-----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, DQHSlK1zOQo1hZlKYBThWOu6Dn9CeoJq9Hf5X/jrlmAHiuywI/b8ULI9Ue3ZRApv CXhtAaFCXDa1TU32fzvwaA== 0000950152-96-001284.txt : 19960401 0000950152-96-001284.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950152-96-001284 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOLEDO EDISON CO CENTRAL INDEX KEY: 0000352049 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 344375005 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03583 FILM NUMBER: 96541984 BUSINESS ADDRESS: STREET 1: 300 MADISON AVE CITY: TOLEDO STATE: OH ZIP: 43652 BUSINESS PHONE: 4192495000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEVELAND ELECTRIC ILLUMINATING CO CENTRAL INDEX KEY: 0000020947 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 340150020 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-02323 FILM NUMBER: 96541985 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQ STREET 2: PO BOX 5000 CITY: CLEVELAND STATE: OH ZIP: 44101 BUSINESS PHONE: 2166229800 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTERIOR ENERGY CORP CENTRAL INDEX KEY: 0000774197 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 341479083 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09130 FILM NUMBER: 96541986 BUSINESS ADDRESS: STREET 1: 6200 OAK TREE BLVD CITY: INDEPENDENCE STATE: OH ZIP: 44131 BUSINESS PHONE: 2164473100 MAIL ADDRESS: STREET 1: PO BOX 94661 CITY: CLEVELAND STATE: OH ZIP: 44101-4661 FORMER COMPANY: FORMER CONFORMED NAME: NORTH HOLDING CO /OH/ DATE OF NAME CHANGE: 19851002 10-K405 1 CENTERIOR, CEI, TOLEDO EDISON 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------- FORM 10-K ----------------------------- (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _________________ to _________________
Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. - ----------- ----------------------------------- ------------------ 1-9130 CENTERIOR ENERGY CORPORATION 34-1479083 (An Ohio Corporation) 6200 Oak Tree Boulevard Independence, Ohio 44131 Telephone (216) 447-3100 1-2323 THE CLEVELAND ELECTRIC ILLUMINATING 34-0150020 COMPANY (An Ohio Corporation) 55 Public Square Cleveland, Ohio 44113 Telephone (216) 622-9800 1-3583 THE TOLEDO EDISON COMPANY 34-4375005 (An Ohio Corporation) 300 Madison Avenue Toledo, Ohio 43652 Telephone (419) 249-5000
----------------------------- Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X . No _____. ----------------------------- 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 registrants' 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] 2 The aggregate market value of Centerior Energy Corporation Common Stock, without par value, held by non-affiliates was $1,258,236,538 on February 29, 1996 based on the closing sale price of $8.50 as quoted for that date on a composite transactions basis in THE WALL STREET JOURNAL and on the 148,027,828 shares of Common Stock outstanding on that date. Centerior Energy Corporation is the sole holder of the 79,590,689 shares and 39,133,887 shares of the outstanding common stock of The Cleveland Electric Illuminating Company and The Toledo Edison Company, respectively. 3 Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange Registrant Title of Each Class on Which Registered - ---------- ------------------- --------------------- Centerior Energy Common Stock, Corporation without par value New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange The Cleveland Electric Cumulative Serial Preferred Illuminating Company Stock, without par value: $7.40 Series A New York Stock Exchange $7.56 Series B New York Stock Exchange Adjustable Rate, Series L New York Stock Exchange Depository Shares: 1993 Series A, each share representing 1/20 of a share of Serial Preferred Stock, $42.40 Series T (without par value) New York Stock Exchange First Mortgage Bonds: 8-3/4% Series due 2005 New York Stock Exchange 9-1/4% Series due 2009 New York Stock Exchange 8-3/8% Series due 2011 New York Stock Exchange 8-3/8% Series due 2012 New York Stock Exchange The Toledo Edison Cumulative Preferred Stock, Company par value $100 per share: 4-1/4% Series American Stock Exchange 8.32% Series American Stock Exchange 7.76% Series American Stock Exchange 10% Series American Stock Exchange Cumulative Preferred Stock, par value $25 per share: 8.84% Series New York Stock Exchange $2.365 Series New York Stock Exchange Adjustable Rate, Series A New York Stock Exchange Adjustable Rate, Series B New York Stock Exchange First Mortgage Bonds: 7-1/2% Series due 2002 New York Stock Exchange 8% Series due 2003 New York Stock Exchange
4 Securities registered pursuant to Section 12(g) of the Act:
Registrant Title of Each Class - ---------- ------------------- Centerior Energy None Corporation The Cleveland Electric None Illuminating Company The Toledo Edison Cumulative Preferred Stock, Company par value $100 per share: 4.56% Series and 4.25% Series
----------------------------- DOCUMENTS INCORPORATED BY REFERENCE -----------------------------------
Part of Form 10-K Into Which Document Description Is Incorporated - ----------- ------------------- Portions of Proxy Statement of Centerior Energy Corporation, dated March 12, 1996 Part III
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TABLE OF CONTENTS Page Number ------ Glossary of Terms iv PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 1 The Centerior System . . . . . . . . . . . . . . . . . . . . . . 1 Merger of the Operating Companies . . . . . . . . . . . . . . . 2 CAPCO Group . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Construction and Financing Programs . . . . . . . . . . . . . . 4 Construction Program . . . . . . . . . . . . . . . . . . . . . 4 Financing Program . . . . . . . . . . . . . . . . . . . . . . 6 General Regulation . . . . . . . . . . . . . . . . . . . . . . . 6 Holding Company Regulation . . . . . . . . . . . . . . . . . . 6 State Utility Commissions . . . . . . . . . . . . . . . . . . 7 Ohio Power Siting Board . . . . . . . . . . . . . . . . . . . 8 Federal Energy Regulatory Commission . . . . . . . . . . . . . 8 Nuclear Regulatory Commission . . . . . . . . . . . . . . . . 8 Other Regulation . . . . . . . . . . . . . . . . . . . . . . . 8 Environmental Regulation . . . . . . . . . . . . . . . . . . . . 9 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Air Quality Control . . . . . . . . . . . . . . . . . . . . . 9 Water Quality Control . . . . . . . . . . . . . . . . . . . . 10 Waste Disposal . . . . . . . . . . . . . . . . . . . . . . . . 11 Electric Rates . . . . . . . . . . . . . . . . . . . . . . . . . 11 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1995 Rate Case . . . . . . . . . . . . . . . . . . . . . . . . 12 Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Sales of Electricity . . . . . . . . . . . . . . . . . . . . . 12 Operating Statistics . . . . . . . . . . . . . . . . . . . . . 12 Nuclear Units . . . . . . . . . . . . . . . . . . . . . . . . 13 Competitive Conditions . . . . . . . . . . . . . . . . . . . . 14 General . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . 15 Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . 16
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Page Number ------ Fuel Supply . . . . . . . . . . . . . . . . . . . . . . . . . 18 Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Nuclear . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Executive Officers of the Registrants and the Service Company . 20 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 27 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 The Centerior System . . . . . . . . . . . . . . . . . . . . . 27 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . 27 Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . . 28 Title to Property . . . . . . . . . . . . . . . . . . . . . . . 29 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 31 Item 4. Submission of Matters to a Vote of Security Holders . . . 31 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 32 Market Information . . . . . . . . . . . . . . . . . . . . . . 32 Share Owners . . . . . . . . . . . . . . . . . . . . . . . . . 32 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 32 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 32 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 33 Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . . . 33 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 33 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 33 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 33 Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . . . 33
-ii- 7
Page Number ------ Item 8. Financial Statements and Supplementary Data . . . . . . . 33 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 33 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 33 Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . . . 33 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 33 PART III Item 10. Directors and Executive Officers of the Registrants . . 34 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 34 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 34 Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . . . 34 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 35 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . 35 Centerior Energy . . . . . . . . . . . . . . . . . . . . . . . . 35 Cleveland Electric . . . . . . . . . . . . . . . . . . . . . . . 36 Toledo Edison . . . . . . . . . . . . . . . . . . . . . . . . . 36 Item 13. Certain Relationships and Related Transactions . . . . . 37 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 37 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Index to Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; and Financial Statements . . . . . . . . . . . . . . . . . . . . . F-1 Index to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . S-1 The Cleveland Electric Illuminating Company and Subsidiaries and The Toledo Edison Company Combined Pro Forma Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-1 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
-iii- 8 This combined Form 10-K is separately filed by Centerior Energy Corporation, 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 either or both of the Operating Companies is also attributed to Centerior Energy. GLOSSARY OF TERMS ----------------- The following terms and abbreviations used in the text of this report are defined as indicated:
Term Definition - ---- ---------- AFUDC Allowance for Funds Used During Construction. AMP-Ohio American Municipal Power-Ohio, Inc., an Ohio not-for-profit corporation, the members of which are certain Ohio municipal electric systems. Beaver Valley Unit 2 Unit 2 of the Beaver Valley Power Station, in which the Operating Companies have ownership and leasehold interests. CAPCO Group Central Area Power Coordination Group. Centerior Energy or Centerior Centerior Energy Corporation. Centerior System Centerior Energy, the Operating Companies and the Service Company. Chase Brass Chase Brass & Copper Co., Inc. Clean Air Act Federal Clean Air Act of 1970 as amended. Clean Air Act Amendments November 1990 Amendments to the Clean Air Act. Clean Water Act Federal Water Pollution Control Act as amended. Cleveland Electric The Cleveland Electric Illuminating Company, an electric utility subsidiary of Centerior Energy and a member of the CAPCO Group. Consol Consolidation Coal Company. CPP Cleveland Public Power, a municipal electric system operated by the City of Cleveland. Davis-Besse Davis-Besse Nuclear Power Station.
-iv- 9
Term Definition - ---- ---------- Detroit Edison Detroit Edison Company, an electric utility. DOE United States Department of Energy. Duquesne Duquesne Light Company, an electric utility subsidiary of DQE, Inc. and a member of the CAPCO Group. ECAR East Central Area Reliability Coordination Group. Energy Act Energy Policy Act of 1992. Federal Power Act Federal Power Act, as amended, codified in Chapter 12 of Title 16 of the United States Code. FERC Federal Energy Regulatory Commission. Holding Company Act Public Utility Holding Company Act of 1935. Jersey Central Jersey Central Power & Light Company, an electric utility subsidiary of General Public Utilities Corporation. Mansfield Plant Bruce Mansfield Generating Plant, a coal- fired power plant, in which the Operating Companies have leasehold interests as joint and several lessees. Note or Notes Note or Notes to the Financial Statements in the Centerior Energy, Cleveland Electric and Toledo Edison Annual Reports for 1995 (Note or Notes, where used, refers to all three companies unless otherwise specified). NPDES National Pollutant Discharge Elimination System. NRC United States Nuclear Regulatory Commission. Ohio Edison Ohio Edison Company, an electric utility and a member of the CAPCO Group. Ohio EPA Ohio Environmental Protection Agency. Ohio Power Ohio Power Company, an electric utility sub- sidiary of American Electric Power Company, Inc.
-v- 10
Term Definition - ---- ---------- Ohio Valley The Ohio Valley Coal Company, the successor corporation to The Nacco Mining Company and a subsidiary of Ohio Valley Resources, Inc. Operating Companies Cleveland Electric and Toledo Edison. (individually, Operating Company) OPSB Ohio Power Siting Board. PaPUC Pennsylvania Public Utility Commission. Penelec Pennsylvania Electric Company, an electric utility subsidiary of General Public Utilities Corporation. Pennsylvania Power Pennsylvania Power Company, an electric utility subsidiary of Ohio Edison and a member of the CAPCO Group. Perry Unit 1 Unit 1 of the Perry Nuclear Power Plant, in which the Operating Companies have ownership interests. PUCO The Public Utilities Commission of Ohio. Quarto Quarto Mining Company, a subsidiary of Consol. SALP Systematic Assessment of Licensee Performance - the NRC's performance evaluation of a nuclear unit. SEC United States Securities and Exchange Commission. Seneca Plant Seneca Power Plant, a pumped-storage, hydro- electric generating station jointly owned by Cleveland Electric and Penelec. Service Company Centerior Service Company, a service sub- sidiary of Centerior Energy.
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Term Definition - ---- ---------- Superfund Comprehensive Environmental Response, Com- pensation and Liability Act of 1980 and the Superfund Amendments and Reauthorization Act of 1986. Toledo Edison The Toledo Edison Company, an electric utility subsidiary of Centerior Energy and a member of the CAPCO Group. USEC United States Enrichment Corporation, formerly a part of the DOE. U.S. EPA United States Environmental Protection Agency. Westinghouse Westinghouse Electric Corporation.
-vii- 12 PART I Item 1. Business - ----------------- THE CENTERIOR SYSTEM -------------------- Centerior Energy is a public utility holding company and the parent company of six wholly owned subsidiaries, including the Operating Companies and the Service Company. Centerior was incorporated under the laws of the State of Ohio in 1985 for the purpose of enabling Cleveland Electric and Toledo Edison to affiliate by becoming wholly owned subsidiaries of Centerior. The affiliation of the Operating Companies became effective in April 1986. Nearly all of the consolidated operating revenues of the Centerior System are derived from the sale of electric energy by Cleveland Electric and Toledo Edison. The Operating Companies' combined service areas encompass approximately 4,200 square miles in northeastern and northwestern Ohio with an estimated population of about 2,450,000. At December 31, 1995, the Centerior System had 6,821 employees. Centerior Energy has no employees. Cleveland Electric, which was incorporated under the laws of the State of Ohio in 1892, is a public utility engaged in the generation, purchase, transmission, distribution and sale of electric energy in an area of approximately 1,700 square miles in northeastern Ohio, including the City of Cleveland. Cleveland Electric also provides electric energy at wholesale to other electric utility companies and to two municipal electric systems (directly and through AMP-Ohio) in its service area. Cleveland Electric serves approximately 749,000 customers and derives approximately 77% of its total electric retail revenue from customers outside the City of Cleveland. Principal industries served by Cleveland Electric include those producing steel and other primary metals; automotive and other transportation equipment; chemicals; electrical and nonelectrical machinery; fabricated metal products; and rubber and plastic products. Nearly all of Cleveland Electric's operating revenues are derived from the sale of electric energy. At December 31, 1995, Cleveland Electric had 3,636 employees of which about 55% were represented by one union having a collective bargaining agreement with Cleveland Electric. Toledo Edison, which was incorporated under the laws of the State of Ohio in 1901, is a public utility engaged in the generation, purchase, transmission, distribution and sale of electric energy in an area of approximately 2,500 square miles in northwestern Ohio, including the City of Toledo. Toledo Edison also provides electric energy at wholesale to other electric utility companies and to 13 municipally owned distribution systems (through AMP-Ohio) and one rural electric cooperative distribution system in its service area. Toledo Edison serves approximately 291,000 customers and derives approximately 54% of its total electric retail revenue from customers outside the City of Toledo. Principal industries served by Toledo Edison include metal casting, forming and fabricating; petroleum refining; automotive equipment and assembly; food processing; and glass. Nearly all of Toledo Edison's operating revenues are derived from the sale of electric energy. At December 31, 1995, Toledo Edison had 1,809 employees of which about 59% were represented by three unions having collective bargaining agreements with Toledo Edison. - 1 - 13 The Service Company, which was incorporated in 1986 under the laws of the State of Ohio, is also a wholly owned subsidiary of Centerior Energy. It provides management, financial, administrative, engineering, legal, governmental and public relations and other services to Centerior Energy and the Operating Companies. At December 31, 1995, the Service Company had 1,373 employees. Centerior's other three wholly owned subsidiaries are Centerior Properties Company, CCO Company and Market Responsive Energy, Inc. These three subsidiaries, individually or in the aggregate, do not have a material impact on the consolidated financial statements of Centerior. MERGER OF THE OPERATING COMPANIES --------------------------------- In March 1994, Centerior Energy announced a plan to merge Toledo Edison into Cleveland Electric. Since Cleveland Electric and Toledo Edison affiliated in 1986, efforts have been made to consolidate operations and administration as much as possible to achieve maximum cost savings. In May 1994, the Operating Companies filed a joint application for authorization and approval of the merger with the FERC. The PUCO, AMP-Ohio and the cities of Cleveland, Clyde and Bryan, Ohio have intervened in the FERC proceedings. The PUCO intervened as the state commission having jurisdiction, but has not opposed the Cleveland Electric and Toledo Edison application. The PUCO approved the merger in December 1994. The PaPUC approved the merger in July 1994. The other intervenors have opposed the merger citing concerns primarily relating to the merger's impact on competition. In December 1994, the FERC advised the Operating Companies by letter that the application to merge would be rejected unless they provide additional information and file a single system open-access transmission tariff offering comparable service. In May 1995, Cleveland Electric and Toledo Edison filed the additional information requested by the FERC and an open-access transmission tariff offering comparable service. The FERC has deferred action on the merger application until the merits of the Operating Companies' proposed open-access transmission tariffs are addressed in hearings. The Operating Companies do not expect the NRC to take action on their request for authorization to transfer certain NRC licenses to the merged entity until approval has been obtained from the FERC. On June 14, 1995, special meetings of the preferred stock share owners of each of the Operating Companies was held. Cleveland Electric preferred stock share owners approved the Amended Articles of Incorporation which provide for an increased number of authorized shares of Cleveland Electric preferred stock. Toledo Edison preferred stock share owners approved the Agreement of Merger between Toledo Edison and Cleveland Electric. See Note 15 to the Operating Companies' Financial Statements for further discussion of this matter and "3. Combined Pro Forma Condensed Financial Statements (Unaudited)" contained under Item 14. of this Report for selected historical and combined pro forma financial information of Cleveland Electric and Toledo Edison. - 2 - 14 CAPCO GROUP ----------- Cleveland Electric and Toledo Edison are members of the CAPCO Group, a power pool created in 1967 with Duquesne, Ohio Edison and Pennsylvania Power. This pool affords greater reliability and lower cost of providing electric service through coordinated generating unit operations and maintenance and generating reserve back-up among the five companies. In addition, the CAPCO Group has completed programs to construct larger, more efficient electric generating units and to strengthen interconnections within the pool. The CAPCO Group companies have placed in service nine major generating units, of which the Operating Companies have ownership or leasehold interests in seven (three nuclear and four coal-fired). Each CAPCO Group company owns, as a tenant-in-common, or leases a portion of certain of these generating units. Each company has the right to the net capability and associated energy of its respective ownership and leasehold portions of the units and is, severally and not jointly, obligated for the capital and operating costs equivalent to its respective ownership and leasehold portions of the units and the required fuel, except that the obligations of Pennsylvania Power are the joint and several obligations of that company and Ohio Edison and the leasehold obligations of Cleveland Electric and Toledo Edison are joint and several. (See "Operations--Fuel Supply".) For all plants but one, the company in whose service area a generating unit is located is responsible for the operation of that unit for all the owners, except for the procurement of nuclear fuel for a nuclear generating unit. The Mansfield Plant, which is located in Duquesne's service area, is operated by Pennsylvania Power. Each company owns the necessary interconnecting transmission facilities within its service area, and the other CAPCO Group companies contribute toward fixed charges and operating costs of those transmission facilities. On October 18, 1995, Cleveland Electric filed a Demand for Arbitration seeking unpaid operating costs of Eastlake Unit 5 which had been invoiced to Duquesne in respect of Duquesne's partial ownership interest in that Unit. In that arbitration proceeding, Duquesne countered with allegations that certain management practices of Cleveland Electric in the operation of Unit 5 have been detrimental to Duquesne. Among the remedies sought by Duquesne is the partition of the property held as tenants in common. On October 24, 1995, Cleveland Electric filed a complaint for injunctive and declaratory relief against Duquesne in Lake County (Ohio) Common Pleas Court seeking a court order prohibiting Duquesne from taking action to partition or sell its ownership interest in Eastlake Unit 5. The Lake County action was removed to the United States District Court for the Northern District of Ohio, Eastern Division. Duquesne subsequently filed counterclaims in the federal court action restating all claims made in the arbitration proceeding. All of the CAPCO Group companies are members of ECAR, which is comprised of 29 major electric power suppliers and 11 associate members located in nine east-central states, serving 36,000,000 people. ECAR's purpose is to improve reliability of bulk power supply through coordination of planning and operation of member companies' generation and transmission facilities. - 3 - 15 CONSTRUCTION AND FINANCING PROGRAMS ----------------------------------- Construction Program - -------------------- The Centerior System carries on a continuous program of constructing transmission, distribution and general facilities and modifying existing generating facilities to meet anticipated demand for electric service and to comply with governmental regulations. Centerior Energy's 1995 long-term (20-year) forecast, as filed with the PUCO (see "General Regulation--State Utility Commissions"), projects long-term annual growth rates in peak demand and kilowatt-hour sales of 0.5% and 1.0%, respectively, after demand-side management considerations. The Centerior System's integrated resource plan for the 1990s (which is included in the long-term forecast) combines peak clipping demand-side management programs with maximum utilization of existing generating capacity to postpone the need for new generating units until the next decade. Lake Shore Unit 18, a 45,000-kilowatt unit which was placed on cold standby status in October 1993, is scheduled to resume active status in 2001. According to the current long-term integrated resource plan, the Centerior System does not plan to put into service any new generating capacity until 2008. The following tables show, categorized by major components, the construction expenditures by Cleveland Electric and Toledo Edison and, by aggregating them, for the Centerior System during 1993, 1994 and 1995 and the estimated cost of their construction programs for 1996 through 2000, in each case including AFUDC and excluding nuclear fuel:
Actual Estimated ---------------- ---------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- Cleveland Electric (Millions of Dollars) ------------------ Transmission, Distribution and General Facilities $ 85 $ 53 $ 68 $ 93 $ 97 $ 75 $ 94 $110 Renovation and Modification of Generating Units Nuclear 16 18 12 19 23 9 14 11 Nonnuclear 65 61 63 19 30 42 47 33 Clean Air Act Amendments Compliance 9 24 12 2 7 14 21 2 --- --- --- --- --- --- --- --- Total $175 $156 $155 $133 $157 $140 $176 $156 === === === === === === === ===
- 4 - 16
Actual Estimated ---------------- ---------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- Toledo Edison (Millions of Dollars) ------------- Transmission, Distribution and General Facilities $ 22 $ 18 $ 37 $ 40 $ 36 $ 49 $ 33 $ 35 Renovation and Modification of Generating Units Nuclear 15 10 6 14 17 8 11 9 Nonnuclear 6 12 9 18 6 3 3 24 Clean Air Act Amendments Compliance 0 1 3 4 10 9 10 7 --- --- --- --- --- --- --- --- Total $ 43 $ 41 $ 55 $ 76 $ 69 $ 69 $ 57 $ 75 === === == == == == == ==
Actual Estimated ---------------- --------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- Centerior System (Millions of Dollars) ---------------- Transmission, Distribution and General Facilities $107 $ 71 $105 $133 $133 $124 $127 $145 Renovation and Modification of Generating Units Nuclear 31 28 18 33 40 17 25 20 Nonnuclear 71 73 72 37 36 45 50 57 Clean Air Act Amendments Compliance 9 25 15 6 17 23 31 9 --- --- --- --- --- --- --- --- Total $218 $197 $210 $209 $226 $209 $233 $231 === === === === === === === ===
Each company in the CAPCO Group is responsible for financing the portion of the capital costs of nuclear fuel equivalent to its ownership and leased interest in the unit in which the fuel will be utilized. See "Operations--Fuel Supply--Nuclear" for information regarding nuclear fuel supplies and Note 6 regarding leasing arrangements to finance nuclear fuel capital costs. Nuclear fuel capital costs incurred by Cleveland Electric, Toledo Edison and the Centerior System during 1993, 1994 and 1995 and their estimated nuclear fuel capital costs for 1996 through 2000 are as follows:
Actual Estimated ----------------- -------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- (Millions of Dollars) Cleveland Electric $ 26 $ 26 $ 19 $ 40 $ 24 $ 35 $ 41 $ 34 Toledo Edison $ 20 $ 21 $ 12 $ 32 $ 21 $ 30 $ 31 $ 29 Centerior System $ 46 $ 47 $ 31 $ 72 $ 45 $ 65 $ 72 $ 63
- 5 - 17 Financing Program - ----------------- Reference is made to Centerior Energy's, Cleveland Electric's and Toledo Edison's Management's Financial Analysis contained under Item 7 of this Report and to Notes 11 and 12 for discussions of the Centerior System's financing activity in 1995; debt and preferred stock redemption requirements during the 1996-2000 period; expected external financing needs during such period; restrictions on the issuance of additional debt securities and preferred stock; short-term and long-term financing capability; and securities ratings for the Operating Companies. In 1996, Cleveland Electric and Toledo Edison expect to complete the sale of a AAA-rated security backed by their accounts receivable, thereby raising approximately $150,000,000. In addition, Cleveland Electric and Toledo Edison plan to arrange for alternate financing to replace $234,000,000 of nuclear fuel financing which expires in 1996 (see Note 6). On February 28, 1996, Moody's Investors Service, Inc. announced that it had placed its ratings of securities issued by the Operating Companies under review for possible downgrade. The rating agency indicated that the ratings for the following securities were being reviewed: first mortgage bonds, debentures and preferred stock issued by the Operating Companies; secured pollution control bonds and unsecured pollution control notes issued by public authorities and secured by the Operating Companies' first mortgage bonds and notes; and secured lease obligation bonds issued by CTC Beaver Valley Funding Corporation, Beaver Valley II Funding Corporation and CTC Mansfield Funding Corporation which are secured by rental payments made by Cleveland Electric and Toledo Edison. GENERAL REGULATION ------------------ Holding Company Regulation - -------------------------- Centerior Energy is currently exempt from regulation under the Holding Company Act. The Energy Act contains, among other provisions, amendments to the Holding Company Act and the Federal Power Act. The Energy Act also adopted nuclear power licensing and related regulations, energy efficiency standards and incentives for the use of alternative transportation fuels. Amendments to the Holding Company Act create a new class of independent power producers known as "Exempt Wholesale Generators", which are exempt from the Holding Company Act corporate structure regulations and operate without SEC approval or regulation. Exempt Wholesale Generators may be owned by holding companies, electric utility companies or any other person. - 6 - 18 State Utility Commissions - ------------------------- The Operating Companies are subject to the jurisdiction of the PUCO with respect to rates, service, accounting, issuance of securities and other matters. Under Ohio law, municipalities may regulate rates, subject to appeal to the PUCO if not acceptable to the utility. See "Electric Rates" for a description of certain aspects of Ohio rate-making law. The Operating Companies are also subject to the jurisdiction of the PaPUC in certain respects relating to their ownership interests in generating facilities located in Pennsylvania. The PUCO is composed of five commissioners appointed by the Governor of Ohio from nominees recommended by a Public Utility Commission Nominating Council. Nominees must have at least three years' experience in one of several disciplines. Not more than three commissioners may belong to the same political party. Under Ohio law, a public utility must file annually with the PUCO a long-term forecast of customer loads, facilities needed to serve those loads and prospective sites for those facilities. This forecast must include the following: (1) Demand Forecast--the utility's 20-year forecast of sales and peak demand, before and after the effects of demand-side management programs. (2) Integrated Resource Plan (required biennially)--the utility's projected mix of resource options to meet the projected demand. (3) Short-Term Implementation Plan and Status Report (required biennially)-- the utility's discussion of how it plans to implement its integrated resource plan over the next four years. Estimates of annual expenditures and security issuances associated with the integrated resource plan over the four-year period must also be provided. The PUCO must hold a public hearing on the long-term forecast at least once every five years to determine the reasonableness of the forecast. The PUCO and the OPSB are required to consider the record of such hearings in proceedings for approving facility sites, changing rates, approving security issues and initiating energy conservation programs. In April 1995, the PUCO approved Centerior Energy's 1994 long-term forecast. Ohio law also permits electric utilities under PUCO jurisdiction to submit environmental compliance plans for PUCO review and approval. Ohio law requires that the PUCO make certain statutory findings prior to approving the environmental compliance plan, which includes that the plan is a reasonable least cost strategy for compliance with air quality requirements. In July 1995, the PUCO approved Centerior's updated environmental compliance plan which was filed in January 1995. The PUCO has jurisdiction over certain transactions by companies in an electric utility holding company system if it includes at least one Ohio electric utility and is exempt from regulation under Section 3(a)(1) or (2) of the Holding Company Act. Consequently, the Operating Companies must obtain PUCO - 7 - 19 approval to invest in, lend funds to, guarantee the obligations of or otherwise finance or transfer assets to any nonutility company in the Centerior System, unless the transaction is in the ordinary course of business operations in which one company acts for or with respect to another company. Also, Centerior must obtain PUCO approval to make any investment in any nonutility subsidiaries, affiliates or associates if such investment would cause all such capital investments to exceed 15% of Centerior's consolidated capitalization unless such funds were provided by nonutility subsidiaries, affiliates or associates. The PUCO has a reserve capacity policy for electric utilities in Ohio stating that (i) 20% of service area peak load excluding interruptible load is an appropriate generic benchmark for an electric utility's reserve margin; (ii) a reserve margin exceeding 20% gives rise to a presumption of excess capacity, but may be appropriate if it confers a positive net present benefit to customers or is justified by unique system characteristics; and (iii) appropriate remedies for excess capacity (possibly including disallowance of costs in rates) will be determined by the PUCO on a case-by-case basis. Ohio Power Siting Board - ----------------------- The OPSB has state-wide jurisdiction, except to the extent pre-empted by federal law, over the location, need for and certain environmental aspects of electric generating units with a capacity of 50,000 kilowatts or more and transmission lines with a rating of at least 125 kV. Federal Energy Regulatory Commission - ------------------------------------ The Operating Companies are each subject to the jurisdiction of the FERC with respect to the transmission and sale of power at wholesale in interstate commerce, interconnections with other utilities, accounting and certain other matters. Cleveland Electric is also subject to FERC jurisdiction with respect to its ownership and operation of the Seneca Plant. Nuclear Regulatory Commission - ----------------------------- The nuclear generating units in which the Operating Companies have an interest are subject to regulation by the NRC. The NRC's jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust considerations and environmental impacts. Owners of nuclear units are required to purchase the full amount of nuclear liability insurance available. See Note 5(b) for a description of nuclear insurance coverages. Other Regulation - ---------------- The Operating Companies are subject to regulation by federal, state and local authorities with regard to the location, construction and operation of certain facilities. The Operating Companies are also subject to regulation by local authorities with respect to certain zoning and planning matters. - 8 - 20 ENVIRONMENTAL REGULATION ------------------------ General - ------- The Operating Companies are subject to regulation with respect to air quality, water quality and waste disposal matters. Federal environmental legislation affecting the operations and properties of the Operating Companies includes the Clean Air Act, the Clean Air Act Amendments, the Clean Water Act, Superfund, and the Resource Conservation and Recovery Act. The requirements of these statutes and related state and local laws are continually changing due to the promulgation of new or revised laws and regulations and the results of judicial and agency proceedings. Compliance with such laws and regulations may require the Operating Companies to modify, supplement, abandon or replace facilities and may delay or impede construction and operation of facilities, all at costs which could be substantial. The Operating Companies expect that the impact of such costs would eventually be reflected in their respective rate schedules. Cleveland Electric and Toledo Edison plan to spend, during the period 1996-2000, $45,809,000 and $40,850,000, respectively, for pollution control facilities, including Clean Air Act Amendments compliance costs. The Operating Companies believe that they are currently in compliance in all material respects with all applicable environmental laws and regulations, or to the extent that one or both of the Operating Companies may dispute the applicability or interpretation of a particular environmental law or regulation, the affected company has filed an appeal or has applied for permits, revisions to requirements, variances or extensions of deadlines. Concerns have been raised regarding the possible health effects associated with electric and magnetic fields. Although scientific research as to such effects has yielded inconclusive results, additional studies are being conducted. If electric and magnetic fields are ultimately found to pose a health risk, the Operating Companies may be required to modify transmission and distribution lines or other facilities. Air Quality Control - ------------------- Under the Clean Air Act, the Ohio EPA has adopted emission limitations for particulate matter and sulfur dioxide for each of the Operating Companies' plants. The Clean Air Act provides for civil penalties of up to $25,000 per day for each violation of an emission limitation. The U.S. EPA has approved the Ohio EPA's emission limitations and the related state implementation plan except for some particulate matter emissions and certain sulfur dioxide emissions. In November 1990, the Clean Air Act Amendments imposed more stringent restrictions on nitrogen oxide emissions and sulfur dioxide emissions beginning in 1995. See Note 4(a) for a description of the Operating Companies' compliance strategy, which was included in the agreement approved by the PUCO in April 1995 in connection with the Operating Companies' 1994 long-term forecast. The Clean Air Act Amendments also require studies to be conducted on the emission of certain potentially hazardous air pollutants which could lead to additional restrictions. - 9 - 21 Global warming, or the "greenhouse effect", has been the subject of scientific study and debate within the United States and internationally. One area of study involves the effect on global warming of the emissions of gases such as those resulting from the burning of coal. Based on a 1992 United Nations treaty, the United States has developed a voluntary plan to reduce the emissions of certain gases thought to contribute to global warming to 1990 levels by the year 2000. The Operating Companies will work with the DOE and other utilities to develop a plan for limiting such emissions. Water Quality Control - --------------------- The Clean Water Act requires that power plants obtain permits under the NPDES program that contain certain effluent limitations (that is, limits on discharges of pollutants into bodies of water). It also requires the states to establish water quality standards which could result in more stringent effluent limitations. Violators of effluent limitations and water quality standards are subject to a civil penalty of up to $25,000 per day for each such violation. The Operating Companies have received NPDES permit renewals from the Ohio EPA or have applied for such renewals for all of their power plants. In those situations in which a permit application is pending, the affected plant may continue to operate under the expired permit while such application is pending. Any violation of an NPDES permit is considered to be a violation of the Clean Water Act subject to the penalty discussed above. The Clean Water Act permits thermal effluent limitations to be established for a facility which are less stringent than those which otherwise would apply if the owner can demonstrate that such less stringent limitations are sufficient to assure the protection and propagation of aquatic and other wildlife in the affected body of water. By 1978, the Operating Companies had submitted to the Ohio EPA such demonstrations for review with respect to their Ashtabula, Avon Lake, Lake Shore, Eastlake, Acme and Bay Shore plants. The Ohio EPA has taken no action on the submittals. In 1990, the Ohio EPA issued revised water quality standards applicable to Lake Erie and waters of the State of Ohio. Based upon these revised water quality standards, the Ohio EPA placed additional effluent limitations in their most recent NPDES permits. The revised standards also may serve as the basis for more stringent effluent limitations in future NPDES permits. Such limitations could result in the installation of additional pollution control equipment and increased operating expenses. The Operating Companies are monitoring discharges at their plants to support their position that additional effluent limitations are not justified. In March 1995, the U.S. EPA issued guidelines for water quality standards applicable to all states abutting the Great Lakes, including Ohio. These states are required to adopt state water quality standards and procedures consistent with the guidelines by April 1997. Preliminary reviews indicate that the cost of compliance could be significant. However, the Operating Companies cannot determine the operational impact of compliance until such guidelines are incorporated into Ohio regulations. - 10 - 22 Waste Disposal - -------------- See "Outlook--Hazardous Waste Disposal Sites" in Management's Financial Analysis contained under Item 7 of this Report and Note 4(c) for a discussion of the Operating Companies' potential involvement in certain hazardous waste disposal sites, including those subject to Superfund. See "Operations--Nuclear Units" for a discussion concerning the disposal of nuclear waste. The Resource Conservation and Recovery Act exempts certain fossil fuel combustion waste products, such as fly ash, from hazardous waste disposal requirements and requires the U.S. EPA to evaluate the need for future regulation. On August 9, 1994, the U.S. EPA issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. ELECTRIC RATES -------------- General - ------- Under Ohio law, rate base is the original cost less depreciation of a utility's total plant adjusted for certain items. The law permits the PUCO, in its discretion, to include construction work in progress in rate base under certain conditions. Current Ohio law further provides that requested rates can be collected by a public utility, subject to refund, if the PUCO does not make a decision within 275 days after the rate request application is filed. If the PUCO does not make its final decision within 545 days, revenues collected thereafter are not subject to refund. A notice of intent to file an application for a rate increase cannot be filed before the issuance of a final order in any prior pending application for a rate increase or until 275 days after the filing of the prior application, whichever is earlier. The minimum period by which the notice of intent to file must precede the actual filing is 30 days. The test year for determining rates may not end more than nine months after the date the application for a rate increase is filed. Under Ohio law, electric rates are adjusted every six months to reflect changes in fuel costs. The PUCO reviews such adjustments annually. Any difference between actual fuel costs during a six-month period and the fuel revenues recovered in that period is deferred and is taken into account in setting the fuel recovery factor for a subsequent six-month period. Also, under Ohio law, municipalities may regulate rates charged by a utility, subject to appeal to the PUCO if not acceptable to the utility. If municipally fixed rates are accepted by the utility, such rates are binding on both parties for the specified term and cannot be changed by the PUCO. See "Operations--Competitive Conditions--Cleveland Electric" for information on a 1994 rate reduction ordinance in Garfield Heights. - 11 - 23 1995 Rate Case - -------------- In April 1995, Cleveland Electric and Toledo Edison filed requests with the PUCO for price increases aggregating $119,000,000 annually to be effective in 1996. Cleveland Electric's requested increase of $84,000,000 in annual revenues reflects an average increase of 4.9% in Cleveland Electric's existing prices. Toledo Edison's requested increase of $35,000,000 reflects an average increase of 4.7% in Toledo Edison's existing prices. The rate increases are necessary to recover capital investment and increases in costs incurred since the Operating Companies' last rate cases, which were decided in January 1989, and to recover certain costs deferred since 1992 pursuant to a Rate Stabilization Program that was approved by the PUCO for the Operating Companies in October 1992. For a full discussion and analysis of the Operating Companies' 1995 rate case, the Rate Stabilization Program, financial accounting requirements and the potential implications of these accounting requirements for Centerior's and the Operating Companies' results of operations and financial position, see Note 7. OPERATIONS ---------- Sales of Electricity - -------------------- Kilowatt-hour sales by the Operating Companies follow a seasonal pattern marked by increased customer usage in the summer for air conditioning and in the winter for heating. Historically, Cleveland Electric has experienced its heaviest demand for electric service during the summer months because of a significant air conditioning load on its system and a relatively low amount of electric heating load in the winter. Toledo Edison, although having a significant electric heating load, has experienced in recent years its heaviest demand for electric service during the summer months because of heavy air conditioning usage. The Centerior System's largest customer is a steel manufacturer which has two major steel producing facilities served by Cleveland Electric. Sales to these facilities accounted for 2.5% and 3.6% of the 1995 total electric operating revenues of Centerior Energy and Cleveland Electric, respectively. The loss of these facilities would reduce Centerior Energy's and Cleveland Electric's net income by about $28,000,000 based on 1995 sales levels. The largest customer served by Toledo Edison is a major automobile manufacturer. Sales to this customer accounted for 1.5% and 4.3% of the 1995 total electric operating revenues of Centerior Energy and Toledo Edison, respectively. The loss of this customer would reduce Centerior Energy's and Toledo Edison's net income by about $16,000,000 based on 1995 sales levels. Operating Statistics - -------------------- For data on operating revenues by service category, electric sales by service category, customers by service category and electric energy generation for 1985 and 1991 through 1995, see the attached Pages F-25 and F-26 for Centerior Energy, F-50 and F-51 for Cleveland Electric and F-76 and F-77 for Toledo Edison. - 12 - 24 Nuclear Units - ------------- The Operating Companies' generating facilities include, among others, three nuclear units owned or leased by the CAPCO Group--Perry Unit 1, Beaver Valley Unit 2 and Davis-Besse. These three units are in commercial operation. Cleveland Electric has responsibility for operating Perry Unit 1, Duquesne has responsibility for operating Beaver Valley Unit 2 and Toledo Edison has responsibility for operating Davis-Besse. Cleveland Electric and Toledo Edison own, respectively, 31.11% and 19.91% of Perry Unit 1, 24.47% and 1.65% of Beaver Valley Unit 2 and 51.38% and 48.62% of Davis-Besse. Cleveland Electric and Toledo Edison also lease, as joint lessees, an additional 18.26% of Beaver Valley Unit 2 as a result of a September 1987 sale and leaseback transaction (see Note 2). 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. In 1989, the PUCO approved nuclear plant performance standards for the Operating Companies based on rolling three-year industry averages of availability for pressurized water reactors and for boiling water reactors over the 1988-1998 period. Availability is the ratio of the number of hours a unit is available to generate electricity (whether or not the unit is operated) to the number of hours in the period, expressed as a percentage. The three-year availability averages of the Operating Companies' nuclear units are compared against the industry averages for the same three-year period with a resultant penalty or banked benefit. If the industry performance standards are not met, a penalty would be incurred which would require the Operating Companies to refund incremental replacement power costs to customers through the semiannual fuel cost rate adjustment. However, if the performance of the Operating Companies' nuclear units exceeds the industry standards, a banked benefit results which can be used to offset disallowances of incremental replacement power costs should future performance be below industry standards. The relevant industry standards for the 1993-1995 period (as of October 31, 1995) are 80.9% for pressurized water reactors such as Davis-Besse and Beaver Valley Unit 2 and 76.7% for boiling water reactors such as Perry Unit 1. The 1993-1995 combined availability average for Davis-Besse and Beaver Valley Unit 2 was 88.5% and the availability average for Perry Unit 1 was 61.6%. At December 31, 1995, the total banked benefit for the Operating Companies is estimated to be between $27,000,000 and $31,000,000. All three nuclear units have received generally favorable evaluations from the NRC in their most recent SALP reviews, with Davis-Besse receiving the best possible scores. Each of the functional areas evaluated is rated according to three performance categories, with category 1 indicating performance substantially exceeding regulatory requirements and that reduced NRC attention may be appropriate; category 2 indicating performance above that needed to meet regulatory requirements and that NRC attention may be maintained at normal levels; and category 3 indicating performance does not significantly exceed that needed to meet minimal regulatory requirements and that NRC attention should be increased above normal levels. - 13 - 25 The most recent review periods and SALP review scores for Beaver Valley Unit 2, Perry Unit 1 and Davis-Besse are:
Beaver Valley Unit 2 Perry Unit 1 Davis-Besse -------------------- ------------ ----------- SALP Review Period 11/28/93-6/3/95 2/1/93-1/7/95 7/1/93-1/21/95 Operations 2 2 1 Engineering 2 2 1 Maintenance 1 2 1 Plant Support 1 2 1
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. In June 1995, the Ohio legislature authorized the siting, construction and operation of a disposal facility. In addition, the South Carolina legislature voted to allow out-of-region generators (such as Centerior's nuclear units) to resume shipments of low-level radioactive waste to the Barnwell disposal facility. Nonetheless, the Operating Companies' ability to ship offsite in the future depends on whether the State of Ohio proceeds with the development of a low-level radioactive waste disposal facility. As an interim solution to disposal availability, the Operating Companies have constructed storage facilities to house the waste at each nuclear site. Off-site disposal of spent nuclear fuel is unavailable, but the CAPCO Group companies have contracts with the DOE which provide for the future acceptance of spent fuel for disposal by the federal government. Pursuant to the Nuclear Waste Policy Act of 1982, the federal government has indicated it will begin accepting spent fuel from utilities by the year 2010. On-site storage capacity at Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2 should be sufficient through 2017, 2013 and 2011, respectively. See Note 4(b) for a discussion of the write-off of Perry Unit 2, and see "Outlook--Nuclear Operations" in Management's Financial Analysis contained under Item 7 of this Report for a discussion of potential risks facing Centerior and the Operating Companies as owners of nuclear generating units. Competitive Conditions - ---------------------- GENERAL. The Operating Companies compete in their respective service areas with suppliers of natural gas to satisfy customers' energy needs with regard to heating and appliance usage. The Operating Companies also are engaged in competition to a lesser extent with suppliers of oil and liquefied natural gas for heating purposes and with suppliers of cogeneration equipment. One competitor provides steam for heating purposes and provides chilled water for cooling purposes in certain areas of downtown Cleveland. - 14 - 26 The Operating Companies also compete with municipally owned electric systems within their respective service areas. Several communities have evaluated municipalization of electric service and decided to continue service from the Operating Companies. Officials in other communities have indicated an interest in evaluating the municipalization issue. The Operating Companies face continuing competition from locations outside their service areas which are promoted by governmental and private agencies in attempts to influence potential and existing commercial and industrial customers to locate in their respective areas. The Operating Companies also periodically compete with other producers of electricity for sales to electric utilities which are in the market for bulk power purchases. The Operating Companies have interconnections with other electric utilities (see "Item 2. Properties--General") and have a transmission system capable of transmitting ("wheeling") power between the Midwest and the East. In the future, the Operating Companies will encounter an increasingly competitive environment as a result of the structural changes taking place in the electric utility industry. For a discussion of these changes, including open-access transmission, retail wheeling and stranded investment considerations, see "Outlook--Competition" in Management's Financial Analysis contained under Item 7 of this Report. CLEVELAND ELECTRIC. Located within Cleveland Electric's service area are two municipally owned electric systems. Cleveland Electric supplies a small portion of those systems' power needs at wholesale rates. One of those systems, CPP, is operated by the City of Cleveland in competition with Cleveland Electric. CPP is primarily an electric distribution system which currently supplies electric power in approximately 60% of the City's geographical area (expected to increase to 100% by the end of 1999) and to approximately 31% (about 68,000) of the electric consumers in the City--equal to about 9% of all customers served by Cleveland Electric. CPP's kilowatt-hour sales and revenues are equal to about 5% of Cleveland Electric's kilowatt-hour sales and revenues. Much of the area served by CPP overlaps that of Cleveland Electric. For all classes of customers, Cleveland Electric's rates are higher than CPP's rates due largely to CPP's exemption from taxation, the lower-cost financing available to CPP, the continued availability to CPP of lower cost power through short-term power purchases and CPP's access to cheaper governmental power. Cleveland Electric makes power available to CPP on a wholesale basis, subject to FERC regulation. In 1995, Cleveland Electric directly and through AMP-Ohio provided a negligible amount of CPP's energy requirements. CPP's power is purchased from other sources and wheeled over Cleveland Electric's transmission system. In cases currently pending, the FERC has ruled that Cleveland Electric is obligated to provide an additional interconnection with CPP but has not ruled on the terms and conditions. Cleveland Electric has asked the FERC to reconsider its order to provide CPP with an additional interconnection. Also, the FERC has not ruled on Cleveland Electric's request for an increase in rates for power and services provided to CPP. Cleveland Electric believes that it is entitled to a higher level of compensation for the power and the services it provides because the rates currently paid by CPP do not adequately cover the cost of providing such power and services. - 15 - 27 CPP is constructing new transmission and distribution facilities extending into eastern portions of Cleveland and plans to expand to western portions of Cleveland, both of which now are served exclusively by Cleveland Electric. CPP's expansion has resulted in a reduction in Cleveland Electric's annual net income by about $4,000,000 in 1993, $7,000,000 in 1994 and $8,000,000 in 1995. Cleveland Electric estimates that its net income will continue to be reduced by an additional $4,000,000-$5,000,000 each year in the 1996-2000 period because of CPP's expansion, with the exception of 1997 when the reduction would be about $10,000,000 including the loss of Medical Center Co. as discussed below. Despite CPP's expansion efforts, Cleveland Electric has been successful in retaining most of the large industrial and commercial customers in the expansion areas by providing economic incentives in exchange for sole-supplier contracts. Cleveland Electric has similar contracts with customers in other parts of its service area. Approximately 91% of Cleveland Electric's industrial revenues under contract will not be up for renewal until 1997 or later. As these contracts expire, Cleveland Electric expects to renegotiate them and retain the customers. In addition, an increasing number of CPP customers are converting back to Cleveland Electric service. However, competition for such customers will continue. In March 1995, one of Cleveland Electric's large commercial customers which has provided annual net income to Cleveland Electric and Centerior of $6,000,000, Medical Center Co., signed a five-year contract with CPP for electric service provided by another utility beginning in September 1996, when its contract with Cleveland Electric terminates. In its appeal to the Ohio Supreme Court, Cleveland Electric's position is that the purchase of power by this customer is a direct purchase from another utility in violation of Ohio's certified territory statute. Cleveland Electric has also filed a petition with the FERC on the grounds that such a transaction is a violation of the Federal Power Act. Cleveland Electric will continue to pursue all legal and regulatory remedies to this situation. In March 1994, the City Council of Garfield Heights, a suburb of Cleveland, passed an ordinance calling for a 30% reduction in rates for Cleveland Electric's customers in that city. Cleveland Electric appealed that ordinance to the PUCO. On June 29, 1995, the PUCO ruled that a rate reduction in the City of Garfield Heights was not warranted. Both parties subsequently filed applications for rehearing concerning certain provisions of the PUCO's ruling. On August 24, 1995, the PUCO denied the requests for rehearing. Each party appealed the PUCO's decision to the Ohio Supreme Court. Currently, one commercial customer and one industrial customer of Cleveland Electric have cogeneration installations. TOLEDO EDISON. Located wholly or partly within Toledo Edison's service area are six rural electric cooperatives, five of which are supplied with power, transmitted in some cases over Toledo Edison's facilities, by Buckeye Power, Inc. (an affiliate of a number of Ohio rural electric cooperatives) and the sixth is supplied by Toledo Edison. - 16 - 28 Also located within Toledo Edison's service area are 16 municipally owned electric distribution systems, three of which are supplied by other electric systems. Toledo Edison provides a portion of the power purchased by the other 13 municipalities at wholesale rates through a contract with AMP-Ohio that expires in 2009. Rates under this agreement are permitted to increase annually to compensate for increased costs of operation. Less than 3% of Toledo Edison's total electric operating revenues in 1995 were derived from sales under the AMP-Ohio contract. In October 1989, the City of Toledo established an Electric Franchise Review Committee to (i) study Toledo Edison's franchise agreement with the City to determine whether alternate energy sources may be utilized and (ii) investigate the feasibility of establishing a municipal electric system within the City of Toledo. In November 1993, the City approved a non-exclusive franchise with Toledo Edison which runs through the end of 1998. In October 1995, the Toledo City Council responded to a petition drive by appropriating funds to complete the Electric Franchise Review Committee's study on whether to create a municipal electric utility in the City of Toledo. The Committee is also expected to look into the aggregating of load to provide a conduit for retail wheeling to customers. The study is expected to be completed between late 1996 and mid 1997. In January 1995, the City of Clyde, which operates its own municipal electric system, passed ordinances to force Toledo Edison to remove most of its equipment from within the City's borders and to prevent any residential and commercial customers within the City from obtaining service from Toledo Edison. The City subsequently asked the PUCO to authorize the removal of Toledo Edison equipment under the Miller Act. The Miller Act is an Ohio statute which provides that a utility cannot be required to withdraw or abandon its facilities and services in a city without a demonstration that such action is in the public interest and without the approval of the PUCO. Toledo Edison challenged the City of Clyde's Miller Act proceeding before the PUCO and filed an action in the Court of Appeals in Sandusky County, Ohio to challenge the City's ordinance prohibiting customers from using Toledo Edison service. The PUCO held hearings but has not issued a decision. The Court of Appeals denied Toledo Edison's challenge, and Toledo Edison appealed to the Ohio Supreme Court. Toledo Edison currently serves approximately 390 customers within the City of Clyde. In October 1995, Chase Brass terminated its service with Toledo Edison and began to receive its electric service from a consortium of four municipal electric systems and AMP-Ohio. Service is being provided over a transmission line owned by AMP-Ohio. Although the Ohio Constitution allows municipal electric systems to sell and deliver limited amounts of power outside their municipal boundaries, Toledo Edison has filed two lawsuits in Williams County (Ohio) Common Pleas Court against the four municipalities and AMP-Ohio contending, in part, that this arrangement violates the legal limits of such sales and that AMP-Ohio's system design for this transaction raises certain safety issues. North Western Electric Cooperative, whose certified territory is crossed by AMP-Ohio's transmission line, has also filed suit to challenge this transaction. The loss of Chase Brass as a customer reduced Centerior Energy's and Toledo Edison's annual net income by about $1,600,000 based on 1994 sales levels. - 17 - 29 In addition, Chase Brass and other surrounding businesses and residences in Jefferson Township continue to seek incorporation as a municipality to be named the Village of Holiday City. The Williams County Board of Commissioners and the Williams County Court of Common Pleas issued an order permitting the area to be incorporated. Toledo Edison has appealed the Court's order to the Sixth District Court of Appeals, thereby staying the incorporation proceedings. If the incorporation is permitted, the municipality would be able to bargain with other utilities for electric power. The other businesses in the proposed municipality terminated their service with Toledo Edison earlier and are receiving electric service from the Village of Montpelier, one of the consortium now supplying Chase Brass. No commercial customer of Toledo Edison now operates a cogeneration unit. Fuel Supply - ----------- Generation by type of fuel for 1995 was 61% coal-fired and 39% nuclear for Cleveland Electric; 40% coal-fired and 60% nuclear for Toledo Edison; and 54% coal-fired and 46% nuclear for the Centerior System. Coal. In 1995, Cleveland Electric and Toledo Edison burned 5,237,000 tons and 1,840,000 tons of coal, respectively, for electric generation. Each utility normally maintains a reserve supply of coal sufficient for about 20 days of normal operations. On February 1, 1996, this reserve was about 17 days for plants operated by Cleveland Electric, 17 days for the plant operated by Toledo Edison and 66 days for the Mansfield Plant, which is operated by Pennsylvania Power. In 1995, about 50% of Cleveland Electric's coal requirements were purchased under long-term contracts, with the longest remaining term being almost eight years. In most cases, these contracts provide for adjusting the price of the coal on the basis of changes in coal quality and mining costs. The sulfur content of the coal purchased under these contracts ranges from less than 1% to about 4%. Additionally, about 25% of Cleveland Electric's coal requirements were purchased under short-term contracts (nine to twelve month terms) with price adjustments on the basis of coal quality. The sulfur content of the short-term contracts ranged from 1.5% to 1.9%. The balance of Cleveland Electric's coal was purchased on the spot market with sulfur content ranging from less than 1% to 4%. In 1995, about 66% of Toledo Edison's coal requirements were purchased under long-term contracts, with the longest remaining term being almost five years. In most cases, these contracts provide for adjusting the price of the coal on the basis of changes in coal quality and mining costs. The sulfur content of the coal purchased under these contracts ranges from less than 1% to 4%. The balance of Toledo Edison's coal was purchased on the spot market with sulfur content from less than 1% to 4%. One of Cleveland Electric's long-term coal supply contracts is with Ohio Valley. Cleveland Electric has agreed to pay Ohio Valley certain amounts to cover Ohio Valley's costs regardless of the amount of coal actually delivered. Included in those costs are amounts sufficient to service certain long-term debt and lease obligations incurred by Ohio Valley. If the coal sales - 18 - 30 agreement is terminated for any reason, Cleveland Electric must assume certain of Ohio Valley's debt and lease obligations and may incur other expenses including mine closing costs, if necessary. At December 31, 1995, the principal amount of debt and termination values of leased property covered by Cleveland Electric's agreement was $15,093,000, while the unfunded costs of closing this mine, as estimated by Ohio Valley, were $32,000,000. The coal supply agreement with Ohio Valley is scheduled to continue until September 1997. Cleveland Electric expects that Ohio Valley revenues from sales of coal will continue to be sufficient for Ohio Valley to meet its debt and lease obligations and mine closing costs over the life of the contract. The CAPCO Group companies, including the Operating Companies, have a long-term contract with Quarto and Consol for the supply of about 75%-85% of the annual coal needs of the Mansfield Plant. The contract is scheduled to run through at least the end of 1999, and the price of coal is adjustable to reflect changes in labor, materials, transportation and other costs. The CAPCO Group companies have guaranteed, severally and not jointly, the debt and lease obligations incurred by Quarto to develop, equip and operate two of the mines which supply the Mansfield Plant. At December 31, 1995, the total dollar amount of Quarto's debt and lease obligations guaranteed by Cleveland Electric was $23,955,000 and by Toledo Edison was $13,992,000. Centerior, Cleveland Electric and Toledo Edison expect that Quarto revenues from sales of coal to the CAPCO Group companies will continue to be sufficient for Quarto to meet its debt and lease obligations. The Operating Companies' least cost plan for complying with the Clean Air Act Amendments, which was included in the agreement approved by the PUCO in February 1993 in connection with the Operating Companies' 1992 long-term forecast and updated in 1995 proceedings, calls for compliance either through the use of low-sulfur coal or the use of high sulfur-coal in combination with emission allowances. Some of the low-sulfur coal required to comply with Phase 1 of the Clean Air Act Amendments was contracted for in 1992. NUCLEAR. The acquisition and utilization of nuclear fuel involves six distinct steps: (i) supply of uranium oxide raw material, (ii) conversion to uranium hexafluoride, (iii) enrichment, (iv) fabrication into fuel assemblies, (v) utilization as fuel in a nuclear reactor and (vi) storing or disposing of spent fuel. The Operating Companies have inventories of raw material sufficient to provide nuclear fuel through 1996 for the operation of their nuclear generating units and have contracts for fabrication services for all of that fuel. The CAPCO Group companies have a contract with the USEC which will supply all of the needed enrichment services for their nuclear units' fuel supply through 1996. Beyond 1996, the amount of enrichment services under the USEC contract varies by CAPCO Group company, with Cleveland Electric's and Toledo Edison's enrichment services reduced to 70% in 1996-1999 and reduced to 0% in 2000 and beyond. The additional required enrichment services are available. Substantial additional fuel will have to be obtained in the future over the remaining useful lives of the units. There is a plentiful supply of uranium oxide raw material to meet the industry's nuclear fuel needs. OIL. The Operating Companies each have adequate supplies of fuel oil for their oil-fired electric generating units which are used primarily as reserve and peaking capacity. - 19 - 31 EXECUTIVE OFFICERS OF THE REGISTRANTS AND THE SERVICE COMPANY ------------------------------------------------------------- Set forth below are the names, ages as of March 15, 1996, and business experience during the past five years (effective dates of positions in parentheses) of the executive officers of Centerior Energy, the Service Company, Cleveland Electric and Toledo Edison. Positions currently held are designated with an asterisk (*).
