-----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, FCwcM+3I2E/gRsHEG82NqjJoBQe5STP0lNAKiHJqZHGMdkUWQyS2EZvnRmWnaDah CiUdoE9xIGt16OQQXlrxqg== 0001031296-99-000015.txt : 19990816 0001031296-99-000015.hdr.sgml : 19990816 ACCESSION NUMBER: 0001031296-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTENERGY CORP CENTRAL INDEX KEY: 0001031296 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 341843785 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-21011 FILM NUMBER: 99687844 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 BUSINESS PHONE: 3303845100 MAIL ADDRESS: STREET 1: 76 SOUTH MAIN ST CITY: AKRON STATE: OH ZIP: 44308-1890 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-Q SEC ACT: SEC FILE NUMBER: 001-02323 FILM NUMBER: 99687845 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN STREET STREET 2: C/O FIRSTENERGY CORP CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2166229800 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO EDISON CO CENTRAL INDEX KEY: 0000073960 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 340437786 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02578 FILM NUMBER: 99687846 BUSINESS ADDRESS: STREET 1: 76 S MAIN ST CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2163845100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA POWER CO CENTRAL INDEX KEY: 0000077278 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 250718810 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03491 FILM NUMBER: 99687847 BUSINESS ADDRESS: STREET 1: 1 E WASHINGTON ST STREET 2: P O BOX 891 CITY: NEW CASTLE STATE: PA ZIP: 16103-0891 BUSINESS PHONE: 4126525531 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-Q SEC ACT: SEC FILE NUMBER: 001-03583 FILM NUMBER: 99687848 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN STREET CITY: AKRON STATE: OH ZIP: 43308 BUSINESS PHONE: 2166229800 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to _______ Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification No. - ----------- ---------------------------------- ------------------ 333-21011 FIRSTENERGY CORP. 34-1843785 (An Ohio Corporation) 76 South Main Street Akron, Ohio 44308 Telephone (800)736-3402 1-2578 OHIO EDISON COMPANY 34-0437786 (An Ohio Corporation) 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-2323 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY 34-0150020 (An Ohio Corporation) c/o FirstEnergy Corp. 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-3583 THE TOLEDO EDISON COMPANY 34-4375005 (An Ohio Corporation) c/o FirstEnergy Corp. 76 South Main Street Akron, OH 44308 Telephone (800)736-3402 1-3491 PENNSYLVANIA POWER COMPANY 25-0718810 (A Pennsylvania Corporation) 1 East Washington Street P. O. Box 891 New Castle, Pennsylvania 16103 Telephone (412)652-5531 Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: OUTSTANDING CLASS AS OF AUGUST 9, 1999 ----- -------------------- FirstEnergy Corp., $.10 par value 233,963,887 Ohio Edison Company, $9 par value 100 The Cleveland Electric Illuminating Company, no par value 79,590,689 The Toledo Edison Company, $5 par value 39,133,887 Pennsylvania Power Company, $30 par value 6,290,000 FirstEnergy Corp. is the sole holder of Ohio Edison Company, The Cleveland Electric Illuminating Company and The Toledo Edison Company common stock; Ohio Edison Company is the sole holder of Pennsylvania Power Company common stock. This combined Form 10-Q is separately filed by FirstEnergy Corp., Ohio Edison Company, Pennsylvania Power Company, The Cleveland Electric Illuminating Company and The Toledo Edison Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to any of the four FirstEnergy subsidiaries is also attributed to FirstEnergy. This Form 10-Q includes forward looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements typically contain, but are not limited to, the terms "anticipate", "potential", "expect", "believe", "estimate" and similar words. Actual results may differ materially due to the speed and nature of increased competition and deregulation in the electric utility industry, economic or weather conditions affecting future sales and margins, changes in markets for energy services, changing energy market prices, legislative and regulatory changes (including revised environmental requirements), availability and cost of capital and other similar factors. TABLE OF CONTENTS Pages Part I. Financial Information Notes to Consolidated Financial Statements 1-4 FirstEnergy Corp. Consolidated Statements of Income 5 Consolidated Balance Sheets 6-7 Consolidated Statements of Cash Flows 8 Report of Independent Public Accountants 9 Management's Discussion and Analysis of Results of Operations and Financial Condition 10-13 Ohio Edison Company Consolidated Statements of Income 14 Consolidated Balance Sheets 15-16 Consolidated Statements of Cash Flows 17 Report of Independent Public Accountants 18 Management's Discussion and Analysis of Results of Operations and Financial Condition 19-21 The Cleveland Electric Illuminating Company Consolidated Statements of Income 22 Consolidated Balance Sheets 23-24 Consolidated Statements of Cash Flows 25 Report of Independent Public Accountants 26 Management's Discussion and Analysis of Results of Operations and Financial Condition 27-29 The Toledo Edison Company Consolidated Statements of Income 30 Consolidated Balance Sheets 31-32 Consolidated Statements of Cash Flows 33 Report of Independent Public Accountants 34 Management's Discussion and Analysis of Results of Operations and Financial Condition 35-37 Pennsylvania Power Company Consolidated Statements of Income 38 Consolidated Balance Sheets 39-40 Consolidated Statements of Cash Flows 41 Report of Independent Public Accountants 42 Management's Discussion and Analysis of Results of Operations and Financial Condition 43-45 Part II. Other Information PART I. FINANCIAL INFORMATION - ------------------------------ FIRSTENERGY CORP. AND SUBSIDIARIES OHIO EDISON COMPANY AND SUBSIDIARIES THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY THE TOLEDO EDISON COMPANY AND SUBSIDIARY PENNSYLVANIA POWER COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1 - CONSOLIDATED FINANCIAL STATEMENTS: The principal business of FirstEnergy Corp. (FirstEnergy) is the holding, directly or indirectly, of all of the outstanding common stock of its four principal electric utility operating subsidiaries, Ohio Edison Company (OE), The Cleveland Electric Illuminating Company (CEI), The Toledo Edison Company (TE) and Pennsylvania Power Company (Penn). These utility subsidiaries are referred to throughout as "Companies." Penn is a wholly owned subsidiary of OE. The condensed consolidated financial statements of FirstEnergy and each of the Companies reflect all normal recurring adjustments that, in the opinion of management, are necessary to fairly present results of operations for the interim periods. These statements should be read in connection with the financial statements and notes included in the combined Annual Report on Form 10-K for the year ended December 31, 1998 for FirstEnergy and the Companies. The reported results of operations are not indicative of results of operations for any future period. Certain prior year amounts have been reclassified to conform with the current year presentation. The sole assets of the subsidiary trust that is the obligor on the preferred securities included in FirstEnergy's and OE's capitalization are $123,711,350 principal amount of 9% Junior Subordinated Debentures of OE due December 31, 2025. 2 - COMMITMENTS, GUARANTEES AND CONTINGENCIES: CAPITAL EXPENDITURES- FirstEnergy's current forecast reflects expenditures of approximately $2.2 billion (FirstEnergy-$263 million, OE-$856 million, CEI-$701 million, TE-$257 million and Penn-$167 million) for property additions and improvements from 1999-2003, of which approximately $538 million (FirstEnergy-$172 million, OE-$156 million, CEI-$124 million, TE-$48 million and Penn-$38 million) is applicable to 1999. Investments for additional nuclear fuel during the 1999-2003 period are estimated to be approximately $394 million (OE-$137 million, CEI-$129 million, TE- $100 million and Penn-$28 million), of which approximately $46 million (OE-$19 million, CEI-$15 million, TE-$8 million and Penn-$4 million) applies to 1999. GUARANTEES- The Companies and Duquesne Light Company (Duquesne) have each severally guaranteed certain debt and lease obligations in connection with a coal supply contract for the Bruce Mansfield Plant. As of June 30, 1999, the Companies' share of the guarantees was $23.5 million (OE-$13.6 million, CEI-$5.0 million, TE-$2.9 million and Penn-$2.0 million). The price under the coal supply contract, which includes certain minimum payments, has been determined to be sufficient to satisfy the debt and lease obligations. ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. The Companies estimate additional capital expenditures for environmental compliance of approximately $449 million (OE-$213 million, CEI-$145 million, TE-$44 million and Penn-$47 million), which is included in the construction forecast provided under "Capital Expenditures" for 1999 through 2003. The Companies are in compliance with the current sulfur dioxide (SO2) and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur fuel, generating more electricity from lower- emitting plants, and/or purchasing emission allowances. NOx reductions are being achieved through combustion controls and generating more - 1 - electricity from lower-emitting plants. In September 1998, the Environmental Protection Agency (EPA) finalized regulations requiring additional NOx reductions from the Companies' Ohio and Pennsylvania facilities by May 2003. The EPA`s NOx Transport Rule imposes uniform reductions of NOx emissions across a region of twenty-two states and the District of Columbia, including Ohio and Pennsylvania, based on a conclusion that such NOx emissions are contributing significantly to ozone pollution in the eastern United States. In May 1999, the U.S. Court of Appeals for the D.C. Circuit issued a stay which delays implementation of EPA's NOx Transport Rule until the Court has ruled on the merits of various appeals. Under the NOx Transport Rule, each of the twenty-two states are required to submit revised State Implementation Plans (SIP) which comply with individual state NOx budgets contemplating an 85% reduction in utility plant NOx emissions from 1990 emissions established by the EPA; the original September 1999 deadline has been extended by the D.C. Circuit Court stay. A proposed Federal Implementation Plan accompanied the NOx Transport Rule and may be implemented by the EPA in states which fail to revise their SIP. In another separate but related action, eight states filed petitions with the EPA under Section 126 of the Clean Air Act seeking reductions of NOx emissions which are alleged to contribute to ozone pollution in the eight petitioning states. The EPA suggests that the Section 126 petitions will be adequately addressed by the NOx Transport Program, but an April 30, 1999 rulemaking established an alternative program which would require nearly identical 85% NOx reductions at the Companies' Ohio and Pennsylvania plants by May 2003 in the event implementation of the NOx Transport Rule is delayed. In June 1999, the EPA stayed the April 30,1999 rulemaking and proposed changes to that rulemaking in response to the D.C. Circuit Court rulings. The Companies continue to evaluate their compliance plans and other compliance options and currently estimate the additional capital expenditures for NOx reductions may reach $500 million. The Companies are required to meet federally approved SO2 regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $25,000 for each day the unit is in violation. The EPA has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The Companies cannot predict what action the EPA may take in the future with respect to the interim enforcement policy. In July 1997, the EPA promulgated changes in the National Ambient Air Quality Standard (NAAQS) for ozone and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals for the D.C. Circuit remanded both standards back to the EPA finding constitutional and other defects in the new NAAQS rules. The EPA is seeking rehearing by the D.C. Circuit Court. The Companies cannot predict either the outcome of the rehearing request or the time period before the new NAAQS could become enforceable either through Court action or EPA action in response to the Court's remand order. The cost of compliance with these regulations may be substantial and depends on the manner in which they are ultimately implemented, if at all, by the states in which the Companies operate affected facilities. CEI and TE have been named as "potentially responsible parties" (PRPs) at waste disposal sites which may require cleanup under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Allegations of disposal of hazardous substances at historical sites and the liability involved, are often unsubstantiated and subject to dispute. Federal law provides that all PRPs for a particular site be held liable on a joint and several basis. CEI and TE have accrued liabilities of $4.6 million and $1.0 million, respectively, as of June 30, 1999, based on estimates of the costs of cleanup and the proportionate responsibility of other PRPs for such costs. CEI and TE believe that waste disposal costs will not have a material adverse effect on their financial condition, cash flows or results of operations. Legislative, administrative and judicial actions will continue to change the way that the Companies must operate in order to comply with environmental laws and regulations. With respect to any such changes and to the environmental matters described above, the Companies expect that while they remain regulated, any resulting additional capital costs which may be required, as well as any required increase in operating costs, would ultimately be recovered from their customers. PENDING EXCHANGE OF ASSETS- On March 26, 1999, FirstEnergy announced that it completed its agreements with Duquesne to exchange certain generating assets. Upon receipt of regulatory approvals, Duquesne will transfer 1,436 megawatts owned by Duquesne at eight Central Area Power Coordination Group (CAPCO) generating units in exchange for 1,328 megawatts at three non-CAPCO power plants owned by the Companies. The agreements for the exchange of assets, which is structured as a like-kind exchange for tax purposes, will provide the Companies with exclusive ownership and operating control of all CAPCO generating units. The three FirstEnergy plants to be transferred will be included in Duquesne's upcoming auction of its generating assets. The Companies will operate the plants until the assets are transferred to the new owners. Duquesne will fund decommissioning costs equal to its percentage interest in the three nuclear generating units to be transferred. The asset transfer could take place in late 1999 or early 2000. Under the agreements, the existing CAPCO arrangements will terminate upon transfer of the assets. - 2 - 3 - REGULATORY ACCOUNTING: On July 6, 1999, Ohio Governor Bob Taft signed legislation which will allow Ohio electric customers to select their generation suppliers beginning January 1, 2001. Among other things, the new law provides for a five percent rate reduction on the generation portion of residential customers' bills and the opportunity to recover transition costs, including regulatory assets, from January 1, 2001 through December 31, 2005. The period for the recovery of regulatory assets only can be extended up to December 31, 2010. The Public Utilities Commission of Ohio (PUCO) has been authorized to determine the level of transition cost recovery, as well as the recovery period for the regulatory assets portion of those costs, in considering each Ohio electric utility's transition plan application. These applications must be filed with the PUCO by January 3, 2000. Upon conclusion of the hearing process, the PUCO will issue an order of its findings regarding recoverability of transition costs. The application of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71) to OE's generation business and the nonnuclear generation businesses of CEI and TE will be discontinued at that time. If the transition plans ultimately approved by the PUCO for OE, CEI and TE do not provide adequate recovery of their nuclear generating unit investments and regulatory assets, there would be a charge to earnings which could have a material adverse effect on the results of operations and financial condition for FirstEnergy, OE, CEI and TE. The Companies believe they will be able to bill and collect cost-based rates for their transmission and distribution services, which will remain regulated; accordingly, it is appropriate that the Companies continue the application of SFAS 71, to those respective operations after December 31, 2000. 4 - SEGMENT INFORMATION: FirstEnergy's primary segment is its Electric Utility Group which includes four electric utility operating companies that provide electric service in Ohio and Pennsylvania. Its other material business segment is the FirstEnergy Trading Services, Inc. subsidiary (formerly known as FirstEnergy Trading & Power Marketing, Inc.) which markets and trades electricity in nonregulated markets. Financial data for these business segments and products and services are as follows: Segment Financial Information
