-----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, CjAFaNXNN2QdevmQNUKEbty0CqfpEWvi1AV2omsgdu5aUDQDdKJCbgE6aMjNYQGG x4Ih/zvk1AibGz7k+F80eg== 0000950152-03-009692.txt : 20031113 0000950152-03-009692.hdr.sgml : 20031113 20031113160840 ACCESSION NUMBER: 0000950152-03-009692 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20031113 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-02578 FILM NUMBER: 03998258 BUSINESS ADDRESS: STREET 1: 76 S MAIN ST CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2163845100 10-K/A 1 l04078be10vkza.txt OHIO EDISON COMPANY AMENDMENT #3 TO FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K/A AMENDMENT NO. 3 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------- ----------------
COMMISSION REGISTRANT; STATE OF INCORPORATION; I.R.S. EMPLOYER FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO. - ----------- ----------------------------- ------------------ 1-2578 OHIO EDISON COMPANY 34-0437786 (AN OHIO CORPORATION) 76 SOUTH MAIN STREET AKRON, OH 44308 TELEPHONE (800)736-3402
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH REGISTRANT EXCHANGE REGISTERED TITLE OF EACH CLASS ON WHICH - ---------- ------------------- -------- Ohio Edison Company Cumulative Preferred Stock, $100 par value: 3.90% Series All series registered on 4.40% Series New York Stock Exchange and 4.44% Series Chicago Stock Exchange 4.56% Series
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 ( ) 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 each registrant is an accelerated filer (as defined in Rule 12b-2 of the Act): Yes (X) No ( ) State the aggregate market value of the common stock held by non-affiliates of the registrant: None. Indicate the number of shares outstanding of the registrant's classes of common stock, as of the latest practicable date:
OUTSTANDING CLASS AS OF MARCH 24, 2003 ----- -------------------- Ohio Edison Company, no par value 100
EXPLANATORY NOTE The Registrant is filing this Amendment No. 3 to its Annual Report on Form 10-K/A for the year ended December 31, 2002 solely for the purpose of filing copies of the previously issued reports of its independent public accountants, PricewaterhouseCoopers LLP, and former independent public accountants, Arthur Andersen LLP, on the financial statements included in Item 8 thereof. Copies of such reports, dated in the case of PricewaterhouseCoopers LLP as of February 28, 2003, except as to Note 1(M), which is as of August 18, 2003, and in the case of Arthur Andersen LLP as of March 18, 2002, were inadvertently omitted from the amended and restated version of such Item included in the most recent amendment to that Form 10-K/A filed on September 24, 2003. Although Item 8 is restated herein in its entirety in accordance with applicable SEC regulations, no amendments or changes are reflected therein. FORM 10-K/A TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................................................... * Recent Developments....................................................................... * Environmental Matters................................................................... * Regulatory Matters...................................................................... * International Operations................................................................ * Other Matters........................................................................... * The Company............................................................................... * Divestitures.............................................................................. * International Operations................................................................ * Generating Assets....................................................................... * Utility Regulation........................................................................ * PUCO Rate Matters....................................................................... * NJBPU Rate Matters...................................................................... * PPUC Rate Matters....................................................................... * FERC Rate Matters....................................................................... * Regulatory Accounting................................................................... * Capital Requirements...................................................................... * Met-Ed Capital Trust and Penelec Capital Trust............................................ * Nuclear Regulation........................................................................ * Nuclear Insurance......................................................................... * Environmental Matters..................................................................... * Air Regulation.......................................................................... * Water Regulation........................................................................ * Waste Disposal.......................................................................... * Summary................................................................................. * Fuel Supply............................................................................... * System Capacity and Reserves.............................................................. * Regional Reliability...................................................................... * Competition............................................................................... * Research and Development.................................................................. * Executive Officers........................................................................ * FirstEnergy Website....................................................................... * Item 2. Properties.................................................................................. * Item 3. Legal Proceedings........................................................................... * Item 4. Submission of Matters to a Vote of Security Holders......................................... * PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................... * Item 6. Selected Financial Data..................................................................... * Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition....... * Item 8. Financial Statements and Supplementary Data................................................. 1 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure........ * PART III Item 10. Directors and Executive Officers of the Registrant.......................................... * Item 11. Executive Compensation...................................................................... * Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters....................................................................... * Item 13. Certain Relationships and Related Transactions.............................................. * Item 14. Controls and Procedures..................................................................... * PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................