Business Experience --------------------------------------------------------------------------------- Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison - ---- ---------------- --------------- ------------------ ------------- Robert J. Farling *Chairman of the *Chairman of the *Chairman of the *Chairman of the (59) Board and Chief Board and Chief Board and Chief Board and Chief Executive Officer Executive Executive Officer Executive Officer (March 1992) Officer (March (February 1989 to (October 1988 to *President 1992) April 1990; July April 1990; July (October 1988) *President (July 1993) 1993) 1988) Murray R. Edelman *Executive Vice *Executive Vice *President *Vice Chairman (56) President President; (November 1993) (November 1993) (July 1988) President- President (July 1988) Transmission, Services and Business Enterprises Groups (October 1995) Executive Vice President- Operations & Engineering (July 1993) Executive Vice President-Power Generation (April 1990)
32
Business Experience --------------------------------------------------------------------------------- Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison - ---- ---------------- --------------- ------------------ ------------- Fred J. Lange, Jr. *Senior Vice *Senior Vice *Vice President *President (November (46) President President; (April 1990) 1993) (July 1993) President- Vice President (April Senior Vice Centerior Electric 1990) President-Legal, Company (October Human & Corporate 1995) Affairs (March Senior Vice 1992) President-Fossil & Vice President- Transmission and Legal & Corporate Distribution Affairs (April Operations (July 1993) 1990) Senior Vice President-Legal, Human & Corporate Affairs (March 1992) Vice President- Legal & Corporate Affairs (April 1990) Gary R. Leidich *Senior Vice *Senior Vice *Vice President *Vice President (45) President President; (October 1995) (October 1995) (October 1995) President-Power Vice President & Vice President & Vice President Generation Group Chief Financial Chief Financial (July 1993) (October 1995) Officer Officer (July Vice President- (July 1993) 1995) Finance & Administration (July 1993) Director-Human Resources Dept. (August 1991) Director-System Planning Engineering Dept. (December 1987)
33
Business Experience --------------------------------------------------------------------------------- Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison - ---- ---------------- --------------- ------------------ ------------- Terrence G. Linnert *Senior Vice *Senior Vice *Vice President & *Vice President & (49) President, Chief President- Chief Financial Chief Financial Financial Officer Corporate Officer Officer & General Counsel Administration (October 1995) (October 1995) (October 1995) Group; Chief Vice President Vice President Vice President Financial Officer (July 1993) (July 1993) (July 1993) & General Counsel (October 1995) Vice President- Legal & Governmental Affairs and General Counsel (July 1993) Vice President- Legal and General Counsel (March 1992) General Counsel and Director- Legal Services Dept. (May 1990) Donald C. Shelton *Senior Vice (62) President-Nuclear and Vice President- Nuclear-Perry (January 1995) Senior Vice President-Nuclear (July 1993) Vice President- Nuclear-Davis- Besse (April 1990)
34
Business Experience --------------------------------------------------------------------------------- Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison - ---- ---------------- --------------- ------------------ ------------- Jacquita K. Hauserman *Vice President- *Vice President (53) Business Services (November 1993) (October 1995) Vice President- Vice President- Administration Customer Support (October 1988) (July 1993) Vice President- Customer Service & Community Affairs (April 1990) Jack A. Kline Director-Eastern *Regional Vice (52) Sales Region President- (November 1994) Eastern Director-Cleveland (October 1995) Marketing East (October 1993) Director-Cleveland Industrial Market- ing (July 1993) General Manager- Cleveland East Operations (May 1990) David L. Monseau *Vice President- (55) Distribution Serv- ices (October 1995) Vice President- Transmission & Distribution Operations (April 1990)
35
Business Experience --------------------------------------------------------------------------------- Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison - ---- ---------------- --------------- ------------------ ------------- John E. Paganie Director-Human *Regional Vice President- (49) Resources West (October 1995) (July 1993) General Manager- Cleveland West Operations (August 1991) Director-Union Relations (May 1990) John P. Stetz *Vice President- (50) Nuclear-Davis-Besse (July 1994) Northeast Utilities: Vice President- Connecticut Yankee Nuclear Power Station (October 1993) Station Director- Connecticut Yankee Nuclear Power Station (September 1990) Stanley F. Szwed *Vice President-Engineering (43) & Planning (October 1995) Director-System Planning & Operations (July 1993) Director-System Planning (August 1991) Manager-Resource Planning (May 1989)
36
Business Experience --------------------------------------------------------------------------------- Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison - ---- ---------------- --------------- ------------------ ------------- Al R. Temple *Vice President- (50) Sales & Marketing (February 1994) WMX Technologies, Inc.: Alliance Executive (July 1992) Vice President/ General Manager, Midwest Region (April 1991) Director of Marketing, Chemical Waste Management (June 1989) David W. Whitehead Director- *Regional Vice (49) Governmental President-Central Affairs (October 1995) (July 1993) General Counsel- Cleveland (September 1990) E. Lyle Pepin *Controller and *Controller and *Controller and *Controller and (54) Assistant Assistant Assistant Assistant Secretary Secretary Secretary Secretary (November 1994) (November 1994) (November 1994) (November 1994) Secretary Secretary Secretary Secretary (February 1986) (April 1986) (October 1988) (October 1988)
37
Business Experience --------------------------------------------------------------------------------- Name (Age) Centerior Energy Service Company Cleveland Electric Toledo Edison - ---- ---------------- --------------- ------------------ ------------- David M. Blank *Treasurer *Treasurer *Treasurer *Treasurer (47) (November 1994) (November 1994) (November 1994) (November 1994) Director of Strategic Planning (October 1993) Director of Rates & Corporate Planning (May 1990) Janis T. Percio *Secretary *Secretary *Secretary *Secretary (43) (November 1994) (November 1994) (November 1994) (November 1994) Assistant Assistant Assistant Assistant Secretary Secretary Secretary Secretary (April 1986) (April 1986) (October 1982) (April 1986)
38 All of the executive officers of Centerior Energy, the Service Company, Cleveland Electric and Toledo Edison are elected annually for a one-year term by the Board of Directors of Centerior, the Service Company, Cleveland Electric or Toledo Edison, as the case may be. No family relationship exists among any of the executive officers and directors of any of the Centerior System companies. Item 2. Properties - ------------------- GENERAL ------- The Centerior System - -------------------- The wholly owned, jointly owned and leased electric generating facilities of the Operating Companies in commercial operation as of February 28, 1996 provide the Centerior System with a net demonstrated capability of 5,996,000 kilowatts during the winter. These facilities include 20 fossil-fired steam electric generating units (3,650,000 kilowatts) at five generation stations; three nuclear generating units (1,856,000 kilowatts); a 351,000 kilowatt share of the Seneca Plant; seven combustion turbine generating units (135,000 kilowatts) and one diesel generator (4,000 kilowatts). In addition, two fossil-fired generating units (320,000 kilowatts) are currently on cold standby status. All of the Centerior System's generating facilities are located in Ohio and Pennsylvania. The Centerior System's net 60-minute peak load of its service area for 1995 was 5,779,000 kilowatts and occurred on August 15. The net seasonal capability at the time of the 1995 peak load was 5,924,000 kilowatts. The Centerior System's 1996 native peak load is forecasted to be 5,220,000 kilowatts, after demand-side management considerations. The net seasonal capability expected to be available to serve the Centerior System's 1996 peak is 5,885,000 kilowatts. Over the 1996-1998 period, Centerior Energy forecasts its capacity margins at the time of the projected Centerior System peak loads to range from 10% to 12%, excluding the capacity on cold standby. Each Operating Company owns the electric transmission and distribution facilities located in its respective service area. Cleveland Electric and Toledo Edison are interconnected by 345 kV transmission facilities, some portions of which are owned and used by Ohio Edison. The Operating Companies have a long-term contract with the CAPCO Group companies, including Ohio Edison, relating to the use of these facilities. These interconnection facilities provide for the interchange of power between the two Operating Companies. The Centerior System is interconnected with Ohio Edison, Ohio Power, Penelec and Detroit Edison. Cleveland Electric - ------------------ The wholly owned, jointly owned and leased electric generating facilities of Cleveland Electric in commercial operation as of February 28, 1996 provide a net demonstrated capability of 4,164,000 kilowatts during the winter. These - 27 - 39 facilities include 16 fossil-fired steam electric generating units (2,725,000 kilowatts) at four generation stations; its share of three nuclear generating units (1,026,000 kilowatts); a 351,000 kilowatt share of the Seneca Plant; two combustion turbine generating units (58,000 kilowatts) and one diesel generator (4,000 kilowatts). In addition, one fossil-fired generating unit (245,000 kilowatts) is currently on cold standby status. All of Cleveland Electric's generating facilities are located in Ohio and Pennsylvania. The net 60-minute peak load of Cleveland Electric's service area for 1995 was 4,049,000 kilowatts and occurred on August 15. The capacity resources available at the time of the 1995 peak were 4,273,000 kilowatts. Cleveland Electric's 1996 native peak load is forecasted to be 3,700,000 kilowatts, after demand-side management considerations. The capacity resources expected to be available to serve Cleveland Electric's 1996 peak are 4,234,000 kilowatts. Over the 1996-1998 period, Cleveland Electric forecasts its capacity margins at the time of its projected peak loads to range from 12% to 13%, excluding the capacity on cold standby. Cleveland Electric owns the facilities located in the area it serves for transmitting and distributing power to all its customers. Cleveland Electric has interconnections with Ohio Edison, Ohio Power and Penelec. The interconnections with Ohio Edison provide for the interchange of electric power with the other CAPCO Group companies and for transmission of power from the tenant-in-common owned or leased CAPCO Group generating units as well as for the interchange of power with Toledo Edison. The interconnection with Penelec provides for transmission of power from Cleveland Electric's share of the Seneca Plant. In addition, these interconnections provide the means for the interchange of electric power with other utilities. Cleveland Electric has interconnections with each of the municipal systems operating within its service area. Toledo Edison - ------------- The wholly owned, jointly owned and leased electric generating facilities of Toledo Edison in commercial operation as of February 28, 1996 provide a net demonstrated capability of 1,832,000 kilowatts during the winter. These facilities include six fossil-fired steam electric generating units (925,000 kilowatts) at two generation stations; its share of three nuclear generating units (830,000 kilowatts) and five combustion turbine generating units (77,000 kilowatts). In addition, one fossil-fired generating unit (75,000 kilowatts) is currently on cold standby status. All of Toledo Edison's generating facilities are located in Ohio and Pennsylvania. The net 60-minute peak load of Toledo Edison's service area for 1995 was 1,738,000 kilowatts and occurred on August 15. The capacity resources available at the time of the 1995 peak were 1,651,000 kilowatts. Toledo Edison's 1996 native peak load is forecasted to be 1,540,000 kilowatts, after demand-side management considerations. The capacity resources expected to be available to serve Toledo Edison's 1996 peak are 1,651,000 kilowatts. Over the 1996-1998 period, Toledo Edison forecasts its capacity margins at the time of its projected peak loads to range from 3.7% to 7%, excluding the capacity on cold standby. - 28 - 40 Toledo Edison owns the facilities located in the area it serves for transmitting and distributing power to all its customers. Toledo Edison has interconnections with Ohio Edison, Ohio Power and Detroit Edison. The interconnection with Ohio Edison provides for the interchange of electric power with the other CAPCO Group companies and for transmission of power from the tenant-in-common owned or leased CAPCO Group generating units as well as for the interchange of power with Cleveland Electric. In addition, these interconnections provide the means for the interchange of electric power with other utilities. Toledo Edison has interconnections with each of the municipal systems operating within its service area. TITLE TO PROPERTY ----------------- The generating plants and other principal facilities of the Operating Companies are located on land owned in fee by them, except as follows: (1) Cleveland Electric and Toledo Edison lease from others undivided 6.5%, 45.9% and 44.38% tenant-in-common interests in Units 1, 2 and 3, respectively, of the Mansfield Plant located in Shippingport, Pennsylvania, and an 18.26% undivided tenant-in-common interest in Beaver Valley Unit 2 located in Shippingport, Pennsylvania. These leases extend through 2017 and are the result of sale and leaseback transactions completed in September 1987. Cleveland Electric and Toledo Edison own another 24.47% interest and 1.65% interest, respectively, in Beaver Valley Unit 2 as a tenant-in-common. Cleveland Electric and Toledo Edison continue to own as a tenant-in-common the land upon which the Mansfield Plant and Beaver Valley Unit 2 are located, but have leased to others certain portions of that land relating to the above-mentioned generating unit leases. (2) Most of the facilities of Cleveland Electric's Lake Shore Plant are situated on artificially filled land, extending beyond the natural shore- line of Lake Erie as it existed in 1910. As of December 31, 1995, the cost of Cleveland Electric's facilities, other than water intake and discharge facilities, located on such artificially filled land aggregated approximately $116,650,000. Title to land under the water of Lake Erie within the territorial limits of Ohio (including artificially filled land) is in the State of Ohio in trust for the people of the State for the public uses to which it may be adapted, subject to the powers of the United States, the public rights of navigation, water commerce and fishery and the rights of upland owners to wharf out or fill to make use of the water. The State is required by statute, after appropriate pro- ceedings, to grant a lease to an upland owner, such as Cleveland Electric, which erected and maintained facilities on such filled land prior to October 13, 1955. Cleveland Electric does not have such a lease from the State with respect to the artificially filled land on which its Lake - 29 - 41 Shore Plant facilities are located, but Cleveland Electric's position, on advice of counsel for Cleveland Electric, is that its facilities and occupancy may not be disturbed because they do not interfere with the free flow of commerce in navigable channels and constitute (at least in part) and are on land filled pursuant to the exercise by it of its property rights as owner of the land above the shoreline adjacent to the filled land. Cleveland Electric holds permits, under federal statutes relating to navigation, to occupy such artificially filled land. (3) The facilities of Cleveland Electric's Seneca Plant in Warren County, Pennsylvania, are located on land owned by the United States and occupied by Cleveland Electric and Penelec pursuant to a license issued by the FERC for a 50-year period starting December 1, 1965 for the construction, operation and maintenance of a pumped-storage hydroelectric plant. (4) The water intake and discharge facilities at the electric generating plants of Cleveland Electric and Toledo Edison located along Lake Erie, the Maumee River and the Ohio River are extended into the lake and rivers under their property rights as owners of the land above the water line and pursuant to permits under federal statutes relating to navigation. (5) The transmission systems of the Operating Companies are located on land, easements or rights-of-way owned by them. Their distribution systems also are located, in part, on interests in land owned by them, but, for the most part, their distribution systems are located on lands owned by others and on streets and highways. In most cases, permission has been obtained from the apparent owner of the property or, if the distribution system is located on streets and highways, from the apparent owner of the abutting property. Their electric underground transmission and distri- bution systems are located, for the most part, in public streets. The Pennsylvania portions of the main transmission lines from the Seneca Plant, the Mansfield Plant and Beaver Valley Unit 2 are not owned by Cleveland Electric or Toledo Edison. All Cleveland Electric and Toledo Edison properties, with certain exceptions, are subject to the lien of their respective mortgages. Cleveland Electric has entered into an agreement with Jersey Central under which Jersey Central will lease Cleveland Electric's ownership share of the Seneca Plant (351,000 kilowatts). The lease will run for a period beginning on June 1, 1996 or on the date of receipt of appropriate regulatory approvals (whichever occurs later) and ending May 31, 2004. The fee titles which Cleveland Electric and Toledo Edison acquire as tenant-in-common owners, and the leasehold interests they have as joint lessees, of certain generating units do not include the right to require a partition or sale for division of proceeds of the units without the concurrence of all the other owners and their respective mortgage trustees and the trustees under Cleveland Electric's and Toledo Edison's mortgages. As discussed under "Item 1. Business--CAPCO Group", Duquesne is attempting to partition its interest in Eastlake Unit 5. - 30 - 42 Item 3. Legal Proceedings - -------------------------- PROCEEDINGS REGARDING AN ATTEMPT BY THE CITY OF CLYDE, OHIO TO REMOVE TOLEDO EDISON. See "Item 1. Business--Operations--Competitive Conditions--Toledo Edison". PROCEEDINGS BEFORE THE PUCO REGARDING ACTIONS BY THE CITY OF GARFIELD HEIGHTS, OHIO TO REDUCE CLEVELAND ELECTRIC'S RATES WITHIN THE CITY. See "Item 1. Business--Operations--Competitive Conditions--Cleveland Electric". PROCEEDINGS BEFORE THE FERC REGARDING THE PROPOSED MERGER OF THE OPERATING COMPANIES. See "Item 1. Business--Merger of the Operating Companies". PROCEEDINGS BEFORE THE PUCO REGARDING THE REQUESTS FOR RATE INCREASES FILED BY THE OPERATING COMPANIES. See "Item 1. Business--Electric Rates--1995 Rate Case". WESTINGHOUSE LAWSUIT. In April 1991, the CAPCO Group companies filed a lawsuit against Westinghouse in the United States District Court for the Western District of Pennsylvania. The suit alleges that six steam generators supplied by Westinghouse for Beaver Valley Power Station Units 1 and 2 contain serious defects, particularly defects causing tube corrosion and cracking. Steam generator maintenance costs have increased due to these defects and will likely continue to increase. The condition of the steam generators is being monitored closely. If the corrosion and cracking continue, replacement of the steam generators could be required earlier than their 40-year design life. The suit seeks monetary and corrective relief. In December 1994, a jury rendered a verdict in favor of Westinghouse on a fraud claim. (The court had previously dismissed four other claims against Westinghouse.) The CAPCO Group companies have appealed the decision to the United States Court of Appeals for the Third Circuit. The Operating Companies believe that the outcome of this lawsuit will not have a materially adverse effect on their financial positions or results of operation. DUQUESNE LAWSUIT. See "Item 1. Business--CAPCO Group". PROCEEDINGS BEFORE THE PUCO AND THE FERC REGARDING THE ELECTRIC SERVICE CONTRACT BETWEEN CPP AND MEDICAL CENTER CO. See "Item 1. Business-- Operations--Competitive Conditions--Cleveland Electric". PROCEEDINGS BEFORE WILLIAMS COUNTY (OHIO) COMMON PLEAS COURT RELATING TO ELECTRIC SERVICE BEING PROVIDED TO CHASE BRASS BY FOUR MUNICIPALS AND AMP-OHIO. See "Item 1. Business--Operations--Competitive Conditions--Toledo Edison". Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON ------------------------------------------------------ None. - 31 - 43 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters - ------------------------------------------------------------------------------ The information regarding common stock prices and number of share owners required by this Item is not applicable to Cleveland Electric or Toledo Edison because all of their common stock is held solely by Centerior Energy. Market Information - ------------------ Centerior Energy's common stock is traded on the New York, Chicago and Pacific Stock Exchanges. The quarterly high and low prices of Centerior common stock (as reported on the composite tape) in 1994 and 1995 were as follows:
1994 1995 ---- ---- High Low High Low ---- --- ---- --- 1st Quarter $13-3/8 $10-5/8 $10 $ 8-11/16 2nd Quarter 11-3/4 9-7/8 9-7/8 8-5/8 3rd Quarter 10-5/8 8-7/8 11 9-1/2 4th Quarter 9-1/2 8 11-1/4 8-1/2
Share Owners - ------------ As of March 5, 1996, Centerior Energy had 133,729 common stock share owners of record. Dividends - --------- See Note 14 to Centerior's Financial Statements for quarterly dividend payments in the last two years. Future dividend action by Centerior's Board of Directors will continue to be decided on a quarter-to-quarter basis after the evaluation of financial results, potential earning capacity and cash flow. At December 31, 1995, Centerior Energy had a retained earnings deficit of $336 million and capital surplus of $1.963 billion, resulting in an overall surplus of $1.627 billion that was available to pay dividends under Ohio law. Any current period earnings in 1996 will increase surplus under Ohio law. See Note 11(b) for discussions of dividend restrictions affecting Cleveland Electric and Toledo Edison. Dividends paid in 1995 on each of the Operating Companies' outstanding series of preferred stock were fully taxable. Item 6. Selected Financial Data - -------------------------------- CENTERIOR ENERGY ---------------- The information required by this Item is contained on Pages F-25 and F-26 attached hereto. - 32 - 44 CLEVELAND ELECTRIC ------------------ The information required by this Item is contained on Pages F-50 and F-51 attached hereto. TOLEDO EDISON ------------- The information required by this Item is contained on Pages F-76 and F-77 attached hereto. Item 7. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations - --------------------- CENTERIOR ENERGY ---------------- The information required by this Item is contained on Pages F-2 through F-7 attached hereto. CLEVELAND ELECTRIC ------------------ The information required by this Item is contained on Pages F-27 through F-32 attached hereto. TOLEDO EDISON ------------- The information required by this Item is contained on Pages F-52 through F-57 attached hereto. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- CENTERIOR ENERGY ---------------- The information required by this Item is contained on Pages F-8 through F-24 attached hereto. CLEVELAND ELECTRIC ------------------ The information required by this Item is contained on Pages F-33 through F-49 attached hereto. TOLEDO EDISON ------------- The information required by this Item is contained on Pages F-58 through F-75 attached hereto. Item 9. Changes in and Disagreements With Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure - -------------------- CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON ------------------------------------------------------ None. - 33 - 45 PART III -------- Item 10. Directors and Executive Officers of the Registrants - ------------------------------------------------------------- CENTERIOR ENERGY ---------------- The information required by this Item for Centerior regarding directors is incorporated herein by reference to Pages 4 through 7 and Page 15 of Centerior's definitive proxy statement dated March 12, 1996. Reference is also made to "Executive Officers of the Registrants and the Service Company" in Part I of this Report for information regarding the executive officers of Centerior Energy. CLEVELAND ELECTRIC ------------------ Set forth below are the name and other directorships held, if any, of each director of Cleveland Electric. The year in which the director was first elected to Cleveland Electric's Board of Directors is set forth in parenthesis. Reference is made to "Executive Officers of the Registrants and the Service Company" in Part I of this Report for information regarding the directors and executive officers of Cleveland Electric. The directors received no remuneration in their capacity as directors. Robert J. Farling* - ----------------- Mr. Farling is a director of National City Bank. (1986) Murray R. Edelman - ----------------- Mr. Edelman is a director of Society Bank & Trust and Society National Bank. (1993) Fred J. Lange, Jr. - ----------------- (1993) *Also a director of Centerior Energy and the Service Company. TOLEDO EDISON ------------- Set forth below are the name and other directorships held, if any, of each director of Toledo Edison. The year in which the director was first elected to Toledo Edison's Board of Directors is set forth in parenthesis. Reference is made to "Executive Officers of the Registrants and the Service Company" in Part I of this Report for information regarding the directors and the executive officers of Toledo Edison. The directors received no remuneration in their capacity as directors. Robert J. Farling* - ----------------- Mr. Farling is a director of National City Bank. (1988) Murray R. Edelman - ----------------- Mr. Edelman is a director of Society Bank & Trust and Society National Bank. (1993) Fred J. Lange, Jr. - ------------------ (1993) *Also a director of Centerior Energy and the Service Company. - 34 - 46 Item 11. Executive Compensation - -------------------------------- CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON ------------------------------------------------------ The information required by this Item for Centerior is incorporated herein by reference to the information concerning compensation of directors on Page 8 and the information concerning compensation of executive officers, stock option transactions, long-term incentive awards and pension benefits on Pages 21 through 24 of Centerior's definitive proxy statement dated March 12, 1996. The named executive officers for Centerior are included for Cleveland Electric and Toledo Edison regardless of whether they were officers of Cleveland Electric or Toledo Edison because they were key policymakers for the Centerior System in 1995. Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------ CENTERIOR ENERGY ---------------- The following table sets forth the beneficial ownership of Centerior common stock by individual directors of Centerior, the named executive officers and all directors and executive officers of Centerior Energy and the Service Company as a group as of February 28, 1996:
Name of Beneficial Number of Common Owner Shares Owned (1) - ------------------ ---------------- Richard P. Anderson 2,761 Albert C. Bersticker 2,065 Leigh Carter 3,322 Thomas A. Commes 6,065 William F. Conway 1,556 Wayne R. Embry 2,065 Robert J. Farling 59,588 (2) Richard A. Miller 13,092 Frank E. Mosier 2,934 Sister Mary Marthe Reinhard, SND 2,809 (3) Robert C. Savage 2,065 William J. Williams 3,002 Murray R. Edelman 18,856 (2) Donald C. Shelton 10,771 (2) Fred J. Lange, Jr. 11,890 (2) Al R. Temple 5,550 (2) All directors and executive officers as a group 198,735 (2) (1) Beneficially owned shares include any shares with respect to which voting or investment power is attributed to a director or executive officer because of joint or fiduciary ownership of the shares or relationship to the record owner, such as a spouse, even though the director or executive officer does not consider himself or herself the beneficial owner. On February 28, 1996, all directors and executive officers of Centerior Energy and the Service Company as a group were considered to own bene- ficially 0.1% of Centerior's common stock and none of the preferred stock of Cleveland Electric and Toledo Edison. Certain individuals disclaim beneficial ownership of some of those shares.
- 35 - 47 (2) Includes the following numbers of shares which are not owned but could have been purchased within 60 days after February 28, 1996 upon exercise of options to purchase shares of Centerior common stock: Mr. Farling - 10,000; Mr. Edelman - 5,000; Mr. Shelton - 3,400; Mr. Lange - 3,000; Mr. Temple - 2,150; and all directors and executive officers as a group - 33,550. None of those options have been exercised as of March 22, 1996. (3) Owned by the Sisters of Notre Dame. CLEVELAND ELECTRIC ------------------ Individual directors of Cleveland Electric, the named executive officers and all directors and executive officers of Cleveland Electric as a group beneficially owned the following number of shares of Centerior common stock as of February 28, 1996:
Name of Beneficial Number of Common Owner Shares Owned (1) - ------------------ ---------------- Robert J. Farling 59,588 (2) Murray R. Edelman 18,856 (2) Donald C. Shelton 10,771 (2) Fred J. Lange, Jr. 11,890 (2) Al R. Temple 5,550 (2) All directors and executive officers as a group 144,465 (2) (1) Beneficially owned shares include any shares with respect to which voting or investment power is attributed to a director or executive officer because of joint or fiduciary ownership of the shares or relationship to the record owner, such as a spouse, even though the director or executive officer does not consider himself or herself the beneficial owner. On February 28, 1996, all directors and executive officers of Cleveland Electric as a group were considered to own beneficially 0.1% of Centerior's common stock and none of Cleveland Electric's serial preferred stock. Certain individuals disclaim beneficial ownership of some of those shares. (2) Includes the following numbers of shares which are not owned but could have been purchased within 60 days after February 28, 1996 upon exercise of options to purchase shares of Centerior common stock: Mr. Farling - 10,000; Mr. Edelman - 5,000; Mr. Shelton - 3,400; Mr. Lange - 3,000; Mr. Temple - 2,150; and all directors and executive officers as a group - 30,675. None of those options have been exercised as of March 22, 1996.
TOLEDO EDISON ------------- Individual directors of Toledo Edison, the named executive officers and all directors and executive officers of Toledo Edison as a group beneficially owned the following number of shares of Centerior common stock as of February 28, 1996: - 36 - 48
Name of Beneficial Number of Common Owner Shares Owned (1) - ------------------ ---------------- Robert J. Farling 59,588 (2) Murray R. Edelman 18,856 (2) Donald C. Shelton 10,771 (2) Fred J. Lange, Jr. 11,890 (2) Al R. Temple 5,550 (2) All directors and executive officers as a group 129,248 (2) (1) Beneficially owned shares include any shares with respect to which voting or investment power is attributed to a director or executive officer because of joint or fiduciary ownership of the shares or relationship to the record owner, such as a spouse, even though the director or executive officer does not consider himself or herself the beneficial owner. On February 28, 1996, all directors and executive officers of Toledo Edison as a group were considered to own beneficially 0.09% of Centerior's common stock and none of Toledo Edison's cumulative preferred stock. Certain individuals disclaim beneficial ownership of some of those shares. (2) Includes the following numbers of shares which are not owned but could have been purchased within 60 days after February 28, 1996 upon exercise of options to purchase shares of Centerior common stock: Mr. Farling - 10,000; Mr. Edelman - 5,000; Mr. Shelton - 3,400; Mr. Lange - 3,000; Mr. Temple - 2,150; and all other executive officers as a group - 28,275. None of those options have been exercised as of March 22, 1996.
Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- CENTERIOR ENERGY, CLEVELAND ELECTRIC AND TOLEDO EDISON ------------------------------------------------------ None. PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------- (a) Documents Filed as a Part of the Report --------------------------------------- 1. Financial Statements: -------------------- Financial Statements for Centerior Energy, Cleveland Electric and Toledo Edison are listed in the Index to Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Re- sults of Operations; and Financial Statements. See Page F-1. 2. Financial Statement Schedules: ----------------------------- Financial Statement Schedules for Centerior Energy, Cleveland Electric and Toledo Edison are listed in the Index to Schedules. See Page S-1. - 37 - 49 3. Combined Pro Forma Condensed Financial Statements (Unaudited): ------------------------------------------------------------- Combined Pro Forma Condensed Financial Statements (unaudited) for Cleveland Electric and Toledo Edison related to their pending merger. See Pages P-1 to P-4. 4. Exhibits: -------- Exhibits for Centerior Energy, Cleveland Electric and Toledo Edison are listed in the Exhibit Index. See Page E-1. (b) Reports on Form 8-K ------------------- During the quarter ended December 31, 1995, Centerior Energy, Cleveland Electric and Toledo Edison did not file any Current Reports on Form 8-K. - 38 - 50 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. CENTERIOR ENERGY CORPORATION ---------------------------- Registrant March 28, 1996 By J. T. PERCIO ------------------------- J. T. Percio, Secretary 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:
Signature Title Date --------- ----- ---- Principal Executive Officer: ) *ROBERT J. FARLING Chairman of the Board, ) President and Chief ) Executive Officer ) Principal Financial Officer: ) *TERRENCE G. LINNERT Senior Vice President, ) Chief Financial ) Officer and General ) Counsel ) Principal Accounting Officer: *E. LYLE PEPIN Controller ) Directors: ) *RICHARD P. ANDERSON Director ) *ALBERT C. BERSTICKER Director ) *LEIGH CARTER Director ) *THOMAS A. COMMES Director ) March 28, 1996 *WILLIAM F. CONWAY Director ) *WAYNE R. EMBRY Director ) *ROBERT J. FARLING Director ) *RICHARD A. MILLER Director ) *FRANK E. MOSIER Director ) *SR. MARY MARTHE REINHARD, SND Director ) *ROBERT C. SAVAGE Director ) *WILLIAM J. WILLIAMS Director ) *By J. T. PERCIO ------------ J. T. Percio, Attorney-in-Fact
- 39 - 51 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 -------------------------------------------- Registrant March 28, 1996 By J. T. PERCIO ------------------------- J. T. Percio, Secretary 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:
Signature Title Date --------- ----- ---- Principal Executive Officer: ) *ROBERT J. FARLING Chairman of the Board ) and Chief Executive ) Officer ) Principal Financial Officer: ) *TERRENCE G. LINNERT Vice President and ) Chief Financial ) March 28, 1996 Officer ) Principal Accounting Officer: ) *E. LYLE PEPIN Controller ) Directors: ) *ROBERT J. FARLING Director ) *MURRAY R. EDELMAN Director ) *FRED J. LANGE, JR. Director ) *By J. T. PERCIO ------------ J. T. Percio, Attorney-in-Fact
- 40 - 52 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 ------------------------- Registrant March 28, 1996 By J. T. PERCIO ----------------------- J. T. Percio, Secretary 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:
Signature Title Date --------- ----- ---- Principal Executive Officer: ) *ROBERT J. FARLING Chairman of the Board ) and Chief Executive ) Officer ) Principal Financial Officer: ) *TERRENCE G. LINNERT Vice President and ) Chief Financial ) Officer ) Principal Accounting Officer: ) March 28, 1996 *E. LYLE PEPIN Controller ) Directors: ) *ROBERT J. FARLING Director ) *MURRAY R. EDELMAN Director ) *FRED J. LANGE, JR. Director ) *By J. T. PERCIO ------------ J. T. Percio, Attorney-in-Fact
- 41 - 53 INDEX TO -------- SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION ------------------------------------------------ AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ------------------------------------------------- OPERATIONS; AND FINANCIAL STATEMENTS ------------------------------------
Page ---- Centerior Energy Corporation and Subsidiaries: - --------------------------------------------- Management's Financial Analysis . . . . . . . . . . . . . . . . . F-2 Report of Independent Public Accountants . . . . . . . . . . . . . F-8 Income Statement for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9 Retained Earnings for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9 Balance Sheet as of December 31, 1995 and 1994 . . . . . . . . . . F-10 Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 . F-12 Statement of Preferred Stock at December 31, 1995 and 1994 . . . . F-13 Notes to the Financial Statements . . . . . . . . . . . . . . . . F-14 Financial and Statistical Review . . . . . . . . . . . . . . . . . F-25 The Cleveland Electric Illuminating Company and Subsidiaries: - ------------------------------------------------------------ Management's Financial Analysis . . . . . . . . . . . . . . . . . F-27 Income Statement for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33 Retained Earnings for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33 Balance Sheet as of December 31, 1995 and 1994 . . . . . . . . . . F-34 Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 . F-36 Statement of Preferred Stock at December 31, 1995 and 1994 . . . . F-37 Notes to the Financial Statements . . . . . . . . . . . . . . . . F-38 Report of Independent Public Accountants . . . . . . . . . . . . . F-49 Financial and Statistical Review . . . . . . . . . . . . . . . . . F-50 The Toledo Edison Company: - ------------------------- Management's Financial Analysis . . . . . . . . . . . . . . . . . F-52 Income Statement for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-58 Retained Earnings for the Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-58 Balance Sheet as of December 31, 1995 and 1994 . . . . . . . . . . F-60 Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 . F-62 Statement of Preferred Stock at December 31, 1995 and 1994 . . . . F-63 Notes to the Financial Statements . . . . . . . . . . . . . . . . F-64 Report of Independent Public Accountants . . . . . . . . . . . . . F-75 Financial and Statistical Review . . . . . . . . . . . . . . . . . F-76
F-1 54 MANAGEMENT'S FINANCIAL ANALYSIS OUTLOOK STRATEGIC PLAN We continued to make progress during the second year of our eight-year strategic plan, but we remain keenly aware of the magnitude of the problems that face us. The strategic plan was created to achieve two major goals: strengthening our financial condition and improving our competitive position. Its objectives are to maximize share owner return, achieve profitable revenue growth, become a leader in customer satisfaction, build a winning employee team and attain increasingly competitive power supply costs. We are not yet positioned to compete in a less regulated electric utility industry, but every major action being taken -- strategic planning, revenue enhancement, cost reduction, improvement of work practices and application for increased prices -- is part of a comprehensive effort to succeed in an increasingly competitive environment. A primary objective of the strategic plan is continued and significant revenue growth even as our markets become more competitive. Retail revenues adjusted for weather and fuel costs have grown about 1% annually since 1990. During 1995, we took aggressive steps to increase revenues through enhanced marketing strategies. Also, our economic development efforts proved successful in attracting major new customers and supporting the expansion of existing ones. Although we are not satisfied with our growth rate, we expect that our marketing activity will improve revenue growth. The rate case we filed with The Public Utilities Commission of Ohio (PUCO) in April 1995 is a critical factor to the success of the strategic plan. We do not see this rate case as a continuation of business as usual but as an important turning point which should, if we are successful in accomplishing the objectives discussed below, bring an end to price increases for the foreseeable future. A successful conclusion of the case would speed our transition to a more competitive company by providing additional cash to lower costs by accelerating the pay-down of debt and preferred stock. In our view, a successful conclusion would include approval of the full price increase requested with a regulatory commitment to maintain the established price levels over an appropriate transition period. This should be coupled with a means to accelerate recognition of regulatory assets (described in Note 7(a)) and nuclear generating assets concurrent with our cost control and revenue enhancement efforts in order to earn a fair return for share owners over time. Another key part of our strategy is offering long-term contracts to those large customers who could have incentives to change power suppliers. In 1995, 68% of our industrial kilowatt-hour sales and 15% of our commercial kilowatt-hour sales were under long-term contracts. We are renegotiating contracts before they expire and in most cases are retaining customers under new long-term contracts. We are continuing efforts to reduce fixed financing costs in order to strengthen our financial condition. During 1995, utilizing strong cash flow and refinancing at favorable terms, we reduced interest expense and preferred dividends by $8 million and outstanding debt and preferred stock by $134 million. Our overall costs are high relative to many of our neighboring utilities as a result of our substantial nuclear investment. The strategic plan calls for making us more competitive by continuing to reduce operating expenses and capital expenditures. In 1995, to improve our focus on cost reduction and other strategic plan objectives, we restructured into six business groups. The new organization includes groups to manage our generation, distribution and transmission businesses; provide services and administrative functions; and invest in nonregulated enterprises. This arrangement will also enhance each group's ability to identify cost reductions by focusing on margins and improving work practices and customer service. We will also continue to aggressively pursue initiatives to reduce the heavy tax burden imposed upon us by the state and local tax structure in Ohio. RATE CASE AND REGULATORY ACCOUNTING In April 1995, our subsidiaries, The Cleveland Electric Illuminating Company (Cleveland Electric) and The Toledo Edison Company (Toledo Edison) (collectively, Operating Companies), filed requests with the PUCO for price increases aggregating $119 million annually to be effective in 1996. The price increases are necessary to recover cost increases and amortization of certain costs deferred since 1992 pursuant to the Rate Stabilization Program discussed below and in Note 7. If their requests are approved, the Operating Companies intend to freeze prices until at least 2002 with the expectation that increased sales and cost control measures will obviate the need for further price increases. If circumstances make it impossible to earn a fair return for share owners over time, we would ask for a further increase -- but only after taking all appropriate actions to make such a request unnecessary. (Centerior Energy) F-2 (Centerior Energy) 55 In December 1995, the PUCO ordered an investigation into the financial conditions, rates and practices of the Operating Companies. In its report on the Operating Companies' rate request, the PUCO Staff recommended approval of the $119 million requested, subject to a commitment by the Operating Companies to significantly revalue their assets. In late January 1996, the Staff proposed that the Operating Companies significantly revalue their nuclear plant and regulatory assets within a five-year period. The Staff's asset revaluation proposal is inconsistent with the Ohio statutes that define the rate-making process. The PUCO is not bound by the Staff's recommendations. A decision by the PUCO is anticipated in the second quarter of 1996. The outcome of the rate case could affect the Operating Companies' ability to meet the criteria of Statement of Financial Accounting Standards (SFAS) 71 for all or part of their operations which could result in the write-off of all or a part of the regulatory assets shown in Note 7(a). In our changing industry, other events independent of the outcome of the rate case could also result in write-offs or write-downs of assets. See Note 7 for a full discussion and analysis of the rate case, SFAS 71 and other financial accounting requirements and the potential implications of these accounting requirements for our results of operations and financial position. RATE STABILIZATION PROGRAM Under a Rate Stabilization Program approved by the PUCO in 1992, we agreed to freeze base rates until 1996 and limit rate increases through 1998. In exchange, we were permitted to defer through 1995 and subsequently recover certain costs not currently recovered in rates and to accelerate amortization of certain benefits. Deferral of those costs and amortization of those benefits were completed in November 1995 and aggregated $159 million in 1995. Recovery is expected to begin with the effective date of the PUCO's orders in the pending rate case. Annual amortization of the deferred costs is $25 million which began in December 1995. Consequently, earnings in 1996 will be sharply lower than in 1995. Also contributing to lower earnings are the expectations that the requested price increase will not be effective until the second quarter of 1996 and results from increased marketing and cost reduction efforts will take time to achieve. COMPETITION Major structural changes are taking place in the electric utility industry which are expected to place downward pressure on prices and to increase competition for customers' business. The changes are coming from both federal and state authorities. Many of the changes began when the Energy Policy Act of 1992 permitted competition in the electric utility industry through broader access to a utility's transmission system. In March 1995, the Federal Energy Regulatory Commission (FERC) issued proposed rules relating to open access transmission services by public utilities, recovery of stranded investment and other related matters. The open access transmission rules require utilities to deliver power from other utilities or generation sources to their wholesale customers. In May 1995, the Operating Companies filed open access transmission tariffs with the FERC which used the proposed rules as a guideline. These tariffs are currently pending. Several groups in Ohio are studying the possible application of retail wheeling. Retail wheeling occurs when a customer obtains power from a utility company other than its local utility. The PUCO is sponsoring informal discussions among a group of business, utility and consumer interests to explore ways of promoting competitive options without unduly harming the interests of utility company share owners or customers. Legislative proposals are being drafted for submission to the Ohio House of Representatives and several utilities in the state have offered their own proposed transition plans for introduction of retail wheeling. The current retail wheeling efforts in Ohio are exploratory and we cannot predict when and to what extent retail wheeling will be implemented in Ohio. The term "stranded investment" generally refers to fixed costs approved for recovery under traditional regulatory methods that would become unrecoverable, or "stranded", as a result of wider competition. Although competitive pressures are increasing, the traditional regulatory framework remains in place and is expected to continue for the foreseeable future. We cannot predict when and to what extent competition will be allowed. We believe that pure competition (unrestricted retail wheeling for all customer classifications) is at least several years away and that any transition to pure competition will be in phases. The FERC and the PUCO have acknowledged the need to provide at least partial recovery of stranded investment as greater competition is permitted and, therefore, we believe that there will be a mechanism developed for the recovery of stranded investment. (Centerior Energy) F-3 (Centerior Energy) 56 However, due to the uncertainty involved, there is a risk that some of our assets may not be fully recovered. In 1995, we continued to experience significant competition from municipal electric systems. Cleveland Public Power (CPP), the largest municipal system in our service area, continued to construct new distribution facilities extending into additional portions of Cleveland. Their progress has slowed significantly during the past year because of the discovery of a large number of safety violations in the CPP system resulting in substantial cost overruns. In Toledo, the City Council responded to a petition drive by appropriating funds to complete a consultant's study on whether to create a municipal electric utility. This study is expected to be completed by mid-1996. In March 1995, one of Cleveland Electric's large commercial customers which has provided annual net income of $6 million, Medical Center Co., signed a five-year contract with CPP for electric service beginning in September 1996, when its contract with Cleveland Electric terminates. In both our appeal to the Ohio Supreme Court and petition to the FERC, it is our position that the purchase of power from CPP by this customer is in reality a direct purchase from another utility in violation of Ohio's certified territory statute. In October 1995, Chase Brass & Copper Co. Inc., which has provided annual net income of $2 million, terminated its service from Toledo Edison and began to receive its electric service from a consortium of other providers. Toledo Edison has filed lawsuits contending that this arrangement violates the legal limits of sales and delivery of power by municipal electric systems outside their boundaries. We will continue to pursue all legal and regulatory remedies to these situations. In 1995, our economic development efforts proved successful in attracting major new customers, such as North Star BHP Steel, Worthington Steel and Aluminum Company of America, while supporting the expansion of existing ones, for example, American Steel & Wire and Ford Motor Company. We expect that our continued emphasis on economic development along with a newly developed market segment focus will be major ingredients in providing improved revenue growth. NUCLEAR OPERATIONS We have interests in three nuclear generating units -- Davis-Besse Nuclear Power Station (Davis-Besse), Perry Nuclear Power Plant Unit 1 (Perry Unit 1) and Beaver Valley Power Station Unit 2 (Beaver Valley Unit 2) -- and operate the first two. Davis-Besse and Beaver Valley Unit 2 both operated extremely well in 1995. Their average three-year unit availability factors at year-end 1995 of 90% and 87%, respectively, exceeded the industry average of 81% for similar reactors. In 1995, the availability factor for Davis-Besse was 100%. The plant continues to have its best run ever operating at or near full capacity for 463 straight days through February 21, 1996. In 1995, Perry Unit 1 improved its average three-year unit availability factor to 62% with a 1995 availability factor of 93%. Perry Unit 1 operated at or near capacity for 506 of 531 days since the end of its last refueling and maintenance outage in August 1994. Work on the comprehensive course of action plan developed in 1993 to improve the operating performance of Perry Unit 1 will be completed during the current refueling outage which began January 27, 1996. A significant part of the strategic plan involves ongoing efforts to increase the availability and lower the cost of production of our nuclear units. In 1995, we made great progress regarding unit availability while continuing to lower production costs. The goal of our nuclear improvement program is to replicate Davis-Besse's operational excellence and cost reduction gains at Perry Unit 1 while improving performance ratings. We externally fund the estimated costs for the future decommissioning of our nuclear units. In 1993 and 1994, we increased our decommissioning expense accruals because of revisions in our cost estimates. See Note 1(d). Our nuclear units may be impacted by activities or events beyond our control. Operating nuclear units have experienced unplanned outages or extensions of scheduled outages because of equipment problems or new regulatory requirements. A major accident at a nuclear facility anywhere in the world could cause the Nuclear Regulatory Commission to limit or prohibit the operation or licensing of any domestic nuclear unit. If one of our nuclear units is taken out of service for an extended period for any reason, including an accident at such unit or any other nuclear facility, we cannot predict whether regulatory authorities would impose unfavorable rate treatment. Such treatment could include taking our affected unit out of rate base, thereby not permitting us to recover our investment in and earn a return on it, or disallowing certain construction or maintenance costs. An extended outage coupled with unfavorable rate treatment could have a material adverse effect on our financial condition (Centerior Energy) F-4 (Centerior Energy) 57 and results of operations. Premature plant closings could also have a material adverse effect on our financial condition and results of operations because the estimated cost to decommission the plant exceeds the current funding in the decommissioning trust. HAZARDOUS WASTE DISPOSAL SITES The Operating Companies have been named as "potentially responsible parties" (PRPs) for three sites listed on the Superfund National Priorities List (Superfund List) and are aware of their potential involvement in the cleanup of several other sites. Allegations that the Operating Companies disposed of hazardous waste at these sites, and the amount involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. If the Operating Companies were held liable for 100% of the cleanup costs of all of the sites referred to above, the cost could be as high as $500 million. However, we believe that the actual cleanup costs will be substantially lower than $500 million, that the Operating Companies' share of any cleanup costs will be substantially less than 100% and that most of the other PRPs are financially able to contribute their share. The Operating Companies have accrued a liability totaling $12 million at December 31, 1995, based on estimates of the costs of cleanup and their proportionate responsibility for such costs. We believe that the ultimate outcome of these matters will not have a material adverse effect on our financial condition or results of operations. MERGER OF THE OPERATING COMPANIES We continue to seek the necessary regulatory approvals to complete the merger of the Operating Companies which we announced in 1994. The FERC has deferred action on the merger application until the merits of the Operating Companies' proposed open access transmission tariffs are addressed in hearings. CAPITAL RESOURCES AND LIQUIDITY 1993-1995 CASH REQUIREMENTS A key part of our strategic plan is to significantly reduce the Operating Companies' level of debt and preferred stock. In 1995, we were able to continue the reduction pattern begun in 1994. These obligations were reduced by $136 million in 1994 and by $134 million in 1995. We intend to continue and to accelerate redemptions. We need cash for normal corporate operations, retirement of maturing securities, and an ongoing program of constructing and improving facilities to meet demand for electric service and to comply with government regulations. Our cash construction expenditures totaled $209 million in 1993, $205 million in 1994 and $201 million in 1995. Our debt and preferred stock maturities and sinking fund requirements totaled $368 million in 1993, $120 million in 1994 and $377 million in 1995. In addition, we optionally redeemed approximately $470 million in the period 1993-1995. This amount includes $237 million of tax-exempt issues refunded in 1995 resulting in approximately $7 million of interest savings. In May 1995, Cleveland Electric issued $300 million of first mortgage bonds due in 2005 with an interest rate of 9.50%. The embedded cost of the Operating Companies' debt at the end of 1995 was 8.98% versus 9.12% in 1994 and 9.06% in 1993. In 1995, the Operating Companies renewed for a four-year term approximately $225 million in bank letters of credit supporting the equity owner participants in the Beaver Valley Unit 2 lease. See Note 11(d). 1996 AND BEYOND CASH REQUIREMENTS Our 1996 cash requirements for construction are $128 million for Cleveland Electric and $74 million for Toledo Edison and for debt and preferred stock maturities and sinking fund requirements are $177 million for Cleveland Electric and $58 million for Toledo Edison. We expect to meet these requirements with internal cash generation, cash reserves and about $150 million from the sale of a AAA-rated security backed by our accounts receivable. We expect to meet all of our 1997-2000 cash requirements with internal cash generation. Estimated cash requirements for our construction program during this period total $603 million for Cleveland Electric and $262 million for Toledo Edison. Debt and preferred stock maturities and sinking fund requirements total $400 million and $233 million for Cleveland Electric and Toledo Edison, respectively, for the same period. If economical, additional securities may be redeemed under optional redemption provisions, with funding expected to be provided through internal cash generation. Additional funding may be required to support investments in nonregulated business opportunities. (Centerior Energy) F-5 (Centerior Energy) 58 LIQUIDITY Additional first mortgage bonds may be issued by the Operating Companies under their respective mortgages on the basis of property additions, cash or refundable first mortgage bonds. If the applicable interest coverage test is met, each Operating Company may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable bonds. At December 31, 1995, Cleveland Electric and Toledo Edison would have been permitted to issue approximately $379 million and $288 million of additional first mortgage bonds, respectively. The Operating Companies also are able to raise funds through the sale of debt and preferred and preference stock. Under its articles of incorporation, Toledo Edison cannot issue preferred stock unless certain earnings coverage requirements are met. At December 31, 1995, Toledo Edison would have been permitted to issue approximately $158 million of additional preferred stock at an assumed dividend rate of 10.5%. There are no restrictions on Cleveland Electric's ability to issue preferred or preference stock or Toledo Edison's ability to issue preference stock. Centerior Energy may raise funds through the sale of common stock under various employee and share owner plans. The Operating Companies have $307 million in financing vehicles available to support their nuclear fuel leases, portions of which mature this year. See Note 6. We plan to renew a $125 million revolving credit facility which matures in May 1996. See Note 12. At the end of 1995, we had $179 million in cash and temporary investments. The foregoing financing resources are expected to be sufficient for the Operating Companies' needs over the next several years. However, the availability and cost of capital to meet external financing needs also depend upon such factors as financial market conditions and their credit ratings. Current credit ratings for the Operating Companies are as follows:
Standard Moody's & Poor's Investors Corporation Service, Inc. ----------- ------------- First mortgage bonds BB Ba2 Subordinated debt for Cleveland Electric B+ Ba3 Subordinated debt for Toledo Edison B+ B1 Preferred stock B b2
RESULTS OF OPERATIONS 1995 VS. 1994 Factors contributing to the 3.9% increase in 1995 operating revenues are as follows:
Millions Increase (Decrease) in Operating Revenues of Dollars - ------------------------------------------------ ----------- KWH Sales Volume and Mix $81 Wholesale Revenues 13 Fuel Cost Recovery Revenues 9 Miscellaneous Revenues (8) --- Total $95 ---
For the third year in a row, industrial kilowatt-hour sales increased. The increase in 1995 was 0.8%, but sales grew 2.2% excluding reductions at two low-margin steel producers (representing 5% of industrial revenues). Residential and commercial sales increased 3.5% and 2.8%, respectively, primarily because of the hot summer weather, although there was about 1% nonweather-related growth in commercial sales. Other sales increased 26% because of a 43% increase in wholesale sales due principally to the hot summer and good availability of our generating units. Weather accounted for approximately $38 million of the $61 million increase in 1995 base rate (nonfuel) revenues. Higher 1995 fuel cost recovery revenues resulted from an increase in the fuel cost factor for Cleveland Electric. The weighted average of these fuel cost factors increased 7% for Cleveland Electric but decreased 6% for Toledo Edison. For 1995, operating revenues were 32% residential, 30% commercial, 31% industrial and 7% other and kilowatt-hour sales were 23% residential, 25% commercial, 40% industrial and 12% other. The average prices per kilowatt-hour for residential, commercial and industrial customers were $.11, $.10 and $.06, respectively. Operating expenses increased 4.5% in 1995. Fuel and purchased power expenses increased as higher fuel expense was partially offset by lower purchased power expense. The higher fuel expense was attributable to increased generation and more amortization of previously deferred fuel costs than the amount amortized in 1994. The higher other operation and maintenance expenses resulted primarily from charges for an ongoing inventory reduction program and the recognition of costs associated with preliminary engineering studies. Federal income taxes increased as a result of higher pretax operating income. Taxes, other than federal income taxes, increased primarily due to property tax increases resulting from plant additions, real estate valuation increases and a nonrecurring tax credit recorded in 1994. (Centerior Energy) F-6 (Centerior Energy) 59 1994 VS. 1993 Factors contributing to the 2.1% decrease in 1994 operating revenues are as follows:
Millions Increase (Decrease) in Operating Revenues of Dollars - ------------------------------------------------ ----------- KWH Sales Volume and Mix $ 10 Wholesale Revenues (47) Fuel Cost Recovery Revenues (22) Miscellaneous Revenues 6 ---- Total $ (53) ----
We experienced good retail kilowatt-hour sales growth in the industrial and commercial categories in 1994; the sales growth for the residential category was lessened by weather conditions, particularly during the summer. The revenue decrease resulted primarily from milder weather conditions in 1994 and 39% lower wholesale sales. Weather reduced base rate revenues approximately $15 million from the 1993 amount. Although total sales decreased by 1.9%, industrial sales increased 3.3% on the strength of increased sales to large automotive manufacturers and the broad-based, smaller industrial customer group. This growth substantiated an economic resurgence in our service area, particularly in Northwestern Ohio. Residential and commercial sales increased 0.1% and 2.4%, respectively. Other sales decreased by 28% because of the lower sales to wholesale customers attributable to expiration of a wholesale power agreement, softer wholesale market conditions and limited power availability for bulk power transactions at certain times because of generating plant outages. Lower 1994 fuel cost recovery revenues resulted from favorable changes in the fuel cost factors. The weighted averages of these factors dropped by 5% and 6% for Cleveland Electric and Toledo Edison, respectively. For 1994, operating revenues were 31% residential, 30% commercial, 31% industrial and 8% other and kilowatt-hour sales were 24% residential, 25% commercial, 41% industrial and 10% other. The average prices per kilowatt-hour for residential, commercial and industrial customers were $.11, $.10 and $.06, respectively. The changes from 1993 were not significant. Operating expenses were 15% lower in 1994. Operation and maintenance expenses for 1993 included $218 million of net benefit expenses related to an early retirement program, called the Voluntary Transition Program (VTP), and other charges totaling $54 million. A smaller work force and ongoing cost reduction measures also lowered operation and maintenance expenses. More nuclear generation and less coal-fired generation accounted for a large part of the lower fuel and purchased power expenses in 1994. Depreciation and amortization expenses increased primarily because of higher nuclear plant decommissioning expenses as discussed in Note 1(d). Deferred operating expenses were greater primarily because of the write-off of $172 million of phase-in deferred operating expenses in 1993 as discussed in Note 7(e). The 1993 deferrals also included $84 million of postretirement benefit curtailment cost deferrals related to the VTP. See Note 9(b). Federal income taxes increased as a result of higher pretax operating income. As discussed in Note 4(b), $583 million of our Perry Unit 2 investment was written off in 1993. Also, as discussed in Note 7, phase-in deferred carrying charges of $705 million were written off in 1993. The change in the federal income tax credit amounts for nonoperating income was attributable to these write-offs. (Centerior Energy) F-7 (Centerior Energy) 60 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Share Owners and Board of Directors of Centerior Energy Corporation: We have audited the accompanying consolidated balance sheet and consolidated statement of preferred stock of Centerior Energy Corporation (an Ohio corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Centerior Energy Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed further in Note 9, a change was made in the method of accounting for postretirement benefits other than pensions in 1993. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of Centerior Energy Corporation and subsidiaries listed in the Index to Schedules is presented for purposes 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 audits 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 21, 1996 (Centerior Energy) F-8 (Centerior Energy) 61 INCOME STATEMENT Centerior Energy Corporation and Subsidiaries
For the years ended December 31, ---------------------------- 1995 1994 1993 ------ ------ ------ (millions of dollars, except per share amounts) OPERATING REVENUES $2,516 $2,421 $2,474 ------ ------ ------ OPERATING EXPENSES Fuel and purchased power 465 442 474 Other operation and maintenance 617 595 652 Generation facilities rental expense, net 160 160 159 Early retirement program expenses and other -- -- 272 ------ ------ ------ Total operation and maintenance 1,242 1,197 1,557 Depreciation and amortization 281 278 258 Taxes, other than federal income taxes 322 309 312 Deferred operating expenses, net (53) (55) 23 Federal income taxes 135 114 11 ------ ------ ------ 1,927 1,843 2,161 ------ ------ ------ OPERATING INCOME 589 578 313 ------ ------ ------ NONOPERATING INCOME (LOSS) Allowance for equity funds used during construction 3 5 5 Other income and deductions, net 6 8 (6) Write-off of Perry Unit 2 -- -- (583) Deferred carrying charges, net 43 40 (649) Federal income taxes -- credit (expense) (5) (6) 398 ------ ------ ------ 47 47 (835) ------ ------ ------ INCOME (LOSS) BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 636 625 (522) ------ ------ ------ INTEREST CHARGES AND PREFERRED DIVIDENDS Debt interest 358 361 359 Allowance for borrowed funds used during construction (3) (6) (5) Preferred dividend requirements of subsidiaries 61 66 67 ------ ------ ------ 416 421 421 ------ ------ ------ NET INCOME (LOSS) $ 220 $ 204 $ (943) ------ ------ ------ AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (MILLIONS) 148.0 147.8 144.9 ------ ------ ------ EARNINGS (LOSS) PER COMMON SHARE $ 1.49 $ 1.38 $(6.51) ------ ------ ------ DIVIDENDS DECLARED PER COMMON SHARE $ .80 $ .80 $ 1.60 ------ ------ ------
RETAINED EARNINGS
For the years ended December 31, --------------------------- 1995 1994 1993 ----- ----- ------- (millions of dollars) RETAINED EARNINGS (DEFICIT) AT BEGINNING OF YEAR $(438) $(523) $ 652 ----- ------ ----- ADDITIONS Net income (loss) 220 204 (943) DEDUCTIONS Common stock dividends (118) (118) (231) Other, primarily preferred stock redemption expenses of subsidiaries - (1) (1) ----- ------ ----- Net Increase (Decrease) 102 85 (1,175) ----- ------ ----- RETAINED EARNINGS (DEFICIT) AT END OF YEAR $(336) $(438) $ (523) ----- ------ -----
The accompanying notes are an integral part of these statements. (Centerior Energy) F-9 (Centerior Energy) 62 BALANCE SHEET
December 31, ------------------ 1995 1994 ------- ------- (millions of dollars) ASSETS PROPERTY, PLANT AND EQUIPMENT Utility plant in service $ 9,768 $ 9,770 Less: accumulated depreciation and amortization 3,036 2,906 ------- ------- 6,732 6,864 Construction work in progress 101 129 ------- ------- 6,833 6,993 Nuclear fuel, net of amortization 200 293 Other property, less accumulated depreciation 102 50 ------- ------- 7,135 7,336 ------- ------- CURRENT ASSETS Cash and temporary cash investments 179 186 Amounts due from customers and others, net 223 211 Unbilled revenues 100 93 Materials and supplies, at average cost 120 139 Fossil fuel inventory, at average cost 31 29 Taxes applicable to succeeding years 255 252 Other 18 16 ------- ------- 926 926 ------- ------- REGULATORY AND OTHER ASSETS Amounts due from customers for future federal income taxes, net 1,067 1,046 Unamortized loss from Beaver Valley Unit 2 sale 96 101 Unamortized loss on reacquired debt 89 86 Carrying charges and operating expenses 1,053 957 Nuclear plant decommissioning trusts 114 82 Other 163 157 ------- ------- 2,582 2,429 ------- ------- Total Assets $10,643 $10,691 ------- -------
The accompanying notes are an integral part of this statement. (Centerior Energy) F-10 (Centerior Energy) 63 Centerior Energy Corporation and Subsidiaries
December 31, ------------------ 1995 1994 ------- ------- (millions of dollars) CAPITALIZATION AND LIABILITIES CAPITALIZATION Common shares, without par value (stated value of $357 million for both 1995 and 1994): 180 million authorized; 148 million (excluding 2.7 million shares in Treasury) outstanding in both 1995 and 1994 $ 2,320 $ 2,320 Retained earnings (deficit) (336) (438) ------- ------- Common stock equity 1,984 1,882 Preferred stock With mandatory redemption provisions 220 253 Without mandatory redemption provisions 451 451 Long-term debt 3,734 3,697 ------- ------- 6,389 6,283 ------- ------- CURRENT LIABILITIES Current portion of long-term debt and preferred stock 235 373 Current portion of nuclear fuel lease obligations 95 83 Accounts payable 153 144 Accrued taxes 374 384 Accrued interest 83 90 Other 87 75 ------- ------- 1,027 1,149 ------- ------- DEFERRED CREDITS AND OTHER LIABILITIES Unamortized investment tax credits 263 279 Accumulated deferred federal income taxes 1,875 1,778 Unamortized gain from Bruce Mansfield Plant sale 499 525 Accumulated deferred rents for Bruce Mansfield Plant and Beaver Valley Unit 2 145 139 Nuclear fuel lease obligations 137 219 Retirement benefits 179 176 Other 129 143 ------- ------- 3,227 3,259 ------- ------- Total Capitalization and Liabilities $10,643 $10,691 ------- -------
