-----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, JVozr89VODr+G27Q9YBqF5zr6q2L3WEwiBx3/5KY85TfAyvDNwyaa4GouxAPF8YX KmHAO/sHd0VqTI1ubqT1VA== 0000073960-97-000003.txt : 19970327 0000073960-97-000003.hdr.sgml : 19970327 ACCESSION NUMBER: 0000073960-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: CSX SROS: NYSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02578 FILM NUMBER: 97563400 BUSINESS ADDRESS: STREET 1: 76 S MAIN ST CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2163845100 10-K 1 1996 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ------------------ ----------------- Commission File Number 1-2578 OHIO EDISON COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-0437786 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 76 SOUTH MAIN STREET, AKRON, OHIO 44308 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-800-736-3402 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Each registered on Common Stock, $9 par value New York Stock Exchange Rights to Purchase Common Stock and Chicago Stock Exchange Cumulative Preferred Stock, $100 par value 3.90% Series 4.40% Series All series registered on 4.44% Series New York Stock Exchange 4.56% Series and Chicago Stock Exchange Cumulative Preferred Stock, $25 par value Registered on 7.75% Series New York Stock Exchange and Chicago Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No --- --- State the aggregate market value of the voting stock held by non- affiliates of the registrant: $3,354,747,946 as of March 7, 1997. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: CLASS OUTSTANDING AT MARCH 26, 1997 ----- ----------------------------- Common Stock, $9 par value 152,569,437 Documents incorporated by reference (to the extent indicated herein): PART OF FORM 10-K INTO WHICH DOCUMENT DOCUMENT IS INCORPORATED -------- ---------------------------- Annual Report to Stockholders for the fiscal year ended December 31, 1996 (Pages 12-30) Part II Proxy Statement for 1997 Annual Meeting of Stockholders to be held April 24, 1997 Part III TABLE OF CONTENTS Page ---- Part I Item 1. Business..................................... 1 The Company................................ 1 Merger Agreement........................... 1 Utility Regulation......................... 2 PUCO Rate Matters.......................... 2 PPUC Rate Matters.......................... 2 FERC Rate Matters.......................... 3 Fuel Recovery Procedures................... 3 Capital Requirements....................... 3 Central Area Power Coordination Group...... 5 Nuclear Regulation......................... 5 Nuclear Insurance.......................... 6 Environmental Matters...................... 7 Air Regulation........................... 7 Water Regulation......................... 8 Waste Disposal........................... 8 Summary.................................. 8 Fuel Supply................................ 8 System Capacity and Reserves............... 9 Regional Reliability....................... 10 Competition................................ 10 Research and Development................... 10 Executive Officers......................... 11 Item 2. Properties................................... 11 Item 3. Legal Proceedings............................ 13 Item 4. Submission of Matters to a Vote of Security Holders........................... 13 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............ 13 Item 6. Selected Financial Data...................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 13 Item 8. Financial Statements and Supplementary Data.. 13 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure................................. 13 Part III Item 10. Directors and Executive Officers of the Registrant................................. 13 Item 11. Executive Compensation....................... 13 Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 13 Item 13. Certain Relationships and Related Transactions............................... 14 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 14 PART I ITEM 1. BUSINESS The Company Ohio Edison Company (Company) was organized under the laws of the State of Ohio in 1930 and owns property and does business as an electric public utility in that state. The Company also has ownership interests in certain generating facilities located in the Commonwealth of Pennsylvania. The Company furnishes electric service to communities in a 7,500 square mile area of central and northeastern Ohio. It also provides transmission services and electric energy for resale to certain municipalities in the Company's service area and transmission services to certain rural cooperatives. The Company also engages in the sale, purchase and interchange of electric energy with other electric companies. The area it serves has a population of approximately 2,537,000. The Company owns all of the outstanding common stock of Pennsylvania Power Company (Penn Power), a Pennsylvania corporation, which furnishes electric service to communities in a 1,500 square mile area of western Pennsylvania. Penn Power also provides transmission services and electric energy for resale to certain municipalities in Pennsylvania. The area served by Penn Power has a population of approximately 343,000. Merger Agreement On September 13, 1996, the Company and Centerior Energy Corporation, an Ohio corporation, entered into an Agreement and Plan of Merger. Under the Merger Agreement, the Company and Centerior will form FirstEnergy Corp., a holding company which will directly hold all of the issued and outstanding common stock of the Company and all of the issued and outstanding common stock of Centerior's direct subsidiaries, which include among others, The Cleveland Electric Illuminating Company (CEI) and The Toledo Edison Company (Toledo). Penn Power will remain a wholly owned subsidiary of the Company. As a result of the Merger, the respective common stock shareholders of the Company and Centerior will own all of the outstanding shares of FirstEnergy Common Stock. All other classes of capital stock of the Company and its subsidiaries and of the subsidiaries of Centerior will be unaffected by the Merger and will remain outstanding. The Merger has been approved by the respective Boards of Directors of the Company and Centerior and is expected to close promptly after all of the conditions to the consummation of the Merger, including the receipt of all necessary regulatory approvals, are fulfilled or waived. An important condition already - 1 - met was the approval by the Public Utilities Commission of Ohio (PUCO) of FirstEnergy's Rate Reduction and Economic Development Plan for CEI and Toledo in January 1997. This regulatory plan, which is similar to the regulatory plan approved by the PUCO for the Company (see "Utility Regulation-PUCO Rate Matters"), provides for a $310 million reduction in base electric rates for CEI and Toledo in 2006. The plan also requires additional depreciation (or revaluation) of generating assets and additional amortization of regulatory assets of at least $2 billion more than the amounts that would have been recognized through December 31, 2005, without the plan, and limits annual earnings on common stock for CEI and Toledo. Shareholder meetings to vote on the Merger are scheduled to be held on March 27, 1997. The receipt of all necessary regulatory approvals, including approvals from the Federal Energy Regulatory Commission (FERC), the Securities and Exchange Commission and the Nuclear Regulatory Commission (NRC), are expected to take approximately twelve to eighteen months from the date of the Merger Agreement. The Pennsylvania Public Utility Commission (PPUC) approved the merger on February 13, 1997. Utility Regulation The Company and Penn Power (Companies) are subject to broad regulation as to rates and other matters by the PUCO and the PPUC. With respect to their wholesale and interstate electric operations and rates, the Companies are subject to regulation, including regulation of their accounting policies and practices, by the FERC. Under Ohio law, municipalities may regulate rates, subject to appeal to the PUCO if not acceptable to the utility. In 1986, a law was passed which extended the jurisdiction of the PUCO to nonutility affiliates of holding companies exempt under Section 3(a)(1) and 3(a)(2) of the Public Utility Holding Company Act of 1935 (1935 Act) to the extent that the activities of such affiliates affect or relate to the cost of providing electric utility service in Ohio. The law, among other things, requires PUCO approval of investments in, or the transfer of assets to, nonutility affiliates. Investments in such affiliates are limited to 15% of the aggregate capitalization of the holding company on a consolidated basis. The Company is an exempt holding company under Section 3(a)(2) of the 1935 Act, but the law has not had any effect on its operations as they are currently conducted. The Energy Policy Act of 1992 (1992 Act) amended portions of the 1935 Act, providing independent power producers and other nonregulated generating facilities easier entry into electric generation markets. The 1992 Act also amended portions of the Federal Power Act, authorizing the FERC, under certain circumstances, to mandate access to utility-owned transmission facilities. Following the enactment of the 1992 Act, the FERC has ordered all utilities to file open access tariffs applicable to transmission facilities, including provisions which require - 2 - utilities to offer comparable services on a nondiscriminatory basis. PUCO Rate Matters The Company's Rate Reduction and Economic Development Plan was approved by the PUCO in 1995. The regulatory plan is designed to enhance and accelerate economic development within the Company's service area and to assure the Company's customers of long-term competitive pricing for energy services. The regulatory plan maintains current base electric rates for the Company through December 31, 2005, unless additional revenues are needed to recover the costs of changes in environmental, regulatory or tax laws or regulations. As part of the regulatory plan, transition rate credits were implemented for customers, which are expected to reduce operating revenues by approximately $600 million during the regulatory plan period. The regulatory plan also established a revised fuel recovery rate formula which eliminated the automatic pass-through of fuel costs to the Company's retail customers (see "Fuel Recovery Procedures"). All of the Company's regulatory assets are being recovered under provisions of the regulatory plan. In addition, the PUCO authorized the Company to recognize additional depreciation expense related to its generating assets and additional amortization of regulatory assets during the ten-year regulatory plan period of at least $2 billion more than the amount that would have been recognized if the regulatory plan were not in effect. These additional amounts are being recovered through current rates. Among other provisions, the regulatory plan also limits the Company's annual earnings on common stock to a 13.21% return under a formula adopted by the PUCO; any amounts otherwise earned in excess of the limitation would be credited to the Company's retail customers in a future period. PPUC Rate Matters Penn Power's Rate Stability and Economic Development Plan was approved by the PPUC in the second quarter of 1996. This regulatory plan maintains current base electric rates for Penn Power through June 20, 2006 and revised its fuel recovery method (see "Fuel Recovery Procedures"). All of Penn Power's regulatory assets are being recovered under provisions of the regulatory plan. In addition, the PPUC has authorized Penn Power to recognize additional depreciation expense related to its generating assets and additional amortization of regulatory assets during the ten- year regulatory plan period of at least $358 million more than the amounts that would have been recognized if the regulatory plan were not in effect. These additional amounts are being recovered through current rates. - 3 - In December 1996, Pennsylvania enacted "The Electricity Generation Customer Choice and Competition Act," which will permit residents, including Penn Power's customers, to choose their electric generation supplier, while transmission and distribution services will continue to be supplied by their current providers. Customer choice would be phased in over three years, beginning in 1999, after a two-year pilot program. The new Pennsylvania law also establishes procedures and standards for the recovery of stranded costs over an eight to nine-year period in the form of a transition charge on customer billings, and allows utilities to seek PPUC approval to securitize, or refinance, stranded costs which have been determined by the PPUC to be recoverable. Penn Power believes that this legislation will continue to provide for cost recovery in a manner which meets the criteria for application of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." FERC Rate Matters Rates for the Companies' respective wholesale customers are regulated by the FERC. The Company's tariff for its customers was approved by the FERC in 1989. Penn Power has agreements to sell power to four wholesale customers; two of the agreements expire in March 1998, and the other two will be in effect until September 1999. A former municipal customer of Penn Power signed a contract with another energy supplier in November 1995. Penn Power and the former customer have reached a settlement of Penn Power's proposed transmission rate which was approved by the FERC on March 13, 1997. Fuel Recovery Procedures In accordance with its regulatory plan, the Company's Electric Fuel Component (EFC) rate has been frozen until December 31, 2005, subject only to limited periodic adjustments. The rate is adjusted annually based on changes in the GDP Implicit Price Deflator, unless significant changes in environmental, regulatory or tax laws or regulations increase or decrease the cost of fuel. Such changes in laws, regulations and/or taxes would require PUCO approval to be reflected as an adjustment to the EFC rate. Furthermore, for the period through July 1, 1999, the EFC rate will be limited to the average fuel cost rate of certain utilities within the state. Commencing July 1, 2000, the EFC rate will be limited to 97% of the average fuel cost rate of these companies. The average fuel cost rate for these utilities may be adjusted by the PUCO to reflect any significant changes in the Phase II environmental compliance plans of such companies involving capital additions or equipment utilization. Under its regulatory plan, Penn Power eliminated its energy cost rate (ECR) for the recovery of fuel and net purchased power costs as a separate component of customer charges. Energy - 4 - costs were rolled into Penn Power's base electric rates at their projected 1996-1997 level. Capital Requirements The Companies' total construction costs, excluding nuclear fuel, amounted to approximately $122 million in 1996. Such costs included expenditures for the betterment of existing facilities and for the construction of transmission lines, distribution lines, substations and other additions. For the years 1997-2001, such construction costs are estimated to be approximately $600 million, of which approximately $135 million is applicable to 1997. See "Environmental Matters" below with regard to possible environment- related expenditures not included in this estimate. During the 1997-2001 period, maturities of, and sinking fund requirements for, long-term debt and preferred stock will require expenditures by the Companies of over $900 million, of which approximately $164 million is applicable to 1997. These requirements are expected to be met with internally generated cash. Nuclear fuel purchases are financed through OES Fuel (a wholly owned subsidiary of the Company) commercial paper and loans, both of which are supported by a $225 million long-term bank credit agreement. Investments for additional nuclear fuel during the 1997- 2001 period are estimated to be approximately $194 million, of which approximately $45 million applies to 1997. During the same periods, the Companies' nuclear fuel investments are expected to be reduced by approximately $185 million and $43 million, respectively, as the nuclear fuel is consumed. Also, the Companies have operating lease commitments (net of PNBV Capital Trust income) of approximately $424 million for the 1997-2001 period, of which approximately $75 million relates to 1997. The Companies recover the cost of nuclear fuel consumed and operating leases through their electric rates. Short-term borrowings outstanding at December 31, 1996, consisted of $229.5 million of bank borrowings and $120.0 million of OES Capital, Incorporated commercial paper. OES Capital is a wholly owned subsidiary of the Company whose borrowings are secured by customer accounts receivable. OES Capital can borrow up to $120 million under a receivables financing agreement at rates based on certain bank commercial paper. The Companies also had $27 million available under revolving lines of credit as of December 31, 1996. In addition, $16.5 million was available through bank facilities that provide for borrowings on a short-term basis at the banks' discretion. Based on their present plans, the Companies could provide for their cash requirements in 1997 from the following sources: funds to be received from operations; available cash and temporary - 5 - cash investments (approximately $5 million as of December 31, 1996); the issuance of long-term debt (for refunding purposes) and funds available under revolving credit arrangements. The extent and type of future financings will depend on the need for external funds as well as market conditions, the maintenance of an appropriate capital structure and the ability of the Companies to comply with coverage requirements in order to issue first mortgage bonds and preferred stock. The Companies will continue to monitor financial market conditions and, where appropriate, may take advantage of economic opportunities to refund debt and preferred stock to the extent that their financial resources permit. The coverage requirements contained in the first mortgage indentures under which the Companies issue first mortgage bonds provide that, except for certain refunding purposes, the Companies may not issue first mortgage bonds unless applicable net earnings (before income taxes), calculated as provided in the indentures, for any period of twelve consecutive months within the fifteen calendar months preceding the month in which such additional bonds are issued, are at least twice annual interest requirements on outstanding first mortgage bonds, including those being issued. The Companies' respective articles of incorporation prohibit the sale of preferred stock unless applicable gross income, calculated as provided in the articles of incorporation, is equal to at least 1- 1/2 times the aggregate of the annual interest requirements on indebtedness and annual dividend requirements on preferred stock outstanding immediately thereafter. With respect to the issuance of first mortgage bonds under the Company's first mortgage indenture, the availability of property additions is more restrictive than the earnings test at the present time and would limit the amount of first mortgage bonds issuable against property additions to $397 million. The Company is currently able to issue $900 million principal amount of first mortgage bonds against previously retired bonds without the need to meet the above restrictions. Based upon earnings for 1996, the Company would be permitted, under the earnings coverage test contained in its charter, to issue at least $1.3 billion of preferred stock at an assumed dividend rate of 9%. If the Company were to issue additional debt at or prior to the time it issued preferred stock, the amount of preferred stock which would be issuable would be reduced. To the extent that coverage requirements or market conditions restrict the Companies' abilities to issue desired amounts of first mortgage bonds or preferred stock, the Companies may seek other methods of financing. Such financings could include the sale of common stock and preference stock or of such other types of securities as might be authorized by applicable regulatory authorities which would not otherwise be sold and could result in - 6 - annual interest charges and/or dividend requirements in excess of those that would otherwise be incurred. Central Area Power Coordination Group (CAPCO) In September 1967, the CAPCO companies, consisting of the Company, Penn Power, CEI, Duquesne Light Company (Duquesne) and Toledo, announced a program for joint development of power generation and transmission facilities. Included in the program are Unit 7 at the W. H. Sammis Plant, Units 1, 2 and 3 at the Bruce Mansfield Plant, Units 1 and 2 at the Beaver Valley Power Station and the Perry Nuclear Power Plant, each now in service. The present CAPCO Basic Operating Agreement provides, among other things, for coordinated maintenance responsibilities among the CAPCO companies, a limited and qualified mutual backup arrangement in the event of outage of CAPCO units and certain capacity and energy transactions among the CAPCO companies. The agreements among the CAPCO companies generally treat the Companies as a single system as between them and the other three CAPCO companies, but, in agreements between the CAPCO companies and others, all five companies are treated as separate entities. Subject to any rights that might arise among the CAPCO companies as such, each member company, severally and not jointly, is obligated to pay only its proportionate share of the costs associated with the facilities and the cost of required fuel. The CAPCO companies have agreed that any modification of their arrangements or of their agreed-upon programs requires their unanimous consent. Should any member become unable to continue to pay its share of the costs associated with a CAPCO facility, each of the other CAPCO companies could be adversely affected in varying degrees because it may become necessary for the remaining members to assume such costs for the account of the defaulting member. Under the agreements governing the construction and operation of CAPCO generating units, the responsibility is assigned to a specific CAPCO company. CEI has such responsibilities for Perry, and Duquesne is responsible for Beaver Valley Units 1 and 2. The Company monitors activities in connection with these units but must rely to a significant degree on the operating company for necessary information. The Company in its oversight role as a practical matter cannot be privy to every detail; it is the operating company that must directly supervise activities and then exercise its reporting responsibilities to the co-owners. The Company critically reviews the information given to it by the operating company, but it cannot be absolutely certain that things it would have considered significant have been reported or that it always would have reached exactly the same conclusion about matters that are reported. In addition, the time that is necessarily part of the compiling and analyzing process creates a lag between the occurrence of events and the time the Company becomes aware of - 7 - their significance. The Companies have similar responsibilities to the other CAPCO companies with respect to W.H. Sammis Unit 7 and Bruce Mansfield Units 1, 2 and 3. Nuclear Regulation The construction and operation of nuclear generating units are subject to the regulatory