maturity has not been
annulled and demanding payment of the principal amount hereof
plus accrued interest hereon to the date fixed for such
redemption. As provided in the Supplemental Indenture
establishing the terms and provisions of the bonds of this
series, the date fixed for such redemption shall be not earlier
than the date specified in the aforesaid written advice as the
date of the accelerated maturity of the pollution control revenue
refunding bonds then outstanding under the Revenue Bond Indenture
and not later than the 45th day after the receipt by the Trustee
of such advice, unless such 45th day is earlier than such date of
accelerated maturity. The date fixed for such redemption shall
be specified in a notice of redemption to be given not less than
30 days prior to the date so fixed for such redemption. Upon
mailing of such notice of redemption, the date from which unpaid
interest on the aforesaid pollution control revenue refunding
bonds has then accrued (as specified by the Revenue Bond Trustee)
shall become the initial interest accrual date (the "Initial
Interest Accrual Date") with respect to the bonds of this series,
and the date which is six months after the Initial Interest
Accrual Date shall be the first interest payment date for the
bonds of this series, provided, however, on any demand for
-------- -------
payment of the principal amount hereof at maturity as a result of
the principal of the aforesaid pollution control revenue
refunding bonds becoming due and payable on the maturity date of
the bonds of this series, the date from which unpaid interest on
the aforesaid pollution control revenue refunding bonds has then
accrued shall become the Initial Interest Accrual Date with
respect to the bonds of this series, such date to be as stated in
a written notice from the Revenue Bond Trustee to the Trustee.
As provided in said Supplemental Indenture, the aforementioned
notice of redemption shall become null and void for all purposes
under the Indenture (including the fixing of the Initial Interest
Accrual Date with respect to the bonds of this series) upon
receipt by the Trustee of written notice from the Revenue Bond
Trustee of the annulment of the acceleration of the maturity of
the pollution control revenue refunding bonds then outstanding
under the Revenue Bond Indenture and of the rescission of the
aforesaid written advice prior to the redemption date specified
-10-
in such notice of redemption, and thereupon no redemption of the
bonds of this series and no payment in respect thereof as
specified in such notice of redemption shall be effected or
required. But no such rescission shall extend to any subsequent
written advice from the Revenue Bond Trustee or impair any right
consequent on such subsequent written notice.
Bonds of this series are not otherwise redeemable prior
to their maturity.
In case of certain defaults as specified in the
Indenture, the principal of this bond may be declared or may
become due and payable on the conditions, at the time, in the
manner and with the effect provided in the Indenture.
No recourse shall be had for the payment of the
principal of or interest on this bond, or for any claim based
hereon, or otherwise in respect hereof or of the Indenture, to or
against any incorporator, stockholder, director or officer, past,
present or future, as such, of the Company, or of any predecessor
or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any
constitution or statute or rule of law, or by the enforcement of
any assessment or penalty, or otherwise, all such liability of
incorporators, stockholders, directors and officers, as such,
being waived and released by the holder and owner hereof by the
acceptance of this bond and being likewise waived and released by
the terms of the Indenture.
The bonds of this series are issuable only as
registered bonds without coupons in denominations of $1,000 and
authorized multiples thereof. Except as may be stated in any
legend written on the face of this bond, this bond is
transferable by the registered holder hereof, in person or by
attorney duly authorized, at the corporate trust office of the
Trustee, in the Borough of Manhattan, The City, County and State
of New York, or at such other place or places as the Company may
designate by resolution of the Board of Directors, but only in
the manner and upon the conditions prescribed in the Indenture,
upon the surrender and cancellation of this bond and the payment
of charges for transfer, and upon any such transfer a new
registered bond or bonds, without coupons, of the same series and
maturity date and for the same aggregate principal amount, in
authorized denominations, will be issued to the transferee in
exchange herefor. The Company, the Trustee and any agent
designated to make transfers or exchanges of bonds of this series
may deem and treat the person in whose name this bond is
registered as the absolute owner for all purposes including the
purpose of the receipt of payment. Registered bonds of this
series shall be exchangeable at said corporate trust office of
the Trustee, or at such other place or places as the Company may
designate by resolution of the Board of Directors, for registered
bonds of other authorized denominations having the same aggregate
principal amount, in the manner and upon the conditions
-11-
prescribed in the Indenture. Neither the Company nor the Trustee
nor any other agent designated for such purpose shall be required
to make transfers or exchanges of bonds of this series during the
period between any interest payment date for such series and the
record date next preceding such interest payment date.
Notwithstanding any provisions of the Indenture, no charge shall
be made upon any transfer or exchange of bonds of this series
other than for any tax or taxes or other governmental charge
required to be paid by the Company.
[END OF FORM OF BOND OF THE 1994 GUARANTEE SERIES B]
AND WHEREAS all acts and things necessary to make the
bonds of the 1994 Guarantee Series, when authenticated by the
Trustee and issued as in the Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute
the Indenture a valid, binding and legal instrument for the
security thereof, have been done and performed, and the creation,
execution and delivery of the Indenture and the creation,
execution and issue of the bonds of the 1994 Guarantee Series
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 of
the 1994 Guarantee Series issued and to be issued under the
Indenture, and the sum of One Dollar duly paid by the Trustee to
the Company, and of other good and valuable considerations, the
receipt of which is hereby acknowledged, and for the purpose of
securing the due and punctual payment of the principal of and
premium, if any, and interest on all bonds now outstanding under
the Indenture and the $11,200,000 principal amount of bonds of
the 1994 Guarantee Series A and the $1,500,000 principal amount
of bonds of the 1994 Guarantee Series B 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
Schedule A (which is identified by the signature of an officer of
each party hereto at the end thereof) hereto annexed and made a
part hereof, together (subject to the provisions of Article X of
-12-
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 described in the aforesaid Schedule A, 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
-13-
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 are hereby created two series of
bonds designated Guarantee Series A of 1994 due 2023 and
Guarantee Series B of 1994 due 2023, each of which shall also
bear the descriptive title "First Mortgage Bond" (said bonds
being sometimes herein referred to respectively, as the "bonds of
the 1994 Guarantee Series A" and the "bonds of the 1994 Guarantee
Series B" and collectively, as the "bonds of the 1994 Guarantee
Series") and the form of each such series shall be substantially
as hereinbefore set forth. Bonds of the 1994 Guarantee Series
shall mature on August 1, 2023. The bonds of the 1994 Guarantee
Series may be issued only as registered bonds without coupons in
denominations of $1,000 or such multiples thereof 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 1994 Guarantee 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 1994 Guarantee Series shall bear interest from their
respective Initial Interest Accrual Dates (as defined in the
respective forms of the bonds of the 1994 Guarantee Series A and
the 1994 Guarantee Series B hereinabove set forth) at the rate of
6.15% per annum. Principal or redemption price of and interest
on said bonds shall be payable in any coin or currency of the
United States of America which at the time of payment is legal
tender for public and private debts at the office or agency of
the Company in the Borough of Manhattan, The City, County and
State of New York, designated for that purpose.
Bonds of the 1994 Guarantee Series shall be redeemable,
exchangeable and transferable as and to the extent set forth in
their respective forms hereinbefore set forth.
The bonds of the 1994 Guarantee Series shall be
redeemable as set forth in their respective forms hereinbefore
set forth in whole, prior to maturity, upon notice given by
mailing the same, postage pre-paid, at least thirty days and not
more than forty-five days prior to the date fixed for redemption
to each registered holder of a bond to be redeemed at the last
address of such holder appearing on the registry books. The
Trustee shall within five business days of receiving the written
advice specified in the form of bond of the 1994 Guarantee Series
A with respect to the bonds of the 1994 Guarantee Series A, or in
the form of bond of the 1994 Guarantee Series B with respect to
the bonds of the 1994 Guarantee Series B, provided for herein
-14-
mail a copy thereof to the Company stamped or otherwise marked to
indicate the date of receipt by the Trustee. The Company shall
fix a redemption date for the redemption so demanded and shall
mail to the Trustee notice of such date at least thirty-five days
prior thereto. Subject to the foregoing sentence, the redemption
date so fixed may be any day not earlier than the date specified
in the aforesaid written advice as the date of the accelerated
maturity of the pollution control revenue refunding bonds then
outstanding under the applicable Revenue Bond Indenture and not
later than the forty-fifth day after receipt by the Trustee of
such advice, unless such forty-fifth day is earlier than such
date of accelerated maturity. If the Trustee does not receive
such notice from the Company within thirteen days after receipt
by the Trustee of the aforesaid written advice, the redemption
date shall be deemed fixed as the forty-fifth day after such
receipt. The Trustee shall mail notice of the redemption date to
the applicable Revenue Bond Trustee not less than thirty days
prior to such redemption date, provided, however, that the
-------- -------
Trustee shall mail no such notice (and no redemption shall be
made) if prior to the mailing of such notice the Trustee shall
have received written notice from the applicable Revenue Bond
Trustee of the annulment of the acceleration of the maturity of
the pollution control revenue refunding bonds then outstanding
under the applicable Revenue Bond Indenture and of the rescission
of the aforesaid written advice. The terms "Revenue Bond
Trustee" and "Revenue Bond Indenture" as they relate to the bonds
of the 1994 Guarantee Series A and 1994 Guarantee Series B shall
have the meanings specified in the respective forms thereof
hereinabove set forth. Redemption of the bonds of the 1994
Guarantee Series shall be at the principal amount thereof, plus
accrued interest thereon to the date fixed for redemption and
such amount shall become due and payable on the date fixed for
such redemption. Anything in this paragraph contained to the
contrary notwithstanding, if, after mailing notice of the date
fixed for redemption but prior to such date, the Trustee shall
have been advised in writing by the applicable Revenue Bond
Trustee that the acceleration of the maturity of the pollution
control revenue refunding bonds then outstanding under the
applicable Revenue Bond Indenture has been annulled and that the
aforesaid written advice has been rescinded, the aforesaid
written advice shall thereupon, without further act of the
Trustee or the Company, be rescinded and become null and void for
all purposes hereunder (including the fixing of the applicable
Initial Interest Accrual Date as provided in the respective forms
of the bonds of the 1994 Guarantee Series A and 1994 Guarantee
Series B, as the case may be, provided for herein) and no
redemption of the bonds of the 1994 Guarantee Series A or 1994
Guarantee Series B and no payments in respect thereof as
specified in the aforesaid written notice shall be effected or
required. But no such rescission shall extend to any subsequent
written advice from the applicable Revenue Bond Trustee or impair
any right consequent on such subsequent written advice.