(Centerior Energy) F-11 (Centerior Energy) 64 CASH FLOWS Centerior Energy Corporation and Subsidiaries
For the years ended December 31, ----------------------------- 1995 1994 1993 ------ ------ ------- (millions of dollars) CASH FLOWS FROM OPERATING ACTIVITIES (1) Net Income (Loss) $ 220 $ 204 $ (943) ---- ------ ------ Adjustments to Reconcile Net Income (Loss) to Cash from Operating Activities: Depreciation and amortization 281 278 258 Deferred federal income taxes 72 95 (452) Unbilled revenues (7) 31 (10) Deferred fuel 6 (17) 5 Deferred carrying charges, net (43) (40) 649 Leased nuclear fuel amortization 125 98 86 Deferred operating expenses, net (53) (55) 23 Allowance for equity funds used during construction (3) (5) (5) Noncash early retirement program expenses, net -- -- 208 Write-off of Perry Unit 2 -- -- 583 Changes in amounts due from customers and others, net (12) 10 1 Changes in inventories 17 -- 26 Changes in accounts payable 9 (44) 45 Changes in working capital affecting operations (10) -- 25 Other noncash items 9 14 18 ---- ------ ------ Total Adjustments 391 365 1,460 ---- ------ ------ Net Cash from Operating Activities 611 569 517 ---- ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES (2) Bank loans, commercial paper and other short-term debt -- -- (50) First mortgage bond issues 542 77 300 Secured medium-term note issues -- -- 128 Term bank loans and other long-term debt issues -- -- 40 Preferred stock issues -- -- 100 Common stock issues -- 12 71 Reacquired common stock -- -- 1 Maturities, redemptions and sinking funds (683) (214) (434) Nuclear fuel lease obligations (102) (110) (106) Common stock dividends paid (118) (118) (231) Premiums, discounts and expenses (17) (1) (13) ---- ------ ------ Net Cash from Financing Activities (378) (354) (194) ---- ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES (2) Cash applied to construction (201) (205) (209) Interest capitalized as allowance for borrowed funds used during construction (3) (6) (5) Contributions to nuclear plant decommissioning trusts (24) (26) (9) Other cash received (applied) (12) (17) 32 ---- ------ ------ Net Cash from Investing Activities (240) (254) (191) ---- ------ ------ NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (7) (39) 132 ---- ------ ------ CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 186 225 93 ---- ------ ------ CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 179 $ 186 $ 225 ---- ------ ------
- --------------- (1) Interest paid (net of amounts capitalized) $ 306 $ 300 $ 295 ------ ------ ------- Income taxes paid $ 89 $ 6 $ 50 ------ ------ -------
(2) Increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance Sheet resulting from the noncash capitalizations under nuclear fuel agreements are excluded from this statement. The accompanying notes are an integral part of this statement. (Centerior Energy) F-12 (Centerior Energy) 65 STATEMENT OF PREFERRED STOCK Centerior Energy Corporation and Subsidiaries
Current December 31, 1995 Shares Call Price ------------- Outstanding Per Share 1995 1994 ----------- ---------- ---- ---- (millions of dollars) CLEVELAND ELECTRIC Without par value, 4,000,000 preferred shares authorized Subject to mandatory redemption: $7.35 Series C 130,000 $ 101.00 $ 13 $ 14 88.00 Series E 15,000 1,015.30 15 18 Adjustable Series M -- -- -- 10 9.125 Series N 300,000 101.00 30 41 91.50 Series Q 64,286 1,000.00 64 75 88.00 Series R 50,000 -- 50 50 90.00 Series S 74,000 -- 73 74 ---- ---- 245 282 Less: Current maturities 30 36 ---- ---- 215 246 ---- ---- Not subject to mandatory redemption: $7.40 Series A 500,000 101.00 50 50 7.56 Series B 450,000 102.26 45 45 Adjustable Series L 500,000 100.00 49 49 42.40 Series T 200,000 -- 97 97 ---- ---- 241 241 ---- ---- TOLEDO EDISON $100 par value, 3,000,000 preferred shares authorized; $25 par value, 12,000,000 preferred shares authorized Subject to mandatory redemption: $100 par $9.375 66,850 101.48 7 8 25 par 2.81 -- -- -- 10 ---- ---- 7 18 Less: Current maturities 2 11 ---- ---- 5 7 ---- ---- Not subject to mandatory redemption: $100 par $ 4.25 160,000 104.625 16 16 4.56 50,000 101.00 5 5 4.25 100,000 102.00 10 10 8.32 100,000 102.46 10 10 7.76 150,000 102.437 15 15 7.80 150,000 101.65 15 15 10.00 190,000 101.00 19 19 25 par 2.21 1,000,000 25.25 25 25 2.365 1,400,000 27.75 35 35 Series A Adjustable 1,200,000 25.00 30 30 Series B Adjustable 1,200,000 25.75 30 30 ---- ---- 210 210 ---- ---- CENTERIOR ENERGY Without par value, 5,000,000 preferred shares authorized, none outstanding -- -- ---- ---- TOTAL PREFERRED STOCK, WITH MANDATORY REDEMPTION PROVISIONS $220 $253 ==== ==== TOTAL PREFERRED STOCK, WITHOUT MANDATORY REDEMPTION PROVISIONS $451 $451 ==== ====
The accompanying notes are an integral part of this statement. (Centerior Energy) F-13 (Centerior Energy) 66 NOTES TO THE FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) GENERAL Centerior Energy is a holding company with two electric utility subsidiaries, Cleveland Electric and Toledo Edison, with service areas in Northern Ohio. The consolidated financial statements also include the accounts of Centerior Energy's wholly owned subsidiary, Centerior Service Company (Service Company), and its three other wholly owned subsidiaries, which in the aggregate are not material. The Service Company provides management, financial, administrative, engineering, legal and other services at cost to Centerior Energy, the Operating Companies and the other subsidiaries. The Operating Companies operate as separate companies, each serving the customers in its service area. The preferred stock, first mortgage bonds and other debt obligations of the Operating Companies are outstanding securities of the issuing utility. All significant intercompany items have been eliminated in consolidation. Centerior Energy and the Operating Companies follow the Uniform System of Accounts prescribed by the FERC and adopted by the PUCO. Rate-regulated utilities are subject to SFAS 71 which governs accounting for the effects of certain types of rate regulation. Pursuant to SFAS 71, certain incurred costs are deferred for recovery in future rates. See Note 7. The Service Company follows the Uniform System of Accounts for Mutual Service Companies prescribed by the Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The estimates are based on an analysis of the best information available. Actual results could differ from those estimates. The Operating Companies are members of the Central Area Power Coordination Group (CAPCO). Other members are Duquesne Light Company, Ohio Edison Company and its wholly owned subsidiary, Pennsylvania Power Company. The members have constructed and operate generation and transmission facilities for their joint use. (B) REVENUES Customers are billed on a monthly cycle basis for their energy consumption based on rate schedules or contracts authorized by the PUCO or on ordinances of individual municipalities. An accrual is made at the end of each month to record the estimated amount of unbilled revenues for kilowatt-hours sold in the current month but not billed by the end of that month. A fuel factor is added to the base rates for electric service. This factor is designed to recover from customers the costs of fuel and most purchased power. It is reviewed and adjusted semiannually in a PUCO proceeding. (C) FUEL EXPENSE The cost of fossil fuel is charged to fuel expense based on inventory usage. The cost of nuclear fuel, including an interest component, is charged to fuel expense based on the rate of consumption. Estimated future nuclear fuel disposal costs are being recovered through base rates. The Operating Companies defer the differences between actual fuel costs and estimated fuel costs currently being recovered from customers through the fuel factor. This matches fuel expenses with fuel-related revenues. Owners of nuclear generating plants are assessed by the federal government for the cost of decontamination and decommissioning of nuclear enrichment facilities operated by the United States Department of Energy. The assessments are based upon the amount of enrichment services used in prior years and cannot be imposed for more than 15 years (to 2007). The Operating Companies have accrued the liability for their share of the total assessments. These costs have been recorded in a deferred charge account since the PUCO is allowing the Operating Companies to recover the assessments through their fuel cost factors. (D) DEPRECIATION AND DECOMMISSIONING The cost of property, plant and equipment is depreciated over their estimated useful lives on a straight-line basis. The annual straight-line depreciation provision for nonnuclear property expressed as a percent of average depreciable utility plant in service was 3.5% in 1995, 3.4% in 1994 and 3.5% in 1993. The annual straight-line depreciation rate for nuclear property is 2.5%. In conjunction with the Operating Companies' pending rate case, we have asked the PUCO to approve an increase of this depreciation rate to approximately 3%. The Operating Companies accrue the estimated costs of decommissioning their three nuclear generating units. (Centerior Energy) F-14 (Centerior Energy) 67 The accruals are required to be funded in an external trust. The PUCO requires that the expense and payments to the external trusts be determined on a levelized basis by dividing the unrecovered decommissioning costs in current dollars by the remaining years in the licensing period of each unit. This methodology requires that the net earnings on the trusts be reinvested therein with the intent of having net earnings offset inflation. The PUCO requires that the estimated costs of decommissioning and the funding level be reviewed at least every five years. In 1994, the Operating Companies increased their annual decommissioning expense accruals to $24 million from the $12 million level in 1993. The accruals are reflected in current rates. The increased accruals in 1994 were derived from updated, site-specific studies for each of the units. The revised estimates reflect the DECON method of decommissioning (prompt decontamination), and the locations and cost characteristics specific to the units, and include costs associated with decontamination, dismantlement and site restoration. The revised estimates for the units in 1993 and 1992 dollars and in dollars at the time of license expiration, assuming a 4% annual inflation rate, are as follows:
License Expiration Future Generating Unit Year Amount Amount - ------------------------------- ---------- ------ ------ (millions of dollars) Davis-Besse 2017 $346(1) $ 862 Perry Unit 1 2026 256(1) 908 Beaver Valley Unit 2 2027 114(2) 423 ---- ------ Total $716 $2,193 ---- ------
- --------------- (1) Dollar amounts in 1993 dollars. (2) Dollar amount in 1992 dollars. The updated estimates reflect substantial increases from the prior PUCO-recognized aggregate estimates of $257 million in 1987 and 1986 dollars. The classification, Accumulated Depreciation and Amortization, in the Balance Sheet at December 31, 1995 includes $130 million of decommissioning costs previously expensed and the earnings on the external trust funding. This amount exceeds the Balance Sheet amount of the external Nuclear Plant Decommissioning Trusts because the reserve began prior to the external trust funding. The trust earnings are recorded as an increase to the trust assets and the related component of the decommissioning reserve (included in Accumulated Depreciation and Amortization). The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry, including those of the Operating Companies, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements. In response to these questions, the Financial Accounting Standards Board (FASB) is reviewing the accounting for removal costs, including decommissioning. If current accounting practices are changed, the annual provision for decommissioning could increase; the estimated cost for decommissioning could be recorded as a liability rather than as accumulated depreciation; and trust fund income from the external decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. The FASB issued an exposure draft on the subject on February 7, 1996. (E) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at original cost less amounts disallowed by the PUCO. Construction costs include related payroll taxes, retirement benefits, fringe benefits, management and general overheads and allowance for funds used during construction (AFUDC). AFUDC represents the estimated composite debt and equity cost of funds used to finance construction. This noncash allowance is credited to income. The AFUDC rates averaged 11.5% in 1995, 9.8% in 1994 and 9.9% in 1993. Maintenance and repairs for plant and equipment are charged to expense as incurred. The cost of replacing plant and equipment is charged to the utility plant accounts. The cost of property retired plus removal costs, after deducting any salvage value, is charged to the accumulated provision for depreciation. (F) DEFERRED GAIN AND LOSS FROM SALES OF UTILITY PLANT The sale and leaseback transactions discussed in Note 2 resulted in a net gain for the sale of the Bruce Mansfield Generating Plant (Mansfield Plant) and a net loss for the sale of Beaver Valley Unit 2. The net gain and net loss were deferred and are being amortized over the terms of leases. See Note 7(a). These amortizations and the lease expense amounts are reported in the Income Statement as Generation Facilities Rental Expense, Net. (G) INTEREST CHARGES Debt Interest reported in the Income Statement does not include interest on obligations for nuclear fuel under construction. That interest is capitalized. See Note 6. Losses and gains realized upon the reacquisition or redemption of long-term debt are deferred, consistent (Centerior Energy) F-15 (Centerior Energy) 68 with the regulatory rate treatment. See Note 7(a). Such losses and gains are either amortized over the remainder of the original life of the debt issue retired or amortized over the life of the new debt issue when the proceeds of a new issue are used for the debt redemption. The amortizations are included in debt interest expense. (H) FEDERAL INCOME TAXES We use the liability method of accounting for income taxes in accordance with SFAS 109. See Note 8. This method requires that deferred taxes be recorded for all temporary differences between the book and tax bases of assets and liabilities. The majority of these temporary differences are attributable to property-related basis differences. Included in these basis differences is the equity component of AFUDC, which will increase future tax expense when it is recovered through rates. Since this component is not recognized for tax purposes, we must record a liability for our tax obligation. The PUCO permits recovery of such taxes from customers when they become payable. Therefore, the net amount due from customers through rates has been recorded as a deferred charge and will be recovered over the lives of the related assets. See Note 7(a). Investment tax credits are deferred and amortized over the lives of the applicable property as a reduction of depreciation expense. See Note 7(d) for a discussion of the amortization of certain unrestricted excess deferred taxes and unrestricted investment tax credits under the Rate Stabilization Program. (2) UTILITY PLANT SALE AND LEASEBACK TRANSACTIONS The Operating Companies are co-lessees of 18.26% (150 megawatts) of Beaver Valley Unit 2 and 6.5% (51 megawatts), 45.9% (358 megawatts) and 44.38% (355 megawatts) of Units 1, 2 and 3 of the Mansfield Plant, respectively. These leases extend through 2017 and are the result of sale and leaseback transactions completed in 1987. Under these leases, the Operating Companies are responsible for paying all taxes, insurance premiums, operation and maintenance expenses and all other similar costs for their interests in the units sold and leased back. They may incur additional costs in connection with capital improvements to the units. The Operating Companies have options to buy the interests back at the end of the leases for the fair market value at that time or renew the leases. The leases include conditions for mandatory termination (and possible repurchase of the leasehold interest) for events of default. Future minimum lease payments under the operating leases at December 31, 1995 are summarized as follows:
Year - ------------------------------------------------- Amount ------------ (millions of dollars) 1996 $ 188 1997 165 1998 165 1999 178 2000 187 Later Years 3,052 ------ Total Future Minimum Lease Payments $3,935 ------
Rental expense is accrued on a straight-line basis over the terms of the leases. The amount recorded in 1995, 1994 and 1993 as annual rental expense for the Mansfield Plant leases was $115 million. The amounts recorded in 1995, 1994 and 1993 as annual rental expense for the Beaver Valley Unit 2 lease were $63 million, $64 million and $63 million, respectively. Amounts charged to expense in excess of the lease payments are classified as Accumulated Deferred Rents in the Balance Sheet. Toledo Edison is selling 150 megawatts of its Beaver Valley Unit 2 leased capacity entitlement to Cleveland Electric. We anticipate that this sale will continue indefinitely. (3) PROPERTY OWNED WITH OTHER UTILITIES AND INVESTORS The Operating Companies own, as tenants in common with other utilities and those investors who are owner-participants in various sale and leaseback transactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction costs and operating expenses. Each Lessor has leased its capacity rights to a utility which is obligated to pay for such Lessor's share of the construction costs and operating expenses. The Operating Companies' share of the operating expenses of these generating units is included in the Income Statement. The Balance Sheet classification of Property, Plant and Equipment at December 31, 1995 includes the following (Centerior Energy) F-16 (Centerior Energy) 69 facilities owned by the Operating Companies as tenants in common with other utilities and Lessors:
Property, Plant and Ownership Equipment Megawatts (Exclusive of Accumulated Generating Unit (% Share) Nuclear Fuel) Depreciation - ------------------------ ---------- ------------- ------------ (millions of dollars) Seneca Pumped Storage 351 (80.00%) $ 65 $ 22 Eastlake Unit 5 411 (68.80) 159 -- Perry Unit 1 609 (51.02) 2,831 575 Beaver Valley Unit 2 and Common Facilities (Note 2) 214 (26.12) 1,485 332 ------ ------ Total $ 4,540 $929 ------ ------
Depreciation for Eastlake Unit 5 has been accumulated with all other nonnuclear depreciable property rather than by specific units of depreciable property. (4) CONSTRUCTION AND CONTINGENCIES (A) CONSTRUCTION PROGRAM The estimated cost of our construction program for the 1996-2000 period is $1.107 billion, including AFUDC of $40 million and excluding nuclear fuel. The Clean Air Act Amendments of 1990 (Clean Air Act) requires, among other things, significant reductions in the emission of sulfur dioxide and nitrogen oxides by fossil-fueled generating units. Our strategy provides for compliance primarily through greater use of low-sulfur coal at some of our units and the use of emission allowances. Total capital expenditures from 1991 through 1995 in connection with Clean Air Act compliance amounted to $50 million. The plan will require additional capital expenditures over the 1996-2005 period of approximately $90 million for nitrogen oxide control equipment and other plant process modifications. In addition, higher fuel and other operation and maintenance expenses will be incurred. Cleveland Electric may need to install sulfur emission control technology at one of its generating plants after 2005 which could require additional expenditures at that time. (B) PERRY UNIT 2 Perry Unit 2, including its share of the facilities common with Perry Unit 1, was approximately 50% complete when construction was suspended in 1985 pending consideration of various options. We wrote off our investment in Perry Unit 2 at December 31, 1993 after we determined that it would not be completed or sold. The write-off totaled $583 million ($425 million after taxes) for our 64.76% ownership share of the unit. (C) HAZARDOUS WASTE DISPOSAL SITES The Operating Companies are aware of their potential involvement in the cleanup of three sites listed on the Superfund List and several other sites. The Operating Companies have accrued a liability totaling $12 million at December 31, 1995 based on estimates of the costs of cleanup and their proportionate responsibility for such costs. We believe that the ultimate outcome of these matters will not have a material adverse effect on our financial condition or results of operations. See Management's Financial Analysis -- Outlook-Hazardous Waste Disposal Sites. (5) NUCLEAR OPERATIONS AND CONTINGENCIES (A) OPERATING NUCLEAR UNITS Our three nuclear units may be impacted by activities or events beyond our control. An extended outage of one of our nuclear units for any reason, coupled with any unfavorable rate treatment, could have a material adverse effect on our financial condition and results of operations. See the discussion of these and other risks in Management's Financial Analysis -- Outlook-Nuclear Operations. (B) NUCLEAR INSURANCE The Price-Anderson Act limits the public liability of the owners of a nuclear power plant to the amount provided by private insurance and an industry assessment plan. In the event of a nuclear incident at any unit in the United States resulting in losses in excess of the level of private insurance (currently $200 million), our maximum potential assessment under that plan would be $155 million per incident. The assessment is limited to $20 million per year for each nuclear incident. These assessment limits assume the other CAPCO companies contribute their proportionate share of any assessment. The utility owners and lessees of Davis-Besse, Perry and Beaver Valley also have insurance coverage for damage to property at these sites (including leased fuel and cleanup costs). Coverage amounted to $2.75 billion for each site as of January 1, 1996. Damage to property could exceed the insurance coverage by a substantial amount. If it does, our share of such excess amount could have a material adverse effect on our financial condition and results of operations. In addition, we can be assessed a maximum of $42 million under these policies during a policy year if the reserves available to the insurer are inadequate to pay claims arising out of an accident at any nuclear facility covered by the insurer. (Centerior Energy) F-17 (Centerior Energy) 70 We also have extra expense insurance coverage. It includes the incremental cost of any replacement power purchased (over the costs which would have been incurred had the units been operating) and other incidental expenses after the occurrence of certain types of accidents at our nuclear units. The amounts of the coverage are 100% of the estimated extra expense per week during the 52-week period starting 21 weeks after an accident and 80% of such estimate per week for the next 104 weeks. The amount and duration of extra expense could substantially exceed the insurance coverage. (6) NUCLEAR FUEL Nuclear fuel is financed for the Operating Companies through leases with a special-purpose corporation. The total amount of financing currently available under these lease arrangements is $307 million ($157 million from intermediate-term notes and $150 million from bank credit arrangements). The intermediate-term notes mature in 1996 and 1997 ($84 million in September 1996 and $73 million in September 1997). The bank credit arrangements terminate in October 1996. The special-purpose corporation plans to obtain alternate financing in 1996 to replace the $234 million of financing expiring in 1996. At December 31, 1995, $236 million of nuclear fuel was financed. The Operating Companies severally lease their respective portions of the nuclear fuel and are obligated to pay for the fuel as it is consumed in a reactor. The lease rates are based on various intermediate-term note rates, bank rates and commercial paper rates. The amounts financed include nuclear fuel in the Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2 reactors with remaining lease payments of $79 million, $55 million and $35 million, respectively, at December 31, 1995. The nuclear fuel amounts financed and capitalized also included interest charges incurred by the lessors amounting to $5 million in 1995, $11 million in 1994 and $14 million in 1993. The estimated future lease amortization payments based on projected consumption are $96 million in 1996, $82 million in 1997, $68 million in 1998, $65 million in 1999 and $62 million in 2000. (7) REGULATORY MATTERS (A) REGULATORY ACCOUNTING REQUIREMENTS AND REGULATORY ASSETS The Operating Companies are subject to the provisions of SFAS 71 and have complied with its provisions. SFAS 71 provides, among other things, for the deferral of certain incurred costs that are probable of future recovery in rates. We monitor changes in market and regulatory conditions and consider the effects of such changes in assessing the continuing applicability of SFAS 71. Criteria that could give rise to discontinuation of the application of SFAS 71 include: (1) increasing competition which significantly restricts the Operating Companies' ability to charge prices which allow us to recover operating costs, earn a fair return on invested capital and recover the amortization of regulatory assets and (2) a significant change in the manner in which rates are set by the PUCO from cost-based regulation to some other form of regulation. Regulatory assets represent probable future revenues to the Operating Companies associated with certain incurred costs, which they will recover from customers through the rate-making process. Effective January 1, 1996, the Operating Companies adopted SFAS 121 which imposes stricter criteria for carrying regulatory assets than SFAS 71 by requiring that such assets be probable of recovery at each balance sheet date. The criteria under SFAS 121 for plant assets require such assets to be written down only if the book value exceeds the projected net future cash flows. Regulatory assets in the Balance Sheet are as follows:
December 31, --------------- 1995 1994 ------ ------ (millions of dollars) Amounts due from customers for future federal income taxes, net $1,067 $1,046 Unamortized loss from Beaver Valley Unit 2 sale 96 101 Unamortized loss on reacquired debt 89 86 Pre-phase-in deferrals* 553 570 Rate Stabilization Program deferrals 500 387 ------ ------ Total $2,305 $2,190 ------ ------
* Represent deferrals of operating expenses and carrying charges for Perry Unit 1 and Beaver Valley Unit 2 in 1987 and 1988 which are being amortized over the lives of the related property. As of December 31, 1995, customer rates provide for recovery of all the above regulatory assets, except those related to the Rate Stabilization Program discussed below. The remaining recovery periods for all of the regulatory assets listed above range from 16 to 33 years. (B) RATE CASE In April 1995, the Operating Companies filed requests with the PUCO for price increases aggregating $119 million annually to be effective in 1996. The price increases are necessary to recover cost increases and amortization of certain costs deferred since 1992 pursuant to the Rate Stabilization Program. If their requests are approved, the Operating Companies intend to freeze prices until at least 2002 with the expectation that increased sales and cost control measures will preclude the need for further price increases. If circumstances make it impossible to earn a fair return for share owners (Centerior Energy) F-18 (Centerior Energy) 71 over time, we would ask for a further increase, but only after taking all appropriate actions to make such a request unnecessary. In November 1995, the PUCO Staff issued its report addressing the Operating Companies' rate case. The Staff recommended that the PUCO grant the full $119 million price increase requested. However, the Staff also recommended that the price increase be conditioned upon the Operating Companies' commitment "to a significant revaluation of their asset bases over some finite period of time." In December 1995, the PUCO ordered an investigation into the financial condition, rates and practices of the Operating Companies to identify outcomes and remedies other than those routinely applied during the rate case process. In late January 1996, the Staff proposed an incremental reduction (currently, $1.25 billion) beyond the normal level in nuclear plant and regulatory assets within five years. The Staff proposed that the Operating Companies have flexibility to determine how to achieve this incremental asset revaluation, but no additional price increases to recover the accelerated asset revaluation were proposed. Any incremental revaluation of assets would be for regulatory purposes and would cause prices and revenues after the five-year period to be lower than they otherwise would be in conjunction with any rate case following such revaluation. The Staff's asset revaluation proposal represents a substantial change in the form of rate-making traditionally followed by the PUCO and is inconsistent with the Ohio statutes that define the rate-making process. The PUCO is not bound by the recommendations of the Staff. A decision by the PUCO is anticipated in the second quarter of 1996. (C) ASSESSMENT OF POTENTIAL OUTCOMES We continually assess the effects of competition and the changing industry and regulatory environment on operations, our ability to recover regulatory assets and our ability to continue application of SFAS 71. If, as a result of the pending rate case or other events, we determine that the Operating Companies no longer meet the criteria for SFAS 71, we would be required to record a before-tax charge to write off the regulatory assets shown above and evaluate whether property, plant and equipment should be written down. In the more likely event that only a portion of operations (such as nuclear operations) no longer meets the criteria of SFAS 71, a write-off would be limited to regulatory assets, if any, that are not reflected in our cost-based prices established for the remaining regulated operations. In addition, we would be required to evaluate whether the changes in the competitive and regulatory environment which led to discontinuing the application of SFAS 71 to a portion of our operations would also result in a write-down of property, plant and equipment pursuant to SFAS 121. We believe application of SFAS 121 in that event will not result in a write-off of regulatory assets unless the PUCO denies recovery of such assets or if we conclude, as a result of the outcome of our pending rate case or some other event, that recovery is not probable for some or all of the regulatory assets. Furthermore, a write-down under SFAS 121 of property, plant and equipment is not expected. (D) RATE STABILIZATION PROGRAM The Rate Stabilization Program that the PUCO approved in October 1992 allowed the Operating Companies to defer and subsequently amortize and recover certain costs not currently recovered in rates and to accelerate amortization of certain benefits during the 1992-1995 period. Recovery of the deferrals will begin with the effective date of the PUCO's orders in the pending rate case. The regulatory assets recorded included the deferral of post-in-service interest carrying charges, depreciation expense and property taxes on assets placed in service after February 29, 1988, the deferral of incremental expenses resulting from the adoption of SFAS 106 (see Note 9(b)), and the deferral by Toledo Edison of the operating expenses equivalent to an accumulated excess rent reserve for Beaver Valley Unit 2 (which resulted from the April 1992 refinancing of Secured Lease Obligation Bonds issued by a special purpose corporation). The cost deferrals recorded in 1995, 1994 and 1993 pursuant to these provisions were $113 million, $112 million and $191 million, respectively. The regulatory accounting measures also provided for the accelerated amortization of certain unrestricted excess deferred tax and unrestricted investment tax credit balances and an excess interim spent fuel storage accrual balance for Davis-Besse. The total annual amount of such accelerated benefits was $46 million in 1995, 1994 and 1993. (E) PHASE-IN DEFERRALS In 1993, upon completing a comprehensive study which led to our strategic plan, we concluded that projected revenues would not provide for recovery of deferrals recorded pursuant to phase-in plans approved by the PUCO in 1989 and, consequently, that the deferrals would have to be written off. Such deferrals were scheduled to be recovered in 1994 through 1998. The total (Centerior Energy) F-19 (Centerior Energy) 72 phase-in deferred operating expenses and carrying charges written off at December 31, 1993 were $172 million and $705 million, respectively (totaling $598 million after taxes). (8) FEDERAL INCOME TAX The components of federal income tax expense (credit) recorded in the Income Statement were as follows:
1995 1994 1993 ----- ----- ----- (millions of dollars) Operating Expenses: Current $ 88 $ 70 $ 99 Deferred 47 44 (88) ---- ---- ----- Total Charged to Operating Expenses 135 114 11 ---- ---- ----- Nonoperating Income: Current (20 ) (45 ) (34) Deferred 25 51 (364) ---- ---- ----- Total Expense (Credit) to Nonoperating Income 5 6 (398) ---- ---- ----- Total Federal Income Tax Expense (Credit) $140 $120 $(387) ---- ---- -----
The deferred federal income tax expense results from the temporary differences that arise from the different years certain expenses are recognized for tax purposes as opposed to financial reporting purposes. Such temporary differences affecting operating expenses relate principally to depreciation and deferred operating expenses whereas those affecting nonoperating income principally relate to deferred carrying charges and the 1993 write-offs. Federal income tax, computed by multiplying the income before taxes and preferred dividend requirements of subsidiaries by the 35% statutory rate, is reconciled to the amount of federal income tax recorded on the books as follows:
1995 1994 1993 ---- ---- ------- (millions of dollars) Book Income (Loss) Before Federal Income Tax $421 $390 $(1,263) ---- ---- ----- Tax (Credit) on Book Income (Loss) at Statutory Rate $147 $137 $ (442) Increase (Decrease) in Tax: Write-off of Perry Unit 2 -- -- 46 Write-off of phase-in deferrals -- -- 28 Depreciation 7 3 (6) Rate Stabilization Program (27) (27) (30) Other items 13 7 17 ---- ---- ----- Total Federal Income Tax Expense (Credit) $140 $120 $ (387) ---- ---- -----
For tax reporting purposes, the Perry Unit 2 abandonment was recognized in 1994 and resulted in a $327 million loss with a corresponding $114 million reduction in federal income tax liability. Because of the alternative minimum tax (AMT), $65 million of the $114 million was realized in 1994. The remaining $49 million will not be realized until 1999. Additionally, a repayment of approximately $29 million of previously allowed investment tax credits was recognized in 1994. Under SFAS 109, temporary differences and carryforwards resulted in deferred tax assets of $604 million and deferred tax liabilities of $2.479 billion at December 31, 1995 and deferred tax assets of $596 million and deferred tax liabilities of $2.374 billion at December 31, 1994. These are summarized as follows:
December 31, --------------- 1995 1994 ------ ------ (millions of dollars) Property, plant and equipment $2,095 $2,035 Deferred carrying charges and operating 224 215 expenses Net operating loss carryforwards (113) (144) Investment tax credits (145) (156) Sale and leaseback transactions (127) (128) Other (59) (44) ------ ------ Net deferred tax liability $1,875 $1,778 ------ ------
For tax purposes, net operating loss (NOL) carryforwards of approximately $322 million are available to reduce future taxable income and will expire in 2005 through 2009. The 35% tax effect of the NOLs is $113 million. Additionally, AMT credits of $213 million that may be carried forward indefinitely are available to reduce future tax. (9) RETIREMENT BENEFITS (A) RETIREMENT INCOME PLAN We sponsor a noncontributing pension plan which covers all employee groups. The amount of retirement benefits generally depends upon the length of service. Under certain circumstances, benefits can begin as early as age 55. Our funding policy is to comply with the Employee Retirement Income Security Act of 1974 guidelines. In 1993, we offered the VTP, an early retirement program. Operating expenses for 1993 included $205 million of pension plan accruals to cover enhanced VTP benefits offset by a credit of $81 million resulting from a settlement of pension obligations through lump sum payments to almost all the VTP retirees. Pension and VTP costs (credits) for 1993 through 1995 were comprised of the following components:
1995 1994 1993 ---- ---- ---- (millions of dollars) Pension Costs (Credits): Service cost for benefits earned during the period $ 10 $ 13 $ 15 Interest cost on projected benefit obligation 26 26 37 Actual return on plan assets (53) (2) (65) Net amortization and deferral 9 (34) 4 --- --- --- Net pension costs (credits) (8) 3 (9) VTP cost -- -- 205 Settlement gain -- -- (81) --- --- --- Net costs (credits) $ (8) $ 3 $115 --- --- ---
(Centerior Energy) F-20 (Centerior Energy) 73 The following table presents a reconciliation of the funded status of the plan.
December 31, ------------- 1995 1994 ---- ---- (millions of dollars) Actuarial present value of benefit obligations: Vested benefits $304 $278 Nonvested benefits 2 2 ---- ---- Accumulated benefit obligation 306 280 Effect of future compensation levels 54 37 ---- ---- Total projected benefit obligation 360 317 Plan assets at fair market value 394 362 ---- ---- Funded status 34 45 Unrecognized net gain from variance between assumptions and experience (68) (79) Unrecognized prior service cost 15 10 Transition asset at January 1, 1987 being amortized over 19 years (36) (39) ---- ---- Net accrued pension liability included in Retirement Benefits in the Balance Sheet $(55) $(63) ---- ----
A September 30 measurement date was used for 1995 and 1994 reporting. At December 31, 1995, the settlement (discount) rate and long-term rate of return on plan assets assumptions were 8% and 11%, respectively. The long-term rate of annual compensation increase assumption was 3.5% in 1996 and 1997 and 4% thereafter. At December 31, 1994, the settlement rate and long-term rate of return on plan assets assumptions were 8.5% and 10%, respectively. The long-term rate of annual compensation increase assumption was 3.5% for 1995 and 1996 and 4% thereafter. Plan assets consist primarily of investments in common stock, bonds, guaranteed investment contracts, cash equivalent securities and real estate. (B) OTHER POSTRETIREMENT BENEFITS We sponsor a postretirement benefit plan which provides all employee groups certain health care, death and other postretirement benefits other than pensions. The plan is contributory, with retiree contributions adjusted annually. The plan is not funded. We adopted SFAS 106, the accounting standard for postretirement benefits other than pensions, effective January 1, 1993. The standard requires the accrual of the expected costs of such benefits during the employees' years of service. Prior to 1993, the costs of these benefits were expensed as paid, which was consistent with rate-making practices. The components of the total postretirement benefit costs for 1993 through 1995 were as follows:
1995 1994 1993 ---- ---- ---- (millions of dollars) Service cost for benefits earned during the period $ 2 $ 2 $ 3 Interest cost on accumulated postretirement benefit obligation 18 18 16 Amortization of transition obligation at January 1, 1993 of $167 million over 20 years 7 8 8 Amortization of gain (1 ) -- -- VTP curtailment cost (includes $16 million transition obligation adjustment) -- -- 84 --- --- --- Total costs $26 $28 $111 --- --- ---
In 1995, 1994 and 1993, we deferred incremental SFAS 106 expenses (in excess of the amounts paid) of $4 million, $6 million and $96 million, respectively, pursuant to a provision of the Rate Stabilization Program. See Note 7(d). The accumulated postretirement benefit obligation and accrued postretirement benefit cost are as follows:
December 31, ------------- 1995 1994 ----- ----- (millions of dollars) Accumulated postretirement benefit obligation attributable to: Retired participants $(200) $(203) Fully eligible active plan participants (3) (1) Other active plan participants (28) (21) ----- ----- Accumulated postretirement benefit obligation (231) (225) Unrecognized net gain from variance between assumptions and experience (21) (23) Unamortized transition obligation 128 135 ----- ----- Accrued postretirement benefit cost included in Retirement Benefits in the Balance Sheet $(124) $(113) ----- -----
A September 30 measurement date was used for 1995 and 1994 reporting. At December 31, 1995 and 1994, the settlement rate and the long-term rate of annual compensation increase assumptions were the same as those discussed for pension reporting in Note 9(a). At December 31, 1995, the assumed annual health care cost trend rates (applicable to gross eligible charges) were 8% for medical and 7.5% for dental in 1996. Both rates reduce gradually to a fixed rate of 4.75% by 2003. Elements of the obligation affected by contribution caps are significantly less sensitive to the health care cost trend rate than other elements. If the assumed health care cost trend rates were increased by one percentage point in each future year, the accumulated postretirement benefit obligation as of December 31, 1995 would increase by $6 million and the aggregate of the service and interest cost (Centerior Energy) F-21 (Centerior Energy) 74 components of the annual postretirement benefit cost would increase by $0.5 million. (10) GUARANTEES Cleveland Electric has guaranteed certain loan and lease obligations of two coal suppliers under two long-term coal supply contracts. Toledo Edison is a party to one of these contracts. At December 31, 1995, the principal amount of the loan and lease obligations guaranteed by the Operating Companies under both contracts was $53 million. In addition, under the contract to which Toledo Edison is not a party, Cleveland Electric may be responsible for mine closing costs when the contract is terminated. At December 31, 1995, the unfunded costs of closing this mine as estimated by the supplier were $32 million. The prices under both contracts which include certain minimum payments are sufficient to satisfy the loan and lease obligations and mine closing costs over the lives of the contracts. If either contract is terminated early for any reason, the Operating Companies would attempt to reduce the termination charges and would ask the PUCO to allow recovery of such charges from customers through the fuel factor of the respective Operating Company. (11) CAPITALIZATION (A) CAPITAL STOCK TRANSACTIONS AND COMMON SHARES RESERVED FOR ISSUE Shares sold, retired and purchased for treasury during the three years ended December 31, 1995 are listed in the following table.
1995 1994 1993 ---- ------ ----- (thousands of shares) Centerior Energy Common Stock: Dividend Reinvestment and Stock Purchase Plan -- 683 3,542 Employee Savings Plan -- 259 544 Employee Purchase Plan -- 46 52 ---- ---- ----- Total Common Stock Sales -- 988 4,138 Treasury Shares (3) -- 26 ---- ---- ----- Net Increase (Decrease) (3) 988 4,164 ---- ---- ----- Preferred Stock of Subsidiaries Subject to Mandatory Redemption: Cleveland Electric Retirements $ 7.35 Series C (10) (10) (10) 88.00 Series E (3) (3) (3) Adjustable Series M (100) (100) (100) 9.125 Series N (111) (189) (150) 91.50 Series Q (11) -- -- 90.00 Series S (1) -- -- Toledo Edison Retirements $100 par $9.375 (17) (17) (17) 25 par 2.81 (400) (800) (800) Preferred Stock of Subsidiaries Not Subject to Mandatory Redemption: Cleveland Electric Sales $42.40 Series T -- -- 200 ---- ---- ----- Net (Decrease) (653) (1,119) (880) ---- ---- -----
Shares of common stock required for our stock plans in 1995 were acquired in the open market. The Board of Directors has authorized the purchase in the open market of up to 1,500,000 shares of our common stock until June 30, 1996. As of December 31, 1995, 225,500 shares had been purchased at a total cost of $4 million. Such shares are being held as treasury stock. The number of common stock shares reserved for issue under the Employee Savings Plan and the Employee Purchase Plan was 1,702,849 and 423,797, respectively, at December 31, 1995. Under an Equity Compensation Plan (Plan) adopted in 1994, options to purchase shares of common stock and awards of restricted common stock were granted to management employees. In 1995, options were issued for 285,000 shares at an exercise price of $14.58. In 1994, options were issued for 264,900 shares at an exercise price of $13.20 but options for 9,500 shares were surrendered in 1995. The options expire 10 years from the date of the grant and vest over four years. The number of shares available for issuance under the Plan each year is determined by formula, generally 0.5% of outstanding shares. Shares of common stock required for the Plan may be either issued as new shares, issued from treasury stock or acquired in the open market specifically for distribution under the Plan. In 1995, the FASB issued SFAS 123, a new accounting standard for stock-based compensation, effective for 1996. The standard encourages accounting for stock-based compensation awards based on their fair value at the grant date with the resulting cost recorded as an expense. Entities electing not to record the cost are required to disclose in the notes to the financial statements what the impact on net income and earnings per share would have been had they followed the suggested accounting. We expect to adopt the disclosure method of implementing SFAS 123, which will have no impact on our results of operations. (B) EQUITY DISTRIBUTION RESTRICTIONS The Operating Companies can make cash available for the funding of Centerior Energy's common stock dividends by paying dividends on their respective common stock, which is held solely by Centerior Energy. Federal law prohibits the Operating Companies from paying dividends out of capital accounts. However, the Operating Companies may pay preferred and common stock dividends out of appropriated retained earnings and current earnings. At December 31, 1995, Cleveland Electric and (Centerior Energy) F-22 (Centerior Energy) 75 Toledo Edison had $212 million and $183 million, respectively, of appropriated retained earnings for the payment of dividends. However, Toledo Edison is prohibited from paying a common stock dividend by a provision in its mortgage that essentially requires such dividends to be paid out of the total balance of retained earnings, which currently is a deficit. (C) PREFERRED AND PREFERENCE STOCK Amounts to be paid for preferred stock which must be redeemed during the next five years are $32 million in 1996, $32 million in 1997, $16 million in 1998, $35 million in 1999 and $33 million in 2000. The annual mandatory redemption provisions are as follows:
Shares Price To Be Beginning Per Redeemed in Share -------- --------- ------ Cleveland Electric Preferred: $ 7.35 Series C 10,000 1984 $ 100 88.00 Series E 3,000 1981 1,000 9.125 Series N 150,000 1993 100 91.50 Series Q 10,714 1995 1,000 88.00 Series R 50,000 2001* 1,000 90.00 Series S 18,750 1999 1,000 Toledo Edison Preferred: $100 par $9.375 16,650 1985 100
* All outstanding shares to be redeemed on December 1, 2001. In 1995, Cleveland Electric purchased 1,000 shares of Serial Preferred Stock, $90.00 Series S, which will reduce the 2002 redemption requirement shown in the above table. The annualized preferred dividend requirement for the Operating Companies at December 31, 1995 was $59 million. The preferred dividend rates on Cleveland Electric's Series L and M and Toledo Edison's Series A and B fluctuate based on prevailing interest rates and market conditions. The dividend rates for these issues averaged 7.23%, 7.02%, 7.75% and 8.58%, respectively, in 1995. Preference stock authorized for the Operating Companies are 3,000,000 shares without par value for Cleveland Electric and 5,000,000 shares with a $25 par value for Toledo Edison. No preference shares are currently outstanding for either company. With respect to dividend and liquidation rights, each Operating Company's preferred stock is prior to its preference stock and common stock, and each Operating Company's preference stock is prior to its common stock. (D) LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS Long-term debt, less current maturities, for the Operating Companies was as follows:
Actual or Average Interest Rate at December 31, December 31, ----------------- Year of Maturity 1995 1995 1994 - ---------------------------- ------------ ------ ------ (millions of dollars) First mortgage bonds: 1997-2000 13.75 % $ -- $ 21 1997-2000 7.00 3 4 1997-2000 10.88 24 24 1997 6.125 31 31 1998 10.00 1 1 1999-2000 6.20 4 4 1999 7.25 100 100 2001-2005 8.38 962 671 2006-2010 7.99 122 122 2011-2015 7.25 381 480 2016-2020 8.24 690 635 2021-2025 8.25 615 472 ------ ------ 2,933 2,565 Secured medium-term notes due 1997-2021* 8.50 613 766 Term bank loans -- -- 63 Notes due 1997** 8.75 8 25 Debentures due 2002 8.70 135 135 Pollution control notes due 1997-2012 6.64 53 151 Other -- net -- (8) (8) ------ ------ Total Long-Term Debt $3,734 $3,697 ------ ------
* Secured by first mortgage bonds. ** Secured by subordinated mortgage collateral. Long-term debt matures during the next five years as follows: $203 million in 1996, $90 million in 1997, $113 million in 1998, $273 million in 1999 and $41 million in 2000. The mortgages of the Operating Companies constitute direct first liens on substantially all property owned and franchises held by them. Excluded from the liens, among other things, are cash, securities, accounts receivable, fuel, supplies and, in the case of Toledo Edison, automotive equipment. Certain credit agreements of the Operating Companies contain covenants relating to fixed charge coverage ratios and limitations on secured financing other than through first mortgage bonds or certain other transactions. In June 1995, the Operating Companies replaced letters of credit in connection with the sale and leaseback of Beaver Valley Unit 2 that were due to expire with new letters of credit expiring in June 1999. The letters of credit are in an aggregate amount of approximately $225 million and are secured by first mortgage bonds of Cleveland Electric and (Centerior Energy) F-23 (Centerior Energy) 76 Toledo Edison in the proportion of 40% and 60%, respectively. At December 31, 1995, the Operating Companies had outstanding $54 million of bank loans and notes secured by subordinated mortgage collateral. (12) SHORT-TERM BORROWING ARRANGEMENTS Centerior Energy has a $125 million revolving credit facility through May 1996. Centerior Energy and the Service Company may borrow under the facility, with all borrowings jointly and severally guaranteed by the Operating Companies. Centerior Energy plans to transfer any of its borrowed funds to the Operating Companies. The credit agreement is secured with first mortgage bonds of Cleveland Electric and Toledo Edison in the proportion of 40% and 60%, respectively. The banks' fee is 0.625% per annum payable quarterly in addition to interest on any borrowings. There were no borrowings under the facility at December 31, 1995. Also, the Operating Companies may borrow from each other on a short-term basis. (13) FINANCIAL INSTRUMENTS The estimated fair values at December 31, 1995 and 1994 of financial instruments that do not approximate their carrying amounts in the Balance Sheet are as follows:
December 31, ---------------------------------- 1995 1994 ---------------- ---------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ------ -------- ------ (millions of dollars) Capitalization and Liabilities: Preferred Stock, with Mandatory Redemption Provisions (including current portion) $ 252 $ 239 $ 300 $ 264 Long-Term Debt (including current portion) 3,945 3,961 4,031 3,628
Noncash investments in the Nuclear Plant Decommissioning Trusts are summarized in the following table.
December 31, ---------------- 1995 1994 ------ ------ (millions of dollars) Type of Securities: Federal Government $ 47 $ 46 Municipal 25 31 --- --- Total $ 72 $ 77 --- --- Maturities: Due within one year $ 1 $ 19 Due in one to five years 22 16 Due in six to 10 years 24 17 Due after 10 years 25 25 --- --- Total $ 72 $ 77 --- ---
The fair value of these trusts is estimated based on the quoted market prices for the investment securities. As a result of adopting the new accounting standard for certain investments in debt and equity securities, SFAS 115, in 1994, the carrying amount of these trusts approximates fair value. The fair value of the Operating Companies' preferred stock, with mandatory redemption provisions, and long-term debt is estimated based on the quoted market prices for the respective or similar issues or on the basis of the discounted value of future cash flows. The discounted value used current dividend or interest rates (or other appropriate rates) for similar issues and loans with the same remaining maturities. The estimated fair values of all other financial instruments approximate their carrying amounts in the Balance Sheet at December 31, 1995 and 1994 because of their short-term nature. (14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1995.
Quarters Ended ---------------------------------------- March 31, June 30, Sept. 30, Dec. 31, --------- -------- --------- -------- (millions of dollars, except per share amounts) 1995 Operating Revenues $ 588 $607 $ 740 $581 Operating Income $ 130 $137 $ 205 $118 Net Income $ 38 $ 44 $ 109 $ 29 Average Common Shares (millions) 148.0 148.0 148.0 148.0 Earnings Per Common Share $ .26 $.30 $ .74 $.20 Dividends Paid Per Common Share $ .20 $.20 $ .20 $.20 1994 Operating Revenues $ 588 $596 $ 667 $570 Operating Income $ 129 $134 $ 186 $129 Net Income $ 35 $ 42 $ 92 $ 35 Average Common Shares (millions) 147.4 147.9 148.0 148.0 Earnings Per Common Share $ .24 $.28 $ .62 $.24 Dividends Paid Per Common Share $ .20 $.20 $ .20 $.20
(Centerior Energy) F-24 (Centerior Energy) 77 FINANCIAL AND STATISTICAL REVIEW OPERATING REVENUES (millions of dollars)
Steam Total Total Total Heating Operating Year Residential Commercial Industrial Other Retail Wholesale Electric & Gas Revenues - ------------------------------------------------------------------------------------------------------------------------------- 1995 $ 797 747 777 136 2 457 59 2 516 -- $ 2 516 1994 758 722 758 137 2 375 46 2 421 -- 2 421 1993 768 716 754 143 2 381 93 2 474 -- 2 474 1992 732 706 766 143 2 347 91 2 438 -- 2 438 1991 777 723 783 188 2 471 89 2 560 -- 2 560 1985 567 485 668 73 1 793 26 1 819 19 1 838
- -------------------------------------------------------------------------------- OPERATING EXPENSES (millions of dollars)
Other Generation Deferred Fuel & Operation Facilities Depreciation Taxes, Operating Federal Total Purchased & Rental & Other Than Expenses, Income Operating Year Power Maintenance Expense, Net Amortization FIT Net Taxes Expenses - ------------------------------------------------------------------------------------------------------------------------------- 1995 $ 465 617 160 281 322 (53) 135 $ 1 927 1994 442 595 160 278 309 (55) 114 1 843 1993 474 924(a) 159 258 312 23(b) 11 2 161 1992 473 623 161 256 318 (52) 122 1 901 1991 500 633 168 243(c) 305 (6) 138 1 981 1985 521 451 -- 141 181 -- 155 1 449
- -------------------------------------------------------------------------------- INCOME (LOSS) (millions of dollars)
Federal Income Other Deferred Income (Loss) Income & Carrying Taxes-- Before Operating AFUDC-- Deductions, Charges, Credit Interest Debt Year Income Equity Net Net (Expense) Charges Interest - ----------------------------------------------------------------------------------------------------------- 1995 $ 589 3 6 43 (5) 636 358 1994 578 5 8 40 (6) 625 361 1993 313 5 (589)(d) (649)(b) 398 (522) 359 1992 537 2 9 100 (7) 641 365 1991 579 9 6 110 (30) 674 381 1985 389 268 5 -- 87 749 367
- -------------------------------------------------------------------------------- INCOME (LOSS) (millions of dollars) COMMON STOCK (dollars per share & %)
Return on Preferred & Average Average Preference Net Shares Common AFUDC-- Stock Income Outstanding Earnings Stock Dividends Year Debt Dividends (Loss) (millions) (Loss) Equity Declared - ------------------------------------------------------- --------------------------------------------------------------------- 1995 $ (3) 61 $ 220 148.0 $ 1.49 11.4% $ .80 1994 (6) 66 204 147.8 1.38 11.1 .80 1993 (5) 67 (943) 144.9 (6.51) (40.3) 1.60 1992 (1) 65 212 141.7 1.50 7.4 1.60 1991 (5) 61 237 139.1 1.71 8.4 1.60 1985 (102) 83 401 121.9(e) 3.29(e) 15.7 2.20(e) Book Year Value - --------------- ------------- 1995 $13.40 1994 12.71 1993 12.14 1992 20.22 1991 20.37 1985 21.50(e)
- -------------------------------------------------------------------------------- NOTE: 1985 data is the result of combining and restating data for the Operating Companies. (a) Includes early retirement program expenses and other charges of $272 million. (b) Includes write-off of phase-in deferrals of $877 million, consisting of $172 million of deferred operating expenses and $705 million of deferred carrying charges. (c) The Operating Companies adopted a change in accounting for nuclear plant depreciation, changing from the units-of-production method to the straight-line method at a 2.5% rate. (Centerior Energy) F-25 (Centerior Energy) 78 Centerior Energy Corporation and Subsidiaries
ELECTRIC SALES (millions of KWH) ELECTRIC CUSTOMERS RESIDENTIAL USAGE (thousands at year end) Industrial Year Residential Commercial Industrial Wholesale Other Total Residential Commercial & Other - -------------------------------------------------------------------- --------------------------------------- --------------------------- 1995 7 227 7 694 12 168 2 626 1 050 30 765 930 99 11 1994 6 980 7 481 12 069 1 842 1 074 29 446 925 98 11 1993 6 974 7 306 11 687 3 027 1 022 30 016 924 97 12 1992 6 666 7 086 11 551 2 814 1 011 29 128 925 97 13 1991 6 981 7 176 11 559 2 690 1 048 29 454 922 96 13 1985 6 309 5 952 11 410 716 865 25 252 893 87 12 Average Average Year Total Customer KWH Customer - --------- ------- 1995 1 040 7 791 11.02c $858.66 1994 1 034 7 556 10.86 820.89 1993 1 033 7 546 11.01 830.99 1992 1 035 7 227 10.98 793.68 1991 1 031 7 410 11.16 827.10 1985 992 6 900 8.98 622.08
- --------------------------------------------------------------------------------
LOAD (MW & %) ENERGY (millions of KWH) FUEL Net Company Generated Seasonal Peak Capacity Load ----------------------------- Purchased Fuel Cost Year Capability Load Margin Factor Fossil(f) Nuclear Total Power Total Per KWH - -------------------------------------------------------- ---------------------------------------------------- ----------------------- 1995 5 924 5 779 2.4% 60.0% 17 260 14 936 32 196 338 32 534 1.38c 1994 6 226 5 291 15.0 63.9 18 000 11 824 29 824 922 30 746 1.35 1993 6 226 5 397 13.3 61.6 21 105 10 435 31 540 273 31 813 1.39 1992 6 463 5 091 21.2 63.4 17 371 13 814 31 185 (122) 31 063 1.45 1991 6 460 5 361 17.0 62.9 17 971 13 454 31 425 40 31 465 1.48 1985 4 539 4 512 0.6 69.1 21 457 1 964 23 421 3 668 27 089 1.85 Efficiency BTU Per Year KWH - ------------ ---------- 1995 10 447 1994 10 454 1993 10 276 1992 10 395 1991 10 442 1985 10 313
- --------------------------------------------------------------------------------
INVESTMENT (millions of dollars) Construction Utility Work In Total Plant Accumulated Progress Nuclear Property, Utility In Depreciation & Net & Perry Fuel and Plant and Plant Total Year Service Amortization Plant Unit 2 Other Equipment Additions Assets - ---------------------------------------------------------------------------------------------------------- ------- ----------- 1995 $9 768 3 036 6 732 101 302 $ 7 135 $ 210 $10 643 1994 9 770 2 906 6 864 129 343 7 336 197 10 691 1993 9 571 2 677 6 894 181 385 7 460 218 10 710 1992 9 449 2 488 6 961 781 424 8 166 200 12 071 1991 8 888 2 274 6 614 853 503 7 970 204 11 829 1985 4 481 1 265 3 216 4 261 564 8 041 994 8 992
- -------------------------------------------------------------------------------- CAPITALIZATION (millions of dollars & %)
Preferred & Preference Preferred Stock, with Stock, without Mandatory Mandatory Common Stock Redemption Redemption Year Equity Provisions Provisions Long-Term Debt Total - ------------------------------------------------------------------------------------------------------- 1995 $1 984 31% 220 3% 451 7% 3 734 59% $6 389 1994 1 882 30 253 4 451 7 3 697 59 6 283 1993 1 785 27 313 5 451 7 4 019 61 6 568 1992 2 889 39 364 5 354 5 3 694 51 7 301 1991 2 855 38 332 4 427 6 3 841 52 7 455 1985 2 710 39 468 7 374 5 3 439 49 6 991
- -------------------------------------------------------------------------------- (d) Includes write-off of Perry Unit 2 of $583 million. (e) Average shares outstanding and related per share computations reflect the Cleveland Electric 1.11-for-one exchange ratio and the Toledo Edison one-for-one exchange ratio for Centerior Energy shares at the date of affiliation, April 29, 1986. (f) Reduced by net energy used by the Seneca Pumped Storage Plant for pumping. (Centerior Energy) F-26 (Centerior Energy) 79 MANAGEMENT'S FINANCIAL ANALYSIS OUTLOOK STRATEGIC PLAN We continued to make progress during the second year of our eight-year strategic plan, but we remain keenly aware of the magnitude of the problems that face us. The strategic plan was created by Centerior Energy Corporation (Centerior Energy), along with The Cleveland Electric Illuminating Company (Company) and The Toledo Edison Company (Toledo Edison), to achieve two major goals: strengthening their financial conditions and improving their competitive positions. The Company and Toledo Edison are the two wholly owned electric utility subsidiaries of Centerior Energy. The plan's objectives relate to the combined operations of all three companies. The objectives are to achieve profitable revenue growth, become a leader in customer satisfaction, build a winning employee team, attain increasingly competitive power supply costs and maximize share owner return on Centerior Energy common stock. We are not yet positioned to compete in a less regulated electric utility industry, but every major action being taken -- strategic planning, revenue enhancement, cost reduction, improvement of work practices and application for increased prices -- is part of a comprehensive effort to succeed in an increasingly competitive environment. A primary objective of the strategic plan is continued and significant revenue growth even as our markets become more competitive. The Company's retail revenues adjusted for weather and fuel costs have grown about 1% annually since 1990. During 1995, we took aggressive steps to increase revenues through enhanced marketing strategies. Also, our economic development efforts proved successful in attracting new customers and supporting the expansion of existing ones. Although we are not satisfied with our growth rate, we expect that our marketing activity will improve revenue growth. The rate case which the Company and Toledo Edison filed with The Public Utilities Commission of Ohio (PUCO) in April 1995 is a critical factor to the success of the strategic plan. We do not see this rate case as a continuation of business as usual but as an important turning point which should, if we are successful in accomplishing the objectives discussed below, bring an end to price increases for the foreseeable future. A successful conclusion of the case would speed our transition to a more competitive company by providing additional cash to lower costs by accelerating the pay-down of debt and preferred stock. In our view, a successful conclusion would include approval of the full price increase requested with a regulatory commitment to maintain the established price levels over an appropriate transition period. This should be coupled with a means to accelerate recognition of regulatory assets (described in Note 7(a)) and nuclear generating assets concurrent with our cost control and revenue enhancement efforts in order to earn a fair return for Centerior Energy common stock share owners over time. Another key part of our strategy is offering long-term contracts to those large customers who could have incentives to change power suppliers. In 1995, 64% of our industrial kilowatt-hour sales and 24% of our commercial kilowatt-hour sales were under long-term contracts. We are renegotiating contracts before they expire and in most cases are retaining customers under new long-term contracts. We are continuing efforts to reduce fixed financing costs in order to strengthen our financial condition. During 1995, utilizing strong cash flow and refinancing at favorable terms, the Company reduced interest expense and preferred dividends by $1 million and outstanding debt and preferred stock by $13 million. Our overall costs are high relative to many of our neighboring utilities as a result of our substantial nuclear investment. The strategic plan calls for making us more competitive by continuing to reduce operating expenses and capital expenditures. In 1995, to improve the focus on cost reduction and other strategic plan objectives, Centerior Energy and its subsidiaries restructured into six business groups. The new organization includes groups to manage the generation, distribution and transmission businesses; provide services and administrative functions; and invest in nonregulated enterprises. This arrangement will also enhance each group's ability to identify cost reductions by focusing on margins and improving work practices and customer service. We will also continue to aggressively pursue initiatives to reduce the heavy tax burden imposed upon us by the state and local tax structure in Ohio. RATE CASE AND REGULATORY ACCOUNTING In April 1995, the Company and Toledo Edison filed requests with the PUCO for price increases aggregating (Cleveland Electric) F-27 (Cleveland Electric) 80 $119 million annually to be effective in 1996. The price increases are necessary to recover cost increases and amortization of certain costs deferred since 1992 pursuant to the Rate Stabilization Program discussed below and in Note 7. If their requests are approved, the Company and Toledo Edison intend to freeze prices until at least 2002 with the expectation that increased sales and cost control measures will obviate the need for further price increases. If circumstances make it impossible to earn a fair return for Centerior Energy common stock share owners over time, the Company and Toledo Edison would ask for a further increase -- but only after taking all appropriate actions to make such a request unnecessary. In December 1995, the PUCO ordered an investigation into the financial conditions, rates and practices of the Company and Toledo Edison. In its report on the rate request, the PUCO Staff recommended approval of the $119 million requested ($84 million for the Company and $35 million for Toledo Edison), subject to a commitment by the Company and Toledo Edison to significantly revalue their assets. In late January 1996, the Staff proposed that the Company and Toledo Edison significantly revalue their nuclear plant and regulatory assets within a five-year period. The Staff's asset revaluation proposal is inconsistent with the Ohio statutes that define the rate-making process. The PUCO is not bound by the Staff's recommendations. A decision by the PUCO is anticipated in the second quarter of 1996. The outcome of the rate case could affect the Company's ability to meet the criteria of Statement of Financial Accounting Standards (SFAS) 71 for all or part of its operations which could result in the write-off of all or a part of the regulatory assets shown in Note 7(a). In our changing industry, other events independent of the outcome of the rate case could also result in write-offs or write-downs of assets. See Note 7 for a full discussion and analysis of the rate case, SFAS 71 and other financial accounting requirements and the potential implications of these accounting requirements for the Company's results of operations and financial position. RATE STABILIZATION PROGRAM Under a Rate Stabilization Program approved by the PUCO in 1992, we agreed to freeze base rates until 1996 and limit rate increases through 1998. In exchange, we were permitted to defer through 1995 and subsequently recover certain costs not currently recovered in rates and to accelerate amortization of certain benefits. Deferral of those costs and amortization of those benefits were completed in November 1995 and aggregated $103 million for the Company in 1995. Recovery is expected to begin with the effective date of the PUCO's order in the pending rate case. Annual amortization of the deferred costs for the Company is $15 million which began in December 1995. Consequently, earnings in 1996 will be sharply lower than in 1995. Also contributing to lower earnings are the expectations that the requested price increase will not be effective until the second quarter of 1996 and results from increased marketing and cost reduction efforts will take time to achieve. COMPETITION Major structural changes are taking place in the electric utility industry which are expected to place downward pressure on prices and to increase competition for customers' business. The changes are coming from both federal and state authorities. Many of the changes began when the Energy Policy Act of 1992 permitted competition in the electric utility industry through broader access to a utility's transmission system. In March 1995, the Federal Energy Regulatory Commission (FERC) issued proposed rules relating to open access transmission services by public utilities, recovery of stranded investment and other related matters. The open access transmission rules require utilities to deliver power from other utilities or generation sources to their wholesale customers. In May 1995, the Company and Toledo Edison filed open access transmission tariffs with the FERC which used the proposed rules as a guideline. These tariffs are currently pending. Several groups in Ohio are studying the possible application of retail wheeling. Retail wheeling occurs when a customer obtains power from a utility company other than its local utility. The PUCO is sponsoring informal discussions among a group of business, utility and consumer interests to explore ways of promoting competitive options without unduly harming the interests of utility company share owners or customers. Legislative proposals are being drafted for submission to the Ohio House of Representatives and several utilities in the state have offered their own proposed transition plans for introduction of retail wheeling. The current retail wheeling efforts in Ohio (Cleveland Electric) F-28 (Cleveland Electric) 81 are exploratory and we cannot predict when and to what extent retail wheeling will be implemented in Ohio. The term "stranded investment" generally refers to fixed costs approved for recovery under traditional regulatory methods that would become unrecoverable, or "stranded", as a result of wider competition. Although competitive pressures are increasing, the traditional regulatory framework remains in place and is expected to continue for the foreseeable future. We cannot predict when and to what extent competition will be allowed. We believe that pure competition (unrestricted retail wheeling for all customer classifications) is at least several years away and that any transition to pure competition will be in phases. The FERC and the PUCO have acknowledged the need to provide at least partial recovery of stranded investment as greater competition is permitted and, therefore, we believe that there will be a mechanism developed for the recovery of stranded investment. However, due to the uncertainty involved, there is a risk that some of our assets may not be fully recovered. In 1995, we continued to experience significant competition from Cleveland Public Power (CPP), the largest municipal electric system in our service area. CPP continued to construct new distribution facilities extending into additional portions of Cleveland. CPP's progress has slowed significantly during the past year because of the discovery of a large number of safety violations in its system resulting in substantial cost overruns. In March 1995, one of our large commercial customers which has provided annual net income of $6 million, Medical Center Co., signed a five-year contract with CPP for electric service beginning in September 1996, when its contract with us terminates. In both our appeal to the Ohio Supreme Court and petition to the FERC, it is our position that the purchase of power from CPP by this customer is in reality a direct purchase from another utility in violation of Ohio's certified territory statute. We will continue to pursue all legal and regulatory remedies to this situation. In 1995, our economic development efforts proved successful in attracting new customers, while supporting the expansion of existing ones, for example, American Steel & Wire and Ford Motor Company. We expect that our continued emphasis on economic development along with a newly developed market segment focus will be major ingredients in providing improved revenue growth. NUCLEAR OPERATIONS The Company has interests in three nuclear generating units -- Davis-Besse Nuclear Power Station (Davis-Besse), Perry Nuclear Power Plant Unit 1 (Perry Unit 1) and Beaver Valley Power Station Unit 2 (Beaver Valley Unit 2). Toledo Edison operates Davis-Besse and the Company operates Perry Unit 1. Davis-Besse and Beaver Valley Unit 2 both operated extremely well in 1995. Their average three-year unit availability factors at year-end 1995 of 90% and 87%, respectively, exceeded the industry average of 81% for similar reactors. In 1995, the availability factor for Davis-Besse was 100%. The plant continues to have its best run ever operating at or near full capacity for 463 straight days through February 21, 1996. In 1995, Perry Unit 1 improved its average three-year unit availability factor to 62% with a 1995 availability factor of 93%. Perry Unit 1 operated at or near capacity for 506 of 531 days since the end of its last refueling and maintenance outage in August 1994. Work on the comprehensive course of action plan developed in 1993 to improve the operating performance of Perry Unit 1 will be completed during the current refueling outage which began January 27, 1996. A significant part of the strategic plan involves ongoing efforts to increase the availability and lower the cost of production of our nuclear units. In 1995, we made great progress regarding unit availability while continuing to lower production costs. The goal of our nuclear improvement program is to replicate Davis-Besse's operational excellence and cost reduction gains at Perry Unit 1 while improving performance ratings. We externally fund the estimated costs for the future decommissioning of our nuclear units. In 1993 and 1994, we increased our decommissioning expense accruals because of revisions in our cost estimates. See Note 1(e). Our nuclear units may be impacted by activities or events beyond our control. Operating nuclear units have experienced unplanned outages or extensions of scheduled outages because of equipment problems or new regulatory requirements. A major accident at a nuclear facility anywhere in the world could cause the Nuclear Regulatory Commission (NRC) to limit or prohibit the operation or licensing of any domestic nuclear unit. If one of our nuclear units is taken out of service for an extended period for any reason, including an accident at such unit or any other nuclear facility, we cannot predict whether (Cleveland Electric) F-29 (Cleveland Electric) 82 regulatory authorities would impose unfavorable rate treatment. Such treatment could include taking our affected unit out of rate base, thereby not permitting us to recover our investment in and earn a return on it, or disallowing certain construction or maintenance costs. An extended outage coupled with unfavorable rate treatment could have a material adverse effect on our financial condition and results of operations. Premature plant closings could also have a material adverse effect on our financial condition and results of operations because the estimated cost to decommission the plant exceeds the current funding in the decommissioning trust. HAZARDOUS WASTE DISPOSAL SITES The Company has been named as a "potentially responsible party" (PRP) for three sites listed on the Superfund National Priorities List (Superfund List) and is aware of its potential involvement in the cleanup of several other sites. Allegations that the Company disposed of hazardous waste at these sites, and the amount involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. If the Company were held liable for 100% of the cleanup costs of all of the sites referred to above, the cost could be as high as $350 million. However, we believe that the actual cleanup costs will be substantially lower than $350 million, that the Company's share of any cleanup costs will be substantially less than 100% and that most of the other PRPs are financially able to contribute their share. The Company has accrued a liability totaling $7 million at December 31, 1995, based on estimates of the costs of cleanup and its proportionate responsibility for such costs. We believe that the ultimate outcome of these matters will not have a material adverse effect on our financial condition or results of operations. COMMON STOCK DIVIDENDS Centerior Energy's common stock dividend has been funded in recent years primarily by common stock dividends paid by the Company. We expect this practice to continue for the foreseeable future. In 1994, Centerior Energy lowered its common stock dividend which reduced its cash outflow by over $110 million annually. This action, in turn, reduced the common stock cash dividend demand on the Company. The Company is using the increased retained cash to redeem debt and preferred stock more quickly than would otherwise be the case. MERGER OF TOLEDO EDISON INTO THE COMPANY We continue to seek the necessary regulatory approvals to complete the merger of Toledo Edison into the Company which was announced in 1994. The FERC has deferred action on the merger application until the merits of the open access transmission tariffs proposed by the Company and Toledo Edison are addressed in hearings. See Note 15. CAPITAL RESOURCES AND LIQUIDITY 1993-1995 CASH REQUIREMENTS A key part of the strategic plan is to significantly reduce the Company's level of debt and preferred stock. In 1995, we were able to continue the reduction pattern begun in 1994. The Company's obligations were reduced by $77 million in 1994 and by $13 million in 1995. We intend to continue and to accelerate redemptions. We need cash for normal corporate operations, retirement of maturing securities, and an ongoing program of constructing and improving facilities to meet demand for electric service and to comply with government regulations. Our cash construction expenditures totaled $167 million in 1993, $164 million in 1994 and $148 million in 1995. Our debt and preferred stock maturities and sinking fund requirements totaled $310 million in 1993, $62 million in 1994 and $286 million in 1995. In addition, we optionally redeemed approximately $270 million in the period 1993-1995. This amount includes $143 million of tax-exempt issues refunded in 1995 resulting in approximately $3 million of interest savings. In May 1995, the Company issued $300 million of first mortgage bonds due in 2005 with an interest rate of 9.50%. The embedded cost of the Company's debt at the end of 1995 was 8.88% versus 8.96% in 1994 and 8.82% in 1993. In 1995, the Company and Toledo Edison renewed for a four-year term approximately $225 million in bank letters of credit supporting the equity owner participants in the Beaver Valley Unit 2 lease. See Note 11(d). The Company also utilized short-term borrowings to help meet its cash needs. The Company had $5 million of notes payable to affiliates at December 31, 1995. See Note 12. 1996 AND BEYOND CASH REQUIREMENTS The Company's 1996 cash requirements for construction are $128 million and for debt and preferred stock maturities and sinking fund requirements are $177 million. We (Cleveland Electric) F-30 (Cleveland Electric) 83 expect to meet these requirements with internal cash generation, cash reserves and about $110 million from the sale of a AAA-rated security backed by our accounts receivable. We expect to meet all of our 1997-2000 cash requirements with internal cash generation. Estimated cash requirements for the Company's construction program during this period total $603 million. Debt and preferred stock maturities and sinking fund requirements total $400 million for the same period. If economical, additional securities may be redeemed under optional redemption provisions, with funding expected to be provided through internal cash generation. LIQUIDITY Additional first mortgage bonds may be issued by the Company under its mortgage on the basis of property additions, cash or refundable first mortgage bonds. If the applicable interest coverage test is met, the Company may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable bonds. At December 31, 1995, the Company would have been permitted to issue approximately $379 million of additional first mortgage bonds. The Company also is able to raise funds through the sale of debt and preferred and preference stock. There are no restrictions on the Company's ability to issue preferred or preference stock. The Company and Toledo Edison have $307 million in financing vehicles available to support their nuclear fuel leases, portions of which mature this year. See Note 6. The Company is a party to a $125 million revolving credit facility which is expected to be renewed when it matures in May 1996. See Note 12. At the end of 1995, the Company had $70 million in cash and temporary investments. The foregoing financing resources are expected to be sufficient for the Company's needs over the next several years. However, the availability and cost of capital to meet the Company's external financing needs also depend upon such factors as financial market conditions and its credit ratings. Current credit ratings for the Company are as follows:
Standard Moody's & Poor's Investors Corporation Service, Inc. ----------- ------------- First mortgage bonds BB Ba2 Subordinated debt B+ Ba3 Preferred stock B b2
RESULTS OF OPERATIONS 1995 VS. 1994 Factors contributing to the 4.2% increase in 1995 operating revenues are as follows:
Millions Increase (Decrease) in Operating Revenues of Dollars - ------------------------------------------------ ----------- KWH Sales Volume and Mix $ 52 Wholesale Revenues 11 Fuel Cost Recovery Revenues 19 Miscellaneous Revenues (11) --- Total $ 71 ---
For the second year in a row, industrial kilowatt-hour sales increased. The increase in 1995 was 0.3%, but sales grew 2.4% excluding reductions at two low-margin steel producers (representing 7.6% of industrial revenues). Residential and commercial sales increased 2.8% and 3%, respectively, primarily because of the hot summer weather, although there was about 2% nonweather-related growth in commercial sales. Other sales increased 36% because of a 58% increase in wholesale sales due principally to the hot summer and good availability of our generating units. Weather accounted for approximately $24 million of the $41 million increase in 1995 base rate (nonfuel) revenues. Higher 1995 fuel cost recovery revenues resulted from an increase in the fuel cost factors. The weighted average of these fuel cost factors increased approximately 7%. Miscellaneous revenues decreased in 1995 primarily because the 1994 amount included the billings to other utility owners and lessees for overhead expenses related to the 1994 refueling and maintenance outage of the jointly owned Perry Unit 1. For 1995, operating revenues were 32% residential, 32% commercial, 29% industrial and 7% other and kilowatt-hour sales were 24% residential, 28% commercial, 38% industrial and 10% other. The average prices per kilowatt-hour for residential, commercial and industrial customers were $.11, $.09 and $.07, respectively. Operating expenses increased 5.3% in 1995. Fuel and purchased power expenses increased as higher fuel expense was partially offset by lower purchased power expense. The higher fuel expense was attributable to increased generation and more amortization of previously deferred fuel costs than the amount amortized in 1994. The higher other operation and maintenance expenses resulted primarily from charges for an ongoing inventory reduction program and the recognition of costs associated with preliminary engineering studies. Federal income taxes increased as a result of higher pretax operating income. Taxes, other than federal income taxes, increased primarily due to property tax increases resulting from (Cleveland Electric) F-31 (Cleveland Electric) 84 plant additions, real estate valuation increases and a nonrecurring tax credit recorded in 1994. 1994 VS. 1993 Factors contributing to the 3% decrease in 1994 operating revenues are as follows:
Millions Increase (Decrease) in Operating Revenues of Dollars - ------------------------------------------------ ----------- KWH Sales Volume and Mix $ 2 Wholesale Revenues (48) Fuel Cost Recovery Revenues (13) Miscellaneous Revenues 6 ---- Total $ (53) ----
The Company experienced good retail kilowatt-hour sales growth in the commercial and industrial categories in 1994; the residential category was negatively impacted by weather conditions, particularly during the summer. The revenue decrease resulted primarily from milder weather conditions in 1994 and 53% lower wholesale sales. Weather reduced base rate revenues approximately $8 million from the 1993 amount. Although total sales decreased by 4.6%, commercial sales increased 2.4%. Industrial sales increased 0.7% on the strength of increased sales to large automotive manufacturers and the broad-based, smaller industrial customer group. This growth substantiated an economic resurgence in Northeastern Ohio. Residential sales declined 0.2% because of the weather factor. Other sales decreased by 42% because of the lower sales to wholesale customers attributable to expiration of a wholesale power agreement, softer wholesale market conditions and limited power availability for bulk power transactions at certain times because of generating plant outages. Lower 1994 fuel cost recovery revenues resulted from favorable changes in the fuel cost factors. The weighted average of these fuel cost factors dropped by approximately 5%. For 1994, operating revenues were 31% residential, 32% commercial, 30% industrial and 7% other and kilowatt-hour sales were 24% residential, 29% commercial, 39% industrial and 8% other. The average prices per kilowatt-hour for residential, commercial and industrial customers were $.11, $.09 and $.06, respectively. The changes from 1993 were not significant. Operating expenses were 15% lower in 1994. Operation and maintenance expenses for 1993 included $130 million of net benefit expenses related to an early retirement program, called the Voluntary Transition Program (VTP), and other charges totaling $35 million. The VTP benefit expenses in 1993 consisted of $102 million of costs for the Company plus $28 million for the Company's pro rata share of the costs for its affiliate, Centerior Service Company (Service Company). A smaller work force and ongoing cost reduction measures also lowered operation and maintenance expenses. More nuclear generation and less coal-fired generation accounted for a large part of the lower fuel and purchased power expenses in 1994. Depreciation and amortization expenses increased primarily because of higher nuclear plant decommissioning expenses as discussed in Note 1(e). Deferred operating expenses were greater primarily because of the write-off of $117 million of phase-in deferred operating expenses in 1993 as discussed in Note 7(e). The 1993 deferrals also included $52 million of postretirement benefit curtailment cost deferrals related to the VTP. See Note 9(b). Federal income taxes increased as a result of higher pretax operating income. As discussed in Note 4(b), $351 million of our Perry Unit 2 investment was written off in 1993. Also, as discussed in Note 7(e), phase-in deferred carrying charges of $519 million were written off in 1993. The change in the federal income tax credit amounts for nonoperating income was attributable to these write-offs. (Cleveland Electric) F-32 (Cleveland Electric) 85 INCOME STATEMENT The Cleveland Electric Illuminating Company and Subsidiaries
For the years ended December 31, ---------------------------- 1995 1994 1993 ------ ------ ------ (millions of dollars) OPERATING REVENUES $1,769 $1,698 $1,751 ------ ------ ------ OPERATING EXPENSES Fuel and purchased power (1) 413 391 423 Other operation and maintenance 418 394 433 Generation facilities rental expense, net 56 56 56 Early retirement program expenses and other -- -- 165 ------ ------ ------ Total operation and maintenance 887 841 1,077 Depreciation and amortization 196 195 182 Taxes, other than federal income taxes 230 218 221 Deferred operating expenses, net (36) (34) 27 Federal income taxes 94 82 22 ------ ------ ------ 1,371 1,302 1,529 ------ ------ ------ OPERATING INCOME 398 396 222 ------ ------ ------ NONOPERATING INCOME (LOSS) Allowance for equity funds used during construction 2 4 4 Other income and deductions, net 2 6 (5) Write-off of Perry Unit 2 -- -- (351) Deferred carrying charges, net 29 25 (487) Federal income taxes -- credit (expense) (2) (4) 270 ------ ------ ------ 31 31 (569) ------ ------ ------ INCOME (LOSS) BEFORE INTEREST CHARGES 429 427 (347) ------ ------ ------ INTEREST CHARGES Debt interest 248 247 244 Allowance for borrowed funds used during construction (3) (5) (4) ------ ------ ------ 245 242 240 ------ ------ ------ NET INCOME (LOSS) 184 185 (587) PREFERRED DIVIDEND REQUIREMENTS 43 45 45 ------ ------ ------ EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK $ 141 $ 140 $ (632) ------ ------ ------
- --------------- (1) Includes purchased power expense of $102 million, $111 million and $120 million in 1995, 1994 and 1993, respectively, for all purchases from Toledo Edison. RETAINED EARNINGS
For the years ended December 31, ------------------------- 1995 1994 1993 ----- ----- ----- (millions of dollars) RETAINED EARNINGS (DEFICIT) AT BEGINNING OF YEAR $(262) $(280) $ 545 ----- ------ ----- ADDITIONS Net income (loss) 184 185 (587) DEDUCTIONS Dividends declared: Common stock (74) (122) (189) Preferred stock (41) (45) (48) Other, primarily preferred stock redemption expenses -- -- (1) ----- ------ ----- Net Increase (Decrease) 69 18 (825) ----- ------ ----- RETAINED EARNINGS (DEFICIT) AT END OF YEAR $(193) $(262) $(280) ----- ------ -----
The accompanying notes are an integral part of these statements. (Cleveland Electric) F-33 (Cleveland Electric) 86 BALANCE SHEET
December 31, ---------------- 1995 1994 ------ ------ (millions of dollars) ASSETS PROPERTY, PLANT AND EQUIPMENT Utility plant in service $6,872 $6,871 Less: accumulated depreciation and amortization 2,094 2,014 ------- ------- 4,778 4,857 Construction work in progress 73 99 ------- ------- 4,851 4,956 Nuclear fuel, net of amortization 122 174 Other property, less accumulated depreciation 58 21 ------- ------- 5,031 5,151 ------- ------- CURRENT ASSETS Cash and temporary cash investments 70 66 Amounts due from customers and others, net 152 146 Amounts due from affiliates 5 5 Unbilled revenues 79 72 Materials and supplies, at average cost 80 95 Fossil fuel inventory, at average cost 21 16 Taxes applicable to succeeding years 184 180 Other 7 4 ------- ------- 598 584 ------- ------- REGULATORY AND OTHER ASSETS Amounts due from customers for future federal income taxes, net 651 641 Unamortized loss on reacquired debt 61 58 Carrying charges and operating expenses 644 578 Nuclear plant decommissioning trusts 61 44 Other 106 95 ------- ------- 1,523 1,416 ------- ------- Total Assets $7,152 $7,151 ------- -------
The accompanying notes are an integral part of this statement. (Cleveland Electric) F-34 (Cleveland Electric) 87 The Cleveland Electric Illuminating Company and Subsidiaries
December 31, ---------------- 1995 1994 ------ ------ (millions of dollars) CAPITALIZATION AND LIABILITIES CAPITALIZATION Common shares, without par value: 105 million authorized; 79.6 million outstanding in 1995 and 1994 $1,241 $1,241 Other paid-in capital 79 79 Retained earnings (deficit) (193) (262) ------ ------ Common stock equity 1,127 1,058 Preferred stock With mandatory redemption provisions 215 246 Without mandatory redemption provisions 241 241 Long-term debt 2,666 2,543 ------ ------ 4,249 4,088 ------ ------ CURRENT LIABILITIES Current portion of long-term debt and preferred stock 177 282 Current portion of nuclear fuel lease obligations 55 47 Accounts payable 89 88 Accounts and notes payable to affiliates 64 118 Accrued taxes 296 310 Accrued interest 59 62 Other 56 51 ------ ------ 796 958 ------ ------ DEFERRED CREDITS AND OTHER LIABILITIES Unamortized investment tax credits 184 192 Accumulated deferred federal income taxes 1,298 1,234 Unamortized gain from Bruce Mansfield Plant sale 311 327 Accumulated deferred rents for Bruce Mansfield Plant 92 84 Nuclear fuel lease obligations 86 132 Retirement benefits 65 59 Other 71 77 ------ ------ 2,107 2,105 ------ ------ Total Capitalization and Liabilities $7,152 $7,151 ------ ------
(Cleveland Electric) F-35 (Cleveland Electric) 88 CASH FLOWS The Cleveland Electric Illuminating Company and Subsidiaries
For the years ended December 31, ------------------------- 1995 1994 1993 ----- ----- ----- (millions of dollars) CASH FLOWS FROM OPERATING ACTIVITIES (1) Net Income (Loss) $ 184 $ 185 $(587) ---- ------ ------ Adjustments to Reconcile Net Income (Loss) to Cash from Operating Activities: Depreciation and amortization 196 195 182 Deferred federal income taxes 56 50 (292) Unbilled revenues (7) 27 (6) Deferred fuel 9 (20) 4 Deferred carrying charges, net (29) (25) 487 Leased nuclear fuel amortization 71 55 47 Deferred operating expenses, net (36) (34) 27 Allowance for equity funds used during construction (2) (4) (4) Noncash early retirement program expenses, net -- -- 125 Write-off of Perry Unit 2 -- -- 351 Changes in amounts due from customers and others, net (6) 10 5 Changes in inventories 10 2 17 Changes in accounts payable 1 (34) 18 Changes in working capital affecting operations (17) 3 29 Other noncash items -- 4 5 ---- ------ ------ Total Adjustments 246 229 995 ---- ------ ------ Net Cash from Operating Activities 430 414 408 ---- ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES (2) Bank loans, commercial paper and other short-term debt -- -- (10) Notes payable to affiliates (53) 58 (11) First mortgage bond issues 443 46 280 Secured medium-term note issues -- -- 35 Term bank loan -- -- 40 Preferred stock issues -- -- 100 Maturities, redemptions and sinking funds (460) (116) (345) Nuclear fuel lease obligations (58) (60) (59) Dividends paid (117) (142) (232) Premiums, discounts and expenses (11) (1) (11) ---- ------ ------ Net Cash from Financing Activities (256) (215) (213) ---- ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES (2) Cash applied to construction (148) (164) (167) Interest capitalized as allowance for borrowed funds used during construction (3) (5) (4) Contributions to nuclear plant decommissioning trusts (13) (14) (5) Other cash received (applied) (6) (27) 24 ---- ------ ------ Net Cash from Investing Activities (170) (210) (152) ---- ------ ------ NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 4 (11) 43 ---- ------ ------ CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 66 77 34 ---- ------ ------ CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 70 $ 66 $ 77 ---- ------ ------
- --------------- (1) Interest paid (net of amounts capitalized) $ 214 $ 208 $ 204 ----- ----- ----- Income taxes paid $ 66 $ 15 $ 28 ----- ----- -----
(2) Increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance Sheet resulting from the noncash capitalizations under nuclear fuel agreements are excluded from this statement. The accompanying notes are an integral part of this statement. (Cleveland Electric) F-36 (Cleveland Electric) 89 STATEMENT OF PREFERRED STOCK The Cleveland Electric Illuminating Company and Subsidiaries
Current December 31, 1995 Shares Call Price ------------- Outstanding Per Share 1995 1994 ----------- ---------- ---- ---- (millions of dollars) Without par value, 4,000,000 preferred shares authorized Subject to mandatory redemption: $7.35 Series C 130,000 $ 101.00 $ 13 $ 14 88.00 Series E 15,000 1,015.30 15 18 Adjustable Series M -- -- -- 10 9.125 Series N 300,000 101.00 30 41 91.50 Series Q 64,286 1,000.00 64 75 88.00 Series R 50,000 -- 50 50 90.00 Series S 74,000 -- 73 74 ---- ---- 245 282 Less: Current maturities 30 36 ---- ---- TOTAL PREFERRED STOCK, WITH MANDATORY REDEMPTION PROVISIONS $215 $246 ==== ==== Not subject to mandatory redemption: $7.40 Series A 500,000 101.00 $ 50 $ 50 7.56 Series B 450,000 102.26 45 45 Adjustable Series L 500,000 100.00 49 49 42.40 Series T 200,000 -- 97 97 ---- ---- TOTAL PREFERRED STOCK, WITHOUT MANDATORY REDEMPTION PROVISIONS $241 $241 ==== ====
The accompanying notes are an integral part of this statement. (Cleveland Electric) F-37 (Cleveland Electric) 90 NOTES TO THE FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) GENERAL The Company is an electric utility and a wholly owned subsidiary of Centerior Energy. The Company's financial statements have historically included the accounts of the Company's wholly owned subsidiaries, which in the aggregate were not material. In 1995, the Company formed a wholly owned subsidiary to serve as the transferor in connection with an asset-backed securitization expected to be completed in 1996. At December 31, 1995, the subsidiary was not yet funded. In 1994, the Company transferred its investments in three wholly owned subsidiaries to Centerior Energy at cost ($26 million) via property dividends. The Company follows the Uniform System of Accounts prescribed by the FERC and adopted by the PUCO. Rate-regulated utilities are subject to SFAS 71 which governs accounting for the effects of certain types of rate regulation. Pursuant to SFAS 71, certain incurred costs are deferred for recovery in future rates. See Note 7. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The estimates are based on an analysis of the best information available. Actual results could differ from those estimates. The Company is a member of the Central Area Power Coordination Group (CAPCO). Other members are Toledo Edison, Duquesne Light Company, Ohio Edison Company and its wholly owned subsidiary, Pennsylvania Power Company. The members have constructed and operate generation and transmission facilities for their joint use. (B) RELATED PARTY TRANSACTIONS Operating revenues, operating expenses and interest charges include those amounts for transactions with affiliated companies in the ordinary course of business operations. The Company's transactions with Toledo Edison are primarily for firm power, interchange power, transmission line rentals and jointly owned power plant operations and construction. See Notes 2 and 3. The Service Company provides management, financial, administrative, engineering, legal and other services at cost to the Company and other affiliated companies. The Service Company billed the Company $141 million, $136 million and $167 million in 1995, 1994 and 1993, respectively, for such services. (C) REVENUES Customers are billed on a monthly cycle basis for their energy consumption based on rate schedules or contracts authorized by the PUCO. An accrual is made at the end of each month to record the estimated amount of unbilled revenues for kilowatt-hours sold in the current month but not billed by the end of that month. A fuel factor is added to the base rates for electric service. This factor is designed to recover from customers the costs of fuel and most purchased power. It is reviewed and adjusted semiannually in a PUCO proceeding. (D) FUEL EXPENSE The cost of fossil fuel is charged to fuel expense based on inventory usage. The cost of nuclear fuel, including an interest component, is charged to fuel expense based on the rate of consumption. Estimated future nuclear fuel disposal costs are being recovered through base rates. The Company defers the differences between actual fuel costs and estimated fuel costs currently being recovered from customers through the fuel factor. This matches fuel expenses with fuel-related revenues. Owners of nuclear generating plants are assessed by the federal government for the cost of decontamination and decommissioning of nuclear enrichment facilities operated by the United States Department of Energy. The assessments are based upon the amount of enrichment services used in prior years and cannot be imposed for more than 15 years (to 2007). The Company has accrued a liability for its share of the total assessments. These costs have been recorded in a deferred charge account since the PUCO is allowing the Company to recover the assessments through its fuel cost factors. (E) DEPRECIATION AND DECOMMISSIONING The cost of property, plant and equipment is depreciated over their estimated useful lives on a straight-line basis. The annual straight-line depreciation provision for nonnuclear property expressed as a percent of average depreciable utility plant in service was 3.5% in 1995 and 3.4% in both 1994 and 1993. The annual straight-line depreciation rate for nuclear property is 2.5%. In conjunction with its pending rate case, the Company has asked the PUCO to (Cleveland Electric) F-38 (Cleveland Electric) 91 approve an increase of this depreciation rate to approximately 3%. The Company accrues the estimated costs of decommissioning its three nuclear generating units. The accruals are required to be funded in an external trust. The PUCO requires that the expense and payments to the external trusts be determined on a levelized basis by dividing the unrecovered decommissioning costs in current dollars by the remaining years in the licensing period of each unit. This methodology requires that the net earnings on the trusts be reinvested therein with the intent of having net earnings offset inflation. The PUCO requires that the estimated costs of decommissioning and the funding level be reviewed at least every five years. In 1994, the Company increased its annual decommissioning expense accruals to $13 million from the $6 million level in 1993. The accruals are reflected in current rates. The increased accruals in 1994 were derived from updated, site-specific studies for each of the units. The revised estimates reflect the DECON method of decommissioning (prompt decontamination), and the locations and cost characteristics specific to the units, and include costs associated with decontamination, dismantlement and site restoration. The revised estimates for the units in 1993 and 1992 dollars and in dollars at the time of license expiration, assuming a 4% annual inflation rate, are as follows:
License Expiration Future Generating Unit Year Amount Amount - ------------------------------- ---------- ------ ------ (millions of dollars) Davis-Besse 2017 $178(1) $ 443 Perry Unit 1 2026 156(1) 554 Beaver Valley Unit 2 2027 63(2) 233 ---- ------ Total $397 $1,230 ---- ------
- --------------- (1) Dollar amounts in 1993 dollars. (2) Dollar amount in 1992 dollars. The updated estimates reflect substantial increases from the prior PUCO-recognized aggregate estimates of $142 million in 1987 and 1986 dollars. The classification, Accumulated Depreciation and Amortization, in the Balance Sheet at December 31, 1995 includes $71 million of decommissioning costs previously expensed and the earnings on the external trust funding. This amount exceeds the Balance Sheet amount of the external Nuclear Plant Decommissioning Trusts because the reserve began prior to the external trust funding. The trust earnings are recorded as an increase to the trust assets and the related component of the decommissioning reserve (included in Accumulated Depreciation and Amortization). The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry, including those of the Company, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements. In response to these questions, the Financial Accounting Standards Board (FASB) is reviewing the accounting for removal costs, including decommissioning. If current accounting practices are changed, the annual provision for decommissioning could increase; the estimated cost for decommis- sioning could be recorded as a liability rather than as accumulated depreciation; and trust fund income from the external decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. The FASB issued an exposure draft on the subject on February 7, 1996. (F) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at original cost less amounts disallowed by the PUCO. Construction costs include related payroll taxes, retirement benefits, fringe benefits, management and general overheads and allowance for funds used during construction (AFUDC). AFUDC represents the estimated composite debt and equity cost of funds used to finance construction. This noncash allowance is credited to income. The AFUDC rate was 10.33% in 1995, 9.68% in 1994 and 9.63% in 1993. Maintenance and repairs for plant and equipment are charged to expense as incurred. The cost of replacing plant and equipment is charged to the utility plant accounts. The cost of property retired plus removal costs, after deducting any salvage value, is charged to the accumulated provision for depreciation. (G) DEFERRED GAIN FROM SALE OF UTILITY PLANT The sale and leaseback transaction discussed in Note 2 resulted in a net gain for the sale of the Bruce Mansfield Generating Plant (Mansfield Plant). The net gain was deferred and is being amortized over the term of the leases. The amortization and the lease expense amounts are reported in the Income Statement as Generation Facilities Rental Expense, Net. (Cleveland Electric) F-39 (Cleveland Electric) 92 (H) INTEREST CHARGES Debt Interest reported in the Income Statement does not include interest on obligations for nuclear fuel under construction. That interest is capitalized. See Note 6. Losses and gains realized upon the reacquisition or redemption of long-term debt are deferred, consistent with the regulatory rate treatment. See Note 7(a). Such losses and gains are either amortized over the remainder of the original life of the debt issue retired or amortized over the life of the new debt issue when the proceeds of a new issue are used for the debt redemption. The amortizations are included in debt interest expense. (I) FEDERAL INCOME TAXES The Company uses the liability method of accounting for income taxes in accordance with SFAS 109. See Note 8. This method requires that deferred taxes be recorded for all temporary differences between the book and tax bases of assets and liabilities. The majority of these temporary differences are attributable to property-related basis differences. Included in these basis differences is the equity component of AFUDC, which will increase future tax expense when it is recovered through rates. Since this component is not recognized for tax purposes, the Company must record a liability for its tax obligation. The PUCO permits recovery of such taxes from customers when they become payable. Therefore, the net amount due from customers through rates has been recorded as a deferred charge and will be recovered over the lives of the related assets. See Note 7(a). Investment tax credits are deferred and amortized over the lives of the applicable property as a reduction of depreciation expense. See Note 7(d) for a discussion of the amortization of certain unrestricted excess deferred taxes and unrestricted investment tax credits under the Rate Stabilization Program. (2) UTILITY PLANT SALE AND LEASEBACK TRANSACTIONS The Company and Toledo Edison are co-lessees of 18.26% (150 megawatts) of Beaver Valley Unit 2 and 6.5% (51 megawatts), 45.9% (358 megawatts) and 44.38% (355 megawatts) of Units 1, 2 and 3 of the Mansfield Plant, respectively. These leases extend through 2017 and are the result of sale and leaseback transactions completed in 1987. Under these leases, the Company and Toledo Edison are responsible for paying all taxes, insurance premiums, operation and maintenance expenses and all other similar costs for their interests in the units sold and leased back. They may incur additional costs in connection with capital improvements to the units. The Company and Toledo Edison have options to buy the interests back at the end of the leases for the fair market value at that time or renew the leases. The leases include conditions for mandatory termination (and possible repurchase of the leasehold interest) for events of default. As co-lessee with Toledo Edison, the Company is also obligated for Toledo Edison's lease payments. If Toledo Edison is unable to make its payments under the Beaver Valley Unit 2 and Mansfield Plant leases, the Company would be obligated to make such payments. No such payments have been made on behalf of Toledo Edison. Future minimum lease payments under the operating leases at December 31, 1995 are summarized as follows:
For For the Toledo Year Company Edison - ----------------------------------------- ------- ------ (millions of dollars) 1996 $ 63 $ 125 1997 63 102 1998 63 102 1999 70 108 2000 76 111 Later Years 1,245 1,807 ------ ------ Total Future Minimum Lease Payments $1,580 $2,355 ------ ------
Rental expense is accrued on a straight-line basis over the terms of the leases. The amount recorded in 1995, 1994 and 1993 as annual rental expense for the Mansfield Plant leases was $70 million. Amounts charged to expense in excess of the lease payments are classified as Accumulated Deferred Rents in the Balance Sheet. The Company is buying 150 megawatts of Toledo Edison's Beaver Valley Unit 2 leased capacity entitlement. Purchased power expense for this transaction was $98 million, $108 million and $103 million in 1995, 1994 and 1993, respectively. We anticipate that this purchase will continue indefinitely. The future minimum lease payments through 2017 associated with Beaver Valley Unit 2 aggregate $1.35 billion. (3) PROPERTY OWNED WITH OTHER UTILITIES AND INVESTORS The Company owns, as a tenant in common with other utilities and those investors who are owner-participants in various sale and leaseback transactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each (Cleveland Electric) F-40 (Cleveland Electric) 93 unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction costs and operating expenses. Each Lessor has leased its capacity rights to a utility which is obligated to pay for such Lessor's share of the construction costs and operating expenses. The Company's share of the operating expenses of these generating units is included in the Income Statement. The Balance Sheet classification of Property, Plant and Equipment at December 31, 1995 includes the following facilities owned by the Company as a tenant in common with other utilities and Lessors:
Property, Plant and Ownership Equipment Megawatts (Exclusive of Accumulated Generating Unit (% Share) Nuclear Fuel) Depreciation - ------------------------ ---------- ------------- ----------- (millions of dollars) Seneca Pumped Storage 351 (80.00%) $ 65 $ 22 Eastlake Unit 5 411 (68.80) 159 -- Davis-Besse 454 (51.38) 668 216 Perry Unit 1 371 (31.11) 1,781 355 Beaver Valley Unit 2 and Common Facilities (Note 2) 201 (24.47) 1,278 284 ------ ------ Total $ 3,951 $ 877 ------ ------
Depreciation for Eastlake Unit 5 has been accumulated with all other nonnuclear depreciable property rather than by specific units of depreciable property. (4) CONSTRUCTION AND CONTINGENCIES (A) CONSTRUCTION PROGRAM The estimated cost of the Company's construction program for the 1996-2000 period is $761 million, including AFUDC of $30 million and excluding nuclear fuel. The Clean Air Act Amendments of 1990 (Clean Air Act) requires, among other things, significant reductions in the emission of sulfur dioxide and nitrogen oxides by fossil-fueled generating units. Our strategy provides for compliance primarily through greater use of low-sulfur coal at some of our units and the use of emission allowances. Total capital expenditures from 1991 through 1995 in connection with Clean Air Act compliance amounted to $46 million. The plan will require additional capital expenditures over the 1996-2005 period of approximately $49 million for nitrogen oxide control equipment and other plant process modifications. In addition, higher fuel and other operation and maintenance expenses will be incurred. The Company may need to install sulfur emission control technology at one of its generating plants after 2005 which could require additional expenditures at that time. (B) PERRY UNIT 2 Perry Unit 2, including its share of the facilities common with Perry Unit 1, was approximately 50% complete when construction was suspended in 1985 pending consideration of various options. We wrote off our investment in Perry Unit 2 at December 31, 1993 after we determined that it would not be completed or sold. The write-off totaled $351 million ($258 million after taxes) for the Company's 44.85% ownership share of the unit. (C) HAZARDOUS WASTE DISPOSAL SITES The Company is aware of its potential involvement in the cleanup of three sites listed on the Superfund List and several other sites. The Company has accrued a liability totaling $7 million at December 31, 1995 based on estimates of the costs of cleanup and its proportionate responsibility for such costs. We believe that the ultimate outcome of these matters will not have a material adverse effect on our financial condition or results of operations. See Management's Financial Analysis -- Outlook-Hazardous Waste Disposal Sites. (5) NUCLEAR OPERATIONS AND CONTINGENCIES (A) OPERATING NUCLEAR UNITS The Company's three nuclear units may be impacted by activities or events beyond our control. An extended outage of one of our nuclear units for any reason, coupled with any unfavorable rate treatment, could have a material adverse effect on our financial condition and results of operations. See the discussion of these and other risks in Management's Financial Analysis -- Outlook-Nuclear Operations. (B) NUCLEAR INSURANCE The Price-Anderson Act limits the public liability of the owners of a nuclear power plant to the amount provided by private insurance and an industry assessment plan. In the event of a nuclear incident at any unit in the United States resulting in losses in excess of the level of private insurance (currently $200 million), the Company's maximum potential assessment under that plan would be $85 million per incident. The assessment is limited to $11 million per year for each nuclear incident. These assessment limits assume the other CAPCO companies contribute their proportionate share of any assessment. The utility owners and lessees of Davis-Besse, Perry and Beaver Valley also have insurance coverage for damage to property at these sites (including leased fuel and cleanup costs). Coverage amounted to $2.75 billion for each site (Cleveland Electric) F-41 (Cleveland Electric) 94 as of January 1, 1996. Damage to property could exceed the insurance coverage by a substantial amount. If it does, the Company's share of such excess amount could have a material adverse effect on its financial condition and results of operations. In addition, the Company can be assessed a maximum of $23 million under these policies during a policy year if the reserves available to the insurer are inadequate to pay claims arising out of an accident at any nuclear facility covered by the insurer. The Company also has extra expense insurance coverage. It includes the incremental cost of any replacement power purchased (over the costs which would have been incurred had the units been operating) and other incidental expenses after the occurrence of certain types of accidents at our nuclear units. The amounts of the coverage are 100% of the estimated extra expense per week during the 52-week period starting 21 weeks after an accident and 80% of such estimate per week for the next 104 weeks. The amount and duration of extra expense could substantially exceed the insurance coverage. (6) NUCLEAR FUEL Nuclear fuel is financed for the Company and Toledo Edison through leases with a special-purpose corporation. The total amount of financing currently available under these lease arrangements is $307 million ($157 million from intermediate-term notes and $150 million from bank credit arrangements). The intermediate-term notes mature in 1996 and 1997 ($84 million in September 1996 and $73 million in September 1997). The bank credit arrangements terminate in October 1996. The special-purpose corporation plans to obtain alternate financing in 1996 to replace the $234 million of financing expiring in 1996. At December 31, 1995, $142 million of nuclear fuel was financed for the Company. The Company and Toledo Edison severally lease their respective portions of the nuclear fuel and are obligated to pay for the fuel as it is consumed in a reactor. The lease rates are based on various intermediate-term note rates, bank rates and commercial paper rates. The amounts financed include nuclear fuel in the Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2 reactors with remaining lease payments for the Company of $41 million, $34 million and $20 million, respectively, at December 31, 1995. The nuclear fuel amounts financed and capitalized also included interest charges incurred by the lessors amounting to $4 million in 1995, $7 million in 1994 and $9 million in 1993. The estimated future lease amortization payments for the Company based on projected consumption are $55 million in 1996, $48 million in 1997, $40 million in 1998, $37 million in 1999 and $35 million in 2000. (7) REGULATORY MATTERS (A) REGULATORY ACCOUNTING REQUIREMENTS AND REGULATORY ASSETS The Company is subject to the provisions of SFAS 71 and has complied with its provisions. SFAS 71 provides, among other things, for the deferral of certain incurred costs that are probable of future recovery in rates. We monitor changes in market and regulatory conditions and consider the effects of such changes in assessing the continuing applicability of SFAS 71. Criteria that could give rise to discontinuation of the application of SFAS 71 include: (1) increasing competition which significantly restricts the Company's ability to charge prices which allow it to recover operating costs, earn a fair return on invested capital and recover the amortization of regulatory assets and (2) a significant change in the manner in which rates are set by the PUCO from cost-based regulation to some other form of regulation. Regulatory assets represent probable future revenues to the Company associated with certain incurred costs, which it will recover from customers through the rate-making process. Effective January 1, 1996, the Company adopted SFAS 121 which imposes stricter criteria for carrying regulatory assets than SFAS 71 by requiring that such assets be probable of recovery at each balance sheet date. The criteria under SFAS 121 for plant assets require such assets to be written down only if the book value exceeds the projected net future cash flows. Regulatory assets in the Balance Sheet are as follows:
December 31, --------------- 1995 1994 ------ ------ (millions of dollars) Amounts due from customers for future federal income taxes, net $ 651 $ 641 Unamortized loss on reacquired debt 61 58 Pre-phase-in deferrals* 331 341 Rate Stabilization Program deferrals 313 237 ------ ------ Total $1,356 $1,277 ------ ------
* Represent deferrals of operating expenses and carrying charges for Perry Unit 1 and Beaver Valley Unit 2 in 1987 and 1988 which are being amortized over the lives of the related property. As of December 31, 1995, customer rates provide for recovery of all the above regulatory assets, except those related to the Rate Stabilization Program discussed below. The remaining recovery periods for all of the regulatory assets listed above range from 16 to 33 years. (Cleveland Electric) F-42 (Cleveland Electric) 95 (B) RATE CASE In April 1995, the Company and Toledo Edison filed requests with the PUCO for price increases aggregating $119 million annually to be effective in 1996. The price increases are necessary to recover cost increases and amortization of certain costs deferred since 1992 pursuant to the Rate Stabilization Program. If their requests are approved, the Company and Toledo Edison intend to freeze prices until at least 2002 with the expectation that increased sales and cost control measures will preclude the need for further price increases. If circumstances make it impossible to earn a fair return for Centerior Energy common stock share owners over time, the Company and Toledo Edison would ask for a further increase, but only after taking all appropriate actions to make such a request unnecessary. In November 1995, the PUCO Staff issued its report addressing the rate case. The Staff recommended that the PUCO grant the full $119 million price increase requested ($84 million for the Company and $35 million for Toledo Edison). However, the Staff also recommended that the price increase be conditioned upon the commitment by the Company and Toledo Edison "to a significant revaluation of their asset bases over some finite period of time." In December 1995, the PUCO ordered an investigation into the financial conditions, rates and practices of the Company and Toledo Edison to identify outcomes and remedies other than those routinely applied during the rate case process. In late January 1996, the Staff proposed an incremental reduction (currently, an aggregate of $1.25 billion for the Company and Toledo Edison) beyond the normal level in nuclear plant and regulatory assets within five years. The Staff proposed that the Company and Toledo Edison have flexibility to determine how to achieve this incremental asset revaluation, but no additional price increases to recover the accelerated asset revaluation were proposed. Any incremental revaluation of assets would be for regulatory purposes and would cause prices and revenues after the five-year period to be lower than they otherwise would be in conjunction with any rate case following such revaluation. The Staff's asset revaluation proposal represents a substantial change in the form of rate-making traditionally followed by the PUCO and is inconsistent with the Ohio statutes that define the rate-making process. The PUCO is not bound by the recommendations of the Staff. A decision by the PUCO is anticipated in the second quarter of 1996. (C) ASSESSMENT OF POTENTIAL OUTCOMES We continually assess the effects of competition and the changing industry and regulatory environment on operations, the Company's ability to recover regulatory assets and the Company's ability to continue application of SFAS 71. If, as a result of the pending rate case or other events, we determine that the Company no longer meets the criteria for SFAS 71, the Company would be required to record a before-tax charge to write off the regulatory assets shown above and evaluate whether the Company's property, plant and equipment should be written down. In the more likely event that only a portion of operations (such as nuclear operations) no longer meets the criteria of SFAS 71, a write-off would be limited to regulatory assets, if any, that are not reflected in the Company's cost-based prices established for the remaining regulated operations. In addition, we would be required to evaluate whether the changes in the competitive and regulatory environment which led to discontinuing the application of SFAS 71 to a portion of the Company's operations would also result in a write-down of the Company's property, plant and equipment pursuant to SFAS 121. We believe application of SFAS 121 in that event will not result in a write-off of regulatory assets unless the PUCO denies recovery of such assets or if we conclude, as a result of the outcome of the Company's pending rate case or some other event, that recovery is not probable for some or all of the regulatory assets. Furthermore, a write-down under SFAS 121 of the Company's property, plant and equipment is not expected. (D) RATE STABILIZATION PROGRAM The Rate Stabilization Program that the PUCO approved in October 1992 allowed the Company to defer and subsequently amortize and recover certain costs not currently recovered in rates and to accelerate amortization of certain benefits during the 1992-1995 period. Recovery of the deferrals will begin with the effective date of the PUCO's order in the pending rate case. The regulatory assets recorded included the deferral of post-in-service interest carrying charges, depreciation expense and property taxes on assets placed in service after February 29, 1988 and the deferral of incremental expenses resulting from the adoption of SFAS 106 (see Note 9(b)). The cost deferrals recorded in 1995, 1994 and 1993 pursuant to these provisions were $75 million, $70 million and $116 million, respectively. The regulatory accounting measures also provided for the accelerated amortization of certain unrestricted excess deferred tax and unrestricted investment tax credit balances and an excess interim spent fuel (Cleveland Electric) F-43 (Cleveland Electric) 96 storage accrual balance for Davis-Besse. The total annual amount of such accelerated benefits was $28 million in 1995, 1994 and 1993. (E) PHASE-IN DEFERRALS In 1993, upon completing a comprehensive study which led to our strategic plan, we concluded that projected revenues would not provide for recovery of deferrals recorded pursuant to a phase-in plan approved by the PUCO in 1989 and, consequently, that the deferrals would have to be written off. Such deferrals were scheduled to be recovered in 1994 through 1998. The total phase-in deferred operating expenses and carrying charges written off at December 31, 1993 by the Company were $117 million and $519 million, respectively (totaling $433 million after taxes). (8) FEDERAL INCOME TAX The components of federal income tax expense (credit) recorded in the Income Statement were as follows:
1995 1994 1993 ----- ----- ----- (millions of dollars) Operating Expenses: Current $49 $ 53 $ 64 Deferred 45 29 (42) ---- ---- ----- Total Charged to Operating Expenses 94 82 22 ---- ---- ----- Nonoperating Income: Current (9) (17 ) (20) Deferred 11 21 (250) ---- ---- ----- Total Expense (Credit) to Nonoperating Income 2 4 (270) ---- ---- ----- Total Federal Income Tax Expense (Credit) $96 $ 86 $(248) ---- ---- -----
The deferred federal income tax expense results from the temporary differences that arise from the different years certain expenses are recognized for tax purposes as opposed to financial reporting purposes. Such temporary differences affecting operating expenses relate principally to depreciation and deferred operating expenses whereas those affecting nonoperating income principally relate to deferred carrying charges and the 1993 write-offs. Federal income tax, computed by multiplying income before taxes by the 35% statutory rate, is reconciled to the amount of federal income tax recorded on the books as follows:
1995 1994 1993 ----- ----- ----- (millions of dollars) Book Income (Loss) Before Federal Income Tax $280 $271 $(835) ---- ---- ----- Tax (Credit) on Book Income (Loss) at Statutory Rate $ 98 $ 95 $(292) Increase (Decrease) in Tax: Write-off of Perry Unit 2 -- -- 30 Write-off of phase-in deferrals -- -- 20 Depreciation 8 6 6 Rate Stabilization Program (18 ) (18 ) (20) Other items 8 3 8 ---- ---- ----- Total Federal Income Tax Expense (Credit) $ 96 $ 86 $(248) ---- ---- -----
The Company joins in the filing of a consolidated federal income tax return with its affiliated companies. The method of tax allocation reflects the benefits and burdens realized by each company's participation in the consolidated tax return, approximating a separate return result for each company. For tax reporting purposes, the Perry Unit 2 abandonment was recognized in 1994 and resulted in a $204 million loss with a corresponding $71 million reduction in federal income tax liability. Because of the alternative minimum tax (AMT), $40 million of the $71 million was realized in 1994. The remaining $31 million will not be realized until 1999. Additionally, a repayment of approximately $29 million of previously allowed investment tax credits was recognized in 1994. Under SFAS 109, temporary differences and carryforwards resulted in deferred tax assets of $425 million and deferred tax liabilities of $1.723 billion at December 31, 1995 and deferred tax assets of $418 million and deferred tax liabilities of $1.652 billion at December 31, 1994. These are summarized as follows:
December 31, --------------- 1995 1994 ------ ------ (millions of dollars) Property, plant and equipment $1,468 $1,429 Deferred carrying charges and operating 139 132 expenses Net operating loss carryforwards (67) (88) Investment tax credits (99) (105) Sale and leaseback transactions (123) (125) Other (20) (9) ------ ------ Net deferred tax liability $1,298 $1,234 ------ ------
For tax purposes, net operating loss (NOL) carryforwards of approximately $192 million are available to reduce future taxable income and will expire in 2005 through 2009. The 35% tax effect of the NOLs is $67 million. Additionally, AMT credits of $133 million that may be carried forward indefinitely are available to reduce future tax. (9) RETIREMENT BENEFITS (A) RETIREMENT INCOME PLAN Centerior Energy sponsors jointly with its subsidiaries a noncontributing pension plan (Centerior Pension Plan) which covers all employee groups. The amount of retirement benefits generally depends upon the length of service. Under certain circumstances, benefits can begin as early as age 55. The funding policy is to comply with the Employee Retirement Income Security Act of 1974 guidelines. In 1993, eligible employees were offered the VTP, an early retirement program. Operating expenses for Center- (Cleveland Electric) F-44 (Cleveland Electric) 97 ior Energy and its subsidiaries in 1993 included $205 million of pension plan accruals to cover enhanced VTP benefits offset by a credit of $81 million resulting from a settlement of pension obligations through lump sum payments to almost all the VTP retirees. Pension and VTP costs (credits) for Centerior Energy and its subsidiaries for 1993 through 1995 were comprised of the following components:
1995 1994 1993 ---- ---- ---- (millions of dollars) Pension Costs (Credits): Service cost for benefits earned during the period $ 10 $ 13 $ 15 Interest cost on projected benefit obligation 26 26 37 Actual return on plan assets (53) (2) (65) Net amortization and deferral 9 (34) 4 --- --- --- Net pension costs (credits) (8) 3 (9) VTP cost -- -- 205 Settlement gain -- -- (81) --- --- --- Net costs (credits) $ (8) $ 3 $115 --- --- ---
Pension and VTP costs (credits) for the Company and its pro rata share of the Service Company's costs were $(5) million, $2 million and $62 million for 1995, 1994 and 1993, respectively. The following table presents a reconciliation of the funded status of the Centerior Pension Plan. The Company's share of the Centerior Pension Plan's total projected benefit obligation approximates 50%.
December 31, ------------- 1995 1994 ---- ---- (millions of dollars) Actuarial present value of benefit obligations: Vested benefits $304 $278 Nonvested benefits 2 2 ---- ---- Accumulated benefit obligation 306 280 Effect of future compensation levels 54 37 ---- ---- Total projected benefit obligation 360 317 Plan assets at fair market value 394 362 ---- ---- Funded status 34 45 Unrecognized net gain from variance between assumptions and experience (68) (79) Unrecognized prior service cost 15 10 Transition asset at January 1, 1987 being amortized over 19 years (36) (39) ---- ---- Net accrued pension liability $(55) $(63) ---- ----
A September 30 measurement date was used for 1995 and 1994 reporting. At December 31, 1995, the settlement (discount) rate and long-term rate of return on plan assets assumptions were 8% and 11%, respectively. The long-term rate of annual compensation increase assumption was 3.5% in 1996 and 1997 and 4% thereafter. At December 31, 1994, the settlement rate and long-term rate of return on plan assets assumptions were 8.5% and 10%, respectively. The long-term rate of annual compensation increase assumption was 3.5% for 1995 and 1996 and 4% thereafter. At December 31, 1995 and 1994, the Company's net prepaid pension cost included in Regulatory and Other Assets -- Other in the Balance Sheet was $11 million and $7 million, respectively. Plan assets consist primarily of investments in common stock, bonds, guaranteed investment contracts, cash equivalent securities and real estate. (B) OTHER POSTRETIREMENT BENEFITS Centerior Energy sponsors jointly with its subsidiaries a postretirement benefit plan which provides all employee groups certain health care, death and other postretirement benefits other than pensions. The plan is contributory, with retiree contributions adjusted annually. The plan is not funded. The Company adopted SFAS 106, the accounting standard for postretirement benefits other than pensions, effective January 1, 1993. The standard requires the accrual of the expected costs of such benefits during the employees' years of service. Prior to 1993, the costs of these benefits were expensed as paid, which was consistent with rate-making practices. The components of the total postretirement benefit costs for 1993 through 1995 were as follows:
1995 1994 1993 ---- ---- ---- (millions of dollars) Service cost for benefits earned during the period $ 1 $ 1 $ 2 Interest cost on accumulated postretirement benefit obligation 11 11 10 Amortization of transition obligation at January 1, 1993 of $104 million over 20 years 5 5 5 Amortization of gain (1 ) -- -- VTP curtailment cost (includes $10 million transition obligation adjustment) -- -- 52 --- --- --- Total costs $16 $17 $69 --- --- ---
These amounts included costs for the Company and its pro rata share of the Service Company's costs. In 1995, 1994 and 1993, the Company deferred incremental SFAS 106 expenses (in excess of the amounts paid) of $3 million, $4 million and $60 million, respectively, pursuant to a provision of the Rate Stabilization Program. See Note 7(d). (Cleveland Electric) F-45 (Cleveland Electric) 98 The accumulated postretirement benefit obligation and accrued postretirement benefit cost for the Company and its share of the Service Company's obligation are as follows:
December 31, ------------- 1995 1994 ----- ----- (millions of dollars) Accumulated postretirement benefit obligation attributable to: Retired participants $(124) $(124) Fully eligible active plan participants (2) (1) Other active plan participants (19) (14) ----- ----- Accumulated postretirement benefit obligation (145) (139) Unrecognized net gain from variance between assumptions and experience (12) (16) Unamortized transition obligation 79 84 ----- ----- Accrued postretirement benefit cost $ (78) $ (71) ----- -----
The Balance Sheet classification of Retirement Benefits at December 31, 1995 and 1994 includes only the Company's accrued postretirement benefit cost of $65 million and $59 million, respectively, and excludes the Service Company's portion since the Service Company's total accrued cost is carried on its books. A September 30 measurement date was used for 1995 and 1994 reporting. At December 31, 1995 and 1994, the settlement rate and the long-term rate of annual compensation increase assumptions were the same as those discussed for pension reporting in Note 9(a). At December 31, 1995, the assumed annual health care cost trend rates (applicable to gross eligible charges) were 8% for medical and 7.5% for dental in 1996. Both rates reduce gradually to a fixed rate of 4.75% by 2003. Elements of the obligation affected by contribution caps are significantly less sensitive to the health care cost trend rate than other elements. If the assumed health care cost trend rates were increased by one percentage point in each future year, the accumulated postretirement benefit obligation as of December 31, 1995 would increase by $3 million and the aggregate of the service and interest cost components of the annual postretirement benefit cost would increase by $0.3 million. (10) GUARANTEES The Company has guaranteed certain loan and lease obligations of two coal suppliers under two long-term coal supply contracts. At December 31, 1995, the principal amount of the loan and lease obligations guaranteed by the Company under both contracts was $39 million. In addition, the Company may be responsible for mine closing costs when one of the contracts is terminated. At December 31, 1995, the unfunded costs of closing this mine as estimated by the supplier were $32 million. The prices under both contracts which include certain minimum payments are sufficient to satisfy the loan and lease obligations and mine closing costs over the lives of the contracts. If either contract is terminated early for any reason, the Company would attempt to reduce the termination charges and would ask the PUCO to allow recovery of such charges from customers through the fuel factor. (11) CAPITALIZATION (A) CAPITAL STOCK TRANSACTIONS Preferred stock shares sold and retired during the three years ended December 31, 1995 are listed in the following table.
1995 1994 1993 ---- ---- ---- (thousands of shares) Subject to Mandatory Redemption: Retirements $ 7.35 Series C (10) (10) (10) 88.00 Series E (3) (3) (3) Adjustable Series M (100) (100) (100) 9.125 Series N (111) (189) (150) 91.50 Series Q (11) -- -- 90.00 Series S (1) -- -- Not Subject to Mandatory Redemption: Sales $42.40 Series T -- -- 200 ---- ---- ----- Net (Decrease) (236) (302) (63) ---- ---- -----
(B) EQUITY DISTRIBUTION RESTRICTIONS Federal law prohibits the Company from paying dividends out of capital accounts. However, the Company may pay preferred and common stock dividends out of appropriated retained earnings and current earnings. At December 31, 1995, the Company had $212 million of appropriated retained earnings for the payment of preferred and common stock dividends. (C) PREFERRED AND PREFERENCE STOCK Amounts to be paid for preferred stock which must be redeemed during the next five years are $30 million in both 1996 and 1997, $15 million in 1998 and $33 million in both 1999 and 2000. The annual preferred stock mandatory redemption provisions are as follows:
Shares Price To Be Beginning Per Redeemed in Share -------- --------- ------ $ 7.35 Series C 10,000 1984 $ 100 88.00 Series E 3,000 1981 1,000 9.125 Series N 150,000 1993 100 91.50 Series Q 10,714 1995 1,000 88.00 Series R 50,000 2001* 1,000 90.00 Series S 18,750 1999 1,000
* All outstanding shares to be redeemed on December 1, 2001. (Cleveland Electric) F-46 (Cleveland Electric) 99 In 1995, the Company purchased 1,000 shares of Serial Preferred Stock, $90.00 Series S, which will reduce the 2002 redemption requirement shown in the above table. The annualized preferred dividend requirement at December 31, 1995 was $41 million. The preferred dividend rates on the Company's Series L and M fluctuate based on prevailing interest rates and market conditions. The dividend rates for these issues averaged 7.23% and 7.02%, respectively, in 1995. Preference stock authorized for the Company is 3,000,000 shares without par value. No preference shares are currently outstanding. With respect to dividend and liquidation rights, the Company's preferred stock is prior to its preference stock and common stock, and its preference stock is prior to its common stock. (D) LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS Long-term debt, less current maturities, was as follows:
Actual or Average Interest Rate at December 31, December 31, ----------------- Year of Maturity 1995 1995 1994 - ---------------------------- ------------ ------ ------ (millions of dollars) First mortgage bonds: 1997-2000 13.75% $ -- $ 21 1997-2000 7.00 3 4 1997-2000 10.88 24 24 1999-2000 6.20 4 4 2001-2005 8.52 756 464 2006-2010 7.99 122 122 2011-2015 7.56 349 449 2016-2020 8.38 524 568 2021-2025 8.42 467 324 ------ ------ 2,249 1,980 Secured medium-term notes due 1997-2021* 8.56 376 516 Term bank loans -- -- 2 Pollution control notes due 1997-2012 6.64 48 52 Other -- net -- (7) (7) ------ ------ Total Long-Term Debt $2,666 $2,543 ------ ------
* Secured by first mortgage bonds. Long-term debt matures during the next five years as follows: $147 million in 1996, $51 million in 1997, $74 million in 1998, $154 million in 1999 and $10 million in 2000. The Company's mortgage constitutes a direct first lien on substantially all property owned and franchises held by the Company. Excluded from the lien, among other things, are cash, securities, accounts receivable, fuel and supplies. Certain credit agreements of the Company contain covenants relating to fixed charge coverage ratios and limitations on secured financing other than through first mortgage bonds or certain other transactions. In June 1995, the Company and Toledo Edison replaced letters of credit in connection with the sale and leaseback of Beaver Valley Unit 2 that were due to expire with new letters of credit expiring in June 1999. The letters of credit are in an aggregate amount of approximately $225 million and are secured by first mortgage bonds of the Company and Toledo Edison in the proportion of 40% and 60%, respectively. At December 31, 1995, the Company had outstanding $2 million of bank loans secured by subordinated mortgage collateral. (12) SHORT-TERM BORROWING ARRANGEMENTS Centerior Energy has a $125 million revolving credit facility through May 1996. Centerior Energy and the Service Company may borrow under the facility, with all borrowings jointly and severally guaranteed by the Company and Toledo Edison. Centerior Energy plans to transfer any of its borrowed funds to the Company and Toledo Edison. The credit agreement is secured with first mortgage bonds of the Company and Toledo Edison in the proportion of 40% and 60%, respectively. The banks' fee is 0.625% per annum payable quarterly in addition to interest on any borrowings. There were no borrowings under the facility at December 31, 1995. Also, the Company and Toledo Edison may borrow from each other on a short-term basis. At December 31, 1995, the Company had total short-term borrowings of $5 million from its affiliates with an interest rate of 6.25%. (13) FINANCIAL INSTRUMENTS The estimated fair values at December 31, 1995 and 1994 of financial instruments that do not approximate their carrying amounts in the Balance Sheet are as follows:
December 31, ---------------------------------- 1995 1994 ---------------- ---------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ------ -------- ------ (millions of dollars) Capitalization and Liabilities: Preferred Stock, with Mandatory Redemption Provisions (including current portion) $ 245 $ 232 $ 282 $ 245 Long-Term Debt (including current portion) 2,819 2,824 2,795 2,503
Noncash investments in the Nuclear Plant Decommissioning Trusts are summarized in the following table. (Cleveland Electric) F-47 (Cleveland Electric) 100
December 31, ---------------- 1995 1994 ------ ------ (millions of dollars) Type of Securities: Federal Government $ 26 $ 25 Municipal 14 17 --- --- Total $ 40 $ 42 --- --- Maturities: Due within one year $ 1 $ 11 Due in one to five years 12 8 Due in six to 10 years 13 10 Due after 10 years 14 13 --- --- Total $ 40 $ 42 --- ---
The fair value of these trusts is estimated based on the quoted market prices for the investment securities. As a result of adopting the new accounting standard for certain investments in debt and equity securities, SFAS 115, in 1994, the carrying amount of these trusts approximates fair value. The fair value of the Company's preferred stock, with mandatory redemption provisions, and long-term debt is estimated based on the quoted market prices for the respective or similar issues or on the basis of the discounted value of future cash flows. The discounted value used current dividend or interest rates (or other appropriate rates) for similar issues and loans with the same remaining maturities. The estimated fair values of all other financial instruments approximate their carrying amounts in the Balance Sheet at December 31, 1995 and 1994 because of their short-term nature. (14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1995.