jurisdiction of the NRC including the issuance by it of construction permits and operating licenses. The NRC's procedures with respect to application for construction permits and operating licenses afford opportunities for interested parties to request public hearings on health, safety, environmental and antitrust issues. In this connection, the NRC may require substantial changes in operation or the installation of additional equipment to meet safety or environmental standards with resulting delay and added costs. The possibility also exists for modification, denial or revocation of licenses or permits. Full power operating licenses were issued for Beaver Valley Unit 1, Perry and Beaver Valley Unit 2 on July 1, 1976, November 13, 1986 and August 14, 1987, respectively. The NRC has promulgated and continues to promulgate regulations related to the safe operation of nuclear power plants. The Companies cannot predict what additional regulations will be promulgated or design changes required or the effect that any such regulations or design changes, or the consideration thereof, may have upon the Beaver Valley and Perry plants. Although the Companies have no reason to anticipate an accident at any nuclear plant in which they have an interest, if such an accident did happen, it could have a material but presently undeterminable adverse effect on the Company's consolidated financial position. In addition, such an accident at any operating nuclear plant, whether or not owned by the Companies, could result in regulations or requirements that could affect the operation or licensing of plants that the Companies do own with a consequent but presently undeterminable adverse impact, and could affect the Companies' abilities to raise funds in the capital markets. Nuclear Insurance The Price-Anderson Act limits the public liability which can be assessed with respect to a nuclear power plant to $8.92 billion (assuming 110 units licensed to operate) for a single nuclear incident, which amount is covered by: (i) private insurance amounting to $200 million; and (ii) $8.72 billion provided by an industry retrospective rating plan required by the NRC pursuant thereto. Under such retrospective rating plan, in the event of a nuclear incident at any unit in the United States resulting in losses in excess of private insurance, up to $75.5 million (but not more than $10 million per unit per year in the event of more than one incident) must be contributed for each nuclear unit licensed to operate in the country by the licensees thereof to cover - 8 - liabilities arising out of the incident. Based on their present ownership and leasehold interests in the Beaver Valley Station and the Perry Plant, the Companies' maximum potential assessment under these provisions (assuming the other CAPCO companies were to contribute their proportionate share of any assessments under the retrospective rating plan) would be $102.8 million per incident but not more than $13 million in any one year for each incident. In addition to the public liability insurance provided pursuant to the Price-Anderson Act, the Companies have also obtained insurance coverage in limited amounts for economic loss and property damage arising out of nuclear incidents. The Companies are members of Nuclear Electric Insurance Limited (NEIL) which provides coverage (NEIL I) for the extra expense of replacement power incurred due to prolonged accidental outages of nuclear units. Under NEIL I, the Companies have policies, renewable yearly, corresponding to their respective interests in the Beaver Valley Station and the Perry Plant, which provide an aggregate indemnity of up to approximately $315 million for replacement power costs incurred during an outage after an initial 21-week waiting period. Members of NEIL I pay annual premiums and are subject to assessments if losses exceed the accumulated funds available to the insurer. The Companies' present maximum aggregate assessment for incidents at any covered nuclear facility occurring during a policy year would be approximately $3.1 million. The Companies are insured as to their respective interests in the Beaver Valley Station and Perry Plant under property damage insurance provided by American Nuclear Insurers, Mutual Atomic Energy Liability Underwriters and NEIL to the operating company for each plant. Under these arrangements, $2.75 billion of coverage for decontamination costs, decommissioning costs, debris removal and repair and/or replacement of property is provided for the Beaver Valley Station and the Perry Plant. The Companies pay annual premiums for this coverage and are liable for retrospective assessments of up to approximately $13.4 million during a policy year. The Companies intend to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Companies' plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Companies' insurance policies, or to the extent such insurance becomes unavailable in the future, the Companies would remain at risk for such costs. The NRC requires nuclear power plant licensees to obtain minimum property insurance coverage of $1.06 billion or the amount generally available from private sources, whichever is less. The - 9 - proceeds of this insurance are required to be used first to ensure that the licensed reactor is in a safe and stable condition and can be maintained in that condition so as to prevent any significant risk to the public health and safety. Within 30 days of stabilization, the licensee is required to prepare and submit to the NRC a cleanup plan for approval. The plan is required to identify all cleanup operations necessary to decontaminate the reactor sufficiently to permit the resumption of operations or to commence decommissioning. Any property insurance proceeds not already expended to place the reactor in a safe and stable condition must be used first to complete those decontamination operations that are ordered by the NRC. The Companies are unable to predict what effect these requirements may have on the availability of insurance proceeds to the Companies for the Companies' bondholders. Environmental Matters Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. The Companies have estimated capital expenditures for environmental compliance of approximately $14 million, which is included in the construction estimate given under "Capital Requirements" for 1997 through 2001. Air Regulation Under the provisions of the Clean Air Act of 1970, both the State of Ohio and the Commonwealth of Pennsylvania adopted ambient air quality standards, and related emission limits, including limits for sulfur dioxide (SO2) and particulates. In addition, the U.S. Environmental Protection Agency (EPA) promulgated an SO2 regulatory plan for Ohio which became effective for the Company's plants in 1977. Generating plants to be constructed in the future and some future modifications of existing facilities will be covered not only by the applicable state standards but also by EPA emission performance standards for new sources. In both Ohio and Pennsylvania the construction or modification of emission sources requires approval from appropriate environmental authorities, and the facilities involved may not be operated unless a permit or variance to do so has been issued by those same authorities. The Companies are in compliance with the current SO2 and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions through the year 1999 will be achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or purchasing emission allowances. Plans for complying with reductions required for the year 2000 and thereafter have not been finalized. EPA is conducting additional studies which could indicate the need for additional NOx reductions from the Companies' Pennsylvania facilities by the year - 10 - 2003. The cost of such reductions, if required, may be substantial. The Companies continue to evaluate their compliance plans and other compliance options. The Companies are required to meet federally approved SO2 regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $25,000 for each day the unit is in violation. The EPA has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The EPA has proposed regulations that could change the interim enforcement policy, including the method of determining compliance with emission limits. The Companies cannot predict what action the EPA may take in the future with respect to proposed regulations or the interim enforcement policy. In December 1996, EPA proposed changes in the National Ambient Air Quality Standard for ozone and proposed a new standard for previously unregulated ultra-fine particulate matter. Final regulations for both of these standards are expected later in 1997. The cost of compliance with these regulations may be substantial and depends on the final provisions of the proposed regulations and the manner in which they are implemented by the states in which the Companies operated affected facilities. Water Regulation Various water quality regulations, the majority of which are the result of the federal Clean Water Act and its amendments, apply to the Companies' plants. In addition, Ohio and Pennsylvania have water quality standards applicable to the Companies' operations. As provided in the Clean Water Act, authority to grant federal National Pollutant Discharge Elimination System (NPDES) water discharge permits can be assumed by a state. Ohio and Pennsylvania have assumed such authority. Waste Disposal As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. These regulations may result in significantly increased costs to dispose of waste materials. The ultimate effect of these requirements cannot presently be determined. Summary Environmental controls are still in the process of development and require, in many instances, balancing the needs for additional quantities of energy in future years and the need to protect the environment. As a result, the Companies cannot now estimate the precise effect of existing and potential regulations - 11 - and legislation upon any of their existing and proposed facilities and operations or upon their ability to issue additional first mortgage bonds under their respective mortgages. These mortgages contain covenants by the Companies to observe and conform to all valid governmental requirements at the time applicable unless in course of contest, and provisions which, in effect, prevent the issuance of additional bonds if there is a completed default under the mortgage. The provisions of each of the mortgages, in effect, also require, in the opinion of counsel for the respective Companies, that certification of property additions as the basis for the issuance of bonds or other action under the mortgages be accompanied by an opinion of counsel that the company certifying such property additions has all governmental permissions at the time necessary for its then current ownership and operation of such property additions. The Companies intend to contest any requirements they deem unreasonable or impossible for compliance or otherwise contrary to the public interest. Developments in these and other areas of regulation may require the Companies to modify, supplement or replace equipment and facilities, and may delay or impede the construction and operation of new facilities, at costs which could be substantial. Fuel Supply The Companies' sources of generation during 1996 were 76.7% coal and 23.3% nuclear. Approximately two-thirds of the Company's annual coal purchase requirements are supplied under long-term contracts. These contracts have minimum annual tonnage levels of approximately 5,300,000 tons (including the Company's portion of the coal purchase contract relating to the Bruce Mansfield Plant discussed below). This contract coal is produced primarily from mines located in Ohio, Pennsylvania, Kentucky and West Virginia; the contracts expire at various times through February 28, 2003. The Companies estimate their 1997 coal requirements to be approximately 10,300,000 tons (including their respective shares of the coal requirements of CAPCO's W. H. Sammis Unit 7 and the Bruce Mansfield Plant). See "Environmental Matters" for factors pertaining to meeting environmental regulations affecting coal- fired generating units. The Companies, together with the other CAPCO companies, have each severally guaranteed (the Company's and Penn Power's composite percentages being approximately 46.8% and 6.7%, respectively) certain debt and lease obligations in connection with a coal supply contract for the Bruce Mansfield Plant (see Note 6 of Notes to Consolidated Financial Statements). As of December 31, 1996, the Companies' shares of the guarantees were $58.3 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. This contract expires December 31, 1999. - 12 - The Companies' fuel costs (excluding disposal costs) for each of the five years ended December 31, 1996, were as follows: 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Cost of fuel consumed per million BTUs: Coal $1.32 $1.36 $1.36 $1.37 $1.40 Nuclear $ .52 $ .65 $ .75 $ .76 $ .83 Average fuel cost per kilowatt-hour generated (cents) 1.16 1.22 1.26 1.31 1.31 OES Fuel is the sole lessor for the Companies' nuclear fuel requirements (see "Capital Requirements" and Note 4F of Notes to Consolidated Financial Statements). The Companies and OES Fuel have contracts for the supply of uranium sufficient to meet projected needs through 2000 and conversion services sufficient to meet projected needs through 2001. Fabrication services for fuel assemblies have been contracted by the CAPCO companies for the next three reloads for Beaver Valley Unit 1, one reload for Beaver Valley Unit 2 (through approximately 2000 and 1998, respectively), and the next five reloads for Perry (through approximately 2004). The Companies have a contract with U.S. Enrichment Corporation for the majority of their enrichment requirements for nuclear fuel through 2014. Prior to the expiration of existing commitments, the Companies intend to make additional arrangements for the supply of uranium and for the subsequent conversion, enrichment, fabrication, reprocessing and/or waste disposal services, the specific prices and availability of which are not known at this time. Due to the present lack of availability of domestic reprocessing services, to the continuing absence of any program to begin development of such reprocessing capability and questions as to the economics of reprocessing, the Companies are calculating nuclear fuel costs based on the assumption that spent fuel will not be reprocessed. On-site spent fuel storage facilities for the Perry Plant are expected to be adequate through 2010; facilities at Beaver Valley Units 1 and 2 are expected to be adequate through 2011 and 2005, respectively. After on-site storage capacity is exhausted, additional storage capacity will have to be obtained which could result in significant additional costs unless reprocessing services or permanent waste disposal facilities become available. The Federal Nuclear Waste Policy Act of 1982 provides for the construction of facilities for the disposal of high-level nuclear wastes, including spent fuel from nuclear power plants operated by electric utilities; however, the selection of a suitable site has become embroiled in the political process. Duquesne and CEI have each previously entered into contracts with the U.S. Department of Energy for the disposal of spent fuel from the Beaver Valley Power Station and the Perry Plant, respectively. - 13 - System Capacity and Reserves The 1996 net maximum hourly demand on the Companies of 6,067,000 kilowatts (kW) (including 450,000 kW of firm power sales which extend through 2005 as discussed under "Competition") occurred on August 6, 1996. The seasonal capability of the Companies (including 932,000 kW of net firm and capacity purchases) on that day was 6,557,000 kW. Of that system capability, 5.9% was available to serve additional load and term power sales to other utilities. Based on existing capacity plans, the load forecast made in October 1996 and anticipated term power sales to other utilities, the capacity margins during the 1997-2001 period are expected to range from about 6% to 10%. Regional Reliability The Company participates with 26 other electric companies operating in nine states in the East Central Area Reliability Coordination Agreement (ECAR), which was organized for the purpose of furthering the reliability of bulk power supply in the area through coordination of the planning and operation by the ECAR members of their bulk power supply facilities. The ECAR members have established principles and procedures regarding matters affecting the reliability of the bulk power supply within the ECAR region. Procedures have been adopted regarding: i) the evaluation and simulated testing of systems' performance; ii) the establishment of minimum levels of daily operating reserves; iii) the development of a program regarding emergency procedures during conditions of declining system frequency; and iv) the basis for uniform rating of generating equipment. Competition The Companies compete with other utilities for intersystem bulk power sales and for sales to municipalities and cooperatives. The Companies compete with suppliers of natural gas and other forms of energy in connection with their industrial and commercial sales and in the home climate control market, both with respect to new customers and conversions, and with all other suppliers of electricity. To date, there has been no substantial cogeneration by the Companies' customers. Technological advances and regulatory changes are driving forces toward increasing competition in the energy market. The Pennsylvania pilot program, which will allow residents to choose their electric generation supplier (see "Utility Regulation-PPUC Rate Matters") is one such regulatory change. In addition, many large electricity users continue to push for some form of retail wheeling, which would enable retail customers to purchase electricity from producers other than the local utility. In February 1996, the PUCO approved a change allowing large industrial - 14 - customers that have interruptible service contracts to buy their power from other sources when they have been advised by their local utility that service will be interrupted. Also, in Ohio, the General Assembly has formed a twelve member, bipartisan committee to study electric utility deregulation. While the General Assembly and Federal Authorities consider full retail wheeling, the debate could place downward pressure on the Companies' prices in the future. The Companies are actively involved in these debates, but are unable to predict the ultimate outcome. In an effort to more fully utilize their facilities and hold down rates to their other customers, the Companies have entered into a long-term power sales agreement with another utility. Currently, the Companies are selling 450,000 kW annually under this contract through December 31, 2005. The Companies have the option to reduce this commitment by 150,000 kW, with three years' advance notice. Research and Development The Company participates in funding the Electric Power Research Institute (EPRI), which was formed for the purpose of expanding electric research and development under the voluntary sponsorship of the nation's electric utility industry - public, private and cooperative. Its goal is to mutually benefit utilities and their customers by promoting the development of new and improved technologies to help the utility industry meet present and future electric energy needs in environmentally and economically acceptable ways. EPRI conducts research on all aspects of electric power production and use, including fuels, generating, delivery, energy management and conservation, environmental effects and energy analysis. The major portion of EPRI research and development projects is directed toward practical solutions and their applications to problems currently facing the electric utility industry. In 1996, approximately 75% of the Company's research and development expenditures were related to EPRI. Executive Officers The executive officers are elected at the annual organization meeting of the Board of Directors, held immediately after the annual meeting of stockholders, and hold office until the next such organization meeting, unless the Board of Directors shall otherwise determine, or unless a resignation is submitted. - 15 - Position Held During Name Age Past Five Years Dates - ------------- --- ------------------------------- ---------- W. R. Holland 60 Chairman of the Board and Chief Executive Officer 1996-present President and Chief Executive Officer 1993-1996 President and Chief Operating Officer *-1993 H. P. Burg 50 President, Chief Operating Officer and Chief Financial Officer 1996-present Senior Vice President and Chief Financial Officer *-1996 A. J. Alexander 45 Executive Vice President and General Counsel 1996-present Senior Vice President and General Counsel *-1996 R. J. McWhorter 64 Senior Vice President-Generation and Transmission *-present E. T. Carey 54 Vice President-Regional Operations and Customer Service 1995-present Vice President-Marketing and Customer Service Support 1994-1995 Manager, Performance Initiatives 1993-1994 Division Manager *-1993 A. R. Garfield 58 Vice President-System Operations *-present J. A. Gill 59 Vice President-Administration *-present G. L. Pipitone 46 Vice President-Generation and Transmission 1996-present D. L. Yeager 62 Vice President-Special Projects *-present N. C. Ashcom 49 Secretary 1994-present Assistant Secretary *-1994 R. H. Marsh 46 Treasurer *-present H. L. Wagner 44 Comptroller *-present *Indicates position held at least since January 1, 1992. - 16 - At December 31, 1996, the Company had 3,258 employees and Penn Power had 1,015 employees for a total of 4,273 employees for the Companies. ITEM 2.PROPERTIES The Companies' respective first mortgage indentures constitute, in the opinion of the Companies' counsel, direct first liens on substantially all of the respective Companies' physical property, subject only to excepted encumbrances, as defined in the indentures. See Notes 3 and 4 to the Consolidated Financial Statements for information concerning leases and financing encumbrances affecting certain of the Companies' properties. The Companies own, individually or together with one or more of the other CAPCO companies as tenants in common, and/or lease, the generating units in service as of March 1, 1997, shown on the table below. - 17 -
Net Demonstrated Interest ------------------------- Capacity (kW) Penn --------------------- Companies' Ohio Edison Power Plant-Location Unit Total Entitlement Owned Leased Owned - ---------------------- ---- ----- ----------- ----- ------ ----- Coal-Fired Units R.E. Burger 3-5 406,000 406,000 100.00% - - Shadyside, OH B. Mansfield- 1 780,000 501,000 60.00% - 4.20% Shippingport, PA 2 780,000 360,000 39.30% - 6.80% 3 800,000 335,000 35.60% - 6.28% New Castle- 3-5 333,000 333,000 - - 100.00% W. Pittsburg, PA Niles-Niles, OH 1-2 216,000 216,000 100.00% - - W.H. Sammis- 1-6 1,620,000 1,620,000 100.00% - - Stratton, OH 7 600,000 413,000 48.00% - 20.80% Nuclear Units Beaver Valley- 1 810,000 425,000 35.00% - 17.50% Shippingport, PA 2 820,000 343,000 20.22% 21.66% - Perry- 1,194,000 421,000 17.42%* 12.58% 5.24% N. Perry Village, OH Oil/Gas-Fired Units Edgewater-Lorain, OH 4 100,000 100,000 100.00% - - West Lorain-Lorain, OH 1 120,000 120,000 100.00% - - Other 164,000 164,000 84.82% - 15.18% --------- Total 5,757,000 ========= * Represents portion leased from a wholly owned subsidiary of the Company.