-15-
SECTION 2. Bonds of the 1994 Guarantee Series shall be
deemed to be paid and no longer outstanding under the Indenture
to the extent that pollution control revenue refunding bonds
which are outstanding from time to time under the applicable
Revenue Bond Indenture are paid or deemed to be paid and are no
longer outstanding and the Trustee has been notified to such
effect by the Company.
SECTION 3. The Company covenants and agrees that the
provisions of Section 3 of the Fifth Supplemental Indenture dated
as of September 1, 1962, which are to remain in effect so long as
any bonds of the Sixth Series shall be outstanding under the
Indenture, shall remain in full force and effect so long as any
bonds of the 1994 Guarantee 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 Robert P. Wushinske to be its attorney for it and in its
name as and for its corporate act and deed to acknowledge this
Supplemental Indenture before any person having authority to take
such acknowledgment, to the intent that the same may be duly
recorded.
CITIBANK, N.A. hereby constitutes and appoints
P. DeFelice to be its attorney for it and in its name as and for
its corporate act and deed to acknowledge this Supplemental
Indenture before any person having authority to take such
acknowledgment, to the intent that the same may be duly recorded.
-16-
IN WITNESS WHEREOF, PENNSYLVANIA POWER COMPANY has
caused its corporate name to be hereunto affixed, and this
instrument to be signed and sealed by its President or a Vice
President, and its corporate seal to be attested by its Secretary
or an Assistant Secretary for and on its behalf, in the city of
New Castle, County of Lawrence and Commonwealth of Pennsylvania
and CITIBANK, N.A., in token of its acceptance of the trust, has
caused its corporate name to be hereunto affixed, and this
instrument to be signed by a Vice President and its corporate
seal to be affixed and attested by one of its Vice Presidents in
the City of New York, County of New York and State of New York,
all as of the day and year first above written.
PENNSYLVANIA POWER COMPANY
By: Robert P. Wushinske
-------------------------
Robert P. Wushinske
Vice President
ATTEST:
By: Angeline Comparone
---------------------------
Angeline Comparone
Assistant Secretary
[Seal]
Signed, sealed and delivered by
PENNSYLVANIA POWER COMPANY
in the presence of:
F. A. Fazzone
- ------------------------------
F. A. Fazzone
R. Scilla
- ------------------------------
R. Scilla
-17-
CITIBANK, N.A.
as Trustee as aforesaid,
By: P. DeFelice
-------------------------
P. DeFelice
Vice President
ATTEST:
By: Arthur W. Aslanian
---------------------------
Arthur W. Aslanian
Vice President
[Seal]
Signed, sealed and delivered by
CITIBANK, N.A.
in the presence of:
Rosemary Melendez
- ------------------------------
Rosemary Melendez
Robert T. Kirchner
- ------------------------------
Robert T. Kirchner
-18-
COMMONWEALTH OF PENNSYLVANIA )
: ss.:
COUNTY OF LAWRENCE )
BE IT REMEMBERED that, on the 29th day of August, 1994,
before me, the undersigned, a Notary Public in said County of
Lawrence, Commonwealth of Pennsylvania, personally appeared
Angeline Comparone, 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 Robert P. Wushinske 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 an Assistant
Secretary of Pennsylvania Power Company, and that the name of
this deponent above signed in attestation of the due execution of
the said Supplemental Indenture is in this deponent's own proper
handwriting.
Sworn to and subscribed before me this 29th day of
August, 1994.
Angeline Comparone
------------------------------
[SEAL]
Sylvia M. Rashid
------------------------------
NOTARIAL SEAL
SYLVIA M. RASHID, Notary Public
New Castle, Lawrence Co., PA
My Commission Expires March 11, 1997
-19-
COMMONWEALTH OF PENNSYLVANIA )
: ss.:
COUNTY OF LAWRENCE )
I HEREBY CERTIFY that, on this 29th day of August,
1994, before me, the subscriber, a Notary Public in and for the
State and County aforesaid, personally appeared Robert P.
Wushinske, 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]
Sylvia M. Rashid
------------------------------
NOTARIAL SEAL
SYLVIA M. RASHID, Notary Public
New Castle, Lawrence Co., PA
My Commission Expires March 11, 1997
COMMONWEALTH OF PENNSYLVANIA )
: ss.:
COUNTY OF LAWRENCE )
On the 29th day of August, 1994, before me, personally
came Robert P. Wushinske, to me known, who, being by me duly
sworn, did depose and say that he resides at R.D. 2, Means Road,
New Wilmington, Pennsylvania 16142; that he is a Vice President
of PENNSYLVANIA POWER COMPANY, one of the corporations described
in and which executed the above instrument; that he knows the
seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was affixed by order
of the Board of Directors of said corporation, and that he signed
his name thereto by like authority.
WITNESS my hand and notarial seal the day and year
aforesaid.
[SEAL]
Sylvia M. Rashid
------------------------------
NOTARIAL SEAL
SYLVIA M. RASHID, Notary Public
New Castle, Lawrence Co., PA
My Commission Expires March 11, 1997
-20-
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
BE IT REMEMBERED that, on the 23rd day of August, 1994,
before me, the undersigned, a Notary Public in said County of New
York, State of New York, personally appeared Arthur W. Aslanian,
who being duly sworn according to law, doth depose and say that
he was personally present and did see the common or corporate
seal of the above named CITIBANK, N.A. affixed to the foregoing
Supplemental Indenture; that the seal so affixed is the common or
corporate seal of the said CITIBANK, N.A. and was so affixed by
the authority of the said association as the act and deed
thereof; that the above named P. DeFelice is one of the Vice
Presidents of said association and did sign the said Supplemental
Indenture as such in the presence of this deponent; that this
deponent is a Vice President of said CITIBANK, N.A., and that the
name of this deponent above signed in attestation of the due
execution of the said Supplemental Indenture is in this
deponent's own proper handwriting.
Sworn to and subscribed before me this 23rd day of
August, 1994.
Arthur W. Aslanian
------------------------------
[SEAL]
Jeffry Berger
------------------------------
JEFFRY BERGER
Notary Public, State of New York
No. O1BE5015814
Qualified in Kings County
Commission Expires July 26, 1995
-21-
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I HEREBY CERTIFY that, on this 23rd day of August,
1994, 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.
Jeffry Berger
-----------------------------
[SEAL]
JEFFRY BERGER
Notary Public, State of New York
No. O1BE5015814
Qualified in Kings County
Commission Expires July 26, 1995
-22-
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of August, 1994, before me, personally
came P. DeFelice, to me known, who being by me duly sworn, did
depose and say that he resides at 47-09 169th Street, Flushing,
New York; that he is a Vice President of CITIBANK, N.A., one of
the parties described in and which executed the above instrument;
that he knows the seal of said association; that the seal affixed
to said instrument is such corporate seal; that it was so affixed
by authority of the Board of Directors of said association, and
that he signed his name thereto by like authority.
WITNESS my hand and notarial seal the day and year
aforesaid.
Jeffry Berger
-----------------------------
[SEAL]
JEFFRY BERGER
Notary Public, State of New York
No. O1BE5015814
Qualified in Kings County
Commission Expires July 26, 1995
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
----------------------
P. DeFelice
Vice President
-23-
A-1
SCHEDULE A
Detailed Description of Additional Properties
STEAM PRODUCTION
New Castle Steam Plant - Continuous emission monitors.
NUCLEAR PRODUCTION
Perry Nuclear Power Station - Unit No. 1 - Pennsylvania
Power Company's portion (5.24%) of a processing and storage
building.
TRANSMISSION LINE
Z118 Circuit to Pine Substation - 138,000 volts
13.05 miles
TRANSMISSION SUBSTATIONS
Pine Substation - A 138,000 - 69,000 volt line exit and
associated equipment located in Pine Township, Allegheny
County, Pennsylvania.
Hoytdale Substation - A 138,000 volt line exit and
associated equipment located in Big Beaver Borough, Beaver
County, Pennsylvania.
DISTRIBUTION SUBSTATIONS
Bulk Mail Substation - Two 138,000 - 7,200/12,470 volt
circuit exits and associated equipment located in Marshall
Township, Allegheny County, Pennsylvania.
OTHER REAL PROPERTY
Parcel of land containing 1.5 acres, located in Greene
Township, Beaver County, Pennsylvania, recorded in Beaver
County Deed Book 1556, Page 056, on November 24, 1993.
Parcel of land containing 6.658 acres, located in
Greene Township, Beaver County, Pennsylvania, recorded in
Beaver County Deed Book 1557, Page 546, on December 21,
1993.
A-2
Parcel of land containing 27.486 acres, located in
Greene Township, Beaver County, Pennsylvania, recorded in
Beaver County Deed Book 1557, Page 647, on December 22,
1993.
Parcel of land containing 55.144 acres, located in
Greene Township, Beaver County, Pennsylvania, recorded in
Beaver County Deed Book 1578, Page 802, on February 16,
1994.
Parcel of land containing 1.918 acres, located in
Greene Township, Beaver County, Pennsylvania, recorded in
Beaver County Deed Book 1581, Page 72, on February 22, 1994.