Quarters Ended ---------------------------------------- March 31, June 30, Sept. 30, Dec. 31, --------- -------- --------- -------- (millions of dollars) 1995 Operating Revenues $ 410 $424 $ 526 $408 Operating Income 85 91 145 77 Net Income 34 38 90 23 Earnings Available for Common Stock 23 27 80 12 1994 Operating Revenues $ 408 $415 $ 474 $401 Operating Income 86 91 132 88 Net Income 33 38 79 35 Earnings Available for Common Stock 21 27 68 24
(15) PENDING MERGER OF TOLEDO EDISON INTO THE COMPANY In March 1994, Centerior Energy announced a plan to merge Toledo Edison into the Company. Since the Company and Toledo Edison affiliated in 1986, efforts have been made to consolidate operations and administration as much as possible to achieve maximum cost savings. Various aspects of the merger are subject to the approval of the FERC and other regulatory authorities. The FERC has deferred action on the merger application until the merits of the open access transmission tariffs proposed by the Company and Toledo Edison are addressed in hearings. The PUCO and the Pennsylvania Public Utility Commission have approved the merger. NRC action on the request by the Company and Toledo Edison for authorization to transfer certain NRC licenses to the merged entity is not expected until approval has been obtained from the FERC. In June 1995, share owners of Toledo Edison's preferred stock approved the merger and share owners of the Company's preferred stock approved the authorization of additional shares of preferred stock. When the merger becomes effective, share owners of Toledo Edison's preferred stock will exchange their shares for preferred stock shares of the Company having substantially the same terms. Debt holders of the merging companies will become debt holders of the Company. For the merging companies, the combined pro forma operating revenues were $2.516 billion, $2.422 billion and $2.475 billion and the combined pro forma net income (loss) was $281 million, $268 million and $(876) million for the years 1995, 1994 and 1993, respectively. The pro forma data is based on accounting for the merger on a method similar to a pooling of interests. The pro forma data is not necessarily indicative of the results of operations which would have been reported had the merger been in effect during those years or which may be reported in the future. The pro forma data should be read in conjunction with the audited financial statements of both the Company and Toledo Edison. (Cleveland Electric) F-48 (Cleveland Electric) 101 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Share Owners and Board of Directors of The Cleveland Electric Illuminating Company: We have audited the accompanying consolidated balance sheet and consolidated statement of preferred stock of The Cleveland Electric Illuminating Company (a wholly owned subsidiary of Centerior Energy Corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Cleveland Electric Illuminating Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed further in Note 9, a change was made in the method of accounting for postretirement benefits other than pensions in 1993. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of The Cleveland Electric Illuminating Company and subsidiaries listed in the Index to Schedules is presented for purposes 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 audits 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 21, 1996 (Cleveland Electric) F-49 (Cleveland Electric) 102 FINANCIAL AND STATISTICAL REVIEW OPERATING REVENUES (millions of dollars)
Total Total Total Steam Operating Year Residential Commercial Industrial Other Retail Wholesale Electric Heating Revenues - ------------------------------------------------------------------------------------------------------------------------------- 1995 $ 559 563 523 93 1 738 31 1 769 -- $ 1 769 1994 531 541 508 98 1 678 20 1 698 -- 1 698 1993 539 536 510 98 1 683 68 1 751 -- 1 751 1992 517 531 530 101 1 679 64 1 743 -- 1 743 1991 547 540 547 117 1 751 75 1 826 -- 1 826 1985 382 356 454 48 1 240 6 1 246 13 1 259
- -------------------------------------------------------------------------------- OPERATING EXPENSES (millions of dollars)
Other Generation Deferred Fuel & Operation Facilities Depreciation Taxes, Operating Federal Total Purchased & Rental & Other Than Expenses, Income Operating Year Power Maintenance Expense, Net Amortization FIT Net Taxes Expenses - ------------------------------------------------------------------------------------------------------------------------------- 1995 $ 413 418 56 196 230 (36) 94 $ 1 371 1994 391 394 56 195 218 (34) 82 1 302 1993 423 598(a) 56 182 221 27(b) 22 1 529 1992 434 410 55 179 226 (35) 89 1 358 1991 455 414 56 171(c) 216 (7) 106 1 411 1985 357 311 -- 97 133 -- 102 1 000
- -------------------------------------------------------------------------------- INCOME (LOSS) (millions of dollars)
Federal Income Other Deferred Income (Loss) Income & Carrying Taxes-- Before Operating AFUDC-- Deductions, Charges, Credit Interest Year Income Equity Net Net (Expense) Charges - ---------------------------------------------------------------------------------------------- 1995 $ 398 2 2 29 (2) $429 1994 396 4 6 25 (4) 427 1993 222 4 (356)(d) (487)(b) 270 (347) 1992 385 1 8 59 (5) 448 1991 415 8 6 88 (24) 493 1985 259 163 (5) -- 49 466
- -------------------------------------------------------------------------------- INCOME (LOSS) (millions of dollars)
Earnings Preferred & (Loss) Net Preference Available for Debt AFUDC-- Income Stock Common Year Interest Debt (Loss) Dividends Stock - ------------------------------------------------------------------------------------ 1995 $248 (3) 184 43 $ 141 1994 247 (5) 185 45 140 1993 244 (4) (587 ) 45 (632) 1992 243 -- 205 41 164 1991 251 (4) 246 36 210 1985 212 (57) 311 42 269
- -------------------------------------------------------------------------------- (a) Includes early retirement program expenses and other charges of $165 million. (b) Includes write-off of phase-in deferrals of $636 million, consisting of $117 million of deferred operating expenses and $519 million of deferred carrying charges. (c) A change in accounting for nuclear plant depreciation was adopted, changing from the units-of-production method to the straight-line method at a 2.5% rate. (Cleveland Electric) F-50 (Cleveland Electric) 103 The Cleveland Electric Illuminating Company and Subsidiaries
ELECTRIC SALES (millions of KWH) ELECTRIC CUSTOMERS RESIDENTIAL USAGE (thousands at year end) Industrial Year Residential Commercial Industrial Wholesale Other Total Residential Commercial & Other - -------------------------------------------------------------------- --------------------------------------- --------------------------- 1995 5 063 5 946 7 994 1 694 550 21 247 670 72 7 1994 4 924 5 770 7 970 1 073 575 20 312 668 72 7 1993 4 934 5 634 7 911 2 290 532 21 301 669 71 8 1992 4 725 5 467 7 988 1 989 533 20 702 670 71 8 1991 4 940 5 493 8 017 2 442 565 21 457 668 70 8 1985 4 408 4 516 7 981 153 414 17 472 647 63 9 Average Average Year Total Customer KWH Customer - --------- ------- 1995 749 7 570 11.04c $835.40 1994 747 7 370 10.79 795.11 1993 748 7 373 10.93 805.68 1992 749 7 071 10.94 773.77 1991 746 7 170 11.08 797.25 1985 719 6 567 8.70 571.03
- --------------------------------------------------------------------------------
LOAD (MW & %) ENERGY (millions of KWH) FUEL Net Company Generated Seasonal Peak Capacity Load ----------------------------- Purchased Fuel Cost Year Capability Load Margin Factor Fossil(e) Nuclear Total Power Total Per KWH - -------------------------------------------------------- ---------------------------------------------------- ----------------------- 1995 4 273 4 049 5.2% 58.8% 12 684 8 175 20 859 1 673 22 532 1.42c 1994 4 500 3 740 16.9 62.4 12 840 6 405 19 245 2 022 21 267 1.35 1993 4 500 3 862 14.2 59.9 15 557 5 644 21 201 1 454 22 655 1.37 1992 4 704 3 605 23.4 63.0 12 715 7 521 20 236 1 649 21 885 1.47 1991 4 703 3 886 17.4 61.8 13 123 7 451 20 574 2 144 22 718 1.49 1985 3 244 3 257 (0.4) 67.5 15 713 1 012 16 725 2 033 18 758 1.81 Efficiency BTU Per Year KWH - ------------ ---------- 1995 10 504 1994 10 538 1993 10 339 1992 10 456 1991 10 503 1985 10 387
- --------------------------------------------------------------------------------
INVESTMENT (millions of dollars) Construction Utility Work In Total Plant Accumulated Progress Nuclear Property, Utility In Depreciation & Net & Perry Fuel and Plant and Plant Total Year Service Amortization Plant Unit 2 Other Equipment Additions Assets - ----------------------------------------------------------------------------------------------------------- ------- -------- 1995 $6 872 2 094 4 778 73 180 $ 5 031 $ 155 $7 152 1994 6 871 2 014 4 857 99 195 5 151 156 7 151 1993 6 734 1 889 4 845 141 243 5 229 175 7 159 1992 6 602 1 728 4 874 501 261 5 636 156 8 123 1991 6 196 1 565 4 631 545 305 5 481 150 7 942 1985 3 089 874 2 215 2 506 336 5 057 606 5 633
- -------------------------------------------------------------------------------- CAPITALIZATION (millions of dollars & %)
Preferred & Preference Preferred Stock, with Stock, without Mandatory Mandatory Common Stock Redemption Redemption Year Equity Provisions Provisions Long-Term Debt Total - ------------------------------------------------------------------------------------------------------- 1995 $1 127 26% 215 5% 241 6% 2 666 63% $4 249 1994 1 058 26 246 6 241 6 2 543 62 4 088 1993 1 040 24 285 7 241 5 2 793 64 4 359 1992 1 865 39 314 6 144 3 2 515 52 4 838 1991 1 898 38 268 5 217 4 2 683 53 5 066 1985 1 764 41 315 7 144 3 2 099 49 4 322
- -------------------------------------------------------------------------------- (d) Includes write-off of Perry Unit 2 of $351 million. (e) Reduced by net energy used by the Seneca Pumped Storage Plant for pumping. (Cleveland Electric) F-51 (Cleveland Electric) 104 MANAGEMENT'S FINANCIAL ANALYSIS OUTLOOK STRATEGIC PLAN We continued to make progress during the second year of our eight-year strategic plan, but we remain keenly aware of the magnitude of the problems that face us. The strategic plan was created by Centerior Energy Corporation (Centerior Energy), along with The Toledo Edison Company (Company) and The Cleveland Electric Illuminating Company (Cleveland Electric), to achieve two major goals: strengthening their financial conditions and improving their competitive positions. The Company and Cleveland Electric are the two wholly owned electric utility subsidiaries of Centerior Energy. The plan's objectives relate to the combined operations of all three companies. The objectives are to achieve profitable revenue growth, become a leader in customer satisfaction, build a winning employee team, attain increasingly competitive power supply costs and maximize share owner return on Centerior Energy common stock. We are not yet positioned to compete in a less regulated electric utility industry, but every major action being taken -- strategic planning, revenue enhancement, cost reduction, improvement of work practices and application for increased prices -- is part of a comprehensive effort to succeed in an increasingly competitive environment. A primary objective of the strategic plan is continued and significant revenue growth even as our markets become more competitive. The Company's retail revenues adjusted for weather and fuel costs have grown about 1% annually since 1990. During 1995, we took aggressive steps to increase revenues through enhanced marketing strategies. Also, our economic development efforts proved successful in attracting major new customers and supporting the expansion of existing ones. Although we are not satisfied with our growth rate, we expect that our marketing activity will improve revenue growth. The rate case which the Company and Cleveland Electric filed with The Public Utilities Commission of Ohio (PUCO) in April 1995 is a critical factor to the success of the strategic plan. We do not see this rate case as a continuation of business as usual but as an important turning point which should, if we are successful in accomplishing the objectives discussed below, bring an end to price increases for the foreseeable future. A successful conclusion of the case would speed our transition to a more competitive company by providing additional cash to lower costs by accelerating the pay-down of debt and preferred stock. In our view, a successful conclusion would include approval of the full price increase requested with a regulatory commitment to maintain the established price levels over an appropriate transition period. This should be coupled with a means to accelerate recognition of regulatory assets (described in Note 7(a)) and nuclear generating assets concurrent with our cost control and revenue enhancement efforts in order to earn a fair return for Centerior Energy common stock share owners over time. Another key part of our strategy is offering long-term contracts to those large customers who could have incentives to change power suppliers. In 1995, 74% of our industrial kilowatt-hour sales and 13% of our commercial kilowatt-hour sales were under long-term contracts. We are renegotiating contracts before they expire and in most cases are retaining customers under new long-term contracts. We are continuing efforts to reduce fixed financing costs in order to strengthen our financial condition. During 1995, utilizing strong cash flow and refinancing at favorable terms, the Company reduced interest expense and preferred dividends by $7 million and outstanding debt and preferred stock by $113 million. Our overall costs are high relative to many of our neighboring utilities as a result of our substantial nuclear investment. The strategic plan calls for making us more competitive by continuing to reduce operating expenses and capital expenditures. In 1995, to improve the focus on cost reduction and other strategic plan objectives, Centerior Energy and its subsidiaries restructured into six business groups. The new organization includes groups to manage the generation, distribution and transmission businesses; provide services and administrative functions; and invest in nonregulated enterprises. This arrangement will also enhance each group's ability to identify cost reductions by focusing on margins and improving work practices and customer service. We will also continue to aggressively pursue initiatives to reduce the heavy tax burden imposed upon us by the state and local tax structure in Ohio. RATE CASE AND REGULATORY ACCOUNTING In April 1995, the Company and Cleveland Electric filed requests with the PUCO for price increases aggregating $119 million annually to be effective in 1996. The price increases are necessary to recover cost increases and amortization of certain costs deferred since 1992 pursuant to the Rate Stabilization Program discussed below and in (Toledo Edison) F-52 (Toledo Edison) 105 Note 7. If their requests are approved, the Company and Cleveland Electric intend to freeze prices until at least 2002 with the expectation that increased sales and cost control measures will obviate the need for further price increases. If circumstances make it impossible to earn a fair return for Centerior Energy common stock share owners over time, the Company and Cleveland Electric would ask for a further increase -- but only after taking all appropriate actions to make such a request unnecessary. In December 1995, the PUCO ordered an investigation into the financial conditions, rates and practices of the Company and Cleveland Electric. In its report on the rate request, the PUCO Staff recommended approval of the $119 million requested ($35 million for the Company and $84 million for Cleveland Electric), subject to a commitment by the Company and Cleveland Electric to significantly revalue their assets. In late January 1996, the Staff proposed that the Company and Cleveland Electric significantly revalue their nuclear plant and regulatory assets within a five-year period. The Staff's asset revaluation proposal is inconsistent with the Ohio statutes that define the rate-making process. The PUCO is not bound by the Staff's recommendations. A decision by the PUCO is anticipated in the second quarter of 1996. The outcome of the rate case could affect the Company's ability to meet the criteria of Statement of Financial Accounting Standards (SFAS) 71 for all or part of its operations which could result in the write-off of all or a part of the regulatory assets shown in Note 7(a). In our changing industry, other events independent of the outcome of the rate case could also result in write-offs or write-downs of assets. See Note 7 for a full discussion and analysis of the rate case, SFAS 71 and other financial accounting requirements and the potential implications of these accounting requirements for the Company's results of operations and financial position. RATE STABILIZATION PROGRAM Under a Rate Stabilization Program approved by the PUCO in 1992, we agreed to freeze base rates until 1996 and limit rate increases through 1998. In exchange, we were permitted to defer through 1995 and subsequently recover certain costs not currently recovered in rates and to accelerate amortization of certain benefits. Deferral of those costs and amortization of those benefits were completed in November 1995 and aggregated $56 million for the Company in 1995. Recovery is expected to begin with the effective date of the PUCO's order in the pending rate case. Annual amortization of the deferred costs for the Company is $10 million which began in December 1995. Consequently, earnings in 1996 will be sharply lower than in 1995. Also contributing to lower earnings are the expectations that the requested price increase will not be effective until the second quarter of 1996 and results from increased marketing and cost reduction efforts will take time to achieve. COMPETITION Major structural changes are taking place in the electric utility industry which are expected to place downward pressure on prices and to increase competition for customers' business. The changes are coming from both federal and state authorities. Many of the changes began when the Energy Policy Act of 1992 permitted competition in the electric utility industry through broader access to a utility's transmission system. In March 1995, the Federal Energy Regulatory Commission (FERC) issued proposed rules relating to open access transmission services by public utilities, recovery of stranded investment and other related matters. The open access transmission rules require utilities to deliver power from other utilities or generation sources to their wholesale customers. In May 1995, the Company and Cleveland Electric filed open access transmission tariffs with the FERC which used the proposed rules as a guideline. These tariffs are currently pending. Several groups in Ohio are studying the possible application of retail wheeling. Retail wheeling occurs when a customer obtains power from a utility company other than its local utility. The PUCO is sponsoring informal discussions among a group of business, utility and consumer interests to explore ways of promoting competitive options without unduly harming the interests of utility company share owners or customers. Legislative proposals are being drafted for submission to the Ohio House of Representatives and several utilities in the state have offered their own proposed transition plans for introduction of retail wheeling. The current retail wheeling efforts in Ohio are exploratory and we cannot predict when and to what extent retail wheeling will be implemented in Ohio. The term "stranded investment" generally refers to fixed costs approved for recovery under traditional regulatory methods that would become unrecoverable, or "stranded", as a result of wider competition. Although (Toledo Edison) F-53 (Toledo Edison) 106 competitive pressures are increasing, the traditional regulatory framework remains in place and is expected to continue for the foreseeable future. We cannot predict when and to what extent competition will be allowed. We believe that pure competition (unrestricted retail wheeling for all customer classifications) is at least several years away and that any transition to pure competition will be in phases. The FERC and the PUCO have acknowledged the need to provide at least partial recovery of stranded investment as greater competition is permitted and, therefore, we believe that there will be a mechanism developed for the recovery of stranded investment. However, due to the uncertainty involved, there is a risk that some of our assets may not be fully recovered. In 1995, we continued to experience significant competition from municipal electric systems. Also, in Toledo, the City Council responded to a petition drive by appropriating funds to complete a consultant's study on whether to create a municipal electric utility. This study is expected to be completed by mid-1996. In October 1995, Chase Brass & Copper Co. Inc., which has provided annual net income of $2 million, terminated its service from the Company and began to receive its electric service from a consortium of other providers. We have filed lawsuits contending that this arrangement violates the legal limits of sales and delivery of power by municipal electric systems outside their boundaries. We will continue to pursue all legal and regulatory remedies to this situation. In 1995, our economic development efforts proved successful in attracting major new customers, such as North Star BHP Steel, Worthington Steel and Aluminum Company of America, while supporting the expansion of existing ones. We expect that our continued emphasis on economic development along with a newly developed market segment focus will be major ingredients in providing improved revenue growth. NUCLEAR OPERATIONS The Company has interests in three nuclear generating units -- Davis-Besse Nuclear Power Station (Davis-Besse), Perry Nuclear Power Plant Unit 1 (Perry Unit 1) and Beaver Valley Power Station Unit 2 (Beaver Valley Unit 2) -- and operates the first one. Cleveland Electric operates Perry Unit 1. Davis-Besse and Beaver Valley Unit 2 both operated extremely well in 1995. Their average three-year unit availability factors at year-end 1995 of 90% and 87%, respectively, exceeded the industry average of 81% for similar reactors. In 1995, the availability factor for Davis-Besse was 100%. The plant continues to have its best run ever operating at or near full capacity for 463 straight days through February 21, 1996. In 1995, Perry Unit 1 improved its average three-year unit availability factor to 62% with a 1995 availability factor of 93%. Perry Unit 1 operated at or near capacity for 506 of 531 days since the end of its last refueling and maintenance outage in August 1994. Work on the comprehensive course of action plan developed in 1993 for Cleveland Electric to improve the operating performance of Perry Unit 1 will be completed during the current refueling outage which began January 27, 1996. A significant part of the strategic plan involves ongoing efforts to increase the availability and lower the cost of production of our nuclear units. In 1995, we made great progress regarding unit availability while continuing to lower production costs. The goal of our nuclear improvement program is for Cleveland Electric to replicate Davis-Besse's operational excellence and cost reduction gains at Perry Unit 1 while improving performance ratings. We externally fund the estimated costs for the future decommissioning of our nuclear units. In 1993 and 1994, we increased our decommissioning expense accruals because of revisions in our cost estimates. See Note 1(e). Our nuclear units may be impacted by activities or events beyond our control. Operating nuclear units have experienced unplanned outages or extensions of scheduled outages because of equipment problems or new regulatory requirements. A major accident at a nuclear facility anywhere in the world could cause the Nuclear Regulatory Commission (NRC) to limit or prohibit the operation or licensing of any domestic nuclear unit. If one of our nuclear units is taken out of service for an extended period for any reason, including an accident at such unit or any other nuclear facility, we cannot predict whether regulatory authorities would impose unfavorable rate treatment. Such treatment could include taking our affected unit out of rate base, thereby not permitting us to recover our investment in and earn a return on it, or disallowing certain construction or maintenance costs. An extended outage coupled with unfavorable rate treatment could have a material adverse effect on our financial condition and results of operations. Premature plant closings could also have a material adverse effect on our financial condition and results of operations because the estimated cost to decommission the plant exceeds the current funding in the decommissioning trust. (Toledo Edison) F-54 (Toledo Edison) 107 HAZARDOUS WASTE DISPOSAL SITES The Company is aware of its potential involvement in the cleanup of several sites. Although these sites are not on the Superfund National Priorities List, they are generally being administered by various governmental entities in the same manner as they would be administered if they were on such list. Allegations that the Company disposed of hazardous waste at these sites, and the amount involved, are often unsubstantiated and subject to dispute. Federal law provides that all "potentially responsible parties" (PRPs) for a particular site be held liable on a joint and several basis. If the Company were held liable for 100% of the cleanup costs of all of the sites referred to above, the cost could be as high as $150 million. However, we believe that the actual cleanup costs will be substantially lower than $150 million, that the Company's share of any cleanup costs will be substantially less than 100% and that most of the other PRPs are financially able to contribute their share. The Company has accrued a liability totaling $5 million at December 31, 1995, based on estimates of the costs of cleanup and its proportionate responsibility for such costs. We believe that the ultimate outcome of these matters will not have a material adverse effect on our financial condition or results of operations. COMMON STOCK DIVIDENDS In recent years, the Company has retained all of its earnings available for common stock. The Company has not paid a common stock dividend to Centerior Energy since February 1991. The Company is currently prohibited from paying a common stock dividend by a provision in its mortgage. See Note 11(b). The Company does not expect to pay any common stock dividends prior to its merger into Cleveland Electric, as discussed below. MERGER OF THE COMPANY INTO CLEVELAND ELECTRIC We continue to seek the necessary regulatory approvals to complete the merger of the Company into Cleveland Electric which was announced in 1994. The FERC has deferred action on the merger application until the merits of the open access transmission tariffs proposed by the Company and Cleveland Electric are addressed in hearings. See Note 15. CAPITAL RESOURCES AND LIQUIDITY 1993-1995 CASH REQUIREMENTS A key part of the strategic plan is to significantly reduce the Company's level of debt and preferred stock. In 1995, we were able to continue the reduction pattern begun in 1994. The Company's obligations were reduced by $66 million in 1994 and by $113 million in 1995. We intend to continue and to accelerate redemptions. We need cash for normal corporate operations, retirement of maturing securities, and an ongoing program of constructing and improving facilities to meet demand for electric service and to comply with government regulations. Our cash construction expenditures totaled $42 million in 1993, $41 million in 1994 and $53 million in 1995. Our debt and preferred stock maturities and sinking fund requirements totaled $58 million in both 1993 and 1994 and $83 million in 1995. In addition, we optionally redeemed approximately $200 million in the period 1993-1995. This amount includes $94 million of tax-exempt issues refunded in 1995 resulting in approximately $4 million of interest savings. The embedded cost of the Company's debt at the end of 1995 was 9.23% versus 9.48% in 1994 and 9.59% in 1993. In 1995, the Company and Cleveland Electric renewed for a four-year term approximately $225 million in bank letters of credit supporting the equity owner participants in the Beaver Valley Unit 2 lease. See Note 11(d). The Company also utilized short-term borrowings to help meet its cash needs. The Company had $21 million of notes payable to affiliates at December 31, 1995. See Note 12. 1996 AND BEYOND CASH REQUIREMENTS The Company's 1996 cash requirements for construction are $74 million and for debt and preferred stock maturities and sinking fund requirements are $58 million. We expect to meet these requirements with internal cash generation, cash reserves and about $40 million from the sale of a AAA-rated security backed by our accounts receivable. We expect to meet all of our 1997-2000 cash requirements with internal cash generation. Estimated cash requirements for the Company's construction program during this period total $262 million. Debt and preferred stock maturities and sinking fund requirements total $233 million for the same period. If economical, additional securities may be redeemed under optional redemption (Toledo Edison) F-55 (Toledo Edison) 108 provisions, with funding expected to be provided through internal cash generation. LIQUIDITY Additional first mortgage bonds may be issued by the Company under its mortgage on the basis of property additions, cash or refundable first mortgage bonds. If the applicable interest coverage test is met, the Company may issue first mortgage bonds on the basis of property additions and, under certain circumstances, refundable bonds. At December 31, 1995, the Company would have been permitted to issue approximately $288 million of additional first mortgage bonds. The Company also is able to raise funds through the sale of debt and preferred and preference stock. Under its articles of incorporation, the Company cannot issue preferred stock unless certain earnings coverage requirements are met. At December 31, 1995 the Company would have been permitted to issue approximately $158 million of additional preferred stock at an assumed dividend rate of 10.5%. There are no restrictions on the Company's ability to issue preference stock. The Company and Cleveland Electric have $307 million in financing vehicles available to support their nuclear fuel leases, portions of which mature this year. See Note 6. The Company is a party to a $125 million revolving credit facility which is expected to be renewed when it matures in May 1996. See Note 12. At the end of 1995, the Company had $94 million in cash and temporary investments. The foregoing financing resources are expected to be sufficient for the Company's needs over the next several years. However, the availability and cost of capital to meet the Company's external financing needs also depend upon such factors as financial market conditions and its credit ratings. Current credit ratings for the Company are as follows:
Standard Moody's & Poor's Investors Corporation Service, Inc. ----------- ------------- First mortgage bonds BB Ba2 Subordinated debt B+ B1 Preferred stock B b2
RESULTS OF OPERATIONS 1995 VS. 1994 Factors contributing to the 1% increase in 1995 operating revenues are as follows:
Millions Increase (Decrease) in Operating Revenues of Dollars - ------------------------------------------------ ----------- KWH Sales Volume and Mix $ 29 Wholesale Revenues (9) Fuel Cost Recovery Revenues (10) Miscellaneous Revenues (1) --- Total $ 9 ---
For the second year in a row, total kilowatt-hour sales increased. Total sales increased 2.2% in 1995 primarily because of the hot summer weather. Residential and commercial sales increased 5.2% and 2.2%, respectively, which included about 1% nonweather-related growth in residential sales. Industrial sales increased 1.8% on the strength of increased sales to large glass manufacturers and the broad-based, smaller industrial customer group. Other sales increased 0.5%. Weather accounted for approximately $13 million of the $21 million increase in 1995 base rate (nonfuel) revenues. Wholesale revenues decreased because of the lower revenues associated with the Beaver Valley Unit 2 capacity sale to Cleveland Electric. See Note 2. Lower 1995 fuel costs recovery revenues resulted from favorable changes in the fuel cost factors. The weighted average of these fuel cost factors decreased approximately 6%. For 1995, operating revenues were 27% residential, 21% commercial, 29% industrial and 23% other and kilowatt-hour sales were 19% residential, 16% commercial, 37% industrial and 28% other. The average prices per kilowatt-hour for residential, commercial and industrial customers were $.11, $.11 and $.06, respectively. Operating expenses increased 0.1% in 1995. Federal income taxes increased as a result of higher pretax operating income. Fuel and purchased power expenses decreased because of lower purchased power requirements resulting from the increased availability of the nuclear generating units in 1995. Interest charges and preferred dividends decreased in 1995 because of the redemption of securities and refinancing at favorable terms. (Toledo Edison) F-56 (Toledo Edison) 109 1994 VS. 1993 Factors contributing to the 0.7% decrease in 1994 operating revenues are as follows:
Millions Increase (Decrease) in Operating Revenues of Dollars - ------------------------------------------------ ----------- KWH Sales Volume and Mix $ 8 Wholesale Revenues (5) Fuel Cost Recovery Revenues (9) ---- Total $(6) ----
The Company experienced good retail kilowatt-hour sales growth in the industrial and commercial categories in 1994; the sales growth for the residential category was lessened by weather conditions, particularly during the summer. The revenue decrease resulted from milder weather conditions in 1994 and both lower wholesale and fuel cost recovery revenues. Weather reduced base rate revenues approximately $7 million from the 1993 amount. Total sales increased 7.8%. Industrial sales increased 8.6% on the strength of increased sales to large automotive manufacturers and the broad-based, smaller industrial customer group. This growth substantiated an economic resurgence in Northwestern Ohio. Residential and commercial sales increased 0.8% and 2.3%, respectively. Other sales increased 16% because of increased sales to wholesale customers, although the softer wholesale market conditions in 1994 resulted in lower wholesale revenues. Lower 1994 fuel cost recovery revenues resulted from favorable changes in the fuel cost factors. The weighted average of these fuel cost factors dropped by 6%. For 1994, operating revenues were 26% residential, 21% commercial, 29% industrial and 24% other and kilowatt-hour sales were 19% residential, 16% commercial, 37% industrial and 28% other. The average prices per kilowatt-hour for residential, commercial and industrial customers were $.11, $.11 and $.06, respectively. The changes from 1993 were not significant. Operating expenses were 12% lower in 1994. Operation and maintenance expenses for 1993 included $88 million of net benefit expenses related to an early retirement program, called the Voluntary Transition Program (VTP), and other charges totaling $19 million. The VTP benefit expenses in 1993 consisted of $75 million of costs for the Company plus $13 million for the Company's pro rata share of the costs for its affiliate, Centerior Service Company (Service Company). A smaller work force and ongoing cost reduction measures also lowered operation and maintenance expenses. Lower purchased power costs helped reduce fuel and purchased power expenses in 1994 despite an increase in the amount of power purchased. More nuclear generation and less coal-fired generation also accounted for a part of the lower fuel and purchased power expenses. Depreciation and amortization expenses increased primarily because of higher nuclear plant decommissioning expenses as discussed in Note 1(e). Deferred operating expenses were greater primarily because of the write-off of $55 million of phase-in deferred operating expenses in 1993 as discussed in Note 7(e). The 1993 deferrals also included $32 million of postretirement benefit curtailment cost deferrals related to the VTP. See Note 9(b). Federal income taxes increased as a result of higher pretax operating income. As discussed in Note 4(b), $232 million of our Perry Unit 2 investment was written off in 1993. Also, as discussed in Note 7(e), phase-in deferred carrying charges of $186 million were written off in 1993. The change in the federal income tax credit amounts for nonoperating income was attributable to these write-offs. (Toledo Edison) F-57 (Toledo Edison) 110 INCOME STATEMENT The Toledo Edison Company
For the years ended December 31, ----------------------- 1995 1994 1993 ---- ---- ----- (millions of dollars) OPERATING REVENUES (1) $874 $865 $ 871 ---- ---- ----- OPERATING EXPENSES Fuel and purchased power 157 167 173 Other operation and maintenance 225 229 245 Generation facilities rental expense, net 104 104 104 Early retirement program expenses and other -- -- 107 ---- ---- ----- Total operation and maintenance 486 500 629 Depreciation and amortization 84 83 76 Taxes, other than federal income taxes 91 90 91 Deferred operating expenses, net (17) (21) (4) Federal income taxes (credit) 42 33 (10) ---- ---- ----- 686 685 782 ---- ---- ----- OPERATING INCOME 188 180 89 ---- ---- ----- NONOPERATING INCOME (LOSS) Allowance for equity funds used during construction 1 1 1 Other income and deductions, net 6 3 -- Write-off of Perry Unit 2 -- -- (232) Deferred carrying charges, net 14 15 (161) Federal income taxes -- credit (expense) (2) (2) 129 ---- ---- ----- 19 17 (263) ---- ---- ----- INCOME (LOSS) BEFORE INTEREST CHARGES 207 197 (174) ---- ---- ----- INTEREST CHARGES Debt interest 111 116 116 Allowance for borrowed funds used during construction (1) (1) (1) ---- ---- ----- 110 115 115 ---- ---- ----- NET INCOME (LOSS) 97 82 (289) PREFERRED DIVIDEND REQUIREMENTS 18 20 23 ---- ---- ----- EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK $ 79 $ 62 $(312) ---- ---- -----
- --------------- (1) Includes revenues from all bulk power sales to Cleveland Electric of $102 million, $111 million and $120 million in 1995, 1994 and 1993, respectively. RETAINED EARNINGS
For the years ended December 31, ------------------------- 1995 1994 1993 ----- ----- ----- (millions of dollars) RETAINED EARNINGS (DEFICIT) AT BEGINNING OF YEAR $(113) $(175) $ 137 ----- ------ ----- ADDITIONS Net income (loss) 97 82 (289) DEDUCTIONS Preferred stock dividends declared and other (19) (20) (23) ----- ------ ----- Net Increase (Decrease) 78 62 (312) ----- ------ ----- RETAINED EARNINGS (DEFICIT) AT END OF YEAR $ (35) $(113) $(175) ----- ------ -----
The accompanying notes are an integral part of these statements. (Toledo Edison) F-58 (Toledo Edison) 111 (This page intentionally left blank) (Toledo Edison) F-59 (Toledo Edison) 112 BALANCE SHEET
December 31, ---------------- 1995 1994 ------ ------ (millions of dollars) ASSETS PROPERTY, PLANT AND EQUIPMENT Utility plant in service $2,896 $2,899 Less: accumulated depreciation and amortization 942 892 ------- ------- 1,954 2,007 Construction work in progress 28 30 ------- ------- 1,982 2,037 Nuclear fuel, net of amortization 78 119 Other property, less accumulated depreciation 20 6 ------- ------- 2,080 2,162 ------- ------- CURRENT ASSETS Cash and temporary cash investments 94 88 Amounts due from customers and others, net 68 62 Amounts due from affiliates 19 19 Unbilled revenues 22 22 Materials and supplies, at average cost 40 45 Fossil fuel inventory, at average cost 9 12 Taxes applicable to succeeding years 71 72 Other 4 2 ------- ------- 327 322 ------- ------- REGULATORY AND OTHER ASSETS Amounts due from customers for future federal income taxes, net 416 405 Unamortized loss from Beaver Valley Unit 2 sale 96 101 Unamortized loss on reacquired debt 28 28 Carrying charges and operating expenses 410 379 Nuclear plant decommissioning trusts 52 38 Other 65 67 ------- ------- 1,067 1,018 ------- ------- Total Assets $3,474 $3,502 ------- -------
The accompanying notes are an integral part of this statement. (Toledo Edison) F-60 (Toledo Edison) 113 The Toledo Edison Company
December 31, ---------------- 1995 1994 ------ ------ (millions of dollars) CAPITALIZATION AND LIABILITIES CAPITALIZATION Common shares, $5 par value: 60 million authorized; 39.1 million outstanding in 1995 and 1994 $ 196 $ 196 Premium on capital stock 481 481 Other paid-in capital 121 121 Retained earnings (deficit) (35) (113) ------ ------ Common stock equity 763 685 Preferred stock With mandatory redemption provisions 5 7 Without mandatory redemption provisions 210 210 Long-term debt 1,068 1,154 ------ ------ 2,046 2,056 ------ ------ CURRENT LIABILITIES Current portion of long-term debt and preferred stock 58 83 Current portion of nuclear fuel lease obligations 40 36 Accounts payable 56 48 Accounts and notes payable to affiliates 53 31 Accrued taxes 78 75 Accrued interest 24 27 Other 20 16 ------ ------ 329 316 ------ ------ DEFERRED CREDITS AND OTHER LIABILITIES Unamortized investment tax credits 79 87 Accumulated deferred federal income taxes 573 541 Unamortized gain from Bruce Mansfield Plant sale 188 198 Accumulated deferred rents for Bruce Mansfield Plant and Beaver Valley Unit 2 54 54 Nuclear fuel lease obligations 52 87 Retirement benefits 103 103 Other 50 60 ------ ------ 1,099 1,130 ------ ------ Total Capitalization and Liabilities $3,474 $3,502 ------ ------
(Toledo Edison) F-61 (Toledo Edison) 114 CASH FLOWS The Toledo Edison Company
For the years ended December 31, ------------------------- 1995 1994 1993 ----- ----- ----- (millions of dollars) CASH FLOWS FROM OPERATING ACTIVITIES (1) Net Income (Loss) $ 97 $ 82 $(289) ---- ------ ------ Adjustments to Reconcile Net Income (Loss) to Cash from Operating Activities: Depreciation and amortization 84 83 76 Deferred federal income taxes 16 46 (160) Unbilled revenues -- 3 (4) Deferred fuel (3) 3 -- Deferred carrying charges, net (14) (15) 161 Leased nuclear fuel amortization 54 44 38 Deferred operating expenses, net (17) (21) (4) Allowance for equity funds used during construction (1) (1) (1) Noncash early retirement program expenses, net -- -- 83 Write-off of Perry Unit 2 -- -- 232 Changes in amounts due from customers and others, net (6) 1 (3) Changes in inventories 8 (2) 10 Changes in accounts payable 8 (15) 16 Changes in working capital affecting operations 4 (16) 21 Other noncash items 9 10 14 ---- ------ ------ Total Adjustments 142 120 479 ---- ------ ------ Net Cash from Operating Activities 239 202 190 ---- ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES (2) Bank loans, commercial paper and other short-term debt -- -- (40) Notes payable to affiliates 21 -- -- First mortgage bond issues 99 31 20 Secured medium-term note issues -- -- 93 Maturities, redemptions and sinking funds (215) (98) (89) Nuclear fuel lease obligations (44) (49) (47) Dividends paid (18) (20) (23) Premiums, discounts and expenses (6) -- (1) ---- ------ ------ Net Cash from Financing Activities (163) (136) (87) ---- ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES (2) Cash applied to construction (53) (41) (42) Interest capitalized as allowance for borrowed funds used during construction (1) (1) (1) Contributions to nuclear plant decommissioning trusts (11) (12) (4) Other cash received (applied) (5) (6) 10 ---- ------ ------ Net Cash from Investing Activities (70) (60) (37) ---- ------ ------ NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 6 6 66 ---- ------ ------ CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 88 82 16 ---- ------ ------ CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 94 $ 88 $ 82 ---- ------ ------
- --------------- (1) Interest paid (net of amounts capitalized) $ 93 $ 94 $ 92 ----- ----- ----- Income taxes paid $ 23 $ 5 $ 7 ----- ----- -----
(2) Increases in Nuclear Fuel and Nuclear Fuel Lease Obligations in the Balance Sheet resulting from the noncash capitalizations under nuclear fuel agreements are excluded from this statement. The accompanying notes are an integral part of this statement. (Toledo Edison) F-62 (Toledo Edison) 115 STATEMENT OF PREFERRED STOCK The Toledo Edison Company
Current Call December 31, 1995 Shares Price ------------- Outstanding Per Share 1995 1994 ----------- --------- ---- ---- (millions of dollars) $100 par value, 3,000,000 preferred shares authorized; $25 par value, 12,000,000 preferred shares authorized Subject to mandatory redemption: $100 par $9.375 66,850 $ 101.48 $ 7 $ 8 25 par 2.81 -- -- -- 10 ---- ---- 7 18 Less: Current maturities 2 11 ---- ---- TOTAL PREFERRED STOCK, WITH MANDATORY REDEMPTION PROVISIONS $ 5 $ 7 ==== ==== Not subject to mandatory redemption: $100 par $ 4.25 160,000 104.625 $ 16 $ 16 4.56 50,000 101.00 5 5 4.25 100,000 102.00 10 10 8.32 100,000 102.46 10 10 7.76 150,000 102.437 15 15 7.80 150,000 101.65 15 15 10.00 190,000 101.00 19 19 25 par 2.21 1,000,000 25.25 25 25 2.365 1,400,000 27.75 35 35 Series A Adjustable 1,200,000 25.00 30 30 Series B Adjustable 1,200,000 25.75 30 30 ---- ---- TOTAL PREFERRED STOCK, WITHOUT MANDATORY REDEMPTION PROVISIONS $210 $210 ==== ====
The accompanying notes are an integral part of this statement. (Toledo Edison) F-63 (Toledo Edison) 116 NOTES TO THE FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) GENERAL The Company is an electric utility and a wholly owned subsidiary of Centerior Energy. The Company follows the Uniform System of Accounts prescribed by the FERC and adopted by the PUCO. Rate-regulated utilities are subject to SFAS 71 which governs accounting for the effects of certain types of rate regulation. Pursuant to SFAS 71, certain incurred costs are deferred for recovery in future rates. See Note 7. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The estimates are based on an analysis of the best information available. Actual results could differ from those estimates. The Company is a member of the Central Area Power Coordination Group (CAPCO). Other members are Cleveland Electric, Duquesne Light Company, Ohio Edison Company and its wholly owned subsidiary, Pennsylvania Power Company. The members have constructed and operate generation and transmission facilities for their joint use. (B) RELATED PARTY TRANSACTIONS Operating revenues, operating expenses and interest charges include those amounts for transactions with affiliated companies in the ordinary course of business operations. The Company's transactions with Cleveland Electric are primarily for firm power, interchange power, transmission line rentals and jointly owned power plant operations and construction. See Notes 2 and 3. The Service Company provides management, financial, administrative, engineering, legal and other services at cost to the Company and other affiliated companies. The Service Company billed the Company $67 million, $59 million and $71 million in 1995, 1994 and 1993, respectively, for such services. (C) REVENUES Customers are billed on a monthly cycle basis for their energy consumption based on rate schedules or contracts authorized by the PUCO or on ordinances of individual municipalities. An accrual is made at the end of each month to record the estimated amount of unbilled revenues for kilowatt-hours sold in the current month but not billed by the end of that month. A fuel factor is added to the base rates for electric service. This factor is designed to recover from customers the costs of fuel and most purchased power. It is reviewed and adjusted semiannually in a PUCO proceeding. (D) FUEL EXPENSE The cost of fossil fuel is charged to fuel expense based on inventory usage. The cost of nuclear fuel, including an interest component, is charged to fuel expense based on the rate of consumption. Estimated future nuclear fuel disposal costs are being recovered through base rates. The Company defers the differences between actual fuel costs and estimated fuel costs currently being recovered from customers through the fuel factor. This matches fuel expenses with fuel-related revenues. Owners of nuclear generating plants are assessed by the federal government for the cost of decontamination and decommissioning of nuclear enrichment facilities operated by the United States Department of Energy. The assessments are based upon the amount of enrichment services used in prior years and cannot be imposed for more than 15 years (to 2007). The Company has accrued a liability for its share of the total assessments. These costs have been recorded in a deferred charge account since the PUCO is allowing the Company to recover the assessments through its fuel cost factors. (E) DEPRECIATION AND DECOMMISSIONING The cost of property, plant and equipment is depreciated over their estimated useful lives on a straight-line basis. The annual straight-line depreciation provision for nonnuclear property expressed as a percent of average depreciable utility plant in service was 3.8% in 1995, 3.5% in 1994 and 3.6% in 1993. The annual straight-line depreciation rate for nuclear property is 2.5%. In conjunction with its pending rate case, the Company has asked the PUCO to approve an increase of this depreciation rate to approximately 3%. The Company accrues the estimated costs of decommissioning its three nuclear generating units. The accruals are required to be funded in an external trust. The PUCO requires that the expense and payments to the external trusts be determined on a levelized basis by dividing the unrecovered decommissioning costs in current dollars by the remaining years in the licensing period of each unit. This methodology requires that the net earnings on the (Toledo Edison) F-64 (Toledo Edison) 117 trusts be reinvested therein with the intent of having net earnings offset inflation. The PUCO requires that the estimated costs of decommissioning and the funding level be reviewed at least every five years. In 1994, the Company increased its annual decommissioning expense accruals to $11 million from the $5 million level in 1993. The accruals are reflected in current rates. The increased accruals in 1994 were derived from updated, site-specific studies for each of the units. The revised estimates reflect the DECON method of decommissioning (prompt decontamination), and the locations and cost characteristics specific to the units, and include costs associated with decontamination, dismantlement and site restoration. The revised estimates for the units in 1993 and 1992 dollars and in dollars at the time of license expiration, assuming a 4% annual inflation rate, are as follows:
License Expiration Future Generating Unit Year Amount Amount - ------------------------------- ---------- ------ ------ (millions of dollars) Davis-Besse 2017 $168(1) $419 Perry Unit 1 2026 100(1) 354 Beaver Valley Unit 2 2027 51(2) 190 ---- ---- Total $319 $963 ---- ----
- --------------- (1) Dollar amounts in 1993 dollars. (2) Dollar amount in 1992 dollars. The updated estimates reflect substantial increases from the prior PUCO-recognized aggregate estimates of $115 million in 1987 and 1986 dollars. The classification, Accumulated Depreciation and Amortization, in the Balance Sheet at December 31, 1995 includes $59 million of decommissioning costs previously expensed and the earnings on the external trust funding. This amount exceeds the Balance Sheet amount of the external Nuclear Plant Decommissioning Trusts because the reserve began prior to the external trust funding. The trust earnings are recorded as an increase to the trust assets and the related component of the decommissioning reserve (included in Accumulated Depreciation and Amortization). The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry, including those of the Company, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements. In response to these questions, the Financial Accounting Standards Board (FASB) is reviewing the accounting for removal costs, including decommissioning. If current accounting practices are changed, the annual provision for decommissioning could increase; the estimated cost for decommis- sioning could be recorded as a liability rather than as accumulated depreciation; and trust fund income from the external decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. The FASB issued an exposure draft on the subject on February 7, 1996. (F) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at original cost less amounts disallowed by the PUCO. Construction costs include related payroll taxes, retirement benefits, fringe benefits, management and general overheads and allowance for funds used during construction (AFUDC). AFUDC represents the estimated composite debt and equity cost of funds used to finance construction. This noncash allowance is credited to income. The AFUDC rate was 12.6% in 1995, 9.87% in 1994 and 10.22% in 1993. Maintenance and repairs for plant and equipment are charged to expense as incurred. The cost of replacing plant and equipment is charged to the utility plant accounts. The cost of property retired plus removal costs, after deducting any salvage value, is charged to the accumulated provision for depreciation. (G) DEFERRED GAIN AND LOSS FROM SALES OF UTILITY PLANT The sale and leaseback transactions discussed in Note 2 resulted in a net gain for the sale of the Bruce Mansfield Generating Plant (Mansfield Plant) and a net loss for the sale of Beaver Valley Unit 2. The net gain and net loss were deferred and are being amortized over the terms of the leases. See Note 7(a). These amortizations and the lease expense amounts are reported in the Income Statement as Generation Facilities Rental Expense, Net. (H) INTEREST CHARGES Debt Interest reported in the Income Statement does not include interest on obligations for nuclear fuel under construction. That interest is capitalized. See Note 6. Losses and gains realized upon the reacquisition or redemption of long-term debt are deferred, consistent with the regulatory rate treatment. See Note 7(a). Such losses and gains are either amortized over the remainder of the original life of the debt issue retired or amortized over the life of the new debt issue when the proceeds of a new issue are used for the debt redemption. The amortizations are included in debt interest expense. (Toledo Edison) F-65 (Toledo Edison) 118 (I) FEDERAL INCOME TAXES The Company uses the liability method of accounting for income taxes in accordance with SFAS 109. See Note 8. This method requires that deferred taxes be recorded for all temporary differences between the book and tax bases of assets and liabilities. The majority of these temporary differences are attributable to property-related basis differences. Included in these basis differences is the equity component of AFUDC, which will increase future tax expense when it is recovered through rates. Since this component is not recognized for tax purposes, the Company must record a liability for its tax obligation. The PUCO permits recovery of such taxes from customers when they become payable. Therefore, the net amount due from customers through rates has been recorded as a deferred charge and will be recovered over the lives of the related assets. See Note 7(a). Investment tax credits are deferred and amortized over the lives of the applicable property as a reduction of depreciation expense. See Note 7(d) for a discussion of the amortization of certain unrestricted excess deferred taxes and unrestricted investment tax credits under the Rate Stabilization Program. (2) UTILITY PLANT SALE AND LEASEBACK TRANSACTIONS The Company and Cleveland Electric are co-lessees of 18.26% (150 megawatts) of Beaver Valley Unit 2 and 6.5% (51 megawatts), 45.9% (358 megawatts) and 44.38% (355 megawatts) of Units 1, 2 and 3 of the Mansfield Plant, respectively. These leases extend through 2017 and are the result of sale and leaseback transactions completed in 1987. Under these leases, the Company and Cleveland Electric are responsible for paying all taxes, insurance premiums, operation and maintenance expenses and all other similar costs for their interests in the units sold and leased back. They may incur additional costs in connection with capital improvements to the units. The Company and Cleveland Electric have options to buy the interests back at the end of the leases for the fair market value at that time or renew the leases. The leases include conditions for mandatory termination (and possible repurchase of the leasehold interest) for events of default. As co-lessee with Cleveland Electric, the Company is also obligated for Cleveland Electric's lease payments. If Cleveland Electric is unable to make its payments under the Mansfield Plant leases, the Company would be obligated to make such payments. No such payments have been made on behalf of Cleveland Electric. Future minimum lease payments under the operating leases at December 31, 1995 are summarized as follows:
For For the Cleveland Year Company Electric - -------------------------------------- ------- --------- (millions of dollars) 1996 $ 125 $ 63 1997 102 63 1998 102 63 1999 108 70 2000 111 76 Later Years 1,807 1,245 ------ ------ Total Future Minimum Lease Payments $2,355 $1,580 ------ ------
Rental expense is accrued on a straight-line basis over the terms of the leases. The amount recorded in 1995, 1994 and 1993 as annual rental expense for the Mansfield Plant leases was $45 million. The amounts recorded in 1995, 1994 and 1993 as annual rental expense for the Beaver Valley Unit 2 lease were $63 million, $64 million and $63 million, respectively. Amounts charged to expense in excess of the lease payments are classified as Accumulated Deferred Rents in the Balance Sheet. The Company is selling 150 megawatts of its Beaver Valley Unit 2 leased capacity entitlement to Cleveland Electric. Revenues recorded for this transaction were $98 million, $108 million and $103 million in 1995, 1994 and 1993, respectively. We anticipate that this sale will continue indefinitely. The future minimum lease payments through 2017 associated with Beaver Valley Unit 2 aggregate $1.35 billion. (3) PROPERTY OWNED WITH OTHER UTILITIES AND INVESTORS The Company owns, as a tenant in common with other utilities and those investors who are owner-participants in various sale and leaseback transactions (Lessors), certain generating units as listed below. Each owner owns an undivided share in the entire unit. Each owner has the right to a percentage of the generating capability of each unit equal to its ownership share. Each utility owner is obligated to pay for only its respective share of the construction costs and operating expenses. Each Lessor has leased its capacity rights to a utility which is obligated to pay for such Lessor's share of the construction costs and operating expenses. The Company's share of the operating expenses of these generating units is included in the Income Statement. The Balance Sheet classification of Property, Plant and Equipment at December 31, 1995 (Toledo Edison) F-66 (Toledo Edison) 119 includes the following facilities owned by the Company as a tenant in common with other utilities and Lessors:
Property, Plant and Ownership Equipment Megawatts (Exclusive of Accumulated Generating Unit (% Share) Nuclear Fuel) Depreciation - ------------------------ ----------- ------------- ----------- (millions of dollars) Davis-Besse 429 (48.62%) $ 649 $ 202 Perry Unit 1 238 (19.91) 1,050 221 Beaver Valley Unit 2 and Common Facilities (Note 2) 13 (1.65) 207 48 ------ ------ Total $ 1,906 $ 471 ------ ------
(4) CONSTRUCTION AND CONTINGENCIES (A) CONSTRUCTION PROGRAM The estimated cost of the Company's construction program for the 1996-2000 period is $345 million, including AFUDC of $10 million and excluding nuclear fuel. The Clean Air Act Amendments of 1990 (Clean Air Act) requires, among other things, significant reductions in the emission of sulfur dioxide and nitrogen oxides by fossil-fueled generating units. Our strategy provides for compliance primarily through greater use of low-sulfur coal at some of our units and the use of emission allowances. Total capital expenditures from 1991 through 1995 in connection with Clean Air Act compliance amounted to $4 million. The plan will require additional capital expenditures over the 1996-2005 period of approximately $41 million for nitrogen oxide control equipment and other plant process modifications. In addition, higher fuel and other operation and maintenance expenses may be incurred. (B) PERRY UNIT 2 Perry Unit 2, including its share of the facilities common with Perry Unit 1, was approximately 50% complete when construction was suspended in 1985 pending consideration of various options. We wrote off our investment in Perry Unit 2 at December 31, 1993 after we determined that it would not be completed or sold. The write-off totaled $232 million ($167 million after taxes) for the Company's 19.91% ownership share of the unit. (C) HAZARDOUS WASTE DISPOSAL SITES The Company is aware of its potential involvement in the cleanup of several sites. The Company has accrued a liability totaling $5 million at December 31, 1995 based on estimates of the costs of cleanup and its proportionate responsibility for such costs. We believe that the ultimate outcome of these matters will not have a material adverse effect on our financial condition or results of operations. See Management's Financial Analysis -- Outlook-Hazardous Waste Disposal Sites. (5) NUCLEAR OPERATIONS AND CONTINGENCIES (A) OPERATING NUCLEAR UNITS The Company's three nuclear units may be impacted by activities or events beyond our control. An extended outage of one of our nuclear units for any reason, coupled with any unfavorable rate treatment, could have a material adverse effect on our financial condition and results of operations. See the discussion of these and other risks in Management's Financial Analysis -- Outlook-Nuclear Operations. (B) NUCLEAR INSURANCE The Price-Anderson Act limits the public liability of the owners of a nuclear power plant to the amount provided by private insurance and an industry assessment plan. In the event of a nuclear incident at any unit in the United States resulting in losses in excess of the level of private insurance (currently $200 million), the Company's maximum potential assessment under that plan would be $70 million per incident. The assessment is limited to $9 million per year for each nuclear incident. These assessment limits assume the other CAPCO companies contribute their proportionate share of any assessment. The utility owners and lessees of Davis-Besse, Perry and Beaver Valley also have insurance coverage for damage to property at these sites (including leased fuel and cleanup costs). Coverage amounted to $2.75 billion for each site as of January 1, 1996. Damage to property could exceed the insurance coverage by a substantial amount. If it does, the Company's share of such excess amount could have a material adverse effect on its financial condition and results of operations. In addition, the Company can be assessed a maximum of $19 million under these policies during a policy year if the reserves available to the insurer are inadequate to pay claims arising out of an accident at any nuclear facility covered by the insurer. The Company also has extra expense insurance coverage. It includes the incremental cost of any replacement power purchased (over the costs which would have been incurred had the units been operating) and other incidental expenses after the occurrence of certain types of accidents at our nuclear units. The amounts of the coverage are 100% of the estimated extra expense per week during the 52-week period starting 21 weeks after an accident and 80% of such estimate per week for the next (Toledo Edison) F-67 (Toledo Edison) 120 104 weeks. The amount and duration of extra expense could substantially exceed the insurance coverage. (6) NUCLEAR FUEL Nuclear fuel is financed for the Company and Cleveland Electric through leases with a special-purpose corporation. The total amount of financing currently available under these lease arrangements is $307 million ($157 million from intermediate-term notes and $150 million from bank credit arrangements). The intermediate-term notes mature in 1996 and 1997 ($84 million in September 1996 and $73 million in September 1997). The bank credit arrangements terminate in October 1996. The special-purpose corporation plans to obtain alternate financing in 1996 to replace the $234 million of financing expiring in 1996. At December 31, 1995, $93 million of nuclear fuel was financed for the Company. The Company and Cleveland Electric severally lease their respective portions of the nuclear fuel and are obligated to pay for the fuel as it is consumed in a reactor. The lease rates are based on various intermediate-term note rates, bank rates and commercial paper rates. The amounts financed include nuclear fuel in the Davis-Besse, Perry Unit 1 and Beaver Valley Unit 2 reactors with remaining lease payments for the Company of $37 million, $21 million and $15 million, respectively, at December 31, 1995. The nuclear fuel amounts financed and capitalized also included interest charges incurred by the lessors amounting to $2 million in 1995, $4 million in 1994 and $6 million in 1993. The estimated future lease amortization payments for the Company based on projected consumption are $41 million in 1996, $34 million in 1997, $29 million in 1998, $28 million in 1999 and $27 million in 2000. (7) REGULATORY MATTERS (A) REGULATORY ACCOUNTING REQUIREMENTS AND REGULATORY ASSETS The Company is subject to the provisions of SFAS 71 and has complied with its provisions. SFAS 71 provides, among other things, for the deferral of certain incurred costs that are probable of future recovery in rates. We monitor changes in market and regulatory conditions and consider the effects of such changes in assessing the continuing applicability of SFAS 71. Criteria that could give rise to discontinuation of the application of SFAS 71 include: (1) increasing competition which significantly restricts the Company's ability to charge prices which allow it to recover operating costs, earn a fair return on invested capital and recover the amortization of regulatory assets and (2) a significant change in the manner in which rates are set by the PUCO from cost-based regulation to some other form of regulation. Regulatory assets represent probable future revenues to the Company associated with certain incurred costs, which it will recover from customers through the rate-making process. Effective January 1, 1996, the Company adopted SFAS 121 which imposes stricter criteria for carrying regulatory assets than SFAS 71 by requiring that such assets be probable of recovery at each balance sheet date. The criteria under SFAS 121 for plant assets require such assets to be written down only if the book value exceeds the projected net future cash flows. Regulatory assets in the Balance Sheet are as follows:
December 31, ------------- 1995 1994 ---- ---- (millions of dollars) Amounts due from customers for future federal income taxes, net $416 $405 Unamortized loss from Beaver Valley Unit 2 sale 96 101 Unamortized loss on reacquired debt 28 28 Pre-phase-in deferrals* 222 229 Rate Stabilization Program deferrals 188 150 ----- ----- Total $950 $913 ----- -----
* Represent deferrals of operating expenses and carrying charges for Perry Unit 1 and Beaver Valley Unit 2 in 1987 and 1988 which are being amortized over the lives of the related property. As of December 31, 1995, customer rates provide for recovery of all the above regulatory assets, except those related to the Rate Stabilization Program discussed below. The remaining recovery periods for all of the regulatory assets listed above range from 16 to 33 years. (B) RATE CASE In April 1995, the Company and Cleveland Electric filed requests with the PUCO for price increases aggregating $119 million annually to be effective in 1996. The price increases are necessary to recover cost increases and amortization of certain costs deferred since 1992 pursuant to the Rate Stabilization Program. If their requests are approved, the Company and Cleveland Electric intend to freeze prices until at least 2002 with the expectation that increased sales and cost control measures will preclude the need for further price increases. If circumstances make it impossible to earn a fair return for Centerior Energy common stock share owners over time, the Company and Cleveland Electric would ask for a further increase, but only after taking all appropriate actions to make such a request unnecessary. In November 1995, the PUCO Staff issued its report addressing the rate case. The Staff recommended that the PUCO grant the full $119 million price increase requested ($35 million for the Company and $84 million (Toledo Edison) F-68 (Toledo Edison) 121 for Cleveland Electric). However, the Staff also recommended that the price increase be conditioned upon the commitment by the Company and Cleveland Electric "to a significant revaluation of their asset bases over some finite period of time." In December 1995, the PUCO ordered an investigation into the financial conditions, rates and practices of the Company and Cleveland Electric to identify outcomes and remedies other than those routinely applied during the rate case process. In late January 1996, the Staff proposed an incremental reduction (currently, an aggregate of $1.25 billion for the Company and Cleveland Electric) beyond the normal level in nuclear plant and regulatory assets within five years. The Staff proposed that the Company and Cleveland Electric have flexibility to determine how to achieve this incremental asset revaluation, but no additional price increases to recover the accelerated asset revaluation were proposed. Any incremental revaluation of assets would be for regulatory purposes and would cause prices and revenues after the five-year period to be lower than they otherwise would be in conjunction with any rate case following such revaluation. The Staff's asset revaluation proposal represents a substantial change in the form of rate-making traditionally followed by the PUCO and is inconsistent with the Ohio statutes that define the rate-making process. The PUCO is not bound by the recommendations of the Staff. A decision by the PUCO is anticipated in the second quarter of 1996. (C) ASSESSMENT OF POTENTIAL OUTCOMES We continually assess the effects of competition and the changing industry and regulatory environment on operations, the Company's ability to recover regulatory assets and the Company's ability to continue application of SFAS 71. If, as a result of the pending rate case or other events, we determine that the Company no longer meets the criteria for SFAS 71, the Company would be required to record a before-tax charge to write off the regulatory assets shown above and evaluate whether the Company's property, plant and equipment should be written down. In the more likely event that only a portion of operations (such as nuclear operations) no longer meets the criteria of SFAS 71, a write-off would be limited to regulatory assets, if any, that are not reflected in the Company's cost-based prices established for the remaining regulated operations. In addition, we would be required to evaluate whether the changes in the competitive and regulatory environment which led to discontinuing the application of SFAS 71 to a portion of the Company's operations would also result in a write-down of the Company's property, plant and equipment pursuant to SFAS 121. We believe application of SFAS 121 in that event will not result in a write-off of regulatory assets unless the PUCO denies recovery of such assets or if we conclude, as a result of the outcome of the Company's pending rate case or some other event, that recovery is not probable for some or all of the regulatory assets. Furthermore, a write-down under SFAS 121 of the Company's property, plant and equipment is not expected. (D) RATE STABILIZATION PROGRAM The Rate Stabilization Program that the PUCO approved in October 1992 allowed the Company to defer and subsequently amortize and recover certain costs not currently recovered in rates and to accelerate amortization of certain benefits during the 1992-1995 period. Recovery of the deferrals will begin with the effective date of the PUCO's order in the pending rate case. The regulatory assets recorded included the deferral of post-in-service interest carrying charges, depreciation expense and property taxes on assets placed in service after February 29, 1988, the deferral of incremental expenses resulting from the adoption of SFAS 106 (see Note 9(b)), and the deferral of the operating expenses equivalent to an accumulated excess rent reserve for Beaver Valley Unit 2 (which resulted from the April 1992 refinancing of Secured Lease Obligation Bonds issued by a special-purpose corporation). The cost deferrals recorded in 1995, 1994 and 1993 pursuant to these provisions were $38 million, $43 million and $76 million, respectively. The regulatory accounting measures also provided for the accelerated amortization of certain unrestricted excess deferred tax and unrestricted investment tax credit balances and an excess interim spent fuel storage accrual balance for Davis-Besse. The total annual amount of such accelerated benefits was $18 million in 1995, 1994 and 1993. (E) PHASE-IN DEFERRALS In 1993, upon completing a comprehensive study which led to our strategic plan, we concluded that projected revenues would not provide for recovery of deferrals recorded pursuant to a phase-in plan approved by the PUCO in 1989 and, consequently, that the deferrals would have to be written off. Such deferrals were scheduled to be recovered in 1994 through 1998. The total phase-in deferred operating expenses and carrying charges written off at December 31, 1993 by the Company were $55 million and $186 million, respectively (totaling $165 million after taxes). (Toledo Edison) F-69 (Toledo Edison) 122 (8) FEDERAL INCOME TAX The components of federal income tax expense (credit) recorded in the Income Statement were as follows:
1995 1994 1993 ----- ----- ----- (millions of dollars) Operating Expenses: Current $ 40 $ 18 $ 36 Deferred 2 15 (46) ---- ---- ----- Total Expense (Credit) to Operating Expenses 42 33 (10) ---- ---- ----- Nonoperating Income: Current (12 ) (29 ) (15) Deferred 14 31 (114) ---- ---- ----- Total Expense (Credit) to Nonoperating Income 2 2 (129) ---- ---- ----- Total Federal Income Tax Expense (Credit) $ 44 $ 35 $(139) ---- ---- -----
The deferred federal income tax expense results from the temporary differences that arise from the different years certain expenses are recognized for tax purposes as opposed to financial reporting purposes. Such temporary differences affecting operating expenses relate principally to depreciation and deferred operating expenses whereas those affecting nonoperating income principally relate to deferred carrying charges and the 1993 write-offs. Federal income tax, computed by multiplying income before taxes by the 35% statutory rate, is reconciled to the amount of federal income tax recorded on the books as follows:
1995 1994 1993 ----- ----- ----- (millions of dollars) Book Income (Loss) Before Federal Income Tax $141 $117 $(428) ---- ---- ----- Tax (Credit) on Book Income (Loss) at Statutory Rate $ 49 $ 41 $(150) Increase (Decrease) in Tax: Write-off of Perry Unit 2 -- -- 16 Write-off of phase-in deferrals -- -- 8 Depreciation (1 ) (3 ) (12) Rate Stabilization Program (9 ) (9 ) (10) Sale and leaseback transactions and amortization 5 5 5 Other items -- 1 4 ---- ---- ----- Total Federal Income Tax Expense (Credit) $ 44 $ 35 $(139) ---- ---- -----
The Company joins in the filing of a consolidated federal income tax return with its affiliated companies. The method of tax allocation reflects the benefits and burdens realized by each company's participation in the consolidated tax return, approximating a separate return result for each company. For tax reporting purposes, the Perry Unit 2 abandonment was recognized in 1994 and resulted in a $122 million loss with a corresponding $43 million reduction in federal income tax liability. Because of the alternative minimum tax (AMT), $25 million of the $43 million was realized in 1994. The remaining $18 million will not be realized until 1999. Under SFAS 109, temporary differences and carryforwards resulted in deferred tax assets of $179 million and deferred tax liabilities of $752 million at December 31, 1995 and deferred tax assets of $178 million and deferred tax liabilities of $719 million at December 31, 1994. These are summarized as follows:
December 31, ------------- 1995 1994 ---- ---- (millions of dollars) Property, plant and equipment $627 $606 Deferred carrying charges and operating 85 83 expenses Net operating loss carryforwards (44) (54) Investment tax credits (46) (51) Sale and leaseback transactions (4) (3) Other (45) (40) ----- ----- Net deferred tax liability $573 $541 ----- -----
For tax purposes, net operating loss (NOL) carryforwards of approximately $125 million are available to reduce future taxable income and will expire in 2005 through 2009. The 35% tax effect of the NOLs is $44 million. Additionally, AMT credits of $80 million that may be carried forward indefinitely are available to reduce future tax. (9) RETIREMENT BENEFITS (A) RETIREMENT INCOME PLAN Centerior Energy sponsors jointly with its subsidiaries a noncontributing pension plan (Centerior Pension Plan) which covers all employee groups. The amount of retirement benefits generally depends upon the length of service. Under certain circumstances, benefits can begin as early as age 55. The funding policy is to comply with the Employee Retirement Income Security Act of 1974 guidelines. In 1993, eligible employees were offered the VTP, an early retirement program. Operating expenses for Centerior Energy and its subsidiaries in 1993 included $205 million of pension plan accruals to cover enhanced VTP benefits offset by a credit of $81 million resulting from a settlement of pension obligations through lump sum payments to almost all the VTP retirees. (Toledo Edison) F-70 (Toledo Edison) 123 Pension and VTP costs (credits) for Centerior Energy and its subsidiaries for 1993 through 1995 were comprised of the following components:
1995 1994 1993 ---- ---- ---- (millions of dollars) Pension Costs (Credits): Service cost for benefits earned during the period $ 10 $ 13 $ 15 Interest cost on projected benefit obligation 26 26 37 Actual return on plan assets (53) (2) (65) Net amortization and deferral 9 (34) 4 --- --- --- Net pension costs (credits) (8) 3 (9) VTP cost -- -- 205 Settlement gain -- -- (81) --- --- --- Net costs (credits) $ (8) $ 3 $115 --- --- ---
Pension and VTP costs (credits) for the Company and its pro rata share of the Service Company's costs were $(3) million, $1 million and $53 million for 1995, 1994 and 1993, respectively. The following table presents a reconciliation of the funded status of the Centerior Pension Plan. The Company's share of the Centerior Pension Plan's total projected benefit obligation approximates 30%.
December 31, ------------- 1995 1994 ---- ---- (millions of dollars) Actuarial present value of benefit obligations: Vested benefits $304 $278 Nonvested benefits 2 2 ---- ---- Accumulated benefit obligation 306 280 Effect of future compensation levels 54 37 ---- ---- Total projected benefit obligation 360 317 Plan assets at fair market value 394 362 ---- ---- Funded status 34 45 Unrecognized net gain from variance between assumptions and experience (68) (79) Unrecognized prior service cost 15 10 Transition asset at January 1, 1987 being amortized over 19 years (36) (39) ---- ---- Net accrued pension liability $(55) $(63) ---- ----
A September 30 measurement date was used for 1995 and 1994 reporting. At December 31, 1995, the settlement (discount) rate and long-term rate of return on plan assets assumptions were 8% and 11%, respectively. The long-term rate of annual compensation increase assumption was 3.5% in 1996 and 1997 and 4% thereafter. At December 31, 1994, the settlement rate and long-term rate of return on plan assets assumptions were 8.5% and 10%, respectively. The long-term rate of annual compensation increase assumption was 3.5% for 1995 and 1996 and 4% thereafter. At December 31, 1995 and 1994, the Company's net accrued pension liability included in Retirement Benefits in the Balance Sheet was $64 million and $66 million, respectively. Plan assets consist primarily of investments in common stock, bonds, guaranteed investment contracts, cash equivalent securities and real estate. (B) OTHER POSTRETIREMENT BENEFITS Centerior Energy sponsors jointly with its subsidiaries a postretirement benefit plan which provides all employee groups certain health care, death and other postretirement benefits other than pensions. The plan is contributory, with retiree contributions adjusted annually. The plan is not funded. The Company adopted SFAS 106, the accounting standard for postretirement benefits other than pensions, effective January 1, 1993. The standard requires the accrual of the expected costs of such benefits during the employees' years of service. Prior to 1993, the costs of these benefits were expensed as paid, which was consistent with rate-making practices. The components of the total postretirement benefit costs for 1993 through 1995 were as follows:
1995 1994 1993 ---- ---- ---- (millions of dollars) Service cost for benefits earned during the period $ 1 $ 1 $ 1 Interest cost on accumulated postretirement benefit obligation 7 7 6 Amortization of transition obligation at January 1, 1993 of $63 million over 20 years 2 3 3 VTP curtailment cost (includes $6 million transition obligation adjustment) -- -- 32 --- --- --- Total costs $10 $11 $42 --- --- ---
These amounts included costs for the Company and its pro rata share of the Service Company's costs. In 1995, 1994 and 1993, the Company deferred incremental SFAS 106 expenses (in excess of the amounts paid) of $1 million, $2 million and $37 million, respectively, pursuant to a provision of the Rate Stabilization Program. See Note 7(d). (Toledo Edison) F-71 (Toledo Edison) 124 The accumulated postretirement benefit obligation and accrued postretirement benefit cost for the Company and its share of the Service Company's obligation are as follows:
December 31, ------------- 1995 1994 ---- ---- (millions of dollars) Accumulated postretirement benefit obligation attributable to: Retired participants $(76) $(79) Fully eligible active plan participants (1) -- Other active plan participants (9) (7) ----- ----- Accumulated postretirement benefit obligation (86) (86) Unrecognized net gain from variance between assumptions and experience (9) (7) Unamortized transition obligation 49 51 ----- ----- Accrued postretirement benefit cost $(46) $(42) ----- -----
The Balance Sheet classification of Retirement Benefits at December 31, 1995 and 1994 includes only the Company's accrued postretirement benefit cost of $39 million and $37 million, respectively, and excludes the Service Company's portion since the Service Company's total accrued cost is carried on its books. A September 30 measurement date was used for 1995 and 1994 reporting. At December 31, 1995 and 1994, the settlement rate and the long-term rate of annual compensation increase assumptions were the same as those discussed for pension reporting in Note 9(a). At December 31, 1995, the assumed annual health care cost trend rates (applicable to gross eligible charges) were 8% for medical and 7.5% for dental in 1996. Both rates reduce gradually to a fixed rate of 4.75% by 2003. Elements of the obligation affected by contribution caps are significantly less sensitive to the health care cost trend rate than other elements. If the assumed health care cost trend rates were increased by one percentage point in each future year, the accumulated postretirement benefit obligation as of December 31, 1995 would increase by $3 million and the aggregate of the service and interest cost components of the annual postretirement benefit cost would increase by $0.3 million. (10) GUARANTEES The Company has guaranteed certain loan and lease obligations of a coal supplier under a long-term coal supply contract. At December 31, 1995, the principal amount of the loan and lease obligations guaranteed by the Company was $14 million. The prices under the contract which includes certain minimum payments are sufficient to satisfy the loan and lease obligations and mine closing costs over the life of the contract. If the contract is terminated early for any reason, the Company would attempt to reduce the termination charges and would ask the PUCO to allow recovery of such charges from customers through the fuel factor. (11) CAPITALIZATION (A) CAPITAL STOCK TRANSACTIONS Preferred stock shares retired during the three years ended December 31, 1995 are listed in the following table.