FirstEnergy Electric Trading All Reconciling Three Months Ended: Utilities Services Other Eliminations Totals - ------------------ --------- ----------- ----- ------------ ------ (In millions) June 30, 1999 - ------------- External revenues $ 1,340 $ 17 $ 167 $ -- $ 1,524 Intersegment revenues 8 21 24 (53) -- Total revenues 1,348 38 191 (53) 1,524 Depreciation and amortization 208 -- 7 -- 215 Net interest charges 143 -- 16 (12) 147 Income taxes 101 (1) 1 -- 101 Net income/Earnings on common stock 125 (2) 5 (3) 125 Total assets 17,393 91 1,833 (934) 18,383 Property additions 69 -- 24 -- 93 Acquisitions -- -- -- -- -- June 30, 1998 - ------------- External revenues $ 1,323 $ 108 $ 33 $ -- $ 1,464 Intersegment revenues 8 3 21 (32) -- Total revenues 1,331 111 54 (32) 1,464 Depreciation and amortization 192 -- 2 -- 194 Net interest charges 149 -- 18 (12) 155 Income taxes 66 (14) -- -- 52 Net income/Earnings on common stock 55 (21) (3) (2) 29 Total assets 17,815 62 1,543 (899) 18,521 Property additions 60 -- 7 -- 67 Acquisitions -- -- 240 -- 240 - 3 -
FirstEnergy Electric Trading All Reconciling Six Months Ended: Utilities Services Other Eliminations Totals - ------------------ --------- ------------ ----- ------------ ------ (In millions) June 30, 1999 - ------------- External revenues $ 2,612 $ 28 $ 301 $ -- $ 2,941 Intersegment revenues 16 21 47 (84) -- Total revenues 2,628 49 348 (84) 2,941 Depreciation and amortization 394 -- 11 -- 405 Net interest charges 285 -- 32 (24) 293 Income taxes 197 (2) (1) -- 194 Net income/Earnings on common stock 268 (3) 1 (4) 262 Total assets 17,393 91 1,833 (934) 18,383 Property additions 121 -- 54 -- 175 Acquisitions -- -- 9 -- 9 June 30, 1998 - ------------- External revenues $ 2,559 $ 224 $ 48 $ -- $ 2,831 Intersegment revenues 16 3 42 (61) -- Total revenues 2,575 227 90 (61) 2,831 Depreciation and amortization 385 -- 3 -- 388 Net interest charges 289 1 33 (25) 298 Income taxes 150 (14) (1) -- 135 Net income/Earnings on common stock 181 (21) (4) (3) 153 Total assets 17,815 62 1,543 (899) 18,521 Property additions 118 -- 13 -- 131 Acquisitions -- -- 240 -- 240
- 4 - FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In thousands, except per share amounts) REVENUES: Electric sales $1,277,424 $1,262,966 $2,497,318 $2,443,555 Other - electric utilities 70,001 65,399 128,327 126,105 Facilities services 116,755 27,094 221,323 36,623 Trading services 17,089 108,304 28,566 224,122 Other 42,612 214 65,757 651 ---------- ---------- ---------- ---------- Total revenues 1,523,881 1,463,977 2,941,291 2,831,056 ---------- ---------- ---------- ---------- EXPENSES: Fuel and purchased power 204,273 326,292 408,630 541,157 Other expenses: Electric utilities 424,060 363,930 789,971 707,606 Facilities services 111,287 26,697 212,640 36,693 Trading services 20,460 143,312 33,264 260,435 Other 34,840 8,118 64,170 8,735 Provision for depreciation and amortization 215,394 193,690 405,232 387,817 General taxes 139,466 135,108 277,560 271,482 ---------- ---------- ---------- ---------- Total expenses 1,149,780 1,197,147 2,191,467 2,213,925 ---------- ---------- ---------- ---------- INCOME BEFORE INTEREST AND INCOME TAXES 374,101 266,830 749,824 617,131 ---------- ---------- ---------- ---------- NET INTEREST CHARGES: Interest expense 131,359 137,392 260,740 273,161 Allowance for borrowed funds used during construction and capitalized interest (3,376) (1,187) (6,061) (2,668) Subsidiaries' preferred stock dividends 19,379 18,463 38,760 27,791 ---------- ---------- ---------- ---------- Net interest charges 147,362 154,668 293,439 298,284 ---------- ---------- ---------- ---------- INCOME TAXES 101,417 52,208 194,342 135,241 ---------- ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 125,322 59,954 262,043 183,606 EXTRAORDINARY ITEM (NET OF INCOME TAX BENEFIT OF $21,208,000) -- (30,522) -- (30,522) ---------- ---------- ---------- ---------- NET INCOME $ 125,322 $ 29,432 $ 262,043 $ 153,084 ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 227,367 223,987 228,254 223,197 ======= ======= ======= ======= BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK: Income before extraordinary item $ .55 $ .27 $1.15 $ .83 Extraordinary item (Net of income taxes) -- (.14) -- (.14) ----- ----- ----- ----- Net income $ .55 $ .13 $1.15 $ .69 ===== ===== ===== ===== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $.375 $.375 $ .75 $ .75 ===== ===== ===== ===== The preceding Notes to Consolidated Financial Statements as they relate to FirstEnergy Corp. are an integral part of these statements.
- 5 - FIRSTENERGY CORP. CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ (In thousands) ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 226,533 $ 77,798 Receivables- Customers (less accumulated provisions of $6,504,000 and $6,397,000, respectively, for uncollectible accounts) 258,561 239,183 Other (less accumulated provisions of $45,962,000 and $46,251,000, respectively, for uncollectible accounts) 466,250 322,186 Materials and supplies, at average cost- Owned 136,379 145,926 Under consignment 113,032 110,109 Prepayments and other 210,675 171,931 ----------- ----------- 1,411,430 1,067,133 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT: In service 15,101,664 14,961,664 Less--Accumulated provision for depreciation 6,109,397 6,012,761 ----------- ----------- 8,992,267 8,948,903 Construction work in progress 231,907 293,671 ----------- ----------- 9,224,174 9,242,574 ----------- ----------- INVESTMENTS: Capital trust investments 1,284,196 1,329,010 Nuclear plant decommissioning trusts 396,451 358,371 Letter of credit collateralization 277,763 277,763 Other 459,552 453,860 ----------- ----------- 2,417,962 2,419,004 ----------- ----------- DEFERRED CHARGES: Regulatory assets 2,722,184 2,887,437 Goodwill 2,121,178 2,167,968 Property taxes 270,666 270,666 Other 215,590 199,400 ----------- ----------- 5,329,618 5,525,471 ----------- ----------- $18,383,184 $18,254,182 =========== ===========
- 6 - FIRSTENERGY CORP. CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ----------- ------------ (In thousands) CAPITALIZATION AND LIABILITIES ------------------------------ CURRENT LIABILITIES: Currently payable long-term debt and preferred stock $ 1,201,245 $ 876,470 Short-term borrowings 228,769 254,470 Accounts payable 304,059 257,524 Accrued taxes 433,012 401,688 Accrued interest 140,103 141,575 Other 203,401 251,262 ----------- ----------- 2,510,589 2,182,989 ----------- ----------- CAPITALIZATION: Common stockholders' equity- Common stock, $.10 par value, authorized 300,000,000 shares - 234,490,887 and 237,069,087 shares outstanding, respectively 23,449 23,707 Other paid-in capital 3,774,680 3,846,513 Accumulated comprehensive income (439) (439) Retained earnings 809,017 718,409 Unallocated employee stock ownership plan common stock - 7,163,192 and 7,406,332 shares, respectively (133,470) (139,032) ----------- ----------- Total common stockholders' equity 4,473,237 4,449,158 Preferred stock of consolidated subsidiaries- Not subject to mandatory redemption 648,395 660,195 Subject to mandatory redemption 160,996 174,710 OE obligated mandatorily redeemable preferred securities of subsidiary trust holding solely OE subordinated debentures 120,000 120,000 Long-term debt 6,142,847 6,352,359 ----------- ----------- 11,545,475 11,756,422 ----------- ----------- DEFERRED CREDITS: Accumulated deferred income taxes 2,259,100 2,282,864 Accumulated deferred investment tax credits 279,335 286,154 Pensions and other postretirement benefits 533,236 525,647 Other 1,255,449 1,220,106 ----------- ----------- 4,327,120 4,314,771 ----------- ----------- COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 2) ----------- ----------- $18,383,184 $18,254,182 =========== =========== The preceding Notes to Consolidated Financial Statements as they relate to FirstEnergy Corp. are an integral part of these balance sheets.
- 7 - FIRSTENERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 125,322 $ 29,432 $ 262,043 $153,084 Adjustments to reconcile net income to net cash from operating activities- Provision for depreciation and amortization 215,394 193,690 405,232 387,817 Nuclear fuel and lease amortization 21,354 16,319 47,949 40,632 Other amortization, net (3,789) (9,410) (4,254) (9,682) Deferred income taxes, net (8,310) (29,431) (14,745) (24,207) Investment tax credits, net (3,375) (5,568) (6,819) (11,339) Extraordinary item -- 51,730 -- 51,730 Receivables (142,077) 48,421 (160,447) 88,486 Materials and supplies 11,734 197 6,728 (9,797) Accounts payable 37,015 1,526 49,173 (35,149) Other 19,513 (18,160) (99,449) (99,317) --------- -------- --------- --------- Net cash provided from operating activities 272,781 278,746 485,411 532,258 --------- -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Common stock -- 203,855 -- 203,855 Long-term debt 181,088 114,286 193,365 262,405 Ohio Schools Council prepayment program -- 116,598 -- 116,598 Redemptions and Repayments- Common stock 31,076 -- 75,575 -- Preferred stock 21,489 15,379 21,489 15,379 Long-term debt 12,206 189,930 93,008 349,911 Short-term borrowings, net 35,992 87,599 24,728 108,443 Common stock dividend payments 85,299 83,586 171,436 166,977 --------- -------- --------- -------- Net cash provided from (used for) financing activities (4,974) 58,245 (192,871) (57,852) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 92,971 307,120 183,676 371,224 Cash investments 63 66 (41,205) 111,610 Other (6,148) 7,685 1,334 18,844 --------- -------- --------- -------- Net cash used for investing activities 86,886 314,871 143,805 501,678 --------- -------- --------- -------- Net increase (decrease) in cash and cash equivalents 180,921 22,120 148,735 (27,272) Cash and cash equivalents at beginning of period 45,612 48,845 77,798 98,237 --------- -------- --------- -------- Cash and cash equivalents at end of period $ 226,533 $ 70,965 $ 226,533 $ 70,965 ========= ======== ========= ======== The preceding Notes to Consolidated Financial Statements as they relate to FirstEnergy Corp. are an integral part of these statements.
- 8 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To FirstEnergy Corp.: We have reviewed the accompanying consolidated balance sheet of FirstEnergy Corp. (an Ohio corporation) and subsidiaries as of June 30, 1999, and the related consolidated statements of income and cash flows for the three-month and six-month periods ended June 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of FirstEnergy Corp. and subsidiaries as of December 31, 1998 (not presented herein), and, in our report dated February 12, 1999, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1998, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Cleveland, Ohio August 9, 1999 - 9 - FIRSTENERGY CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company, as a producer and trader of electricity and natural gas, has certain financial risks inherent in its business activities. With respect to its trading operations, the Company uses principally over-the-counter and commodity exchange contracts for the purchase and sale of electricity and natural gas. These contracts may expose the Company to commodity price fluctuations. Market risk represents the risk of loss that may impact financial position, results of operations or cash flow due to either changes in the commodity market prices for electricity and natural gas or the failure of contract counterparties to perform. Various policies and procedures have been established to manage market risk. However, electricity and natural gas are subject to unpredictable price fluctuations due to changing economic and weather conditions and constraints, which arise from time to time in availability of supply. Results of Operations - --------------------- Basic and diluted earnings per share of common stock increased to $1.15 per share for the six-month period ended June 30, 1999, from $.69 per share for the same period last year. For the second quarter of 1999, earnings increased to $.55 per share, from $.13 per share for the second quarter of 1998. Higher earnings resulted from several factors including higher retail revenues, lower purchased power costs, reduced costs from the FirstEnergy Trading Services, Inc. (FETS) business segment and lower interest expenses. Also, second quarter and year-to- date earnings for 1998 included an extraordinary charge of $30.5 million, or $.14 per common share, resulting from Penn's discontinued application of SFAS 71 to its generation business. Revenues increased $59.9 million in the second quarter of 1999 compared to the second quarter of 1998, and $110.2 million during the six-month period ending June 30, 1999, compared to the same period of 1998. The revenue increases resulted from contributions from the Electric Utility Operating Companies (EUOC) business segment and newly acquired businesses, offset by reduced revenues from the FETS business segment. The sources of increases in second quarter and year-to-date 1999 revenues are summarized in the following table.