- 18 - Prolonged outages of existing generating units might make it necessary for the Companies, depending upon the demand for electric service upon their system, to use to a greater extent than otherwise, less efficient and less economic generating units, or purchased power, and in some cases may require the reduction of load during peak periods under the Companies' interruptible programs, all to an extent not presently determinable. The Companies' generating plants and load centers are connected by a transmission system consisting of elements having various voltage ratings ranging from 23 kilovolts (kV) to 345 kV. The Companies' overhead and underground transmission lines aggregate 4,607 miles. The Companies' electric distribution systems include 26,463 miles of overhead pole line and underground conduit carrying primary, secondary and street lighting circuits. They own, individually or together with one or more of the other CAPCO companies as tenants in common, 448 substations with a total installed transformer capacity of 24,849,513 kilovolt-amperes, of which 70 are transmission substations, including 9 located at generating plants. The Company's transmission lines also interconnect with those of American Electric Power Company, CEI, The Dayton Power and Light Company, Duquesne, Monongahela Power Company and Toledo; Penn Power's interconnect with those of Duquesne and West Penn Power Company. These interconnections make possible utilization by the Company and Penn Power of generating capacity constructed as a part of the CAPCO program, as well as providing opportunities for the sale of power to other utilities. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK- HOLDER MATTERS ITEM 6.SELECTED FINANCIAL DATA ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - 19 - ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by Items 5 through 8 is incorporated herein by reference to the Price Range of Common Stock, Classification of Holders of Common Stock as of December 31, 1996, Selected Financial Data, Management's Discussion and Analysis of Results of Operations and Financial Condition, and Consolidated Financial Statements included on pages 13 through 30 in the Company's 1996 Annual Report to Stockholders (Exhibit 13). ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10, with respect to Identification of Directors and with respect to reports required to be filed under Section 16 of the Securities Exchange Act of 1934, is incorporated herein by reference to the Company's 1997 Proxy Statement filed with the Securities and Exchange Commission (SEC) pursuant to Regulation 14A and, with respect to Identification of Executive Officers, to "Part I, Item 1. Business- Executive Officers" herein. ITEM 11.EXECUTIVE COMPENSATION ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Items 11, 12 and 13 is incorporated herein by reference to the Company's 1997 Proxy Statement filed with the SEC pursuant to Regulation 14A. PART IV ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements Included in Part II of this report and incorporated herein by reference to the Company's 1996 Annual Report to Stockholders (Exhibit 13 below) at the pages indicated. - 20 - Page No. -------- Report of Independent Public Accountants..................... 12 Consolidated Statements of Income-Three Years Ended December 31, 1996.......................................... 17 Consolidated Balance Sheets-December 31, 1996 and 1995....... 18 Consolidated Statements of Retained Earnings-Three Years Ended December 31, 1996.............................. 19 Consolidated Statements of Capital Stock and Other Paid-In Capital- Three Years Ended December 31, 1996..................... 19 Consolidated Statements of Capitalization-December 31, 1996 and 1995.............................................. 20-21 Consolidated Statements of Cash Flows-Three Years Ended December 31, 1996.................................... 22 Consolidated Statements of Taxes-Three Years Ended December 31, 1996.......................................... 23 Notes to Consolidated Financial Statements................... 24-30 2. Financial Statement Schedules Included in Part IV of this report: Page No. -------- Report of Independent Public Accountants..................... 29 Schedule - Three Years Ended December 31, 1996: II - Consolidated Valuation and Qualifying Accounts.... 30 Schedules other than the schedule listed above are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. 3. Exhibits Exhibit Number - ------- 2-1 - Agreement and Plan of Merger, dated as of September 13, 1996, between Ohio Edison Company and Centerior Energy Corporation. (September 17, 1996 Form 8-K, Exhibit 2-1.) 3-1 - Amended Articles of Incorporation, Effective June 21, 1994, constituting the Company's Articles of Incorporation. (1994 Form 10-K, Exhibit 3-1.) 3-2 - Code of Regulations of the Company as amended April 24, 1986. (Registration No. 33-5081, Exhibit (4)(d).) - 21 - Exhibit Number - ------- (B) 4-1 - Indenture dated as of August 1, 1930 between the Company and Bankers Trust Company, as Trustee, as amended and supplemented by Supplemental Indentures: Dated as of File Reference Exhibit No. - ------------------ ------------------- ----------- March 3, 1931 2-1725 B-1,B-1(a),B-1(b) November 1, 1935 2-2721 B-4 January 1, 1937 2-3402 B-5 September 1, 193 Form 8-A B-6 June 13, 1939 2-5462 7(a)-7 August 1, 1974 Form 8-A, August 28, 1974 2(b) July 1, 1976 Form 8-A, July 28, 1976 2(b) December 1, 1976 Form 8-A, December 15, 1976 2(b) June 15, 1977 Form 8-A, June 27, 1977 2(b) Supplemental Indentures: Dated as of File Reference Exhibit No. - ------------------ ------------------- ----------- September 1, 1944 2-61146 2(b)(2) April 1, 1945 2-61146 2(b)(2) September 1, 1948 2-61146 2(b)(2) May 1, 1950 2-61146 2(b)(2) January 1, 1954 2-61146 2(b)(2) May 1, 1955 2-61146 2(b)(2) August 1, 1956 2-61146 2(b)(2) March 1, 1958 2-61146 2(b)(2) April 1, 1959 2-61146 2(b)(2) June 1, 1961 2-61146 2(b)(2) September 1, 1969 2-34351 2(b)(2) May 1, 1970 2-37146 2(b)(2) September 1, 1970 2-38172 2(b)(2) June 1, 1971 2-40379 2(b)(2) August 1, 1972 2-44803 2(b)(2) September 1, 1973 2-48867 2(b)(2) May 15, 1978 2-66957 2(b)(4) February 1, 1980 2-66957 2(b)(5) April 15, 1980 2-66957 2(b)(6) June 15, 1980 2-68023 (b)(4)(b)(5) October 1, 1981 2-74059 (4)(d) October 15, 1981 2-75917 (4)(e) February 15, 1982 2-75917 (4)(e) July 1, 1982 2-89360 (4)(d) March 1, 1983 2-89360 (4)(e) - 22 - Exhibit Number - ------- Supplemental Indentures: (Cont'd) Dated as of File Reference Exhibit No. - ------------------ ------------------- ----------- March 1, 1984 2-89360 (4)(f) September 15, 1984 2-92918 (4)(d) September 27, 1984 33-2576 (4)(d) November 8, 1984 33-2576 (4)(d) December 1, 1984 33-2576 (4)(d) December 5, 1984 33-2576 (4)(e) January 30, 1985 33-2576 (4)(e) February 25, 1985 33-2576 (4)(e) July 1, 1985 33-2576 (4)(e) October 1, 1985 33-2576 (4)(e) January 15, 1986 33-8791 (4)(d) May 20, 1986 33-8791 (4)(d) June 3, 1986 33-8791 (4)(e) October 1, 1986 33-29827 (4)(d) July 15, 1989 33-34663 (4)(d) August 25, 1989 33-34663 (4)(d) February 15, 1991 33-39713 (4)(d) May 1, 1991 33-45751 (4)(d) May 15, 1991 33-45751 (4)(d) September 15, 1991 33-45751 (4)(d) April 1, 1992 33-48931 (4)(d) June 15, 1992 33-48931 (4)(d) September 15, 1992 33-48931 (4)(e) April 1, 1993 33-51139 (4)(d) June 15, 1993 33-51139 (4)(d) September 15, 1993 33-51139 (4)(d) November 15, 1993 1-2578 (4)(2) April 1, 1995 1-2578 (4)(2) May 1, 1995 1-2578 (4)(2) July 1, 1995 1-2578 (4)(2) 10-1- Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(2).) 10-2 - Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3).) 10-3 - Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(3).) - 23 - Exhibit Number - ------- 10-4 - Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10-K, Exhibit 10-4.) 10-5 - Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (Registration No. 2-68906, Exhibit 10-4.) 10-6 - Amendment dated as of December 23, 1993 to Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (1993 Form 10-K, Exhibit 10-6.) 10-7 - CAPCO Basic Operating Agreement, as amended September 1, 1980. (Registration No. 2-68906, Exhibit 10-5.) 10-8 - Amendment No. 1 dated August 1, 1981, and Amendment No. 2 dated September 1, 1982 to CAPCO Basic Operating Agreement, as amended September 1, 1980. (September 30, 1981 Form 10-Q, Exhibit 20-1 and 1982 Form 10-K, Exhibit 19-3, respectively.) 10-9 - Amendment No. 3 dated July 1, 1984 to CAPCO Basic Operating Agreement, as amended September 1, 1980. (1985 Form 10-K, Exhibit 10-7.) 10-10 - Basic Operating Agreement between the CAPCO Companies as amended October 1, 1991. (1991 Form 10-K, Exhibit 10- 8.) 10-11 - Basic Operating Agreement between the CAPCO Companies as amended January 1, 1993. (1993 Form 10-K, Exhibit 10- 11.) 10-12 - Memorandum of Agreement effective as of September 1, 1980 among the CAPCO Group. (1982 Form 10-K, Exhibit 19- 2.) 10-13 - Operating Agreement for Beaver Valley Power Station Units Nos. 1 and 2 as Amended and Restated September 15, 1987, by and between the CAPCO Companies. (1987 Form 10- K, Exhibit 10-15.) 10-14 - Construction Agreement with respect to Perry Plant between the CAPCO Group dated as of July 22, 1974. (Registration No. 2-52251 of Toledo Edison Company, Exhibit 5(yy).) - 24 - Exhibit Number - ------- 10-15 - Participation Agreement No. 1 relating to the financing of the development of certain coal mines, dated as of October 1, 1973, among Quarto Mining Company, the CAPCO Group, Energy Properties, Inc., General Electric Credit Corporation, the Loan Participants listed in Schedules A and B thereto, Central National Bank of Cleveland, as Owner Trustee, National City Bank, as Loan Trustee, and Owner Trustee, National City Bank, as Loan Trustee, and National City Bank, as Bond Trustee. (Registration No. 2-61146, Exhibit 5(e)(1).) 10-16 - Amendment No. 1 dated as of September 15, 1978 to Participation Agreement No. 1 dated as of October 1, 1973 among Quarto Mining Company, the CAPCO Group, Energy Properties, Inc., General Electric Credit Corporation, the Loan Participants listed in Schedules A and B thereto, Central National Bank of Cleveland as Owner Trustee, National City Bank as Loan Trustee and National City Bank as Bond Trustee. (Registration No. 2- 68906 of Pennsylvania Power Company, Exhibit 5(e)(2).) 10-17 - Participation Agreement No. 2 relating to the financing of the development of certain coal mines, dated as of August 1, 1974, among Quarto Mining Company, the CAPCO Group, Energy Properties, Inc., General Electric Credit Corporation, the Loan Participants listed in Schedules A and B thereto, Central National Bank of Cleveland, as Owner Trustee, National City Bank, as Loan Trustee, and National City Bank, as Bond Trustee. (Registration No. 2-53059, Exhibit 5(h)(2).) 10-18 - Amendment No. 1 dated as of September 15, 1978 to Participation Agreement No. 2 dated as of August 1, 1974 among Quarto Mining Company, the CAPCO Group, Energy Properties, Inc., General Electric Credit Corporation, the Loan Participants listed in Schedules A and B thereto, Central National Bank of Cleveland as Owner Trustee, National City Bank as Loan Trustee and National City Bank as Bond Trustee. (Registration No. 2-68906 of Pennsylvania Power Company, Exhibit 5(e)(4).) 10-19 - Participation Agreement No. 3 dated as of September 15, 1978 among Quarto Mining Company, the CAPCO Companies, Energy Properties, Inc., General Electric Credit Corporation, the Loan Participants listed in Schedules A and B thereto, Central National Bank of Cleveland as Owner Trustee, and National City Bank as Loan Trustee and Bond Trustee. (Registration No. 2-68906 of Pennsylvania Power Company, Exhibit 5(e)(5).) - 25 - Exhibit Number - ------- 10-20 - Participation Agreement No. 4 dated as of October 31, 1980 among Quarto Mining Company, the CAPCO Group, the Loan Participants listed in Schedule A thereto and National City Bank as Bond Trustee. (Registration No. 2- 68906 of Pennsylvania Power Company, Exhibit 10-16.) 10-21 - Participation Agreement dated as of May 1, 1986, among Quarto Mining Company, the CAPCO Companies, the Loan Participants thereto, and National City Bank as Bond Trustee. (1986 Form 10-K, Exhibit 10-22.) 10-22 - Participation Agreement No. 6 dated as of December 1, 1991 among Quarto Mining Company, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company, the Loan Participants listed in Schedule A thereto, National City Bank, as Mortgage Bond Trustee and National City Bank, as Refunding Bond Trustee. (1991 Form 10-K, Exhibit 10-19.) 10-23 - Agreement entered into as of October 20, 1981 among the CAPCO Companies regarding the use of Quarto coal at Mansfield Units 1, 2 and 3. (1981 Form 10-K, Exhibit 20- 1.) 10-24 - Restated Option Agreement dated as of May 1, 1983 by and between the North American Coal Corporation and the CAPCO Companies. (1983 Form 10-K, Exhibit 19-1.) 10-25 - Trust Indenture and Mortgage dated as of October 1, 1973 between Quarto Mining Company and National City Bank, as Bond Trustee, together with Guaranty dated as of October 1, 1973 with respect thereto by the CAPCO Group. (Registration No. 2-61146, Exhibit 5(e)(5).) 10-26 - Amendment No. 1 dated August 1, 1974 to Trust Indenture and Mortgage dated as of October 1, 1973 between Quarto Mining Company and National City Bank, as Bond Trustee, together with Amendment No. 1 dated August 1, 1974 to Guaranty dated as of October 1, 1973 with respect thereto by the CAPCO Group. (Registration No. 2-53059, Exhibit 5(h)(2).) 10-27 - Amendment No. 2 dated as of September 15, 1978 to the Trust Indenture and Mortgage dated as of October 1, 1973, as amended, between Quarto Mining Company and National City Bank, as Bond Trustee, together with Amendment No. 2 dated as of September 15, 1978 to - 26 - Exhibit Number - ------- Guaranty dated as ofOctober 1, 1973 with respect to the CAPCO Group. (Registration No. 2-68906 of Pennsylvania Power Company, Exhibits 5(e)(11) and 5(e)(12).) 10-28 - Amendment No. 3 dated as of October 31, 1980, to Trust Indenture and Mortgage dated as of October 1, 1973, as amended between Quarto Mining Company and National City Bank as Bond Trustee. (Registration No. 2-68906 of Pennsylvania Power Company, Exhibit 10-16.) 10-29 - Amendment No. 4 dated as of July 1, 1985 to the Trust Indenture and Mortgage dated as of October 1, 1973, as amended between Quarto Mining Company and National City Bank as Bond Trustee. (1985 Form 10-K, Exhibit 10-28.) 10-30 - Amendment No. 5 dated as of May 1, 1986, to the Trust Indenture and Mortgage between Quarto and National City Bank as Bond Trustee. (1986 Form 10-K, Exhibit 10-30.) 10-31 - Amendment No. 6 dated as of December 1, 1991, to the Trust Indenture and Mortgage dated as of October 1, 1973, between Quarto Mining Company and National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-28.) 10-32 - Trust Indenture dated as of December 1, 1991, between Quarto Mining Company and National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-29.) 10-33 - Amendment No. 3 dated as of October 31, 1980 to the Bond Guaranty dated as of October 1, 1973, as amended, with respect to the CAPCO Group. (Registration No. 2- 68906 of Pennsylvania Power Company, Exhibit 10-16.) 10-34 - Amendment No. 4 dated as of July 1, 1985 to the Bond Guaranty dated as of October 1, 1973, as amended, by the CAPCO Companies to National City Bank as Bond Trustee. (1985 Form 10-K, Exhibit 10-30.) 10-35 - Amendment No. 5 dated as of May 1, 1986, to the Bond Guaranty by the CAPCO Companies to National City Bank as Bond Trustee. (1986 Form 10-K, Exhibit 10-33.) 10-36 - Amendment No. 6A dated as of December 1, 1991, to the Bond Guaranty dated as of October 1, 1973, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-33.) - 27 - Exhibit Number - ------- 10-37 - Amendment No. 6B dated as of December 30, 1991, to the Bond Guaranty dated as of October 1, 1973 by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-34.) 10-38 - Bond Guaranty dated as of December 1, 1991, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-35.) 10-39 - Open end Mortgage dated as of October 1, 1973 between Quarto Mining Company and the CAPCO Companies and Amendment No. 1 thereto, dated as of September 15, 1978. (Registration No. 2-68906 of Pennsylvania Power Company, Exhibit 10-23.) 10-40 - Repayment and Security Agreement and Assignment of Lease dated as of October 1, 1973 between Quarto Mining Company and Ohio Edison Company as Agent for the CAPCO Companies and Amendment No. 1 thereto, dated as of September 15, 1978. (1980 Form 10-K, Exhibit 20-2.) 10-41 - Restructuring Agreement dated as of April 1, 1985 among Quarto Mining Company, the Company and the other CAPCO Companies, Energy Properties, Inc., General Electric Credit Corporation, the Loan Participants signatories thereto, Central National Bank of Cleveland, as Owner Trustee and National City Bank as Loan Trustee and Bond Trustee. (1985 Form 10-K, Exhibit 10-33.) 10-42 - Unsecured Note Guaranty dated as of July 1, 1985 by the CAPCO Companies to General Electric Credit Corporation. (1985 Form 10-K, Exhibit 10-34.) 