1995 1994 1993 ---- ---- ---- (thousands of shares) Subject to Mandatory Redemption: $100 par $9.375 (17) (17) (17) 25 par 2.81 (400) (800) (800) ---- ---- ----- Total (417) (817) (817) ---- ---- -----
(B) EQUITY DISTRIBUTION RESTRICTIONS Federal law prohibits the Company from paying dividends out of capital accounts. However, the Company may pay dividends out of appropriated retained earnings and current earnings. At December 31, 1995, the Company had $183 million of appropriated retained earnings for the payment of preferred stock dividends. The Company is prohibited from paying a common stock dividend by a provision in its mortgage that essentially requires such dividends to be paid out of the total balance of retained earnings, which currently is a deficit. (C) PREFERRED AND PREFERENCE STOCK Amounts to be paid for preferred stock which must be redeemed during the next five years are $1.665 million in each year 1996 through 1999 only. The annual preferred stock mandatory redemption provisions are as follows:
Shares Price To Be Beginning Per Redeemed in Share -------- --------- ----- $100 par $9.375 16,650 1985 $100
The annualized preferred dividend requirement at December 31, 1995 was $17 million. The preferred dividend rates on the Company's Series A and B fluctuate based on prevailing interest rates and market conditions. The dividend rates for these issues averaged 7.75% and 8.58%, respectively, in 1995. Preference stock authorized for the Company is 5,000,000 shares with a $25 par value. No preference shares are currently outstanding. With respect to dividend and liquidation rights, the Company's preferred stock is prior to its preference stock and common stock, and its preference stock is prior to its common stock. (Toledo Edison) F-72 (Toledo Edison) 125 (D) LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS Long-term debt, less current maturities, was as follows:
Actual or Average Interest Rate at December 31, December 31, ----------------- Year of Maturity 1995 1995 1994 - ---------------------------- ------------ ------ ------ (millions of dollars) First mortgage bonds: 1997 6.125% $ 31 $ 31 1998 10.00 1 1 1999 7.25 100 100 2001-2005 7.85 207 207 2011-2015 3.85 31 31 2016-2020 7.82 166 67 2021-2023 7.74 148 148 ------ ------ 684 585 Secured medium-term notes due 1997-2021* 8.41 238 250 Term bank loans -- -- 62 Notes due 1997** 8.75 8 25 Debentures due 2002 8.70 135 135 Pollution control notes due 1997-2010 6.59 5 99 Other -- net -- (2) (2) ------ ------ Total Long-Term Debt $1,068 $1,154 ------ ------
* Secured by first mortgage bonds. ** Secured by subordinated mortgage collateral. Long-term debt matures during the next five years as follows: $56 million in 1996, $40 million in 1997, $39 million in 1998, $119 million in 1999 and $31 million in 2000. The Company's mortgage constitutes a direct first lien on substantially all property owned and franchises held by the Company. Excluded from the lien, among other things, are cash, securities, accounts receivable, fuel, supplies and automotive equipment. Certain credit agreements of the Company contain covenants relating to fixed charge coverage ratios and limitations on secured financing other than through first mortgage bonds or certain other transactions. In June 1995, the Company and Cleveland Electric replaced letters of credit in connection with the sale and leaseback of Beaver Valley Unit 2 that were due to expire with new letters of credit expiring in June 1999. The letters of credit are in an aggregate amount of approximately $225 million and are secured by first mortgage bonds of the Company and Cleveland Electric in the proportion of 60% and 40%, respectively. At December 31, 1995, the Company had outstanding $52 million of bank loans and notes secured by subordinated mortgage collateral. (12) SHORT-TERM BORROWING ARRANGEMENTS Centerior Energy has a $125 million revolving credit facility through May 1996. Centerior Energy and the Service Company may borrow under the facility, with all borrowings jointly and severally guaranteed by the Company and Cleveland Electric. Centerior Energy plans to transfer any of its borrowed funds to the Company and Cleveland Electric. The credit agreement is secured with first mortgage bonds of the Company and Cleveland Electric in the proportion of 60% and 40%, respectively. The banks' fee is 0.625% per annum payable quarterly in addition to interest on any borrowings. There were no borrowings under the facility at December 31, 1995. Also, the Company and Cleveland Electric may borrow from each other on a short-term basis. At December 31, 1995, the Company had total short-term borrowings of $21 million from its affiliates with a weighted average interest rate of 6.25%. (13) FINANCIAL INSTRUMENTS The estimated fair values at December 31, 1995 and 1994 of financial instruments that do not approximate their carrying amounts in the Balance Sheet are as follows:
December 31, ---------------------------------- 1995 1994 ---------------- ---------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ------ -------- ------ (millions of dollars) Capitalization and Liabilities: Preferred Stock, with Mandatory Redemption Provisions (including current portion) $ 7 $ 6 $ 18 $ 19 Long-Term Debt (including current portion) 1,126 1,137 1,227 1,116
Noncash investments in the Nuclear Plant Decommissioning Trusts are summarized in the following table.
December 31, ---------------- 1995 1994 ------ ------ (millions of dollars) Type of Securities: Federal Government $ 21 $ 21 Municipal 11 14 --- --- Total $ 32 $ 35 --- --- Maturities: Due within one year $ 1 $ 9 Due in one to five years 9 7 Due in six to 10 years 11 7 Due after 10 years 11 12 --- --- Total $ 32 $ 35 --- ---
The fair value of these trusts is estimated based on the quoted market prices for the investment securities. As a result of adopting the new accounting standard for certain investments in debt and equity securities, SFAS 115, in (Toledo Edison) F-73 (Toledo Edison) 126 1994, the carrying amount of these trusts approximates fair value. The fair value of the Company's preferred stock, with mandatory redemption provisions, and long-term debt is estimated based on the quoted market prices for the respective or similar issues or on the basis of the discounted value of future cash flows. The discounted value used current dividend or interest rates (or other appropriate rates) for similar issues and loans with the same remaining maturities. The estimated fair values of all other financial instruments approximate their carrying amounts in the Balance Sheet at December 31, 1995 and 1994 because of their short-term nature. (14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the two years ended December 31, 1995.
Quarters Ended ---------------------------------------- March 31, June 30, Sept. 30, Dec. 31, --------- -------- --------- -------- (millions of dollars) 1995 Operating Revenues $ 206 $215 $ 246 $206 Operating Income 43 45 59 41 Net Income 20 22 33 22 Earnings Available for Common Stock 15 17 29 18 1994 Operating Revenues $ 217 $216 $ 227 $204 Operating Income 43 43 53 40 Net Income 19 20 29 15 Earnings Available for Common Stock 13 14 24 11
(15) PENDING MERGER OF THE COMPANY INTO CLEVELAND ELECTRIC In March 1994, Centerior Energy announced a plan to merge the Company into Cleveland Electric. Since the Company and Cleveland Electric affiliated in 1986, efforts have been made to consolidate operations and administration as much as possible to achieve maximum cost savings. Various aspects of the merger are subject to the approval of the FERC and other regulatory authorities. The FERC has deferred action on the merger application until the merits of the open access transmission tariffs proposed by the Company and Cleveland Electric are addressed in hearings. The PUCO and the Pennsylvania Public Utility Commission have approved the merger. NRC action on the request by the Company and Cleveland Electric for authorization to transfer certain NRC licenses to the merged entity is not expected until approval has been obtained from the FERC. In June 1995, share owners of the Company's preferred stock approved the merger and share owners of Cleveland Electric's preferred stock approved the authorization of additional shares of preferred stock. When the merger becomes effective, share owners of the Company's preferred stock will exchange their shares for preferred stock shares of Cleveland Electric having substantially the same terms. Debt holders of the merging companies will become debt holders of Cleveland Electric. For the merging companies, the combined pro forma operating revenues were $2.516 billion, $2.422 billion and $2.475 billion and the combined pro forma net income (loss) was $281 million, $268 million and $(876) million for the years 1995, 1994 and 1993, respectively. The pro forma data is based on accounting for the merger on a method similar to a pooling of interests. The pro forma data is not necessarily indicative of the results of operations which would have been reported had the merger been in effect during those years or which may be reported in the future. The pro forma data should be read in conjunction with the audited financial statements of both the Company and Cleveland Electric. (Toledo Edison) F-74 (Toledo Edison) 127 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Share Owners and Board of Directors of The Toledo Edison Company: We have audited the accompanying balance sheet and statement of preferred stock of The Toledo Edison Company (a wholly owned subsidiary of Centerior Energy Corporation) as of December 31, 1995 and 1994, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Toledo Edison Company as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed further in Note 9, a change was made in the method of accounting for postretirement benefits other than pensions in 1993. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of The Toledo Edison Company listed in the Index to Schedules is presented for purposes 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 audits 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 21, 1996 (Toledo Edison) F-75 (Toledo Edison) 128 FINANCIAL AND STATISTICAL REVIEW OPERATING REVENUES (millions of dollars)
Steam Total Total Total Heating Operating Year Residential Commercial Industrial Other Retail Wholesale Electric & Gas Revenues - ------------------------------------------------------------------------------------------------------------------------------- 1995 $ 238 184 254 65 741 133 874 -- $ 874 1994 227 181 251 64 723 142 865 -- 865 1993 229 180 244 71 724 147 871 -- 871 1992 215 175 236 61 687 158 845 -- 845 1991 230 184 236 90 740 147 887 -- 887 1985 185 129 214 26 554 22 576 6 582
- -------------------------------------------------------------------------------- OPERATING EXPENSES (millions of dollars)
Other Generation Deferred Federal Fuel & Operation Facilities Depreciation Taxes, Operating Income Total Purchased & Rental & Other Than Expenses, Taxes Operating Year Power Maintenance Expense, Net Amortization FIT Net (Credit) Expenses - ------------------------------------------------------------------------------------------------------------------------------- 1995 $ 157 225 104 84 91 (17) 42 $ 686 1994 167 229 104 83 90 (21) 33 685 1993 173 352(a) 104 76 91 (4)(b) (10) 782 1992 169 236 106 77 91 (17) 33 695 1991 178 243 113 72(c) 89 1 32 728 1985 166 141 -- 44 48 -- 53 452
- -------------------------------------------------------------------------------- INCOME (LOSS) (millions of dollars)
Federal Income Other Deferred Income (Loss) Income & Carrying Taxes-- Before Operating AFUDC-- Deductions, Charges, Credit Interest Year Income Equity Net Net (Expense) Charges - --------------------------------------------------------------------------------------------- 1995 $ 188 1 6 14 (2) $ 207 1994 180 1 3 15 (2) 197 1993 89 1 (232)(d) (161)(b) 129 (174) 1992 150 1 1 41 (1) 192 1991 159 1 5 22 (6) 181 1985 130 105 11 -- 38 284
- -------------------------------------------------------------------------------- INCOME (LOSS) (millions of dollars)
Earnings (Loss) Net Preferred Available for Debt AFUDC-- Income Stock Common Year Interest Debt (Loss) Dividends Stock - -------------------------------------------------------------------------------- 1995 $111 (1) 97 18 $ 79 1994 116 (1) 82 20 62 1993 116 (1) (289) 23 (312) 1992 122 (1) 71 24 47 1991 132 (1) 50 25 25 1985 155 (45) 174 42 132
- -------------------------------------------------------------------------------- (a) Includes early retirement program expenses and other charges of $107 million. (b) Includes write-off of phase-in deferrals of $241 million, consisting of $55 million of deferred operating expenses and $186 million of deferred carrying charges. (Toledo Edison) F-76 (Toledo Edison) 129 The Toledo Edison Company
ELECTRIC SALES (millions of KWH) ELECTRIC CUSTOMERS RESIDENTIAL USAGE (thousands at year end) Industrial Year Residential Commercial Industrial Wholesale Other Total Residential Commercial & Other - -------------------------------------------------------------------- -------------------------------------- --------------------------- 1995 2 164 1 748 4 174 2 563 500 11 149 260 27 4 1994 2 056 1 711 4 099 2 548 499 10 913 257 26 4 1993 2 039 1 672 3 776 2 146 490 10 123 255 26 4 1992 1 941 1 619 3 563 2 753 478 10 354 255 26 5 1991 2 041 1 683 3 543 2 587 482 10 336 255 26 4 1985 1 901 1 436 3 429 611 451 7 828 246 24 4 Average Average Year Total Customer KWH Customer - --------- ------- 1995 291 8 384 10.99c $921.23 1994 287 8 044 11.04 888.30 1993 285 7 997 11.23 897.65 1992 286 7 632 11.08 845.99 1991 285 7 990 11.26 897.41 1985 274 7 770 9.72 755.00
- --------------------------------------------------------------------------------
LOAD (MW & %) ENERGY (millions of KWH) FUEL Net Company Generated Seasonal Peak Capacity Load ---------------------------- Purchased Fuel Cost Year Capability Load Margin Factor Fossil Nuclear Total Power Total Per KWH - -------------------------------------------------------- ---------------------------------------------------- ----------------------- 1995 1 651 1 738 (5.3)% 62.4% 4 576 6 761 11 337 299 11 636 1.32c 1994 1 726 1 620 6.1 64.7 5 160 5 419 10 579 773 11 352 1.35 1993 1 726 1 568 9.2 64.3 5 548 4 791 10 339 196 10 535 1.42 1992 1 759 1 514 13.9 63.2 4 656 6 293 10 949 (82) 10 867 1.41 1991 1 757 1 510 14.1 64.5 4 848 6 003 10 851 95 10 946 1.44 1985 1 338 1 374 (2.7) 66.8 5 744 952 6 696 1 683 8 379 1.90 Efficiency BTU Per Year KWH - ------------ ---------- 1995 10 341 1994 10 298 1993 10 146 1992 10 284 1991 10 327 1985 10 124
- --------------------------------------------------------------------------------
INVESTMENT (millions of dollars) Construction Utility Work In Total Plant Accumulated Progress Nuclear Property, Utility In Depreciation & Net & Perry Fuel and Plant and Plant Total Year Service Amortization Plant Unit 2 Other Equipment Additions Assets - ---------------------------------------------------------------------------------------------------------- ------- -------- 1995 $2 896 942 1 954 28 98 $ 2 080 $ 56 $3 474 1994 2 899 892 2 007 30 125 2 162 41 3 502 1993 2 837 788 2 049 40 142 2 231 43 3 510 1992 2 847 760 2 087 280 164 2 531 44 3 939 1991 2 692 709 1 983 308 198 2 489 54 3 926 1985 1 392 390 1 002 1 755 228 2 985 389 3 373
- -------------------------------------------------------------------------------- CAPITALIZATION (millions of dollars & %)
Preferred Preferred Stock, Stock, with without Mandatory Mandatory Common Stock Redemption Redemption Year Equity Provisions Provisions Long-Term Debt Total - -------------------------------------------------------------------------------------------------- 1995 $763 38% 5 --% 210 10% 1 068 52% $2 046 1994 685 34 7 -- 210 10 1 154 56 2 056 1993 623 30 28 1 210 10 1 225 59 2 086 1992 935 39 50 2 210 9 1 178 50 2 373 1991 888 38 64 3 210 9 1 158 50 2 320 1985 950 36 154 6 230 8 1 339 50 2 673
- -------------------------------------------------------------------------------- (c) A change in accounting for nuclear plant depreciation was adopted, changing from the units-of-production method to the straight-line method at a 2.5% rate. (d) Includes write-off of Perry Unit 2 of $232 million. (Toledo Edison) F-77 (Toledo Edison) 130
INDEX TO SCHEDULES ------------------ Page ---- Centerior Energy Corporation and Subsidiaries: - --------------------------------------------- Schedule II Valuation and Qualifying Accounts for the S-2 Years Ended December 31, 1995, 1994 and 1993 The Cleveland Electric Illuminating Company and Subsidiaries: - ------------------------------------------------------------ Schedule II Valuation and Qualifying Accounts for the S-3 Years Ended December 31, 1995, 1994 and 1993 The Toledo Edison Company: - ------------------------- Schedule II Valuation and Qualifying Accounts for the S-4 Years Ended December 31, 1995, 1994 and 1993
Schedules other than those listed above are omitted for the reason that they are not required or are not applicable. S-1 131 CENTERIOR ENERGY CORPORATION SCHEDULE II - VALUATION AND QUALIFIYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (THOUSANDS OF DOLLARS)
Additions Deductions ----------------------------- --------------------------------- Balance at Charged to Deductions Balance at Beginning Income from End of Description of Period Statement Other Reserves Other Period - ----------- --------- ------------ ------------ -------------- ------------ ------------- Reflected as Reductions to the Related Assets: Accumulated Provision for Uncollectible Accounts (Deduction from Amounts Due from Customers and Others) 1995 $3,519 $18,007 (a) $3,867 (b) $22,021 (a)(c) $0 $3,372 1994 3,703 12,779 (a) 6,047 (b) 19,010 (a)(c) 0 3,519 1993 3,723 14,139 (a) 3,516 (b) 17,675 (a)(c) 0 3,703 Reserve for Perry Unit 2 Allowance for Funds Used During Construction (Deduction from Perry Unit 2) 1995 $0 $0 $0 $0 $0 $0 1994 0 0 0 0 0 0 1993 212,693 0 0 212,693 (d) 0 0
(a) Includes a provision and corresponding write-off of uncollectible accounts of $10,024,000, $4,695,000 and $4,550,000 in 1995, 1994 and 1993, respectively, relating to customers which qualify for the PUCO mandated Percentage of Income Payment Plan (PIPP). Such uncollectible accounts are recovered through a separate PUCO approved surcharge tariff. (b) Includes amounts for collection of accounts previously written off and deferral of PIPP uncollectibles in excess of the amounts included in the last base rate cases. The amounts deferred for future recovery were $1,716,000, $2,382,000 and $971,000 in 1995, 1994 and 1993, respectively. (c) Uncollectible accounts written off. (d) Write-off of Perry Unit 2 investment. S-2 132 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (THOUSANDS OF DOLLARS)
Additions Deductions ----------------------------- --------------------------------- Balance at Charged to Deductions Balance at Beginning Income from End of Description of Period Statement Other Reserves Other Period - ----------- --------- ------------ ------------ -------------- ------------ ------------ Reflected as Reductions to the Related Assets: Accumulated Provision for Uncollectible Accounts (Deduction from Amounts Due from Customers and Others) 1995 $2,129 $12,665 (a) $2,585 (b) $15,053 (a)(c) $0 $2,326 1994 2,313 8,354 (a) 4,508 (b) 13,046 (a)(c) 0 2,129 1993 2,333 9,280 (a) 1,813 (b) 11,113 (a)(c) 0 2,313 Reserve for Perry Unit 2 Allowance for Funds Used During Construction (Deduction from Perry Unit 2) 1995 $0 $0 $0 $0 $0 $0 1994 0 0 0 0 0 0 1993 124,398 0 0 124,398 (d) 0 0
(a) Includes a provision and corresponding write-off of uncollectible accounts of $6,584,000, $2,499,000 and $2,447,000 in 1995, 1994 and 1993, respectively, relating to customers which qualify for the PUCO mandated Percentage of Income Payment Plan (PIPP). Such uncollectible accounts are recovered through a separate PUCO approved surcharge amount. (b) Includes amounts for collection of accounts previously written off and deferral of PIPP uncollectibles in excess of the amount included in the last base rate case. The amounts deferred for future recovery were $1,273,000, $1,971,000 and $507,000 in 1995, 1994 and 1993, respectively. (c) Uncollectible accounts written off. (d) Write-off of Perry Unit 2 investment. S-3 133 THE TOLEDO EDISON COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (THOUSANDS OF DOLLARS)
Additions Deductions ----------------------------- --------------------------------- Balance at Charged to Deductions Balance at Beginning Income from End of Description of Period Statement Other Reserves Other Period - ----------- --------- ------------ ------------ -------------- ------------ ------------ Reflected as Reductions to the Related Assets: Accumulated Provision for Uncollectible Accounts (Deduction from Amounts Due from Customers and Others) 1995 $1,390 $5,342 (a) $1,282 (b) $6,968 (a)(c) $0 $1,046 1994 1,390 4,425 (a) 1,539 (b) 5,964 (a)(c) 0 1,390 1993 1,390 4,859 (a) 1,703 (b) 6,562 (a)(c) 0 1,390 Reserve for Perry Unit 2 Allowance for Funds Used During Construction (Deduction from Perry Unit 2) 1995 $0 $0 $0 $0 $0 $0 1994 0 0 0 0 0 0 1993 88,295 0 0 88,295 (d) 0 0
(a) Includes a provision and corresponding write-off of uncollectible accounts of $3,440,000, $2,196,000 and $2,103,000 in 1995, 1994 and 1993, respectively, relating to customers which qualify for the PUCO mandated Percentage of Income Payment Plan (PIPP). Such uncollectible accounts are recovered through a separate PUCO approved surcharge tariff. (b) Includes amounts for collection of accounts previously written off and deferral of PIPP uncollectibles in excess of the amount included in the last base rate case. The amounts deferred for future recovery were $443,000, $411,000 and $464,000 in 1995, 1994 and 1993, respectively. (c) Uncollectible accounts written off. (d) Write-off of Perry Unit 2 investment. S-4 134 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARIES AND THE TOLEDO EDISON COMPANY COMBINED PRO FORMA CONDENSED FINANCIAL STATEMENTS ------------------------------------------------- The following pro forma condensed balance sheets and income statements give effect to the agreement between Cleveland Electric and Toledo Edison to merge Toledo Edison into Cleveland Electric. These statements are unaudited and based on accounting for the merger on a method similar to a pooling of interests. These statements combine the two companies' historical balance sheets at December 31, 1995 and December 31, 1994 and their historical income statements for each of the three years ended December 31, 1995. The following pro forma data is not necessarily indicative of the results of operations or the financial condition which would have been reported had the merger been in effect during those periods or which may be reported in the future. The statements should be read in conjunction with the accompanying notes and with the audited financial statements of both Cleveland Electric and Toledo Edison.
COMBINED PRO FORMA CONDENSED BALANCE SHEETS OF CLEVELAND ELECTRIC AND TOLEDO EDISON (Unaudited) (Millions of Dollars) At December 31, 1995 --------------------------------------------- Historical -------------- Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals --------- ------ ------- --------- Assets - ------ Property, Plant and Equipment $7,724 $3,485 $ - $11,209 Less: Accumulated Depreciation and Amortization 2,693 1,405 1 (R) 4,099 ----- ----- ---- ------ Net Property, Plant and Equipment 5,031 2,080 (1) 7,110 Current Assets 598 327 (24)(A) 901 Regulatory and Other Assets 1,523 1,067 (11)(B) 2,579 ----- ----- ----- -------- Total Assets $7,152 $3,474 $(36) $ 10,590 ===== ===== ==== ====== Capitalization and Liabilities - ------------------------------ Capitalization: Common Stock Equity $1,127 $ 763 $ - $ 1,890 Preferred Stock: With Mandatory Redemption Provisions 215 5 - 220 Without Mandatory Redemption Provisions 241 210 - 451 Long-Term Debt 2,666 1,068 - 3,734 ----- ----- --- ------ Total Capitalization 4,249 2,046 - 6,295 Current Liabilities 796 329 (27)(A,R) 1,098 Deferred Credits and Other Liabilities 2,107 1,099 (9)(A,B) 3,197 ----- ----- ---- ------ Total Capitalization and Liabilities $7,152 $3,474 $(36) $10,590 ===== ===== ==== ======
P-1 135
At December 31, 1994 --------------------------------------------- Historical ------------------ Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals --------- ------ ------- --------- Assets - ------ Property, Plant and Equipment $7,637 $3,435 $ - $11,072 Less: Accumulated Depreciation and Amortization 2,486 1,273 - 3,759 ----- ----- --- ------ Net Property, Plant and Equipment 5,151 2,162 - 7,313 Current Assets 584 322 (22)(A) 884 Regulatory and Other Assets 1,416 1,018 ( 7)(B) 2,427 ----- ----- ---- ------ Total Assets $7,151 $3,502 $(29) $10,624 ===== ===== === ====== Capitalization and Liabilities - ------------------------------ Capitalization: Common Stock Equity $1,058 $ 685 $ - $ 1,743 Preferred Stock: With Mandatory Redemption Provisions 246 7 - 253 Without Mandatory Redemption Provisions 241 210 - 451 Long-Term Debt 2,543 1,154 - 3,697 ----- ----- --- ------ Total Capitalization 4,088 2,056 - 6,144 Current Liabilities 958 316 (24)(A) 1,250 Deferred Credits and Other Liabilities 2,105 1,130 ( 5)(A,B) 3,230 ----- ----- ---- ------ Total Capitalization and Liabilities $7,151 $3,502 $(29) $10,624 ===== ===== === ======
P-2 136
COMBINED PRO FORMA CONDENSED INCOME STATEMENTS OF CLEVELAND ELECTRIC AND TOLEDO EDISON (Unaudited) (Millions of Dollars) Year Ended December 31, 1995 --------------------------------------------- Historical -------------- Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals --------- ------ ------- --------- Operating Revenues $1,769 $ 874 $(127) (C,R) $ 2,516 Operating Expenses 1,371 686 (129) (C,D,R) 1,928 ----- ---- ----- ------ Operating Income 398 188 2 588 Nonoperating Income 31 19 (2) (D) 48 ----- ---- ----- ------ Income Before Interest Charges 429 207 - 636 Interest Charges 245 110 - 355 ----- ---- ----- ------ Net Income 184 97 - 281 Preferred Dividend Requirements 43 18 - 61 ----- ---- ----- ------ Earnings Available for Common Stock $ 141 $ 79 $ - $ 220 ===== ==== ==== ===
Year Ended December 31, 1994 --------------------------------------------- Historical -------------- Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals --------- ------ ------- --------- Operating Revenues $1,698 $ 865 $(141)(C) $2,422 Operating Expenses 1,302 685 (143)(C,D) 1,844 ----- ---- ---- ----- Operating Income 396 180 2 578 Nonoperating Income 31 17 (2)(D,E,R) 46 ----- ---- ---- ----- Income Before Interest Charges 427 197 - 624 Interest Charges 242 115 (1)(E) 356 ----- ---- ---- ----- Net Income 185 82 1 268 Preferred Dividend Requirements 45 20 1(R) 66 ----- ---- ---- ----- Earnings Available for Common Stock $ 140 $ 62 $ - $ 202 ===== ==== ==== =====
Year Ended December 31, 1993 --------------------------------------------- Historical -------------- Cleveland Toledo Adjust- Pro Forma Electric Edison ments Totals --------- ------ ------- --------- Operating Revenues $1,751 $ 871 $(147)(C) $2,475 Operating Expenses 1,529 782 (148)(C,D) 2,163 ----- ---- ---- ----- Operating Income 222 89 1 312 Nonoperating (Loss) (569) (263) (1)(D) (833) ----- ---- ---- ----- (Loss) Before Interest Charges (347) (174) - (521) Interest Charges 240 115 - 355 ----- ---- ---- ----- Net (Loss) (587) (289) - (876) Preferred Dividend Requirements 45 23 - 68 ----- ---- ---- ----- (Loss) Available for Common Stock $ (632) $(312) $ - $ (944) ===== ==== ==== ======
P-3 137 NOTES TO COMBINED PRO FORMA CONDENSED BALANCE SHEETS AND INCOME STATEMENTS (Unaudited) The Pro Forma Financial Statements include the following adjustments: (A) Elimination of intercompany accounts and notes receivable and accounts and notes payable. (B) Reclassification of prepaid pension costs. (C) Elimination of intercompany operating revenues and operating expenses. (D) Elimination of intercompany working capital transactions. (E) Elimination of intercompany interest income and interest expense. (R) Rounding adjustments. P-4 138 EXHIBIT INDEX ------------- The exhibits designated with an asterisk (*) are filed herewith. The exhibits not so designated have previously been filed with the SEC in the file indicated in parenthesis following the description of such exhibits and are incorporated herein by reference. An exhibit designated with a pound sign (#) is a management contract or compensatory plan or arrangement. COMMON EXHIBITS --------------- (The following documents are exhibits to the reports of Centerior Energy, Cleveland Electric and Toledo Edison.)
Exhibit Number Document - -------------- -------- 10b(1)(a) CAPCO Administration Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members re- garding 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 Adminis- tration 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 mainte- nance of transmission facilities to carry out the objec- tives 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 Agree- ment, 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 Agreements 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).
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Exhibit Number Document - -------------- -------- 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 In- denture 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 In- denture 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 be- tween The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the limited partnership Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(3)(b) Form of Amendment No. 1 to Facility Lease constituting Exhibit 10d(3)(a) above (Exhibit 4(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison).
E-2 140
Exhibit Number Document - -------------- -------- 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 be- tween 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 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(a), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10d(6)(b) Form of Amendment No. 1 to Participation Agreement consti- tuting 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 Original 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 consti- tuting Exhibit 10d(7)(a) above (Exhibit 28(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison).
E-3 141
Exhibit Number Document - -------------- -------- 10d(8)(a) Form of Participation Agreement dated as of September 30, 1987 among the Owner Participant named therein, the Origi- nal Loan Participants listed in Schedule II thereto, as Original Loan Participants, CTC Mansfield Funding Corpora- tion, Meridian Trust Company, as Owner Trustee, IBJ Schroder Bank & Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(8)(b) Form of Amendment No. 1 to the Participation Agreement constituting Exhibit 10d(8)(a) above (Exhibit 28(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10d(9) Form of Ground Lease dated as of September 15, 1987 be- tween 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).
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Exhibit Number Document - -------------- -------- 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 there, 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 Collateral Trust 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). 10e(1) *#Employment agreement, dated June 29, 1995, between Centerior Service Company and Donald C. Shelton effective July 1, 1995 and extending until August 31, 1996. 10e(2) #Employment agreement, dated February 2, 1994 and accepted on February 8, 1994, between Centerior Energy and Al R. Temple effective through December 1996 (Exhibit 10e(2), 1993 Form 10-K, File Nos. 1-9130, 1-2323 and 1-3583).
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Exhibit Number Document - -------------- -------- 18a Letter regarding change in accounting principles (Exhibit 18, June 30, 1991 Form 10-Q, File Nos. 1-9130, 1-2323 and 1-3583). 99a Financial Statements of the Centerior Energy Corporation Employee Savings Plan for the fiscal year ended December 31, 1995 (to be filed by amendment).
CENTERIOR ENERGY EXHIBITS -------------------------
Exhibit Number Document - -------------- -------- 3a Amended Articles of Incorporation of Centerior Energy ef- fective April 29, 1986 (Exhibit 4(a), File No. 33-4790). 3b Regulations of Centerior Energy effective April 28, 1987 (Exhibit 3b, 1987 Form 10-K, File No. 1-9130). 10a (CEC) *Indemnity Agreements between Centerior and certain of its current directors and officers. 21 (CEC) *List of subsidiaries. 23a (CEC) *Consent of Independent Accountants. 23b (CEC) *Consent of Counsel for Centerior Energy. 24 (CEC) *Powers of Attorney of Centerior Energy directors and officers required to sign the Report. 27 (CEC) *Financial Data Schedule for the period ended December 31, 1995.
CLEVELAND ELECTRIC EXHIBITS ---------------------------
Exhibit Number Document - -------------- -------- 3a Amended Articles of Incorporation of Cleveland Electric, as amended, effective May 28, 1993 (Exhibit 3a, 1993 Form 10-K, File No. 1-2323). 3b Regulations of Cleveland Electric, dated April 29, 1981, as amended effective October 1, 1988 and April 24, 1990 (Exhibit 3b, 1990 Form 10-K, File No. 1-2323). 4b(1) Mortgage and Deed of Trust between Cleveland Electric and Guaranty Trust Company of New York (now Morgan Guaranty Trust Company of New York), as Trustee, dated July 1, 1940 (Exhibit 7(a), File No. 2-4450). Supplemental Indentures between Cleveland Electric and the Trustee, supplemental to Exhibit 4b(1), dated as follows:
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Exhibit Number Document - -------------- -------- 4b(2) July 1, 1940 (Exhibit 7(b), File No. 2-4450). 4b(3) August 18, 1944 (Exhibit 4(c), File No. 2-9887). 4b(4) December 1, 1947 (Exhibit 7(d), File No. 2-7306). 4b(5) September 1, 1950 (Exhibit 7(c), File No. 2-8587). 4b(6) June 1, 1951 (Exhibit 7(f), File No. 2-8994). 4b(7) May 1, 1954 (Exhibit 4(d), File No. 2-10830). 4b(8) March 1, 1958 (Exhibit 2(a)(4), File No. 2-13839). 4b(9) April 1, 1959 (Exhibit 2(a)(4), File No. 2-14753). 4b(10) December 20, 1967 (Exhibit 2(a)(4), File No. 2-30759). 4b(11) January 15, 1969 (Exhibit 2(a)(5), File No. 2-30759). 4b(12) November 1, 1969 (Exhibit 2(a)(4), File No. 2-35008). 4b(13) June 1, 1970 (Exhibit 2(a)(4), File No. 2-37235). 4b(14) November 15, 1970 (Exhibit 2(a)(4), File No. 2-38460). 4b(15) May 1, 1974 (Exhibit 2(a)(4), File No. 2-50537). 4b(16) April 15, 1975 (Exhibit 2(a)(4), File No. 2-52995). 4b(17) April 16, 1975 (Exhibit 2(a)(4), File No. 2-53309). 4b(18) May 28, 1975 (Exhibit 2(c), June 5, 1975 Form 8-A, File No. 1-2323). 4b(19) February 1, 1976 (Exhibit 3(d)(6), 1975 Form 10-K, File No. 1-2323). 4b(20) November 23, 1976 (Exhibit 2(a)(4), File No. 2-57375). 4b(21) July 26, 1977 (Exhibit 2(a)(4), File No. 2-59401). 4b(22) September 27, 1977 (Exhibit 2(a)(5), File No. 2-67221). 4b(23) May 1, 1978 (Exhibit 2(b), June 30, 1978 Form 10-Q, File No. 1-2323). 4b(24) September 1, 1979 (Exhibit 2(a), September 30, 1979 Form 10-Q, File No. 1-2323). 4b(25) April 1, 1980 (Exhibit 4(a)(2), September 30, 1980 Form 10-Q, File No. 1-2323). 4b(26) April 15, 1980 (Exhibit 4(b), September 30, 1980 Form 10-Q, File No. 1-2323). 4b(27) May 28, 1980 (Exhibit 2(a)(4), Amendment No. 1, File No. 2-67221). 4b(28) June 9, 1980 (Exhibit 4(d), September 30, 1980 Form 10-Q, File No. 1-2323). 4b(29) December 1, 1980 (Exhibit 4(b)(29), 1980 Form 10-K, File No. 1-2323). 4b(30) July 28, 1981 (Exhibit 4(a), September 30, 1981, Form 10-Q, File No. 1-2323). 4b(31) August 1, 1981 (Exhibit 4(b), September 30, 1981, Form 10-Q, File No. 1-2323). 4b(32) March 1, 1982 (Exhibit 4(b)(3), Amendment No. 1, File No. 2-76029). 4b(33) July 15, 1982 (Exhibit 4(a), September 30, 1982 Form 10-Q, File No. 1-2323). 4b(34) September 1, 1982 (Exhibit 4(a)(1), September 30, 1982 Form 10-Q, File No. 1-2323). 4b(35) November 1, 1982 (Exhibit 4(a)(2), September 30, 1982 Form 10-Q, File No. 1-2323). 4b(36) November 15, 1982 (Exhibit 4(b)(36), 1982 Form 10-K, File No. 1-2323).
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Exhibit Number Document - -------------- -------- 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 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). No. 1-2323). 4b(65) January 1, 1993 (Exhibit 4b(65), 1992 Form 10-K, File No. 1-2323).
E-8 146
Exhibit Number Document - -------------- -------- 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. 4b(74) *August 1, 1995. 4c Open-End Subordinate Indenture of Mortgage between The Cleveland Electric Illuminating Company and Bank One, Columbus, N.A., as Trustee, Dated as of June 1, 1994 (Exhibit 4(a), August 26, 1994 Form 8-K, File No. 1-2323). 10 #1978 Key Employee Stock Option Plan (Exhibit 1, File No. 2-61712). 21 (CEI) *List of Subsidiaries. 23a (CEI) *Consent of Independent Accountants. 23b (CEI) *Consent of Counsel for Cleveland Electric. 24 (CEI) *Powers of Attorney of Cleveland Electric directors and officers required to sign the Report. 27 (CEI) *Financial Data Schedule for the period ended December 31, 1995.
TOLEDO EDISON EXHIBITS ----------------------
Exhibit Number Document - -------------- -------- 3a Amended Articles of Incorporation of Toledo Edison, as amended effective October 2, 1992 (Exhibit 3a, 1992 Form 10-K, File No. 1-3583). 3b Code of Regulations of Toledo Edison 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). 4b(1) Indenture, dated as of April 1, 1947, between the Company 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).
E-9 147
Exhibit Number Document - -------------- -------- Supplemental Indentures between Toledo Edison and the Trustee, Supplemental to Exhibit 4b(1), dated as follows: 4b(2) September 1, 1948 (Exhibit 2(d), File No. 2-26908). 4b(3) April 1, 1949 (Exhibit 2(e), File No. 2-26908). 4b(4) December 1, 1950 (Exhibit 2(f), File No. 2-26908). 4b(5) March 1, 1954 (Exhibit 2(g), File No. 2-26908). 4b(6) February 1, 1956 (Exhibit 2(h), File No. 2-26908). 4b(7) May 1, 1958 (Exhibit 5(g), File No. 2-59794). 4b(8) August 1, 1967 (Exhibit 2(c), File No. 2-26908). 4b(9) November 1, 1970 (Exhibit 2(c), File No. 2-38569). 4b(10) August 1, 1972 (Exhibit 2(c), File No. 2-44873). 4b(11) November 1, 1973 (Exhibit 2(c), File No. 2-49428). 4b(12) July 1, 1974 (Exhibit 2(c), File No. 2-51429). 4b(13) October 1, 1975 (Exhibit 2(c), File No. 2-54627). 4b(14) June 1, 1976 (Exhibit 2(c), File No. 2-56396). 4b(15) October 1, 1978 (Exhibit 2(c), File No. 2-62568). 4b(16) September 1, 1979 (Exhibit 2(c), File No. 2-65350). 4b(17) September 1, 1980 (Exhibit 4(s), File No. 2-69190). 4b(18) October 1, 1980 (Exhibit 4(c), File No. 2-69190). 4b(19) April 1, 1981 (Exhibit 4(c), File No. 2-71580). 4b(20) November 1, 1981 (Exhibit 4(c), File No. 2-74485). 4b(21) June 1, 1982 (Exhibit 4(c), File No. 2-77763). 4b(22) September 1, 1982 (Exhibit 4(x), File No. 2-87323). 4b(23) April 1, 1983 (Exhibit 4(c), March 31, 1983 Form 10-Q, File No. 1-3583). 4b(24) December 1, 1983 (Exhibit 4(x), 1983 Form 10-K, File No. 1-3583). 4b(25) April 1, 1984 (Exhibit 4(c), File No. 2-90059). 4b(26) October 15, 1984 (Exhibit 4(z), 1984 Form 10-K, File No. 1-3583). 4b(27) October 15, 1984 (Exhibit 4(aa), 1984 Form 10-K, File No. 1-3583). 4b(28) August 1, 1985 (Exhibit 4(dd), File No. 33-1689). 4b(29) August 1, 1985 (Exhibit 4(ee), File No. 33-1689). 4b(30) December 1, 1985 (Exhibit 4(c), File No. 33-1689). 4b(31) March 1, 1986 (Exhibit 4b(31), 1986 Form 10-K, File No. 1-3583). 4b(32) October 15, 1987 (Exhibit 4, September 30, 1987 Form 10-Q, File No. 1-3583). 4b(33) September 15, 1988 (Exhibit 4b(33), 1988 Form 10-K, File No. 1-3583). 4b(34) June 15, 1989 (Exhibit 4b(34), 1989 Form 10-K, File No. 1-3583). 4b(35) October 15, 1989 (Exhibit 4b(35), 1989 Form 10-K, File No. 1-3583). 4b(36) May 15, 1990 (Exhibit 4, June 30, 1990 Form 10-Q, File No. 1-3583). 4b(37) March 1, 1991 (Exhibit 4(b), June 30, 1991 Form 10-Q, File No. 1-3583). 4b(38) May 1, 1992 (Exhibit 4(a)(3), File No. 33-48844). 4b(39) August 1, 1992 (Exhibit 4b(39), 1992 Form 10-K, File No. 1-3583).
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Exhibit Number Document - -------------- -------- 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). 4c Open-End Subordinate Indenture of Mortgage between The Toledo Edison Company and Bank One, Columbus, N.A., as Trustee, Dated as of June 1, 1994 (Exhibit 4(b), August 26, 1994 Form 8-K, File No. 1-3583). 24 (TE) *Powers of Attorney of Toledo Edison directors and officers required to sign the Report. 27 (TE) *Financial Data Schedule for the period ended
December 31, 1995. Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Registrants have not filed as an exhibit to this Form 10-K any instrument with respect to long-term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of the applicable Registrant and its subsidiaries on a consolidated basis, but each hereby agrees to furnish to the Securities and Exchange Commission on request any such instruments. Pursuant to Rule 14a-3(b)(10) under the Securities Exchange Act of 1934, copies of exhibits filed by the Registrants with this Form 10-K will be furnished by the Registrants to share owners upon written request and upon receipt in advance of the aggregate fee for preparation of such exhibits at a rate of $.25 per page, plus any postage or shipping expenses which would be incurred by the Registrants. E-11 149 CENTERIOR EXHIBITS EX-10.E.1 2 EXHIBIT 10(E)(1) 1 CENTERIOR EXHIBITS 2 Exhibit 10e(1) 3 EXHIBIT 10e(1) June 29, 1995 Mr. Donald C. Shelton Perry Nuclear Power Plant 10 Center Road Perry, Ohio 44081 Re: Employment Agreement Dear Mr. Shelton: This will confirm the agreement between you and Centerior Service Company (the "Company"), effective July 1, 1995, with respect to the terms of your employment by the Company, as follows: 1. The Company agrees to employ you, and you agree to serve, in a full-time senior executive capacity, until August 31, 1996, at which time you agree that your employment with the Company and its affiliates will terminate. Effective as of July 1, 1995 and during this period your annual base salary will be $225,000, payable bi-weekly. 2. Your duties will be those as Senior Vice President - Nuclear of the Company effective as of July 1, 1995; however, these may be changed to other duties of a senior executive nature as may be determined by the Chief Executive Officer and/or the Board of Directors of the Company. 3. Your employment, pursuant to this Agreement, will terminate upon August 31, 1996 or upon your earlier death or if, in the opinion of the Board of Directors, you are disabled or have failed to perform your duties as a senior executive of the Company. Upon your written request, the Board of Directors may, but is not obligated to, consent to your termination of employment at any time prior to August 31, 1996. 4. As an inducement to and in consideration of your employment commitment pursuant to this Agreement, the Company agrees to provide you (or if you are deceased, your spouse) with certain pension and other employee benefits, namely: 4 Mr. Donald C. Shelton June 29, 1995 Page 2 (a) As a full-time employee of the Company and throughout your employment under this Agreement, you will be entitled to participate, in accordance with the terms thereof, in each of the Company's employee benefit plans as are available to other senior executive officers of the Company except for incentive compensation benefits and pension benefits which shall be payable as provided in paragraphs 4(b) and 4(c) below. In addition, upon termination of this agreement in accordance with the terms hereof, you will be entitled to normal retiree welfare benefits. (b) You shall be entitled to participate in the Company's existing incentive compensation plan on the same terms and conditions as other vice presidents of the Company. You shall receive a partial year incentive compensation award, if any such award is granted under that plan, in the year this agreement terminates based on the actual number of months of service in that year divided by twelve. Also, you shall have the opportunity to receive, pursuant to this agreement, an additional incentive compensation award of up to 30% of your annual base salary contingent upon achievement of certain nuclear generation goals to be approved by the Company. You shall receive a partial year award of such additional incentive compensation opportunity in the year this agreement terminates, if any such opportunity is realized, based on the actual months of service in that year divided by twelve. The additional incentive compensation award provided pursuant to this paragraph 4(b) shall not be included in the calculation of pension benefits as provided in paragraph 4(c). 5 Mr. Donald C. Shelton June 29, 1995 Page 3 (c) If you continue in the employ of the Company and continue the full performance of your duties hereunder through August 31, 1996, or such earlier date as may be approved by the Board of Directors, the Company will provide through the Pension Plan of the Company and by direct payments to you (or if you are deceased, your spouse) of the full amount of benefits to which you or she would otherwise be entitled to receive under the Pension Plan of the Company and at the time or times provided in such Plan, all as if the design features of the Company's 1993 Voluntary Transition Program were applied to your pension benefit calculation effective as of August 31, 1996, or such earlier date as may be approved by the Board of Directors, and as if the commuted benefit payment option were based on the lump sum factor for you under the Pension Plan in effect on July 1, 1993 or August 31, 1996 (or the actual date of retirement if earlier), whichever results in a higher commuted benefit amount; provided, however, that the Company's obligation to provide such benefits will be reduced by the amounts payable to you or on your behalf under such Pension Plan. In addition, you will be credited with 1.75 additional years of service for purposes of the foregoing normal pension benefit calculation. If your employment under this Agreement is terminated by the Board of Directors prior to August 31, 1996 by reason of your failure to perform your obligations and duties under this Agreement, the Company's only obligation to you will be the payment of the pension benefit described in this paragraph 4(c). If you voluntarily terminate employment from the Company prior to August 31, 1996 without Board of Directors' consent, the Company will have no obligation to provide the pension benefits described in this paragraph 4(c) or any other payment or benefit described in this agreement. (d) The Company will also provide you with certain relocation benefits upon termination of this agreement provided such relocation is completed within twelve months of such termination. The relocation benefits to be provided are as follows: 6 Mr. Donald C. Shelton June 29, 1995 Page 4 (i) Household Moving Expense; (ii) Closing Costs - Existing House; (iii) Miscellaneous Expenses (not to exceed $10,000) such as points or loan origination fees, house cleaning or painting; and (iv) Federal Income Tax Gross-Up on items (i), (ii) and (iii) above. 5. Your rights under this Agreement will not be transferable or subject to encumbrance of any nature except that upon your death, such rights will inure to the benefit of your executors, administrators, personal representatives or assigns. 6. You agree that during the term of this agreement you will provide no similar services to any corporation, partnership, association, business or activity which, in the Company's reasonable opinion, is then competitive with any business or type of enterprise conducted or engaged in by the Company, except with the written consent of the Company. Any violation of this provision of the agreement will cause the agreement to be null and void and any right you may have to future payments hereunder shall be cancelled. Otherwise you will be free to engage in other professional and/or business activities which do not impair your ability to perform this agreement. 7. All information disclosed by the Company to you which is not or does not become available to the public shall be treated by you as confidential information and shall not be disclosed to third parties. You agree not to publish either as author or co-author, without prior written approval by the Company, any information that may be developed by you in performance of your services for the Company. 8. Unless otherwise instructed, in the performance of your services under this agreement, approvals and requests on behalf of the Company shall be given by Robert J. Farling, Chief Executive Officer of the Company, or his designee or, in the event that Robert J. Farling shall cease to serve as Chief Executive Officer of the Company, the then Chief Executive Officer of the Company, or such person as the Board of Directors of Centerior may designate for such purposes. 7 Mr. Donald C. Shelton June 29, 1995 Page 5 9. This Agreement will be governed by and construed according to the laws of the State of Ohio. If the foregoing correctly sets forth the agreement between you and the Company, please sign and return to me the enclosed copy of this letter. Very truly yours, Robert J. Farling Chairman and Chief Executive Officer AGREED: Donald C. Shelton EX-10.A 3 EXHIBIT 10(A) 1 Exhibit 10a(CEC) 2 Exhibit 10a (CEC) CENTERIOR ENERGY CORPORATION Each of the following current Directors and Officers of Centerior Energy Corporation ("Company") has entered into the attached Indemnity Agreement with the Company, which Agreement is currently in effect. Richard P. Anderson Director Albert C. Bersticker Director Leigh Carter Director Thomas A. Commes Director William F. Conway Director Wayne R. Embry Director Robert J. Farling Director, Chairman of the Board and President Richard A. Miller Director Frank E. Mosier Director Sister Mary Marthe Reinhard Director Robert C. Savage Director William J. Williams Director Murray R. Edelman Executive Vice President Fred J. Lange, Jr. Senior Vice President Gary R. Leidich Senior Vice President Terrence G. Linnert Senior Vice President, Chief Financial Officer and General Counsel
March 26, 1996 3 CENTERIOR ENERGY CORPORATION DIRECTOR OR OFFICER INDEMNITY AGREEMENT This Agreement made as of the date stated at the end hereof, between Centerior Energy Corporation, an Ohio corporation (the "Company") and the Indemnitee whose name appears above his signature at the end hereof, a director or officer of the Company (the "Indemnitee"); Whereas, the Company and Indemnitee are each aware of the exposure to litigation of directors and officers of the Company as such persons exercise their duties to the Company; Whereas, the Company and Indemnitee also are aware of conditions in the insurance industry that have affected and may continue to affect the Company's ability to obtain appropriate directors' and officers' liability insurance on an economically acceptable basis; Whereas, the Company desires to continue to benefit from the services of highly qualified, experienced and otherwise competent persons such as Indemnitee; Whereas, Indemnitee desires to serve or to continue to serve the Company as a director or officer or as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise in which the Company has a direct or indirect ownership interest for so long as the Company continues to provide on an acceptable basis adequate and reliable indemnification against certain liabilities and expenses which may be incurred by Indemnitee. Now, Therefore, in consideration of the foregoing premises and the mutual convenants herein contained, the parties hereto agree as follows: 1. Indemnification Subject to the terms of this Agreement, the Company shall indemnify Indemnitee with respect to his activities as a director or officer of the Company and/or as a person who is serving or has served on behalf of the Company as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, domestic or foreign, in which the Company has a direct or indirect ownership interest (an "affiliated entity") against expenses and liabilities (including, but not limited to, attorneys' fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred by him ("Expenses") in connection with any claim against Indemnitee which is the subject of any threatened, asserted, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise and whether formal or informal (a "Proceeding"), to which Indemnitee was, is or is threatened to be made a party by reason of facts which include Indemnitee's being or having been such a director, officer, employee, agent or representative, to the extent of the highest and most advantageous to Indemnitee, as determined by Indemnitee, of one or any combination of the following: - 1 - 4 (a) The benefits provided by the Company's Regulations in effect on the date hereof (or as adopted by the share owners of the Company at the 1987 annual meeting of share owners); (b) The benefits provided by the Articles of Incorporation, Regulations, By-laws or their equivalent of the Company in effect at the time Expenses are incurred by Indemnitee; (c) The benefits allowable under Ohio law in effect at the date hereof; (d) The benefits allowable under the law of the jurisdiction under which the Company exists at the time Expenses are incurred by Indemnitee; (e) The benefits available under directors' and officers' liability insurance obtained by the Company and in effect for directors or officers of the Company at the time a claim for Expenses is made against Indemnitee or the Company; (f) The benefits which would be available to Indemnitee if the Directors' and Officers' Liability Insurance and Reimbursement for Directors and Officers Liability Policy issued to The Cleveland Electric Illuminating Company by Harbor Insurance Company and other insurers which expired on April 29, 1985 and which was designated as policy number HI 165461 were in effect for directors and officers of the Company at the time a claim for Expenses is made against Indemnitee or the Company; and (g) Such other benefits as are or may be otherwise available to Indemnitee. Any combination of two or more of the benefits provided by (a) through (g) shall be available to the extent that the Applicable Document, as hereafter defined, does not require that the benefits provided therein be exclusive of other benefits. The document or law providing for the benefits listed in items (a) through (g) above for an item of Expense is called the "Applicable Document" in this Agreement with respect to that item of Expense. The Company hereby undertakes to use its best efforts to assist Indemnitee, in all proper and legal ways, to obtain the benefits to which Indemnitee is entitled under this Section 2. For purposes of this Agreement, references to "other enterprise" shall include any employee benefit plan for employees of the Company or of any affiliated entity without regard to ownership of such plan; references to "fines" shall include any excise taxes assessed against Indemnitee with respect to any employee benefit plan; references to "is serving or has served on behalf of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, Indemnitee with respect to any employee benefit plan, its participants or beneficiaries; references to "Proceeding" shall include any threatened, asserted, pending or completed Proceeding; references to the masculine shall include the feminine; references to the singular shall include the plural and vice versa; and if Indemnitee acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, he shall be deemed to have acted in a manner consistent with the standards required for indemnification by the Company under the Applicable Documents. - 2 - 5 2. Insurance The Company shall maintain directors' and officers' liability insurance covering Indemnitee for so long as Indemnitee's services are covered hereunder, provided and only to the extent that such insurance is available in amounts and on terms and conditions determined by the Company to be acceptable. However, the Company agrees that the provisions hereof shall remain in effect regardless of whether liability or other insurance coverage is at any time obtained or retained by the Company; except that any payments made to Indemnitee for an Expense under an insurance policy obtained or retained by the Company shall reduce the obligation of the Company to make payments for such Expense hereunder by the amount of the payments made under any such insurance policy. 3. Payment of Expenses At Indemnitee's request, the Company shall pay the Expenses as and when incurred by Indemnitee, after receipt of written notice pursuant to Section 6 hereof and an undertaking, in the form attached hereto, by or on behalf of Indemnitee (i) to repay such amounts so paid on Indemnitee's behalf if it shall ultimately be determined under the Applicable Document that Indemnitee is required to repay such amounts and (ii) to reasonably cooperate with the Company concerning such Proceeding. That portion of Expenses which represents attorneys' fees and other costs incurred in defending any Proceeding shall be paid by the Company within 30 days of its receipt of such request, together with reasonable documentation (consistent, in the case of attorney's fees, with Company practice in payment of legal fees for outside counsel generally) evidencing the amount and nature of such Expenses, subject to its also having received such a notice and undertaking. 4. Trust Fund The Company shall irrevocably deposit into a trust fund (the "Trust") assets having an aggregate value of $600,000 as collateral security for the initial funding of its obligations hereunder and under similar agreements with other directors or officers. The Company shall promptly provide Indemnitee with a true and complete copy of the agreement relating to the establishment and operation of the Trust, together with such additional documentation or information with respect to the Trust as Indemnitee may from time to time reasonably request. The Company shall promptly deliver an executed copy of this Agreement to the trustee of the Trust to evidence to the trustee that Indemnitee is a beneficiary of the Trust and shall deliver to Indemnitee the trustee's signed receipt evidencing that delivery. The Company shall have the right, but no obligation, to replenish the Trust for amounts distributed from time to time to the beneficiaries thereof. 5. Additional Rights The indemnification provided in this Agreement shall not be exclusive of any other indemnification or right to which Indemnitee may be entitled and shall continue after Indemnitee has ceased to occupy a position as an officer, director, employee, agent or trustee as described in Section 1 above with respect to Proceedings relating to or arising out of Indemnitee's acts or omissions during his service in such position. - 3 - 6 6. Notice to Company Indemnitee shall provide to the Company prompt written notice of any Proceeding threatened, asserted or commenced against Indemnitee with respect to which Indemnitee may assert a right to indemnification hereunder; provided that failure to provide such notice shall not in any way limit Indemnitee's rights under this Agreement. 7. Cooperation in Defense and Settlement Indemnitee shall not make any admission or effect any settlement of any Proceeding without the Company's written consent unless Indemnitee shall have determined to undertake his own defense in such matter and has waived the benefits of this Agreement. The Company shall not settle any Proceeding to which Indemnitee is a party in any manner which would impose any Expense on Indemnitee without his written consent. Neither Indemnitee nor the Company shall unreasonably withhold consent to any proposed settlement. Indemnitee and the Company shall cooperate to the extent reasonably possible with each other and with the Company's insurers, in attempts to defend and/or settle any Proceeding. 8. Assumption of Defense Except as otherwise provided below, to the extent that it may wish, the Company jointly with any other indemnifying party similarly notified will be entitled to assume Indemnitee's defense in any Proceeding, with counsel mutually satisfactory to Indemnitee and the Company. After notice from the Company to Indemnitee of the Company's election so to assume such defense, the Company shall not be liable to Indemnitee under this Agreement for Expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at Indemnitee's expense unless: (a) The employment of counsel by Indemnitee has been authorized by the Company; (b) Counsel employed by the Company initially is unacceptable or later becomes unacceptable to Indemnitee and such unacceptability is reasonable under then existing circumstances; (c) Indemnitee shall have reasonably concluded that there may be a conflict of interest between Indemnitee and the Company in the conduct of the defense of such Proceeding; or (d) The Company shall not have employed counsel promptly to assume the defense of such Proceeding; In each of which cases the fees and expenses of counsel employed by Indemnitee shall be at the expense of the Company and subject to payment pursuant to this Agreement. The Company shall not be entitled to assume the defense of Indemnitee in any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made either of the conclusions provided for in clauses (b) or (c) above. - 4 - 7 9. Enforcement In the event any dispute or controversy shall arise under this Agreement between Indemnitee and the Company with respect to whether the Indemnitee is entitled to indemnification in connection with any Proceeding or with respect to any amount of Expenses incurred, then Indemnitee may seek to enforce the Agreement with respect to such dispute or controversy through legal action or, at Indemnitee's sole option and written request, through arbitration. If arbitration is requested, such dispute or controversy shall be submitted by the parties to binding arbitration in the City of Cleveland, State of Ohio, before a single arbitrator agreeable to both parties. If the parties cannot agree on a designated arbitrator within 15 days after arbitration is requested in writing by Indemnitee, the arbitration shall proceed in the City of Cleveland, State of Ohio, before an arbitrator appointed by the American Arbitration Association. In either case, the arbitration proceeding shall commence promptly under the rules then in effect of that Association and the arbitrator agreed to by the parties or appointed by that Association shall be an attorney other than an attorney who has, or is associated with a firm having associated with it an attorney which has been retained by or performed services for the Company or Indemnitee at any time during the five years preceding the commencement of the arbitration. The award shall be rendered in such form that judgment may be entered thereon in any court having jurisdiction thereof. The prevailing party shall be entitled to prompt reimbursement of any costs and expenses (including, without limitation, reasonable attorneys' fees) incurred in connection with such legal action or arbitration; provided that Indemnitee shall not be obligated to reimburse the Company unless the court or arbitrator which resolves the dispute determines that Indemnitee acted in bad faith in bringing such action or arbitration. 10. Exclusions Notwithstanding the scope of indemnification which may be available to Indemnitee from time to time under any Applicable Document, no indemnification, reimbursement or payment shall be required of the Company hereunder with respect to: (a) Any claim or any part thereof as to which Indemnitee shall have been determined by a court of competent jurisdiction from which no appeal is or can be taken, by clear and convincing evidence, to have acted or failed to act with deliberate intent to cause injury to the Company or with reckless disregard for the best interest of the Company. (b) Any claim or any part thereof arising under Section 16(b) of the Securities Exchange Act of 1934 pursuant to which Indemnitee shall be obligated to pay any penalty, fine, settlement or judgment; (c) Any obligation of Indemnitee based upon or attributable to the Indemnitee gaining any personal gain, profit or advantage to which he was not entitled; or (d) Any Proceeding initiated by Indemnitee without the consent or authorization of the Board of Directors of the Company, provided that this exclusion shall not apply with respect to any claims brought by Indemnitee (i) to enforce his rights under this Agreement - 5 - 8 or (ii) in any Proceeding initiated by another person or entity whether or not such claims were brought by Indemnitee against a person or entity who was otherwise a party to such Proceeding. Nothing in this Section 10 shall eliminate or diminish the Company's obligations to advance that portion of Indemnitee's Expenses which represent attorneys' fees and other costs incurred in defending any Proceeding pursuant to Section 3 of this Agreement. 11. Extraordinary Transactions The Company agrees that, in the event of any merger, consolidation or reorganization in which the Company is not the surviving entity, any sale of all or substantially all of the assets of the Company or any liquidation of the Company (each such event is hereinafter referred to as an "extraordinary transaction"), the Company shall: (a) Have the obligations of the Company under this Agreement expressly assumed by the survivor, purchaser or successor, as the case may be, in such extraordinary transaction; or (b) Otherwise adequately provide for the satisfaction of the Company's obligations under this Agreement in a manner acceptable to Indemnitee. 12. No Personal Liability Indemnitee agrees that no director, officer, employee, representative or agent of the Company shall be personally liable for the satisfaction of the Company's obligations under this Agreement, and Indemnitee shall look solely to the assets of the Company, any insurance referred to in Section 2 hereof and the assets of the Trust for satisfaction of any claims hereunder. 13. Severability If any provision, phrase or other portion of this Agreement shall be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable, in whole or in part, and such determination shall become final, then such provision, phrase or other portion shall be deemed to be severed or limited, but only to the extent required to render the remaining provisions and portions of the Agreement enforceable, and the Agreement as so modified shall be enforced to give effect to the intention of the parties insofar as that is possible. 14. Subrogation In the event of any payment under this Agreement, the Company shall be subrogated to the extent thereof to all rights to indemnification or reimbursement against any insurer or other entity or person vested in Indemnitee, who shall execute all instruments and take all other actions as shall be reasonably necessary for the Company to enforce such rights. 