* Indicates the items that have not been revised and are not included in this Form 10-K/A. Reference is made to the original 10-K, as previously amended, for the complete text of such items. PART II THE FOLLOWING ITEM HAS BEEN AMENDED IN THIS AMENDMENT NO. 3: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 1 OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000 - -------------------------------- ---- ---- ---- RESTATED (SEE NOTE 1(M)) (IN THOUSANDS) OPERATING REVENUES (NOTE 1J)............................................ $2,948,675 $3,056,464 $2,726,708 ---------- ---------- ---------- OPERATING EXPENSES AND TAXES: Fuel and purchased power (Note 1J)................................... 986,737 1,096,317 418,790 Nuclear operating costs.............................................. 352,129 381,047 366,387 Other operating costs (Note 1J)...................................... 364,436 313,177 456,246 ---------- ---------- ---------- Total operation and maintenance expenses........................... 1,703,302 1,790,541 1,241,423 Provision for depreciation and amortization.......................... 385,520 424,920 578,679 General taxes........................................................ 177,021 153,506 225,849 Income taxes......................................................... 229,001 220,678 198,436 ---------- ---------- ---------- Total operating expenses and taxes................................. 2,494,844 2,589,645 2,244,387 ---------- ---------- ---------- OPERATING INCOME........................................................ 453,831 466,819 482,321 OTHER INCOME (NOTE 1J).................................................. 42,859 68,681 55,976 ---------- ---------- ---------- INCOME BEFORE NET INTEREST CHARGES...................................... 496,690 535,500 538,297 ---------- ---------- ---------- NET INTEREST CHARGES: Interest on long-term debt........................................... 119,123 150,632 165,409 Allowance for borrowed funds used during construction and capitalized interest.............................. (3,639) (2,602) (9,523) Other interest expense............................................... 14,598 22,754 31,451 Subsidiaries' preferred stock dividend requirements.................. 10,449 14,504 14,504 ---------- ---------- ---------- Net interest charges............................................... 140,531 185,288 201,841 ---------- ---------- ---------- NET INCOME.............................................................. 356,159 350,212 336,456 PREFERRED STOCK DIVIDEND REQUIREMENTS................................... 6,510 10,702 11,124 ---------- ---------- ---------- EARNINGS ON COMMON STOCK................................................ $ 349,649 $ 339,510 $ 325,332 ========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 2 OHIO EDISON COMPANY CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 2001 - ------------------ ---- ---- RESTATED (SEE NOTE 1(M)) (IN THOUSANDS) ASSETS UTILITY PLANT: In service...................................................................... $4,989,056 $4,979,807 Less-Accumulated provision for depreciation..................................... 2,552,007 2,461,972 ---------- ---------- 2,437,049 2,517,835 ---------- ---------- Construction work in progress- Electric plant................................................................ 122,741 87,061 Nuclear Fuel.................................................................. 23,481 11,822 ---------- ---------- 146,222 98,883 ---------- ---------- 2,583,271 2,616,718 ---------- ---------- OTHER PROPERTY AND INVESTMENTS: PNBV Capital Trust (Note 2)..................................................... 402,565 429,040 Letter of credit collateralization (Note 2)..................................... 277,763 277,763 Nuclear plant decommissioning trusts............................................ 293,190 277,337 Long-term notes receivable from associated companies (Note 3B).................. 503,827 505,028 Other (Note 1I)................................................................. 74,220 303,409 ---------- ---------- 1,551,565 1,792,577 ---------- ---------- CURRENT ASSETS: Cash and cash equivalents....................................................... 20,512 4,588 Receivables- Customers (less accumulated provisions of $5,240,000 and $4,522,000, respectively, for uncollectible accounts)................................... 296,548 311,744 Associated companies.......................................................... 592,218 523,884 Other (less accumulated provision of $1,000,000 for uncollectible accounts at both dates)............................................... 30,057 41,611 Notes receivable from associated companies...................................... 437,669 108,593 Materials and supplies, at average cost- Owned......................................................................... 58,022 53,900 Under consignment............................................................. 19,753 13,945 Prepayments and other........................................................... 