June 30, 1999 ----------------------- (In millions) Three Six Months Months Ended Ended ------ ------ Electric sales $ 14.5 $ 53.8 Other electric utility revenues 4.6 2.2 ------ ------- EUOC 19.1 56.0 FETS (91.2) (195.6) New businesses acquired 132.0 249.8 ------ ------- Net Revenue Increase $ 59.9 $ 110.2 ====== =======
The increases in EUOC revenues for the second quarter and year-to-date periods of 1999 compared to the same periods of 1998 resulted from increases in EUOC kilowatt-hour sales, which were partially offset by reduced unit prices. Residential, commercial and industrial customers all contributed to the increases in EUOC kilowatt- hour sales with increases of 2.8%, 3.4% and 1.8%, respectively, for the second quarter of 1999 and increases of 7.3%, 3.6% and 1.5%, respectively, for the year-to-date period. A net increase of more than 10,000 new EUOC residential customers over the last twelve months ending June 30, 1999, added to the growth in residential sales. Continued service sector growth contributed to the commercial kilowatt-hour sales increase. Sales to industrial customers showed modest growth with some additional strength in the second quarter due in part to a rebound in kilowatt-hour sales to primary metal customers. Overall, EUOC kilowatt- hour sales increased 3.3% in the second quarter of 1999 and 1.9% for the first six months of the current year from the corresponding periods of 1998. The decreases in FETS revenues for the second quarter and first half of 1999 compared to the prior year resulted from limiting trading activities to the support of FirstEnergy's retail marketing activities. Acquisition of facilities services companies, the purchase of MARBEL Energy Corporation (MARBEL) and sales of electricity to the - 10 - unregulated market by Penn Power Energy and FirstEnergy Services Corp. combined to cause the significant increase in other revenues. Total expenses decreased $47.4 million in the second quarter of 1999, compared to the same quarter of 1998, and were down $22.5 million in the first half of 1999 compared to the first half of the prior year. Contributing to this overall reduction were EUOC purchased power costs which were down $122.1 million in the second quarter of 1999 from the same quarter of 1998 and were $129.1 million lower in the first half of 1999, compared to the first half of 1998. Most of the improvement in second quarter results was due to the absence of unusual conditions experienced in the second quarter of 1998, which resulted in an additional $77.4 million of unusually high purchased power costs. Those costs were incurred during a period of record heat and humidity in late June 1998, which coincided with a regional power shortage resulting in high prices for purchased power. Unscheduled outages at several of the Companies' power plants at that time required the Companies to purchase significant amounts of power on the spot market. Although the second quarter of 1999 also experienced above normal temperatures in June, the Companies maintained a stronger generating capacity position during the period, due in part to a program designed to increase available internal generation during the summer months. The program involves moving maintenance away from the summer months, increasing the reliability of generating units, adding peaking resources, and in some cases increasing the power output of existing facilities. The price extremes of the prior year also did not occur in the first half of 1999. Other expenses for the EUOCs increased $60.1 million in the second quarter of 1999 compared to the same period the prior year and $82.4 million in the six-month period ended June 30, 1999 compared to the corresponding period of 1998. A portion of the second quarter and year-to-date increases resulted from the program (mentioned above) to increase internal generation during the summer months. As part of that program, the outage at Bruce Mansfield Unit 1 was moved from Fall 1999 to a period extending from late March to May 31, 1999, in order to enhance readiness for the peak summer months. Nuclear expenses also contributed significantly to the increases in other expenses primarily as a result of refueling outages at Beaver Valley Unit 2 and the Perry Plant. Additionally, higher customer and sales expenses contributed to the increases of EUOC other expenses in both periods of 1999. Reduced FETS activity resulted in a significant cost reduction in that business segment for both the second quarter and year-to-date periods when compared to the same periods of 1998. Also, FETS expenses for the second quarter of 1998 included credit losses resulting from the unprecedented market prices for purchased power in that year. Expansion of the facilities services business through additional acquisitions, the purchase of MARBEL and costs attributable to unregulated sales activity all combined to increase other expenses. Depreciation and amortization in the second quarter and year-to-date periods of 1999 increased from the same periods of 1998 primarily as a result of accelerated expenses in connection with the OE rate plan. Interest expenses decreased in the second quarter and first half of 1999 from the same periods of the previous year due to refinancings and redemptions of long-term debt. Subsidiaries' preferred stock dividend requirements increased in the year-to-date period of 1999, compared to the year-to-date period of 1998, due to the declaration in the fourth quarter of 1997 of preferred stock dividends payable in 1998 by TE and CEI. Capital Resources and Liquidity - ------------------------------ The Company and its subsidiaries have continuing cash requirements for planned capital expenditures and debt maturities. During the last two quarters of 1999, capital requirements for property additions and capital leases are expected to be about $379 million, including $11 million for nuclear fuel. The Companies have additional cash requirements of approximately $426.1 million (excluding the OE revolving credit agreement) to meet sinking fund requirements for preferred stock and maturing long-term debt during the remainder of 1999. These cash requirements are expected to be satisfied with internal cash and/or short-term credit arrangements. During the second quarter of 1999, the Company repurchased over 1 million shares of its common stock at an average price of approximately $29.41 per share. In the year-to-date period ending June 30, 1999, the Company repurchased 2.6 million shares at an average price of approximately $29.13 per share. As of June 30, 1999, the Company and its subsidiaries had about $226.5 million of cash and temporary investments and $228.8 million of short-term indebtedness. Unused borrowing capability included $145.0 million under revolving lines of credit and $32.0 million of bank facilities that provide for borrowings on a short-term basis at the banks' discretion. - 11 - On June 24, 1999, the Company signed a letter of intent to form a joint venture with Range Resources Corp., a Texas-based, independent energy company. Under the agreement, the Company would merge the exploration, production and certain other assets of its MARBEL Energy Corporation subsidiary into a single limited liability company with the Appalachian Basin assets of Range Resources. The joint venture would produce oil and gas on 980,000 acres in the Appalachian Basin, which includes parts of Ohio, Pennsylvania, West Virginia, Kentucky and Tennessee. The objective of the joint venture is to cut costs, enhance productivity and increase the competitive position of the joint venture partners in the Appalachian Basin. FirstEnergy Telecom Corp., a wholly owned subsidiary, joined with Allegheny Communications Connect, Inc., AEP Communications LLC, and GPU Telecom Services, Inc., to initiate the interconnection of their respective fiber optic networks. The agreement was announced on June 23, 1999. Once the linkages are complete, the network alliance will have the opportunity to make sales in new regional markets. In order to assure adequate future generating capacity during peak periods the Company currently plans to install eight combustion turbines at several locations totaling 815 megawatts of capacity, with 390 megawatts installed and available in 2000 and the balance available to meet demand in 2001. Regulatory Matters - ------------------ On July 6, 1999, Ohio Governor Bob Taft signed into law legislation providing residents of Ohio with a choice of generation suppliers. Among other provisions, the new law provides customer choice starting January 1, 2001, freezes current rates for a five year market- development period and includes a five-percent price cut in the generation component of residential customer bills. Under the new law OE, CEI and TE will continue to deliver power to homes and businesses through their distribution systems, which will remain regulated. While the new law provides guidance for the transition to retail competition in Ohio, significant authority has been vested in the PUCO to determine the ultimate recovery of transition costs (see Note 3). The PUCO will hold hearings as early as the first quarter of next year to decide the amount of transition costs each utility can recover over a period of up to ten years. The Company intends to file transition plans for OE, CEI and TE in the fourth quarter of 1999. The application of SFAS 71 to OE's generation business and the nonnuclear generation businesses of CEI and TE will be discontinued when the PUCO issues an order of its hearing findings. Consequently, the Company is not able to determine, at this time, the financial impact resulting from the eventual discontinuation of regulatory accounting under SFAS 71 for those businesses. The Company believes it will be able to continue to bill and collect cost-based rates relating to its transmission and distribution operations. On June 3, 1999, the Alliance Regional Transmission Organization submitted to the Federal Energy Regulatory Commission (FERC) a proposal to form an independent, regional transmission organization (RTO). If approved, the RTO would become one of the largest independent RTOs in the world. The companies in the Alliance filing are American Electric Power, Consumers Energy, Detroit Edison, FirstEnergy and Virginia Electric and Power. The RTO would be controlled by a board of directors independent of member companies, and would not be affiliated with any transmission owner. The Company believes that the proposed RTO meets the FERC's stated transmission objectives of providing non-discriminatory service, while providing for streamlined and cost efficient operation. In May 1999, a federal appeals court delayed enforcement of EPA's September 1998 final regulations requiring reductions in nitrogen oxide emissions for Ohio, Pennsylvania and twenty other eastern states. The federal appeals court remanded the regulations back to the EPA so that the agency could address, if possible, constitutional and other defects in the rules. The EPA has sought a rehearing. The Company cannot predict either the outcome of these actions or the time period before final rules could become enforceable. Year 2000 Readiness - ------------------- The Year 2000 issue is the result of computer programs being written using two digits rather than four to identify the applicable year. Any of the Company's programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Because so many of the Company's computer functions are date sensitive, this could cause far-reaching problems, such as system-wide computer failures and miscalculations, if no remedial action is taken. - 12 - The Company has developed a multi-phase program for Year 2000 compliance that consists of an assessment of its systems and operations that could be affected by the Year 2000 problem; remediation or replacement of noncompliant systems and components; and testing of systems and components following such remediation or replacement. The Company has focused its Year 2000 review on three areas: centralized system applications, noncentralized systems and relationships with third parties (including suppliers as well as end-use customers). The Company's review of system readiness extends to systems involving customer service, safety, shareholder needs and regulatory obligations. The Company is committed to taking appropriate actions to eliminate or lessen negative effects of the Year 2000 issue on its operations. The Company has completed an inventory of all computer systems and hardware including equipment with embedded computer chips, has determined which systems need to be converted or replaced to become Year 2000-ready and has completed the remediation of all mission critical systems and equipment. Based on results of its remediation and testing efforts, the Company filed documents with the North American Electric Reliability Council, Nuclear Regulatory Commission, PUCO and Pennsylvania Public Utility Commission that as of June 30, 1999 its generation, transmission, and distribution systems were ready to serve customers in the year 2000. Most of the Company's Year 2000 issues have been resolved through system replacement. Of the Company's major centralized systems, the general ledger system and inventory management, procurement and accounts payable systems were replaced at the end of 1998. The Company's payroll system was enhanced to be Year 2000 compliant in July 1998. The customer service system was made Year 2000 compliant in June 1999. The Company has completed formal communications with most of its key suppliers to determine the extent to which it is vulnerable to those third parties' failure to resolve their own Year 2000 problems. For suppliers having potential compliance problems, the Company is developing alternate sources and services in the event such noncompliance occurs. The Company is also identifying areas requiring higher inventory levels based on compliance uncertainties. There can be no guarantee that the failure of companies to resolve their own Year 2000 issues will not have a material adverse effect on the Company's business, financial condition and results of operations, although it does not consider this likely to occur. The Company has completed the development of formal contingency plans in all mission critical areas to establish procedures to be followed in handling unlikely events which could impact the provision of electric service to its customers. The Company is using both internal and external resources to reprogram and/or replace and test its software for Year 2000 modifications. Of the $90 million total project cost, approximately $70 million will be capitalized since those costs are attributable to the purchase of new software for total system replacements because the Year 2000 solution comprises only a portion of the benefits resulting from the system replacements. The remaining $20 million will be expensed as incurred. As of June 30, 1999, the Company had spent $66 million for Year 2000 capital projects and had expensed approximately $14 million for Year 2000-related maintenance activities. The Company's total Year 2000 project cost, as well as its estimates of the time needed to complete remedial efforts, are based on currently available information and do not include the estimated costs and time associated with the impact of third party Year 2000 issues. The Company believes it is managing the Year 2000 issue in such a way that its customers will not experience any interruption of service. The Company believes the most likely worst-case scenario from the Year 2000 issue will be disruption in power plant monitoring systems, thereby producing inaccurate data and potential failures in electronic switching mechanisms at transmission junctions. This would prolong localized outages, as technicians would have to manually activate switches. Such an event could have a material, but currently undeterminable, effect on its financial results. The costs of the project and the dates on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived from numerous assumptions of future events including the continued availability of certain resources, and other factors. However, there can be no guarantee that this project will be completed as planned and actual results could differ materially from the estimates. Specific factors that might cause material differences include but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code, and similar uncertainties. - 13 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In thousands) OPERATING REVENUES $646,729 $618,598 $1,279,847 $1,216,463 -------- -------- ---------- ---------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 109,443 153,133 221,465 267,048 Nuclear operating costs 76,879 69,043 149,315 140,909 Other operating costs 117,773 108,091 218,056 200,264 -------- -------- ---------- ---------- Total operation and maintenance expenses 304,095 330,267 588,836 608,221 Provision for depreciation and amortization 125,151 106,030 228,555 217,226 General taxes 61,562 58,969 123,822 118,494 Income taxes 41,904 29,684 89,667 67,741 -------- -------- ---------- ---------- Total operating expenses and taxes 532,712 524,950 1,030,880 1,011,682 -------- -------- ---------- ---------- OPERATING INCOME 114,017 93,648 248,967 204,781 OTHER INCOME 13,080 11,766 22,398 24,268 -------- -------- ---------- ---------- INCOME BEFORE NET INTEREST CHARGES 127,097 105,414 271,365 229,049 -------- -------- ---------- ---------- NET INTEREST CHARGES: Interest on long-term debt 46,222 46,329 91,305 92,997 Allowance for borrowed funds used during construction and capitalized interest (885) (469) (1,982) (1,129) Other interest expense 9,164 9,391 17,783 18,885 Subsidiaries' preferred stock dividend requirements 3,856 3,856 7,713 7,713 -------- -------- ---------- ---------- Net interest charges 58,357 59,107 114,819 118,466 -------- -------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 68,740 46,307 156,546 110,583 EXTRAORDINARY ITEM (NET OF INCOME TAX BENEFIT OF $21,208,000) -- (30,522) -- (30,522) -------- -------- ---------- ---------- NET INCOME 68,740 15,785 156,546 80,061 PREFERRED STOCK DIVIDEND REQUIREMENTS 2,913 3,018 5,826 6,037 -------- -------- ---------- ---------- EARNINGS ON COMMON STOCK $ 65,827 $ 12,767 $ 150,720 $ 74,024 ======== ======== ========== ========== The preceding Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an integral part of these statements.