15. Governing Law This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio. - 6 - 9 16. Notices All notices, requests, demands and other communications hereunder shall be in writing and shall be considered to have been duly given if delivered by hand and receipted for by the party to whom the notice, request, demand or other communication shall have been directed, or mailed by certified mail, return receipt requested, with postage prepaid: (a) If to the Company, to: CENTERIOR ENERGY CORPORATION 6200 Oak Tree Boulevard Post Office Box 94661 Independence, Ohio 44101-4661; and (b) If to Indemnitee, at the address stated below the name of Indemnitee at the end of this Agreement. or to such other or further address as shall be designated from time to time by the Company or Indemnitee to the other. 17. Termination This Agreement may be terminated by either party upon not less than 60 days prior written notice delivered to the other party, but such termination shall not in any way diminish the obligations of Company hereunder (or Indemnitee's right under the Trust) with respect to Indemnitee's activities prior to the effective date of termination; provided, that if this Agreement has been entered into by the Company before it shall have been authorized by the share owners of the Company at its 1987 annual meeting, it shall terminate automatically and be void ab initio if the share owners of the Company shall not have ratified this Agreement at such annual meeting. 18. Amendments and Binding Effect This Agreement and the rights and duties of Indemnitee and the Company hereunder may not be amended, modified or terminated except by written instrument signed and delivered by the parties hereto. This Agreement is and shall be binding upon and shall inure to the benefit of the parties thereto and their respective heirs, executors, administrators, successors and assigns. - 7 - 10 In Witness Whereof, the undersigned have executed this Agreement in triplicate on the _____________ day of ___________________, ____, effective as of the _____________ day of ___________________, ____. INDEMNITEE: CENTERIOR ENERGY CORPORATION ____________________________________ Title: ____________________________ By: _________________________________ Signed: ___________________________ Title: ______________________________ Address: __________________________ Signed: _____________________________ ____________________________________ ____________________________________ - 8 - 11 CENTERIOR ENERGY CORPORATION DIRECTOR OR OFFICER INDEMNITY AGREEMENT UNDERTAKING TO REIMBURSE PAYMENT OF EXPENSES This Undertaking has been entered into by the Indemnitee whose name appears above his signature below (hereinafter "Indemnitee") pursuant to an Indemnity Agreement dated the date set forth below (the "Indemnity Agreement") between Centerior Energy Corporation (hereinafter "Company"), an Ohio corporation and Indemnitee. WITNESSETH: Whereas, pursuant to the Indemnity Agreement, Company agreed to pay Expenses (within the meaning of the Indemnity Agreement) as and when incurred by Indemnitee in connection with any claim against Indemnitee which is the subject of any threatened, asserted, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which Indemnitee was, is or is threatened to be made a party by reason of facts which include Indemnitee's being or having been a director or officer of the Company and/or as a person who is serving or has served on behalf of the Company as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust or other enterprise, domestic or foreign, in which the Company has a direct or indirect ownership interest; and Whereas, such a claim has arisen against Indemnitee (hereinafter the "Proceeding"), Indemnitee has notified Company of the Proceeding in accordance with the terms of Section 6 of the Indemnity Agreement and a copy of the Proceeding and notice are attached hereto as Exhibits A and B, respectively. Now, Therefore, Indemnitee hereby agrees that in consideration of Company's advance payment of Indemnitee's Expenses incurred prior to a final disposition of the Proceeding, Indemnitee hereby undertakes to reimburse Company for any and all Expenses paid by Company on behalf of Indemnitee prior to a final disposition of the Proceeding in the event that Indemnitee is determined under the Applicable Document (within the meaning of the Indemnity Agreement) to be required to repay such amounts to the Company pursuant to the Indemnity Agreement and applicable law, provided that if Indemnitee is entitled under the Applicable Document to indemnification for some or a portion of such Expenses, Indemnitee's obligation to reimburse Company shall apply only to those Expenses which Indemnitee is so determined to be required to repay. Such reimbursement or arrangements for reimbursement by Indemnitee shall be consummated within 90 days after a determination that Indemnitee is so required to repay such amounts to the Company pursuant to the Indemnity Agreement and applicable law. The Indemnitee agrees to reasonably cooperate with the Company concerning such Proceeding. - 9 - 12 In Witness Whereof, the undersigned has set his hand this _____________ day of ______________________, 19__. Date of Indemnity Agreement: INDEMNITEE: ________________________________ ______________________________________ Signed: _____________________________ - 10 - EX-21.CEC 4 EXHIBIT 21 (CEC) 1 Exhibit 21(CEC) LIST OF SUBSIDIARIES OF CENTERIOR ENERGY CORPORATION The subsidiaries of Centerior Energy Corporation, all wholly owned, are The Cleveland Electric Illuminating Company, The Toledo Edison Company, Centerior Service Company, Centerior Properties Company, CCO Company and Market Responsive Energy, Inc. All those subsidiaries are incorporated under the laws of the State of Ohio and do not do business under any names other than those listed above, except that The Cleveland Electric Illuminating Company does business under the trade name The Illuminating Company. March 26, 1996 EX-23.A.CEC 5 EXHIBIT 23(A) (CEC) 1 Exhibit 23a(CEC) 2 EXHIBIT 23a (CEC) CENTERIOR ENERGY CORPORATION CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ------------------------------------------ As independent public accountants, we hereby consent to the incorporation of our report on the consolidated financial statements and schedule of Centerior Energy Corporation and subsidiaries dated February 21, 1996, included in this Form 10-K, into Centerior Energy Corporation's previously filed Registration Statements, File Nos. 33-9736, 33-47231, 33-49957, 33-58935 and 33-59635. ARTHUR ANDERSEN LLP Cleveland, Ohio March 26, 1996 EX-23.B.CEC 6 EXHIBIT 23(B) (CEC) 1 Exhibit 23b(CEC) 2 EXHIBIT 23b (CEC) CONSENT OF COUNSEL FOR CENTERIOR ENERGY CORPORATION The statements as to matters of law and legal conclusions under the headings "General Regulation", "Environmental Regulation" and "Electric Rates" in Item 1. and "Title to Property" in Item 2. and "Legal Proceedings" in Item 3. of the Centerior Energy Corporation Annual Report on Form 10-K for the year ended December 31, 1995 have been prepared under my supervision and in my opinion such respective statements as to such matters are correct. I hereby consent to the use of my name in connection with the statements prepared under my supervision as stated in the preceding paragraph and to the incorporation by reference of those statements into the respective Prospectuses now and hereafter constituting parts of the Registration Statements previously filed by Centerior Energy Corporation under File Nos. 33-9736, 33-47231, 33-58935 and 33-59635 and to the reference to me under the heading "Experts" in such Prospectuses. TERRENCE G. LINNERT Terrence G. Linnert Senior Vice President, Chief Financial Officer and General Counsel March 26, 1996 EX-24.CEC 7 EXHIBIT 24 (CEC) 1 Exhibit 24(CEC) 2 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 1st day of March, 1996. ROBERT J. FARLING ----------------------------- Robert J. Farling Chairman, President and Chief Executive Officer and Director Signed and acknowledged in the presence of: J. T. PERCIO --------------------------------- 3 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 29th day of February, 1996. TERRENCE G. LINNERT ----------------------------- Terrence G. Linnert Senior Vice President, Chief Financial Officer and General Counsel Signed and acknowledged in the presence of: JEAN M. LeMAY --------------------------- 4 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 29th day of February, 1996. E. LYLE PEPIN ----------------------------- E. Lyle Pepin Controller Signed and acknowledged in the presence of: RUTH A.HARNER ------------------------- 5 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 4th day of March, 1996. RICHARD P. ANDERSON ----------------------------- Richard P. Anderson Director Signed and acknowledged in the presence of: JOANNE KAPNICK ------------------------- 6 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 29th day of February, 1996. A. C. BERTSTICER ----------------------------- Albert C. Bersticker Director Signed and acknowledged in the presence of: CAROLYN T. SIEKANIEC ------------------------- 7 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 4 day of March, 1996. LEIGH CARTER ----------------------------- Leigh Carter Director Signed and acknowledged in the presence of: MARY W. CARTER ------------------------- 8 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 1 day of March, 1996. THOMAS A. COMMES ----------------------------- Thomas A. Commes Director Signed and acknowledged in the presence of: KATHY SCHIEKE -------------------------- 9 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 2nd day of March, 1996. WILLIAM F. CONWAY ----------------------------- William F. Conway Director Signed and acknowledged in the presence of: MARIE V. CONWAY -------------------------- 10 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 5th day of March, 1996. WAYNE R. EMBRY ----------------------------- Wayne R. Embry Director Signed and acknowledged in the presence of: SUE EILER -------------------------- 11 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 1 day of March, 1996. RICHARD A MILLER ----------------------------- Richard A. Miller Director Signed and acknowledged in the presence of: J. T. PERCIO ------------------------- 12 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 15th day of March, 1996. FRANK E. MOSIER ----------------------------- Frank E. Mosier Director Signed and acknowledged in the presence of: PATRICIA G. CUMBERLAND -------------------------- 13 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 3rd day of March, 1996. SISTER MARY MARTHE REINHARD SND -------------------------------- Sister Mary Marthe Reinhard, SND Director Signed and acknowledged in the presence of: CLARICE H. BATES ---------------------------- 14 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 1 day of March, 1996. ROBERT C. SAVAGE ----------------------------- Robert C. Savage Director Signed and acknowledged in the presence of: JEANNE M. HOOVER ------------------------- 15 EXHIBIT 24 (CEC) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- CENTERIOR ENERGY CORPORATION ---------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of Centerior Energy Corporation, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 8th day of March, 1996. WILLIAM J. WILLIAMS ----------------------------- William J. Williams Director Signed and acknowledged in the presence of: SARA J.WILLIAMS ------------------------- EX-27.CEC 8 EXHIBIT 27 (CEC)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED FORM 10-K FINANCIAL STATEMENTS FOR CENTERIOR ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000774197 CENTERIOR ENERGY CORPORATION 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 PER-BOOK 6,832,638 415,534 926,484 2,468,448 0 10,643,104 2,319,660 0 (336,100) 1,983,560 220,440 450,871 3,733,892 0 0 0 203,392 31,379 137,260 94,653 3,787,657 10,643,104 2,515,522 135,210 1,791,067 1,926,277 589,245 46,831 636,076 354,908 220,472 0 0 118,425 303,857 611,735 1.49 0
EX-4.B.73 9 EXHIBIT 4(B)(73) 1 Exhibit 4b(73) 2 EXHIBIT 4(B)(73) [CONFORMED] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY TO THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) (successor to Morgan Guaranty Trust Company of New York, formerly Guaranty Trust Company of New York) As Trustee under The Cleveland Electric Illuminating Company's Mortgage and Deed of Trust, Dated July 1, 1940 ------------------------ SEVENTY-SECOND SUPPLEMENTAL INDENTURE DATED JULY 15, 1995 FIRST MORTGAGE BONDS, 7 3/4% SERIES DUE 2025-A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3 i THE CLEVELAND ELECTRIC ILLUMINATING COMPANY Seventy-Second Supplemental Indenture Dated July 15, 1995 TABLE OF CONTENTS*
PAGE -------- PARTIES..................................................... 1 RECITALS: Indenture and Supplemental Indentures..................... 1 First Mortgage Bonds outstanding.......................... 2 Authorization by Indenture of issue of additional Bonds... 2 Bonds of this Series...................................... 2 Purpose of Seventy-Second Supplemental Indenture.......... 2 Authorization of Seventy-Second Supplemental Indenture.... 3 Compliance with conditions to making of Seventy-Second Supplemental Indenture................................. 3 ARTICLE I -- CONFIRMATION OF 1940 MORTGAGE AND SUPPLEMENTAL INDENTURES................................................ 3 ARTICLE II -- CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT AND FORM OF BONDS OF THIS SERIES................... 4 Section 1 -- Creation and designation of Bonds and compliance with Indenture............................ 4 Section 2 -- Date of Bonds, maturity date, interest rate, accrual date, payment dates, Record Date and place of payments.................................... 4 Section 3 -- Principal amount of Bonds................. 5 Section 4 -- Registration and denomination of Bonds.... 5 Section 5 -- Transfer and exchange of Bonds............ 6 Section 6 -- Redemption of Bonds....................... 6 Section 7 -- Redemption of Bonds pursuant to Section 4.01(a) of the Authority Trust Indenture............. 6 Section 8 -- Redemption of Bonds pursuant to Section 4.01(b) of the Authority Trust Indenture............. 7 Section 9 -- Redemption of Bonds pursuant to Section 4.01(c) of the Authority Trust Indenture............. 7 Section 10 -- Redemption of Bonds in an "Event of De- fault" under the Authority Trust Indenture........... 8 Section 11 -- Notice of redemption under Sections 7 through 10 of Article II of this Supplemental Indenture............................................ 9
- --------------- *The Table of Contents, the page headings and the recording data are not part of the Seventy-Second Supplemental Indenture as executed. 4 ii
PAGE -------- Section 12 -- Bonds deemed to be paid in full upon surrender of Authority Bonds for cancellation under the Authority Trust Indenture........................ 9 Section 13 -- Payment on the Authority Bonds deemed to be payment of corresponding obligation on Bonds...... 9 Section 14 -- Surrender of Bonds in the event of payment in full or partial payment thereof and issuance of new Bonds for the unpaid balance......... 10 Section 15 -- Form of Fully Registered Bond of this Series............................................... 10 Form of Trustee's Certificate of Authentication....................... 17 Form of Schedule of Payments........... 18 ARTICLE III -- THE TRUSTEE.................................. 19 Section 1 -- Acceptance by Trustee..................... 19 Section 2 -- Responsibility of Trustee................. 19 Section 3 -- Reliance by Trustee upon certain demands, certificates and opinions............................ 19 Section 4 -- Records kept and indemnity given by agency of the Company....................................... 19 Section 5 -- Certain advices to the Company............ 20 ARTICLE IV -- MISCELLANEOUS PROVISIONS...................... 20 EXECUTION................................................... 20 SIGNATURES AND SEALS........................................ S-1 ACKNOWLEGEMENTS............................................. S-2 RECORDING AND FILING DATA................................... R-1
5 SEVENTY-SECOND SUPPLEMENTAL INDENTURE, dated July 15, 1995, made by and between THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and existing under the laws of the State of Ohio (the "Company"), and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) (successor to MORGAN GUARANTY TRUST COMPANY OF NEW YORK, formerly GUARANTY TRUST COMPANY OF NEW YORK), a national banking association existing under the laws of the United States of America, with its head office at 1 Chase Manhattan Plaza, The City of New York (the "Trustee"), as Trustee under the Mortgage and Deed of Trust dated July 1, 1940, hereinafter mentioned: RECITALS In order to secure First Mortgage Bonds of the Company ("Bonds"), the Company has heretofore executed and delivered to the Trustee the Mortgage and Deed of Trust dated July 1, 1940 (the "1940 Mortgage") and seventy-one Supplemental Indentures thereto dated, respectively, July 1, 1940, August 18, 1944, December 1, 1947, September 1, 1950, June 1, 1951, May 1, 1954, March 1, 1958, April 1, 1959, December 20, 1967, January 15, 1969, November 1, 1969, June 1, 1970, November 15, 1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28, 1975, February 1, 1976, November 23, 1976, July 26, 1977, September 27, 1977, May 1, 1978, September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980, June 9, 1980, December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982, July 15, 1982, September 1, 1982, November 1, 1982, November 15, 1982, May 24, 1983, May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14, 1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985, September 1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15, 1986, February 25, 1987, October 15, 1987, February 24, 1988, September 15, 1988, May 15, 1989, June 13, 1989, October 15, 1989, January 1, 1990, June 1, 1990, August 1, 1990, May 1, 1991, May 1, 1992, July 31, 1992, January 1, 1993, February 1, 1993, May 20, 1993, June 1, 1993, September 15, 1994, May 1, 1995, May 2, 1995 and June 1, 1995; and The 1940 Mortgage, as supplemented and modified by said Supplemental Indentures and by this Seventy-Second Supplemental Indenture, will be hereinafter collectively referred to as the "Indenture" and this Seventy-Second Supplemental Indenture will be hereinafter referred to as "this Supplemental Indenture"; and Pursuant to the provisions of the Indenture, the Company has issued 114 series of Bonds in the aggregate principal amount of $5,452,452,000, of which 74 series in the aggregate principal amount of $2,402,037,000 are no longer outstanding; and 6 2 The Indenture provides among other things that the Company, from time to time, in addition to the Bonds authorized to be executed, authenticated and delivered pursuant to other provisions therein, may execute and deliver additional Bonds to the Trustee and the Trustee shall thereupon authenticate and deliver such Bonds to or upon the order of the Company; and The Company has determined to create pursuant to the provisions of the Indenture one new series of Bonds designated as "First Mortgage Bonds, 7 3/4% Series due 2025-A" (the "Bonds of this Series") with the denominations, rate of interest, date of maturity, redemption provisions and other provisions and agreements in respect thereof as in this Supplemental Indenture set forth; and The Bonds of this Series are to be issued by the Company and delivered to the Authority Trustee (hereinafter defined) to evidence and secure its obligation to pay to the Beaver County Industrial Development Authority (hereinafter called the "Authority") a portion of the Company's share of the purchase price for certain air and water pollution control facilities and sewage and solid waste disposal facilities used in connection with the operation of Beaver Valley Power Station Unit 2, a nuclear powered generating unit located in Shippingport, Pennsylvania (hereinafter called the "Project Facilities"), such portion being in an amount equal to the principal amount of the Authority Bonds (hereinafter defined) issued pursuant to the Beaver Valley Pollution Control Facilities Agreement dated as of April 1, 1974, among the Authority, the Company, The Toledo Edison Company, Duquesne Light Company, Ohio Edison Company and Pennsylvania Power Company; and That portion of the Company's share of the cost of the Project Facilities was originally financed with proceeds from the sale by the Authority of $45,150,000 principal amount of Beaver County Industrial Development Authority Collateralized Pollution Control Revenue Bonds (The Cleveland Electric Illuminating Company Beaver Valley Project) 1985 Series (hereinafter called the "Prior Authority Bonds"). The Prior Authority Bonds are to be refunded from the proceeds of one series of Collateralized Pollution Control Revenue Refunding Bonds, Series 1995-A (The Cleveland Electric Illuminating Company Beaver Valley Project) (hereinafter called the "Authority Bonds") to be issued pursuant to a Trust Indenture, dated as of July 15, 1995 (hereinafter called the "Authority Trust Indenture"), between the Authority and Society National Bank, as trustee, (hereinafter called the "Authority Trustee"), and the Bonds of this Series are to be assigned by the Authority to the Authority Trustee as security for the payment of the principal of and premium, if any, and interest on the Authority Bonds and are to be delivered by the Company on behalf of 7 3 the Authority directly to, and registered in the name of, the Authority Trustee; and The Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture, and pursuant to appropriate resolutions of the Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee this Supplemental Indenture in the form hereof for the purposes herein provided; and All conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized. NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: That The Cleveland Electric Illuminating Company, in consideration of the premises and of the mutual covenants herein contained and of the sum of One Dollar ($1.00) to it duly paid by the Trustee at or before the ensealing and delivery of these presents and for other valuable considerations, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustee and its successors in the Trust under the Indenture, for the benefit of those who shall hold the Bonds and coupons, if any, issued and to be issued thereunder and under this Supplemental Indenture as hereinafter provided, as follows: ARTICLE I CONFIRMATION OF 1940 MORTGAGE AND SUPPLEMENTAL INDENTURES The 1940 Mortgage (as modified in Article V of the Supplemental Indenture dated December 1, 1947, Article V of the Supplemental Indenture dated May 1, 1954, Article V of the Supplemental Indenture dated March 1, 1958, Article V of the Supplemental Indenture dated January 15, 1969, Article III of the Supplemental Indenture dated November 23, 1976 and Article III of the Supplemental Indenture dated April 15, 1985) and the Supplemental Indentures dated July 1, 1940, August 18, 1944, December 1, 1947, September 1, 1950, June 1, 1951, May 1, 1954, March 1, 1958, April 1, 1959, December 20, 1967, January 15, 1969, November 1, 1969, June 1, 1970, November 15, 1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28, 1975, February 1, 1976, November 23, 1976, July 26, 1977, September 27, 1977, May 1, 1978, September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980, June 9, 1980, December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982, July 15, 1982, September 1, 1982, November 1, 8 4 1982, November 15, 1982, May 24, 1983, May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14, 1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985, September 1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15, 1986, February 25, 1987, October 15, 1987, February 24, 1988, September 15, 1988, May 15, 1989, June 13, 1989, October 15, 1989, January 1, 1990, June 1, 1990, August 1, 1990, May 1, 1991, May 1, 1992, July 31, 1992, January 1, 1993, February 1, 1993, May 20, 1993, June 1, 1993, September 15, 1994, May 1, 1995, May 2, 1995 and June 1, 1995, respectively, are hereby in all respects confirmed. ARTICLE II CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT AND FORM OF BONDS OF THIS SERIES SECTION 1. The Company hereby creates a new series of Bonds to be issued under and secured by the Indenture and to be designated as "First Mortgage Bonds, 7 3/4% Series due 2025-A" of the Company. The Bonds of this Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture. SECTION 2. The Bonds of this Series shall be dated the date of their authentication, shall mature July 15, 2025, and shall bear interest from the time hereinafter provided at the rate of 7 3/4% per annum payable semiannually on the same dates as interest is payable on the Authority Bonds (each such date herein called an "interest payment date") until the maturity of the Bonds of this Series, or, in the case of any Bonds of this Series duly called for redemption, until the redemption date, or, in the case of any default by the Company in the payment of the principal due on any Bonds of this Series, until the Company's obligation with respect to the payment of the principal shall be discharged as provided in the Indenture. Except as hereinafter provided, each Bond of this Series 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 July 15, 1995. Notwithstanding the foregoing, if the date of such Bond is after a Record Date (as hereinafter defined) and before the next following interest payment date, then it shall bear interest from such interest payment date; provided, however, that (i) if the Company shall default in the payment of the interest due on such interest payment date, then such Bond shall bear interest from the interest payment date next preceding the date of such Bond to which interest 9 5 has been paid, or (ii) if no interest has been paid thereon, then it shall bear interest from July 15, 1995. The interest payable on any interest payment date shall be paid to the respective persons in whose names the Bonds of this Series shall be registered at the close of business on the Record Date next preceding such interest payment date, notwithstanding the cancellation of any such Bond upon any transfer or exchange thereof subsequent to such Record Date and prior to such interest payment date; provided, however, that, if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid to the respective persons in whose names such outstanding Bonds of this Series are registered at the close of business on a date (the "Subsequent Record Date") not less than 10 days nor more than 15 days next preceding the date of payment of such defaulted interest, such Subsequent Record Date to be established by the Company by notice given by mail by or on behalf of the Company to the registered owners of Bonds of this Series not less than 10 days next preceding such Subsequent Record Date. The term "Record Date" shall mean, with respect to any regular interest payment date of any Bond of this Series, the date which would be the "Regular Record Date", as defined in the Authority Trust Indenture, applicable to such regular interest payment date, if it were an "Interest Payment Date", as defined in the Authority Trust Indenture. The Bonds of this Series shall be payable as to principal (and premium, if any) and interest in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts and shall be payable (as well the interest and the principal thereof and the premium thereon, if any) at the agency of the Company in the City of Cleveland, State of Ohio, or, at the option of the Company, at the agency of the Company in The City of New York. Unless the context indicates a different meaning, any reference in this Article II to "agency of the Company" means either the agency of the Company in the City of Cleveland, State of Ohio or the agency of the Company in The City of New York. SECTION 3. The principal amount of Bonds of this Series which may be authenticated and delivered hereunder shall not exceed $45,150,000, except as otherwise provided in the Indenture. SECTION 4. The Bonds of this Series shall be issued as fully registered Bonds only, without coupons, in the denominations of $100,000 and any integral multiple thereof, provided that one such Bond may be in the denomination equal to $150,000 and combined with any other 10 6 authorized denomination, to the extent necessary to equal the outstanding principal amount of the Bonds of this Series. SECTION 5. In the manner and subject to the limitations provided in the Indenture, Bonds of this Series may be transferred or may be exchanged for a like aggregate principal amount of Bonds of this Series of other authorized denominations, in either case without charge, except for any tax or taxes or other governmental charges incident to such transfer or exchange, at the agency of the Company in The City of New York. In the event less than all of the Bonds of this Series at the time outstanding are called for redemption, the Company shall not be required (a) to register any transfer or make any exchange of any such Bond for a period of 15 days before the mailing of the notice of redemption of any such Bond, (b) to register any transfer or make any exchange of any such Bond so called for redemption in its entirety, or (c) to register any transfer or make any exchange of any portion of any such Bond so called for redemption. Except as otherwise provided in Section 2 of this Article II with respect to the payment of interest, the Company, the agencies of the Company and the Trustee may deem and treat the person in whose name a Bond of this Series is registered as the absolute owner thereof for the purpose of receiving any payment and for all other purposes. SECTION 6. The Bonds of this Series shall be redeemable only to the extent provided in this Article II, subject to the provisions contained in Article V of the Indenture and the form of Bond of this Series. SECTION 7. The Bonds of this Series shall be subject to redemption by the Company prior to maturity in whole at any time or in part from time to time at a redemption price of 100% of the principal amount to be redeemed, but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the Authority, at the direction of the Company, or the Company, on behalf of the Authority, has given notice to the Authority Trustee that the Company is exercising its option to direct the redemption of all or a part (specifying the principal amount) of the Authority Bonds as provided in Section 4.01(a) of the Authority Trust Indenture and (b) that an equivalent principal amount of Bonds of this Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of this Series to be redeemed and the accrued and unpaid interest to the redemption date, shall have attached to it a copy of said notice to the Authority Trustee and said direction of the Company and shall specify the redemption date of such Bonds of this Series (which redemption date shall be not less than 45 days from the date of the Trustee's receipt of such certificate and shall be the same 11 7 date as the redemption date of the Authority Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of this Series shall be made upon the notice and in the manner provided in this Article II, subject to the provisions of the Indenture. SECTION 8. The Bonds of this Series shall be redeemed by the Company prior to maturity in whole at any time or in part from time to time upon a final determination by any federal judicial or administrative authority that interest on the Authority Bonds is includable for federal income tax purposes in the gross income of the holders of the Authority Bonds (other than because a holder is a "substantial user" of the Project Facilities or a "related person" thereof as those terms are used in Section 147(a) of the Internal Revenue Code of 1986, as amended) at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date, but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the Authority, at the direction of the Company, or the Company, on behalf of the Authority, has given notice to the Authority Trustee that it is required to redeem all or a part (specifying the principal amount) of the Authority Bonds as provided in Section 4.01(b) of the Authority Trust Indenture and (b) that an equivalent principal amount of Bonds of this Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of this Series to be redeemed and the redemption price thereof and accrued and unpaid interest to the redemption date, shall have attached to it a copy of said notice to the Authority Trustee and said direction of the Company and shall specify the redemption date of such Bonds of this Series (which redemption date shall be not less than 45 days from the date of the Trustee's receipt of such certificate and shall be the same date as the redemption date of the Authority Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of this Series shall be made upon the notice and in the manner provided in this Article II, subject to the provisions of the Indenture. SECTION 9. The Bonds of this Series shall be subject to redemption by the Company prior to maturity in whole at any time or in part from time to time, but in no instance before July 15, 2005, at the same redemption price plus accrued and unpaid interest, if any, as shall be 12 8 payable on the Authority Bonds to be redeemed concurrently therewith, to the redemption date as follows:
REDEMPTION PRICE (EXPRESSED AS A PERCENTAGE OF THE REDEMPTION PERIODS PRINCIPAL AMOUNT (DATES INCLUSIVE) BEING REDEEMED) - --------------------------------------------- -------------------- July 15, 2005 through July 14, 2006.......... 102% July 15, 2006 through July 14, 2007.......... 101 July 15, 2007 and thereafter................. 100
but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the Authority, at the direction of the Company, or the Company, on behalf of the Authority, has given notice to the Authority Trustee that the Company is exercising its option to direct the redemption of all or part (specifying the principal amount) of the Authority Bonds as provided in Section 4.01(c) of the Authority Trust Indenture and (b) that an equivalent principal amount of Bonds of this Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of this Series to be redeemed and the redemption price thereof and accrued and unpaid interest to the redemption date, shall have attached to it a copy of said notice to the Authority Trustee and said direction of the Company and shall specify the redemption date of such Bonds of this Series (which redemption date shall be not less than 45 days from the date of the Trustee's receipt of such certificate and shall be the same date as the redemption date of the Authority Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of this Series shall be made upon the notice and in the manner provided in this Article II, subject to the provisions of the Indenture. SECTION 10. The Bonds of this Series shall be redeemed by the Company in whole at any time prior to maturity at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, but only if the Trustee shall receive a written demand from the Authority Trustee for redemption of all Bonds of this Series held by the Authority Trustee stating that an "Event of Default" under the Authority Trust Indenture has occurred and is continuing and that payment of the principal of the Authority Bonds has been accelerated; provided, however, that the Bonds of this Series shall not be redeemed in the event that prior to the date of mailing of notice of such redemption as provided in Section 11 of this Article II (a) the Trustee shall have received a certificate of the Authority Trustee (i) stating that there has been a waiver of such acceleration or (ii) withdrawing said written demand or (b) if an event of default under Section 1 of Article IX of the Indenture shall 13 9 have occurred and be continuing, there has been a declaration of acceleration of the principal of the Bonds of this Series. The redemption of the Bonds of this Series shall be made on a date selected by the Company not more than 45 days after receipt of the written demand and shall be made upon the notice and in the manner provided in this Article II, subject to the provisions of the Indenture. SECTION 11. Subject to the provisions of the Indenture, written notice of redemption of Bonds of this Series pursuant to any of Sections 7 through 10, inclusive, of this Article II shall be given by the Trustee by mailing to the registered owner or owners of such Bonds to be redeemed a notice of such redemption, first class postage prepaid, at its last address as it shall appear upon the books of the Company for the registration and transfer of such Bonds. Any notice of redemption pursuant to said Section 7, 8 or 9 shall be mailed at least 30 days and not more than 60 days before the redemption date and any notice of redemption pursuant to said Section 10 shall be mailed not more than 45 days before the redemption date; provided, however, that the registered owner or owners of all Bonds of this Series may consent in writing to a shorter notice period, and such consent, if filed with the Trustee, shall be binding upon the Company and such registered owner or owners and their transferees. In the event of a partial redemption, the Trustee shall select the Bonds of this Series to be redeemed in such manner as the Trustee shall deem appropriate and fair. SECTION 12. In the event any Authority Bonds shall be purchased by the Company and surrendered by the Company to the Authority Trustee for cancellation or shall be otherwise surrendered to the Authority Trustee or other person for cancellation pursuant to the Authority Trust Indenture (except upon exchange for other Authority Bonds), Bonds of this Series equal in principal amount to the Authority Bonds so surrendered shall be deemed to have been paid, but only when and to the extent that (a) such payment of such principal amount of such Bonds of this Series shall be noted by an agency of the Company on the Schedule of Payments on such Bonds of this Series and (if such agency is not the Trustee) written notice by such agency of such notation shall have been received by the Trustee or (b) such principal amount of such Bonds of this Series shall have been surrendered to and cancelled by the Trustee as provided in Section 14 of this Article II. SECTION 13. In the event and to the extent the principal of (or premium, if any) or interest on any Authority Bonds shall be paid out of funds held by the Authority Trustee or out of any other funds or shall otherwise be deemed to be paid, an equal amount of principal (or premium, if any) or interest, as the case may be, payable with respect to an aggregate principal amount of Bonds of this Series equal to the 14 10 aggregate principal amount of such Authority Bonds shall be deemed to have been paid, but, in the case of such payment of principal of such Bonds of this Series, only when and to the extent that (a) such payment of the principal amount thereof shall be noted by an agency of the Company on the Schedule of Payments on such Bonds of this Series and (if such agency is not the Trustee) written notice by such agency of such notation shall have been received by the Trustee or (b) such principal amount of Bonds of this Series shall have been surrendered to and cancelled by the Trustee as provided in Section 14 of this Article II. If the Authority Bonds are issued in an aggregate principal amount of less than $45,150,000, an aggregate principal amount of the Bonds of this Series equal to the difference between $45,150,000 and the aggregate principal amount of the Authority Bonds issued (and all related premium and interest, if any) shall be deemed to have been paid. SECTION 14. When payment of any principal amount of a Bond of this Series is made as provided in Section 12 or 13 of this Article II, the registered owner thereof shall surrender such Bond to an agency of the Company for notation and notification or to the Trustee for cancellation as provided in such Section. All Bonds of this Series deemed to have been paid in full as provided in Section 12 or 13 of this Article II shall be surrendered to the Trustee for cancellation and the Trustee shall forthwith cancel the same. In the event that part of a Bond of this Series shall be deemed to have been paid as provided in said Section 12 or 13, the registered owner shall surrender such Bond to the Trustee for cancellation, in which event the Trustee shall cancel such Bond and the Company shall execute and the Trustee shall authenticate and deliver, without charge to the registered owner, Bonds of this Series in such authorized denominations as shall be specified by the registered owner in an aggregate principal amount equal to the unpaid balance of the principal amount of such surrendered Bond. SECTION 15. The form of the fully registered Bonds of this Series and of the Trustee's certificate of authentication thereon shall be substantially as follows: [FORM OF FULLY REGISTERED BOND OF THIS SERIES] THE CLEVELAND ELECTRIC ILLUMINATING COMPANY Incorporated under the laws of the State of Ohio FIRST MORTGAGE BOND, 7 3/4% SERIES DUE 2025-A Due July 15, 2025 No. $ THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and existing under the laws of the State of Ohio (hereinafter called the "Company", which term shall include any successor corpo- 15 11 ration as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the sum of Dollars or the aggregate unpaid principal amount hereof (as shown on the Schedule of Payments hereon), whichever is less, on July 15, 2025, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay interest on the unpaid principal amount hereof in like coin or currency from the time hereinafter provided at such rate per annum on each interest payment date (hereinafter defined) as shall cause the amount of interest payable on such interest payment date on the Bonds of this Series (hereinafter defined) to equal the amount of interest payable on such interest payment date on the Authority Bonds (hereinafter defined) and payable semiannually on the same dates as interest is payable on said Authority Bonds (each such date herein called an "interest payment date") until the maturity of this Bond, or, if this Bond shall be duly called for redemption, until the redemption date, or, if the Company shall default in the payment of the principal amount of this Bond, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in said Indenture. 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 July 15, 1995. Notwithstanding the foregoing, if the date of this Bond is after the Record Date (as defined in Section 2 of Article II of the Supplemental Indenture hereinafter defined) which next precedes an interest payment date and before such interest payment date, then it shall bear interest from such interest payment date; provided, however, that (i) if the Company shall default in the payment of the interest due on such interest payment date, then this Bond shall bear interest from the interest payment date next preceding the date of this Bond to which interest has been paid, or (ii) if no interest has been paid on this Bond, then it shall bear interest from July 15, 1995. Subject to certain exceptions provided in said Indenture, the interest payable on any interest payment date shall be paid to the person in whose name this Bond shall be registered at the close of business on the Record Date or, in the case of defaulted interest, on a day preceding the date of payment thereof established by notice to the registered owner of this Bond in the manner provided in said Supplemental Indenture. Principal of (and premium, if any) and interest on this Bond are payable at the agency of the Company in the City of Cleveland, State of Ohio, or, at the option of the Company, at the agency of the Company in The City of New York. 16 12 This Bond is one of the duly authorized First Mortgage Bonds of the Company (herein called the "Bonds"), all issued and to be issued under and equally secured by a Mortgage and Deed of Trust dated July 1, 1940, executed by the Company to Guaranty Trust Company of New York as Trustee, under which The Chase Manhattan Bank (National Association) is successor trustee (herein called the "Trustee"), and all indentures supplemental thereto (said Mortgage as so supplemented herein called the "Indenture") to which reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the registered owner or owners of the Bonds and of the Trustee in respect thereof and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Indenture provided. This Bond is one of a series designated as the First Mortgage Bonds, 7 3/4% Series due 2025-A (herein called the "Bonds of this Series") limited, except as otherwise provided in the Indenture, in aggregate principal amount to $45,150,000, issued under and secured by the Indenture and described in the Supplemental Indenture dated July 15, 1995, between the Company and the Trustee (herein called the "Supplemental Indenture"). The Bonds of this Series have been issued by the Company and delivered to the Authority Trustee (hereinafter defined) to evidence and secure its obligation to pay to the Beaver County Industrial Development Authority (hereinafter called the "Authority") a portion of the Company's share of the purchase price for certain air and water pollution control facilities and sewage and solid waste disposal facilities used in connection with the operation of Beaver Valley Power Station Unit 2, a nuclear powered generating unit located in Shippingport, Pennsylvania (hereinafter called the "Project Facilities"), such portion being in an amount equal to the principal of the Authority Bonds (hereinafter defined) issued pursuant to the Beaver Valley Pollution Control Facilities Agreement dated as of April 1, 1974, among the Authority, the Company, The Toledo Edison Company, Duquesne Light Company, Ohio Edison Company and Pennsylvania Power Company. That portion of the Company's share of the cost of the Project Facilities was originally financed with proceeds from the sale by the Authority of certain bonds, which were refunded from the proceeds of one series of Collateralized Pollution Control Revenue Refunding Bonds, Series 1995-A (The Cleveland Electric Illuminating Company Beaver Valley Project) (hereinafter called the "Authority Bonds") issued pursuant to a Trust Indenture, dated as of July 15, 1995 (hereinafter called the "Authority Trust Indenture"), between the Authority and Society National Bank, as trustee, (hereinafter 17 13 called the "Authority Trustee"). The Bonds of this Series have been assigned by the Authority to the Authority Trustee as security for the payment of the principal of and premium, if any, and interest on the Authority Bonds and have been delivered by the Company on behalf of the Authority directly to, and registered in the name of, the Authority Trustee. In the event any Authority Bonds shall be surrendered to the Authority Trustee or other person for cancellation pursuant to the Authority Trust Indenture (except upon exchange for other Authority Bonds), Bonds of this Series equal in principal amount to such Authority Bonds shall be deemed to have been paid, but only when and to the extent (a) so noted on the Schedule of Payments hereon by one of the agencies of the Company hereinabove specified and (if such agency is not the Trustee) written notice by such agency of such notation has been received by the Trustee or (b) such Bond is surrendered to and cancelled by the Trustee as provided in the next paragraph; and in the event and to the extent the principal of (or premium, if any) or interest on any Authority Bonds shall be paid or deemed to be paid, an equal amount of principal (or premium, if any) or interest, as the case may be, payable with respect to an aggregate principal amount of Bonds of this Series equal to the aggregate principal amount of such Authority Bonds shall be deemed to have been paid, but, in the case of such payment of principal, only when and to the extent (i) so noted on the Schedule of Payments hereon by one of the agencies of the Company hereinabove specified and (if such agency is not the Trustee) written notice by such agency of such notation has been received by the Trustee or (ii) such Bond is surrendered to and cancelled by the Trustee as provided in the next paragraph. When any such payment of principal of this Bond is made, such Bond shall be surrendered by the registered owner hereof to an agency of the Company for such notation or to the Trustee for cancellation. If the Authority Bonds are issued in an aggregate principal amount of less than $45,150,000, an aggregate principal amount of the Bonds of this Series equal to the difference between $45,150,000 and the aggregate principal amount of the Authority Bonds issued (and all related premium and interest, if any) shall be deemed to have been paid. In the event that this Bond shall be deemed to have been paid in full, this Bond shall be surrendered to the Trustee for cancellation. In the event that this Bond shall be deemed to have been paid in part, this Bond may, at the option of the registered holder, be surrendered to the Trustee for cancellation, in which event the Trustee shall cancel this Bond and the Company shall execute and the Trustee shall authenticate and deliver Bonds of this Series in authorized denominations in aggregate principal amount equal to the unpaid balance of the principal amount of this Bond. 18 14 The Bonds of this Series are subject to redemption by the Company prior to maturity in whole at any time or in part from time to time as provided in Section 7 of Article II of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date. The Bonds of this Series shall be redeemed by the Company prior to maturity in whole at any time or in part from time to time as provided in Section 8 of Article II of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, at the earliest practicable date selected by the Authority Trustee after consultation with the Company, but in no event later than 180 days following the Authority Trustee's notification of the Determination of Taxability (as defined in the Authority Trust Indenture). The Bonds of this Series are subject to redemption by the Company prior to maturity in whole at any time or in part from time to time, but in no instance before July 15, 2005, as provided in Section 9 of Article II of the Supplemental Indenture at a redemption price, plus accrued and unpaid interest, if any, to the redemption date as follows:
REDEMPTION PRICE (EXPRESSED AS A PERCENTAGE OF THE REDEMPTION PERIODS PRINCIPAL AMOUNT (DATES INCLUSIVE) BEING REDEEMED) - --------------------------------------------- -------------------- July 15, 2005 through July 14, 2006.......... 102% July 15, 2006 through July 14, 2007.......... 101 July 15, 2007 and thereafter................. 100
The Bonds of this Series shall be redeemed by the Company prior to maturity in whole at any time as provided in Section 10 of Article II of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date. Any redemption of the Bonds of this Series shall be made after written notice to the registered owner or owners of such Bonds, sent by the Trustee by first class mail, postage prepaid, at least 30 days and not more than 60 days before the redemption date (except in the event of redemption described in the next preceding paragraph in which case such notice shall be mailed not more than 45 days before the redemption date), unless a shorter notice period is consented to in writing by the registered owner or owners of all Bonds of this Series and such consent is filed with the Trustee, and such redemption and notice shall be made in the manner provided in Article II of the Supplemental Indenture, subject to the provisions of the Indenture. In the event of a partial redemption, the Trustee shall select the Bonds of this Series to 19 15 be redeemed in such manner as the Trustee shall deem appropriate and fair. In the Forty-Third Supplemental Indenture dated April 15, 1985 between the Company and the Trustee, the Company has modified, in certain respects, the redemption provisions in the Indenture effective only with respect to the Bonds of all series established or created in said Forty-Third Supplemental Indenture and all supplemental indentures dated after May 28, 1985. To the extent permitted by and as provided in the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereto, and of the rights and obligations of the Company and of the holders of the Bonds and coupons may be made with the consent of the Company by an affirmative vote of not less than 80% in principal amount of the Bonds entitled to vote then outstanding at a meeting of Bondholders called and held as provided in the Indenture and, in case one or more but less than all of the series of Bonds then outstanding under the Indenture are so affected, by an affirmative vote of not less than 80% in principal amount of the Bonds of any series entitled to vote then outstanding and affected by such modification or alteration; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of (or premium, if any) or interest on this Bond. In the Nineteenth Supplemental Indenture dated November 23, 1976 between the Company and the Trustee, the Company has modified the Indenture effective from and after the time when none of the Bonds of any series established prior to the execution of the Nineteenth Supplemental Indenture shall remain outstanding so as to change "80%" in the foregoing sentence to "60%" and to make certain other modifications of the Indenture and has reserved the right to make certain other modifications of the Indenture without any vote, consent or other action by the holders of Bonds of any series established in the Nineteenth Supplemental Indenture or in any subsequent supplemental indenture. If an event of default, as defined in the Indenture, shall occur, the principal of all the Bonds at any such time outstanding under the Indenture may be declared or may become due and payable upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds outstanding. Subject to the limitations provided in the Indenture, this Bond is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that purpose at the agency of the Company in The City of New York upon 20 16 surrender and cancellation of this Bond, and upon presentation of a duly executed written instrument of transfer, and thereupon a new fully registered Bond or Bonds of this Series, of the same aggregate principal amount and in authorized denominations will be issued to the transferee or transferees in exchange herefor; and this Bond, with or without other Bonds of this Series, may in like manner be exchanged for one or more new fully registered Bonds of this Series of other authorized denominations but of the same aggregate principal amount; all without charge except for any tax or taxes or other governmental charges incidental to such transfer or exchange and all subject to the terms and conditions set forth in the Indenture. In the event less than all of the Bonds of this Series at the time outstanding are called for redemption, the Company shall not be required (a) to register any transfer or make any exchange of any such Bond for a period of 15 days before the mailing of the notice of redemption of any such Bond, (b) to register any transfer or make any exchange of any such Bond so called for redemption in its entirety, or (c) to register any transfer or make any exchange of any portion of any such Bond so called for redemption. Except as otherwise provided herein with respect to the payment of interest, the Company, the agencies of the Company and the Trustee may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving any payment and for all other purposes. No recourse shall be had for the payment of the principal of or the interest or premium, if any, on this Bond, or for any claim based hereon or on the Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or officer, past, present or future, of the Company, or of any predecessor or successor corporation, as such, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution or statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Bond and as part of the consideration for the issue hereof and being likewise released by the terms of the Indenture. This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the Trustee under the Indenture, or a successor trustee thereto under the Indenture, shall have signed the form of certificate of authentication endorsed hereon. 21 17 IN WITNESS WHEREOF, The Cleveland Electric Illuminating Company has caused this Bond to be signed in its name by its President or a Vice President (whose signature may be manual or a facsimile thereof) and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary (whose signature may be manual or a facsimile thereof). Dated: THE CLEVELAND ELECTRIC ILLUMINATING COMPANY By .................................................... VICE PRESIDENT Attest: ............................. Secretary [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This Bond is one of the Bonds of the series designated and described in the within-mentioned Indenture and Supplemental Indenture. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), TRUSTEE By ........................................... AUTHORIZED OFFICER 22 18 [FORM OF SCHEDULE OF PAYMENTS] SCHEDULE OF PAYMENTS
AGENCY OF THE UNPAID COMPANY PRINCIPAL PRINCIPAL PREMIUM INTEREST MAKING AUTHORIZED DATE PAYMENT AMOUNT PAYMENT PAYMENT NOTATION OFFICER TITLE - --------- ------- ------- ------- ------- ------- ------- -------
[END OF FORM OF FULLY REGISTERED BOND] 23 19 ARTICLE III THE TRUSTEE SECTION 1. The Trustee hereby accepts the trusts hereby declared and provided upon the terms and conditions in the Indenture set forth and upon the terms and conditions set forth in this Article III. SECTION 2. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIII of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate. SECTION 3. For purposes of this Supplemental Indenture, (a) the Trustee may conclusively rely and shall be protected in acting upon the written demand from, or certificate of, the Authority Trustee or any officers' certificate or opinion of counsel as to the truth of the statements and the correctness of the opinions expressed therein, without independent investigation or verification thereof, subject to Article XIII of the Indenture and (b) a written demand from, or certificate of, the Authority Trustee shall mean a written demand or certificate executed by the president, any vice president or any trust officer of the Authority Trustee. SECTION 4. The Company shall cause any agency of the Company, other than the Trustee, which it may appoint from time to time to act as such agency in respect of the Bonds of this Series, to execute and deliver to the Trustee an instrument in which such agency shall: (a) Agree to keep and maintain, and furnish to the Trustee from time to time as reasonably requested by the Trustee, appropriate records of all transactions carried out by it as such agency and to furnish the Trustee such other information and reports as the Trustee may reasonably require; (b) Certify that it is eligible for appointment as such agency and agree to notify the Trustee promptly if it shall cease to be so eligible; and (c) Agree to indemnify the Trustee, in a manner satisfactory to the Trustee, against any loss, liability or expense incurred by, and defend any claim asserted against, the Trustee by reason of any acts or failures to act as such agency, except for any liability resulting from any action taken by it at the specific direction of the Trustee; 24 20 provided, however, that the Company, in lieu of causing any such agency to furnish such an instrument, may make such other arrangements with the Trustee in respect of any such agency as shall be satisfactory to the Trustee. SECTION 5. The Trustee shall advise the Company in writing of the receipt of any notification provided for in or any cancellation made pursuant to Section 12, 13 or 14 of Article II of this Supplemental Indenture. ARTICLE IV MISCELLANEOUS PROVISIONS This Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. EXECUTION IN WITNESS WHEREOF, said The Cleveland Electric Illuminating Company has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or an Assistant Secretary, and said The Chase Manhattan Bank (National Association), in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by one of its Vice Presidents or one of its Corporate Trust Officers and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by one of its Assistant Secretaries or Corporate Trust Officers, all as of the day and year first above written. 25 S-1 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY By G. R. LEIDICH ----------------------------------- Vice President Attest: J. T. PERCIO - ------------------------------- Secretary Signed, sealed and acknowledged by The Cleveland Electric Illuminating Company in the presence of: PATRICIA BARKEY - ------------------------------------------ Patricia Barkey SONDRA CLARKE - ------------------------------------------ Sondra Clarke As witnesses THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), AS TRUSTEE By VALERIE DUNBAR ------------------------------------- Vice President Attest: KATHLEEN PERRY - ------------------------------- Corporate Trust Officer Signed, sealed and acknowledged on behalf of The Chase Manhattan Bank (National Association) in the presence of: ELSIE TASSINI - ------------------------------------------ Elsie Tassini LYNN M. FITZPATRICK - ------------------------------------------ Lynn M. Fitzpatrick As witnesses 26 S-2 STATE OF OHIO) SS: COUNTY OF CUYAHOGA) SS: On this 19th day of July, 1995, before me personally appeared GARY R. LEIDICH and J. T. PERCIO to me personally known, who being by me severally duly sworn, did say that they are a Vice President and the Secretary, respectively, of The Cleveland Electric Illuminating Company, that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors; and said officers severally acknowledged said instrument to be the free act and deed of said corporation. AMY B. McCABE --------------------------------------------- Notary Public Amy B. McCabe Notary Public, State of Ohio Recorded in Cuyahoga County My Commission expires October 23, 1999 STATE OF NEW YORK) SS: COUNTY OF NEW YORK) SS: On this 20th day of July, 1995, before me personally appeared VALERIE DUNBAR and KATHLEEN PERRY to me personally known, who being by me severally duly sworn, did say that they are a Vice President and a Corporate Trust Officer, respectively, of The Chase Manhattan Bank (National Association), 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. MARGARET M. PRICE --------------------------------------------- Notary Public Margaret M. Price Notary Public, State of New York No. 24-4980599 Qualified in Kings County Commission Expires April 22, 1997 This instrument prepared by Bruce T. Rosenbaum, attorney at law. 27 R-1 This page contains information as to recording and filing which was not set forth in this Supplemental Indenture at the time of execution. This page is not a part of this Supplemental Indenture. RECORDING AND FILING DATA This Supplemental Indenture was filed for record and recorded in the record of mortgages in the offices of the Recorders of the following Counties:
COUNTY VOLUME PAGE FILED FOR RECORD - ------------------------------- --------------- ------------------------- Ohio ) Ashtabula 82 7158 ) Cuyahoga 95-06079 28 ) Erie 231 863 ) Geauga 1022 838 ) Lake 1140 669 ) Lorain 1119 406 ) Ottawa 458 780 ) July 28, 1995 Portage 42 43 ) Stark Instrument No. 95034325 ) Summit 1976 327 ) Trumbull 948 275 ) Pennsylvania ) Warren 617 249 ) July 27, 1995 Beaver 1378 901 ) July 28, 1995
An amendment to a previously filed financing statement and a counterpart of this Supplemental Indenture were filed in the office of the Secretary of the Commonwealth of Pennsylvania on July 28, 1995 under original or amendment file number 13451763, microfilm number 24521572, to comply with the filing requirements of the Pennsylvania enactment of the Uniform Commercial Code. EX-4.B.74 10 EXHIBIT 4(B)(74) 1 Exhibit 4b(74) 2 4(b)(74) [CONFORMED] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY TO THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) (successor to Morgan Guaranty Trust Company of New York, formerly Guaranty Trust Company of New York) As Trustee under The Cleveland Electric Illuminating Company's Mortgage and Deed of Trust, Dated July 1, 1940 ------------------------ SEVENTY-THIRD SUPPLEMENTAL INDENTURE DATED AUGUST 1, 1995 FIRST MORTGAGE BONDS, 7.70% SERIES DUE 2025-B FIRST MORTGAGE BONDS, 7.70% SERIES DUE 2025-C - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3 i THE CLEVELAND ELECTRIC ILLUMINATING COMPANY SEVENTY-THIRD SUPPLEMENTAL INDENTURE DATED AUGUST 1, 1995 TABLE OF CONTENTS*
PAGE -------- PARTIES..................................................... 1 RECITALS: Indenture and Supplemental Indentures..................... 1 First Mortgage Bonds outstanding.......................... 1 Authorization by Indenture of issue of additional Bonds... 1 Bonds of 2025-B Series.................................... 2 Bonds of 2025-C Series.................................... 2 Purpose of Seventy-Third Supplemental Indenture........... 3 Authorization of Seventy-Third Supplemental Indenture..... 3 Compliance with conditions to making of Seventy-Third Supplemental Indenture................................. 3 ARTICLE I -- CONFIRMATION OF 1940 MORTGAGE AND SUPPLEMENTAL INDENTURES................................... 4 ARTICLE II -- CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT AND FORM OF BONDS OF 2025-B SERIES................. 4 Section 1 -- Creation and designation of Bonds and compliance with Indenture............................ 4 Section 2 -- Date of Bonds, maturity date, interest rate, accrual date, payment dates, places of payment and Record Date...................................... 4 Section 3 -- Principal amount, denominations, registration, transfer and exchange of Bonds......... 6 Section 4 -- Redemption of Bonds of 2025-B Series...... 6 Section 5 -- Redemption of Bonds pursuant to Section 4.01(a) of the OWDA Trust Indenture.................. 6 Section 6 -- Redemption of Bonds pursuant to Section 4.01(b) of the OWDA Trust Indenture.................. 7 Section 7 -- Redemption of Bonds pursuant to Section 4.01(c) of the OWDA Trust Indenture.................. 8 - --------------- *The Table of Contents, the page headings and the recording data are not part of the Seventy-Third Supplemental Indenture as executed.