10-43 - Memorandum of Understanding dated March 31, 1985 among the CAPCO Companies. (1985 Form 10-K, Exhibit 10-35.) (C)10-44- Ohio Edison System Executive Supplemental Life Insurance Plan. (1995 Form 10-K, Exhibit 10-44.) (C)10-45- Ohio Edison System Executive Incentive Compensation Plan. (1995 Form 10-K, Exhibit 10-45.) (C)10-46- Ohio Edison System Restated and Amended Executive Deferred Compensation Plan. (1995 Form 10-K, Exhibit 10- 46.) - 28 - Exhibit Number - ------- (C)10-47- Ohio Edison System Restated and Amended Supplemental Executive Retirement Plan. (1995 Form 10-K, Exhibit 10- 47.) (C)10-48- Severance pay agreement between Ohio Edison Company and W. R. Holland. (1995 Form 10-K, Exhibit 10-48.) (C)10-49- Severance pay agreement between Ohio Edison Company and H. P. Burg. (1995 Form 10-K, Exhibit 10-49.) (C)10-50- Severance pay agreement between Ohio Edison Company and A. J. Alexander. (1995 Form 10-K, Exhibit 10-50.) (C)10-51- Severance pay agreement between Ohio Edison Company and J. A. Gill. (1995 Form 10-K, Exhibit 10-51.) (D)10-52- Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Hereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-1.) (D)10-53- Amendment No. 1 dated as of September 1, 1987 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 thereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company (now The Bank of New York), as Indenture Trustee, and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-46.) (D)10-54- Amendment No. 3 dated as of May 16, 1988 to Participation Agreement dated as of March 16, 1987, as amended among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-47.) (D)10-55- Amendment No. 4 dated as of November 1, 1991 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding - 29 - Exhibit Number - ------- Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-47.) (D)10-56- Amendment No. 5 dated as of November 24, 1992 to Participation Agreement dated as of March 16, 1987, as amended, among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPPII Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company as Lessee. (1992 Form 10-K, Exhibit 10-49.) (D)10-57- Amendment No. 6 dated as of January 12, 1993 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-50.) (D)10-58- Amendment No. 7 dated as of October 12, 1994 to Participation Agreement dated as of March 16, 1987 as amended, among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-54.) (D)10-59- Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1986 Form 10-K, Exhibit 28-2.) (D)10-60- Amendment No. 1 dated as of September 1, 1987 to Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-49.) (D)10-61- Amendment No. 2 dated as of November 1, 1991, to Facility Lease dated as of March 16, 1987, between The First National Bank of Boston, as Owner Trustee, Lessor - 30 - Exhibit Number - ------- and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-50.) (D)10-62- Amendment No. 3 dated as of November 24, 1992 to Facility Lease dated as of March 16, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, as Owner Participant and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-54.) (D)10-63- Amendment No. 4 dated as of January 12, 1993 to Facility Lease dated as of March 16, 1987 as amended, between, The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-59.) (D)10-64- Amendment No. 5 dated as of October 12, 1994 to Facility Lease dated as of March 16, 1987 as amended, between, The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-60.) (D)10-65- Letter Agreement dated as of March 19, 1987 between Ohio Edison Company, Lessee, and The First National Bank of Boston, as Owner Trustee under a Trust dated March 16, 1987 with Chase Manhattan Realty Leasing Corporation, required by Section 3(d) of the Facility Lease. (1986 Form 10-K, Exhibit 28-3.) (D)10-66- Ground Lease dated as of March 16, 1987 between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with the Owner Participant, Tenant. (1986 Form 10-K, Exhibit 28-4.) (D)10-67- Trust Agreement dated as of March 16, 1987 between Perry One Alpha Limited Partnership, as Owner Participant, and The First National Bank of Boston. (1986 Form 10-K, Exhibit 28-5.) (D)10-68- Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of March 16, 1987 with Perry One Alpha Limited Partnership, and Irving Trust Company, as Indenture Trustee. (1986 Form 10-K, Exhibit 28-6.) - 31 - Exhibit Number - ------- (D)10-69- Supplemental Indenture No. 1 dated as of September 1, 1987 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee and Irving Trust Company (now The Bank of New York), as Indenture Trustee. (1991 Form 10-K, Exhibit 10-55.) (D)10-70- Supplemental Indenture No. 2 dated as of November 1, 1991 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and The Bank of New York, as Indenture Trustee. (1991 Form 10-K, Exhibit 10-56.) (D)10-71- Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-7.) (D)10-72- Amendment No. 1 dated as of November 1, 1991 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and Parock Limited Partnership and Ohio Edison Company. (1991 Form 10-K, Exhibit 10- 58.) (D)10-73- Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and Parock Limited Partnership and Ohio Edison Company. (1994 Form 10-K, Exhibit 10- 69.) (D)10-74- Amendment No. 3 dated as of October 12, 1994 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and Parock Limited Partnership and Ohio Edison Company. (1994 Form 10-K, Exhibit 10- 70.) (D)10-75- Partial Mortgage Release dated as of March 19, 1987 under the Indenture between Ohio Edison Company and Bankers Trust Company, as Trustee, dated as of the 1st day of August, 1930. (1986 Form 10-K, Exhibit 28-8.) (D)10-76- Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, The Cleveland Electric Illuminating - 32 - Exhibit Number - ------- Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-9.) (D)10-77- Additional Support Agreement dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, and Ohio Edison Company. (1986 Form 10-K, Exhibit 28-10.) (D)10-78- Bill of Sale, Instrument of Transfer and Severance Agreement dated as of March 19, 1987 between Ohio Edison Company, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership. (1986 Form 10-K, Exhibit 28- 11.) (D)10-79- Easement dated as of March 16, 1987 from Ohio Edison Company, Grantor, to The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, Grantee. (1986 Form 10-K, File Exhibit 28-12.) 10-80- Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, the Original Loan Participants listed in Schedule 1 Hereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1986 Form 10-K, as Exhibit 28-13.) 10-81- Amendment No. 1 dated as of September 1, 1987 to Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, The Original Loan Participants Listed in Schedule 1 thereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-65.) 10-82- Amendment No. 4 dated as of November 1, 1991, to Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner - 33 - Exhibit Number - ------- Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-66.) 10-83- Amendment No. 5 dated as of November 24, 1992 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-71.) 10-84- Amendment No. 6 dated as of January 12, 1993 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-80.) 10-85- Amendment No. 7 dated as of October 12, 1994 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-81.) 10-86- Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, Lessor, and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-14.) 10-87- Amendment No. 1 dated as of September 1, 1987 to Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-68.) - 34 - Exhibit Number - ------- 10-88- Amendment No. 2 dated as of November 1, 1991 to Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-69.) 10-89- Amendment No. 3 dated as of November 24, 1992 to Facility Lease dated as of March 16, 1987, as amended, between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-75.) 10-90- Amendment No. 4 dated as of January 12, 1993 to Facility Lease dated as of March 16, 1987 as amended between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-76.) 10-91- Amendment No. 5 dated as of October 12, 1994 to Facility Lease dated as of March 16, 1987 as amended between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-87.) 10-92- Letter Agreement dated as of March 19, 1987 between Ohio Edison Company, as Lessee, and The First National Bank of Boston, as Owner Trustee under a Trust, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, required by Section 3(d) of the Facility Lease. (1986 Form 10-K, Exhibit 28-15.) 10-93- Ground Lease dated as of March 16, 1987 between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, Tenant. (1986 Form 10-K, Exhibit 28-16.) 10-94- Trust Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation, as Owner Participant, and The First National Bank of Boston. (1986 Form 10-K, Exhibit 28-17.) - 35 - Exhibit Number - ------- 10-95- Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, and Irving Trust Company, as Indenture Trustee. (1986 Form 10-K, Exhibit 28-18.) 10-96- Supplemental Indenture No. 1 dated as of September 1, 1987 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and Irving Trust Company (now The Bank of New York), as Indenture Trustee. (1991 Form 10-K, Exhibit 10-74.) 10-97- Supplemental Indenture No. 2 dated as of November 1, 1991 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and The Bank of New York, as Indenture Trustee. (1991 Form 10-K, Exhibit 10-75.) 10-98- Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-19.) 10-99- Amendment No. 1 dated as of November 1, 1991 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1991 Form 10-K, Exhibit 10-77.) 10-100- Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-96.) 10-101- Amendment No. 3 dated as of October 12, 1994 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-97.) 10-102- Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, The Cleveland Electric Illuminating - 36 - Exhibit Number - ------- Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-20.) 10-103- Additional Support Agreement dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, and Ohio Edison Company. (1986 Form 10-K, Exhibit 28- 21.) 10-104- Bill of Sale, Instrument of Transfer and Severance Agreement dated as of March 19, 1987 between Ohio Edison Company, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, Buyer. (1986 Form 10-K, Exhibit 28-22.) 10-105- Easement dated as of March 16, 1987 from Ohio Edison Company, Grantor, to The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, Grantee. (1986 Form 10-K, Exhibit 28-23.) 10-106- Refinancing Agreement dated as of November 1, 1991 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10- 82.) 10-107- Refinancing Agreement dated as of November 1, 1991 among Security Pacific Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10- 83.) - 37 - Exhibit Number - ------- 10-108- Ohio Edison Company Master Decommissioning Trust Agreement for Perry Nuclear Power Plant Unit One, Perry Nuclear Power Plant Unit Two, Beaver Valley Power Station Unit One and Beaver Valley Power Station Unit Two dated July 1, 1993. (1993 Form 10-K, Exhibit 10-94.) 10-109- Nuclear Fuel Lease dated as of March 31, 1989, between OES Fuel, Incorporated, as Lessor, and Ohio Edison Company, as Lessee. (1989 Form 10-K, Exhibit 10-62.) 10-110- Receivables Purchase Agreement dated as November 28, 1989, as amended and restated as of April 23, 1993, between OES Capital, Incorporated, Corporate Asset Funding Company, Inc. and Citicorp North America, Inc. (1994 Form 10-K, Exhibit 10-106.) 10-111- Guarantee Agreement entered into by Ohio Edison Company dated as of January 17, 1991. (1990 Form 10-K, Exhibit 10-64). 10-112- Transfer and Assignment Agreement among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1990 Form 10-K, Exhibit 10-65). 10-113- Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of January 4, 1991. (1990 Form 10-K, Exhibit 10-66). 10-114- Transfer and Assignment Agreement dated May 20, 1994 among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1994 Form 10-K, Exhibit 10-110.) 10-115- Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of May 20, 1994. (1994 Form 10-K, Exhibit 10-111.) 10-116 Transfer and Assignment Agreement dated October 12, 1994 among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1994 Form 10-K, Exhibit 10-112.) 10-117- Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of October 12, 1994. (1994 Form 10-K, Exhibit 10-113.) - 38 - Exhibit Number - ------- (E)10-118- Participation Agreement dated as of September 15, 1987, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-1.) (E)10-119- Amendment No. 1 dated as of February 1, 1988, to Participation Agreement dated as of September 15, 1987, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-2.) (E)10-120- Amendment No. 3 dated as of March 16, 1988 to Participation Agreement dated as of September 15, 1987, as amended, among eaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-99.) (E)10-121- Amendment No. 4 dated as of November 5, 1992 to Participation Agreement dated as of September 15, 1987, as amended, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-100.) (E)10-122- Amendment No. 5 dated as of September 30, 1994 to Participation Agreement dated as of September 15, 1987, as amended, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-118.) (E)10-123- Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, Lessor, - 39 - Exhibit Number - ------- and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-3.) (E)10-124- Amendment No. 1 dated as of February 1, 1988, to Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-4.) (E)10-125- Amendment No. 2 dated as of November 5, 1992 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-103.) (E)10-126- Amendment No. 3 dated as of September 30, 1994 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-122.) (E)10-127- Ground Lease and Easement Agreement dated as of September 15, 1987, between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, Tenant. (1987 Form 10-K, Exhibit 28- 5.) (E)10-128- Trust Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Limited Partnership, as Owner Participant, and The First National Bank of Boston. (1987 Form 10-K, Exhibit 28-6.) (E)10-129- Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-7.) (E)10-130- Supplemental Indenture No. 1 dated as of February 1, 1988 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated - 40 - Exhibit Number - ------- as of September 15, 1987 with Beaver Valley Two Pi Limited Partnership and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-8.) (E)10-131- Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-9.) (E)10-132- Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-128.) (E)10-133- Amendment No. 2 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-129.) (E)10-134- Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-10.) (E)10-135- Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-131.) (E)10-136- Amendment No. 2 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-132.) (E)10-137- Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-11.) - 41 - Exhibit Number - ------- (E)10-138- Additional Support Agreement dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, and Ohio Edison Company. (1987 Form 10-K, Exhibit 28-12.) (F)10-139- Participation Agreement dated as of September 15, 1987, among Chrysler Consortium Corporation, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-13.) (F)10-140- Amendment No. 1 dated as of February 1, 1988, to Participation Agreement dated as of September 15, 1987, among Chrysler Consortium Corporation, as Owner Participant, the Original Loan Participants listed in Schedule I Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-14.) (F)10-141- Amendment No. 3 dated as of March 16, 1988 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-114.) (F)10-142- Amendment No. 4 dated as of November 5, 1992 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-115.) (F)10-143- Amendment No. 5 dated as of January 12, 1993 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture - 42 - Exhibit Number - ------- Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-139.) (F)10-144- Amendment No. 6 dated as of September 30, 1994 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-140.) (F)10-145- Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, Lessor, and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28- 15.) (F)10-146- Amendment No. 1 dated as of February 1, 1988, to Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-16.) (F)10-147- Amendment No. 2 dated as of November 5, 1992 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 118.) (F)10-148- Amendment No. 3 dated as of January 12, 1993 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-119.) (F)10-149- Amendment No. 4 dated as of September 30, 1994 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-145.) (F)10-150- Ground Lease and Easement Agreement dated as of September 15, 1987, between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September - 43 - Exhibit Number - ------- 15, 1987, with Chrysler Consortium Corporation, Tenant. (1987 Form 10-K, Exhibit 28-17.) (F)10-151- Trust Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and The First National Bank of Boston. (1987 Form 10-K, Exhibit 28-18.) (F)10-152- Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987, between the First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-19.) (F)10-153- Supplemental Indenture No. 1 dated as of February 1, 1988 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with Chrysler Consortium Corporation and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-20.) (F)10-154- Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-21.) (F)10-155- Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-151.) (F)10-156- Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-152.) (F)10-157- Amendment No. 3 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-153.) - 44 - Exhibit Number - ------- (F)10-158- Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-22.) (F)10-159- Additional Support Agreement dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, and Ohio Edison Company. (1987 Form 10-K, Exhibit 28-23.) 10-160- Operating Agreement dated March 10, 1987 with respect to Perry Unit No. 1 between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-24.) 10-161- Operating Agreement for Bruce Mansfield Units Nos. 1, 2 and 3 dated as of June 1, 1976, and executed on September 15, 1987, by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-25.) 10-162- Operating Agreement for W. H. Sammis Unit No. 7 dated as of September 1, 1971 by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-26.) 10-163- OE-APS Power Interchange Agreement dated March 18, 1987, by and among Ohio Edison Company and Pennsylvania Power Company, and Monongahela Power Company and West Penn Power Company and The Potomac Edison Company. (1987 Form 10-K, Exhibit 28-27.) 10-164- OE-PEPCO Power Supply Agreement dated March 18, 1987, by and among Ohio Edison Company and Pennsylvania Power Company and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-28.) 10-165- Supplement No. 1 dated as of April 28, 1987, to the OE- PEPCO Power Supply Agreement dated March 18, 1987, by and among Ohio Edison Company, Pennsylvania Power Company, and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-29.) 10-166- APS-PEPCO Power Resale Agreement dated March 18, 1987, by and among Monongahela Power Company, West Penn Power Company, and The Potomac Edison Company and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-30.) - 45 - Exhibit Number - ------- (A)12- Consolidated fixed charge ratios. (A)13- 1996 Annual Report to Stockholders. (Only those portions expressly incorporated by reference in this Form 10-K are to be deemed "filed" with the SEC.) (A)21- List of Subsidiaries of the Registrant at December 31, 1996. (A)23- Consent of Independent Public Accountants. (A)27- Financial Data Schedule. (A) Provided herein in electronic format as an exhibit. (B) Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Company has not filed as an exhibit to this Form 10-K any instrument with respect to long- term debt if the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis, but hereby agrees to furnish to the SEC on request any such instruments. (C) Management contract or compensatory plan contract or arrangement filed pursuant to Item 601 of Regulation S- K. (D) Substantially similar documents have been entered into relating to three additional Owner Participants. (E) Substantially similar documents have been entered into relating to five additional Owner Participants. (F) Substantially similar documents have been entered into relating to two additional Owner Participants. Note: Reports of the Company on Forms 10-Q and 10-K are on file with the SEC under number 1-2578. Pursuant to Rule 14a - 3 (10) of the Securities Exchange Act of 1934, the Company will furnish any exhibit in this Report upon the payment of the Company's expenses in furnishing such exhibit. - 46 - Exhibit Number - ------- (b) Reports on Form 8-K The Company filed two reports on Form 8-K since September 30, 1996. A report dated November 25, 1996, reported the filing by FirstEnergy Corp. of an application with the PUCO seeking authority for a Comprehensive Rate Reduction and Economic Development Plan, and a report dated January 28, 1997, reported unaudited consolidated financial results for the year ended December 31, 1996. - 47 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Ohio Edison Company: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Ohio Edison Company's Annual Report to Stockholders incorporated by reference in this Form 10-K and have issued our report thereon dated February 7, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio February 7, 1997 - 48 - SCHEDULE II OHIO EDISON COMPANY CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Additions ----------------------------- Charged Charged (Credited) (Credited) Beginning to to Other Ending Description Balance Income Accounts Deductions Balance ----------- --------- ---------- ---------- ---------- ------- (In Thousands) Year Ended December 31, 1996: Accumulated provision for uncollectible accounts $2,528 $6,949 $2,008(a) $9,179(b) $2,306 ====== ====== ====== ====== ====== Year Ended December 31, 1995: Accumulated provision for uncollectible accounts $2,517 $5,236 $1,836(a) $7,061(b) $2,528 ====== ====== ====== ====== ====== Year Ended December 31, 1994: Accumulated provision for uncollectible accounts $6,907 $ (32)(c) $1,998(a) $6,356(b) $2,517 ====== ====== ====== ====== ====== - ------------------------ (a) Represents recoveries and reinstatements of accounts previously written off. (b) Represents the write-off of accounts considered to be uncollectible. (c) Includes $4,136,000 reversal of bad debt expense due to PUCO authorization for automatic surcharge recovery.