- 14 - OHIO EDISON COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ (In thousands) ASSETS ------ UTILITY PLANT: In service $8,209,980 $8,158,763 Less--Accumulated provision for depreciation 3,674,931 3,610,155 ---------- ---------- 4,535,049 4,548,608 ---------- ---------- Construction work in progress- Electric plant 175,967 174,418 Nuclear fuel 1,137 17,003 ---------- ---------- 177,104 191,421 ---------- ---------- 4,712,153 4,740,029 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: PNBV Capital Trust 471,478 475,087 Nuclear plant decommissioning trusts 141,692 130,572 Letter of credit collateralization 277,763 277,763 Other 428,389 407,839 ---------- ---------- 1,319,322 1,291,261 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 184,336 33,213 Receivables- Customers (less accumulated provisions of $6,504,000 and $6,397,000, respectively, for uncollectible accounts) 236,152 215,257 Associated companies 214,553 229,854 Other 46,997 47,684 Materials and supplies, at average cost- Owned 69,581 76,756 Under consignment 58,281 48,341 Prepayments and other 102,948 78,618 ---------- ---------- 912,848 729,723 ---------- ---------- DEFERRED CHARGES: Regulatory assets 1,774,192 1,913,808 Property taxes 101,360 101,360 Unamortized sale and leaseback costs 87,599 90,098 Other 59,486 57,547 ---------- ---------- 2,022,637 2,162,813 ---------- ---------- $8,966,960 $8,923,826 ========== ==========
- 15 - OHIO EDISON COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 --------- ----------- (In thousands) CAPITALIZATION AND LIABILITIES ------------------------------ CAPITALIZATION: Common stockholder's equity- Common stock, $9 par value, authorized 175,000,000 shares - 100 shares outstanding $ 1 $ 1 Other paid-in capital 2,098,728 2,098,728 Retained earnings 400,440 583,144 ---------- ---------- Total common stockholder's equity 2,499,169 2,681,873 Preferred stock- Not subject to mandatory redemption 160,965 160,965 Subject to mandatory redemption 10,000 10,000 Preferred stock of consolidated subsidiary- Not subject to mandatory redemption 39,105 50,905 Subject to mandatory redemption 15,000 15,000 OE obligated mandatorily redeemable preferred securities of subsidiary trust holding solely OE subordinated debentures 120,000 120,000 Long-term debt 2,061,597 2,215,042 ---------- ---------- 4,905,836 5,253,785 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock 829,750 528,792 Short-term borrowings- Associated companies 209,231 88,732 Other 218,772 249,451 Accounts payable- Associated companies 55,268 10,176 Other 82,361 89,483 Accrued taxes 230,142 188,295 Accrued interest 44,816 45,221 Other 66,477 114,162 ---------- ---------- 1,736,817 1,314,312 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 1,554,894 1,601,887 Accumulated deferred investment tax credits 150,654 154,538 Pensions and other postretirement benefits 140,996 136,856 Other 477,763 462,448 ---------- ---------- 2,324,307 2,355,729 ---------- ---------- COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 2) ---------- ---------- $8,966,960 $8,923,826 ========== ========== The preceding Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an integral part of these balance sheets.
- 16 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 1999 1998 1999 1998 --------- --------- -------- -------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 68,740 $ 15,785 $156,546 $ 80,061 Adjustments to reconcile net income to net cash from operating activities- Provision for depreciation and amortization 125,151 106,030 228,555 217,226 Nuclear fuel and lease amortization 9,483 6,563 20,160 13,346 Deferred income taxes, net (18,745) (36,679) (30,755) (49,658) Investment tax credits, net (1,907) (3,622) (3,884) (7,448) Extraordinary item -- 51,730 -- 51,730 Receivables 30,463 (73,744) (4,907) (41,876) Materials and supplies (3,507) 4,755 (2,765) 4,580 Accounts payable 25,552 92,415 37,970 109,590 Other (24,362) (4,046) (30,893) 45,586 -------- -------- -------- -------- Net cash provided from operating activities 210,868 159,187 370,027 423,137 -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt 190,680 104,822 158,515 107,460 Short-term borrowings, net 74,594 -- 89,820 83,537 Redemptions and Repayments- Preferred stock 6,085 -- 6,085 -- Long-term debt 10,558 141,774 19,140 281,635 Short-term borrowings, net -- 15,619 -- -- Dividend Payments- Common stock 251,865 39,884 333,603 209,782 Preferred stock 3,057 2,834 5,826 5,859 -------- -------- -------- -------- Net cash used for financing activities 6,291 95,289 116,319 306,279 -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 40,749 47,354 94,787 88,370 Other (5,969) (4,847) 7,798 122 -------- -------- -------- -------- Net cash used for investing activities 34,780 42,507 102,585 88,492 -------- -------- -------- -------- Net increase in cash and cash equivalents 169,797 21,391 151,123 28,366 Cash and cash equivalents at beginning of period 14,539 11,655 33,213 4,680 -------- -------- -------- -------- Cash and cash equivalents at end of period $184,336 $ 33,046 $184,336 $ 33,046 ======== ======== ======== ======== The preceding Notes to Consolidated Financial Statements as they relate to Ohio Edison Company are an integral part of these statements.
- 17 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Ohio Edison Company: We have reviewed the accompanying consolidated balance sheet of Ohio Edison Company (an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and subsidiaries as of June 30, 1999, and the related consolidated statements of income and cash flows for the three- month and six-month periods ended June 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Ohio Edison Company and subsidiaries as of December 31, 1998 (not presented herein), and, in our report dated February 12, 1999, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1998, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Cleveland, Ohio August 9, 1999 - 18 - OHIO EDISON COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations - --------------------- Operating revenues increased $28.1 million in the second quarter of 1999, compared to the second quarter of 1998, and increased $63.4 million in the first half of 1999, compared to the same period of the prior year. Higher second quarter and year-to-date operating revenues resulted primarily from increased kilowatt-hour sales. Residential, commercial and industrial customers all contributed to the increase in retail kilowatt-hour sales in the second quarter of 1999, compared to the same period of 1998, with increases of 2.7%, 6.8% and 2.7%, respectively. Overall, retail kilowatt-hour sales increased 3.9% and total kilowatt-hour sales increased 3.5% from the 1998 second quarter results. Residential, commercial and industrial customers also combined to increase retail kilowatt-hour sales in the first six months of 1999, compared to the same period of 1998, with increases of 7.1%, 8.1% and 0.3%, respectively. Retail kilowatt-hour sales increased 4.6% and total kilowatt-hour sales increased 4.7% from the first half of 1998. Growth in the customer base and increased kilowatt-hour sales per customer contributed to the residential sales increase for both the second quarter and first half of 1999, compared to the corresponding prior year periods. Service sector growth and an expansion of sales by Penn's nonregulated affiliate were factors increasing commercial kilowatt-hour sales. A rebound of sales to primary metal customers contributed to renewed growth of kilowatt-hour sales to industrial customers. Operation and maintenance expenses decreased $26.2 million in the second quarter of 1999 from the same period of 1998, and were $19.4 million lower in the first half of 1999, compared to the first six months of 1999. Fuel and purchased power costs were lower in both the second quarter and year-to-date periods of 1999 than the corresponding periods of 1998, primarily due to lower purchased power costs. Most of the reduction in 1999 was due to the absence of unusual conditions experienced in the second quarter of 1998, which increased the prior period's costs. Record heat and humidity in late June 1998 coincided with a regional power shortage resulting in high prices for purchased power. Unscheduled outages at Beaver Valley Units 1 and 2, which continued through the second quarter of 1998, required that OE and Penn (OE companies) purchase significant quantities of power on the spot market during that period. Although the second quarter of 1999 also experienced above normal temperatures in June, spot market prices were less extreme and the OE companies maintained a stronger capacity position during the period. Therefore, the OE companies were able to reduce their dependence on purchased power in 1999. Expenses associated with the 1999 refueling outages at Beaver Valley Unit 2 and the Perry Plant increased nuclear expenses in the second quarter and first half of 1999, compared to the corresponding periods of 1998. Other operating costs increased in the second quarter and year-to-date periods of 1999 from the same periods last year primarily due to higher customer and sales expenses. Factors contributing to the increase included energy marketing program expenditures, and similar costs in 1998 being recognized later that year. Depreciation and amortization in the second quarter and first half of 1999 increased from the same period of 1998 primarily due to the effect of the OE rate plan. Total accelerated depreciation and amortization of nuclear and regulatory assets under the OE rate plan and Penn's restructuring plan was $64.3 million in the second quarter of 1999, up from $49.0 million in the second quarter of the previous year. In the first six months of 1999, total accelerated depreciation and amortization under the OE rate plan was $108.9 million, compared to $104.0 million in the first half of 1998. Second quarter and year-to-date results for 1998 include an extraordinary charge of $30.5 million resulting from Penn's discontinued application of SFAS 71 to its generation business. Capital Resources and Liquidity - ------------------------------- The OE companies have continuing cash requirements for planned capital expenditures and debt maturities. During the last half of 1999, capital requirements for property additions and capital leases are expected to be about $120 million, with no additional expenditures for nuclear fuel. The OE companies have additional cash requirements of approximately $161.4 million (excluding the OE revolving credit agreement) to meet sinking fund requirements for preferred stock and maturing long-term debt during the remainder of 1999. These cash requirements are expected to be satisfied with internal cash and/or short-term credit arrangements. OE also completed optional refinancings of $50 million principal amount of pollution control notes in July 1999 and intends to complete an additional optional refinancing of $108 million of pollution control notes during the balance of 1999. In addition, Penn completed a $5.8 million optional redemption of 8.00% preferred stock in July 1999. - 19 - As of June 30, 1999, the OE companies had approximately $184.3 million of cash and temporary investments and $428.0 million of short-term indebtedness. In addition, the OE companies' unused borrowing capability included $45.0 million under revolving lines of credit and $32.0 million of bank facilities that provide for borrowings on a short-term basis at the banks' discretion. Under their first mortgage indentures, as of June 30, 1999, the OE companies would have been permitted to issue up to $1.3 billion of additional first mortgage bonds on the basis of bondable property additions and retired bonds. Regulatory Matters - ------------------ On July 6, 1999, Ohio Governor Bob Taft signed into law legislation providing residents of Ohio with a choice of generation suppliers. Among other provisions, the new law provides customer choice starting January 1, 2001, freezes current rates for a five year market- development period and includes a five-percent price cut in the generation component of residential customer bills. Under the new law OE will continue to deliver power to homes and businesses through its distribution system, which will remain regulated. While the new law provides guidance for the transition to retail competition in Ohio, significant authority has been vested in the PUCO to determine the ultimate recovery of transition costs (see Note 3). The PUCO will hold hearings as early as the first quarter of next year to decide the amount of transition costs each utility can recover over a period of up to ten years. FirstEnergy intends to file a transition plan for OE in the fourth quarter of 1999. The application of SFAS 71 to OE's generation business will be discontinued when the PUCO issues an order of its hearing findings. Consequently, OE is not able to determine, at this time, the financial impact resulting from the eventual discontinuation of regulatory accounting under SFAS 71 for its generation business. OE believes it will be able to continue to bill and collect cost-based rates on its transmission and distribution operations. In May 1999, a federal appeals court delayed enforcement of EPA's September 1998 final regulations requiring reductions in nitrogen oxide emissions for Ohio, Pennsylvania and twenty other eastern states. The federal appeals court remanded the regulations back to the EPA so the agency could address, if possible, constitutional and other defects in the rules (see "Environmental Matters" in Note 2). The EPA has sought a rehearing. OE cannot predict either the outcome of these actions or the time period before final rules could become enforceable. Year 2000 Readiness - ------------------- The Year 2000 issue is the result of computer programs being written using two digits rather than four to identify the applicable year. Any of the OE companies' programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Because so many of the OE companies' computer functions are date sensitive, this could cause far-reaching problems, such as system-wide computer failures and miscalculations, if no remedial action is taken. The OE companies have developed a multi-phase program for Year 2000 compliance that consists of an assessment of their systems and operations that could be affected by the Year 2000 problem; remediation or replacement of noncompliant systems and components; and testing of systems and components following such remediation or replacement. The OE companies have focused their Year 2000 review on three areas: centralized system applications, noncentralized systems and relationships with third parties (including suppliers as well as end-use customers). The OE companies' review of system readiness extends to systems involving customer service, safety, shareholder needs and regulatory obligations. The OE companies are committed to taking appropriate actions to eliminate or lessen negative effects of the Year 2000 issue on their operations. The OE companies have completed an inventory of all computer systems and hardware including equipment with embedded computer chips, have determined which systems need to be converted or replaced to become Year 2000-ready and have completed the remediation of all mission critical systems and equipment. Based on the results of their remediation and testing efforts, the OE companies filed (through FirstEnergy) with the North American Electric Reliability Council, Nuclear Regulatory Commission, PUCO and Pennsylvania Public Utility Commission (PPUC) that as of June 30, 1999 their generation, transmission, and distribution systems were ready to serve customers in the year 2000. Most of the OE companies' Year 2000 issues have been resolved through system replacement. Of the OE companies' major centralized systems, the general ledger system and inventory management, - 20 - procurement and accounts payable systems were replaced at the end of 1998. The OE companies' payroll system was enhanced to be Year 2000 compliant in July 1998. The customer service system was made Year 2000 compliant in June 1999. The OE companies have completed formal communications with most of their key suppliers to determine the extent to which they are vulnerable to those third parties' failure to resolve their own Year 2000 problems. For suppliers having potential compliance problems, the OE companies are developing alternate sources and services in the event such noncompliance occurs. The OE companies are also identifying areas requiring higher inventory levels based on compliance uncertainties. There can be no guarantee that the failure of companies to resolve their own Year 2000 issues will not have a material adverse effect on the OE companies' business, financial condition and results of operations, although it does not consider this likely to occur. The OE companies have completed the development of formal contingency plans in all mission critical areas to establish procedures to be followed in handling unlikely events which could impact the provision of electric service to their customers. The OE companies are using both internal and external resources to reprogram and/or replace and test their software for Year 2000 modifications. Of the $44 million total project cost, approximately $34 million will be capitalized since those costs are attributable to the purchase of new software for total system replacements because the Year 2000 solution comprises only a portion of the benefits resulting from the system replacements. The remaining $10 million will be expensed as incurred. As of June 30, 1999, the OE companies have spent $32 million for Year 2000 capital projects and had expensed approximately $7 million for Year 2000-related maintenance activities. The OE companies' total Year 2000 project cost, as well as their estimates of the time needed to complete remedial efforts, are based on currently available information and do not include the estimated costs and time associated with the impact of third party Year 2000 issues. The OE companies believe they are managing the Year 2000 issue in such a way that their customers will not experience any interruption of service. The OE companies believe the most likely worst-case scenario from the Year 2000 issue will be disruption in power plant monitoring systems, thereby producing inaccurate data and potential failures in electronic switching mechanisms at transmission junctions. This would prolong localized outages, as technicians would have to manually activate switches. Such an event could have a material, but currently undeterminable, effect on their financial results. The costs of the project and the dates on which the OE companies plan to complete the Year 2000 modifications are based on management's best estimates, which were derived from numerous assumptions of future events including the continued availability of certain resources, and other factors. However, there can be no guarantee that this project will be completed as planned and actual results could differ materially from the estimates. Specific factors that might cause material differences include but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code, and similar uncertainties. - 21 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 1999 1998 1999 1998 -------- -------- --------- -------- (In thousands) OPERATING REVENUES $481,955 $474,576 $900,794 $889,603 OPERATING EXPENSES AND TAXES: Fuel and purchased power 100,554 139,642 191,584 231,357 Nuclear operating costs 40,305 20,658 69,821 46,897 Other operating costs 92,360 83,415 177,277 156,109 -------- -------- -------- -------- Total operation and maintenance expenses 233,219 243,715 438,682 434,363 Provision for depreciation and amortization 58,311 59,419 115,998 116,648 General taxes 54,629 53,863 108,642 108,374 Income taxes 29,163 20,773 49,318 42,716 -------- -------- -------- -------- Total operating expenses and taxes 375,322 377,770 712,640 702,101 -------- -------- -------- -------- OPERATING INCOME 106,633 96,806 188,154 187,502 -------- -------- -------- -------- OTHER INCOME (EXPENSE) (1,240) (3,494) 5,217 4,099 -------- -------- -------- -------- INCOME BEFORE NET INTEREST CHARGES 105,393 93,312 193,371 191,601 -------- -------- -------- -------- NET INTEREST CHARGES: Interest on long-term debt 53,812 60,751 107,565 120,811 Allowance for borrowed funds used during construction (517) (404) (733) (956) Other interest expense (credit) (517) (1,882) (996) (2,726) -------- -------- -------- -------- Net interest charges 52,778 58,465 105,836 117,129 -------- -------- -------- -------- NET INCOME 52,615 34,847 87,535 74,472 PREFERRED STOCK DIVIDEND REQUIREMENTS 8,541 7,438 17,082 8,506 -------- -------- -------- -------- EARNINGS ON COMMON STOCK $ 44,074 $ 27,409 $ 70,453 $ 65,966 ======== ======== ======== ======== The preceding Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company are an integral part of these statements.
