-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dc47cSmwP4jRvmbVLQYkoblbm7l0bdoUPtcCEHV/xcPTK0wcim7U0esfLt3RHNvO rWqTi8Hr0kaK4frKSxcL+w== 0001031296-01-500009.txt : 20010329 0001031296-01-500009.hdr.sgml : 20010329 ACCESSION NUMBER: 0001031296-01-500009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 29 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTENERGY CORP CENTRAL INDEX KEY: 0001031296 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 341843785 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-21011 FILM NUMBER: 1582513 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 BUSINESS PHONE: 3303845100 MAIL ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 10-K 1 tenk.txt TEXT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to______ Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. - ----------- ------------------------------------- ------------------ 333-21011 FIRSTENERGY CORP. 34-1843785 (An Ohio Corporation) 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-2578 OHIO EDISON COMPANY 34-0437786 (An Ohio Corporation) 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-2323 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY 34-0150020 (An Ohio Corporation) c/o FirstEnergy Corp. 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-3583 THE TOLEDO EDISON COMPANY 34-4375005 (An Ohio Corporation) c/o FirstEnergy Corp. 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-3491 PENNSYLVANIA POWER COMPANY 25-0718810 (A Pennsylvania Corporation) 1 East Washington Street P. O. Box 891 New Castle, PA 16103 Telephone (724)652-5531 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) --- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes (X) --- No ( ) --- State the aggregate market value of the voting stock held by non-affiliates of the registrant: $6,299,479,868 as of February 28, 2001. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: OUTSTANDING CLASS AT MARCH 16, 2001 ----- ----------------- FirstEnergy Corp., $.10 par value 223,981,580 Ohio Edison Company, no par value 100 The Cleveland Electric Illuminating Company, no par value 79,590,689 The Toledo Edison Company, $5 par value 39,133,887 Pennsylvania Power Company, $30 par value 6,290,000 FirstEnergy Corp. is the sole holder of Ohio Edison Company, The Cleveland Electric Illuminating Company and The Toledo Edison Company common stock; Ohio Edison Company is the sole holder of Pennsylvania Power Company common stock. Documents incorporated by reference (to the extent indicated herein): PART OF FORM 10-K INTO WHICH DOCUMENT DOCUMENT IS INCORPORTED -------- ------------------------ FirstEnergy Corp. Annual Report to Stockholders for the fiscal year ended December 31, 2000 (Pages 16-47) Part II Proxy Statement for 2001 Annual Meeting of Stockholders to be held May 15, 2001 Part III SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of Each Exchange Registrant Title of Each Class on Which Registered ---------- ---------------------------- ---------------------- FirstEnergy Corp. Common Stock, $.10 par value New York Stock Exchange Ohio Edison Company Cumulative Preferred Stock, $100 par value 3.90% Series All series registered 4.40% Series on New York Stock 4.44% Series Exchange and Chicago 4.56% Series Stock Exchange Cumulative Preferred Stock, $25 par value 7.75% Series Registered on New York Stock Exchange and Chicago Stock Exchange The Cleveland Cumulative Serial Preferred Electric Stock, without par value: Illuminating $7.40 Series A All series registered Company $7.56 Series B on New York Stock Adjustable Rate, Series L Exchange Depository Shares: 1993 Series A, each share New York Stock representing 1/20 of a Exchange share of Serial Preferred Stock, $42.40 Series T (without par value) The Toledo Edison Cumulative Preferred Stock, Company par value $100 per share: 4-1/4% Series All series registered 8.32% Series on American Stock 7.76% Series Exchange 10% Series Cumulative Preferred Stock, par value $25 per share: 8.84% Series All series registered $2.365 Series on New York Stock Adjustable Rate, Series A Exchange Adjustable Rate, Series B First Mortgage Bonds: 8% Series due 2003 All series registered on New York Stock Exchange Pennsylvania Power Cumulative Preferred Stock, All series registered Company $100 par value: on Philadelphia Stock 4.24% Series Exchange, Inc. 4.25% Series 4.64% Series SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (Cont'd) This combined Form 10-K is separately filed by FirstEnergy Corp., Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric Illuminating Company and The Toledo Edison Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to any of the four FirstEnergy subsidiaries is also attributed to FirstEnergy. FORM 10-K TABLE OF CONTENTS Page ---- Part I Item 1. Business 1 The Company 1 Merger Agreement 2 Utility Regulation 2 PUCO Rate Matters 2 PPUC Rate Matters 4 FERC Rate Matters 4 Fuel Recovery Procedures 5 Capital Requirements 5 Nuclear Regulation 7 Nuclear Insurance 7 Environmental Matters 8 Air Regulation 8 Water Regulation 9 Waste Disposal 9 Summary 10 Fuel Supply 10 System Capacity and Reserves 11 Regional Reliability 11 Competition 11 Research and Development 12 Executive Officers 12 Item 2. Properties 14 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 8. Financial Statements and Supplementary Data 16 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 16 Part III Item 10. Directors and Executive Officers of the Registrant 16 Item 11. Executive Compensation 16 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 17 PART 1 ITEM 1. BUSINESS The Company FirstEnergy Corp. (Company) was organized under the laws of the State of Ohio in 1996 and became a holding company on November 8, 1997 in connection with the merger of Ohio Edison Company (OE) and Centerior Energy Corporation (Centerior). The Company's principal business is the holding, directly or indirectly, of all of the outstanding common stock of its principal electric utility operating subsidiaries, OE, The Cleveland Electric Illuminating Company (CEI), Pennsylvania Power Company (Penn) and The Toledo Edison Company (TE). These utility subsidiaries are referred to throughout as "Companies." On September 1, 2000, the Companies transferred their transmission assets to the Company's wholly owned subsidiary, American Transmission Systems, Inc. (ATSI). ATSI owns and operates the Company's major high-voltage transmission facilities and has interconnections with other regional utilities. The Company's consolidated revenues are primarily derived from electric service provided by its utility operating subsidiaries including ATSI and the revenues of its other principal subsidiaries: FirstEnergy Services Corp. (FE Services); FirstEnergy Facilities Services Group, LLC (FE Facilities); FirstEnergy Trading Services, Inc. (FETS), which merged into FE Services on January 1, 2001; and MARBEL Energy Corporation (MARBEL). In addition, the Company holds all of the outstanding common stock of four other direct subsidiaries: FirstEnergy Properties, Inc., FirstEnergy Ventures, Corp., FirstEnergy Nuclear Operating Company (FENOC) and FirstEnergy Securities Transfer Company. The Companies' combined service areas encompass approximately 13,200 square miles in central and northern Ohio and western Pennsylvania. The areas they serve have combined populations of approximately 5.8 million. OE was organized under the laws of the State of Ohio in 1930 and owns property and does business as an electric public utility in that state. OE also has ownership interests in certain generating facilities located in the Commonwealth of Pennsylvania. OE engages in the generation, distribution and sale of electric energy to communities in a 7,500 square mile area of central and northeastern Ohio. OE also engages in the sale, purchase and interchange of electric energy with other electric companies. The area it serves has a population of approximately 2.7 million. OE owns all of the outstanding common stock of Penn, a Pennsylvania corporation, which furnishes electric service to communities in a 1,500 square mile area of western Pennsylvania. The area served by Penn has a population of approximately 0.4 million. CEI was organized under the laws of the State of Ohio in 1892 and does business as an electric public utility in that state. It also has ownership interests in certain generating facilities in Pennsylvania. CEI engages in the generation, distribution and sale of electric energy in an area of approximately 1,700 square miles in northeastern Ohio. CEI also engages in the sale, purchase and interchange of electric energy with other electric companies. The area CEI serves has a population of approximately 1.9 million. TE was organized under the laws of the State of Ohio in 1901 and does business as an electric public utility in that state. It also has ownership interests in certain generating facilities in Pennsylvania. TE engages in the generation, distribution and sale of electric energy in an area of approximately 2,500 square miles in northwestern Ohio. TE also engages in the sale, purchase and interchange of electric energy with other electric companies. The area TE serves has a population of approximately 0.8 million. FE Services was organized under the laws of the State of Ohio in 1997 and provides energy-related products and services. FE Services has two subsidiaries, Penn Power Energy, Inc. (a Pennsylvania corporation), which provides electric generation services and other energy services to Pennsylvania customers and FirstEnergy Generation Corp., which operates the nonnuclear generation businesses of the Companies. FE Facilities is the parent company of eleven direct subsidiaries, which are heating, ventilating, air conditioning and energy management companies. FETS, which had been organized as a corporation in Delaware in 1995, had primarily acquired and arranged for the delivery of electricity and natural gas to FE Services' retail customers. MARBEL is a natural gas pipeline company whose subsidiaries include MARBEL HoldCo, Inc. a holding company which has a 50% ownership in Great Lakes Energy Partners, LLC, an oil and natural gas exploration and production venture, and other subsidiaries owning interests in natural gas distribution and transmission facilities, and Northeast Ohio Operating Companies, Inc., a holding company, which provides gas distribution and transportation services. Merger Agreement On August 8, 2000, the Company and GPU, Inc. (GPU), a Pennsylvania corporation, entered into an Agreement and Plan of Merger. Under the merger agreement, the Company would acquire all of the outstanding shares of GPU's common stock for approximately $4.5 billion in cash and FirstEnergy common stock. Approximately $7.4 billion of debt and preferred stock of GPU's subsidiaries would still be outstanding. The transaction would be accounted for by the purchase method. The combined company's principal electric utility operating companies would include OE, CEI, TE, Penn and ATSI, as well as GPU's electric utility operating companies - Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, which serve customers in New Jersey and Pennsylvania. Under the agreement, GPU shareholders would receive the equivalent of $36.50 for each share of GPU common stock they own, payable in cash or in FirstEnergy common stock, as long as FirstEnergy's common stock price is between $24.2438 and $29.6313. GPU shareholders would be able to elect the form of consideration they wish to receive, subject to proration so that the aggregate consideration to all GPU shareholders will be 50 percent cash and 50 percent FirstEnergy common stock. Each GPU share converted into FirstEnergy common stock would receive not less than 1.2318 and not more than 1.5055 shares of FirstEnergy common stock, depending on the average closing price of FirstEnergy stock during the 20-day trading period ending on the seventh trading date prior to the merger closing. The stock portion of the consideration is expected to be tax-free to GPU shareholders. The merger has been approved by the respective shareholders of the Company and GPU, the Federal Energy Regulatory Commission (FERC), the Nuclear Regulatory Commission (NRC) and the Federal Communications Commission, and is expected to close promptly after all of the conditions to the consummation of the merger, including the receipt of all necessary regulatory approvals, are fulfilled or waived. The Company and GPU are working to secure the receipt of all remaining necessary regulatory approvals, including, but not limited to, the Securities and Exchange Commission (SEC), by the end of the second quarter of 2001. Utility Regulation The Companies are subject to broad regulation as to rates and other matters by the Public Utilities Commission of Ohio (PUCO) and the Pennsylvania Public Utility Commission (PPUC). With respect to their wholesale and interstate electric operations and rates, the Companies are subject to regulation, including regulation of their accounting policies and practices, by the FERC. Under Ohio law, municipalities may regulate rates, subject to appeal to the PUCO if not acceptable to the utility. PUCO Rate Matters The PUCO approved OE's Rate Reduction and Economic Development Plan in 1995 and a Rate Reduction and Economic Development Plan for CEI and TE in January 1997. These plans were designed to enhance and accelerate economic development within the Companies' Ohio service areas and to assure the Companies' customers in those service areas of long-term competitive pricing for energy services. These plans were to maintain then current base electric rates for OE, CEI and TE through December 31, 2005, unless additional revenues were needed to recover the costs of changes in environmental, regulatory or tax laws or regulations. At the end of the plan periods, OE base rates were to be reduced by $300 million (approximately 20 percent below then current levels) and CEI and TE base rates were to be reduced by a combined $310 million (approximately 15 percent below then current levels). As part of these plans, transition rate credits were implemented for customers, which were expected to reduce operating revenues for OE by approximately $600 million and CEI and TE by approximately $391 million during the plan period. The plans also had revised fuel recovery rate formulas so that OE's, CEI's and TE's fuel rates would be frozen through the regulatory plan period, subject to limited periodic adjustments (see "Fuel Recovery Procedures"). The plans were terminated at the end of 2000 concurrent with the implementation of the FirstEnergy transition plan as described further below. In July 1999, Ohio's electric utility restructuring legislation, which allowed Ohio electric customers to select their generation suppliers beginning January 1, 2001, was signed into law. Among other things, the legislation provides for a 5% reduction on the generation portion of residential customers' bills and the opportunity to recover transition costs, including regulatory assets, from January 1, 2001 through December 31, 2005. The period for the recovery of regulatory assets only can be extended up to December 31, 2010. The PUCO was authorized to determine the level of transition cost recovery, as well as the recovery period for the regulatory assets portion of those costs, in considering each Ohio electric utility's transition plan application. The Company, on behalf of its Ohio electric utility operating companies -- OE, CEI and TE -- filed its transition plan under Ohio's new electric utility restructuring law in late 1999. The filing also included additional information on the Company's plans to turn over control, and perhaps ownership, of its transmission assets to the Alliance Regional Transmission Organization. The transition plan itemized, or unbundled, the current price of electricity into its component elements -- including generation, transmission, distribution and transition charges. As required by the PUCO's rules, the Company's transition plan also included its proposals on corporate separation of its regulated and unregulated operations, operational and technical support changes needed to accommodate customer choice, an education program to inform customers of their options under the law, and how the Company's transmission system will be operated to ensure access to all users. Customer prices would be frozen through a five-year market development period (2001-2005), except for certain limited statutory exceptions including the 5% reduction in the price of generation for residential customers. The plan: (i) proposed recovery of generation-related transition costs of approximately $1.8 billion ($1.6 billion, net of deferred income taxes), $1.9 billion ($1.7 billion, net of deferred income taxes) and $0.8 billion ($0.7 billion, net of deferred income taxes) for OE, CEI and TE, respectively, over the market development period; and (ii) proposed recovery of transition costs related to regulatory assets aggregating approximately $1.5 billion ($1.0 billion, net of deferred income taxes), $1.9 billion ($1.4 billion, net of deferred income taxes) and $0.8 billion ($0.5 billion, net of deferred income taxes) for OE, CEI and TE, respectively. On July 19, 2000, the PUCO approved the Company's transition plan as modified by a settlement agreement with major parties to the transition plan. Major parties to the settlement agreement included the PUCO staff, the Ohio Consumers' Counsel, the Industrial Energy Users-Ohio, certain power marketers and others. Major provisions of the settlement agreement consisted of approval of recovery of transition costs in the amounts filed in the transition plan through no later than 2006 for OE, mid-2007 for TE and 2008 for CEI, except where a longer period of recovery is provided for in the settlement agreement. The Company will also give preferred access over the Company's subsidiaries to nonaffiliated marketers, brokers and aggregators to 1,120 megawatts of generation capacity through 2005 at established prices for sales to the Ohio operating companies' retail customers. The base electric rates for distribution service for OE, CEI and TE under their prior respective regulatory plans will be extended from December 31, 2005 through December 31, 2007. The transition rate credits for customers under their prior regulatory plans will also be extended through the Companies' respective transition cost recovery periods. The application of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71), to OE's generation business and the nonnuclear generation businesses of CEI and TE was discontinued with the issuance of the PUCO transition plan order. The SEC issued interpretive guidance regarding asset impairment measurement that concluded any supplemental regulated cash flows such as a competitive transition charge (CTC) should be excluded from the cash flows of assets in a portion of the business not subject to regulatory accounting practices. If those assets are impaired, a regulatory asset should be established if the costs are recoverable through regulatory cash flows. Consistent with the SEC guidance, $1.6 billion of impaired plant investments ($1.2 billion, $304 million and $53 million for OE, CEI and TE, respectively) were recognized as regulatory assets recoverable as transition costs through future regulatory cash flows. The settlement agreement provides to the Company's Ohio customers an additional incentive applied to the generation shopping credit of 45% for residential customers, 30% for commercial customers and 15% for industrial customers as reductions from their bills, when they select alternative energy providers (the credits exceed the price the Company will be offering to electricity suppliers relating to the 1,120 megawatts described in the preceding paragraph). The amount of the incentive will serve to reduce the amortization of transition costs during the market development period and will be recovered over the remaining transition cost recovery periods. If the customer switching targets established in the settlement agreement are not achieved by the end of 2005, the transition cost recovery periods could be shortened for OE, CEI and TE to reduce recovery by as much as $500 million (OE-$250 million, CEI-$170 million and TE-$80 million), but any such adjustment would be computed on a class-by- class and pro-rata basis. All of OE's, CEI's and TE's regulatory assets will continue to be recovered from customers under provisions of the Ohio transition plan. Under the previous regulatory plan, the PUCO had authorized OE to recognize additional capital recovery related to its generating assets (which was reflected as additional depreciation expense) and additional amortization of regulatory assets during the plan period of at least $2 billion more than the amount that would have been recognized if OE's plan were not in effect. These additional amounts were being recovered through current rates. CEI and TE recognized fair value purchase accounting adjustments to reduce nuclear plant by $1.71 billion and $0.84 billion, respectively, in connection with the 1997 FirstEnergy merger. These fair value adjustments recognized for financial reporting purposes satisfied the asset reduction commitments of at least $1.4 billion for CEI and $0.6 billion for TE contained in the CEI and TE plan. For regulatory purposes, CEI and TE recognized the accelerated amortization over the period that their rate plan was in effect. Based on the transition plan, OE, CEI and TE continue to bill and collect cost- based rates for their transmission and distribution services, which remain regulated; accordingly, it is appropriate that they continue the application of SFAS 71 to those operations. PPUC Rate Matters In December 1996, Pennsylvania enacted "The Electricity Generation Customer Choice and Competition Act," which permitted customers, including Penn's customers, to choose their electric generation supplier, while transmission and distribution services will continue to be supplied by their current providers. In June 1998, the PPUC authorized a rate restructuring plan for Penn in accordance with this law, which essentially resulted in the deregulation of Penn's generation business as of June 30, 1998. Penn was required to remove from its balance sheet all regulatory assets and liabilities related to its generation business and assess all other assets for impairment. In accordance with the above SEC guidance, Penn reduced its nuclear generating unit investments by approximately $305 million, of which approximately $227 million was recognized as a regulatory asset to be recovered through a CTC over a seven-year transition period; the remaining net amount of $78 million was written off. The charge of $51.7 million ($30.5 million after income taxes) for discontinuing the application of SFAS 71 to Penn's generation business was recorded as a 1998 extraordinary item on the Company's, OE's and Penn's respective Statement of Income. The phase in of customer choice was completed on January 1, 2001. Under the plan, Penn continues to deliver power to homes and businesses through its distribution system, which remains regulated by the PPUC. Penn's rates have been restructured to establish separate charges for transmission and distribution; generation, which is subject to competition, and stranded cost recovery. In the event customers obtain power from an alternative source, the generation portion of Penn's rates will be excluded from their bill and the customers will receive a generation charge from the alternative supplier. The stranded cost recovery portion of rates provides for recovery of certain amounts not otherwise considered recoverable in a competitive generation market, including regulatory assets. Penn is entitled to recover $236 million of stranded costs through a competitive transition charge that started in 1999 and ends in 2006. FERC Rate Matters Rates for wholesale customers are regulated by the FERC. The current FirstEnergy open access rates were approved by the FERC on March 16, 2000. On September 1, 2000, the Company transferred the Companies' transmission assets into a new subsidiary, ATSI. ATSI now owns and operates the FirstEnergy transmission system under its own open access transmission tariff. The new subsidiary represents a first step toward the goal of establishing or becoming part of a larger independent regional transmission organization (RTO). In working toward that goal, the Company joined with four other companies -- American Electric Power (AEP), Consumers Energy, Detroit Edison and Virginia Power -- to form the Alliance RTO. On June 3, 1999, the Alliance submitted an application to the FERC to form an independent, for profit RTO. On December 15, 1999, the FERC issued an order conditionally approving the Alliance's application. On January 24, 2001, the Alliance received final FERC approval.Northern Indiana Public Service Company and The Dayton Power and Light Company have also joined the Alliance. The Company is working with the Alliance to achieve operational status by the end of 2001. On February 21, 2001, the FERC approved the application of FirstEnergy and the Companies under Sections 203 and 205 of the Federal Power Act to implement the corporate restructuring plan approved by the PUCO as part of the Ohio transition plan. The corporate separation plan approved by the PUCO will result in FirstEnergy's operations being split into a competitive business unit, a utility business unit, and a support services unit. The corporate restructuring plan calls for FirstEnergy's generating facilities to be transferred to an Exempt Wholesale Generator (EWG) owned by FE Services. The transfer of the generating facilities to the EWG will occur after bond indenture and sale/leaseback requirements are satisfied. All competitive sales of generation will occur through FE Services. FE Services will also sell power to the Companies at fixed prices sufficient for the Companies to meet their provider of last resort and other regulatory obligations. The utility business unit will consist of the transmission and distribution operations of ATSI, CEI, OE, Penn and TE. On March 21, 2001, the Company, along with other members of the Alliance and the Midwest Independent System Operator, Inc. (MISO) filed a settlement agreement with the FERC that would resolve inter-RTO issues between the Alliance and MISO. If approved by the FERC, this settlement agreement will also permit Ameren Corporation, Commonwealth Edison Company, Commonwealth Edison of Indiana, Inc., and Illinois Power Company to leave the MISO and join the Alliance. Fuel Recovery Procedures In accordance with their respective rate plans, OE's, CEI's and TE's fuel recovery rates had been frozen, subject only to limited periodic adjustments. The respective rates were adjusted annually based on changes in the GDP Implicit Price Deflator, unless significant changes in environmental, regulatory or tax laws or regulations were to increase or decrease the cost of fuel. Such changes in laws, regulations and/or taxes would have required PUCO approval in order to be reflected as an adjustment to the Electric Fuel Component (EFC) rate. Commencing July 1, 2000, the OE EFC rate was limited to 97% of the average fuel cost rate of three utilities within the state. On March 1, 2000, the respective EFC rates in effect for CEI and TE were reduced to reflect the elimination of annual fixed charges related to a Bruce Mansfield Plant coal supply contract which amounted to $13.96 million for CEI and $8.74 million for TE. The resulting reduced EFC rates were used as the basis for the annual GDP adjustment, but, in no event, could either company's annual EFC rate exceed 1.465 cents per kWh during the rate plan period. Under the Ohio deregulation legislation the EFC was repealed effective with the beginning of the market development period on January 1, 2001. The unbundled retail electric rates for OE, CEI and TE during the market development period reflects the respective EFC rates that were in effect when the legislation was effective in 1999. Under its 1996 plan, Penn eliminated its energy cost rate for the recovery of fuel and net purchased power costs as a separate component of customer charges. Energy costs were rolled into Penn's base electric rates at their projected 1996-1997 level. Capital Requirements Capital expenditures for the Company and its subsidiaries for the years 2000 through 2005, excluding nuclear fuel, are shown in the following table. Such costs include expenditures for the betterment of existing facilities and for the construction of generating capacity, transmission lines, distribution lines, substations and other additions. See "Environmental Matters" below with regard to possible environment- related expenditures not included in the forecast. 2000 2001-2005 Capital Expenditures Forecast --------------------------------------- Actual 2001 2002-2005 Total ------ ---- --------- ----- (In millions) OE $192 $ 90 $ 270 $ 360 Penn 30 28 125 153 CEI 96 103 352 455 TE 93 49 169 218 ATSI 10 21 91 112 FE Services 2 311 519 830 Other subsidiaries 107 81 341 422 ---- ---- ------ ------ Total $530 $683 $1,867 $2,550 During the 2001-2005 period, maturities of, and sinking fund requirements for, long-term debt and preferred stock of the Company and its subsidiaries are: Preferred Stock and Long-Term Debt 2001-2005 Redemption Schedule ----------------------------------- 2001 2002-2005 Total ---- --------- ----- (In millions) OE $ 22 $ 917 $ 939 Penn 1 81 82 CEI 137 944 1,081 TE 30 475 505 Other subsidiaries 3 8 11 ---- ------ ------ Total $193 $2,425 $2,618 OE's and Penn's nuclear fuel purchases are financed through OES Fuel (a wholly owned subsidiary of OE) commercial paper and loans, both of which are supported by a $180.5 million long-term bank credit agreement. CEI and TE severally lease their respective portions of nuclear fuel and pay for the fuel as it is consumed. The Companies' respective investments for additional nuclear fuel, and nuclear fuel investment reductions as the fuel is consumed, during the 2001-2005 period are presented in the following table. The table also shows the Companies' operating lease commitments, net of capital trust cash receipts for the 2001-2005 period.
Other Net Nuclear Fuel 2001-2005 Forecasts Operating Lease Commitments ---------------------------------------------- New Investments Consumption 2001-2005 Schedule ---------------------- ---------------------- -------------------------- 2001 2002-2005 Total 2001 2002-2005 Total 2001 2002-2005 Total ---- --------- ----- ---- --------- ----- ---- --------- ------ (In millions) OE $16 $ 90 $106 $ 27 $ 99 $126 $ 68 $304 $372 Penn 23 58 81 18 73 91 -- 1 1 CEI 8 106 114 32 112 144 21 53 74 TE 7 72 79 23 76 99 72 302 374 --- ---- ---- ---- ---- ---- ---- ---- ---- Total $54 $326 $380 $100 $360 $460 $161 $660 $821
Short-term borrowings outstanding at December 31, 2000, consisted of $539.8 million of bank borrowings (Company-$395.0 million, OE-$136.4 and FE Facilities-$8.4) and $159.9 million of OES Capital, Incorporated commercial paper. OES Capital is a wholly owned subsidiary of OE whose borrowings are secured by customer accounts receivable. OES Capital can borrow up to $170 million under a receivables financing agreement at rates based on certain bank commercial paper. The Company and its utility operating subsidiaries also had $243 million (Company-$55 million and OE- $188 million) available under revolving lines of credit as of December 31, 2000. The Company may borrow under the facility and could transfer any of its borrowings under its $450 million line of credit to CEI and/or TE. In addition, Penn had a $2 million bank facility available that provides for borrowings on a short-term basis at the bank's discretion. Based on their present plans, the Companies could provide for their cash requirements in 2001 from the following sources: funds to be received from operations; available cash and temporary cash investments (approximate amounts as of December 31, 2000: Company's nonutility subsidiaries-$26 million, OE-$15 million, Penn-$3 million, CEI-$3 million, TE-$1 million and Company-$1 million); the issuance of long-term debt (for refunding purposes) and funds available under revolving credit arrangements. The extent and type of future financings will depend on the need for external funds as well as market conditions, the maintenance of an appropriate capital structure and the ability of the Companies to comply with coverage requirements in order to issue first mortgage bonds and preferred stock. The Companies will continue to monitor financial market conditions and, where appropriate, may take advantage of economic opportunities to refund debt and preferred stock to the extent that their financial resources permit. The coverage requirements contained in the first mortgage indentures under which the Companies issue first mortgage bonds provide that, except for certain refunding purposes, the Companies may not issue first mortgage bonds unless applicable net earnings (before income taxes), calculated as provided in the indentures, for any period of twelve consecutive months within the fifteen calendar months preceding the month in which such additional bonds are issued, are at least twice annual interest requirements on outstanding first mortgage bonds, including those being issued. Under OE's first mortgage indenture, the availability of property additions is more restrictive than the earnings test at the present time and would limit the amount of first mortgage bonds issuable against property additions to $158 million. OE is currently able to issue $921 million principal amount of first mortgage bonds against previously retired bonds without the need to meet the above restrictions. Under Penn's first mortgage indenture, other requirements also apply and are more restrictive than the earnings test at the present time. Penn is currently able to issue $224 million principal amount of first mortgage bonds, with up to $123 million of such amount issuable against property additions; the remainder could be issued against previously retired bonds. CEI and TE can issue $828 million and $543 million, respectively, principal amount of first mortgage bonds against a combination of previously retired bonds and property additions. OE's, Penn's and TE's respective articles of incorporation prohibit the sale of preferred stock unless applicable gross income, calculated as provided in the articles of incorporation, is equal to at least 1-1/2 times the aggregate of the annual interest requirements on indebtedness and annual dividend requirements on preferred stock outstanding immediately thereafter. Based upon earnings for 2000 and an assumed dividend rate of 9.25%, OE, Penn and TE would be permitted, under the earnings coverage test contained in their charters, to issue at least $1.7 billion, $55 million and $463 million of preferred stock, respectively. There are no restrictions on CEI' s ability to issue preferred stock. To the extent that coverage requirements or market conditions restrict the Companies' abilities to issue desired amounts of first mortgage bonds or preferred stock, the Companies may seek other methods of financing. Such financings could include the sale of preferred and/or preference stock or of such other types of securities as might be authorized by applicable regulatory authorities which would not otherwise be sold and could result in annual interest charges and/or dividend requirements in excess of those that would otherwise be incurred. Nuclear Regulation The construction and operation of nuclear generating units are subject to the regulatory jurisdiction of the NRC including the issuance by it of construction permits and operating licenses. The NRC's procedures with respect to the amendment of nuclear reactor operating licenses afford opportunities for interested parties to request adjudicatory hearings on health, safety and environmental issues subject to meeting NRC "standing" requirements. In this connection, the NRC may require substantial changes in operation or the installation of additional equipment to meet safety or environmental standards, subject to the backfit rule requiring the NRC to justify such new requirements as necessary for the overall protection of public health and safety. The possibility also exists for modification, denial or revocation of licenses in the event of substantial safety concerns at the nuclear facility. Beaver Valley Unit 1 was placed in commercial operation in 1976, and its operating license expires in 2016. Davis-Besse was placed in commercial operation in 1977, and its operating license expires in 2017. Perry Unit 1 and Beaver Valley Unit 2 were placed in commercial operation in 1987, and their operating licenses expire in 2026 and 2027, respectively. The NRC has promulgated and continues to promulgate regulations related to the safe operation of nuclear power plants. The Companies cannot predict what additional regulations will be promulgated or design changes required or the effect that any such regulations or design changes, or the consideration thereof, may have upon their nuclear plants. Although the Companies have no reason to anticipate an accident at any of their nuclear plants, if such an accident did happen, it could have a material but currently undeterminable adverse effect on the Company's consolidated financial position. In addition, such an accident at any operating nuclear plant, whether or not owned by the Companies, could result in regulations or requirements that could affect the operation or licensing of plants that the Companies do own with a consequent but currently undeterminable adverse impact, and could affect the Companies' abilities to raise funds in the capital markets. Nuclear Insurance The Price-Anderson Act limits the public liability which can be assessed with respect to a nuclear power plant to $9.5 billion (assuming 106 units licensed to operate) for a single nuclear incident, which amount is covered by: (i) private insurance amounting to $200 million; and (ii) $9.3 billion provided by an industry retrospective rating plan required by the NRC pursuant thereto. Under such retrospective rating plan, in the event of a nuclear incident at any unit in the United States resulting in losses in excess of private insurance, up to $88.1 million (but not more than $10 million per unit per year in the event of more than one incident) must be contributed for each nuclear unit licensed to operate in the country by the licensees thereof to cover liabilities arising out of the incident. Based on their nuclear ownership and leasehold interests, the Companies' maximum potential assessment under these provisions would be $352.4 million (OE-$94.2 million, Penn-$74.0 million, CEI-$106.3 million and TE-$77.9 million) per incident but not more than $40.0 million (OE- $10.7 million, Penn-$8.4 million, CEI-$12.1 million and TE-$8.8 million) in any one year for each incident. In addition to the public liability insurance provided pursuant to the Price-Anderson Act, the Companies have also obtained insurance coverage in limited amounts for economic loss and property damage arising out of nuclear incidents. The Companies are members of Nuclear Electric Insurance Limited (NEIL) which provides coverage (NEIL I) for the extra expense of replacement power incurred due to prolonged accidental outages of nuclear units. Under NEIL I, the Companies have policies, renewable yearly, corresponding to their respective nuclear interests, which provide an aggregate indemnity of up to approximately $789 million (OE- $210 million, Penn-$148 million, CEI-$255 million and TE-$176 million) for replacement power costs incurred during an outage after an initial 12-week waiting period. Members of NEIL I pay annual premiums and are subject to assessments if losses exceed the accumulated funds available to the insurer. The Companies' present maximum aggregate assessment for incidents at any covered nuclear facility occurring during a policy year would be approximately $4.1 million (OE-$1.1 million, Penn-$0.9 million, CEI- $1.2 million and TE-$0.9 million). The Companies are insured as to their respective nuclear interests under property damage insurance provided by NEIL to the operating company for each plant. Under these arrangements, $2.75 billion of coverage for decontamination costs, decommissioning costs, debris removal and repair and/or replacement of property is provided. The Companies pay annual premiums for this coverage and are liable for retrospective assessments of up to approximately $33.5 million (OE-$9.3 million, Penn-$6.5 million, CEI- $10.5 million and TE-$7.2 million) during a policy year. The Companies intend to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Companies' plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Companies' insurance policies, or to the extent such insurance becomes unavailable in the future, the Companies would remain at risk for such costs. The NRC requires nuclear power plant licensees to obtain minimum property insurance coverage of $1.06 billion or the amount generally available from private sources, whichever is less. The proceeds of this insurance are required to be used first to ensure that the licensed reactor is in a safe and stable condition and can be maintained in that condition so as to prevent any significant risk to the public health and safety. Within 30 days of stabilization, the licensee is required to prepare and submit to the NRC a cleanup plan for approval. The plan is required to identify all cleanup operations necessary to decontaminate the reactor sufficiently to permit the resumption of operations or to commence decommissioning. Any property insurance proceeds not already expended to place the reactor in a safe and stable condition must be used first to complete those decontamination operations that are ordered by the NRC. The Companies are unable to predict what effect these requirements may have on the availability of insurance proceeds to the Companies for the Companies' bondholders. Environmental Matters Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. The Companies have estimated capital expenditures for environmental compliance of approximately $201 million, which is included in the construction estimate given under "Capital Requirements" for 2001 through 2005. Air Regulation Under the provisions of the Clean Air Act of 1970, both the State of Ohio and the Commonwealth of Pennsylvania adopted ambient air quality standards, and related emission limits, including limits for sulfur dioxide (SO2) and particulates. In addition, the U.S. Environmental Protection Agency (EPA) promulgated an SO2 regulatory plan for Ohio which became effective for OE's, CEI's and TE's plants in 1977. Generating plants to be constructed in the future and some future modifications of existing facilities will be covered not only by the applicable state standards but also by EPA emission performance standards for new sources. In both Ohio and Pennsylvania the construction or certain modifications of emission sources requires approval from appropriate environmental authorities, and the facilities involved may not be operated unless a permit or variance to do so has been issued by those same authorities. The Companies are required to meet federally approved SO2 regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $27,500 for each day the unit is in violation. The EPA has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The Companies cannot predict what action the EPA may take in the future with respect to the interim enforcement policy. The Companies are in compliance with the current SO2 and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or using emission allowances. NOx reductions are being achieved through combustion controls and the generation of more electricity at lower-emitting plants. In September 1998, the EPA finalized regulations requiring additional NOx reductions from the Companies' Ohio and Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions of NOx emissions (an approximate 85% reduction in utility plant NOx emissions from projected 2007 emissions) across a region of twenty-two states and the District of Columbia, including Ohio and Pennsylvania, based on a conclusion that such NOx emissions are contributing significantly to ozone pollution in the eastern United States. In March 2000, the U.S. Court of Appeals for the D.C. Circuit upheld EPA's NOx Transport Rule except as applied to the State of Wisconsin and portions of Georgia and Missouri. By October 2000, states were to submit revised State Implementation Plans (SIP) to comply by May 31, 2004 with individual state NOx budgets established by the EPA. Pennsylvania recently submitted a SIP that requires compliance with the NOx budgets at the Companies' Pennsylvania facilities by May 1, 2003 and Ohio submitted a "draft" SIP that requires compliance with the NOx budgets at the Companies' Ohio facilities by May 31, 2004. A Federal Implementation Plan accompanied the NOx Transport Rule and may be implemented by the EPA in states which fail to revise their SIP. In another separate but related action, eight states filed petitions with the EPA under Section 126 of the Clean Air Act seeking reductions of NOx emissions which are alleged to contribute to ozone pollution in the eight petitioning states. The EPA position is that the Section 126 petitions will be adequately addressed by the NOx Transport Program, but a December 17, 1999 rulemaking established an alternative program which would require nearly identical 85% NOx reductions at 392 utility plants, including the Companies' Ohio and Pennsylvania plants, by May 2003, in the event implementation of the NOx Transport Rule is not implemented by a state. Additional Section 126 petitions were filed by New Jersey, Maryland, Delaware and the District of Columbia in mid-1999 and are still under evaluation by the EPA. The Companies continue to evaluate their compliance plans and other compliance options. In July 1997, the EPA promulgated changes in the National Ambient Air Quality Standard (NAAQS) for ozone and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which the Companies operate affected facilities. In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a Compliance Order to nine utilities covering 44 power plants, including the W. H. Sammis Plant. In addition, the U.S. Department of Justice filed eight civil complaints against various investor-owned utilities, which included a complaint against OE and Penn in the U.S. District Court for the Southern District of Ohio. The NOV and complaint allege violations of the Clean Air Act based on operation and maintenance of the Sammis Plant dating back to 1984. The complaint requests permanent injunctive relief to require the installation of "best available control technology" and civil penalties of up to $27,500 per day of violation. Although unable to predict the outcome of these proceedings, the Company believes the Sammis Plant is in full compliance with the Clean Air Act and the NOV and complaint are without merit. Penalties could be imposed if the Sammis Plant continues to operate without correcting the alleged violations and a court determines that the allegations are valid. The Sammis Plant continues to operate while these proceedings are pending. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. Water Regulation Various water quality regulations, the majority of which are the result of the federal Clean Water Act and its amendments, apply to the Companies' plants. In addition, Ohio and Pennsylvania have water quality standards applicable to the Companies' operations. As provided in the Clean Water Act, authority to grant federal National Pollutant Discharge Elimination System water discharge permits can be assumed by a state. Ohio and Pennsylvania have assumed such authority. Waste Disposal As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. Certain fossil- fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending EPA's evaluation of the need for future regulation. EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash under its authority to regulate nonhazardous waste. CEI and TE have been named as "potentially responsible parties" (PRPs) at waste disposal sites which may require cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Allegations of disposal of hazardous substances at historical sites and the liability involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. CEI and TE have accrued liabilities totaling $3.7 million at December 31, 2000, based on estimates of the total costs of cleanup, the proportionate responsibility of other PRPs for such costs and the financial ability of other PRPs to pay. CEI and TE believe that waste disposal costs will not have a material adverse effect on their financial condition, cash flows or results of operations. In 1980, Congress passed the Low-Level Radioactive Waste Policy Act which provides that the disposal of low-level radioactive waste is the responsibility of the state where such waste is generated. The Act encourages states to form compacts among themselves to develop regional disposal facilities. Failure by a state or compact to begin implementation of a program could result in access denial to the two facilities currently accepting low-level radioactive waste. Ohio is part of the Midwest Compact and has responsibility for siting and constructing a disposal facility. On June 26, 1997, the Midwest Compact Commission (Compact) voted to cease all siting activities in the host state of Ohio and to dismantle the Ohio Low- Level Radioactive Waste Facility Development Authority, the statutory agency charged with siting and constructing the low-level radioactive waste disposal facility. While the Compact remains intact, it has no plans to site or construct a low-level radioactive waste disposal facility in the Midwest. The Companies continue to ship low-level radioactive waste from their nuclear facilities to the Barnwell, South Carolina waste disposal facility. Summary Environmental controls are still in the process of development and require, in many instances, balancing the needs for additional quantities of energy in future years and the need to protect the environment. As a result, the Companies cannot now estimate the precise effect of existing and potential regulations and legislation upon any of their existing and proposed facilities and operations or upon their ability to issue additional first mortgage bonds under their respective mortgages. These mortgages contain covenants by the Companies to observe and conform to all valid governmental requirements at the time applicable unless in course of contest, and provisions which, in effect, prevent the issuance of additional bonds if there is a completed default under the mortgage. The provisions of each of the mortgages, in effect, also require, in the opinion of counsel for the respective Companies, that certification of property additions as the basis for the issuance of bonds or other action under the mortgages be accompanied by an opinion of counsel that the company certifying such property additions has all governmental permissions at the time necessary for its then current ownership and operation of such property additions. The Companies intend to contest any requirements they deem unreasonable or impossible for compliance or otherwise contrary to the public interest. Developments in these and other areas of regulation may require the Companies to modify, supplement or replace equipment and facilities, and may delay or impede the construction and operation of new facilities, at costs which could be substantial. Fuel Supply The Companies' sources of generation during 2000 were: Coal Nuclear ---- ------- OE 73.8% 26.2% Penn 38.8% 61.2% CEI 53.4% 46.6% TE 43.3% 56.7% Total FirstEnergy 58.5% 41.5% The Company currently has long-term coal contracts which will provide approximately 11,040,000 tons for the year 2001. The contracts are shared among the Companies based on various economic considerations. This contract coal is produced primarily from mines located in Pennsylvania, Kentucky and West Virginia. The contracts expire at various times through December 31, 2005. The Companies estimate their 2001 coal requirements to be approximately 18,230,000 tons (OE - 7,425,000, Penn - 6,050,000, CEI - 3,465,000, and TE - 1,290,000). See "Environmental Matters" for factors pertaining to meeting environmental regulations affecting coal-fired generating units. OES Fuel is the sole lessor for OE's and Penn's nuclear fuel requirements (see "Capital Requirements," Note 4G of Notes to the Company's Consolidated Financial Statements and Note 3F of Notes to OE's Consolidated Financial Statements). Nuclear fuel is currently financed for CEI and TE through leases with a special-purpose corporation. The Company has contracts for uranium material and conversion services through 2006. The enrichment services are contracted for the majority of the enrichment requirements for nuclear fuel through 2005. Fabrication services for fuel assemblies are contracted for the next three reloads for Beaver Valley Unit 1, three reloads for Beaver Valley Unit 2 (through approximately 2004 and 2005, respectively), the next two reloads for Davis-Besse (through approximately 2005) and through the life of the plant for Perry (through approximately 2026). In addition to the existing commitments, the Company intends to make additional arrangements for the supply of uranium and for the subsequent conversion, enrichment, fabrication, and waste disposal services. On-site spent fuel storage facilities are expected to be adequate for Perry through 2011; facilities at Beaver Valley Units 1 and 2 are expected to be adequate through 2018 and 2009, respectively. After scheduled plant modifications are completed in 2002, Davis-Besse will have adequate storage through the remainder of its operating license period. After current on-site storage capacity is exhausted, additional storage capacity will have to be obtained either through plant modifications, interim off-site disposal, or permanent waste disposal facilities. The Federal Nuclear Waste Policy Act of 1982 provides for the construction of facilities for the permanent disposal of high-level nuclear wastes, including spent fuel from nuclear power plants operated by electric utilities; however, the selection of a suitable site is embroiled in the political process. The Company has contracts with the U.S. Department of Energy (DOE) for the disposal of spent fuel for Beaver Valley, Davis-Besse and Perry. On December 17, 1996, the DOE notified the Company that it would be unable to begin acceptance of spent fuel for disposal by January 31, 1998 as mandated by Section 302(a)(5)(B) of the Nuclear Waste Policy Act (NPA). Based on the DOE schedule published in the July 1999 Draft Environmental Impact Statement, the Yucca Mountain Repository is currently projected to start receiving spent fuel in 2010. The Company intends to make additional arrangements for storage capacity as a contingency for further delays with the DOE acceptance of spent fuel for disposal past 2010. System Capacity and Reserves The 2000 net maximum hourly demand on each of the Companies was: OE-5,538,000 kilowatts (kW) (including an additional 310,000 kW of firm power sales as discussed under "Competition") on June 14, 2000; Penn- 926,000 kW (including an additional 63,000 kW of firm power sales as discussed under "Competition") on December 12, 2000; CEI-4,280,000 kW (excluding an additional 50,000 kW of firm power sales under a contract which extends through 2002 as discussed under "Competition") on June 14, 2000; and TE-1,976,000 kW on August 15, 2000. The Company is constructing twelve new combustion turbines (CTs), increasing generation capability by 1,155 MW by 2003. Eight of the new CTs (815 MW) are expected to be on-line by the summer of 2001. The remaining 4 CTs (340 MW) are planned to be available for the summer of 2002. Based on existing capacity plans, firm purchase contracts and anticipated term power sales, the capacity margin anticipated for the next two years ranges from 12%-14%. In addition to physical assets and contracts, the Company's power supply plan includes interruptible retail contracts and retail demand-side management options and financial hedges such as call options, futures and forwards. Regional Reliability The Companies participate with 24 other electric companies operating in nine states in the East Central Area Reliability Coordination Agreement (ECAR), which was organized for the purpose of furthering the reliability of bulk power supply in the area through coordination of the planning and operation by the ECAR members of their bulk power supply facilities. The ECAR members have established principles and procedures regarding matters affecting the reliability of the bulk power supply within the ECAR region. Procedures have been adopted regarding: i) the evaluation and simulated testing of systems' performance; ii) the establishment of minimum levels of daily operating reserves; iii) the development of a program regarding emergency procedures during conditions of declining system frequency; and iv) the basis for uniform rating of generating equipment. Competition The Companies had traditionally competed with other utilities for intersystem bulk power sales and for sales to municipalities and cooperatives. The Companies compete with suppliers of natural gas and other forms of energy in connection with their industrial and commercial sales and in the home climate control market, both with respect to new customers and conversions, and with all other suppliers of electricity. To date, there has been no substantial cogeneration by the Companies' customers. As a result of the actions taken by state legislative bodies over the last few years, major changes in the electric utility business are occurring in parts of the United States, including Ohio and Pennsylvania, in which the Company's utility subsidiaries operate. These changes have resulted in fundamental alterations in the way traditional integrated utilities and holding company systems, like FirstEnergy, conduct their business. In accordance with the Ohio electric utility restructuring law under which Ohio electric customers choose their electric generation suppliers starting in January 2001, the Company has further aligned its business units to accommodate its retail strategy and participate in the competitive electricity marketplace in Ohio. The organizational changes are intended to deal with the unbundling of electric utility services and new ways of conducting business. Sales of electricity in these deregulated markets are diversifying the Companies' revenue sources through FirstEnergy's competitive subsidiaries in areas outside of their franchise areas. This strategy has positioned the Company to compete in the northeast quadrant of the United States - the region targeted by the Company for growth. The Company's competitive subsidiaries are actively participating in deregulated energy markets in Ohio, Pennsylvania, New Jersey, Delaware and Maryland. Currently, FE Services is providing electric generation to customers within those states. As additional states within the northeast region of the United States become deregulated, FE Services is preparing to enter these markets. Competition in Ohio's electric generation business is being phased in during the five-year market development period, through 2005. The Company has moved the operation of the generation portion of its business to the competitive business unit as reflected in its approved Ohio transition plan. The Companies will continue to provide generation services to regulated franchise customers who have not chosen an alternative, competitive generation supplier, by obtaining generation through power supply agreements with the competitive business unit. In addition to electric generation, FE Services is also competing in deregulated natural gas markets, adding nearly 140,000 customers in 2000, as well as offering other energy related products and services. In an effort to utilize more fully their facilities and hold down costs to their other customers, OE and Penn have entered into a long-term power sales agreement with another utility. Currently, OE and Penn are selling 450,000 kW annually under this contract through December 31, 2005. OE and Penn have the option to reduce this commitment by 150,000 kW, with three years' advance notice. In addition, CEI has entered into a long-term power sales contract with another utility and is currently selling up to 20,000 kW under this contract though December 31, 2002. Research and Development The Companies participate in funding the Electric Power Research Institute (EPRI), which was formed for the purpose of expanding electric research and development under the voluntary sponsorship of the nation's electric utility industry - public, private and cooperative. Its goal is to mutually benefit utilities and their customers by promoting the development of new and improved technologies to help the utility industry meet present and future electric energy needs in environmentally and economically acceptable ways. EPRI conducts research on all aspects of electric power production and use, including fuels, generation, delivery, energy management and conservation, environment effects and energy analysis. The major portion of EPRI research and development projects is directed toward practical solutions and their applications to problems currently facing the electric utility industry. In 2000, approximately 70% of the Companies' research and development expenditures were related to EPRI. Executive Officers The executive officers are elected at the annual organization meeting of the Board of Directors, held immediately after the annual meeting of stockholders, and hold office until the next such organization meeting, unless the Board of Directors shall otherwise determine, or unless a resignation is submitted. Position Held During Name Age Past Five Years Dates - -------------- --- ----------------------------------- ------------- H.P. Burg 54 Chairman of the Board and Chief Executive Officer 2000-present President and Chief Executive Officer 1999-2000 President and Chief Operating Officer 1998-1999 President and Chief Financial Officer 1997-1998 President, Chief Operating Officer and Chief Financial Officer-OE 1996-1997 Senior Vice President and Chief Financial Officer-OE *-1996 A.J. Alexander 49 President 2000-present Executive Vice President and General Counsel 1997-2000 Senior Vice President and General Counsel-OE *-1997 E.T. Carey 58 Vice President - Distribution 1997-present Vice President - Regional Operations and Customer Service-OE *-1997 M.B. Carroll 49 Vice President - Corporate Affairs 1997-present Manager - Sandusky Area-OE *-1997 K.W. Dindo 51 Vice President - Energy Services 1998-present Vice President and Controller - Caliber System, Inc. *-1998 D.S. Elliott 46 Vice President - Sales and Marketing 1997-present Manager - FirstEnergy Services - OE 1997 Manager - Eastern Division - OE 1996-1997 Manager - Youngstown Division - OE *-1996 A.R. Garfield 62 Senior Vice President - Supply and Sales 2000-present Vice President - Business Development 1997-2000 Vice President - System Operations - OE *-1997 J.A. Gill 64 Senior Vice President - Administra- tive Services 1998-present Vice President - Administrative Services 1997-1998 Vice President - Administration - OE *-1997 K.J. Keough 41 Vice President - Business Planning & Ventures 1999-present Partner - McKinsey & Company *-1999 R.H. Marsh 50 Vice President and Chief Financial Officer 1998-present Vice President - Finance 1997-1998 Treasurer - OE *-1997 G.L. Pipitone 51 Vice President - Fossil Production 1997-present Vice President - Generation and Transmission - OE 1996-1997 Manager - Akron Division - OE *-1996 S.F. Szwed 48 Vice President - Transmission 1997-present Vice President - Engineering & Planning - Centerior Service Company *-1997 L.L. Vespoli 41 Vice President and General Counsel 2000-present Associate General Counsel 1997-2000 Senior Attorney - OE *-1997 N.C. Ashcom 53 Corporate Secretary 1997-present Secretary - OE *-1997 T. C. Navin 43 Treasurer 1998-present Assistant Treasurer 1998-1998 Director, Treasury Services 1998-1998 Director, Asset Strategy 1997-1998 Staff Business Analyst - OE 1997-1997 Senior Business Analyst - OE *-1997 H. L. Wagner 48 Controller 1997-present Comptroller - OE *-1997 Except for H. P. Burg, A. J. Alexander, M. B. Carroll, K. W. Dindo, D. S. Elliott and K. J. Keough, the officers above hold the same office for FirstEnergy, OE, CEI and TE and H. P. Burg holds the office of President for OE, CEI and TE. Except for J. A. Elser holding the office of President and J. A. Gill and A. R. Garfield holding the offices of Vice President, and except for A. J. Alexander, M. B. Carroll, K. W. Dindo, D. S. Elliott and K. J. Keough, the officers above hold the same offices for Penn. *Indicates position held at least since January 1, 1996. As of January 1, 2001, the Company's nonutility subsidiaries and the Companies had a total of 13,830 employees consisting of the following: Company - 1,618, OE - 1,372, CEI - 1,046, TE - 539, Penn - 275, FE Services - 2,334, FENOC - 2,667, FE Facilities - 3,930 and MARBEL - 49 employees. ITEM 2. PROPERTIES The Companies' respective first mortgage indentures constitute, in the opinion of the Companies' counsel, direct first liens on substantially all of the respective Companies' physical property, subject only to excepted encumbrances, as defined in the indentures. See "Leases" and "Capitalization" notes to the respective financial statements for information concerning leases and financing encumbrances affecting certain of the Companies' properties. The Companies own, individually or together as tenants in common, and/or lease, the generating units in service as of March 1, 2001, shown on the table below. Net Demonstrated Capacity (MW) -------------
OE Penn CEI TE ----------- ---------- ------------- ----------- Unit Total % MW % MW % MW % MW ---- ----- - -- - -- - -- - -- Plant - Location - ---------------- Coal-Fired Units - ---------------- Ashtabula- 5,7,8,9 376 -- -- -- -- 100.00% 376 -- -- Ashtabula, OH Bay Shore- 1-4 631 -- -- -- -- -- -- 100.00% 631 Toledo, OH R. E. Burger- 3-5 406 100.00% 406 -- -- -- -- -- -- Shadyside, OH Eastlake-Eastlake, OH 1-5 1,233 -- -- -- -- 100.00% 1,233 -- -- Lakeshore- 18 245 -- -- -- -- 100.00% 245 -- -- Cleveland, OH B. Mansfield- 1 780 60.00% 468 33.50% 261 6.50% 51 -- -- Shippingport, PA 2 780 43.06% 336 9.36% 73 30.28%(b) 236 17.30%(b) 135 3 800 49.34% 395 6.28% 50 24.47% 196 19.91%(b) 159 W. H. Sammis- 1-6 1,620 100.00% 1,620 -- -- -- -- -- -- Stratton, OH 7 600 48.00% 288 20.80% 125 31.20% 187 -- -- ------ ----- ----- ----- ----- Total 7,471 3,513 509 2,524 925 ------ ----- ----- ----- ----- Nuclear Units - ------------- Beaver Valley- 1 810 35.00% 283 65.00% 527 -- -- -- -- Shippingport, PA 2 820 41.88%(a) 343 13.74% 113 24.47% 201 19.91%(c) 163 Davis-Besse- 1 883 -- -- -- -- 51.38% 454 48.62% 429 Oak Harbor, OH Perry- 1 1.248 30.00%(a) 374 5.24% 65 44.85% 561 19.91% 248 N. Perry Village, OH ------ ----- ----- ----- ----- Total 3,761 1,000 705 1,216 840 ------ ----- ----- ----- ----- Oil/Gas-Fired/ Pumped Storage Units - -------------------- Edgewater-Lorain, OH 4 100 100.00% 100 -- -- -- -- -- -- Richland-Defiance, OH 1-6 432 -- -- -- -- -- -- 100.00% 432 Seneca-Warren, PA 435 -- -- -- -- 100.00% 435 -- -- West Lorain- 1 120 100.00% 120 -- -- -- -- -- -- Lorain, OH Other 196 109 19 33 35 ------ ----- ----- ----- ----- Total 1,283 329 19 468 467 ------ ----- ----- ----- ----- Total 12,515 4,842 1,233 4,208 2,232 ====== ===== ===== ===== ===== Notes: (a) OE's interests consist of 20.22% owned and 21.66% leased for Beaver Valley Unit 2; and 17.42% owned (representing portion leased from a wholly owned subsidiary of OE) and 12.58% leased for Perry. (b) CEI's interests consist of 1.68% owned and 28.60% leased and TE's interests are leased. (c) TE's interests consist of 1.65% owned and 18.26% leased.
Prolonged outages of existing generating units might make it necessary for the Companies, depending upon the demand for electric service upon their system, to use to a greater extent than otherwise, less efficient and less economic generating units, or purchased power, and in some cases may require the reduction of load during peak periods under the Companies' interruptible programs, all to an extent not presently determinable. The Companies' generating plants and load centers are connected by a transmission system consisting of elements having various voltage ratings ranging from 23 kilovolts (kV) to 345 kV. The Companies' overhead and underground transmission lines aggregate 8,713 pole miles. The Companies' electric distribution systems include 56,671 miles of overhead pole line and underground conduit carrying primary, secondary and street lighting circuits. They own substations with a total installed transformer capacity of 53,423,000 kilovolt-amperes. The Company's transmission system also interconnects with those of AEP, The Dayton Power & Light Company, Duquesne Light Company, Allegheny Energy, Inc., Michigan Electric Coordination Systems and Pennsylvania Electric Company. The Company's distribution and transmission systems as of December 31, 2000, consists of the following: Substation Distribution Transmission Transformer Lines Lines Capacity ------------ ------------ ----------- (Miles) (kV-amperes) OE 26,965 550 12,291,000 Penn 5,265 44 2,303,000 CEI 23,756 2,144 12,897,000 TE 685 223 4,474,000 ATSI -- 5,752 21,458,000 ------ ----- ---------- Total 56,671 8,713 53,423,000 The Company's MARBEL Energy subsidiary owns interests in crude oil and natural gas production, as well as natural gas distribution and transmission facilities. MARBEL's subsidiaries include Marbel HoldCo, Inc. a holding company which has a 50% ownership in Great Lakes Energy Partners, LLC (Great Lakes), an oil and natural gas exploration and production venture and Northeast Ohio Operating Companies, Inc. which has as a subsidiary, Northeast Ohio Natural Gas Corporation. The joint venture in Great Lakes includes interests in more than 7,900 oil and natural gas wells, drilling rights to nearly one million acres, proved reserves of 480 billion cubic feet equivalent of natural gas and oil and 4,800 miles of pipelines in the Appalachian Basin. ITEM 3. LEGAL PROCEEDINGS See Environmental Matters section. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item for FirstEnergy is included on page 17 of FirstEnergy's 2000 Annual Report to Stockholders (Exhibit 13). The information required for OE, CEI, TE and Penn is not applicable because they are wholly owned subsidiaries. ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by items 6 through 8 is incorporated herein by reference to Selected Financial Data, Management's Discussion and Analysis of Results of Operations and Financial Condition, and Financial Statements included on the pages shown in the following table in the respective company's 2000 Annual Report to Stockholders (Exhibit 13). Item 6 Item 7 Item 8 ------ ------ ------ FirstEnergy 17 18-24 25-47 OE 1 2-7 8-26 Penn 1 2-5 6-20 CEI 1 2-6 7-24 TE 1 2-6 7-24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT FirstEnergy ----------- The information required by Item 10, with respect to Identification of FirstEnergy's Directors and with respect to reports required to be filed under Section 16 of the Securities Exchange Act of 1934, is incorporated herein by reference to the Company's 2001 Proxy Statement filed with the Securities and Exchange Commission (SEC) pursuant to Regulation 14A and, with respect to Identification of Executive Officers, to "Part I, Item 1. Business - Executive Officers" herein. OE, Penn, CEI and TE -------------------- H. P. Burg, A. J. Alexander and R. H. Marsh are the Directors of OE, Penn, CEI and TE. Information concerning these individuals is shown in the "Executive Officers" section of Item 1. ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS FirstEnergy, OE, CEI, TE and Penn - --------------------------------- The information required by Items 11, 12 and 13 is incorporated herein by reference to the Company's 2001 Proxy Statement filed with the SEC pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements Included in Part II of this report and incorporated herein by reference to the respective company's 2000 Annual Report to Stockholders (Exhibit 13 below) at the pages indicated. FE OE Penn CEI TE -- -- ---- --- -- Report of Independent Public Accountants 16 26 20 24 24 Statements of Income-Three Years Ended December 31, 2000 25 8 6 7 7 Balance Sheets-December 31, 2000 and 1999 26 9 7 8 8 Statements of Capitalization-December 31, 2000 and 1999 27-29 10-11 8 9-10 9-10 Statements of Common Stockholders' Equity-Three Years Ended December 31, 2000 30 12 9 11 11 Statements of Preferred Stock-Three Years Ended December 31, 2000 31 12 9 11 11 Statements of Cash Flows-Three Years Ended December 31, 2000 32 13 10 12 12 Statements of Taxes-Three Years Ended December 31, 2000 33 14 11 13 13 Notes to Financial Statements 34-47 15-25 12-19 14-23 14-23 2. Financial Statement Schedules Included in Part IV of this report: FE OE Penn CEI TE -- -- ---- --- -- Report of Independent Public Accountants 44 45 48 46 47 Schedule - Three Years Ended December 31, 2000: II - Consolidated Valuation and Qualifying Accounts 49 50 53 51 52 Schedules other than the schedule listed above are omitted for the reason that they are not required or are not applicable, or the required information is show in the financial statements or notes thereto. 3. Exhibits - FirstEnergy Exhibit Number - ------- 3-1 - Articles of Incorporation constituting FirstEnergy Corp.'s Articles of Incorporation, dated September 17,1996. (September 17, 1996 Form 8-K, Exhibit C) 3-1(a) - Amended Articles of Incorporation of FirstEnergy Corp.(Registration No. 333-21011, Exhibit (3)-1.) 3-2 - Regulations of FirstEnergy Corp. (September 17, 1996 Form 8-K, Exhibit D) (A) 3-2(a) - FirstEnergy Corp. Amended Code of Regulations. (Registration No. 333-21011, Exhibit (3)-2.) 4-1 - Rights Agreement (December 1, 1997 Form 8-K, Exhibit 4.1) 10-1 - FirstEnergy Corp. Executive and Director Incentive Compensation Plan, revised November 15, 1999. (1999 Form 10-K, Exhibit 10-1) 10-2 - Amended FirstEnergy Corp. Deferred Compensation Plan for Directors, revised November 15, 1999. (1999 Form 10-K, Exhibit 10-2) 10-3 - Employment, severance and change of control agreement between FirstEnergy Corp. and executive officers. (1999 Form 10-K, Exhibit 10-3) 10-4 - FirstEnergy Corp. Supplemental Executive Retirement Plan, amended January 1, 1999. (1999 Form 10-K, Exhibit 10-4) 10-5 - FirstEnergy Corp. Executive Incentive Compensation Plan. (1999 Form 10-K, Exhibit 10-5) 10-6 - Restricted stock agreement between FirstEnergy Corp. and A. J. Alexander. (1999 Form 10-K, Exhibit 10-6) 10-7 - FirstEnergy Corp. Executive and Director Incentive Compensation Plan. (1998 Form 10-K, Exhibit 10-1) 10-8 - Amended FirstEnergy Corp. Deferred Compensation Plan for Directors, amended February 15, 1999. (1998 Form 10-K, Exhibit 10-2) (A) 10-9 - Restricted stock agreement between FirstEnergy Corp. and A. J. Alexander. (A) 10-10 - Restricted stock agreement between FirstEnergy Corp. and H. P. Burg. (A) 10-11 - Stock option agreement between FirstEnergy Corp. and officers dated November 22, 2000. (A) 10-12 - Stock option agreement between FirstEnergy Corp. and officers dated March 1, 2000. (A) 10-13 - Stock option agreement between FirstEnergy Corp. and director dated January 1, 2000. (A) 10-14 - Stock option agreement between FirstEnergy Corp. and two directors dated January 1, 2001. (A) 12.1 - Consolidated fixed charge ratios. (A) 13 - 2000 Annual Report to Stockholders. (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the SEC.) (A) 21 - List of Subsidiaries of the Registrant at December 31, 2000. (A) 23 - Consent of Independent Public Accountants. (A) - Provided herein in electronic format as an exhibit. 3. Exhibits - Ohio Edison 2-1 - Agreement and Plan of Merger, dated as of September 13, 1996, between Ohio Edison Company (OE) and Centerior Energy Corporation. (September 17, 1996 Form 8-K, Exhibit 2-1). 3-1 - Amended Articles of Incorporation, Effective June 21, 1994, constituting OE's Articles of Incorporation. (1994 Form 10-K, Exhibit 3-1.) 3-2 - Code of Regulations of OE as amended April 24, 1986. (Registration No. 33-5081, Exhibit (4)(d).) 3-3 - Code of Regulations of OE as amended September 27, 1999. (1999 Form 10-K, Exhibit 3-3.) (B) 4-1 - Indenture dated as of August 1, 1930 between OE and Bankers Trust Company, (now the Bank of New York), as Trustee, as amended and supplemented by Supplemental Indentures: Dated as of File Reference Exhibit No. ----------- -------------- ----------- March 3, 1931 2-1725 B1, B-1(a),B-1(b) November 1, 1935 2-2721 B-4 January 1, 1937 2-3402 B-5 September 1, 1937 Form 8-A B-6 June 13, 1939 2-5462 7(a)-7 August 1, 1974 Form 8-A, August 28, 1974 2(b) July 1, 1976 Form 8-A, July 28, 1976 2(b) December 1, 1976 Form 8-A, December 15, 1976 2(b) June 15, 1977 Form 8-A, June 27, 1977 2(b) Supplemental Indentures: September 1, 1944 2-61146 2(b)(2) April 1, 1945 2-61146 2(b)(2) September 1, 1948 2-61146 2(b)(2) May 1, 1950 2-61146 2(b)(2) January 1, 1954 2-61146 2(b)(2) May 1, 1955 2-61146 2(b)(2) August 1, 1956 2-61146 2(b)(2) March 1, 1958 2-61146 2(b)(2) April 1, 1959 2-61146 2(b)(2) June 1, 1961 2-61146 2(b)(2) September 1, 1969 2-34351 2(b)(2) May 1, 1970 2-37146 2(b)(2) September 1, 1970 2-38172 2(b)(2) June 1, 1971 2-40379 2(b)(2) August 1, 1972 2-44803 2(b)(2) September 1, 1973 2-48867 2(b)(2) May 15, 1978 2-66957 2(b)(4) February 1, 1980 2-66957 2(b)(5) April 15, 1980 2-66957 2(b)(6) June 15, 1980 2-68023 (b)(4)(b)(5) October 1, 1981 2-74059 (4)(d) October 15, 1981 2-75917 (4)(e) February 15, 1982 2-75917 (4)(e) July 1, 1982 2-89360 (4)(d) March 1, 1983 2-89360 (4)(e) March 1, 1984 2-89360 (4)(f) September 15, 1984 2-92918 (4)(d) September 27, 1984 33-2576 (4)(d) November 8, 1984 33-2576 (4)(d) December 1, 1984 33-2576 (4)(d) December 5, 1984 33-2576 (4)(e) January 30, 1985 33-2576 (4)(e) February 25, 1985 33-2576 (4)(e) July 1, 1985 33-2576 (4)(e) October 1, 1985 33-2576 (4)(e) January 15, 1986 33-8791 (4)(d) May 20, 1986 33-8791 (4)(d) June 3, 1986 33-8791 (4)(e) October 1, 1986 33-29827 (4)(d) August 25, 1989 33-34663 (4)(d) February 15, 1991 33-39713 (4)(d) May 1, 1991 33-45751 (4)(d) May 15, 1991 33-45751 (4)(d) September 15, 1991 33-45751 (4)(d) April 1, 1992 33-48931 (4)(d) June 15, 1992 33-48931 (4)(d) September 15, 1992 33-48931 (4)(e) April 1, 1993 33-51139 (4)(d) June 15, 1993 33-51139 (4)(d) September 15, 1993 33-51139 (4)(d) November 15, 1993 1-2578 (4)(2) April 1, 1995 1-2578 (4)(2) May 1, 1995 1-2578 (4)(2) July 1, 1995 1-2578 (4)(2) June 1, 1997 1-2578 (4)(2) April 1, 1998 1-2578 (4)(2) June 1, 1998 1-2578 (4)(2) September 29, 1999 1-2578 (4)(2) April 1, 2000 (A) (4)(2)(a) April 1, 2000 (A) (4)(2)(b) (B) 4-2 - General Mortgage Indenture and Deed of Trust dated as of January 1, 1998 between OE and the Bank of New York, as Trustee. (Registration No. 333-05277, Exhibit 4(g).) 10-1 - Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2- 43102, Exhibit 5(c)(2) 10-2 - Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2- 68906, Exhibit 5(c)(3).) 10-3 - Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(3).) 10-4 - Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10- K, Exhibit 10-4.) 10-5 - Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (Registration No. 2- 68906, Exhibit 10-4.) 10-6 - Amendment dated as of December 23, 1993 to Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (1993 Form 10-K, Exhibit 10-6). 10-7 - CAPCO Basic Operating Agreement, as amended September 1, 1980. (Registration No. 2-68906, Exhibit 10-5.) 10-8 - Amendment No. 1 dated August 1, 1981, and Amendment No. 2 dated September 1, 1982 to CAPCO Basic Operating Agreement, as amended September 1, 1980. (September 30, 1981 Form 10-Q, Exhibit 20-1 and 1982 Form 10-K, Exhibit 19-3, respectively.) 10-9 - Amendment No. 3 dated July 1, 1984 to CAPCO Basic Operating Agreement, as amended September 1, 1980. (1985 Form 10-K, Exhibit 10-7.) 10-10 - Basic Operating Agreement between the CAPCO Companies as amended October 1, 1991. (1991 Form 10-K, Exhibit 10-8.) 10-11 - Basic Operating Agreement between the CAPCO Companies as amended January 1, 1993. (1993 Form 10-K, Exhibit 10-11.) 10-12 - Memorandum of Agreement effective as of September 1, 1980 among the CAPCO Group. (1982 Form 10-K, Exhibit 19-2.) 10-13 - Operating Agreement for Beaver Valley Power Station Units Nos. 1 and 2 as Amended and Restated September 15, 1987, by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 10-15.) 10-14 - Construction Agreement with respect to Perry Plant between the CAPCO Group dated as of July 22, 1974. (Registration No. 2-52251 of Toledo Edison Company, Exhibit 5(yy).) 10-15 - Amendment No. 3 dated as of October 31, 1980 to the Bond Guaranty dated as of October 1, 1973, as amended, with respect to the CAPCO Group. (Registration No. 2-68906 of Pennsylvania Power Company, Exhibit 10-16.) 10-16 - Amendment No. 4 dated as of July 1, 1985 to the Bond Guaranty dated as October 1, 1973, as amended, by the CAPCO Companies to National City Bank as Bond Trustee. (1985 Form 10-K, Exhibit 10-30.) 10-17 - Amendment No. 5 dated as of May 1, 1986, to the Bond Guaranty by the CAPCO Companies to National City Bank as Bond Trustee. (1986 Form 10-K, Exhibit 10-33.) 10-18 - Amendment No. 6A dated as of December 1, 1991, to the Bond Guaranty dated as of October 1, 1973, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-33.) 10-19 - Amendment No. 6B dated as of December 30, 1991, to the Bond Guaranty dated as of October 1, 1973 by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-34.) 10-20 - Bond Guaranty dated as of December 1, 1991, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-35.) 10-21 - Memorandum of Understanding dated March 31, 1985 among the CAPCO Companies. (1985 Form 10-K, Exhibit 10-35.) (C) 10-22 - Ohio Edison System Executive Supplemental Life Insurance Plan. (1995 Form 10-K, Exhibit 10-44.) (C) 10-23 - Ohio Edison System Executive Incentive Compensation Plan. (1995 Form 10-K, Exhibit 10-45.) (C) 10-24 - Ohio Edison System Restated and Amended Executive Deferred Compensation Plan. (1995 Form 10-K, Exhibit 10-46.) (C) 10-25 - Ohio Edison System Restated and Amended Supplemental Executive Retirement Plan. (1995 Form 10-K, Exhibit 10-47.) (C) 10-26 - Severance pay agreement between Ohio Edison Company and W. R. Holland. (1995 Form 10-K, Exhibit 10-48.) (C) 10-27 - Severance pay agreement between Ohio Edison Company and H. P. Burg. (1995 Form 10-K, Exhibit 10-49.) (C) 10-28 - Severance pay agreement between Ohio Edison Company and A. J. Alexander. (1995 Form 10-K, Exhibit 10-50.) (C) 10-29 - Severance pay agreement between Ohio Edison Company and J. A. Gill. (1995 Form 10K, Exhibit 10-51.) (D) 10-30 - Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Hereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-1.) (D) 10-31 - Amendment No. 1 dated as of September 1, 1987 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 thereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company (now The Bank of New York), as Indenture Trustee, and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-46.) (D) 10-32 - Amendment No. 3 dated as of May 16, 1988 to Participation Agreement dated as of March 16, 1987, as amended among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-47.) (D) 10-33 - Amendment No. 4 dated as of November 1, 1991 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-47.) (D) 10-34 - Amendment No. 5 dated as of November 24, 1992 to Participation Agreement dated as of March 16, 1987, as amended, among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company as Lessee. (1992 Form 10-K, Exhibit 10-49.) (D) 10-35 - Amendment No. 6 dated as of January 12, 1993 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-50.) D) 10-36 - Amendment No. 7 dated as of October 12, 1994 to Participation Agreement dated as of March 16, 1987 as amended, among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-54.) (D) 10-37 - Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1986 Form 10-K, Exhibit 28- 2.) (D) 10-38 - Amendment No. 1 dated as of September 1, 1987 to Facility Lease dated as of March 16, 1997 between The First National Bank of Boston, as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-49.) (D) 10-39 - Amendment No. 2 dated as of November 1, 1991, to Facility Lease dated as of March 16, 1987, between The First National Bank of Boston, as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-50.) (D) 10-40 - Amendment No. 3 dated as of November 24, 1992 to Facility Lease dated as March 16, 1987 as amended, between The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited partnership, as Owner Participant and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-54.) (D) 10-41 - Amendment No. 4 dated as of January 12, 1993 to Facility Lease dated as of March 16, 1987 as amended, between, The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-59.) (D) 10-42 - Amendment No. 5 dated as of October 12, 1994 to Facility Lease dated as of March 16, 1987 as amended, between, The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-60.) (D) 10-43 - Letter Agreement dated as of March 19, 1987 between Ohio Edison Company, Lessee, and The First National Bank of Boston, Owner Trustee under a Trust dated March 16, 1987 with Chase Manhattan Realty Leasing Corporation, required by Section 3(d) of the Facility Lease. (1986 Form 10-K, Exhibit 28-3.) (D) 10-44 - Ground Lease dated as of March 16, 1987 between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with the Owner Participant, Tenant. (1986 Form 10-K, Exhibit 28-4.) (D) 10-45 - Trust Agreement dated as of March 16, 1987 between Perry One Alpha Limited Partnership, as Owner Participant, and The First National Bank of Boston. (1986 Form 10-K, Exhibit 28-5.) (D) 10-46 - Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of March 16, 1987 with Perry One Alpha Limited Partnership, and Irving Trust Company, as Indenture Trustee. (1986 Form 10-K, Exhibit 28-6.) (D) 10-47 - Supplemental Indenture No. 1 dated as of September 1, 1987 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee and Irving Trust Company (now The Bank of New York), as Indenture Trustee. (1991 Form 10-K, Exhibit 10-55.) (D) 10-48 - Supplemental Indenture No. 2 dated as of November 1, 1991 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and The Bank of New York, as Indenture Trustee. (1991 Form 10-K, Exhibit 10-56.) (D) 10-49 - Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-7.) (D) 10-50 - Amendment No. 1 dated as of November 1, 1991 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership and Ohio Edison Company. (1991 Form 10-K, Exhibit 10-58.) (D) 10-51 - Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-69.) (D) 10-52 - Amendment No. 3 dated as of October 12, 1994 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-70.) (D) 10-53 - Partial Mortgage Release dated as of March 19, 1987 under the Indenture between Ohio Edison Company and Bankers Trust Company, as Trustee, dated as of the 1st day of August 1930. (1986 Form 10-K, Exhibit 28- 8.) (D) 10-54 - Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-9.) (D) 10-55 - Additional Support Agreement dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, and Ohio Edison Company. (1986 Form 10- K, Exhibit 28-10.) (D) 10-56 - Bill of Sale, Instrument of Transfer and Severance Agreement dated as of March 19, 1987 between Ohio Edison Company, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership. (1986 Form 10-K, Exhibit 28-11.) (D) 10-57 - Easement dated as of March 16, 1987 from Ohio Edison Company, Grantor, to The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, Grantee. (1986 Form 10-K, File Exhibit 28-12.) 10-58 - Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, the Original Loan Participants listed in Schedule 1 Hereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1986 Form 10-K, as Exhibit 28-13.) 10-59 - Amendment No. 1 dated as of September 1, 1987 to Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, The Original Loan Participants Listed in Schedule 1 thereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-65.) 10-60 - Amendment No. 4 dated as of November 1, 1991, to Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee . (1991 Form 10-K, Exhibit 10-66.) 10-61 - Amendment No. 5 dated as of November 24, 1992 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNNP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-71.) 10-62 - Amendment No. 6 dated as of January 12, 1993 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-80.) 10-63 - Amendment No. 7 dated as of October 12, 1994 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-81.) 10-64 - Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, Lessor, and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-14.) 10-65 - Amendment No. 1 dated as of September 1, 1987 to Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-68.) 10-66 - Amendment No. 2 dated as of November 1, 1991 to Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-69.) 10-67 - Amendment No. 3 dated as of November 24, 1992 to Facility Lease dated as of March 16, 1987, as amended, between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-75.) 10-68 - Amendment No. 4 dated as of January 12, 1993 to Facility Lease dated as of March 16, 1987 as amended between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-76.) 10-69 - Amendment No. 5 dated as of October 12, 1994 to Facility Lease dated as of March 16, 1987 as amended between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-87.) 10-70 - Letter Agreement dated as of March 19, 1987 between Ohio Edison Company, as Lessee, and The First National Bank of Boston, as Owner Trustee under a Trust, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, required by Section 3(d) of the Facility Lease. (1986 Form 10-K, Exhibit 28-15.) 10-71 - Ground Lease dated as of March 16, 1987 between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, Tenant. (1986 Form 10-K, Exhibit 28-16.) 10-72 - Trust Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation, as Owner Participant, and The First National Bank of Boston. (1986 Form 10-K, Exhibit 28-17.) 10-73 - Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, and Irving Trust Company, as Indenture Trustee. (1986 Form 10-K, Exhibit 28-18.) 10-74 - Supplemental Indenture No. 1 dated as of September 1, 1987 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and Irving Trust Company (now The Bank of New York), as Indenture Trustee. (1991 Form 10-K, Exhibit 10-74.) 10-75 - Supplemental Indenture No. 2 dated as of November 1, 1991 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and The Bank of New York, as Indenture Trustee. (1991 Form 10-K, Exhibit 10-75.) 10-76 - Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-19.) 10-77 - Amendment No. 1 dated as of November 1, 1991 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1991 Form 10-K, Exhibit 10- 77.) 10-78 - Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1994 Form 10-K, Exhibit 10- 96.) 10-79 - Amendment No. 3 dated as of October 12, 1994 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1994 Form 10-K, Exhibit 10- 97.) 10-80 - Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-20.) 10-81 - Additional Support Agreement dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, and Ohio Edison Company. (1986 Form 10- K, Exhibit 28-21.) 10-82 - Bill of Sale, Instrument of Transfer and Severance Agreement dated as of March 19, 1987 between Ohio Edison Company, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, Buyer. (1986 Form 10-K, Exhibit 28-22.) 10-83 - Easement dated as of March 16, 1987 from Ohio Edison Company, Grantor, to The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, Grantee. (1986 Form 10- K, Exhibit 28-23.) 10-84 - Refinancing Agreement dated as of November 1, 1991 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-82.) 10-85 - Refinancing Agreement dated as of November 1, 1991 among Security Pacific Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York as New Collateral Trust Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-83.) 10-86 - Ohio Edison Company Master Decommissioning Trust Agreement for Perry Nuclear Power Plant Unit One, Perry Nuclear Power Plant Unit Two, Beaver Valley Power Station Unit One and Beaver Valley Power Station Unit Two dated July 1, 1993. (1993 Form 10-K, Exhibit 10-94.) 10-87 - Nuclear Fuel Lease dated as of March 31, 1989, between OES Fuel, Incorporated, as Lessor, and Ohio Edison Company, as Lessee. (1989 Form 10-K, Exhibit 10-62.) 10-88 - Receivables Purchase Agreement dated as November 28, 1989, as amended and restated as of April 23, 1993, between OES Capital, Incorporated, Corporate Asset Funding Company, Inc. and Citicorp North America, Inc. (1994 Form 10-K, Exhibit 10-106.) 10-89 - Guarantee Agreement entered into by Ohio Edison Company dated as of January 17, 1991. (1990 Form 10- K, Exhibit 10-64.) 10-90 - Transfer and Assignment Agreement among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1990 Form 10-K, Exhibit 10- 65.) 10-91 - Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of January 4, 1991. (1990 Form 10-K, Exhibit 10- 66.) 10-92 - Transfer and Assignment Agreement dated May 20, 1994 among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1994 Form 10-K, Exhibit 10-110.) 10-93 - Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of May 20, 1994. (1994 Form 10-K, Exhibit 10-111.) 10-94 - Transfer and Assignment Agreement dated October 12, 1994 among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1994 Form 10-K, Exhibit 10-112.) 10-95 - Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of October 12, 1994. (1994 Form 10-K, Exhibit 10- 113.) (E) 10-96 - Participation Agreement dated as of September 15, 1987, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company as Lessee. (1987 Form 10-K, Exhibit 28-1.) (E) 10-97 - Amendment No. 1 dated as of February 1, 1988, to Participation Agreement dated as of September 15, 1987, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-2.) (E) 10-98 - Amendment No. 3 dated as of March 16, 1988 to Participation Agreement dated as of September 15, 1987, as amended, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-99.) (E) 10-99 - Amendment No. 4 dated as of November 5, 1992 to Participation Agreement dated as of September 15, 1987, as amended, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-100.) (E) 10-100 - Amendment No. 5 dated as of September 30, 1994 to Participation Agreement dated as of September 15, 1987, as amended, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-118.) (E) 10-101 - Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-3.) (E) 10-102 - Amendment No. 1 dated as of February 1, 1988, to Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-4.) (E) 10-103 - Amendment No. 2 dated as of November 5, 1992, to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-103.) (E) 10-104 - Amendment No. 3 dated as of September 30, 1994 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-122.) (E) 10-105 - Ground Lease and Easement Agreement dated as of September 15, 1987, between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, Tenant. (1987 Form 10-K, Exhibit 28-5.) (E) 10-106 - Trust Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Limited Partnership, as Owner Participant, and The First National Bank of Boston. (1987 Form 10-K, Exhibit 28-6.) (E) 10-107 - Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-7.) (E) 10-108 - Supplemental Indenture No. 1 dated as of February 1, 1988 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with Beaver Valley Two Pi Limited Partnership and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-8.) (E) 10-109 - Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-9.) (E) 10-110 - Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-128.) (E) 10-111 - Amendment No. 2 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-129.) (E) 10-112 - Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-10.) (E) 10-113 - Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-131.) (E) 10-114 - Amendment No. 2 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-132.) (E) 10-115 - Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-11.) (E) 10-116 - Additional Support Agreement dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, and Ohio Edison Company. (1987 Form 10-K, Exhibit 28-12.) (F) 10-117 - Participation Agreement dated as of September 15, 1987, among Chrysler Consortium Corporation, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-13.) (F) 10-118 - Amendment No. 1 dated as of February 1, 1988, to Participation Agreement dated as of September 15, 1987, among Chrysler Consortium Corporation, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-14.) (F) 10-119 - Amendment No. 3 dated as of March 16, 1988 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-114.) (F) 10-120 - Amendment No. 4 dated as of November 5, 1992 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-115.) (F) 10-121 - Amendment No. 5 dated as of January 12, 1993 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-139.) (F) 10-122 - Amendment No. 6 dated as of September 30, 1994 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-140.) (F) 10-123 - Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, Lessor, and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-15.) (F) 10-124 - Amendment No. 1 dated as of February 1, 1988, to Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-16.) (F) 10-125 - Amendment No. 2 dated as of November 5, 1992 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-118.) (F) 10-126 - Amendment No. 3 dated as of January 12, 1993 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-119.) (F) 10-127 - Amendment No. 4 dated as of September 30, 1994 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-145.) (F) 10-128 - Ground Lease and Easement Agreement dated as of September 15, 1987, between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, Tenant. (1987 Form 10-K, Exhibit 28-17.) (F) 10-129 - Trust Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and The First National Bank of Boston. (1987 Form 10-K, Exhibit 28-18.) (F) 10-130 - Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-19.) (F) 10-131 - Supplemental Indenture No. 1 dated as of February 1, 1988 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with Chrysler Consortium Corporation and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-20.) (F) 10-132 - Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-21.) (F) 10-133 - Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-151.) (F) 10-134 - Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-152.) (F) 10-135 - Amendment No. 3 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-153.) (F) 10-136 - Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, and Toledo Edison Company. (1987 Form 10-K, Exhibit 28- 22.) (F) 10-137 - Additional Support Agreement dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, and Ohio Edison Company. (1987 Form 10-K, Exhibit 28-23.) 10-138 - Operating Agreement dated March 10, 1987 with respect to Perry Unit No. 1 between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-24.) 10-139 - Operating Agreement for Bruce Mansfield Units Nos. 1, 2 and 3 dated as of June 1, 1976, and executed on September 15, 1987, by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-25.) 10-140 - Operating Agreement for W. H. Sammis Unit No. 7 dated as of September 1, 1971 by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-26.) 10-141 - OE-APS Power Interchange Agreement dated March 18, 1987, by and among Ohio Edison Company and Pennsylvania Power Company, and Monongahela Power Company and West Penn Power Company and The Potomac Edison Company. (1987 Form 10-K, Exhibit 28-27.) 10-142 - OE-PEPCO Power Supply Agreement dated March 18, 1987, by and among Ohio Edison Company and Pennsylvania Power Company and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-28.) 10-143 - Supplement No. 1 dated as of April 28, 1987, to the OE-PEPCO Power Supply Agreement dated March 18, 1987, by and among Ohio Edison Company, Pennsylvania Power Company, and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-29.) 10-144 - APS-PEPCO Power Resale Agreement dated March 18, 1987, by and among Monongahela Power Company, West Penn Power Company, and The Potomac Edison Company and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-30.) (A) 12.2 - Consolidated fixed charge ratios. (A) 13.1 - 2000 Annual Report to Stockholders (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the SEC.) (A) 21.1 - List of Subsidiaries of the Registrant at December 31, 2000. (A) 23.1 - Consent of Independent Public Accountants. (A) Provided herein in electronic format as an exhibit. (B) Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S- K, OE has not filed as an exhibit to this Form 10-K any instrument with respect to long-term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of OE and its subsidiaries on a consolidated basis, but hereby agrees to furnish to the SEC on request any such instruments. (C) Management contract or compensatory plan contract or arrangement filed pursuant to Item 601 of Regulation S-K. (D) Substantially similar documents have been entered into relating to three additional Owner Participants. (E) Substantially similar documents have been entered into relating to five additional Owner Participants. (F) Substantially similar documents have been entered into relating to two additional Owner Participants. Note: Reports of OE on Forms 10-Q and 10-K are on file with the SEC under number 1-2578. Pursuant to Rule 14a - 3 (10) of the Securities Exchange Act of 1934, the Company will furnish any exhibit in this Report upon the payment of the Company's expenses in furnishing such exhibit. 