Parcel of land containing 32.327 acres, located in
Greene Township, Beaver County, Pennsylvania, recorded in
Beaver County Deed Book 1593, Page 773, on May 19, 1994.
Parcel of land containing 5.68 acres, located in Greene
Township, Beaver County, Pennsylvania, recorded in Beaver
County Deed Book 1596, Page 443, on May 27, 1994.
Signed for identification
Angeline Comparone
--------------------------
Angeline Comparone
Assistant Secretary
PENNSYLVANIA POWER COMPANY
P. DeFelice
--------------------------
P. DeFelice
Vice President
CITIBANK, N.A.
RECORDING AND FILING DATA
Forty-third Supplemental Indenture
Recorded in the Offices of the Recorders of Deeds as follows:
Mortgage Book
---------------------------
Name of County Date Volume No. Page No.
-------------- ---- --------- --------
PENNSYLVANIA
Allegheny September 8, 1994 14448 428
Beaver September 13, 1994 1339 79
Butler September 13, 1994 2467 971
Crawford September 9, 1994 246 198
Lawrence September 7, 1994 1169 15
Mercer September 7, 1994 94 MR 13794
Venango September 12, 1994 17 7
OHIO
Belmont September 21, 1994 625 712
Clark September 20, 1994 243 89
Jefferson September 21, 1994 146 150
Lake September 20, 1994 1050 754
Lorain September 20, 1994 978 298
Monroe September 20, 1994 8 649
Trumbull September 20, 1994 885 693
Filed with the Secretary of the Commonwealth of
Pennsylvania on September 8, 1994, as part of amendment to
Financing Statement--File No. 00900172.
Filed with the Secretary of the State of Ohio on
September 20, 1994, as part of Financing Statement No. AL29603.
Filed in Belmont County, Ohio, on September 20, 1994, as
part of Financing Statement No. 90727.
Filed in Clark County, Ohio, on September 20, 1994, as
part of Financing Statement No. 9403522.
Filed in Jefferson County, Ohio, on September 20, 1994,
as part of Financing Statement No. 11938.
Filed in Lake County, Ohio, on September 20, 1994, as
part of Financing Statement No. 94177407.
Filed in Lorain County, Ohio, on September 20, 1994, as
part of Financing Statement No. 268689.
Filed in Trumbull County, Ohio, on September 20, 1994,
as part of Financing Statement No. 277771.
<TABLE>
EXHIBIT 12
Page 1
PENNSYLVANIA POWER COMPANY
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
----------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items. . . $25,519 $ 40,197 $30,956 $15,664 $31,260
Add-
Interest before reduction for amounts
capitalized . . . . . . . . . . . . 44,084 44,695 37,028 35,262 34,947
Provision for income taxes. . . . . . 16,173 24,805 21,079 12,865 24,333
Interest element of rentals charged
to income (a) . . . . . . . . . . . 3,158 2,770 2,121 1,662 1,652
------- -------- ------- ------- -------
Earnings as defined . . . . . . . . $88,934 $112,467 $91,184 $65,453 $92,192
======= ======== ======= ======= =======
FIXED CHARGES AS DEFINED IN REGULATION S-K:
Interest on long-term debt . . . . . . $37,508 $ 37,867 $35,707 $33,208 $32,130
Interest on nuclear fuel obligations . 1,765 1,013 457 401 519
Other interest expense . . . . . . . . 4,811 5,815 864 1,653 2,298
Interest element of rentals charged
to income (a) . . . . . . . . . . . . 3,158 2,770 2,121 1,662 1,652
------- -------- ------- ------- -------
Fixed charges as defined. . . . . . $47,242 $ 47,465 $39,149 $36,924 $36,599
======= ======== ======= ======= =======
RATIO OF EARNINGS TO FIXED CHARGES (b) . 1.88 2.37 2.33 1.77 2.52
==== ==== ==== ==== ====
<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 $2,232,000, $1,735,000, $1,227,000, $1,078,000 and $935,000 for each of the five years ended
December 31, 1994, respectively.
</TABLE>
- 1 -
<TABLE>
EXHIBIT 12
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,
----------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS AS DEFINED IN REGULATION S-K:
Income before extraordinary items. . . $25,519 $ 40,197 $30,956 $15,664 $31,260
Add-
Interest before reduction for
amounts capitalized . . . . . . . . 44,084 44,695 37,028 35,262 34,947
Provision for income taxes. . . . . . 16,173 24,805 21,079 12,865 24,333
Interest element of rentals
charged to income (a) . . . . . . . 3,158 2,770 2,121 1,662 1,652
------- -------- ------- ------- ------
Earnings as defined . . . . . . . . $88,934 $112,467 $91,184 $65,453 $92,192
======= ======== ======= ======= =======
FIXED CHARGES AS DEFINED IN REGULATION S-K
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(PRE-INCOME TAX BASIS):
Interest on long-term debt . . . . . . $37,508 $ 37,867 $35,707 $33,208 $32,130
Interest on nuclear fuel obligations . 1,765 1,013 457 401 519
Other interest expense . . . . . . . . 4,811 5,815 864 1,653 2,298
Preferred stock dividend requirements. 9,982 7,722 6,499 5,863 5,364
Adjustment to preferred stock dividends
to state on a pre-income tax basis. . 6,281 4,721 4,376 4,757 4,121
Interest element of rentals charged
to income (a) . . . . . . . . . . . . 3,158 2,770 2,121 1,662 1,652
------- -------- ------- ------- -------
Fixed charges as defined plus preferred
stock dividend requirements
(pre-income tax basis). . . . . . . $63,505 $ 59,908 $50,024 $47,544 $46,084
======= ======== ======= ======= =======
- 2 -
RATIO OF EARNINGS TO FIXED CHARGES PLUS
PREFERRED STOCK DIVIDEND REQUIREMENTS
(PRE-INCOME TAX BASIS) (b). . . . . . . 1.40 1.88 1.82 1.38 2.00
==== ==== ==== ==== ====
<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 $2,232,000, $1,735,000, $1,227,000, $1,078,000 and $935,000 for each of the five years ended
December 31, 1994, respectively.
</TABLE>
- 3 -
<TABLE>
SELECTED FINANCIAL DATA Pennsylvania Power Company
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 301,965 $ 292,084 $ 315,458 $ 321,845 $ 318,056
========== =========== =========== =========== ===========
Operating Income $ 63,668 $ 62,777 $ 66,525 $ 81,102 $ 65,992
========== =========== =========== =========== ===========
Net Income $ 31,260 $ 21,317 $ 30,956 $ 40,197 $ 25,519
========== =========== =========== =========== ===========
Earnings on Common Stock $ 25,896 $ 15,454 $ 24,457 $ 32,475 $ 15,537
========== =========== =========== =========== ===========
Return on Average Common Equity 10.0% 5.9% 9.2% 12.2% 5.7%
==== === === ==== ===
Cash Dividends on Common Stock $ 21,386 $ 21,386 $ 27,676 $ 27,676 $ 27,676
========== =========== =========== =========== ===========
Total Assets $1,193,198 $ 1,180,983 $ 986,158 $ 1,022,099 $ 1,091,090
========== =========== =========== =========== ===========
CAPITALIZATION:
Common Stockholder's Equity $ 258,973 $ 254,782 $ 261,518 $ 266,058 $ 262,059
Preferred Stock-
Not Subject to Mandatory Redemption 50,905 50,905 41,905 41,905 41,905
Subject to Mandatory Redemption 15,000 20,500 30,362 34,282 38,722
Long-Term Debt 424,457 440,555 398,630 408,443 431,146
---------- ----------- ----------- ----------- -----------
Total Capitalization $ 749,335 $ 766,742 $ 732,415 $ 750,688 $ 773,832
========== =========== =========== =========== ===========
CAPITALIZATION RATIOS:
Common Stockholder's Equity 34.6% 33.2% 35.7% 35.4% 33.9%
Preferred Stock-
Not Subject to Mandatory Redemption 6.8 6.6 5.7 5.6 5.4
Subject to Mandatory Redemption 2.0 2.7 4.2 4.6 5.0
Long-Term Debt 56.6 57.5 54.4 54.4 55.7
----- ----- ----- ----- -----
Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- 1 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
We accomplished a great deal in 1994 as we continued
preparing for the significant changes expected to take place in the
electric utility industry.
Our net income increased significantly in 1994 compared to
the prior year, which was down by almost $10,000,000 from 1992. The
1993 results included a $17,029,000 after-tax write-off for the
termination of Perry Unit 2 and the expected resolution of fuel
cost recovery issues. The effect of the write-off was partially
offset by a $5,653,000 after-tax credit from the cumulative effect
of a change in accounting to accrue metered but unbilled revenue
(see Note 2).
Our ongoing commitment to cost control is producing good
results. Total operation and maintenance expenses in 1994 were
lower than any year since 1988. Through Performance Initiatives --
an ongoing effort to control costs and encourage continuous
improvement throughout our Company -- we identified cost-saving
opportunities. As a result of this review, operating efficiencies
were identified and the workforce has been reduced by more than 7
percent since the beginning of 1994 through voluntary retirements,
layoffs and normal attrition. By the end of 1994, we were serving
about 14,000 more customers than at the end of 1984, with
approximately 600 fewer employees. In 1984, our customer-employee
ratio was 70 to 1. That ratio has improved to 113 customers per
employee at the end of 1994. In February 1993, our Board of
Directors reduced the quarterly common stock dividend to $.85 per
share from the previous level of $1.10 per share. These are just a
few cost-cutting efforts we've taken to strengthen our operations,
financial results and cash position.
Despite lower total kilowatt-hour sales, operating revenues
increased 3.4% from 1993 levels, which were 7.4% lower than 1992.