11,804 50,541 ---------- ---------- 1,466,583 1,108,806 ---------- ---------- DEFERRED CHARGES: Regulatory assets............................................................... 2,005,554 2,234,227 Property taxes.................................................................. 59,035 58,244 Unamortized sale and leaseback costs............................................ 72,294 75,105 Other........................................................................... 51,739 30,276 ---------- ---------- 2,188,622 2,397,852 ---------- ---------- $7,790,041 $7,915,953 ========== ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization): Common stockholder's equity..................................................... $2,839,255 $2,671,001 Preferred stock not subject to mandatory redemption............................. 60,965 160,965 Preferred stock of consolidated subsidiary- Not subject to mandatory redemption........................................... 39,105 39,105 Subject to mandatory redemption............................................... 13,500 14,250 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Company subordinated debentures............... -- 120,000 Long-term debt.................................................................. 1,219,347 1,614,996 ---------- ---------- 4,172,172 4,620,317 ---------- ---------- CURRENT LIABILITIES: Currently payable long-term debt and preferred stock............................ 563,267 576,962 Short-term borrowings (Note 4)- Associated companies.......................................................... 225,345 26,076 Other......................................................................... 182,317 219,750 Accounts payable- Associated companies.......................................................... 145,981 110,784 Other......................................................................... 18,015 19,819 Accrued taxes................................................................... 466,064 258,831 Accrued interest................................................................ 28,209 33,053 Other........................................................................... 74,562 63,140 ---------- ---------- 1,703,760 1,308,415 ---------- ---------- DEFERRED CREDITS: Accumulated deferred income taxes............................................... 1,017,629 1,175,395 Accumulated deferred investment tax credits..................................... 88,449 99,193 Nuclear plant decommissioning costs............................................. 280,858 276,500 Retirement benefits............................................................. 247,531 166,594 Other........................................................................... 279,642 269,539 ---------- ---------- 1,914,109 1,987,221 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 2 and 5)................................................................. ---------- ---------- $7,790,041 $7,915,953 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 3 OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION
AS OF DECEMBER 31, 2002 2001 - ------------------ ---- ---- RESTATED (SEE NOTE 1(M)) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) COMMON STOCKHOLDER'S EQUITY: Common stock, without par value, authorized 175,000,000 shares-100 shares outstanding.................................................................. $ 2,098,729 $2,098,729 Accumulated other comprehensive loss (Note 3G)................................... (59,495) -- Retained earnings (Note 3A)...................................................... 800,021 572,272 ----------- ---------- Total common stockholder's equity............................................ 2,839,255 2,671,001 ----------- ----------
NUMBER OF SHARES OPTIONAL OUTSTANDING REDEMPTION PRICE ------------------ -------------------- 2002 2001 PER SHARE AGGREGATE ---- ---- --------- --------- PREFERRED STOCK (NOTE 3D): 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 -- -- -- 100,000 ------- --------- -------- ----------- --------- Total Not Subject to Mandatory Redemption............. 609,650 4,609,650 $ 63,893 60,965 160,965 ======= ========= ======== ----------- ---------- PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY (NOTE 3D): PENNSYLVANIA POWER COMPANY- Cumulative, $100 par value- Authorized 1,200,000 shares Not Subject to Mandatory Redemption: 4.24%................................ 40,000 40,000 $103.13 $ 4,125 4,000 4,000 4.25%................................ 41,049 41,049 105.00 4,310 4,105 4,105 4.64%................................ 60,000 60,000 102.98 6,179 6,000 6,000 7.75%................................ 250,000 250,000 -- -- 25,000 25,000 ------- --------- -------- ----------- ---------- Total Not Subject to Mandatory Redemption....................... 391,049 391,049 $ 14,614 39,105 39,105 ======= ========= ======== ----------- ---------- Subject to Mandatory Redemption (Note 3E): 7.625%............................... 142,500 150,000 103.81 $ 14,793 14,250 15,000 Redemption Within One Year........... (750) (750) ------- --------- -- -------- ----------- ---------- Total Subject to Mandatory Redemption 142,500 150,000 $ 14,793 13,500 14,250 ======= ========= ======== ----------- ---------- COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES: Cumulative, $25 par value- Authorized 4,800,000 shares Subject to Mandatory Redemption: 9.00%................................ -- 4,800,000 -- $ -- -- 120,000 ======= ========= ======== ----------- ----------