3. Exhibits - Penn 3-1 - Agreement of Merger and Consolidation dated April 1, 1929, among Pennsylvania Power Company (Penn), Harmony Electric Company and Peoples Power Company (consummated May 31, 1930), copies of Letters Patent issued thereon, together with the Election Return and Treasurer's Return, relative to decrease of capital stock; Election Return authorizing change of capital stock and increase of indebtedness; Election Return authorizing change of capital stock; Election Return establishing 4.24% Preferred Stock; Certificate with respect to the establishment of 4.64% Preferred Stock; Election Returns and Certificates of Actual Sale in connection with the purchase by Penn Power of all the property of Pine-Mercer Electric Company, Industry Borough Electric Company, Ohio Township Electric Company, and Shippingport Borough Electric Company; Certificate of Change of Location of Penn Power's principal office; Certificate of Consent authorizing increase in authorized Common Stock; Certificate of Consent with respect to the removal of limitations on the authorized amount of indebtedness of Penn Power; Election Returns and Certificates of Actual Sale in connection with the purchase by Penn Power of all the property of Borolak Public Service Company, Eastfax Public Service Company, Norango Public Service Company, Sadwick Public Service Company, Sosango Public Service Company, Surrick Public Service Company, Wesango Public Service Company, and Westfax Public Service Company; Certificate of Change of Location of Penn Power's principal office; Amendment to the Charter extending the territory in which Penn Power may operate in the Borough of Shippingport, Beaver County, Pennsylvania; Certificate of Consent authorizing increase in authorized Common Stock; Certificate with respect to the establishment of the 8% Preferred Stock; Certificate accepting Business Corporation Law of Pennsylvania for government and regulation of affairs of Penn Power; Articles of Amendment incorporating certain protective provisions relating to Preferred Stock, increasing amount of authorized Preferred Stock and authorizing future increases in amounts of authorized Preferred Stock without a vote of the holders of Preferred Stock; Articles of Amendment increasing the authorized number of shares of Common Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 7.64% Preferred Stock; Articles of Amendment increasing the authorized number of shares of Common Stock; Articles of Amendment increasing the number of authorized shares of Preferred Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 8.48% Preferred Stock; Articles of Amendment authorizing sinking fund requirements for Preferred Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 11% Preferred Stock; Articles of Amendment increasing the authorized number of shares of Common Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 9.16% Preferred Stock; Articles of Amendment increasing authorized number of shares of Common Stock; Articles of Amendment increasing authorized number of shares of Preferred Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 8.24% Preferred Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 10.50% Preferred Stock; Articles of Amendment increasing authorized number of shares of Common Stock; Articles of Amendment increasing authorized number of shares of Preferred Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 15.00% Preferred Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 11.50% Preferred Stock; Articles of Amendment increasing authorized number of shares of Preferred Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 13.00% Preferred Stock; Statement Affecting Class or Series of Shares with respect to the establishment of the 11.50% Preferred Stock, Series B; Articles of Amendment effective April 2, 1987, adding a standard of care for, and limiting the personal liability of, officers and directors; Articles of Amendment effective April 1, 1992, setting forth corporate purposes of the Company; Statement With Respect to Shares with respect to the establishment of the 7.625% Preferred Stock and Statement with Respect to Shares with respect to the establishment of the 7.75% Preferred Stock. (Physically filed and designated respectively, as follows: in Form A-2, Registration No. 2-3889, as Exhibit A-1; in Form 1-MD for 1938, File No. 2-3889, as Exhibit (a)-1; in Form 1-MD for 1945, File No. 2- 3889, as Exhibit A; in Form U-1, File No. 70-2310, as Exhibit A-3 (d); in Form 8-K for March 1951, File No. 1-3491, as Exhibit B; in Form 8-K for June 1958, File No. 1-3491B, as Exhibit 1; in Form 10-K for 1959 as Exhibits 1, 2, 3 and 4; in Form 8-K for March 1960, File No. 1-3491B as Exhibit A; in Form U- 1, File No. 70-3971, as Exhibit A-2; in Form U-1, File No. 70-4055, as Exhibit A-2; as Exhibits 1 through 8 in Form 8-K for January 1962, File No. 1- 3491; as Exhibit A in Form 8-K for August 1963, File No. 1-3491; as Exhibits A and B in Form 8-K for September 1969, File No. 1-3491; as Exhibit B in Form 8-K for April 1971, File No. 1-3491; as Exhibit B in Form 8-K for September 1971, File No. 1- 3491; in Form U-1, File No. 70-5264, as Exhibit A-2; as Exhibit A in Form 8-K for September 1972, File No. 1-3491; as Exhibit A in Form 8-K for December 1972, File No. 1-3491; as Exhibit A in Form 8-K for March 1973, File No. 1-3491; as Exhibit A in Form 8-K for December 1973, File No. 1- 3491; as Exhibits A and C in Form 8-K for February 1974, File No. 1-3491; as Exhibits A and B in Form 8- K for January 1975, File No. 1-3491; as Exhibit F in Form 8-K for May 1975, File No. 1-3491; as Exhibit A in Form 8-K for April 1976, File No. 1-3491; as Exhibit G in Form 10-Q for quarter ended June 30, 1977, File No. 1-3491; as Exhibit C in Form 10-K for 1977, File No. 1-3491; as Exhibit A in Form 10-K for 1977, File No. 1-3491, as Exhibit D in Form 10-Q for quarter ended June 30, 1980, File No. 1-3491; as Exhibit (4) in Form 10-Q for quarter ended June 30, 1981, File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended June 30, 1982, File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended September 30, 1982, File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended September 30, 1983, File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended March 31, 1984, File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended June 30, 1984, File No. 1-3491; as Exhibit 4 in Form 10-Q for quarter ended September 30, 1985, File No. 1-3491; as Exhibit 3-2 in Form 10-K for 1987, File No. 1-3491; as Exhibit 3-2 in Form 10-K for 1992, File No. 1- 3491; as Exhibit 19-2 in Form 10-K for 1992, File No. 1-3491; and as Exhibit 3-2 in Form 10-K for 1993 File No. 1-3491.) 3-2 - By-Laws of Penn as amended March 25, 1992. (1992 Form 10-K, Exhibit 3-3, File No. 1-3491.) 3-3 - By-Laws of Penn as amended September 27, 1999. (1999 Form 10-K, Exhibit 3-3, File No. 1-3491.) 4-1* - Indenture dated as of November 1, 1945, between Penn and The First National Bank of the City of New York (now Citibank, N.A.), as Trustee, as supplemented and amended by Supplemental Indentures dated as of May 1, 1948, March 1, 1950, February 1, 1952, October 1, 1957, September 1, 1962, June 1, 1963, June 1, 1969, May 1, 1970, April 1, 1971, October 1, 1971, May 1, 1972, December 1, 1974, October 1, 1975, September 1, 1976, April 15, 1978, June 28, 1979, January 1, 1980, June 1, 1981, January 14, 1982, August 1, 1982, December 15, 1982, December 1, 1983, September 6, 1984, December 1, 1984, May 30, 1985, October 29, 1985, August 1, 1987, May 1, 1988, November 1, 1989, December 1, 1990, September 1, 1991, May 1, 1992, July 15, 1992, August 1, 1992, and May 1, 1993, July 1, 1993, August 31, 1993, September 1, 1993, September 15, 1993, October 1, 1993, November 1, 1993, and August 1, 1994. (Physically filed and designated as Exhibits 2(b)(1)-1 through 2(b)(1)-15 in Registration Statement File No. 2-60837; as - -------------------- * Pursuant to paragraph (b)(4)(iii) (A) of Item 601 of Regulation S- K, Penn has not filed as an exhibit to this Form 10-K any instrument with respect to long-term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of Penn, but hereby agrees to furnish to the Commission on request any such instruments. Exhibits 2(b)(2), 2(b)(3), and 2(b)(4) in Registration Statement File No. 2-68906; as Exhibit 4-2 in Form 10-K for 1981 File No. 1-3491; as Exhibit 19-1 in Form 10-K for 1982 File No. 1-3491; as Exhibit 19-1 in Form 10-K for 1983 File No. 1- 3491; as Exhibit 19-1 in Form 10-K for 1984 File No. 1-3491; as Exhibit 19-1 in Form 10-K for 1985 File No. 1-3491; as Exhibit 19-1 in Form 10-K for 1987 File No. 1-3491; as Exhibit 19-1 in Form 10- K for 1988 File No. 1-3491; as Exhibit 19 in Form 10- K for 1989 File No. 1-3491; as Exhibit 19 in Form 10- K for 1990 File No. 1-3491; as Exhibit 19 in Form 10- K for 1991 File No. 1-3491; as Exhibit 19-1 in Form 10-K for 1992 File No. 1-3491; as Exhibit 4-2 in Form 10-K for 1993 File No. 1-3491; and as Exhibit 4- 2 in Form 10-K for 1994 File No. 1-3491.) 4-2 - Supplemental Indenture dated as of September 1, 1995, between Penn and Citibank, N.A., as Trustee. (1995 Form 10-K, Exhibit 4-2.) 4-3 - Supplemental Indenture dated as of June 1, 1997, between Penn and Citibank, N.A., as Trustee. (1997 Form 10-K, Exhibit 4-3.) 4-4 - Supplemental Indenture dated as of June 1, 1998, between Penn and Citibank, N. A., as Trustee. (1998 Form 10-K, Exhibit 4-4.) 4-5 - Supplemental Indenture dated as of September 29, 1999, between Penn and Citibank, N.A., as Trustee. (1999 Form 10-K, Exhibit 4-5.) 4-6 - Supplemental Indenture dated as of November 15, 1999, between Penn and Citibank, N.A., as Trustee. (1999 Form 10-K, Exhibit 4-6.) 10-1 - Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration Statement of Ohio Edison Company, File No. 2-43102, Exhibit 5(c)(2).) 10-2 - Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration Statement No. 2-68906, Exhibit 5 (c)(3).) 10-3 - Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration Statement of Ohio Edison Company, File No. 2-43102, Exhibit 5 (c)(3).) 10-4 - Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10- K, Exhibit 10-4, Ohio Edison Company.) 10-5 - Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (Registration Statement No. 2-68906, Exhibit 10-4.) 10-6 - Amendment dated as of December 23, 1993 to Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (1993 Form 10-K, Exhibit 10-6, Ohio Edison Company.) 10-7 - CAPCO Basic Operating Agreement, as amended September 1, 1980. (Registration Statement No. 2- 68906, as Exhibit 10-5.) 10-8 - Amendment No. 1 dated August 1, 1981 and Amendment No. 2 dated September 1, 1982, to CAPCO Basic Operating Agreement as amended September 1, 1980. (September 30, 1981 Form 10-Q, Exhibit 20-1 and 1982 Form 10-K, Exhibit 19-3, File No. 1-2578, of Ohio Edison Company.) 10-9 - Amendment No. 3 dated as of July 1, 1984, to CAPCO Basic Operating Agreement as amended September 1, 1980. (1985 Form 10-K, Exhibit 10-7, File No. 1-2578, of Ohio Edison Company.) 10-10 - Basic Operating Agreement between the CAPCO Companies as amended October 1, 1991. (1991 Form 10-K, Exhibit 10-8, File No. 1-2578, of Ohio Edison Company.) 10-11 - Basic Operating Agreement between the CAPCO Companies as amended January 1, 1993. (1993 Form 10-K, Exhibit 10-11, Ohio Edison.) 10-12 - Memorandum of Agreement effective as of September 1, 1980, among the CAPCO Group. (1991 Form 10-K, Exhibit 19-2, Ohio Edison Company.) 10-13 - Operating Agreement for Beaver Valley Power Station Units Nos. 1 and 2 as Amended and Restated September 15, 1987, by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 10-15, File No. 1-2578, of Ohio Edison Company.) 10-14 - Construction Agreement with respect to Perry Plant between the CAPCO Group dated as of July 22, 1974. (Registration Statement of Toledo Edison Company, File No. 2-52251, as Exhibit 5 (yy).) 10-15 - 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) 10-16 - Ohio Edison System Executive Supplemental Life Insurance Plan. (1995 Form 10-K, Exhibit 10-44, File No. 1-2578, Ohio Edison Company.) (B) 10-17 - Ohio Edison System Executive Incentive Compensation Plan. (1995 Form 10-K, Exhibit 10-45, File No. 1- 2578, Ohio Edison Company.) (B) 10-18 - Ohio Edison System Restated and Amended Executive Deferred Compensation Plan. (1995 Form 10-K, Exhibit 10-46, File No. 1-2578, Ohio Edison Company.) (B) 10-19 - Ohio Edison System Restated and Amended Supplemental Executive Retirement Plan. (1995 Form 10-K, Exhibit 10-47, File No. 1-2578, Ohio Edison Company.) 10-20 - Operating Agreement for Perry Unit No. 1 dated March 10, 1987, by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-24, File No. 1-2578, Ohio Edison Company.) 10-21 - 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.) 10-22 - 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.) 10-23 - 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.) 10-24 - 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.) 10-25 - 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.) 10-26 - 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.) 10-27 - Pennsylvania Power Company Master Decommissioning Trust Agreement for Beaver Valley Power Station and Perry Nuclear Power Plant dated as of April 21, 1995. (Quarter ended June 30, 1995 Form 10-Q, Exhibit 10, File No. 1-3491.) 10-28 - Nuclear Fuel Lease dated as of March 31, 1989, between OES Fuel, Incorporated, as Lessor, and Pennsylvania Power Company, as Lessee. (1989 Form 10- K, Exhibit 10-39, File No. 1-3491.) (A) 12.5 - Fixed Charge Ratios (A) 13.4 - 2000 Annual Report to Stockholders. (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the Securities and Exchange Commission.) (A) 23.3 - Consent of Independent Public Accountants. (A) - Provided herein in electronic format as an exhibit. (B) - Management contract or compensatory plan contract or arrangement filed pursuant to Item 601 of Regulation S-K. Pursuant to Rule 14a-3(10) of the Securities Exchange Act of 1934, the Company will furnish any exhibit in this Report upon the payment of the Company's expenses in furnishing such exhibit. 3. Exhibits - Common Exhibits to CEI and TE Exhibit Number - ------- 2(a) - Agreement and Plan of Merger between Ohio Edison and Centerior Energy dated as of September 13, 1996 (Exhibit (2)-1, Form S-4 File No. 333-21011, filed by FirstEnergy). 2(b) - Merger Agreement by and among Centerior Acquisition Corp., FirstEnergy and Centerior (Exhibit (2)-3, Form S-4 File No. 333-21011, filed by FirstEnergy). 4(a) - Rights Agreement (Exhibit 4, June 25, 1996 Form 8-K, File Nos. 1-9130, 1-2323 and 1-3583). 4(b)(1) - Form of Note Indenture between Cleveland Electric, Toledo Edison and The Chase Manhattan Bank, as Trustee dated as of June 13, 1997 (Exhibit 4(c), Form S-4 File No. 333-35931, filed by Cleveland Electric and Toledo Edison). 4(b)(2) - Form of First Supplemental Note Indenture between Cleveland Electric, Toledo Edison and The Chase Manhattan Bank, as Trustee dated as of June 13, 1997 (Exhibit 4(d), Form S-4 File No. 333-35931, filed by Cleveland Electric and Toledo Edison). 10b(1)(a) - CAPCO Administration Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the organization and procedures for implementing the objectives of the CAPCO Group (Exhibit 5(p), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). 10b(1)(b) - Amendment No. 1, dated January 4, 1974, to CAPCO Administration Agreement among the CAPCO Group members (Exhibit 5(c)(3), File No. 2-68906, filed by Ohio Edison). 10b(2) - CAPCO Transmission Facilities Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the installation, operation and maintenance of transmission facilities to carry out the objectives of the CAPCO Group (Exhibit 5(q), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). 10b(2)(1) - Amendment No. 1 to CAPCO Transmission Facilities Agreement, dated December 23, 1993 and effective as of January 1, 1993, among the CAPCO Group members regarding requirements for payment of invoices at specified times, for payment of interest on non- timely paid invoices, for restricting adjustment of invoices after a four-year period, and for revising the method for computing the Investment Responsibility charge for use of a member's transmission facilities (Exhibit 10b(2)(1), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583). 10b(3) - CAPCO Basic Operating Agreement As Amended January 1, 1993 among the CAPCO Group members regarding coordinated operation of the members' systems (Exhibit 10b(3), 1993 Form 10-K, File Nos. 1-9130, 1- 2323 and 1-3583). 10b(4) - Agreement for the Termination or Construction of Certain Agreement By and Among the CAPCO Group members, dated December 23, 1993 and effective as of September 1, 1980 (Exhibit 10b(4), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583). 10b(5) - Construction Agreement, dated July 22, 1974, among the CAPCO Group members and relating to the Perry Nuclear Plant (Exhibit 5 (yy), File No. 2-52251, filed by Toledo Edison). 10b(6) - Contract, dated as of December 5, 1975, among the CAPCO Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5 (g), File No. 2-52996, filed by Cleveland Electric). 10b(7) - Amendment No. 1, dated May 1, 1977, to Contract, dated as of December 5, 1975, among the CAPCO Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5(d)(4), File No. 2-60109, filed by Ohio Edison). 10d(1)(a) - Form of Collateral Trust Indenture among CTC Beaver Valley Funding Corporation, Cleveland Electric, Toledo Edison and Irving Trust Company, as Trustee (Exhibit 4(a), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(1)(b) - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10d(1)(a) above, including form of Secured Lease Obligation bond (Exhibit 4(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(1)(c) - Form of Collateral Trust Indenture among Beaver Valley II Funding Corporation, The Cleveland Electric Illuminating Company and The Toledo Edison Company and The Bank of New York, as Trustee (Exhibit (4)(a), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). 10d(1)(d) - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10d(1)(c) above, including form of Secured Lease Obligation Bond (Exhibit (4)(b), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). 10d(2)(a) - Form of Collateral Trust Indenture among CTC Mansfield Funding Corporation, Cleveland Electric, Toledo Edison and IBJ Schroder Bank & Trust Company, as Trustee (Exhibit 4(a), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(2)(b) - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10d(2)(a) above, including forms of Secured Lease Obligation bonds (Exhibit 4(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(3)(a) - Form of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the limited partnership Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessee (Exhibit 4(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(3)(b) - Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(3)(a) above (Exhibit 4(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(4)(a) - Form of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the corporate Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(4)(b) - Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(4)(a) above (Exhibit 4(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(5)(a) - Form of Facility Lease dated as of September 30, 1987 between Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(c), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(5)(b) - Form of Amendment No. 1 to the Facility Lease constituting Exhibit 10d(5)(a) above (Exhibit 4(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(6)(a) - Form of Participation Agreement dated as of September 15, 1987 among the limited partnership Owner Participant named therein, the Original Loan Participants listed in Schedule 1 thereto, as Original Loan Participants, CTC Beaver Valley Fund Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-18755, filed by Cleveland Electric And Toledo Edison). 10d(6)(b) - Form of Amendment No. 1 to Participation Agreement constituting Exhibit 10d(6)(a) above (Exhibit 28(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(7)(a) - Form of Participation Agreement dated as of September 15, 1987 among the corporate Owner Participant named therein, the Original Loan Participants listed in Schedule 1 thereto, as Owner Loan Participants, CTC Beaver Valley Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(7)(b) - Form of Amendment No. 1 to Participation Agreement constituting Exhibit 10d(7)(a) above (Exhibit 28(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(8)(a) - Form of Participation Agreement dated as of September 30, 1987 among the Owner Participant named therein, the Original Loan Participants listed in Schedule II thereto, as Owner Loan Participants, CTC Mansfield Funding Corporation, Meridian Trust Company, as Owner Trustee, IBJ Schroder Bank & Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-0128, filed by Cleveland Electric and Toledo Edison). 10d(8)(b) - Form of Amendment No. 1 to the Participation Agreement constituting Exhibit 10d(8)(a) above (Exhibit 28(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(9) - Form of Ground Lease dated as of September 15, 1987 between Toledo Edison, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(10) - Form of Site Lease dated as of September 30, 1987 between Toledo Edison, Lessor, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(c), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(11) - Form of Site Lease dated as of September 30, 1987 between Cleveland Electric, Lessor, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(d), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(12) - Form of Amendment No. 1 to the Site Leases constituting Exhibits 10d(10) and 10d(11) above (Exhibit 4(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(13) - Form of Assignment, Assumption and Further Agreement dated as of September 15, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Cleveland Electric, Duquesne, Ohio Edison, Pennsylvania Power and Toledo Edison (Exhibit 28(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(14) - Form of Additional Support Agreement dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, and Toledo Edison (Exhibit 28(g), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(15) - Form of Support Agreement dated as of September 30, 1987 between Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Toledo Edison, Cleveland Electric, Duquesne, Ohio Edison and Pennsylvania Power (Exhibit 28(e), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(16) - Form of Indenture, Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Toledo Edison, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(h), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(17) - Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Toledo Edison, Seller, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(18) - Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Cleveland Electric, Seller, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(g), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(19) - Forms of Refinancing Agreement, including exhibits thereto, among the Owner Participant named therein, as Owner Participant, CTC Beaver Valley Funding Corporation, as Funding Corporation, Beaver Valley II Funding Corporation, as New Funding Corporation, The Bank of New York, as Indenture Trustee, The Bank of New York, as New Collateral Trust Trustee, and The Cleveland Electric Illuminating Company and The Toledo Edison Company, as Lessees (Exhibit (28)(e)(i), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). 10d(20)(a) - Form of Amendment No. 2 to Facility Lease among Citicorp Lescaman, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(a), Form S-4 File No. 333- 47651, filed by Cleveland Electric). 10d(20)(b) - Form of Amendment No. 3 to Facility Lease among Citicorp Lescaman, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(b), Form S-4 File No. 333- 47651, filed by Cleveland Electric). 10d(21)(a) - Form of Amendment No. 2 to Facility Lease among US West Financial Services, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(c), Form S-4 File No. 333- 47651, filed by Cleveland Electric). 10d(21)(b) - Form of Amendment No. 3 to Facility Lease among US West Financial Services, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(d), Form S-4 File No. 333- 47651, filed by Cleveland Electric). 10d(22) - Form of Amendment No. 2 to Facility Lease among Midwest Power Company, Cleveland Electric and Toledo Edison (Exhibit 10(e), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10e(1) - Centerior Energy Corporation Equity Compensation Plan (Exhibit 99, Form S-8, File No. 33-59635). 3. Exhibits - Cleveland Electric Illuminating (CEI) 3a - Amended Articles of Incorporation of CEI, as amended, effective May 28, 1993 (Exhibit 3a, 1993 Form 10-K, File No. 1-2323). 3b - Regulations of CEI, dated April 29, 1981, as amended effective October 1, 1988 and April 24, 1990 (Exhibit 3b, 1990 Form 10-K, File No. 1-2323). (B)4b(1) - Mortgage and Deed of Trust between CEI and Guaranty Trust Company of New York (now The Chase Manhattan Bank (National Association)), as Trustee, dated July 1, 1940 (Exhibit 7(a), File No. 2-4450). Supplemental Indentures between CEI and the Trustee, supplemental to Exhibit 4b(1), dated as follows: 4b(2) - July 1, 1940 (Exhibit 7(b), File No. 2-4450). 4b(3) - August 18, 1944 (Exhibit 4(c), File No. 2-9887). 4b(4) - December 1, 1947 (Exhibit 7(d), File No. 2-7306). 4b(5) - September 1, 1950 (Exhibit 7(c), File No. 2-8587). 4b(6) - June 1, 1951 (Exhibit 7(f), File No. 2-8994). 4b(7) - May 1, 1954 (Exhibit 4(d), File No. 2-10830). 4b(8) - March 1, 1958 (Exhibit 2(a)(4), File No. 2-13839). 4b(9) - April 1, 1959 (Exhibit 2(a)(4), File No. 2-14753). 4b(10) - December 20, 1967 (Exhibit 2(a)(4), File No. 2- 30759). 4b(11) - January 15, 1969 (Exhibit 2(a)(5), File No. 2-30759). 4b(12) - November 1, 1969 (Exhibit 2(a)(4), File No. 2-35008). 4b(13) - June 1, 1970 (Exhibit 2(a)(4), File No. 2-37235). 4b(14) - November 15, 1970 (Exhibit 2(a)(4), File No. 2- 38460). 4b(15) - May 1, 1974 (Exhibit 2(a)(4), File No. 2-50537). 4b(16) - April 15, 1975 (Exhibit 2(a)(4), File No. 2-52995). 4b(17) - April 16, 1975 (Exhibit 2(a)(4), File No. 2-53309). 4b(18) - May 28, 1975 (Exhibit 2(c), June 5, 1975 Form 8-A, File No. 1-2323). 4b(19) - February 1, 1976 (Exhibit 3(d)(6), 1975 Form 10 K, File No. 1-2323). 4b(20) - November 23, 1976 (Exhibit 2(a)(4), File No. 2- 57375). 4b(21) - July 26, 1977 (Exhibit 2(a)(4), File No. 2-59401). 4b(22) - September 7, 1977 (Exhibit 2(a)(5), File No. 2- 67221). 4b(23) - May 1, 1978 (Exhibit 2(b), June 30, 1978 Form 10-Q, File No. 1-2323). 4b(24) - September 1, 1979 (Exhibit 2(a), September 30, 1979 Form 10-Q, File No. 1-2323). 4b(25) - April 1, 1980 (Exhibit 4(a)(2), September 30, 1980 Form 10-Q, File No. 1-2323). 4b(26) - April 15, 1980 (Exhibit 4(b), September 30, 1980 Form 10-Q, File No. 1-2323). 4b(27) - May 28, 1980 (Exhibit 2(a)(4), Amendment No. 1, File No. 2-67221). 4b(28) - June 9, 1980 (Exhibit 4(d), September 30, 1980 Form 10-Q, File No. 1-2323). 4b(29) - December 1, 1980 (Exhibit 4(b)(29), 1980 Form 10-K, File No. 1-2323). 4b(30) - July 28, 1981 (Exhibit 4(a), September 30, 1981, Form 10-Q, File No. 1-2323). 4b(31) - August 1, 1981 (Exhibit 4(b), September 30, 1981, Form 10-Q, File No. 1-2323). 4b(32) - March 1, 1982 (Exhibit 4(b)(3), Amendment No. 1, File No. 2-76029). 4b(33) - July 15, 1982 (Exhibit 4(a), September 30, 1982 Form 10-Q, File No. 1-2323). 4b(34) - September 1, 1982 (Exhibit 4(a)(1), September 30, 1982 Form 10-Q, File No. 1-2323). 4b(35) - November 1, 1982 (Exhibit (a)(2), September 30, 1982 Form 10-Q, File No. 1-2323). 4b(36) - November 15, 1982 (Exhibit 4(b)(36), 1982 Form 10-K, File No. 1-2323). 4b(37) - May 24, 1983 (Exhibit 4(a), June 30, 1983 Form 10-Q, File No. 1-2323). 4b(38) - May 1, 1984 (Exhibit 4, June 30, 1984 Form 10-Q, File No. 1-2323). 4b(39) - May 23, 1984 (Exhibit 4, May 22, 1984 Form 8-K, File No. 1-2323). 4b(40) - June 27, 1984 (Exhibit 4, June 11, 1984 Form 8-K, File No. 1-2323). 4b(41) - September 4, 1984 (Exhibit 4b(41), 1984 Form 10-K, File No. 1-2323). 4b(42) - November 14, 1984 (Exhibit 4b(42), 1984 Form 10 K, File No. 1-2323). 4b(43) - November 15, 1984 (Exhibit 4b(43), 1984 Form 10-K, File No. 1-2323). 4b(44) - April 15, 1985 (Exhibit 4(a), May 8, 1985 Form 8-K, File No. 1-2323). 4b(45) - May 28, 1985 (Exhibit 4(b), May 8, 1985 Form 8-K, File No. 1-2323) 4b(46) - August 1, 1985 (Exhibit 4, September 30, 1985 Form 10-Q, File No. 1-2323). 4b(47) - September 1, 1985 (Exhibit 4, September 30, 1985 Form 8-K, File No. 1-2323). 4b(48) - November 1, 1985 (Exhibit 4, January 31, 1986 Form 8- K, File No. 1-2323). 4b(49) - April 15, 1986 (Exhibit 4, March 31, 1986 Form 10-Q, File No. 1-2323). 4b(50) - May 14, 1986 (Exhibit 4(a), June 30, 1986 Form 10-Q, File No. 1-2323). 4b(51) - May 15, 1986 (Exhibit 4(b), June 30, 1986 Form 10-Q, File No. 1-2323). 4b(52) - February 25, 1987 (Exhibit 4b(52), 1986 Form 10-K, File No. 1-2323). 4b(53) - October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q, File No. 1-2323). 4b(54) - February 24, 1988 (Exhibit 4b(54), 1987 Form 10-K, File No. 1-2323). 4b(55) - September 15, 1988 (Exhibit 4b(55), 1988 Form 10-K, File No. 1-2323). 4b(56) - May 15, 1989 (Exhibit 4(a)(2)(i), File No. 33-32724). 4b(57) - June 13, 1989 (Exhibit 4(a)(2)(ii), File No. 33- 32724). 4b(58) - October 15, 1989 (Exhibit 4(a)(2)(iii), File No. 33- 32724). 4b(59) - January 1, 1990 (Exhibit 4b(59), 1989 Form 10-K, File No. 1-2323). 4b(60) - June 1, 1990 (Exhibit 4(a). September 30, 1990 Form 10-Q, File No. 1-2323). 4b(61) - August 1, 1990 (Exhibit 4(b), September 30, 1990 Form 10-Q, File No. 1-2323). 4b(62) - May 1, 1991 (Exhibit 4(a), June 30, 1991 Form 10-Q, File No. 1-2323). 4b(63) - May 1, 1992 (Exhibit 4(a)(3), File No. 33-48845). 4b(64) - July 31, 1992 (Exhibit 4(a)(3), File No. 33-57292). 4b(65) - January 1, 1993 (Exhibit 4b(65), 1992 Form 10-K, File No. 1-2323). 4b(66) - February 1, 1993 (Exhibit 4b(66), 1992 Form 10-K, File No. 1-2323). 4b(67) - May 20, 1993 (Exhibit 4(a), July 14, 1993 Form 8-K, File No. 1-2323). 4b(68) - June 1, 1993 (Exhibit 4(b), July 14, 1993 Form 8-K, File No. 1-2323). 4b(69) - September 15, 1994 (Exhibit 4(a), September 30, 1994 Form 10-Q, File No. 1-2323). 4b(70) - May 1, 1995 (Exhibit 4(a), September 30, 1995 Form 10-Q, File No. 1-2323). 4b(71) - May 2, 1995 (Exhibit 4(b), September 30, 1995 Form 10-Q, File No. 1-2323). 4b(72) - June 1, 1995 (Exhibit 4(c), September 30, 1995 Form 10-Q, File No. 1-2323). 4b(73) - July 15, 1995 (Exhibit 4b(73), 1995 Form 10-K, File No. 1-2323). 4b(74) - August 1, 1995 (Exhibit 4b(74), 1995 Form 10-K, File No. 1-2323). 4b(75) - June 15, 1997 (Exhibit 4(a), Form S-4 File No. 333- 35931, filed by Cleveland Electric and Toledo Edison). 4b(76) - October 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). 4b(77) - June 1, 1998 (Exhibit 4b(77), Form S-4 File No. 333- 72891). 4b(78) - October 1, 1998 (Exhibit 4b(78), Form S-4 File No. 333-72891). 4b(79) - October 1, 1998 (Exhibit 4b(79), Form S-4 File No. 333-72891). 4b(80) - February 24, 1999 (Exhibit 4b(80), Form S-4 File No. 333-72891). 4b(81) - September 29, 1999. (Exhibit 4b(81), 1999 Form 10-K, File No. 1-2323). 4b(82) - January 15, 2000. (Exhibit 4b(82), 1999 Form 10-K, File No. 1-2323). 4d - Form of Note Indenture between Cleveland Electric and The Chase Manhattan Bank, as Trustee dated as of October 24, 1997 (Exhibit 4(b), Form S-4 File No. 333-47651, filed by Cleveland Electric). 4d(1) - Form of Supplemental Note Indenture between Cleveland Electric and The Chase Manhattan Bank, as Trustee dated as of October 24, 1997 (Exhibit 4(c), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10-1 - Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2- 43102, Exhibit 5(c)(2).) 10-2 - Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2- 68906, Exhibit 5(c)(3).) 10-3 - Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(3).) 10-4 - Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10- K, Exhibit 10-4.) 10-5 - Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980, October 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). (A)12.3 - Consolidated fixed charge ratios. (A)13.2 - 2000 Annual Report to Stockholders. (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the SEC.) (A)21.2 - List of Subsidiaries of the Registrant at December 31, 2000. (A)23.2 - Consent of Independent Public Accountants. (A) - Provided herein in electronic format as an exhibit. (B) - Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, CEI has not filed as an exhibit to this Form 10-K any instrument with respect to long- term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of CEI, but hereby agrees to furnish to the Commission on request any such instruments. 3. Exhibits - Toledo Edison (TE) Exhibit Number - ------- 3a - Amended Articles of Incorporation of TE, as amended effective October 2, 1992 (Exhibit 3a, 1992 Form 10- K, File No. 1-3583). 3b - Code of Regulations of TE dated January 28, 1987, as amended effective July 1 and October 1, 1988 and April 24, 1990 (Exhibit 3b, 1990 Form 10-K, File No. 1-3583). (B)4b(1) - Indenture, dated as of April 1, 1947, between TE and The Chase National Bank of the City of New York (now The Chase Manhattan Bank (National Association)) (Exhibit 2(b), File No. 2-26908). 4b(2) - September 1, 1948 (Exhibit 2(d), File No. 2-26908). 4b(3) - April 1, 1949 (Exhibit 2(e), File No. 2-26908). 4b(4) - December 1, 1950 (Exhibit 2(f), File No. 2-26908). 4b(5) - March 1, 1954 (Exhibit 2(g), File No. 2-26908). 4b(6) - February 1, 1956 (Exhibit 2(h), File No. 2-26908). 4b(7) - May 1, 1958 (Exhibit 5(g), File No. 2-59794). 4b(8) - August 1, 1967 (Exhibit 2(c), File No. 2-26908). 4b(9) - November 1, 1970 (Exhibit 2(c), File No. 2-38569). 4b(10) - August 1, 1972 (Exhibit 2(c), File No. 2-44873). 4b(11) - November 1, 1973 (Exhibit 2(c), File No. 2-49428). 4b(12) - July 1, 1974 (Exhibit 2(c), File No. 2-51429). 4b(13) - October 1, 1975 (Exhibit 2(c), File No. 2-54627). 4b(14) - June 1, 1976 (Exhibit 2(c), File No. 2-56396). 4b(15) - October 1, 1978 (Exhibit 2(c), File No. 2-62568). 4b(16) - September 1, 1979 (Exhibit 2(c), File No. 2-65350). 4b(17) - September 1, 1980 (Exhibit 4(s), File No. 2-69190). 4b(18) - October 1, 1980 (Exhibit 4(c), File No. 2-69190). 4b(19) - April 1, 1981 (Exhibit 4(c), File No. 2-71580). 4b(20) - November 1, 1981 (Exhibit 4(c), File No. 2-74485). 4b(21) - June 1, 1982 (Exhibit 4(c), File No. 2-77763). 4b(22) - September 1, 1982 (Exhibit 4(x), File No. 2-87323). 4b(23) - April 1, 1983 (Exhibit 4(c), March 31, 1983, Form 10- Q, File No. 1-3583). 4b(24) - December 1, 1983 (Exhibit 4(x), 1983 Form 10-K, File No. 1-3583). 4b(25) - April 1, 1984 (Exhibit 4(c), File No. 2-90059). 4b(26) - October 15, 1984 (Exhibit 4(z), 1984 Form 10-K, File No. 1-3583). 4b(27) - October 15, 1984 (Exhibit 4(aa), 1984 Form 10-K, File No. 1-3583). 4b(28) - August 1, 1985 (Exhibit 4(dd), File No. 33-1689). 4b(29) - August 1, 1985 (Exhibit 4(ee), File No. 33-1689). 4b(30) - December 1, 1985 (Exhibit 4(c), File No. 33-1689). 4b(31) - March 1, 1986 (Exhibit 4b(31), 1986 Form 10-K, File No. 1-3583). 4b(32) - October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q, File No. 1-3583). 4b(33) - September 15, 1988 (Exhibit 4b(33), 1988 Form 10-K, File No. 1-3583). 4b(34) - June 15, 1989 (Exhibit 4b(34), 1989 Form 10-K, File No. 1-3583). 4b(35) - October 15, 1989 (Exhibit 4b(35), 1989 Form 10-K, File No. 1-3583). 4b(36) - May 15, 1990 (Exhibit 4, June 30, 1990 Form 10-Q, File No. 1-3583). 4b(37) - March 1, 1991 (Exhibit 4(b), June 30, 1991 Form 10-Q, File No. 1-3583). 4b(38) - May 1, 1992 (Exhibit 4(a)(3), File No. 33-48844). 4b(39) - August 1, 1992 (Exhibit 4b(39), 1992 Form 10-K, File No. 1-3583). 4b(40) - October 1, 1992 (Exhibit 4b(40), 1992 Form 10-K, File No. 1-3583). 4b(41) - January 1, 1993 (Exhibit 4b(41), 1992 Form 10-K, File No. 1-3583). 4b(42) - September 15, 1994 (Exhibit 4(b), September 30, 1994 Form 10-Q, File No. 1-3583). 4b(43) - May 1, 1995 (Exhibit 4(d), September 30, 1995 Form 10-Q, File No. 1-3583). 4b(44) - June 1, 1995 (Exhibit 4(e), September 30, 1995 Form 10-Q, File No. 1-3583). 4b(45) - July 14, 1995 (Exhibit 4(f), September 30, 1995 Form 10-Q, File No. 1-3583). 4b(46) - July 15, 1995 (Exhibit 4(g), September 30, 1995 Form 10-Q, File No. 1-3583). 4b(47) - August 1, 1997 (Exhibit 4b(47), 1998 Form 10-K, File No. 1-3583). 4b(48) - June 1, 1998 (Exhibit 4b (48), 1998 Form 10-K, File No. 1-3583). 4b(49) - January 15, 2000. (Exhibit 4b(49), 1999 Form 10-K, File No. 1-3583). (A) 4b(50) - May 1, 2000. (A) 12.4 - Consolidated fixed charge ratios. (A) 13.3 - 2000 Annual Report to Stockholders. (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the SEC.) (A) 21.3 - List of Subsidiaries of the Registrant at December 31, 2000. (A) - Provided herein in electronic format as an exhibit. (B) - Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, TE has not filed as an exhibit to this Form 10-K any instrument with respect to long- term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of TE, but hereby agrees to furnish to the Commission on request any such instruments. (b) Reports on Form 8-K FirstEnergy- ----------- One report on Form 8-K was filed since September 30, 2000. A report dated November 27, 2000 reported that the common stock shareholders of FirstEnergy Corp. and GPU, Inc. approved the Agreement and Plan of Merger whereby FirstEnergy would acquire all of the outstanding shares of GPU's common stock. OE, CEI, TE, Penn- ------------------ None. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of FirstEnergy Corp.: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in FirstEnergy Corp.'s Annual Report to Stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 16, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule of consolidated valuation and qualifying accounts listed in Item 14 is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Ohio Edison Company: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Ohio Edison Company's Annual Report to Stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 16, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule of consolidated valuation and qualifying accounts listed in Item 14 is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of The Cleveland Electric Illuminating Company: We have audited, in accordance with auditing standards generally accepted in the Unites States, the consolidated financial statements included in The Cleveland Electric Illuminating Company's Annual Report to Stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 16, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule of consolidated valuation and qualifying accounts listed in Item 14 is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of The Toledo Edison Company: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in The Toledo Edison Company's Annual Report to Stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 16, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule of consolidated valuation and qualifying accounts listed in Item 14 is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Pennsylvania Power Company: We have audited, in accordance with auditing standards generally accepted in the United States, 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 16, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule of valuation and qualifying accounts listed in Item 14 is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. SCHEDULE II FIRSTENERGY CORP. CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Additions --------------------- Charged Beginning Charged to Other Ending Description Balance to Income Accounts Deductions Balance ----------- ---------- --------- -------- ---------- ------- (In Thousands) Year Ended December 31, 2000: Accumulated provision for uncollectible accounts - customers $ 6,719 $20,841 $2,218 (a) $13,978 (b) $15,800 ======= ======= ====== ======= ======= - other $ 5,359 $15,951 $ -- (a) $ 824 (b) $20,486 ======= ======= ====== ======= ======= Year Ended December 31, 1999: Accumulated provision for uncollectible accounts - customers $ 6,397 $ 8,668 $2,313 (a) $10,659 (b) $ 6,719 ======= ======= ====== ======= ======= - other $46,251 $ 4,039 $ 18 (a) $44,949 (b) $ 5,359 ======= ======= ====== ======= ======= Year Ended December 31, 1998: Accumulated provision for uncollectible accounts - customers $ 5,618 $28,984 $2,290 (a) $30,495 (b) $ 6,397 ======= ======= ====== ======= ======= - other $ 4,026 $45,836 $ 42 (a) $ 3,653 (b) $46,251 ======= ======= ====== ======= ======= - ----------------------- (a) Represents recoveries and reinstatements of accounts previously written off. (b) Represents the write-off of accounts considered to be uncollectible.
SCHEDULE II OHIO EDISON COMPANY CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Additions --------------------- Charged Beginning Charged to Other Ending Description Balance to Income Accounts Deductions Balance ----------- ---------- --------- -------- ---------- ------- (In Thousands) Year Ended December 31, 2000: Accumulated provision for uncollectible accounts - customers $6,452 $16,808 $2,218 (a) $13,701 (b) $11,777 ====== ======= ====== ======= ====== - other $1,000 $ -- $ -- $ -- $ 1,000 ====== ======= ====== ======= ======= Year Ended December 31, 1999: Accumulated provision for uncollectible accounts - customers $6,397 $ 8,401 $2,313 (a) $10,659 (b) $ 6,452 ====== ======= ====== ======= ======= - other $ -- $ 1,000 $ -- $ -- $ 1,000 ====== ======= ====== ======= ======= Year Ended December 31, 1998: Accumulated provision for uncollectible accounts $5,618 $ 7,933 $2,290 (a) $ 9,444 (b) $ 6,397 ====== ======= ====== ======= ======= - ----------------------- (a) Represents recoveries and reinstatements of accounts previously written off. (b) Represents the write-off of accounts considered to be uncollectible.
SCHEDULE II THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Additions --------------------- Charged Beginning Charged to Other Ending Description Balance to Income Accounts Deductions Balance ----------- ---------- --------- -------- ---------- ------- (In Thousands) Year Ended December 31, 2000: Accumulated provision for uncollectible accounts $1,000 $ -- $ -- $ -- $1,000 ====== ======= ====== ====== ====== Year Ended December 31, 1999: Accumulated provision for uncollectible accounts $ 491 $ 1,180 $ 18 (a) $ 689 (b) $1,000 ====== ======= ====== ====== ====== Year Ended December 31, 1998: Accumulated provision for uncollectible accounts $1,226 $ (16) $ 42 (a) $ 761 (b) $ 491 ====== ======= ====== ====== ====== - ----------------- (a) Represents recoveries and reinstatements of accounts previously written off. (b) Represents the write-off of accounts considered to be uncollectible.
SCHEDULE II THE TOLEDO EDISON COMPANY CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Additions --------------------- Charged Beginning Charged to Other Ending Description Balance to Income Accounts Deductions Balance ----------- ---------- --------- -------- ---------- ------- (In Thousands) Year Ended December 31, 2000: Accumulated provision for uncollectible accounts $ -- $ -- $ -- $ -- $ -- ====== ====== ====== ====== ====== Year Ended December 31, 1999: Accumulated provision for uncollectible accounts $ 100 $ -- $ -- $ 100 (a) $ -- ====== ====== ====== ====== ====== Year Ended December 31, 1998: Accumulated provision for uncollectible accounts $2,800 $ 192 $ -- $2,892 (a) $ 100 ====== ====== ====== ====== ====== - ------------------------ (a) Represents the write-off of accounts considered to be uncollectible.
SCHEDULE II PENNSYLVANIA POWER COMPANY VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Additions --------------------- Charged Beginning Charged to Other Ending Description Balance to Income Accounts Deductions Balance ----------- ---------- --------- -------- ---------- ------- (In Thousands) Year Ended December 31, 2000: Accumulated provision for uncollectible accounts $3,537 $ (496) $478 (a) $2,891 (b) $ 628 ====== ====== ==== ====== ====== Year Ended December 31, 1999: Accumulated provision for uncollectible accounts $3,599 $1,289 $300 (a) $1,651 (b) $3,537 ====== ====== ==== ====== ====== Year Ended December 31, 1998: Accumulated provision for uncollectible accounts $3,609 $1,242 $409 (a) $1,661 (b) $3,599 ====== ====== ==== ====== ====== - ------------------- (a) Represents recoveries and reinstatements of accounts previously written off. (b) Represents the write-off of accounts considered to be uncollectible.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRSTENERGY CORP. BY /s/H. Peter Burg -------------------------------- H. Peter Burg Chairman of the Board and Chief Executive Officer Date: March 20, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/H. Peter Burg /s/Anthony J. Alexander - ---------------------------------- -------------------------------- H. Peter Burg Anthony J. Alexander Chairman of the Board President and Director and Chief Executive Officer and Director (Principal Executive Officer) /s/Richard H. Marsh /s/Harvey L. Wagner - ---------------------------------- -------------------------------- Richard H. Marsh Harvey L. Wagner Vice President and Chief Controller Financial Officer (Principal Accounting Officer) (Principal Financial Officer) /s/Carol A. Cartwright /s/Paul J. Powers - ---------------------------------- -------------------------------- Carol A. Cartwright Paul J. Powers Director Director /s/William F. Conway - ---------------------------------- -------------------------------- William F. Conway Robert C. Savage Director Director /s/Robert B. Heisler, Jr. /s/George M. Smart - ---------------------------------- -------------------------------- Robert B. Heisler, Jr. George M. Smart Director Director /s/Robert L. Loughhead /s/Jesse T. Williams, Sr. - ---------------------------------- -------------------------------- Robert L. Loughhead Jesse T. Williams, Sr. Director Director /s/Russell W. Maier - ---------------------------------- Russell W. Maier Director Date: March 20, 2001 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OHIO EDISON COMPANY BY /s/H. Peter Burg ---------------------------------- H. Peter Burg President Date: March 20, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/H. Peter Burg /s/Richard H. Marsh - ---------------------------------- -------------------------------- H. Peter Burg Richard H. Marsh President and Director Vice President and Director (Principal Executive Officer) (Principal Financial Officer) /s/Harvey L. Wagner /s/Anthony J. Alexander - ---------------------------------- -------------------------------- Harvey L. Wagner Anthony J. Alexander Controller Director (Principal Accounting Officer) Date: March 20, 2001 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE CLEVELAND ELECTRIC ILLUMINATING COMPANY BY /s/H. Peter Burg ------------------------------------ H. Peter Burg President Date: March 20, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/H. Peter Burg /s/Richard H. Marsh - ---------------------------------- -------------------------------- H. Peter Burg Richard H. Marsh President and Director Vice President and Director (Principal Executive Officer) (Principal Financial Officer) /s/Harvey L. Wagner /s/Anthony J. Alexander - ---------------------------------- -------------------------------- Harvey L. Wagner Anthony J. Alexander Controller Director (Principal Accounting Officer) Date: March 20, 2001 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE TOLEDO EDISON COMPANY BY /s/H. Peter Burg -------------------------------- H. Peter Burg President Date: March 20, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/H. Peter Burg /s/Richard H. Marsh - ---------------------------------- -------------------------------- H. Peter Burg Richard H. Marsh President and Director Vice President and Director (Principal Executive Officer) (Principal Financial Officer) /s/Harvey L. Wagner /s/Anthony J. Alexander - ---------------------------------- -------------------------------- Harvey L. Wagner Anthony J. Alexander Controller Director (Principal Accounting Officer) Date: March 20, 2001 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PENNSYLVANIA POWER COMPANY BY /s/H. Peter Burg -------------------------------- H. Peter Burg Chairman of the Board and Chief Executive Officer Date: March 20, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/H. Peter Burg /s/Richard H. Marsh - ---------------------------------- -------------------------------- H. Peter Burg Richard H. Marsh Chairman of the Board and Vice President and Director Chief Executive Officer (Principal Financial Officer) (Principal Executive Officer) /s/Harvey L. Wagner /s/Anthony J. Alexander - ---------------------------------- -------------------------------- Harvey L. Wagner Anthony J. Alexander Controller Director (Principal Accounting Officer) Date: March 20, 2001 18 1 EX-3 2 ex3.txt AMENDED CODE OF REGULATIONS FirstEnergy Corp. AMENDED CODE OF REGULATIONS Effective 11/07/97 SHAREHOLDER MEETINGS 1. Time and Place of Meetings. All meetings of the shareholders for the election of directors or for any other purpose will be held at such time and place, within or without the State of Ohio, as may be designated by the Board of Directors or, in the absence of a designation by the Board of Directors, the Chairman of the Board of Directors, if any (the "Chairman"), the President, or the Secretary, and stated in the notice of meeting. The Board of Directors may postpone and reschedule any previously scheduled annual or special meeting of the shareholders. 2. Annual Meeting. An annual meeting of the shareholders will be held at such date and time as may be designated from time to time by the Board of Directors, at which meeting the shareholders will elect directors to succeed those directors whose terms expire at such meeting and will transact such other business as may be brought properly before the meeting in accordance with Regulation 9. 3. Special Meetings. (a) Special meetings of shareholders may be called by the Chairman or the President or by a majority of the Board of Directors acting with or without a meeting or by any person or persons who hold not less than 50% of all the shares outstanding and entitled to be voted on any proposal to be submitted at said meeting. Special meetings of the holders of shares that are entitled to call a special meeting by virtue of any Preferred Stock Designation may call such meetings in the manner and for the purposes provided in the applicable terms of such Preferred Stock Designation. For purposes of this Code of Regulations, "Preferred Stock Designation" has the meaning ascribed to such term in the Articles of Incorporation of the Corporation, as may be amended from time to time. (b) Upon written request by any person or persons entitled to call a meeting of shareholders delivered in person or by certified mail to the Chairman, the President or the Secretary, such officer shall forthwith cause notice of the meeting to be given to the shareholders entitled to notice of such meeting in accordance with Regulation 4. If such notice shall not be given within 60 days after the delivery or mailing of such request, the person or persons requesting the meeting may fix the time of the meeting and give, or cause to be given, notice in the manner provided in Regulation 4. - 1 - 4. Notice of Meetings. Except to the full extent that notice is legally permitted (now or hereafter) to be given by any other form of media, including any form of electronic or other communications, written notice of every meeting of the shareholders called in accordance with these Regulations, stating the time, place and purposes for which the meeting is called, will be given by or at the direction of the Chairman, the President, a Vice President, the Secretary or an Assistant Secretary (or in case of their refusal, by the person or persons entitled to call the meeting under Regulation 3). Such notice will be given not less than 7 nor more than 60 calendar days before the date of the meeting to each shareholder of record entitled to notice of such meeting. If such notice is mailed, it shall be addressed to the shareholders at their respective addresses as they appear on the records of the Corporation, and notice shall be deemed to have been given on the day so mailed. Notice of adjournment of a meeting need not be given if the time and place to which it is adjourned are fixed and announced at such meeting. 5. Inspectors. Inspectors of election may be appointed to act at any meeting of shareholders in accordance with Ohio law. 6. Quorum. To constitute a quorum at any meeting of shareholders, there shall be present in person or by proxy shareholders of record entitled to exercise not less than a majority of the voting power of the Corporation in respect of any one of the purposes for which the meeting is called, unless a greater or lesser number is expressly provided for with respect to a particular class or series of capital stock by the terms of any applicable Preferred Stock Designation. Except as may be otherwise provided in any Preferred Stock Designation, the holders of a majority of the voting power of the Corporation represented in person or by proxy at a meeting of shareholders, whether or not a quorum be present, may adjourn the meeting from time to time. For purposes of this Code of Regulations, "voting power of the Corporation" has the meaning ascribed to such term in the Articles of Incorporation of the Corporation, as may be amended from time to time. 7. Voting. Except as otherwise expressly provided by law, the Articles of Incorporation or this Code of Regulations, at any meeting of shareholders at which a quorum is present, a majority of the votes cast, whether in person or by proxy, on any matter properly brought before such meeting in accordance with Regulation 9 will be the act of the shareholders. An abstention shall not represent a vote cast. Every proxy must be duly executed and filed with the Secretary. A shareholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing with the Secretary written notice of revocation or a later appointment. The vote upon any question brought before a meeting of the shareholders may be by voice vote, unless otherwise required by law, the Articles of Incorporation or this Code of Regulations or unless the presiding officer otherwise determines. - 2 - 8. Record Dates. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, the Board of Directors may fix a record date, which will not be less than 7 nor more than 60 calendar days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders will be the date next preceding the day on which notice is given, or, if notice is waived, at the date next preceding the day on which the meeting is held. 9. Order of Business. (a) The Chairman, or such other officer of the Corporation designated by a majority of the total number of directors that the Corporation would have if there were no vacancies on the Board of Directors (such number being referred to as the "Whole Board"), will call meetings of shareholders to order and will act as presiding officer thereof. Unless otherwise determined by the Board of Directors prior to the meeting, the presiding officer of the meeting of shareholders will also determine the order of business and have the authority in his or her sole discretion to regulate the conduct of any such meeting including, without limitation, by imposing restrictions on the persons (other than shareholders of the Corporation or their duly appointed proxies) who may attend any such shareholders' meeting, by ascertaining whether any shareholder or his proxy may be excluded from any meeting of shareholders based upon any determination by the presiding officer, in his sole discretion, that any such person has unduly disrupted or is likely to disrupt the proceedings of the meeting, and by determining the circumstances in which any person may make a statement or ask questions at any meeting of shareholders. (b) At an annual meeting of the shareholders, only such business will be conducted or considered as is properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Chairman, the President, a Vice President, the Secretary or an Assistant Secretary in accordance with Regulation 4, (ii) otherwise properly brought before the meeting by the presiding officer or by or at the direction of a majority of the Whole Board, or (iii) otherwise properly requested to be brought before the meeting by a shareholder of the Corporation in accordance with Regulation 9(c). (c) For business to be properly requested by a shareholder to be brought before an annual meeting, the shareholder must (i) be a shareholder of the Corporation of record at the time of the giving of the notice for such annual meeting provided for in this Code of Regulations, (ii) be entitled to vote at such meeting, and (iii) have given timely notice thereof in writing to the Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 30 nor more than 60 calendar days prior to the annual meeting; provided, however, that in the event public announcement of the date of the annual meeting is not made at least 75 calendar days prior to the date of the annual meeting, notice by the shareholder to be timely must be so received not later than the close of business on the 10th calendar day following the day on which public announcement is first made of the date of the annual meeting. A shareholder's notice to the Secretary must set forth as to each matter the shareholder proposes to bring - 3 - before the annual meeting (A) a description in reasonable detail of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (B) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business and of the beneficial owner, if any, on whose behalf the proposal is made, (C) the class and number of shares of the Corporation that are owned beneficially and of record by the shareholder proposing such business and by the beneficial owner, if any, on whose behalf the proposal is made, and (D) any material interest of such shareholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made in such business. Notwithstanding the foregoing provisions of this Code of Regulations, a shareholder must also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Regulation 9(c). For purposes of this Regulation 9(c) and Regulation 14, "public announcement" means disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended, or publicly filed by the Corporation with any national securities exchange or quotation service through which the Corporation's stock is listed or traded, or furnished by the Corporation to its shareholders. Nothing in this Regulation 9(c) will be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended. (d) At a special meeting of shareholders, only such business may be conducted or considered as is properly brought before the meeting. To be properly brought before a special meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Chairman, the President, a Vice President, the Secretary or an Assistant Secretary (or in case of their failure to give any required notice, the other persons entitled to give notice) in accordance with Regulation 4 or (ii) otherwise brought before the meeting by the presiding officer or by or at the direction of a majority of the Whole Board. (e) The determination of whether any business sought to be brought before any annual or special meeting of the shareholders is properly brought before such meeting in accordance with this Regulation 9 will be made by the presiding officer of such meeting. If the presiding officer determines that any business is not properly brought before such meeting, he or she will so declare to the meeting and any such business will not be conducted or considered. - 4 - DIRECTORS 10. Function and Qualification. (a) Except where the law, the Articles of Incorporation, or this Code of Regulations requires action to be authorized or taken by the shareholders, all of the authority of the Corporation shall be exercised by or under the direction of the Board of Directors. (b) In order to qualify for service as a director of the Corporation, within 90 days following election to the Board of Directors in accordance with Regulations 11, 12 and 14, each director will become and will remain the beneficial owner of not less than 100 shares of Common Stock of the Corporation, except where such ownership would be inconsistent with or prohibited by (i) any applicable law, rule, regulation, order or decree of any governmental authority or (ii) any policy, contract, commitment or arrangement authorized by the Corporation. 11. Number, Election and Terms of Directors. Except as may be otherwise provided in any Preferred Stock Designation, the number of the directors of the Corporation will not be less than nine nor more than 16 as may be determined from time to time only (i) by a vote of a majority of the Whole Board, or (ii) by the affirmative vote of the holders of at least 80% of the voting power of the Corporation, voting together as a single class. The directors, other than those who may be expressly elected by virtue of the terms of any Preferred Stock Designation, will be classified with respect to the time for which they severally hold office into three classes, as nearly equal in size as possible and consisting of not less than three directors in each class, designated Class I, Class II, and Class III. The directors first appointed to Class I will hold office for a term expiring at the annual meeting of shareholders to be held in 1998; the directors first appointed to Class II will hold office for a term expiring at the annual meeting of shareholders to be held in 1999; and the directors first appointed to Class III will hold office for a term expiring at the annual meeting of shareholders to be held in 2000, with the members of each class to hold office until their successors are elected. Except as may be otherwise provided in any Preferred Stock Designation, at each annual meeting of the shareholders of the Corporation, the persons chosen at that meeting to succeed the class of directors whose term expires shall be elected by plurality vote of all votes cast at such meeting and shall hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election. Except as may be otherwise provided in any Preferred Stock Designation, directors may be elected by the shareholders only at an annual meeting of shareholders. No decrease in the number of directors constituting the Board of Directors may shorten the term of any incumbent director. Election of directors of the Corporation need not be by written ballot unless requested by the presiding officer or by the holders of a majority of the voting power of the Corporation present in person or represented by proxy at a meeting of the shareholders at which directors are to be elected. - 5 - 12. Newly Created Directorships and Vacancies. Except as may be otherwise provided in any Preferred Stock Designation, any vacancy (including newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause) may be filled only (i) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director or (ii) by the affirmative vote of the shareholders after a vote to increase the number of directors at a meeting called for that purpose in accordance with this Code of Regulations. Any director elected in accordance with the preceding sentence will hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor has been elected. 13. Removal. Except as may be otherwise provided in any Preferred Stock Designation, any director or the entire Board of Directors may be removed only upon the affirmative vote of the holders of at least 80% of the voting power of the Corporation, voting together as a single class. 14. Nominations of Directors; Election. (a) Except as may be otherwise provided in any Preferred Stock Designation, only persons who are nominated in accordance with this Regulation 14 will be eligible for election at a meeting of shareholders to be members of the Board of Directors of the Corporation. (b) Nominations of persons for election as directors of the Corporation may be made only at an annual meeting of shareholders (i) by or at the direction of the Board of Directors or a committee thereof or (ii) by any shareholder who is a shareholder of record at the time of giving of notice provided for in this Regulation 14, who is entitled to vote for the election of directors at such meeting, and who complies with the procedures set forth in this Regulation 14. All nominations by shareholders must be made pursuant to timely notice in proper written form to the Secretary. (c) To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 30 nor more than 60 calendar days prior to the annual meeting of shareholders; provided, however, that in the event that public announcement of the date of the annual meeting is not made at least 75 calendar days prior to the date of the annual meeting, notice by the shareholder to be timely must be so received not later than the close of business on the 10th calendar day following the day on which public announcement is first made of the date of the annual meeting. To be in proper written form, such shareholder's notice must set forth or include: (i) the name and address, as they appear on the Corporation's books, of the shareholder giving the notice and of the beneficial owner, if any, on whose behalf the nomination is made; (ii) a representation that the shareholder giving the notice is a holder of record of stock of the Corporation entitled to vote at such annual meeting and intends to appear in person or by proxy at the annual meeting to nominate the person or persons specified in the notice; - 6 - (iii) the class and number of shares of stock of the Corporation owned beneficially and of record by the shareholder giving the notice and by the beneficial owner, if any, on whose behalf the nomination is made; (iv) a description of all arrangements or understandings between or among any of (A) the shareholder giving the notice, (B) the beneficial owner on whose behalf the notice is given, (C) each nominee, and (D) any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder giving the notice; (v) such other information regarding each nominee proposed by the shareholder giving the notice as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (vi) the signed consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of any annual meeting may, if the facts warrant, determine that a nomination was not made in accordance with this Regulation 14, and if he or she should so determine, he or she will so declare to the meeting, and the defective nomination will be disregarded. Notwithstanding the foregoing provisions of this Regulation 14, a shareholder must also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Regulation 14. 15. Resignation. Any director may resign at any time by giving written notice of his resignation to the Chairman or the Secretary. Any resignation will be effective upon actual receipt by any such person or, if later, as of the date and time specified in such written notice. 16. Regular Meetings. Regular meetings of the Board of Directors may be held immediately after the annual meeting of the shareholders and at such other time and place either within or without the State of Ohio as may from time to time be determined by a majority of the Whole Board. Notice of regular meetings of the Board of Directors need not be given. 17. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman or the President on one day's notice to each director by whom such notice is not waived, given either personally or by mail, telephone, telegram, telex, facsimile or similar medium of communication, and will be called by the Chairman or the President, in like manner and on like notice, on the written request of not less than one-third of the Whole Board. Special meetings of the Board of Directors may be held at such time and place either within or without the State of Ohio as is determined by a majority of the Whole Board or specified in the notice of any such meeting. - 7 - 18. Quorum and Vote. At all meetings of the Board of Directors, one-third of the total number of directors then in office will constitute a quorum for the transaction of business. Except for the designation of committees as hereinafter provided and except for actions required by this Code of Regulations to be taken by a majority of the Whole Board, the act of a majority of the directors present at any meeting at which a quorum is present will be the act of the Board of Directors. If a quorum is not present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time to another time or place, without notice other than announcement at the meeting, until a quorum is present. 19. Participation in Meetings by Communications Equipment. Meetings of the Board of Directors or of any committee of the Board of Directors may be held through any means of communications equipment if all persons participating can hear each other, and such participation will constitute presence in person at such meeting. 20. Committees. The Board of Directors may from time to time create an executive committee or any other committee or committees of directors to act in the intervals between meetings of the Board of Directors and may delegate to such committee or committees any of its authority other than that of filling vacancies among the Board of Directors or in any committee of the Board of Directors. No committee shall consist of less than three directors. The Board of Directors may appoint one or more directors as alternate members of any such committee to take the place of absent committee members at meetings of such committee. Unless otherwise ordered by the Board of Directors, a majority of the members of any committee appointed by the Board of Directors pursuant to this Regulation 20 shall constitute a quorum at any meeting thereof, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of such committee. Action may be taken by any such committee without a meeting by a writing or writings signed by all of its members. Any such committee may prescribe its own rules for calling and holding meetings and its method of procedure, subject to any rules prescribed by the Board of Directors, and will keep a written record of all action taken by it. 21. Compensation. The Board of Directors may establish the compensation and expense reimbursement policies for directors in exchange for membership on the Board of Directors and on committees of the Board of Directors, attendance at meetings of the Board of Directors or committees of the Board of Directors, and for other services by directors to the Corporation or any of its subsidiaries. No director that is also an officer or employee of the Corporation shall receive compensation as a director. 22. Bylaws. The Board of Directors may adopt Bylaws for the conduct of its meetings and those of any committees of the Board of Directors that are not inconsistent with the Articles of Incorporation or this Code of Regulations. - 8 - OFFICERS 23. Generally. The Corporation may have a Chairman, elected by the directors from among their number, and shall have a President, a Secretary and a Treasurer. The Corporation may also have one or more Vice Chairmen and Vice Presidents and such other officers and assistant officers as the Board of Directors may deem appropriate. If the Board of Directors so desires, it may elect a Chief Executive Officer to manage the affairs of the Corporation, subject to the direction and control of the Board of Directors. All of the officers shall be elected by the Board of Directors. Notwithstanding the foregoing, by specific action, the Board of Directors may authorize the Chairman or the President to appoint any person to any office other than Chairman, President, Secretary, or Treasurer. Any number of offices may be held by the same person, and no two offices must be held by the same person. Any of the offices may be left vacant from time to time as the Board of Directors may determine. In case of the absence or disability of any officer of the Corporation or for any other reason deemed sufficient by a majority of the Board of Directors, the Board of Directors may delegate the absent or disabled officer's powers or duties to any other officer or to any director. 24. Authority and Duties of Officers. The officers of the Corporation shall have such authority and shall perform such duties as are customarily incident to their respective offices, or as may be specified from time to time by the Board of Directors, the Chairman or the President regardless of whether such authority and duties are customarily incident to such office. 25. Compensation. The compensation of all officers and agents of the Corporation who are also members of the Board of Directors of the Corporation will be fixed by the Board of Directors or by a committee of the Board of Directors. The Board of Directors may fix, or delegate the power to fix, the compensation of the other officers and agents of the Corporation to the Chief Executive Officer or any other officer of the Corporation. 26. Succession. The officers of the Corporation will hold office until their successors are elected. Any officer may be removed at any time by the affirmative vote of a majority of the Whole Board. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors or by the Chairman or President as provided in Regulation 23. STOCK 27. Transfer and Registration of Shares. The Board of Directors shall have authority to make such rules and regulations as they deem expedient concerning the issuance, transfer and registration of shares and may appoint transfer agents and registrars thereof. - 9 - 28. Substituted Certificates. Any person claiming a certificate for shares to have been lost, stolen or destroyed shall make an affidavit or affirmation of that fact, shall give the Corporation and its transfer agent or agents a bond of indemnity or other assurance satisfactory to the Board of Directors or a committee thereof or to the President or a Vice President and the Secretary or the Treasurer, whereupon a new certificate may be executed and delivered of the same class and series or type and for the same number of shares as the one alleged to have been lost, stolen or destroyed. 29. Voting Of Shares Held by the Corporation. Unless otherwise ordered by the Board of Directors, the President in person or by proxy or proxies appointed by him will have full power and authority on behalf of the Corporation to vote, act and consent with respect to any shares issued by other corporations that the Corporation may own. 30. Owners of Shares. The Corporation will be entitled to treat the person in whose name shares are registered on the books of the Corporation as the absolute owner thereof, and will not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation has knowledge or notice thereof, except as expressly provided by applicable law. INDEMNIFICATION AND INSURANCE 31. Indemnification. The Corporation shall indemnify, to the full extent then permitted by law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a member of the Board of Directors or an officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The Corporation shall pay, to the full extent then required by law, expenses, including attorney's fees, incurred by a member of the Board of Directors in defending any such action, suit or proceeding as they are incurred, in advance of the final disposition thereof, and may pay, in the same manner and to the full extent then permitted by law, such expenses incurred by any other person. The indemnification and payment of expenses provided hereby shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under any law, the Articles of Incorporation, any agreement, vote of shareholders or disinterested members of the Board of Directors, or otherwise, both as to action in official capacities and as to action in another capacity while he or she is a member of the Board of Directors, or an officer, employee or agent of the Corporation, and shall continue as to a person who has ceased to be a member of the Board of Directors, trustee, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. - 10 - 32. Insurance. The Corporation may, to the full extent then permitted by law and authorized by the Board of Directors, purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit or self-insurance, on behalf of or for any persons described in Regulation 31 against any liability asserted against and incurred by any such person in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such liability. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest. 33. Agreements. The Corporation, upon approval by the Board of Directors, may enter into agreements with any persons whom the Corporation may indemnify under this Code of Regulations or under law and undertake thereby to indemnify such persons and to pay the expenses incurred by them in defending any action, suit or proceeding against them, whether or not the Corporation would have the power under law or this Code of Regulations to indemnify any such person. GENERAL 34. Fiscal Year. The fiscal year of the Corporation will end on the thirty-first day of December in each calendar year or such other date as may be fixed from time to time by the Board of Directors. 35. Seal. The Board of Directors may adopt a corporate seal and use the same by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 36. Amendments. Except as otherwise provided by law or by the Articles of Incorporation or this Code of Regulations, these Regulations or any of them may be amended in any respect or repealed at any time at any meeting of shareholders, provided that any amendment or supplement proposed to be acted upon at any such meeting has been described or referred to in the notice of such meeting. Notwithstanding the foregoing sentence or anything to the contrary contained in the Articles of Incorporation or this Code of Regulations, Regulations 1, 3(a), 9, 11, 12, 13, 14, 31 and 36 may not be amended or repealed by the shareholders, and no provision inconsistent therewith may be adopted by the shareholders, without the affirmative vote of the holders of at least 80% of the voting power of the Corporation, voting together as a single class. Notwithstanding the foregoing provisions of this Regulation 36, no amendment to Regulations 31, 32 or 33 will be effective to eliminate or diminish the rights of persons specified in those Regulations existing at the time immediately preceding such amendment. {24002-1} - 11 - EX-10.1 3 ex10-1.txt RESTRICTED STOCK AGREEMENT - AJA FirstEnergy Corp. ----------------- Executive and Directors Incentive Compensation Plan --------------------------------------------------- Restricted Stock Agreement -------------------------- Award No.: 15 Number of Shares Awarded: 60,000 shares Date of Grant: November 22, 2000 This Restricted Stock Agreement ("Agreement") is entered into as of November 22, 2000 between FirstEnergy Corp. ("FE") and Anthony J. Alexander ("Recipient"). AWARD On February 17, 1998, The Board of Directors ("Directors") of FE adopted the FE Executive and Director Incentive Compensation Plan ("Plan"), which was approved by the common stock shareholders on April 30, 1998, and became effective May 1, 1998. As of the date of this Agreement, per the terms of the Plan, FE grants to the Recipient the above number of restricted shares of FE Common Stock ("Restricted Shares") per the terms and conditions of Article 8 of the Plan. GENERAL TERMS This Agreement is subject to the following terms and conditions as outlined in the Plan: Restricted Period 1. Restricted Shares shall not be sold, transferred, pledged, or assigned, until the earliest of: a) 5:00 p.m. Akron Time on November 22, 2004; b) The date of the Recipient's death; c) The date that the Recipient's employment is terminated due to Disability; d) The date that a Change in Control occurs. Registration and Certificate Legend FE shall register a certificate(s) in the name of the Recipient for the number of Restricted Shares specified above. Each certificate will bear the following legend until the time that the restrictions lapse: "The sale or transfer of the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer set forth in the Executive and 1 Director Incentive Compensation Plan of the FirstEnergy Corp., in the rules and administrative procedures adopted pursuant to such Plan, and in a Restricted Stock Agreement dated November 22, 2000. A copy of the Plan, such rules and procedures, and such Restricted Stock Agreement may be obtained from the Corporate Secretary of FirstEnergy Corp." Forfeiture Recipient shall forfeit the Restricted Shares upon the occurrence of the following events: o Termination of employment with FE or its subsidiaries for any reason other than death, Disability, involuntary termination under conditions in which the Recipient qualifies for and elects benefits under the FE Severance Benefits Plan, or unless the restrictions are waived or modified in the sole discretion of the Committee. o Any attempt to sell, transfer, pledge, or assign the Restricted Shares in violation of the above. Under the occurrence of any of the above, the Restricted Shares shall be forfeited to FE and the Recipient's interest in the Restricted Shares, including the right to vote and receive dividends, shall terminate immediately. Voting and Dividend Rights Subject to the above restrictions, the Recipient shall be entitled to all other rights of ownership, including, but not limited to, the right to vote the Restricted Shares and to receive dividends. Dividends will be automatically reinvested in restricted shares that are subject to the same restrictions above. Expiration of Restricted Period Upon termination of the restricted period, Recipient shall be entitled to have the legend removed from the certificate. FE's obligation to remove the legend is subject to Recipient making the necessary arrangements with FE to satisfy any withholding obligations. Effect on the Employment Relationship Nothing in this Agreement guarantees employment with FE, nor does it confer any special rights or privileges to the Optionee as to the terms of employment. Adjustments In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, combination, distribution, or other change in corporate structure of FE affecting the Common Stock, the Committee will adjust the number and class of 2 securities in this restricted stock grant in a manner determined appropriate to prevent dilution or diminution of the stock grant under this Agreement. Administration 1. The administration of this Agreement and the Plan will be performed in accordance with Article 3 of the Plan. All determinations and decisions made by the Committee, the Board, or any delegate of the Committee as to the provisions of the Plan shall be final, conclusive, and binding on all persons. 2. The terms of this Agreement are governed at all times by the official text of the Plan and in no way alter or modify the Plan. 3. If a term is capitalized but not defined in this Agreement, it has the meaning given to it in the Plan. 4. To the extent a conflict exists between the terms of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. 5. This Agreement is governed by the laws of the State of Ohio without giving effect to the principles of the conflicts of laws. FirstEnergy Corp. By ________________________ Corporate Secretary I acknowledge receipt of this Restricted Stock Agreement and I accept and agree with the terms and conditions stated above. _____________________________ (Signature of Recipient) __________________ (Date) (This is AJA's 2nd Restricted Stock Grant) 11/22/2000 - 3 - 3 EX-10.2 4 ex10-2.txt RESTRICTED STOCK AGREEMENT - HPB FirstEnergy Corp. ----------------- Executive and Directors Incentive Compensation Plan --------------------------------------------------- Restricted Stock Agreement -------------------------- Award No.: 15 Number of Shares Awarded: 100,000 shares Date of Grant: November 22, 2000 This Restricted Stock Agreement ("Agreement") is entered into as of November 22, 2000 between FirstEnergy Corp. ("FE") and H. Peter Burg ("Recipient"). AWARD On February 17, 1998, The Board of Directors ("Directors") of FE adopted the FE Executive and Director Incentive Compensation Plan ("Plan"), which was approved by the common stock shareholders on April 30, 1998, and became effective May 1, 1998. As of the date of this Agreement, per the terms of the Plan, FE grants to the Recipient the above number of restricted shares of FE Common Stock ("Restricted Shares") per the terms and conditions of Article 8 of the Plan. GENERAL TERMS This Agreement is subject to the following terms and conditions as outlined in the Plan: Restricted Period 1. Restricted Shares shall not be sold, transferred, pledged, or assigned, until the earliest of: a) 5:00 p.m. Akron Time on November 22, 2004; b) The date of the Recipient's death; c) The date that the Recipient's employment is terminated due to Disability; d) The date that a Change in Control occurs. Registration and Certificate Legend FE shall register a certificate(s) in the name of the Recipient for the number of Restricted Shares specified above. Each certificate will bear the following legend until the time that the restrictions lapse: "The sale or transfer of the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer set forth in the Executive and 1 Director Incentive Compensation Plan of the FirstEnergy Corp., in the rules and administrative procedures adopted pursuant to such Plan, and in a Restricted Stock Agreement dated November 22, 2000. A copy of the Plan, such rules and procedures, and such Restricted Stock Agreement may be obtained from the Corporate Secretary of FirstEnergy Corp." Forfeiture Recipient shall forfeit the Restricted Shares upon the occurrence of the following events: o Termination of employment with FE or its subsidiaries for any reason other than death, Disability, involuntary termination under conditions in which the Recipient qualifies for and elects benefits under the FE Severance Benefits Plan, or unless the restrictions are waived or modified in the sole discretion of the Committee. o Any attempt to sell, transfer, pledge, or assign the Restricted Shares in violation of the above. Under the occurrence of any of the above, the Restricted Shares shall be forfeited to FE and the Recipient's interest in the Restricted Shares, including the right to vote and receive dividends, shall terminate immediately. Voting and Dividend Rights Subject to the above restrictions, the Recipient shall be entitled to all other rights of ownership, including, but not limited to, the right to vote the Restricted Shares and to receive dividends. Dividends will be automatically reinvested in restricted shares that are subject to the same restrictions above. Expiration of Restricted Period Upon termination of the restricted period, Recipient shall be entitled to have the legend removed from the certificate. FE's obligation to remove the legend is subject to Recipient making the necessary arrangements with FE to satisfy any withholding obligations. Effect on the Employment Relationship Nothing in this Agreement guarantees employment with FE, nor does it confer any special rights or privileges to the Optionee as to the terms of employment. Adjustments In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, combination, distribution, or other change in corporate structure of FE affecting the Common Stock, the Committee will adjust the number and class of 2 securities in this restricted stock grant in a manner determined appropriate to prevent dilution or diminution of the stock grant under this Agreement. Administration 1. The administration of this Agreement and the Plan will be performed in accordance with Article 3 of the Plan. All determinations and decisions made by the Committee, the Board, or any delegate of the Committee as to the provisions of the Plan shall be final, conclusive, and binding on all persons. 2. The terms of this Agreement are governed at all times by the official text of the Plan and in no way alter or modify the Plan. 3. If a term is capitalized but not defined in this Agreement, it has the meaning given to it in the Plan. 4. To the extent a conflict exists between the terms of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. 5. This Agreement is governed by the laws of the State of Ohio without giving effect to the principles of the conflicts of laws. FirstEnergy Corp. By ---------------------------- Corporate Secretary I acknowledge receipt of this Restricted Stock Agreement and I accept and agree with the terms and conditions stated above. ------------------------------ (Signature of Recipient) - ------------------ (Date) (This is HPB's 1st Restricted Stock Grant) 11/22/2000 3 3 EX-10.3 5 ex10-3.txt STOCK OPTION AGREEMENT - OFFICERS NOV. 2000 FirstEnergy Corp. ----------------- Executive and Directors Incentive Compensation Plan --------------------------------------------------- Non-Qualifying Stock Option (NSO) Agreement ------------------------------------------- Option No.: 9A Number of Options Granted: XXXX NSOs Option Price: $27.75 per share Option Closing Date: January 26, 2001 This Option Agreement ("Agreement") is entered into as of the 22nd day of November, 2000, between FirstEnergy Corp., and XXXXX (the "Optionee") and is not in lieu of salary or any other compensation for services. For the purposes of this plan, the term "Company" or "FE" means FirstEnergy Corp. or its subsidiaries, singularly or collectively. SECTION ONE - AWARD On February 17, 1998, the Board of Directors ("Board") of FE adopted the FE Executive and Director Incentive Compensation Plan ("Plan"), which was approved by the common stock shareholders on April 30, 1998, and become effective May 1, 1998. As of the date of this Agreement, per the terms of the Plan, FE grants to the Optionee an option ("Option") to purchase the above number of shares of FE Common Stock ("Shares") at the option price reflected above. All Grants are considered NSOs, not subject to the provisions of section 422 of the Code. SECTION TWO - GENERAL TERMS This Agreement is subject to the following terms and conditions as outlined in the Plan: Vesting Provisions These Options will become fully vested on November 22, 2004, which is four (4) years after the date of grant unless it becomes exercisable prior to that date due to termination of employment (as described below). Expiration These Options expire on November 22, 2010 at 2:00 PM, Akron Time unless the Options expire earlier due to termination of employment (or 2:00 PM on the last business day prior to such date, if the date falls on a Saturday, Sunday, or other day when the FirstEnergy General Office is closed). 1 Termination of Employment
Event of Optionee Vesting When Options Expire Further Information ----------------- ------- ------------------- ------------------- Retirement (including early Vesting continues per Options expire on As defined under 6.8 retirement) vesting schedule November 22, 2010 of the Plan Disability Vesting continues per Options expire on As defined under 6.8 vesting schedule November 22, 2010 of the Plan Death (including death 100% vesting on date All options expire the Shares exercisable by after retirement, dis- of death earlier of one year the beneficiary (per ability, or Other Termin- after date of death or Article 12 of the ations other than for Cause) expiration of the grant Plan, or by will or by the laws of descent and distribution) Termination for Cause Vesting stops upon All vested and unvested Termination for Cause date you leave Company options are immediately is defined in section forfeited back to the 2.1.6 of the Plan Company Separation from Company in 25% of the options All unvested options Refer to the Severance which you qualify for and will vest for every are immediately Benefits Plan elect benefits under the whole year you have forfeited back to the FirstEnergy Severance Plan worked since the date Company. All vested of the grant, effective options expire the upon the date that you earlier of 90 days leave the Company after you leave the Company or expiration of the grant Other Termination Vesting stops upon All unvested options You may be subject to (including resignation) date you leave Company are immediately the "Forfeiture and forfeited back to the Recovery" provisions Company. All vested below. options expire the earlier of 90 days after you leave the Company or expiration of the grant
Change in Control In the event of a Change in Control (as defined in section 2.1.7 of the Plan), all options under this Agreement become immediately exercisable as of the date of the Change of Control and the provisions under the section entitled "Forfeiture and Recovery" shall not apply. Forfeiture and Recovery If it is determined, in the sole discretion of the Compensation Committee (the "Committee") of the FirstEnergy Board of Directors or its delegate, that the Optionee has breached any of the covenants below, and unless such breach has been waived by the Committee or its delegate in writing, all outstanding Options shall be immediately forfeited back to FE and any profits resulting from the exercise of Options realized in the twelve (12) months preceding the date of termination through the date of the breach shall be returned to FE. During the term of his/her employment with the Company and for a 2 period of twenty-four (24) months following termination of employment for any reason, including without limitation, termination by mutual agreement, the Optionee expressly covenants and agrees that he/she will not at any time for himself/herself or on behalf of any other person, firm, association or other entity do any of the following: 1. Participate or engage, by virtue of being employed or otherwise, directly or indirectly, in the business of selling, servicing, and/or manufacturing products, supplies or services of the kind, nature or description of those sold by the Company except pursuant to his/her employment with the Company; 2. Directly participate or engage, on the behalf of other parties, in the purchase of products, supplies or services of the kind, nature or description of those sold by the Company except pursuant to his/her employment with the Company; 3. Solicit, divert, take away or attempt to take away any of the Company's Customers or the business or patronage of any such Customers of the Company; 4. Solicit, entice, lure, employ or endeavor to employ any of the Company's employees; 5. Divulge to others or use his/her own benefit any confidential information obtained during the course of his/her employment with Company relative to sales, services, processes, methods, machines, manufacturers, compositions, ideas, improvements, patents, trademarks, or inventions belonging to or relating to the affairs of Company; 6. Divulge to others or use to his/her own benefit any trade secrets belonging to the Company obtained during the course of his/her employment or that he/she became aware of as a consequence of his/her employment. The term "Customer" shall mean any person, firm, association, corporation or other entity to which Optionee or the Company has sold the Company's products or services within the twenty-four (24) month period immediately preceding the termination of Optionee's employment with the Company or to which Optionee or the Company is in the process of selling its products or services, or to which Optionee or the Company has submitted a bid, or is in the process of submitting a bid to sell the Company's products or services. FE may offset any amount owed against any compensation due to the Optionee or against any amounts otherwise due and distributable to the Optionee from any benefit plan of FE in which the Optionee was a participant, in accordance with the terms of such benefit plan. Should it be necessary for FE to initiate legal action to recover any amounts due, FE shall be entitled to recover from Optionee, in addition to such amounts due, all costs, including reasonable attorneys fees, incurred as a result of such legal action. Effect on the Employment Relationship Nothing in this Agreement guarantees employment with the Company, nor does it confer any special rights or privileges to the Optionee as to the terms of employment. Adjustments In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, combination, distribution, or other change in corporate structure of FE affecting the Common Stock, the Committee will adjust the number and class of securities in this option in a manner determined appropriate to prevent dilution or diminution of the Option under this Agreement. 3 Administration 1. This Agreement is governed by the laws of the State of Ohio without giving effect to the principles of the conflicts of laws. 2. The terms and conditions of this Option may be modified by the Committee (a) In any case permitted by the terms of the Plan or this Option, (b) with the written consent of the Optionee, or (c) without the consent of the Optionee if the amendment is either not adverse to the interests of the Optionee or is required by law. 3. The administration of this Agreement and the Plan will be performed in accordance with Article 3 of the Plan. All determinations and decisions made by the Committee, the Board, or any delegate of the Committee as to the provisions of the Plan shall be final, conclusive, and binding on all persons. 4. The terms of this Agreement are governed at all times by the official text of the Plan and in no way alter or modify the Plan. 5. If a term is capitalized but not defined in this Agreement, it has the meaning given to it in the Plan. 6. To the extent a conflict exists between the terms of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. SECTION THREE - METHODS OF EXERCISING THE OPTION Notification to Exercise To exercise an option, the Optionee must submit to the Administrator of the Plan the information below either on a form provided by FE, a broker form, or on a blank sheet of paper: 1. Number of shares being purchased, 2. The grant price, 3. The form of payment, 4. A statement of intention to exercise, 5. The signature of the Optionee, (or legal representative in the case of death or disability), and 6. Any representations or disclosures required by any applicable securities law. Method of Payment Payment for the transaction and associated brokerage fees may be made through the following methods: 1. Cash Exercise -- Delivering cash equal to the cost of the exercise. 2. Stock Swap Exercise -- Surrendering certificates of FE stock previously acquired having a Fair Market Value at the time of the exercise equal to the amount of the exercise, along with a small amount of cash, not to exceed the price of one (1) share of stock. 4 3. Cashless Exercise-- Using the net proceeds from the immediate sale of stock to pay for the exercise of the Option, as directed in the written notification to exercise the option. A combination of any of the above based upon Plan administrative rules. Withholding Tax FE shall have the right to deduct, withhold, or require the Optionee to surrender an amount sufficient to satisfy federal (including FICA and Medicare), state, and/or local taxes required by law to be withheld for any exercise. SECTION FOUR - TRANSFER OF OPTION The Option is not transferable during the life of the Optionee. Only the Optionee shall have the right to exercise an option, unless deceased, at which time the option may be exercised by the Optionee's beneficiary (as designated under Article 12 of the Plan or by will or by the laws of descent and distribution). FirstEnergy Corp. By _____________________________ Corporate Secretary I acknowledge receipt of this NSO Agreement and I accept and agree with the terms and conditions stated above. ________________________________ (Signature of Optionee) _____________________ (Date) (This is XXX's Ynd grant under the FE Stock Option Program.) NSO Option Agreement Grant 9A (J. Lash).doc 12/19/00 5 1 EX-10.4 6 ex10-4.txt STOCK OPTION AGREEMENT - OFFICERS MAR. 2000 FirstEnergy Corp. ----------------- Executive and Directors Incentive Compensation Plan --------------------------------------------------- Non-Qualifying Stock Option (NSO) Agreement ------------------------------------------- Option No.: 7 Number of Options Granted: XXXX NSOs Option Price: $19.31 per share This Option Agreement ("Agreement") is entered into as of the 1st day of March, 2000, between FirstEnergy Corp., and ________________ ("Optionee") and is not in lieu of salary or any other compensation for services. For the purposes of this plan, the term "Company" or "FE" means FirstEnergy Corp. or its subsidiaries, singularly or collectively. SECTION ONE - AWARD On February 17, 1998, the Board of Directors ("Board") of FE adopted the FE Executive and Director Incentive Compensation Plan ("Plan), which was approved by the common stock shareholders on April 30, 1998, and became effective May 1, 1998. As of the date of this Agreement, per the terms of the Plan, FE grants to the Optionee an option ("Option") to purchase the above number of shares of FE Common Stock ("Shares") at the option price reflected above. All grants are considered NSOs, not subject to the provisions of section 422 of the Code. SECTION TWO - GENERAL TERMS This Agreement is subject to the following terms and conditions as outlined in the Plan: Vesting Provisions These Options will become fully vested on March 1, 2004, which is four (4) years after the date of grant unless it becomes exercisable prior to that date due to termination of employment (as described below). Expiration These Options expire on March 1, 2010 at 2:00 PM, Akron Time unless the Options expire earlier due to termination of employment (or 2:00 PM on the last business day prior to such date, if the date falls on a Saturday, Sunday, or other day when the FirstEnergy General Office is closed). 1 Termination of Employment