Higher revenues in 1994 were attributable to higher sales volume in
the retail sector. The following table summarizes the sources of
changes in operating revenues for 1994 and 1993 as compared to the
previous year:
1994 1993
---- ----
(In millions)
Change in Sharon Steel revenue $ - $(20.5)
Change in retail kilowatt-hour sales 15.7 9.4
Change in average retail electric price (3.8) (3.1)
Sales to utilities (2.5) (7.7)
Other 0.5 (1.5)
----- ------
Net Increase (Decrease) $ 9.9 $(23.4)
===== ======
An improving local economy helped us achieve 1994's higher
operating revenues, which occurred despite milder weather during
the second half of the year, compared with 1993. The shutdown of
Sharon Steel in November 1992 substantially reduced our operating
- 2 -
revenues in 1993 compared with the previous year. We added more
than 2,000 new retail customers in 1994 after gaining nearly 1,700
customers the previous year. Our retail kilowatt-hour sales were up
6.8% in 1994, following a 10.2% drop in 1993. Residential sales
rose 6.6% in 1994, following a 5.2% gain the previous year.
Commercial sales followed the same trend, increasing 7.2% and 6.2%
in 1994 and 1993, respectively. Industrial sales posted a healthy
6.7% increase in 1994 because of strong demand in the primary
metals industry. This result came after a slight increase in 1993,
excluding the effects of Sharon Steel. Lower demand for bulk power
and generating capacity constraints reduced our opportunity sales
to other utilities in 1994 and 1993, falling 23.2% and 28.1%,
respectively. As a result of these factors, total kilowatt-hour
sales were down 1.3% compared with 1993 sales, which were 15.6%
lower than the prior year.
Because of lower kilowatt-hour sales, we spent less on fuel
and purchased power in 1994, compared with the prior year. The 1993
amount also included a $4,950,000 charge for the expected
resolution of fuel cost recovery issues (see Note 1).
We experienced higher nuclear expenses in 1994 and 1993,
mainly due to corrective maintenance work at the Perry Plant. Due
to mechanical failures and an extended refueling outage in 1994,
Perry's availability was below expected levels during both years.
The plant's operator developed a comprehensive plan that is
expected to improve Perry's performance. A major portion of the
corrective action plan was completed during the 1994 outage, and
the remainder will be implemented during Perry's next refueling,
which is scheduled for early 1996. The plant returned to service on
August 14, 1994, and ran continuously for the remainder of the
year.
Our other operating costs were up in 1994 because of an
$8,400,000 charge for a voluntary retirement program offered to
eligible employees in connection with the Performance Initiatives
program. We also recognized a $4,300,000 charge in 1993 for a
similar program. Both 1994 and 1993 results include higher expenses
associated with the January 1, 1993, adoption of Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." In
1992, we recognized a $13,900,000 provision for uncollectible
accounts, which affects the comparison with 1993 and 1994.
We also provided a reserve for deferred postretirement
benefit costs (see Note 1) in 1994, which was responsible for the
change in net amortization of regulatory assets compared to 1993.
The change between 1993 and 1992 was due to the deferral of
incremental costs resulting from the adoption of SFAS No. 106.
Lower depreciation expense in 1994 and 1993 reflects
depreciation rates that were reduced in 1993 as a result of an
updated depreciation study filed with the Pennsylvania Public
Utility Commission. The study took into consideration extended
useful lives of certain generation and distribution facilities.
The electric utility industry is subject to the same
inflationary pressures as those experienced by other industries. To
the extent that we incur additional costs or receive benefits
resulting from the effects of inflation, those effects are
- 3 -
generally reflected in our electric rates through the traditional
rate making process.
CAPITAL RESOURCES AND LIQUIDITY
Because of higher revenues and aggressive cost controls,
cash generated from operations was 75% higher in 1994 than it was
ten years ago. In addition, capital expenditures have dropped
dramatically during the ten-year period.
For the second straight year, we improved our cash position
compared to the end of the prior year. All cash requirements for
1994 were met with internally generated funds, with cash and
temporary investments increasing by nearly $29,400,000 during the
year. All of our financing activities during the year were for
refunding purposes.
We had about $42,000,000 of cash and temporary investments
and no short-term indebtedness on December 31, 1994. We also had
$5,000,000 of unused short-term bank lines of credit, and
$32,000,000 of bank facilities that provide for borrowings on a
short-term basis at the banks' discretion.
At the end of 1994, we had the capability to issue
$79,000,000 principal amount of first mortgage bonds and
$46,000,000 of preferred stock. However, our projections indicate
no need to issue new long-term securities in 1995.
During 1994, we spent about $26,000,000 on our construction
program (excluding nuclear fuel). We estimate our construction
program and capital lease requirements for the period 1995-1999 to
be about $138,000,000 (excluding nuclear fuel), of which
approximately $28,000,000 applies to 1995. We also have cash
requirements of approximately $69,000,000 for the 1995-1999 period
to meet maturities of, and sinking fund requirements for, long-term
debt. Of that amount, approximately $15,000,000 applies to 1995.
Investments for additional nuclear fuel during the 1995-
1999 period are estimated to be approximately $29,000,000, of which
about $4,000,000 applies to 1995. During the same periods, our
nuclear fuel investments are expected to be reduced by
approximately $39,000,000 and $9,000,000, respectively, as the
nuclear fuel is consumed.
The Central Area Power Coordination Group (CAPCO) companies
filed suit against Westinghouse Electric Corporation in 1991,
alleging that six steam generators supplied by Westinghouse for the
Beaver Valley Plant are defective and that replacement could be
required earlier than the 40-year design life. A federal court
rejected the claims of the CAPCO companies in December 1994, after
a three-month trial. The CAPCO companies have appealed the verdict.
The plant's operator has no current plans to replace the steam
generators and is evaluating the feasibility of applying new
technologies to repair the generators. If the generators need to be
replaced and the companies decide to do so, the capital costs to
the CAPCO companies could range from $100,000,000 to $150,000,000
per unit. That estimate is based upon costs other utilities have
experienced. We have a 17.5% interest in Beaver Valley Unit 1.
- 4 -
OUTLOOK
We will be facing many competitive challenges in the years
ahead as the electric utility industry becomes more deregulated and
more energy suppliers enter the marketplace. Retail wheeling, which
would allow retail customers to purchase electricity from other
energy producers, would be one of those challenges if legislators
choose to move in that direction. In any event, changing market
forces make it imperative that we continue to find ways to reduce
costs and increase revenues.
Effective operation of the nuclear facilities we jointly
own will help meet these competitive challenges. Proper planning to
eventually decommission those facilities is also important to our
competitive position. Beginning in 1995, we plan to increase our
annual funding of the decommissioning obligation. Also, the staff
of the Securities and Exchange Commission (SEC) has raised
questions regarding the recognition, measurement and classification
of decommissioning costs in the financial statements of electric
utilities. Any future SEC actions are uncertain at this time (see
Note 1).
We currently serve five municipalities at wholesale. Four
of them signed new service agreements in 1994. Two of the
agreements expire in March 1997, and the other two will be in
effect until September 1999. The fifth municipality has received
bids from third parties for power and filed a request with the
Federal Energy Regulatory Commission (FERC) in September 1994 to
require us to provide transmission services. On January 25, 1995,
FERC ordered us to provide transmission services to the
municipality and directed both parties to resolve the pricing,
terms and conditions of this service. If we cannot reach an
agreement with the municipality on these issues by April 5, 1995,
FERC will establish the final terms. Sales to this municipality
were approximately $1,468,000 in 1994.
The Clean Air Act Amendments of 1990, discussed in Note 7,
require significant reductions of sulfur dioxide and nitrogen
oxides from our coal-fired generating units by 1995 and additional
emission reductions by 2000. We are well-positioned to meet the
1995 requirements at minimal costs, and we are pursuing cost-
effective compliance strategies for meeting the reduction
requirements that begin in 2000.
Through the Performance Initiatives program, we have
identified substantial savings that will better position us to
successfully compete in the future. In addition, the program
ensures that an economic value added-based justification will be
required for capital expenditures. We are also conducting studies
to identify other opportunities to increase revenues and operating
efficiency. The focus of the entire organization is to improve our
competitive position through these activities.
- 5 -
<TABLE>
STATEMENTS OF INCOME Pennsylvania Power Company
- -----------------------------------------------------------------------------------------------
<CAPTION>
For the Years Ended December 31, 1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
OPERATING REVENUES $301,965 $292,084 $315,458
-------- -------- --------
OPERATING EXPENSES AND TAXES:
Fuel and purchased power 59,529 67,312 80,303
Nuclear operating costs 33,480 30,162 24,588
Other operating costs 65,424 61,125 67,578
--------- --------- ---------
Total operation and maintenance expenses 158,433 158,599 172,469
Provision for depreciation 29,108 29,260 30,856
Amortization (deferral) of net regulatory assets 4,339 (4,339) 2,377
General taxes 23,137 22,591 22,162
Income taxes 23,280 23,196 21,069
--------- --------- ---------
Total operating expenses and taxes 238,297 229,307 248,933
--------- --------- ---------
OPERATING INCOME 63,668 62,777 66,525
--------- --------- ---------
OTHER INCOME AND EXPENSE:
Perry Unit 2 termination (Note 3) - (24,458) -
Income tax benefit from Perry Unit 2 termination - 10,293 -
Other 1,811 1,542 781
--------- --------- ---------
Total other income (expense) 1,811 (12,623) 781
--------- --------- ---------
TOTAL INCOME 65,479 50,154 67,306
--------- --------- ---------
NET INTEREST:
Interest on long-term debt 32,130 33,208 35,707
Interest on nuclear fuel obligations 519 401 457
Allowance for borrowed funds used during construction (728) (772) (678)
Other interest expense 2,298 1,653 864
--------- --------- ---------
Net interest 34,219 34,490 36,350
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING 31,260 15,664 30,956
Cumulative effect to January 1, 1993, of a change in
accounting for unbilled revenues (net of income taxes of
$4,108,000) (Note 2) - 5,653 -
NET INCOME 31,260 21,317 30,956
--------- --------- ---------
PREFERRED STOCK DIVIDEND REQUIREMENTS 5,364 5,863 6,499
--------- --------- ---------
EARNINGS ON COMMON STOCK $ 25,896 $ 15,454 $ 24,457
========= ========= =========
The accompanying Notes to Financial Statements are
an integral part of these statements.