- 22 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ (In thousands) ASSETS ------ UTILITY PLANT: In service $4,657,245 $4,648,725 Less--Accumulated provision for depreciation 1,667,572 1,631,974 ---------- ---------- 2,989,673 3,016,751 ---------- ---------- Construction work in progress- Electric plant 28,003 42,428 Nuclear fuel 408 14,864 ---------- ---------- 28,411 57,292 ---------- ---------- 3,018,084 3,074,043 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: Shippingport Capital Trust 517,263 543,161 Nuclear plant decommissioning trusts 139,521 125,050 Other 31,377 21,059 ---------- ---------- 688,161 689,270 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 3,874 19,526 Receivables- Customers 17,478 16,588 Associated companies 15,613 15,636 Other 247,748 142,834 Notes receivable from associated companies -- 53,509 Materials and supplies, at average cost- Owned 36,806 38,213 Under consignment 35,935 43,620 Prepayments and other 69,288 58,342 ---------- ---------- 426,742 388,268 ---------- ---------- DEFERRED CHARGES: Regulatory assets 541,912 555,925 Goodwill 1,452,359 1,471,563 Property taxes 126,464 126,464 Other 14,046 12,650 ---------- ---------- 2,134,781 2,166,602 ---------- ---------- $6,267,768 $6,318,183 ========== ==========
- 23 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ (In thousands) CAPITALIZATION AND LIABILITIES ------------------------------ CAPITALIZATION: Common stockholder's equity- Common stock, without par value, authorized 105,000,000 shares - 79,590,689 shares outstanding $ 931,962 $ 931,962 Retained earnings 59,688 76,276 ---------- ---------- Total common stockholder's equity 991,650 1,008,238 Preferred stock- Not subject to mandatory redemption 238,325 238,325 Subject to mandatory redemption 135,996 149,710 Long-term debt 2,869,859 2,888,202 ---------- ---------- 4,235,830 4,284,475 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock 209,861 208,050 Accounts payable- Associated companies 58,382 47,680 Other 85,080 67,929 Notes payable to associated companies 55,890 80,618 Accrued taxes 186,629 192,359 Accrued interest 65,573 66,685 Other 47,544 58,585 ---------- ---------- 708,959 721,906 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 532,747 524,285 Accumulated deferred investment tax credits 88,972 90,946 Pensions and other postretirement benefits 215,767 217,719 Other 485,493 478,852 ---------- ---------- 1,322,979 1,311,802 ---------- ---------- COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 2) ---------- ---------- $6,267,768 $6,318,183 ========== ========== The preceding Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company are an integral part of these balance sheets.
- 24 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 52,615 $ 34,847 $ 87,535 $ 74,472 Adjustments to reconcile net income to net cash from operating activities- Provision for depreciation and amortization 58,311 59,419 115,998 116,648 Nuclear fuel and lease amortization 6,665 6,127 15,971 16,356 Other amortization (3,789) (9,417) (4,254) (9,417) Deferred income taxes, net 5,136 14,096 8,876 25,832 Investment tax credits, net (987) (1,297) (1,974) (2,593) Receivables (90,588) (77,237) (105,781) (87,568) Materials and supplies 11,005 (6,374) 9,092 (10,722) Accounts payable 16,220 53,237 27,853 27,504 Other 19,411 (32,607) (45,108) (63,758) --------- -------- --------- -------- Net cash provided from operating activities 73,999 40,794 108,208 86,754 --------- -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt -- 5,822 -- 5,822 Ohio Schools Council prepayment program -- 116,598 -- 116,598 Redemptions and Repayments- Preferred stock 13,714 13,714 13,714 13,714 Long-term debt 6,346 15,029 24,014 26,581 Short-term borrowings, net 12,883 45,290 24,728 26,492 Dividend Payments- Common stock 75,811 25,469 82,974 25,469 Preferred stock 8,541 8,870 17,082 17,741 --------- -------- --------- -------- Net cash provided from (used for) financing activities (117,295) 14,048 (162,512) 12,423 --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 20,204 12,080 30,299 27,414 Loans to associated companies -- 59,900 -- 136,900 Loan payments from associated companies (59,077) -- (53,509) -- Capital trust investments -- -- (25,898) (31,958) Other 6,135 (18,137) 10,456 (13,953) --------- -------- --------- -------- Net cash used for (provided from) investing activities (32,738) 53,843 (38,652) 118,403 --------- -------- --------- -------- Net increase (decrease) in cash and cash equivalents (10,558) 999 (15,652) (19,226) Cash and cash equivalents at beginning of period 14,432 13,550 19,526 33,775 --------- -------- --------- -------- Cash and cash equivalents at end of period $ 3,874 $ 14,549 $ 3,874 $ 14,549 ========= ======== ========= ======== The preceding Notes to Consolidated Financial Statements as they relate to The Cleveland Electric Illuminating Company are an integral part of these statements.
- 25 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Cleveland Electric Illuminating Company: We have reviewed the accompanying consolidated balance sheet of The Cleveland Electric Illuminating Company (an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and subsidiary as of June 30, 1999, and the related consolidated statements of income and cash flows for the three-month and six-month periods ended June 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of The Cleveland Electric Illuminating Company and subsidiary as of December 31, 1998 (not presented herein), and, in our report dated February 12, 1999, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1998, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Cleveland, Ohio August 9, 1999 - 26 - THE CLEVELAND ELECTRIC ILLUMINATING COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations - --------------------- Operating revenues increased $7.4 million in the second quarter of 1999, compared to the second quarter of 1998 and were $11.2 million higher in the first half of 1999, compared to the same period the prior year. Increases in kilowatt-hour sales were substantially offset by reduced unit prices. Residential, commercial and industrial customers all contributed to the increase in retail kilowatt-hour sales in the second quarter of 1999, compared to the same period of 1998, with increases of 3.9%, 5.2% and 1.5%, respectively. Overall, retail kilowatt-hour sales increased 3.3% and total kilowatt-hour sales increased 10.0% from the 1998 second quarter results. Residential, commercial and industrial customers also combined to increase retail kilowatt-hour sales in the first six months of 1999, compared to the same period of 1998, with increases of 9.2%, 3.6% and 0.6%, respectively. Retail kilowatt-hour sales increased 3.7% and total kilowatt-hour sales increased 4.7% from the first half of 1998. Lower temperatures in the first quarter of 1999, compared to the milder weather in the same period of 1998, contributed to stronger residential growth in the first quarter of 1999, which is reflected in year-to-date increases in residential kilowatt-hour sales. Service sector growth supported continuing increases in sales to commercial customers. Total kilowatt-hour sales benefited from strong weather-induced demand in the wholesale market during June and available capacity at CEI. Sales to wholesale customers increased 131.3% in the second quarter of 1999, and were 20.6% higher in the first half than the corresponding periods of 1998. Operation and maintenance expenses decreased $10.5 million in the second quarter of 1999 from the same period of 1998, and were $4.3 million higher in the first half of 1999, compared to the first six months of 1998. Fuel and purchased power costs were lower in both the second quarter and year-to-date periods of 1999 than the corresponding periods of 1998, primarily due to lower purchased power costs. Most of the reduction was due to the absence of unusual conditions experienced in the second quarter of 1998, which increased the prior period's costs. Record heat and humidity in late June 1998 coincided with a regional power shortage resulting in high prices for purchased power. Unscheduled outages at Beaver Valley Unit 2, the Davis-Besse Plant and Avon Lake Unit 9 required that CEI purchase significant quantities of power on the spot market during that period. Although the second quarter of 1999 also experienced above normal temperatures in June, CEI maintained a stronger capacity position during the period. Therefore, CEI was not only able to reduce its dependence on purchased power in 1999 but also took advantage of the strong demand for power through sales to the wholesale market (discussed above). Offsetting the second quarter reduction in purchased power costs were expenses associated with the refueling outages at Beaver Valley Unit 2 and the Perry Plant, which increased nuclear expenses in the second quarter and first half of 1999, compared to the corresponding periods of 1998. Other operating costs increased in the second quarter and year-to-date periods of 1999 from the corresponding periods of last year due primarily to higher customer and sales expenses. Long-term debt refinancings of $264 million and net redemptions of $211 million during the twelve months ended June 30, 1999, contributed to the reduction in long-term debt interest expense in the second quarter and first half of 1999, compared to the corresponding periods of the prior year. Preferred stock dividend requirements increased in the six-month period ending June 30, 1999, compared to the first half of 1998, due to the declaration in the fourth quarter of 1997 of preferred stock dividends payable in 1998 by CEI. Capital Resources and Liquidity - ------------------------------- CEI has continuing cash requirements for planned capital expenditures and debt maturities. During the last half of 1999, capital requirements for property additions and capital leases are expected to be about $103 million, including $8 million for nuclear fuel. CEI has additional cash requirements of approximately $164.3 million to meet sinking fund requirements for preferred stock and maturing long-term debt during the remainder of 1999. These cash requirements are expected to be satisfied with internal cash and/or short-term credit arrangements. As of June 30,1999, CEI had approximately $3.9 million of cash and temporary investments and $55.9 million of short-term indebtedness to affiliated companies. Together with TE, CEI had unused borrowing capability of $100 million under a FirstEnergy revolving line of credit at the end of the second quarter of 1999. Under its first mortgage indenture, as of June 30, 1999, CEI would have been permitted to issue up to $552 million of additional first mortgage bonds on the basis of bondable property additions and retired bonds. - 27 - Regulatory Matters - ------------------ On July 6, 1999, Ohio Governor Bob Taft signed into law legislation providing residents of Ohio with a choice of generation suppliers. Among other provisions, the new law provides customer choice starting January 1, 2001, freezes current rates for a five year market- development period and includes a five-percent price cut in the generation component of residential customer bills. Under the new law CEI will continue to deliver power to homes and businesses through its distribution system, which will remain regulated. While the new law provides guidance for the transition to retail competition in Ohio, significant authority has been vested in the PUCO to determine the ultimate recovery of transition costs (see Note 3). The PUCO will hold hearings as early as the first quarter of next year to decide the amount of transition costs each utility can recover over a period of up to ten years. FirstEnergy intends to file a transition plan for CEI in the fourth quarter of 1999. The application of SFAS 71 to CEI's nonnuclear generation business will be discontinued when the PUCO issues an order of its hearing findings. Consequently, CEI is not able to determine, at this time, the financial impact resulting from the eventual discontinuation of regulatory accounting under SFAS 71 for its nonnuclear generation