Event of Optionee Vesting When Options Expire Further Information ----------------- ------- ------------------- --------------------- Retirement Vesting continues per Options expire on As defined under 6.8 vesting schedule March 1, 2010 of the Plan Disability Vesting continues per Options expire on As defined under 6.8 vesting schedule March 1, 2010 of the Plan Death 100% vesting on date All options expire Shares exercisable of death the earlier of one year by the beneficiary after date of death or (per Article 12 of the expiration of the grant Plan, or by will or by the laws of descent and distribution) Death after Retirement, 100% vesting on date All options will expire As defined under Disability, or Other of death, if applicable the earlier of 90 days 6.9 of the Plan Terminations other than after death or the for Cause expiration of the grant Termination For Cause Vesting stops upon date All vested and unvested Termination for Cause you leave Company options are immediately is defined in section forfeited back to the 2.1.6 of the Plan Company Other Termination, Vesting stops upon All unvested options You may be subject including resignation date you leave Company are immediately to the "Forfeiture forfeited back to the and Recovery" Company. All vested provisions below. options expire the earlier of 90 days after you leave the Company or expiration of the grant
Change in Control In the event of a Change in Control (as defined in section 2.1.7 of the Plan), all options under this Agreement become immediately exercisable as of the date of the Change in Control and the provisions under the section entitled "Forfeiture and Recovery" shall not apply. Forfeiture and Recovery If it is determined, in the sole discretion of the Compensation Committee (the "Committee") of the FirstEnergy Board of Directors or its delegate, that the Optionee has breached any of the covenants below, and unless such breach has been waived by the Committee or its delegate in writing, all outstanding Options shall be immediately forfeited back to FE and any profits resulting from the exercise of Options realized in the twelve (12) months preceding the date of termination through the date of the breach shall be returned to FE. During the term of his/her employment with the Company and for a period of twenty-four (24) months following the termination of employment for any reason, including without limitation, termination by mutual agreement, the Optionee expressly covenants and agrees that he/she will not at any time for himself /herself or on behalf of any other person, firm, association or other entity do any of the following: 2 1. Participate or engage, by virtue of being employed or otherwise, directly or indirectly, in the business of selling, servicing, and/or manufacturing products, supplies or services of the kind, nature or description of those sold by the Company except pursuant to his/her employment with Company; 2. Directly participate or engage, on the behalf of other parties, in the purchase of products, supplies or services of the kind, nature or description of those sold by the Company except pursuant to his/her employment with the Company; 3. Solicit, divert, take away or attempt to take away any of the Company's Customers or the business or patronage of any such Customers of the Company; 4. Solicit, entice, lure, employ or endeavor to employ any of the Company's employees; 5. Divulge to others or use for his/her own benefit any confidential information obtained during the course of his/her employment with Company relative to sales, services, processes, methods, machines, manufacturers, compositions, ideas, improvements, patents, trademarks, or inventions belonging to or relating to the affairs of Company; 6. Divulge to others or use to his/her own benefit any trade secrets belonging to the Company obtained during the course of his/her employment or that he/she became aware of as a consequence of his/her employment. The term "Customer" shall mean any person, firm, association, corporation or other entity to which Optionee or the Company has sold the Company's products or services within the twenty-four (24) month period immediately preceding the termination of Optionee's employment with Company or to which Optionee or the Company is in the process of selling its products or services, or to which Optionee or the Company has submitted a bid, or is in the process of submitting a bid to sell the Company's products or services. FE may offset any amount owed against any compensation due to the Optionee or against any amounts otherwise due and distributable to the Optionee from any benefit plan of FE in which the Optionee was a participant, in accordance with the terms of such benefit plan. Should it be necessary for FE to initiate legal action to recover any amounts due, FE shall be entitled to recover from Optionee, in addition to such amounts due, all costs, including reasonable attorneys fees, incurred as a result of such legal action. Effect on the Employment Relationship Nothing in this Agreement guarantees employment with the Company, nor does it confer any special rights or privileges to the Optionee as to the terms of employment. Adjustments In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, combination, distribution, or other change in corporate structure of FE affecting the Common Stock, the Committee will adjust the number and class of securities in this option in a manner determined appropriate to prevent dilution or diminution of the Option under this Agreement. Administration 1. This Agreement is governed by the laws of the State of Ohio without giving effect to the principles of the conflicts of laws. 3 2. The terms and conditions of this Option may be modified by the Committee a) in any case permitted by the terms of the Plan or this Option, b) with the written consent of the Optionee, or c) without the consent of the Optionee if the amendment is either not adverse to the interests of the Optionee or is required by law. 3. The administration of this Agreement and the Plan will be performed in accordance with Article 3 of the Plan. All determinations and decisions made by the Committee, the Board, or any delegate of the Committee as to the provisions of the Plan shall be final, conclusive, and binding on all persons. 4. The terms of this Agreement are governed at all times by the official text of the Plan and in no way alter or modify the Plan. 5. If a term is capitalized but not defined in this Agreement, it has the meaning given to it in the Plan. 6. To the extent a conflict exists between the terms of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. SECTION THREE - METHODS OF EXERCISING THE OPTION Notification to Exercise To exercise an option, the Optionee must submit to the Administrator of the Plan the information below either on a form provided by FE, a broker form, or on a blank sheet of paper: 1. Number of shares being purchased, 2. The grant price, 3. The form of payment, 4. A statement of intention to exercise, 5. The signature of the Optionee, (or legal representative in the case of death or disability), and 6. Any representations or disclosures required by any applicable securities law. Method of Payment Payment for the transaction and associated brokerage fees may be made through the following methods: 1. Cash Exercise -- Delivering cash equal to the cost of the exercise. 2. Stock Swap Exercise -- Surrendering certificates of FE stock previously acquired having a Fair Market Value at the time of the exercise equal to the amount of the exercise, along with a small amount of cash, not to exceed the price of one (1) share of stock. 3. Cashless Exercise -- Using the net proceeds from the immediate sale of stock to pay for the exercise of the Option, as directed in the written notification to exercise the option. 4. A combination of any of the above based upon Plan administrative rules. Withholding Tax FE shall have the right to deduct, withhold, or require the Optionee to surrender an amount sufficient to satisfy federal (including FICA and Medicare), state, and/or local taxes required by law to be withheld for any exercise. 4 SECTION FOUR - TRANSFER OF OPTION The Option is not transferable during the life of the Optionee. Only the Optionee shall have the right to exercise an option, unless deceased, at which time the option may be exercised by Optionee's beneficiary (as designated under Article 12 of the Plan or by will or by the laws of descent and distribution). FirstEnergy Corp. By _____________________________ Corporate Secretary I acknowledge receipt of this NSO Agreement and I accept and agree with the terms and conditions stated above. ________________________________ (Signature of Optionee) _____________________ (Date) (This is XXX's Yth grant under the FE Stock Option Program.) Executive Grant 7 NSO.doc 02/07/00 5 5 EX-10.5 7 ex10-5.txt STOCK OPTION AGREEMENT - DIRECTORS JAN. 2000 Board of Director ----------------- Non-Qualifying Stock Option (NSO) Agreement ------------------------------------------- for Elected and Bonus Stock Options ----------------------------------- Option No.: 6 Number of Elected Options: 7,153 NSO's Number of Bonus Options: 1,431 NSO's Total Options Granted: 8,584 NSO's Exercise Price: $ 22.56 per share This Option Agreement ("Agreement") is entered into as of the 1st day of January, 2000, between FirstEnergy Corp. ("FE"), and ______________ ("Optionee") and is in lieu of the Board of Directors retainer fee. SECTION ONE - AWARD The Board of Directors ("Directors") of FE adopted the FE Executive and Director Incentive Compensation Plan ("Plan") on February 17, 1998. The Plan was subsequently approved by the common stock shareholders on April 30, 1998, and became effective May 1, 1998. According to the terms of the Plan, the Optionee shall receive, as of the above date, the number of Options ("Options") to purchase shares of FE Common Stock ("Shares"), at the above price, based upon the Optionee's elections indicated on the Election Form signed by the Optionee on December ___, 1999. All grants are considered NSO's, not subject to the provisions of section 422 of the Code. SECTION TWO - GENERAL TERMS This Agreement is subject to the following terms and conditions as outlined in the Plan: Options Accrued All Options granted are earned in 2000 in 10% increments for each month served not to exceed 100%. A full month's credit will be given for time served after the first of the month. All Bonus options become fully vested after the director has served four (4) years from the date of this grant, subject to the same restrictions as the grant. Exercise of Options These Options will become exerciseable as of January 1, 2004, which is four (4) years after the grant unless it becomes exerciseable prior to that date due to termination from the Board. 1 Expiration These Options expire on December 31, 2009 at 2:00 PM, Akron Time, unless the Options expire earlier due to termination from the Board (or 2:00 PM on the last business day prior to such date, if the date falls on a Saturday, Sunday, or other day when the FirstEnergy General Office is closed). Termination from the Board 1. In the event of the death of the Optionee, all Options will become immediately exerciseable by the Optionee's beneficiary (as described in Article 12 of the Plan or by will or by the laws of descent and distribution), and will expire on the earlier of either: a) 1 year after the date of death, or b) the expiration date of this Agreement. 2. In the event of termination of employment due to disability [as defined under the Internal Revenue Code, Section 22 (e) (3)], all Options will become exercisable as of January 1, 2004 (provided that such Options will become immediately exercisable by the Optionee's beneficiary if the Optionee dies prior to such date), and will expire on the earlier of either: a) 1 year after the date of death, or b) the expiration date of this Agreement. 3. In the event of termination of employment due to retirement (as defined by the Board on November 7, 1997) of the Optionee, all Options will become exercisable as of January 1, 2004 (provided that such Options will become immediately exercisable by the Optionee's beneficiary if the Optionee dies prior to such date), and will expire on the earlier of either: a) 1 year after the date of death, or b) the expiration date of this Agreement. 4. In the event of termination from the Board prior to January 1, 2004 by the Optionee for any reason other than death, disability or retirement, all outstanding Options will immediately be forfeited back to the Company. 5. In the event of termination from the Board by the Optionee after January 1, 2004 for any reason other than death, disability, retirement, or for Cause, all outstanding Options will expire on the earlier of either: a) 1 year after the date of termination of employment, or b) the expiration date of this Agreement. 6. In the event an Optionee dies after termination from the Board after January 1, 2004 for any reason other than disability, retirement, or for Cause, then all Options will expire on the earlier of either: a) 1 year after termination from the Board, or 90 days after death (if such death occurs prior to 1 year after termination), whichever is later, or b) the expiration date of this agreement. Change in Control In the event of a Change in Control (as defined in Section 2.1.7 of the Plan), all options under this Agreement become immediately exerciseable as of the date of the Change in Control. Effect on the Board Relationship Nothing in this Agreement guarantees Board membership with FE, nor does it confer any special rights or privileges to the Optionee. 2 Adjustments In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, combination, distribution, or other change in corporate structure of FE affecting the Common Stock, the Compensation Committee ("Committee") of the Board of Directors of FE will adjust the number and class of securities in this option in a manner determined appropriate to prevent dilution or diminution of the Option under this Agreement. Forfeiture 1. All Options not earned in 2000 are immediately forfeited back to the Company upon termination from the Board. 2. All Bonus Options granted are forfeited back to the Company upon termination from the Board for any reason other than retirement, death, or disability prior to January 1, 2004. Administration 1. This Agreement is governed by the laws of the State of Ohio without giving effect to the principles of the conflicts of laws. 2. The terms and conditions of this Option may be modified by the Committee: a) in any case permitted by the terms of the Plan or this Option, b) with the written consent of the Optionee, or c) without the consent of the Optionee if the amendment is either not adverse to the interests of the Optionee or is required by law. 3. The administration of this Agreement and the Plan will be performed in accordance with Article 3 of the Plan. All determinations and decisions made by the Committee, the Board, or any delegate of the Committee as to the provisions of the Plan shall be final, conclusive, and binding on all persons. 4. The terms of this Agreement are governed at all times by the official text of the Plan and in no way alter or modify the Plan. 5. If a term is capitalized but not defined in this Agreement, it has the meaning given to it in the Plan. 6. To the extent a conflict exists between the terms of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. SECTION THREE - METHODS OF EXERCISING THE OPTION Notification to Exercise To exercise an option, the Optionee must submit to the Administrator of the Plan the information below either on a form provided by FE, a broker form, or on a blank sheet of paper: 1. Number of shares being purchased, 2. The grant price, 3. The form of payment, 4. A statement of intention to exercise, 5. The signature of the Optionee, (or legal representative in the case of death or disability), and 6. Any representations or disclosures required by any applicable securities law. 3 Method of Payment Payment for the transaction and associated brokerage fees may be made through the following methods: 1. Cash Exercise -- Delivering cash equal to the cost of the exercise. 2. Stock Swap Exercise -- Surrendering certificates of FE stock previously acquired having a Fair Market Value at the time of the exercise equal to the amount of the exercise, along with a small amount of cash, not to exceed the price of one (1) share of stock. 3. Cashless Exercise - Using the net proceeds from the immediate sale of stock to pay for the exercise of the Option, as directed in the written notification to exercise the option. 4. A combination of any of the above based upon Plan administrative rules. Withholding Tax Though taxes are the responsibility of the Optionee, FE shall have the right to deduct, withhold, or require the Optionee to surrender an amount sufficient to satisfy federal (including FICA and Medicare), state, and/or local taxes required by law to be withheld for any exercise. SECTION FOUR - TRANSFER OF OPTION The Option is not transferable during the life of the Optionee. Only the Optionee shall have the right to exercise an option, unless deceased, at which time the option may be exercised by Optionee's beneficiary (as described in Article 12 of the Plan or by will or by the laws of descent and distribution). FirstEnergy Corp. By _____________________________ Corporate Secretary I acknowledge receipt of this NSO Agreement and I accept and agree with the terms and conditions stated above. ________________________________ _________________________ (Signature of Optionee) (Date) (This is XXX's Ynd grant under the Stock Option Program.) Director's Stock Option Agreement.doc 02/02/00 4 EX-10.6 8 ex10-6.txt STOCK OPTION AGREEMENT - DIRECTORS JAN 2001 Board of Director ----------------- Non-Qualifying Stock Option (NSO) Agreement ------------------------------------------- for Elected and Bonus Stock Options ----------------------------------- Option No.: 10 Number of Elected Options: 4,246 NSO's Number of Bonus Options: 850 NSO's Total Options Granted: 5,096 NSO's Exercise Price: $ 31.69 per share This Option Agreement ("Agreement") is entered into as of the 1st day of January, 2001, between FirstEnergy Corp. ("FE"), and ______________ ("Optionee") and is in lieu of the Board of Directors retainer fee. SECTION ONE - AWARD The Board of Directors ("Directors") of FE adopted the FE Executive and Director Incentive Compensation Plan ("Plan") on February 17, 1998. The Plan was subsequently approved by the common stock shareholders on April 30, 1998, and became effective May 1, 1998. According to the terms of the Plan, the Optionee shall receive, as of the above date, the number of Options ("Options") to purchase shares of FE Common Stock ("Shares"), at the above price, based upon the Optionee's elections indicated on the Election Form signed by the Optionee on November 20, 2000. All grants are considered NSO's, not subject to the provisions of section 422 of the Code. SECTION TWO - GENERAL TERMS This Agreement is subject to the following terms and conditions as outlined in the Plan: Options Accrued All Options granted are earned in 2001 in 10% increments for each month served not to exceed 100%. A full month's credit will be given for time served after the first of the month. All Bonus options become fully vested after the director has served four (4) years from the date of this grant, subject to the same restrictions as the grant. Exercise of Options These Options will become exerciseable as of January 1, 2005, which is four (4) years after the grant unless it becomes exerciseable prior to that date due to termination from the Board. Expiration These Options expire on December 31, 2011 at 2:00 PM, Akron Time, unless the Options expire earlier due to termination from the Board (or 2:00 PM on the last business day prior to such date, if the date falls on a Saturday, Sunday, or other day when the FirstEnergy General Office is closed). 1 Termination from the Board
Event of Optionee Vesting When Options Expire Further Information ----------------- ------- ------------------- ------------------- Retirement Vesting continues per Options expire on As defined by the Board vesting schedule January 1, 2011 on November 7, 1997 Disability Vesting continues per Options expire on As defined under vesting schedule January 1, 2011 Internal Revenue Code Section 22(3)(3) Death, including death 100% vesting on date All options expire Shares exercisable by after disability, of death the earlier of one the beneficiary (per retirement, or resigna- year after date of Article 12 of the tion before January 1, death or expiration Plan, or by will or 2005 of the grant by the laws of descent and distribution) Death after January 1, Vesting stops upon date All unvested options are 2005 for any reason you leave Board immediately forfeited other than disability, back to the Company. retirement, or For Cause All vested options expire the earlier of one year after you leave the Board or 90 days after death, if such death occurs prior to one year after termination, or the expiration of the grant Termination For Cause Vesting stops upon date All vested and unvested Termination for Cause you leave Board options are immediately is defined in section forfeited back to the 2.1.6 of the Plan Company Other Termination, Vesting stops upon date All unvested options including resignation you leave Board are immediately before January 1, 2005 forfeited back to the Company. All vested options expire the earlier of 90 days after you leave the Board or expiration of the grant Other Termination, Vesting stops upon date All unvested options including resignation you leave Board are immediately forfeited after January 1, 2005 back to the Company. All vested options expire the earlier of one year after you leave the Board or expiration of the grant
Change in Control In the event of a Change in Control (as defined in Section 2.1.7 of the Plan), all options under this Agreement become immediately exerciseable as of the date of the Change in Control. 2 Effect on the Board Relationship Nothing in this Agreement guarantees Board membership with FE, nor does it confer any special rights or privileges to the Optionee. Adjustments In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, combination, distribution, or other change in corporate structure of FE affecting the Common Stock, the Compensation Committee ("Committee") of the Board of Directors of FE will adjust the number and class of securities in this option in a manner determined appropriate to prevent dilution or diminution of the Option under this Agreement. Forfeiture 1. All Options not earned in 2001 are immediately forfeited back to the Company upon termination from the Board. 2. All Bonus Options granted are forfeited back to the Company upon termination from the Board for any reason other than retirement, death, or disability prior to January 1, 2005. Administration 1. This Agreement is governed by the laws of the State of Ohio without giving effect to the principles of the conflicts of laws. 2. The terms and conditions of this Option may be modified by the Committee: a) in any case permitted by the terms of the Plan or this Option, b) with the written consent of the Optionee, or c) without the consent of the Optionee if the amendment is either not adverse to the interests of the Optionee or is required by law. 3. The administration of this Agreement and the Plan will be performed in accordance with Article 3 of the Plan. All determinations and decisions made by the Committee, the Board, or any delegate of the Committee as to the provisions of the Plan shall be final, conclusive, and binding on all persons. 4. The terms of this Agreement are governed at all times by the official text of the Plan and in no way alter or modify the Plan. 5. If a term is capitalized but not defined in this Agreement, it has the meaning given to it in the Plan. 6. To the extent a conflict exists between the terms of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. SECTION THREE - METHODS OF EXERCISING THE OPTION Notification to Exercise To exercise an option, the Optionee must submit to the Administrator of the Plan the information below either on a form provided by FE, a broker form, or on a blank sheet of paper: 1. Number of shares being purchased, 2. The grant price, 3. The form of payment, 3 4. A statement of intention to exercise, 5. The signature of the Optionee, (or legal representative in the case of death or disability), and 6. Any representations or disclosures required by any applicable securities law. Method of Payment Payment for the transaction and associated brokerage fees may be made through the following methods: 1. Cash Exercise -- Delivering cash equal to the cost of the exercise. 2. Stock Swap Exercise -- Surrendering certificates of FE stock previously acquired having a Fair Market Value at the time of the exercise equal to the amount of the exercise, along with a small amount of cash, not to exceed the price of one (1) share of stock. 3. Cashless Exercise - Using the net proceeds from the immediate sale of stock to pay for the exercise of the Option, as directed in the written notification to exercise the option. 4. A combination of any of the above based upon Plan administrative rules. Withholding Tax Though taxes are the responsibility of the Optionee, FE shall have the right to deduct, withhold, or require the Optionee to surrender an amount sufficient to satisfy federal (including FICA and Medicare), state, and/or local taxes required by law to be withheld for any exercise. SECTION FOUR - TRANSFER OF OPTION The Option is not transferable during the life of the Optionee. Only the Optionee shall have the right to exercise an option, unless deceased, at which time the option may be exercised by Optionee's beneficiary (as described in Article 12 of the Plan or by will or by the laws of descent and distribution). FirstEnergy Corp. By --------------------------- Corporate Secretary I acknowledge receipt of this NSO Agreement and I accept and agree with the terms and conditions stated above. ------------------------- ---------------- (Signature of Optionee) (Date) (This is XXX's Ynd grant under the Stock Option Program.) Director's Stock Option Agreement 01/11/01 - 4 - EX-12.1 9 ex12-1.txt RATIOS - FE EXHIBIT 12.1 FIRSTENERGY CORP. CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, ------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $315,170 $318,166 $ 441,396 $ 568,299 $ 598,970 Interest and other charges, before reduction for amounts capitalized 255,572 299,606 608,618 585,648 556,194 Provision for income taxes 201,295 207,985 321,699 394,827 376,802 Interest element of rentals charged to income (a) 114,093 142,363 283,869 279,519 271,471 -------- -------- ---------- ---------- ---------- Earnings as defined $886,130 $968,120 $1,655,582 $1,828,293 $1,803,437 ======== ======== ========== ========== ========== FIXED CHARGES AS DEFINED IN REGULATION S-K: Interest expense $240,146 $284,180 $ 542,819 $ 509,169 493,473 Subsidiaries' preferred stock dividend requirements 15,426 15,426 65,299 76,479 62,721 Adjustments to subsidiaries' preferred stock dividends to state on a pre-income tax basis 2,910 2,918 43,370 44,829 32,098 Interest element of rentals charged to income (a) 114,093 142,363 283,869 279,519 271,471 -------- -------- ---------- ---------- ---------- Fixed charges as defined $372,575 $444,887 $ 935,357 $ 909,996 $ 859,763 ======== ======== ========== ========== ========== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (b) 2.38 2.18 1.77 2.01 2.10 ==== ==== ==== ==== ==== - --------------------------- (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 $5,093,000, $3,828,000 and $2,209,000 for each of the three years ended December 31, 1998, respectively. The guarantee and related coal supply contract debt expired December 31, 1999.
EX-13 10 ex13.txt ANNUAL REPORT - FE Management Report The consolidated financial statements were prepared by the management of FirstEnergy Corp., who takes responsibility for their integrity and objectivity. The statements were prepared in conformity with accounting principles generally accepted in the United States and are consistent with other financial information appearing elsewhere in this report. Arthur Andersen LLP, independent public accountants, have expressed an unqualified opinion on the Company's consolidated financial statements. The Company's internal auditors, who are responsible to the Audit Committee of the Board of Directors, review the results and performance of operating units within the Company for adequacy, effectiveness and reliability of accounting and reporting systems, as well as managerial and operating controls. The Audit Committee consists of four nonemployee directors whose duties include: consideration of the adequacy of the internal controls of the Company and the objectivity of financial reporting; inquiry into the number, extent, adequacy and validity of regular and special audits conducted by independent public accountants and the internal auditors; recommendation to the Board of Directors of independent accountants to conduct the normal annual audit and special purpose audits as may be required; and reporting to the Board of Directors the Committee's findings and any recommendation for changes in scope, methods or procedures of the auditing functions. The Committee also reviews the results of management's programs to monitor compliance with the Company's policies on business ethics and risk management. The Audit Committee held five meetings in 2000. Richard H. Marsh Vice President and Chief Financial Officer Harvey L. Wagner Controller and Chief Accounting Officer Report of Independent Public Accountants To the Stockholders and Board of Directors of FirstEnergy Corp.: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of FirstEnergy Corp. (an Ohio corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, common stockholders' equity, preferred stock, cash flows and taxes for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FirstEnergy Corp. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. FIRSTENERGY CORP. SELECTED FINANCIAL DATA
For the Years Ended December 31, 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) Revenues $ 7,028,961 $ 6,319,647 $ 5,874,906 $ 2,961,125 $2,521,788 ------------------------------------------------------------- Income Before Extraordinary Item $ 598,970 $ 568,299 $ 441,396 $ 305,774 $ 302,673 ------------------------------------------------------------- Net Income $ 598,970 $ 568,299 $ 410,874 $ 305,774 $ 302,673 ------------------------------------------------------------- Earnings per Share of Common Stock: Before Extraordinary Item $2.69 $2.50 $1.95 $1.94 $2.10 After Extraordinary Item $2.69 $2.50 $1.82 $1.94 $2.10 ------------------------------------------------------------- Dividends Declared per Share of Common Stock $1.50 $1.50 $1.50 $1.50 $1.50 ------------------------------------------------------------- Total Assets $17,941,294 $18,224,047 $18,192,177 $18,261,481 $9,218,623 ------------------------------------------------------------- Capitalization at December 31: Common Stockholders' Equity $ 4,653,126 $ 4,563,890 $ 4,449,158 $ 4,159,598 $2,503,359 Preferred Stock: Not Subject to Mandatory Redemption 648,395 648,395 660,195 660,195 211,870 Subject to Mandatory Redemption 161,105 256,246 294,710 334,864 155,000 Long-Term Debt 5,742,048 6,001,264 6,352,359 6,969,835 2,712,760 ------------------------------------------------------------- Total Capitalization $11,204,674 $11,469,795 $11,756,422 $12,124,492 $5,582,989 ==============================================================
PRICE RANGE OF COMMON STOCK FirstEnergy Corp.'s Common Stock is listed on the New York Stock Exchange and is traded on other registered exchanges.
2000 1999 - -------------------------------------------------------------- First Quarter High-Low 23.56 18.00 33.19 27.94 ------------ ------------ Second Quarter High-Low 26.88 20.56 32.13 27.94 ------------ ------------ Third Quarter High-Low 27.88 22.94 31.31 24.75 ------------ ------------ Fourth Quarter High-Low 32.13 24.11 26.56 22.13 ------------ ------------ Yearly High-Low 32.13 18.00 33.19 22.13 - -------------------------------------------------------------- Prices are based on reports published in The Wall Street Journal for ----------------------- New York Stock Exchange Composite Transactions.
HOLDERS OF COMMON STOCK There were 167,912 and 166,966 holders of 224,531,580 and 223,981,580 shares of the Company's Common Stock as of December 31, 2000 and January 31, 2001, respectively. Information regarding retained earnings available for payment of cash dividends is given in Note 4A. FIRSTENERGY CORP. Management's Discussion and Analysis of Results of Operations and Financial Condition This discussion includes forward-looking statements based on information currently available to management that is subject to certain risks and uncertainties. Such statements typically contain, but are not limited to, the terms anticipate, potential, expect, believe, estimate and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, legislative and regulatory changes (including revised environmental requirements), the availability and cost of capital, inability to accomplish or realize anticipated benefits of strategic goals (including our merger with GPU, Inc.) and other similar factors. Proposed Business Combination - ----------------------------- On August 8, 2000, FirstEnergy entered into an agreement to merge with GPU, Inc. (GPU), a Pennsylvania corporation, headquartered in Morristown, New Jersey. Subsequently, the agreement was overwhelmingly approved by the shareholders of both companies. All regulatory filings necessary to complete the merger have since been made. Our target to complete the merger is by the end of the second quarter of 2001. Under the merger agreement, we would acquire all the outstanding shares of GPU's common stock for approximately $4.5 billion in cash and FirstEnergy common stock. Our cash investment would be financed through the issuance of about $2.2 billion of new debt. Also, approximately $7.4 billion of debt and preferred stock of GPU's subsidiaries would remain outstanding. The transaction would be accounted for by the purchase method. The combined company's principal electric utility operating companies would include Ohio Edison Company (OE), The Cleveland Electric Illuminating Company (CEI), The Toledo Edison Company (TE), Pennsylvania Power Company (Penn) and American Transmission Systems, Incorporated (ATSI), as well as GPU's electric utility operating companies - Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, which serve customers in Pennsylvania and New Jersey. The merger is expected to provide enhanced opportunities for financial growth, greater scope and size, improved generation efficiency and broadened unregulated opportunities. The combination will provide a significant market for our generating capacity and value-added services and will support our strategic vision of being the premier retail energy and related services provider in our targeted area for growth - a thirteen-state region in the northeastern quadrant of the nation. Competition We continue to face many competitive challenges as consumers are provided increasing opportunities to select their electricity suppliers. As our industry changes to a more competitive environment, we continue to take actions designed to create a larger, stronger enterprise that will be better positioned to compete in the changing energy marketplace. As Ohio approached a new era of customer choice in the selection of energy suppliers, we continued to develop our regionally-focused retail sales strategy. Results of Operations Net income increased to $599.0 million in 2000, compared to $568.3 million in 1999 and $410.9 million in 1998. The increase in 2000 resulted primarily from lower fuel costs and increased generation output, reduced financing costs and gains realized on the sales of emission allowances. In 1999, higher sales revenues, the absence of unusually high purchased power costs experienced in 1998 and lower interest costs contributed to the increase in net income from the prior year. Additional sales by our unregulated businesses resulted in a $709.3 million increase in total revenues in 2000 compared to the prior year. The increase resulted from an expansion of both gas and electric sales. In 1999, the $444.7 million increase in revenues resulted substantially from contributions of the Electric Utility Operating Companies (EUOC) and increases in newly acquired businesses, which were partially offset by reduced revenues from FirstEnergy Trading Services, Inc. (FETS) compared to the prior year's results. The sources of the changes in revenues during 2000 and 1999 are summarized in the following table.
Sources of Revenue Changes 2000 1999 - --------------------------------------------------------- Increase (Decrease) (In millions) EUOC: Electric sales $(38.5) $213.2 Other electric utility revenues 6.4 3.1 - --------------------------------------------------------- Total EUOC (32.1) 216.3 - --------------------------------------------------------- Unregulated Businesses: Retail electric sales 170.7 54.0 FETS 211.5 (220.1) Other businesses 359.2 394.5 - --------------------------------------------------------- Total Unregulated Businesses 741.4 228.4 - --------------------------------------------------------- Net Revenue Increase $709.3 $444.7 =========================================================
Electric Sales EUOC electric sales revenues decreased by $32.1 million in 2000, compared to 1999, as a result of lower unit prices which were partially offset by increased generation sales volume. Despite a milder summer, retail electric generation sales were 2.0% higher in 2000 than the previous year. Total electric generation sales (including unregulated sales) increased 8.4% in 2000, compared to 1999. Unregulated retail sales more than tripled from the prior year reflecting continued progress in our marketing efforts to expand retail electric sales to our targeted unregulated markets in the eastern seaboard states. Sales to commercial customers accounted for most of the increase. The cooler summer weather reduced retail customer demand, making more of our energy available to serve the wholesale market. As a result, we were able to achieve moderate growth in kilowatt-hour sales to that market in 2000. EUOC kilowatt-hour deliveries (to customers in our franchise areas) increased in 2000 from the prior year due to additional sales to commercial and industrial customers. Kilowatt-hour sales to residential customers declined. Other electric utility revenues increased in 2000 from the previous year primarily due to additional transmission service revenues. EUOC revenues increased $216.3 million in 1999, compared to 1998, benefiting from increases in kilowatt-hour sales, which were only partially offset by reduced unit prices. Retail kilowatt-hour sales increased 2.3%. Total electric generation sales increased 8.0% in 1999 from the prior year due to additional unregulated sales reflecting our initial expansion into targeted eastern markets and weather-induced demand in the wholesale market. EUOC kilowatt-hour deliveries to residential, commercial and industrial customers increased in 1999, compared to 1998, reflecting a strong consumer-driven economy and warmer weather than the preceding year. Changes in electric generation sales and kilowatt-hour deliveries in 2000 and 1999 are summarized in the following table:
Changes in KWH Sales 2000 1999 - ---------------------------------------------------------- Increase (Decrease) Electric Generation Sales: EUOC - Retail 2.0% 2.3% Unregulated 50.4% 52.0% - ---------------------------------------------------------- Total Electric Generation Sales 8.4% 8.0% ======================================================== EUOC Distribution Deliveries: Residential (1.2)% 5.5% Commercial 2.5% 2.8% Industrial 3.2% 2.5% - ---------------------------------------------------------- Total Distribution Deliveries 1.7% 3.4% ==========================================================
Other Sales Retail natural gas revenues were the largest source of increase in other business revenues in 2000, compared to 1999. Collectively, three gas acquisitions in 1999 (Atlas Gas Marketing Inc., Belden Energy Services Company and Volunteer Energy LLC), as well as increased retail marketing efforts, significantly expanded retail gas revenues in 2000. Margins were held down by higher natural gas supply costs but increased activities in our natural gas exploration and production joint venture, Great Lakes Energy Partners, helped to offset the lower gas sales margins. FETS also expanded its wholesale electric and gas revenues in 2000 from prior year levels. In 1999, FETS revenues decreased significantly compared to the prior year because of refocusing its activities on supporting our retail marketing activities. New acquisitions and a one-time gain of $53 million from the sale of a partnership investment contributed to the increase in other business revenues in 1999, compared to 1998. Operating Expenses Total expenses increased $739.8 million in 2000 and $255.5 million in 1999, compared to the prior year, primarily reflecting higher levels of other expenses for EUOC and unregulated operations, offset in part by lower EUOC fuel and purchased power costs. Fuel and purchased power decreased $75.7 million in 2000, compared to 1999. Lower fuel expense accounted for all of the reduction, declining $103.6 million from 1999, despite a 7% increase in output from our generating units. Factors contributing to lower fuel expense in 2000 included: o A higher proportion of nuclear generation (which has lower unit fuel costs than fossil fuel) due to improved nuclear availability and increased nuclear ownership from the exchange of generating assets with Duquesne Light Company (Duquesne) in December 1999; o The expiration of an above-market coal contract at the end of 1999; and o Continued improvement of coal-blending strategies, which resulted in the use of additional lower-cost western coal and enhanced the efficiency and cost-competitiveness of our fossil generation fleet. Purchased power costs increased $27.9 million in 2000 from the prior year due to higher average prices and to additional megawatt-hours purchased. In 1999, fuel and purchased power costs were down $106.7 million, compared to 1998. The EUOC purchased power costs accounted for all of the reduction. Much of the improvement was due to the absence in 1999 of unusual conditions experienced in 1998, which resulted in an additional $77.4 million of purchased power costs in that year. The costs were incurred during a period of record heat and humidity in late June 1998, which coincided with a regional power shortage resulting in high prices for purchased power. Unscheduled outages at several of our power plants at that time required the EUOC to purchase significant amounts of power on the spot market. Although above normal temperatures were also experienced in 1999, the EUOC maintained a stronger capacity position compared to the previous year and better met customer demand from their own generation resources. Other expenses for the EUOC rose $26.6 million in 2000, compared to 1999, primarily due to additional nuclear refueling costs associated with three refueling outages in 2000 versus two during the previous year and increased nuclear ownership resulting from the Duquesne asset swap. Costs incurred to improve the availability of our fossil generation fleet and leased portable diesel generators, acquired as part of our summer supply strategy, added to other expenses for the EUOC in 2000, compared to 1999. Also, we incurred unusual charges in 2000 for early retirement program costs, as well as increased reserves for potentially uncollectible accounts for customers in the steel sector who are experiencing significant financial pressures from foreign steel competition. Partially offsetting the higher costs were increased gains of $38.5 million realized from the sale of emission allowances in 2000 as well as nonrecurring costs recorded in the prior year. In 1999, other expenses for the EUOC increased from 1998 due to several factors. Similar to 2000, refueling outage costs and incremental expenses related to the asset swap, which occurred in early December 1999, contributed to increase other expenses in 1999 compared to 1998. Additionally, nuclear costs in 1999 included nonrecurring swap-related liabilities assumed. Also contributing to the increase were higher customer, sales and marketing expenses resulting from marketing programs and information system costs; higher distribution expenses from storm damage, as well as line and meter maintenance; and a nonrecurring expense related to a change in employee vacation benefits. Other expenses for unregulated businesses rose $789.6 million in 2000, compared to 1999. FETS contributed to the increase with its other expenses rising in line with its higher revenues, reflecting the continued expansion of its operations to support our retail marketing efforts. FETS expenses were significantly lower in 1999 due to the absence of costs incurred in 1998 associated with credit losses and replacement power costs resulting from the period of sharp price increases in the spot market for electricity in late June 1998. Refocusing FETS activities in 1999 on supporting our retail market activities also reduced expenses from the preceding year. Acquisitions of three natural gas companies in 1999 and a general expansion of unregulated sales activity combined to increase the scope, and therefore, the operating expenses of our unregulated business activities in 2000. Also, increased reserves for potential uncollectible accounts were established for customers in the steel sector. In addition, a $10.5 million reserve was recognized in 2000 for potential construction contract losses. The acquisitions in the facilities services and natural gas businesses, as well as costs attributable to unregulated sales activity, combined to increase other expenses in 1999, compared to the previous year. Depreciation and amortization was reduced by $9.8 million in the second half of 2000, following approval by the Public Utilities Commission of Ohio (PUCO) of the Ohio transition plan (see Outlook). Total accelerated cost recovery in connection with OE's rate reduction plan and Penn's restructuring plan are summarized by income statement caption in the table below:
Regulatory Plan Accelerations 2000 1999 1998 - ---------------------------------------------------------------- (In millions) Depreciation and amortization $332.6 $333.3 $172.9 Income tax amortization 42.6 18.7 18.5 - ----------------------------------------------------------------- Total Accelerations $375.2 $352.0 $191.4 =================================================================
The impact of OE's rate reduction plan and Penn's restructuring plan on depreciation and amortization was relatively unchanged in 2000 from 1999. In 1999, accelerated cost recovery in connection with the OE rate reduction plan was the primary factor contributing to the increase in depreciation and amortization, compared to 1998. Net Interest Charges We continue to redeem and refinance our outstanding debt and preferred stock, thus maintaining the downward trend in our financing costs during 2000. Interest charges decreased by $43.2 million in 2000 and $28.7 million in 1999, compared to the prior year. Net redemptions of long-term debt and preferred stock totaled $405.9 million and refinancings totaled $284.7 million in 2000. Effects of SFAS 71 Discontinuation - ---------------------------------- The application of Statement of Financial Accounting Standards No. (SFAS) 71, "Accounting for the Effects of Certain Types of Regulation" was discontinued for OE's generation business and the nonnuclear generation businesses of CEI and TE effective with the PUCO approval of the Ohio transition plan. Beginning June 30, 2000, the balance sheets of our Ohio EUOC reflected that discontinuance with $1.6 billion of impaired generating plant investment recognized as regulatory assets which will be recovered as transition costs. We expect the incremental amortization of transition costs in 2001 for the Ohio EUOC to be lower than the depreciation and amortization accelerated under OE's former regulatory plan in 2000. The application of SFAS 71 to CEI's and TE's nuclear operations was discontinued in connection with the implementation of their regulatory plan in 1997. On June 18, 1998, the Pennsylvania Public Utility Commission authorized Penn's rate restructuring plan that resulted in the discontinuation of SFAS 71 to Penn's generation business. Under the plan, Penn's rates were restructured to establish separate charges for transmission and distribution services; generation (which is subject to competition); and stranded cost recovery. A total of $215.4 million of impaired nuclear generating plant investments were recognized as regulatory assets to be recovered through the stranded cost recovery charge. The portion of generating plant investment not recovered through future customer rates resulted in a $30.5 million extraordinary after-tax write-down, or $.13 per FirstEnergy common share. The EUOC continue to bill and collect cost-based rates for transmission and distribution services, which remain subject to cost-based regulation; accordingly, it is appropriate that they continue the application of SFAS 71 to those operations. Capital Resources and Liquidity - ------------------------------- We continued to pursue cost efficiencies to fund strategic investments while also strengthening our financial position in 2000. Net security redemptions and refinancings in 2000 should generate annual financing cost savings of about $33 million. Also, approval by the PUCO of our transition plan on July 19, 2000 (see Outlook), was cited as an important reason that Moody's Investors Service and Fitch upgraded our EUOC debt ratings during the second half of 2000. Moody's ratings for senior secured debt of OE and Penn were raised from Baa2 to Baa1, and for CEI and TE from Ba1 to Baa3. Fitch's rating for senior secured debt of OE was raised from BBB to BBB+ (Penn's remained at BBB+) and for CEI and TE from BB+ to BBB-. Ratings of many of the junior securities of the EUOC were upgraded to conform to rating relationships typical of investment grade issuers. Those improved ratings should help to enhance our opportunities for further savings in the future. As of December 31, 2000, our common equity as a percentage of capitalization increased to nearly 42% from 38% at the end of 1998. We had approximately $49.3 million of cash and temporary investments and $699.8 million of short-term indebtedness on December 31, 2000. Our unused borrowing capability included $242.5 million under revolving lines of credit. At the end of 2000, the EUOC had the capability to issue $2.7 billion of additional first mortgage bonds on the basis of property additions and retired bonds. Based upon applicable earnings coverage tests and their respective charters, OE, Penn and TE could issue $2.3 billion of preferred stock (assuming no additional debt was issued). CEI has no restrictions on the issuance of preferred stock. Our cash requirements in 2001 for operating expenses, construction expenditures, scheduled debt maturities, preferred stock redemptions and common stock repurchases are expected to be met without increasing our net debt and preferred stock outstanding. However, our anticipated merger with GPU (see Proposed Business Combination) is expected to require the issuance of approximately $2.2 billion of acquisition-related debt. During 2000, we reduced our total debt by approximately $250.3 million. We have cash requirements of approximately $2.6 billion for the 2001-2005 period to meet scheduled maturities of long-term debt and sinking fund requirements of preferred stock (before giving effect to the GPU acquisition). Of that amount, approximately $193 million applies to 2001. During 2000, we repurchased and retired 7.9 million shares of our common stock at an average price of $24.51 per share. As of December 31, 2000, we had repurchased 12.5 million of the 15 million shares authorized by our Board of Directors under the three-year program, which began in March 1999. Our capital spending (before giving effect to the GPU acquisition) for the period 2001-2005 is expected to be about $3.0 billion (excluding nuclear fuel), of which approximately $683 million applies to 2001. Capital spending in 2001 includes expenditures to complete five combustion turbines expected to provide 425 megawatts (MW) of additional peaking generation capacity to our system by mid-year 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $380 million, of which about $54 million applies to 2001. During the same period, our nuclear fuel investments are expected to be reduced by approximately $460 million and $100 million, respectively, as the nuclear fuel is consumed. Also, we have operating lease commitments, net of trust cash receipts, of nearly $821 million for the 2001-2005 period, of which approximately $161 million relates to 2001. We invested $4.4 million in 2000 by joining with 20 other leading energy and utility companies (including GPU) to form Pantellos Corporation (Pantellos). Pantellos manages an online, independent marketplace for buyers and sellers from the $130 billion North American utility and energy supply market, which opened for business on January 1, 2001. We expect to realize savings by using the e-market site and to benefit from our ownership interest in this new venture. Interest Rate Risk - ------------------- Our exposure to fluctuations in market interest rates is reduced since a significant portion of our debt has fixed interest rates, as noted in the table below. We are subject to the inherent interest rate risks related to refinancing maturing debt by issuing new debt securities. As discussed in Note 3, our investments in capital trusts effectively reduce future lease obligations, also reducing interest rate risk. Changes in the market value of our nuclear decommissioning trust funds are recognized by making corresponding changes to the decommissioning liability, as described in Note 1.
Comparison of Carrying Value to Fair Value - ------------------------------------------------------------------------------------------------- There- Fair 2001 2002 2003 2004 2005 after Total Value - ------------------------------------------------------------------------------------------------- (Dollars in millions) Investments other than Cash and Cash Equivalents: Fixed Income $ 87 $ 84 $ 97 $314 $ 58 $1,402 $2,042 $2,086 Average interest rate 5.1% 7.7% 7.7% 7.8% 7.9% 7.4% 7.4% - ------------------------------------------------------------------------------------------------- ================================================================================================== Liabilities - ------------------------------------------------------------------------------------------------- Long-term Debt: Fixed rate $106 $721 $460 $591 $436 $2,460 $4,774 $4,932 Average interest rate 8.6% 7.9% 8.0% 7.7% 8.8% 7.3% 7.7% Variable rate $ 1 $101 $ 1 $ 1 $ 975 $1,079 $1,078 Average interest rate 8.2% 7.4% 8.0% 8.7% 4.8% 5.1% Short-term Borrowings $700 $ 700 $ 700 Average interest rate 7.9% 7.9% - ------------------------------------------------------------------------------------------------- Preferred Stock $ 85 $ 20 $ 2 $ 2 $ 2 $ 135 $ 246 $ 243 Average dividend rate 8.9% 8.9% 7.5% 7.5% 7.5% 8.8% 8.8% ==================================================================================================
Market Risk - Commodity Prices - ------------------------------ We are exposed to market risk due to fluctuations in electricity, natural gas, coal and oil prices. To manage the volatility relating to these exposures, we use a variety of derivative instruments, including forward contracts, options, futures contracts and swaps. These derivatives are used principally for hedging purposes and, to a much lesser extent, for trading purposes. We performed a sensitivity analysis to estimate our exposure to the market risk of our commodity position. A hypothetical 10% adverse shift in quoted market prices in the near term on both our trading and nontrading instruments would not have had a material effect on our consolidated financial position, results of operations or cash flows as of or for the year ended December 31, 2000. Outlook - ------- On July 19, 2000, the PUCO approved our plan for transition to customer choice in Ohio (see Note 1). As part of its authorization, the PUCO approved a settlement agreement between us and major groups representing most of our Ohio customers regarding the transition to customer choice in selection of electricity suppliers. On January 1, 2001, electric choice became available to our Ohio customers. Under the plan, OE, CEI and TE continue to deliver power to homes and businesses through their existing distribution systems, which remain regulated. Their rates have been restructured to establish separate charges for transmission and distribution, transition cost recovery and a generation-related component. When one of our Ohio customers elects to obtain power from an alternative supplier, the regulated utility company reduces the customer's bill with a "generation shopping credit," based on the regulated generation component plus an incentive, and the customer receives a generation charge from the alternative supplier. The transition cost portion of rates provides for recovery of certain amounts not otherwise recoverable in a competitive generation market (such as regulatory assets). The transition costs will be paid by all customers regardless of whether or not they choose an alternative supplier. Under the plan, we assume the risk of not recovering up to $500 million of transition revenue if the rate of customers (excluding contracts and full-service accounts) switching their service from OE, CEI and TE has not reached an average of 20% over any consecutive twelve-month period by December 31, 2005 - the end of the market development period. We are also committed under the transition agreement to make available 1,120 MW of our generating capacity to marketers, brokers and aggregators at set prices, to be used for sales only to retail customers in our Ohio service areas. Through February 8, 2001, approximately 794 MW of the 1,120 MW supply commitment had been secured by alternative suppliers. We began accepting customer applications for switching to alternative suppliers on December 8, 2000; as of February 8, 2001 our Ohio EUOC had been notified that about 108,000 of their customers requested generation services from other authorized suppliers, including FirstEnergy Services Corp. (FE Services), a wholly owned subsidiary. Beginning in 2001, Ohio utilities that offer both competitive and regulated retail electric services must implement a corporate separation plan approved by the PUCO -- one which provides a clear separation between regulated and competitive operations. Since our regionally-focused retail sales strategy envisions the continued operation of both regulated and competitive operations, our transition plan included details for our corporate separation. The approved plan is consistent with the way we managed our businesses in 2000, through a competitive services unit, a utility services unit and a corporate support services unit. FE Services provides competitive retail energy services while the EUOC continue to provide regulated transmission and distribution services. FirstEnergy Generation Corp. (FE Generation), a wholly owned subsidiary of FE Services, leases fossil and hydroelectric plants from the EUOC and operates those plants. We expect that the transfer of ownership of the EUOC fossil and hydroelectric generating assets to FE Generation will be completed by the end of the market development period. All of the EUOC power supply requirements are provided by FE Services to satisfy the EUOC "provider of last resort" obligation under the transition plan, as well as grandfathered wholesale contracts. The reportable segments in 2000 under SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," reflect the management of these businesses as "Regulated Services" and "Competitive Services." The "Corporate Support Services" is included in "Other." In 1999, we received notification of pending legal actions based on alleged violations of the Clean Air Act at our W. H. Sammis Plant involving the states of New York and Connecticut as well as the U.S. Department of Justice. The civil complaint filed by the U.S. Department of Justice requests installation of "best available control technology" as well as civil penalties of up to $27,500 per day. We believe the Sammis Plant is in full compliance with the Clean Air Act and the legal actions are without merit. We are unable, however, to predict the outcome of this litigation. Penalties could be imposed if the Sammis Plant continues to operate without correcting the alleged violations and a court determines that the allegations are valid. The Sammis Plant continues to operate while the matter is being decided. Under federal environmental law and related federal and state waste regulations, certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the Environmental Protection Agency (EPA's) evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash as a nonhazardous waste. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. We are in compliance with current sulfur dioxide and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. In 1998 the EPA finalized regulations requiring additional NOx reductions in the future from our Ohio and Pennsylvania facilities (see Note 6). We continue to evaluate our compliance plans and other compliance options. In July 1997, the EPA changed the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which we operate affected facilities. CEI and TE have been named as "potentially responsible parties" (PRPs) at waste disposal sites which may require cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Allegations of disposal of hazardous substances at historical sites and the liability involved are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. CEI and TE have accrued liabilities totaling $3.7 million as of December 31, 2000, based on estimates of the total costs of cleanup, the proportionate responsibility of other PRPs for such costs, and the financial ability of other PRPs to pay. CEI and TE believe that waste disposal costs will not have a material adverse effect on their financial condition, cash flows or results of operations. Recently Issued Accounting Standards - ------------------------------------ SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recognized on the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative instrument's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instrument's gains and losses to partially or wholly offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. We adopted SFAS 133, as amended, on January 1, 2001. Prior to adoption, we reviewed all outstanding contracts to determine if they were derivatives or contained embedded derivatives. Derivatives involved in "normal-purchase/normal-sale" transactions were documented and excluded from further treatment under SFAS 133. The remaining derivatives were either documented as cash flow hedges or treated as non-hedge derivatives. In January 2001, we recorded assets and liabilities representing the difference between the derivatives' previous carrying amounts and their fair values under SFAS 133. Related amounts were recorded in net income and comprehensive income. For derivatives that had previously been treated as hedges of forecast transactions, the difference between the derivatives' previous carrying amount and their fair value under SFAS 133 was an adjustment of accumulated other comprehensive income. For derivatives not previously designated as hedges, the difference was an adjustment to net income. These amounts will be reported separately in results for the first quarter of 2001 as a "cumulative effect of a change in accounting principle". The cumulative effect increases assets by $108.3 million, liabilities by $72.6 million and common stockholders' equity by $35.7 million -- other comprehensive income increases by $44.2 million and net income is reduced by $8.5 million. FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------- (In thousands, except per share amounts) REVENUES: Electric utilities $5,421,668 $5,453,763 $5,237,468 Unregulated businesses 1,607,293 865,884 637,438 ---------- ---------- ---------- Total revenues 7,028,961 6,319,647 5,874,906 ---------- ---------- ---------- EXPENSES: Fuel and purchased power 801,292 876,986 983,735 Other expenses: Electric utilities 1,659,246 1,632,638 1,492,461 Unregulated businesses 1,582,151 792,576 742,778 Provision for depreciation and amortization 933,684 937,976 758,865 General taxes 547,681 544,052 550,908 ---------- ---------- ---------- Total expenses 5,524,054 4,784,228 4,528,747 ---------- ---------- ---------- INCOME BEFORE INTEREST AND INCOME TAXES 1,504,907 1,535,419 1,346,159 ---------- ---------- ---------- NET INTEREST CHARGES: Interest expense 493,473 509,169 542,819 Allowance for borrowed funds used during construction and capitalized interest (27,059) (13,355) (7,642) Subsidiaries' preferred stock dividends 62,721 76,479 65,799 ---------- ---------- ---------- Net interest charges 529,135 572,293 600,976 ---------- ---------- ---------- INCOME TAXES 376,802 394,827 303,787 ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 598,970 568,299 441,396 EXTRAORDINARY ITEM (NET OF INCOME TAX BENEFIT OF $21,208,000) (Note 1) -- -- (30,522) ---------- ---------- ---------- NET INCOME $ 598,970 $ 568,299 $ 410,874 ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 222,444 227,227 226,373 ======= ======= ======= BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK (Note 4C): Income before extraordinary item $2.69 $2.50 $1.95 Extraordinary item (Net of income taxes) (Note 1) -- -- (.13) ----- ----- ----- Net income $2.69 $2.50 $1.82 ===== ===== ===== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $1.50 $1.50 $1.50 ===== ===== ===== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
FIRSTENERGY CORP. CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 1999 - ----------------------------------------------------------------------------------------------- (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 49,258 $ 111,788 Receivables- Customers (less accumulated provisions of $15,800,000 and $6,719,000, respectively, for uncollectible accounts) 399,242 322,687 Other (less accumulated provisions of $20,486,000 and $5,359,000, respectively, for uncollectible accounts) 519,207 445,242 Materials and supplies, at average cost-- Owned 171,563 154,834 Under consignment 112,155 99,231 Prepayments and other 189,869 167,894 ----------- ----------- 1,441,294 1,301,676 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT: In service 12,417,684 14,645,131 Less--Accumulated provision for depreciation 5,263,483 5,919,170 ----------- ----------- 7,154,201 8,725,961 Construction work in progress 420,875 367,380 ----------- ----------- 7,575,076 9,093,341 ----------- ----------- INVESTMENTS: Capital trust investments (Note 3) 1,223,794 1,281,834 Nuclear plant decommissioning trusts 584,288 543,694 Letter of credit collateralization (Note 3) 277,763 277,763 Other 669,057 599,443 ---------- ------------ 2,754,902 2,702,734 ----------- ------------ DEFERRED CHARGES: Regulatory assets 3,727,662 2,543,427 Goodwill 2,088,770 2,129,902 Other 353,590 452,967 ----------- ----------- 6,170,022 5,126,296 ----------- ----------- $17,941,294 $18,224,047 =========== =========== LIABILITIES AND CAPITALIZATION CURRENT LIABILITIES: Currently payable long-term debt and preferred stock $ 536,482 $ 762,520 Short-term borrowings (Note 5) 699,765 417,819 Accounts payable 478,661 360,379 Accrued taxes 409,640 409,724 Accrued interest 116,544 125,397 Other 352,713 301,572 ----------- ----------- 2,593,805 2,377,411 ----------- ----------- CAPITALIZATION (See Consolidated Statements of Capitalization): Common stockholders' equity 4,653,126 4,563,890 Preferred stock of consolidated subsidiaries-- Not subject to mandatory redemption 648,395 648,395 Subject to mandatory redemption 41,105 136,246 Ohio Edison obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Ohio Edison subordinated debentures 120,000 120,000 Long-term debt 5,742,048 6,001,264 ----------- ----------- 11,204,674 11,469,795 ----------- ----------- DEFERRED CREDITS: Accumulated deferred income taxes 2,094,107 2,231,265 Accumulated deferred investment tax credits 241,005 269,083 Nuclear plant decommissioning costs 598,985 562,295 Other postretirement benefits 544,541 498,184 Other 664,177 816,014 ----------- ----------- 4,142,815 4,376,841 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 3 and 6) ----------- ----------- $17,941,294 $18,224,047 =========== =========== The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF CAPITALIZATION
As of December 31, 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) COMMON STOCKHOLDERS' EQUITY: Common stock, $.10 par value - authorized 375,000,000 shares 224,531,580 and 232,454,287 shares outstanding, respectively $ 22,453 $ 23,245 Other paid-in capital 3,531,821 3,722,375 Accumulated other comprehensive income (loss)(Note 4H) 593 (195) Retained earnings (Note 4A) 1,209,991 945,241 Unallocated employee stock ownership plan common stock- 5,952,032 and 6,778,905 shares, respectively (Note 4B) (111,732) (126,776) ----------- ----------- Total common stockholders' equity 4,653,126 4,563,890 ----------- ----------- Number of Shares Optional Outstanding Redemption Price ---------------- --------------------- 2000 1999 Per Share Aggregate ---- ---- --------- --------- PREFERRED STOCK OF CONSOLIDATED SUBSIDIARIES (Note 4D): Ohio Edison Company (OE) Cumulative, $100 par value- Authorized 6,000,000 shares Not Subject to Mandatory Redemption: 3.90% 152,510 152,510 $ 103.63 $ 15,804 15,251 15,251 4.40% 176,280 176,280 108.00 19,038 17,628 17,628 4.44% 136,560 136,560 103.50 14,134 13,656 13,656 4.56% 144,300 144,300 103.38 14,917 14,430 14,430 --------- --------- -------- ----------- ----------- 609,650 609,650 63,893 60,965 60,965 --------- --------- -------- ----------- ----------- Cumulative, $25 par value- Authorized 8,000,000 shares Not Subject to Mandatory Redemption: 7.75% 4,000,000 4,000,000 25.00 100,000 100,000 100,000 --------- --------- -------- ----------- ----------- Total Not Subject to Mandatory Redemption 4,609,650 4,609,650 $163,893 160,965 160,965 ========= ========= ======== ----------- ----------- Cumulative, $100 par value- Subject to Mandatory Redemption (Note 4E): 8.45% 50,000 100,000 5,000 10,000 Redemption Within One Year (5,000) (5,000) --------- --------- ----------- ----------- 50,000 100,000 -- 5,000 ========= ========= ----------- ----------- Pennsylvania Power Company Cumulative, $100 par value- Authorized 1,200,000 shares Not Subject to Mandatory Redemption: 4.24% 40,000 40,000 103.13 $ 4,125 4,000 4,000 4.25% 41,049 41,049 105.00 4,310 4,105 4,105 4.64% 60,000 60,000 102.98 6,179 6,000 6,000 7.75% 250,000 250,000 -- -- 25,000 25,000 --------- --------- -------- ----------- ----------- Total Not Subject to Mandatory Redemption 391,049 391,049 $ 14,614 39,105 39,105 ========= ========= ======== ----------- ----------- Subject to Mandatory Redemption: 7.625% 150,000 150,000 105.34 $ 15,801 15,000 15,000 ========= ========= ======== ----------- -----------
FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
As of December 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) Number of Shares Optional Outstanding Redemption Price ---------------- -------------------- 2000 1999 Per Share Aggregate ---- ---- --------- --------- PREFERRED STOCK OF CONSOLIDATED SUBSIDIARIES (Cont'd) Cleveland Electric Illuminating Company Cumulative, without par value- Authorized 4,000,000 shares Not Subject to Mandatory Redemption: $ 7.40 Series A 500,000 500,000 $ 101.00 $ 50,500 $ 50,000 $ 50,000 $ 7.56 Series B 450,000 450,000 102.26 46,017 45,071 45,071 Adjustable Series L 474,000 474,000 100.00 47,400 46,404 46,404 $42.40 Series T 200,000 200,000 500.00 100,000 96,850 96,850 --------- --------- -------- ----------- ----------- Total Not Subject to Mandatory Redemption 1,624,000 1,624,000 $243,917 238,325 238,325 ========= ========= ======== ----------- ----------- Subject to Mandatory Redemption: $ 7.35 Series C 80,000 90,000 101.00 $ 8,080 8,041 9,110 $88.00 Series E -- 3,000 -- -- -- 3,000 $91.50 Series Q 10,716 21,430 1,000.00 10,716 10,716 21,430 $88.00 Series R 50,000 50,000 -- -- 51,128 55,000 $90.00 Series S 36,500 55,250 -- -- 36,686 61,170 --------- --------- -------- ----------- ----------- 177,216 219,680 18,796 106,571 149,710 Redemption Within One Year (80,466) (33,464) --------- --------- -------- ----------- ----------- Total Subject to Mandatory Redemption 177,216 219,680 $ 18,796 26,105 116,246 ========= ========= ======== ----------- ----------- Toledo Edison Company Cumulative, $100 par value- Authorized 3,000,000 shares Not Subject to Mandatory Redemption: $ 4.25 160,000 160,000 104.63 $ 16,740 16,000 16,000 $ 4.56 50,000 50,000 101.00 5,050 5,000 5,000 $ 4.25 100,000 100,000 102.00 10,200 10,000 10,000 $ 8.32 100,000 100,000 102.46 10,246 10,000 10,000 $ 7.76 150,000 150,000 102.44 15,366 15,000 15,000 $ 7.80 150,000 150,000 101.65 15,248 15,000 15,000 $10.00 190,000 190,000 101.00 19,190 19,000 19,000 --------- --------- -------- ----------- ----------- 900,000 900,000 92,040 90,000 90,000 --------- --------- -------- ----------- ----------- Cumulative, $25 par value- Authorized 12,000,000 shares Not Subject to Mandatory Redemption: $2.21 1,000,000 1,000,000 25.25 25,250 25,000 25,000 $2.365 1,400,000 1,400,000 27.75 38,850 35,000 35,000 Adjustable Series A 1,200,000 1,200,000 25.00 30,000 30,000 30,000 Adjustable Series B 1,200,000 1,200,000 25.00 30,000 30,000 30,000 --------- --------- -------- ----------- ----------- 4,800,000 4,800,000 124,100 120,000 120,000 --------- --------- -------- ----------- ----------- Total Not Subject to Mandatory Redemption 5,700,000 5,700,000 $216,140 210,000 210,000 ========= ========= ======== ----------- ----------- OE OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY OE SUBORDINATED DEBENTURES (Note 4F): Cumulative, $25 par value- Authorized 4,800,000 shares Subject to Mandatory Redemption: 9.00% 4,800,000 4,800,000 120,000 120,000 ========= ========= ----------- -----------
FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
LONG-TERM DEBT (Note 4G) (Interest rates reflect weighted average rates) (In thousands) - -------------------------------------------------------------------------------------------------------------------------------- FIRST MORTGAGE BONDS SECURED NOTES UNSECURED NOTES TOTAL - -------------------------------------------------------------------------------------------------------------------------------- As of December 31, 2000 1999 2000 1999 2000 1999 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- Ohio Edison Co. - Due 2000-2005 7.89% $ 509,265 $ 589,265 7.53% $ 232,691 $ 316,623 5.75% $541,725 $ 742,225 Due 2006-2010 -- -- -- 7.74% 7,483 2,062 -- -- -- Due 2011-2015 -- -- -- 6.17% 59,000 40,000 -- -- -- Due 2016-2020 -- -- -- 7.05% 60,000 86,000 -- -- -- Due 2021-2025 7.99% 219,460 219,460 7.00% 69,943 69,943 -- -- -- Due 2026-2030 -- -- -- 5.48% 180,134 119,734 -- -- -- Due 2031-2035 -- -- -- 5.09% 71,900 14,800 -- -- -- ---------- ---------- ---------- ---------- -------- ---------- ----------- ----------- Total-Ohio Edison 728,725 808,725 681,151 649,162 541,725 742,225 $ 1,951,601 $ 2,200,112 ---------- ---------- ---------- ---------- -------- ---------- ----------- ----------- Cleveland Electric Illuminating Co. - Due 2000-2005 8.53% 595,000 595,000 7.85% 384,650 559,680 5.58% 27,700 27,700 Due 2006-2010 6.86% 125,000 125,000 7.29% 271,670 271,670 -- -- -- Due 2011-2015 -- -- -- 6.87% 118,535 118,535 -- -- -- Due 2016-2020 -- -- -- 6.88% 553,355 553,355 -- -- -- Due 2021-2025 9.00% 150,000 150,000 7.70% 226,450 226,450 -- -- -- Due 2026-2030 -- -- -- 4.80% 110,888 110,888 -- -- -- Due 2031-2035 -- -- -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- -------- ---------- ----------- ----------- Total-Cleveland Electric 870,000 870,000 1,665,548 1,840,578 27,700 27,700 2,563,248 2,738,278 ---------- ---------- ---------- ---------- -------- ---------- ----------- ----------- Toledo Edison Co. - Due 2000-2005 7.90% 179,525 179,925 8.06% 190,400 266,000 7.28% 226,100 226,130 Due 2006-2010 -- -- -- 7.13% 30,000 30,000 10.00% 820 820 Due 2011-2015 -- -- -- -- -- -- -- -- -- Due 2016-2020 -- -- -- 7.69% 99,000 166,300 -- -- -- Due 2021-2025 -- -- -- 7.39% 148,000 111,600 -- -- -- Due 2026-2030 -- -- -- 5.90% 13,851 13,851 -- -- -- Due 2031-2035 -- -- -- 5.15% 30,900 -- -- -- -- ---------- ---------- ---------- ---------- -------- ---------- ----------- ----------- Total-Toledo Edison 179,525 179,925 512,151 587,751 226,920 226,950 918,596 994,626 ---------- ---------- ---------- ---------- -------- ---------- ----------- ----------- Pennsylvania Power Co. - Due 2000-2005 7.19% 79,370 80,344 -- -- 28,200 5.90% 5,200 5,200 Due 2006-2010 9.74% 4,870 4,870 -- -- -- -- -- -- Due 2011-2015 9.74% 4,870 4,870 5.40% 1,000 1,000 -- -- -- Due 2016-2020 9.74% 3,929 3,929 6.28% 45,325 45,325 -- -- -- Due 2021-2025 8.33% 33,750 33,750 6.68% 27,182 27,182 -- -- -- Due 2026-2030 -- -- -- 6.10% 47,972 47,972 -- -- -- Due 2031-2035 -- -- -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- -------- ---------- ----------- ----------- Total-Penn Power 126,789 127,763 121,479 149,679 5,200 5,200 253,468 282,642 ---------- ---------- ---------- ---------- -------- ---------- ----------- ----------- OES Fuel -- -- 7.10% 91,620 81,260 -- -- -- 91,620 81,260 Bay Shore Power -- -- 6.60% 147,500 147,500 -- -- -- 147,500 147,500 MARBEL Energy Corp. -- -- -- -- -- 9.37% 638 692 638 692 Facilities Services Group -- -- 6.53% 17,601 14,782 7.29% -- 1,887 17,601 16,669 ---------- ---------- ---------- ---------- -------- --------- ----------- ----------- Total $1,905,039 $1,986,413 $3,237,050 $3,470,712 $802,183 $1,004,654 5,944,272 6,461,779 ========== ========== ========== ========== ======== ========== ----------- ----------- Capital lease obligations 163,242 158,303 ----------- ----------- Net unamortized premium on debt 85,550 105,238 ----------- ----------- Long-term debt due within one year (451,016) (724,056) ----------- ----------- Total long-term debt 5,742,048 6,001,264 ----------- ----------- TOTAL CAPITALIZATION $11,204,674 $11,469,795 - -------------------------------------------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
Accumulated Unallocated Other Other ESOP Comprehensive Number Par Paid-In Comprehensive Retained Common Income of Shares Value Capital Income (Loss) Earnings Stock ------------- --------- ----- ------- ------------- -------- ----------- (Dollars in thousands) Balance, January 1, 1998 230,207,141 $23,021 $3,637,522 $(614) $ 646,646 $(146,977) Net income $410,874 410,874 Minimum liability for unfunded retirement benefits, net of $53,000 of income taxes 175 175 -------- Comprehensive income $411,049 ======== Business acquisitions 6,861,946 686 203,496 Allocation of ESOP Shares 5,495 7,945 Cash dividends on common stock (339,111) - ----------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 237,069,087 23,707 3,846,513 (439) 718,409 (139,032) Net income $568,299 568,299 Minimum liability for unfunded retirement benefits, net of $160,000 of income taxes 244 244 -------- Comprehensive income $568,543 ======== Reacquired common stock (4,614,800) (462) (129,671) Centerior acquisition adjustment (468) Allocation of ESOP Shares 6,001 12,256 Cash dividends on common stock (341,467) - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 232,454,287 23,245 3,722,375 (195) 945,241 (126,776) Net income $598,970 598,970 Minimum liability for unfunded retirement benefits, net of $(85,000) of income taxes (134) (134) Unrealized gain on investment of securities available for sale 922 922 -------- Comprehensive income $599,758 ======== Reacquired common stock (7,922,707) (792) (194,210) Allocation of ESOP Shares 3,656 15,044 Cash dividends on common stock (334,220) - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 224,531,580 $22,453 $3,531,821 $ 593 $1,209,991 $(111,732) ==============================================================================================================================
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
Not Subject to Subject to Mandatory Redemption Mandatory Redemption -------------------- ------------------- Par or Par or Number Stated Number Stated of Shares Value of Shares Value --------- ------ --------- ------ (Dollars in thousands) - ------------------------------------------------------------------------------------------- Balance, January 1, 1998 12,442,699 $660,195 5,469,408 $356,243 Redemptions- 8.45% Series (50,000) (5,000) $ 7.35 Series C (10,000) (1,000) $88.00 Series E (3,000) (3,000) $91.50 Series Q (10,714) (10,714) $9.375 Series (16,650) (1,665) - ------------------------------------------------------------------------------------------- Balance, December 31, 1998 12,442,699 660,195 5,379,044 334,864 Redemptions- 7.64% Series (60,000) (6,000) 8.00% Series (58,000) (5,800) 8.45% Series (50,000) (5,000) $ 7.35 Series C (10,000) (1,000) $88.00 Series E (3,000) (3,000) $91.50 Series Q (10,714) (10,714) $90.00 Series S (18,750) (18,750) $9.375 Series (16,900) (1,690) - ------------------------------------------------------------------------------------------- Balance, December 31, 1999 12,324,699 648,395 5,269,680 294,710 Redemptions- 8.45% Series (50,000) (5,000) $ 7.35 Series C (10,000) (1,000) $88.00 Series E (3,000) (3,000) $91.50 Series Q (10,714) (10,714) $90.00 Series S (18,750) (18,750) Amortization of fair market value adjustments- $ 7.35 Series C (69) $88.00 Series R (3,872) $90.00 Series S (5,734) - ------------------------------------------------------------------------------------------- Balance, December 31, 2000 12,324,699 $648,395 5,177,216 $246,571 ============================================================================================ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 598,970 $ 568,299 $ 410,874 Adjustments to reconcile net income to net cash from operating activities: Provision for depreciation and amortization 933,684 937,976 758,865 Nuclear fuel and lease amortization 113,330 104,928 94,348 Other amortization, net (11,635) (10,730) (13,007) Deferred income taxes, net (79,429) (45,054) (23,763) Investment tax credits, net (30,732) (19,661) (22,070) Extraordinary item -- -- 51,730 Receivables (150,520) (203,567) 35,515 Materials and supplies (29,653) 19,631 (14,235) Accounts payable 118,282 82,578 (73,205) Other 45,529 53,906 (49,727) ---------- ---------- ---------- Net cash provided from operating activities 1,507,826 1,488,306 1,155,325 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Common stock -- -- 204,182 Long-term debt 307,512 364,832 499,975 Ohio Schools Council prepayment program -- -- 116,598 Short-term borrowings, net 281,946 163,327 -- Redemptions and Repayments- Common stock 195,002 130,133 -- Preferred stock 38,464 52,159 21,379 Long-term debt 901,764 847,006 804,780 Short-term borrowings, net -- -- 48,354 Common Stock Dividend Payments 334,220 341,467 339,111 ---------- ---------- ---------- Net cash used for financing activities 879,992 842,606 392,869 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 587,618 624,901 652,852 Cash investments (17,449) (41,213) 47,804 Other 120,195 28,022 82,239 ---------- ---------- ---------- Net cash used for investing activities 690,364 611,710 782,895 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents (62,530) 33,990 (20,439) Cash and cash equivalents at beginning of year 111,788 77,798 98,237 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 49,258 $ 111,788 $ 77,798 ========== ========== ========== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid During the Year- Interest (net of amounts capitalized) $ 485,374 $ 520,072 $ 536,064 Income taxes $ 512,182 $ 441,067 $ 326,268 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF TAXES
For the Years Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------------------------------- (In thousands) GENERAL TAXES: Real and personal property $ 281,374 $ 276,227 $ 292,503 State gross receipts 221,385 220,117 217,633 Social security and unemployment 39,134 37,019 27,363 Other 5,788 10,689 13,409 ---------- ---------- ---------- Total general taxes $ 547,681 $ 544,052 $ 550,908 ========== ========== ========== PROVISION FOR INCOME TAXES: Currently payable- Federal $ 467,045 $ 433,872 $ 313,960 State 19,918 25,670 14,452 ---------- ---------- ---------- 486,963 459,542 328,412 ---------- ---------- ---------- Deferred, net- Federal (60,831) (36,021) (14,259) State (18,598) (9,033) (9,504) ---------- ---------- ---------- (79,429) (45,054) (23,763) ---------- ---------- ---------- Investment tax credit amortization (30,732) (19,661) (22,070) ---------- ---------- ---------- Total provision for income taxes $ 376,802 $ 394,827 $ 282,579 ========== ========== ========== RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES: Book income before provision for income taxes $ 975,772 $ 963,126 $ 693,453 ========== ========== ========== Federal income tax expense at statutory rate $ 341,520 $ 337,094 $ 242,709 Increases (reductions) in taxes resulting from- Amortization of investment tax credits (30,732) (19,661) (22,070) State income taxes, net of federal income tax benefit 1,133 10,814 3,216 Amortization of tax regulatory assets 38,702 23,908 28,915 Amortization of goodwill 18,420 19,341 17,868 Preferred stock dividends 18,172 22,988 19,250 Other, net (10,413) 343 (7,309) ---------- ---------- ---------- Total provision for income taxes $ 376,802 $ 394,827 $ 282,579 ========== ========== ========== ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31: Property basis differences $1,245,297 $1,878,904 $1,938,735 Deferred nuclear expense 408,771 421,837 436,601 Impaired generating assets 565,893 -- -- Customer receivables for future income taxes 62,527 159,577 159,526 Competitive transition charge 95,497 115,277 135,730 Deferred sale and leaseback costs (128,298) (129,775) (61,506) Unamortized investment tax credits (85,641) (96,036) (102,085) Unused alternative minimum tax credits (32,215) (101,185) (190,781) Other (37,724) (17,334) (33,356) ---------- ---------- ---------- Net deferred income tax liability $2,094,107 $2,231,265 $2,282,864 ========== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements include FirstEnergy Corp. (Company) and its principal electric utility operating subsidiaries, Ohio Edison Company (OE), The Cleveland Electric Illuminating Company (CEI), Pennsylvania Power Company (Penn) and The Toledo Edison Company (TE). These utility subsidiaries are referred to throughout as "Companies." On September 1, 2000, the Companies transferred their transmission assets to the Company's wholly owned subsidiary, American Transmission Systems, Inc. (ATSI). As a result, ATSI owns and operates the Company's major high-voltage transmission facilities and has interconnections with other regional utilities. The consolidated financial statements also include the Company's other principal subsidiaries: FirstEnergy Services Corp. (FE Services); FirstEnergy Facilities Services Group, LLC (FE Facilities); FirstEnergy Trading Services, Inc. (FETS), which merged into FE Services on January 1, 2001; and MARBEL Energy Corporation (MARBEL). FE Services provides energy-related products and services primarily on a regional basis and has two subsidiaries, Penn Power Energy, Inc., which provides electric generation services and other energy services to Pennsylvania customers and FirstEnergy Generation Corp., which operates the nonnuclear generation businesses of the Companies. FE Facilities is the parent company of several heating, ventilating, air conditioning and energy management companies. FETS had primarily acquired and arranged for the delivery of electricity and natural gas to FE Services' retail customers. MARBEL is a fully integrated natural gas company. Significant intercompany transactions have been eliminated. The Companies follow the accounting policies and practices prescribed by the Public Utilities Commission of Ohio (PUCO), the Pennsylvania Public Utility Commission (PPUC) and the Federal Energy Regulatory Commission (FERC). The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Certain prior year amounts have been reclassified to conform with the current year presentation. REVENUES- The Companies' principal business is providing electric service to customers in central and northern Ohio and western Pennsylvania. The Companies' retail customers are metered on a cycle basis. Revenue is recognized for unbilled electric service through the end of the year. Receivables from customers include sales to residential, commercial and industrial customers located in the Companies' service area and sales to wholesale customers. There was no material concentration of receivables at December 31, 2000 or 1999, with respect to any particular segment of the Companies' customers. CEI and TE sell substantially all of their retail customer receivables to Centerior Funding Corp. (CFC), a wholly owned subsidiary of CEI. CFC subsequently transfers the receivables to a trust under an asset- backed securitization agreement. The trust completed a public sale of $150 million and private sales of $50 million of receivables-backed investor certificates in 1996 and 2000, respectively, in transactions that qualified for sale accounting treatment. CFC's retained interest in the pool of receivables held by the trust (15.15% as of December 31, 2000) is stated at fair value, reflecting adjustments for anticipated credit losses. Collections of receivables previously transferred to the trust used to purchase new receivables from CFC during 2000, totaled approximately $2.5 billion. Expenses associated with the factoring discount related to the sale of receivables were $13 million in 2000. As of December 31, 2000, receivables recorded on the Consolidated Balance Sheet were reduced by $193 million due to these sales. REGULATORY PLANS- The PUCO approved OE's Rate Reduction and Economic Development Plan in 1995 and FirstEnergy's Rate Reduction and Economic Development Plan for CEI and TE in January 1997. These regulatory plans were to maintain then current base electric rates for OE, CEI and TE through December 31, 2005. At the end of the regulatory plan periods, OE base rates were to be reduced by $300 million (approximately 20 percent below then current levels) and CEI and TE base rates were to be reduced by a combined $310 million (approximately 15 percent below then current levels). The plans also revised the Companies' fuel cost recovery methods so that OE's, CEI's and TE's fuel rates would be frozen through the regulatory plan period, subject to limited periodic adjustments. As part of OE's and FirstEnergy's regulatory plans, transition rate credits were implemented for customers, which were expected to reduce operating revenues for OE by approximately $600 million and CEI and TE by approximately $391 million during the regulatory plan period. The regulatory plans were terminated at the end of 2000 concurrent with the implementation of the FirstEnergy transition plan as described further below. In July 1999, Ohio's electric utility restructuring legislation, which allowed Ohio electric customers to select their generation suppliers beginning January 1, 2001, was signed into law. Among other things, the legislation provides for a five percent reduction on the generation portion of residential customers' bills and the opportunity to recover transition costs, including regulatory assets, from January 1, 2001 through December 31, 2005. The period for the recovery of regulatory assets only can be extended up to December 31, 2010. The PUCO was authorized to determine the level of transition cost recovery, as well as the recovery period for the regulatory assets portion of those costs, in considering each Ohio electric utility's transition plan application. The Company, on behalf of its Ohio electric utility operating companies -- OE, CEI and TE -- filed its transition plan under Ohio's new electric utility restructuring law in late 1999. The filing also included additional information on FirstEnergy's plans to turn over control, and perhaps ownership, of its transmission assets to the Alliance Regional Transmission Organization. The transition plan itemized, or unbundled, the current price of electricity into its component elements -- including generation, transmission, distribution and transition charges. As required by the PUCO's rules, the Company's transition plan also included its proposals on corporate separation of its regulated and unregulated operations, operational and technical support changes needed to accommodate customer choice, an education program to inform customers of their options under the new law, and how the Company's transmission system will be operated to ensure access to all users. Customer prices would be frozen through a five-year market development period (2001-2005), except for certain limited statutory exceptions including the five percent reduction in the price of generation for residential customers. The plan proposed recovery of generation-related transition costs of approximately $4.5 billion ($4.0 billion, net of deferred income taxes) and transition costs related to regulatory assets aggregating approximately $4.2 billion ($2.9 billion, net of deferred income taxes). On July 19, 2000, the PUCO approved the Company's transition plan as modified by a settlement agreement with major parties to the transition plan. Major parties to the settlement agreement included the PUCO staff, the Ohio Consumers' Counsel, the Industrial Energy Users-Ohio, certain power marketers and others. Major provisions of the settlement agreement consisted of approval of recovery of transition costs in the amounts filed in the transition plan through no later than 2006 for OE, mid-2007 for TE and 2008 for CEI, except where a longer period of recovery is provided for in the settlement agreement. The Company will also give preferred access over the Company's subsidiaries to nonaffiliated marketers, brokers and aggregators to 1,120 megawatts of generation capacity through 2005 at established prices for sales to the Ohio operating companies' retail customers. The base electric rates for distribution service for OE, CEI and TE under their prior respective regulatory plans will be extended from December 31, 2005 through December 31, 2007. The transition rate credits for customers under their prior regulatory plans will also be extended through the Companies' respective transition cost recovery periods. The application of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71), to OE's generation business and the nonnuclear generation businesses of CEI and TE was discontinued with the issuance of the PUCO transition plan order. The Securities and Exchange Commission (SEC) issued interpretive guidance regarding asset impairment measurement that concluded any supplemental regulated cash flows such as a competitive transition charge (CTC) should be excluded from the cash flows of assets in a portion of the business not subject to regulatory accounting practices. If those assets are impaired, a regulatory asset should be established if the costs are recoverable through regulatory cash flows. Consistent with the SEC guidance $1.6 billion of impaired plant investments ($1.2 billion, $304 million and $53 million for OE, CEI and TE, respectively) were recognized as regulatory assets recoverable as transition costs through future regulatory cash flows. The settlement agreement provides to the Company's Ohio customers an additional incentive applied to the generation shopping credit of 45% for residential customers, 30% for commercial customers and 15% for industrial customers as reductions from their bills, when they select alternative energy providers (the credits exceed the price the Company will be offering to electricity suppliers relating to the 1,120 megawatts described in a previous paragraph). The amount of the incentive will serve to reduce the amortization of transition costs during the market development period and will be recovered over the remaining transition cost recovery periods. If the customer switching targets established in the settlement agreement are not achieved by the end of 2005, the transition cost recovery periods could be shortened for OE, CEI and TE to reduce recovery by as much as $500 million (OE-$250 million, CEI-$170 million and TE-$80 million), but any such adjustment would be computed on a class-by-class and pro-rata basis. In June 1998, the PPUC authorized a rate restructuring plan for Penn which essentially resulted in the deregulation of Penn's generation business as of June 30, 1998. Penn was required to remove from its balance sheet all regulatory assets and liabilities related to its generation business and assess all other assets for impairment. In accordance with the SEC guidance, Penn reduced its nuclear generating unit investments by approximately $305 million, of which approximately $227 million was recognized as a regulatory asset to be recovered through a CTC over a seven-year transition period; the remaining net amount of $78 million was written off. The charge of $51.7 million ($30.5 million after income taxes) for discontinuing the application of SFAS 71 to Penn's generation business was recorded as a 1998 extraordinary item on the Consolidated Statement of Income. All of the Companies' regulatory assets will continue to be recovered under provisions of the Ohio transition plan and the Pennsylvania rate restructuring plan. Under the previous regulatory plan, the PUCO had authorized OE to recognize additional capital recovery related to its generating assets (which was reflected as additional depreciation expense) and additional amortization of regulatory assets during the prior regulatory plan period of at least $2 billion, and the PPUC had authorized Penn to accelerate at least $358 million, more than the amounts that would have been recognized if the prior regulatory plans were not in effect. These additional amounts are being recovered through current rates. As of December 31, 2000, OE's and Penn's cumulative additional capital recovery and regulatory asset amortization amounted to $1.424 billion (including Penn's impairment discussed above and CTC recovery). CEI and TE recognized a fair value purchase accounting adjustment of $2.55 billion in connection with the FirstEnergy merger; that fair value adjustment recognized for financial reporting purposes satisfied the $2 billion asset reduction commitment contained in the CEI and TE regulatory plan. For regulatory purposes, CEI and TE recognized the accelerated amortization over the period that their rate plan was in effect. Application of SFAS 71 was discontinued in 1997 with respect to CEI's and TE's nuclear operations (see "Regulatory Assets" below); in 1998 with respect to Penn's generation operations (as described above) and in mid-2000, as discussed above, with respect to OE's generation business and the nonnuclear generation businesses of CEI and TE effective with the issuance of the PUCO transition plan order. The following summarizes net assets included in property, plant and equipment relating to operations for which the application of SFAS 71 was discontinued, compared with the respective company's total assets as of December 31, 2000.