- 6 -
BALANCE SHEETS Pennsylvania Power Company
At December 31, 1994 1993
---- ----
(In thousands)
ASSETS
UTILITY PLANT:
In service, at original cost $1,215,831 $1,209,961
Less-Accumulated provision for depreciation 410,508 394,530
---------- ----------
805,323 815,431
---------- ----------
Construction work in progress-
Electric plant 11,226 10,996
Nuclear fuel 12,389 8,604
---------- ----------
23,615 19,600
---------- ----------
828,938 835,031
---------- ----------
OTHER PROPERTY AND INVESTMENTS 8,777 15,064
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 17,200 12,819
Notes receivable from parent company (Note 6) 25,000 -
Accounts receivable-
Customers (less accumulated provisions of $515,000 and $559,000,
respectively, for uncollectible accounts) 32,745 28,122
Parent company 20,777 19,737
Other 12,823 17,427
Materials and supplies, at average cost-
Fuel 5,384 4,350
Other 11,655 12,088
Prepayments 2,048 4,868
---------- ----------
127,632 99,411
---------- ----------
DEFERRED CHARGES:
Regulatory assets 219,726 222,301
Other 8,125 9,176
---------- ----------
227,851 231,477
---------- ----------
$1,193,198 $1,180,983
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (See Statements of Capitalization):
Common stockholder's equity $ 258,973 $ 254,782
Preferred stock-
Not subject to mandatory redemption 50,905 50,905
Subject to mandatory redemption 15,000 20,500
Long-term debt-
Associated companies 15,155 16,401
Other 409,302 424,154
---------- ----------
749,335 766,742
---------- ----------
- 7 -
CURRENT LIABILITIES:
Currently payable preferred stock and long-term debt-
Associated companies 9,318 10,216
Other 15,126 1,788
Accounts payable-
Associated companies 9,440 7,755
Other 25,276 32,680
Accrued taxes 15,421 6,658
Accrued interest 10,108 9,924
Other 21,473 14,308
---------- ----------
106,162 83,329
---------- ----------
DEFERRED CREDITS:
Accumulated deferred income taxes 277,542 273,319
Accumulated deferred investment tax credits 32,209 33,560
Other 27,950 24,033
---------- ----------
337,701 330,912
---------- ----------
COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 4 & 7) ---------- ----------
$1,193,198 $1,180,983
========== ==========
<FN>
The accompanying Notes to Financial Statements are
an integral part of these balance sheets.
</TABLE>
- 8 -
<TABLE>
STATEMENTS OF CAPITALIZATION Pennsylvania Power Company
- --------------------------------------------------------------------------------------------------------------------
At December 31, (Dollars in thousands, except per share amounts)
<CAPTION>
1994 1993
---- ----
<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 (600) (310)
Retained earnings (Note 5a) 70,873 66,392
-------- --------
Total common stockholder's equity 258,973 254,782
-------- --------
Number of Shares Optional
Outstanding Redemption Price
---------------- ---------------------
1994 1993 Per Share Aggregate
<S>
PREFERRED STOCK (Note 5b):
Cumulative, $100 par value-
Authorized 1,200,000 shares
Not Subject to Mandatory Redemption: <C> <C> <C> <C> <C> <C>
4.24% 40,000 40,000 $ 103.13 $ 4,125 4,000 4,000
4.25% 41,049 41,049 105.00 4,310 4,105 4,105
4.64% 60,000 60,000 102.98 6,179 6,000 6,000
7.64% 60,000 60,000 101.42 6,085 6,000 6,000
7.75% 250,000 250,000 100.00 25,000 25,000 25,000
8.00% 58,000 58,000 102.07 5,920 5,800 5,800
------- ------- -------- -------- --------
Total not subject to mandatory redemption 509,049 509,049 $ 51,619 50,905 50,905
======= ======= ======== ======== ========
Subject to Mandatory Redemption (Note 5c):
7.625% 150,000 150,000 $ 107.63 $ 16,144 15,000 15,000
11.00% - 3,616 - - - 362
13.00% - 60,000 - - - 6,000
Redemption within one year - (862)
------- ------- -------- -------- --------
Total subject to mandatory redemption 150,000 213,616 $ 16,144 15,000 20,500
======= ======= ======== -------- --------
LONG-TERM DEBT (Note 5d):
First mortgage bonds-
9.000% due 1996 50,000 50,000
9.740% due 1999-2019 20,000 20,000
7.500% due 2003 40,000 40,000
6.375% due 2004 50,000 50,000
6.625% due 2004 20,000 20,000
8.500% due 2022 50,000 50,000
7.625% due 2023 40,000 40,000
-------- --------
Total first mortgage bonds 270,000 270,000
-------- --------
Secured notes-
4.750% due 1998 850 850
6.080% due 2000 23,000 23,000
5.400% due 2013 1,000 1,000
12.000% due 2014 - 12,700
- 9 -
8.125% due 2015 14,250 14,250
5.400% due 2017 10,600 10,600
7.150% due 2017 17,925 17,925
5.900% due 2018 16,800 16,800
8.100% due 2018 10,300 10,300
8.100% due 2020 5,200 5,200
7.150% due 2021 14,482 14,482
6.150% due 2023 12,700 -
6.450% due 2027 14,500 14,500
5.450% due 2028 6,950 6,950
5.950% due 2029 238 238
-------- --------
Total secured notes 148,795 148,795
-------- --------
Other obligations-
Nuclear fuel 24,120 25,893
Capital leases (Note 4) 7,456 8,690
-------- --------
Total other obligations 31,576 34,583
-------- --------
Net unamortized discount on debt (1,470) (1,681)
-------- --------
Long-term debt due within one year (24,444) (11,142)
-------- --------
Total long-term debt 424,457 440,555
-------- --------
TOTAL CAPITALIZATION $749,335 $766,742
======== ========
<FN>
The accompanying Notes to Financial Statements are
an integral part of these statements.
</TABLE>
- 10 -
<TABLE>
STATEMENTS OF RETAINED EARNINGS Pennsylvania Power Company
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the Years Ended December 31, 1994 1993 1992
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 66,392 $ 72,777 $ 77,317
Net income 31,260 21,317 30,956
-------- -------- --------
97,652 94,094 108,273
-------- -------- --------
Cash dividends on common stock 21,386 21,386 27,676
Cash dividends on preferred stock 5,035 5,639 6,448
Premium on redemption of preferred stock 358 677 1,372
-------- -------- --------
26,779 27,702 35,496
-------- -------- --------
Balance at end of year (Note 5a) $ 70,873 $ 66,392 $ 72,777
======== ======== ========
STATEMENTS OF CAPITAL STOCK AND OTHER PAID-IN CAPITAL
- -----------------------------------------------------------------------------------------------------------------------
Preferred Stock
-------------------------------------------
Not Subject to Subject to
Common Stock Mandatory Redemption Mandatory Redemption
------------------------------ -------------------- --------------------
Other
Number Par Paid-In Number Par Number Par
of Shares Value Capital of Shares Value of Shares Value
--------- ----- ------- --------- ----- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 6,290,000 $188,700 $ 41 419,049 $41,905 379,016 $37,902
Sale of 7.625% Preferred Stock 150,000 15,000
Redemptions-
8.24% Series (5,000) (500)
10.50% Series (100,000) (10,000)
11.00% Series (8,000) (800)
11.50% Series (15,000) (1,500)
13.00% Series (10,000) (1,000)
15.00% Series (54,400) (5,440)
---------- -------- ----- -------- ------- -------- -------
Balance, December 31, 1992 6,290,000 188,700 41 419,049 41,905 336,616 33,662
Sale of 7.75% Preferred Stock (345) 250,000 25,000
Redemptions-
8.24% Series (45,000) (4,500)
8.48% Series (6) (80,000) (8,000)
9.16% Series (80,000) (8,000)
11.00% Series (8,000) (800)
11.50% Series (60,000) (6,000)
13.00% Series (10,000) (1,000)
- 11 -
---------- --------- ----- -------- ------- -------- -------
Balance, December 31, 1993 6,290,000 188,700 (310) 509,049 50,905 213,616 21,362
Minimum liability for unfunded
retirement benefits (290)
Redemptions-
11.00% Series (3,616) (362)
13.00% Series (60,000) (6,000)
---------- --------- ----- -------- ------- -------- -------
Balance, December 31, 1994 6,290,000 $188,700 $(600) 509,049 $50,905 150,000 $15,000
========== ========= ===== ======== ======= ======== =======
<FN>
The accompanying Notes to Financial Statements are
an integral part of these statements.