- 49 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OHIO EDISON COMPANY BY /s/ W. R. Holland -------------------------------- W. R. Holland Chairman of the Board and Chief Executive Officer Date: March 26, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: /s/W. R. Holland /s/H. P. Burg - ----------------------------- -------------------------------- W. R. Holland H. P. Burg Chairman of the Board President and Chief and Chief Executive Officer Operating Officer and and Director (Principal Director (Principal Executive Officer) Financial Officer and Principal Accounting Officer) /s/Glenn H. Meadows - ----------------------------- --------------------------------- Donald C. Blasius Glenn H. Meadows Director Director /s/Robert M. Carter /s/Paul J. Powers - ----------------------------- --------------------------------- Robert M. Carter Paul J. Powers Director Director /s/Carol A. Cartwright /s/Charles W. Rainger - ----------------------------- -------------------------------- Carol A. Cartwright Charles W. Rainger Director Director - 50 - /s/R. L. Loughhead /s/George M. Smart - ---------------------------- --------------------------------- R. L. Loughhead George M. Smart Director Director /s/Russell W. Maier /s/Jesse T. Williams, Sr. - ---------------------------- --------------------------------- Russell W. Maier Jesse T. Williams, Sr. Director Director Date: March 26, 1997 - 51 - EX-12 2 OE FIXED CHARGE RATIO EXHIBIT 12 Page 1 OHIO EDISON COMPANY CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31, ------------------------------------------------ 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $276,986 $ 24,523 $303,531 $317,241 $315,170 Interest and other charges, before reduction for amounts capitalized 296,292 285,169 283,849 273,719 255,572 Provision for income taxes 147,407 32,431 188,886 199,307 201,295 Interest element of rentals charged to income (a) 117,224 104,700 108,463 111,534 114,093 -------- -------- --------- -------- -------- Earnings as defined $837,909 $446,823 $884,729 $901,801 $886,130 ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K: Interest on long-term debt $275,835 $262,861 $259,554 $243,570 $211,935 Other interest expense 13,958 16,445 18,931 22,944 28,211 Subsidiaries' preferred stock dividend requirements 6,499 5,863 5,364 7,205 15,426 Adjustment to subsidiaries' preferred stock dividends to state on a pre-income tax basis 3,420 7,659 3,294 2,956 2,910 Interest element of rentals charged to income (a) 117,224 104,700 108,463 111,534 114,093 -------- -------- -------- -------- -------- Fixed charges as defined $416,936 $397,528 $395,606 $388,209 $372,575 ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (b) 2.01 1.12 2.24 2.32 2.38 ==== ==== ==== ==== ==== - ------------------------ (a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no readily defined interest element can be determined. (b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier aggregating $9,762,000, $8,565,000, $7,424,000, $6,315,000 and $5,093,000 for each of the five years ended December 31, 1996, respectively.
- 1 - EXHIBIT 12 Page 2 OHIO EDISON COMPANY CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED AND PREFERENCE STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
Year Ended December 31, ------------------------------------------------ 1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- (Dollars in Thousands) EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items $276,986 $ 24,523 $303,531 $317,241 $315,170 Add- Interest and other charges, before reduction for amounts capitalized 296,292 285,169 283,849 273,719 255,572 Provision for income taxes 147,407 32,431 188,886 199,307 201,295 Interest element of rentals charged to income (a) 117,224 104,700 108,463 111,534 114,093 -------- -------- -------- -------- -------- Earnings as defined $837,909 $446,823 $884,729 $901,801 $886,130 ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS PREFERRED AND PREFERENCE STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS): Interest on long-term debt $275,835 $262,861 $259,554 $243,570 $211,935 Other interest expense 13,958 16,445 18,931 22,944 28,211 Preferred and preference stock dividend requirements 30,425 29,570 27,043 29,699 27,923 Adjustment to preferred and preference stock dividends to state on a pre-income tax basis 15,854 38,265 16,444 16,745 10,542 Interest element of rentals charged to income (a) 117,224 104,700 108,463 111,534 114,093 -------- -------- -------- -------- -------- Fixed charges as defined plus preferred and preference stock dividend requirements (pre-income tax basis) $453,296 $451,841 $430,435 $424,492 $392,704 ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED AND PREFERENCE STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS) (b) 1.85 0.99(c) 2.06 2.12 2.26 ==== ==== ==== ==== ==== - ------------------------------ (a)Includes the interest element of rentals where determinable plus 1/3 of rental expense where no readily defined interest element can be determined. (b)These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier aggregating $9,762,000, $8,565,000, $7,424,000, $6,315,000 and $5,093,000 for each of the five years ended December 31, 1996, respectively. (c)Earnings as defined were deficient in 1993 by $5,018,000 to cover fixed charges plus preferred stock dividend requirements (pre-income tax basis).
- 2 - EX-13 3 96 OE ANNUAL REPORT OHIO EDISON COMPANY SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) Operating Revenues $2,469,785 $2,465,846 $2,368,191 $2,369,940 $2,332,378 ---------------------------------------------------------- Net Income $315,170 $317,241 $303,531 $ 82,724 $276,986 ---------------------------------------------------------- Earnings on Common Stock $302,673 $294,747 $281,852 $ 59,017 $253,060 ---------------------------------------------------------- Earnings per Share of Common Stock $2.10 $2.05 $1.97 $0.39 $1.70 Dividends Declared per Share of Common Stock $1.50 $1.50 $1.50 $1.50 $1.50 ---------------------------------------------------------- Total Assets $8,965,372 $8,823,934 $8,993,964 $8,918,267 $7,830,026 ---------------------------------------------------------- Capitalization at December 31: Common Stockholders' Equity $2,503,359 $2,407,871 $2,317,197 $2,243,292 $2,408,164 Preferred and Preference Stock: Not Subject to Mandatory Redemption 211,870 211,870 328,240 328,240 354,240 Subject to Mandatory Redemption 155,000 160,000 40,000 45,500 59,862 Long-Term Debt 2,712,760 2,786,256 3,166,593 3,039,263 3,121,647 ---------------------------------------------------------- Total Capitalization $5,582,989 $5,565,997 $5,852,030 $5,656,295 $5,943,913 ---------------------------------------------------------- PRICE RANGE OF COMMON STOCK The Company's Common Stock is listed on the New York and Chicago stock exchanges and is traded on other registered exchanges. 1996 1995 - ----------------------------------------------------------------------------- First Quarter High-Low 24-7/8 21-7/8 21-1/2 18-1/2 ----------------------------------------------- Second Quarter High-Low 23 20-1/4 22-5/8 19-3/4 ----------------------------------------------- Third Quarter High-Low 22-1/4 19-1/4 22-7/8 21-1/4 ----------------------------------------------- Fourth Quarter High-Low 23-1/4 19-3/8 23-3/4 22-1/4 ----------------------------------------------- Yearly High-Low 24-7/8 19-1/4 23-3/4 18-1/2 ----------------------------------------------- Prices are based on reports published in The Wall Street Journal for New ----------------------- York Stock Exchange Composite Transactions. CLASSIFICATION OF HOLDERS OF COMMON STOCK AS OF DECEMBER 31, 1996 Holders of Record Shares Held - -------------------------------------------------------------------------------------- Number % Number % - -------------------------------------------------------------------------------------- Individuals 104,603 81.72 47,177,789 30.92 Fiduciaries 21,952 17.15 9,445,428 6.19 Nominees 36 .03 94,562,806 61.98 All Others 1,413 1.10 1,383,414 0.91 ---------------------------------------------- Total 128,004 100.00 152,569,437 100.00 ---------------------------------------------- As of January 31, 1997, there were 127,051 holders of 152,569,437 shares of the Company's Common Stock. Quarterly dividends of 37.5 cents per share were paid on the Company's Common Stock during 1996 and 1995. Information regarding retained earnings available for payment of cash dividends is given in Note 4A.
- 1 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Our companies continued to make significant progress during 1996 in preparing for a more competitive environment in the electric utility industry. For the second straight year, we achieved record operating revenues. The higher revenues, combined with our aggressive cost control efforts, raised earnings on common stock to $2.10 per share in 1996 compared with $2.05 last year. The 1996 results reflect accelerated depreciation and amortization of nuclear and regulatory assets totaling approximately $178 million under the Company's Rate Reduction and Economic Development Plan and Penn Power's Rate Stability and Economic Development Plan. The 1995 results compared favorably to earnings of $1.97 per share in 1994. Our ongoing commitment to cost control continues to produce good results. Operation and maintenance expenses decreased 6.4% in 1996. A review of the work we do was an integral part of the Performance Initiatives program that began in 1993 and continues as a part of our Corporate Strategy program. Efficiencies continue to be identified which have resulted in further opportunities for restructuring. In 1996, we reduced our work force by 539 employees, mostly from restructuring activities in our regions and our generation group. We expect these actions to result in annual savings of approximately $32 million. Also, using economic value added- based justification for capital spending contributed to a $118 million reduction in our construction expenditures in 1996, compared to our base year of 1993. For the fourth consecutive year, we achieved record retail sales. The following table summarizes the sources of changes in operating revenues for 1996 and 1995 as compared to the previous year: 1996 1995 ---- ---- (In millions) Increased retail kilowatt-hour sales $ 58.1 $105.1 Reduced average retail electricity price (46.1) (23.3) Sales to utilities (4.5) 16.6 Other (3.6) (0.7) ------ ------ Net Increase $ 3.9 $ 97.7 ====== ====== - 2 - An improving local economy helped us achieve record retail sales of 27.2 billion kilowatt-hours. Our customer base continues to grow with more than 12,200 new retail customers added in 1996, after gaining approximately 12,300 customers the previous year. Residential sales increased 1.8% in 1996, following a 4.2% gain the previous year. Commercial sales rose 1.3% and 3.9% in 1996 and 1995, respectively. Increases of 5.5% and 6.8% in industrial sales during 1996 and 1995, respectively, were favorably affected by the resumption of operations by two major customers in the second half of 1995. Excluding sales to these customers, industrial sales were 2.6% higher in 1996 than last year's level, which increased 3.8% over 1994. Sales to other utilities were up 2.7% in 1996, following an 18.2% increase the previous year. As a result of the above factors, total kilowatt-hour sales rose 3.0%, compared with sales in 1995, which were up 7.5% from 1994. Nuclear operating costs dropped 14.5% in 1996 due principally to lower refueling outage cost levels. During 1995, our nuclear expenses fell 4.9% compared with the previous year--nuclear expenses were higher in 1994 mainly due to corrective maintenance work at the Perry Plant. The decrease in other operating costs in 1996 reflects lower maintenance costs at our fossil-fuel generating units. Expenses associated with scheduled maintenance outages at those generating units contributed to a 4.6% increase in other operating costs during 1995, compared with the previous year. As a result of those outages, we purchased more power in 1995, which resulted in the increase in fuel and purchased power costs, compared to 1994. Higher depreciation charges in 1996 and 1995 resulted primarily from $144 million and $27 million, respectively, of accelerated nuclear depreciation recognized under the regulatory plans referred to above. A higher level of depreciable utility plant and an increase in nuclear decommissioning costs also contributed to the 1995 increase, compared with the previous year. The comparative changes in the amortization of net regulatory assets were due to increased recovery levels in 1996 under our regulatory plans and the discontinuation of deferral accounting for postretirement benefits in the second half of 1995. The increase in other income is principally due to higher investment income in 1996--primarily through our PNBV Capital Trust investment, which was effective in the third quarter of 1996. Overall, interest costs were lower in 1996 than in 1995. Interest on long-term debt decreased due to our economic refinancings and redemption of higher-cost debt. Other interest expense increased compared to last year due mainly to higher levels of short-term borrowing. We also discontinued deferring nuclear unit interest in the second half of 1995, - 3 - consistent with the Company's regulatory plan. Total Company and subsidiaries' preferred stock dividend requirements were relatively unchanged from last year's level, taking into account $2.3 million of premiums paid on preferred stock redemptions during 1995. CAPITAL RESOURCES AND LIQUIDITY We have significantly improved our financial position over the past five years. Cash generated from operations was 12% higher in 1996 than it was in 1991 due to higher revenues and aggressive cost controls. At the same time, our average return on common shareholders' equity improved from 9.9% in 1991 to 12.4% in 1996. By the end of 1996, we were serving about 63,000 more customers than we were five years ago, with approximately 2,200 fewer employees. As a result, our customer/employee ratio has increased by 61% over the past five years, standing at 259 customers per employee at the end of 1996, compared with 161 at the end of 1991. In addition, capital expenditures have dropped substantially during that period. Expenditures in 1996 were approximately 38% lower than they were in 1991, and annual depreciation charges have exceeded property additions since the end of 1987. In fact, our projections for the next five years indicate that annual depreciation charges will exceed construction expenditures (excluding nuclear fuel) by at least three to four times as a result of our reduced capital requirements and additional depreciation in accordance with our regulatory plans. Over the past five years, we have aggressively taken advantage of opportunities in the financial markets to reduce our average capital costs. Through refinancing activities, we have reduced the average cost of outstanding debt from 8.75% at the end of 1991 to 7.76% at the end of 1996. Our fixed charge coverage ratios and the percentage of common equity to total capitalization continue to improve. Our indenture ratio, which is used to determine the Company's ability to issue first mortgage bonds, improved from 4.24 at the end of 1991 to 6.48 at the end of 1996. Over the same period, our charter ratio--a measure of our ability to issue preferred stock-- improved from 1.83 to 2.25, and, our common equity percentage of capitalization rose from 39% at the end of 1991 to about 45% at the end of 1996. Our cash requirements in 1997 for operating expenses, construction expenditures and scheduled debt maturities are expected to be met without issuing additional securities. During 1996, we reduced our total debt by approximately $380 million (excluding borrowings to fund the PNBV Capital Trust investment described in Note 3). We also have cash requirements of approximately $900 million for the 1997-2001 period ($164 million in 1997) to meet scheduled maturities of - 4 - long-term debt and preferred stock--those requirements are expected to be met with internally generated cash. We had about $5 million of cash and temporary investments and $349 million of short-term indebtedness on December 31, 1996. Our borrowing capability included $27 million available under revolving lines of credit, and $16.5 million of bank facilities that provide for borrowings on a short-term basis at the banks' discretion. Our capital spending for the period 1997-2001 is expected to be about $600 million (excluding nuclear fuel), of which approximately $135 million applies to 1997. This spending level is nearly $400 million lower than actual capital outlays over the past five years. Investments for additional nuclear fuel during the 1997- 2001 period are estimated to be approximately $194 million, of which about $45 million applies to 1997. During the same periods, our nuclear fuel investments are expected to be reduced by approximately $185 million and $43 million, respectively, as the nuclear fuel is consumed. Also, we have operating lease commitments (net of PNBV Capital Trust income) of approximately $424 million for the 1997-2001 period, of which approximately $75 million relates to 1997. We recover the cost of nuclear fuel consumed and operating leases through our electric rates. Reference is made to Note 1 for a discussion of regulatory assets. In accordance with our regulatory plans, electric rates include recovery of all regulatory assets, including accelerated recovery of those regulatory assets. OUTLOOK We face many competitive challenges in the years ahead as the electric utility industry undergoes significant changes, including becoming less regulated and the entrance of more energy suppliers into the marketplace. Retail wheeling, which would allow retail customers to purchase electricity from other energy producers, will be one of those challenges, if legislators choose to move in that direction. In Ohio, the General Assembly has formed a twelve member, bipartisan committee to study electric utility deregulation. On December 3, 1996, Pennsylvania enacted "The Electricity Generation Customer Choice and Competition Act", under which residents of Pennsylvania, including customers of Penn Power, will be permitted to choose their electric generation supplier, while transmission and distribution services will continue to be supplied by their current providers. Customer choice will be phased in over three years, beginning in 1999, - 5 - after a two year pilot program. The new Pennsylvania law also establishes procedures and standards for the recovery of stranded costs over an eight to nine-year period in the form of a transition charge on customer billings, and allows utilities to seek Pennsylvania Public Utility Commission (PPUC) approval to securitize, or refinance, stranded costs which have been determined by the PPUC to be recoverable. This legislation continues to provide for cost recovery in a manner which meets the criteria for application of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation." Our regulatory plans provide the foundation to position us to meet the challenges we are facing by significantly reducing fixed costs and lowering rates to a more competitive level. For the plans to succeed, it is imperative that we build on the success of our Performance Initiatives and Corporate Strategy programs and continue to find ways to increase revenues, reduce costs and enhance shareholder value. On September 13, 1996, we entered into an agreement to merge with Centerior Energy Corporation under a new holding company called FirstEnergy Corp. The merger is expected to produce $1 billion in savings during the first ten years of joint operations through the elimination of duplicative activities, improved operating efficiencies, lower capital expenditures, accelerated debt reduction, the