SFAS 71 Discontinued Net Assets Total Assets ------------ ------------ (In millions) OE $1,075 $7,422 CEI 1,556 5,965 TE 623 2,652 Penn 92 989
PROPERTY, PLANT AND EQUIPMENT- Property, plant and equipment reflects original cost (except for the Companies' nuclear generating units which were adjusted to fair value), including payroll and related costs such as taxes, employee benefits, administrative and general costs, and interest costs. The Companies provide for depreciation on a straight-line basis at various rates over the estimated lives of property included in plant in service. The annual composite rate for OE's electric plant was approximately 2.8% in 2000 and 3.0% in 1999 and 1998. The annual composite rate for Penn's electric plant was approximately 2.6% in 2000, 2.5% in 1999 and 3.0% in 1998. CEI's and TE's composite rates were both approximately 3.4% in 2000, 1999 and 1998. In addition to the straight-line depreciation recognized in 2000, 1999 and 1998, OE and Penn recognized additional capital recovery of $105 million, $95 million and $141 million (excluding Penn's impairment), respectively, as depreciation expense in accordance with their regulatory plans. These amounts were included in the 2000 transfer of accumulated depreciation included in OE's impaired plant investment recognized as regulatory assets as discussed in "Regulatory Plans" above. Annual depreciation expense in 2000 included approximately $29.3 million for future decommissioning costs applicable to the Companies' ownership and leasehold interests in four nuclear generating units. Annual decommissioning costs will increase by approximately $66 million from implementing the Ohio utilities' transition plan in 2001. The Companies' future decommissioning costs reflect the 1999 increase in their ownership interests related to the exchange of certain generating assets with Duquesne Light Company. The Companies' share of the future obligation to decommission these units is approximately $1.9 billion in current dollars and (using a 4.0% escalation rate) approximately $4.5 billion in future dollars. The estimated obligation and the escalation rate were developed based on site specific studies. Payments for decommissioning are expected to begin in 2016, when actual decommissioning work begins. The Companies have recovered approximately $342 million for decommissioning through their electric rates from customers through December 31, 2000. The Companies have also recognized an estimated liability of approximately $31.6 million related to decontamination and decommissioning of nuclear enrichment facilities operated by the United States Department of Energy (DOE), as required by the Energy Policy Act of 1992. The Financial Accounting Standards Board (FASB) issued a proposed accounting standard for nuclear decommissioning costs in 1996. If the standard is adopted as proposed: (1) annual provisions for decommissioning could change; (2) the net present value of estimated decommissioning costs could be recorded as a liability; and (3) income from the external decommissioning trusts could be reported as investment income. The FASB subsequently expanded the scope of the proposed standard to include other closure and removal obligations related to long-lived assets. A final pronouncement is expected in the second quarter of 2001 and is anticipated to be implemented on January 1, 2002. NUCLEAR FUEL- OE's and Penn's nuclear fuel is recorded at original cost, which includes material, enrichment, fabrication and interest costs incurred prior to reactor load. CEI and TE severally lease their respective portions of nuclear fuel and pay for the fuel as it is consumed (see Note 3). The Companies amortize the cost of nuclear fuel based on the rate of consumption. INCOME TAXES- Details of the total provision for income taxes are shown on the Consolidated Statements of Taxes. Deferred income taxes result from timing differences in the recognition of revenues and expenses for tax and accounting purposes. Investment tax credits, which were deferred when utilized, are being amortized over the recovery period of the related property. The liability method is used to account for deferred income taxes. Deferred income tax liabilities related to tax and accounting basis differences are recognized at the statutory income tax rates in effect when the liabilities are expected to be paid. Alternative minimum tax credits of $32 million, which may be carried forward indefinitely, are available to reduce future federal income taxes. RETIREMENT BENEFITS- The Companies' trusteed, noncontributory defined benefit pension plan covers almost all full-time employees. Upon retirement, employees receive a monthly pension based on length of service and compensation. The Companies use the projected unit credit method for funding purposes and were not required to make pension contributions during the three years ended December 31, 2000. The assets of the pension plan consist primarily of common stocks, United States government bonds and corporate bonds. The Companies provide a minimum amount of noncontributory life insurance to retired employees in addition to optional contributory insurance. Health care benefits, which include certain employee deductibles and copayments, are also available to retired employees, their dependents and, under certain circumstances, their survivors. The Companies pay insurance premiums to cover a portion of these benefits in excess of set limits; all amounts up to the limits are paid by the Companies. The Companies recognize the expected cost of providing other postretirement benefits to employees and their beneficiaries and covered dependents from the time employees are hired until they become eligible to receive those benefits. The following sets forth the funded status of the plans and amounts recognized on the Consolidated Balance Sheets as of December 31:
Other Pension Benefits Postretirement Benefits ---------------- ----------------------- 2000 1999 2000 1999 - -------------------------------------------------------------------------------------- (In millions) Change in benefit obligation: Benefit obligation as of January 1 $1,394.1 $1,500.1 $ 608.4 $ 601.3 Service cost 27.4 28.3 11.3 9.3 Interest cost 104.8 102.0 45.7 40.7 Plan amendments 41.3 -- -- -- Actuarial loss (gain) 17.3 (155.6) 121.7 (17.6) Net increase from asset swap -- 14.8 -- 12.5 Voluntary early retirement program expense 23.4 -- -- -- Benefits paid (102.2) (95.5) (35.1) (37.8) - --------------------------------------------------------------------------------------- Benefit obligation as of December 31 1,506.1 1,394.1 752.0 608.4 - --------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets as of January 1 1,807.5 1,683.0 4.9 3.9 Actual return on plan assets 0.7 220.0 (0.2) 0.6 Company contribution -- -- 18.3 0.4 Benefits paid (102.2) (95.5) -- -- - --------------------------------------------------------------------------------------- Fair value of plan assets as of December 31 1,706.0 1,807.5 23.0 4.9 - --------------------------------------------------------------------------------------- Funded status of plan 199.9 413.4 (729.0) (603.5) Unrecognized actuarial loss (gain) (90.9) (303.5) 147.3 24.9 Unrecognized prior service cost 93.1 57.3 20.9 24.1 Unrecognized net transition obligation (asset) (2.1) (10.1) 110.9 120.1 - --------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 200.0 $ 157.1 $(449.9) $(434.4) ===================================================================================== Assumptions used as of December 31: Discount rate 7.75% 7.75% 7.75% 7.75% Expected long-term return on plan assets 10.25% 10.25% 10.25% 10.25% Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
Net pension and other postretirement benefit costs for the three years ended December 31, 2000 were computed as follows:
Other Pension Benefits Postretirement Benefits ------------------------ ------------------------- 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------------- (In millions) Service cost $ 27.4 $ 28.3 $ 25.0 $11.3 $ 9.3 $ 7.5 Interest cost 104.8 102.0 92.5 45.7 40.7 37.6 Expected return on plan assets (181.0) (168.1) (152.7) (0.5) (0.4) (0.3) Amortization of transition obligation (asset) (7.9) (7.9) (8.0) 9.2 9.2 9.2 Amortization of prior service cost 5.7 5.7 2.3 3.2 3.3 (0.8) Recognized net actuarial loss (gain) (9.1) -- (2.6) -- -- -- Voluntary early retirement program expense 17.2 -- -- -- -- -- - -------------------------------------------------------------------------------------------------- Net benefit cost $ (42.9) $ (40.0) $ (43.5) $68.9 $62.1 $53.2 ==================================================================================================
The health care trend rate assumption is 7.2% in 2001, 7.0% in 2002 and 6.5% in 2003, trending to 5.0%-5.5% in later years. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. An increase in the health care trend rate assumption by one percentage point would increase the total service and interest cost components by $7.5 million and the postretirement benefit obligation by $94.4 million. A decrease in the same assumption by one percentage point would decrease the total service and interest cost components by $8.5 million and the postretirement benefit obligation by $111.0 million. SUPPLEMENTAL CASH FLOWS INFORMATION- All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets. As of December 31, 1999, cash and cash equivalents included $83 million used for the redemption of long-term debt in the first quarter of 2000. The Companies reflect temporary cash investments at cost, which approximates their fair market value. Noncash financing and investing activities included capital lease transactions amounting to $89.3 million, $36.2 million and $61.8 million for the years 2000, 1999 and 1998, respectively. Commercial paper transactions of OES Fuel, Incorporated (OES Fuel) (a wholly owned subsidiary of OE) that have initial maturity periods of three months or less are reported net within financing activities under long-term debt and are reflected as long-term debt on the Consolidated Balance Sheets (see Note 4G). All borrowings with initial maturities of less than one year are defined as financial instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value. The following sets forth the approximate fair value and related carrying amounts of all other long-term debt, preferred stock subject to mandatory redemption and investments other than cash and cash equivalents as of December 31:
2000 1999 - ----------------------------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - ----------------------------------------------------------------------- (In millions) Long-term debt $5,853 $6,010 $6,381 $6,331 Preferred stock $ 247 $ 243 $ 295 $ 280 Investments other than cash and cash equivalents: Debt securities ?Maturity (5-10 years) $ 460 $ 441 $ 475 $ 476 ?Maturity (more than 10 years) 1,026 1,051 1,068 1,013 Equity securities 16 16 17 17 All other 924 935 852 874 - ----------------------------------------------------------------------- $2,426 $2,443 $2,412 $2,380 =====================================================================
The fair values of long-term debt and preferred stock reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective year. The yields assumed were based on securities with similar characteristics offered by a corporation with credit ratings similar to the Companies' ratings. The fair value of investments other than cash and cash equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms. Investments other than cash and cash equivalents include decommissioning trust investments. Unrealized gains and losses applicable to the decommissioning trusts have been recognized in the trust investment with a corresponding change to the decommissioning liability. The Companies have no securities held for trading purposes. Effective December 31, 1998, the Company began accounting for its commodity price derivatives, entered into specifically for trading purposes, on a mark-to-market basis in accordance with Emerging Issues Task Force Issue 98-10, "Accounting for Energy Trading and Risk Management Activities," with gains and losses recognized currently in the Consolidated Statements of Income. The contracts that were marked to market are included in the Consolidated Balance Sheets as Deferred Charges and Deferred Credits at their fair values. The impact on the consolidated financial statements was immaterial. On January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an amendment of FASB Statement No. 133." The cumulative effect of adopting SFAS 133, as amended, increases assets by $108.3 million, liabilities by $72.6 million and common stockholders' equity by $35.7 million -- other comprehensive income increases by $44.2 million and net income is reduced by $8.5 million. REGULATORY ASSETS- The Companies recognize, as regulatory assets, costs which the FERC, PUCO and PPUC have authorized for recovery from customers in future periods. Without such authorization, the costs would have been charged to income as incurred. All regulatory assets will continue to be recovered from customers under the Companies' respective transition and rate restructuring plans. Based on those plans, the Companies continue to bill and collect cost-based rates for their transmission and distribution services, which remain regulated; accordingly, it is appropriate that the Companies continue the application of SFAS 71 to those operations. OE and Penn recognized additional cost recovery of $270 million, $257 million and $50 million in 2000, 1999 and 1998, respectively, as additional regulatory asset amortization in accordance with their regulatory plans. The application of SFAS 71 to OE's generation business and the nonnuclear generation businesses of CEI and TE was discontinued effective with the PUCO's approval of the Company's transition plan. The effect of such discontinuance was reflected on the financial statements as of June 30, 2000, with the reduction of plant investment and the corresponding recognition of regulatory assets recoverable through future regulatory cash flows for generating assets that were impaired of approximately $1.6 billion ($1.2 billion, $304 million and $53 million for OE, CEI and TE, respectively). Net regulatory assets on the Consolidated Balance Sheets are comprised of the following:
2000 1999 ------------------------------------------------------------------ (In millions) Nuclear unit expenses $1,081.1 $1,123.0 Customer receivables for future income taxes 173.5 444.3 Rate stabilization program deferrals 400.0 420.1 Sale and leaseback costs 8.0 17.8 Competitive transition charge 230.9 280.4 Loss on reacquired debt 167.1 173.9 Employee postretirement benefit costs 20.7 24.8 DOE decommissioning and decontamination costs 26.8 29.5 Impaired generating assets 1,595.5 -- Other 24.1 29.6 ------------------------------------------------------------------ Total $3,727.7 $2,543.4 ================================================================
2. MERGER AGREEMENT: On August 8, 2000, FirstEnergy and GPU, Inc. (GPU), a Pennsylvania corporation, entered into an Agreement and Plan of Merger. Under the merger agreement, FirstEnergy would acquire all of the outstanding shares of GPU's common stock for approximately $4.5 billion in cash and FirstEnergy common stock. Approximately $7.4 billion of debt and preferred stock of GPU's subsidiaries would remain outstanding. The transaction would be accounted for by the purchase method. The combined company's principal electric utility operating companies would include OE, CEI, TE, Penn and ATSI, as well as GPU's electric utility operating companies - Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, which serve customers in New Jersey and Pennsylvania. Under the agreement, GPU shareholders would receive the equivalent of $36.50 for each share of GPU common stock they own, payable in cash or in FirstEnergy common stock, as long as FirstEnergy's common stock price is between $24.2438 and $29.6313. Each GPU shareholder would be able to elect the form of consideration they wish to receive, subject to proration so that the aggregate consideration to all GPU shareholders will be 50 percent cash and 50 percent FirstEnergy common stock. Each GPU share converted into FirstEnergy common stock would receive not less than 1.2318 and not more than 1.5055 shares of FirstEnergy common stock, depending on the average closing price of FirstEnergy stock during the 20-day trading period ending on the seventh trading date prior to the merger closing. The stock portion of the consideration is expected to be tax-free to GPU shareholders. The merger has been approved by the respective shareholders of the Company and GPU and is expected to close promptly after all of the conditions to the consummation of the merger, including the receipt of all necessary regulatory approvals, are fulfilled or waived. The receipt of all necessary regulatory approvals, including, but not limited to, the FERC, the Nuclear Regulatory Commission, the Federal Communications Commission, and the SEC, are expected by the end of the second quarter of 2001. 3. LEASES: The Companies lease certain generating facilities, nuclear fuel, office space and other property and equipment under cancelable and noncancelable leases. OE sold portions of its ownership interests in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on the portions sold for basic lease terms of approximately 29 years. CEI and TE also sold portions of their ownership interests in Beaver Valley Unit 2 and Bruce Mansfield Units 1, 2 and 3 and entered into similar operating leases for lease terms of approximately 30 years. During the terms of their respective leases, OE, CEI and TE continue to be responsible, to the extent of their individual combined ownership and leasehold interests, for costs associated with the units including construction expenditures, operation and maintenance expenses, insurance, nuclear fuel, property taxes and decommissioning. They have the right, at the end of the respective basic lease terms, to renew their respective leases. They also have the right to purchase the facilities at the expiration of the basic lease term or renewal term (if elected) at a price equal to the fair market value of the facilities. The basic rental payments are adjusted when applicable federal tax law changes. OES Finance, Incorporated (OES Finance), a wholly owned subsidiary of OE, maintains deposits pledged as collateral to secure reimbursement obligations relating to certain letters of credit supporting OE's obligations to lessors under the Beaver Valley Unit 2 sale and leaseback arrangements. The deposits pledged to the financial institution providing those letters of credit are the sole property of OES Finance. In the event of liquidation, OES Finance, as a separate corporate entity, would have to satisfy its obligations to creditors before any of its assets could be made available to OE as sole owner of OES Finance common stock. Nuclear fuel is currently financed for CEI and TE through leases with a special-purpose corporation. As of December 31, 2000, $142 million of nuclear fuel was financed under a lease financing arrangement through $150 million of bank credit arrangements. The bank credit arrangements expire in August 2001. Lease rates are based on bank rates and commercial paper rates. Consistent with the regulatory treatment, the rentals for capital and operating leases are charged to operating expenses on the Consolidated Statements of Income. Such costs for the three years ended December 31, 2000, are summarized as follows:
2000 1999 1998 --------------------------------------------------------- (In millions) Operating leases Interest element $202.4 $208.6 $201.2 Other 111.1 110.3 147.8 Capital leases Interest element 12.3 17.5 17.6 Other 64.2 76.1 66.3 --------------------------------------------------------- Total rentals $390.0 $412.5 $432.9 =======================================================
The future minimum lease payments as of December 31, 2000, are:
Operating Leases ---------------------------------- Capital Lease Capital Leases Payments Trusts Net - ------------------------------------------------------------------------- (In millions) 2001 $ 74.3 $ 306.8 $ 146.0 $ 160.8 2002 50.1 317.9 169.5 148.4 2003 32.9 326.1 176.5 149.6 2004 19.6 291.3 110.7 180.6 2005 9.6 310.1 128.8 181.3 Years thereafter 17.7 3,321.2 1,235.6 2,085.6 - ------------------------------------------------------------------------- Total minimum lease payments 204.2 $4,873.4 $1,967.1 $2,906.3 Executory costs 10.6 ======== ======== ======== - ------------------------------------ Net minimum lease payments 193.6 Interest portion 30.4 - ------------------------------------ Present value of net minimum lease payments 163.2 Less current portion 52.0 - ------------------------------------ Noncurrent portion $111.2 ===================================
OE invested in the PNBV Capital Trust, which was established to purchase a portion of the lease obligation bonds issued on behalf of lessors in OE's Perry Unit 1 and Beaver Valley Unit 2 sale and leaseback transactions. CEI and TE established the Shippingport Capital Trust to purchase the lease obligation bonds issued on behalf of lessors in their Bruce Mansfield Units 1, 2 and 3 sale and leaseback transactions. The PNBV and Shippingport capital trust arrangements effectively reduce lease costs related to those transactions. 4. CAPITALIZATION: (A) RETAINED EARNINGS- There are no restrictions on retained earnings for payment of cash dividends on the Company's common stock. (B) EMPLOYEE STOCK OWNERSHIP PLAN- The Companies fund the matching contribution for their 401(k) savings plan through an ESOP Trust. All full-time employees eligible for participation in the 401(k) savings plan are covered by the ESOP. The ESOP borrowed $200 million from OE and acquired 10,654,114 shares of OE's common stock (subsequently converted to FirstEnergy common stock) through market purchases. Dividends on ESOP shares are used to service the debt. Shares are released from the ESOP on a pro rata basis as debt service payments are made. In 2000, 1999 and 1998, 826,873 shares, 627,427 shares and 423,206 shares, respectively, were allocated to employees with the corresponding expense recognized based on the shares allocated method. The fair value of 5,952,032 shares unallocated as of December 31, 2000, was approximately $187.8 million. Total ESOP-related compensation expense was calculated as follows:
2000 1999 1998 - ----------------------------------------------------------------------- (In millions) Base compensation $18.7 $18.3 $13.5 Dividends on common stock held by the ESOP and used to service debt (6.4) (4.5) (3.9) - ------------------------------------------------------------------------ Net expense $12.3 $13.8 $ 9.6 ========================================================================
(C) STOCK COMPENSATION PLANS- On April 30, 1998, the Company adopted the Executive and Director Incentive Compensation Plan (FE Plan). The FE Plan permits awards to be made to key employees in the form of restricted stock, stock options, stock appreciation rights, performance shares or cash. Common stock granted under the FE Plan may not exceed 7.5 million shares. No stock appreciation rights or performance shares have been issued under the FE Plan. Restricted common stock shares were granted under the FE Plan in 1998, 1999 and 2000 for various vesting periods ranging from six months to eight years. The restricted common stock shares were purchased in the open market and have full voting and dividend rights. There were no exercise prices related to these shares. Restricted common stock grants were as follows:
2000 1999 1998 - ---------------------------------------------------------------- Restricted common shares granted 208,400 8,000 20,000 Weighted average market price $26.63 $30.89 $30.78 Weighted average vesting period 3.8 5.8 4.0 Dividends restricted Yes Yes No - ----------------------------------------------------------------
FE Plan options were granted in 1998, 1999 and 2000 and are exercisable after four years from the date of grant with some acceleration of vesting possible based on performance. Stock options, which were granted prior to 1998, expire on or before February 25, 2007. Stock option activity was as follows:
Number of Weighted Average Stock Option Activity Options Exercise Price - ------------------------------------------------------------------------- Balance at December 31, 1997 517,388 $24.59 (517,388 options exercisable) Options granted 189,491 29.82 Options exercised 335,058 24.67 Options forfeited 7,535 29.82 Balance at December 31, 1998 364,286 27.13 (182,330 options exercisable) Options granted 1,811,658 24.90 Options exercised 22,575 21.42 Balance at December 31, 1999 2,153,369 25.32 (159,755 options exercisable) Options granted 3,011,584 23.24 Options exercised 90,491 26.00 Options forfeited 52,600 22.20 Balance at December 31, 2000 5,021,862 24.09 (473,314 options exercisable) - -------------------------------------------------------------------------
As of December 31, 2000, the weighted average remaining contractual life of outstanding stock options was 8.4 years. Under the Executive Deferred Compensation Plan, adopted January 1, 1999, employees can direct a portion of their Annual Incentive Award and/or Long Term Incentive Award into an unfunded FirstEnergy Stock Account to receive vested stock units. An additional 20% premium is received in the form of stock units based on the amount allocated to the FirstEnergy Stock Account. Dividends are calculated quarterly on stock units outstanding and are paid in the form of additional stock units. Upon withdrawal, stock units are converted to FirstEnergy shares. Payout occurs three years from the date of deferral. As of December 31, 2000, there were 123,787.48 stock units outstanding. The Company continues to apply Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." As required by SFAS 123, "Accounting for Stock-Based Compensation," the Company has determined pro forma earnings as though the Company had accounted for employee stock options under the fair value method. The weighted average assumptions used in valuing the options and their resulting fair values are as follows:
2000 1999 1998 - --------------------------------------------------------------- Valuation assumptions: Expected option term (years) 7.6 6.4 10 Expected volatility 21.77% 20.03% 15.50% Expected dividend yield 6.68% 5.97% 5.68% Risk-free interest rate 5.28% 5.97% 5.65% Fair value per option $2.86 $3.42 $3.25 - ---------------------------------------------------------------
The following table summarizes the pro forma effect of applying fair value accounting to the Company's stock options.
2000 1999 1998 - ------------------------------------------------------------------ Net Income (000) As Reported $598,970 $568,299 $410,874 Pro Forma $597,378 $567,876 $410,839 Earnings Per Share of Common Stock - Basic and Diluted As Reported $2.69 $2.50 $1.82 Pro Forma $2.69 $2.50 $1.81 - -------------------------------------------------------------------
(D) PREFERRED AND PREFERENCE STOCK- Penn's 7.75% series of preferred stock has a restriction which prevents early redemption prior to July 2003. OE's 8.45% series of preferred stock has no optional redemption provision. CEI's $88.00 Series R preferred stock is not redeemable before December 2001 and its $90.00 Series S has no optional redemption provision. All other preferred stock may be redeemed by the Companies in whole, or in part, with 30-90 days' notice. Preference stock authorized for the Companies are 8 million shares without par value for OE; 3 million shares without par value for CEI; and 5 million shares, $25 par value for TE. No preference shares are currently outstanding. (E) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION- Annual sinking fund provisions for the Companies' preferred stock are as follows:
Redemption Price Per Series Shares Share Date Beginning - -------------------------------------------------------------------------- OE 8.45% 50,000 $ 100 (i) CEI $ 7.35 C 10,000 100 (i) 91.50 Q 10,714 1,000 (i) 90.00 S 18,750 1,000 (i) 88.00 R 50,000 1,000 December 1 2001 Penn 7.625% 7,500 100 October 1 2002 - -------------------------------------------------------------------------- (i) Sinking fund provisions are in effect.
Annual sinking fund requirements for the next five years are $85 million in 2001, $19 million in 2002 and $2 million in each year 2003-2005. (F) OHIO EDISON OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY OHIO EDISON SUBORDINATED DEBENTURES- Ohio Edison Financing Trust, a wholly owned subsidiary of OE, has issued $120 million of 9% Cumulative Trust Preferred Capital Securities. OE purchased all of the Trust's Common Securities and simultaneously issued to the Trust $123.7 million principal amount of 9% Junior Subordinated Debentures due 2025 in exchange for the proceeds that the Trust received from its sale of Preferred and Common Securities. The sole assets of the Trust are the Subordinated Debentures whose interest and other payment dates coincide with the distribution and other payment dates on the Trust Securities. Under certain circumstances, the Subordinated Debentures could be distributed to the holders of the outstanding Trust Securities in the event the Trust is liquidated. The Subordinated Debentures may be optionally redeemed by OE at a redemption price of $25 per Subordinated Debenture plus accrued interest, in which event the Trust Securities will be redeemed on a pro rata basis at $25 per share plus accumulated distributions. OE's obligations under the Subordinated Debentures along with the related Indenture, amended and restated Trust Agreement, Guarantee Agreement and the Agreement for expenses and liabilities, constitute a full and unconditional guarantee by OE of payments due on the Preferred Securities. (G) LONG-TERM DEBT- The first mortgage indentures and their supplements, which secure all of the Companies' first mortgage bonds, serve as direct first mortgage liens on substantially all property and franchises, other than specifically excepted property, owned by the Companies. Based on the amount of bonds authenticated by the Trustees through December 31, 2000, OE's, TE's and Penn's annual sinking and improvement fund requirements for all bonds issued under the mortgage amounts to $31.4 million. OE, TE and Penn expect to deposit funds in 2001 that will be withdrawn upon the surrender for cancellation of a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property additions or against previously retired bonds. This method can result in minor increases in the amount of the annual sinking fund requirement. Sinking fund requirements for first mortgage bonds and maturing long-term debt (excluding capital leases) for the next five years are:
(In millions) -------------------------- 2001 $399.0 2002 945.0 2003 460.1 2004 833.9 2005 436.3 --------------------------
The Companies' obligations to repay certain pollution control revenue bonds are secured by several series of first mortgage bonds. Certain pollution control revenue bonds are entitled to the benefit of irrevocable bank letters of credit of $341.2 million and noncancelable municipal bond insurance policies of $280 million to pay principal of, or interest on, the pollution control revenue bonds. To the extent that drawings are made under the letters of credit, the Companies are entitled to a credit against their obligation to repay those bonds. The Companies pay annual fees of 0.60% to 1.375% of the amounts of the letters of credit to the issuing banks and are obligated to reimburse the banks for any drawings thereunder. OE had unsecured borrowings of $100 million as of December 31, 2000, supported by a $250 million long-term revolving credit facility agreement which expires November 18, 2002. OE must pay an annual facility fee of 0.20% on the total credit facility amount. In addition, the credit agreement provides that OE maintain unused first mortgage bond capability for the full credit agreement amount under OE's indenture as potential security for the unsecured borrowings. CEI and TE have letters of credit of approximately $222 million in connection with the sale and leaseback of Beaver Valley Unit 2 that expire in May 2002. The letters of credit are secured by first mortgage bonds of CEI and TE in the proportion of 40% and 60%, respectively (see Note 3). OE's and Penn's nuclear fuel purchases are financed through the issuance of OES Fuel commercial paper and loans, both of which are supported by a $180.5 million long-term bank credit agreement which expires March 31, 2001. The Company intends to extend the credit agreement through March 31, 2002. Accordingly, a portion of the commercial paper and loans is reflected as long-term debt on the Consolidated Balance Sheets. OES Fuel must pay an annual facility fee of 0.20% on the total line of credit and an annual commitment fee of 0.0625% on any unused amount. (H) COMPREHENSIVE INCOME- Comprehensive income includes net income as reported on the Consolidated Statements of Income and all other changes in common stockholders' equity except those resulting from transactions with common stockholders. As of December 31, 2000, accumulated other comprehensive income (loss) consisted of a minimum liability for unfunded retirement benefits of $(329,000) and an unrealized gain on investment of securities available for sale of $922,000. 5. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT: Short-term borrowings outstanding as of December 31, 2000, consisted of $539.8 million of bank borrowings and $159.9 million of OES Capital, Incorporated (OES Capital) commercial paper. OES Capital is a wholly owned subsidiary of OE whose borrowings are secured by customer accounts receivable. OES Capital can borrow up to $170 million under a receivables financing agreement at rates based on certain bank commercial paper and is required to pay an annual fee of 0.20% on the amount of the entire finance limit. The receivables financing agreement expires in 2002. The Companies have various credit facilities with domestic banks that provide for borrowings of up to $505 million under various interest rate options. OE's short-term borrowings may be made under its lines of credit on its unsecured notes. To assure the availability of these lines, the Companies are required to pay annual commitment fees that vary from 0.15% to 0.375%. These lines expire at various times during 2001. The weighted average interest rates on short-term borrowings outstanding as of December 31, 2000 and 1999, were 7.92% and 6.51%, respectively. 6. COMMITMENTS AND CONTINGENCIES: CAPITAL EXPENDITURES- The Company's current forecast reflects expenditures of approximately $3.0 billion for property additions and improvements from 2001-2005, of which approximately $683 million is applicable to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $380 million, of which approximately $54 million applies to 2001. During the same periods, the Companies' nuclear fuel investments are expected to be reduced by approximately $460 million and $100 million, respectively, as the nuclear fuel is consumed. STOCK REPURCHASE PROGRAM- On November 17, 1998, the Board of Directors authorized the repurchase of up to 15 million shares of the Company's common stock over a three-year period beginning in 1999. Repurchases are made on the open market, at prevailing prices, and are funded primarily through the use of operating cash flows. During 2000 and 1999, the Company repurchased and retired 7.9 million shares (average price of $24.51 per share) and 4.6 million shares (average price of $28.08 per share), respectively. NUCLEAR INSURANCE- The Price-Anderson Act limits the public liability relative to a single incident at a nuclear power plant to $9.5 billion. The amount is covered by a combination of private insurance and an industry retrospective rating plan. The Companies' maximum potential assessment under the industry retrospective rating plan would be $352.4 million per incident but not more than $40 million in any one year for each incident. The Companies are also insured under policies for each nuclear plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Companies have also obtained approximately $789 million of insurance coverage for replacement power costs. Under these policies, the Companies can be assessed a maximum of approximately $38 million for incidents at any covered nuclear facility occurring during a policy year which are in excess of accumulated funds available to the insurer for paying losses. The Companies intend to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Companies' plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Companies' insurance policies, or to the extent such insurance becomes unavailable in the future, the Companies would remain at risk for such costs. ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. The Companies estimate additional capital expenditures for environmental compliance of approximately $201 million, which is included in the construction forecast provided under "Capital Expenditures" for 2001 through 2005. The Companies are required to meet federally approved sulfur dioxide (SO2) regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $27,500 for each day the unit is in violation. The Environmental Protection Agency (EPA) has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The Companies cannot predict what action the EPA may take in the future with respect to the interim enforcement policy. The Companies are in compliance with the current SO2 and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or using emission allowances. NOx reductions are being achieved through combustion controls and the generation of more electricity at lower-emitting plants. In September 1998, the EPA finalized regulations requiring additional NOx reductions from the Companies' Ohio and Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions of NOx emissions (an approximate 85% reduction in utility plant NOx emissions from projected 2007 emissions) across a region of twenty-two states and the District of Columbia, including Ohio and Pennsylvania, based on a conclusion that such NOx emissions are contributing significantly to ozone pollution in the eastern United States. In March 2000, the U.S. Court of Appeals for the D.C. Circuit upheld EPA's NOx Transport Rule except as applied to the State of Wisconsin and portions of Georgia and Missouri. By October 2000, states were to submit revised State Implementation Plans (SIP) to comply by May 31, 2004 with individual state NOx budgets established by the EPA. Pennsylvania recently submitted a SIP that requires compliance with the NOx budgets at the Companies' Pennsylvania facilities by May 1, 2003 and Ohio submitted a "draft" SIP that requires compliance with the NOx budgets at the Companies' Ohio facilities by May 31, 2004. A Federal Implementation Plan accompanied the NOx Transport Rule and may be implemented by the EPA in states which fail to revise their SIP. In another separate but related action, eight states filed petitions with the EPA under Section 126 of the Clean Air Act seeking reductions of NOx emissions which are alleged to contribute to ozone pollution in the eight petitioning states. The EPA position is that the Section 126 petitions will be adequately addressed by the NOx Transport Program, but a December 17, 1999 rulemaking established an alternative program which would require nearly identical 85% NOx reductions at 392 utility plants, including the Companies' Ohio and Pennsylvania plants, by May 2003, in the event implementation of the NOx Transport Rule is not implemented by a state. Additional Section 126 petitions were filed by New Jersey, Maryland, Delaware and the District of Columbia in mid-1999 and are still under evaluation by the EPA. The Companies continue to evaluate their compliance plans and other compliance options. In July 1997, the EPA promulgated changes in the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which the Companies operate affected facilities. In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a Compliance Order to nine utilities covering 44 power plants, including the W. H. Sammis Plant. In addition, the U.S. Department of Justice filed eight civil complaints against various investor-owned utilities, which included a complaint against OE and Penn in the U.S. District Court for the Southern District of Ohio. The NOV and complaint allege violations of the Clean Air Act based on operation and maintenance of the Sammis Plant dating back to 1984. The complaint requests permanent injunctive relief to require the installation of "best available control technology" and civil penalties of up to $27,500 per day of violation. Although unable to predict the outcome of these proceedings, the Company believes the Sammis Plant is in full compliance with the Clean Air Act and the NOV and complaint are without merit. Penalties could be imposed if the Sammis Plant continues to operate without correcting the alleged violations and a court determines that the allegations are valid. The Sammis Plant continues to operate while these proceedings are pending. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. Certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash under its authority to regulate nonhazardous waste. CEI and TE have been named as "potentially responsible parties" (PRPs) at waste disposal sites which may require cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Allegations of disposal of hazardous substances at historical sites and the liability involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. CEI and TE have accrued liabilities totaling $3.7 million as of December 31, 2000, based on estimates of the total costs of cleanup, the proportionate responsibility of other PRPs for such costs and the financial ability of other PRPs to pay. CEI and TE believe that waste disposal costs will not have a material adverse effect on their financial condition, cash flows or results of operations. 7. SEGMENT INFORMATION: The Company operates under the following reportable segments: regulated services, competitive services and other (primarily corporate support services). The Company's primary segment is its regulated services, which include five electric utility operating companies that formerly provided bundled electric service in Ohio and Pennsylvania. Its other material business segment consisted of the subsidiaries that operate unregulated businesses. During 2000, the Company made certain organizational changes to further align its business units to accommodate its retail strategy and the impact of its plan to move the generation portion of its electricity services from the regulated segment to the competitive segment as reflected in its approved Ohio transition plan. These reportable segments are strategic businesses, which are managed and operated differently based on the degree of regulation, and the products and services offered. The regulated services segment designs, constructs, operates and maintains our regulated transmission and distribution systems. It also provides generation services to regulated franchise customers who have not chosen an alternative, competitive generation supplier. The regulated services segment obtains generation through power supply agreements with the competitive services segment. The competitive services segment includes all unregulated energy and energy-related services including commodity sales (both electricity and natural gas) in the retail and wholesale markets, marketing, generation, trading and sourcing of commodity requirements, as well as other competitive energy-application services. Competitive products are increasingly marketed to customers as bundled services. Segment Financial Information -----------------------------
Regulated Competitive Reconciling Services Services Other Adjustments Consolidated --------- ----------- ----- ----------- ------------ (In millions) 2000 ---- External revenues $ 4,747 $2,020 $ 8 $ 254 (A) $ 7,029 Intersegment revenues 28 1,827 303 (2,158)(B) -- Total revenues 4,775 3,847 311 (1,904) 7,029 Depreciation and amortization 790 194 13 (63)(C) 934 Income taxes 561 68 1 (253)(D) 377 Net operating profit after taxes 916 128 3 (448)(E) 599 Total assets 15,688 1,933 320 -- 17,941 1999 ---- External revenues $ 4,723 $1,218 $ 16 $ 363 (A) $ 6,320 Intersegment revenues 55 1,301 181 (1,537)(B) -- Total revenues 4,778 2,519 197 (1,174) 6,320 Depreciation and amortization 789 170 9 (30)(C) 938 Income taxes 574 75 (32) (222)(D) 395 Net operating profit after taxes 977 126 (61) (474)(E) 568 Total assets 15,931 1,514 779 -- 18,224 1998 ---- External revenues $ 4,802 $ 934 $ 8 $ 131 (A) $ 5,875 Intersegment revenues -- 2,806 144 (2,950)(B) -- Total revenues 4,802 3,740 152 (2,819) 5,875 Depreciation and amortization 784 8 5 (38)(C) 759 Income taxes 822 (40) (22) (456)(D) 304 Net operating profit after taxes 893 (59) (43) (350)(E) 441 Total assets 15,918 1,558 716 -- 18,192 Reconciling adjustments to segment operating results from internal management reporting to consolidated external financial reporting: (A) Principally interest income and revenues related to gross receipts taxes which are excluded for internal management reporting purposes. (B) Elimination of intersegment revenues. (C) Reclassification for amortization of tax regulatory assets included in income taxes for external financial reporting; reduction for depreciation expense recognized for internal management reporting for assets subject to sale and leaseback transactions (see Note 3); and recognition of goodwill amortization which is excluded for internal management reporting. (D) Income tax effects of the differences described above and the tax benefit of interest expense not otherwise included in the computation of net operating profit after taxes. (E) The net effect from the differences described above and the recognition of interest costs not included in net operating profit after taxes for internal management reporting purposes.
Products and Services ---------------------
Oil & Gas Energy Related Electricity Sales and Sales and Year Sales Production Services ---- ----------- ---------- -------------- (In millions) 2000 $5,537 $582 $563 1999 5,253 203 503 1998 4,980 26 198
8. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): The following summarizes certain consolidated operating results by quarter for 2000 and 1999.
March 31, June 30, September 30, December 31, Three Months Ended 2000 2000 2000 2000 - ----------------------------------------------------------------------------------------------- (In millions, except per share amounts) Revenues $1,607.9 $1,702.1 $1,891.7 $1,827.3 Expenses 1,234.1 1,338.0 1,433.1 1,518.9 - ----------------------------------------------------------------------------------------------- Income Before Interest and Income Taxes 373.8 364.1 458.6 308.4 Net Interest Charges 135.0 134.4 131.2 128.5 Income Taxes 97.9 95.1 129.2 54.6 - ----------------------------------------------------------------------------------------------- Net Income $ 140.9 $ 134.6 $ 198.2 $ 125.3 ================================================================================================ Earnings per Share of Common Stock $ .63 $ .60 $ .89 $ .57 ================================================================================================
March 31, June 30, September 30, December 31, Three Months Ended 1999 1999 1999 1999 - ----------------------------------------------------------------------------------------------- (In millions, except per share amounts) Revenues $1,417.4 $1,523.9 $1,732.4 $1,645.9 Expenses 1,041.7 1,149.8 1,291.0 1,301.7 - ----------------------------------------------------------------------------------------------- Income Before Interest and Income Taxes 375.7 374.1 441.4 344.2 Net Interest Charges 146.1 147.4 141.3 137.5 Income Taxes 92.9 101.4 114.3 86.2 - ----------------------------------------------------------------------------------------------- Net Income $ 136.7 $ 125.3 $ 185.8 $ 120.5 ================================================================================================ Earnings per Share of Common Stock $ .60 $ .55 $ .82 $ .53 ================================================================================================
EX-21 11 ex21.txt LIST OF SUBS - FE EXHIBIT 21 FIRSTENERGY CORP. LIST OF SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 2000 Ohio Edison Company - Incorporated in Ohio The Cleveland Electric Illuminating Company - Incorporated in Ohio The Toledo Edison Company - Incorporated in Ohio Centerior Service Company - Incorporated in Ohio FirstEnergy Properties Company - Incorporated in Ohio FirstEnergy Ventures Corporation - Incorporated in Ohio FirstEnergy Facilities Services Group, LLC - Incorporated in Ohio FirstEnergy Securities Transfer Company - Incorporated in Ohio FirstEnergy Services Corp. - Incorporated in Ohio MARBEL Energy Corporation - Incorporated in Ohio FirstEnergy Nuclear Operating Company - Incorporated in Ohio FirstEnergy Holdings, LLC - Incorporated in Ohio FE Acquisition Corp. - Incorporated in Ohio American Transmission Systems, Inc. - Incorporated in Ohio FELHC, Inc. - Incorporated in Ohio Statement of Differences ------------------------ Exhibit Number 21, List of Subsidiaries of the Registrant at December 31, 2000, is not included in the printed document. EX-23 12 ex23.txt CONSENT - FE EXHIBIT 23 FIRSTENERGY CORP. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into FirstEnergy Corp.'s previously filed Registration Statements, File No. 333-40065, No. 333- 48587, No. 333-48651, No. 333-58279, No. 333-65409, No. 333- 75985, No. 333-46444, No. 333-56094 and No. 333-81183. ARTHUR ANDERSEN LLP Cleveland, Ohio, March 28, 2001. EX-4.1 13 ex4-1.txt SUPPLEMENTAL INDENTURE - OE - ---------------------------------------------------------------------- OHIO EDISON COMPANY with THE BANK OF NEW YORK, As Trustee -------------------- Seventy-second Supplemental Indenture Providing among other things for First Mortgage Bonds Class A Series A of 2000 due 2033 Class A Series B of 2000 due 2033 Class A Series C of 2000 due 2015 Class A Series D of 2000 due 2030 --------- Dated as of April 1, 2000 - ---------------------------------------------------------------------- - 1 - SUPPLEMENTAL INDENTURE, dated as of April 1, 2000 between Ohio Edison Company, a corporation organized and existing under the laws of the State of Ohio (hereinafter called the "Company"), party of the first part, and The Bank of New York, a banking corporation organized and existing under the laws of the State of New York, as Trustee under the Indenture hereinafter referred to, party of the second part. WHEREAS, the Company has heretofore executed and delivered to Bankers Trust Company (hereinafter called the "Old Trustee"), as trustee, a certain Indenture, dated as of August 1, 1930, to secure an issue of bonds of the Company, issued and to be issued in series, from time to time, in the manner and subject to the conditions set forth in the said Indenture; and the said Indenture has been supplemented by seventy-one supplemental indentures, which Indenture as so supplemented and to be hereby supplemented is hereinafter referred to as the "Indenture"; and WHEREAS, The Bank of New York has succeeded the Old Trustee as trustee under the Indenture (hereinafter called the "Trustee") pursuant to Article XVI thereof; and WHEREAS, the Indenture provides for the issuance of bonds thereunder in one or more series, the form of each series of bonds and of the coupons to be attached to the coupon bonds, if any, to be substantially in the forms set forth therein with such insertions, omissions and variations as the Board of Directors of the Company may determine; WHEREAS, the Company has entered into four separate Insurance Agreements, each dated as of April 1, 2000 (each, an "Insurance Agreement"), with Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance corporation (the "Insurer"), in connection with the issuance of four separate series of municipal bonds pursuant to four separate loan agreements, each dated as of April 1, 2000, between the Company and the Ohio Air Quality Development Authority, the Ohio Water Development Authority or, as the case may be, the Beaver County Industrial Development Authority; WHEREAS, the Company has agreed to issue to The Bank of New York, as Trustee under the Company's General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998 as heretofore supplemented and as to be supplemented by a Supplemental Indenture to be dated as of April 1, 2000 (as so supplemented, the "General Mortgage"), four series of bonds under the Indenture, each to secure an issue of bonds (collectively, the "General Mortgage Bonds") issued to the Insurer under the General Mortgage pursuant to an Insurance Agreement. WHEREAS, the Company, by appropriate corporate action in conformity with the terms of the Indenture, has duly determined to create four new series of bonds under the Indenture, as the basis for the issuance of the General Mortgage Bonds, such new series of bonds consisting of $44,800,000 in principal amount to be designated as "First Mortgage Bonds Class A Series A of 2000 due 2033" (hereinafter sometimes referred to as the "bonds of Class A Series A"), $12,300,000 in principal amount to be designated as "First Mortgage Bonds Class A Series B of 2000 due 2033" (hereinafter sometimes referred to as the "bonds of Class A Series B"), $19,000,000 in principal amount to be designated as "First Mortgage Bonds Class A Series C of 2000 due 2015" (hereinafter sometimes referred to as the "bonds of Class A Series C") and - 2 - $44,800,000 in principal amount to be designated as "First Mortgage Bonds Class A Series D of 2000 due 2030" (hereinafter sometimes referred to as the "bonds of Class A Series D", and, collectively with the bonds of Class A Series A, the bonds of Class A Series B and the bonds of Class A Series C, the "the bonds of the 2000 Class A Series"), the bonds of which series shall bear interest at the rate per annum set forth in, shall be subject to certain redemption rights and obligations set forth in, and will otherwise be in the respective forms and have the terms and provisions provided for in this Supplemental Indenture and set forth in the respective forms of such bonds below; and WHEREAS, the definitive registered bonds without coupons of the bonds of the 2000 Class A Series and the Trustee's certificate of authentication to be borne by such bonds are to be substantially in the following forms, respectively: [Form of Bond of Class A Series A Face] [Face] This bond is not transferable except to a successor to The Bank of New York, as trustee under the General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, between the Company and The Bank of New York, as trustee, or in connection with the exercise of the rights and remedies of the holder hereof consequent upon a "default" as defined in the Indenture referred to herein. OHIO EDISON COMPANY First Mortgage Bond Class A Series A of 2000 due 2033 Due October 1, 2033 No. R-1 $44,800,000 Ohio Edison Company, a corporation of the State of Ohio (hereinafter called the Company), for value received, hereby promises to pay to The Bank of New York, as trustee under the General Mortgage (hereinbelow defined), or registered assigns, Forty-four Million Eight Hundred Thousand Dollars at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio, on October 1, 2033 in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay at said offices or agencies to the registered owner hereof, in like coin or currency, interest thereon from the Initial Interest Accrual Date (hereinbelow defined) at the rate from time to time borne by the Mortgage Bonds, Pledge Series A of 2000 due 2033 (the "General Mortgage Bonds") issued by the Company under the General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, as heretofore supplemented (the "General Mortgage"), by the Company to The Bank of New York, as trustee; provided, however, that in no event shall the rate of ----------------- interest borne by the Bonds of this series exceed ten per centum per annum. Payments of principal of and interest on this bond shall be made at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio. - 3 - Payment of principal of, or premium or interest on, the Company's General Mortgage Bonds shall, to the extent thereof, be deemed to satisfy and discharge the obligation of the Company, if any, to make a payment of principal, premium or interest, as the case may be, in respect of this bond which is then due. The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This bond shall not become obligatory until The Bank of New York, the Trustee under the Indenture referred to on the reverse hereof, or its successor thereunder, shall have authenticated the form of certificate endorsed hereon. In witness whereof, Ohio Edison Company has caused this bond to be signed in its name by its President or a Vice President, by his signature or a facsimile thereof, and its corporate seal to be printed hereon, attested by its Secretary or an Assistant Secretary, by his signature or a facsimile thereof. Ohio Edison Company, By: ------------------------- Title: Attest: - ------------------------------ Title: [Form of Trustee's Authentication Certificate] Trustee's Authentication Certificate This bond is one of the bonds of the series designated therein, described in the within-mentioned Mortgage. Dated: The Bank of New York, as Trustee, By: ------------------------------- Authorized Officer - 4 - [Form of Bond of Class A Series A] [Reverse] OHIO EDISON COMPANY First Mortgage Bond Class A Series A of 2000 due 2033 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds of the series designated in its title, all issued and to be issued under and equally secured (except as to any sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by an Indenture, dated as of August 1, 1930, executed by the Company to The Bank of New York, as Trustee (the "Trustee"), as amended and supplemented by indentures supplemental thereto, to which Indenture as so amended and supplemented (herein referred to as the "Indenture") reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof and the terms and conditions upon which the bonds are secured. Bonds of this series are not redeemable prior to their maturity. The Initial Interest Accrual Date for the bonds of this series shall be the date that interest begins to accrue on the General Mortgage Bonds. Bonds of this series shall be deemed to be paid and no longer outstanding under the Indenture to the extent that General Mortgage Bonds are paid or deemed to be paid and are no longer outstanding and the Trustee has been notified to such effect by the Company. The Trustee may conclusively presume that the obligation of the Company to pay the principal of, and interest, if any, on the bonds of this series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the trustee under the General Mortgage, signed by an authorized officer thereof, stating that any such principal of or interest on the General Mortgage Bonds has become due and payable and has not been fully paid and specifying the amount of funds required to make such payment. As more fully described in the supplemental indenture establishing the terms and provisions of the bonds of this series, the Company reserves the right, without any consent or other action by holders of the bonds of this series, to amend the Indenture to provide (a) that the Indenture, the rights and obligations of the Company and the rights of the bondholders may be modified with the consent of the holders of not less than 60% in principal amount of the bonds adversely affected; provided, however, that no modification shall (1) extend the time, or reduce the amount, of any payment on any bond, without the consent of the holder of each bond so affected, (2) permit the creation of any lien, not otherwise permitted, prior to or on a parity with - 5 - the lien of the Indenture, without the consent of the holders of all bonds then outstanding, or (3) reduce the above percentage of the principal amount of bonds the holders of which are required to approve any such modification without the consent of the holders of all bonds then outstanding and (b) that (i) additional bonds may be issued against 70% of the value of the property which forms the basis for such issuance and (ii) the charge against property subject to a prior lien which is used to effectuate the release of property under the Indenture be similarly based. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, upon the occurrence of a completed default as in the Indenture provided. No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer or director of the Company or of any predecessor or successor corporation, either directly or through the Company or a predecessor or successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, stockholders, officers and directors being released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. The bonds of this series are issuable only as registered bonds without coupons in denominations of $1,000 and any multiple thereof. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Registered bonds of this series shall be exchangeable at said offices or agencies of the Company for registered bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. Notwithstanding any provision of the Indenture, (a) neither the Company nor the Trustee shall be required to make transfers or exchanges of bonds of this series during the period between any interest payment date for such series and the record date next preceding such interest payment date, and (b) no charge shall be made upon any transfer or exchange of bonds of this series other than for any tax or taxes or other governmental charge required to be paid by the Company. [End of Form of Bond of Class A Series A] [Form of Bond of Class A Series B] [Face] This bond is not transferable except to a successor to The Bank of New York, as trustee under the General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, between the Company and The Bank of New York, as trustee, or in connection with the exercise of the rights and remedies of the holder hereof consequent upon a "default" as defined in the Indenture referred to herein. - 6 - OHIO EDISON COMPANY First Mortgage Bond Class A Series B of 2000 due 2033 Due October 1, 2033 No. R-1 $12,300,000 Ohio Edison Company, a corporation of the State of Ohio (hereinafter called the Company), for value received, hereby promises to pay to The Bank of New York, as trustee under the General Mortgage (hereinbelow defined), or registered assigns, Twelve Million Three Hundred Thousand Dollars at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio, on October 1, 2033 in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay at said offices or agencies to the registered owner hereof, in like coin or currency, interest thereon from the Initial Interest Accrual Date (hereinbelow defined) at the rate from time to time borne by the Mortgage Bonds, Pledge Series B of 2000 due 2033 (the "General Mortgage Bonds") issued by the Company under the General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, as heretofore supplemented (the "General Mortgage"), by the Company to The Bank of New York, as trustee; provided, however, that in no event shall the rate of interest ----------------- borne by the Bonds of this series exceed ten per centum per annum. Payments of principal of and interest on this bond shall be made at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio. Payment of principal of, or premium or interest on, the Company's General Mortgage Bonds shall, to the extent thereof, be deemed to satisfy and discharge the obligation of the Company, if any, to make a payment of principal, premium or interest, as the case may be, in respect of this bond which is then due. The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This bond shall not become obligatory until The Bank of New York, the Trustee under the Indenture referred to on the reverse hereof, or its successor thereunder, shall have authenticated the form of certificate endorsed hereon. In witness whereof, Ohio Edison Company has caused this bond to be signed in its name by its President or a Vice President, by his signature or a facsimile thereof, and its corporate seal to be printed hereon, attested by its Secretary or an Assistant Secretary, by his signature or a facsimile thereof. Ohio Edison Company, By: ----------------------- Title: - 7 - Attest: - -------------------------- Title: [Form of Trustee's Authentication Certificate] Trustee's Authentication Certificate This bond is one of the bonds of the series designated therein, described in the within-mentioned Indenture. Dated: The Bank of New York, as Trustee, By: -------------------------- Authorized Officer [Form of Bond of Class A Series B] [Reverse] OHIO EDISON COMPANY First Mortgage Bond Class A Series B of 2000 due 2033 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds of the series designated in its title, all issued and to be issued under and equally secured (except as to any sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by an Indenture, dated as of August 1, 1930, executed by the Company to The Bank of New York, as Trustee (the "Trustee"), as amended and supplemented by indentures supplemental thereto, to which Indenture as so amended and supplemented (herein referred to as the "Indenture") reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof and the terms and conditions upon which the bonds are secured. Bonds of this series are not redeemable prior to their maturity. - 8 - The Initial Interest Accrual Date for the bonds of this series shall be the date that interest begins to accrue on the General Mortgage Bonds. Bonds of this series shall be deemed to be paid and no longer outstanding under the Indenture to the extent that General Mortgage Bonds are paid or deemed to be paid and are no longer outstanding and the Trustee has been notified to such effect by the Company. The Trustee may conclusively presume that the obligation of the Company to pay the principal of, and interest, if any, on the bonds of this series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the trustee under the General Mortgage, signed by an authorized officer thereof, stating that any such principal of or interest on the General Mortgage Bonds has become due and payable and has not been fully paid and specifying the amount of funds required to make such payment. As more fully described in the supplemental indenture establishing the terms and provisions of the bonds of this series, the Company reserves the right, without any consent or other action by holders of the bonds of this series, to amend the Indenture to provide (a) that the Indenture, the rights and obligations of the Company and the rights of the bondholders may be modified with the consent of the holders of not less than 60% in principal amount of the bonds adversely affected; provided, however, that no modification shall (1) extend the time, or reduce the amount, of any payment on any bond, without the consent of the holder of each bond so affected, (2) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of the Indenture, without the consent of the holders of all bonds then outstanding, or (3) reduce the above percentage of the principal amount of bonds the holders of which are required to approve any such modification without the consent of the holders of all bonds then outstanding and (b) that (i) additional bonds may be issued against 70% of the value of the property which forms the basis for such issuance and (ii) the charge against property subject to a prior lien which is used to effectuate the release of property under the Indenture be similarly based. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, upon the occurrence of a completed default as in the Indenture provided. No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer or director of the Company or of any predecessor or successor corporation, either directly or through the Company or a predecessor or successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, stockholders, officers and directors being released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. The bonds of this series are issuable only as registered bonds without coupons in denominations of $1,000 and any multiple thereof. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of - 9 - receiving payment of or on account of the principal and interest due hereon and for all other purposes. Registered bonds of this series shall be exchangeable at said offices or agencies of the Company for registered bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. Notwithstanding any provision of the Indenture, (a) neither the Company nor the Trustee shall be required to make transfers or exchanges of bonds of this series during the period between any interest payment date for such series and the record date next preceding such interest payment date, and (b) no charge shall be made upon any transfer or exchange of bonds of this series other than for any tax or taxes or other governmental charge required to be paid by the Company. [End of Form of Bond of Class A Series B] [Form of Bond of Class A Series C] [Face] This Bond is not transferable except to a successor to The Bank of New York, as trustee under the General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, between the Company and The Bank of New York, as trustee, or in connection with the exercise of the rights and remedies of the holder hereof consequent upon a "default" as defined in the Indenture referred to herein. OHIO EDISON COMPANY First Mortgage Bond Class A Series C of 2000 due 2015 Due April 1, 2015 No. R-1 $19,000,000 Ohio Edison Company, a corporation of the State of Ohio (hereinafter called the Company), for value received, hereby promises to pay to The Bank of New York, as trustee under the General Mortgage (hereinbelow defined), or registered assigns, Nineteen Million Dollars at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio, on April 1, 2015 in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay at said offices or agencies to the registered owner hereof, in like coin or currency, interest thereon from the Initial Interest Accrual Date (hereinbelow defined) at the rate from time to time borne by the Mortgage Bonds, Pledge Series C of 2000 due 2015 (the "General Mortgage Bonds") issued by the Company under the General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, as heretofore supplemented (the "General Mortgage"), by the Company to The Bank of New York, as trustee; provided, however, that in no event shall the rate of interest borne by - ----------------- the Bonds of this series exceed ten per centum per annum. Payments of principal of and interest on this bond shall be made at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio. - 10 - Payment of principal of, or premium or interest on, the Company's General Mortgage Bonds shall, to the extent thereof, be deemed to satisfy and discharge the obligation of the Company, if any, to make a payment of principal, premium or interest, as the case may be, in respect of this bond which is then due. The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This bond shall not become obligatory until The Bank of New York, the Trustee under the Indenture referred to on the reverse hereof, or its successor thereunder, shall have authenticated the form of certificate endorsed hereon. In witness whereof, Ohio Edison Company has caused this bond to be signed in its name by its President or a Vice President, by his signature or a facsimile thereof, and its corporate seal to be printed hereon, attested by its Secretary or an Assistant Secretary, by his signature or a facsimile thereof. Ohio Edison Company, By: ------------------------- Title: Attest: - --------------------------- Title: [Form of Trustee's Authentication Certificate] Trustee's Authentication Certificate This bond is one of the bonds of the series designated therein, described in the within-mentioned Indenture. Dated: The Bank of New York, as Trustee, By: ----------------------- Authorized Officer - 11 - [Form of Bond of Class A Series C] [Reverse] OHIO EDISON COMPANY First Mortgage Bond Class A Series C of 2000 due 2015 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds of the series designated in its title, all issued and to be issued under and equally secured (except as to any sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by an Indenture, dated as of August 1, 1930, executed by the Company to The Bank of New York, as Trustee (the "Trustee"), as amended and supplemented by indentures supplemental thereto, to which Indenture as so amended and supplemented (herein referred to as the "Indenture") reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof and the terms and conditions upon which the bonds are secured. Bonds of this series are not redeemable prior to their maturity. The Initial Interest Accrual Date for the bonds of this series shall be the date that interest begins to accrue on the General Mortgage Bonds. Bonds of this series shall be deemed to be paid and no longer outstanding under the Indenture to the extent that General Mortgage Bonds are paid or deemed to be paid and are no longer outstanding and the Trustee has been notified to such effect by the Company. The Trustee may conclusively presume that the obligation of the Company to pay the principal of, and interest, if any, on the bonds of this series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the trustee under the General Mortgage, signed by an authorized officer thereof, stating that any such principal of or interest on the General Mortgage Bonds has become due and payable and has not been fully paid and specifying the amount of funds required to make such payment. As more fully described in the supplemental indenture establishing the terms and provisions of the bonds of this series, the Company reserves the right, without any consent or other action by holders of the bonds of this series, to amend the Indenture to provide (a) that the Indenture, the rights and obligations of the Company and the rights of the bondholders may be modified with the consent of the holders of not less than 60% in principal amount of the bonds adversely affected; provided, however, that no modification shall (1) extend the time, or reduce the amount, of any payment on any bond, without the consent of the holder of each bond so affected, (2) permit the creation of any lien, not otherwise permitted, prior to or on a parity with - 12 - the lien of the Indenture, without the consent of the holders of all bonds then outstanding, or (3) reduce the above percentage of the principal amount of bonds the holders of which are required to approve any such modification without the consent of the holders of all bonds then outstanding and (b) that (i) additional bonds may be issued against 70% of the value of the property which forms the basis for such issuance and (ii) the charge against property subject to a prior lien which is used to effectuate the release of property under the Indenture be similarly based. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, upon the occurrence of a completed default as in the Indenture provided. No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer or director of the Company or of any predecessor or successor corporation, either directly or through the Company or a predecessor or successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, stockholders, officers and directors being released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. The bonds of this series are issuable only as registered bonds without coupons in denominations of $1,000 and any multiple thereof. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Registered bonds of this series shall be exchangeable at said offices or agencies of the Company for registered bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. Notwithstanding any provision of the Indenture, (a) neither the Company nor the Trustee shall be required to make transfers or exchanges of bonds of this series during the period between any interest payment date for such series and the record date next preceding such interest payment date, and (b) no charge shall be made upon any transfer or exchange of bonds of this series other than for any tax or taxes or other governmental charge required to be paid by the Company. [End of Form of Bond of Class A Series C] [Form of Bond of Class A Series D] [Face] This bond is not transferable except to a successor to The Bank of New York, as trustee under the General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, between the Company and The Bank of New York, as trustee, or in connection with the exercise of the rights and remedies of the holder hereof consequent upon a "default" as defined in the Indenture referred to herein. - 13 - OHIO EDISON COMPANY First Mortgage Bond Class A Series D of 2000 due 2030 Due April 1, 2030 No. R-1 $60,400,000 Ohio Edison Company, a corporation of the State of Ohio (hereinafter called the Company), for value received, hereby promises to pay to The Bank of New York, as trustee under the General Mortgage (hereinbelow defined), or registered assigns, Sixty Million Four Hundred Thousand Dollars at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio, on April 1, 2030 in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay at said offices or agencies to the registered owner hereof, in like coin or currency, interest thereon from the Initial Interest Accrual Date (hereinbelow defined) at the rate from time to time borne by the Mortgage Bonds, Pledge Series D of 2000 due 2030 (the "General Mortgage Bonds") issued by the Company under the General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, as heretofore supplemented (the "General Mortgage"), by the Company to The Bank of New York, as trustee; provided, however, that in no event shall the rate of interest borne by the Bonds of this series exceed ten per centum per annum. Payments of principal of and interest on this bond shall be made at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio. Payment of principal of, or premium or interest on, the Company's General Mortgage Bonds shall, to the extent thereof, be deemed to satisfy and discharge the obligation of the Company, if any, to make a payment of principal, premium or interest, as the case may be, in respect of this bond which is then due. The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This bond shall not become obligatory until The Bank of New York, the Trustee under the Indenture referred to on the reverse hereof, or its successor thereunder, shall have authenticated the form of certificate endorsed hereon. In witness whereof, Ohio Edison Company has caused this bond to be signed in its name by its President or a Vice President, by his signature or a facsimile thereof, and its corporate seal to be printed hereon, attested by its Secretary or an Assistant Secretary, by his signature or a facsimile thereof. Ohio Edison Company, By: ---------------------- Title: - 14 - Attest: - ------------------------------ Title: [Form of Trustee's Authentication Certificate] Trustee's Authentication Certificate This bond is one of the bonds of the series designated therein, described in the within-mentioned Indenture. Dated: The Bank of New York, as Trustee, By: ---------------------------- Authorized Officer - 15 - [Form of Bond of Class A Series D] [Reverse] OHIO EDISON COMPANY First Mortgage Bond Class A Series D of 2000 due 2030 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds of the series designated in its title, all issued and to be issued under and equally secured (except as to any sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by an Indenture, dated as of August 1, 1930, executed by the Company to The Bank of New York, as Trustee (the "Trustee"), as amended and supplemented by indentures supplemental thereto, to which Indenture as so amended and supplemented (herein referred to as the "Indenture") reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof and the terms and conditions upon which the bonds are secured. Bonds of this series are not redeemable prior to their maturity. The Initial Interest Accrual Date for the bonds of this series shall be the date that interest begins to accrue on the General Mortgage Bonds. Bonds of this series shall be deemed to be paid and no longer outstanding under the Indenture to the extent that General Mortgage Bonds are paid or deemed to be paid and are no longer outstanding and the Trustee has been notified to such effect by the Company. The Trustee may conclusively presume that the obligation of the Company to pay the principal of, and interest, if any, on the bonds of this series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the trustee under the General Mortgage, signed by an authorized officer thereof, stating that any such principal of or interest on the General Mortgage Bonds has become due and payable and has not been fully paid and specifying the amount of funds required to make such payment. As more fully described in the supplemental indenture establishing the terms and provisions of the bonds of this series, the Company reserves the right, without any consent or other action by holders of the bonds of this series, to amend the Indenture to provide (a) that the Indenture, the rights and obligations of the Company and the rights of the bondholders may be modified with the consent of the holders of not less than 60% in principal amount of the bonds adversely affected; provided, however, that no modification shall (1) extend the time, or reduce the amount, of any payment on any bond, without the consent of the holder of each bond so affected, (2) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of the Indenture, without the consent of the holders of all bonds then outstanding, or - 16 - (3) reduce the above percentage of the principal amount of bonds the holders of which are required to approve any such modification without the consent of the holders of all bonds then outstanding and (b) that (i) additional bonds may be issued against 70% of the value of the property which forms the basis for such issuance and (ii) the charge against property subject to a prior lien which is used to effectuate the release of property under the Indenture be similarly based. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, upon the occurrence of a completed default as in the Indenture provided. No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer or director of the Company or of any predecessor or successor corporation, either directly or through the Company or a predecessor or successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, stockholders, officers and directors being released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. The bonds of this series are issuable only as registered bonds without coupons in denominations of $1,000 and any multiple thereof. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Registered bonds of this series shall be exchangeable at said offices or agencies of the Company for registered bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. Notwithstanding any provision of the Indenture, (a) neither the Company nor the Trustee shall be required to make transfers or exchanges of bonds of this series during the period between any interest payment date for such series and the record date next preceding such interest payment date, and (b) no charge shall be made upon any transfer or exchange of bonds of this series other than for any tax or taxes or other governmental charge required to be paid by the Company. [End of Form of Bond of Class A Series D] and Whereas, Section 115 of the Indenture provides that the Company and the Trustee may, from time to time and at any time, enter into such indentures supplemental thereto as shall be deemed necessary or desirable for one or more purposes, including, among others, to describe and set forth the particular terms and the form of additional series of bonds to be issued under the Indenture, to add other limitations on the issue of bonds, withdrawal of cash or release of property, to add to the covenants and agreements of the Company for the protection of the holders of the bonds and of the mortgaged and pledged property, to supplement defective or - 17 - inconsistent provisions contained in the Indenture, and for any other purpose not inconsistent with the terms of the Indenture; and Whereas, all things necessary to make the bonds of the 2000 Class A Series when authenticated by the Trustee and issued as in the Indenture provided, the valid, binding and legal obligations of the Company, entitled in all respects to the security of the Indenture, have been done and performed, and the creation, execution and delivery of this Supplemental Indenture have in all respects been duly authorized; and Whereas, the Company and Trustee deem it advisable to enter into this Supplemental Indenture for the purposes of describing the bonds of the 2000 Class A Series and of establishing the terms and provisions thereof, confirming the mortgaging under the Indenture of additional property for the equal and proportionate benefit and security of the holders of all bonds at any time issued thereunder, amplifying the description of the property mortgaged, adding other limitations to the Indenture on the issue of bonds, withdrawal of cash or release of property, and adding to the covenants and agreements of the Company for the protection of the holders of bonds and of mortgaged and pledged property; Now, therefore, this supplemental indenture witnesseth: That Ohio Edison Company, in consideration of the premises and of one dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and of the purchase and acceptance of the bonds issued or to be issued hereunder by the holders thereof, and in order to secure the payment both of the principal and interest of all bonds at any time issued and outstanding under the Indenture, according to their tenor and effect, and the performance of all the provisions of the Indenture and of said bonds, hath granted, bargained, sold, released, conveyed, assigned, transferred, pledged, set over and confirmed and by these presents doth grant, bargain, sell, release, convey, assign, transfer, pledge, set over and confirm unto The Bank of New York, as Trustee, and to its successor or successors in said trust, and to its and their assigns forever, all the properties of the Company, now owned or hereafter acquired, wherever located, described in the Indenture and not therein expressly excepted. Together with all and singular the tenements, hereditaments and appurtenances belonging or in any wise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Article XI of the Indenture) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof. The Company does hereby agree and does hereby confirm and reaffirm the agreement made by it in the Indenture, dated as of August 1, 1930, that all property, rights and franchises acquired by the Company after the date of the Indenture, dated as of August 1, 1930 (except any hereinafter expressly excepted), shall be as fully embraced within the lien of the Indenture as if such property had been owned by the Company on the date of the Indenture, dated as of August 1, 1930 and was specifically described therein and conveyed thereby and does hereby confirm that the Company will not cause or consent to a partition, whether voluntary or through legal proceedings, of property, whether herein described or heretofore or hereafter acquired, in - 18 - which its ownership shall be as a tenant in common except as permitted by and in conformity with the provisions of the Indenture and particularly of Article XI thereof. Provided that the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of the Indenture, viz.: cash, shares of stock and obligations (including bonds, notes and other securities) not heretofore or hereafter specifically pledged, paid or deposited or delivered under the Indenture or covenanted so to be. To have and to hold all such properties, real, personal and mixed, mortgaged, pledged or conveyed by the Company as aforesaid, or intended so to be, unto the Trustee and its successors and assigns forever. In trust, nevertheless, upon the terms and trusts of the Indenture for those who shall hold the bonds and coupons issued and to be issued thereunder, or any of them, without preference, priority or distinction as to lien of any of said bonds and coupons over any others thereof by reason of priority in the time of the issue or negotiations thereof, or otherwise howsoever, subject, however, to the provisions in reference to extended, transferred or pledged coupons and claims for interest set forth in the Indenture (and subject to any sinking funds that may be hereafter created for the benefit of any particular series). Provided, however, and these presents are upon the condition that if the Company, its successors or assigns, shall pay or caused to be paid, the principal of and interest on said bonds, at the times and in the manner stipulated therein and herein, and shall keep, perform and observe all and singular the covenants and promises in said bonds and in the Indenture expressed to be kept, performed and observed by or on the part of the Company, then this Supplemental Indenture and the estate and rights hereby granted shall cease, determine and be void, otherwise to be and remain in full force and effect. It is hereby covenanted, declared and agreed, by the Company, that all such bonds and coupons are to be issued, authenticated and delivered, and that all property subject or to become subject hereto is to be held, subject to the further covenants, conditions, uses and trusts in the Indenture set forth, and the parties hereto mutually agree as follows: SECTION 1. Bonds of Class A Series A shall mature on October 1, 2033, and shall be designated as the Company's "First Mortgage Bonds Class A Series A of 2000 due 2033." Bonds of Class A Series B shall mature on October 1, 2033, and shall be designated as the Company's "First Mortgage Bonds Class A Series B of 2000 due 2033." Bonds of Class A Series C shall mature on April 1, 2015, and shall be designated as the Company's "First Mortgage Bonds Class A Series C of 2000 due 2015." Bonds of Class A Series D shall mature on April 1, 2030, and shall be designated as the Company's "First Mortgage Bonds Class A Series D of 2000 due 2030." Each bond of the 2000 Class A Series shall bear interest from the Initial Interest Accrual Date (as defined in the respective form of such bond hereinabove set forth) at the rate from time to time borne by the series of the General Mortgage Bonds referred to in said form; provided, however that in ----------------- no event shall the rate of interest borne by the bonds of the 2000 Class A Series exceed ten per centum per annum. Principal and interest on the bonds of the 2000 Class A Series - 19 - shall be payable in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio. Definitive bonds of the 2000 Class A Series may be issued, originally or otherwise, only as registered bonds, substantially in the form of bond hereinbefore recited, and in the denominations of $1,000 and any multiple thereof. Delivery of a bond of the 2000 Class A Series to the Trustee for authentication shall be conclusive evidence that its serial number has been duly approved by the Company. The bonds of the 2000 Class A Series shall not be redeemable prior to their maturity. SECTION 2. Bonds of the 2000 Class A Series shall be deemed to be paid and no longer outstanding under the Indenture to the extent that General Mortgage Bonds to which they relate are paid or deemed to be paid and are no longer outstanding and the Trustee has been notified to such effect by the Company. The Trustee may conclusively presume that the obligation of the Company to pay the principal of, and interest, if any, on the bonds of the 2000 Class A Series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received a written notice from the trustee under the General Mortgage, signed by an authorized officer thereof, stating that any such principal of or interest on the General Mortgage Bonds to which they relate has become due and payable and has not been fully paid and specifying the amount of funds required to make such payment. SECTION 3. Bonds of the 2000 Class A Series may be transferred by the registered owners thereof, in person or by attorney duly authorized, at an office or agency of the Company in the Borough of Manhattan, The City of New York, N.Y. or in the City of Akron, Ohio but only in the manner and upon the conditions prescribed in the Indenture and in the respective form of bond hereinbefore recited. Bonds of the 2000 Class A Series shall be exchangeable for other registered bonds of the same series, in the manner and upon the conditions prescribed in the Indenture, and in the form of bond hereinbefore recited, upon the surrender of such bonds at said offices or agencies of the Company. However, notwithstanding the provisions of Section 14 or 15 of the Indenture, no charge shall be made upon any transfer or exchange of bonds of said series other than for any tax or taxes or other governmental charge required to be paid by the Company. SECTION 4. The Company reserves the right, without any consent or other action by holders of the bonds of the 2000 Class A Series, or any subsequent series of bonds, to amend the Indenture by inserting the following language as Section 115A immediately following current Section 115 of the Indenture. With the consent of the holders of not less than sixty per centum (60%) in principal amount of the bonds at the time outstanding or their attorneys-in-fact duly author- ized, or, if the rights of the holders of one or more, but not all, series then outstanding are affected, the consent of the holders of not less than sixty per centum (60%) in aggregate principal amount of the bonds at the time outstand- ing of all affected - 20 - series, taken together, and not any other series, the Company, when authorized by a resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or modifying the rights and obligations of the Company and the rights of the holders of any of the bonds and coupons; provided, however, that no such supplemental indenture shall (1) extend the maturity of any of the bonds or reduce the rate or extend the time of payment of interest thereon, or reduce the amount of the principal thereof, or reduce any premium, payable on the redemption thereof or change the coin or currency in which any bond or interest thereon is payable, without the consent of the holder of each bond so affected, or (2) permit the creation of any lien, not otherwise permitted, prior to or on a parity with the lien of this Indenture, without the consent of the holders of all of the bonds then outstanding, or (3) reduce the aforesaid percentage of the principal amount of bonds the holders of which are required to approve any such supplemental indenture, without the consent of the holders of all the bonds then outstanding. For the purposes of this Section, bonds shall be deemed to be affected by a supplemental indenture if such supplemental indenture adversely affects or diminishes the right of holders thereof against the Company or against its property. Upon the written request of the Company, accompanied by a resolution authorizing the execution of any such supplemental indenture, and upon the filling with the Trustee of evidence of the consent of bondholders as aforesaid (the instrument or instruments evidencing such consent to be dated within one year of such request), the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's owns rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. The Trustee shall be entitled to receive and, subject to Section 102 of the Indenture and Article Five of the Seventh Supplemental Indenture, may rely upon an opinion of counsel as conclusive evidence that any such supplemental indenture is authorized or permitted by the provisions of this Section. It shall not be necessary for the consent of the bondholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. The Company and the Trustee, if they so elect, and either before or after such 60% or greater consent has been obtained, may require the holder of any bond consenting to the execution of any such supplemental indenture to submit his bond to the Trustee or to such bank, banker or trust company as may be designated by the Trustee for the purpose, for the notation thereon of the fact that the holder of such bond has consented to the execution of such supplemental indenture, and in such case such notation, in form satisfactory to the Trustee, shall be made upon all bonds so submitted, and such bonds bearing such notation shall forth- with be returned to the persons entitled thereto. All subse- quent holders of bonds bearing such notation shall be deemed to have consented to the execution of such supplemental indenture, and consent, once given or deemed to be given, may not be withdrawn. - 21 - Prior to the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Company shall publish a notice, setting forth in general terms the substance of such supplemental indenture, at least once in one daily newspaper of general circulation in each city in which the principal of any of the bonds shall be payable, or, if all bonds outstanding shall be registered bonds without coupons or coupon bonds registered as to principal, such notice shall be sufficiently given if mailed, first class, postage pre-paid, and registered if the Company so elects, to each registered holder of bonds at the last address of such holder appearing on the registry books, such publication or mailing, as the case may be, to be made not less than thirty days prior to such execution. Any failure of the Company to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 5. The Company reserves the right, without any consent or other action by the holders of the bonds of the 2000 Class A Series, or any subsequent series of bonds, to amend the Indenture by deleting the phrase "sixty per centum (60%)" in Section 28 of the Indenture and substituting therefor the phrase "seventy per centum (70%)" and by deleting the phrase "One hundred sixty-six and two-thirds per cent. (166 2/3%)" in Sections 65 and 67 of the Indenture and substituting therefor the phrase "One hundred and forty-two and eighty-six hundredths per cent. (142.86%)". SECTION 6. Except as herein otherwise expressly provided, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this Supplemental Indenture; the Trustee shall not be responsible for the recitals herein or in the bonds (except the Trustee's authentication certificate), all of which are made by the Company solely; and this Supplemental Indenture is executed and accepted by the Trustee, subject to all the terms and conditions set forth in the Indenture, as fully to all intents and purposes as if the terms and conditions of the Indenture were herein set forth at length. SECTION 7. As supplemented by this Supplemental Indenture, the Indenture is in all respects ratified and confirmed, and the Indenture as herein defined, and this Supplemental Indenture, shall be read, taken and construed as one and the same instrument. SECTION 8. Nothing in this Supplemental Indenture contained shall or shall be construed to confer upon any person other than a holder of bonds issued under the Indenture, the Company and the Trustee any right or interest to avail himself of any benefit under any provision of the Indenture or of this Supplemental Indenture. SECTION 9. This Supplemental Indenture may be simultaneously executed in several counterparts and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. - 22 - In Witness Whereof, Ohio Edison Company and The Bank of New York have caused these presents to be executed in their respective names by their respective Presidents or one of their Vice Presidents or Assistant Vice Presidents and their respective seals to be hereunto affixed and attested by their respective Secretaries or one of their Assistant Secretaries or Assistant Treasurers, all as of the day and year first above written. Ohio Edison Company By: ------------------------ [Seal] Attest: -------------------------- Signed, Sealed and Acknowledged on behalf of Ohio Edison Company in the presence of: - --------------------------------- - --------------------------------- The Bank of New York By: -------------------------- [Seal] Attest: -------------------------- Signed, Sealed and Acknowledged on behalf of The Bank of New York in the presence of: - --------------------------------- - --------------------------------- - 23 - STATE OF OHIO ) : ss.: COUNTY OF SUMMIT ) On the __ day of _______________, 2000, personally appeared before me, a Notary Public in and for the said County and State aforesaid, _______________ and ________________, to me known and known to me to be a _______________ and _______________, respectively, of OHIO EDISON COMPANY, the corporation which executed the foregoing instrument, and who severally acknowledged that they did sign and seal such instrument as such _______________ and _______________, respectively, of OHIO EDISON COMPANY, the same is their free act and deed and the free and corporate act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal the __ day of ___________, 2000. _______________________________ [SEAL] STATE OF OHIO ) : ss.: COUNTY OF SUMMIT ) On the __ day of September, 2000, before me personally came _______________, to me known, who, being by me duly sworn, did dispose and say that he resides at _______________; that he is a _______________ of OHIO EDISON COMPANY, one of the corporations described in and which executed the above instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. _______________________________ [Notary Public] [SEAL] - 24 - STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On the __ day of _______________, 2000, personally appeared before me, a Notary Public in and for the said County and State aforesaid, _______________ and _______________, to me known and known to me to be a _______________ and _______________, respectively, of The Bank of New York, the corporation which executed the foregoing instrument, and who severally acknowledged that they did sign and seal such instrument as such _______________ and _______________ for and on behalf of said corporation and that the same is their free act and deed and the free and corporation act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal the __ day of _______________, 2000. _______________________________ [Notary Public] [SEAL] STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On the __ day of _______________, 2000, before me personally came _______________, to me known, who, being by me duly sworn, did dispose and say that she resides at _______________; that she is a _______________ of THE BANK OF NEW YORK, one of the parties described in and which executed the above instrument; that she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that she signed her name thereto by like authority. _______________________________ [Notary Public] [SEAL] - 25 - The Bank of New York hereby certifies that its precise name and address as Trustee hereunder are: The Bank of New York 101 Barclay Street City, County and State of New York 10286 The Bank of New York By: ----------------------------- [Assistant Treasurer] - 26 - EX-4.2 14 ex4-2.txt SUPPLEMENTAL INDENTURE - OE ----------------------------------------------------- OHIO EDISON COMPANY with THE BANK OF NEW YORK, As Trustee ---------------- FOURTH SUPPLEMENTAL INDENTURE Providing among other things for General Mortgage Bonds Pledge Series A of 2000 due 2033 Pledge Series B of 2000 due 2033 Pledge Series C of 2000 due 2015 Pledge Series D of 2000 due 2030 ---------------- Dated as of April 1, 2000 ----------------------------------------------------- SUPPLEMENTAL INDENTURE, dated as of April 1, 2000 between Ohio Edison Company, a corporation organized and existing under the laws of the State of Ohio (hereinafter called the "Company"), party of the first part, and The Bank of New York, a corporation organized and existing under the laws of the State of New York, as Trustee under the Indenture hereinafter referred to, party of the second part. Whereas, the Company has heretofore executed and delivered to The Bank of New York, as Trustee (hereinafter called the "Trustee"), a certain General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998 (the "Original Indenture"), to secure bonds of the Company, issued and to be issued in series, from time to time, in the manner and subject to the conditions set forth in the Original Indenture, which Original Indenture, as heretofore and as hereby further supplemented is hereinafter referred to as the "Indenture"; Whereas, the Company has entered into a Waste Water Facilities and Solid Waste Facilities Loan Agreement dated as of April 1, 2000 (the "Water Loan Agreement"), with the Ohio Water Development Authority (the "Water Authority") pursuant to which the Water Authority will issue $44,800,000 aggregate principal amount of the State of Ohio Pollution Control Revenue Refunding Bonds (Ohio Edison Company Project) Series 2000- A (the "Water Bonds") under the Indenture of Trust, dated as of April 1, 2000 (the "Water Indenture"), between the Water Authority and The Bank of New York, as Trustee (the "Authority Trustee"), in order to provide funds to loan to the Company for the purpose of paying a portion of the cost of refunding the State of Ohio Pollution Control Revenue Refunding Bonds 1988 Series A (Ohio Edison Company Project), which were issued to finance a portion of the cost of acquiring, constructing and installing certain water pollution control and solid waste disposal facilities at the Perry Nuclear Power Plant in Lake County, Ohio; Whereas, the Company has entered into an Air Quality Facilities Loan Agreement dated as of April 1, 2000 (the "Series 2000-A Air Loan Agreement"), with the Ohio Air Quality Development Authority (the "Air Authority") pursuant to which the Air Authority will issue $12,300,000 aggregate principal amount of the State of Ohio Pollution Control Revenue Refunding Bonds (Ohio Edison Company Project) Series 2000-A (the "Series 2000-A Air Bonds") under the Indenture of Trust, dated as of April 1, 2000 (the "Series 2000-A Air Indenture"), between the Air Authority and The Bank of New York, as Trustee (the "Authority Trustee"), in order to provide funds to loan to the Company for the purpose of paying a portion of the cost of refunding the State of Ohio Pollution Control Revenue Refunding Bonds 1988 Series B (Ohio Edison Company Project), which were issued to finance a portion of the cost of acquiring, constructing and installing certain air pollution control facilities at the Perry Nuclear Power Plant in Lake County, Ohio; Whereas, the Company has entered into an Air Quality Facilities Loan Agreement dated as of April 1, 2000 (the "Series 2000-B Air Loan Agreement", and, with the Series 2000-A Air Loan Agreement, the "Air Loan Agreements"), with the Ohio Air Quality Development Authority (the "Air Authority") pursuant to which the Air Authority will issue $19,000,000 aggregate principal amount of the State of Ohio Pollution Control Revenue - 2 - Refunding Bonds (Ohio Edison Company Project) Series 2000-B (the "Series 2000-B Air Bonds", and, with the Series 2000-A Air Bonds, the "Air Bonds") under the Indenture of Trust, dated as of April 1, 2000 (the "Series 2000- B Air Indenture", and, with the Series 2000-A Air Indenture, the "Air Indentures"), between the Air Authority and The Bank of New York, as Trustee (the "Authority Trustee"), in order to provide funds to loan to the Company for the purpose of paying a portion of the cost of refunding the State of Ohio Pollution Control Revenue Refunding Bonds 1988 Series B (Ohio Edison Company Project), which were issued to assist the Company in redeeming a corresponding principal amount of bonds previously issued to finance a portion of the cost of the Company's interest in certain air pollution control facilities at the Niles, R.E. Burger and W.H. Sammis Electric Generating Plants; Whereas, the Company has entered into a Pollution Control Facilities Loan Agreement dated as of April 1, 2000 (the "Pennsylvania Loan Agreement", and, with the Water Loan Agreement and the Air Loan Agreements, the "Loan Agreements"), with the Beaver County Industrial Development Authority (the "Pennsylvania Authority") pursuant to which the Pennsylvania Authority will issue $60,400,000 aggregate principal amount of the Pollution Control Revenue Refunding Bonds (Ohio Edison Company Project) Series 2000-A (the "Pennsylvania Bonds", and, along with the Water Bonds and the Air Bonds, the "Authority Bonds") under the Indenture of Trust, dated as of April 1, 2000 (the "Pennsylvania Indenture", and, with the Water Indenture and the Air Indentures, the "Authority Indentures"), between the Pennsylvania Authority and The Bank of New York, as Trustee (the "Authority Trustee"), in order to provide funds to loan to the Company for the purpose of paying a portion of the cost of refunding the Pollution Control Revenue Refunding Bonds 1990 Series A (Ohio Edison Company Mansfield Project) and the Pollution Control Revenue Refunding Bonds 1992 Series A (Ohio Edison Company Mansfield Project), which were issued to assist the Company in the refinancing of the Company's portion of the cost of acquisition and construction of certain air and water pollution control facilities and sewage or solid waste disposal facilities at the Bruce Mansfield Plant in Shippingport, Pennsylvania; Whereas, in conjunction with the issuance of each of the Water Bonds, the Series 2000-A Air Bonds, the Series 2000-B Air Bonds and the Pennsylvania Bonds, the Company has entered into an Insurance Agreement (each, an "Insurance Agreement"), dated as of April 1, 2000, between the Company and Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance corporation (the "Insurer"), under which the Insurer has agreed to issue a municipal bond insurance policy (each, a "Policy") in favor of the applicable Authority Bonds and the Company has agreed to deliver to the Insurer a series of General Mortgage Bonds as security for the Insurer's payment of the amounts due under the applicable Policy; Whereas, the Company, by appropriate corporate action in conformity with the terms of the Indenture, has duly determined to create four new series of bonds under the Indenture consisting of $44,800,000 in principal amount, to be designated as "Mortgage Bonds, Pledge Series A of 2000 due 2033" (hereinafter sometimes referred to as the "bonds of Pledge Series A"), $12,300,000 in principal amount, to be designated as "Mortgage Bonds, Pledge Series B of 2000 due 2033" (hereinafter sometimes referred to as the "bonds of Pledge Series B"), $19,000,000 in principal amount, to be designated as "Mortgage Bonds, Pledge Series C of 2000 due 2015" (hereinafter sometimes referred to as the "bonds of Pledge Series C") and - 3 - $60,400,000 in principal amount, to be designated as "Mortgage Bonds, Pledge Series D of 2000 due 2030" (hereinafter sometimes referred to as the "bonds of Pledge Series D", and, with the bonds of Pledge Series A, the bonds of Pledge Series B and the bonds of Pledge Series C, the "bonds of the 2000 Pledge Series"), shall bear interest at the rate per annum set forth in, shall be subject to certain redemption rights and obligations set forth in, and will otherwise be in the form and have the terms and provisions provided for in this Supplemental Indenture and set forth in the form of such bonds below; and Whereas, the definitive registered bonds without coupons of the 2000 Pledge Series and the Trustee's certificate of authentication to be borne by such bonds are to be substantially in the following forms, respectively: [Form of Bond of Pledge Series A] [Face] This Bond is not transferable except to a successor to Ambac Assurance Corporation under the Insurance Agreement, dated as of April 1, 2000, between the Company and Ambac Assurance Corporation, or in connection with the exercise of the rights and remedies of the Holder hereof consequent upon an "Event of Default" as defined in the Indenture referred to herein. OHIO EDISON COMPANY Mortgage Bond, Pledge Series A of 2000 due 2033 Due October 1, 2033 No. R-1 $44,800,000 Ohio Edison Company, a corporation of the State of Ohio (hereinafter called the Company), for value received, hereby promises to pay to Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance corporation (the "Insurer"), or registered assigns, Forty-four Million Eight Hundred Thousand Dollars at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio, on October 1, 2033 in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay at said offices or agencies to the registered owner hereof, in like coin or currency, interest thereon from the Interest Payment Date (as defined herein) next preceding the date of this bond unless the date hereof is prior to the first Interest Payment Date for the bonds of this series, in which case from April 3, 2000 (the date of original issuance of the bonds of this series) (or, if this bond is dated between the Record Date (as defined herein) for any Interest Payment Date and such Interest Payment Date, then from such Interest Payment Date), at the rate from time to time borne by the State of Ohio Pollution Control Revenue Refunding Bonds (Ohio Edison Company Project) Series 2000-A (the "Authority Bonds") issued by the Ohio Water Development Authority (the "Authority") under the Indenture of Trust, dated as of April 1, 2000 (the "Authority Indenture"), between the - 4 - Authority and The Bank of New York, as trustee (the "Authority Trustee"); provided, however, that in no event shall the rate of interest borne by the Bonds of this series exceed 10% per annum. Payments of principal of and interest on this bond shall be made at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio. The interest so payable on any Interest Payment Date will, subject to certain exceptions in the Indenture hereinafter mentioned, be paid to the person in whose name this bond is registered at the close of business on the Record Date. As used herein, "Interest Payment Date" and "Record Date" shall mean an Interest Payment Date and Record Date, respectively, as defined in the Authority Bonds. The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This bond shall not become obligatory until The Bank of New York, the Trustee under the Indenture referred to on the reverse hereof, or its successor thereunder, shall have authenticated the form of certificate endorsed hereon. In witness whereof, Ohio Edison Company has caused this bond to be signed in its name by its President or a Vice President, by his signature or a facsimile thereof, and its corporate seal to be printed hereon, attested by its Secretary or an Assistant Secretary, by his signature or a facsimile thereof. Ohio Edison Company, By ------------------------ Name: Title: Attest: - ---------------------------- Name: Title: - 5 - [Form of Trustee's Authentication Certificate] Trustee's Authentication Certificate This is one of the bonds of the series designated therein referred to in the within-mentioned Indenture. Dated: The Bank of New York, as Trustee, By ------------------------ Authorized Signatory [Form of Bond of Pledge Series A] [Reverse] OHIO EDISON COMPANY Mortgage Bond, Pledge Series A of 2000 due 2033 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its Mortgage Bonds of the series designated in its title, all issued and to be issued under and equally secured (except as to any money, obligations or other instruments, or earnings thereon, deposited with the Trustee or sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by a General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, executed by the Company to The Bank of New York, as Trustee, as supplemented by indentures supplemental thereto, to which Indenture as so supplemented (herein referred to as the "Indenture") reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof and the terms and conditions upon which the bonds are secured. The bonds of this series are issued and to be issued in order to provide security to the Insurer in connection with its issuance of a municipal bond insurance policy (the "Policy") in favor of the holder of the Authority Bonds pursuant to the Insurance Agreement (the "Insurance Agreement") dated as of April 1, 2000 between the Insurer and the Company. In order to provide monies to fund a loan made by the Authority to the Company pursuant to a Waste Water Facilities and Solid Waste Facilities Loan Agreement dated as of April 1, 2000 between the Authority and the Company (the "Loan Agreement"), the Authority has issued the Authority Bonds under and pursuant to the Authority Indenture. Payments made by the Company of principal and interest on the bonds of this series are intended to be sufficient to reimburse the Insurer for any payments of principal and interest made by the Insurer on the Authority Bonds pursuant to the Policy. The bonds of this series are not transferable except (i) as required to effect an assignment to a successor of the Insurer under the Insurance Agreement or (ii) in compliance with a final order of a court of competent jurisdiction in connection with any bankruptcy or reorganization proceeding of the Company. The Company's obligation to make payments with respect to the principal of and/or interest on the bonds of this series shall be fully or partially satisfied and discharged to the extent that, at the time any such payment shall be due, the corresponding amount then due of principal of and/or interest on the Authority Bonds shall have been fully or partially paid (other than by the application of the proceeds of any payment by the Insurer under the Policy), as the case may be, or there shall have been deposited with the Authority Trustee pursuant to the Authority Indenture trust funds sufficient under such indenture to fully or partially pay, as the case may be, the corresponding amount then due of principal of and/or interest on the Authority Bonds (other than by the application of the proceeds of any payment by the Insurer under the Policy). Notwithstanding anything contained herein or in the Indenture to the contrary, the Company shall be obligated to make payments with respect to the principal of and/or interest on the bonds of this series only to the extent that the Insurer has made a payment with respect to the Authority Bonds under the Policy. Upon payment of the principal of and interest due on the Authority Bonds, whether at maturity or prior to maturity by acceleration, redemption or otherwise, or upon provision for the payment thereof having been made in accordance with the Authority Indenture (other than by the application of the proceeds of any payment by the Insurer under the Policy), the bonds of this series in a principal amount equal to the principal amount of Authority Bonds so paid or for which such provision for payment has been made shall be deemed fully paid, satisfied and discharged and the obligations of the Company thereunder shall be terminated and such bonds of this series shall be surrendered to and canceled by the Trustee. From and after the Release Date (as defined in the Insurance Agreement), the bonds of this series shall be deemed fully paid, satisfied and discharged and the obligation of the Company thereunder shall be terminated. On the Release Date, the bonds of this series shall be surrendered to and canceled by the Trustee. The bonds of this series are subject to mandatory redemption, in whole or in part, as the case may be, on each date that Authority Bonds are to be redeemed. The principal amount of the Bonds of this series to be redeemed on any such date shall be equal to the principal amount of Authority Bonds called for redemption on that date. All redemptions of bonds of this series shall be at 100% of the principal amount thereof, plus accrued interest to the redemption date. - 7 - The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, upon the occurrence of an Event of Default as in the Indenture provided. No recourse shall be had for the payment of the principal of or premium, or interest if any, on this bond, or any part thereof, or for any claim based thereon or otherwise in respect thereof, or of the indebtedness represented thereby, or upon any obligation, covenant or agreement under the Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future of the Company or of any predecessor or successor corporation, either directly or through the Company or a predecessor or successor corporation, whether by virtue of any Constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability of incorporators, stockholders, officers and directors being released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. The bonds of this series are issuable only as registered bonds without coupons in denominations of $1,000 and authorized multiples thereof. This bond, subject to the limitations with regard thereto in the Authority Indenture and herein, is transferable as prescribed in the Indenture by the registered owner hereof, in person or by attorney duly authorized, at an office or agency of the Company, in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio, upon surrender and cancellation of this bond and thereupon a new registered bond or bonds of the same series for a like principal amount, in authorized denominations, will be issued to the transferee in exchange therefor, as provided in the Indenture, and upon payment, if the Company shall require it, of the transfer charges therein prescribed. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Bonds of this series shall be exchangeable at said offices or agencies of the Company for registered bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. [End of Form of Bond of Pledge Series A] [Form of Bond of Pledge Series B] [Face] This Bond is not transferable except to a successor to Ambac Assurance Corporation under the Insurance Agreement, dated as of April 1, 2000, between the Company and Ambac Assurance Corporation, or in connection with the exercise of the rights and remedies of the Holder hereof consequent upon an "Event of Default" as defined in the Indenture referred to herein. - 8 - OHIO EDISON COMPANY Mortgage Bond, Pledge Series B of 2000 due 2033 Due October 1, 2033 No. R-1 $12,300,000 Ohio Edison Company, a corporation of the State of Ohio (hereinafter called the Company), for value received, hereby promises to pay to Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance corporation (the "Insurer"), or registered assigns, Twelve Million Three Hundred Thousand Dollars at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio, on October 1, 2033 in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay at said offices or agencies to the registered owner hereof, in like coin or currency, interest thereon from the Interest Payment Date (as defined herein) next preceding the date of this bond unless the date hereof is prior to the first Interest Payment Date for the bonds of this series, in which case from April 3, 2000 (the date of original issuance of the bonds of this series) (or, if this bond is dated between the Record Date (as defined herein) for any Interest Payment Date and such Interest Payment Date, then from such Interest Payment Date), at the rate from time to time borne by the State of Ohio Pollution Control Revenue Refunding Bonds (Ohio Edison Company Project) Series 2000-A (the "Authority Bonds") issued by the Ohio Air Quality Development Authority (the "Authority") under the Indenture of Trust, dated as of April 1, 2000 (the "Authority Indenture"), between the Authority and The Bank of New York, as trustee (the "Authority Trustee"); provided, however, that in no event shall the rate of interest borne by the Bonds of this series exceed 10% per annum. Payments of principal of and interest on this bond shall be made at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio. The interest so payable on any Interest Payment Date will, subject to certain exceptions in the Indenture hereinafter mentioned, be paid to the person in whose name this bond is registered at the close of business on the Record Date. As used herein, "Interest Payment Date" and "Record Date" shall mean an Interest Payment Date and Record Date, respectively, as defined in the Authority Bonds. The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This bond shall not become obligatory until The Bank of New York, the Trustee under the Indenture referred to on the reverse hereof, or its successor thereunder, shall have authenticated the form of certificate endorsed hereon. - 9 - In witness whereof, Ohio Edison Company has caused this bond to be signed in its name by its President or a Vice President, by his signature or a facsimile thereof, and its corporate seal to be printed hereon, attested by its Secretary or an Assistant Secretary, by his signature or a facsimile thereof. Ohio Edison Company, By ---------------------- Name: Title: Attest: - ---------------------------- Name: Title: [Form of Trustee's Authentication Certificate] Trustee's Authentication Certificate This is one of the bonds of the series designated therein referred to in the within-mentioned Indenture. Dated: The Bank of New York, as Trustee, By ------------------------- Authorized Signatory - 10 - [Form of Bond of Pledge Series B] [Reverse] OHIO EDISON COMPANY Mortgage Bond, Pledge Series B of 2000 due 2033 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its Mortgage Bonds of the series designated in its title, all issued and to be issued under and equally secured (except as to any money, obligations or other instruments, or earnings thereon, deposited with the Trustee or sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by a General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, executed by the Company to The Bank of New York, as Trustee, as supplemented by indentures supplemental thereto, to which Indenture as so supplemented (herein referred to as the "Indenture") reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof and the terms and conditions upon which the bonds are secured. The bonds of this series are issued and to be issued in order to provide security to the Insurer in connection with its issuance of a municipal bond insurance policy (the "Policy") in favor of the holders of the Authority Bonds pursuant to the Insurance Agreement (the "Insurance Agreement") dated as of April 1, 2000 between the Insurer and the Company. In order to provide monies to fund a loan made by the Authority to the Company pursuant to an Air Quality Facilities Loan Agreement dated as of April 1, 2000 between the Authority and the Company (the "Loan Agreement"), the Authority has issued the Authority Bonds under and pursuant to the Authority Indenture. Payments made by the Company of principal and interest on the bonds of this series are intended to be sufficient to reimburse the Insurer for any payments of principal and interest made by the Insurer on the Authority Bonds pursuant to the Policy. The bonds of this series are not transferable except (i) as required to effect an assignment to a successor of the Insurer under the Insurance Agreement or (ii) in compliance with a final order of a court of competent jurisdiction in connection with any bankruptcy or reorganization proceeding of the Company. The Company's obligation to make payments with respect to the principal of and/or interest on the bonds of this series shall be fully or partially satisfied and discharged to the extent that, at the time any such payment shall be due, the corresponding amount then due of principal of and/or interest on the Authority Bonds shall have been fully or partially paid (other than by the application of the proceeds of any payment by the Insurer under the Policy), as the case may be, or there shall have been deposited with the Authority Trustee pursuant to the Authority Indenture trust funds sufficient under such indenture to fully or partially pay, as the case may be, the corresponding amount then due of principal of and/or interest on the Authority - 11 - Bonds (other than by the application of the proceeds of any payment by the Insurer under the Policy). Notwithstanding anything contained herein or in the Indenture to the contrary, the Company shall be obligated to make payments with respect to the principal of and/or interest on the bonds of this series only to the extent that the Insurer has made a payment with respect to the Authority Bonds under the Policy. Upon payment of the principal of and interest due on the Authority Bonds, whether at maturity or prior to maturity by acceleration, redemption or otherwise, or upon provision for the payment thereof having been made in accordance with the Authority Indenture (other than by the application of the proceeds of any payment by the Insurer under the Policy), the bonds of this series in a principal amount equal to the principal amount of Authority Bonds so paid or for which such provision for payment has been made shall be deemed fully paid, satisfied and discharged and the obligations of the Company thereunder shall be terminated and such bonds of this series shall be surrendered to and canceled by the Trustee. From and after the Release Date (as defined in the Insurance Agreement), the bonds of this series shall be deemed fully paid, satisfied and discharged and the obligation of the Company thereunder shall be terminated. On the Release Date, the bonds of this series shall be surrendered to and canceled by the Trustee. The bonds of this series are subject to mandatory redemption, in whole or in part, as the case may be, on each date that Authority Bonds are to be redeemed. The principal amount of the Bonds of this series to be redeemed on any such date shall be equal to the principal amount of Authority Bonds called for redemption on that date. All redemptions of bonds of this series shall be at 100% of the principal amount thereof, plus accrued interest to the redemption date. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, upon the occurrence of an Event of Default as in the Indenture provided. No recourse shall be had for the payment of the principal of or premium, or interest if any, on this bond, or any part thereof, or for any claim based thereon or otherwise in respect thereof, or of the indebtedness represented thereby, or upon any obligation, covenant or agreement under the Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future of the Company or of any predecessor or successor corporation, either directly or through the Company or a predecessor or successor corporation, whether by virtue of any Constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability of incorporators, stockholders, officers and directors being released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. The bonds of this series are issuable only as registered bonds without coupons in denominations of $1,000 and authorized multiples thereof. This bond, subject to the limitations with regard thereto in the Authority Indenture and herein, is transferable as prescribed in the Indenture by the registered owner hereof, in person or by attorney duly authorized, at an office or agency of the Company, in the Borough of Manhattan, The City of New York, New York or in - 12 - the City of Akron, Ohio, upon surrender and cancellation of this bond and thereupon a new registered bond or bonds of the same series for a like principal amount, in authorized denominations, will be issued to the transferee in exchange therefor, as provided in the Indenture, and upon payment, if the Company shall require it, of the transfer charges therein prescribed. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Bonds of this series shall be exchangeable at said offices or agencies of the Company for registered bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. [End of Form of Bond of Pledge Series B] [Form of Bond of Pledge Series C] [Face] This Bond is not transferable except to a successor to Ambac Assurance Corporation under the Insurance Agreement, dated as of April 1, 2000, between the Company and Ambac Assurance Corporation, or in connection with the exercise of the rights and remedies of the Holder hereof consequent upon an "Event of Default" as defined in the Indenture referred to herein. OHIO EDISON COMPANY Mortgage Bond, Pledge Series C of 2000 due 2015 Due April 1, 2015 No. R-1 $19,000,000 Ohio Edison Company, a corporation of the State of Ohio (hereinafter called the Company), for value received, hereby promises to pay to Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance corporation (the "Insurer"), or registered assigns, Nineteen Million Dollars at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio, on April 1, 2015 in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay at said offices or agencies to the registered owner hereof, in like coin or currency, interest thereon from the Interest Payment Date (as defined herein) next preceding the date of this bond unless the date hereof is prior to the first Interest Payment Date for the bonds of this series, in which case from April 3, 2000 (the date of original issuance of the bonds of this series) (or, if this bond is dated between the Record Date (as defined herein) for any Interest Payment Date and such Interest Payment Date, then from such Interest Payment Date), at the rate from time to time borne by the State of Ohio Pollution Control Revenue Refunding Bonds (Ohio Edison Company Project) Series 2000-B (the "Authority Bonds") issued by the Ohio Air Quality Development Authority (the "Authority") under the Indenture of Trust, dated as of April 1, 2000 (the "Authority Indenture"), between the Authority and The Bank of New York, as trustee (the - 13 - "Authority Trustee"); provided, however, that in no event shall the rate ----------------- of interest borne by the Bonds of this series exceed 10% per annum. Payments of principal of and interest on this bond shall be made at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio. The interest so payable on any Interest Payment Date will, subject to certain exceptions in the Indenture hereinafter mentioned, be paid to the person in whose name this bond is registered at the close of business on the Record Date. As used herein, "Interest Payment Date" and "Record Date" shall mean an Interest Payment Date and Record Date, respectively, as defined in the Authority Bonds. The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This bond shall not become obligatory until The Bank of New York, the Trustee under the Indenture referred to on the reverse hereof, or its successor thereunder, shall have authenticated the form of certificate endorsed hereon. In witness whereof, Ohio Edison Company has caused this bond to be signed in its name by its President or a Vice President, by his signature or a facsimile thereof, and its corporate seal to be printed hereon, attested by its Secretary or an Assistant Secretary, by his signature or a facsimile thereof. Ohio Edison Company, By ------------------------ Name: Title: Attest: - ---------------------------- Name: Title: - 14 - [Form of Trustee's Authentication Certificate] Trustee's Authentication Certificate This is one of the bonds of the series designated therein referred to in the within-mentioned Indenture. Dated: The Bank of New York, as Trustee, By ------------------------ Authorized Signatory [Form of Bond of Pledge Series C] [Reverse] OHIO EDISON COMPANY Mortgage Bond, Pledge Series C of 2000 due 2015 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its Mortgage Bonds of the series designated in its title, all issued and to be issued under and equally secured (except as to any money, obligations or other instruments, or earnings thereon, deposited with the Trustee or sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by a General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, executed by the Company to The Bank of New York, as Trustee, as supplemented by indentures supplemental thereto, to which Indenture as so supplemented (herein referred to as the "Indenture") reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof and the terms and conditions upon which the bonds are secured. The bonds of this series are issued and to be issued in order to provide security to the Insurer in connection with its issuance of a municipal bond insurance policy (the "Policy") in favor of the holders of the Authority Bonds pursuant to the Insurance Agreement (the "Insurance Agreement") dated as of April 1, 2000 between the Insurer and the Company. In order to provide monies to fund a loan made by the Authority to the Company pursuant to an Air Quality Facilities Loan Agreement dated as of April 1, 2000 between the Authority and the Company - 15 - (the "Loan Agreement"), the Authority has issued the Authority Bonds under and pursuant to the Authority Indenture. Payments made by the Company of principal and interest on the bonds of this series are intended to be sufficient to reimburse the Insurer for any payments of principal and interest made by the Insurer on the Authority Bonds pursuant to the Policy. The bonds of this series are not transferable except (i) as required to effect an assignment to a successor of the Insurer under the Insurance Agreement or (ii) in compliance with a final order of a court of competent jurisdiction in connection with any bankruptcy or reorganization proceeding of the Company. The Company's obligation to make payments with respect to the principal of and/or interest on the bonds of this series shall be fully or partially satisfied and discharged to the extent that, at the time any such payment shall be due, the corresponding amount then due of principal of and/or interest on the Authority Bonds shall have been fully or partially paid (other than by the application of the proceeds of any payment by the Insurer under the Policy), as the case may be, or there shall have been deposited with the Authority Trustee pursuant to the Authority Indenture trust funds sufficient under such indenture to fully or partially pay, as the case may be, the corresponding amount then due of principal of and/or interest on the Authority Bonds (other than by the application of the proceeds of any payment by the Insurer under the Policy). Notwithstanding anything contained herein or in the Indenture to the contrary, the Company shall be obligated to make payments with respect to the principal of and/or interest on the bonds of this series only to the extent that the Insurer has made a payment with respect to the Authority Bonds under the Policy. Upon payment of the principal of and interest due on the Authority Bonds, whether at maturity or prior to maturity by acceleration, redemption or otherwise, or upon provision for the payment thereof having been made in accordance with the Authority Indenture (other than by the application of the proceeds of any payment by the Insurer under the Policy), the bonds of this series in a principal amount equal to the principal amount of Authority Bonds so paid or for which such provision for payment has been made shall be deemed fully paid, satisfied and discharged and the obligations of the Company thereunder shall be terminated and such bonds of this series shall be surrendered to and canceled by the Trustee. From and after the Release Date (as defined in the Insurance Agreement), the bonds of this series shall be deemed fully paid, satisfied and discharged and the obligation of the Company thereunder shall be terminated. On the Release Date, the bonds of this series shall be surrendered to and canceled by the Trustee. The bonds of this series are subject to mandatory redemption, in whole or in part, as the case may be, on each date that Authority Bonds are to be redeemed. The principal amount of the Bonds of this series to be redeemed on any such date shall be equal to the principal amount of Authority Bonds called for redemption on that date. All redemptions of bonds of this series shall be at 100% of the principal amount thereof, plus accrued interest to the redemption date. - 16 - The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, upon the occurrence of an Event of Default as in the Indenture provided. No recourse shall be had for the payment of the principal of or premium, or interest if any, on this bond, or any part thereof, or for any claim based thereon or otherwise in respect thereof, or of the indebtedness represented thereby, or upon any obligation, covenant or agreement under the Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future of the Company or of any predecessor or successor corporation, either directly or through the Company or a predecessor or successor corporation, whether by virtue of any Constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability of incorporators, stockholders, officers and directors being released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. The bonds of this series are issuable only as registered bonds without coupons in denominations of $1,000 and authorized multiples thereof. This bond, subject to the limitations with regard thereto in the Authority Indenture and herein, is transferable as prescribed in the Indenture by the registered owner hereof, in person or by attorney duly authorized, at an office or agency of the Company, in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio, upon surrender and cancellation of this bond and thereupon a new registered bond or bonds of the same series for a like principal amount, in authorized denominations, will be issued to the transferee in exchange therefor, as provided in the Indenture, and upon payment, if the Company shall require it, of the transfer charges therein prescribed. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Bonds of this series shall be exchangeable at said offices or agencies of the Company for registered bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. [End of Form of Bond of Pledge Series C] [Form of Bond of Pledge Series D] [Face] This Bond is not transferable except to a successor to Ambac Assurance Corporation under the Insurance Agreement, dated as of April 1, 2000, between the Company and Ambac Assurance Corporation, or in connection with the exercise of the rights and remedies of the Holder hereof consequent upon an "Event of Default" as defined in the Indenture referred to herein. - 17 - OHIO EDISON COMPANY Mortgage Bond, Pledge Series D of 2000 due 2030 Due April 1, 2030 No. R-1 $60,400,000 Ohio Edison Company, a corporation of the State of Ohio (hereinafter called the Company), for value received, hereby promises to pay to Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance corporation (the "Insurer"), or registered assigns, Sixty Million Four Hundred Thousand Dollars at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio, on April 1, 2030 in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, and to pay at said offices or agencies to the registered owner hereof, in like coin or currency, interest thereon from the Interest Payment Date (as defined herein) next preceding the date of this bond unless the date hereof is prior to the first Interest Payment Date for the bonds of this series, in which case from April 3, 2000 (the date of original issuance of the bonds of this series) (or, if this bond is dated between the Record Date (as defined herein) for any Interest Payment Date and such Interest Payment Date, then from such Interest Payment Date), at the rate from time to time borne by the Pollution Control Revenue Refunding Bonds (Ohio Edison Company Project) Series 2000-A (the "Authority Bonds") issued by the Beaver County Industrial Development Authority (the "Authority") under the Indenture of Trust, dated as of April 1, 2000 (the "Authority Indenture"), between the Authority and The Bank of New York, as trustee (the "Authority Trustee"); provided, however, that in no event shall the rate of interest borne by the Bonds of this series exceed 10% per annum. Payments of principal of and interest on this bond shall be made at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio. The interest so payable on any Interest Payment Date will, subject to certain exceptions in the Indenture hereinafter mentioned, be paid to the person in whose name this bond is registered at the close of business on the Record Date. As used herein, "Interest Payment Date" and "Record Date" shall mean an Interest Payment Date and Record Date, respectively, as defined in the Authority Bonds. The provisions of this bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. This bond shall not become obligatory until The Bank of New York, the Trustee under the Indenture referred to on the reverse hereof, or its successor thereunder, shall have authenticated the form of certificate endorsed hereon. In witness whereof, Ohio Edison Company has caused this bond to be signed in its name by its President or a Vice President, by his signature or a facsimile thereof, and its - 18 - corporate seal to be printed hereon, attested by its Secretary or an Assistant Secretary, by his signature or a facsimile thereof. Ohio Edison Company, By ----------------------- Name: Title: Attest: - --------------------------- Name: Title: [Form of Trustee's Authentication Certificate] Trustee's Authentication Certificate This is one of the bonds of the series designated therein referred to in the within-mentioned Indenture. Dated: The Bank of New York, as Trustee, By ------------------------- Authorized Signatory - 19 - [Form of Bond of Pledge Series D] [Reverse] OHIO EDISON COMPANY Mortgage Bond, Pledge Series D of 2000 due 2030 This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its Mortgage Bonds of the series designated in its title, all issued and to be issued under and equally secured (except as to any money, obligations or other instruments, or earnings thereon, deposited with the Trustee or sinking fund established in accordance with the provisions of the Indenture hereinafter mentioned for the bonds of any particular series) by a General Mortgage Indenture and Deed of Trust, dated as of January 1, 1998, executed by the Company to The Bank of New York, as Trustee, as supplemented by indentures supplemental thereto, to which Indenture as so supplemented (herein referred to as the "Indenture") reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the bonds in respect thereof and the terms and conditions upon which the bonds are secured. The bonds of this series are issued and to be issued in order to provide security to the Insurer in connection with its issuance of a municipal bond insurance policy (the "Policy") in favor of the holders of the Authority Bonds pursuant to the Insurance Agreement (the "Insurance Agreement") dated as of April 1, 2000 between the Insurer and the Company. In order to provide monies to fund a loan made by the Authority to the Company pursuant to a Pollution Control Facilities Loan Agreement dated as of April 1, 2000 between the Authority and the Company (the "Loan Agreement"), the Authority has issued the Authority Bonds under and pursuant to the Authority Indenture. Payments made by the Company of principal and interest on the bonds of this series are intended to be sufficient to reimburse the Insurer for any payments of principal and interest made by the Insurer on the Authority Bonds pursuant to the Policy. The bonds of this series are not transferable except (i) as required to effect an assignment to a successor of the Insurer under the Insurance Agreement or (ii) in compliance with a final order of a court of competent jurisdiction in connection with any bankruptcy or reorganization proceeding of the Company. The Company's obligation to make payments with respect to the principal of and/or interest on the bonds of this series shall be fully or partially satisfied and discharged to the extent that, at the time any such payment shall be due, the corresponding amount then due of principal of and/or interest on the Authority Bonds shall have been fully or partially paid (other than by the application of the proceeds of any payment by the Insurer under the Policy), as the case may be, or there shall have been deposited with the Authority Trustee pursuant to the Authority Indenture trust funds sufficient under such indenture to fully or partially pay, as the case may be, the corresponding amount then due of principal of and/or interest on the Authority - 20 - Bonds (other than by the application of the proceeds of any payment by the Insurer under the Policy). Notwithstanding anything contained herein or in the Indenture to the contrary, the Company shall be obligated to make payments with respect to the principal of and/or interest on the bonds of this series only to the extent that the Insurer has made a payment with respect to the Authority Bonds under the Policy. Upon payment of the principal of and interest due on the Authority Bonds, whether at maturity or prior to maturity by acceleration, redemption or otherwise, or upon provision for the payment thereof having been made in accordance with the Authority Indenture (other than by the application of the proceeds of any payment by the Insurer under the Policy), the bonds of this series in a principal amount equal to the principal amount of Authority Bonds so paid or for which such provision for payment has been made shall be deemed fully paid, satisfied and discharged and the obligations of the Company thereunder shall be terminated and such bonds of this series shall be surrendered to and canceled by the Trustee. From and after the Release Date (as defined in the Insurance Agreement), the bonds of this series shall be deemed fully paid, satisfied and discharged and the obligation of the Company thereunder shall be terminated. On the Release Date, the bonds of this series shall be surrendered to and canceled by the Trustee. The bonds of this series are subject to mandatory redemption, in whole or in part, as the case may be, on each date that Authority Bonds are to be redeemed. The principal amount of the Bonds of this series to be redeemed on any such date shall be equal to the principal amount of Authority Bonds called for redemption on that date. All redemptions of bonds of this series shall be at 100% of the principal amount thereof, plus accrued interest to the redemption date. The principal hereof may be declared or may become due on the conditions, in the manner and at the time set forth in the Indenture, upon the occurrence of a completed Event of Default as in the Indenture provided. No recourse shall be had for the payment of the principal of or premium, or interest if any, on this bond, or any part thereof, or for any claim based thereon or otherwise in respect thereof, or of the indebtedness represented thereby, or upon any obligation, covenant or agreement under the Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future of the Company or of any predecessor or successor corporation, either directly or through the Company or a predecessor or successor corporation, whether by virtue of any Constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability of incorporators, stockholders, officers and directors being released by the registered owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. The bonds of this series are issuable only as registered bonds without coupons in denominations of $1,000 and authorized multiples thereof. This bond, subject to the limitations with regard thereto in the Authority Indenture and herein, is transferable as prescribed in the Indenture by the registered owner hereof, in person or by attorney duly authorized, at an office or agency of the Company, in the Borough of Manhattan, The City of New York, New York or in - 21 - the City of Akron, Ohio, upon surrender and cancellation of this bond and thereupon a new registered bond or bonds of the same series for a like principal amount, in authorized denominations, will be issued to the transferee in exchange therefor, as provided in the Indenture, and upon payment, if the Company shall require it, of the transfer charges therein prescribed. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of receiving payment of or on account of the principal and interest due hereon and for all other purposes. Bonds of this series shall be exchangeable at said offices or agencies of the Company for registered bonds of other authorized denominations having the same aggregate principal amount, in the manner and upon the conditions prescribed in the Indenture. [End of Form of Bond of Pledge Series D] and Whereas, all things necessary to make the bonds of the 2000 Pledge Series, when authenticated by the Trustee and issued as in the Indenture provided, the valid, binding and legal obligations of the Company, entitled in all respects to the security of the Indenture, have been done and performed, and the creation, execution and delivery of this Supplemental Indenture has in all respects been duly authorized; and Whereas, the Company deems it advisable to enter into this Supplemental Indenture for the purposes of describing the bonds of the 2000 Pledge Series and establishing the respective forms, terms and provisions thereof, as provided and contemplated by sections 2.01(a) and 3.01(b) of the Indenture, and the Company has requested and hereby requests the Trustee to join in the execution of this Supplemental Indenture; Now, therefore, It is hereby covenanted, declared and agreed, by and between the Company and the Trustee, that all such bonds of the 2000 Pledge Series are to be issued, authenticated and delivered, subject to this Supplemental Indenture, and to the further covenants, conditions, uses and trusts in the Indenture set forth, and the parties hereto mutually agree as follows: Section 1. Bonds of the 2000 Pledge Series shall mature on the date set forth in the respective form of bond relating thereto hereinbefore set forth and, subject to the provisions of said form, shall bear interest at the rate from time to time borne by the applicable Authority Bonds; provided, however, that in no event shall the rate of ----------------- interest borne by any bonds of the 2000 Pledge Series exceed 10% per annum. Such interest shall be payable as set forth in said forms of bond of the 2000 Pledge Series, and such bonds of said series shall be designated as hereinbefore in the seventh Whereas clause set forth. Both principal of and interest on said bonds shall be payable, to the extent specified in the respective form of bond hereinabove set forth, in any coin or currency of the United States of America which at the time of payment is a coin or currency in which the Authority Bonds are payable and is legal tender for the payment of public and private debts, at the office or agency of the Company in the Borough of Manhattan, The City of New York, New York. Definitive bonds of said series may be issued, originally or otherwise, only as registered bonds without coupons; and they and the Trustee's certificate of - 22 - authentication shall be substantially in the forms hereinbefore recited, respectively. Definitive bonds of the 2000 Pledge Series may be issued, originally or otherwise, only as registered bonds, substantially in the respective form of bond hereinabove recited, and in denominations of $1,000 and authorized multiples thereof. Delivery of a bond of the 2000 Pledge Series to the Trustee for authentication shall be conclusive evidence that the multiple thereof and its serial number has been duly approved by the Company. The bonds of the 2000 Pledge Series shall be redeemable as provided in the respective form of bond hereinabove set forth, and such provisions are incorporated at this place as though set forth in their entirety. Except as provided in this Section 1, bonds of the 2000 Pledge Series shall be dated and bear interest as provided in Section 3.03 of the Indenture; provided, however, that, notwithstanding any provision of said Section 3.03, so long as there is no existing default in the payment of interest on said bonds, any bond of the 2000 Pledge Series authenticated by the Trustee between an Interest Payment Date for bonds of such series and the Regular Record Date for such interest payment date shall bear interest from such interest payment date and the holder of any such bond shall not be entitled to payment of interest on such interest payment date and shall have no claim against the Company with respect thereto. Bonds of the 2000 Pledge Series may be transferred by the registered owners thereof, in person or by attorney duly authorized, at an office or agency of the Company in the Borough of Manhattan, The City of New York, New York or in the City of Akron, Ohio but only in the manner and upon the conditions prescribed in the Indenture and in the respective form of bond of such series hereinabove recited. The person in whose name any bond of the 2000 Pledge Series is registered at the close of business on any record date for such series with respect to any interest payment date for such series shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such registered bond upon any transfer or exchange thereof subsequent to the record date and prior to such interest payment date, except if and to the extent the Company shall default in the payment of the interest due on such interest payment date, in which case such defaulted interest shall be paid to the person in whose name such bond (or any bond or bonds issued, directly or after intermediate transactions, upon transfer or exchange or in substitution thereof) is registered on a subsequent record date for such payment established as provided in Section 3.07 of the Indenture. Notices and demands to or upon the Company in respect of the bonds of the 2000 Pledge Series and the Indenture may be served at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, NY and in the City of Akron, Ohio. Section 2. As more fully set forth in the respective form thereof hereinabove recited, the Company's obligation to make payments with respect to the principal of and/or interest on any bond of the 2000 Pledge Series shall be fully or partially satisfied and discharged - 23 - to the extent that, at the time any such payment shall be due, the corresponding amount then due of principal of and/or interest then due on the applicable Authority Bond shall have been fully or partially paid (other than by the application of the proceeds of any payment by the Insurer under the applicable Policy), as the case may be, or there shall have been deposited with the Authority Trustee pursuant to the applicable Authority Indenture trust funds sufficient under such indenture to fully or partially pay, as the case may be, the corresponding amount then due of principal of and/or interest on the applicable Authority Bonds (other than by the application of the proceeds of any payment by the Insurer under the applicable Policy). Notwithstanding anything contained herein or in the Indenture to the contrary, the Company shall be obligated to make payments with respect to the principal of and/or interest on the bonds of the 2000 Pledge Series only to the extent that the Insurer has made a payment with respect to the applicable Authority Bonds under the Policy. Upon payment of the principal of and interest due on the applicable Authority Bonds, whether at maturity or prior to maturity by acceleration, redemption or otherwise, or upon provision for the payment thereof having been made in accordance with the applicable Authority Indenture (other than by the application of the proceeds of any payment by the Insurer under the applicable Policy), bonds of the 2000 Pledge Series in a principal amount equal to the principal amount of the applicable Authority Bonds so paid or for which such provision for payment has been made shall be deemed fully paid, satisfied and discharged and the obligations of the Company thereunder shall be terminated and such bonds of the 2000 Pledge Series shall be surrendered to and cancelled by the Trustee. From and after the Release Date (as defined in the applicable Insurance Agreement), the bonds of the 2000 Pledge Series shall be deemed fully paid, satisfied and discharged and the obligation of the Company thereunder shall be terminated. On the Release Date, the bonds of the 2000 Pledge Series shall be surrendered to and canceled by the Trustee. The Trustee may conclusively presume that the obligation of the Company to pay the principal of, and interest, if any on the bonds of the 2000 Pledge Series as the same shall become due and payable shall have been fully satisfied and discharged unless and until it shall have received written notice from the Insurer, signed by an authorized officer thereof, stating that the Insurer is exercising its rights under the applicable Insurance Agreement with respect to the bonds of the 2000 Pledge Series. Section 3. Except as herein otherwise expressly provided, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this Supplemental Indenture; the Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals herein or in the respective bonds (except the Trustee's authentication certificate), all of which are made by the Company solely; and this Supplemental Indenture is executed and accepted by the Trustee, subject to all the terms and conditions set forth in the Indenture, as fully to all intents and purposes as if the terms and conditions of the Indenture were herein set forth at length. Section 4. The principal amount of bonds of Pledge Series A which may be authenticated and delivered hereunder is limited to the aggregate principal amount of Forty-four - 24 - Million Eight Hundred Thousand Dollars ($44,800,000). The principal amount of bonds of Pledge Series B which may be authenticated and delivered hereunder is limited to the aggregate principal amount of Twelve Million Three Hundred Thousand Dollars ($12,300,000). The principal amount of bonds of Pledge Series C which may be authenticated and delivered hereunder is limited to the aggregate principal amount of Nineteen Million Dollars ($19,000,000). The principal amount of bonds of Pledge Series D which may be authenticated and delivered hereunder is limited to the aggregate principal amount of Sixty Million Four Hundred Thousand Dollars ($60,400,000). Bonds of the 2000 Pledge Series in the aggregate principal amount of One Hundred Thirty-six Million Five Hundred Thousand Dollars ($136,500,000) may at any time subsequent to the execution hereof be executed by the Company and delivered to the Trustee and shall be authenticated by the Trustee and delivered (either before or after the recording hereof) pursuant to a Company Order referred to in Section 4.01 of the Indenture and upon receipt by the Trustee of the opinions and other documents required by Section 4.02 of the Indenture. Section 5. The consideration for the bonds of the 2000 Pledge Series shall be the issuance by the Insurer of each respective Policy pursuant to the applicable Insurance Agreement. Section 6. As supplemented by this Supplemental Indenture, the Indenture is in all respects ratified and confirmed, and the Indenture as herein defined, and this Supplemental Indenture, shall be read, taken and construed as one and the same instrument. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Original Indenture. Section 7. 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 8. This Supplemental Indenture may be simultaneously executed in several counterparts and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. - 25 - In witness whereof, Ohio Edison Company, party of the first part hereto, and The Bank of New York, party of the second part hereto, have caused these presents to be executed in their respective names by their respective Presidents or one of their Vice Presidents or Assistant Vice Presidents and their respective seals to be hereunto affixed and attested by their respective Secretaries or one of their Assistant Secretaries or Assistant Treasurers, all as of the day and year first above written. Ohio Edison Company By: ------------------------ [Seal] Attest: ------------------------- Signed, Sealed and Acknowledged on behalf of Ohio Edison Company in the presence of: - -------------------------------- - -------------------------------- The Bank of New York, as Trustee By: ----------------------- [Seal] Attest: ------------------------- Signed, Sealed and Acknowledged on behalf of The Bank of New York in the presence of: - --------------------------------------- - --------------------------------------- - 26 - STATE OF OHIO ) : ss.: COUNTY OF SUMMIT ) On the __ day of _______________, 2000, personally appeared before me, a Notary Public in and for the said County and State aforesaid, _______________ and ________________, to me known and known to me to be a _______________ and _______________, respectively, of OHIO EDISON COMPANY, the corporation which executed the foregoing instrument, and who severally acknowledged that they did sign and seal such instrument as such _______________ and _______________, respectively, of OHIO EDISON COMPANY, the same is their free act and deed and the free and corporate act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal the __ day of ___________, 2000. _______________________________ [SEAL] STATE OF OHIO ) : ss.: COUNTY OF SUMMIT ) On the __ day of September, 2000, before me personally came _______________, to me known, who, being by me duly sworn, did dispose and say that he resides at _______________; that he is a _______________ of OHIO EDISON COMPANY, one of the corporations described in and which executed the above instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. _______________________________ [Notary Public] [SEAL] - 27 - STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On the __ day of _______________, 2000, personally appeared before me, a Notary Public in and for the said County and State aforesaid, _______________ and _______________, to me known and known to me to be a _______________ and _______________, respectively, of The Bank of New York, the corporation which executed the foregoing instrument, and who severally acknowledged that they did sign and seal such instrument as such _______________ and _______________ for and on behalf of said corporation and that the same is their free act and deed and the free and corporation act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal the __ day of _______________, 2000. _______________________________ [Notary Public] [SEAL] STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) On the __ day of _______________, 2000, before me personally came _______________, to me known, who, being by me duly sworn, did dispose and say that she resides at _______________; that she is a _______________ of THE BANK OF NEW YORK, one of the parties described in and which executed the above instrument; that she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that she signed her name thereto by like authority. _______________________________ [Notary Public] [SEAL] - 28 - The Bank of New York hereby certifies that its precise name and address as Trustee hereunder are: The Bank of New York 101 Barclay Street City, County and State of New York 10286 The Bank of New York By: --------------------------- [Assistant Treasurer] - 29 - (..continued) EX-12.2 15 ex12-2.txt RATIOS - OE EXHIBIT 12.2 Page 1 OHIO EDISON COMPANY CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, -------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $315,170 $293,194 $301,320 $297,689 $336,456 Interest and other charges, before reduction for amounts capitalized 255,572 250,920 235,317 225,358 211,364 Provision for income taxes 201,295 187,805 191,261 191,835 212,580 Interest element of rentals charged to income (a) 114,093 117,409 115,310 113,804 109,497 -------- -------- -------- -------- -------- Earnings as defined $886,130 $849,328 $843,208 $828,686 $869,897 ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K: Interest on long-term debt $211,935 $204,285 $184,915 $178,217 $165,409 Other interest expense 28,211 31,209 34,976 31,971 31,451 Subsidiaries' preferred stock dividend requirements 15,426 15,426 15,426 15,170 14,504 Adjustments to subsidiaries' preferred stock dividends to state on a pre-income tax basis 2,910 2,918 2,892 2,770 2,296 Interest element of rentals charged to income (a) 114,093 117,409 115,310 113,804 109,497 -------- -------- -------- -------- -------- Fixed charges as defined $372,575 $371,247 $353,519 $341,932 $323,157 ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (b) 2.38 2.29 2.39 2.42 $2.69 ==== ==== ==== ==== ===== - ------------------------- (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 $5,093,000, $3,828,000 and $2,209,000 for each of the three years ended December 31, 1998, respectively. The guarantee and related coal supply contract debt expired December 31, 1999.
EXHIBIT 12.2 Page 2 OHIO EDISON COMPANY CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
Year Ended December 31, -------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $315,170 $293,194 $301,320 $297,689 $336,456 Interest and other charges, before reduction for amounts capitalized 255,572 250,920 235,317 225,358 211,364 Provision for income taxes 201,295 187,805 191,261 191,835 212,580 Interest element of rentals charged to income (a) 114,093 117,409 115,310 113,804 109,497 -------- -------- -------- -------- -------- Earnings as defined $886,130 $849,328 $843,208 $828,686 $869,897 ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS PREFERRED AND PREFERENCE STOCK DIVIDEND REQUIREMENTS(PRE-INCOME TAX BASIS): Interest on long-term debt $211,935 $204,285 $184,915 $178,217 $165,409 Other interest expense 28,211 31,209 34,976 31,971 31,451 Preferred and preference stock dividend requirements 27,923 27,817 27,395 26,717 25,628 Adjustments to preferred and preference stock dividends to state on a pre-income tax basis 10,542 10,503 10,140 9,859 8,976 Interest element of rentals charged to income (a) 114,093 117,409 115,310 113,804 109,497 -------- -------- -------- -------- -------- Fixed charges as defined plus preferred and preference stock dividend requirements (pre-income tax basis) $392,704 $391,223 $372,736 $360,568 $340,961 ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED AND PREFERENCE STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS) (b) 2.26 2.17 2.26 2.30 2.55 ==== ==== ==== ==== ==== - ----------------------- (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 $5,093,000, $3,828,000 and $2,209,000 for each of the three years ended December 31, 1998, respectively. The guarantee and related coal supply contract debt expired December 31, 1999.
EX-13.1 16 ex13-1.txt ANNUAL REPORT - OE OHIO EDISON COMPANY 2000 ANNUAL REPORT TO STOCKHOLDERS Ohio Edison Company is a wholly owned electric utility operating subsidiary of FirstEnergy Corp. Ohio Edison engages in the generation, distribution and sale of electric energy to communities in an area of 7,500 square miles in central and northeastern Ohio. It also engages in the sale, purchase and interchange of electric energy with other electric companies. Contents Page - -------- ---- Selected Financial Data 1 Management's Discussion and Analysis 2-7 Consolidated Statements of Income 8 Consolidated Balance Sheets 9 Consolidated Statements of Capitalization 10-11 Consolidated Statements of Common Stockholder's Equity 12 Consolidated Statements of Preferred Stock 12 Consolidated Statements of Cash Flows 13 Consolidated Statements of Taxes 14 Notes to Consolidated Financial Statements 15-25 Report of Independent Public Accountants 26 OHIO EDISON COMPANY SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------- (In thousands) Operating Revenues $2,726,708 $2,686,949 $2,519,662 $2,473,582 $2,469,785 -------------------------------------------------------------- Operating Income $ 482,321 $ 473,042 $ 486,920 $ 488,568 $ 530,069 -------------------------------------------------------------- Income Before Extraordinary Item $ 336,456 $ 297,689 $ 301,320 $ 293,194 $ 315,170 -------------------------------------------------------------- Net Income $ 336,456 $ 297,689 $ 270,798 $ 293,194 $ 315,170 -------------------------------------------------------------- Earnings on Common Stock $ 325,332 $ 286,142 $ 258,828 $ 280,802 $ 302,673 -------------------------------------------------------------- Total Assets $8,154,151 $8,700,746 $8,923,826 $9,158,141 $9,218,623 -------------------------------------------------------------- Capitalization at December 31: Common Stockholder's Equity $2,556,992 $2,624,460 $2,681,873 $2,724,319 $2,503,359 Preferred Stock: Not Subject to Mandatory Redemption 200,070 200,070 211,870 211,870 211,870 Subject to Mandatory Redemption 135,000 140,000 145,000 150,000 155,000 Long-Term Debt 2,000,622 2,175,812 2,215,042 2,569,802 2,712,760 -------------------------------------------------------------- Total Capitalization $4,892,684 $5,140,342 $5,253,785 $5,655,991 $5,582,989 -------------------------------------------------------------- Capitalization Ratios: Common Stockholder's Equity 52.3% 51.1% 51.0% 48.2% 44.8% Preferred Stock: Not Subject to Mandatory Redemption 4.1 3.9 4.0 3.7 3.8 Subject to Mandatory Redemption 2.7 2.7 2.8 2.7 2.8 Long-Term Debt 40.9 42.3 42.2 45.4 48.6 -------------------------------------------------------------- Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0% -------------------------------------------------------------- Kilowatt-Hour Sales (Millions): Residential 9,362 9,483 8,773 8,631 8,704 Commercial 8,031 8,238 7,590 7,335 7,246 Industrial 11,484 11,310 10,803 11,202 11,089 Other 149 151 150 150 147 -------------------------------------------------------------- Total Retail 29,026 29,182 27,316 27,318 27,186 Total Wholesale 9,860 6,881 5,706 5,241 7,076 -------------------------------------------------------------- Total 38,886 36,063 33,022 32,559 34,262 -------------------------------------------------------------- Customers Served: Residential 1,014,379 1,016,793 1,004,552 995,605 988,179 Commercial 116,931 115,581 113,820 111,189 113,795 Industrial 4,569 4,627 4,598 4,568 4,590 Other 1,606 1,539 1,476 1,415 1,331 -------------------------------------------------------------- Total 1,137,485 1,138,540 1,124,446 1,112,777 1,107,895 -------------------------------------------------------------- Number of Employees (a) 1,647 2,734 2,832 4,215 4,273 (a) Reduction in 2000 reflects transfer of responsibility for generation operations to FirstEnergy Corp.'s competitive services unit.
OHIO EDISON COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This discussion includes forward-looking statements based on information currently available to management that is subject to certain risks and uncertainties. Such statements typically contain, but are not limited to, the terms anticipate, potential, expect, believe, estimate and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, legislative and regulatory changes (including revised environmental requirements), and the availability and cost of capital. Results of Operations - --------------------- Earnings on common stock for 2000 increased 14% to $325.3 million from $286.1 million in 1999. Results for 2000 were favorably affected by higher operating revenues, lower fuel expenses, and reductions in general taxes and net interest charges, which were partially offset by higher nuclear and other operating costs. In 1999, earnings on common stock increased 11% to $286.1 million from $258.8 million in 1998 primarily due to higher operating revenues, the absence of an extraordinary charge and unusually high purchased power costs experienced in 1998 and lower interest costs that were principally offset by an increase in depreciation and amortization. Operating revenues increased by $39.8 million in 2000 following a $167.3 million increase in 1999. The sources of increases in operating revenues during 2000 and 1999 are summarized in the following table: Sources of Revenue Changes 2000 1999 - -------------------------------------------------------- Increase (Decrease) (In millions) Change in retail kilowatt-hour sales $(12.6) $151.3 Decrease in average retail price (2.9) (36.3) Increase in wholesale sales 33.2 54.6 Increase in transmission-related services 18.9 0.4 All other changes 3.2 (2.7) - --------------------------------------------------------- Net Increase in Operating Revenues $ 39.8 $167.3 ========================================================= Electric Sales Additional kilowatt-hour sales to the wholesale market were the largest source of the increase in operating revenues in 2000, compared to the prior year, primarily due to additional available generating capacity. Transmission-related revenues also contributed to the increase in operating revenues in 2000. These increases were partially offset by lower retail kilowatt-hour sales and a reduction in the average retail unit price resulting from the transition rate credit program and a changing sales mix. Retail kilowatt-hour sales to industrial customers increased while kilowatt-hour sales to both residential and commercial customers decreased in 2000 from the previous year. The overall reduction in retail kilowatt-hour sales reflected a softening in the service area economy and cooler summer weather during 2000, compared to the above-normal temperatures experienced in 1999. Sales growth in both the retail and wholesale markets produced the increase in operating revenues in 1999, compared to 1998. Strong consumer-driven economic growth and, to a lesser extent, the weather, contributed to the increased retail sales. Weather-induced electricity demand in the wholesale market and additional available generation combined to increase sales to wholesale customers. Changes in kilowatt- hour sales by customer class in 2000 and 1999 are summarized in the following table: Changes in KWH Sales 2000 1999 - -------------------------------------------------- Increase (Decrease) Residential (1.3)% 8.1% Commercial (2.5)% 8.6% Industrial 1.6% 4.7% - -------------------------------------------------- Total Retail (0.5)% 6.8% Wholesale 43.3% 20.6% - -------------------------------------------------- Total Sales 7.8% 9.2% - -------------------------------------------------- Operating Expenses and Taxes Total operating expenses and taxes increased $30.5 million in 2000 and $181.2 million in 1999. The increase in 2000 resulted primarily from higher operation and maintenance costs. While operation and maintenance costs were also up in 1999, the increase in operating expenses and taxes in that year was principally due to additional depreciation and amortization. The increases in operation and maintenance costs in both 2000 and 1999 occurred despite a reduction in fuel and purchased power costs. Fuel expenses were $56.0 million lower in 2000, compared to 1999, which accounted for nearly all of the reduction in fuel and purchased power costs. Several factors contributed to the lower fuel expense, which occurred despite an 11.1% increase in output from our generating units. Factors contributing to lower fuel expense included: o A higher proportion of nuclear generation (which has lower unit fuel costs than fossil fuel) due to improved nuclear availability and increased nuclear ownership from the exchange of generating assets with Duquesne Light Company (Duquesne) in December 1999; o The expiration of an above-market coal contract at the end of 1999; and o Continued improvement of coal-blending strategies, which resulted in the use of additional lower-cost fuel and enhanced the efficiency and cost-competitiveness of our fossil generation. In 1999, the entire $35.8 million reduction in fuel and purchased power costs was due to lower purchased power costs. Much of the decrease occurred in the second quarter of 1999 due to the absence of unusual conditions experienced in the summer of 1998. Those costs were incurred during a period of record heat and humidity in late June 1998, which coincided with a regional power shortage resulting in high prices for purchased power. Unscheduled outages at Beaver Valley Units 1 and 2 at the same time required us to purchase significant amounts of power on the spot market. Although above normal temperatures were also experienced in 1999, we maintained a stronger capacity position compared to the previous year and better met customer demand from our own generation sources. Nuclear operating costs increased by $54.1 million in 2000 and $32.4 million in 1999 due to refueling outage costs and increased ownership of the Beaver Valley Plant following the Duquesne asset swap in early December 1999. Increased Beaver Valley Plant ownership (including nonrecurring swap-related liabilities assumed) also contributed to higher nuclear operating costs in 1999 compared to the preceding year, along with outage-related costs at Beaver Valley Unit 2 and the Perry Plant. Other operating costs rose $23.8 million in 2000, compared to 1999, with most of the increase resulting from higher transmission costs in the fourth quarter as American Transmission Systems, Inc. (ATSI), an affiliated company, assumed responsibility for transmission operations and charged us for transmission services (see Financial Condition, Capital Resources and Liquidity). The impact of the higher transmission costs was offset in part by income received from ATSI under a ground lease arrangement and interest income from the promissory note received in connection with the sale of the transmission facilities. Also contributing to the increase in other operating costs in 2000 were higher reserves established for potentially uncollectible accounts of customers in the steel sector who are experiencing significant financial pressures from foreign steel competition, and the cost of additional leased portable diesel generators, acquired as part of our summer supply strategy. Partially offsetting those higher operating costs were $11.9 million in increased gains realized from the sale of emission allowances. In 1999, higher customer and sales expenses, including expenditures for energy marketing programs, information system requirements and other customer- related costs, as well as higher distribution costs from storm repairs and overhead line maintenance all contributed to higher other operating costs, compared to the preceding year. Total accelerated cost recovery under the Company's rate reduction plan and Penn's restructuring plan increased by $23.2 million in 2000 and $160.6 million in 1999, compared to the prior year. The table below summarizes the accelerated cost recovery by income statement caption: Regulatory Plan Accelerations 2000 1999 1998 - --------------------------------------------------------------- (In millions) Depreciation and amortization $332.6 $333.3 $172.9 Income tax amortization & other 42.6 18.7 18.5 - --------------------------------------------------------------- Total Plan Accelerations $375.2 $352.0 $191.4 =============================================================== The impact of accelerated cost recovery on depreciation and amortization was relatively unchanged in 2000 from the preceding year, but accounted for most of the increase in depreciation and amortization in 1999, compared to 1998. General taxes decreased $14.4 million in 2000 from 1999 primarily due to a prior year gross receipts tax refund, favorable property tax law changes and the phase-out of Pennsylvania's Capital Stock and Franchise Tax. Other Income Other income increased $10.1 million in 2000, compared to the previous year, principally due to the interest earned on long-term notes from ATSI (see Financial Condition, Capital Resources and Liquidity) and short-term loans to other affiliated companies. Net Interest Charges Net interest charges decreased by $19.4 million in 2000 and $12.0 million in 1999, compared to the prior year. We continue to redeem and refinance our outstanding debt and preferred stock, thus maintaining the downward trend in our financing costs during 2000. Net redemptions of long-term debt and preferred stock totaled $121.4 million and refinancings totaled $186.5 million in 2000. Effects of SFAS 71 Discontinuation - ---------------------------------- The application of Statement of Financial Accounting Standards No. (SFAS) 71, "Accounting for the Effects of Certain Types of Regulation" was discontinued for the Company's generation business effective with approval by the Public Utilities Commission of Ohio (PUCO) of the Ohio transition plan. Beginning June 30, 2000, the Company's balance sheet reflected that discontinuance with $1.2 billion of impaired generating plant investments recognized as regulatory assets which will be recovered as transition costs. We expect the incremental amortization of transition costs in 2001 to be lower than the depreciation and amortization accelerated under our former regulatory plan in 2000. On June 18, 1998, the Pennsylvania Public Utility Commission authorized Penn's rate restructuring plan that resulted in the discontinuation of SFAS 71 to Penn's generation business. Under the plan, Penn's rates were restructured to establish separate charges for transmission and distribution services; generation (which is subject to competition); and stranded cost recovery. A total of $215.4 million of impaired nuclear generating plant investments were recognized as regulatory assets to be recovered through the stranded cost recovery charge. The portion of generating plant investment not recovered through future customer rates resulted in a $30.5 million extraordinary after-tax write-down in 1998. We continue to bill and collect cost-based rates for transmission and distribution services, which remain subject to cost-based regulation; accordingly, it is appropriate that we continue the application of SFAS 71 to those operations. Financial Condition, Capital Resources and Liquidity - ---------------------------------------------------- On September 1, 2000, FirstEnergy Corp.'s (FirstEnergy) electric utility operating companies transferred $1.2 billion of their transmission assets to ATSI. As part of the transfer, we sold to ATSI $727.1 million of our transmission assets, net of $339.4 million of accumulated depreciation and $10.9 million of investment tax credits for $169.6 million of cash and $207.2 million of long-term notes. Our improving financial position reflects ongoing efforts to increase competitiveness and enhance shareholder value. We have continued to strengthen our financial position over the past five years by improving our fixed charge coverage ratios. Our corporate indenture ratio, which is used to measure our ability to issue first mortgage bonds, increased from 5.78 in 1995 to 7.45 in 2000, which enhances our financial flexibility. Over the same period, our charter ratio, a measure of our ability to issue preferred stock, improved from 2.31 to 2.88 and our common stockholder's equity as a percentage of capitalization rose from approximately 43% at the end of 1995 to 52% at the end of 2000. Over the last five years, we have reduced the average cost of long-term debt from 8.00% in 1995 to 7.58% at the end of 2000. Net redemptions of long-term debt and preferred stock and long-term debt refinancings completed in 2000 are expected to generate annual savings of about $8 million. We had about $18.3 million of cash and temporary investments and $315.4 million of short-term indebtedness as of December 31, 2000. Our unused borrowing capability included $187.5 million under revolving lines of credit and a $2.0 million bank facility that provides for borrowings on a short-term basis at the bank's discretion. At the end of 2000, we had the capability to issue $1.3 billion of additional first mortgage bonds on the basis of property additions and retired bonds. Based upon the earnings coverage test under our charter, we could issue $1.8 billion of preferred stock (assuming no additional debt was issued). Our cash requirements in 2001 for operating expenses, construction expenditures, scheduled debt maturities and preferred stock redemptions are expected to be met without issuing new securities. During 2000, we reduced our total debt by approximately $330 million. We have cash requirements of approximately $1.0 billion for the 2001-2005 period to meet scheduled maturities of long-term debt and preferred stock. Of that amount, approximately $23.2 million relates to 2001. Our capital spending for the period 2001-2005 is expected to be about $513 million (excluding nuclear fuel) of which approximately $118 million applies to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $187 million, of which about $39 million relates to 2001. During the same periods, our nuclear fuel investments are expected to be reduced by approximately $217 million and $45 million, respectively, as the nuclear fuel is consumed. Also, we have operating lease commitments, net of PNBV Capital Trust cash receipts, of approximately $373 million for the 2001-2005 period, of which approximately $68 million relates to 2001. Moody's Investors Service upgraded our credit ratings on September 27, 2000 and Fitch upgraded our credit ratings on October 30, 2000. The improved credit ratings should lower the cost of future borrowings. Our credit ratings remain under review for further possible upgrades by Moody's. The following table summarizes the changes in credit ratings: Credit Ratings Before Upgrade After Upgrade - ------------------------------------------------------------------- Moody's Moody's Investors Investors Service Fitch Service Fitch - -------------------------------------------------------------------- OE - -- First mortgage bonds Baa2 BBB Baa1 BBB+ Preferred Stock ba1 BB+ baa2 BBB- Penn - ---- First mortgage bonds Baa2 BBB+ Baa1 Unchanged Preferred Stock ba1 BBB baa2 Unchanged Interest Rate Risk - ------------------ Our exposure to fluctuations in market interest rates is reduced since a significant portion of our debt has fixed interest rates, as noted in the table below. We are subject to the inherent interest rate risks related to refinancing maturing debt by issuing new debt securities. As discussed in Note 2, our investment in the PNBV Capital Trust effectively reduces future lease obligations, also reducing interest rate risk. Changes in the market value of our nuclear decommissioning trust funds are recognized by making corresponding changes to the decommissioning liability, as described in Note 1. The table below presents principal amounts and related weighted average interest rates by year of maturity for our investment portfolio, debt obligations and preferred stock with mandatory redemption provisions.