</TABLE>
- 12 -
<TABLE>
STATEMENTS OF CASH FLOWS Pennsylvania Power Company
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the Years Ended December 31, 1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,260 $ 21,317 $ 30,956
Adjustments to reconcile net income to net cash from operating activities:
Provision for depreciation 29,108 29,260 30,856
Nuclear fuel and lease amortization 10,656 8,812 13,866
Deferred income taxes, net 7,578 10,261 (446)
Investment tax credits, net (1,351) (1,361) (959)
Deferred revenue - - 19,517
Allowance for equity funds used during construction (408) (237) (114)
Deferred fuel costs, net (4,091) 199 2,745
Cumulative effect of an accounting change for
unbilled revenues - (5,653) -
Perry Unit 2 termination - 24,458 -
Other 7,219 - 2,377
-------- -------- --------
Internal cash before dividends 79,971 87,056 98,798
Receivables (1,059) (5,974) 19,077
Materials and supplies (601) 4,666 (3,870)
Accounts payable (1,686) 4,196 (8,886)
Other 28,171 (6,178) (11,560)
-------- -------- --------
Net cash provided from operating activities 104,796 83,766 93,559
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New Financing-
Preferred stock - 24,654 15,000
Long-term debt 11,868 149,867 102,914
Notes payable, net - - 7,000
Redemptions and Repayments-
Preferred stock 6,687 28,970 20,612
Long-term debt 23,655 145,809 137,343
Notes payable, net - 15,000 -
Dividend Payments-
Common stock 21,386 21,386 27,676
Preferred stock 5,035 5,639 6,448
-------- -------- --------
Net cash used for financing activities 44,895 42,283 67,165
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions 30,072 31,328 26,465
Loan to parent 25,000 - -
Other 448 999 344
-------- -------- --------
Net cash used for investing activities 55,520 32,327 26,809
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,381 9,156 (415)
Cash and cash equivalents at beginning of year 12,819 3,663 4,078
-------- -------- --------
Cash and cash equivalents at end of year $ 17,200 $ 12,819 $ 3,663
======== ======== ========
- 13 -
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid during the year-
Interest (net of amounts capitalized) $ 31,738 $ 32,391 $ 37,111
Income taxes 19,873 10,403 31,312
<FN>
The accompanying Notes to Financial Statements are
an integral part of these statements.
</TABLE>
- 14 -
<TABLE>
STATEMENTS OF TAXES Pennsylvania Power Company
- -------------------------------------------------------------------------------------------------------
<CAPTION>
For the Years Ended December 31, 1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
GENERAL TAXES:
State gross receipts $11,024 $10,754 $10,623
Real and personal property 6,699 6,712 6,762
State capital stock 2,440 2,000 2,252
Social security and unemployment 2,590 2,643 2,067
Other 384 482 458
------- ------- -------
Total general taxes $23,137 $22,591 $22,162
======= ======= =======
PROVISION FOR INCOME TAXES:
Currently payable-
Federal $11,040 $ 3,292 $14,933
State 7,066 716 7,551
------- ------- -------
18,106 4,008 22,484
------- ------- -------
Deferred, net-
Federal 8,088 10,035 254
State (510) 4,291 (700)
------- ------- -------
7,578 14,326 (446)
------- ------- -------
Investment tax credits, net of amortization (1,351) (1,361) (959)
------- ------- -------
Total provision for income taxes $24,333 $16,973 $21,079
======= ======= =======
INCOME STATEMENT CLASSIFICATION OF
PROVISION FOR INCOME TAXES:
Operating expenses $23,280 $23,196 $21,069
Other income 1,053 (10,331) 10
Cumulative effect of a change in accounting - 4,108 -
------- ------- -------
Total provision for income taxes $24,333 $16,973 $21,079
======= ======= =======
RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT
STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES:
Book income before provision for income taxes $55,593 $38,290 $52,035
======= ======= =======
Federal income tax expense at statutory rate $19,458 $13,402 $17,692
Increases (reductions) in taxes resulting from:
State income taxes, net of federal income tax benefit 4,261 3,255 4,522
Amortization of investment tax credits (1,351) (1,361) (2,279)
Excess of book over tax depreciation, net - - 2,863
Amortization of tax regulatory assets 2,231 2,376 -
Other, net (266) (699) (1,719)
------- ------- -------
Total provision for income taxes $24,333 $16,973 $21,079
======= ======= =======
- 15 -
SOURCES OF DEFERRED INCOME TAXES:
Excess of tax over book depreciation, net $ 1,370
Difference between tax and book revenue, net (6,835)
Deferred fuel costs (1,042)
Deferred loss on reacquired debt, net 1,605
Amortization of deferred interest on leased nuclear fuel (1,144)
Alternative minimum tax credits utilized 5,843
Pension costs 1,329
Recoverable tax surcharge costs (978)
Other, net (594)
-------
Net deferred income taxes $ (446)
=======
ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31:
Property basis differences $178,345 $171,581
Allowance for equity funds used during construction 39,921 41,091
Deferred nuclear expense 8,914 8,914
Customer receivables for future income taxes 55,498 56,736
Unamortized investment tax credits (13,557) (14,124)
Other 8,421 9,121
-------- --------
Net deferred income tax liability $277,542 $273,319
======== ========
<FN>
The accompanying Notes to Financial Statements are
an integral part of these statements.
</TABLE>
- 16 -
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).
REVENUES-The Company's retail customers are metered on a
cycle basis. Revenue was recognized for electric service based on
meters read through the end of the year for years prior to 1993.
Beginning in 1993, revenue is recognized to include unbilled sales
through the end of the year (see Note 2).
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, 1994 or 1993,
with respect to any particular segment of the Company's customers.
FUEL COSTS-The Company recovers fuel and net purchased
power costs not otherwise recovered through base rates from its
customers through an annual "levelized" energy cost rate (ECR). The
ECR, which includes adjustment for any over or under collection
from customers, is recalculated each year. Accordingly, the Company
defers the difference between actual energy costs and the amounts
currently recovered from its customers.
In March 1993, the Office of Consumer Advocate (OCA) filed
a complaint against the Company with the PPUC regarding the
Company's ECR. The complaint objected to the elimination of certain
contractual arrangements for the sale of generating capacity to
Edison. In the past, sales under these arrangements were included
in the ECR calculation, and the OCA alleged the elimination of the
arrangements increased the Company's recoverable energy costs. The
Company recognized a charge of approximately $4,950,000 ($2,864,000
after-tax) in the fourth quarter of 1993 relating to the expected
resolution of this issue. The PPUC ordered the Company to begin
refunding the $4,950,000 to customers by reducing its ECR from
April 1, 1994 through March 31, 1997.
UTILITY PLANT AND DEPRECIATION-Utility plant reflects the
original cost of construction, including payroll and related costs
such as taxes, employee benefits, administrative and general costs
and financing costs (allowance for funds used during construction).
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 2.7% in 1994 and 1993 and 3.0% in 1992.
Effective in 1993, the annual composite rate was reduced as a
result of the Company's depreciation study filed with the PPUC
which took into consideration extended useful lives of certain
generation and distribution facilities.
The Company recognizes approximately $300,000 annually (as
depreciation expense) for future decommissioning costs applicable
to its ownership interest in two nuclear generating units. The
Company's share of the future obligation to decommission these
- 17 -
units is approximately $70,000,000 in current dollars and (using a
2.8% escalation rate) approximately $142,000,000 in future dollars.
The estimated obligation (based on site specific studies) and the
escalation rate were developed using information obtained from
consultants. Payments for decommissioning are expected to begin in
2016, when actual decommissioning work begins. The Company has
recovered approximately $2,676,000 for decommissioning through its
electric rates from customers through December 31, 1994; such
amounts are reflected in the reserve for depreciation on the
Balance Sheet. If the actual costs of decommissioning the units
exceed the accumulated amounts recovered from customers, the
Company expects that difference will be recoverable from its
customers. The Company has approximately $3,900,000 invested in
external decommissioning trust funds as of December 31, 1994.
Earnings on these funds are reinvested with a corresponding
increase to the depreciation reserve. The Company has also
recognized an estimated liability of approximately $4,400,000
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
Company recovers these costs through its ECR.
The staff of the Securities and Exchange Commission has
raised questions regarding the recognition, measurement and
classification of decommissioning costs for nuclear generating
stations in the financial statements of electric utilities. In
response to these questions, the Financial Accounting Standards
Board (FASB) has agreed to review the accounting for nuclear
decommissioning costs. If current electric utility industry
accounting practices for decommissioning are changed: (1) annual
provisions for decommissioning could increase; (2) the full
estimated cost for decommissioning could be recorded as a liability
rather than as accumulated depreciation; and (3) income from the
external decommissioning trusts could be reported as investment
income. The FASB's review is expected to be completed in 1995.
COMMON OWNERSHIP OF GENERATING FACILITIES-The Company and
other Central Area Power Coordination Group (CAPCO) companies own,
as tenants in common, various power generating facilities. Each of
the companies is obligated to pay a share of the costs associated
with any jointly owned facility in the same proportion as its
ownership interest. The Company's portion of operating expenses
associated with jointly owned facilities is included in the
corresponding operating expenses on the Statements of Income. The
amounts reflected on the Balance Sheet under utility plant at
December 31, 1994, include the following:
Utility Accumulated Construc- Company's
Plant Provision tion Owner-
Generating in for Work in ship
Units Service Depreciation Progress Interest
- ------------------ ------- ------------ -------- ---------
(In thousands)
W. H. Sammis #7 $ 57,100 $ 18,400 $ 100 20.80%
Bruce Mansfield
#1, #2 and #3 90,700 39,000 1,400 5.76%
Beaver Valley #1 224,700 88,400 900 17.50%
Perry #1 339,700 55,600 200 5.24%
- ---------------------------------------------------------------
Total $712,200 $201,400 $2,600
===============================================================
- 18 -
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:
- ------------------------------------------------------------------
1995 $8,965,000
1996 5,672,000
1997 4,876,000
1998 2,912,000
1999 676,000
- ------------------------------------------------------------------
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. All investment tax
credits which were deferred when utilized, are being amortized over
the estimated life of the related property.
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," on
January 1, 1993, which requires the liability method to be used to
account for deferred income taxes. Under this standard, 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. The
components of accumulated deferred income taxes as of December 31,
1994 and 1993, are disclosed on the Statements of Taxes.
The Company is included in Edison'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. The
Company has $7,000,000 of tax-related receivables due from Edison
resulting from its contribution to the consolidated return.