4 OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION (CONT'D)
AS OF DECEMBER 31, 2002 2001 2002 2001 2002 2001 - ------------------ ---- ---- ---- ---- ---- ---- RESTATED (SEE NOTE 1(M) (IN THOUSANDS) LONG-TERM DEBT (NOTE 3F): FIRST MORTGAGE BONDS: OHIO EDISON COMPANY- PENNSYLVANIA POWER COMPANY- 7.375% due 2002............... -- 120,000 9.740% due 2003-2019. 16,591 17,565 7.500% due 2002............... -- 34,265 7.500% due 2003...... 40,000 40,000 8.250% due 2002............... -- 125,000 6.375% due 2004...... 20,500 20,500 8.625% due 2003............... 150,000 150,000 6.625% due 2004...... 14,000 14,000 6.875% due 2005............... 80,000 80,000 8,500% due 2022...... 27,250 27,250 8.750% due 2022............... 50,960 50,960 7.625% due 2023...... 6,500 6,500 ------- ---------- 7.625% due 2023............... 75,000 75,000 7.875% due 2023............... 93,500 93,500 ------- ------- Total first mortgage bonds......... 449,460 728,725 124,841 125,815 574,301 854,540 ------- ------- ------- ---------- ---------- ---------- SECURED NOTES: OHIO EDISON COMPANY- PENNSYLVANIA POWER COMPANY- 7.930% due 2002............... -- 2,360 5.400% due 2013...... 1,000 1,000 7.680% due 2005............... 162,504 200,000 5.400% due 2017...... 10,600 10,600 *1.300% due 2015............... 19,000 19,000 *1.350% due 2017...... 17,925 17,925 6.750% due 2015............... 40,000 40,000 5.900% due 2018...... 16,800 16,800 7.050% due 2020............... 60,000 60,000 *1.350% due 2021...... 14,482 14,482 *1.350% due 2021............... 443 443 6.150% due 2023...... 12,700 12,700 5.375% due 2028............... 13,522 13,522 *1.600% due 2027...... 10,300 10,300 5.625% due 2029............... 50,000 50,000 6.450% due 2027...... -- 14,500 5.950% due 2029............... 56,212 56,212 5.375% due 2028...... 1,734 1,734 *1.300% due 2030............... 60,400 60,400 5.450% due 2028...... 6,950 6,950 *1.350% due 2031............... 69,500 69,500 6.000% due 2028...... 14,250 14,250 *1.350% due 2033............... 57,100 57,100 5.950% due 2029...... 238 238 ------- ---------- 5.450% due 2033............... 14,800 14,800 Limited Partnerships-......... 7.41% weighted average........ interest rate due 2003-2010. 29,513 35,015 ------- ------- 632,994 678,352 106,979 121,479 739,973 799,831 ------- ------- ------- ---------- ---------- ---------- OES FUEL- 2.72% weighted average interest as of December 31, 2001...... -- 81,515 ---------- ---------- Total secured notes................. 739,973 881,346 ---------- ---------- UNSECURED NOTES: OHIO EDISON COMPANY- PENNSYLVANIA POWER COMPANY- *1.500% due 2014............... 50,000 50,000 *5.900% due 2033...... 5,200 5,200 *4.850% due 2015............... 50,000 50,000 *3.850% due 2029...... 14,500 -- ------- ---------- *5.800% due 2016............... 47,725 47,725 *1.750% due 2018............... 33,000 33,000 *1.750% due 2018............... 23,000 23,000 *1.600% due 2023............... 50,000 50,000 *4.300% due 2033............... 50,000 50,000 *4.650% due 2033............... 108,000 108,000 *4.400% due 2033............... 30,000 30,000 ------- ------- Total unsecured notes.............. 441,725 441,725 19,700 5,200 461,425 446,925 ------- ------- ------- ---------- ---------- ---------- Capital lease obligations (Note 2). 8,249 10,718 ---------- ---------- Net unamortized discount on debt... (2,084) (2,321) ---------- ---------- Long-term debt due within one year. (562,517) (576,212) ---------- ---------- Total long-term debt............... 1,219,347 1,614,996 ---------- ---------- TOTAL CAPITALIZATION............... $4,172,172 $4,620,317 ========== ==========
* Denotes variable rate issue with December 31, 2002 interest rate shown. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
ACCUMULATED OTHER COMPREHENSIVE NUMBER CARRYING COMPREHENSIVE RETAINED INCOME OF SHARES VALUE INCOME (LOSS) EARNINGS ------ --------- ----- ------------- -------- RESTATED RESTATED RESTATED (SEE NOTE 1(M)) (SEE NOTE 1(M)) (DOLLARS IN THOUSANDS) Balance, January 1, 2000............................ 100 $2,098,729 $ -- $ 525,731 Net income....................................... $336,456 336,456 ======== Cash dividends on preferred stock................ (11,124) Cash dividends on common stock................... (392,800) -------- ------- ---------- ------- ---------- Balance, December 31, 2000.......................... 100 2,098,729 -- 458,263 Net income....................................... $350,212 350,212 ======== Cash dividends on preferred stock................ (10,703) Cash dividends on common stock................... (225,500) -------- ------- ---------- ------- ---------- Balance, December 31, 2001.......................... 100 2,098,729 -- 572,272 Net income....................................... $356,159 356,159 Minimum liability for unfunded retirement benefits, net of $(45,525,000) of income taxes (64,585) (64,585) Unrealized gain on investments, net of $3,582,000 of income taxes.................... 5,090 5,090 -------- Comprehensive income............................. $296,664 ======== Cash dividends on preferred stock................ (6,510) Cash dividends on common stock................... (121,900) -------- ------- ---------- ------- ---------- Balance, December 31, 2002.......................... 100 $2,098,729 $(59,495) $800,021 ======== ======= ========== ======= ==========