coordination of the companies' work forces and enhanced purchasing power. A Registration Statement containing a joint proxy statement/prospectus was filed with the Securities and Exchange Commission and shareholders' meetings for the respective companies are scheduled to be held on March 27,1997. We hope to receive all necessary regulatory approvals before the end of 1997. The merger is expected to help us achieve more effective operation of the nuclear facilities we jointly own. In 1995, we increased the annual funding for our nuclear decommissioning obligations. Also, the Financial Accounting Standards Board (FASB) issued a proposed accounting standard for nuclear decommissioning costs in February 1996. If the standard is adopted as proposed: (1) annual provisions for decommissioning could increase; (2) the net present value of estimated decommissioning costs could be recorded as a liability; and (3) income from the external decommissioning trusts could be reported as investment income. The FASB has indicated that it plans to issue a revised proposal or final accounting standard in 1997. The Clean Air Act Amendments of 1990, discussed in Note 6, require additional emission reductions by 2000. We are pursuing cost-effective compliance strategies for meeting the reduction requirements that begin in 2000. - 6 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) OPERATING REVENUES $2,469,785 $2,465,846 $2,368,191 ---------- ---------- ---------- OPERATING EXPENSES AND TAXES: Fuel and purchased power 456,629 465,483 440,936 Nuclear operating costs 247,708 289,717 304,716 Other operating costs 420,523 446,967 427,133 ----------- ----------- ------------ Total operation and maintenance expenses 1,124,860 1,202,167 1,172,785 Provision for depreciation 355,780 256,085 220,502 Amortization of net regulatory assets 27,661 5,825 (884) General taxes 241,998 243,179 237,020 Income taxes 189,417 191,972 181,514 ----------- ----------- ----------- Total operating expenses and taxes 1,939,716 1,899,228 1,810,937 ----------- ----------- ----------- OPERATING INCOME 530,069 566,618 557,254 OTHER INCOME 37,537 14,424 16,459 ----------- ----------- ----------- TOTAL INCOME 567,606 581,042 573,713 ----------- ----------- ------------ NET INTEREST AND OTHER CHARGES: Interest on long-term debt 211,935 243,570 259,554 Deferred nuclear unit interest - (4,250) (8,511) Allowance for borrowed funds used during construction and capitalized interest (3,136) (5,668) (5,156) Other interest expense 28,211 22,944 18,931 Subsidiaries' preferred stock dividend requirements 15,426 7,205 5,364 ----------- ----------- ------------ Net interest and other charges 252,436 263,801 270,182 ----------- ----------- ------------ NET INCOME 315,170 317,241 303,531 PREFERRED STOCK DIVIDEND REQUIREMENTS 12,497 22,494 21,679 ----------- ----------- ----------- EARNINGS ON COMMON STOCK $ 302,673 $ 294,747 $ 281,852 =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 144,095 143,692 143,237 =========== =========== =========== EARNINGS PER SHARE OF COMMON STOCK $2.10 $2.05 $1.97 ===== ===== ===== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $1.50 $1.50 $1.50 ===== ===== ===== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 7 - OHIO EDISON COMPANY CONSOLIDATED BALANCE SHEETS
At December 31, 1996 1995 - ------------------------------------------------------------------------------------------ (In thousands) ASSETS UTILITY PLANT: In service, at original cost $8,634,030 $8,556,722 Less--Accumulated provision for depreciation 3,315,344 3,051,148 ---------- ---------- 5,318,686 5,505,574 ---------- ---------- Construction work in progress-- Electric plant 93,413 150,262 Nuclear fuel 5,786 39,613 ---------- ---------- 99,199 189,875 ---------- ---------- 5,417,885 5,695,449 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: PNBV Capital Trust (Note 3) 487,979 -- Letter of credit collateralization (Note 3) 277,763 277,763 Other 323,316 252,005 ---------- ---------- 1,089,058 529,768 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents 5,253 29,830 Receivables-- Customers (less accumulated provisions of $2,306,000 and $2,528,000, respectively, for uncollectible accounts) 247,027 274,692 Other 58,327 54,988 Materials and supplies, at average cost-- Owned 66,177 68,829 Under consignment 44,468 41,080 Prepayments 75,681 82,257 ---------- ---------- 496,933 551,676 ---------- ---------- DEFERRED CHARGES: Regulatory assets 1,703,111 1,786,543 Unamortized sale and leaseback costs 100,066 103,091 Property taxes 100,802 104,071 Other 57,517 53,336 ---------- ---------- 1,961,496 2,047,041 ---------- ---------- $8,965,372 $8,823,934 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization): Common stockholders' equity $2,503,359 $2,407,871 Preferred stock-- Not subject to mandatory redemption 160,965 160,965 Subject to mandatory redemption 20,000 25,000 Preferred stock of consolidated subsidiary-- Not subject to mandatory redemption 50,905 50,905 Subject to mandatory redemption 15,000 15,000 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company subordinated debentures 120,000 120,000 Long-term debt 2,712,760 2,786,256 ---------- ---------- 5,582,989 5,565,997 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock 333,667 376,716 Short-term borrowings (Note 5) 349,480 119,965 Accounts payable 93,509 100,536 Accrued taxes 142,909 131,432 Accrued interest 52,855 57,462 Other 131,275 196,482 ---------- ---------- 1,103,695 982,593 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes 1,777,086 1,772,434 Accumulated deferred investment tax credits 199,835 213,876 Other 301,767 289,034 ---------- ---------- 2,278,688 2,275,344 ---------- ---------- COMMITMENTS, GUARANTEES AND CONTINGENCIES (Notes 3 and 6 ) ---------- ---------- $8,965,372 $8,823,934 ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets.
- 8 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------- (In thousands) Balance at beginning of year $471,095 $389,600 $322,821 Net income 315,170 317,241 303,531 -------- -------- -------- 786,265 706,841 626,352 - --------------------------------------------------------------------------------------- Cash dividends on preferred stock 12,497 20,234 21,926 Cash dividends on common stock 216,126 215,512 214,826 -------- -------- -------- 228,623 235,746 236,752 -------- -------- -------- Balance at end of year (Note 4A) $557,642 $471,095 $389,600 - -------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND OTHER PAID-IN CAPITAL Preferred Stock ----------------------------------------- Un- Not Subject to Subject to Common Stock allocated Mandatory Redemption Mandatory Redemption ------------------------------ -------------------- -------------------- Other ESOP Par or Par or Number Par Paid-In Common Number Stated Number Stated of Shares Value Capital Stock of Shares Value of Shares Value ----------- ---------- -------- ---------- ---------- -------- --------- ------- (Dollars in thousands) Balance, January 1, 1994 152,569,437 $1,373,125 $727,865 $(180,519) 6,782,399 $378,240 463,616 $ 46,362 Minimum liability for unfunded retirement benefits (3,053) Allocation of ESOP Shares 36 10,143 Redemptions-- Market Auction Series (500,000) (50,000) 11.00% Series (3,616) (362) 13.00% Series (60,000) (6,000) - -------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 152,569,437 1,373,125 724,848 (170,376) 6,282,399 328,240 400,000 40,000 Minimum liability for unfunded retirement benefits 2,446 Allocation of ESOP Shares 1,274 7,720 Sale of 9% Preferred Stock 4,800,000 120,000 Redemptions-- 7.24% Series (720) (363,700) (36,370) 7.36% Series (609) (350,000) (35,000) 8.20% Series (932) (450,000) (45,000) - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 152,569,437 1,373,125 726,307 (162,656) 5,118,699 211,870 5,200,000 160,000 Minimum liability for unfunded retirement benefits (51) Allocation of ESOP Shares 1,346 7,646 - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 152,569,437 $1,373,125 $727,602 $(155,010) 5,118,699 $211,870 5,200,000 $160,000 =================================================================================================================== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 9 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
At December 31, 1996 1995 - --------------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) COMMON STOCKHOLDERS' EQUITY: Common stock, $9 par value, authorized 175,000,000 shares- 152,569,437 shares outstanding $1,373,125 $1,373,125 Other paid-in capital 727,602 726,307 Retained earnings (Note 4A) 557,642 471,095 Unallocated employee stock ownership plan common stock- 8,259,053 and 8,663,575 shares, respectively (Note 4B) (155,010) (162,656) --------- --------- Total common stockholders' equity 2,503,359 2,407,871 --------- --------- Number of Shares Optional Outstanding Redemption Price ------------------ -------------------- 1996 1995 Per Share Aggregate -------- -------- --------- --------- PREFERRED STOCK (Note 4C): Cumulative, $100 par value- Authorized 6,000,000 shares Not Subject to Mandatory Redemption: 3.90% 152,510 152,510 $103.63 $15,804 15,251 15,251 4.40% 176,280 176,280 108.00 19,038 17,628 17,628 4.44% 136,560 136,560 103.50 14,134 13,656 13,656 4.56% 144,300 144,300 103.38 14,917 14,430 14,430 --------- --------- ------- ---------- ---------- 609,650 609,650 63,893 60,965 60,965 Cumulative, $25 par value- Authorized 8,000,000 shares Not Subject to Mandatory Redemption: 7.75% 4,000,000 4,000,000 100,000 100,000 --------- --------- ---------- ---------- Total not subject to mandatory redemption 4,609,650 4,609,650 $63,893 160,965 160,965 ========= ========= ======= ---------- ---------- Cumulative, $100 par value- Subject to Mandatory Redemption (Note 4D): 8.45% 250,000 250,000 25,000 25,000 Redemption within one year (5,000) -- --------- --------- ---------- ---------- 250,000 250,000 20,000 25,000 ========= ========= ---------- ---------- PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY (Note 4C): Pennsylvania Power Company Cumulative, $100 par value- Authorized 1,200,000 shares Not Subject to Mandatory Redemption: 4.24% 40,000 40,000 $103.13 $ 4,125 4,000 4,000 4.25% 41,049 41,049 105.00 4,310 4,105 4,105 4.64% 60,000 60,000 102.98 6,179 6,000 6,000 7.64% 60,000 60,000 101.42 6,085 6,000 6,000 7.75% 250,000 250,000 -- -- 25,000 25,000 8.00% 58,000 58,000 102.07 5,920 5,800 5,800 --------- ---------- ------- ---------- ---------- Total not subject to mandatory redemption 509,049 509,049 $26,619 50,905 50,905 ========= ========== ======= ---------- ---------- Subject to Mandatory Redemption (Note 4D): 7.625% 150,000 150,000 15,000 15,000 ========= ========== ---------- ---------- COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES (Note 4E): Cumulative, $25 par value- Authorized 4,800,000 shares Subject to Mandatory Redemption: 9.00% 4,800,000 4,800,000 120,000 120,000 ========= ========== ---------- ----------
- 10 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (Continued)
At December 31, 1996 1995 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------ (In thousands) LONG-TERM DEBT (Note 4F): First mortgage bonds: Ohio Edison Company- Pennsylvania Power Company- 8.500% due 1996 -- 150,000 9.000% due 1996 -- 50,000 8.750% due 1998 150,000 150,000 9.740% due 1999-2019 20,000 20,000 6.875% due 1999 150,000 150,000 7.500% due 2003 40,000 40,000 6.375% due 2000 80,000 80,000 6.375% due 2004 37,000 50,000 7.375% due 2002 120,000 120,000 6.625% due 2004 20,000 20,000 7.500% due 2002 34,265 34,265 8.500% due 2022 27,250 27,250 8.250% due 2002 125,000 125,000 7.625% due 2023 6,500 19,500 8.625% due 2003 150,000 150,000 ------- ------- 6.875% due 2005 80,000 80,000 9.750% due 2019 -- 35,300 8.750% due 2022 50,960 94,210 7.625% due 2023 75,000 75,000 7.875% due 2023 100,000 100,000 --------- --------- Total first mortgage bonds 1,115,225 1,343,775 150,750 226,750 1,265,975 1,570,525 --------- --------- ------- ------- ---------- ---------- Secured notes: Ohio Edison Company- Pennsylvania Power Company- 8.380% due 1996 -- 16,464 4.750% due 1998 850 850 7.930% due 2002 60,467 69,579 6.080% due 2000 23,000 23,000 7.680% due 2005 200,000 200,000 5.400% due 2013 1,000 1,000 6.750% due 2015 40,000 40,000 5.400% due 2017 10,600 10,600 7.450% due 2016 47,725 47,725 7.150% due 2017 17,925 17,925 7.100% due 2018 26,000 26,000 5.900% due 2018 16,800 16,800 7.050% due 2020 60,000 60,000 8.100% due 2018 10,300 10,300 7.000% due 2021 69,500 69,500 8.100% due 2020 5,200 5,200 7.150% due 2021 443 443 7.150% due 2021 14,482 14,482 7.625% due 2023 50,000 50,000 6.150% due 2023 12,700 12,700 8.100% due 2023 30,000 30,000 6.450% due 2027 14,500 14,500 7.750% due 2024 108,000 108,000 5.450% due 2028 6,950 6,950 5.625% due 2029 50,000 50,000 6.000% due 2028 14,250 14,250 5.950% due 2029 56,212 56,212 5,950% due 2029 238 238 5.450% due 2033 14,800 14,800 ------- ------- --------- --------- 813,147 838,723 148,795 148,795 961,942 987,518 --------- --------- ------- ------- OES Fuel- 5.86% weighted average interest rate 84,000 97,162 ---------- ---------- Total secured notes 1,045,942 1,084,680 ---------- ---------- Unsecured notes: Ohio Edison Company- 7.430% due 1997 100,000 100,000 8.735% due 1997 50,000 50,000 6.088% due 1999 225,000 - 4.900% due 2012 50,000 50,000 4.350% due 2014 50,000 50,000 3.950% due 2015 50,000 50,000 4.400% due 2018 56,000 56,000 3.800% due 2018 57,100 57,100 4.300% due 2032 53,400 53,400 ---------- ---------- Total unsecured notes 691,500 466,500 ---------- ---------- Capital lease obligations (Note 3) 43,775 48,221 ---------- ---------- Net unamortized discount on debt (5,765) (6,954) ---------- ---------- Long-term debt due within one year (328,667) (376,716) ---------- ---------- Total long-term debt 2,712,760 2,786,256 ---------- ---------- TOTAL CAPITALIZATION $5,582,989 $5,565,997 ============================================================================================================== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 11 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------ (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $315,170 $317,241 $ 303,531 Adjustments to reconcile net income to net cash from operating activities: Provision for depreciation 355,780 256,085 220,502 Nuclear fuel and lease amortization 52,784 70,849 72,141 Other amortization, net 25,961 5,885 8,422 Deferred income taxes, net 41,365 53,395 21,156 Investment tax credits, net (14,041) (9,951) (8,036) Allowance for equity funds used during construction - - (5,277) Receivables 24,326 (20,452) 32,113 Materials and supplies (736) 12,428 6,865 Accounts payable 962 3,545 (18,261) Other (41,254) 64,189 61,908 -------- -------- -------- Net cash provided from operating activities 760,317 753,214 695,064 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing-- Preferred stock - 120,000 - Long-term debt 306,313 254,365 434,759 Short-term borrowings, net 229,515 - 70,516 Redemptions and Repayments-- Preferred stock 1,016 117,528 56,362 Long-term debt 438,916 499,276 483,347 Short-term borrowings, net - 54,677 - Dividend Payments-- Common stock 218,656 217,192 216,782 Preferred stock 12,560 20,623 21,483 -------- -------- -------- Net cash used for financing activities 135,320 534,931 272,699 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions 148,189 198,103 258,249 PNBV Capital Trust investment 487,979 - - Letter of credit collateralization deposit - - 277,763 Other 13,406 13,641 22,752 -------- -------- -------- Net cash used for investing activities 649,574 211,744 558,764 -------- -------- -------- Net increase (decrease) in cash and cash equivalents (24,577) 6,539 (136,399) Cash and cash equivalents at beginning of year 29,830 23,291 159,690 -------- -------- -------- Cash and cash equivalents at end of year $ 5,253 $ 29,830 $ 23,291 ======== ======== ======== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid During the Year-- Interest (net of amounts capitalized) $224,541 $254,789 $267,319 Income taxes 157,477 178,643 143,202 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 12 - OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF TAXES
For the Years Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------- (In thousands) GENERAL TAXES: Real and personal property $ 115,443 $ 118,707 $ 113,484 State gross receipts 104,158 100,591 100,996 Social security and unemployment 14,602 15,787 14,822 Other 7,795 8,094 7,718 ---------- ---------- ---------- Total general taxes $ 241,998 $ 243,179 $ 237,020 ========== ========== ========== PROVISION FOR INCOME TAXES: Currently payable- Federal $ 164,132 $ 145,511 $ 161,219 State 9,839 10,352 14,547 ---------- ---------- ---------- 173,971 155,863 175,766 ---------- ---------- ---------- Deferred, net- Federal 37,277 50,631 20,796 State 4,088 2,764 360 ---------- ---------- ---------- 41,365 53,395 21,156 ---------- ---------- ---------- Investment tax credit amortization (14,041) (9,951) (8,036) ---------- ---------- ---------- Total provision for income taxes $ 201,295 $ 199,307 $ 188,886 ========== ========== ========== INCOME STATEMENT CLASSIFICATION OF PROVISION FOR INCOME TAXES: Operating income $ 189,417 $ 191,972 $ 181,514 Other income 11,878 7,335 7,372 ---------- ---------- ---------- Total provision for income taxes $ 201,295 $ 199,307 $ 188,886 ========== ========== ========== RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES: Book income before provision for income taxes $ 516,465 $ 516,548 $ 492,417 Federal income tax expense at statutory rate $ 180,763 $ 180,792 $ 172,346 Increases (reductions) in taxes resulting from- Amortization of investment tax credits (14,041) (9,951) (8,036) State income taxes net of federal income tax benefit 9,053 8,525 9,690 Amortization of tax regulatory assets 26,945 19,690 14,503 Other, net (1,425) 251 383 ---------- ---------- ---------- Total provision for income taxes $ 201,295 $ 199,307 $ 188,886 ========== ========== ========== ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31: Property basis differences $1,086,533 $1,047,387 $1,024,737 Allowance for equity funds used during construction 233,345 263,465 278,172 Deferred nuclear expense 262,123 271,114 277,951 Customer receivables for future income taxes 191,537 204,978 237,826 Deferred sale and leaseback costs 78,607 82,381 87,068 Unamortized investment tax credits (72,663) (77,777) (82,491) Other (2,396) (19,114) (23,939) ---------- ---------- ---------- Net deferred income tax liability $1,777,086 $1,772,434 $1,799,324 ========== ========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