business. CEI believes it will be able to continue to bill and collect cost-based rates on its transmission and distribution operations. In May 1999, a federal appeals court delayed enforcement of EPA's September 1998 final regulations requiring reductions in nitrogen oxide emissions for Ohio, Pennsylvania and twenty other eastern states. The federal appeals court remanded the regulations back to the EPA so the agency could address, if possible, constitutional and other defects in the rules (see "Environmental Matters" in Note 2). The EPA has sought a rehearing. CEI cannot predict either the outcome of these actions or the time period before final rules could become enforceable. Year 2000 Readiness - ------------------- The Year 2000 issue is the result of computer programs being written using two digits rather than four to identify the applicable year. Any of CEI's programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Because so many of CEI's computer functions are date sensitive, this could cause far-reaching problems, such as system-wide computer failures and miscalculations, if no remedial action is taken. CEI has developed a multi-phase program for Year 2000 compliance that consists of an assessment of its systems and operations that could be affected by the Year 2000 problem; remediation or replacement of noncompliant systems and components; and testing of systems and components following such remediation or replacement. CEI has focused its Year 2000 review on three areas: centralized system applications, noncentralized systems and relationships with third parties (including suppliers as well as end-use customers). CEI's review of system readiness extends to systems involving customer service, safety, shareholder needs and regulatory obligations. CEI is committed to taking appropriate actions to eliminate or lessen negative effects of the Year 2000 issue on its operations. CEI has completed an inventory of all computer systems and hardware including equipment with embedded computer chips, has determined which systems need to be converted or replaced to become Year 2000-ready and has completed the remediation of all mission critical systems and equipment. Based on results of its remediation and testing efforts, CEI filed documents (through FirstEnergy) with the North American Electric Reliability Council, Nuclear Regulatory Commission and PUCO that as of June 30, 1999 its generation, transmission, and distribution systems were ready to serve customers in the year 2000. Most of CEI's Year 2000 issues have been resolved through system replacement. Of CEI's major centralized systems, the general ledger system and inventory management, procurement and accounts payable systems were replaced at the end of 1998. CEI's payroll system was enhanced to be Year 2000 compliant in July 1998; all employees have been converted to the new system. The customer service system was made Year 2000 compliant in June 1999. CEI has completed formal communications with most of its key suppliers to determine the extent to which it is vulnerable to those third parties' failure to resolve their own Year 2000 problems. For suppliers having potential compliance problems, CEI is developing alternate sources and services in the event such noncompliance occurs. CEI is also identifying areas requiring higher inventory levels based on compliance uncertainties. There can be no guarantee that the failure of companies to resolve their own Year 2000 issues will not have a material adverse effect on CEI's business, financial condition and results of operations, although it does not consider this likely to occur. - 28 - CEI has completed the development of formal contingency plans in all mission critical areas to establish procedures to be followed in handling unlikely events which could impact the provision of electric service to its customers. CEI is using both internal and external resources to reprogram and/or replace and test its software for Year 2000 modifications. Of the $30 million total project cost, approximately $23 million will be capitalized since those costs are attributable to the purchase of new software for total system replacements because the Year 2000 solution comprises only a portion of the benefits resulting from the system replacements. The remaining $7 million will be expensed as incurred. As of June 30, 1999, CEI had spent $22 million for Year 2000 capital projects and had expensed approximately $5 million for Year 2000-related maintenance activities. CEI's total Year 2000 project cost, as well as its estimates of the time needed to complete remedial efforts, are based on currently available information and do not include the estimated costs and time associated with the impact of third party Year 2000 issues. CEI believes it is managing the Year 2000 issue in such a way that its customers will not experience any interruption of service. CEI believes the most likely worst-case scenario from the Year 2000 issue will be disruption in power plant monitoring systems, thereby producing inaccurate data and potential failures in electronic switching mechanisms at transmission junctions. This would prolong localized outages, as technicians would have to manually activate switches. Such an event could have a material, but currently undeterminable, effect on its financial results. The costs of the project and the dates on which CEI plans to complete the Year 2000 modifications are based on management's best estimates, which were derived from numerous assumptions of future events including the continued availability of certain resources, and other factors. However, there can be no guarantee that this project will be completed as planned and actual results could differ materially from the estimates. Specific factors that might cause material differences include but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code, and similar uncertainties. - 29 - THE TOLEDO EDISON COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In thousands) OPERATING REVENUES $235,184 $239,731 $459,446 $460,834 -------- -------- -------- -------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 42,444 72,500 78,846 107,341 Nuclear operating costs 49,232 37,430 91,126 75,225 Other operating costs 43,796 33,868 77,310 66,841 -------- -------- -------- -------- Total operation and maintenance expenses 135,472 143,798 247,282 249,407 Provision for depreciation and amortization 26,153 27,874 51,896 53,356 General taxes 22,734 20,928 43,832 41,958 Income taxes 11,302 9,287 28,209 26,303 -------- -------- -------- -------- Total operating expenses and taxes 195,661 201,887 371,219 371,024 -------- -------- -------- -------- OPERATING INCOME 39,523 37,844 88,227 89,810 OTHER INCOME 3,245 3,057 6,167 6,899 -------- -------- -------- -------- INCOME BEFORE NET INTEREST CHARGES 42,768 40,901 94,394 96,709 -------- -------- -------- -------- NET INTEREST CHARGES: Interest on long-term debt 21,117 22,370 42,158 45,256 Allowance for borrowed funds used during construction (404) (314) (606) (583) Other interest expense (credit) (1,153) (285) (2,514) (1,099) -------- -------- -------- -------- Net interest charges 19,560 21,771 39,038 43,574 -------- -------- -------- -------- NET INCOME 23,208 19,130 55,356 53,135 PREFERRED STOCK DIVIDEND REQUIREMENTS 4,069 4,150 8,139 5,535 -------- -------- -------- -------- EARNINGS ON COMMON STOCK $ 19,139 $ 14,980 $ 47,217 $ 47,600 ======== ======== ======== ======== The preceding Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company are an integral part of these statements.
- 30 - THE TOLEDO EDISON COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ (In thousands) ASSETS ------ UTILITY PLANT: In service $1,768,439 $1,757,364 Less--Accumulated provision for depreciation 638,340 626,942 ---------- ---------- 1,130,099 1,130,422 ---------- ---------- Construction work in progress- Electric plant 26,006 26,603 Nuclear fuel 386 11,191 ---------- ---------- 26,392 37,794 ---------- ---------- 1,156,491 1,168,216 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: Shippingport Capital Trust 295,455 310,762 Nuclear plant decommissioning trusts 115,238 102,749 Other. 6,390 3,656 ---------- ---------- 417,083 417,167 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 4,717 4,140 Receivables- Customers 2,978 7,338 Associated companies 14,010 30,006 Other 9,526 31,688 Notes receivable from associated companies 100,373 101,236 Materials and supplies, at average cost- Owned 23,990 25,745 Under consignment 18,816 18,148 Prepayments and other 31,490 25,647 ---------- ---------- 205,900 243,948 ---------- ---------- DEFERRED CHARGES: Regulatory assets 406,080 417,704 Goodwill 468,255 474,593 Property taxes 42,842 42,842 Other 7,446 4,295 ---------- ---------- 924,623 939,434 ---------- ---------- $2,704,097 $2,768,765 ========== ==========
- 31 - THE TOLEDO EDISON COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ (In thousands) CAPITALIZATION AND LIABILITIES ------------------------------ CAPITALIZATION: Common stockholder's equity- Common stock, $5 par value, authorized 60,000,000 shares - 39,133,887 shares outstanding $ 195,670 $ 195,670 Other paid-in capital 328,559 328,559 Retained earnings 36,984 51,463 ---------- ---------- Total common stockholder's equity 561,213 575,692 Preferred stock not subject to mandatory redemption 210,000 210,000 Long-term debt 1,040,289 1,083,666 ---------- ---------- 1,811,502 1,869,358 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock 156,382 130,426 Accounts payable- Associated companies 31,919 34,260 Other 31,403 38,832 Accrued taxes 41,444 62,288 Accrued interest 24,608 24,965 Other 23,971 35,082 ---------- ---------- 309,727 325,853 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 162,992 151,321 Accumulated deferred investment tax credits 39,709 40,670 Pensions and other postretirement benefits 121,131 122,314 Other 259,036 259,249 ---------- ---------- 582,868 573,554 ---------- ---------- COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 2) ---------- ---------- $2,704,097 $2,768,765 ========== ========== The preceding Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company are an integral part of these balance sheets.
- 32 - THE TOLEDO EDISON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 23,208 $ 19,130 $ 55,356 $ 53,135 Adjustments to reconcile net income to net cash from operating activities- Provision for depreciation and amortization 26,153 27,874 51,896 53,356 Nuclear fuel and lease amortization 5,206 3,629 11,818 10,930 Deferred income taxes, net 6,623 8,631 10,305 15,152 Investment tax credits, net (480) (649) (961) (1,298) Receivables 57,935 (14,975) 42,518 3,226 Materials and supplies 3,467 (527) 1,087 (3,507) Accounts payable (4,105) 12,658 (9,770) (114) Other (22,932) (29,086) (55,855) (26,217) -------- -------- -------- -------- Net cash provided from operating activities 95,075 26,685 106,394 104,663 -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt 34,850 3,657 34,850 3,657 Redemptions and Repayments- Preferred stock 1,690 1,665 1,690 1,665 Long-term debt 43,191 33,127 55,625 41,695 Dividend Payments- Common stock 60,351 21,132 60,351 21,132 Preferred stock 4,069 4,108 8,139 8,235 -------- -------- -------- -------- Net cash used for financing activities 74,451 56,375 90,955 69,070 -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 9,991 6,898 18,922 14,647 Loans to associated companies -- -- -- 44,648 Loan payments from associated companies (3,725) (33,150) (863) -- Capital trust investments 63 66 (15,307) (1,937) Other 9,751 (7,698) 12,110 (4,162) -------- -------- -------- -------- Net cash used for (provided from) investing activities 16,080 (33,884) 14,862 53,196 -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 4,544 4,194 577 (17,603) Cash and cash equivalents at beginning of period 173 373 4,140 22,170 -------- -------- -------- -------- Cash and cash equivalents at end of period $ 4,717 $ 4,567 $ 4,717 $ 4,567 ======== ======== ======== ======== The preceding Notes to Consolidated Financial Statements as they relate to The Toledo Edison Company are an integral part of these statements.