Comparison of Carrying Value to Fair Value - ------------------------------------------------------------------------------------------------------ There- Fair 2001 2002 2003 2004 2005 after Total Value - ------------------------------------------------------------------------------------------------------ (Dollars in millions) Investments other than Cash and Cash Equivalents: Fixed Income $ 24 $ 27 $ 31 $306 $ 29 $712 $1,129 $1,158 Average interest rate 7.6% 7.8% 7.9% 7.8% 7.9% 7.7% 7.7% - ------------------------------------------------------------------------------------------------------- Liabilities - ------------------------------------------------------------------------------------------------------- Long-term Debt: Fixed rate $ 18 $324 $248 $ 96 $135 $690 $1,511 $1,563 Average interest rate 8.0% 7.8% 8.2% 7.3% 7.2% 7.1% 7.5% Variable rate $100 $594 $ 694 $ 694 Average interest rate 7.4% 4.8% 5.2% Short-term Borrowings $315 $ 315 $ 315 Average interest rate 6.9% 6.9% - ------------------------------------------------------------------------------------------------------- Preferred Stock $ 5 $ 1 $ 1 $ 1 $ 1 $131 $ 140 $ 138 Average dividend rate 8.5% 7.6% 7.6% 7.6% 7.6% 8.9% 8.8% - -------------------------------------------------------------------------------------------------------
Outlook - ------- On July 19, 2000, the PUCO approved FirstEnergy's plan for transition to customer choice in Ohio (see Note 1), filed on our behalf, as well as for our affiliated Ohio electric utility operating companies -- CEI and TE. As part of its authorization, the PUCO approved a settlement agreement between FirstEnergy and major groups representing most of FirstEnergy's Ohio customers regarding the transition to customer choice in selection of alternative suppliers. On January 1, 2001, electric choice became available to FirstEnergy's Ohio customers. Under the plan, we continue to deliver power to homes and businesses through our existing distribution system, which remains regulated. However, our rates have been restructured to establish separate charges for transmission and distribution, transition cost recovery and a generation-related component. When one of our Ohio customers elects to obtain power from an alternative supplier we reduce the customer's bill with a "generation shopping credit," based on market prices plus an incentive, and the customer receives a generation charge from the alternative supplier. The transition cost portion of rates provides for recovery of certain amounts not otherwise recoverable in a competitive generation market (such as regulatory assets). The transition costs will be paid by all customers regardless of whether or not they choose an alternative supplier. Under the plan, we assume the risk of not recovering up to $250 million of transition revenue if the rate of customers (excluding contracts and full- service accounts), switching their service from us has not reached an average of 20% over any consecutive twelve-month period by December 31, 2005 -- the end of the market development period. We also committed under the transition agreement to make available 560 MW of our generating capacity to marketers, brokers and aggregators at set prices, to be used for sales only to retail customers in our Ohio service area. Through February 8, 2001, approximately 409 MW of the 560 MW supply commitment had been secured by alternative suppliers. We began accepting customer applications for switching to alternative suppliers on December 8, 2000; as of February 8, 2001, we had been notified that about 55,000 of our customers requested generation services from other authorized suppliers, including FirstEnergy Services Corp. (FE Services), an affiliated company. Beginning in 2001, Ohio utilities which offer both competitive and regulated retail electric services must implement a corporate separation plan approved by the PUCO -- one which provides a clear separation between regulated and competitive operations. Since FirstEnergy's regionally-focused retail sales strategy envisions the continued operation of both regulated and competitive operations, its transition plan included details for corporate separation. The approved plan is consistent with the way FirstEnergy managed its businesses in 2000, through a competitive services unit, a utility services unit and a corporate support services unit. FE Services provides competitive retail energy services while we continue to provide regulated distribution services. FirstEnergy Generation Corp. (FE Generation), an associated company, leases fossil plants from us and operates those plants. We expect that the transfer of our fossil generating assets to FE Generation will be completed by the end of the market development period. All of our power supply requirements are provided by FE Services to satisfy our "provider of last resort" obligation under the FirstEnergy transition plan, as well as grandfathered wholesale contracts. We are in compliance with current sulfur dioxide and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. In 1998, the EPA finalized regulations requiring additional NOx reductions in the future from our Ohio and Pennsylvania facilities (see Note 5). We continue to evaluate our compliance plans and other compliance options. In July 1997, the EPA changed the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which we operate affected facilities. In 1999, we received notification of pending legal actions based on alleged violations of the Clean Air Act at our W. H. Sammis Plant involving the states of New York and Connecticut as well as the U.S. Department of Justice. The civil complaint filed by the U.S. Department of Justice requests installation of "best available control technology" as well as civil penalties of up to $27,500 per day of violation. We believe the Sammis Plant is in full compliance with the Clean Air Act and the legal actions are without merit. However, we are unable to predict the outcome of this litigation. Penalties could be imposed if the Sammis Plant continues to operate without correcting the alleged violations and a court determines that the allegations are valid. The Sammis Plant continues to operate while the matter is being decided. Under federal environmental law and related federal and state waste regulations, certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash as a nonhazardous waste. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. On August 8, 2000, our parent company, FirstEnergy Corp., entered into an agreement to merge with GPU, Inc, a Pennsylvania corporation, headquartered in Morristown, New Jersey. The target date for completing the merger is by the end of the second quarter of 2001. We will continue to be a wholly owned subsidiary of FirstEnergy Corp. OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------- (In thousands) OPERATING REVENUES $2,726,708 $2,686,949 $2,519,662 ---------- ---------- ---------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 418,790 475,792 511,645 Nuclear operating costs 366,387 312,289 279,917 Other operating costs 456,246 432,476 411,985 ---------- ---------- ---------- Total operation and maintenance expenses 1,241,423 1,220,557 1,203,547 Provision for depreciation and amortization 578,679 582,197 411,979 General taxes 225,849 240,281 242,524 Income taxes 198,436 170,872 174,692 ---------- ---------- ---------- Total operating expenses and taxes 2,244,387 2,213,907 2,032,742 ---------- ---------- ---------- OPERATING INCOME 482,321 473,042 486,920 OTHER INCOME 55,976 45,846 47,621 ---------- ---------- ---------- INCOME BEFORE NET INTEREST CHARGES 538,297 518,888 534,541 ---------- ---------- ---------- NET INTEREST CHARGES: Interest on long-term debt 165,409 178,217 184,915 Allowance for borrowed funds used during construction and capitalized interest (9,523) (4,159) (2,096) Other interest expense 31,451 31,971 34,976 Subsidiaries' preferred stock dividend requirements 14,504 15,170 15,426 ---------- ---------- ---------- Net interest charges 201,841 221,199 233,221 ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 336,456 297,689 301,320 EXTRAORDINARY ITEM (NET OF INCOME TAXES) (Note 1) -- -- (30,522) ---------- ---------- ---------- NET INCOME 336,456 297,689 270,798 PREFERRED STOCK DIVIDEND REQUIREMENTS 11,124 11,547 11,970 ---------- ---------- ---------- EARNINGS ON COMMON STOCK $ 325,332 $ 286,142 $ 258,828 ========== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
OHIO EDISON COMPANY CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 1999 - --------------------------------------------------------------------------------------------- (In thousands) ASSETS UTILITY PLANT: In service $4,930,844 $8,118,783 Less-Accumulated provision for depreciation 2,376,457 3,713,781 ---------- ---------- 2,554,387 4,405,002 ---------- ---------- Construction work in progress- Electric plant 219,623 205,671 Nuclear Fuel 18,898 10,059 ---------- ---------- 238,521 215,730 ---------- ---------- 2,792,908 4,620,732 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: PNBV Capital Trust (Note 2) 452,128 469,124 Letter of credit collateralization (Note 2) 277,763 277,763 Nuclear plant decommissioning trusts 262,042 236,903 Long-term notes receivable from associated companies (Note 3B) 351,545 145,675 Other 305,848 280,197 ---------- ---------- 1,649,326 1,409,662 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 18,269 87,175 Receivables- Customers (less accumulated provisions of $11,777,000 and $6,452,000, respectively, for uncollectible accounts) 304,719 278,484 Associated companies 478,025 221,653 Other (less accumulated provision of $1,000,000 for uncollectible accounts at both dates) 34,281 36,281 Materials and supplies, at average cost- Owned 80,534 69,119 Under consignment 51,488 55,278 Prepayments and other 76,934 73,682 ---------- ---------- 1,044,250 821,672 ---------- ---------- DEFERRED CHARGES: Regulatory assets 2,498,837 1,618,319 Property taxes 56,429 100,906 Unamortized sale and leaseback costs 80,103 85,100 Other 32,298 44,355 ---------- ---------- 2,667,667 1,848,680 ---------- ---------- $8,154,151 $8,700,746 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization): Common stockholder's equity $2,556,992 $2,624,460 Preferred stock- Not subject to mandatory redemption 160,965 160,965 Subject to mandatory redemption -- 5,000 Preferred stock of consolidated subsidiary- Not subject to mandatory redemption 39,105 39,105 Subject to mandatory redemption 15,000 15,000 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company subordinated debentures 120,000 120,000 Long-term debt 2,000,622 2,175,812 ---------- ---------- 4,892,684 5,140,342 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock 311,358 422,838 Short-term borrowings (Note 4)- Associated companies 19,131 35,583 Other 296,301 322,713 Accounts payable- Associated companies 123,859 50,883 Other 60,332 63,219 Accrued taxes 232,225 207,362 Accrued interest 34,106 37,572 Other 75,288 94,967 ---------- ---------- 1,152,600 1,235,137 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 1,298,845 1,468,478 Accumulated deferred investment tax credits 110,064 143,336 Nuclear plant decommissioning costs 261,204 239,695 Other postretirement benefits 160,719 148,421 Other 278,035 325,337 ---------- ---------- 2,108,867 2,325,267 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 2 and 5) ---------- ---------- $8,154,151 $8,700,746 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
As of December 31, 2000 1999 - ----------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) COMMON STOCKHOLDER'S EQUITY: Common stock, without par value, authorized 175,000,000 shares-100 shares outstanding $2,098,729 $2,098,729 Retained earnings (Note 3A) 458,263 525,731 ---------- ---------- Total common stockholder's equity 2,556,992 2,624,460 ---------- ---------- Number of Shares Optional Outstanding Redemption Price ----------------- ------------------- 2000 1999 Per Share Aggregate ---- ---- --------- --------- PREFERRED STOCK (Note 3C): Cumulative, $100 par value- Authorized 6,000,000 shares Not Subject to Mandatory Redemption: 3.90% 152,510 152,510 $103.63 $ 15,804 15,251 15,251 4.40% 176,280 176,280 108.00 19,038 17,628 17,628 4.44% 136,560 136,560 103.50 14,134 13,656 13,656 4.56% 144,300 144,300 103.38 14,917 14,430 14,430 --------- --------- -------- ---------- ---------- 609,650 609,650 63,893 60,965 60,965 --------- --------- -------- ---------- ---------- Cumulative, $25 par value- Authorized 8,000,000 shares Not Subject to Mandatory Redemption: 7.75% 4,000,000 4,000,000 25.00 100,000 100,000 100,000 --------- --------- -------- ---------- ---------- Total Not Subject to Mandatory Redemption 4,609,650 4,609,650 $163,893 160,965 160,965 ========= ========= ======== ---------- ---------- Cumulative, $100 par value- Subject to Mandatory Redemption (Note 3D): 8.45% 50,000 100,000 5,000 10,000 Redemption Within One Year (5,000) (5,000) --------- --------- ---------- ---------- Total Subject to Mandatory Redemption 50,000 100,000 -- 5,000 ========= ========= ---------- ---------- PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY (Note 3C): Pennsylvania Power Company- Cumulative, $100 par value- Authorized 1,200,000 shares Not Subject to Mandatory Redemption: 4.24% 40,000 40,000 $103.13 $ 4,125 4,000 4,000 4.25% 41,049 41,049 105.00 4,310 4,105 4,105 4.64% 60,000 60,000 102.98 6,179 6,000 6,000 7.75% 250,000 250,000 -- -- 25,000 25,000 --------- --------- -------- ---------- ---------- Total Not Subject to Mandatory Redemption 391,049 391,049 $ 14,614 39,105 39,105 ========= ========= ======== ---------- ---------- Subject to Mandatory Redemption (Note 3D): 7.625% 150,000 150,000 105.34 $ 15,801 15,000 15,000 ========= ========= ======== ---------- ---------- COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES (Note 3E): Cumulative, $25 par value- Authorized 4,800,000 shares Subject to Mandatory Redemption: 9.00% 4,800,000 4,800,000 120,000 120,000 ========= ========= ---------- ----------
OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
As of December 31, 2000 1999 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ (In thousands) LONG-TERM DEBT (Note 3F): First mortgage bonds: Ohio Edison Company- Pennsylvania Power Company- 6.375% due 2000 -- 80,000 9.740% due 2001-2019 18,539 19,513 7.375% due 2002 120,000 120,000 7.500% due 2003 40,000 40,000 7.500% due 2002 34,265 34,265 6.375% due 2004 20,500 20,500 8.250% due 2002 125,000 125,000 6.625% due 2004 14,000 14,000 8.625% due 2003 150,000 150,000 8.500% due 2022 27,250 27,250 6.875% due 2005 80,000 80,000 7.625% due 2023 6,500 6,500 8.750% due 2022 50,960 50,960 -------- ------- 7.625% due 2023 75,000 75,000 7.875% due 2023 93,500 93,500 ------- ------- Total first mortgage bonds. 728,725 808,725 126,789 127,763 855,514 936,488 ------- ------- -------- -------- ---------- ---------- Secured notes: Ohio Edison Company- Pennsylvania Power Company- 7.450% due 2000 -- 47,725 6.080% due 2000 -- 23,000 8.100% due 2000 -- 30,000 8.100% due 2000 -- 5,200 7.930% due 2002 15,887 28,386 5.400% due 2013 1,000 1,000 7.680% due 2005 200,000 200,000 5.400% due 2017 10,600 10,600 *4.650% due 2015 19,000 -- 7.150% due 2017 17,925 17,925 6.750% due 2015 40,000 40,000 5.900% due 2018 16,800 16,800 7.100% due 2018 -- 26,000 7.150% due 2021 14,482 14,482 7.050% due 2020 60,000 60,000 6.150% due 2023 12,700 12,700 7.000% due 2021 69,500 69,500 *5.050% due 2027 10,300 10,300 7.150% due 2021 443 443 6.450% due 2027 14,500 14,500 5.375% due 2028 13,522 13,522 5.375% due 2028 1,734 1,734 5.625% due 2029 50,000 50,000 5.450% due 2028 6,950 6,950 5.950% due 2029 56,212 56,212 6.000% due 2028 14,250 14,250 *4.650% due 2030 60,400 -- 5.950% due 2029 238 238 *4.700% due 2033 57,100 -- ------- ------- 5.450% due 2033 14,800 14,800 Limited Partnerships- 7.81% weighted average interest rate due 2000-2007 24,287 12,574 ------- ------- 681,151 649,162 121,479 149,679 802,630 798,841 ------- ------- ------- ------- ---------- ---------- OES Fuel- 7.10% weighted average interest rate 91,620 81,260 ---------- ---------- Total secured notes 894,250 880,101 ---------- ---------- Unsecured notes: Ohio Edison Company- Pennsylvania Power Company- * 7.475% due 2002 25,000 -- *5.900% due 2033 5,200 5,200 * 7.413% due 2002 75,000 -- ------- ------- * 7.300% due 2002 -- 140,000 * 8.113% due 2002 -- 50,000 * 4.300% due 2012 -- 50,000 * 4.800% due 2014 50,000 50,000 * 4.100% due 2015 50,000 50,000 * 5.800% due 2016 47,725 47,725 * 4.200% due 2018 -- 57,100 * 5.000% due 2018 56,000 56,000 * 4.900% due 2023 50,000 -- * 3.100% due 2032 -- 53,400 * 4.250% due 2033 50,000 50,000 * 4.650% due 2033 108,000 108,000 * 5.400% due 2033 30,000 30,000 ------- -------- Total unsecured notes 541,725 742,225 5,200 5,200 546,925 747,425 ------- ------- ------- ------- ---------- ---------- Capital lease obligations (Note 2) 12,961 33,852 ---------- ---------- Net unamortized discount on debt (2,670) (4,216) ---------- ---------- Long-term debt due within one year (306,358) (417,838) ---------- ---------- Total long-term debt 2,000,622 2,175,812 ---------- ---------- TOTAL CAPITALIZATION $4,892,684 $5,140,342 ========== ========== * Denotes variable rate issue with December 31, 2000 interest rate shown for only December 31, 2000 balances and December 31, 1999 interest rate shown for only December 31, 1999 balances. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
Accumulated Other Comprehensive Comprehensive Number Carrying Income Retained Income of Shares Value (Loss) Earnings ------------- --------- --------- --------------- --------- (Dollars in thousands) Balance, January 1, 1998 100 $2,103,260 $ (615) $621,674 Net income $270,798 270,798 Transfer of minimum liability for unfunded retirement benefits to parent 615 615 -------- Comprehensive income $271,413 ======== Transfer of ESOP premium to parent (4,531) Cash dividends on preferred stock (11,952) Cash dividends on common stock (297,376) - ---------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 100 2,098,729 -- 583,144 Net income $297,689 297,689 ======== Transfer of Penn Power Energy to FirstEnergy Services Corp. 3,302 Cash dividends on preferred stock (11,401) Cash dividends on common stock (347,003) - ---------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 100 2,098,729 -- 525,731 Net income $336,456 336,456 ======== Cash dividends on preferred stock (11,124) Cash dividends on common stock (392,800) - ---------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 100 $2,098,729 $ -- $ 458,263 ================================================================================================================
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
Not Subject to Subject to Mandatory Redemption Mandatory Redemption -------------------- ------------------- Number Par Number Par of Shares Value of Shares Value ---------- ----- --------- ----- (Dollars in thousands) Balance, January 1, 1998 5,118,699 $211,870 5,150,000 $155,000 Redemptions- 8.45% Series (50,000) (5,000) - --------------------------------------------------------------------------------------------------- Balance, December 31, 1998 5,118,699 211,870 5,100,000 150,000 Redemptions- 7.64% Series (60,000) (6,000) 8.00% Series (58,000) (5,800) 8.45% Series (50,000) (5,000) - --------------------------------------------------------------------------------------------------- Balance, December 31, 1999 5,000,699 200,070 5,050,000 145,000 Redemptions- 8.45% Series (50,000) (5,000) - --------------------------------------------------------------------------------------------------- Balance, December 31, 2000 5,000,699 $200,070 5,000,000 $140,000 =================================================================================================== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000 1999 1998 - --------------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 336,456 $ 297,689 $ 270,798 Adjustments to reconcile net income to net cash from operating activities: Provision for depreciation and amortization 578,679 582,197 411,979 Nuclear fuel and lease amortization 52,232 45,850 35,086 Deferred income taxes, net (110,038) (120,149) (55,817) Investment tax credits, net (25,035) (13,793) (14,290) Extraordinary item -- -- 51,730 Receivables (279,575) (43,623) (144,549) Materials and supplies (7,625) 18,257 (1,627) Accounts payable 70,089 14,443 (8,455) Other 8,753 14,442 64,552 --------- --------- --------- Net cash provided from operating activities 623,936 795,313 609,407 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt 207,283 242,601 117,265 Short-term borrowings, net -- 20,113 35,954 Redemptions and Repayments- Preferred stock 5,000 17,005 5,000 Long-term debt 485,178 396,410 225,241 Short-term borrowings, net 42,864 -- -- Dividend Payments- Common stock 392,800 347,003 297,746 Preferred stock 11,124 11,512 11,865 --------- --------- --------- Net cash used for financing activities 729,683 509,216 386,633 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 279,508 237,199 186,139 Loans to associated companies 206,901 -- -- Sale of assets to associated companies (531,633) -- -- Other 8,383 (5,064) 8,102 --------- --------- --------- Net cash used for (provided from) investing activities (36,841) 232,135 194,241 --------- --------- --------- Net increase (decrease) in cash and cash equivalents (68,906) 53,962 28,533 Cash and cash equivalents at beginning of year 87,175 33,213 4,680 --------- --------- --------- Cash and cash equivalents at end of year $ 18,269 $ 87,175 $ 33,213 ========= ========= ========= SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid During the Year- Interest (net of amounts capitalized) $ 183,117 $ 203,749 $ 201,064 ========= ========= ========= Income taxes $ 305,644 $ 308,052 $ 219,226 ========= ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF TAXES
For the Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- (In thousands) GENERAL TAXES: Real and personal property $ 103,741 $ 111,222 $ 116,868 State gross receipts 104,851 106,926 104,175 Social security and unemployment 11,964 14,432 12,701 Other 5,293 7,701 8,780 ---------- ---------- ---------- Total general taxes $ 225,849 $ 240,281 $ 242,524 ========== ========== ========== PROVISION FOR INCOME TAXES: Currently payable- Federal $ 329,616 $ 307,462 $ 229,164 State 18,037 18,315 14,732 ---------- ---------- ---------- 347,653 325,777 243,896 ---------- ---------- ---------- Deferred, net- Federal (102,692) (113,347) (50,310) State (7,346) (6,802) (5,507) ---------- ---------- ---------- (110,038) (120,149) (55,817) ---------- ---------- ---------- Investment tax credit amortization (25,035) (13,793) (14,290) ---------- ---------- ---------- Total provision for income taxes $ 212,580 $ 191,835 $ 173,789 ========== ========== ========== INCOME STATEMENT CLASSIFICATION OF PROVISION FOR INCOME TAXES: Operating income $ 198,436 $ 170,872 $ 174,692 Other income 14,144 20,963 20,305 Extraordinary item -- -- (21,208) ---------- ---------- ---------- Total provision for income taxes $ 212,580 $ 191,835 $ 173,789 ========== ========== ========== RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES: Book income before provision for income taxes $ 549,036 $ 489,524 $ 444,587 ========== ========== ========== Federal income tax expense at statutory rate $ 192,163 $ 171,333 $ 155,605 Increases (reductions) in taxes resulting from- Amortization of investment tax credits (25,035) (13,793) (14,290) State income taxes, net of federal income tax benefit 6,949 7,483 5,996 Amortization of tax regulatory assets 39,746 24,950 29,961 Other, net (1,243) 1,862 (3,483) ---------- ---------- ---------- Total provision for income taxes $ 212,580 $ 191,835 $ 173,789 ========== ========== ========== ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31: Property basis differences $ 377,521 $ 847,479 $ 880,645 Allowance for equity funds used during construction 62,604 152,846 169,780 Deferred nuclear expense 220,123 229,366 237,602 Impaired generating assets 439,987 -- -- Competitive transition charge 95,497 115,277 135,730 Customer receivables for future income taxes 68,624 163,500 164,618 Deferred sale and leaseback costs (30,151) (26,966) 45,521 Unamortized investment tax credits (39,369) (51,521) (55,495) Deferred gain for asset sale to affiliated company 73,312 -- -- Other 30,697 38,497 23,486 ---------- ---------- ---------- Net deferred income tax liability $1,298,845 $1,468,478 $1,601,887 ========== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Other Pension Benefits Postretirement Benefits ---------------- ------------------------- 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------- (In millions) Change in benefit obligation: Benefit obligation as of January 1 $1,394.1 $1,500.1 $ 608.4 $ 601.3 Service cost 27.4 28.3 11.3 9.3 Interest cost 104.8 102.0 45.7 40.7 Plan amendments 41.3 -- -- -- Actuarial loss (gain) 17.3 (155.6) 121.7 (17.6) Net increase from asset swap -- 14.8 -- 12.5 Voluntary early retirement program expense 23.4 -- -- -- Benefits paid (102.2) (95.5) (35.1) (37.8) - ------------------------------------------------------------------------------------------------- Benefit obligation as of December 31 1,506.1 1,394.1 752.0 608.4 - ------------------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets as of January 1 1,807.5 1,683.0 4.9 3.9 Actual return on plan assets 0.7 220.0 (0.2) 0.6 Company contribution -- -- 18.3 0.4 Benefits paid (102.2) (95.5) -- -- - ------------------------------------------------------------------------------------------------- Fair value of plan assets as of December 31 1,706.0 1,807.5 23.0 4.9 - ------------------------------------------------------------------------------------------------- Funded status of plan 199.9 413.4 (729.0) (603.5) Unrecognized actuarial loss (gain) (90.9) (303.5) 147.3 24.9 Unrecognized prior service cost 93.1 57.3 20.9 24.1 Unrecognized net transition obligation (asset) (2.1) (10.1) 110.9 120.1 - ------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 200.0 $ 157.1 $(449.9) $(434.4) ================================================================================================= Companies' share of prepaid (accrued) benefit cost $ 213.9 $ 194.8 $(157.0) $(145.7) ================================================================================================= Assumptions used as of December 31: Discount rate 7.75% 7.75% 7.75% 7.75% Expected long-term return on plan assets 10.25% 10.25% 10.25% 10.25% Rate of compensation increase 4.00% 4.00% 4.00% 4.00% FirstEnergy's net pension and other postretirement benefit costs for the three years ended December 31, 2000 were computed as follows:
Other Pension Benefits Postretirement Benefits ------------------------- ------------------------- 2000 1999 1998 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------- (In millions) Service cost $ 27.4 $ 28.3 $ 25.0 $11.3 $ 9.3 $ 7.5 Interest cost 104.8 102.0 92.5 45.7 40.7 37.6 Expected return on plan assets (181.0) (168.1) (152.7) (0.5) (0.4) (0.3) Amortization of transition obligation (asset) (7.9) (7.9) (8.0) 9.2 9.2 9.2 Amortization of prior service cost 5.7 5.7 2.3 3.2 3.3 (0.8) Recognized net actuarial loss (gain) (9.1) -- (2.6) -- -- -- Voluntary early retirement program expense 17.2 -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------ Net benefit cost $ (42.9) $ (40.0) $ (43.5) $68.9 $62.1 $53.2 ============================================================================================================== Companies' share of total plan costs $ (19.1) $ (16.9) $ (39.7) $24.7 $25.5 $31.2 - ------------------------------------------------------------------------------------------------------------
The FirstEnergy plan's health care trend rate assumption is 7.2% in 2001, 7.0% in 2002 and 6.5% in 2003, trending to 5.0% - 5.5% in later years. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. An increase in the health care trend rate assumption by one percentage point would increase the total service and interest cost components by $7.5 million and the postretirement benefit obligation by $94.4 million. A decrease in the same assumption by one percentage point would decrease the total service and interest cost components by $8.5 million and the postretirement benefit obligation by $111.0 million. TRANSACTIONS WITH AFFILIATED COMPANIES- Operating revenues and operating expenses include transactions with CEI and TE, which were primarily for electric sales and ATSI transmission rent expense of $32.4 million starting in 2000. The amounts related to CEI and TE were $53.4 million and $15.9 million, respectively, for 2000, $27.7 million and $18.1 million, respectively, for 1999 and $17.8 million and $12.7 million, respectively, for 1998. Other income included $5.4 million of interest income from ATSI beginning in 2000. FirstEnergy provides support services at cost to the Companies and other affiliated companies, for which the Companies were billed $119.0 million, $118.2 million and $114.2 million in 2000, 1999 and 1998, respectively. SUPPLEMENTAL CASH FLOWS INFORMATION- All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets. As of December 31, 1999, cash and cash equivalents included $83 million used for the redemption of long-term debt in the first quarter of 2000. The Companies reflect temporary cash investments at cost, which approximates their market value. Noncash financing and investing activities included capital lease transactions amounting to $1.3 million, $1.4 million and $1.6 million for the years 2000, 1999 and 1998, respectively. Commercial paper transactions of OES Fuel, Incorporated (OES Fuel) (a wholly owned subsidiary of the Company) that have initial maturity periods of three months or less are reported net within financing activities under long-term debt and are reflected as long-term debt on the Consolidated Balance Sheets (see Note 3F). All borrowings with initial maturities of less than one year are defined as financial instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value. The following sets forth the approximate fair value and related carrying amounts of all other long-term debt, preferred stock subject to mandatory redemption and investments other than cash and cash equivalents as of December 31: 2000 1999 - ----------------------------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - ----------------------------------------------------------------------- (In millions) Long-term debt $2,205 $2,257 $2,483 $2,459 Preferred stock $ 140 $ 138 $ 145 $ 142 Investments other than cash and cash equivalents: Debt securities - Maturity (5-10 years) $ 460 $ 441 $ 475 $ 476 - Maturity (more than 10 years) 464 512 258 267 Equity securities 13 13 14 14 All other 342 341 301 311 - ------------------------------------------------------------------------ $1,279 $1,307 $1,048 $1,068 ======================================================================== The fair values of long-term debt and preferred stock reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective year. The yields assumed were based on securities with similar characteristics offered by a corporation with credit ratings similar to the Companies' ratings. The fair value of investments other than cash and cash equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms. Investments other than cash and cash equivalents include decommissioning trust investments. Unrealized gains and losses applicable to the decommissioning trusts have been recognized in the trust investment with corresponding changes to the decommissioning liability. The Companies have no securities held for trading purposes. REGULATORY ASSETS- The Companies recognize, as regulatory assets, costs which the FERC, PUCO and PPUC have authorized for recovery from customers in future periods. Without such authorization, the costs would have been charged to income as incurred. All regulatory assets will continue to be recovered from customers under the Companies' respective transition and rate restructuring plans. Based on those plans, the Companies continue to bill and collect cost-based rates for their transmission and distribution services, which remain regulated; accordingly, it is appropriate that the Companies continue the application of SFAS 71 to those operations. The Companies also recognized additional cost recovery of $270 million, $257 million and $50 million in 2000, 1999 and 1998, respectively, as additional regulatory asset amortization in accordance with their regulatory plans. The application of SFAS 71 to the Company's generation business was discontinued effective with the PUCO's approval of FirstEnergy's transition plan. The effect of such discontinuance was reflected on the financial statements as of June 30, 2000, with the reduction of plant investment and the corresponding recognition of regulatory assets recoverable through future regulatory cash flows for generating assets that were impaired of approximately $1.2 billion for the Company. Regulatory assets on the Consolidated Balance Sheets are comprised of the following: 2000 1999 - ----------------------------------------------------------------- (In millions) Impaired generating assets $1,238.1 $ -- Nuclear unit expenses 619.4 643.0 Customer receivables for future income taxes 190.3 455.3 Competitive transition charge 230.9 280.4 Sale and leaseback costs 113.6 120.5 Loss on reacquired debt 80.1 79.7 Employee postretirement benefit costs 20.7 24.8 Other 5.7 14.6 - ------------------------------------------------------------------- Total $2,498.8 $1,618.3 =================================================================== 2. LEASES The Companies lease certain generating facilities, office space and other property and equipment under cancelable and noncancelable leases. The Company sold portions of its ownership interest in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on the portions sold for basic lease terms of approximately 29 years. During the terms of the leases, the Company continues to be responsible, to the extent of its individual combined ownership and leasehold interests, for costs associated with the units including construction expenditures, operation and maintenance expenses, insurance, nuclear fuel, property taxes and decommissioning. The Company has the right, at the end of the respective basic lease terms, to renew the leases for up to two years. The Company also has the right to purchase the facilities at the expiration of the basic lease term or renewal term (if elected) at a price equal to the fair market value of the facilities. The basic rental payments are adjusted when applicable federal tax law changes. OES Finance, Incorporated (OES Finance), a wholly owned subsidiary of the Company, maintains deposits pledged as collateral to secure reimbursement obligations relating to certain letters of credit supporting the Company's obligations to lessors under the Beaver Valley Unit 2 sale and leaseback arrangements. The deposits pledged to the financial institution providing those letters of credit are the sole property of OES Finance. In the event of liquidation, OES Finance, as a separate corporate entity, would have to satisfy its obligations to creditors before any of its assets could be made available to the Company as sole owner of OES Finance common stock. Consistent with the regulatory treatment, the rentals for capital and operating leases are charged to operating expenses on the Consolidated Statements of Income. Such costs for the three years ended December 31, 2000, are summarized as follows: 2000 1999 1998 - --------------------------------------------------- (In millions) Operating leases Interest element $107.0 $108.5 $110.0 Other 35.1 34.4 28.9 Capital leases Interest element 2.5 5.3 5.3 Other 2.6 4.4 4.8 - --------------------------------------------------- Total rentals $147.2 $152.6 $149.0 =================================================== The future minimum lease payments as of December 31, 2000, are: Operating Leases -------------------------------- Capital Lease PNBV Capital Leases Payments Trust Net - ---------------------------------------------------------------- (In millions) 2001 $ 5.3 $ 127.1 $ 59.5 $ 67.6 2002 4.8 130.4 61.0 69.4 2003 4.5 136.9 62.6 74.3 2004 4.4 137.7 58.3 79.4 2005 4.4 138.6 56.3 82.3 Years thereafter 8.6 1,551.7 474.6 1,077.1 - ------------------------------------------------------------------ Total minimum lease payments 32.0 $2,222.4 $772.3 $1,450.1 Executory costs 10.6 ======== ====== ======== - --------------------------- Net minimum lease payments 21.4 Interest portion 8.4 - --------------------------- Present value of net minimum lease payments 13.0 Less current portion 2.2 - --------------------------- Noncurrent portion $10.8 =========================== The Company invested in the PNBV Capital Trust, which was established to purchase a portion of the lease obligation bonds issued on behalf of lessors in the Company's Perry Unit 1 and Beaver Valley Unit 2 sale and leaseback transactions. The PNBV capital trust arrangement effectively reduces lease costs related to those transactions. 3. CAPITALIZATION: (A) RETAINED EARNINGS- Under the Company's first mortgage indenture, the Company's consolidated retained earnings unrestricted for payment of cash dividends on the Company's common stock were $409.8 million at December 31, 2000. (B) EMPLOYEE STOCK OWNERSHIP PLAN- FirstEnergy funds the matching contribution for its 401(k) savings plan through an ESOP Trust. All of the Companies' full-time employees eligible for participation in the 401(k) savings plan are covered by the ESOP. The ESOP borrowed $200 million from the Company and acquired 10,654,114 shares of the Company's common stock (subsequently converted to FirstEnergy common stock) through market purchases. The ESOP loan is included in Other Property and Investments on the Consolidated Balance Sheets as of December 31, 2000 and 1999 as an investment with FirstEnergy related to the FirstEnergy savings plan. Dividends on ESOP shares are used to service the debt. Shares are released from the ESOP on a pro rata basis as debt service payments are made. (C) PREFERRED AND PREFERENCE STOCK- Penn's 7.75% series of preferred stock has a restriction which prevents early redemption prior to July 2003. The Company's 8.45% series of preferred stock has no optional redemption provision. All other preferred stock may be redeemed by the Companies in whole, or in part, with 30-60 days' notice. The Company has eight million authorized and unissued shares of preference stock having no par value. (D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION- The Company's 8.45% series of preferred stock has an annual sinking fund requirement for 50,000 shares. Penn's 7.625% series has an annual sinking fund requirement for 7,500 shares beginning on October 1, 2002. The Companies' preferred shares are retired at $100 per share plus accrued dividends. Annual sinking fund requirements are $5 million in 2001 and $1 million in each year 2002-2005. (E) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES- Ohio Edison Financing Trust, a wholly owned subsidiary of the Company, has issued $120 million of 9% Cumulative Trust Preferred Capital Securities. The Company purchased all of the Trust's Common Securities and simultaneously issued to the Trust $123.7 million principal amount of 9% Junior Subordinated Debentures due 2025 in exchange for the proceeds that the Trust received from its sale of Preferred and Common Securities. The sole assets of the Trust are the Subordinated Debentures whose interest and other payment dates coincide with the distribution and other payment dates on the Trust Securities. Under certain circumstances the Subordinated Debentures could be distributed to the holders of the outstanding Trust Securities in the event the Trust is liquidated. The Subordinated Debentures may be optionally redeemed by the Company at a redemption price of $25 per Subordinated Debenture plus accrued interest, in which event the Trust Securities will be redeemed on a pro rata basis at $25 per share plus accumulated distributions. The Company's obligations under the Subordinated Debentures along with the related Indenture, amended and restated Trust Agreement, Guarantee Agreement and the Agreement for expenses and liabilities, constitute a full and unconditional guarantee by the Company of payments due on the Preferred Securities. (F) LONG-TERM DEBT- The first mortgage indentures and their supplements, which secure all of the Companies' first mortgage bonds, serve as direct first mortgage liens on substantially all property and franchises, other than specifically excepted property, owned by the Companies. Based on the amount of bonds authenticated by the Trustees through December 31, 2000, the Companies' annual sinking and improvement fund requirements for all bonds issued under the mortgage amounts to $31 million. The Companies expect to deposit funds in 2001 that will be withdrawn upon the surrender for cancellation of a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property additions or against previously retired bonds. This method can result in minor increases in the amount of the annual sinking fund requirement. Sinking fund requirements for first mortgage bonds and maturing long-term debt (excluding capital leases) for the next five years are: (In millions) - ---------------------------- 2001 $304.2 2002 515.6 2003 247.7 2004 257.0 2005 135.4 - ---------------------------- The Companies' obligations to repay certain pollution control revenue bonds are secured by several series of first mortgage bonds. Certain pollution control revenue bonds are entitled to the benefit of irrevocable bank letters of credit of $225.1 million and noncancelable municipal bond insurance policies of $136.5 million to pay principal of, or interest on, the pollution control revenue bonds. To the extent that drawings are made under the letters of credit, the Companies are entitled to a credit against their obligation to repay those bonds. The Companies pay annual fees of 0.60% to 1.25% of the amounts of the letters of credit to the issuing banks and are obligated to reimburse the banks for any drawings thereunder. The Company had unsecured borrowings of $100 million as of December 31, 2000, supported by a $250 million long-term revolving credit facility agreement which expires November 18, 2002. The Company must pay an annual facility fee of 0.20% on the total credit facility amount. In addition, the credit agreement provides that the Company maintain unused first mortgage bond capability for the full credit agreement amount under the Company's indenture as potential security for the unsecured borrowings. Nuclear fuel purchases are financed through the issuance of OES Fuel commercial paper and loans, both of which are supported by a $180.5 million long-term bank credit agreement which expires March 31, 2001. The Company intends to extend the credit agreement through March 31, 2002. Accordingly, a portion of the commercial paper and loans is reflected as long-term debt on the Consolidated Balance Sheets. OES Fuel must pay an annual facility fee of 0.20% on the total line of credit and an annual commitment fee of 0.0625% on any unused amount. 4. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT: Short-term borrowings outstanding as of December 31, 2000, consisted of $136.4 million of bank borrowings and $159.9 million of OES Capital, Incorporated (OES Capital) commercial paper. OES Capital is a wholly owned subsidiary of the Company whose borrowings are secured by customer accounts receivable. OES Capital can borrow up to $170 million under a receivables financing agreement at rates based on certain bank commercial paper and is required to pay an annual fee of 0.20% on the amount of the entire finance limit. The receivables financing agreement expires in 2002. As of December 31, 2000, the Company also had total short-term borrowings of $19.1 million from its affiliates. The Company has lines of credit with domestic banks that provide for borrowings of up to $55 million under various interest rate options. Short-term borrowings may be made under these lines of credit on its unsecured notes. To assure the availability of these lines, the Company is required to pay annual commitment fees of 0.15% to 0.20%. These lines expire at various times during 2001. The weighted average interest rates on short-term borrowings outstanding as of December 31, 2000 and 1999, were 6.93% and 6.27%, respectively. 5. COMMITMENTS AND CONTINGENCIES: CAPITAL EXPENDITURES- The Companies' current forecasts reflect expenditures of approximately $513 million for property additions and improvements from 2001-2005, of which approximately $118 million is applicable to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $187 million, of which approximately $39 million applies to 2001. During the same periods, the Companies' nuclear fuel investments are expected to be reduced by approximately $217 million and $45 million, respectively, as the nuclear fuel is consumed. NUCLEAR INSURANCE- The Price-Anderson Act limits the public liability relative to a single incident at a nuclear power plant to $9.5 billion. The amount is covered by a combination of private insurance and an industry retrospective rating plan. Based on their ownership and leasehold interests in the Beaver Valley Station and the Perry Plant, the Companies' maximum potential assessment under the industry retrospective rating plan (assuming the other affiliate co-owners contribute their proportionate shares of any assessments under the retrospective rating plan) would be $168.2 million per incident but not more than $19.1 million in any one year for each incident. The Companies are also insured as to their respective interests in Beaver Valley and Perry under policies issued to the operating company for each plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Companies have also obtained approximately $358 million of insurance coverage for replacement power costs for their respective interests in Beaver Valley and Perry. Under these policies, the Companies can be assessed a maximum of approximately $17.7 million for incidents at any covered nuclear facility occurring during a policy year which are in excess of accumulated funds available to the insurer for paying losses. The Companies intend to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Companies' plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Companies' insurance policies, or to the extent such insurance becomes unavailable in the future, the Companies would remain at risk for such costs. ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. In accordance with the Ohio transition plan discussed in "Regulatory Plans" in Note 1, generation operations and any related additional capital expenditures for environmental compliance are the responsibility of FirstEnergy's competitive services business unit. The Companies are required to meet federally approved sulfur dioxide (SO2) regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $27,500 for each day the unit is in violation. The Environmental Protection Agency (EPA) has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The Companies cannot predict what action the EPA may take in the future with respect to the interim enforcement policy. The Companies are in compliance with the current SO2 and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or using emission allowances. NOx reductions are being achieved through combustion controls and the generation of more electricity at lower-emitting plants. In September 1998, the EPA finalized regulations requiring additional NOx reductions from the Companies' Ohio and Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions of NOx emissions (an approximate 85% reduction in utility plant NOx emissions from projected 2007 emissions) across a region of twenty-two states and the District of Columbia, including Ohio and Pennsylvania, based on a conclusion that such NOx emissions are contributing significantly to ozone pollution in the eastern United States. In March 2000, the U.S. Court of Appeals for the D.C. Circuit upheld EPA's NOx Transport Rule except as applied to the State of Wisconsin and portions of Georgia and Missouri. By October 2000, states were to submit revised State Implementation Plans (SIP) to comply by May 31, 2004 with individual state NOx budgets established by the EPA. Pennsylvania recently submitted a SIP that requires compliance with the NOx budgets at the Companies' Pennsylvania facilities by May 1, 2003 and Ohio submitted a "draft" SIP that requires compliance with the NOx budgets at the Companies' Ohio facilities by May 31, 2004. A Federal Implementation Plan accompanied the NOx Transport Rule and may be implemented by the EPA in states which fail to revise their SIP. In another separate but related action, eight states filed petitions with the EPA under Section 126 of the Clean Air Act seeking reductions of NOx emissions which are alleged to contribute to ozone pollution in the eight petitioning states. The EPA position is that the Section 126 petitions will be adequately addressed by the NOx Transport Program, but a December 17, 1999 rulemaking established an alternative program which would require nearly identical 85% NOx reductions at 392 utility plants, including the Companies' Ohio and Pennsylvania plants, by May 2003, in the event implementation of the NOx Transport Rule is not implemented by a state. Additional Section 126 petitions were filed by New Jersey, Maryland, Delaware and the District of Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy continues to evaluate its compliance plans and other compliance options. In July 1997, the EPA promulgated changes in the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which the Companies operate affected facilities. In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a Compliance Order to nine utilities covering 44 power plants, including the W. H. Sammis Plant. In addition, the U.S. Department of Justice filed eight civil complaints against various investor-owned utilities, which included a complaint against the Companies in the U.S. District Court for the Southern District of Ohio. The NOV and complaint allege violations of the Clean Air Act based on operation and maintenance of the Sammis Plant dating back to 1984. The complaint requests permanent injunctive relief to require the installation of "best available control technology" and civil penalties of up to $27,500 per day of violation. Although unable to predict the outcome of these proceedings, the Companies believe the Sammis Plant is in full compliance with the Clean Air Act and the NOV and complaint are without merit. Penalties could be imposed if the Sammis Plant continues to operate without correcting the alleged violations and a court determines that the allegations are valid. The Sammis Plant continues to operate while these proceedings are pending. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. Certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash under its authority to regulate nonhazardous waste. 6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): The following summarizes certain consolidated operating results by quarter for 2000 and 1999. March 31, June 30, September 30, December 31, Three Months Ended 2000 2000 2000 2000 - ------------------------------------------------------------------------ (In millions) Operating Revenues $644.4 $667.2 $733.9 $681.2 Operating Expenses and Taxes 524.9 533.1 604.6 581.8 - ---------------------------------------------------------------------- Operating Income 119.5 134.1 129.3 99.4 Other Income 12.3 11.5 16.4 15.8 Net Interest Charges 51.0 51.8 51.4 47.6 - ---------------------------------------------------------------------- Net Income $ 80.8 $ 93.8 $ 94.3 $ 67.6 ====================================================================== Earnings on Common Stock $ 78.0 $ 91.0 $ 91.5 $ 64.8 ====================================================================== March 31, June 30, September 30, December 31, Three Months Ended 1999 1999 1999 1999 - ---------------------------------------------------------------------- (In millions) Operating Revenues $633.1 $646.7 $770.5 $636.6 Operating Expenses and Taxes 498.1 532.7 650.2 532.8 - ---------------------------------------------------------------------- Operating Income 135.0 114.0 120.3 103.8 Other Income 9.3 13.1 10.2 13.2 Net Interest Charges 56.5 58.4 53.9 52.5 - ---------------------------------------------------------------------- Net Income $ 87.8 $ 68.7 $ 76.6 $ 64.5 ====================================================================== Earnings on Common Stock $ 84.9 $ 65.8 $ 73.7 $ 61.7 ====================================================================== Report of Independent Public Accountants To the Stockholders and Board of Directors of Ohio Edison Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Ohio Edison Company (an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, common stockholder's equity, preferred stock, cash flows and taxes for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ohio Edison Company and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. 24 1 EX-21.1 17 ex21-1.txt LIST OF SUBS - OE EXHIBIT 21.1 OHIO EDISON COMPANY LIST OF SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 2000 Pennsylvania Power Company - Incorporated in Pennsylvania OES Fuel, Incorporated - Incorporated in Ohio OES Ventures, Incorporated - Incorporated in Ohio OES Capital, Incorporated - Incorporated in Delaware OES Finance, Incorporated - Incorporated in Ohio OES Nuclear, Incorporated - Incorporated in Ohio Ohio Edison Financing Trust - Incorporated in Delaware Ohio Edison Financing Trust II - Incorporated in Delaware Statement of Differences ------------------------ Exhibit Number 21, List of Subsidiaries of the Registrant at December 31, 2000, is not included in the printed document. EX-23.1 18 ex23-1.txt CONSENT - OE EXHIBIT 23.1 OHIO EDISON COMPANY CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into Ohio Edison Company's previously filed Registration Statements, File No. 33-49135, No. 33-49259, No. 33-49413, No. 33-51139, No. 333-01489 and No. 333-05277. ARTHUR ANDERSEN LLP Cleveland, Ohio, March 28, 2001. EX-12.3 19 ex12-3.txt RATIOS - CEI EXHIBIT 12.3 Page 1 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, --------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $116,553 $114,481 $164,891 $194,089 $202,950 Interest and other charges, before reduction for amounts capitalized 244,789 248,429 232,727 211,960 202,752 Provision for income taxes 69,120 92,969 110,611 123,869 126,701 Interest element of rentals charged to income (a) 79,503 69,086 68,314 66,680 65,616 -------- -------- -------- -------- -------- Earnings as defined $509,965 $524,965 $576,543 $596,598 $598,019 ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K: Interest expense $244,789 $248,429 $232,727 $211,960 $202,752 Interest element of rentals charged to income (a) 79,503 69,086 68,314 66,680 65,616 -------- -------- -------- -------- -------- Fixed charges as defined $324,292 $317,515 $301,041 $278,640 $268,368 ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES 1.57 1.65 1.92 2.14 2.23 ==== ==== ==== ==== ==== - ----------------------------- (a) Includes the interest component of Bruce Mansfield sale and leaseback rentals, leased nuclear fuel in the reactor, and other miscellaneous rentals.
EXHIBIT 12.3 Page 2 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
Year Ended December 31, --------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $116,553 $114,481 $164,891 $194,089 $202,950 Interest and other charges, before reduction for amounts capitalized 244,789 248,429 232,727 211,960 202,752 Provision for income taxes 69,120 92,969 110,611 123,869 126,701 Interest element of rentals charged to income (a) 79,503 69,086 68,314 66,680 65,616 -------- -------- -------- -------- -------- Earnings as defined $509,965 $524,965 $576,543 $596,598 $598,019 ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS): Interest expense $244,789 $248,429 $232,727 $211,960 $202,752 Preferred stock dividend requirements 38,743 45,029 24,794 33,524 20,843 Adjustments to preferred stock dividends to state on a pre-income tax basis 22,976 36,568 16,632 21,395 13,012 Interest element of rentals charged to income (a) 79,503 69,086 68,314 66,680 65,616 -------- -------- -------- -------- -------- Fixed charges as defined plus preferred stock dividend requirements (pre-income tax basis) $386,011 $399,112 $342,467 $333,559 $302,223 ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS) 1.32 1.32 1.68 1.79 1.98 ==== ==== ==== ==== ==== - -------------------- (a) Includes the interest component of Bruce Mansfield sale and leaseback rentals, leased nuclear fuel in the reactor, and other miscellaneous rentals.
EX-13.2 20 ex13-2.txt ANNUAL REPORT - CEI THE CLEVELAND ELECTRIC ILLUMINATING COMPANY 2000 ANNUAL REPORT TO STOCKHOLDERS The Cleveland Electric Illuminating Company is a wholly owned electric utility operating subsidiary of FirstEnergy Corp. It engages in the generation, distribution and sale of electric energy in an area of approximately 1,700 square miles in northeastern Ohio. It also engages in the sale, purchase and interchange of electric energy with other electric companies. The area it serves has a population of approximately 1.9 million. Contents Page - -------- ---- Selected Financial Data 1 Management's Discussion and Analysis 2-6 Consolidated Statements of Income 7 Consolidated Balance Sheets 8 Consolidated Statements of Capitalization 9-10 Consolidated Statements of Common Stockholder's Equity 11 Consolidated Statements of Preferred Stock 11 Consolidated Statements of Cash Flows 12 Consolidated Statements of Taxes 13 Notes to Consolidated Financial Statements 14-23 Report of Independent Public Accountants 24 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY SELECTED FINANCIAL DATA
Nov. 8- Jan. 1- 2000 1999 1998 Dec. 31, 1997 Nov. 7, 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) | | | GENERAL FINANCIAL INFORMATION: | | Operating Revenues $1,887,039 $1,864,954 $1,795,997 $ 254,892 | $1,537,459 $1,798,850 ========== ========== ========== ========== | ========== ========== | Operating Income $ 390,094 $ 394,766 $ 382,523 $ 50,431 | $ 315,777 $ 367,509 ========== ========== ========== ========== | ========== ========== | Income Before Extraordinary Item $ 202,950 $ 194,089 $ 164,891 $ 19,290 | $ 95,191 $ 116,553 ========== ========== ========== ========== | ========== ========== | Net Income (Loss) $ 202,950 $ 194,089 $ 164,891 $ 19,290 | $ (229,247) $ 116,553 ========== ========== ========== ========== | ========== ========== | Earnings (Loss) on Common Stock $ 182,107 $ 160,565 $ 140,097 $ 19,290 | $ (274,276) $ 77,810 ========== ========== ========== ========== | ========== ========== | Total Assets $5,964,631 $6,208,761 $6,318,183 $6,440,284 | $6,962,297 ========== ========== ========== ========== | ========== | CAPITALIZATION: | Common Stockholder's Equity $1,064,839 $ 966,616 $1,008,238 $ 950,904 | $1,044,283 Preferred Stock- | Not Subject to Mandatory Redemption 238,325 238,325 238,325 238,325 | 238,325 Subject to Mandatory Redemption 26,105 116,246 149,710 183,174 | 186,118 Long-Term Debt 2,634,692 2,682,795 2,888,202 3,189,590 | 2,523,030 ---------- ---------- ---------- ---------- | ---------- Total Capitalization $3,963,961 $4,003,982 $4,284,475 $4,561,993 | $3,991,756 ========== ========== ========== ========== | ========== | CAPITALIZATION RATIOS: | Common Stockholder's Equity 26.9% 24.1% 23.5% 20.9% | 26.2% Preferred Stock- | Not Subject to Mandatory Redemption 6.0 6.0 5.6 5.2 | 6.0 Subject to Mandatory Redemption 0.6 2.9 3.5 4.0 | 4.6 Long-Term Debt 66.5 67.0 67.4 69.9 | 63.2 ----- ----- ----- ----- | ----- Total Capitalization 100.0% 100.0% 100.0% 100.0% | 100.0% ===== ===== ===== ===== | ===== | KILOWATT-HOUR SALES (Millions): | Residential 5,061 5,278 4,949 790 | 4,062 4,958 Commercial 6,656 6,509 6,353 893 | 4,990 5,908 Industrial 8,320 8,069 8,024 1,285 | 6,710 7,977 Other 167 166 165 89 | 476 522 ------ ------ ------ ----- | ------ ------ Total Retail 20,204 20,022 19,491 3,057 | 16,238 19,365 Total Wholesale 4,632 2,607 1,275 575 | 2,408 2,155 ------ ------ ------ ----- | ------ ------ Total 24,836 22,629 20,766 3,632 | 18,646 21,520 ====== ====== ====== ===== | ====== ====== | CUSTOMERS SERVED: | Residential 667,115 667,954 668,470 671,265 | 663,130 Commercial 69,103 69,954 68,896 74,751 | 70,886 Industrial 4,851 5,090 5,336 6,515 | 6,545 Other 307 223 221 278 | 446 ------- ------- ------- ------- | ------- Total 741,376 743,221 742,923 752,809 | 741,007 ======= ======= ======= ======= | ======= | Number of Employees (a) 1,046 1,694 1,798 3,162 | 3,282 (a) Reduction in 2000 reflects transfer of responsibility for generation operations to FirstEnergy Corp.'s competitive services unit.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This discussion includes forward-looking statements based on information currently available to management that is subject to certain risks and uncertainties. Such statements typically contain, but are not limited to, the terms anticipate, potential, expect, believe, estimate and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, legislative and regulatory changes (including revised environmental requirements), and the availability and cost of capital. Results of Operations - --------------------- Earnings on common stock increased 13% to $182.1 million in 2000 from $160.6 million in 1999. Results in 2000 were favorably affected by higher operating revenues and reduced depreciation and amortization, net interest charges and preferred stock dividend requirements. In 1999, earnings on common stock increased 15% to $160.6 million from $140 million in 1998 primarily due to higher operating revenues, the absence of unusually high purchased power costs experienced in 1998, reduced general taxes and lower net interest charges. Partially offsetting the improved earnings in both 2000 and 1999 were higher nuclear and other operating costs. Operating revenues increased by $22.1 million in 2000 following a $69.0 million increase in 1999. The sources of increases in operating revenues during 2000 and 1999, as compared to the prior year, are summarized in the following table. Sources of Revenue Changes 2000 1999 - ----------------------------------------------------------- Increase (Decrease) (In millions) Increase in retail kilowatt-hour sales $ 15.6 $46.1 Change in average retail price (37.9) (1.5) Increase in wholesale sales 56.1 15.2 All other changes (11.7) 9.2 - ----------------------------------------------------------- Net Increase in Operating Revenues $ 22.1 $69.0 ========================================================== Electric Sales Additional kilowatt-hour sales to the wholesale market were the largest source of the increase in operating revenues in 2000, compared to the prior year, due in part to additional available generating capacity. Operating revenues from increased kilowatt-hour sales to retail customers were more than offset by a reduction in average retail unit prices in 2000, compared to 1999. While sales to commercial and industrial customers both increased in 2000, sales to residential customers decreased in part due to the cooler summer weather, as compared to the above normal temperatures experienced during 1999. Other electric revenues were also lower in 2000 as a result of the elimination of steam sales and the absence of joint ownership billings to Duquesne Light Company (Duquesne) in 2000 resulting from the asset swap with Duquesne in early December 1999. The decline in other revenues was partially offset by additional transmission-related revenues in 2000, compared to the prior year. Operating revenues in 1999 increased from the preceding year as a result of kilowatt-hour sales growth in both the retail and wholesale markets. Strong consumer-driven economic growth, and to a lesser extent the weather, contributed to the increased retail sales. Weather-induced electricity demand in the wholesale market and additional available internal generation combined to more than double sales to wholesale customers in 1999, compared to 1998. Changes in kilowatt-hour sales by customer class in 2000 and 1999 are summarized in the following table: Changes in KWH Sales 2000 1999 - ------------------------------------------------ Increase (Decrease) Residential (4.1)% 6.6% Commercial 2.3% 2.5% Industrial 3.1% 0.6% - ------------------------------------------------ Total Retail 0.9% 2.7% Wholesale 77.6% 104.5% - ------------------------------------------------ Total Sales 9.8% 9.0% - ------------------------------------------------ Operating Expenses and Taxes Total operating expenses and taxes increased $26.8 million in 2000 and $56.7 million in 1999, compared to the respective preceding year. Collectively, nuclear and other operating costs represented a majority of the increased costs in 2000 and all of the increase in 1999. General taxes were also higher in 2000. Fuel and purchased power costs increased a moderate $4.8 million in 2000, compared to 1999. The slightly higher costs resulted from a $44.8 million increase in purchased power costs which was significantly offset by a $40.0 million decrease in fuel expense. Most of the increase in purchased power costs occurred in the second quarter as generating unit refueling and maintenance outages reduced internal generation during that period. The reduction in fuel expense in 2000 from the preceding year occurred despite a 3.4% increase in internal generation. Factors contributing to the lower fuel expense included: o A higher proportion of nuclear generation (which has lower unit fuel costs than fossil fuel) due to increased nuclear ownership from the exchange of generating assets with Duquesne in December 1999; o The expiration of an above-market coal contract at the end of 1999; and o Continued improvement of coal-blending strategies, which resulted in the use of additional lower-cost coal and enhanced the efficiency and cost-competitiveness of our fossil generation. In 1999, lower purchased power costs accounted for almost all of the $26.5 million reduction in fuel and purchased power costs from the prior year. Much of the decrease in purchased power costs occurred in the second quarter of 1999 due to the absence of unusual conditions experienced in the summer of 1998. The higher purchased power costs were incurred during a period of record heat and humidity in late June 1998, which coincided with a regional power shortage resulting in high prices for purchased power. Unscheduled outages at Beaver Valley Unit 2, the Davis-Besse Plant and Avon Lake Unit 9 required us to purchase significant amounts of power on the spot market during that period. Although above normal temperatures were also experienced in 1999, we maintained a stronger capacity position compared to the previous year and better met customer demand from our own internal generation. Nuclear operating costs increased $12.9 million in 2000, compared to 1999, primarily due to additional refueling outage costs associated with three unit outages in 2000 versus two during the previous year and increased ownership of the Perry Plant resulting from the Duquesne asset swap. Nuclear refueling outage costs at Beaver Valley Unit 2 and the Perry Plant were primarily responsible for the $40.8 million increase in 1999 nuclear operating costs from the preceding year. Other operating costs rose $6.7 million in 2000, compared to 1999, with most of the increase resulting from additional leased portable diesel generators, acquired as part of our summer supply strategy, and voluntary early retirement costs. Partially offsetting these higher costs were increased gains of $7.8 million realized from the sale of emission allowances in 2000. Other operating costs increased $32.5 million in 1999 from 1998 due to higher customer and sales expenses including expenditures for energy marketing programs, information system requirements and other customer- related costs. Approval of our transition plan by the Public Utilities Commission of Ohio (PUCO) resulted in a net reduction of depreciation and amortization in 2000, compared to 1999. As part of the transition plan, generating plant assets were reviewed for possible impairment. Impaired nuclear plant investments were recognized as regulatory assets, for which recovery as transition costs began in January 2001. This reduction in plant investment resulted in a corresponding reduction to depreciation expense beginning in July 2000 and accounted for most of the $10.3 million reduction in depreciation and amortization in 2000 from the preceding year. Higher general taxes in 2000, compared to the prior year, resulted from favorable Ohio and Pennsylvania property tax settlements in 1999. Net Interest Charges Net interest charges decreased by $10.1 million in 2000 and $19.6 million in 1999, compared to the prior year. We continue to redeem our outstanding debt, thus maintaining the downward trend in our financing costs during 2000. Net redemptions of long-term debt totaled $175 million in 2000. Preferred Stock Dividend Requirements Preferred stock dividend requirements were $12.7 million lower in 2000, compared to the prior year, as a result of preferred stock maturities and the amortization of fair market value adjustments recognized under purchase accounting in 1997. In 1999, preferred stock dividend requirements were $8.7 million higher due to a reduction in 1998 resulting from the declaration of $9 million of preferred dividends as of the 1997 merger date, for dividends attributable to 1998. Effects of SFAS 71 Discontinuation and Impairment - ------------------------------------------------- The application of the Statement of Financial Accounting Standards No. (SFAS) 71, "Accounting for the Effects of Certain Types of Regulation," was discontinued for our nonnuclear generation business effective with approval by the PUCO of the Ohio transition plan. We continue to bill and collect cost-based rates for transmission and distribution services, which remain subject to cost-based regulation; accordingly, it is appropriate that we continue the application of SFAS 71 to those operations. All generating plant investments were reviewed for impairment due to anticipated changes to our cash flows resulting from the transition plan. The June 30, 2000 balance sheet reflects the effect of that review with nuclear plant investment being further reduced by a total of $304 million with a corresponding recognition of regulatory assets for the impaired plant, which is recoverable through future regulatory cash flows. Financial Condition, Capital Resources and Liquidity - ---------------------------------------------------- On September 1, 2000, FirstEnergy Corp.'s electric utility operating companies transferred $1.2 billion of their transmission assets to American Transmission Systems, Inc. (ATSI), an affiliated company. ATSI represents a first step toward the goal of establishing a larger independent, regional transmission organization. As part of the transfer, we sold to ATSI $328.1 million of our transmission assets, net of $155.2 million of accumulated depreciation and $3.4 million of investment tax credits for $76.3 million in cash and $93.2 million in long-term notes. Through net debt redemptions and preferred stock sinking fund maturities, we continued to reduce the cost of debt and preferred stock, and improve our financial position in 2000. During 2000, we reduced our total debt by approximately $245 million. Our common stockholder's equity percentage of capitalization increased to 27% as of December 31, 2000 from 21% at the end of 1997. We have reduced the average capital cost of outstanding debt from 8.88% in 1995 to 8.07% in 2000. Net redemptions of long-term debt and preferred stock completed in 2000 are expected to generate annual savings of about $15 million. Also, approval by the PUCO of our transition plan on July 19, 2000 (see Outlook), was cited as an important reason that Moody's Investors Service and Fitch upgraded our debt ratings during the second half of 2000. The improved credit ratings should lower the cost of future borrowings. Our credit ratings remain under review for further possible upgrades by Moody's. The improved credit ratings are summarized in the following table: Credit Ratings Before Upgrade After Upgrade - ------------------------------------------------------------- Moody's Moody's Investors Investors Service Fitch Service Fitch - ------------------------------------------------------------- First mortgage bonds Ba1 BB+ Baa3 BBB- Preferred Stock b1 B baa1 BB Our cash requirements in 2001 for operating expenses, construction expenditures and scheduled debt maturities are expected to be met without issuing additional securities. We have cash requirements of approximately $1.1 billion for the 2001-2005 period to meet scheduled maturities of long-term debt and preferred stock. Of that amount, approximately $137.0 million relates to 2001. We had about $3.2 million of cash and temporary investments and $28.6 million of short-term indebtedness to associated companies on December 31, 2000. Under our first mortgage indenture, as of December 31, 2000, we would have been permitted to issue up to $829 million of additional first mortgage bonds on the basis of property additions and retired bonds. We have no restrictions on the issuance of preferred stock. Our capital spending for the period 2001-2005 is expected to be about $455 million (excluding nuclear fuel), of which approximately $103 million applies to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $114 million, of which about $8 million relates to 2001. During the same periods, our nuclear fuel investments are expected to be reduced by approximately $144 million and $32 million, respectively, as the nuclear fuel is consumed. Also, we have operating lease commitments net of trust cash receipts of approximately $74 million for the 2001-2005 period, of which approximately $22 million relates to 2001. Interest Rate Risk - ------------------ Our exposure to fluctuations in market interest rates is reduced since a significant portion of our debt has fixed interest rates, as noted in the table below. We are subject to the inherent interest rate risks related to refinancing maturing debt by issuing new debt securities. As discussed in Note 2 our investment in the Shippingport Capital Trust effectively reduces future lease obligations, also reducing interest rate risk. Changes in the market value of our nuclear decommissioning trust funds are recognized by making corresponding changes to the decommissioning liability, as described in Note 1. The table below presents principal amounts and related weighted average interest rates by year of maturity for our investment portfolio, debt obligations and preferred stock with mandatory redemption provisions.
Comparison of Carrying Value to Fair Value - ------------------------------------------------------------------------------------------------ There- Fair 2001 2002 2003 2004 2005 after Total Value - ------------------------------------------------------------------------------------------------ (Dollars in millions) Investments other than Cash and Cash Equivalents: Fixed Income $16 $ 38 $ 48 $ 1 $ 21 $ 525 $ 649 $ 656 Average interest rate 7.8% 7.7% 7.6% 7.8% 7.9% 7.3% 7.4% - ------------------------------------------------------------------------------------------------- Liabilities - ------------------------------------------------------------------------------------------------- Long-term Debt: Fixed rate $57 $228 $115 $280 $300 $1,395 $2,375 $2,467 Average interest rate 8.6% 7.7% 7.4% 7.7% 9.5% 7.4% 7.7% Variable rate $ 188 $ 188 $ 188 Average interest rate 4.6% 4.6% Short-term Borrowings $29 $ 29 $ 29 Average interest rate 6.4% 6.4% - ------------------------------------------------------------------------------------------------- Preferred Stock $80 $ 19 $ 1 $ 1 $ 1 $ 3 $ 105 $ 105 Average dividend rate 8.9% 8.9% 7.4% 7.4% 7.4% 7.4% 8.8% - -------------------------------------------------------------------------------------------------
Outlook - ------- On July 19, 2000, the PUCO approved FirstEnergy's plan for transition to customer choice in Ohio (see Note 1), filed on our behalf, as well as for our affiliated Ohio electric utility operating companies - OE and TE. As part of its authorization, the PUCO approved a settlement agreement between FirstEnergy and major groups representing most of FirstEnergy's Ohio customers regarding the transition to customer choice in selection of electricity suppliers. On January 1, 2001, electric choice became available to FirstEnergy's Ohio customers. Under the plan, we continue to deliver power to homes and businesses through our existing distribution system, which remains regulated. However, our rates have been restructured to establish separate charges for transmission and distribution, transition cost recovery and a generation-related component. When one of our Ohio customers elects to obtain power from an alternative supplier, we reduce the customer's bill with a "generation shopping credit," based on market prices plus an incentive, and the customer receives a generation charge from the alternative supplier. The transition cost portion of rates provides for recovery of certain amounts not otherwise recoverable in a competitive generation market (such as regulatory assets). The transition costs will be paid by all customers regardless of whether or not they choose an alternative supplier. Under the plan, we assume the risk of not recovering up to $170 million of transition revenue if the rate of customers (excluding contracts and full-service accounts), switching their service from us has not reached an average of 20% over any consecutive twelve-month period by December 31, 2005 - the end of the market development period. We also committed under the transition agreement to make available 400 MW of our generating capacity to marketers, brokers and aggregators at set prices, to be used for sales only to retail customers in our Ohio service areas. Through February 8, 2001, approximately 305 MW of the 400 MW supply commitment had been secured by alternative suppliers. We began accepting customer applications for switching to alternative suppliers on December 8, 2000; as of February 8, 2001, we had been notified that about 51,000 of our customers requested generation services from other authorized suppliers, including FirstEnergy Services Corp. (FE Services), an affiliated company. Beginning in 2001, Ohio utilities that offer both competitive and regulated retail electric services must implement a corporate separation plan approved by the PUCO -- one which provides a clear separation between regulated and competitive operations. Since FirstEnergy's regionally-focused retail sales strategy envisions the continued operation of both regulated and competitive operations, its transition plan included details for its corporate separation. The approved plan is consistent with the way FirstEnergy managed its businesses in 2000, through a competitive services unit, a utility services unit and a corporate support services unit. FE Services provides competitive retail energy services while we continue to provide regulated transmission and distribution services. FirstEnergy Generation Corp. (FE Generation), an associated company, operates and leases fossil plants from us. We expect that the transfer of our fossil generating assets to FE Generation will be completed by the end of the market development period. All of our power supply requirements are provided by FE Services to satisfy our "provider of last resort" obligation under the FirstEnergy transition plan, as well as grandfathered wholesale contracts. We are in compliance with current sulfur dioxide and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. In 1998, the EPA finalized regulations requiring additional NOx reductions in the future from our Ohio and Pennsylvania facilities (see Note 5). We continue to evaluate our compliance plans and other compliance options. In July 1997, the EPA changed the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which we operate affected facilities. Under federal environmental law and related federal and state waste regulations, certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash as a nonhazardous waste. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. We have been named as a "potentially responsible party" (PRP) at waste disposal sites which may require cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Allegations of disposal of hazardous substances at historical sites and the liability involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. We have an accrued liability totaling $3.4 million as of December 31, 2000, based on estimates of the total costs of cleanup, the proportionate responsibility of other PRPs for such costs, and the financial ability of other PRPs to pay. We believe that waste disposal costs will not have a material adverse effect on our financial condition, cash flow or results of operation. On August 8, 2000, our parent company, FirstEnergy Corp., entered into an agreement to merge with GPU, Inc, a Pennsylvania corporation, headquartered in Morristown, New Jersey. The target date for completing the merger is by the end of the second quarter of 2001. We will continue to be a wholly owned subsidiary of FirstEnergy Corp. THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------- (In thousands) OPERATING REVENUES $1,887,039 $1,864,954 $1,795,997 ---------- ---------- ---------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 414,127 409,282 435,752 Nuclear operating costs 151,571 138,686 97,914 Other operating costs 374,818 368,103 335,621 ---------- ---------- ---------- Total operation and maintenance expenses 940,516 916,071 869,287 Provision for depreciation and amortization 220,915 231,225 234,348 General taxes 222,297 211,636 221,077 Income taxes 113,217 111,256 88,762 ---------- ---------- ---------- Total operating expenses and taxes 1,496,945 1,470,188 1,413,474 ---------- ---------- ---------- OPERATING INCOME 390,094 394,766 382,523 OTHER INCOME 12,568 9,141 11,772 ---------- ---------- --------- INCOME BEFORE NET INTEREST CHARGES 402,662 403,907 394,295 ---------- ---------- --------- NET INTEREST CHARGES: Interest on long-term debt 199,444 211,842 234,795 Allowance for borrowed funds used during construction (2,027) (1,755) (2,079) Other interest expense (credit) 2,295 (269) (3,312) ---------- ---------- ---------- Net interest charges 199,712 209,818 229,404 ---------- ---------- ---------- NET INCOME 202,950 194,089 164,891 PREFERRED STOCK DIVIDEND REQUIREMENTS 20,843 33,524 24,794 ---------- ---------- ---------- EARNINGS ON COMMON STOCK $ 182,107 $ 160,565 $ 140,097 ========== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 1999 - ------------------------------------------------------------------------------------- (In thousands) ASSETS UTILITY PLANT: In service $4,036,590 $4,479,098 Less-Accumulated provision for depreciation 1,624,672 1,498,798 ---------- ---------- 2,411,918 2,980,300 ---------- ---------- Construction work in progress- Electric plant 66,904 55,002 Nuclear fuel 24,145 408 ---------- ---------- 91,049 55,410 ---------- ---------- 2,502,967 3,035,710 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: Shippingport Capital Trust (Note 2) 491,830 517,256 Nuclear plant decommissioning trusts 189,804 183,291 Long-term notes receivable from associated companies 92,722 -- Other 36,084 20,708 ---------- ---------- 810,440 721,255 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 2,855 376 Receivables- Customers 14,748 17,010 Associated companies 81,090 18,318 Other (less accumulated provisions of $1,000,000 for uncollectible accounts at both dates) 127,639 171,274 Notes receivable from associated companies 384 -- Materials and supplies, at average cost- Owned 26,039 39,294 Under consignment 38,673 23,721 Prepayments and other 59,377 56,447 ---------- ---------- 350,805 326,440 ---------- ---------- DEFERRED CHARGES: Regulatory assets 816,143 539,824 Goodwill 1,408,869 1,440,283 Property taxes 64,230 132,643 Other 11,177 12,606 ---------- ---------- 2,300,419 2,125,356 ---------- ---------- $5,964,631 $6,208,761 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization): Common stockholder's equity $1,064,839 $ 966,616 Preferred stock- Not subject to mandatory redemption 238,325 238,325 Subject to mandatory redemption 26,105 116,246 Long-term debt 2,634,692 2,682,795 ---------- ---------- 3,963,961 4,003,982 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock 165,696 240,684 Accounts payable- Associated companies 102,915 85,950 Other 54,422 50,570 Notes payable to associated companies 28,586 103,471 Accrued taxes 178,707 177,006 Accrued interest 56,142 60,740 Other 82,195 83,292 ---------- ---------- 668,663 801,713 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 591,748 567,478 Accumulated deferred investment tax credits 79,957 86,999 Nuclear plant decommissioning costs 198,997 192,484 Pensions and other postretirement benefits 227,528 220,731 Other 233,777 335,374 ---------- ---------- 1,332,007 1,403,066 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 2 and 5) ---------- ---------- $5,964,631 $6,208,761 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
As of December 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share amounts) COMMON STOCKHOLDER'S EQUITY: Common stock, without par value, authorized 105,000,000 shares 79,590,689 shares outstanding $ 931,962 $ 931,962 Retained earnings (Note 3A) 132,877 34,654 ---------- ---------- Total common stockholder's equity 1,064,839 966,616 ---------- ---------- Number of Shares Optional Outstanding Redemption Price -------------------- -------------------- 2000 1999 Per Share Aggregate ---- ---- --------- --------- PREFERRED STOCK (Note 3B): Cumulative, without par value- Authorized 4,000,000 shares Not Subject to Mandatory Redemption: $ 7.40 Series A 500,000 500,000 $ 101.00 $ 50,500 50,000 50,000 $ 7.56 Series B 450,000 450,000 102.26 46,017 45,071 45,071 Adjustable Series L 474,000 474,000 100.00 47,400 46,404 46,404 $42.40 Series T 200,000 200,000 500.00 100,000 96,850 96,850 --------- --------- -------- ---------- ---------- Total Not Subject to Mandatory Redemption 1,624,000 1,624,000 $243,917 238,325 238,325 ========= ========= ======== ---------- ---------- Subject to Mandatory Redemption (Note 3C): $ 7.35 Series C 80,000 90,000 101.00 $ 8,080 8,041 9,110 $88.00 Series E -- 3,000 -- -- -- 3,000 $91.50 Series Q 10,716 21,430 1,000.00 10,716 10,716 21,430 $88.00 Series R 50,000 50,000 -- -- 51,128 55,000 $90.00 Series S 36,500 55,250 -- -- 36,686 61,170 Redemption Within One Year (80,466) (33,464) --------- ---------- -------- ---------- ---------- Total Subject to Mandatory Redemption 177,216 219,680 $ 18,796 26,105 116,246 ========= ========== ======== ---------- ---------- LONG-TERM DEBT (Note 3D): First mortgage bonds: 7.625% due 2002 195,000 195,000 7.375% due 2003 100,000 100,000 9.500% due 2005 300,000 300,000 6.860% due 2008 125,000 125,000 9.000% due 2023 150,000 150,000 ----------- ---------- Total first mortgage bonds 870,000 870,000 ----------- ---------- Unsecured notes: * 5.580% due 2033 27,700 27,700 ----------- ----------
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
As of December 31, 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- (In thousands) LONG-TERM DEBT (Cont'd): Secured notes: 7.000% due 2001-2009 1,820 1,850 7.190% due 2000 -- 175,000 7.420% due 2001 10,000 10,000 8.540% due 2001 3,000 3,000 8.550% due 2001 5,000 5,000 8.560% due 2001 3,500 3,500 8.680% due 2001 15,000 15,000 9.050% due 2001 5,000 5,000 9.200% due 2001 15,000 15,000 7.850% due 2002 5,000 5,000 8.130% due 2002 28,000 28,000 7.750% due 2003 15,000 15,000 7.670% due 2004 280,000 280,000 7.130% due 2007 120,000 120,000 7.430% due 2009 150,000 150,000 8.000% due 2013 78,700 78,700 * 4.206% due 2015 39,835 39,835 7.880% due 2017 300,000 300,000 * 4.171% due 2018 72,795 72,795 * 4.950% due 2020 47,500 47,500 6.000% due 2020 62,560 62,560 6.100% due 2020 70,500 70,500 9.520% due 2021 7,500 7,500 6.850% due 2023 30,000 30,000 8.000% due 2023 46,100 46,100 7.625% due 2025 53,900 53,900 7.700% due 2025 43,800 43,800 7.750% due 2025 45,150 45,150 5.375% due 2028 5,993 5,993 5.350% due 2030 23,255 23,255 4.600% due 2030 81,640 81,640 ---------- ---------- Total secured notes 1,665,548 1,840,578 ---------- ---------- Capital lease obligations (Note 2) 93,422 79,204 ---------- ---------- Net unamortized premium on debt 63,252 72,533 ---------- ---------- Long-term debt due within one year (85,230) (207,220) ---------- ---------- Total long-term debt 2,634,692 2,682,795 ---------- ---------- TOTAL CAPITALIZATION $3,963,961 $4,003,982 ========== ========== * Denotes variable rate issue with December 31, 2000 interest rate shown. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
Comprehensive Number Carrying Retained Income of Shares Value Earnings ------------- --------- ---------- --------- (Dollars in thousands) Balance, January 1, 1998 79,590,689 $931,614 $ 19,290 Purchase accounting fair value adjustment 348 Net income $164,891 164,891 ======== Cash dividends on preferred stock (21,947) Cash dividends on common stock (85,958) - ------------------------------------------------------------------------------------------------- Balance, December 31, 1998 79,590,689 931,962 76,276 Net income $194,089 194,089 ======== Cash dividends on preferred stock (36,737) Cash dividends on common stock (198,974) - ------------------------------------------------------------------------------------------------- Balance, December 31, 1999 79,590,689 931,962 34,654 Net income $202,950 202,950 ======== Cash dividends on preferred stock (20,727) Cash dividends on common stock (84,000) - ------------------------------------------------------------------------------------------------- Balance, December 31, 2000 79,590,689 $931,962 $ 132,877 ==================================================================================================
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
Not Subject to Subject to Mandatory Redemption Mandatory Redemption -------------------- -------------------- Number Carrying Number Carrying of Shares Value of Shares Value --------- ----- --------- ----- (Dollars in thousands) Balance, January 1, 1998 1,624,000 $238,325 285,858 $197,888 Redemptions- $ 7.35 Series C (10,000) (1,000) $88.00 Series E (3,000) (3,000) $91.50 Series Q (10,714) (10,714) - ------------------------------------------------------------------------------------------- Balance, December 31, 1998 1,624,000 238,325 262,144 183,174 Redemptions- $ 7.35 Series C (10,000) (1,000) $88.00 Series E (3,000) (3,000) $91.50 Series Q (10,714) (10,714) $90.00 Series S (18,750) (18,750) - ------------------------------------------------------------------------------------------- Balance, December 31, 1999 1,624,000 238,325 219,680 149,710 Redemptions- $ 7.35 Series C (10,000) (1,000) $88.00 Series E (3,000) (3,000) $91.50 Series Q (10,714) (10,714) $90.00 Series S (18,750) (18,750) Amortization of fair market value adjustments- $ 7.35 Series C (69) $88.00 Series R (3,872) $90.00 Series S (5,734) - ------------------------------------------------------------------------------------------- Balance, December 31, 2000 1,624,000 $238,325 177,216 $106,571 =========================================================================================== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 202,950 $ 194,089 $ 164,891 Adjustments to reconcile net income to net cash from operating activities: Provision for depreciation and amortization 220,915 231,225 234,348 Nuclear fuel and lease amortization 37,217 33,912 35,361 Other amortization (11,635) (10,730) (12,677) Deferred income taxes, net 22,373 33,060 13,031 Investment tax credits, net (3,617) (3,947) (5,185) Receivables (16,875) (31,544) (38,527) Materials and supplies (1,697) 18,818 (8,933) Accounts payable 20,817 26,525 (10,481) Other (44,188) (11,283) (22,772) --------- --------- --------- Net cash provided from operating activities 426,260 480,125 349,056 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt -- 26,355 232,919 Ohio Schools Council prepayment program -- -- 116,598 Short-term borrowings, net -- 22,853 23,816 Redemptions and Repayments- Preferred stock 33,464 33,464 14,714 Long-term debt 212,771 214,405 488,610 Short-term borrowings, net 74,885 -- -- Dividend Payments- Common stock 84,000 198,974 85,958 Preferred stock 30,518 33,524 34,841 --------- --------- --------- Net cash used for financing activities 435,638 431,159 250,790 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 96,236 122,194 72,130 Loans to associated companies 93,106 -- 53,509 Loan payments from associated companies -- (53,509) -- Capital trust investments (25,426) (25,905) (31,923) Sale of assets to associated companies (197,902) -- -- Other 22,129 25,336 18,799 --------- --------- --------- Net cash used for (provided from) investing activities (11,857) 68,116 112,515 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 2,479 (19,150) (14,249) Cash and cash equivalents at beginning of year 376 19,526 33,775 --------- --------- --------- Cash and cash equivalents at end of year $ 2,855 $ 376 $ 19,526 ========= ========= ========= SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid During the Year- Interest (net of amounts capitalized) $ 208,085 $ 221,360 $ 238,950 ========= ========= ========= Income taxes $ 109,212 $ 92,555 $ 100,107 ========= ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED STATEMENTS OF TAXES
For the Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------- (In thousands) GENERAL TAXES: Real and personal property $ 131,331 $ 120,725 $ 130,642 State gross receipts 79,709 78,197 78,344 Social security and unemployment 11,464 10,941 9,029 Other (207) 1,773 3,062 --------- --------- --------- Total general taxes $ 222,297 $ 211,636 $ 221,077 ========= ========= ========= PROVISION FOR INCOME TAXES: Currently payable- Federal $ 106,986 $ 92,627 $ 90,690 State 959 2,129 2,158 --------- --------- --------- 107,945 94,756 92,848 --------- --------- --------- Deferred, net- Federal 23,265 33,369 12,981 State (892) (309) 50 --------- --------- --------- 22,373 33,060 13,031 --------- --------- --------- Investment tax credit amortization (3,617) (3,947) (5,185) --------- --------- --------- Total provision for income taxes $ 126,701 $ 123,869 $ 100,694 ========= ========= ========= INCOME STATEMENT CLASSIFICATION OF PROVISION FOR INCOME TAXES: Operating income $ 113,217 $ 111,256 $ 88,762 Other income 13,484 12,613 11,932 --------- --------- --------- Total provision for income taxes $ 126,701 $ 123,869 $ 100,694 ========= ========= ========= RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES: Book income before provision for income taxes $ 329,651 $ 317,958 $ 265,585 ========= ========= ========= Federal income tax expense at statutory rate $ 115,378 $ 111,285 $ 92,955 Increases (reductions) in taxes resulting from- Amortization of investment tax credits (3,617) (3,947) (5,185) Amortization of tax regulatory assets 693 693 693 Amortization of goodwill 13,359 13,282 13,447 Other, net 888 2,556 (1,216) --------- --------- --------- Total provision for income taxes $ 126,701 $ 123,869 $ 100,694 ========= ========= ========= ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31: Property basis differences $ 495,588 $ 663,294 $ 672,283 Deferred nuclear expense 126,213 128,008 132,818 Impaired generating assets 107,063 -- -- Deferred sale and leaseback costs (100,028) (106,611) (113,884) Unamortized investment tax credits (35,341) (38,172) (40,241) Unused alternative minimum tax credits (27,115) (71,130) (124,459) Deferred gain for asset sale to affiliated company 46,583 -- -- Other (21,215) (7,911) (2,232) --------- --------- --------- Net deferred income tax liability $ 591,748 $ 567,478 $ 524,285 ========= ========= ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Other Pension Benefits Postretirement Benefits ---------------- ------------------------ 2000 1999 2000 1999 - ------------------------------------------------------------------------- (In millions) Change in benefit obligation: Benefit obligation as of January 1 $1,394.1 $1,500.1 $ 608.4 $ 601.3 Service cost 27.4 28.3 11.3 9.3 Interest cost 104.8 102.0 45.7 40.7 Plan amendments 41.3 -- -- -- Actuarial loss (gain) 17.3 (155.6) 121.7 (17.6) Net increase from asset swap -- 14.8 -- 12.5 Voluntary early retirement program expense 23.4 -- -- -- Benefits paid (102.2) (95.5) (35.1) (37.8) - ------------------------------------------------------------------------- Benefit obligation as of December 31 1,506.1 1,394.1 752.0 608.4 - ------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets as of January 1 1,807.5 1,683.0 4.9 3.9 Actual return on plan assets 0.7 220.0 (0.2) 0.6 Company contribution -- -- 18.3 0.4 Benefits paid (102.2) (95.5) -- -- - ------------------------------------------------------------------------- Fair value of plan assets as of December 31 1,706.0 1,807.5 23.0 4.9 - ------------------------------------------------------------------------- Funded status of plan 199.9 413.4 (729.0) (603.5) Unrecognized actuarial loss (gain) (90.9) (303.5) 147.3 24.9 Unrecognized prior service cost 93.1 57.3 20.9 24.1 Unrecognized net transition obligation (asset) (2.1) (10.1) 110.9 120.1 - ------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 200.0 $ 157.1 $(449.9) $(434.4) ========================================================================= Company's share of accrued benefit cost $ (34.6) $ (39.9) $(188.8) $(179.0) ========================================================================= Assumptions used as of December 31: Discount rate 7.75% 7.75% 7.75% 7.75% Expected long-term return on plan assets 10.25% 10.25% 10.25% 10.25% Rate of compensation increase 4.00% 4.00% 4.00% 4.00% FirstEnergy's net pension and other postretirement benefit costs for the three years ended December 31, 2000 were computed as follows:
Other Pension Benefits Postretirement Benefits -------------------- ----------------------- 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------- (In millions) Service cost $ 27.4 $ 28.3 $ 25.0 $11.3 $ 9.3 $ 7.5 Interest cost 104.8 102.0 92.5 45.7 40.7 37.6 Expected return on plan assets (181.0) (168.1) (152.7) (0.5) (0.4) (0.3) Amortization of transition obligation (asset) (7.9) (7.9) (8.0) 9.2 9.2 9.2 Amortization of prior service cost 5.7 5.7 2.3 3.2 3.3 (0.8) Recognized net actuarial loss (gain) (9.1) -- (2.6) -- -- -- Voluntary early retirement program expense 17.2 -- -- -- -- -- - ------------------------------------------------------------------------- Net benefit cost $ (42.9) $ (40.0) $ (43.5) $68.9 $62.1 $53.2 ========================================================================= Company's share of total plan costs $ (5.3) $ (14.4) $ (2.7) $21.3 $22.0 $14.5 - -------------------------------------------------------------------------
The FirstEnergy plan's health care trend rate assumption is 7.2% in 2001, 7.0% in 2002 and 6.5% in 2003, trending to 5.0%-5.5% in later years. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. An increase in the health care trend rate assumption by one percentage point would increase the total service and interest cost components by $7.5 million and the postretirement benefit obligation by $94.4 million. A decrease in the same assumption by one percentage point would decrease the total service and interest cost components by $8.5 million and the postretirement benefit obligation by $111.0 million. TRANSACTIONS WITH AFFILIATED COMPANIES- Operating revenues, operating expenses and interest charges include transactions with TE, OE, Penn and ATSI. Primary transactions include purchased power and transmission facilities rent expenses of $15.0 million from ATSI starting in 2000. CFC serves as the transferor in connection with the accounts receivable securitization for the Company and TE. The Company is buying 150 megawatts of TE's Beaver Valley Unit 2 leased capacity entitlement. Purchased power expense for this transaction was $104.0 million, $104.3 million and $98.5 million in 2000, 1999 and 1998, respectively. This purchase is expected to continue through the end of the lease period. (See Note 2.) Fuel and purchased power expenses on the Consolidated Statements of Income include the total costs of power purchased from TE of $106.8 million, $106.1 million and $104.7 million in 2000, 1999 and 1998, respectively. FirstEnergy and, prior to 1999, the Centerior Service Company (CSC), a wholly owned subsidiary of FirstEnergy, provides support services at cost to the Company and other affiliated companies, for which the Company was billed $97.9 million in 2000 and $109.1 million in 1999 by FirstEnergy, and $80.6 million in 1998 by CSC. SUPPLEMENTAL CASH FLOWS INFORMATION- All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets. The Company reflects temporary cash investments at cost, which approximates their fair market value. Noncash financing and investing activities included capital lease transactions amounting to $52.0 million, $26.2 million and $32.3 million in 2000, 1999 and 1998, respectively. All borrowings with initial maturities of less than one year are defined as financial instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value. The following sets forth the approximate fair value and related carrying amounts of all other long-term debt, preferred stock subject to mandatory redemption and investments other than cash and cash equivalents as of December 31: 2000 1999 - -------------------------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - -------------------------------------------------------------------- (In millions) Long-term debt $2,563 $2,655 $2,738 $2,711 Preferred stock $ 107 $ 105 $ 150 $ 139 Investments other than cash and cash equivalents: Debt securities - (Maturing in more than 10 years) $ 585 $ 568 $ 517 $ 476 All other 202 210 193 200 - --------------------------------------------------------------------- $ 787 $ 778 $ 710 $ 676 ==================================================================== The fair values of long-term debt and preferred stock subject to mandatory redemption reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective year. The yields assumed were based on securities with similar characteristics offered by a corporation with credit ratings similar to the Company's ratings. The fair value of investments other than cash and cash equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms. Investments other than cash and cash equivalents include decommissioning trust investments. Unrealized gains and losses applicable to the decommissioning trusts have been recognized in the trust investment with corresponding changes to the decommissioning liability. The Company has no securities held for trading purposes. REGULATORY ASSETS- The Company recognizes, as regulatory assets, costs which the FERC and PUCO have authorized for recovery from customers in future periods. Without such authorization, the costs would have been charged to income as incurred. All regulatory assets will continue to be recovered from customers under the Company's transition plan. Based on that plan, the Company continues to bill and collect cost-based rates for its transmission and distribution services, which will remain regulated; accordingly, it is appropriate that the Company continues the application of SFAS 71 to those operations. The application of SFAS 71 to the Company's nonnuclear generation business was discontinued effective with the PUCO's approval of FirstEnergy's transition plan. All generating plant investments were reviewed for impairment due to the anticipated regulatory cash flows under the transition plan. The effect of that review was reflected on the financial statements as of June 30, 2000, with the reduction of plant investment and the corresponding recognition of regulatory assets recoverable through future regulatory cash flows for generating assets that were impaired of approximately $304 million for the Company. Net regulatory assets on the Consolidated Balance Sheets are comprised of the following: 2000 1999 - ------------------------------------------------------------------ (In millions) Nuclear unit expenses $ 276.1 $ 287.1 Customer receivables for future income taxes 18.1 23.0 Rate stabilization program deferrals 251.7 263.9 Sale and leaseback costs (131.9) (136.4) Loss on reacquired debt 70.5 75.9 Impaired generating assets 304.3 -- Other 27.3 26.3 - ------------------------------------------------------------------- Total $ 816.1 $ 539.8 ================================================================== 2. LEASES: The Company leases certain generating facilities, nuclear fuel, office space and other property and equipment under cancelable and noncancelable leases. The Company and TE sold their ownership interests in Bruce Mansfield Units 1, 2 and 3 and TE sold a portion of its ownership interest in Beaver Valley Unit 2. In connection with these sales, which were completed in 1987, the Company and TE entered into operating leases for lease terms of approximately 30 years as co-lessees. During the terms of the leases, the Company and TE continue to be responsible, to the extent of their combined ownership and leasehold interest, for costs associated with the units including construction expenditures, operation and maintenance expenses, insurance, nuclear fuel, property taxes and decommissioning. The Company and TE have the right, at the end of the respective basic lease terms, to renew the leases. The Company and TE also have the right to purchase the facilities at the expiration of the basic lease term or renewal term (if elected) at a price equal to the fair market value of the facilities. As co-lessee with TE, the Company is also obligated for TE's lease payments. If TE is unable to make its payments under the Beaver Valley Unit 2 and Bruce Mansfield Plant leases, the Company would be obligated to make such payments. No such payments have been made on behalf of TE. (TE's future minimum lease payments as of December 31, 2000 were approximately $1.2 billion, net of trust cash receipts.) Nuclear fuel is currently financed for the Company and TE through leases with a special-purpose corporation. As of December 31, 2000, $142 million of nuclear fuel ($86 million for the Company) was financed under a lease financing arrangement totaling $150 million from bank credit arrangements. The bank credit arrangements expire in August 2001. Lease rates are based on bank rates and commercial paper rates. Consistent with the regulatory treatment, the rentals for capital and operating leases are charged to operating expenses on the Consolidated Statements of Income. Such costs for the three years ended December 31, 2000 and are summarized as follows:
2000 1999 1998 - ------------------------------------------------------------------- (In millions) Operating leases Interest element $ 36.8 $ 38.6 $ 32.4 Other 29.8 30.7 74.4 Capital leases Interest element 5.9 6.9 7.0 Other 37.4 41.3 36.1 - ------------------------------------------------------------------- Total rentals $109.9 $117.5 $149.9 ===================================================================
The future minimum lease payments as of December 31, 2000 are:
Operating Leases --------------------------- Capital Lease Capital Leases Payments Trust Net - ---------------------------------------------------------------------- (In millions) 2001 $ 41.0 $ 71.7 $ 50.2 $ 21.5 2002 28.1 76.4 70.6 5.8 2003 17.3 77.5 77.9 (0.4) 2004 10.2 55.7 28.2 27.5 2005 3.7 66.7 47.5 19.2 Years thereafter 8.4 653.8 488.7 165.1 - ----------------------------------------------------------------------- Total minimum lease payments 108.7 $1,001.8 $763.1 $238.7 Interest portion 15.3 ======== ====== ====== - ------------------------------------ Present value of net minimum lease payments 93.4 Less current portion 28.7 - ------------------------------------ Noncurrent portion $ 64.7 ===================================
The Company and TE refinanced high-cost fixed obligations related to their 1987 sale and leaseback transaction for the Bruce Mansfield Plant through a lower cost transaction in June and July 1997. In a June 1997 offering (Offering), the two companies pledged $720 million aggregate principal amount ($575 million for the Company and $145 million for TE) of first mortgage bonds due through 2007 to a trust as security for the issuance of a like principal amount of secured notes due through 2007. The obligations of the two companies under these secured notes are joint and several. Using available cash, short-term borrowings and the net proceeds from the Offering, the two companies invested $906.5 million ($569.4 million for the Company and $337.1 million for TE) in a business trust, in June 1997. The trust used these funds in July 1997 to purchase lease notes and redeem all $873.2 million aggregate principal amount of 10-1/4% and 11-1/8% secured lease obligation bonds (SLOBs) due 2003 and 2016. The SLOBs were issued by a special-purpose-funding corporation in 1988 on behalf of lessors in the two companies' 1987 sale and leaseback transaction. The Shippingport capital trust arrangement effectively reduces lease costs related to that transaction. 3. CAPITALIZATION: (A) RETAINED EARNINGS- There are no restrictions on retained earnings for payment of cash dividends on the Company's common stock. The 1997 FirstEnergy merger purchase accounting adjustments included resetting the retained earnings balance to zero at the November 8, 1997 merger date. (B) PREFERRED AND PREFERENCE STOCK- The Company's $88.00 Series R preferred stock is not redeemable before December 2001 and its $90.00 Series S has no optional redemption provision. All other preferred stock may be redeemed by the Company in whole, or in part, with 30-90 days' notice. The preferred dividend rate on the Company's Series L fluctuates based on prevailing interest rates and market conditions. The dividend rate for this issue was 7% in 2000. The Company has three million authorized and unissued shares of preference stock having no par value. (C) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION- Annual sinking fund provisions for preferred stock are as follows: Redemption Price Per Series Shares Share Date Beginning - -------------------------------------------------------------------- $ 7.35 C 10,000 $ 100 (i) 91.50 Q 10,714 1,000 (i) 90.00 S 18,750 1,000 (i) 88.00 R 50,000 1,000 December 1 2001 - -------------------------------------------------------------------- (i) Sinking fund provisions are in effect. Annual sinking fund requirements for the next five years are $80.5 million in 2001, $18.0 million in 2002 and $1.0 million in each year 2003-2005. (D) LONG-TERM DEBT- The first mortgage indenture and its supplements, which secure all of the Company's first mortgage bonds, serve as direct first mortgage liens on substantially all property and franchises, other than specifically excepted property, owned by the Company. Sinking fund requirements for first mortgage bonds and maturing long-term debt (excluding capital leases) for the next five years are: (In millions) ---------------------- 2001 $ 56.5 2002 228.0 2003 115.0 2004 307.7 2005 300.0 ---------------------- The Company's obligations to repay certain pollution control revenue bonds are secured by several series of first mortgage bonds. Certain pollution control revenue bonds are entitled to the benefit of an irrevocable bank letter of credit of $48.1 million and noncancelable municipal bond insurance policies of $112.6 million to pay principal of, or interest on, the pollution control revenue bonds. To the extent that drawings are made under the letter of credit, the Company is entitled to a credit against its obligation to repay that bond. The Company pays an annual fee of 1.375% of the amount of the letter of credit to the issuing bank and is obligated to reimburse the bank for any drawings thereunder. The Company and TE have letters of credit of approximately $222 million in connection with the sale and leaseback of Beaver Valley Unit 2 that expire in May 2002. The letters of credit are secured by first mortgage bonds of the Company and TE in the proportion of 40% and 60%, respectively (see Note 2). 4. SHORT-TERM BORROWINGS: The Company may borrow from its affiliates on a short-term basis. As of December 31, 2000, the Company had total short-term borrowings of $28.6 million from its affiliates with a weighted average interest rate of approximately 6.4%. 5. COMMITMENTS AND CONTINGENCIES: CAPITAL EXPENDITURES- The Company's current forecast reflects expenditures of approximately $455 million for property additions and improvements from 2001-2005, of which approximately $103 million is applicable to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $114 million, of which approximately $8 million applies to 2001. During the same periods, the Company's nuclear fuel investments are expected to be reduced by approximately $144 million and $32 million, respectively, as the nuclear fuel is consumed. NUCLEAR INSURANCE- The Price-Anderson Act limits the public liability relative to a single incident at a nuclear power plant to $9.5 billion. The amount is covered by a combination of private insurance and an industry retrospective rating plan. Based on its ownership and leasehold interests in Beaver Valley Unit 2, the Davis-Besse Station and the Perry Plant, the Company's maximum potential assessment under the industry retrospective rating plan (assuming the other affiliate co-owners contribute their proportionate shares of any assessments under the retrospective rating plan) would be $106.3 million per incident but not more than $12.1 million in any one year for each incident. The Company is also insured as to its respective interests in Beaver Valley Unit 2, Davis-Besse and Perry under policies issued to the operating company for each plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Company has also obtained approximately $255.2 million of insurance coverage for replacement power costs for its respective interests in Beaver Valley Unit 2, Davis-Besse and Perry. Under these policies, the Company can be assessed a maximum of approximately $11.8 million for incidents at any covered nuclear facility occurring during a policy year which are in excess of accumulated funds available to the insurer for paying losses. The Company intends to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Company's plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Company's insurance policies, or to the extent such insurance becomes unavailable in the future, the Company would remain at risk for such costs. ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Company with regard to air and water quality and other environmental matters. The Company estimates additional capital expenditures for environmental compliance of approximately $41 million, which is included in the construction forecast provided under "Capital Expenditures" for 2001 through 2005. The Company is required to meet federally approved sulfur dioxide (SO2) regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $27,500 for each day the unit is in violation. The Environmental Protection Agency (EPA) has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The Company cannot predict what action the EPA may take in the future with respect to the interim enforcement policy. The Company is in compliance with the current SO2 and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or using emission allowances. NOx reductions are being achieved through combustion controls and the generation of more electricity at lower-emitting plants. In September 1998, the EPA finalized regulations requiring additional NOx reductions from the Company's Ohio and Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions of NOx emissions (an approximate 85% reduction in utility plant NOx emissions from projected 2007 emissions) across a region of twenty-two states and the District of Columbia, including Ohio and Pennsylvania, based on a conclusion that such NOx emissions are contributing significantly to ozone pollution in the eastern United States. In March 2000, the U.S. Court of Appeals for the D.C. Circuit upheld EPA's NOx Transport Rule except as applied to the State of Wisconsin and portions of Georgia and Missouri. By October 2000, states were to submit revised State Implementation Plans (SIP) to comply by May 31, 2004 with individual state NOx budgets established by the EPA. Pennsylvania recently submitted a SIP that requires compliance with the NOx budgets at the Company's Pennsylvania facilities by May 1, 2003 and Ohio submitted a "draft" SIP that requires compliance with the NOx budgets at the Company's Ohio facilities by May 31, 2004. A Federal Implementation Plan accompanied the NOx Transport Rule and may be implemented by the EPA in states which fail to revise their SIP. In another separate but related action, eight states filed petitions with the EPA under Section 126 of the Clean Air Act seeking reductions of NOx emissions which are alleged to contribute to ozone pollution in the eight petitioning states. The EPA position is that the Section 126 petitions will be adequately addressed by the NOx Transport Program, but a December 17, 1999 rulemaking established an alternative program which would require nearly identical 85% NOx reductions at 392 utility plants, including the Company's Ohio and Pennsylvania plants, by May 2003, in the event implementation of the NOx Transport Rule is not implemented by a state. Additional Section 126 petitions were filed by New Jersey, Maryland, Delaware and the District of Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy continues to evaluate its compliance plans and other compliance options. In July 1997, the EPA promulgated changes in the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which the Company operates affected facilities. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. Certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash under its authority to regulate nonhazardous waste. The Company has been named as a "potentially responsible party" (PRP) at waste disposal sites which may require cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Allegations of disposal of hazardous substances at historical sites and the liability involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. The Company has accrued a liability of $3.4 million as of December 31, 2000, based on estimates of the total costs of cleanup, the proportionate responsibility of other PRPs for such costs and the financial ability of other PRPs to pay. The Company believes that waste disposal costs will not have a material adverse effect on its financial condition, cash flows or results of operations. 6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): The following summarizes certain consolidated operating results by quarter for 2000 and 1999.