- 13 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements include Ohio Edison Company (Company) and its wholly owned subsidiaries. Pennsylvania Power Company (Penn Power) is the Company's principal operating subsidiary. All significant intercompany transactions have been eliminated. The Company and Penn Power (Companies) follow the accounting policies and practices prescribed by the Public Utilities Commission of Ohio (PUCO), the Pennsylvania Public Utility Commission (PPUC) and the Federal Energy Regulatory Commission (FERC). The preparation of financial statements in conformity with generally accepted accounting principles requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. REVENUES- The Companies' principal business is providing electric service to customers in central and northeastern Ohio and western Pennsylvania. The Companies' retail customers are metered on a cycle basis. Revenue is recognized for unbilled electric service through the end of the year. Receivables from customers include sales to residential, commercial and industrial customers located in the Companies' service area and sales to wholesale customers. There was no material concentration of receivables at December 31, 1996 or 1995, with respect to any particular segment of the Companies' customers. REGULATORY PLANS- The Company's Rate Reduction and Economic Development Plan was approved by the PUCO in 1995 and Penn Power's Rate Stability and Economic Development Plan was approved by the PPUC in the second quarter of 1996. These regulatory plans maintain current base electric rates for the Company and Penn Power through December 31, 2005 and June 20, 2006, respectively, and revised the Companies' fuel cost recovery methods. As part of the Company's regulatory plan, transition rate credits were implemented for customers, which are expected to reduce operating revenues by approximately $600 million during the regulatory plan period. All of the Companies' regulatory assets are being recovered under provisions of the regulatory plans. In addition, the PUCO and the PPUC have authorized the Company and Penn Power to recognize additional depreciation expense related to their generating assets and additional amortization - 14 - of regulatory assets during the ten-year regulatory plan periods of at least $2 billion and $358 million, respectively, more than the amounts that would have been recognized if the regulatory plans were not in effect. These additional amounts are being recovered through current rates. Among other provisions, the Company's regulatory plan also limits the Company's annual earnings on common stock to a 13.21% return under a formula adopted by the PUCO; any amounts otherwise earned in excess of the limitation would be credited to the Company's retail customers in a future period. UTILITY PLANT AND DEPRECIATION- Utility plant reflects the original cost of construction, including payroll and related costs such as taxes, employee benefits, administrative and general costs and financing costs (allowance for funds used during construction). The Companies provide for depreciation on a straight-line basis at various rates over the estimated lives of property included in plant in service. The annual composite rate for electric plant was approximately 3.0% in 1996, 1995 and 1994. In addition to the straight-line depreciation recognized in 1996 and 1995, the Companies also recognized additional capital recovery of $144 million and $27 million, respectively, as additional depreciation expense in accordance with their regulatory plans. Such additional charges in the accumulated provision for depreciation were $171 million and $27 million as of December 31, 1996 and 1995, respectively. Annual depreciation expense includes approximately $9.2 million for future decommissioning costs applicable to the Companies' ownership and leasehold interests in three nuclear generating units. The Companies' share of the future obligation to decommission these units is approximately $410 million in current dollars and (using a 2.8% escalation rate) approximately $865 million in future dollars. The estimated obligation (based on site-specific studies) and the escalation rate were developed using information obtained from consultants. Payments for decommissioning are expected to begin in 2016, when actual decommissioning work begins. The Companies have recovered approximately $64 million for decommissioning through their electric rates from customers through December 31, 1996; such amounts are reflected in the reserve for depreciation on the Consolidated Balance Sheet. If the actual costs of decommissioning the units exceed the funds accumulated from investing amounts recovered from customers, the Companies expect that additional amount to be recoverable from their customers. The Companies have approximately $83.5 million invested in external decommissioning trust funds as of December 31, 1996. Earnings on these funds are reinvested with - 15 - a corresponding increase to the depreciation reserve. The Companies have also recognized an estimated liability of approximately $16.6 million related to decontamination and decommissioning of nuclear enrichment facilities operated by the United States Department of Energy (DOE), as required by the Energy Policy Act of 1992. The Financial Accounting Standards Board (FASB) issued a proposed accounting standard for nuclear decommissioning costs in February 1996. If the standard is adopted as proposed: (1) annual provisions for decommissioning could increase; (2) the net present value of estimated decommissioning costs could be recorded as a liability; and (3) income from the external decommissioning trusts could be reported as investment income. The FASB has indicated that it plans to issue a revised proposal or final accounting standard in 1997. COMMON OWNERSHIP OF GENERATING FACILITIES- The Companies and other Central Area Power Coordination Group (CAPCO) companies own, as tenants in common, various power generating facilities. Each of the companies is obligated to pay a share of the costs associated with any jointly owned facility in the same proportion as its interest. The Companies' portions of operating expenses associated with jointly owned facilities are included in the corresponding operating expenses on the Consolidated Statements of Income. The amounts reflected on the Consolidated Balance Sheet under utility plant at December 31, 1996, include the following: - 16 -
Companies' Utility Accumulated Construction Ownership/ Plant Provision for Work in Leasehold Generating Units in Service Depreciation Progress Interest - -------------------------------------------------------------------------- (In millions) W.H. Sammis #7 $ 305.5 $ 95.8 $ .1 68.80% Bruce Mansfield #1,#2 and #3 782.9 360.1 1.2 50.68% Beaver Valley #1 and #2 1,853.7 665.9 3.7 47.11% Perry 1,632.9 541.2 1.4 35.24% - -------------------------------------------------------------------------- Total $4,575.0 $1,663.0 $ 6.4 - --------------------------------------------------------------------------
- 17 - NUCLEAR FUEL- Nuclear fuel is recorded at original cost, which includes material, enrichment, fabrication and interest costs incurred prior to reactor load. The Companies amortize the cost of nuclear fuel based on the rate of consumption. The Companies' electric rates include amounts for the future disposal of spent nuclear fuel based upon the formula used to compute payments to the DOE. INCOME TAXES- Details of the total provision for income taxes are shown on the Consolidated Statements of Taxes. Deferred income taxes result from timing differences in the recognition of revenues and expenses for tax and accounting purposes. Investment tax credits, which were deferred when utilized, are being amortized over the recovery period of the related property. The liability method is used to account for deferred income taxes. Deferred income tax liabilities related to tax and accounting basis differences are recognized at the statutory income tax rates in effect when the liabilities are expected to be paid. RETIREMENT BENEFITS- The Companies' trusteed, noncontributory defined benefit pension plan covers almost all full-time employees. Upon retirement, employees receive a monthly pension based on length of service and compensation. The Companies use the projected unit credit method for funding purposes and were not required to make pension contributions during the three years ended December 31, 1996. The following sets forth the funded status of the plan and amounts recognized on the Consolidated Balance Sheets as of December 31: 1996 1995 - ------------------------------------------------------------- (In millions) Actuarial present value of benefit obligations: Vested benefits $562.0 $546.9 Nonvested benefits 38.9 36.6 - ------------------------------------------------------------- Accumulated benefit obligation $600.9 $583.5 ============================================================= Plan assets at fair value $946.3 $858.0 Actuarial present value of projected benefit obligation 688.5 685.2 - ------------------------------------------------------------- - 18 - Plan assets in excess of projected benefit obligation 257.8 172.8 Unrecognized net gain (106.2) (43.6) Unrecognized prior service cost 20.1 24.7 Unrecognized net transition asset (33.9) (41.8) - ------------------------------------------------------------- Net pension asset $137.8 $112.1 ============================================================= The assets of the plan consist primarily of common stocks, United States government bonds and corporate bonds. Net pension costs for the three years ended December 31, 1996, were computed as follows: 1996 1995 1994 - ------------------------------------------------------------- (In millions) Service cost-benefits earned during the period $ 14.2 $ 12.8 $ 15.2 Interest on projected benefit obligation 49.3 48.1 45.3 Return on plan assets (141.6) (194.5) 8.3 Net deferral (amortization) 52.7 118.7 (89.3) Voluntary early retirement program expense 12.5 - 37.3 Gain on plan curtailment (12.8) - - - ------------------------------------------------------------- Net pension cost $ (25.7) $ (14.9) $ 16.8 ============================================================= The assumed discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% in 1996 and 1995 and 8.5% in 1994. The assumed rate of increase in future compensation levels used to measure this obligation was 4.5% in each year. Expected long-term rates of return on plan assets were assumed to be 10% in each year. The Companies provide a minimum amount of noncontributory life insurance to retired employees in addition to optional contributory insurance. Health care benefits, which include certain employee deductibles and copayments, are also available to retired employees, their dependents and, under certain circumstances, their survivors. The Companies pay insurance premiums to cover a portion of these benefits in excess of set limits; all amounts up to the limits are paid by the Companies. The Companies recognize the expected cost of providing other postretirement benefits to employees and their beneficiaries and covered dependents from the time employees are hired until they become eligible to receive those benefits. In accordance with Statement of Financial Accounting Standards (SFAS) No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for - 19 - Termination Benefits," the net pension costs shown above and the postretirement benefit costs shown below include curtailment effects (significant changes in projected plan assumptions) relating to the pension and postretirement benefit plans. The employee terminations reflected in the Companies' 1996 voluntary early retirement program represent a plan curtailment that significantly reduces the expected future employee service years and the related accrual of defined pension and postretirement benefits. In the pension plan, the reduction in the benefit obligation increases the net pension asset and is shown as a plan curtailment gain. In the postretirement benefit plan, the unrecognized prior service cost associated with service years no longer expected to be rendered as a result of the terminations, is shown as a plan curtailment loss. The following sets forth the funded status of the plan and amounts recognized on the Consolidated Balance Sheets as of December 31: 1996 1995 - -------------------------------------------------------------- (In millions) Accumulated postretirement benefit obligation allocation: Retirees $155.5 $148.2 Fully eligible active plan participants 10.1 12.6 Other active plan participants 75.5 77.5 - -------------------------------------------------------------- Accumulated postretirement benefit obligation 241.1 238.3 Plan assets at fair value 2.0 1.3 - -------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets 239.1 237.0 Unrecognized transition obligation (133.5) (152.3) Unrecognized net loss (7.4) (17.0) - -------------------------------------------------------------- Net postretirement benefit liability $ 98.2 $ 67.7 ============================================================== Net periodic postretirement benefit costs for the three years ended December 31, 1996, were computed as follows: - 20 - 1996 1995 1994 - -------------------------------------------------------------- (In millions) Service cost-benefits attributed to the period $ 4.3 $ 4.5 $ 4.9 Interest cost on accumulated benefit obligation 17.4 21.1 19.3 Amortization of transition obligation 8.8 10.2 10.2 Amortization of loss .1 .1 .8 Voluntary early retirement program expense .5 - 2.8 Loss on plan curtailment 13.1 - - -------------------------------------------------------------- Net periodic postretirement benefit cost $44.2 $35.9 $38.0 ============================================================== The health care trend rate assumption is 6.0% in the first year gradually decreasing to 4.0% for the year 2008 and later. The discount rates used to compute the accumulated postretirement benefit obligation were 7.5% in 1996 and 1995 and 8.5% in 1994. An increase in the health care trend rate assumption by one percentage point in all years would increase the accumulated postretirement benefit obligation by approximately $29.9 million and the aggregate annual service and interest costs by approximately $3.2 million. SUPPLEMENTAL CASH FLOWS INFORMATION- All temporary cash investments purchased with an initial maturity of three months or less are reported as cash equivalents on the Consolidated Balance Sheets. The Companies reflect temporary cash investments at cost, which approximates their market value. Noncash financing and investing activities included capital lease transactions amounting to $2.0 million, $1.0 million and $3.6 million for the years 1996, 1995 and 1994, respectively. Commercial paper transactions of OES Fuel (a wholly owned subsidiary of the Company) that have initial maturity periods of three months or less are reported net within financing activities under long-term debt and are reflected as long-term debt on the Consolidated Balance Sheets (see Note 4F). All borrowings with initial maturities of less than one year are defined as financial instruments under generally accepted accounting principles and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value. The following sets forth the approximate fair value and related carrying amounts of all other long-term debt, preferred stock subject to mandatory redemption and - 21 - investments other than cash and cash equivalents as of December 31: 1996 1995 ---------------- --------------- Carrying Fair Carrying Fair Value Value Value Value -------- ------ -------- ----- (In Millions) Long-term debt $2,919 $2,963 $3,025 $3,152 Preferred stock $ 160 $ 160 $ 160 $ 163 Investments other than cash and cash equivalents: Debt securities - Maturity (5-10 years) $ 364 $ 364 $ 278 $ 318 - Maturity (more than 10 years) 387 390 - - Equity securities 14 14 - - All other 104 102 75 76 ------ ------ ------ ------ $ 869 $ 870 $ 353 $ 394 ====== ====== ====== ====== The fair values of long-term debt and preferred stock reflect the present value of the cash outflows relating to those securities based on the current call price, the yield to maturity or the yield to call, as deemed appropriate at the end of each respective year. The yields assumed were based on securities with similar characteristics offered by a corporation with credit ratings similar to the Companies' ratings. The fair value of investments other than cash and cash equivalents represent cost (which approximates fair value) or the present value of the cash inflows based on the yield to maturity. The yields assumed were based on financial instruments with similar characteristics and terms. Investments other than cash and cash equivalents include decommissioning trust investments. Unrealized gains and losses applicable to the decommissioning trust have been recognized in the trust investment with a corresponding offset to the reserve for depreciation. The debt and equity securities referred to above are in the held-to-maturity category. The Companies have no securities held for trading purposes. REGULATORY ASSETS- The Companies recognize, as regulatory assets, costs which the FERC, PUCO and PPUC have authorized for recovery from customers in future periods. Without such authorization, the costs would have been charged to income as incurred. All regulatory assets are being recovered from customers under the Companies' respective regulatory plans. Based on those - 22 - regulatory plans, the Companies believe they will continue to be able to bill and collect cost-based rates; accordingly, it is improbable that the Companies will be required to terminate application of SFAS No. 71 "Accounting for the Effects of Certain Types of Regulation" in the foreseeable future. The Companies also recognized additional cost recovery of $34 million and $11 million in 1996 and 1995, respectively, as additional regulatory asset amortization in accordance with their regulatory plans. Regulatory assets on the Consolidated Balance Sheets are comprised of the following: 1996 1995 - ----------------------------------------------------------- (In millions) Nuclear unit expenses $ 733.4 $ 758.4 Customer receivables for future income taxes 523.0 559.7 Sale and leaseback costs 220.8 231.5 Loss on reacquired debt 95.8 96.7 Employee postretirement benefit costs 29.2 32.4 Uncollectible customer accounts 29.8 32.5 Perry Unit 2 termination 40.4 39.6 DOE decommissioning and decontamination costs 18.0 19.3 Other 12.7 16.4 - ----------------------------------------------------------- Total $1,703.1 $1,786.5 =========================================================== 2. MERGER AGREEMENT: On September 13, 1996, the Company and Centerior Energy Corporation, an Ohio corporation, entered into an Agreement and Plan of Merger. Under the Merger Agreement, the Company and Centerior will form FirstEnergy Corp., a holding company which will directly hold all of the issued and outstanding common stock of the Company and all of the issued and outstanding common stock of Centerior's direct subsidiaries, which include among others, The Cleveland Electric Illuminating Company (CEI) and The Toledo Edison Company (Toledo). Penn Power will remain a wholly-owned subsidiary of the Company. As a result of the Merger, the respective common stock shareholders of the Company and Centerior will own all of the outstanding shares of FirstEnergy Common Stock. All other classes of capital stock of the Company and its subsidiaries and of the subsidiaries of Centerior will be unaffected by the Merger and will remain outstanding. - 23 - The Merger has been approved by the respective Boards of Directors of the Company and Centerior and is expected to close promptly after all of the conditions to the consummation of the Merger, including the receipt of all necessary regulatory approvals, are fulfilled or waived. An important condition already met was the PUCO's approval of FirstEnergy's Rate Reduction and Economic Development Plan for CEI and Toledo in January 1997. This regulatory plan, which is similar to the regulatory plan approved by the PUCO for the Company, provides for a $310 million reduction in base electric rates for CEI and Toledo in 2006. The plan also requires additional depreciation (or revaluation) of generating assets and additional amortization of regulatory assets of at least $2 billion more than the amounts that would have been recognized through December 31, 2005, without the plan, and limits annual earnings on common stock for CEI and Toledo. Shareholder meetings to vote on the Merger are scheduled to be held in March 1997. The receipt of all necessary regulatory approvals, including approvals from the FERC, the Securities and Exchange Commission and the Nuclear Regulatory Commission, are expected to take approximately 12 to 18 months from the date of the Merger Agreement. 