RETIREMENT BENEFITS-The Company's trusteed, noncontributory
defined benefit pension plan covers almost all full-time employees.
Upon retirement, employees receive a monthly pension based on
length of service and compensation. 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, 1994.
The following sets forth the funded status of the plan and
amounts recognized on the Balance Sheets as of December 31:
- 19 -
1994 1993
- ----------------------------------------------------------------
(In thousands)
Actuarial present value of benefit
obligations:
Vested benefits $ 83,789 $ 78,042
Nonvested benefits 5,862 5,933
- ----------------------------------------------------------------
Accumulated benefit obligation $ 89,651 $ 83,975
================================================================
Plan assets at fair value $ 114,881 $ 123,092
Actuarial present value of projected
benefit obligation 108,498 107,702
- ----------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 6,383 15,390
Unrecognized net gain (1,281) (1,611)
Unrecognized prior service cost 2,347 2,563
Unrecognized net transition asset (8,426) (9,479)
- ----------------------------------------------------------------
Net pension asset (liability) $ ( 977) $ 6,863
================================================================
The assets of the plan consist primarily of common stocks,
United States government bonds and corporate bonds. Net pension
costs for the three years ended December 31, 1994, were computed as
follows:
1994 1993 1992
- -------------------------------------------------------------
(In thousands)
Service cost-benefits earned
during the period $ 3,294 $ 2,802 $ 2,828
Interest on projected benefit
obligation 8,158 7,281 6,612
Return on plan assets 1,346 (15,653) (9,336)
Net deferral (amortization) (14,092) 2,366 (3,652)
Voluntary early retirement
program expense 9,134 3,930 -
- --------------------------------------------------------------
Net pension cost $ 7,840 $ 726 $ (3,548)
==============================================================
The assumed discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.5% in 1994,
7.5% in 1993 and 9% in 1992. The assumed rate of increase in future
compensation levels used to measure this obligation was 4.5% in
each year. Expected long-term rates of return on plan assets were
assumed to be 10% in 1994 and 11% in 1993 and 1992.
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.
- 20 -
In 1993 the Company adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which
requires companies to 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 Company does not
currently fund these future benefits. Costs paid by the Company
for retiree health care and life insurance benefits of $1,411,000
were charged to income in 1992.
The following sets forth the accrued postretirement benefit
cost on the Balance Sheets as of December 31:
1994 1993
- ----------------------------------------------------------------
(In thousands)
Accumulated postretirement benefit
obligation allocation:
Retirees $ 28,056 $ 20,604
Fully eligible active plan participants 1,817 6,794
Other active plan participants 18,263 15,507
- ----------------------------------------------------------------
Accumulated postretirement benefit
obligation 48,136 42,905
Unrecognized transition obligation (30,588) (32,287)
Unrecognized net loss (6,911) (5,357)
- ----------------------------------------------------------------
Accrued postretirement benefit cost $ 10,637 $ 5,261
================================================================
Net periodic postretirement benefit costs for the years
ended December 31, 1994 and 1993 were computed as follows:
1994 1993
- ----------------------------------------------------------------
(In thousands)
Service cost-benefits attributed to the
period $1,109 $ 866
Interest cost on accumulated benefit
obligation 3,496 3,129
Amortization of transition obligation 1,699 1,699
Amortization of loss 196 -
Voluntary early retirement program expense 669 1,112
- ----------------------------------------------------------------
Net periodic postretirement benefit cost 7,169 6,806
Benefits paid 1,793 1,545
- ----------------------------------------------------------------
Increase in accrued postretirement
benefit cost $5,376 $5,261
================================================================
The health care trend rate assumption is 7.89% in the first
year gradually decreasing to 3.5% for the year 2008 and later. The
discount rates used to compute the accumulated postretirement
benefit obligation in 1994 and 1993 were 8.5% and 7.5%,
respectively. An increase in the health care trend rate assumption
by one percentage point in all years would increase the accumulated
postretirement benefit obligation by approximately $6,900,000 and
the aggregate annual service and interest costs by approximately
$800,000.
- 21 -
The PPUC has authorized the Company to defer the
incremental costs resulting from adopting SFAS No. 106 (compared to
costs computed under the former accounting basis) for future
recovery from its retail customers. Similar authorizations relating
to other utilities regulated by the PPUC were appealed by the OCA
to the Commonwealth Court of Pennsylvania. The Commonwealth Court
has issued conflicting opinions and both cases have been appealed
to the Pennsylvania Supreme Court. Due to the uncertainty resulting
from these conflicting opinions, the Company provided a reserve in
the fourth quarter of 1994 of $8,728,000 ($5,066,000 after-tax)
against the full amount deferred.
TRANSACTIONS WITH AFFILIATED COMPANIES-Transactions with
affiliated companies are included on the Statements of Income as
follows:
1994 1993 1992
- ---------------------------------------------------------------
(In thousands)
Operating revenues:
Electric sales to Edison $ 8,464 $ 8,781 $22,755
Bruce Mansfield Plant
administrative and general
charges to Edison 6,038 5,652 2,529
Other transactions with Edison 342 355 371
- ---------------------------------------------------------------
$14,844 $14,788 $25,655
===============================================================
Fuel and purchased power:
Power purchased from Edison $12,673 $ 8,667 $13,936
Nuclear fuel leased from
OES Fuel 11,529 10,356 15,199
- ---------------------------------------------------------------
$24,202 $19,023 $29,135
===============================================================
Other operating costs:
Rental of transmission
lines from Edison $ 1,102 $ 1,042 $ 1,172
Data processing services
from Edison 2,706 3,307 2,624
Other transactions with Edison 3,908 4,345 2,679
- ---------------------------------------------------------------
$ 7,716 $ 8,694 $ 6,475
===============================================================
SUPPLEMENTAL CASH FLOWS INFORMATION-All temporary cash
investments purchased with an initial maturity of three months or
less are reported as cash equivalents on the Balance Sheets. The
Company reflects temporary cash investments at cost, which
approximates their market value. Noncash financing and investing
activities included capital lease transactions amounting to
$7,566,000, $2,357,000 and $10,721,000 for the years 1994, 1993 and
1992, 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:
- 22 -
1994 1993
- -------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
(In millions)
Long-term debt $ 419 $ 384 $ 419 $ 438
- -------------------------------------------------------------------
Preferred stock $ 15 $ 12 $ 21 $ 21
- -------------------------------------------------------------------
Investments other than
cash and cash equivalents $ 5 $ 5 $ 5 $ 5
- -------------------------------------------------------------------
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. All of the Company's financial instruments are for purposes
other than trading.
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. Amounts shown
below as being recovered currently would be recovered over
approximately 24 years based upon amounts amortized during 1994.
Regulatory assets on the Balance Sheets are comprised of
the following:
1994 1993
- ----------------------------------------------------------------
(In thousands)
Currently being recovered through rates:
- 23 -
Customer receivables for future income
taxes $132,012 $135,197
Property taxes 4,724 4,615
Loss on reacquired debt 11,967 12,551
DOE decommissioning and decontamination
costs 4,582 3,192
Deferred fuel costs 7,195 3,590
- -----------------------------------------------------------------
160,480 159,145
- -----------------------------------------------------------------
Not currently recovered through rates:
Nuclear unit expenses 21,180 21,180
Employee postretirement benefit costs - 4,339
Perry Unit 2 termination 38,066 37,637
- -----------------------------------------------------------------
59,246 63,156
- -----------------------------------------------------------------
Total $219,726 $222,301
=================================================================
2. CHANGE IN ACCOUNTING FOR UNBILLED REVENUES:
On January 1, 1993, the Company changed its accounting
policy to recognize revenue relating to metered sales which remain
unbilled at the end of the accounting period. This change was made
to more closely match the Company's revenues with the costs of
services provided. The effect of this change decreased net income
for the year ended December 31, 1993, (before the cumulative effect
from periods prior to 1993) by approximately $900,000. The
cumulative effect to January 1, 1993, was $5,653,000 (net of
$4,108,000 of income taxes). The reported results of operations for
the year ended December 31, 1992 would not have been materially
different if this new accounting policy had been in effect during
that year.
3. PERRY UNIT 2 TERMINATION:
In December 1993, the Company announced that it would not
participate in further construction of Perry Unit 2 and abandoned
Perry Unit 2 as a possible electric generating plant. The Company
expects its Perry Unit 2 investment to be recoverable from its PPUC
jurisdictional customers based on Section 520 of the Pennsylvania
Public Utility Code. Due to the anticipated delay in commencement
of recovery and taking into account the expected PPUC rate
treatment, the Company recognized an impairment to its Perry Unit
2 investment of $24,458,000 in 1993, reducing net income by
$14,165,000.
4. LEASES:
The Company leases certain transmission facilities,
computer equipment, office space and other property and equipment
under cancelable and noncancelable leases. Consistent with the
regulatory treatment, the rental payments for capital and operating
leases are charged to operating expenses on the Statements of
Income. Such costs for the three years ended December 31, 1994, are
summarized as follows:
- 24 -
1994 1993 1992
- --------------------------------------------------------------
(In thousands)
Operating leases
Interest element $ 208 $ 171 $ 212
Other 893 912 1,032
Capital leases
Interest element 945 1,070 1,169
Other 1,314 1,273 1,231
- --------------------------------------------------------------
Total rental payments $3,360 $3,426 $3,644
==============================================================
The future minimum lease payments as of December 31, 1994, are:
Capital Operating
Leases Leases
- -------------------------------------------------------------
(In thousands)
1995 $ 2,367 $ 247
1996 1,793 247
1997 1,547 243
1998 1,351 239
1999 1,179 209
Years thereafter 13,673 3,779
- -------------------------------------------------------------
Total minimum lease payments 21,910 $4,964
======
Executory costs 4,362
- ----------------------------------------------
Net minimum lease payments 17,548
Interest portion 10,092
- ----------------------------------------------
Present value of net minimum
lease payments 7,456
Less current portion 1,229
- ----------------------------------------------
Noncurrent portion $ 6,227
==============================================
5. 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 $59,307,000 at
December 31, 1994.