March 31, June 30, September 30, December 31, Three Months Ended 2000 2000 2000 2000 - ------------------------------------------------------------------------- (In millions) Operating Revenues $423.7 $470.6 $525.4 $467.3 Operating Expenses and Taxes 336.9 383.7 396.0 380.3 - ------------------------------------------------------------------------ Operating Income 86.8 86.9 129.4 87.0 Other Income 3.4 2.9 3.8 2.5 Net Interest Charges 51.5 50.5 49.2 48.5 - ------------------------------------------------------------------------ Net Income $ 38.7 $ 39.3 $ 84.0 $ 41.0 ======================================================================== Earnings on Common Stock $ 30.9 $ 32.6 $ 80.3 $ 38.3 ========================================================================
March 31, June 30, September 30, December 31, Three Months Ended 1999 1999 1999 1999 - ------------------------------------------------------------------------- (In millions) Operating Revenues $418.8 $481.9 $534.5 $429.7 Operating Expenses and Taxes 337.3 375.3 395.6 362.0 - ------------------------------------------------------------------------- Operating Income 81.5 106.6 138.9 67.7 Other Income (Expense) 6.5 (1.2) 1.3 2.7 Net Interest Charges 53.1 52.8 52.2 51.8 - ------------------------------------------------------------------------ Net Income $ 34.9 $ 52.6 $ 88.0 $ 18.6 ======================================================================== Earnings on Common Stock $ 26.4 $ 44.1 $ 79.7 $ 10.4 ========================================================================
Report of Independent Public Accountants To the Stockholders and Board of Directors of The Cleveland Electric Illuminating Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of The Cleveland Electric Illuminating Company (an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of income, common stockholder's equity, preferred stock, cash flows and taxes for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Cleveland Electric Illuminating Company and subsidiary as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. 22 EX-21.2 21 ex21-2.txt LIST OF SUBS - CEI EXHIBIT 21.2 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY LIST OF SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 2000 Centerior Funding Corporation - Incorporated in Delaware Statement of Differences ------------------------ Exhibit Number 21, List of Subsidiaries of the Registrant at December 31, 2000, is not included in the printed document. EX-23.2 22 ex23-2.txt CONSENT - CEI EXHIBIT 23.2 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into The Cleveland Electric Illuminating Company's previously filed Registration Statements, File No. 33-55513, No. 333-47651 and No. 333-72891. ARTHUR ANDERSEN LLP Cleveland, Ohio, March 28, 2001. EX-4.3 23 ex4-3.txt SUPPLEMENTAL INDENTURE - TE CONFORMED COPY - -------------------------------------------------------------------- THE TOLEDO EDISON COMPANY TO THE CHASE MANHATTAN BANK Trustee. ------------------ Fiftieth Supplemental Indenture Dated as of May 1, 2000 ------------------- (Supplemental to Indenture dated as of April 1, 1947) ------------------- First Mortgage Bonds, Pledge Series A of 2000 due 2024 First Mortgage Bonds, Pledge Series B of 2000 due 2024 - --------------------------------------------------------------------- TABLE OF CONTENTS Page ---- RECITALS 1 ARTICLE I CREATION AND DESCRIPTION OF BONDS OF 2000 PLEDGE SERIES A 14 ARTICLE II CREATION AND DESCRIPTION OF BONDS OF 2000 PLEDGE SERIES B 17 ARTICLE III THE TRUSTEE 19 ARTICLE IV MISCELLANEOUS PROVISIONS 20 Testimonium Clause Company's Signatures Trustee's Signatures Company's Acknowledgment Trustee's Acknowledgment i Fiftieth Supplemental Indenture, dated as of May 1, 2000, between The Toledo Edison Company, a corporation organized and existing under the laws of the State of Ohio (hereinafter called the "Company"), and The Chase Manhattan Bank, a corporation existing under the laws of the State of New York (hereinafter called the "Trustee"), as Trustee. RECITALS The Company has heretofore executed and delivered an Indenture of Mortgage and Deed of Trust dated as of April 1, 1947 (hereinafter referred to as the "Original Indenture") to The Chase National Bank of the City of New York, predecessor Trustee, to secure an issue of First Mortgage Bonds of the Company, issuable in series, and created thereunder an initial series of bonds designated as First Mortgage Bonds, 2?% Series due 1977; and The Company has heretofore executed and delivered to The Chase National Bank of the City of New York, predecessor Trustee, four Supplemental Indentures supplementing the Original Indenture dated, respectively, September 1, 1948, April 1, 1949, December 1, 1950 and March 1, 1954 and has heretofore executed and delivered to The Chase Manhattan Bank, which on March 31, 1955, became the Trustee under the Original Indenture by virtue of the merger of The Chase National Bank of the City of New York into President and Directors of The Manhattan Company under the name of The Chase Manhattan Bank, the Fifth and the Sixth Supplemental Indentures dated, respectively, February 1, 1956, and May 1, 1958, supplementing the Original Indenture; and The Chase Manhattan Bank was converted into a national banking association under the name The Chase Manhattan Bank (National Association), effective September 23, 1965; and by virtue of said conversion the continuity of the business of The Chase Manhattan Bank, including its business of acting as corporate trustee, and its corporate existence, was not affected, so that The Chase Manhattan Bank (National Association) was vested with all the trusts, powers, discretion, immunities, privileges and all other matters as were vested in said The Chase Manhattan Bank under the Indenture (hereinafter defined), with like effect as if originally named as Trustee therein; and The Company has heretofore executed and delivered to The Chase Manhattan Bank (National Association) 41 Supplemental Indentures dated, respectively, as follows: Seventh, August 1, 1967, Eighth, November 1, 1970, Ninth, August 1, 1972, Tenth, November 1, 1973, Eleventh, July 1, 1974, Twelfth, October 1, 1975, Thirteenth, June 1, 1976, Fourteenth, October 1, 1978, Fifteenth, September 1, 1979, Sixteenth, September 1, 1980, Seventeenth, October 1, 1980, Eighteenth, April 1, 1981, Nineteenth, November 1, 1981, Twentieth, June 1, 1982, Twenty-first, September 1, 1982, Twenty-second, April 1, 1983, Twenty-third, December 1, 1983, Twenty-fourth, April 1, 1984, Twenty-fifth, October 15, 1984, Twenty- sixth, October 15, 1984, Twenty-seventh, August 1, 1985, Twenty-eighth, August 1, 1985, Twenty-ninth, December 1, 1985, Thirtieth, March 1, 1986, Thirty-first, October 15, 1987, Thirty-second, September 15, 1988, Thirty- third, June 15, 1989, Thirty-fourth, October 15, 1989, Thirty-fifth, May 15, 1990, Thirty-sixth, March 1, 1991, Thirty-seventh, May 1, 1992, Thirty-eighth, August 1, 1992, Thirty-ninth, October 1, 1992, Fortieth, January 1, 1993, Forty-first, September 15, 1994, Forty-second, May 1, 1995, Forty-third, June 1, 1995, Forty-fourth, July 14, 1995, Forty- - 1 - fifth, July 15, 1995, Forty-sixth, June 15, 1997 and Forty-seventh, August 1, 1997 supplementing the Original Indenture; and The Chase Manhattan Bank (National Association), Successor Trustee, was merged on July 1, 1996, with and into Chemical Bank, a New York banking corporation, which changed its name to The Chase Manhattan Bank, and which became the Trustee under the Original Indenture by virtue of such merger; and The Company has heretofore executed and delivered to The Chase Manhattan Bank two Supplemental Indentures dated as follows: Forty-eighth, June 1, 1998 and Forty-ninth, January 15, 2000 supplementary to the Original Indenture (the Original Indenture, all the aforementioned Supplemental Indentures, this Fiftieth Supplemental Indenture and any other indentures supplemental to the Original Indenture are herein collectively called the "Indenture" and this Fiftieth Supplemental Indenture is hereinafter called this "Supplemental Indenture"); and The Company covenanted in and by the Original Indenture to execute and deliver such further instruments and do such further acts as may be necessary or proper to carry out more effectually the purposes of the Original Indenture and to make subject to the lien thereof property acquired after the execution and delivery of the Original Indenture; and Under Article 3 of the Original Indenture, the Company is authorized to issue additional bonds upon the terms and conditions expressed in the Original Indenture; and The Company proposes to create two new series of First Mortgage Bonds to be designated as First Mortgage Bonds, Pledge Series A of 2000 due 2024 (hereinafter called the "Bonds of 2000 Pledge Series A") and First Mortgage Bonds, Pledge Series B of 2000 due 2024 (hereinafter called the "Bonds of 2000 Pledge Series B") with the respective denominations, rates of interest, date of maturity, redemption provisions and other provisions and agreements in respect thereof as in this Supplemental Indenture set forth; and The Bonds of 2000 Pledge Series A are to be issued by the Company and delivered to the Pledge Series A Collateral Agent Bank (hereinafter defined) to (i) provide for the payment of the Company's obligations to make payments to any person under the Letter of Credit and Reimbursement Agreement, dated as of May 3, 2000, among the Company, the participating banks named therein and Barclays Bank PLC, New York Branch, as Administrative Agent, Fronting Bank and Collateral Agent (such reimbursement agreement, as amended, supplemented or replaced from time to time, herein called the "Pledge Series A Reimbursement Agreement") and (ii) to provide to such persons the benefits of the security provided for the Bonds of 2000 Pledge Series A; and The Company entered into the Pledge Series A Reimbursement Agreement to secure the obligation of the Company to repay the loan (hereinafter called the "Water Loan") made by the Ohio Water Development Authority (hereinafter called the "Water Authority") to the Company pursuant to a certain loan agreement, dated as of April 1, 2000, between the Water Authority and the Company to assist the Company in refunding certain bonds which had been previously issued by the Water Authority, the proceeds of which were loaned to the Company to assist in the financing of a portion of the costs of the acquisition, construction and installation of certain - 2 - waste water facilities and solid waste facilities under Chapters 6121 and 6123, Ohio Revised Code, as amended; and The Water Loan is to be funded with proceeds derived from the sale by the Water Authority of State of Ohio Pollution Control Revenue Refunding Bonds, Series 2000-A (The Toledo Edison Company Project) in the aggregate principal amount of $33,200,000 (hereinafter called the "Water Bonds"); and the Water Bonds are to be issued under a certain trust indenture, dated as of April 1, 2000, between the Water Authority and Fifth Third Bank, as trustee (in such capacity, hereinafter called the "Water Trustee"); and As used herein, the term "Pledge Series A Participating Banks" shall refer collectively to all banks which are parties to the Pledge Series A Reimbursement Agreement, the term "Pledge Series A Collateral Agent Bank" shall refer to the bank designated in the Pledge Series A Reimbursement Agreement as the party responsible for holding the Bonds of 2000 Pledge Series A as agent for the benefit of the Pledge Series A Participating Banks and the term "Pledge Series A Administrative Agent Bank" shall refer to the bank designated in the Pledge Series A Reimbursement Agreement as the Administrative Agent; and The Bonds of 2000 Pledge Series B are to be issued by the Company and delivered to the Pledge Series B Collateral Agent Bank (hereinafter defined) to (i) provide for the payment of the Company's obligations to make payments to any person under the Letter of Credit and Reimbursement Agreement, dated as of May 3, 2000, among the Company, the participating banks named therein and Barclays Bank PLC, New York Branch, as Administrative Agent, Fronting Bank and Collateral Agent (such reimbursement agreement, as amended, supplemented or replaced from time to time, herein called the "Pledge Series B Reimbursement Agreement") and (ii) to provide to such persons the benefits of the security provided for the Bonds of 2000 Pledge Series B; and The Company entered into the Pledge Series B Reimbursement Agreement to secure the obligation of the Company to repay the loan (hereinafter called the "Air Loan") made by the Ohio Air Quality Development Authority (hereinafter called the "Air Authority") to the Company pursuant to a certain loan agreement, dated as of April 1, 2000, between the Air Authority and the Company to assist the Company in refunding certain bonds which had been previously issued by the Air Authority, the proceeds of which were loaned to the Company to assist in the financing of a portion of the costs of the acquisition, construction and installation of certain air quality facilities under Chapter 3706, Ohio Revised Code, as amended; and The Air Loan is to be funded with proceeds derived from the sale by the Air Authority of State of Ohio Pollution Control Revenue Refunding Bonds, Series 2000-A (The Toledo Edison Company Project) in the aggregate principal amount of $34,100,000 (hereinafter called the "Air Bonds"); and the Air Bonds are to be issued under a certain trust indenture, dated as of April 1, 2000, between the Air Authority and Fifth Third Bank, as trustee (in such capacity, hereinafter called the "Air Trustee"); and As used herein, the term "Pledge Series B Participating Banks" shall refer collectively to all banks which are parties to the Pledge Series B Reimbursement Agreement, the term "Pledge Series B Collateral Agent Bank" shall refer to the bank designated in the Pledge Series B - 3 - Reimbursement Agreement as the party responsible for holding the Bonds of 2000 Pledge Series B as agent for the benefit of the Pledge Series B Participating Banks and the term "Pledge Series B Administrative Agent Bank" shall refer to the bank designated in the Pledge Series B Reimbursement Agreement as the Administrative Agent; and The Company, by appropriate corporate action, has duly resolved and determined to execute this Supplemental Indenture for the purpose of providing for the creation of the Bonds of 2000 Pledge Series A and the Bonds of 2000 Pledge Series B and of specifying the form, provisions and particulars thereof as in said Original Indenture, as amended, provided or permitted, including the issuance only of fully registered bonds, and of giving to the Bonds of 2000 Pledge Series A and the Bonds of 2000 Pledge Series B the protection and security of the Indenture; and The text of the Bonds of 2000 Pledge Series A and the Bonds of 2000 Pledge Series B are to be substantially in the following respective forms: [Form of Fully Registered Bond of 2000 Pledge Series A] THIS BOND IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR AGENT BANK UNDER THE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, DATED AS OF MAY 3, 2000, AMONG THE COMPANY, THE PARTICIPATING BANKS NAMED THEREIN AND BARCLAYS BANK PLC, NEW YORK BRANCH, AS ADMINISTRATIVE AGENT, FRONTING BANK AND COLLATERAL AGENT (SUCH REIMBURSEMENT AGREEMENT, AS AMENDED, SUPPLEMENTED OR REPLACED FROM TIME TO TIME, THE "REIMBURSEMENT AGREEMENT"). The Toledo Edison Company First Mortgage Bond, Pledge Series A of 2000 due 2024 No. R-1 $33,200,000 The Toledo Edison Company, an Ohio corporation (hereinafter called the Company), for value received, hereby promises to pay to Barclays Bank PLC, New York Branch, as Agent Bank (hereinafter defined), or registered assigns, the principal sum of Thirty-three Million, Two Hundred Thousand Dollars ($33,200,000), in whole or in installments on such date or dates as the Company has any obligations under the Reimbursement Agreement to pay amounts in respect of principal of any demand loan, Tender Advance (as defined in the Reimbursement Agreement) or unreimbursed drawing under the Letter of Credit (as defined in the Reimbursement Agreement), in the amount of such obligations then due, but no later than May 1, 2024, at the same place or places as reimbursement and repayment obligations under the Reimbursement Agreement are payable, in any coin or currency of the United States of America which at the time of such payment shall be legal tender for the payment of public and private debts, and to pay interest on the unpaid principal amount hereof in like coin or currency to the registered owner hereof at said place or places at such rate per annum on each interest payment date (hereinafter defined) as shall cause the amount of interest payable on such interest payment - 4 - date on the Bonds of this Series (hereinafter defined) to equal the sum of (a) the amount of interest payable on such interest payment date on the Authority Bonds (hereinafter defined) and (b) the amount of interest, commissions and fees payable on such interest payment date under the Reimbursement Agreement. Such interest shall be payable on the same dates as interest is payable on said Authority Bonds and on the same dates as interest, commissions or fees are payable from time to time pursuant to the Reimbursement Agreement (each such date hereinafter called an "interest payment date"), until maturity of this Bond, or, if the Agent Bank (hereinafter defined) or the Administrative Agent (as defined in the Reimbursement Agreement) on behalf of the Required Banks (as defined in the Reimbursement Agreement) shall demand redemption of this Bond, until the redemption date, or, if the Company shall default in the payment of the principal due on this Bond, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture (hereinafter defined). The amount of interest payable on each interest payment date shall be computed on the same basis as the corresponding amount is computed (x) by the Authority Trustee (hereinafter defined) on the Authority Bonds, in the case of the amount described in clause (a) of the second preceding sentence, and (y) as set forth in the Reimbursement Agreement, in the case of the amount described in clause (b) of the second preceding sentence; provided, however, that the aggregate amount of interest payable on any interest payment date under clauses (a) and (b) of the second preceding sentence shall not exceed an amount which results in an interest rate of more than 10% per annum on the aggregate principal amount of the Bonds of this Series outstanding from time to time. Notwithstanding the provisions of the next preceding two sentences, if an event of default shall occur under the Reimbursement Agreement, then the Bonds of this Series shall bear interest at the rate of 10% per annum, payable on each interest payment date (which, in the event of such an event of default shall include each date on which interest, commissions or fees are payable by the Company under the Reimbursement Agreement). Except as hereinafter provided, this Bond shall bear interest (a) from the interest payment date next preceding the date of this Bond to which interest has been paid, or (b) if the date of this Bond is an interest payment date to which interest has been paid, then from such date, or (c) if no interest has been paid on this Bond, then from the date of initial issue. This Bond is one of the Bonds of the Company, known as its First Mortgage Bonds, issued and to be issued in one or more series under and equally and ratably secured (except as any sinking, amortization, improvement or other fund, established in accordance with the provisions of said Indenture, may afford additional security for the Bonds of any particular series) by a certain Indenture of Mortgage and Deed of Trust, dated as of April 1, 1947 (hereinafter called the "Original Indenture"), made by the Company to The Chase National Bank of the City of New York (The Chase Manhattan Bank, successor), as Trustee (hereinafter called the "Trustee"), and by certain indentures supplemental thereto, including the Fiftieth Supplemental Indenture dated as of May 1, 2000 (the Original Indenture and said indentures supplemental thereto herein collectively called the "Indenture" and said Fiftieth Supplemental Indenture hereinafter called the "Supplemental Indenture"), to which Indenture reference is hereby made for a description of the property mortgaged, the nature and extent of the security, the rights and limitations of rights of the Company, the Trustee and the holders of said Bonds and of the coupons appurtenant to coupon Bonds under the Indenture and the terms and conditions upon which said Bonds are and are to be issued and secured, to all of the provisions of which Indenture and of all such supplemental indentures in respect of such security, including - 5 - the provisions of the Indenture permitting the issue of Bonds of any series for property which, under the restrictions and limitations therein specified, may be subject to liens prior to the lien of the Indenture, the holder, by accepting this Bond, assents. To the extent permitted by and as provided in the Indenture, the rights and obligations of the Company and of the holders of said Bonds and coupons (including those pertaining to any sinking or other fund) may be changed and modified, with the consent of the Company, by the holders of at least 75% in aggregate principal amount of the Bonds then outstanding, such percentage being determined as provided in the Indenture; provided, however, that in case such changes and modifications affect one or more but less than all series of Bonds then outstanding, they shall be required to be adopted only by the affirmative vote of the holders of at least 75% in aggregate principal amount of outstanding Bonds of such one or more series so affected; and further provided, that without the consent of the holder hereof no such change or modification shall be made which will extend the time of payment of the principal of, or of the interest or premium, if any, on this Bond or reduce the principal amount hereof or the rate of interest or the premium, if any, hereon, or affect any other modification of the terms of payment of such principal or interest or premium, if any, or will permit the creation of any lien ranking prior to or on a parity with the lien of the Indenture on any of the mortgaged property, or will deprive the holder hereof of the benefit of a lien upon the mortgaged property for the security of this Bond, or will reduce the percentage of Bonds required for the adoption of changes or modifications as aforesaid. This Bond is the only Bond of a series of Bonds designated as the First Mortgage Bonds, Pledge Series A of 2000 due 2024, of the Company (herein called the "Bonds of this Series") limited, except as otherwise provided in the Indenture, in aggregate principal amount to $33,200,000, and is issued under and secured by the Supplemental Indenture. The Bonds of this Series have been issued by the Company to the Agent Bank to (i) provide for the payment of the Company's obligations to make payments to any person under the Reimbursement Agreement and (ii) provide to such persons the benefits of the security provided for the Bonds of this Series. The Reimbursement Agreement has been entered into by the Company to secure the obligation of the Company to repay the loan (herein called the "Authority Loan") made by the Ohio Water Development Authority (the "Authority") to the Company pursuant to a certain loan agreement, dated as of April 1, 2000, between the Authority and the Company to assist the Company in refunding certain bonds which had been previously issued by the Authority, the proceeds of which were loaned to the Company to assist in the financing of a portion of the costs of the acquisition, construction and installation of certain facilities comprising waste water facilities and solid waste facilities under Chapters 6121 and 6123, Ohio Revised Code, as amended. To provide funds for the Authority Loan, the Authority will issue one or more series of State of Ohio Pollution Control Revenue Refunding Bonds, Series 2000-A (The Toledo Edison Company Project) in an aggregate principal amount of not more than $33,200,000 (herein called the "Authority Bonds") under a certain trust indenture, dated as of April 1, 2000, between the Authority and Fifth Third Bank, as trustee (herein called the "Authority Trustee"). As used herein, the term "Agent Bank" shall refer to the bank designated in the Reimbursement Agreement as the party responsible for holding the Bonds of this Series as agent for the benefit of the Participating Banks. As used herein, the term "Participating Banks" shall refer to the Fronting Bank, the Administrative Agent, the Collateral Agent and the Banks (each - 6 - as defined in the Reimbursement Agreement). The Bonds of this Series have been delivered to the Agent Bank as agent for the Participating Banks. Any payment made in respect of the Company's obligations under the Reimbursement Agreement shall be deemed a payment in like amount in respect of the principal of or interest on the Bonds of this Series, as applicable, but such payment shall not reduce the principal amount of the Bonds of this Series unless the sum of (a) the Available Amount (as defined in the Reimbursement Agreement) plus (b) the aggregate principal amount of demand loans and Tender Advances (as defined in the Reimbursement Agreement) then outstanding under the Reimbursement Agreement is irrevocably and permanently reduced concurrently with such payment. In the event that all of the Company's obligations under the Reimbursement Agreement have been discharged, this Bond shall be deemed paid in full and shall be surrendered to the Trustee for cancellation. The Bonds of this Series are subject to redemption prior to maturity as provided in Section 9 of Article I of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, any accrued and unpaid interest and all other amounts payable by the Company under the Reimbursement Agreement. The principal of this Bond may be declared or may become due before the maturity hereof, on the conditions, in the manner and at the times set forth in the Indenture, upon the happening of a default as therein defined. No recourse under or upon any covenant or obligation of the Indenture, or of any indenture supplemental thereto, or of this Bond, for the payment of the principal of or the interest on this Bond, or for any claim based thereon, or otherwise in any manner in respect thereof, shall be had against any incorporator, subscriber to the capital stock, stockholder, officer or director, as such, of the Company, whether former, present or future, either directly or indirectly through the Company or any predecessor or successor corporation or the Trustee, by the enforcement of any subscription to capital stock, assessment or otherwise, or by any legal or equitable proceeding by virtue of any constitution, statute, or otherwise (including, without limiting the generality of the foregoing, any proceeding to enforce any claimed liability of stockholders of the Company based upon any theory of disregarding the corporate entity of the Company or upon any theory that the Company was acting as the agent or instrumentality of the stockholders), any and all such liability of incorporators, stockholders, subscribers, officers and directors, as such, being released by the holder hereof, by the acceptance of this Bond, and being likewise waived and released by the terms of the Indenture. This Bond shall not be valid or become obligatory for any purpose until the certificate of authentication endorsed hereon shall have been signed by The Chase Manhattan Bank or its successor, as Trustee under the Indenture. - 7 - In Witness Whereof, The Toledo Edison Company has caused this Bond to be signed in its name by its President or a Vice-President and its corporate seal to be impressed or imprinted hereon and attested by its Corporate Secretary or an Assistant Corporate Secretary. Dated The Toledo Edison Company By ------------------------------- Vice President Attest: - -------------------------- Corporate Secretary - 8 - [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This Bond is one of the Bonds of the series designated herein, described in the within-mentioned Indenture. The Chase Manhattan Bank, as Trustee By ------------------------------ Authorized Officer [End of Form of Bond of 2000 Pledge Series A] [Form of Fully Registered Bond of 2000 Pledge Series B] THIS BOND IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR AGENT BANK UNDER THE LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT, DATED AS OF MAY 3, 2000, AMONG THE COMPANY, THE PARTICIPATING BANKS NAMED THEREIN AND BARCLAYS BANK PLC, NEW YORK BRANCH, AS ADMINISTRATIVE AGENT, FRONTING BANK AND COLLATERAL AGENT (SUCH REIMBURSEMENT AGREEMENT, AS AMENDED, SUPPLEMENTED OR REPLACED FROM TIME TO TIME, THE "REIMBURSEMENT AGREEMENT". The Toledo Edison Company First Mortgage Bond, Pledge Series B of 2000 due 2024 No. R-1 $34,100,000 The Toledo Edison Company, an Ohio corporation (hereinafter called the Company), for value received, hereby promises to pay to Barclays Bank PLC, New York Branch, as Agent Bank (hereinafter defined), or registered assigns, the principal sum of Thirty-four Million, One Hundred Thousand Dollars ($34,100,000), in whole or in installments on such date or dates as the Company has any obligations under the Reimbursement Agreement to pay amounts in respect of principal of any demand loan, Tender Advance (as defined in the Reimbursement Agreement) or unreimbursed drawing under the Letter of Credit (as defined in the Reimbursement Agreement), in the amount of such obligations then due, but no later than May 1, 2024, at the same place or places as reimbursement and repayment obligations under the Reimbursement Agreement are payable, in any coin or currency of the United States of America which at the time of such payment shall be legal tender for the payment of public and private debts, and to pay interest on the unpaid principal amount hereof in like coin or currency to the registered owner hereof at said place or places at such rate per annum on each interest payment date (hereinafter defined) as shall cause the amount of interest payable on such interest payment date on the Bonds of this Series (hereinafter defined) to equal the sum of (a) the amount of - 9 - interest payable on such interest payment date on the Authority Bonds (hereinafter defined) and (b) the amount of interest, commissions and fees payable on such interest payment date under the Reimbursement Agreement. Such interest shall be payable on the same dates as interest is payable on said Authority Bonds and on the same dates as interest, commissions or fees are payable from time to time pursuant to the Reimbursement Agreement (each such date hereinafter called an "interest payment date"), until maturity of this Bond, or, if the Agent Bank (hereinafter defined) or the Administrative Agent (as defined in the Reimbursement Agreement) on behalf of the Required Banks (as defined in the Reimbursement Agreement) shall demand redemption of this Bond, until the redemption date, or, if the Company shall default in the payment of the principal due on this Bond, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture (hereinafter defined). The amount of interest payable on each interest payment date shall be computed on the same basis as the corresponding amount is computed (x) by the Authority Trustee (hereinafter defined) on the Authority Bonds, in the case of the amount described in clause (a) of the second preceding sentence, and (y) as set forth in the Reimbursement Agreement, in the case of the amount described in clause (b) of the second preceding sentence; provided, however, that the aggregate amount of interest payable on any interest payment date under clauses (a) and (b) of the next preceding sentence shall not exceed an amount which results in an interest rate of more than 10% per annum on the aggregate principal amount of the Bonds of this Series outstanding from time to time. Notwithstanding the provisions of the next preceding two sentences, if an event of default shall occur under the Reimbursement Agreement, then the Bonds of this Series shall bear interest at the rate of 10% per annum, payable on each interest payment date (which, in the event of such an event of default shall include each date on which interest, commissions or fees are payable by the Company under the Reimbursement Agreement). Except as hereinafter provided, this Bond shall bear interest (a) from the interest payment date next preceding the date of this Bond to which interest has been paid, or (b) if the date of this Bond is an interest payment date to which interest has been paid, then from such date, or (c) if no interest has been paid on this Bond, then from the date of initial issue. This Bond is one of the Bonds of the Company, known as its First Mortgage Bonds, issued and to be issued in one or more series under and equally and ratably secured (except as any sinking, amortization, improvement or other fund, established in accordance with the provisions of said Indenture, may afford additional security for the Bonds of any particular series) by a certain Indenture of Mortgage and Deed of Trust, dated as of April 1, 1947 (hereinafter called the "Original Indenture"), made by the Company to The Chase National Bank of the City of New York (The Chase Manhattan Bank, successor), as Trustee (hereinafter called the "Trustee"), and by certain indentures supplemental thereto, including the Fiftieth Supplemental Indenture dated as of May 1, 2000 (the Original Indenture and said indentures supplemental thereto herein collectively called the "Indenture" and said Fiftieth Supplemental Indenture hereinafter called the "Supplemental Indenture"), to which Indenture reference is hereby made for a description of the property mortgaged, the nature and extent of the security, the rights and limitations of rights of the Company, the Trustee and the holders of said Bonds and of the coupons appurtenant to coupon Bonds under the Indenture and the terms and conditions upon which said Bonds are and are to be issued and secured, to all of the provisions of which Indenture and of all such supplemental indentures in respect of such security, including the provisions of the Indenture permitting the issue of Bonds of any series for property which, - 10 - under the restrictions and limitations therein specified, may be subject to liens prior to the lien of the Indenture, the holder, by accepting this Bond, assents. To the extent permitted by and as provided in the Indenture, the rights and obligations of the Company and of the holders of said Bonds and coupons (including those pertaining to any sinking or other fund) may be changed and modified, with the consent of the Company, by the holders of at least 75% in aggregate principal amount of the Bonds then outstanding, such percentage being determined as provided in the Indenture; provided, however, that in case such changes and modifications affect one or more but less than all series of Bonds then outstanding, they shall be required to be adopted only by the affirmative vote of the holders of at least 75% in aggregate principal amount of outstanding Bonds of such one or more series so affected; and further provided, that without the consent of the holder hereof no such change or modification shall be made which will extend the time of payment of the principal of, or of the interest or premium, if any, on this Bond or reduce the principal amount hereof or the rate of interest or the premium, if any, hereon, or affect any other modification of the terms of payment of such principal or interest or premium, if any, or will permit the creation of any lien ranking prior to or on a parity with the lien of the Indenture on any of the mortgaged property, or will deprive the holder hereof of the benefit of a lien upon the mortgaged property for the security of this Bond, or will reduce the percentage of Bonds required for the adoption of changes or modifications as aforesaid. This Bond is the only Bond of a series of Bonds designated as the First Mortgage Bonds, Pledge Series B of 2000 due 2024, of the Company (herein called the "Bonds of this Series") limited, except as otherwise provided in the Indenture, in aggregate principal amount to $34,100,000, and is issued under and secured by the Supplemental Indenture. The Bonds of this Series have been issued by the Company to the Agent Bank to (i) provide for the payment of the Company's obligations to make payments to any person under the Reimbursement Agreement and (ii) provide to such persons the benefits of the security provided for the Bonds of this Series. The Reimbursement Agreement has been entered into by the Company to secure the obligation of the Company to repay the loan (herein called the "Authority Loan") made by the Ohio Air Quality Development Authority (the "Authority") to the Company pursuant to a certain loan agreement, dated as of April 1, 2000, between the Authority and the Company to assist the Company in refunding certain bonds which had been previously issued by the Authority, the proceeds of which were loaned to the Company to assist in the financing of a portion of the costs of the acquisition, construction and installation of certain facilities comprising air quality facilities under Chapter 3706, Ohio Revised Code, as amended. To provide funds for the Authority Loan, the Authority will issue one or more series of State of Ohio Pollution Control Revenue Refunding Bonds, Series 2000-A (The Toledo Edison Company Project) in an aggregate principal amount of not more than $34,100,000 (herein called the "Authority Bonds") under a certain trust indenture, dated as of April 1, 2000, between the Authority and Fifth Third Bank, as trustee (herein called the "Authority Trustee"). As used herein, the term "Agent Bank" shall refer to the bank designated in the Reimbursement Agreement as the party responsible for holding the Bonds of this Series as agent for the benefit of the Participating Banks. As used herein, the term "Participating Banks" shall refer to the Fronting Bank, the Administrative Agent, the Collateral Agent and the Banks (each as defined in the Reimbursement Agreement). The Bonds of this Series have been delivered to the Agent Bank as agent for the Participating Banks. - 11 - Any payment made in respect of the Company's obligations under the Reimbursement Agreement shall be deemed a payment in like amount in respect of the principal of or interest on the Bonds of this Series, as applicable, but such payment shall not reduce the principal amount of the Bonds of this Series unless the sum of (a) the Available Amount (as defined in the Reimbursement Agreement) plus (b) the aggregate principal amount of demand loans and Tender Advances (as defined in the Reimbursement Agreement) then outstanding under the Reimbursement Agreement is irrevocably and permanently reduced concurrently with such payment. In the event that all of the Company's obligations under the Reimbursement Agreement have been discharged, this Bond shall be deemed paid in full and shall be surrendered to the Trustee for cancellation. The Bonds of this Series are subject to redemption prior to maturity as provided in Section 9 of Article II of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, any accrued and unpaid interest and all other amounts payable by the Company under the Reimbursement Agreement. The principal of this Bond may be declared or may become due before the maturity hereof, on the conditions, in the manner and at the times set forth in the Indenture, upon the happening of a default as therein defined. No recourse under or upon any covenant or obligation of the Indenture, or of any indenture supplemental thereto, or of this Bond, for the payment of the principal of or the interest on this Bond, or for any claim based thereon, or otherwise in any manner in respect thereof, shall be had against any incorporator, subscriber to the capital stock, stockholder, officer or director, as such, of the Company, whether former, present or future, either directly or indirectly through the Company or any predecessor or successor corporation or the Trustee, by the enforcement of any subscription to capital stock, assessment or otherwise, or by any legal or equitable proceeding by virtue of any constitution, statute, or otherwise (including, without limiting the generality of the foregoing, any proceeding to enforce any claimed liability of stockholders of the Company based upon any theory of disregarding the corporate entity of the Company or upon any theory that the Company was acting as the agent or instrumentality of the stockholders), any and all such liability of incorporators, stockholders, subscribers, officers and directors, as such, being released by the holder hereof, by the acceptance of this Bond, and being likewise waived and released by the terms of the Indenture. This Bond shall not be valid or become obligatory for any purpose until the certificate of authentication endorsed hereon shall have been signed by The Chase Manhattan Bank or its successor, as Trustee under the Indenture. - 12 - In Witness Whereof, The Toledo Edison Company has caused this Bond to be signed in its name by its President or a Vice-President and its corporate seal to be impressed or imprinted hereon and attested by its Corporate Secretary or an Assistant Corporate Secretary. Dated The Toledo Edison Company By ------------------------------ Vice President Attest: - ------------------------ Corporate Secretary - 13 - [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This Bond is one of the Bonds of the series designated herein, described in the within-mentioned Indenture. The Chase Manhattan Bank, as Trustee By --------------------------------- Authorized Officer [End of Form of Bond of 2000 Pledge Series B] All conditions and requirements necessary to make this Supplemental Indenture a valid, legal and binding instrument in accordance with its terms and to make the Bonds of 2000 Pledge Series A and the Bonds of 2000 Pledge Series B, when duly executed by the Company and authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal obligations of the Company, have been done and performed, and the execution and delivery of this Supplemental Indenture have been in all respects duly authorized. Now, Therefore, This Supplemental Indenture Witnesseth: That The Toledo Edison Company, the Company herein named, in consideration of the premises and of One Dollar ($1.00) to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, does hereby covenant and agree to and with the Trustee and its successors in the trust under the Indenture, for the benefit of those who shall hold the bonds to be issued hereunder and thereunder, as hereinafter provided, as follows: ARTICLE I CREATION AND DESCRIPTION OF BONDS OF 2000 PLEDGE SERIES A Section 1. A new series of bonds to be issued under and secured by the Indenture is hereby created, to be designated as "First Mortgage Bonds, Pledge Series A of 2000 due 2024" (such bonds herein referred to as the "Bonds of 2000 Pledge Series A"). The Bonds of 2000 Pledge Series A shall be limited to an aggregate principal amount of $33,200,000. The Bonds of 2000 Pledge Series A shall be substantially in the form hereinbefore recited. Section 2. The principal of all Bonds of 2000 Pledge Series A shall be payable in whole or in installments on such date or dates as the Company has any obligations under the Pledge Series A Reimbursement Agreement to pay amounts in respect of principal of any demand loan, Tender Advance (as defined in the Pledge Series A Reimbursement Agreement) or unreimbursed drawing under a Letter of Credit (as defined in the Pledge Series A Reimbursement Agreement), in the amount of such obligations then due, but not later than May 1, 2024, and shall bear interest from the time hereinafter provided at such rate per annum on each - 14 - interest payment date (hereinafter defined) as shall cause the amount of interest payable on each interest payment date on the Bonds of 2000 Pledge Series A to equal the sum of (a) the amount of interest payable on such interest payment date on the Water Bonds and (b) the amount of interest, commissions and fees payable on such interest payment date under the Pledge Series A Reimbursement Agreement. Such interest shall be payable on the same dates as interest is payable on the Water Bonds and on the same dates as interest, commissions or fees are payable from time to time pursuant to the Pledge Series A Reimbursement Agreement (each such date herein called an "interest payment date"), until the maturity of the Bonds of 2000 Pledge Series A, or, in the case the Pledge Series A Collateral Agent Bank or the Pledge Series A Administrative Agent Bank, on behalf of the Required Banks (as defined in the Pledge Series A Reimbursement Agreement), shall demand redemption of any such Bonds, until the redemption date, or, in the case of any default by the Company in the payment of the principal due on any such Bonds, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture. The amount of interest payable on each interest payment date shall be computed on the same basis as the corresponding amount is computed (x) by the Water Trustee on the Water Bonds, in the case of the amount described in clause (a) of the second preceding sentence, and (y) as set forth in the Pledge Series A Reimbursement Agreement, in the case of the amount described in clause (b) of the second preceding sentence; provided, however, that the aggregate amount of interest payable on any interest payment date under clauses (a) and (b) of the second preceding sentence shall not exceed an amount which results in an interest rate of more than 10% per annum on the aggregate principal amount of the Bonds of 2000 Pledge Series A outstanding from time to time. Notwithstanding the provisions of the next preceding paragraph, if an event of default shall occur under the Pledge Series A Reimbursement Agreement, then the Bonds of 2000 Pledge Series A shall bear interest at the rate of 10% per annum, payable on each interest payment date (which, in the event of such an event of default shall include each date on which interest, commissions or fees are payable by the Company under the Pledge Series A Reimbursement Agreement). Except as hereinafter provided, each Bond of 2000 Pledge Series A shall bear interest (a) from the interest payment date next preceding the date of such Bond to which interest has been paid, or (b) if the date of such Bond is an interest payment date to which interest has been paid, then from such date, or (c) if no interest has been paid thereon, then from the date of initial issue. The Trustee may rely upon the certification of the Water Trustee of the interest rate of, interest payment dates of and basis on which interest is computed for, the Water Bonds and upon the certification of the Pledge Series A Collateral Agent Bank or the Pledge Series A Administrative Agent Bank of the interest rates, commissions, fees, number of days interest has accrued, interest payment dates of and basis on which interest, commissions and fees are computed under the Pledge Series A Reimbursement Agreement, in each case from time to time as necessary to enable the Trustee to determine for the Bonds of 2000 Pledge Series A their corresponding interest rate, interest payment dates and basis on which interest shall be computed. Section 3. The Bonds of 2000 Pledge Series A shall be payable as to principal and interest at the same place or places as payments are required to be made by the Company under the Pledge Series A Reimbursement Agreement; and principal and interest shall be payable in - 15 - any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. Section 4. The Bonds of 2000 Pledge Series A shall be issued only as one fully registered Bond in the denomination of $33,200,000. Section 5. The Bonds of 2000 Pledge Series A shall be transferable only to a successor Pledge Series A Collateral Agent Bank under the Pledge Series A Reimbursement Agreement in the manner and upon the terms set forth in 2.05 of the Original Indenture, but notwithstanding the provisions of 2.08 of the Original Indenture, no charge shall be made upon any transfer or exchange of Bonds of 2000 Pledge Series A other than for any tax or taxes or other governmental charge required to be paid by the Company. Section 6. The Bonds of 2000 Pledge Series A shall be registered in the name of the Pledge Series A Collateral Agent Bank. Section 7. Any payment made in respect of the Company's obligations under the Pledge Series A Reimbursement Agreement shall be deemed a payment in like amount in respect of the principal of or interest on the Bonds of 2000 Pledge Series A, as applicable, but such payment shall not reduce the principal amount of the Bonds of 2000 Pledge Series A unless the sum of (a) the Available Amount (as defined in the Pledge Series A Reimbursement Agreement) plus (b) the aggregate principal amount of demand loans and Tender Advances (as defined in the Pledge Series A Reimbursement Agreement) then outstanding under the Pledge Series A Reimbursement Agreement is irrevocably and permanently reduced concurrently with such payment. In the event that all of the Company's obligations under the Pledge Series A Reimbursement Agreement have been discharged, the Bonds of 2000 Pledge Series A shall be deemed to be paid in full. Section 8. The Bonds of 2000 Pledge Series A may be executed by the Company and delivered to the Trustee and, upon compliance with all applicable provisions and requirements of the Original Indenture in respect thereof, shall be authenticated by the Trustee and delivered (without awaiting the filing or recording of this Supplemental Indenture) in accordance with the written order or orders of the Company. Section 9. The Bonds of 2000 Pledge Series A shall be redeemed by the Company in whole at any time prior to maturity at a redemption price of 100% of the principal amount to be redeemed, plus any accrued and unpaid interest to the redemption date, but only if the Trustee shall receive a written demand from the Pledge Series A Collateral Agent Bank or the Pledge Series A Administrative Agent Bank at the direction of the Required Banks (as defined in the Pledge Series A Reimbursement Agreement) for redemption of all Bonds of 2000 Pledge Series A held by the Pledge Series A Collateral Agent Bank stating that an "Event of Default" under the Pledge Series A Reimbursement Agreement has occurred and is continuing and that payment of the Tender Advances and all other principal amounts outstanding under the Pledge Series A Reimbursement Agreement, all interest thereon and all other amounts payable thereunder are due and payable after demand therefor by the Pledge Series A Administrative Agent Bank or the Required Banks or are then due and payable; provided, however, that the Bonds of 2000 Pledge Series A shall not be redeemed in the event that prior to the date of such redemption the Trustee - 16 - shall have received a certificate of the Pledge Series A Collateral Agent Bank or the Pledge Series A Administrative Agent Bank at the direction of the Required Banks (a) stating that there has been a waiver of such Event of Default or (b) withdrawing said written demand. Upon receipt of such demand, the Trustee shall promptly notify the Company in writing that such Event of Default has occurred and is continuing and that payment of such amounts is due and payable after demand therefor by the Pledge Series A Administrative Agent Bank or the Required Banks or is then due and payable. The redemption of the Bonds of 2000 Pledge Series A shall be made forthwith upon receipt by the Company of such notification from the Trustee or notification of such required redemption from the Pledge Series A Collateral Agent Bank or the Pledge Series A Administrative Agent Bank. ARTICLE II CREATION AND DESCRIPTION OF BONDS OF 2000 PLEDGE SERIES B Section 1. A new series of bonds to be issued under and secured by the Indenture is hereby created, to be designated as "First Mortgage Bonds, Pledge Series B of 2000 due 2024" (such bonds herein referred to as the "Bonds of 2000 Pledge Series B"). The Bonds of 2000 Pledge Series B shall be limited to an aggregate principal amount of $34,100,000. The Bonds of 2000 Pledge Series B shall be substantially in the form hereinbefore recited. Section 2. The principal of all Bonds of 2000 Pledge Series B shall be payable in whole or in installments on such date or dates as the Company has any obligations under the Pledge Series B Reimbursement Agreement to pay amounts in respect of principal of any demand loan, Tender Advance (as defined in the Pledge Series B Reimbursement Agreement) or unreimbursed drawing under a Letter of Credit (as defined in the Pledge Series B Reimbursement Agreement), in the amount of such obligations then due, but not later than May 1, 2024, and shall bear interest from the time hereinafter provided at such rate per annum on each interest payment date (hereinafter defined) as shall cause the amount of interest payable on each interest payment date on the Bonds of 2000 Pledge Series B to equal the sum of (a) the amount of interest payable on such interest payment date on the Air Bonds and (b) the amount of interest, commissions and fees payable on such interest payment date under the Pledge Series B Reimbursement Agreement. Such interest shall be payable on the same dates as interest is payable on the Air Bonds and on the same dates as interest, commissions or fees are payable from time to time pursuant to the Pledge Series B Reimbursement Agreement (each such date herein called an "interest payment date"), until the maturity of the Bonds of 2000 Pledge Series B, or, in the case the Pledge Series B Collateral Agent Bank or the Pledge Series B Administrative Agent Bank, on behalf of the Required Banks (as defined in the Pledge Series B Reimbursement Agreement), shall demand redemption of any such Bonds, until the redemption date, or, in the case of any default by the Company in the payment of the principal due on any such Bonds, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture. The amount of interest payable on each interest payment date shall be computed on the same basis as the corresponding amount is computed (x) by the Air Trustee on the Air Bonds, in the case of the amount described in clause (a) of the second preceding sentence, and (y) as set forth in the Pledge Series B Reimbursement Agreement, in the case of the amount described in clause (b) of the second preceding sentence; - 17 - provided, however, that the aggregate amount of interest payable on any interest payment date under clauses (a) and (b) of the second preceding sentence shall not exceed an amount which results in an interest rate of more than 10% per annum on the aggregate principal amount of the Bonds of 2000 Pledge Series B outstanding from time to time. Notwithstanding the provisions of the next preceding paragraph, if an event of default shall occur under the Pledge Series B Reimbursement Agreement, then the Bonds of 2000 Pledge Series B shall bear interest at the rate of 10% per annum, payable on each interest payment date (which, in the event of such an event of default shall include each date on which interest, commissions or fees are payable by the Company under the Pledge Series B Reimbursement Agreement). Except as hereinafter provided, each Bond of 2000 Pledge Series B shall bear interest (a) from the interest payment date next preceding the date of such Bond to which interest has been paid, or (b) if the date of such Bond is an interest payment date to which interest has been paid, then from such date, or (c) if no interest has been paid thereon, then from the date of initial issue. The Trustee may rely upon the certification of the Air Trustee of the interest rate of, interest payment dates of and basis on which interest is computed for, the Air Bonds and upon the certification of the Pledge Series B Collateral Agent Bank or the Pledge Series B Administrative Agent Bank of the interest rates, commissions, fees, number of days interest has accrued, interest payment dates of and basis on which interest, commissions and fees are computed under the Pledge Series B Reimbursement Agreement, in each case from time to time as necessary to enable the Trustee to determine for the Bonds of 2000 Pledge Series B their corresponding interest rate, interest payment dates and basis on which interest shall be computed. Section 3. The Bonds of 2000 Pledge Series B shall be payable as to principal and interest at the same place or places as payments are required to be made by the Company under the Pledge Series B Reimbursement Agreement; and principal and interest shall be payable in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. Section 4. The Bonds of 2000 Pledge Series B shall be issued only as one fully registered Bond in the denomination of $34,100,000. Section 5. The Bonds of 2000 Pledge Series B shall be transferable only to a successor Pledge Series B Collateral Agent Bank under the Pledge Series B Reimbursement Agreement in the manner and upon the terms set forth in 2.05 of the Original Indenture, but notwithstanding the provisions of 2.08 of the Original Indenture, no charge shall be made upon any transfer or exchange of Bonds of 2000 Pledge Series B other than for any tax or taxes or other governmental charge required to be paid by the Company. Section 6. The Bonds of 2000 Pledge Series B shall be registered in the name of the Pledge Series B Collateral Agent Bank. Section 7. Any payment made in respect of the Company's obligations under the Pledge Series B Reimbursement Agreement shall be deemed a payment in like amount in respect of the principal of or interest on the Bonds of 2000 Pledge Series B, as applicable, but such - 18 - payment shall not reduce the principal amount of the Bonds of 2000 Pledge Series B unless the sum of (a) the Available Amount (as defined in the Pledge Series B Reimbursement Agreement) plus (b) the aggregate principal amount of demand loans and Tender Advances (as defined in the Pledge Series B Reimbursement Agreement) then outstanding under the Pledge Series B Reimbursement Agreement is irrevocably and permanently reduced concurrently with such payment. In the event that all of the Company's obligations under the Pledge Series B Reimbursement Agreement have been discharged, the Bonds of 2000 Pledge Series B shall be deemed to be paid in full. Section 8. The Bonds of 2000 Pledge Series B may be executed by the Company and delivered to the Trustee and, upon compliance with all applicable provisions and requirements of the Original Indenture in respect thereof, shall be authenticated by the Trustee and delivered (without awaiting the filing or recording of this Supplemental Indenture) in accordance with the written order or orders of the Company. Section 9. The Bonds of 2000 Pledge Series B shall be redeemed by the Company in whole at any time prior to maturity at a redemption price of 100% of the principal amount to be redeemed, plus any accrued and unpaid interest to the redemption date, but only if the Trustee shall receive a written demand from the Pledge Series B Collateral Agent Bank or the Pledge Series B Administrative Agent Bank at the direction of the Required Banks (as defined in the Pledge Series B Reimbursement Agreement) for redemption of all Bonds of 2000 Pledge Series B held by the Pledge Series B Collateral Agent Bank stating that an "Event of Default" under the Pledge Series B Reimbursement Agreement has occurred and is continuing and that payment of the Tender Advances and all other principal amounts outstanding under the Pledge Series B Reimbursement Agreement, all interest thereon and all other amounts payable thereunder are due and payable after demand therefor by the Pledge Series B Administrative Agent Bank or the Required Banks or are then due and payable; provided, however, that the Bonds of 2000 Pledge Series B shall not be redeemed in the event that prior to the date of such redemption the Trustee shall have received a certificate of the Pledge Series B Collateral Agent Bank or the Pledge Series B Administrative Agent Bank at the direction of the Required Banks (a) stating that there has been a waiver of such Event of Default or (b) withdrawing said written demand. Upon receipt of such demand, the Trustee shall promptly notify the Company in writing that such Event of Default has occurred and is continuing and that payment of such amounts is due and payable after demand therefor by the Administrative Agent or the Required Banks or is then due and payable. The redemption of the Bonds of 2000 Pledge Series B shall be made forthwith upon receipt by the Company of such notification from the Trustee or notification of such required redemption from the Pledge Series B Collateral Agent Bank or the Pledge Series B Administrative Agent Bank. ARTICLE III THE TRUSTEE The Trustee accepts the trusts created by this Supplemental Indenture upon the terms and conditions in the Original Indenture and in this Supplemental Indenture set forth. The recitals in this Supplemental Indenture are made by the Company only and not by the Trustee. Each and every term and condition contained in Article 13 of the Original Indenture shall apply to this - 19 - Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Indenture. For purposes of this Supplemental Indenture (a) the Trustee may conclusively rely and shall be protected in acting upon the written demand from, or certificate of, the Pledge Series A Collateral Agent Bank, the Pledge Series B Collateral Agent Bank, the Pledge Series A Administrative Agent Bank, the Pledge Series B Administrative Agent Bank, the Water Trustee or the Air Trustee, as applicable, or any officer's certificate or opinion of counsel, as to the truth of the statements and the correctness of the opinions expressed therein, without independent investigation or verification thereof, subject to Article 13 of the Indenture and (b) a written demand from, or certificate of, the Pledge Series A Collateral Agent Bank, the Pledge Series B Collateral Agent Bank, the Pledge Series A Administrative Agent Bank, the Pledge Series B Administrative Agent Bank, the Water Trustee or the Air Trustee shall mean a written demand or certificate executed by the president, any vice president or any authorized officer of the Pledge Series A Collateral Agent Bank, the Pledge Series B Collateral Agent Bank, the Pledge Series A Administrative Agent Bank, the Pledge Series B Administrative Agent Bank, the Water Trustee or the Air Trustee, as the case may be. ARTICLE IV MISCELLANEOUS PROVISIONS Section 1. The Original Indenture, as heretofore supplemented, is in all respects ratified and confirmed, and the Original Indenture, this Supplemental Indenture and all other indentures supplemental to the Original Indenture shall be read, taken and construed as one and the same instrument. Neither the execution of this Supplemental Indenture nor anything herein contained shall be construed to impair the lien of the Indenture on any of the property subject thereto, and such lien shall remain in full force and effect as security for all bonds now outstanding or hereafter issued under the Indenture. All covenants and provisions of the Original Indenture, except as modified by this Supplemental Indenture and all other indentures supplemental to the Original Indenture, shall continue in full force and effect for the respective periods of time therein specified, and this Supplemental Indenture shall form part of the Indenture. All terms defined in Article 1 of the Original Indenture shall, for all purposes of this Supplemental Indenture, have the meanings in said Article 1 specified, except as modified by this Supplemental Indenture and all other indentures supplemental to the Original Indenture and unless the context otherwise requires. Section 2. This Supplemental Indenture may be simultaneously executed in any number of counterparts, and all said counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. In Witness Whereof, The Toledo Edison Company has caused its corporate name to be hereunto affixed and this instrument to be signed by its President or a Vice President and its corporate seal to be hereunto affixed and attested by its Corporate Secretary or an Assistant Corporate Secretary for and in its behalf and The Chase Manhattan Bank, as Trustee, in evidence of its acceptance of the trust hereby created, has caused its corporate name to be hereunto - 20 - affixed, this instrument to be signed by its President or a Vice President and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary or any other authorized officer for and on its behalf, all as of the day and year first above written. - 21 - The Toledo Edison Company By /s/ Richard H. Marsh -------------------------------- Richard H. Marsh, Vice President [Seal] Attest: /s/ Nancy C. Ashcom ------------------------------------ Nancy C. Ashcom, Corporate Secretary Signed, sealed and acknowledged on behalf of The Toledo Edison Company in the presence of /s/ Edward J. Udovich ------------------------------ Edward J. Udovich /s/ Carmen E. Britt ------------------------------ Carmen E. Britt As witnesses The Chase Manhattan Bank, as Trustee By /s/ James P. Freeman -------------------------------- James P. Freeman, Vice President Attest: /s/ William G. Keenan -------------------------------- William G. Keenan Signed, sealed and acknowledged on behalf of The Chase Manhattan Bank in the presence of /s/ Donna Fitzsimmons [Seal] ----------------------------------- Donna Fitzsimmons /s/ Della K. Benjamin ----------------------------------- Della K. Benjamin As witnesses State of Ohio ) ) ss.: County of SUMMIT ) On this 28th day of April, 2000, before me personally appeared Richard H. Marsh and Nancy C. Ashcom to me personally known, who being by me severally duly sworn, did say that they are a Vice President and the Corporate Secretary, respectively, of The Toledo Edison Company, that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors; and said officers severally acknowledged said instrument to be the free act and deed of said corporation. /s/ Kathleen Anne Grant [Seal] --------------------------- Notary Public Kathleen Anne Grant Notary Public, State of Ohio Resident of Summit County My Commission Expires May 5, 2004 State of New York ) ) ss.: County of New York ) On this 28th day of April, 2000 before me personally appeared James P. Freeman and William G. Keenan to me personally known, who being by me severally duly sworn, did say that they are a Vice President and a Trust Officer, respectively, of The Chase Manhattan Bank, that the seal affixed to the foregoing instrument is the corporate seal of said Corporation and that said instrument was signed and sealed in behalf of said a Corporation by authority of its Board of Directors; and said officers severally acknowledged said instrument to be the free act and deed of said Corporation. /s/ Emily Fayan [Seal] ------------------------- Notary Public Emily Fayan Notary Public, State of New York No. 24-4797006 Qualified in Kings County Certificate Filed in New York County Commission expires December 31, 2001 20 63231034.04 S-20 63231034.04 EX-12.4 24 ex12-4.txt RATIOS - TE EXHIBIT 12.4 Page 1 THE TOLEDO EDISON COMPANY CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, --------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $57,289 $49,385 $106,582 $99,945 $137,233 Interest and other charges, before reduction for amounts capitalized 97,329 98,423 88,263 78,496 72,055 Provision for income taxes 31,501 39,703 72,696 56,821 76,991 Interest element of rentals charged to income (a) 109,935 102,795 100,245 98,445 96,358 -------- -------- -------- -------- -------- Earnings as defined $296,054 $290,306 $367,786 $333,707 $382,637 ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K: Interest expense $97,329 $98,423 $88,263 $78,496 $ 72,055 Interest element of rentals charged to income (a) 109,935 102,795 100,245 98,445 96,358 -------- -------- -------- -------- -------- Fixed charges as defined $207,264 $201,218 $188,508 $176,941 $168,413 ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES 1.43 1.44 1.95 1.89 2.27 ==== ==== ==== ==== ==== - ----------------------------- (a) Includes the interest component of Beaver Valley and Bruce Mansfield sale and leaseback rentals, leased nuclear fuel in the reactor, and other miscellaneous rentals.
EXHIBIT 12.4 Page 2 THE TOLEDO EDISON COMPANY CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
Year Ended December 31, --------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $ 57,289 $ 49,385 $106,582 $ 99,945 $137,233 Interest and other charges, before reduction for amounts capitalized 97,329 98,423 88,263 78,496 72,055 Provision for income taxes 31,501 39,703 72,696 56,821 76,991 Interest element of rentals charged to income (a) 109,935 102,795 100,245 98,445 96,358 -------- -------- -------- -------- -------- Earnings as defined $296,054 $290,306 $367,786 $333,707 $382,637 ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS): Interest expense $ 97,329 $ 98,423 $ 88,263 $ 78,496 $ 72,055 Preferred stock dividend requirements 16,926 19,435 13,609 16,238 16,247 Adjustments to preferred stock dividends to state on a pre-income tax basis 9,307 15,783 8,335 10,363 10,143 Interest element of rentals charged to income (a) 109,935 102,795 100,245 98,445 96,358 -------- -------- -------- -------- -------- Fixed charges as defined plus preferred stock dividend requirements (pre-income tax basis) $233,497 $236,436 $210,452 $203,542 $194,803 ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS) 1.27 1.23 1.75 1.64 1.96 ==== ==== ==== ==== ==== - -------------------------- (a) Includes the interest component of Beaver Valley and Bruce Mansfield sale and leaseback rentals, leased nuclear fuel in the reactor, and other miscellaneous rentals.
EX-13.4 25 ex13-4.txt ANNUAL REPORT - PP PENNSYLVANIA POWER COMPANY 2000 ANNUAL REPORT TO STOCKHOLDERS Pennsylvania Power Company, an electric utility operating company of FirstEnergy Corp. and a wholly owned subsidiary of Ohio Edison Company, provides electric service to approximately 138,000 customers in western Pennsylvania. The Company furnishes electric service in 139 communities, as well as rural areas, and also sells electric energy at wholesale to three municipalities. Contents Page - -------- ---- Selected Financial Data 1 Management's Discussion and Analysis 2-5 Statements of Income 6 Balance Sheets 7 Statements of Capitalization 8 Statements of Common Stockholder's Equity 9 Statements of Preferred Stock 9 Statements of Cash Flows 10 Statements of Taxes 11 Notes to Financial Statements 12-19 Report of Independent Public Accountants 20 PENNSYLVANIA POWER COMPANY SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (Dollars in thousands) Operating Revenues $383,112 $ 329,234 $323,756 $ 323,381 $ 322,625 ======== ========== ======== ========== ========== Operating Income $ 39,979 $ 32,063 $ 58,041 $ 50,736 $ 62,329 ======== ========== ======== ========== ========== Income Before Extraordinary Item $ 22,847 $ 12,648 $ 39,748 $ 31,472 $ 40,587 ======== ========== ======== ========== ========== Net Income $ 22,847 $ 12,648 $ 9,226 $ 31,472 $ 40,587 ======== ========== ======== ========== ========== Earnings on Common Stock $ 19,143 $ 8,278 $ 4,600 $ 26,846 $ 35,961 ======== ========== ======== ========== ========== Total Assets $988,909 $1,015,616 $977,772 $1,034,457 $1,074,578 ======== ========== ======== ========== ========== CAPITALIZATION: Common Stockholder's Equity $213,851 $ 199,608 $275,281 $ 291,977 $ 286,504 Preferred Stock- Not Subject to Mandatory Redemption 39,105 39,105 50,905 50,905 50,905 Subject to Mandatory Redemption 15,000 15,000 15,000 15,000 15,000 Long-Term Debt 270,368 274,821 287,689 289,305 310,996 -------- ---------- -------- ---------- ---------- Total Capitalization $538,324 $ 528,534 $628,875 $ 647,187 $ 663,405 ======== ========== ======== ========== ========== CAPITALIZATION RATIOS: Common Stockholder's Equity 39.7% 37.8% 43.8% 45.1% 43.2% Preferred Stock- Not Subject to Mandatory Redemption 7.3 7.4 8.1 7.9 7.7 Subject to Mandatory Redemption 2.8 2.8 2.4 2.3 2.2 Long-Term Debt 50.2 52.0 45.7 44.7 46.9 ----- ----- ----- ----- ----- Total Capitalization 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== TRANSMISSION AND DISTRIBUTION KILOWATT-HOUR DELIVERIES (Millions): Residential 1,387 1,325 1,278 1,238 1,254 Commercial 1,198 1,105 1,069 1,013 996 Industrial 1,665 1,495 1,439 1,659 1,693 Other 6 6 6 6 6 ----- ----- ----- ----- ----- Total Retail 4,256 3,931 3,792 3,916 3,949 Total Wholesale 4,091 1,118 964 901 1,106 ----- ----- ----- ----- ----- Total 8,347 5,049 4,756 4,817 5,055 ===== ===== ===== ===== ===== CUSTOMERS SERVED: Residential 121,066 117,440 124,304 129,316 127,936 Commercial 16,634 16,307 16,924 16,738 16,531 Industrial 177 175 206 241 225 Other 87 87 86 97 99 ------- ------- ------- ------- ------- Total 137,964 134,009 141,520 146,392 144,791 ======= ======= ======= ======= ======= NUMBER OF EMPLOYEES (a) 275 895 888 997 1,015 === === === === ===== (a) Reduction in 2000 reflects transfer of responsibility for generation operations to FirstEnergy Corp.'s competitive services unit.
PENNSYLVANIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This discussion includes forward-looking statements based on information currently available to management that is subject to certain risks and uncertainties. Such statements typically contain, but are not limited to, the terms anticipate, potential, expect, believe, estimate and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, legislative and regulatory changes (including revised environmental requirements), and the availability and cost of capital. Results of Operations - --------------------- Earnings on common stock for 2000 increased to $19.1 million from $8.3 million in 1999. Results for 2000 were favorably affected by higher operating revenues which were partially offset by increased nuclear operating expenses and taxes. In 1999, earnings on common stock increased to $8.3 million from $4.6 million in 1998 primarily due to the absence of an extraordinary charge recognized in 1998, which was substantially offset by higher operating expenses in 1999. Operating revenues increased by $53.9 million in 2000 following a $5.5 million increase in 1999. The sources of increases in operating revenues during 2000 and 1999 are summarized in the following table: Sources of Revenue Changes 2000 1999 - ------------------------------------------------------------ Increase (Decrease) (In millions) Generation sales revenue: Change in regulated sales $15.4 $(37.7) Change in unregulated sales (PPE) (13.5) 6.9 - ------------------------------------------------------------- Total change in generation sales 1.9 (30.8) Non-generation sales revenue: Change in average unit prices (1.1) 24.6 Increase in distribution sales volume 15.0 5.0 - ------------------------------------------------------------- Total change in retail sales 15.8 (1.2) Increase in wholesale sales 42.9 5.6 All other changes (4.8) 1.1 - ------------------------------------------------------------- Net Increase in Operating Revenues $53.9 $ 5.5 ============================================================= Electric Sales Service area growth combined with the return of customers previously served by alternative generation suppliers increased our retail sales revenues in 2000. Sales to all retail customer groups were substantially higher in 2000, compared to the preceding year reflecting a stronger economy in our service area. The transfer of ownership in Penn Power Energy, Inc. (PPE) to FirstEnergy Services Corp. (FE Services), an affiliated company, in December 1999, offset a portion of the increased operating revenues in 2000. Substantial growth in wholesale kilowatt-hour sales, primarily to affiliated utilities, contributed significantly to the higher operating revenues in 2000. These sales were possible due to additional available internal generation resulting from increased nuclear capacity received in the December 1999 swap of generating assets with Duquesne Light Company (Duquesne). In 1999, operating revenues benefited primarily from higher kilowatt-hour sales to wholesale customers, compared to the preceding year. As a result of additional available generation, kilowatt-hour sales to the wholesale market were significantly higher. Sales to the retail market were adversely impacted as some customers selected alternative energy suppliers when customer choice became available in 1999. We continued to provide the transmission and distribution of power through our system to those customers. Changes in electric generation sales and kilowatt-hour deliveries in 2000 and 1999, are summarized in the following table: Changes in KWH Sales 2000 1999 - ---------------------------------------------------------- Increase (Decrease) Electric Generation Sales: Retail 15.1% (6.8)% Wholesale 266.0% 16.0% - --------------------------------------------------------- Total Electric Generation Sales 78.5% (2.0)% - --------------------------------------------------------- Kilowatt-hour Deliveries: Residential 4.7% 3.7% Commercial 8.3% 3.4% Industrial 11.3% 3.9% - --------------------------------------------------------- Total Kilowatt-hour Deliveries 8.2% 3.7% - --------------------------------------------------------- Operating Expenses and Taxes Total operating expenses and taxes increased $46.0 million in 2000 and $31.5 million in 1999. The increase in 2000 resulted primarily from higher nuclear operating costs. Fuel and purchased power costs, other operating costs, depreciation and amortization and general taxes were all lower in 2000, compared to the prior year. In 1999, operating expenses and taxes increased from the preceding year as a result of higher expense levels in all major expense categories except income taxes. Fuel and purchased power costs decreased $19.0 million in 2000, compared to 1999, primarily due to an $18.6 million reduction in purchased power costs and a slight reduction in fuel expense. The decrease in purchased power costs in 2000 resulted from a substantial increase in available internal generation, which reduced the need for external sources of power, as well as the transfer of ownership in PPE to FE Services. Although internal generation increased by 76% compared to 1999, fuel expense was slightly lower. One factor contributing to the improvement was the absence of a nonrecurring charge of $6.8 million from the Duquesne asset swap in 1999. However, fuel expenses in 2000 also benefited from the following factors: o A higher proportion of nuclear generation (which has lower unit fuel costs than fossil fuel) due to increased nuclear ownership from the exchange of generating assets with Duquesne in December 1999; o The expiration of an above-market coal contract at the end of 1999; and o Continued improvement of coal-blending strategies, which resulted in the use of additional lower-cost coal and enhanced the efficiency and cost-competitiveness of our fossil generation. In 1999, fuel and purchased power costs increased $10.3 million from the preceding year due primarily to the one-time costs resulting from the Duquesne asset swap described above. Nuclear operating costs increased $75.8 million in 2000 from the prior year. The increase was due to additional costs associated with refueling outages at both Beaver Valley Plant units and increased ownership of the Beaver Valley Plant for the entire year following the 1999 asset exchange with Duquesne, compared to approximately one month of increased ownership in the prior year. In 1999, nuclear operating costs increased $13.9 million as a result of higher refueling outage-related costs at the Perry Plant and Beaver Valley Unit 2, as well as the one month of increased ownership in the Beaver Valley Plant. Other operating costs decreased $5.7 million in 2000 primarily due to increased gains realized from the sale of emission allowances in 2000. In 1999, other operating costs increased $12.7 million from the prior year principally due to higher customer and sales expenses including expenditures for energy marketing programs, information system requirements and an increase in employee benefit expense, as well as higher distribution costs from storm repair and overhead line maintenance. The $6.2 million reduction in depreciation and amortization in 2000 from 1999 primarily reflects lower accrued decommissioning costs. Depreciation and amortization increased by $2.9 million in 1999, compared to the prior year, due to the amortization of regulatory assets from our rate restructuring plan which exceeded the related reduction in depreciation from our reduced nuclear investment. General taxes decreased $6 million in 2000 from 1999 primarily due to favorable property tax law changes and the phase-out of Pennsylvania's Capital Stock and Franchise Tax. Effects of SFAS 71 Discontinuation - ---------------------------------- On June 18, 1998, the Pennsylvania Public Utility Commission authorized our rate restructuring plan that resulted in the discontinuation of Statement of Financial Accounting Standards No. (SFAS) 71, "Accounting for the Effects of Certain Types of Regulation," to our generation business. Under the plan, our rates were restructured to establish separate charges for transmission and distribution services; generation (which is subject to competition); and stranded cost recovery. A total of $215.4 million of impaired nuclear plant investments were recognized as regulatory assets to be recovered through the stranded cost recovery charge. The portion of generating plant investment not recovered through future customer rates resulted in a $30.5 million extraordinary after-tax write-down in 1998. We continue to bill and collect cost-based rates for transmission and distribution services, which remain subject to cost-based regulation; accordingly, it is appropriate that we continue the application of SFAS 71 to those operations. Financial Condition, Capital Resources and Liquidity - ---------------------------------------------------- On September 1, 2000, FirstEnergy Corp.'s electric utility operating companies transferred $1.2 billion of their transmission assets to American Transmission Systems, Inc. (ATSI), an affiliated company. ATSI represents a first step toward the goal of establishing a larger independent, regional transmission organization. As part of the transfer, we sold to ATSI $125.6 million of our transmission assets, net of $59.0 million of accumulated depreciation and $2.5 million of investment tax credits for $30.1 million in cash and $34.0 million in long-term notes. We had about $44.7 million of cash and temporary investments and no short-term indebtedness as of December 31, 2000. We also had a $2 million bank facility that provides for borrowings on a short-term basis at the bank's discretion. At the end of 2000, we had the capability to issue $225 million of additional first mortgage bonds on the basis of property additions and retired bonds. Based on our earnings in 2000 under the earnings coverage test contained in our charter, we could issue $55 million of preferred stock (assuming no additional debt was issued). Our cash requirements in 2001 for operating expenses, construction expenditures and scheduled debt maturities are expected to be met without issuing new securities. We have cash requirements of approximately $82 million for the 2001-2005 period to meet scheduled maturities of long-term debt and preferred stock. Of that amount, approximately $1 million relates to 2001. Our capital spending for the period 2001-2005 is expected to be about $153 million (excluding nuclear fuel), of which approximately $28 million applies to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $81 million, of which about $22 million relates to 2001. During the same periods, our nuclear fuel investments are expected to be reduced by approximately $91 million and $18 million, respectively, as the nuclear fuel is consumed. Interest Rate Risk - ------------------ Our exposure to fluctuations in market interest rates is mitigated since a significant portion of our debt has fixed interest rates, as noted in the table below. We are subject to the inherent interest rate risks related to refinancing maturing debt by issuing new debt securities. Changes in the market value of our nuclear decommissioning trust funds are recognized by making a corresponding change to the decommissioning liability, as described in Note 1. The table below presents principal amounts and related weighted average interest rates by year of maturity for our investment portfolio, debt obligations and preferred stock with mandatory redemption provisions.
Comparison of Carrying Value to Fair Value - ----------------------------------------------------------------------------------------------------------------------- There- Fair 2001 2002 2003 2004 2005 after Total Value - ----------------------------------------------------------------------------------------------------------------------- (Dollars in millions) Investments other than Cash and Cash Equivalents: Fixed Income $1 $1 $111 $113 $113 Average interest rate 7.8% 7.8% 5.9% 6.0% - ---------------------------------------------------------------------------------------------------------------------- Liabilities - ---------------------------------------------------------------------------------------------------------------------- Long-term Debt: Fixed rate $1 $1 $41 $35 $1 $158 $237 $247 Average interest rate 9.7% 9.7% 7.6% 6.6% 9.7% 7.1% 7.1% Variable rate $ 16 $ 16 $ 16 Average interest rate 5.3% 5.3% - ---------------------------------------------------------------------------------------------------------------------- Preferred Stock $1 $ 1 $ 1 $1 $ 11 $ 15 $ 15 Average dividend rate 7.6% 7.6% 7.6% 7.6% 7.6% 7.6% - ----------------------------------------------------------------------------------------------------------------------
Outlook - ------- Since FirstEnergy's regionally-focused retail sales strategy envisions the continued operation of both regulated and competitive operations, FirstEnergy manages its businesses through a competitive services unit, a utility services unit and a corporate support services unit - we are included in the utility services unit. FE Services provides competitive retail energy services while we continue to provide regulated distribution services. In February 2001, the Pennsylvania Public Utility Commission approved our lease agreement with FirstEnergy Generation Corp. (FE Generation), an associated company, to lease and operate our fossil plants. Together with FirstEnergy's Ohio utilities, we expect that the transfer of our fossil generating assets to FE Generation will be completed by the end of 2005. We are in compliance with current sulfur dioxide and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. In 1998 the EPA finalized regulations requiring additional NOx reductions in the future from our Ohio and Pennsylvania facilities (see Note 5). We continue to evaluate our compliance plans and other compliance options. In July 1997, the EPA changed the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which we operate affected facilities. In 1999, we received notification of pending legal actions based on alleged violations of the Clean Air Act at our W. H. Sammis Plant involving the states of New York and Connecticut as well as the U.S. Department of Justice. The civil complaint filed by the U.S. Department of Justice requests installation of "best available control technology" as well as civil penalties of up to $27,500 per day of violation. We believe the Sammis Plant is in full compliance with the Clean Air Act and the legal actions are without merit. However, we are unable to predict the outcome of this litigation. Penalties could be imposed if the Sammis Plant continues to operate without correcting the alleged violations and a court determines that the allegations are valid. The Sammis Plant continues to operate while the matter is being decided. Under federal environmental law and related federal and state waste regulations, certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash as a nonhazardous waste. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. On August 8, 2000, FirstEnergy Corp. entered into an agreement to merge with GPU, Inc, a Pennsylvania corporation, headquartered in Morristown, New Jersey. The target date for completing the merger is by the end of the second quarter of 2001. Our parent company, Ohio Edison Company, will continue to be a wholly owned subsidiary of FirstEnergy Corp. PENNSYLVANIA POWER COMPANY STATEMENTS OF INCOME
For the Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- (In thousands) OPERATING REVENUES $383,112 $329,234 $323,756 -------- -------- -------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 68,099 87,128 76,801 Nuclear operating costs 112,731 36,915 22,968 Other operating costs 59,389 65,079 52,348 -------- -------- --------- Total operation and maintenance expenses 240,219 189,122 152,117 Provision for depreciation and amortization 55,964 62,182 59,264 General taxes 22,076 28,110 22,540 Income taxes 24,874 17,757 31,794 -------- -------- --------- Total operating expenses and taxes 343,133 297,171 265,715 -------- -------- --------- OPERATING INCOME 39,979 32,063 58,041 OTHER INCOME 2,300 1,438 2,485 -------- -------- --------- INCOME BEFORE NET INTEREST CHARGES 42,279 33,501 60,526 -------- -------- --------- NET INTEREST CHARGES: Interest on long-term debt 18,651 19,268 19,255 Interest on nuclear fuel obligations 364 90 28 Allowance for borrowed funds used during construction (1,005) (464) (294) Other interest expense 1,422 1,959 1,789 -------- -------- --------- Net interest charges 19,432 20,853 20,778 -------- -------- --------- INCOME BEFORE EXTRAORDINARY ITEM 22,847 12,648 39,748 EXTRAORDINARY ITEM (NET OF INCOME TAXES) (Note 1) -- -- (30,522) -------- -------- --------- NET INCOME 22,847 12,648 9,226 PREFERRED STOCK DIVIDEND REQUIREMENTS 3,704 4,370 4,626 -------- -------- -------- EARNINGS ON COMMON STOCK $ 19,143 $ 8,278 $ 4,600 ======== ======== ======== The accompanying Notes to Financial Statements are an integral part of these statements.
PENNSYLVANIA POWER COMPANY BALANCE SHEETS
As of December 31, 2000 1999 - ----------------------------------------------------------------------------------------- (In thousands) ASSETS UTILITY PLANT: In service $ 636,418 $ 646,186 Less-Accumulated provision for depreciation 275,699 237,893 ---------- ---------- 360,719 408,293 ---------- ---------- Construction work in progress- Electric plant 20,800 18,558 Nuclear fuel 2,810 6,540 ---------- ---------- 23,610 25,098 ---------- ---------- 384,329 433,391 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: Nuclear plant decommissioning trusts (Note 1) 117,453 104,775 Long-term notes receivable from associated companies 33,581 -- Other 21,279 19,784 ---------- ---------- 172,313 124,559 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 3,475 5,670 Notes receivable from associated companies (Note 4) 41,264 15,423 Receivables- Customers (less accumulated provisions of $628,000 and $3,537,000, respectively, for uncollectible accounts) 40,980 34,568 Associated companies 40,685 38,565 Other 8,848 8,896 Materials and supplies, at average cost 29,595 32,483 Prepayments 2,044 2,208 ---------- ---------- 166,891 137,813 ---------- ---------- DEFERRED CHARGES: Regulatory assets 260,221 314,593 Other 5,155 5,260 ---------- ---------- 265,376 319,853 ---------- ---------- $ 988,909 $1,015,616 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Statements of Capitalization): Common stockholder's equity $ 213,851 $ 199,608 Preferred stock- Not subject to mandatory redemption 39,105 39,105 Subject to mandatory redemption 15,000 15,000 Long-term debt- Associated companies 18,135 18,007 Other 252,233 256,814 ---------- ---------- 538,324 528,534 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt- Associated companies 16,620 13,504 Other 1,036 29,521 Accounts payable- Associated companies 42,293 26,220 Other 21,165 28,903 Accrued taxes 19,250 21,863 Accrued interest 5,972 6,592 Other 16,228 16,506 ---------- ---------- 122,564 143,109 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 160,632 182,702 Accumulated deferred investment tax credits 4,407 7,266 Nuclear plant decommissioning costs 117,915 107,816 Other 45,067 46,189 ---------- ---------- 328,021 343,973 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 2 and 5) ---------- ---------- $ 988,909 $1,015,616 ========== ========== The accompanying Notes to Financial Statements are an integral part of these balance sheets.
PENNSYLVANIA POWER COMPANY STATEMENTS OF CAPITALIZATION
As of December 31, 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) COMMON STOCKHOLDER'S EQUITY: Common stock, $30 par value, 6,500,000 shares authorized, 6,290,000 shares outstanding $188,700 $188,700 Other paid-in capital (310) (310) Retained earnings (Note 3A) 25,461 11,218 -------- -------- Total common stockholder's equity 213,851 199,608 -------- -------- Number of Shares Optional Outstanding Redemption Price ---------------- ------------------- 2000 1999 Per Share Aggregate ---- ---- --------- --------- PREFERRED STOCK (Note 3B): Cumulative, $100 par value- Authorized 1,200,000 shares Not Subject to Mandatory Redemption: 4.24% 40,000 40,000 $103.13 $ 4,125 4,000 4,000 4.25% 41,049 41,049 105.00 4,310 4,105 4,105 4.64% 60,000 60,000 102.98 6,179 6,000 6,000 7.75% 250,000 250,000 -- -- 25,000 25,000 ------- ------- ------- -------- -------- Total not subject to mandatory redemption 391,049 391,049 $14,614 39,105 39,105 ======= ======= ======= -------- -------- Subject to Mandatory Redemption (Note 3C): 7.625% 150,000 150,000 105.34 $15,801 15,000 15,000 ======= ======= ======= -------- -------- LONG-TERM DEBT (Note 3D): First mortgage bonds- 9.740% due 2001-2019 18,539 19,513 7.500% due 2003 40,000 40,000 6.375% due 2004 20,500 20,500 6.625% due 2004 14,000 14,000 8.500% due 2022 27,250 27,250 7.625% due 2023 6,500 6,500 -------- -------- Total first mortgage bonds 126,789 127,763 -------- -------- Secured notes- 6.080% due 2000 -- 23,000 8.100% due 2000 -- 5,200 5.400% due 2013 1,000 1,000 5.400% due 2017 10,600 10,600 7.150% due 2017 17,925 17,925 5.900% due 2018 16,800 16,800 7.150% due 2021 14,482 14,482 6.150% due 2023 12,700 12,700 * 5.050% due 2027 10,300 10,300 6.450% due 2027 14,500 14,500 5.375% due 2028 1,734 1,734 5.450% due 2028 6,950 6,950 6.000% due 2028 14,250 14,250 5.950% due 2029 238 238 -------- -------- Total secured notes 121,479 149,679 -------- -------- Unsecured notes- * 5.900% due 2033 5,200 5,200 -------- -------- Other obligations- Nuclear fuel 34,756 31,511 Capital leases (Note 2) 170 4,160 -------- -------- Total other obligations 34,926 35,671 -------- -------- Net unamortized discount on debt (370) (467) -------- -------- Long-term debt due within one year (17,656) (43,025) -------- -------- Total long-term debt 270,368 274,821 -------- -------- TOTAL CAPITALIZATION $538,324 $528,534 ======== ======== *Denotes variable rate issue with December 31, 2000 interest rate shown. The accompanying Notes to Financial Statements are an integral part of these statements.
PENNSYLVANIA POWER COMPANY STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
Accumulated Other Other Comprehensive Comprehensive Number Par Paid-In Income Retained Income of Shares Value Capital (Loss) Earnings ------------- --------- ------- ------- ------------ -------- (Dollars in thousands) Balance, January 1, 1998 6,290,000 $188,700 $(310) $(90) $103,677 Net income $ 9,226 9,226 Transfer of minimum liability for unfunded retirement benefits to FirstEnergy 90 90 ------- Comprehensive income $ 9,316 ======= Cash dividends on common stock (21,386) Cash dividends on preferred stock (4,626) - -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 6,290,000 188,700 (310) -- 86,891 Net income $12,648 12,648 ======= Transfer of Penn Power Energy to FirstEnergy Services Corp. 3,302 Cash dividends on common stock (87,362) Cash dividends on preferred stock (4,056) Premium on redemption of preferred stock (205) - -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 6,290,000 188,700 (310) -- 11,218 Net income $22,847 22,847 ======= Cash dividends on common stock (4,900) Cash dividends on preferred stock (3,704) - -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 6,290,000 $188,700 $(310) $ -- $ 25,461 ======================================================================================================================
STATEMENTS OF PREFERRED STOCK
Not Subject to Subject to Mandatory Redemption Mandatory Redemption -------------------- ---------------------- Number Par Number Par of Shares Value of Shares Value --------- ----- --------- ----- (Dollars in thousands) Balance, January 1, 1998 509,049 $50,905 150,000 $15,000 - ------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 509,049 50,905 150,000 15,000 - ------------------------------------------------------------------------------------------------------ Redemptions- 7.64% Series (60,000) (6,000) 8.00% Series (58,000) (5,800) - ------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 391,049 39,105 150,000 15,000 - ------------------------------------------------------------------------------------------------------ Balance, December 31, 2000 391,049 $39,105 150,000 $15,000 ====================================================================================================== The accompanying Notes to Financial Statements are an integral part of these statements.