3. LEASES: The Companies lease a portion of their nuclear generating facilities, certain transmission facilities, office space and other property and equipment under cancelable and noncancelable leases. The Company sold portions of its ownership interests in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on the portions sold for basic lease terms of approximately 29 years. During the terms of the leases the Company continues to be responsible, to the extent of its combined ownership and leasehold interest, for costs associated with the units including construction expenditures, operation and maintenance expenses, insurance, nuclear fuel, property taxes and decommissioning. The basic rental payments are adjusted when applicable federal tax law changes. The Company has the right, at the end of the respective basic lease terms, to renew the leases for up to two years. The Company also has the right to purchase the facilities at the expiration of the basic lease term or renewal term (if elected) at a price equal to the fair market value of the facilities. OES Finance, Incorporated (OES Finance), a wholly owned subsidiary of the Company, maintains deposits pledged as collateral to secure reimbursement obligations relating to certain letters of credit supporting the Company's obligations to lessors under the Beaver Valley Unit 2 sale and leaseback - 24 - arrangements. The deposits pledged to the financial institution providing those letters of credit are the sole property of OES Finance. In the event of liquidation, OES Finance, as a separate corporate entity, would have to satisfy its obligations to creditors before any of its assets could be made available to the Company as sole owner of OES Finance common stock. Consistent with the regulatory treatment, the rental payments for capital and operating leases are charged to operating expenses on the Consolidated Statements of Income. Such costs for the three years ended December 31, 1996, are summarized as follows: 1996 1995 1994 - -------------------------------------------------------------- (In millions) Operating leases Interest element $107.6 $104.6 $101.0 Other 18.3 13.9 14.5 Capital leases Interest element 6.5 7.0 7.5 Other 6.3 6.6 7.0 - -------------------------------------------------------------- Total rental payments $138.7 $132.1 $130.0 ============================================================== The future minimum lease payments as of December 31, 1996, are: Operating Leases ------------------------------ Capital Lease PNBV Capital Leases Payments Trust Income Net - -------------------------------------------------------------- (In millions) 1997 $ 14.9 $ 113.9 $ 38.7 $ 75.2 1998 13.1 120.8 38.4 82.4 1999 11.2 125.7 38.0 87.7 2000 9.9 124.9 37.6 87.3 2001 9.4 127.5 36.2 91.3 Years thereafter 85.1 2,110.4 283.9 1,826.5 - -------------------------------------------------------------- Total minimum lease payments 143.6 $2,723.2 $472.8 $2,250.4 ================================= Executory costs 37.6 - --------------------------- Net minimum lease payments 106.0 Interest portion 62.2 - --------------------------- - 25 - Present value of net minimum lease payments 43.8 Less current portion 5.7 - --------------------------- Noncurrent portion $ 38.1 =========================== The Company invested (through funds available under various credit facilities) in the PNBV Capital Trust in the third quarter of 1996. The Trust was established to purchase a portion of the lease obligation bonds issued on behalf of lessors in the Company's Perry Unit 1 and Beaver Valley Unit 2 sale and leaseback transactions.The PNBV Capital Trust income shown in the table above effectively reduces the Company's lease costs related to those transactions. 4. CAPITALIZATION: (A) RETAINED EARNINGS- Under the Company's first mortgage indenture, the Company's consolidated retained earnings unrestricted for payment of cash dividends on the Company's common stock were $490.8 million at December 31, 1996. (B) EMPLOYEE STOCK OWNERSHIP PLAN- The Companies fund the matching contribution for their 401(k) savings plan through an ESOP Trust. All full-time employees eligible for participation in the 401(k) savings plan are covered by the ESOP. The ESOP borrowed $200 million from the Company and acquired 10,654,114 shares of the Company's common stock through market purchases. Dividends on ESOP shares are used to service the debt. Shares are released from the ESOP on a pro-rata basis as debt service payments are made. In 1996, 1995 and 1994, 404,522 shares, 412,914 shares and 532,250 shares, respectively, were allocated to employees with the corresponding expense recognized based on the shares allocated method. The fair value of 8,259,053 shares unallocated as of December 31, 1996, was approximately $187.9 million. Total ESOP-related compensation expense was calculated as follows: - 26 - - ------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------ (In millions) Base compensation $ 9.0 $ 9.0 $10.2 Dividends on common stock held by the ESOP and used to service debt (2.9) (2.5) (2.0) - ------------------------------------------------------------ Net expense $ 6.1 $ 6.5 $ 8.2 ============================================================ (C) PREFERRED STOCK- Penn Power's 7.625% and 7.75% series of preferred stock have restrictions which prevent early redemption prior to October 1997 and July 2003, respectively. The Company's 8.45% series of preferred stock has no optional redemption provision, and its 7.75% series is not redeemable before April 1998. All other preferred stock may be redeemed by the Companies in whole, or in part, with 30-60 days' notice. (D) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION- The Company's 8.45% series of preferred stock has an annual sinking fund requirement for 50,000 shares beginning on September 16, 1997. Penn Power's 7.625% series has an annual sinking fund requirement for 7,500 shares beginning on October 1, 2002. The Companies' preferred shares are retired at $100 per share plus accrued dividends. Annual sinking fund requirements for each of the next five years are $5 million. (E) COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES- Ohio Edison Financing Trust, a wholly owned subsidiary of the Company, has issued $120 million of 9% Cumulative Trust Preferred Capital Securities. The Company purchased all of the Trust's Common Securities and simultaneously issued to the Trust $123.7 million principal amount of 9% Junior Subordinated Debentures due 2025 in exchange for the proceeds that the Trust received from its sale of Preferred and Common Securities. The sole assets of the Trust are the Subordinated Debentures whose interest and other payment dates coincide with the distribution and other payment dates on the Trust Securities. Under certain circumstances the Subordinated Debentures could be distributed to the holders of the outstanding Trust Securities in the event the Trust is - 27 - liquidated. The Subordinated Debentures may be optionally redeemed beginning December 31, 2000, by the Company at a redemption price of $25 per Subordinated Debenture plus accrued interest, in which event the Trust Securities will be redeemed on a pro-rata basis at $25 per share plus accumulated distributions. The Company's obligations under the Subordinated Debentures along with the related Indenture, amended and restated Trust Agreement, Guarantee Agreement and the Agreement for expenses and liabilities constitute a full and unconditional guarantee by the Company of payments due on the Preferred Securities. (F) LONG-TERM DEBT- The first mortgage indentures and their supplements, which secure all of the Companies' first mortgage bonds, serve as direct first mortgage liens on substantially all property and franchises, other than specifically excepted property, owned by the Companies. Based on the amount of bonds authenticated by the Trustee through December 31, 1996, the Company's annual sinking and improvement fund requirement for all bonds issued under the mortgage amounts to $30 million. The Company expects to deposit funds in 1997 that will be withdrawn upon the surrender for cancellation of a like principal amount of bonds, which are specifically authenticated for such purposes against unfunded property additions or against previously retired bonds. This method can result in minor increases in the amount of the annual sinking fund requirement. Sinking fund requirements for first mortgage bonds and maturing long-term debt (excluding capital leases) for the next five years are: (In Millions) - ------------------------------------------------------------- 1997 323.0 1998 211.5 1999 521.0 2000 169.9 2001 14.5 - ------------------------------------------------------------- The Companies' obligations to repay certain pollution control revenue bonds are secured by several series of first mortgage bonds and, in some cases, by subordinate liens on the related pollution control facilities. Certain pollution control revenue bonds are entitled to the benefit of irrevocable bank letters of credit of $338.8 million. To the extent that drawings are made under those letters of credit to pay principal of, or interest on, the pollution control - 28 - revenue bonds, the Company is entitled to a credit against its obligation to repay those bonds. The Company pays annual fees of 0.55% to 0.875% of the amounts of the letters of credit to the issuing banks and is obligated to reimburse the banks for any drawings thereunder. The Company had unsecured borrowings of $225 million at December 31, 1996, which are supported by a $250 million long- term revolving credit facility agreement which expires December 30, 1999. The Company must pay an annual facility fee of 0.20% on the total credit facility amount. In addition, the credit agreement provides that the Company maintain unused first mortgage bond capability for the full credit agreement amount under the Company's indenture as potential security for the unsecured borrowings. Nuclear fuel purchases are financed through the issuance of OES Fuel commercial paper and loans, both of which are supported by a $225 million long-term bank credit agreement which expires March 31, 1999. Accordingly, the commercial paper and loans are reflected as long-term debt on the Consolidated Balance Sheets. OES Fuel must pay an annual facility fee of 0.1875% on the total line of credit and an annual commitment fee of 0.0625% on any unused amount. 5. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT: Short-term borrowings outstanding at December 31, 1996, consisted of $229.5 million of bank borrowings and $120.0 million of OES Capital, Incorporated commercial paper. OES Capital is a wholly owned subsidiary of the Company whose borrowings are secured by customer accounts receivable. OES Capital can borrow up to $120 million under a receivables financing agreement at rates based on certain bank commercial paper and is required to pay an annual fee of 0.31% on the amount of the entire finance limit. The receivables financing agreement expires in 1999. The Companies have lines of credit with domestic banks that provide for borrowings of up to $52 million under various interest rate options. Short-term borrowings may be made under these lines of credit on the Companies' unsecured notes. To assure the availability of these lines, the Companies are required to pay annual commitment fees that vary from 0.22% to 0.50%. These lines expire at various times during 1997. The weighted average interest rates on short-term borrowings outstanding at December 31, 1996 and 1995, were 5.77% and 5.67%, respectively. - 29 - 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES: CONSTRUCTION PROGRAM- The Companies' current forecasts reflect expenditures of approximately $600 million for property additions and improvements from 1997-2001, of which approximately $135 million is applicable to 1997. Investments for additional nuclear fuel during the 1997-2001 period are estimated to be approximately $194 million, of which approximately $45 million applies to 1997. During the same periods, the Companies' nuclear fuel investments are expected to be reduced by approximately $185 million and $43 million, respectively, as the nuclear fuel is consumed. NUCLEAR INSURANCE- The Price-Anderson Act limits the public liability relative to a single incident at a nuclear power plant to $8.92 billion. The amount is covered by a combination of private insurance and an industry retrospective rating plan. Based on their present ownership and leasehold interests in the Beaver Valley Station and the Perry Plant, the Companies' maximum potential assessment under the industry retrospective rating plan (assuming the other CAPCO companies were to contribute their proportionate share of any assessments under the retrospective rating plan) would be $102.8 million per incident but not more than $13 million in any one year for each incident. The Companies are also insured as to their respective interests in the Beaver Valley Station and the Perry Plant under policies issued to the operating company for each plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Companies have also obtained approximately $315 million of insurance coverage for replacement power costs for their respective interests in Perry and Beaver Valley. Under these policies, the Companies can be assessed a maximum of approximately $16.5 million for incidents at any covered nuclear facility occurring during a policy year which are in excess of accumulated funds available to the insurer for paying losses. The Companies intend to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Companies' plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the - 30 - Companies' insurance policies, or to the extent such insurance becomes unavailable in the future, the Companies would remain at risk for such costs. GUARANTEES- The Companies, together with the other CAPCO companies, have each severally guaranteed certain debt and lease obligations in connection with a coal supply contract for the Bruce Mansfield Plant. As of December 31, 1996, the Companies' shares of the guarantees (which approximate fair market value) were $58.3 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. The Companies' total payments under the coal supply contract were $113.8 million, $120.0 million and $99.8 million during 1996, 1995 and 1994, respectively. The Companies' minimum annual payments are approximately $35 million under the contract, which expires December 31, 1999. ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. The Companies have estimated additional capital expenditures for environmental compliance of approximately $14 million, which is included in the construction forecast provided under "Construction Program" for 1997 through 2001. The Companies were in compliance with the sulfur dioxide (SO2) and nitrogen oxides (NOx) reduction requirements for 1996 under the Clean Air Act Amendments of 1990. SO2 reductions through the year 1999 will be achieved by burning lower-sulfur fuel, generating more electricity from lower- emitting plants, and/or purchasing emission allowances. Plans for complying with reductions required for the year 2000 and thereafter have not been finalized. The Environmental Protection Agency (EPA) is conducting additional studies which could indicate the need for additional NOx reductions from the Companies' Pennsylvania facilities by the year 2003. The cost of such reductions, if required, may be substantial. The Companies continue to evaluate their compliance plans and other compliance options. The Companies are required to meet federally approved SO2 regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $25,000 for each day the unit is in violation. The EPA has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The EPA has proposed regulations that - 31 - could change the interim enforcement policy, including the method of determining compliance with emission limits. The Companies cannot predict what action the EPA may take in the future with respect to proposed regulations or the interim enforcement policy. 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 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. - 32 -
7. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): The following summarizes certain consolidated operating results by quarter for 1996 and 1995. March 31, June 30, September 30, December 31, Three Months Ended 1996 1996 1996 1996 - ---------------------------------------------------------------------- (In millions, except per share amounts) Operating Revenues $611.6 $599.3 $646.9 $611.9 Operating Expenses and Taxes 481.1 471.7 500.0 486.8 - ----------------------------------------------------------------------- Operating Income 130.5 127.6 146.9 125.1 Other Income 7.0 10.7 7.1 12.7 Net Interest and Other Charges 64.1 61.7 61.5 65.1 - ----------------------------------------------------------------------- Net Income $ 73.4 $ 76.6 $ 92.5 $ 72.7 - ----------------------------------------------------------------------- Earnings on Common Stock $ 70.3 $ 73.5 $ 89.4 $ 69.5 - ----------------------------------------------------------------------- Earnings per Share of Common Stock $.49 $.51 $.62 $.48 - -----------------------------------------------------------------------
- 33 -
March 31, June 30, September 30, December 31, Three Months Ended 1996 1996 1996 1996 - ----------------------------------------------------------------------- (In millions, except per share amounts) Operating Revenues $587.7 $593.8 $667.0 $617.3 Operating Expenses and Taxes 453.9 454.4 508.0 482.9 - ----------------------------------------------------------------------- Operating Income 133.8 139.4 159.0 134.4 Other Income 3.0 3.8 1.2 6.4 Net Interest and Other Charges 65.2 66.1 67.1 65.3 - ----------------------------------------------------------------------- Net Income $ 71.6 $ 77.1 $ 93.1 $ 75.5 - ----------------------------------------------------------------------- Earnings on Common Stock $ 66.2 $ 71.5 $ 87.7 $ 69.3 - ----------------------------------------------------------------------- Earnings per Share of Common Stock $.46 $.50 $.61 $.48 - ----------------------------------------------------------------------- - 34 - Report of Independent Public Accountants To the Stockholders and Board of Directors of Ohio Edison Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Ohio Edison Company (an Ohio corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, retained earnings, capital stock and other paid-in capital, cash flows and taxes for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ohio Edison Company and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Cleveland, Ohio February 7, 1997 - 35 -
EX-21 4 LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 1996 Pennsylvania Power Company - Incorporated in Pennsylvania OES Fuel, Incorporated - Incorporated in Ohio OES Ventures, Incorporated - Incorporated in Ohio OES Capital, Incorporated - Incorporated in Ohio OES Finance, Incorporated - Incorporated in Ohio OES Nuclear, Incorporated - Incorporated in Ohio Ohio Edison Financing Trust - Incorporated in Delaware Ohio Edison Financing Trust II - Incorporated in Delaware Statement of Differences ------------------------ Exhibit Number 21, List of Subsidiaries of the Registrant at December 31, 1996, is not included in the printed document. EX-23 5 CONSENT OF INDEP PUBLIC ACCT EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements, File No. 33-49135, No. 33-49259, No. 33-49413, No. 33- 51139, No. 333-01489, No. 333-05277 and No. 333-21011. ARTHUR ANDERSEN LLP Cleveland, Ohio March 26, 1997 - 1 - EX-27 6 FINANCIAL DATA
OPUR1 (Amounts in 1,000's, except earnings per share) Income tax expense includes $11,878,000 related to other income. 12-MOS DEC-31-1996 DEC-31-1996 PER-BOOK 5,417,885 1,089,058 496,933 1,961,496 0 8,965,372 1,373,125 572,592 557,642 2,503,359 155,000 211,870 2,712,760 229,500 0 119,980 322,960 5,000 0 5,707 2,699,236 8,965,372 2,469,785 201,295 1,750,299 1,939,716 530,069 37,537 567,606 252,436 315,170 12,497 302,673 216,126 211,935 760,317 2.10 2.10
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