- 33 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Toledo Edison Company: We have reviewed the accompanying consolidated balance sheet of The Toledo Edison Company (an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and subsidiary as of June 30, 1999, and the related consolidated statements of income and cash flows for the three- month and six-month periods ended June 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of The Toledo Edison Company and subsidiary as of December 31, 1998 (not presented herein), and, in our report dated February 12, 1999, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1998, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Cleveland, Ohio August 9, 1999 - 34 - THE TOLEDO EDISON COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations - --------------------- Operating revenues decreased $4.5 million in the second quarter of 1999, compared to the second quarter of 1998, and were $1.4 million lower in the first half of 1999, compared to the same period of the prior year. Increases in kilowatt-hour sales were substantially offset by reduced unit prices. A reduction in other revenue contributed to the decrease in operating revenues. Total kilowatt-hour sales increased 6.4% in the second quarter of 1999, compared to the same period of 1998. While retail sales decreased 1.6% in the second quarter, kilowatt-hour sales to wholesale customers increased 69.2% as a result of available power at TE and strong weather-induced demand in the wholesale market during June. Retail kilowatt-hour sales to residential, commercial and industrial customers declined in the second quarter by 1.7%, 1.3% and 1.6%, respectively. In the first half of 1999, total kilowatt-hour sales increased 7.7%, compared to the same period of 1998, benefiting from a 44.2% increase in sales to wholesale customers. Retail kilowatt-hour sales increased 2.6% from the year-ago period, with sales to residential and industrial customers up 3.2% and 4.3% respectively. Sales to commercial customers decreased 1.4%. Operation and maintenance expenses decreased $8.3 million in the second quarter of 1999 from the same period of 1998, and were $2.1 million lower in the first half of 1999, compared to the first six months of 1998. Fuel and purchased power costs were lower in the second quarter and year-to-date periods of 1999 than the corresponding periods of 1998, due to lower purchased power costs. Most of the reduction in 1999 was due to the absence of unusual conditions experienced in the second quarter of 1998, which increased the prior period's costs. Record heat and humidity in late June 1998 coincided with a regional power shortage resulting in high prices for purchased power. During this period, unscheduled outages at Beaver Valley Unit 2 and the Davis- Besse Plant required that TE purchase significant quantities of power on the spot market during that period. Although the second quarter of 1999 also experienced above normal temperatures in June, spot market prices were less extreme, and TE maintained a stronger generating capacity position during the period. Therefore, TE was not only able to reduce its dependence on purchased power in 1999 but also took advantage of the strong demand for power through sales to the wholesale market (discussed above). Offsetting a portion of the reduction in purchased power costs were increases in nuclear operating costs at Beaver Valley Unit 2 and the Perry plant resulting from refueling outages at those locations. Other operating costs increased in the second quarter and year-to-date periods of 1999 from the corresponding periods of last year due in part to higher customer and sales expenses. Interest expenses decreased in the second quarter and first half of 1999 from the same periods of the previous year primarily due to redemptions of long-term debt. Capital Resources and Liquidity - ------------------------------- TE has continuing cash requirements for planned capital expenditures and debt maturities. During the last half of 1999, capital requirements for property additions and capital leases are expected to be about $32 million, including $3 million for nuclear fuel. TE has additional cash requirements of approximately $100.4 million to meet requirements for maturing long-term debt during the remainder of 1999. These cash requirements are expected to be satisfied with internal cash and/or short-term credit arrangements. As of June 30, 1999, TE had approximately $105.1 million of cash and temporary investments and no short-term indebtedness. Together with CEI, TE had unused borrowing capability of $100 million under a FirstEnergy revolving line of credit at the end of the second quarter of 1999. Under its first mortgage indenture, as of June 30, 1999, TE would have been permitted to issue approximately $234 million of additional first mortgage bonds on the basis of bondable property additions and retired bonds. Regulatory Matters - ------------------ On July 6, 1999, Ohio Governor Bob Taft signed into law legislation providing residents of Ohio with a choice of generation suppliers. Among other provisions, the new law provides customer choice starting January 1, 2001, freezes current rates for a five year market- development period and includes a five-percent price cut in the generation component of residential customer bills. Under the new law TE will continue to deliver power to homes and businesses through its distribution system, which will remain regulated. While the new law provides guidance for the transition to retail competition in Ohio, significant authority has been vested in the PUCO to determine the - 35 - ultimate recovery of transition costs (see Note 3). The PUCO will hold hearings as early as the first quarter of next year to decide the amount of transition costs each utility can recover over a period of up to ten years. FirstEnergy intends to file a transition plan for TE in the fourth quarter of 1999. The application of SFAS 71 to TE's nonnuclear generation business will be discontinued when the PUCO issues an order of its hearing findings. Consequently, TE is not able to determine, at this time, the financial impact resulting from the eventual discontinuation of regulatory accounting under SFAS 71 for its nonnuclear generation business. TE believes it will be able to continue to bill and collect cost-based rates on its transmission and distribution operations. In May 1999, a federal appeals court delayed enforcement of the EPA's September 1998 final regulations requiring reductions in nitrogen oxide emissions for Ohio, Pennsylvania and twenty other eastern states. The federal appeals court remanded the regulations back to the EPA so the agency could address, if possible, constitutional and other defects in the rules (see "Environmental Matters" in Note 2). The EPA has sought a rehearing. TE cannot predict either the outcome of these actions or the time period before final rules could become enforceable. Year 2000 Readiness - ------------------- The Year 2000 issue is the result of computer programs being written using two digits rather than four to identify the applicable year. Any of TE's programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Because so many of TE's computer functions are date sensitive, this could cause far-reaching problems, such as system-wide computer failures and miscalculations, if no remedial action is taken. TE has developed a multi-phase program for Year 2000 compliance that consists of an assessment of its systems and operations that could be affected by the Year 2000 problem; remediation or replacement of noncompliant systems and components; and testing of systems and components following such remediation or replacement. TE has focused its Year 2000 review on three areas: centralized system applications, noncentralized systems and relationships with third parties (including suppliers as well as end-use customers). TE's review of system readiness extends to systems involving customer service, safety, shareholder needs and regulatory obligations. TE is committed to taking appropriate actions to eliminate or lessen negative effects of the Year 2000 issue on its operations. TE has completed an inventory of all computer systems and hardware including equipment with embedded computer chips, has determined which systems need to be converted or replaced to become Year 2000-ready and has completed the remediation of all mission critical systems and equipment. Based on results of its remediation and testing efforts, TE filed documents (through FirstEnergy) with the North American Electric Reliability Council, Nuclear Regulatory Commission and PUCO that as of June 30, 1999 its generation, transmission, and distribution systems were ready to serve customers in the year 2000. Most of TE's Year 2000 issues have been resolved through system replacement. Of TE's major centralized systems, the general ledger system and inventory management, procurement and accounts payable systems were replaced at the end of 1998. TE's payroll system was enhanced to be Year 2000 compliant in July 1998; all employees have been converted to the new system. The customer service system was made Year 2000 compliant in June 1999. TE has completed formal communications with most of its key suppliers to determine the extent to which it is vulnerable to those third parties' failure to resolve their own Year 2000 problems. For suppliers having potential compliance problems, TE is developing alternate sources and services in the event such noncompliance occurs. TE is also identifying areas requiring higher inventory levels based on compliance uncertainties. There can be no guarantee that the failure of companies to resolve their own Year 2000 issues will not have a material adverse effect on TE's business, financial condition and results of operations, although it does not consider this likely to occur. TE has completed the development of formal contingency plans in all mission critical areas to establish procedures to be followed in handling unlikely events which could impact the provision of electric service to its customers. TE is using both internal and external resources to reprogram and/or replace and test its software for Year 2000 modifications. Of the $16 million total project cost, approximately $13 million will be capitalized since those costs are attributable to the purchase of new software for total system replacements because the Year 2000 solution comprises only a portion of the benefits resulting from the system replacements. The remaining $3 million will be expensed as incurred. As of June 30, 1999, TE had spent $12 million for Year 2000 capital projects and had expensed approximately $2 million for Year 2000-related maintenance activities. TE's total Year 2000 project cost, as well as - 36 - its estimates of the time needed to complete remedial efforts, are based on currently available information and do not include the estimated costs and time associated with the impact of third party Year 2000 issues. TE believes it is managing the Year 2000 issue in such a way that its customers will not experience any interruption of service. TE believes the most likely worst-case scenario from the Year 2000 issue will be disruption in power plant monitoring systems, thereby producing inaccurate data and potential failures in electronic switching mechanisms at transmission junctions. This would prolong localized outages, as technicians would have to manually activate switches. Such an event could have a material, but currently undeterminable, effect on its financial results. The costs of the project and the dates on which TE plans to complete the Year 2000 modifications are based on management's best estimates, which were derived from numerous assumptions of future events including the continued availability of certain resources, and other factors. However, there can be no guarantee that this project will be completed as planned and actual results could differ materially from the estimates. Specific factors that might cause material differences include but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code, and similar uncertainties. - 37 - PENNSYLVANIA POWER COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In thousands) OPERATING REVENUES $82,117 $ 80,271 $163,489 $158,847 ------- -------- -------- -------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 18,354 23,089 35,266 40,887 Nuclear operating costs 8,290 6,762 15,003 13,868 Other operating costs 16,517 13,511 31,245 25,701 ------- -------- -------- -------- Total operation and maintenance expenses 43,161 43,362 81,514 80,456 Provision for depreciation and amortization 16,278 16,510 30,715 33,008 General taxes 6,340 5,494 12,244 11,273 Income taxes 6,578 4,906 14,964 11,472 ------- -------- -------- -------- Total operating expenses and taxes 72,357 70,272 139,437 136,209 ------- -------- -------- -------- OPERATING INCOME 9,760 9,999 24,052 22,638 OTHER INCOME 250 634 1,247 1,373 ------- -------- -------- -------- INCOME BEFORE NET INTEREST CHARGES 10,010 10,633 25,299 24,011 ------- -------- -------- -------- NET INTEREST CHARGES: Interest expense 6,022 5,223 11,118 10,717 Allowance for borrowed funds used during construction (86) (62) (232) (144) ------- -------- -------- -------- Net interest charges 5,936 5,161 10,886 10,573 ------- -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 4,074 5,472 14,413 13,438 EXTRAORDINARY ITEM (NET OF INCOME TAX BENEFIT OF $21,208,000) -- (30,522) -- (30,522) ------- -------- -------- -------- NET INCOME (LOSS) 4,074 (25,050) 14,413 (17,084) PREFERRED STOCK DIVIDEND REQUIREMENTS 1,156 1,156 2,313 2,313 ------- -------- -------- -------- EARNINGS (LOSS) ON COMMON STOCK $ 2,918 $(26,206) $ 12,100 $(19,397) ======= ======== ======== ======== The preceding Notes to Consolidated Financial Statements as they relate to Pennsylvania Power Company are an integral part of these statements.
- 38 - PENNSYLVANIA POWER COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ (In thousands) ASSETS ------ UTILITY PLANT: In service $696,055 $686,771 Less--Accumulated provision for depreciation 297,319 291,188 -------- -------- 398,736 395,583 -------- -------- Construction work in progress- Electric plant 14,849 17,187 Nuclear fuel 379 508 -------- -------- 15,228 17,695 -------- -------- 413,964 413,278 -------- -------- OTHER PROPERTY AND INVESTMENTS 34,205 29,177 -------- -------- CURRENT ASSETS: Cash and cash equivalents 1,977 7,485 Notes receivable from parent company 28,687 50,000 Receivables- Customers (less accumulated provisions of $3,766,000 and $3,599,000, respectively, for uncollectible accounts) 37,311 34,737 Associated companies 15,666 34,430 Other 17,824 12,472 Materials and supplies, at average cost 17,857 15,515 Prepayments 9,600 2,657 -------- -------- 128,922 157,296 -------- -------- DEFERRED CHARGES: Regulatory assets 343,739 371,027 Other 6,478 6,994 -------- -------- 350,217 378,021 -------- -------- $927,308 $977,772 ======== ========
- 39 - PENNSYLVANIA POWER COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ------------ ------------ (In thousands) CAPITALIZATION AND LIABILITIES ------------------------------ CAPITALIZATION: Common stockholder's equity- Common stock, $30 par value, authorized 6,500,000 shares - 6,290,000 shares outstanding $188,700 $188,700 Other paid-in capital (310) (310) Retained earnings 34,118 86,891 -------- -------- Total common stockholder's equity 222,508 275,281 Preferred stock- Not subject to mandatory redemption 39,105 50,905 Subject to mandatory redemption 15,000 15,000 Long-term debt- Associated companies 7,405 6,617 Other 280,919 281,072 -------- -------- 564,937 628,875 -------- -------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock- Associated companies 5,403 5,557 Other 6,731 984 Accounts payable- Associated companies 21,533 9,676 Other 22,515 23,156 Accrued taxes 18,765 12,849 Accrued interest 6,546 6,519 Other 10,797 17,046 -------- -------- 92,290 75,787 -------- -------- DEFERRED CREDITS: Accumulated deferred income taxes 206,258 212,427 Accumulated deferred investment tax credits 7,492 7,787 Other 56,331 52,896 -------- -------- 270,081 273,110 -------- -------- COMMITMENTS, GUARANTEES AND CONTINGENCIES (Note 2) -------- -------- $927,308 $977,772 ======== ======== The preceding Notes to Consolidated Financial Statements as they relate to Pennsylvania Power Company are an integral part of these balance sheets.
- 40 - PENNSYLVANIA POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 4,074 $(25,050) $ 14,413 $(17,084) Adjustments to reconcile net income to net cash from operating activities- Provision for depreciation and amortization 16,278 16,510 30,715 33,008 Nuclear fuel and lease amortization 1,411 852 3,234 1,792 Deferred income taxes, net 1,150 (24,177) (873) (26,989) Investment tax credits, net (112) (572) (295) (1,144) Extraordinary item -- 51,730 -- 51,730 Receivables 14,623 (16) 10,838 946 Materials and supplies (1,610) 203 (2,342) (173) Accounts payable 5,031 3,842 11,216 5,006 Other 5,250 3,470 (7,201) (6,404) ------- -------- -------- -------- Net cash provided from operating activities 46,095 26,792 59,705 40,688 ------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt -- 1,621 -- 1,621 Redemptions and Repayments- Preferred stock 6,085 -- 6,085 -- Long-term debt 1,400 791 3,145 2,551 Dividend Payments- Common stock 33,597 5,347 65,362 10,693 Preferred stock 671 1,081 1,737 2,238 ------- -------- -------- -------- Net cash used for financing activities 41,753 5,598 76,329 13,861 ------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 3,696 3,735 8,329 7,019 Loan to parent -- 13,500 -- 12,500 Loan payment from parent (1,071) -- (21,313) -- Other 605 1,069 1,868 1,881 ------- -------- -------- -------- Net cash used for (provided from) investing activities 3,230 18,304 (11,116) 21,400 ------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,112 2,890 (5,508) 5,427 Cash and cash equivalents at beginning of period 865 3,197 7,485 660 ------- -------- -------- -------- Cash and cash equivalents at end of period $ 1,977 $ 6,087 $ 1,977 $ 6,087 ======= ======== ======== ======== The preceding Notes to Consolidated Financial Statements as they relate to Pennsylvania Power Company are an integral part of these statements.