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PAGE -------- Section 8 -- Redemption of Bonds in an "Event of Default" under the OWDA Trust Indenture.............. 8 Section 9 -- Notice of redemption under Sections 5 through 8 of Article II of this Supplemental Indenture............................................ 9 Section 10 -- Bonds deemed to be paid in full upon surrender of Water Bonds for cancellation under the OWDA Trust Indenture................................. 9 Section 11 -- Payment on the Water Bonds deemed to be payment of corresponding obligation on Bonds......... 10 Section 12 -- Surrender of Bonds in the event of payment in full or partial payment thereof and issuance of new Bonds for the unpaid balance......... 10 Section 13 -- Form of Fully Registered Bond............ 10 Form of Trustee's Certificate of Authentication........................... 17 Form of Schedule of Payments............. 18 ARTICLE III -- CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT AND FORM OF BONDS OF 2025-C SERIES................. 19 Section 1 -- Creation and designation of Bonds and compliance with Indenture............................ 19 Section 2 -- Date of Bonds, maturity date, interest rate, accrual date, payment dates, places of payment and Record Date...................................... 19 Section 3 -- Principal amount, denominations, registration, transfer and exchange of Bonds......... 20 Section 4 -- Redemption of Bonds of 2025-C Series...... 21 Section 5 -- Redemption of Bonds pursuant to Section 4.01(a) of the OAQDA Trust Indenture................. 21 Section 6 -- Redemption of Bonds pursuant to Section 4.01(b) of the OAQDA Trust Indenture................. 21 Section 7 -- Redemption of Bonds pursuant to Section 4.01(c) of the OAQDA Trust Indenture................. 22 Section 8 -- Redemption of Bonds in an "Event of Default" under the OAQDA Trust Indenture............. 23 Section 9 -- Notice of redemption under Sections 5 through 8 of Article III of this Supplemental Indenture............................................ 23
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PAGE -------- Section 10 -- Bonds deemed to be paid in full upon surrender of Air Bonds for cancellation under the OAQDA Trust Indenture................................ 24 Section 11 -- Payment on the Air Bonds deemed to be payment of corresponding obligation on Bonds......... 24 Section 12 -- Surrender of Bonds in the event of payment in full or partial payment thereof and issuance of new Bonds for the unpaid balance......... 24 Section 13 -- Form of Fully Registered Bond............ 25 Form of Trustee's Certificate of Authentication......................... 32 Form of Schedule of Payments............. 33 ARTICLE IV -- THE TRUSTEE................................... 34 Section 1 -- Acceptance by Trustee..................... 34 Section 2 -- Responsibility of Trustee................. 34 Section 3 -- Reliance by Trustee upon certain demands, certificates and opinions............................ 34 Section 4 -- Records kept and indemnity given by agency of the Company....................................... 34 Section 5 -- Certain advices to the Company............ 35 ARTICLE V -- MISCELLANEOUS PROVISIONS....................... 35 EXECUTION................................................... 35 SIGNATURES AND SEALS........................................ S-1 ACKNOWLEDGEMENTS............................................ S-2 RECORDING AND FILING DATA................................... R-1
6 SEVENTY-THIRD SUPPLEMENTAL INDENTURE, dated August 1, 1995, made by and between THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and existing under the laws of the State of Ohio (the "Company"), and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) (successor to MORGAN GUARANTY TRUST COMPANY OF NEW YORK, formerly GUARANTY TRUST COMPANY OF NEW YORK), a national banking association existing under the laws of the United States of America, with its head office at 1 Chase Manhattan Plaza, The City of New York (the "Trustee"), as Trustee under the Mortgage and Deed of Trust dated July 1, 1940, hereinafter mentioned: RECITALS In order to secure First Mortgage Bonds of the Company ("Bonds"), the Company has heretofore executed and delivered to the Trustee the Mortgage and Deed of Trust dated July 1, 1940 (the "1940 Mortgage") and seventy-two Supplemental Indentures thereto dated, respectively, July 1, 1940, August 18, 1944, December 1, 1947, September 1, 1950, June 1, 1951, May 1, 1954, March 1, 1958, April 1, 1959, December 20, 1967, January 15, 1969, November 1, 1969, June 1, 1970, November 15, 1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28, 1975, February 1, 1976, November 23, 1976, July 26, 1977, September 27, 1977, May 1, 1978, September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980, June 9, 1980, December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982, July 15, 1982, September 1, 1982, November 1, 1982, November 15, 1982, May 24, 1983, May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14, 1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985, September 1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15, 1986, February 25, 1987, October 15, 1987, February 24, 1988, September 15, 1988, May 15, 1989, June 13, 1989, October 15, 1989, January 1, 1990, June 1, 1990, August 1, 1990, May 1, 1991, May 1, 1992, July 31, 1992, January 1, 1993, February 1, 1993, May 20, 1993, June 1, 1993, September 15, 1994, May 1, 1995, May 2, 1995, June 1, 1995 and July 15, 1995; and The 1940 Mortgage, as supplemented and modified by said Supplemental Indentures and by this Seventy-Third Supplemental Indenture, will be hereinafter collectively referred to as the "Indenture" and this Seventy-Third Supplemental Indenture will be hereinafter referred to as "this Supplemental Indenture"; and Pursuant to the provisions of the Indenture, the Company has issued 115 series of Bonds in the aggregate principal amount of $5,497,602,000, of which 75 series in the aggregate principal amount of $2,480,937,000 are no longer outstanding; and 7 2 The Indenture provides among other things that the Company, from time to time, in addition to the Bonds authorized to be executed, authenticated and delivered pursuant to other provisions therein, may execute and deliver additional Bonds to the Trustee and the Trustee shall thereupon authenticate and deliver such Bonds to or upon the order of the Company; and The Company has determined to create pursuant to the provisions of the Indenture two new series of Bonds designated as "First Mortgage Bonds, 7.70% Series due 2025-B" (the "Bonds of 2025-B Series"), and "First Mortgage Bonds, 7.70% Series due 2025-C" (the "Bonds of 2025-C Series"), with the respective denominations, rates of interest, dates of maturity, redemption provisions and other provisions and agreements in respect thereof as in this Supplemental Indenture set forth; and The Bonds of 2025-B Series are to be issued by the Company to the Ohio Water Development Authority (hereinafter called the "OWDA") to evidence and secure the obligation of the Company to repay the loan (hereinafter called the "OWDA Loan") made by the OWDA to the Company pursuant to a certain loan agreement, dated as of August 1, 1995, between the OWDA and the Company (hereinafter called the "OWDA Loan Agreement") to assist the Company in refunding certain bonds which had been previously issued by the OWDA, 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 and solid waste facilities under Chapters 6121 and 6123, Ohio Revised Code, as amended, at the Perry Nuclear Power Plant Unit No. 1 in Lake County, Ohio (hereinafter called the "OWDA Project"); and the OWDA Loan is to be funded with proceeds derived from the sale by the OWDA of State of Ohio Collateralized Pollution Control Revenue Refunding Bonds, Series 1995 (The Cleveland Electric Illuminating Company Project) in the aggregate principal amount of $40,900,000 (hereinafter called the "Water Bonds"); and the Water Bonds are to be issued under a certain trust indenture, dated as of August 1, 1995 (hereinafter called the "OWDA Trust Indenture"), between the OWDA and Society National Bank, as trustee (hereinafter called the "OWDA Trustee"), and the Bonds of 2025-B Series are to be assigned by the OWDA to the OWDA Trustee as security for the payment of the principal of and premium, if any, and interest on the Water Bonds and are to be delivered by the Company on behalf of the OWDA directly to, and registered in the name of, the OWDA Trustee; and The Bonds of 2025-C Series are to be issued by the Company to the Ohio Air Quality Development Authority (hereinafter called the "OAQDA") to evidence and secure the obligation of the Company to 8 3 repay the loan (hereinafter called the "OAQDA Loan") made by the OAQDA to the Company pursuant to a certain loan agreement, dated as of August 1, 1995, between the OAQDA and the Company (hereinafter called the "OAQDA Loan Agreement") to assist the Company in refunding certain bonds which had been previously issued by the OAQDA, 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, at the Perry Nuclear Power Plant Unit No. 1 in Lake County, Ohio (hereinafter called the "OAQDA Project"); and the OAQDA Loan is to be funded with proceeds derived from the sale by the OAQDA of State of Ohio Collateralized Pollution Control Revenue Refunding Bonds, Series 1995 (The Cleveland Electric Illuminating Company Project) in the aggregate principal amount of $2,900,000 (hereinafter called the "Air Bonds"); and the Air Bonds are to be issued under a certain trust indenture, dated as of August 1, 1995 (hereinafter called the "OAQDA Trust Indenture"), between the OAQDA and Society National Bank, as trustee (hereinafter called the "OAQDA Trustee"), and the Bonds of 2025-C Series are to be assigned by the OAQDA to the OAQDA Trustee as security for the payment of the principal of and premium, if any, and interest on the Air Bonds and are to be delivered by the Company on behalf of the OAQDA directly to, and registered in the name of, the OAQDA Trustee; and The Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture, and pursuant to appropriate resolutions of the Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee this Supplemental Indenture in the form hereof for the purposes herein provided; and All conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized. NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH: That The Cleveland Electric Illuminating Company, in consideration of the premises and of the mutual covenants herein contained and of the sum of One Dollar ($1.00) to it duly paid by the Trustee at or before the ensealing and delivery of these presents and for other valuable considerations, the receipt whereof is hereby acknowledged, hereby covenants and agrees to and with the Trustee and its successors in the Trust under the Indenture, for the benefit of those who shall hold the Bonds and coupons, if any, issued and to be issued thereunder and under this Supplemental Indenture as hereinafter provided, as follows: 9 4 ARTICLE I CONFIRMATION OF 1940 MORTGAGE AND SUPPLEMENTAL INDENTURES The 1940 Mortgage (as modified in Article V of the Supplemental Indenture dated December 1, 1947, Article V of the Supplemental Indenture dated May 1, 1954, Article V of the Supplemental Indenture dated March 1, 1958, Article V of the Supplemental Indenture dated January 15, 1969, Article III of the Supplemental Indenture dated November 23, 1976 and Article III of the Supplemental Indenture dated April 15, 1985) and the Supplemental Indentures dated July 1, 1940, August 18, 1944, December 1, 1947, September 1, 1950, June 1, 1951, May 1, 1954, March 1, 1958, April 1, 1959, December 20, 1967, January 15, 1969, November 1, 1969, June 1, 1970, November 15, 1970, May 1, 1974, April 15, 1975, April 16, 1975, May 28, 1975, February 1, 1976, November 23, 1976, July 26, 1977, September 27, 1977, May 1, 1978, September 1, 1979, April 1, 1980, April 15, 1980, May 28, 1980, June 9, 1980, December 1, 1980, July 28, 1981, August 1, 1981, March 1, 1982, July 15, 1982, September 1, 1982, November 1, 1982, November 15, 1982, May 24, 1983, May 1, 1984, May 23, 1984, June 27, 1984, September 4, 1984, November 14, 1984, November 15, 1984, April 15, 1985, May 28, 1985, August 1, 1985, September 1, 1985, November 1, 1985, April 15, 1986, May 14, 1986, May 15, 1986, February 25, 1987, October 15, 1987, February 24, 1988, September 15, 1988, May 15, 1989, June 13, 1989, October 15, 1989, January 1, 1990, June 1, 1990, August 1, 1990, May 1, 1991, May 1, 1992, July 31, 1992, January 1, 1993, February 1, 1993, May 20, 1993, June 1, 1993, September 15, 1994, May 1, 1995, May 2, 1995, June 1, 1995 and July 15, 1995, respectively, are hereby in all respects confirmed. ARTICLE II CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT AND FORM OF BONDS OF 2025-B SERIES SECTION 1. The Company hereby creates a new series of Bonds to be issued under and secured by the Indenture and to be designated as "First Mortgage Bonds, 7.70% Series due 2025-B" of the Company and hereinabove and hereinafter called the "Bonds of 2025-B Series". The Bonds of 2025-B Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture. SECTION 2. The Bonds of 2025-B Series shall be dated the date of authentication, shall mature August 1, 2025, and shall bear interest from the time hereinafter provided at the rate of 7.70% per annum payable semiannually on the same dates as interest is payable on the 10 5 Water Bonds (each such date hereinafter called an "interest payment date") until maturity, or, in the case of any such Bonds duly called for redemption, 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 the principal shall be discharged as provided in the Indenture. Except as hereinafter provided, each Bond of 2025-B Series 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 August 1, 1995. Notwithstanding the foregoing, if the date of such Bond is after a Record Date (as hereinafter defined) and before the next following interest payment date, then it shall bear interest from such interest payment date; provided, however, that (i) if the Company shall default in the payment of the interest due on such interest payment date, then such Bond shall bear interest from the interest payment date next preceding the date of such Bond to which interest has been paid, or (ii) if no interest has been paid thereon, then it shall bear interest from August 1, 1995. The interest payable on any interest payment date shall be paid to the respective persons in whose names the Bonds of 2025-B Series shall be registered at the close of business on the Record Date next preceding such interest payment date, notwithstanding the cancellation of any such Bond upon any transfer or exchange thereof subsequent to such Record Date and prior to such interest payment date; provided, however, that, if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid to the respective persons in whose names such outstanding Bonds of 2025-B Series are registered at the close of business on a date (the "Subsequent Record Date") not less than 10 days nor more than 15 days next preceding the date of payment of such defaulted interest, such Subsequent Record Date to be established by the Company by notice given by mail by or on behalf of the Company to the registered owners of Bonds of 2025-B Series not less than 10 days next preceding such Subsequent Record Date. The term "Record Date" shall mean, with respect to any regular interest payment date of any Bond of 2025-B Series, the date which would be the "Regular Record Date", as defined in the OWDA Trust Indenture, applicable to such regular interest payment date, if it were an "Interest Payment Date", as defined in the OWDA Trust Indenture. The Bonds of 2025-B Series shall be payable as to principal (and premium, if any) and interest in any coin or currency of the United States of America which at the time of payment is legal tender for the 11 6 payment of public and private debts, and shall be payable (as well the interest and the principal thereof and the premium thereon, if any) at the agency of the Company in the City of Cleveland, State of Ohio, or, at the option of the Company, at the agency of the Company in The City of New York. Unless the context indicates a different meaning, any reference in this Article II to "agency of the Company" means either the agency of the Company in the City of Cleveland, State of Ohio, or the agency of the Company in The City of New York. SECTION 3. The principal amount of Bonds of 2025-B Series which may be authenticated and delivered hereunder shall not exceed $40,900,000, except as otherwise provided in the Indenture. The Bonds of 2025-B Series shall be issued as fully registered Bonds only, without coupons, in the denominations of $100,000 and any integral multiple thereof. In the manner and subject to the limitations provided in the Indenture, Bonds of 2025-B Series may be transferred or may be exchanged for a like aggregate principal amount of Bonds of such series of other authorized denominations, in either case without charge, except for any tax or taxes or other governmental charges incident to such transfer or exchange, at the agency of the Company in The City of New York. In the event less than all of the Bonds of 2025-B Series at the time outstanding are called for redemption, the Company shall not be required (a) to register any transfer or make any exchange of any such Bond for a period of 15 days before the mailing of the notice of redemption of any such Bonds, (b) to register any transfer or make any exchange of any such Bond so called for redemption in its entirety, or (c) to register any transfer or make any exchange of any portion of any such Bond so called for redemption. Except as otherwise provided in Section 2 of this Article II with respect to the payment of interest, the Company, the agencies of the Company and the Trustee may deem and treat the person in whose name a Bond of 2025-B Series is registered as the absolute owner thereof for the purpose of receiving any payment and for all other purposes. SECTION 4. The Bonds of 2025-B Series shall be redeemable only to the extent provided in this Article II, subject to the provisions contained in Article V of the Indenture and the form of Bond of 2025-B Series. SECTION 5. The Bonds of 2025-B Series shall be subject to redemption by the Company prior to maturity in whole at any time or in part from time to time, at a redemption price of 100% of the principal 12 7 amount to be redeemed, plus accrued and unpaid interest to the redemption date, but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the OWDA, at the direction of the Company, or the Company, on behalf of the OWDA, has given notice to the OWDA Trustee that the Company is exercising its option to direct the redemption of all or a part (specifying the principal amount) of the Water Bonds as provided in Section 4.01(a) of the OWDA Trust Indenture and (b) that an equivalent principal amount of Bonds of 2025-B Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of 2025-B Series to be redeemed and the accrued and unpaid interest to the redemption date, shall have attached to it a copy of said notice to the OWDA Trustee and said direction of the Company and shall specify the redemption date of such Bonds of 2025-B Series (which redemption date shall be not less than 45 days from the date of the Trustee's receipt of such certificate and shall be the same date as the redemption date of the Water Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of 2025-B Series shall be made upon the notice and in the manner provided in this Article II, subject to the provisions of the Indenture. SECTION 6. The Bonds of 2025-B Series shall be redeemed by the Company prior to maturity in whole at any time or in part from time to time upon a final determination by any federal judicial or administrative authority that interest on the Water Bonds is includable for federal income tax purposes in the gross income of the holders of the Water Bonds (other than because a holder is a "substantial user" of the OWDA Project or a "related person" thereof as those terms are used in Section 147(a) of the Internal Revenue Code of 1986, as amended), at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the OWDA, at the direction of the Company, or the Company, on behalf of the OWDA, has given notice to the OWDA Trustee that it is required to redeem all or a part (specifying the principal amount) of the Water Bonds as provided in Section 4.01(b) of the OWDA Trust Indenture and (b) that an equivalent principal amount of Bonds of 2025-B Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of 2025-B Series to be redeemed and the redemption price thereof and accrued and unpaid interest to the redemption date, shall have attached to it a copy of said notice to the OWDA Trustee and said direction of the Company and shall specify the redemption date of such Bonds of 2025-B Series (which redemption date shall be not less than 45 days from the date of the Trustee's 13 8 receipt of such certificate and shall be the same date as the redemption date of the Water Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of 2025-B Series shall be made upon the notice and in the manner provided in this Article II, subject to the provisions of the Indenture. SECTION 7. The Bonds of 2025-B Series shall be subject to redemption by the Company prior to maturity in whole at any time or in part from time to time, but in no instance before August 1, 2005, at the same redemption price plus accrued and unpaid interest, if any, as shall be payable on the Water Bonds to be redeemed concurrently therewith, to the redemption date as follows:
REDEMPTION PRICE (EXPRESSED AS A PERCENTAGE OF THE REDEMPTION PERIODS PRINCIPAL AMOUNT (DATES INCLUSIVE) BEING REDEEMED) - --------------------------------------------- -------------------- August 1, 2005 through July 31, 2006......... 102% August 1, 2006 through July 31, 2007......... 101 August 1, 2007 and thereafter................ 100
but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the OWDA, at the direction of the Company, or the Company, on behalf of the OWDA, has given notice to the OWDA Trustee that the Company is exercising its option to direct the redemption of all or a part (specifying the principal amount) of the Water Bonds as provided in Section 4.01(c) of the OWDA Trust Indenture and (b) that an equivalent principal amount of the Bonds of 2025-B Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of 2025-B Series to be redeemed and the redemption price thereof and accrued and unpaid interest to the redemption date, shall have attached to it a copy of said notice to the OWDA Trustee and said direction of the Company and shall specify the redemption date of such Bonds of 2025-B Series (which redemption date shall be not less than 45 days from the date of the Trustee's receipt of such certificate and shall be the same date as the redemption date of the Water Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of 2025-B Series shall be made upon the notice and in the manner provided in this Article II, subject to the provisions of the Indenture. SECTION 8. The Bonds of 2025-B Series shall be redeemed by the Company in whole at any time prior to maturity at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, but only if the Trustee shall receive a written demand from the OWDA Trustee for redemption of 14 9 all Bonds of 2025-B Series held by the OWDA Trustee stating that an "Event of Default" under the OWDA Trust Indenture has occurred and is continuing and that payment of the principal of the Water Bonds has been accelerated; provided, however, that the Bonds of 2025-B Series shall not be redeemed in the event that prior to the date of mailing of notice of such redemption as provided in Section 9 of this Article II: (a) the Trustee shall have received a certificate of the OWDA Trustee (i) stating that there has been a waiver of such acceleration or (ii) withdrawing said written demand or (b) if an event of default under Section 1 of Article IX of the Indenture shall have occurred and be continuing, there has been a declaration of acceleration of the principal of the Bonds of 2025-B Series. The redemption of the Bonds of 2025-B Series shall be made on a date selected by the Company not more than 45 days after receipt of the written demand and shall be made upon the notice and in the manner provided in this Article II, subject to the provisions of the Indenture. SECTION 9. Subject to the provisions of the Indenture, written notice of redemption of Bonds of 2025-B Series pursuant to any of Sections 5 through 8, inclusive, of this Article II shall be given by the Trustee by mailing to the registered owner or owners of such Bonds to be redeemed a notice of such redemption, first class postage prepaid, at its last address as it shall appear upon the books of the Company for the registration and transfer of such Bonds. Any notice of redemption pursuant to said Section 5, 6 or 7 shall be mailed at least 30 days and not earlier than 60 days before the redemption date and any notice of redemption pursuant to said Section 8 shall be mailed not more than 45 days before the redemption date; provided, however, that the registered owner or owners of all Bonds of 2025-B Series may consent in writing to a shorter notice period, and such consent, if filed with the Trustee, shall be binding upon the Company and such registered owner or owners and their transferees. In the event of a partial redemption, the Trustee shall select the Bonds of 2025-B Series to be redeemed in such manner as the Trustee shall deem appropriate and fair. SECTION 10. In the event any Water Bonds shall be purchased by the Company and surrendered by the Company to the OWDA Trustee for cancellation or shall be otherwise surrendered to the OWDA Trustee or other person for cancellation pursuant to the OWDA Trust Indenture (except upon exchange for other Water Bonds), Bonds of 2025-B Series equivalent in principal amount to the Water Bonds so surrendered shall be deemed to have been paid, but only when and to the extent that (a) such payment of the principal amount of such Bonds of 2025-B Series shall be noted by an agency of the Company on the schedule of payments on such Bonds of 2025-B Series and (if such agency is not the Trustee) written notice by such agency of such notation shall have been received by the Trustee or (b) such Bonds of 15 10 2025-B Series shall have been surrendered to and cancelled by the Trustee as provided in Section 12 of this Article II. SECTION 11. In the event and to the extent the principal of (or premium, if any) or interest on any Water Bonds shall be paid out of funds held by the OWDA Trustee or out of any other funds or shall otherwise be deemed to be paid, an equal amount of principal (or premium, if any) or interest, as the case may be, payable with respect to an aggregate principal amount of Bonds of 2025-B Series equal to the aggregate principal amount of such Water Bonds shall be deemed to have been paid, but, in the case of such payment of principal of such Bonds of 2025-B Series, only when and to the extent that (a) such payment of the principal amount thereof shall be noted by an agency of the Company on the schedule of payments on such Bonds of 2025-B Series and (if such agency is not the Trustee) written notice by such agency of such notation shall have been received by the Trustee or (b) such Bonds of 2025-B Series shall have been surrendered to and cancelled by the Trustee as provided in Section 12 of this Article II. If the Water Bonds are issued in an aggregate principal amount of less than $40,900,000, an aggregate principal amount of the Bonds of 2025-B Series equal to the difference between $40,900,000 and the aggregate principal amount of the Water Bonds issued (and all related premium and interest, if any) shall be deemed to have been paid. SECTION 12. When payment of any principal amount of a Bond of 2025-B Series is made as provided in Section 10 or 11 of this Article II, the registered owner thereof shall surrender such Bond to an agency of the Company for notation and notification or to the Trustee for cancellation as provided in such Section. All Bonds of 2025-B Series deemed to have been paid in full as provided in Section 10 or 11 of this Article II shall be surrendered to the Trustee for cancellation and the Trustee shall forthwith cancel the same. In the event that part of a Bond of 2025-B Series shall be deemed to have been paid as provided in said Section 10 or 11, the registered owner may at its option surrender such Bond to the Trustee for cancellation, in which event the Trustee shall cancel such Bond and the Company shall execute and the Trustee shall authenticate and deliver, without charge to the registered owner, Bonds of 2025-B Series in such authorized denominations as shall be specified by the registered owner in an aggregate principal amount equal to the unpaid balance of the principal amount of such surrendered Bond. SECTION 13. The form of the fully registered Bonds of 2025-B Series, and of the Trustee's certificate of authentication thereon, shall be substantially as follows: 16 11 [Form of Fully Registered Bond] THE CLEVELAND ELECTRIC ILLUMINATING COMPANY Incorporated under the laws of the State of Ohio First Mortgage Bond, 7.70% Series Due 2025-B Due August 1, 2025 No. $ THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and existing under the laws of the State of Ohio (hereinafter called the "Company", which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the sum of Dollars or the aggregate unpaid principal amount hereof (as shown on the Schedule of Payments hereon), whichever is less, on August 1, 2025, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay interest on the unpaid principal amount hereof in like coin or currency from the time hereinafter provided at such rate per annum on each interest payment date (hereinafter defined) as shall cause the amount of interest payable on such interest payment date on the Bonds of 2025-B Series (hereinafter defined) to equal the amount of interest payable on such interest payment date on the Water Bonds (hereinafter defined) and payable semiannually on the same dates as interest is payable on said Water Bonds (each such date herein called an "interest payment date") until the maturity of this Bond, or, if this Bond shall be duly called for redemption, until the redemption date, or, if the Company shall default in the payment of the principal amount of this Bond, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in said Indenture. 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 August 1, 1995. Notwithstanding the foregoing, if the date of this Bond is after the Record Date (as defined in Section 2 of Article II of the Supplemental Indenture hereinafter defined) which next precedes an interest payment date and before such interest payment date, then it shall bear interest from such interest payment date; provided, however, that (i) if the Company shall default in the payment of the interest due on such interest payment date, then this Bond shall bear interest from the interest payment date next preceding the date of this Bond to which interest has been paid, or (ii) if no interest has been 17 12 paid on this Bond, then it shall bear interest from August 1, 1995. Subject to certain exceptions provided in said Indenture, the interest payable on any interest payment date shall be paid to the person in whose name this Bond shall be registered at the close of business on the Record Date or, in the case of defaulted interest, on a day preceding the date of payment thereof established by notice to the registered owner of this Bond in the manner provided in said Supplemental Indenture. Principal of (and premium, if any) and interest on this Bond are payable at the agency of the Company in the City of Cleveland, State of Ohio, or, at the option of the Company, at the agency of the Company in The City of New York. This Bond is one of a duly authorized issue of Bonds of the Company (herein called the "Bonds"), all issued and to be issued under and equally secured by a Mortgage and Deed of Trust dated July 1, 1940, executed by the Company to Guaranty Trust Company of New York as Trustee, under which The Chase Manhattan Bank (National Association) is successor trustee (herein called the "Trustee"), and all indentures supplemental thereto (said Mortgage as so supplemented herein called the "Indenture") to which reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the registered owner or owners of the Bonds and of the Trustee in respect thereof, and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Indenture provided. This Bond is one of a series designated as the First Mortgage Bonds, 7.70% Series due 2025-B (herein called the "Bonds of 2025-B Series") limited, except as otherwise provided in the Indenture, in aggregate principal amount to $40,900,000, issued under and secured by the Indenture and described in the Seventy-Third Supplemental Indenture dated August 1, 1995, between the Company and the Trustee (herein called the "Supplemental Indenture"). The Bonds of 2025-B Series have been issued by the Company to the Ohio Water Development Authority (herein called the "OWDA") to evidence and secure the obligation of the Company to repay the loan (herein called the "OWDA Loan") made by the OWDA to the Company pursuant to a certain loan agreement, dated as of August 1, 1995, between the OWDA and the Company (hereinafter called the "OWDA Loan Agreement") to assist the Company in refunding certain bonds which had been previously issued by the OWDA, 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 and solid waste facilities under Chapters 6121 and 6123, Ohio Revised Code, as amended, at the Perry 18 13 Nuclear Power Plant Unit No. 1 in Lake County, Ohio. To provide funds for the OWDA Loan, the OWDA will issue one or more series of State of Ohio Collateralized Pollution Control Revenue Refunding Bonds, Series 1995 (The Cleveland Electric Illuminating Company Project) in an aggregate principal amount of not more than $40,900,000 (herein called the "Water Bonds") under a certain trust indenture, dated as of August 1, 1995 (herein called the "OWDA Trust Indenture"), between the OWDA and Society National Bank, as trustee (herein called the "OWDA Trustee"). The Bonds of 2025-B Series have been assigned by, and delivered on behalf of, the OWDA to the OWDA Trustee as security for the payment of the principal of and premium, if any, and interest on the Water Bonds. In the event any Water Bonds shall be surrendered to the OWDA Trustee or other person for cancellation pursuant to the OWDA Trust Indenture (except upon exchange for other Water Bonds), Bonds of 2025-B Series equivalent in principal amount to such Water Bonds shall be deemed to have been paid, but only when and to the extent (a) so noted on the Schedule of Payments hereon by one of the agencies of the Company hereinabove specified and (if such agency is not the Trustee) written notice by such agency of such notation has been received by the Trustee or (b) such Bond is surrendered to and cancelled by the Trustee as provided in the next paragraph; and in the event and to the extent the principal of (or premium, if any) or interest on any Water Bonds shall be paid or deemed to be paid, an equal amount of principal (or premium, if any) or interest, as the case may be, payable with respect to an aggregate principal amount of Bonds of 2025-B Series equal to the aggregate principal amount of such Water Bonds shall be deemed to have been paid, but, in the case of such payment of principal, only when and to the extent (i) so noted on the Schedule of Payments hereon by one of the agencies of the Company hereinabove specified and (if such agency is not the Trustee) written notice by such agency of such notation has been received by the Trustee or (ii) such Bond is surrendered to and cancelled by the Trustee as provided in the next paragraph. When any such payment of principal of this Bond is made, such Bond shall be surrendered by the registered owner hereof to an agency of the Company for such notation and notification or to the Trustee for cancellation. If the Water Bonds are issued in an aggregate principal amount of less than $40,900,000, an aggregate principal amount of the Bonds of 2025-B Series equal to the difference between $40,900,000 and the aggregate principal amount of the Water Bonds issued (and all related premium and interest, if any) shall be deemed to have been paid. In the event that this Bond shall be deemed to have been paid in full, this Bond shall be surrendered to the Trustee for cancellation. In the event that this Bond shall be deemed to have been paid in part, this 19 14 Bond may, at the option of the registered owner, be surrendered to the Trustee for cancellation, in which event the Trustee shall cancel this Bond and the Company shall execute and the Trustee shall authenticate and deliver Bonds of 2025-B Series in authorized denominations in aggregate principal amount equal to the unpaid balance of the principal amount of this Bond. The Bonds of 2025-B Series are subject to redemption by the Company prior to maturity in whole at any time or in part from time to time as provided in Section 5 of Article II of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date. The Bonds of 2025-B Series shall be redeemed by the Company prior to maturity in whole at any time or in part from time to time as provided in Section 6 of Article II of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, at the earliest practicable date selected by the OWDA Trustee after consultation with the Company, but in no event later than 180 days following the OWDA Trustee's notification of the Determination of Taxability (as defined in the OWDA Trust Indenture). The Bonds of 2025-B Series are subject to redemption by the Company prior to maturity in whole at any time or in part from time to time, but in no instance before August 1, 2005, as provided in Section 7 of Article II of the Supplemental Indenture at a redemption price, plus accrued and unpaid interest, if any, to the redemption date as follows:
REDEMPTION PRICE (EXPRESSED AS A PERCENTAGE OF THE REDEMPTION PERIODS PRINCIPAL AMOUNT (DATES INCLUSIVE) BEING REDEEMED) - --------------------------------------------- -------------------- August 1, 2005 through July 31, 2006......... 102% August 1, 2006 through July 31, 2007......... 101 August 1, 2007 and thereafter................ 100
The Bonds of 2025-B Series shall be redeemed by the Company prior to maturity in whole at any time as provided in Section 8 of Article II of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date. Any redemption of the Bonds of 2025-B Series shall be made after written notice to the registered owner or owners of such Bonds, sent by the Trustee by first class mail, postage prepaid, at least 30 days and not earlier than 60 days before the redemption date (except in the event of redemption pursuant to the next preceding paragraph in 20 15 which case such notice shall be mailed not more than 45 days before the redemption date), unless a shorter notice period is consented to in writing by the registered owner or owners of all Bonds of 2025-B Series and such consent is filed with the Trustee, and such redemption and notice shall be made in the manner provided in Article II of the Supplemental Indenture, subject to the provisions of the Indenture. In the event of a partial redemption, the Trustee shall select the Bonds of 2025-B Series to be redeemed in such manner as the Trustee shall deem appropriate and fair. In the Forty-Third Supplemental Indenture dated April 15, 1985 between the Company and the Trustee, the Company has modified, in certain respects, the redemption provisions in the Indenture effective only with respect to the Bonds of all series established or created in said Forty-Third Supplemental Indenture and all supplemental indentures dated after May 28, 1985. To the extent permitted by and as provided in the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereto, and of the rights and obligations of the Company and of the holders of the Bonds and coupons may be made with the consent of the Company by an affirmative vote of not less than 80% in principal amount of the Bonds entitled to vote then outstanding at a meeting of Bondholders called and held as provided in the Indenture, and, in case one or more but less than all of the series of Bonds then outstanding under the Indenture are so affected, by an affirmative vote of not less than 80% in principal amount of the Bonds of any series entitled to vote then outstanding and affected by such modification or alteration; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of (or premium, if any) or interest on this Bond. In the Nineteenth Supplemental Indenture dated November 23, 1976 between the Company and the Trustee, the Company has modified the Indenture effective from and after the time when none of the Bonds of any series established prior to the execution of the Nineteenth Supplemental Indenture shall remain outstanding so as to change "80%" in the foregoing sentence to "60%" and to make certain other modifications of the Indenture and has reserved the right to make certain other modifications of the Indenture without any vote, consent or other action by the holders of Bonds of any series established in the Nineteenth Supplemental Indenture or in any subsequent supplemental indenture. If an event of default, as defined in the Indenture, shall occur, the principal of all the Bonds at any such time outstanding under the Indenture may be declared or may become due and payable upon the conditions and in the manner and with the effect provided in the 21 16 Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds outstanding. Subject to the limitations provided in the Indenture, this Bond is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that purpose at the agency of the Company in The City of New York upon surrender and cancellation of this Bond, and upon presentation of a duly executed written instrument of transfer, and thereupon a new fully registered Bond or Bonds of 2025-B Series, of the same aggregate principal amount and in authorized denominations will be issued to the transferee or transferees in exchange herefor; and this Bond, with or without others of like series, may in like manner be exchanged for one or more new fully registered Bonds of 2025-B Series of other authorized denominations but of the same aggregate principal amount; all without charge except for any tax or taxes or other governmental charges incidental to such transfer or exchange and all subject to the terms and conditions set forth in the Indenture. In the event less than all of the Bonds of 2025-B Series at the time outstanding are called for redemption, the Company shall not be required (a) to register any transfer or make any exchange of any such Bond for a period of 15 days before the mailing of the notice of redemption of any such Bonds, (b) to register any transfer or make any exchange of any such Bond called for redemption in its entirety, or (c) to register any transfer or make any exchange of any portion of any such Bond called for redemption. Except as otherwise provided herein with respect to the payment of interest, the Company, the agencies of the Company and the Trustee may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving any payment and for all other purposes. No recourse shall be had for the payment of the principal of or the interest or premium, if any, on this Bond, or for any claim based hereon or on the Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or officer, past, present or future, of the Company, or of any predecessor or successor corporation, as such, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Bond and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture. 22 17 This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the Trustee under the Indenture, or a successor trustee thereto under the Indenture, shall have signed the form of certificate of authentication endorsed hereon. IN WITNESS WHEREOF, The Cleveland Electric Illuminating Company has caused this Bond to be signed in its name by its President or a Vice President (whose signature may be manual or a facsimile thereof), and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary (whose signature may be manual or a facsimile thereof). Dated: THE CLEVELAND ELECTRIC ILLUMINATING COMPANY By .................................................... VICE PRESIDENT Attest: ............................. Secretary [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This Bond is one of the Bonds of the series designated and described in the within-mentioned Indenture and Supplemental Indenture. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), TRUSTEE By ........................................... AUTHORIZED OFFICER 23 18 [FORM OF SCHEDULE OF PAYMENTS] SCHEDULE OF PAYMENTS
AGENCY OF THE UNPAID COMPANY PRINCIPAL PRINCIPAL PREMIUM INTEREST MAKING AUTHORIZED DATE PAYMENT AMOUNT PAYMENT PAYMENT NOTATION OFFICER TITLE - --------- ------- ------- ------- ------- ------- ------- -------
[END OF FORM OF FULLY REGISTERED BOND] 24 19 ARTICLE III CREATION, PROVISIONS, REDEMPTION, PRINCIPAL AMOUNT AND FORM OF BONDS OF 2025-C SERIES SECTION 1. The Company hereby creates a new series of Bonds to be issued under and secured by the Indenture and to be designated as "First Mortgage Bonds, 7.70% Series due 2025-C" of the Company and hereinabove and hereinafter called the "Bonds of 2025-C Series". The Bonds of 2025-C Series shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, all of the terms, conditions and covenants of the Indenture. SECTION 2. The Bonds of 2025-C Series shall be dated the date of authentication, shall mature August 1, 2025, and shall bear interest from the time hereinafter provided at the rate of 7.70% per annum payable semiannually on the same dates as interest is payable on the Air Bonds (each such date hereinafter called an "interest payment date") until maturity, or, in the case of any such Bonds duly called for redemption, 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 the principal shall be discharged as provided in the Indenture. Except as hereinafter provided, each Bond of 2025-C Series 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 August 1, 1995. Notwithstanding the foregoing, if the date of such Bond is after a Record Date (as hereinafter defined) and before the next following interest payment date, then it shall bear interest from such interest payment date; provided, however, that (i) if the Company shall default in the payment of the interest due on such interest payment date, then such Bond shall bear interest from the interest payment date next preceding the date of such Bond to which interest has been paid, or (ii) if no interest has been paid thereon, then it shall bear interest from August 1, 1995. The interest payable on any interest payment date shall be paid to the respective persons in whose names the Bonds of 2025-C Series shall be registered at the close of business on the Record Date next preceding such interest payment date, notwithstanding the cancellation of any such Bond upon any transfer or exchange thereof subsequent to such Record Date and prior to such interest payment date; provided, however, that, if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid to the respective persons in 25 20 whose names such outstanding Bonds of 2025-C Series are registered at the close of business on a date (the "Subsequent Record Date") not less than 10 days nor more than 15 days next preceding the date of payment of such defaulted interest, such Subsequent Record Date to be established by the Company by notice given by mail by or on behalf of the Company to the registered owners of Bonds of 2025-C Series not less than 10 days next preceding such Subsequent Record Date. The term "Record Date" shall mean, with respect to any regular interest payment date of any Bond of 2025-C Series, the date which would be the "Regular Record Date", as defined in the OAQDA Trust Indenture, applicable to such regular interest payment date, if it were an "Interest Payment Date", as defined in the OAQDA Trust Indenture. The Bonds of 2025-C Series shall be payable as to principal (and premium, if any) and interest in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and shall be payable (as well the interest and the principal thereof and the premium thereon, if any) at the agency of the Company in the City of Cleveland, State of Ohio, or, at the option of the Company, at the agency of the Company in The City of New York. Unless the context indicates a different meaning, any reference in this Article III to "agency of the Company" means either the agency of the Company in the City of Cleveland, State of Ohio, or the agency of the Company in The City of New York. SECTION 3. The principal amount of Bonds of 2025-C Series which may be authenticated and delivered hereunder shall not exceed $2,900,000, except as otherwise provided in the Indenture. The Bonds of 2025-C Series shall be issued as fully registered Bonds only, without coupons, in the denominations of $100,000 and any integral multiple thereof. In the manner and subject to the limitations provided in the Indenture, Bonds of 2025-C Series may be transferred or may be exchanged for a like aggregate principal amount of Bonds of such series of other authorized denominations, in either case without charge, except for any tax or taxes or other governmental charges incident to such transfer or exchange, at the agency of the Company in The City of New York. In the event less than all of the Bonds of 2025-C Series at the time outstanding are called for redemption, the Company shall not be required (a) to register any transfer or make any exchange of any such Bond for a period of 15 days before the mailing of the notice of redemption of any such Bonds, (b) to register any transfer or make any exchange of any such Bond so called for redemption in its entirety, 26 21 or (c) to register any transfer or make any exchange of any portion of any such Bond so called for redemption. Except as otherwise provided in Section 2 of this Article III with respect to the payment of interest, the Company, the agencies of the Company and the Trustee may deem and treat the person in whose name a Bond of 2025-C Series is registered as the absolute owner thereof for the purpose of receiving any payment and for all other purposes. SECTION 4. The Bonds of 2025-C Series shall be redeemable only to the extent provided in this Article III, subject to the provisions contained in Article V of the Indenture and the form of Bond of 2025-C Series. SECTION 5. The Bonds of 2025-C Series shall be subject to redemption by the Company prior to maturity in whole at any time or in part from time to time, at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the OAQDA, at the direction of the Company, or the Company, on behalf of the OAQDA, has given notice to the OAQDA Trustee that the Company is exercising its option to direct the redemption of all or a part (specifying the principal amount) of the Air Bonds as provided in Section 4.01(a) of the OAQDA Trust Indenture and (b) that an equivalent principal amount of Bonds of 2025-C Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of 2025-C Series to be redeemed and the accrued and unpaid interest to the redemption date, shall have attached to it a copy of said notice to the OAQDA Trustee and said direction of the Company and shall specify the redemption date of such Bonds of 2025-C Series (which redemption date shall be not less than 45 days from the date of the Trustee's receipt of such certificate and shall be the same date as the redemption date of the Air Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of 2025-C Series shall be made upon the notice and in the manner provided in this Article III, subject to the provisions of the Indenture. SECTION 6. The Bonds of 2025-C Series shall be redeemed by the Company prior to maturity in whole at any time or in part from time to time upon a final determination by any federal judicial or administrative authority that interest on the Air Bonds is includable for federal income tax purposes in the gross income of the holders of the Air Bonds (other than because a holder is a "substantial user" of the OAQDA Project or a "related person" thereof as those terms are used in Section 147(a) of the Internal Revenue Code of 1986, as amended), 27 22 at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the OAQDA, at the direction of the Company, or the Company, on behalf of the OAQDA, has given notice to the OAQDA Trustee that it is required to redeem all or a part (specifying the principal amount) of the Air Bonds as provided in Section 4.01(b) of the OAQDA Trust Indenture and (b) that an equivalent principal amount of Bonds of 2025-C Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of 2025-C Series to be redeemed and the redemption price thereof and accrued and unpaid interest, shall have attached to it a copy of said notice to the OAQDA Trustee and said direction of the Company and shall specify the redemption date of such Bonds of 2025-C Series (which redemption date shall be not less than 45 days from the date of the Trustee's receipt of such certificate and shall be the same date as the redemption date of the Air Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of 2025-C Series shall be made upon the notice and in the manner provided in this Article III, subject to the provisions of the Indenture. SECTION 7. The Bonds of 2025-C Series shall be subject to redemption by the Company prior to maturity in whole at any time or in part from time to time, but in no instance before August 1, 2005, at the same redemption price plus accrued and unpaid interest, if any, as shall be payable on the Air Bonds to be redeemed concurrently therewith, to the redemption date as follows:
REDEMPTION PRICE (EXPRESSED AS A PERCENTAGE OF THE REDEMPTION PERIODS PRINCIPAL AMOUNT (DATES INCLUSIVE) BEING REDEEMED) - --------------------------------------------- -------------------- August 1, 2005 through July 31, 2006......... 102% August 1, 2006 through July 31, 2007......... 101 August 1, 2007 and thereafter................ 100
but in each instance only upon receipt by the Trustee of an officers' certificate to the effect (a) that the OAQDA, at the direction of the Company, or the Company, on behalf of the OAQDA, has given notice to the OAQDA Trustee that the Company is exercising its option to direct the redemption of all or part (specifying the principal amount) of the Air Bonds as provided in Section 4.01(c) of the OAQDA Trust Indenture and (b) that an equivalent principal amount of the Bonds of 2025-C Series shall be concurrently called for redemption. Such officers' certificate shall specify the principal amount of the Bonds of 2025-C Series to be redeemed and the redemption price thereof and 28 23 accrued and unpaid interest to the redemption date, shall have attached to it a copy of said notice to the OAQDA Trustee and said direction of the Company and shall specify the redemption date of such Bonds of 2025-C Series (which redemption date shall be not less than 45 days from the date of the Trustee's receipt of such certificate and shall be the same date as the redemption date of the Air Bonds being concurrently redeemed which is specified in said attached notice). The redemption of the Bonds of 2025-C Series shall be made upon the notice and in the manner provided in this Article III, subject to the provisions of the Indenture. SECTION 8. The Bonds of 2025-C Series shall be redeemed by the Company in whole at any time prior to maturity at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, but only if the Trustee shall receive a written demand from the OAQDA Trustee for redemption of all Bonds of 2025-C Series held by the OAQDA Trustee stating that an "Event of Default" under the OAQDA Trust Indenture has occurred and is continuing and that payment of the principal of the Air Bonds has been accelerated; provided, however, that the Bonds of 2025-C Series shall not be redeemed in the event that prior to the date of mailing of notice of such redemption as provided in Section 9 of this Article III: (a) the Trustee shall have received a certificate of the OAQDA Trustee (i) stating that there has been a waiver of such acceleration or (ii) withdrawing said written demand or (b) if an event of default under Section 1 of Article IX of the Indenture shall have occurred and be continuing, there has been a declaration of acceleration of the principal of the Bonds of 2025-C Series. The redemption of the Bonds of 2025-C Series shall be made on a date selected by the Company not more than 45 days after receipt of the written demand and shall be made upon the notice and in the manner provided in this Article III, subject to the provisions of the Indenture. SECTION 9. Subject to the provisions of the Indenture, written notice of redemption of Bonds of 2025-C Series pursuant to any of Sections 5 through 8, inclusive, of this Article III shall be given by the Trustee by mailing to the registered owner or owners of such Bonds to be redeemed a notice of such redemption, first class postage prepaid, at its last address as it shall appear upon the books of the Company for the registration and transfer of such Bonds. Any notice of redemption pursuant to said Section 5, 6 or 7 shall be mailed at least 30 days and not earlier than 60 days before the redemption date and any notice of redemption pursuant to said Section 8 shall be mailed not more than 45 days before the redemption date; provided, however, that the registered owner or owners of all Bonds of 2025-C Series may consent in writing to a shorter notice period, and such consent, if filed with the Trustee, shall be binding upon the Company and such registered owner 29 24 or owners and their transferees. In the event of a partial redemption, the Trustee shall select the Bonds of 2025-C Series to be redeemed in such manner as the Trustee shall deem appropriate and fair. SECTION 10. In the event any Air Bonds shall be purchased by the Company and surrendered by the Company to the OAQDA Trustee for cancellation or shall be otherwise surrendered to the OAQDA Trustee or other person for cancellation pursuant to the OAQDA Trust Indenture (except upon exchange for other Air Bonds), Bonds of 2025-C Series equivalent in principal amount to the Air Bonds so surrendered shall be deemed to have been paid, but only when and to the extent that (a) such payment of the principal amount of such Bonds of 2025-C Series shall be noted by an agency of the Company on the schedule of payments on such Bonds of 2025-C Series and (if such agency is not the Trustee) written notice by such agency of such notation shall have been received by the Trustee or (b) such Bonds of 2025-C Series shall have been surrendered to and cancelled by the Trustee as provided in Section 12 of this Article III. SECTION 11. In the event and to the extent the principal of (or premium, if any) or interest on any Air Bonds shall be paid out of funds held by the OAQDA Trustee or out of any other funds or shall otherwise be deemed to be paid, an equal amount of principal (or premium, if any) or interest, as the case may be, payable with respect to an aggregate principal amount of Bonds of 2025-C Series equal to the aggregate principal amount of such Air Bonds shall be deemed to have been paid, but, in the case of such payment of principal of such Bonds of 2025-C Series, only when and to the extent that (a) such payment of the principal amount thereof shall be noted by an agency of the Company on the schedule of payments on such Bonds of 2025-C Series and (if such agency is not the Trustee) written notice by such agency of such notation shall have been received by the Trustee or (b) such Bonds of 2025-C Series shall have been surrendered to and cancelled by the Trustee as provided in Section 12 of this Article III. If the Air Bonds are issued in an aggregate principal amount of less than $2,900,000, an aggregate principal amount of the Bonds of 2025-C Series equal to the difference between $2,900,000 and the aggregate principal amount of the Air Bonds issued (and all related premium and interest, if any) shall be deemed to have been paid. SECTION 12. When payment of any principal amount of a Bond of 2025-C Series is made as provided in Section 10 or 11 of this Article III, the registered owner thereof shall surrender such Bond to an agency of the Company for notation and notification or to the Trustee for cancellation as provided in such Section. All Bonds of 2025-C Series deemed to have been paid in full as provided in Section 10 or 11 of this Article III shall be surrendered to the Trustee for cancellation and the 30 25 Trustee shall forthwith cancel the same. In the event that part of a Bond of 2025-C Series shall be deemed to have been paid as provided in said Section 10 or 11, the registered owner may at its option surrender such Bond to the Trustee for cancellation, in which event the Trustee shall cancel such Bond and the Company shall execute and the Trustee shall authenticate and deliver, without charge to the registered owner, Bonds of 2025-C Series in such authorized denominations as shall be specified by the registered owner in an aggregate principal amount equal to the unpaid balance of the principal amount of such surrendered Bond. SECTION 13. The form of the fully registered Bonds of 2025-C Series, and of the Trustee's certificate of authentication thereon, shall be substantially as follows: [FORM OF FULLY REGISTERED BOND] THE CLEVELAND ELECTRIC ILLUMINATING COMPANY Incorporated under the laws of the State of Ohio FIRST MORTGAGE BOND, 7.70% SERIES DUE 2025-C Due August 1, 2025 No. $ THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, a corporation organized and existing under the laws of the State of Ohio (hereinafter called the "Company", which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the sum of Dollars or the aggregate unpaid principal amount hereof (as shown on the Schedule of Payments hereon), whichever is less, on August 1, 2025, in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts, and to pay interest on the unpaid principal amount hereof in like coin or currency from the time hereinafter provided at such rate per annum on each interest payment date (hereinafter defined) as shall cause the amount of interest payable on such interest payment date on the Bonds of 2025-C Series (hereinafter defined) to equal the amount of interest payable on such interest payment date on the Air Bonds (hereinafter defined) and payable semiannually on the same dates as interest is payable on said Air Bonds (each such date herein called an "interest payment date") until the maturity of this Bond, or, if this Bond shall be duly called for redemption, until the redemption date, or, if the Company shall default in the payment of the principal amount of this Bond, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in said Indenture. 31 26 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 August 1, 1995. Notwithstanding the foregoing, if the date of this Bond is after the Record Date (as defined in Section 2 of Article III of the Supplemental Indenture hereinafter defined) which next precedes an interest payment date and before such interest payment date, then it shall bear interest from such interest payment date; provided, however, that (i) if the Company shall default in the payment of the interest due on such interest payment date, then this Bond shall bear interest from the interest payment date next preceding the date of this Bond to which interest has been paid, or (ii) if no interest has been paid on this Bond, then it shall bear interest from August 1, 1995. Subject to certain exceptions provided in said Indenture, the interest payable on any interest payment date shall be paid to the person in whose name this Bond shall be registered at the close of business on the Record Date or, in the case of defaulted interest, on a day preceding the date of payment thereof established by notice to the registered owner of this Bond in the manner provided in said Supplemental Indenture. Principal of (and premium, if any) and interest on this Bond are payable at the agency of the Company in the City of Cleveland, State of Ohio, or, at the option of the Company, at the agency of the Company in The City of New York. This Bond is one of a duly authorized issue of Bonds of the Company (herein called the "Bonds"), all issued and to be issued under and equally secured by a Mortgage and Deed of Trust dated July 1, 1940, executed by the Company to Guaranty Trust Company of New York as Trustee, under which The Chase Manhattan Bank (National Association) is successor trustee (herein called the "Trustee"), and all indentures supplemental thereto (said Mortgage as so supplemented herein called the "Indenture") to which reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the registered owner or owners of the Bonds and of the Trustee in respect thereof, and the terms and conditions upon which the Bonds are, and are to be, secured. The Bonds may be issued in series, for various principal sums, may mature at different times, may bear interest at different rates and may otherwise vary as in the Indenture provided. This Bond is one of a series designated as the First Mortgage Bonds, 7.70% Series due 2025-C (herein called the "Bonds of 2025-C Series") limited, except as otherwise provided in the Indenture, in aggregate principal amount to $2,900,000, issued under and secured by the Indenture and described in the Seventy-Third Supplemental Indenture 32 27 dated August 1, 1995, between the Company and the Trustee (herein called the "Supplemental Indenture"). The Bonds of 2025-C Series have been issued by the Company to the Ohio Air Quality Development Authority (herein called the "OAQDA") to evidence and secure the obligation of the Company to repay the loan (herein called the "OAQDA Loan") made by the OAQDA to the Company pursuant to a certain loan agreement, dated as of August 1, 1995, between the OAQDA and the Company (hereinafter called the "OAQDA Loan Agreement") to assist the Company in refunding certain bonds which had been previously issued by the OAQDA, 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, at the Perry Nuclear Power Plant Unit No. 1 in Lake County, Ohio. To provide funds for the OAQDA Loan, the OAQDA will issue one or more series of State of Ohio Collateralized Pollution Control Revenue Refunding Bonds, Series 1995 (The Cleveland Electric Illuminating Company Project) in an aggregate principal amount of not more than $2,900,000 (herein called the "Air Bonds") under a certain trust indenture, dated as of August 1, 1995 (herein called the "OAQDA Trust Indenture"), between the OAQDA and Society National Bank, as trustee (herein called the "OAQDA Trustee"). The Bonds of 2025-C Series have been assigned by, and delivered on behalf of, the OAQDA to the OAQDA Trustee as security for the payment of the principal of and premium, if any, and interest on the Air Bonds. In the event any Air Bonds shall be surrendered to the OAQDA Trustee or other person for cancellation pursuant to the OAQDA Trust Indenture (except upon exchange for other Air Bonds), Bonds of 2025-C Series equivalent in principal amount to such Air Bonds shall be deemed to have been paid, but only when and to the extent (a) so noted on the Schedule of Payments hereon by one of the agencies of the Company hereinabove specified and (if such agency is not the Trustee) written notice by such agency of such notation has been received by the Trustee or (b) such Bond is surrendered to and cancelled by the Trustee as provided in the next paragraph; and in the event and to the extent the principal of (or premium, if any) or interest on any Air Bonds shall be paid or deemed to be paid, an equal amount of principal (or premium, if any) or interest, as the case may be, payable with respect to an aggregate principal amount of Bonds of 2025-C Series equal to the aggregate principal amount of such Air Bonds shall be deemed to have been paid, but, in the case of such payment of principal, only when and to the extent (i) so noted on the Schedule of Payments hereon by one of the agencies of the Company hereinabove specified and (if such agency is not the Trustee) written notice by such 33 28 agency of such notation has been received by the Trustee or (ii) such Bond is surrendered to and cancelled by the Trustee as provided in the next paragraph. When any such payment of principal of this Bond is made, such Bond shall be surrendered by the registered owner hereof to an agency of the Company for such notation and notification or to the Trustee for cancellation. If the Air Bonds are issued in an aggregate principal amount of less than $2,900,000, an aggregate principal amount of the Bonds of 2025-C Series equal to the difference between $2,900,000 and the aggregate principal amount of the Air Bonds issued (and all related premium and interest, if any) shall be deemed to have been paid. In the event that this Bond shall be deemed to have been paid in full, this Bond shall be surrendered to the Trustee for cancellation. In the event that this Bond shall be deemed to have been paid in part, this Bond may, at the option of the registered owner, be surrendered to the Trustee for cancellation, in which event the Trustee shall cancel this Bond and the Company shall execute and the Trustee shall authenticate and deliver Bonds of 2025-C Series in authorized denominations in aggregate principal amount equal to the unpaid balance of the principal amount of this Bond. The Bonds of 2025-C Series are subject to redemption by the Company prior to maturity in whole at any time or in part from time to time as provided in Section 5 of Article III of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date. The Bonds of 2025-C Series shall be redeemed by the Company prior to maturity in whole at any time or in part from time to time as provided in Section 6 of Article III of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date, at the earliest practicable date selected by the OAQDA Trustee after consultation with the Company, but in no event later than 180 days following the OAQDA Trustee's notification of the Determination of Taxability (as defined in the OAQDA Trust Indenture). The Bonds of 2025-C Series are subject to redemption by the Company prior to maturity, in whole at any time or in part from time to time, but in no instance before August 1, 2005, as provided in Section 7 of Article III of the Supplemental Indenture at a redemption 34 29 price, plus accrued and unpaid interest, if any, to the redemption date as follows:
REDEMPTION PRICE (EXPRESSED AS A PERCENTAGE OF THE REDEMPTION PERIODS PRINCIPAL AMOUNT (DATES INCLUSIVE) BEING REDEEMED) - --------------------------------------------- -------------------- August 1, 2005 through July 31, 2006......... 102% August 1, 2006 through July 31, 2007......... 101 August 1, 2007 and thereafter................ 100
The Bonds of 2025-C Series shall be redeemed by the Company prior to maturity in whole at any time as provided in Section 8 of Article III of the Supplemental Indenture at a redemption price of 100% of the principal amount to be redeemed, plus accrued and unpaid interest to the redemption date. Any redemption of the Bonds of 2025-C Series shall be made after written notice to the registered owner or owners of such Bonds, sent by the Trustee by first class mail, postage prepaid, at least 30 days and not earlier than 60 days before the redemption date (except in the event of redemption pursuant to the next preceding paragraph in which case such notice shall be mailed not more than 45 days before the redemption date), unless a shorter notice period is consented to in writing by the registered owner or owners of all Bonds of 2025-C Series and such consent is filed with the Trustee, and such redemption and notice shall be made in the manner provided in Article III of the Supplemental Indenture, subject to the provisions of the Indenture. In the event of a partial redemption, the Trustee shall select the Bonds of 2025-C Series to be redeemed in such manner as the Trustee shall deem appropriate and fair. In the Forty-Third Supplemental Indenture dated April 15, 1985 between the Company and the Trustee, the Company has modified, in certain respects, the redemption provisions in the Indenture effective only with respect to the Bonds of all series established or created in said Forty-Third Supplemental Indenture and all supplemental indentures dated after May 28, 1985. To the extent permitted by and as provided in the Indenture, modifications or alterations of the Indenture, or of any indenture supplemental thereto, and of the rights and obligations of the Company and of the holders of the Bonds and coupons may be made with the consent of the Company by an affirmative vote of not less than 80% in principal amount of the Bonds entitled to vote then outstanding, at a meeting of Bondholders called and held as provided in the Indenture, and, in case one or more but less than all of the series of Bonds then outstanding under the Indenture are so affected, by an affirmative vote 35 30 of not less than 80% in principal amount of the Bonds of any series entitled to vote then outstanding and affected by such modification or alteration; provided, however, that no such modification or alteration shall be made which will affect the terms of payment of the principal of (or premium, if any) or interest on this Bond. In the Nineteenth Supplemental Indenture dated November 23, 1976 between the Company and the Trustee, the Company has modified the Indenture effective from and after the time when none of the Bonds of any series established prior to the execution of the Nineteenth Supplemental Indenture shall remain outstanding so as to change "80%" in the foregoing sentence to "60%" and to make certain other modifications of the Indenture and has reserved the right to make certain other modifications of the Indenture without any vote, consent or other action by the holders of Bonds of any series established in the Nineteenth Supplemental Indenture or in any subsequent supplemental indenture. If an event of default, as defined in the Indenture, shall occur, the principal of all the Bonds at any such time outstanding under the Indenture may be declared or may become due and payable upon the conditions and in the manner and with the effect provided in the Indenture. The Indenture provides that such declaration may in certain events be waived by the holders of a majority in principal amount of the Bonds outstanding. Subject to the limitations provided in the Indenture, this Bond is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that purpose at the agency of the Company in The City of New York upon surrender and cancellation of this Bond, and upon presentation of a duly executed written instrument of transfer, and thereupon a new fully registered Bond or Bonds of 2025-C Series of the same aggregate principal amount and in authorized denominations will be issued to the transferee or transferees in exchange herefor; and this Bond, with or without others of like series, may in like manner be exchanged for one or more new fully registered Bonds of 2025-C Series of other authorized denominations but of the same aggregate principal amount; all without charge except for any tax or taxes or other governmental charges incidental to such transfer or exchange and all subject to the terms and conditions set forth in the Indenture. In the event less than all of the Bonds of 2025-C Series at the time outstanding are called for redemption, the Company shall not be required (a) to register any transfer or make any exchange of any such Bond for a period of 15 days before the mailing of the notice of redemption of any such Bonds, (b) to register any transfer or make any exchange of any such Bond called for redemption in its entirety, or (c) to register any transfer or make any exchange of any portion of any such Bond called 36 31 for redemption. Except as otherwise provided herein with respect to the payment of interest, the Company, the agencies of the Company and the Trustee may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving any payment and for all other purposes. No recourse shall be had for the payment of the principal of or the interest or premium, if any, on this Bond, or for any claim based hereon or on the Indenture or any indenture supplemental thereto, against any incorporator, or against any stockholder, director or officer, past, present or future, of the Company, or of any predecessor or successor corporation, as such, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability, whether at common law, in equity, by any constitution, statute or otherwise, of incorporators, stockholders, directors or officers being released by every owner hereof by the acceptance of this Bond and as part of the consideration for the issue hereof, and being likewise released by the terms of the Indenture. This Bond shall not be entitled to any benefit under the Indenture or any indenture supplemental thereto, or become valid or obligatory for any purpose, until the Trustee under the Indenture, or a successor trustee thereto under the Indenture, shall have signed the form of certificate of authentication endorsed hereon. IN WITNESS WHEREOF, The Cleveland Electric Illuminating Company has caused this Bond to be signed in its name by its President or a Vice President (whose signature may be manual or a facsimile thereof), and its corporate seal (or a facsimile thereof) to be hereto affixed and attested by its Secretary or an Assistant Secretary (whose signature may be manual or a facsimile thereof). Dated: THE CLEVELAND ELECTRIC ILLUMINATING COMPANY By .................................................... VICE PRESIDENT Attest: ............................. Secretary 37 32 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This Bond is one of the Bonds of the series designated and described in the within-mentioned Indenture and Supplemental Indenture. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), TRUSTEE By ........................................... AUTHORIZED OFFICER 38 33 [FORM OF SCHEDULE OF PAYMENTS] SCHEDULE OF PAYMENTS
AGENCY OF THE UNPAID COMPANY PRINCIPAL PRINCIPAL PREMIUM INTEREST MAKING AUTHORIZED DATE PAYMENT AMOUNT PAYMENT PAYMENT NOTATION OFFICER TITLE - --------- ------- ------- ------- ------- ------- ------- -------
[END OF FORM OF FULLY REGISTERED BOND] 39 34 ARTICLE IV THE TRUSTEE SECTION 1. The Trustee hereby accepts the trusts hereby declared and provided upon the terms and conditions in the Indenture set forth and upon the terms and conditions set forth in this Article IV. SECTION 2. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XIII of the Indenture shall apply to this Supplemental Indenture with the same force and effect as if the same were herein set forth in full, with such omissions, variations and modifications thereof as may be appropriate. SECTION 3. For purposes of this Supplemental Indenture: (a) the Trustee may conclusively rely and shall be protected in acting upon the written demand from, or certificate of, the OWDA Trustee, the OAQDA Trustee or any officers' certificate or opinion of counsel, as to the truth of the statements and the correctness of the opinions expressed therein, without independent investigation or verification thereof, subject to Article XIII of the Indenture; and (b) a written demand from, or certificate of, the OWDA or OAQDA Trustee shall mean a written demand or certificate executed by the president, any vice president or any trust officer of the respective OWDA or OAQDA Trustee. SECTION 4. The Company shall cause any agency of the Company, other than the Trustee, which it may appoint from time to time to act as such agency in respect of the Bonds of 2025-B Series or the Bonds of 2025-C Series, to execute and deliver to the Trustee an instrument in which such agency shall: (a) Agree to keep and maintain, and furnish to the Trustee from time to time as reasonably requested by the Trustee, appropriate records of all transactions carried out by it as such agency and to furnish the Trustee such other information and reports as the Trustee may reasonably require; (b) Certify that it is eligible for appointment as such agency and agree to notify the Trustee promptly if it shall cease to be so eligible; and (c) Agree to indemnify the Trustee, in a manner satisfactory to the Trustee, against any loss, liability or expense incurred by, and defend any claim asserted against, the Trustee by reason of any acts or failures to act as such agency, except for any liability 40 35 resulting from any action taken by it at the specific direction of the Trustee; provided, however, that the Company, in lieu of causing any such agency to furnish such an instrument, may make such other arrangements with the Trustee in respect of any such agency as shall be satisfactory to the Trustee. SECTION 5. The Trustee shall advise the Company in writing of the receipt of any notification provided for in or any cancellation made pursuant to Section 10, 11 or 12 of either Article II or Article III of this Supplemental Indenture. ARTICLE V MISCELLANEOUS PROVISIONS This Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. EXECUTION IN WITNESS WHEREOF, said The Cleveland Electric Illuminating Company has caused this Supplemental Indenture to be executed on its behalf by its President or one of its Vice Presidents and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by its Secretary or an Assistant Secretary, and said The Chase Manhattan Bank (National Association), in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by one of its Vice Presidents or one of its Corporate Trust Officers and its corporate seal to be hereto affixed and said seal and this Supplemental Indenture to be attested by one of its Assistant Secretaries or Corporate Trust Officers, all as of the day and year first above written. 41 S-1 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY By TERRENCE G. LINNERT ---------------------------------- Vice President Attest: J. T. PERCIO - ------------------------------- Secretary Signed, sealed and acknowledged by The Cleveland Electric Illuminating Company in the presence of: PATRICIA BARKEY - ------------------------------------------ Patricia Barkey SONDRA CLARKE - ------------------------------------------ Sondra Clarke As witnesses THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), AS TRUSTEE By VALERIE DUNBAR ------------------------------------- Vice President Attest: KATHLEEN PERRY - ------------------------------- Corporate Trust Officer Signed, sealed and acknowledged on behalf of The Chase Manhattan Bank (National Association) in the presence of: ELSIE TASSINI - ------------------------------------------ Elsie Tassini DELLA K. BENJAMIN - ------------------------------------------ Della K. Benjamin As witnesses 42 S-2 STATE OF OHIO SS: COUNTY OF CUYAHOGA SS: On this 4th day of August, 1995, before me personally appeared TERRENCE G. LINNERT and J. T. PERCIO to me personally known, who being by me severally duly sworn, did say that they are a Vice President and the Secretary, respectively, of The Cleveland Electric Illuminating Company, that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors; and said officers severally acknowledged said instrument to be the free act and deed of said corporation. AMY B. MCCABE --------------------------------------------- Notary Public Amy B. McCabe Notary Public, State of Ohio Recorded in Cuyahoga County My Commission expires October 23, 1999 STATE OF NEW YORK SS: COUNTY OF NEW YORK SS: On this 7th day of August, 1995, before me personally appeared VALERIE DUNBAR and KATHLEEN PERRY to me personally known, who being by me severally duly sworn, did say that they are a Vice President and a Corporate Trust Officer, respectively, of The Chase Manhattan Bank (National Association), 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. DENIS KELLY --------------------------------------------- Notary Public Denis Kelly Notary Public, State of New York No. 01KE5032197 Qualified in Kings County Commission Expires August 22, 1996 This instrument prepared by Bruce T. Rosenbaum, attorney at law. 43 R-1 This page contains information as to recording and filing which was not set forth in this Supplemental Indenture at the time of execution. This page is not a part of this Supplemental Indenture. RECORDING AND FILING DATA This Supplemental Indenture was filed for record and recorded in the record of mortgages in the offices of the Recorders of the following Counties:
COUNTY VOLUME PAGE FILED FOR RECORD - ------------------------------- --------------- ------------------------- Ohio Ashtabula 83 723 ) Cuyahoga 95-06732 19 ) Erie 234 768 ) Geauga 1,024 658 ) Lake 1,147 518 ) Lorain 172 994 ) Ottawa 460 177 ) August 16, 1995 Portage 46 119 ) Stark Instrument No. 95037770 ) Summit 1,989 243 ) Trumbull 952 725 ) Pennsylvania ) Warren 621 177 ) Beaver 1,381 857 ) August 15, 1995
An amendment to a previously filed financing statement and a counterpart of this Supplemental Indenture were filed in the office of the Secretary of the Commonwealth of Pennsylvania on August 15, 1995 under original file number 13451763, microfilm number 24581786, to comply with the filing requirements of the Pennsylvania enactment of the Uniform Commercial Code. EX-21.CEI 11 EXHIBIT 21 (CEI) 1 Exhibit 21(CEI) 2 Exhibit 21(CEI) LIST OF SUBSIDIARIES -------------------- OF -- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY ------------------------------------------- The Cleveland Electric Illuminating Company has one subsidiary, Centerior Funding Corporation, which is wholly owned and is incorporated under the laws of the State of Delaware. This subsidiary was formed in 1995 to serve as the transferor in connection with the sale of an asset- backed security expected to be completed in 1996. March 26, 1996 EX-23.A.CEI 12 EXHIBIT 23(A) (CEI) 1 Exhibit 23a(CEI) 2 EXHIBIT 23a (CEI) THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report on the consolidated financial statements and schedule of The Cleveland Electric Illuminating Company and subsidiaries dated February 21, 1996, included in this Form 10-K, into The Cleveland Electric Illuminating Company's previously filed Registration Statement, File No. 33-55513. ARTHUR ANDERSEN LLP Cleveland, Ohio March 26, 1996 EX-23.B.CEI 13 EXHIBIT 23(B) (CEI) 1 Exhibit 23b(CEI) 2 EXHIBIT 23b (CEI) CONSENT OF COUNSEL FOR THE CLEVELAND ELECTRIC ILLUMINATING COMPANY The statements as to matters of law and legal conclusions under the headings "General Regulation", "Environmental Regulation" and "Electric Rates" in Item 1. and "Title to Property" in Item 2. and "Legal Proceedings" in Item 3. of the The Cleveland Electric Illuminating Company Annual Report on Form 10-K for the year ended December 31, 1995 have been prepared under my supervision and in my opinion such respective statements as to such matters are correct. I hereby consent to the use of my name in connection with the statements prepared under my supervision as stated in the preceding paragraph and to the incorporation by reference of those statements into the Prospectus now and hereafter constituting a part of the Registration Statement previously filed by The Cleveland Electric Illuminating Company under File No. 33-55513 and to the reference to me under the heading "Experts" in such Prospectus. TERRENCE G. LINNERT Terrence G. Linnert Senior Vice President, Chief Financial Officer and General Counsel March 26, 1996 EX-24.CEI 14 EXHIBIT 24 (CEI) 1 Exhibit 24(CEI) 2 EXHIBIT 24 (CEI) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY ------------------------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Cleveland Electric Illuminating Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 1st day of March, 1996. ROBERT J. FARLING ----------------------------- Robert J. Farling Chairman, Chief Executive Officer and Director Signed and acknowledged in the presence of: J. T. PERCIO --------------------------- 3 EXHIBIT 24 (CEI) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY ------------------------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Cleveland Electric Illuminating Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 29th day of February, 1996. TERRENCE G. LINNERT ----------------------------- Terrence G. Linnert Vice President and Chief Financial Officer Signed and acknowledged in the presence of: JEAN M. LeMAY ---------------------------- 4 EXHIBIT 24 (CEI) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY ------------------------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Cleveland Electric Illuminating Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 29th day of February, 1996. E. LYLE PEPIN ----------------------------- E. Lyle Pepin Controller Signed and acknowledged in the presence of: RUTH A. HARNER -------------------------- 5 EXHIBIT 24 (CEI) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY ------------------------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Cleveland Electric Illuminating Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 6th day of March, 1996. MURRAY R. EDELMAN ----------------------------- Murray R. Edelman President and Director Signed and acknowledged in the presence of: MARIA-ELENA G. JANSEN -------------------------- 6 EXHIBIT 24 (CEI) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE CLEVELAND ELECTRIC ILLUMINATING COMPANY ------------------------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Cleveland Electric Illuminating Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 28th day of February, 1996. FRED J. LANGE, JR. ----------------------------- Fred J. Lange, Jr. Vice President and Director Signed and acknowledged in the presence of: KENDRA STANO ------------------------- EX-27.CEI 15 EXHIBIT 27 (CEI)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED FORM 10-K FINANCIAL STATEMENTS FOR THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000020947 CLEVELAND ELECTRIC ILLUMINATING COMPANY 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 PER-BOOK 4,850,626 241,812 597,565 1,461,723 0 7,151,726 1,241,284 78,624 (193,146) 1,126,762 215,420 240,871 2,665,981 5,000 0 0 146,760 29,714 85,569 54,634 2,581,015 7,151,726 1,768,737 93,875 1,276,963 1,370,838 397,899 31,298 429,197 245,478 183,719 42,444 141,275 74,213 231,547 429,938 0 0
EX-24.TE 16 EXHIBIT 24 (TE) 1 TOLEDO EDISON EXHIBITS 2 Exhibit 24 (TE) 3 EXHIBIT 24 (TE) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE TOLEDO EDISON COMPANY ------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Toledo Edison Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 1st day of March, 1996. ROBERT J. FARLING ----------------------------- Robert J. Farling Chairman, Chief Executive Officer and Director Signed and acknowledged in the presence of: J. T. PERCIO -------------------------- 4 EXHIBIT 24 (TE) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE TOLEDO EDISON COMPANY ------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Toledo Edison Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 29th day of February, 1996. TERRENCE G. LINNERT ----------------------------- Terrence G. Linnert Vice President and Chief Financial Officer Signed and acknowledged in the presence of: JEAN M. LeMAY --------------------------- 5 EXHIBIT 24 (TE) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE TOLEDO EDISON COMPANY ------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Toledo Edison Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 29th day of February, 1996. E. LYLE PEPIN ----------------------------- E. Lyle Pepin Controller Signed and acknowledged in the presence of: RUTH A. HARNER -------------------------- 6 EXHIBIT 24 (TE) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE TOLEDO EDISON COMPANY ------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Toledo Edison Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 6th day of March, 1996. MURRAY R. EDELMAN ----------------------------- Murray R. Edelman Vice Chairman and Director Signed and acknowledged in the presence of: MARIA-ELENA G. JANSEN ------------------------- 7 EXHIBIT 24 (TE) POWER OF ATTORNEY OF DIRECTOR AND/OR OFFICER OF ----------------------------------------------- THE TOLEDO EDISON COMPANY ------------------------- The undersigned, being a director or officer or both (as stated under his or her signature below) of The Toledo Edison Company, an Ohio corporation (hereinafter called the "Company"), does hereby constitute and appoint each of Robert J. Farling, Murray R. Edelman, Fred J. Lange, Jr., Gary R. Leidich, Terrence G. Linnert, David M. Blank, E. Lyle Pepin, Janis T. Percio, Ronald J. Studeny, Mary E. O'Reilly and Kevin P. Murphy as an attorney of the undersigned with power to act alone for and in the name, place and stead of the undersigned, with power of substitution and resubstitution, to sign and file, including electronic filing, on behalf of the undersigned acting in his or her capacity as such director or officer the Company's Form 10-K Annual Report for the year ended December 31, 1995, and any and all amendments, exhibits and supplementary information thereto, with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises and the undersigned hereby ratifies and approves the acts of each such attorney and any such substitute or substitutes. IN WITNESS WHEREOF, the undersigned hereby has signed his or her name this 28th day of February, 1996. FRED J. LANGE, JR. ----------------------------- Fred J. Lange, Jr. President and Director Signed and acknowledged in the presence of: KENDRA STANO ------------------------- EX-27.TE 17 EXHIBIT 27 (TE)
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RELATED FORM 10-K FINANCIAL STATEMENTS FOR THE TOLEDO EDISON COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000352049 THE TOLEDO EDISON COMPANY 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 PER-BOOK 1,982,013 149,832 327,094 1,014,850 0 3,473,789 195,687 602,116 (34,926) 762,877 5,020 210,000 1,067,603 20,950 0 0 56,632 1,665 51,691 40,019 1,257,332 3,473,789 873,657 41,528 644,061 685,589 188,068 18,835 206,903 110,141 96,762 18,252 78,510 0 72,310 238,923 0 0
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