(b) PREFERRED STOCK-The Company's 7.625% and 7.75% series
of preferred stock have restrictions which prevent early redemption
prior to October 1997 and July 2003, respectively. All other
preferred stock may be redeemed by the Company in whole, or in
part, with 30-60 days' notice. The optional redemption price for
the 7.625% series shown on the Statements of Capitalization will
decline to $100 per share by 2007.
(c) 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.
(d) LONG-TERM DEBT-The first mortgage indenture and its
supplements, which secure all of the Company's first mortgage
- 25 -
bonds, serve as direct first mortgage liens on substantially all
property and franchises, other than specifically excepted property,
owned by the Company.
Maturing long-term debt (excluding capital leases) during
the next five years are $14,250,000 in 1995, $50,000,000 in 1996,
$850,000 in 1998 and $487,000 in 1999.
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.
6. SHORT-TERM FINANCING ARRANGEMENTS:
The Company has lines of credit with banks that provide for
borrowings of up to $5,000,000 under various interest rate options.
Short-term borrowings may be made under these lines of credit on
the Company's unsecured notes. To assure the availability of these
lines, the Company is required to pay annual commitment fees of
0.50%. These lines expire at various times during 1995.
The Company also 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
$50,000,000. Either company can terminate the agreement with six
months' notice.
7. COMMITMENTS, GUARANTEES AND CONTINGENCIES:
CONSTRUCTION PROGRAM-The Company's current forecast
reflects expenditures of approximately $138,000,000 for property
additions and improvements from 1995 through 1999, of which
approximately $28,000,000 is applicable to 1995. Investments for
additional nuclear fuel during the 1995-1999 period are estimated
to be approximately $29,000,000, of which approximately $4,000,000
applies to 1995. During the same periods, the Company's nuclear
fuel investments are expected to be reduced by approximately
$39,000,000 and $9,000,000, 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
$8,920,000,000. The amount is covered by a combination of private
insurance and an industry retrospective rating plan. Based on its
present ownership interests in Beaver Valley Unit 1 and the Perry
Plant, the Company's maximum potential assessment under the
industry retrospective rating plan (assuming the other CAPCO
companies were to contribute their proportionate share of any
assessments under the retrospective rating plan) would be
$18,000,000 per incident but not more than $2,300,000 in any one
year for each incident.
The Company is also insured as to its interest in Beaver Valley
Unit 1 and the Perry Plant under policies issued to the operating
company for each plant. Under these policies, up to $2,750,000,000
is provided for property damage and decontamination and
- 26 -
decommissioning costs. The Company has also obtained approximately
$53,100,000 of insurance coverage for replacement power costs for
its interests in Perry and Beaver Valley Unit 1. Under these
policies, the Company can be assessed a maximum of approximately
$2,600,000 for accidents 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 so 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 from time to time 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.
GUARANTEES-The Company, together with the other CAPCO
companies, has severally guaranteed certain debt and lease
obligations in connection with a coal supply contract for the Bruce
Mansfield Plant. As of December 31, 1994, the Company's share of
the guarantee (which approximates fair market value) was
$10,952,000. The price under the coal supply contract, which
includes certain minimum payments, has been determined to be
sufficient to satisfy the debt and lease obligations. The Company's
total payments under the coal supply contract amounted to
$10,071,000, $13,230,000 and $12,082,000 during 1994, 1993, and
1992, respectively. Under the coal supply contract, the Company's
minimum payments in each year during the period 1995 through 1999
are approximately $4,000,000.
ENVIRONMENTAL MATTERS-Various federal, state and local
authorities regulate the Company with regard to air and water
quality and other environmental matters. The Company has estimated
additional capital expenditures for environmental compliance of
approximately $12,000,000, which is included in the construction
forecast under "Construction Program" for 1995 through 1999.
The Clean Air Act Amendments of 1990 require significant
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) from
the Company's coal-fired generating units by 1995 and additional
emission reductions by 2000. Compliance options include, but are
not limited to, installing additional pollution control equipment,
burning less-polluting fuel, purchasing emission allowances,
operating facilities in a manner that minimizes pollution, and
retiring facilities. In a system compliance plan for the Company
and Edison submitted to the PPUC and to the Environmental
Protection Agency (EPA), the Company stated that SO2 reductions for
the years 1995 through 1999 likely will be achieved by burning
lower-sulfur fuel, generating more electricity from lower-emitting
plants, and/or purchasing emission allowances. Equipment already
installed, or to be installed by May 1995, is expected to provide
NOx reductions sufficient to meet 1995 requirements. Plans for
complying with the year 2000 and later reductions have not been
finalized. EPA is conducting additional studies which could
indicate the need for additional NOx reductions from the Company's
Pennsylvania facilities by the year 2003. The cost of such
reductions, if required, may be substantial. The Company continues
to evaluate its compliance plan and other compliance options.
- 27 -
The Pennsylvania Department of Environmental Resources has
issued regulations dealing with the storage, treatment,
transportation and disposal of residual waste such as coal ash and
scrubber sludge. These regulations impose additional requirements
relating to permitting, ground water monitoring, leachate
collection systems, closure, liability insurance and operating
matters. The Company is considering various compliance options but
is presently unable to determine the ultimate increase in capital
and operating costs at existing sites.
Legislative, administrative and judicial actions will
continue to change the way that the Company must operate in order
to comply with environmental laws and regulations. With respect to
any such changes and to the environmental matters described above,
the Company expects that any resulting additional capital costs
which may be required, as well as any required increase in
operating costs, would ultimately be recovered from its customers.
8. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED):
The following summarizes certain operating results by
quarter for 1994 and 1993.
March 31, June 30, Sept. 30, Dec. 31,
Three Months Ended 1994 1994 1994 1994
- ---------------------------------------------------------------
(In thousands)
Operating Revenues $78,358 $74,700 $77,055 $71,852
Operating Expenses
and Taxes 60,172 60,997 57,437 59,691
- ---------------------------------------------------------------
Operating Income 18,186 13,703 19,618 12,161
Other Income 414 522 408 467
Net Interest 8,443 8,448 8,802 8,526
- ---------------------------------------------------------------
Net Income $10,157 $ 5,777 $11,224 $ 4,102
===============================================================
Earnings on Common
Stock $ 8,801 $ 4,096 $10,057 $ 2,942
===============================================================
- 28 -
March 31, June 30, Sept. 30, Dec. 31,
Three Months Ended 1993 1993 1993 1993
- ---------------------------------------------------------------
(In thousands)
Operating Revenues $74,274 $70,266 $76,226 $71,318
Operating Expenses
and Taxes 61,272 53,708 56,710 57,617
- ---------------------------------------------------------------
Operating Income 13,002 16,558 19,516 13,701
Other Income
(Expense) 68 200 437 (13,328)
Net Interest 8,549 8,653 8,819 8,469
- ---------------------------------------------------------------
Income (Loss) Before
Cumulative Effect
of a Change in
Accounting 4,521 8,105 11,134 (8,096)
Cumulative Effect of
a Change in
Accounting 5,653 - - -
- ---------------------------------------------------------------
Net Income (Loss) $10,174 $ 8,105 $11,134 $(8,096)
===============================================================
Earnings (Loss)
Applicable to
Common Stock $ 8,639 $ 6,571 $ 9,706 $(9,462)
===============================================================
- 29 -
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, 1994 and 1993, and the related
statements of income, retained earnings, capital stock and other
paid-in capital, cash flows and taxes for each of the three years
in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Pennsylvania Power Company as of December 31, 1994 and 1993, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Notes 1 and 2 to the financial statements,
effective January 1, 1993, the Company changed its method of
accounting for unbilled revenues, income taxes and postretirement
benefits other than pensions.
Arthur Andersen LLP
Cleveland, Ohio
February 3, 1995
- 30 -
EXHIBIT 23
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 Company's previously filed Registration
Statements, File No. 33-47372, No. 33-62450 and No. 33-65156.
ARTHUR ANDERSEN LLP
Cleveland, Ohio
March 22, 1995
- 38 -
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
(Amounts in 1,000's, except earnings per share)
Income tax expense includes $7,372,000 related to other income.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5,834,903
<OTHER-PROPERTY-AND-INVEST> 475,309
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<TOTAL-DEFERRED-CHARGES> 2,157,060
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,993,964
<COMMON> 1,373,125
<CAPITAL-SURPLUS-PAID-IN> 554,472
<RETAINED-EARNINGS> 389,600
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,317,197
40,000
328,240
<LONG-TERM-DEBT-NET> 3,166,593
<SHORT-TERM-NOTES> 70,000
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0
<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,739,796
<TOT-CAPITALIZATION-AND-LIAB> 8,993,964
<GROSS-OPERATING-REVENUE> 2,368,191
<INCOME-TAX-EXPENSE> 188,886
<OTHER-OPERATING-EXPENSES> 1,629,423
<TOTAL-OPERATING-EXPENSES> 1,810,937
<OPERATING-INCOME-LOSS> 557,254
<OTHER-INCOME-NET> 16,459
<INCOME-BEFORE-INTEREST-EXPEN> 573,713
<TOTAL-INTEREST-EXPENSE> 270,182
<NET-INCOME> 303,531
21,679
<EARNINGS-AVAILABLE-FOR-COMM> 281,852
<COMMON-STOCK-DIVIDENDS> 214,826
<TOTAL-INTEREST-ON-BONDS> 259,554
<CASH-FLOW-OPERATIONS> 695,064
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.97
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