PENNSYLVANIA POWER COMPANY STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 22,847 $ 12,648 $ 9,226 Adjustments to reconcile net income to net cash from operating activities: Provision for depreciation and amortization 55,964 62,182 59,264 Nuclear fuel and lease amortization 18,248 8,423 5,418 Other amortization, net -- -- (330) Deferred income taxes, net (8,620) (16,207) (20,007) Investment tax credits, net (3,051) (3,111) (2,289) Extraordinary item -- -- 51,730 Receivables (8,484) (390) (20,680) Materials and supplies 2,888 389 (542) Accounts payable 8,335 22,291 3,293 Other (9,651) 15,899 3,148 -------- -------- -------- Net cash provided from operating activities 78,476 102,124 88,231 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt -- 5,200 1,563 Redemptions and Repayments- Preferred stock -- 12,005 -- Long-term debt 47,796 8,675 6,088 Dividend Payments- Common stock 4,900 87,362 21,386 Preferred stock 3,704 4,055 4,626 -------- -------- ------- Net cash used for financing activities 56,400 106,897 30,537 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 29,856 21,964 16,495 Loans to associated companies 59,421 -- 32,500 Loan payment from parent -- (34,577) -- Sale of assets to associated companies (67,472) -- -- Other 2,466 9,655 1,874 -------- -------- ------- Net cash used for (provided from) investing activities 24,271 (2,958) 50,869 -------- -------- ------- Net increase (decrease) in cash and cash equivalents (2,195) (1,815) 6,825 Cash and cash equivalents at beginning of year 5,670 7,485 660 -------- -------- ------- Cash and cash equivalents at end of year $ 3,475 $ 5,670 $ 7,485 ======== ======== ======= SUPPLEMENTAL CASH FLOWS INFORMATION: Cash paid during the year- Interest (net of amounts capitalized) $ 18,804 $ 19,436 $19,057 ======== ======== ======= Income taxes $ 39,704 $ 33,786 $32,290 ======== ======== ======= The accompanying Notes to Financial Statements are an integral part of these statements.
PENNSYLVANIA POWER COMPANY STATEMENTS OF TAXES
For the Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ (In thousands) GENERAL TAXES: State gross receipts $ 14,264 $ 13,466 $ 10,830 Real and personal property 4,012 8,626 6,893 State capital stock 1,598 3,067 2,774 Social security and unemployment 2,137 2,875 1,894 Other 65 76 149 -------- -------- -------- Total general taxes $ 22,076 $ 28,110 $ 22,540 ======== ======== ======== PROVISION FOR INCOME TAXES: Currently payable- Federal $ 26,712 $ 29,522 $ 25,938 State 11,080 8,630 7,654 -------- -------- -------- 37,792 38,152 33,592 -------- -------- -------- Deferred, net- Federal (4,273) (12,714) (15,454) State (4,347) (3,493) (4,553) -------- -------- -------- (8,620) (16,207) (20,007) -------- -------- -------- Investment tax credit amortization (3,051) (3,111) (2,289) -------- -------- -------- Total provision for income taxes $ 26,121 $ 18,834 $ 11,296 ======== ======== ======== INCOME STATEMENT CLASSIFICATION OF PROVISION FOR INCOME TAXES: Operating expenses $ 24,874 $ 17,757 $ 31,794 Other income 1,247 1,077 710 Extraordinary item -- -- (21,208) -------- -------- -------- Total provision for income taxes $ 26,121 $ 18,834 $ 11,296 ======== ======== ======== RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES: Book income before provision for income taxes $ 48,968 $ 31,482 $ 20,522 ======== ======== ======== Federal income tax expense at statutory rate $ 17,139 $ 11,019 $ 7,183 Increases (reductions) in taxes resulting from: State income taxes, net of federal income tax benefit 4,376 3,339 2,016 Amortization of investment tax credits (3,051) (3,111) (2,289) Amortization of tax regulatory assets 6,899 7,059 4,745 Other, net 758 528 (359) -------- -------- -------- Total provision for income taxes $ 26,121 $ 18,834 $ 11,296 ======== ======== ======== ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31: Competitive transition charge $ 95,497 $115,277 $135,730 Property basis differences 64,348 73,694 69,867 Allowance for equity funds used during construction 4,163 5,688 7,219 Customer receivables for future income taxes 7,016 8,354 9,690 Unamortized investment tax credits (1,823) (2,987) (3,193) Deferred gain for asset sale to affiliated company 8,925 -- -- Other (17,494) (17,324) (6,886) -------- -------- -------- Net deferred income tax liability $160,632 $182,702 $212,427 ======== ======== ======== The accompanying Notes to Financial Statements are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Company, a wholly owned subsidiary of Ohio Edison Company (Edison), follows the accounting policies and practices prescribed by the Pennsylvania Public Utility Commission (PPUC) and the Federal Energy Regulatory Commission (FERC). The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Results of operations for 1999 include Penn and its wholly owned subsidiary, Penn Power Energy, Inc. (PPE). The subsidiary was formed to market energy products and services coincident with the commencement of electricity generation customer choice and competition in Pennsylvania in January 1999. All significant intercompany transactions have been eliminated. The Company transferred its 100% ownership in PPE to FirstEnergy Services Corp., an affiliate, effective December 31, 1999. On September 1, 2000, the Company sold its transmission assets to an affiliate, American Transmission Systems, Inc. (ATSI). As a result, ATSI owns and operates the Company's and its affiliates' major high-voltage transmission facilities and has interconnections with other regional utilities. REVENUES- The Company's principal business is providing electric service to customers in western Pennsylvania. The Company's retail customers are metered on a cycle basis. Revenue is recognized for unbilled electric service through the end of the year. Receivables from customers include sales to residential, commercial and industrial customers located in the Company's service area and sales to wholesale customers. There was no material concentration of receivables at December 31, 2000 or 1999, with respect to any particular segment of the Company's customers. REGULATORY PLAN- In December 1996, Pennsylvania enacted "The Electricity Generation Customer Choice and Competition Act," which permitted customers, including the Company's customers, to choose their electric generation supplier, while transmission and distribution services would continue to be supplied by their current providers. The phase in of customer choice was completed on January 1, 2001. The Company continues to deliver power to homes and businesses through its distribution system, which remains regulated by the PPUC. The Company's rates have been restructured to establish separate charges for transmission and distribution; generation, which is subject to competition; and stranded cost recovery. In the event customers obtain power from an alternative source, the generation portion of the Company's rates is excluded from their bill and the customers receive a generation charge from the alternative supplier. The stranded cost recovery portion of rates provides for recovery of certain amounts not otherwise considered recoverable in a competitive generation market, including regulatory assets. In June 1998, the PPUC authorized the Company's rate restructuring plan, which essentially resulted in the deregulation of the Company's generation business as of June 30, 1998. The Company was required to remove from its balance sheet all regulatory assets and liabilities related to its generation business and assess all other assets for impairment. The Securities and Exchange Commission (SEC) issued interpretive guidance regarding asset impairment measurement which concluded that any supplemental regulated cash flows such as a competitive transition charge (CTC) should be excluded from the cash flows of assets in a portion of the business not subject to regulatory accounting practices. If those assets are impaired, a regulatory asset should be established if the costs are recoverable through regulatory cash flows. Consistent with the SEC guidance, the Company reduced its nuclear generating unit investments by approximately $305 million, of which approximately $227 million was recognized as a regulatory asset to be recovered through the CTC over a seven-year transition period; the remaining net amount of $78 million was written off. The charge of $51.7 million ($30.5 million after income taxes) for discontinuing the application of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71), to the Company's generation business was recorded as a 1998 extraordinary item on the Statement of Income. The Company is entitled to recover $236 million of stranded costs through the CTC that began in 1999 and ends in 2006. The Company's net assets included in utility plant relating to the operations for which the application of SFAS 71 was discontinued were $92 million as of December 31, 2000. All of the Company's regulatory assets continue to be recovered under provisions of the rate restructuring plan. UTILITY PLANT AND DEPRECIATION- Utility plant reflects the original cost of construction (except for nuclear generating units which were adjusted to fair value as discussed above), including payroll and related costs such as taxes, employee benefits, administrative and general costs, and interest costs. The Company provides for depreciation on a straight-line basis at various rates over the estimated lives of property included in plant in service. The annual composite rate for electric plant was approximately 2.6% in 2000, 2.5% in 1999 and 3.0% in 1998. In addition to the straight-line depreciation recognized in 2000, 1999 and 1998, the Company also recognized additional cumulative capital recovery of $143 million, as of December 31, 2000, as additional depreciation expense in accordance with its former regulatory plan. Annual depreciation expense includes approximately $1.6 million for future decommissioning costs applicable to the Company's ownership interest in three nuclear generating units. The Company's future decommissioning costs reflect the 1999 increase in its ownership interests related to the exchange of certain generating assets with Duquesne Light Company (Duquesne). The Company's share of the future obligation to decommission these units is approximately $315 million in current dollars and (using a 4.0% escalation rate) approximately $695 million in future dollars. The estimated obligation and the escalation rate were developed based on site specific studies. Payments for decommissioning are expected to begin in 2016, when actual decommissioning work begins. The Company has recovered approximately $14 million for decommissioning through its electric rates from customers through December 31, 2000. The Company has also recognized an estimated liability of approximately $7.5 million related to decontamination and decommissioning of nuclear enrichment facilities operated by the United States Department of Energy, as required by the Energy Policy Act of 1992. The Financial Accounting Standards Board (FASB) issued a proposed accounting standard for nuclear decommissioning costs in 1996. If the standard is adopted as proposed: (1) annual provisions for decommissioning could change; (2) the net present value of estimated decommissioning costs could be recorded as a liability; and (3) income from the external decommissioning trusts could be reported as investment income. The FASB subsequently expanded the scope of the proposed standard to include other closure and removal obligations related to long-lived assets. A final pronouncement is expected in the second quarter of 2001 and is anticipated to be implemented on January 1, 2002. COMMON OWNERSHIP OF GENERATING FACILITIES- The Company, together with Edison and affiliated companies, The Cleveland Electric Illuminating Company (CEI) and The Toledo Edison Company (TE), own, as tenants in common, various power generating facilities. Each of the companies is obligated to pay a share of the costs associated with any jointly owned facility in the same proportion as its interest. The Company's portion of operating expenses associated with jointly owned facilities is included in the corresponding operating expenses on the Statements of Income. The amounts reflected on the Balance Sheet under utility plant at December 31, 2000 include the following: Utility Accumulated Construction Company's Plant in Provision for Work in Ownership Generating Units Service Depreciation Progress Interest - -------------------------------------------------------------------------- (In millions) W. H. Sammis #7 $ 67.0 $ 24.6 $ 0.1 20.80% Bruce Mansfield #1, #2 and #3 182.3 110.4 -- 16.38% Beaver Valley #1 and #2 36.3 9.9 7.9 39.37% Perry #1 1.8 0.7 1.6 5.24% - ------------------------------------------------------------------------- Total $287.4 $145.6 $9.6 ========================================================================= NUCLEAR FUEL- OES Fuel, Incorporated (OES Fuel), a wholly owned subsidiary of Edison, is the sole lessor for the Company's nuclear fuel requirements. Minimum lease payments during the next five years are estimated to be as follows: (In millions) - ------------------------- 2001 $18.9 2002 12.8 2003 4.7 2004 1.7 2005 0.2 - ------------------------ The Company amortizes the cost of nuclear fuel based on the rate of consumption. INCOME TAXES- Details of the total provision for income taxes are shown on the Statements of Taxes. Deferred income taxes result from timing differences in the recognition of revenues and expenses for tax and accounting purposes. Investment tax credits, which were deferred when utilized, are being amortized over the recovery period of the related property. The liability method is used to account for deferred income taxes. Deferred income tax liabilities related to tax and accounting basis differences are recognized at the statutory income tax rates in effect when the liabilities are expected to be paid. The Company is included in Edison's parent's, FirstEnergy Corp. (FirstEnergy) consolidated federal income tax return. The consolidated tax liability is allocated on a "stand-alone" company basis, with the Company recognizing any tax losses or credits it contributed to the consolidated return. RETIREMENT BENEFITS- FirstEnergy's trusteed, noncontributory defined benefit pension plan covers almost all of the Company's full-time employees. Upon retirement, employees receive a monthly pension based on length of service and compensation. 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, 2000. The assets of the FirstEnergy pension plan consist primarily of common stocks, United States government bonds and corporate bonds. The Company provides a minimum amount of noncontributory life insurance to retired employees in addition to optional contributory insurance. Health care benefits, which include certain employee deductibles and copayments, are also available to retired employees, their dependents and, under certain circumstances, their survivors. The Company pays insurance premiums to cover a portion of these benefits in excess of set limits; all amounts up to the limits are paid by the Company. The Company recognizes the expected cost of providing other postretirement benefits to employees and their beneficiaries and covered dependents from the time employees are hired until they become eligible to receive those benefits. The following sets forth the funded status of the plans and amounts recognized on FirstEnergy's Consolidated Balance Sheets as of December 31:
Other Pension Benefits Postretirement Benefits -------------------- ---------------------- 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------- (In millions) Change in benefit obligation: Benefit obligation as of January 1 $1,394.1 $1,500.1 $ 608.4 $ 601.3 Service cost 27.4 28.3 11.3 9.3 Interest cost 104.8 102.0 45.7 40.7 Plan amendments 41.3 -- -- -- Actuarial loss (gain) 17.3 (155.6) 121.7 (17.6) Net increase from asset swap -- 14.8 -- 12.5 Voluntary early retirement program expense 23.4 -- -- -- Benefits paid (102.2) (95.5) (35.1) (37.8) - --------------------------------------------------------------------------------------------------------- Benefit obligation as of December 31 1,506.1 1,394.1 752.0 608.4 - --------------------------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets as of January 1 1,807.5 1,683.0 4.9 3.9 Actual return on plan assets 0.7 220.0 (0.2) 0.6 Company contribution -- -- 18.3 0.4 Benefits paid (102.2) (95.5) -- -- - ---------------------------------------------------------------------------------------------------------- Fair value of plan assets as of December 31 1,706.0 1,807.5 23.0 4.9 - ---------------------------------------------------------------------------------------------------------- Funded status of plan 199.9 413.4 (729.0) (603.5) Unrecognized actuarial loss (gain) (90.9) (303.5) 147.3 24.9 Unrecognized prior service cost 93.1 57.3 20.9 24.1 Unrecognized net transition obligation (asset) (2.1) (10.1) 110.9 120.1 - ---------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 200.0 $ 157.1 $(449.9) $(434.4) =========================================================================================================== Company's share of prepaid (accrued) benefit cost $ 21.1 $ 13.8 $ (35.1) $ (31.7) =========================================================================================================== Assumptions used as of December 31: Discount rate 7.75% 7.75% 7.75% 7.75% Expected long-term return on plan assets 10.25% 10.25% 10.25% 10.25% Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
FirstEnergy's net pension and other postretirement benefit costs for the three years ended December 31, 2000 were computed as follows:
Other Pension Benefits Postretirement Benefits ------------------------ ------------------------ 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ (In millions) Service cost $ 27.4 $ 28.3 $ 25.0 $11.3 $ 9.3 $ 7.5 Interest cost 104.8 102.0 92.5 45.7 40.7 37.6 Expected return on plan assets (181.0) (168.1) (152.7) (0.5) (0.4) (0.3) Amortization of transition obligation (asset) (7.9) (7.9) (8.0) 9.2 9.2 9.2 Amortization of prior service cost 5.7 5.7 2.3 3.2 3.3 (0.8) Recognized net actuarial loss (gain) (9.1) -- (2.6) -- -- -- Voluntary early retirement program expense 17.2 -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------ Net benefit cost $ (42.9) $(40.0) $(43.5) $68.9 $62.1 $53.2 ============================================================================================================== Company's share of total plan costs $ (3.6) $ (4.8) $ (6.1) $ 7.5 $ 7.5 $ 5.4 - -------------------------------------------------------------------------------------------------------------
The FirstEnergy plan's health care trend rate assumption is 7.2% in 2001, 7.0% in 2002 and 6.5% in 2003, trending to 5.0%-5.5% in later years. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. An increase in the health care trend rate assumption by one percentage point would increase the total service and interest cost components by $7.5 million and the postretirement benefit obligation by $94.4 million. A decrease in the same assumption by one percentage point would decrease the total service and interest cost components by $8.5 million and the postretirement benefit obligation by $111.0 million. TRANSACTIONS WITH AFFILIATED COMPANIES- Operating revenues and operating expenses include transactions with Edison, CEI, TE and ATSI. Operating revenue transactions with affiliates were primarily for electric sales of $57.6 million, $12.6 million and $9.8 million in 2000, 1999 and 1998, respectively; Bruce Mansfield Plant administrative and general charges of $2.9 million, $5.3 million and $6.3 million in 2000, 1999 and 1998, respectively; and ground lease revenues of $0.7 million to ATSI which began in 2000. Operating expense transactions with affiliates were primarily for nuclear fuel leased from OES Fuel of $20.3 million, $8.8 million and $5.9 million in 2000, 1999 and 1998, respectively; purchased power of $7.1 million, $12.9 million and $20.9 million in 2000, 1999 and 1998, respectively; transmission facilities rentals (including ATSI rents which began in 2000) of $5.7 million, $1.3 million and $1.3 million in 2000, 1999 and 1998, respectively; and nuclear operations administrative and general charges of $15.0 million, $2.1 million and $1.5 million in 2000, 1999 and 1998, respectively. The increase in 2000 nuclear administrative and general charges reflects the Company's increased nuclear assets ownership due to the Duquesne asset swap described in "Utility Plant and Depreciation." FirstEnergy provides support services at cost to the Company and other affiliated companies, for which the Company was billed $27.4 million, $28.3 million and $9.5 million in 2000, 1999 and 1998, respectively. SUPPLEMENTAL CASH FLOWS INFORMATION- All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Balance Sheets. As of December 31, 1999, cash and cash equivalents included $5 million used for the redemption of long-term debt in the first quarter of 2000. The Company reflects temporary cash investments at cost, which approximates their market value. Noncash financing and investing activities included capital lease transactions amounting to $21.2 million, $27.1 million and $0.8 million for the years 2000, 1999 and 1998, respectively. All borrowings with initial maturities of less than one year are defined as financial instruments under GAAP 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: 2000 1999 - ----------------------------------------------------------------- Carrying Fair Carrying Fair Value Value Value Value - ------------------------------------------------------------------ (In millions) Long-term debt $253 $263 $283 $279 Preferred stock 15 15 15 14 Investments other than cash and cash equivalents 155 153 108 116 - ------------------------------------------------------------------ The fair values of long-term debt and preferred stock reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective year. The yields assumed were based on securities with similar characteristics offered by a corporation with credit ratings similar to the Company's ratings. The fair value of investments other than cash and cash equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms. Investments other than cash and cash equivalents consist primarily of decommissioning trust investments. Unrealized gains and losses applicable to the decommissioning trusts have been recognized in the trust investment with a corresponding change to the decommissioning liability. The Company has no securities held for trading purposes. REGULATORY ASSETS- The Company recognizes, as regulatory assets, costs which the FERC and PPUC have authorized for recovery from customers in future periods. Without such authorization, the costs would have been charged to income as incurred. All regulatory assets are being recovered from customers under the Company's rate restructuring plan. Based on the rate restructuring plan, the Company continues to bill and collect cost-based rates relating to the Company's nongeneration operations and continues the application of SFAS 71 to these operations. Regulatory assets on the Balance Sheets are comprised of the following: 2000 1999 - -------------------------------------------------------------------- (In millions) Competitive transition charge $230.9 $280.4 Customer receivables for future income taxes 17.0 20.3 Loss on reacquired debt 6.4 7.1 Employee postretirement benefit costs 4.5 5.4 Other 1.4 1.4 - -------------------------------------------------------------------- Total $260.2 $314.6 ==================================================================== 2. LEASES The Company leases office space and other property and equipment under cancelable and noncancelable leases. Consistent with the regulatory treatment, the rentals for capital and operating leases are charged to operating expenses on the Statements of Income. Such costs for the three years ended December 31, 2000, are summarized as follows: 2000 1999 1998 - ------------------------------------------------------------------ (In millions) Operating leases Interest element $0.4 $0.6 $0.5 Other 0.3 1.6 1.3 Capital leases Interest element 0.3 0.6 0.6 Other 0.8 0.5 0.7 - ------------------------------------------------------------------ Total rental payments $1.8 $3.3 $3.1 ================================================================== The future minimum lease payments as of December 31, 2000, are: Capital Operating Leases Leases - ------------------------------------------------------------------ (In millions) 2001 $0.1 $0.1 2002 0.2 0.1 2003 0.1 0.1 2004 -- 0.1 2005 -- 0.1 Years thereafter -- 0.8 - -------------------------------------------------------------- Total minimum lease payments 0.4 $1.3 Executory costs 0.2 ==== - ------------------------------------------- Net minimum lease payments 0.2 Interest portion -- - ------------------------------------------- Present value of net minimum lease payments 0.2 Less current portion 0.1 - ------------------------------------------- Noncurrent portion $0.1 =========================================== 3. CAPITALIZATION (A) RETAINED EARNINGS- Under the Company's Charter, the Company's retained earnings unrestricted for payment of cash dividends on the Company's common stock were $18.3 million as of December 31, 2000. (B) PREFERRED STOCK- The Company's 7.75% series of preferred stock has a restriction which prevents early redemption prior to July 2003. All other preferred stock may be redeemed by the Company in whole, or in part, with 30-60 days' notice. (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 bonds, serve as a direct first mortgage lien on substantially all property and franchises, other than specifically excepted property, owned by the Company. Based on the amount of bonds authenticated by the Trustee through December 31, 2000, the Company's annual sinking and improvement fund requirements for all bonds issued under the mortgage amounts to $1.0 million. The Company expects to deposit funds in 2001 that will be withdrawn upon the surrender for cancellation of a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property additions or against previously retired bonds. This method can result in minor increases in the amount of the annual sinking fund requirement. Sinking fund requirements for first mortgage bonds and maturing long-term debt (excluding capital leases) during the next five years are $1.0 million in 2001, $1.0 million in 2002, $41.0 million in 2003, $40.7 million in 2004 and $1.0 million in 2005. The Company's obligations to repay certain pollution control revenue bonds are secured by a series of first mortgage bonds. The $10.3 million pollution control revenue bond is entitled to the benefit of irrevocable bank letters of credit of $10.4 million. To the extent that drawings are made under the letters of credit to pay principal of, or interest on, the pollution control revenue bond, the Company is entitled to a credit against its obligation to repay this bond. The Company pays an annual fee of 1.25% of the amount of the letters of credit to the issuing bank and is obligated to reimburse the bank for any drawings thereunder. 4. SHORT-TERM BORROWINGS: The Company has a credit agreement with Edison whereby either company can borrow funds from the other by issuing unsecured notes at the prevailing prime or similar interest rate. Under the terms of this agreement, the maximum borrowing is limited only by the availability of funds; however, the Company's borrowing under this agreement is currently limited by the PPUC to a total of $50 million. Either company can terminate the agreement with six months' notice. 5. COMMITMENTS AND CONTINGENCIES: CAPITAL EXPENDITURES- The Company's current forecast reflects expenditures of approximately $153 million for property additions and improvements from 2001-2005, of which approximately $28 million is applicable to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $81 million, of which approximately $22 million applies to 2001. During the same periods, the Company's nuclear fuel investments are expected to be reduced by approximately $91 million and $18 million, respectively, as the nuclear fuel is consumed. NUCLEAR INSURANCE- The Price-Anderson Act limits the public liability relative to a single incident at a nuclear power plant to $9.5 billion. The amount is covered by a combination of private insurance and an industry retrospective rating plan. Based on its ownership interests in the Beaver Valley Station and the Perry Plant, the Company's maximum potential assessment under the industry retrospective rating plan (assuming the other affiliate co-owners contribute their proportionate shares of any assessments under the retrospective rating plan) would be $74 million per incident but not more than $8.4 million in any one year for each incident. The Company is also insured as to its interest in Beaver Valley and Perry under policies issued to the operating company for each plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Company has also obtained approximately $148 million of insurance coverage for replacement power costs for its interests in Beaver Valley and Perry. Under these policies, the Company can be assessed a maximum of approximately $7.4 million for incidents at any covered nuclear facility occurring during a policy year which are in excess of accumulated funds available to the insurer for paying losses. The Company intends to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Company's plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Company's insurance policies, or to the extent such insurance becomes unavailable in the future, the Company would remain at risk for such costs. ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Company with regard to air and water quality and other environmental matters. Generation operations and any related additional capital expenditures for environmental compliance are the responsibility of FirstEnergy's competitive services business unit. The Company is required to meet federally approved sulfur dioxide (SO2) regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $27,500 for each day the unit is in violation. The Environmental Protection Agency (EPA) has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The Company cannot predict what action the EPA may take in the future with respect to the interim enforcement policy. The Company is in compliance with the current SO2 and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or using emission allowances. NOx reductions are being achieved through combustion controls and the generation of more electricity at lower-emitting plants. In September 1998, the EPA finalized regulations requiring additional NOx reductions from the Company's Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions of NOx emissions (an approximate 85% reduction in utility plant NOx emissions from projected 2007 emissions) across a region of twenty-two states and the District of Columbia, including Ohio and Pennsylvania, based on a conclusion that such NOx emissions are contributing significantly to ozone pollution in the eastern United States. In March 2000, the U.S. Court of Appeals for the D.C. Circuit upheld EPA's NOx Transport Rule except as applied to the State of Wisconsin and portions of Georgia and Missouri. By October 2000, states were to submit revised State Implementation Plans (SIP) to comply by May 31, 2004 with individual state NOx budgets established by the EPA. Pennsylvania recently submitted a SIP that requires compliance with the NOx budgets at the Company's Pennsylvania facilities by May 1, 2003. A Federal Implementation Plan accompanied the NOx Transport Rule and may be implemented by the EPA in states which fail to revise their SIP. In another separate but related action, eight states filed petitions with the EPA under Section 126 of the Clean Air Act seeking reductions of NOx emissions which are alleged to contribute to ozone pollution in the eight petitioning states. The EPA position is that the Section 126 petitions will be adequately addressed by the NOx Transport Program, but a December 17, 1999 rulemaking established an alternative program which would require nearly identical 85% NOx reductions at 392 utility plants, including the Company's Ohio and Pennsylvania plants, by May 2003, in the event implementation of the NOx Transport Rule is not implemented by a state. Additional Section 126 petitions were filed by New Jersey, Maryland, Delaware and the District of Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy continues to evaluate its compliance plans and other compliance options. In July 1997, the EPA promulgated changes in the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which the Company operates affected facilities. In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a Compliance Order to nine utilities covering 44 power plants, including the W. H. Sammis Plant. In addition, the U.S. Department of Justice filed eight civil complaints against various investor-owned utilities, which included a complaint against the Company and Edison in the U.S. District Court for the Southern District of Ohio. The NOV and complaint allege violations of the Clean Air Act based on operation and maintenance of the Sammis Plant dating back to 1984. The complaint requests permanent injunctive relief to require the installation of "best available control technology" and civil penalties of up to $27,500 per day of violation. Although unable to predict the outcome of these proceedings, the Company and Edison believe the Sammis Plant is in full compliance with the Clean Air Act and the NOV and complaint are without merit. Penalties could be imposed if the Sammis Plant continues to operate without correcting the alleged violations and a court determines that the allegations are valid. The Sammis Plant continues to operate while these proceedings are pending. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. Certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash under its authority to regulate nonhazardous waste. 6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): The following summarizes certain operating results by quarter for 2000 and 1999.
March 31, June 30, September 30, December 31, Three Months Ended 2000 2000 2000 2000 - ----------------------------------------------------------------------------------- (In millions) Operating Revenues $ 83.9 $93.6 $102.8 $102.8 Operating Expenses and Taxes 90.3 81.0 83.0 88.9 - ----------------------------------------------------------------------------------- Operating Income (Loss) (6.4) 12.6 19.8 13.9 Other Income 0.4 0.4 0.4 1.1 Net Interest Charges 4.4 5.4 5.0 4.6 - ----------------------------------------------------------------------------------- Net Income (Loss) $(10.4) $ 7.6 $ 15.2 $ 10.4 =================================================================================== Earnings (Loss) on Common Stock $(11.3) $ 6.7 $ 14.3 $ 9.5 ===================================================================================
March 31, June 30, September 30, December 31, Three Months Ended 1999 1999 1999 1999 - ----------------------------------------------------------------------------------- (In millions) Operating Revenues $81.4 $82.1 $82.4 $83.4 Operating Expenses and Taxes 67.1 72.4 73.2 84.5 - ---------------------------------------------------------------------------------- Operating Income (Loss) 14.3 9.7 9.2 (1.1) Other Income 1.0 0.3 0.2 -- Net Interest Charges 5.0 5.9 4.9 5.1 - ---------------------------------------------------------------------------------- Net Income (Loss) $10.3 $ 4.1 $ 4.5 $(6.2) ================================================================================== Earnings (Loss) on Common Stock $ 9.2 $ 2.9 $ 3.3 $(7.2) ==================================================================================
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, 2000 and 1999, and the related statements of income, common stockholder's equity, preferred stock, cash flows and taxes for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. 21 1 EX-13.3 26 ex13-3.txt ANNUAL REPORT - TE THE TOLEDO EDISON COMPANY 2000 ANNUAL REPORT TO STOCKHOLDERS The Toledo Edison Company is a wholly owned electric utility operating subsidiary of FirstEnergy Corp. It engages in the generation, distribution and sale of electric energy in an area of approximately 2,500 square miles in northwestern Ohio. It also engages in the sale, purchase and interchange of electric energy with other electric companies. The area it serves has a population of approximately 0.8 million. Contents Page - -------- ---- Selected Financial Data 1 Management's Discussion and Analysis 2-6 Consolidated Statements of Income 7 Consolidated Balance Sheets 8 Consolidated Statements of Capitalization 9-10 Consolidated Statements of Common Stockholder's Equity 11 Consolidated Statements of Preferred Stock 11 Consolidated Statements of Cash Flows 12 Consolidated Statements of Taxes 13 Notes to Consolidated Financial Statements 14-23 Report of Independent Public Accountants 24 THE TOLEDO EDISON COMPANY SELECTED FINANCIAL DATA
Nov. 8- Jan. 1- 2000 1999 1998 Dec. 31, 1997 Nov. 7, 1997 1996 - -------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) | | | GENERAL FINANCIAL INFORMATION: | | Operating Revenues $ 954,947 $ 921,159 $ 957,037 $ 122,669 | $ 772,707 $ 897,259 ========== ========== ========== ========== | ========== ========== | Operating Income $ 193,414 $ 163,772 $ 180,261 $ 19,055 | $ 123,282 $ 156,815 ========== ========== ========== ========== | ========== ========== | Income Before Extraordinary Item $ 137,233 $ 99,945 $ 106,582 $ 7,616 | $ 41,769 $ 57,289 ========== ========== ========== ========== | ========== ========== | Net Income (Loss) $ 137,233 $ 99,945 $ 106,582 $ 7,616 | $ (150,132) $ 57,289 ========== ========== ========== ========== | ========== ========== | Earnings (Loss) on Common Stock $ 120,986 $ 83,707 $ 92,972 $ 7,616 | $ (169,567) $ 40,363 ========== ========== ========== ========== | ========== ========== | Total Assets $2,652,267 $2,666,928 $2,768,765 $2,758,152 | $3,428,175 ========== ========== ========== ========== | ========== | | CAPITALIZATION: | Common Stockholder's Equity $ 605,587 $ 551,704 $ 575,692 $ 531,650 | $ 803,237 Preferred Stock- | Not Subject to Mandatory Redemption 210,000 210,000 210,000 210,000 | 210,000 Subject to Mandatory Redemption -- -- -- 1,690 | 3,355 Long-Term Debt 944,193 981,029 1,083,666 1,210,190 | 1,051,517 ---------- ---------- ---------- ---------- | ---------- Total Capitalization $1,759,780 $1,742,733 $1,869,358 $1,953,530 | $2,068,109 ========== ========== ========== ========== | ========== | CAPITALIZATION RATIOS: | Common Stockholder's Equity 34.4% 31.7% 30.8% 27.2%| 38.8% Preferred Stock- | Not Subject to Mandatory Redemption 11.9 12.0 11.2 10.8 | 10.2 Subject to Mandatory Redemption -- -- -- 0.1 | 0.2 Long-Term Debt 53.7 56.3 58.0 61.9 | 50.8 ----- ----- ----- ----- | ----- Total Capitalization 100.0% 100.0% 100.0% 100.0%| 100.0% ===== ===== ===== ===== | ===== | KILOWATT-HOUR SALES (Millions): | Residential 2,183 2,127 2,252 355 | 1,718 2,145 Commercial 2,380 2,236 2,425 284 | 1,498 1,790 Industrial 5,595 5,449 5,317 847 | 4,003 4,301 Other 49 54 63 79 | 413 488 ------ ------ ------ ----- | ----- ------ Total Retail 10,207 9,866 10,057 1,565 | 7,632 8,724 Total Wholesale 3,135 2,409 1,617 435 | 2,218 2,330 ------ ------ ------ ----- | ----- ------ Total 13,342 12,275 11,674 2,000 | 9,850 11,054 ====== ====== ====== ===== | ===== ====== | CUSTOMERS SERVED: | Residential 269,071 266,900 265,237 262,501 | 261,541 Commercial 31,413 32,481 31,982 29,367 | 27,411 Industrial 1,917 1,937 1,954 1,835 | 1,839 Other 598 398 359 347 | 2,136 ------- ------- ------- ------- | ------- Total 302,999 301,716 299,532 294,050 | 292,927 ======= ======= ======= ======= | ======= | Number of Employees (a) 539 977 997 1,532 | 1,643 (a) Reduction in 2000 reflects transfer of responsibility for generation operations to FirstEnergy Corp.'s competitive services unit.
THE TOLEDO EDISON COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This discussion includes forward-looking statements based on information currently available to management that is subject to certain risks and uncertainties. Such statements typically contain, but are not limited to, the terms anticipate, potential, expect, believe, estimate and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy and commodity market prices, legislative and regulatory changes (including revised environmental requirements), and the availability and cost of capital. Results of Operations - --------------------- Earnings on common stock increased 45% to $121.0 million in 2000 from $83.7 million in 1999. Results in 2000 were favorably affected by higher operating revenues and lower fuel and purchased power costs, other operating costs and net interest charges. In 1999, earnings on common stock decreased 10% to $83.7 million in 1999 from $93.0 million in 1998 due to lower operating revenues and increased nuclear and other operating costs which more than offset reductions in purchased power costs and net interest charges. Operating revenues increased by $33.8 million in 2000 following a $35.9 million decrease in 1999. The sources of changes in operating revenues during 2000 and 1999, as compared to the prior year, are summarized in the following table: Sources of Revenue Changes 2000 1999 - -------------------------------------------------------------- Increase (Decrease) (In millions) Change in retail kilowatt-hour sales $26.0 $(14.8) Decrease in average retail price (9.1) (20.7) Increase in wholesale sales 13.1 2.0 All other changes 3.8 (2.4) - -------------------------------------------------------------- Net Change in Operating Revenues $33.8 $(35.9) =============================================================== Electric Sales Additional kilowatt-hour sales to retail customers, which were partially offset by lower average retail unit prices, and sales to the wholesale market were the primary contributors to higher operating revenues in 2000, compared to 1999. Sales to wholesale customers in 2000 benefited from additional available generating capacity. Kilowatt-hour sales to residential, commercial and industrial customers were all higher in 2000, compared to the preceding year. Transmission service revenues also contributed to the increase in operating revenues. Operating revenues in 1999 decreased, after achieving record levels in 1998, due to lower retail revenues resulting from both lower average retail prices and reduced kilowatt-hour sales. Despite the lower retail sales in 1999, total kilowatt-hour sales increased as a result of a strong increase in sales to the wholesale market resulting from weather- induced demand and available internal generation. However, the increase in wholesale revenues did not fully offset the decrease in retail revenues experienced in 1999. Changes in kilowatt-hour sales by customer class in 2000 and 1999 are summarized in the following table: Changes in KWH Sales 2000 1999 - -------------------------------------------------- Increase (Decrease) Residential 2.6% (5.6)% Commercial 6.4% (7.8)% Industrial 2.7% 2.5% - ------------------------------------------------- Total Retail 3.5% (1.9)% Wholesale 30.1% 49.0% - ------------------------------------------------- Total Sales 8.7% 5.1% - ------------------------------------------------- Operating Expenses and Taxes Total operating expenses and taxes increased by $4.1 million in 2000 and decreased $19.4 million in 1999, compared to the preceding year. The moderate increase in operating expenses and taxes in 2000 occurred as a result of a $22.2 million increase in income taxes resulting from higher taxable income and offsetting reductions in fuel and purchased power costs and other operating costs. In 1999, fuel and purchased power costs were the primary factors contributing to lower operating expenses and taxes. Fuel and purchased power costs decreased $10.1 million in 2000, compared to 1999. A $13.2 million reduction in fuel expense was partially offset by a $3.1 million increase in purchased power costs. The reduction in fuel expense in 2000 from the preceding year occurred despite a 1.4% increase in internal generation. Factors contributing to the lower fuel expense included the expiration of an above-market coal contract at the end of 1999 and continued improvement in coal-blending strategies. In 1999, purchased power costs accounted for all of the reduction in fuel and purchased power costs. Much of the decrease in purchased power costs occurred in the second quarter of 1999, due to the absence of unusual conditions experienced in 1998. The higher purchased power costs were incurred during a period of record heat and humidity in late June 1998, which coincided with a regional power shortage resulting in high prices for purchased power. During this period, unscheduled outages at Beaver Valley Unit 2 and the Davis-Besse Plant required us to purchase significant quantities of power on the spot market. Although above normal temperatures were also experienced in 1999, we maintained a stronger capacity position compared to the previous year and better met customer demand from our own internal generation. Nuclear operating costs increased slightly by $3.0 million in 2000. Higher outage-related costs at the Davis-Besse Plant and Beaver Valley Unit 2 were substantially offset by lower operating costs at the Perry Plant. Expenses associated with refueling outages at the Perry Plant and Beaver Valley Unit 2 in 1999 contributed to the $14.9 million increase in nuclear operating costs, compared to 1998. Other operating costs decreased $15.1 million in 2000 primarily due to increased gains of $18.9 million realized from the sale of emission allowances in 2000. Partially offsetting the higher gains were additional transmission expenses. Net Interest Charges Net interest charges decreased by $11.7 million in 2000 and $9.3 million in 1999, compared to the prior year. We continue to redeem our outstanding debt, thus maintaining the downward trend in our financing costs during 2000. Net redemptions of long-term debt totaled $174 million in 2000. Effects of SFAS 71 Discontinuation and Impairment - ------------------------------------------------- The application of the Statement of Financial Accounting Standards No. (SFAS) 71, "Accounting for the Effects of Certain Types of Regulation," was discontinued for our nonnuclear generation business effective with approval by the Public Utilities Commission of Ohio (PUCO) of the Ohio transition plan. We continue to bill and collect cost-based rates for transmission and distribution services, which remain subject to cost-based regulation; accordingly, it is appropriate that we continue the application of SFAS 71 to those operations. All generating plant investments were reviewed for impairment due to anticipated changes to our cash flows resulting from the transition plan. The June 30, 2000 balance sheet reflects the effect of that review with plant investment being reduced by a total of $53 million with a corresponding recognition of regulatory assets for the impaired plant, which is recoverable through future regulatory cash flows. Financial Condition, Capital Resources and Liquidity - ---------------------------------------------------- On September 1, 2000, FirstEnergy Corp.'s electric utility operating companies transferred $1.2 billion of their transmission assets to American Transmission Systems, Inc. (ATSI), an affiliated company. ATSI represents a first step toward the goal of establishing a larger independent, regional transmission organization. As part of the transfer, we sold to ATSI $150.2 million of our transmission assets, net of $77.0 million of accumulated depreciation and $1.7 million of investment tax credits for $32.2 million in cash and $39.3 million in long-term notes. Through net security redemptions, we continued to reduce the cost of debt and preferred stock, and improve our financial position in 2000. We reduced total debt by approximately $68 million during 2000. Our common stockholder's equity percentage of capitalization increased to 34% as of December 31, 2000 from 27% at the end of 1997. We have reduced the average capital cost of outstanding debt from 9.23% in 1995 to 7.84% in 2000. Annual savings from net security redemptions in 2000 are expected to total about $8 million. Also, approval by the PUCO of our transition plan on July 19, 2000 (see Outlook), was cited as an important reason that Moody's Investors Service and Fitch upgraded our debt ratings during the second half of 2000. The improved credit ratings should lower the cost of future borrowings. Our credit ratings remain under review for further possible upgrades by Moody's. The improved credit ratings are summarized in the following table: Credit Ratings Before Upgrade After Upgrade - ------------------------------------------------------------------- Moody's Moody's Investors Investors Service Fitch Service Fitch - -------------------------------------------------------------------- First mortgage bonds Ba1 BB+ Baa3 BBB- Subordinated debt Ba3 B+ Ba1 BB Preferred stock b1 B ba1 BB Our cash requirements in 2001 for operating expenses, construction expenditures, preferred stock redemptions and scheduled debt maturities are expected to be met without issuing additional securities. We have cash requirements of approximately $505.1 million for the 2001- 2005 period to meet scheduled maturities of long-term debt and preferred stock. Of that amount, approximately $29.4 million relates to 2001. We had about $34.0 million of cash and temporary investments and $41.9 million of indebtedness to associated companies as of December 31, 2000. Under our first mortgage indenture, as of December 31, 2000, we would have been permitted to issue up to $543.7 million of additional first mortgage bonds on the basis of property additions and retired bonds. Under the earnings coverage test contained in our charter, we could issue $463.4 million of preferred stock (assuming no additional debt was issued) based on our 2000 earnings. Our capital spending for the period 2001-2005 is expected to be about $218 million (excluding nuclear fuel), of which approximately $49 million relates to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $79 million, of which about $7 million applies to 2001. During the same periods, our nuclear fuel investments are expected to be reduced by approximately $99 million and $22 million, respectively, as the nuclear fuel is consumed. Also, we have operating lease commitments, net of trust cash receipts, of approximately $374 million for the 2001-2005 period, of which approximately $72 million relates to 2001. Interest Rate Risk - ------------------ Our exposure to fluctuations in market interest rates is reduced since a significant portion of our debt has fixed interest rates, as noted in the table below. We are subject to the inherent interest rate risks related to refinancing maturing debt by issuing new debt securities. As discussed in Note 2, our investment in the Shippingport Capital Trust effectively reduces future lease obligations, also reducing interest rate risk. Changes in the market value of our nuclear decommissioning trust funds are recognized by making corresponding changes to the decommissioning liability, as described in Note 1. The table below presents principal amounts and related weighted average interest rates by year of maturity for our investment portfolio and debt obligations.
Comparison of Carrying Value to Fair Value - ------------------------------------------------------------------------------------------------ There- Fair 2001 2002 2003 2004 2005 after Total Value - ------------------------------------------------------------------------------------------------ (Dollars in millions) Investments other than Cash and Cash Equivalents: Fixed Income $17 $ 20 $20 $ 9 $ 10 $280 $356 $360 Average interest rate 7.6% 7.6% 7.6% 7.6% 7.6% 7.2% 7.3% - ------------------------------------------------------------------------------------------------ Liabilities - ------------------------------------------------------------------------------------------------ Long-term Debt: Fixed rate $30 $165 $96 $215 $ -- $224 $730 $764 Average interest rate 9.2% 8.6% 7.9% 7.8% 10.0% 7.7% 8.0% Variable rate $189 $189 $188 Average interest rate 5.0% 5.0% Short-term Borrowings $42 $ 42 $ 42 Average interest rate 6.8% 6.8% - ------------------------------------------------------------------------------------------------
Outlook - ------- On July 19, 2000, the PUCO approved FirstEnergy's plan for transition to customer choice in Ohio (see Note 1), filed on our behalf, as well as for our affiliated Ohio electric utility operating companies - OE and CEI. As part of its authorization, the PUCO approved a settlement agreement between FirstEnergy and major groups representing most of FirstEnergy's Ohio customers regarding the transition to customer choice in selection of electricity suppliers. On January 1, 2001, electric choice became available to FirstEnergy's Ohio customers. Under the plan, we continue to deliver power to homes and businesses through our existing distribution system, which remains regulated. However, our rates have been restructured to establish separate charges for transmission and distribution, transition cost recovery and a generation-related component. When one of our Ohio customers elects to obtain power from an alternative supplier, we reduce the customer's bill with a "generation shopping credit," based on market prices plus an incentive, and the customer receives a generation charge from the alternative supplier. The transition cost portion of rates provides for recovery of certain amounts not otherwise recoverable in a competitive generation market (such as regulatory assets). The transition costs will be paid by all customers regardless of whether or not they choose an alternative supplier. Under the plan, we assume the risk of not recovering up to $80 million of transition revenue if the rate of customers (excluding contracts and full-service accounts), switching their service from us has not reached an average of 20% over any consecutive twelve-month period by December 31, 2005 - the end of the market development period. We also committed under the transition agreement to make available 160 MW of our generating capacity to marketers, brokers and aggregators at set prices, to be used for sales only to retail customers in our Ohio service areas. Through February 8, 2001, approximately 80 MW of the 160 MW supply commitment had been secured by alternative suppliers. We began accepting customer applications for switching to alternative suppliers on December 8, 2000; as of February 8, 2001, we had been notified that about 2,000 of our customers requested generation services from other authorized suppliers, including FirstEnergy Services Corp. (FE Services), an affiliated company. Beginning in 2001, Ohio utilities that offer both competitive and regulated retail electric services must implement a corporate separation plan approved by the PUCO -- one which provides a clear separation between regulated and competitive operations. Since FirstEnergy's regionally-focused retail sales strategy envisions the continued operation of both regulated and competitive operations, its transition plan included details for our corporate separation. The approved plan is consistent with the way FirstEnergy managed its businesses in 2000, through a competitive services unit, a utility services unit and a corporate support services unit. FE Services provides competitive retail energy services while we continue to provide regulated transmission and distribution services. FirstEnergy Generation Corp. (FE Generation), an associated company, leases fossil plants from us and operates these plants. We expect that the transfer of ownership of our fossil generating assets to FE Generation will be completed by the end of the market development period. All of our power supply requirements are provided by FE Services to satisfy our "provider of last resort" obligation under the FirstEnergy transition plan, as well as grandfathered wholesale contracts. We are in compliance with current sulfur dioxide and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. In 1998, the EPA finalized regulations requiring additional NOx reductions in the future from our Ohio and Pennsylvania facilities (see Note 5). We continue to evaluate our compliance plans and other compliance options. In July 1997, the EPA changed the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which we operate affected facilities. Under federal environmental law and related federal and state waste regulations, certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash as a nonhazardous waste. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. We have been named as a "potentially responsible party" (PRP) at waste disposal sites which may require cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Allegations of disposal of hazardous substances at historical sites and the liability involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. We have an accrued liability totaling $0.2 million as of December 31, 2000, based on estimates of the total costs of cleanup, the proportionate responsibility of other PRPs for such costs, and the financial ability of other PRPs to pay. We believe that waste disposal costs will not have a material adverse effect on our financial condition, cash flow or results of operation. On August 8, 2000, our parent company, FirstEnergy Corp., entered into an agreement to merge with GPU, Inc, a Pennsylvania corporation, headquartered in Morristown, New Jersey. The target date for completing the merger is by the end of the second quarter of 2001. We will continue to be a wholly owned subsidiary of FirstEnergy Corp. THE TOLEDO EDISON COMPANY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2000 1999 1998 - --------------------------------------------------------------------------------- (In thousands) OPERATING REVENUES (1) $954,947 $921,159 $957,037 -------- -------- -------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 159,039 169,153 202,239 Nuclear operating costs 178,063 175,015 160,080 Other operating costs 156,286 171,427 166,935 -------- -------- -------- Total operation and maintenance expenses 493,388 515,595 529,254 Provision for depreciation and amortization 104,914 103,725 106,433 General taxes 90,837 87,862 86,661 Income taxes 72,394 50,205 54,428 -------- -------- -------- Total operating expenses and taxes 761,533 757,387 776,776 -------- -------- -------- OPERATING INCOME 193,414 163,772 180,261 OTHER INCOME 8,669 12,744 12,225 -------- -------- -------- INCOME BEFORE NET INTEREST CHARGES 202,083 176,516 192,486 -------- -------- -------- NET INTEREST CHARGES: Interest on long-term debt 72,892 82,204 88,364 Allowance for borrowed funds used during construction (6,523) (1,443) (1,273) Other interest expense (credit) (1,519) (4,190) (1,187) -------- -------- -------- Net interest charges 64,850 76,571 85,904 -------- -------- -------- NET INCOME 137,233 99,945 106,582 PREFERRED STOCK DIVIDEND REQUIREMENTS 16,247 16,238 13,610 -------- -------- -------- EARNINGS ON COMMON STOCK $120,986 $ 83,707 $ 92,972 ======== ======== ======== (1) Includes electric sales to associated companies of $142.3 million, $123.3 million and $123.6 million in 2000, 1999 and 1998, respectively. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE TOLEDO EDISON COMPANY CONSOLIDATED BALANCE SHEETS
As of December 31, 2000 1999 - --------------------------------------------------------------------------------------- (In thousands) ASSETS UTILITY PLANT: In service $1,637,616 $1,776,534 Less-Accumulated provision for depreciation 597,397 670,866 ---------- ---------- 1,040,219 1,105,668 ---------- ---------- Construction work in progress- Electric plant 73,565 95,854 Nuclear fuel 10,720 386 ---------- ---------- 84,285 96,240 ---------- ---------- 1,124,504 1,201,908 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: Shippingport Capital Trust (Note 2) 279,836 295,454 Nuclear plant decommissioning trusts 132,442 123,500 Long-term notes receivable from associated companies 39,084 -- Other 4,601 4,678 ---------- ---------- 455,963 423,632 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 1,385 312 Receivables- Customers 6,618 12,965 Associated companies 62,271 40,998 Other 1,572 9,827 Notes receivable from associated companies 32,617 7,863 Materials and supplies, at average cost- Owned 17,388 23,243 Under consignment 21,994 20,232 Prepayments and other 27,151 25,931 ---------- ---------- 170,996 141,371 ---------- ---------- DEFERRED CHARGES: Regulatory assets 412,682 385,284 Goodwill 458,164 465,169 Property taxes 22,916 43,448 Other 7,042 6,116 ---------- ---------- 900,804 900,017 ---------- ---------- $2,652,267 $2,666,928 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization): Common stockholder's equity $ 605,587 $ 551,704 Preferred stock not subject to mandatory redemption 210,000 210,000 Long-term debt 944,193 981,029 ---------- ---------- 1,759,780 1,742,733 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term 56,230 95,765 Accounts payable- Associated companies 36,564 20,537 Other 25,070 27,100 Notes payable to associated companies 41,936 33,876 Accrued taxes 57,519 57,742 Accrued interest 19,946 21,961 Other 49,908 60,414 ---------- ---------- 287,173 317,395 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 196,944 172,236 Accumulated deferred investment tax credits 35,174 38,748 Nuclear plant decommissioning costs 138,784 130,116 Pensions and other postretirement benefits 119,327 122,986 Other 115,085 142,714 ---------- ---------- 605,314 606,800 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 2 and 5) ---------- ---------- $2,652,267 $2,666,928 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
THE TOLEDO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
As of December 31, 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) COMMON STOCKHOLDER'S EQUITY: Common stock, $5 par value, authorized 60,000,000 shares 39,133,887 shares outstanding $ 195,670 $ 195,670 Other paid-in capital 328,559 328,559 Retained earnings (Note 3A) 81,358 27,475 ---------- ---------- Total common stockholder's equity 605,587 551,704 ---------- ---------- Number of Shares Optional Outstanding Redemption Price ---------------- -------------------- 2000 1999 Per Share Aggregate ---- ---- --------- --------- PREFERRED STOCK (Note 3B): Cumulative, $100 par value- Authorized 3,000,000 shares Not Subject to Mandatory Redemption: $ 4.25 160,000 160,000 $104.63 $ 16,740 16,000 16,000 $ 4.56 50,000 50,000 101.00 5,050 5,000 5,000 $ 4.25 100,000 100,000 102.00 10,200 10,000 10,000 $ 8.32 100,000 100,000 102.46 10,246 10,000 10,000 $ 7.76 150,000 150,000 102.44 15,366 15,000 15,000 $ 7.80 150,000 150,000 101.65 15,248 15,000 15,000 $10.00 190,000 190,000 101.00 19,190 19,000 19,000 --------- --------- -------- ---------- ---------- 900,000 900,000 92,040 90,000 90,000 --------- --------- -------- ---------- ---------- Cumulative, $25 par value- Authorized 12,000,000 shares Not Subject to Mandatory Redemption: $2.21 1,000,000 1,000,000 25.25 25,250 25,000 25,000 $2.365 1,400,000 1,400,000 27.75 38,850 35,000 35,000 Adjustable Series A 1,200,000 1,200,000 25.00 30,000 30,000 30,000 Adjustable Series B 1,200,000 1,200,000 25.00 30,000 30,000 30,000 --------- --------- -------- ---------- ---------- 4,800,000 4,800,000 124,100 120,000 120,000 --------- --------- -------- ---------- ---------- Total Not Subject to Mandatory Redemption 5,700,000 5,700,000 $216,140 210,000 210,000 ========= ========= ======== ---------- ---------- LONG-TERM DEBT (Note 3C): First mortgage bonds: 8.000% due 2001-2003 34,525 34,925 7.875% due 2004 145,000 145,000 ---------- ---------- Total first mortgage bonds 179,525 179,925 ---------- ---------- Unsecured notes and debentures: 10.000% due 2001-2010 970 1,000 8.700% due 2002 135,000 135,000 * 4.850% due 2030 34,850 34,850 * 5.100% due 2033 5,700 5,700 * 5.250% due 2033 31,600 31,600 * 5.580% due 2033 18,800 18,800 ---------- ---------- Total unsecured notes and debentures 226,920 226,950 ---------- ----------
THE TOLEDO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (Cont'd)
As of December 31 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- (In thousands) LONG-TERM DEBT (Cont'd): Secured notes: 7.190% due 2000 -- 45,000 7.380% due 2000 -- 14,000 7.460% due 2000 -- 16,500 7.500% due 2000 -- 100 8.500% due 2001 8,000 8,000 9.500% due 2001 21,000 21,000 8.180% due 2002 17,000 17,000 8.620% due 2002 7,000 7,000 8.650% due 2002 5,000 5,000 7.760% due 2003 5,000 5,000 7.780% due 2003 1,000 1,000 7.820% due 2003 38,400 38,400 7.850% due 2003 15,000 15,000 7.910% due 2003 3,000 3,000 7.670% due 2004 70,000 70,000 7.130% due 2007 30,000 30,000 8.000% due 2019 -- 67,300 7.625% due 2020 45,000 45,000 7.750% due 2020 54,000 54,000 9.220% due 2021 15,000 15,000 10.000% due 2021 15,000 15,000 7.400% due 2022 -- 30,900 6.875% due 2023 20,200 20,200 8.000% due 2023 30,500 30,500 *4.900% due 2024 67,300 -- 6.100% due 2027 10,100 10,100 5.375% due 2028 3,751 3,751 *4.550% due 2033 30,900 -- ---------- ---------- Total secured notes 512,151 587,751 ---------- ---------- Capital lease obligations (Note 2) 56,859 45,247 ---------- ---------- Net unamortized premium on debt 24,968 36,921 ---------- ---------- Long-term debt due within one year (56,230) (95,765) ---------- ---------- Total long-term debt 944,193 981,029 ---------- ---------- TOTAL CAPITALIZATION $1,759,780 $1,742,733 ========== ========== * Denotes variable rate issue with December 31, 2000 interest rate shown. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE TOLEDO EDISON COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
Other Comprehensive Number Par Paid-In Retained Income of Shares Value Capital Earnings ------------- --------- ----- ------- -------- (Dollars in thousands) Balance, January 1, 1998 39,133,887 $195,670 $328,364 $ 7,616 Purchase accounting fair value adjustment 195 Net income $ 106,582 106,582 ========= Cash dividends on preferred stock (12,252) Cash dividends on common stock (50,483) - ----------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 39,133,887 195,670 328,559 51,463 Net income $ 99,945 99,945 ========= Cash dividends on preferred stock (17,582) Cash dividends on common stock (106,351) - ----------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 39,133,887 195,670 328,559 27,475 Net income $ 137,233 137,233 ========= Cash dividends on preferred stock (16,250) Cash dividends on common stock (67,100) - ----------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 39,133,887 $195,670 $328,559 $ 81,358 ===========================================================================================================
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
Not Subject to Subject to Mandatory Redemption Mandatory Redemption -------------------- -------------------- Number Par Number Par of Shares Value of Shares Value ----------- ----- ---------- ------ (Dollars in thousands) Balance, January 1, 1998 5,700,000 $210,000 33,550 $ 3,355 Redemptions- $100 par $9.375 (16,650) (1,665) - ------------------------------------------------------------------------------------------ Balance, December 31, 1998 5,700,000 210,000 16,900 1,690 Redemptions- $100 par $9.375 (16,900) (1,690) - ------------------------------------------------------------------------------------------ Balance, December 31, 1999 5,700,000 210,000 -- -- - ------------------------------------------------------------------------------------------ Balance, December 31, 2000 5,700,000 $210,000 -- $ -- ========================================================================================== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE TOLEDO EDISON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $137,233 $ 99,945 $106,582 Adjustments to reconcile net income to net cash from operating activities: Provision for depreciation and amortization 104,914 103,725 106,433 Nuclear fuel and lease amortization 23,881 25,166 24,071 Deferred income taxes, net 20,376 27,551 38,840 Investment tax credits, net (1,827) (1,922) (2,595) Receivables (6,671) 5,242 (32,169) Materials and supplies 4,093 418 (2,463) Accounts payable 13,997 (20,898) 4,559 Other (38,180) 1,427 19,172 -------- -------- -------- Net cash provided from operating activities 257,816 240,654 262,430 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt 96,405 89,330 3,629 Short-term borrowings, net 8,060 33,876 -- Redemptions and Repayments- Preferred stock -- 1,690 1,665 Long-term debt 200,633 226,695 90,929 Dividend Payments- Common stock 67,100 106,351 50,483 Preferred stock 16,247 16,238 16,378 -------- -------- -------- Net cash used for financing activities 179,515 227,768 155,826 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 92,860 107,338 45,870 Loans to associated companies 63,838 -- 60,434 Loan payments from associated companies -- (93,373) -- Capital trust investments (15,618) (15,308) (2,111) Sale of assets to associated companies (81,014) -- -- Other 17,162 18,057 20,441 -------- -------- -------- Net cash used for investing activities 77,228 16,714 124,634 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,073 (3,828) (18,030) Cash and cash equivalents at beginning of year 312 4,140 22,170 -------- -------- -------- Cash and cash equivalents at end of year $ 1,385 $ 312 $ 4,140 ======== ======== ======== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid During the Year- Interest (net of amounts capitalized) $ 71,009 $ 84,538 $ 93,828 ======== ======== ======== Income taxes $ 65,553 $ 40,461 $ 6,935 ======== ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
THE TOLEDO EDISON COMPANY CONSOLIDATED STATEMENTS OF TAXES
For the Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------ (In thousands) GENERAL TAXES: Real and personal property $ 46,302 $ 44,280 $ 44,993 State gross receipts 36,813 35,706 35,114 Social security and unemployment 7,220 6,801 5,065 Other 502 1,075 1,489 -------- -------- -------- Total general taxes $ 90,837 $ 87,862 $ 86,661 ======== ======== ======== PROVISION FOR INCOME TAXES: Currently payable- Federal $ 56,631 $ 29,728 $ 22,767 State 1,811 1,489 1,954 -------- -------- -------- 58,442 31,217 24,721 -------- -------- -------- Deferred, net- Federal 20,865 27,745 38,851 State (489) (194) (11) -------- -------- -------- 20,376 27,551 38,840 -------- -------- -------- Investment tax credit amortization (1,827) (1,922) (2,595) -------- -------- -------- Total provision for income taxes $ 76,991 $ 56,846 $ 60,966 ======== ======== ======== INCOME STATEMENT CLASSIFICATION OF PROVISION FOR INCOME TAXES: Operating income $ 72,394 $ 50,205 $ 54,428 Other income 4,597 6,641 6,538 -------- -------- -------- Total provision for income taxes $ 76,991 $ 56,846 $ 60,966 ======== ======== ======== RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES: Book income before provision for income taxes $214,224 $156,791 $167,548 ======== ======== ======== Federal income tax expense at statutory rate $ 74,978 $ 54,877 $ 58,642 Increases (reductions) in taxes resulting from- Amortization of investment tax credits (1,827) (1,922) (2,595) Amortization of tax regulatory assets (1,737) (1,735) (1,739) Amortization of goodwill 4,334 4,280 4,421 Other, net 1,243 1,346 2,237 -------- -------- -------- Total provision for income taxes $ 76,991 $ 56,846 $ 60,966 ======== ======== ======== ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31: Property basis differences $163,537 $195,326 $195,948 Deferred nuclear expense 73,695 76,449 79,355 Impaired generating assets 18,843 -- -- Deferred sale and leaseback costs (22,274) (21,443) (20,623) Unamortized investment tax credits (16,689) (18,324) (19,515) Unused alternative minimum tax credits (5,100) (30,055) (66,322) Deferred gain for asset sale to affiliated company 15,330 -- -- Other (30,398) (29,717) (17,522) -------- -------- -------- Net deferred income tax liability $196,944 $172,236 $151,321 ======== ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Other Pension Benefits Postretirement Benefits ---------------------- ----------------------- 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------ (In millions) Change in benefit obligation: Benefit obligation as of January 1 $1,394.1 $1,500.1 $ 608.4 $ 601.3 Service cost 27.4 28.3 11.3 9.3 Interest cost 104.8 102.0 45.7 40.7 Plan amendments 41.3 -- -- -- Actuarial loss (gain) 17.3 (155.6) 121.7 (17.6) Net increase from asset swap -- 14.8 -- 12.5 Voluntary early retirement program expense 23.4 -- -- -- Benefits paid (102.2) (95.5) (35.1) (37.8) - ----------------------------------------------------------------------------------------- Benefit obligation as of December 31 1,506.1 1,394.1 752.0 608.4 - ----------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets as of January 1 1,807.5 1,683.0 4.9 3.9 Actual return on plan assets 0.7 220.0 (0.2) 0.6 Company contribution -- -- 18.3 0.4 Benefits paid (102.2) (95.5) -- -- - ----------------------------------------------------------------------------------------- Fair value of plan assets as of December 31 1,706.0 1,807.5 23.0 4.9 - ----------------------------------------------------------------------------------------- Funded status of plan 199.9 413.4 ( 729.0) (603.5) Unrecognized actuarial loss (gain) (90.9) (303.5) 147.3 24.9 Unrecognized prior service cost 93.1 57.3 20.9 24.1 Unrecognized net transition obligation (asset) (2.1) (10.1) 110.9 120.1 - ----------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 200.0 $ 157.1 $(449.9) $(434.4) ========================================================================================== Company's share of prepaid (accrued) benefit cost $ 0.9 $ (11.8) $(117.1) $(110.2) ========================================================================================== Assumptions used as of December 31: Discount rate 7.75% 7.75% 7.75% 7.75% Expected long-term return on plan assets 10.25% 10.25% 10.25% 10.25% Rate of compensation increase 4.00% 4.00% 4.00% 4.00% FirstEnergy's net pension and other postretirement benefit costs for the three years ended December 31, 2000 were computed as follows:
Other Pension Benefits Postretirement Benefits ---------------------------- ------------------------- 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------------ (In millions) Service cost $ 27.4 $ 28.3 $ 25.0 $11.3 $ 9.3 $ 7.5 Interest cost 104.8 102.0 92.5 45.7 40.7 37.6 Expected return on plan assets (181.0) (168.1) (152.7) (0.5) (0.4) (0.3) Amortization of transition obligation (asset) (7.9) (7.9) (8.0) 9.2 9.2 9.2 Amortization of prior service cost 5.7 5.7 2.3 3.2 3.3 (0.8) Recognized net actuarial loss (gain) (9.1) -- (2.6) -- -- -- Voluntary early retirement program expense 17.2 -- -- -- -- -- - ------------------------------------------------------------------------------------------------ Net benefit cost $ (42.9) $ (40.0) $ (43.5) $68.9 $62.1 $53.2 ================================================================================================= Company's share of total plan costs $ (12.7) $ (8.3) $ (1.1) $15.1 $12.6 $ 7.5 - ------------------------------------------------------------------------------------------------
The FirstEnergy plan's health care trend rate assumption is 7.2% in 2001, 7.0% in 2002 and 6.5% in 2003, trending to 5.0%-5.5% in later years. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. An increase in the health care trend rate assumption by one percentage point would increase the total service and interest cost components by $7.5 million and the postretirement benefit obligation by $94.4 million. A decrease in the same assumption by one percentage point would decrease the total service and interest cost components by $8.5 million and the postretirement benefit obligation by $111.0 million. TRANSACTIONS WITH AFFILIATED COMPANIES- Operating revenues, operating expenses and interest charges include transactions with CEI, OE, Penn and ATSI. Primary transactions include electric sales (see following paragraph), purchased power and transmission facilities rent expenses of $9.4 million from ATSI starting in 2000. CFC serves as the transferor in connection with the accounts receivable securitization for the Company and CEI. The Company is selling 150 megawatts of its Beaver Valley Unit 2 leased capacity entitlement to CEI. Operating revenues for this transaction were $104.0 million, $104.3 million and $98.5 million in 2000, 1999 and 1998, respectively. This sale is expected to continue through the end of the lease period. (See Note 2.) FirstEnergy and, prior to 1999, the Centerior Service Company (CSC), a wholly owned subsidiary of FirstEnergy, provides support services at cost to the Company and other affiliated companies, for which the Company was billed $36.0 million in 2000 and $59.4 million in 1999 by FirstEnergy, and $39.0 million in 1998 by CSC. SUPPLEMENTAL CASH FLOWS INFORMATION- All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets. The Company reflects temporary cash investments at cost, which approximates their fair market value. Noncash financing and investing activities included capital lease transactions amounting to $36.1 million, $8.5 million and $27.9 million in 2000, 1999 and 1998, respectively. All borrowings with initial maturities of less than one year are defined as financial instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value. The following sets forth the approximate fair value and related carrying amounts of all other long-term debt and investments other than cash and cash equivalents as of December 31: 2000 1999 - ------------------------------------------------------------------ Carrying Fair Carrying Fair Value Value Value Value - ------------------------------------------------------------------- (In millions) Long-term debt $919 $952 $995 $1,002 Investments other than cash and cash equivalents: Debt securities - (Maturing in more than 10 years) $316 $307 $293 $ 270 Equity securities 3 3 3 3 All other 133 137 124 128 - ------------------------------------------------------------------- $452 $447 $420 $ 401 ================================================================== The fair value of long-term debt reflects the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective year. The yields assumed were based on securities with similar characteristics offered by a corporation with credit ratings similar to the Company's ratings. The fair value of investments other than cash and cash equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms. Investments other than cash and cash equivalents include decommissioning trust investments. Unrealized gains and losses applicable to the decommissioning trusts have been recognized in the trust investment with corresponding changes to the decommissioning liability. The Company has no securities held for trading purposes. REGULATORY ASSETS- The Company recognizes, as regulatory assets, costs which the FERC and PUCO have authorized for recovery from customers in future periods. Without such authorization, the costs would have been charged to income as incurred. All regulatory assets will continue to be recovered from customers under the Company's transition plan. Based on that plan, the Company continues to bill and collect cost-based rates for its transmission and distribution services, which will remain regulated; accordingly, it is appropriate that the Company continues the application of SFAS 71 to those operations. The application of SFAS 71 to the Company's nonnuclear generation business was discontinued effective with the PUCO's approval of FirstEnergy's transition plan. All generating plant investments were reviewed for impairment due to the anticipated regulatory cash flows under the transition plan. The effect of that review was reflected on the financial statements as of June 30, 2000, with the reduction of plant investment and the corresponding recognition of regulatory assets recoverable through future regulatory cash flows for generating assets that were impaired of approximately $53 million for the Company. Net regulatory assets on the Consolidated Balance Sheets are comprised of the following: 2000 1999 - ---------------------------------------------------------------- (In millions) Nuclear unit expenses $185.5 $192.8 Rate stabilization program deferrals 148.3 156.2 Sale and leaseback costs 26.2 33.7 Loss on reacquired debt 16.5 18.3 Impaired generating assets 53.1 -- Other (16.9) (15.7) - ---------------------------------------------------------------- Total $412.7 $385.3 =============================================================== 2. LEASES: The Company leases certain generating facilities, nuclear fuel, office space and other property and equipment under cancelable and noncancelable leases. The Company and CEI sold their ownership interests in Bruce Mansfield Units 1, 2 and 3 and the Company sold a portion of its ownership interest in Beaver Valley Unit 2. In connection with these sales, which were completed in 1987, the Company and CEI entered into operating leases for lease terms of approximately 30 years as co-lessees. During the terms of the leases, the Company and CEI continue to be responsible, to the extent of their combined ownership and leasehold interest, for costs associated with the units including construction expenditures, operation and maintenance expenses, insurance, nuclear fuel, property taxes and decommissioning. The Company and CEI have the right, at the end of the respective basic lease terms, to renew the leases. The Company and CEI also have the right to purchase the facilities at the expiration of the basic lease term or renewal term (if elected) at a price equal to the fair market value of the facilities. As co-lessee with CEI, the Company is also obligated for CEI's lease payments. If CEI is unable to make its payments under the Bruce Mansfield Plant lease, the Company would be obligated to make such payments. No such payments have been made on behalf of CEI. (CEI's future minimum lease payments as of December 31, 2000 were approximately $0.2 billion, net of trust cash receipts.) Nuclear fuel is currently financed for the Company and CEI through leases with a special-purpose corporation. As of December 31, 2000, $142 million of nuclear fuel ($56 million for the Company) was financed under a lease financing arrangement totaling $150 million from bank credit arrangements. The bank credit arrangements expire in August 2001. Lease rates are based on bank rates and commercial paper rates. Consistent with the regulatory treatment, the rentals for capital and operating leases are charged to operating expenses on the Consolidated Statements of Income. Such costs for the three years ended December 31, 2000 are summarized as follows: 2000 1999 1998 - ------------------------------------------------------------- (In millions) Operating leases Interest element $ 58.7 $ 61.4 $ 59.2 Other 46.2 45.3 44.9 Capital leases Interest element 3.9 5.3 4.9 Other 24.1 30.4 25.1 - -------------------------------------------------------------- Total rentals $132.9 $142.4 $134.1 ============================================================= The future minimum lease payments as of December 31, 2000 are: Operating Leases ---------------------------- Capital Lease Capital Leases Payments Trust Net - ---------------------------------------------------------------------- (In millions) 2001 $28.0 $ 108.0 $ 36.4 $ 71.6 2002 17.2 111.0 37.9 73.1 2003 11.1 111.7 36.0 75.7 2004 5.0 97.9 24.3 73.6 2005 1.5 104.8 24.9 79.9 Years thereafter 0.8 1,115.7 272.2 843.5 - ---------------------------------------------------------------------- Total minimum lease payments 63.6 $1,649.1 $431.7 $1,217.4 Interest portion 6.7 ======== ====== ======== - ------------------------------------ Present value of net minimum lease payments 56.9 Less current portion 21.1 - ------------------------------------ Noncurrent portion $35.8 ==================================== The Company and CEI refinanced high-cost fixed obligations related to their 1987 sale and leaseback transaction for the Bruce Mansfield Plant through a lower cost transaction in June and July 1997. In a June 1997 offering (Offering), the two companies pledged $720 million aggregate principal amount ($145 million for the Company and $575 million for CEI) of first mortgage bonds due through 2007 to a trust as security for the issuance of a like principal amount of secured notes due through 2007. The obligations of the two companies under these secured notes are joint and several. Using available cash, short-term borrowings and the net proceeds from the Offering, the two companies invested $906.5 million ($337.1 million for the Company and $569.4 million for CEI) in a business trust, in June 1997. The trust used these funds in July 1997 to purchase lease notes and redeem all $873.2 million aggregate principal amount of 10-1/4% and 11-1/8% secured lease obligations bonds (SLOBs) due 2003 and 2016. The SLOBs were issued by a special-purpose funding corporation in 1988 on behalf of lessors in the two companies' 1987 sale and leaseback transaction. The Shippingport capital trust arrangement effectively reduce lease costs related to that transaction. 3. CAPITALIZATION: (A) RETAINED EARNINGS- The Company has a provision in its mortgage that requires common stock dividends to be paid out of its total balance of retained earnings. The 1997 FirstEnergy merger purchase accounting adjustments included resetting the retained earnings balance to zero at the November 8, 1997 merger date. (B) PREFERRED AND PREFERENCE STOCK- Preferred stock may be redeemed by the Company in whole, or in part, with 30-90 days' notice. The preferred dividend rates on the Company's Series A and Series B fluctuate based on prevailing interest rates and market conditions. The dividend rates for these issues averaged 7.00% and 7.42%, respectively, in 2000. The Company has five million authorized and unissued shares of $25 par value preference stock. (C) LONG-TERM DEBT- The first mortgage indenture and its supplements, which secure all of the Company's first mortgage bonds, serve as direct first mortgage liens on substantially all property and franchises, other than specifically excepted property, owned by the Company. Based on the amount of bonds authenticated by the Trustee through December 31, 2000, the Company's annual sinking and improvement fund requirements for all bonds issued under the mortgage amounts to $0.4 million. The Company expects to deposit funds in 2001 that will be withdrawn upon the surrender for cancellation of a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property additions or against previously retired bonds. This method can result in minor increases in the amount of the annual sinking fund requirement. Sinking fund requirements for first mortgage bonds and maturing long-term debt (excluding capital leases) for the next five years are: (In millions) - -------------------------- 2001 $ 35.1 2002 196.0 2003 96.2 2004 268.7 2005 -- - -------------------------- The Company's obligations to repay certain pollution control revenue bonds are secured by several series of first mortgage bonds. Certain pollution control revenue bonds are entitled to the benefit of irrevocable bank letters of credit of $68.0 million and a noncancelable municipal bond insurance policy of $30.9 million to pay principal of, or interest on, the pollution control revenue bonds. To the extent that drawings are made under the letters of credit, the Company is entitled to a credit against its obligation to repay those bonds. The Company pays an annual fee of 1.375% of the amounts of the letters of credit to the issuing bank and is obligated to reimburse the bank for any drawings thereunder. The Company and CEI have letters of credit of approximately $222 million in connection with the sale and leaseback of Beaver Valley Unit 2 that expire in May 2002. The letters of credit are secured by first mortgage bonds of the Company and CEI in the proportion of 60% and 40%, respectively (see Note 2). 4. SHORT-TERM BORROWINGS: The Company may borrow from its affiliates on a short-term basis. As of December 31, 2000, the Company had total short-term borrowings of $41.9 million from its affiliates with a weighted average interest rate of approximately 6.8%. 5. COMMITMENTS AND CONTINGENCIES: CAPITAL EXPENDITURES- The Company's current forecast reflects expenditures of approximately $218 million for property additions and improvements from 2001-2005, of which approximately $49 million is applicable to 2001. Investments for additional nuclear fuel during the 2001-2005 period are estimated to be approximately $79 million, of which approximately $7 million applies to 2001. During the same periods, the Company's nuclear fuel investments are expected to be reduced by approximately $99 million and $22 million, respectively, as the nuclear fuel is consumed. NUCLEAR INSURANCE- The Price-Anderson Act limits the public liability relative to a single incident at a nuclear power plant to $9.5 billion. The amount is covered by a combination of private insurance and an industry retrospective rating plan. Based on its ownership and leasehold interests in Beaver Valley Unit 2, the Davis Besse Station and the Perry Plant, the Company's maximum potential assessment under the industry retrospective rating plan (assuming the other affiliate co-owners contribute their proportionate shares of any assessments under the retrospective rating plan) would be $77.9 million per incident but not more than $8.8 million in any one year for each incident. The Company is also insured as to its respective interests in Beaver Valley Unit 2, Davis-Besse and Perry under policies issued to the operating company for each plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Company has also obtained approximately $176.1 million of insurance coverage for replacement power costs for its respective interests in Beaver Valley Unit 2, Davis-Besse and Perry. Under these policies, the Company can be assessed a maximum of approximately $8.1 million for incidents at any covered nuclear facility occurring during a policy year which are in excess of accumulated funds available to the insurer for paying losses. The Company intends to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Company's plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Company's insurance policies, or to the extent such insurance becomes unavailable in the future, the Company would remain at risk for such costs. ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Company with regard to air and water quality and other environmental matters. The Company estimates additional capital expenditures for environmental compliance of approximately $16 million, which is included in the construction forecast provided under "Capital Expenditures" for 2001 through 2005. The Company is required to meet federally approved sulfur dioxide (SO2) regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $27,500 for each day the unit is in violation. The Environmental Protection Agency (EPA) has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The Company cannot predict what action the EPA may take in the future with respect to the interim enforcement policy. The Company is in compliance with the current SO2 and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or using emission allowances. NOx reductions are being achieved through combustion controls and the generation of more electricity at lower-emitting plants. In September 1998, the EPA finalized regulations requiring additional NOx reductions from the Company's Ohio and Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions of NOx emissions (an approximate 85% reduction in utility plant NOx emissions from projected 2007 emissions) across a region of twenty-two states and the District of Columbia, including Ohio and Pennsylvania, based on a conclusion that such NOx emissions are contributing significantly to ozone pollution in the eastern United States. In March 2000, the U.S. Court of Appeals for the D.C. Circuit upheld EPA's NOx Transport Rule except as applied to the State of Wisconsin and portions of Georgia and Missouri. By October 2000, states were to submit revised State Implementation Plans (SIP) to comply by May 31, 2004 with individual state NOx budgets established by the EPA. Pennsylvania recently submitted a SIP that requires compliance with the NOx budgets at the Company's Pennsylvania facilities by May 1, 2003 and Ohio submitted a "draft" SIP that requires compliance with the NOx budgets at the Company's Ohio facilities by May 31, 2004. A Federal Implementation Plan accompanied the NOx Transport Rule and may be implemented by the EPA in states which fail to revise their SIP. In another separate but related action, eight states filed petitions with the EPA under Section 126 of the Clean Air Act seeking reductions of NOx emissions which are alleged to contribute to ozone pollution in the eight petitioning states. The EPA position is that the Section 126 petitions will be adequately addressed by the NOx Transport Program, but a December 17, 1999 rulemaking established an alternative program which would require nearly identical 85% NOx reductions at 392 utility plants, including the Company's Ohio and Pennsylvania plants, by May 2003, in the event implementation of the NOx Transport Rule is not implemented by a state. Additional Section 126 petitions were filed by New Jersey, Maryland, Delaware and the District of Columbia in mid-1999 and are still under evaluation by the EPA. FirstEnergy continues to evaluate its compliance plans and other compliance options. In July 1997, the EPA promulgated changes in the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend on the manner in which they are ultimately implemented, if at all, by the states in which the Company operates affected facilities. In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. Certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. On April 25, 2000, the EPA announced that it will develop national standards regulating disposal of coal ash under its authority to regulate nonhazardous waste. The Company has been named as a "potentially responsible party" (PRP) at waste disposal sites which may require cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Allegations of disposal of hazardous substances at historical sites and the liability involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. The Company has accrued a liability of $0.2 million as of December 31, 2000, based on estimates of the total costs of cleanup, the proportionate responsibility of other PRPs for such costs and the financial ability of other PRPs to pay. The Company believes that waste disposal costs will not have a material adverse effect on its financial condition, cash flows or results of operations. 6. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): The following summarizes certain consolidated operating results by quarter for 2000 and 1999. March 31, June 30, September 30, December 31, Three Months Ended 2000 2000 2000 2000 - ------------------------------------------------------------------------ (In millions) Operating Revenues $217.4 $235.4 $260.8 $241.3 Operating Expenses and Taxes 173.5 201.8 188.6 197.6 - ----------------------------------------------------------------------- Operating Income 43.9 33.6 72.2 43.7 Other Income 2.7 2.2 2.0 1.8 Net Interest Charges 17.1 15.2 16.6 16.0 - ----------------------------------------------------------------------- Net Income $ 29.5 $ 20.6 $ 57.6 $ 29.5 ===================================================================== Earnings on Common Stock $ 25.5 $ 16.4 $ 53.6 $ 25.5 ===================================================================== March 31, June 30, September 30, December 31, Three Months Ended 1999 1999 1999 1999 - ------------------------------------------------------------------------ (In millions) Operating Revenues $224.3 $235.2 $233.7 $228.0 Operating Expenses and Taxes 175.6 195.7 191.0 195.2 - ---------------------------------------------------------------------- Operating Income 48.7 39.5 42.7 32.8 Other Income 2.9 3.2 2.8 3.7 Net Interest Charges 19.5 19.5 19.2 18.2 - ---------------------------------------------------------------------- Net Income $ 32.1 $ 23.2 $ 26.3 $ 18.3 ====================================================================== Earnings on Common Stock $ 28.1 $ 19.1 $ 22.3 $ 14.2 ====================================================================== Report of Independent Public Accountants To the Stockholders and Board of Directors of The Toledo Edison Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of The Toledo Edison Company (an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and subsidiary as of December 31, 2000 and 1999, and the related consolidated statements of income, common stockholder's equity, preferred stock, cash flows and taxes for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Toledo Edison Company and subsidiary as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Cleveland, Ohio, February 16, 2001. 1 EX-21.3 27 ex21-3.txt LIST OF SUBS - TE EXHIBIT 21.3 THE TOLEDO EDISON COMPANY LIST OF SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 2000 The Toledo Edison Capital Corporation - Incorporated in Delaware Statement of Differences ------------------------ Exhibit Number 21, List of Subsidiaries of the Registrant at December 31, 2000, is not included in the printed document. EX-12.5 28 ex12-5.txt RATIOS - PP EXHIBIT 12.5 Page 1 PENNSYLVANIA POWER COMPANY RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, --------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $ 40,587 $31,472 $39,748 $12,648 $22,847 Interest before reduction for amounts capitalized 27,889 22,438 21,073 21,317 20,437 Provision for income taxes 33,421 26,658 32,504 18,834 26,121 Interest element of rentals charged to income (a) 1,868 1,750 1,920 1,887 2,791 -------- ------- ------- ------- ------- Earnings as defined $103,765 $82,318 $95,245 $54,686 $72,196 ======== ======= ======= ======= ======= FIXED CHARGES AS DEFINED IN REGULATION S-K: Interest on long-term debt $ 25,715 $20,458 $19,255 $19,268 $18,651 Interest on nuclear fuel obligations 219 276 28 90 364 Other interest expense 1,955 1,704 1,789 1,959 1,422 Interest element of rentals charged to income (a) 1,868 1,750 1,920 1,887 2,791 -------- ------- ------- ------- ------- Fixed charges as defined $ 29,757 $24,188 $22,992 $23,204 $23,228 ======== ======= ======= ======= ======= RATIO OF EARNINGS TO FIXED CHARGES (b) 3.49 3.40 4.14 2.36 3.11 ==== ==== ==== ==== ==== - ---------------------- (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 $642,000, $483,000 and $273,000 for each of the three years ended December 31, 1998, respectively. The guarantee and related coal supply contract debt expired December 31, 1999.
EXHIBIT 12.5 Page 2 PENNSYLVANIA POWER COMPANY RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
Year Ended December 31, ------------------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $ 40,587 $31,472 $39,748 $12,648 $22,847 Interest before reduction for amounts capitalized 27,889 22,438 21,073 21,317 20,437 Provision for income taxes 33,421 26,658 32,504 18,834 26,121 Interest element of rentals charged to income (a) 1,868 1,750 1,920 1,887 2,791 -------- ------- ------- ------- ------- Earnings as defined $103,765 $82,318 $95,245 $54,686 $72,196 ======== ======= ======= ======= ======= FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS): Interest on long-term debt $ 25,715 $20,458 $19,255 $19,268 $18,651 Interest on nuclear fuel obligations 219 276 28 90 364 Other interest expense 1,955 1,704 1,789 1,959 1,422 Preferred stock dividend requirements 4,626 4,626 4,626 4,370 3,704 Adjustment to preferred stock dividends to state on a pre-income tax basis 3,751 3,859 3,726 6,403 4,018 Interest element of rentals charged to income (a) 1,868 1,750 1,920 1,887 2,791 -------- ------- ------- ------- ------- Fixed charges as defined plus preferred stock dividend requirements (pre-income tax basis) $ 38,134 $32,673 $31,344 $33,977 $30,950 ======== ======= ======= ======= ======= RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS) (b) 2.72 2.52 3.04 1.61 2.33 ==== ==== ==== ==== ==== - ------------------------ (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 $642,000, $483,000 and $273,000 for each of the three years ended December 31, 1998, respectively. The guarantee and related coal supply contract debt expired December 31, 1999.
EX-23.3 29 ex23-3.txt CONSENT - PP EXHIBIT 23.3 PENNSYLVANIA POWER COMPANY CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into Pennsylvania Power Company's previously filed Registration Statements, File No. 33-62450 and No. 33-65156. ARTHUR ANDERSEN LLP Cleveland, Ohio, March 28, 2001. -----END PRIVACY-ENHANCED MESSAGE-----