- 41 - PENNSYLVANIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations - --------------------- Earnings were adversely affected in the second quarter and year-to-date periods of 1998 by an extraordinary item resulting from the deregulation of Penn's generation business and the corresponding discontinuation of SFAS 71 with respect to its generation business. This action was taken following the June 18, 1998, authorization by the Pennsylvania Public Utility Commission (PPUC) of the restructuring plan for Penn. Earnings on common stock in the second quarter of 1999 were $2.9 million, compared to $4.3 million, excluding the extraordinary item in the second quarter of 1998; for the first half of 1999, earnings on common stock were $12.1 million compared to $11.1 million for the same period of 1998. Operating revenues increased $1.8 million in the second quarter of 1999, compared to the second quarter of 1998, and $4.6 million in the first half of 1999, compared to the same period of the prior year. The increases in operating revenues resulted from additional kilowatt-hour sales, which were partially offset by reduced unit prices. Residential, commercial and industrial customers all contributed to higher retail kilowatt-hour sales in the second quarter of 1999, compared to the same period of 1998, with increases of 4.1%, 23.4% and 7.3%, respectively. Overall, retail kilowatt-hour sales increased 10.9% and total kilowatt-hour sales increased a more moderate 5.6% due to reduced sales to wholesale customers during the period. In the first half of 1999 residential and commercial customers contributed to the increase in retail kilowatt-hour sales, increasing 10.1% and 23.5%, respectively, from the prior year, while sales to industrial customers decreased 1.5%. Overall, retail sales increased 9.2% and total sales increased 6.2%. Growth in sales per customer was the primary factor supporting increased residential sales in the second quarter and first half of 1999, compared to the corresponding prior year periods. Continued service sector growth contributed to the commercial sales increase while industrial sales benefited in the second quarter from a rebound in sales to the primary metal sector. Retail kilowatt-hour sales also increased due to nonregulated sales by Penn Power Energy, Inc. (PPE), a wholly owned subsidiary. Most of the new PPE sales were to commercial customers resulting in the unusually large percentage increase in kilowatt-hour sales to those customers. Operation and maintenance expenses decreased $0.2 million in the second quarter of 1999 from the same period of 1998, and were $1.1 million higher in the first half of 1999, compared to the first half of 1998. The relatively small changes in these expenses resulted from larger increases and offsetting decreases as discussed below. Fuel and purchased power costs were lower in both the second quarter and year-to-date periods of 1999 than the corresponding periods of 1998 due to an increased mix of nuclear production, which reduced the cost of fuel, and lower purchased power costs. Most of the reduction in purchased power costs in 1999 was due to the absence of unusual conditions experienced in the second quarter of 1998, which increased the prior period's costs. Record heat and humidity in late June 1998 coincided with a regional power shortage resulting in high prices for purchased power. Due in part to an unscheduled outage at Beaver Valley Unit 1, which continued through the second quarter of 1998, Penn purchased significant quantities of power on the spot market during that period. Although the second quarter of 1999 also experienced above normal temperatures in June, spot market prices were less extreme and Penn maintained a stronger capacity position during the period. Therefore, Penn was able to reduce its dependence on purchased power in 1999. Expenses associated with the 1999 refueling outage at the Perry Plant increased nuclear expenses in the second quarter and first half of 1999, compared to the corresponding periods of 1998. Other operating costs increased in the second quarter and year-to-date periods of 1999 from the same periods of last year primarily due to increased energy marketing program expenditures. Capital Resources and Liquidity - ------------------------------- Penn has continuing cash requirements for planned capital expenditures. During the second half of 1999, capital requirements for property additions and capital leases are expected to be about $30 million, with no additional expenditures for nuclear fuel. Penn has additional cash requirements of approximately $0.5 million to meet requirements for maturing long-term debt during the remainder of 1999. These requirements are expected to be satisfied with internal cash. As of June 30, 1999, Penn had approximately $30.7 million of cash and temporary investments and no short-term indebtedness. Penn had $2 million of an unused bank facility as of June 30, 1999, which may be borrowed for up to several days at the bank's discretion. Under its first mortgage indenture, as of June 30, 1999, Penn would have been - 43 - permitted to issue at least $233 million of additional first mortgage bonds on the basis of bondable property additions and retired bonds. Regulatory Matters - ------------------ In May 1999, a federal appeals court delayed enforcement of EPA's September 1998 final regulations requiring reductions in nitrogen oxide emissions for Pennsylvania, Ohio and twenty other eastern states. The federal appeals court remanded the regulations back to the EPA so the agency could address, if possible, constitutional and other defects in the rules (see "Environmental Matters" in Note 2). The EPA has sought a rehearing. Penn cannot predict either the outcome of these actions or the time period before final rules could become enforceable. Year 2000 Readiness - ------------------- The Year 2000 issue is the result of computer programs being written using two digits rather than four to identify the applicable year. Any of Penn's programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. Because so many of Penn's computer functions are date sensitive, this could cause far-reaching problems, such as system-wide computer failures and miscalculations, if no remedial action is taken. Penn has developed a multi-phase program for Year 2000 compliance that consists of an assessment of its systems and operations that could be affected by the Year 2000 problem; remediation or replacement of noncompliant systems and components; and testing of systems and components following such remediation or replacement. Penn has focused its Year 2000 review on three areas: centralized system applications, noncentralized systems and relationships with third parties (including suppliers as well as end-use customers). Penn's review of system readiness extends to systems involving customer service, safety, shareholder needs and regulatory obligations. Penn is committed to taking appropriate actions to eliminate or lessen negative effects of the Year 2000 issue on its operations. Penn has completed an inventory of all computer systems and hardware including equipment with embedded computer chips and has determined which systems need to be converted or replaced to become Year 2000- ready and has completed the remediation of all mission critical systems and equipment. Based on results of our remediation and testing efforts, Penn filed documents (through FirstEnergy) with the North American Electric Reliability Council, Nuclear Regulatory Commission and PPUC that as of June 30, 1999 its generation, transmission, and distribution systems were ready to serve customers in the year 2000. Most of Penn's Year 2000 issues have been resolved through system replacement. Of Penn's major centralized systems, the general ledger system and inventory management, procurement and accounts payable systems were replaced at the end of 1998. Penn's payroll system was enhanced to be Year 2000 compliant in July 1998. The customer service system was made Year 2000 compliant in June 1999. Penn has completed formal communications with most of its key suppliers to determine the extent to which it is vulnerable to those third parties' failure to resolve their own Year 2000 problems. For suppliers having potential compliance problems, Penn is developing alternate sources and services in the event such noncompliance occurs. Penn is also identifying areas requiring higher inventory levels based on compliance uncertainties. There can be no guarantee that the failure of companies to resolve their own Year 2000 issues will not have a material adverse effect on Penn's business, financial condition and results of operations, although it does not consider this likely to occur. Penn has completed the development of formal contingency plans in all mission critical areas to establish procedures to be followed in handling unlikely events which could impact the provision of electric service to its customers. Penn is using both internal and external resources to reprogram and/or replace and test its software for Year 2000 modifications. Of the $4.9 million total project cost, approximately $3.5 million will be capitalized since those costs are attributable to the purchase of new software for total system replacements because the Year 2000 solution comprises only a portion of the benefits resulting from the system replacements. The remaining $1.4 million will be expensed as incurred. As of June 30, 1999, Penn had spent $3.2 million for Year 2000 capital projects and had expensed approximately $.9 million for Year 2000-related maintenance activities. Penn's total Year 2000 project cost, as well as its estimates of the time needed to complete remedial efforts, are based on currently available information and do not include the estimated costs and time associated with the impact of third party Year 2000 issues. - 44 - Penn believes it is managing the Year 2000 issue in such a way that its customers will not experience any interruption of service. Penn believes the most likely worst-case scenario from the Year 2000 issue will be disruption in power plant monitoring systems, thereby producing inaccurate data and potential failures in electronic switching mechanisms at transmission junctions. This would prolong localized outages, as technicians would have to manually activate switches. Such an event could have a material, but currently undeterminable, effect on its financial results. The costs of the project and the dates on which Penn plans to complete the Year 2000 modifications are based on management's best estimates, which were derived from numerous assumptions of future events including the continued availability of certain resources, and other factors. However, there can be no guarantee that this project will be completed as planned and actual results could differ materially from the estimates. Specific factors that might cause material differences include but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code, and similar uncertainties. - 45 - PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Exhibit Number ------- FirstEnergy, OE, CEI and Penn ----------------------------- 15 Letter from independent public accountants. TE -- None Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, FirstEnergy, or, respectively, any of the Companies, has not filed as an exhibit to this Form 10-Q any instrument with respect to long-term debt if the respective total amount of securities authorized thereunder does not exceed 10% of the total assets of FirstEnergy and its subsidiaries on a consolidated basis, or respectively, any of the Companies, but hereby agrees to furnish to the Commission on request any such documents. (b) Reports on Form 8-K FirstEnergy, OE, CEI, and TE - One combined report on Form 8-K ---------------------------- was filed since March 31, 1999. A report dated June 24, 1999 reported the Ohio legislature's passage of an electric utility industry restructuring bill. Penn ---- None - 46 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. August 13, 1999 FIRSTENERGY CORP. ----------------- Registrant OHIO EDISON COMPANY ------------------- Registrant THE CLEVELAND ELECTRIC ---------------------- ILLUMINATING COMPANY -------------------- Registrant THE TOLEDO EDISON COMPANY ------------------------- Registrant /s/ Harvey L. Wagner ---------------------------- Harvey L. Wagner Controller Principal Accounting Officer PENNSYLVANIA POWER COMPANY -------------------------- Registrant /s/ Harvey L. Wagner ----------------------------- Harvey L. Wagner Comptroller Principal Accounting Officer - 47 - EX-15 2 EXHIBIT 15 August 9, 1999 FirstEnergy Corp. 76 South Main Street Akron, OH 44308 Gentlemen: We are aware that FirstEnergy Corp. has incorporated by reference in its Registration Statements No. 333-40065, No. 333-48587, No. 333-48651, No. 333-58279, No. 333-65409 and No. 333-75985 its Form 10-Q for the quarter ended June 30, 1999, which includes our report dated August 9, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP EX-27 3
UT This schedule contains summary financial information extracted from the related Form 10-Q financial statements for FirstEnergy Corp. and is qualified in its entirety by reference to such financial statements. (Amounts in 1,000's, except earnings per share.) 0001031296 FIRSTENERGY CORP. 1,000 U.S. DOLLARS 6-MOS DEC-31-1999 JUN-30-1999 1 PER-BOOK 9,224,174 2,417,962 1,411,430 5,329,618 0 18,383,184 23,449 3,640,771 809,017 4,473,237 280,996 648,395 6,142,847 108,787 0 119,982 1,096,185 44,264 0 60,796 5,407,695 18,383,184 2,941,291 194,342 2,191,467 2,385,809 555,482 0 555,482 293,439 262,043 0 0 171,436 514,463 485,411 1.15 1.15
EX-15 4 EXHIBIT 15 August 9, 1999 Ohio Edison Company 76 South Main Street Akron, OH 44308 Gentlemen: We are aware that Ohio Edison Company has incorporated by reference in its Registration Statements No. 33-49135, No. 33- 49259, No. 33-49413, No. 33-51139, No. 333-01489 and No. 333- 05277 its Form 10-Q for the quarter ended June 30, 1999, which includes our report dated August 9, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP EX-27 5
UT This schedule contains summary financial information extracted from the related Form 10-Q financial statements for Ohio Edison company and is qualified in its entirety by reference to such financial statements. (Amounts in 1,000's.) Income tax expense includess $11,907,000 related to other income. 0000073960 OHIO EDISON COMPANY 1,000 U.S. DOLLARS 6-MOS DEC-31-1999 JUN-30-1999 1 PER-BOOK 4,712,153 1,319,322 912,848 2,022,637 0 8,966,960 1 2,098,728 400,440 2,499,169 145,000 200,070 2,061,597 308,021 0 119,982 815,403 10,800 0 3,547 2,803,371 8,966,960 1,279,847 101,574 941,213 1,030,880 248,967 22,398 271,365 114,819 156,546 5,826 150,720 333,603 200,814 370,027 0 0
EX-15 6 EXHIBIT 15 August 9, 1999 The Cleveland Electric Illuminating Company 76 South Main Street Akron, OH 44308 Gentlemen: We are aware that The Cleveland Electric Illuminating Company has incorporated by reference in its Registration Statements No. 33- 55513, No. 333-47651 and No. 333-72891 its Form 10-Q for the quarter ended June 30, 1999, which includes our report dated August 9, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP EX-27 7
UT This schedule contains summary financial information extracted from the related Form 10-Q financial statements for The Cleveland Electric Illuminating Company and is qualified in its entirety by reference to such financial statements. (Amounts in 1000's.) Income tax expense includes $7,560,000 related to other income. 0000020947 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY 1,000 U.S.DOLLARS 6-MOS DEC-31-1999 JUN-30-1999 1 PER-BOOK 3,018,084 688,161 426,742 2,134,781 0 6,267,768 931,962 0 59,688 991,650 135,996 238,325 2,869,859 55,890 0 0 144,530 33,464 0 31,867 1,766,187 6,267,768 900,794 56,878 663,322 712,640 188,154 5,217 193,371 105,836 87,535 17,082 70,453 82,974 216,278 108,208 0 0
EX-27 8
UT This schedule contains summary financial information extracted from the related Form 10-Q financial statements for The Toledo Edison Company and is qualified in its entirety to such financial statements. (Amounts in 1,000's.) Income tax expense includes $3,311,000 related to other income. 0000352049 THE TOLEDO EDISON COMPANY 1,000 U.S. DOLLARS 6-MOS DEC-31-1999 JUN-30-1999 1 PER-BOOK 1,156,491 417,083 205,900 924,623 0 2,704,097 195,670 328,559 36,984 561,213 0 210,000 1,040,289 0 0 0 131,000 0 0 25,382 736,213 2,704,097 459,446 31,520 343,010 371,219 88,227 6,167 94,394 39,038 55,356 8,139 47,217 60,351 85,237 106,394 0 0
EX-15 9 EXHIBIT 15 August 9, 1999 Pennsylvania Power Company 1 E. Washington Street P. O. Box 891 New Castle, PA 16103 Gentlemen: We are aware that Pennsylvania Power Company has incorporated by reference in its Registration Statements No. 33-62450 and No. 33- 65156 its Form 10-Q for the quarter ended June 30, 1999, which includes our report dated August 9, 1999 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP EX-27 10
UT This schedule contains financial information extracted from the related Form 10-Q financial statements for Pennsylvania Power Company and is qualified in its entirety by reference to such financial statements. (Amounts in 1,000's.) Income tax expense includes $267,000 related to other income. 0000077278 PENNSYLVANIA POWER COMPANY 1,000 U.S. DOLLARS 6-MOS DEC-31-1999 JUN-30-1999 1 PER-BOOK 413,964 34,205 128,922 350,217 0 927,308 188,700 (310) 34,118 222,508 15,000 39,105 288,324 0 0 0 487 5,800 0 5,847 350,237 927,308 163,489 15,231 124,473 139,437 24,052 1,247 25,299 10,886 14,413 2,313 12,100 65,362 19,187 59,705 0 0
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