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
NOT SUBJECT TO SUBJECT TO MANDATORY REDEMPTION MANDATORY REDEMPTION -------------------- -------------------- NUMBER PAR NUMBER PAR OF SHARES VALUE OF SHARES VALUE --------- ----- --------- ----- (DOLLARS IN THOUSANDS) Balance, January 1, 2000 ..... 5,000,699 $ 200,070 5,050,000 $ 145,000 Redemptions- 8.45% Series ............ (50,000) (5,000) --------- ----------- --------- ----------- Balance, December 31, 2000 ... 5,000,699 200,070 5,000,000 140,000 Redemptions- 8.45% Series ............ (50,000) (5,000) --------- ----------- --------- ----------- Balance, December 31, 2001 ... 5,000,699 200,070 4,950,000 135,000 Redemptions - 7.75% Series ............ (4,000,000) (100,000) 9.00% Series ............ (4,800,000) (120,000) 7.625% Series ........... (7,500) (750) --------- ----------- --------- ----------- Balance, December 31, 2002 ... 1,000,699 $ 100,070 142,500 $ 14,250 ========= =========== ======= ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 6 OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000 - -------------------------------- ---- ---- ---- RESTATED (SEE NOTE 1(M)) (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .................................................... $ 356,159 $ 350,212 $ 336,456 Adjustments to reconcile net income to net cash from operating activities: Provision for depreciation and amortization ............. 385,520 424,920 578,679 Nuclear fuel and lease amortization ..................... 47,597 45,417 52,232 Deferred income taxes, net .............................. (61,987) (63,945) (110,038) Investment tax credits, net ............................. (13,732) (13,346) (25,035) Receivables ............................................. (41,584) (61,246) (279,575) Materials and supplies .................................. (9,930) 64,177 (7,625) Accounts payable ........................................ 182,229 (53,588) 70,089 Other (Note 7) .......................................... 212,929 (24,912) 8,753 ----------- ----------- ----------- Net cash provided from operating activities ........... 1,057,201 667,689 623,936 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: New Financing- Long-term debt ............................................. 14,500 111,584 207,283 Short-term borrowings, net ................................. 161,836 -- -- Redemptions and Repayments- Preferred stock ............................................ (220,750) (5,000) (5,000) Long-term debt ............................................. (425,742) (233,158) (485,178) Short-term borrowings, net ................................. -- (69,606) (42,864) Dividend Payments- Common stock ............................................... (121,900) (225,500) (392,800) Preferred stock ............................................ (6,510) (10,703) (11,124) ----------- ----------- ----------- Net cash used for financing activities ................ (598,566) (432,383) (729,683) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions ............................................ (148,967) (145,427) (279,508) Loans to associated companies ................................. (328,989) (262,076) (206,901) Loan payments from associated companies ....................... 1,113 1,032 -- Sale of assets to associated companies ........................ -- 154,596 531,633 Other (Note 7) ................................................ 34,132 2,888 (8,383) ----------- ----------- ----------- Net cash provided from (used for) investing activities (442,711) (248,987) 36,841 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents .......... 15,924 (13,681) (68,906) Cash and cash equivalents at beginning of year ................ 4,588 18,269 87,175 ----------- ----------- ----------- Cash and cash equivalents at end of year ...................... $ 20,512 $ 4,588 $ 18,269 =========== =========== =========== SUPPLEMENTAL CASH FLOWS INFORMATION: Cash Paid During the Year- Interest (net of amounts capitalized) ................... $ 118,535 $ 180,263 $ 183,117 =========== =========== =========== Income taxes ............................................ $ 126,558 $ 240,882 $ 305,644 =========== =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 7 OHIO EDISON COMPANY CONSOLIDATED STATEMENTS OF TAXES
FOR THE YEARS ENDED DECEMBER 31, 2002 2001 2000 - -------------------------------- ---- ---- ---- RESTATED (SEE NOTE 1(M)) (IN THOUSANDS) GENERAL TAXES: Real and personal property .............................. $ 65,709 $ 45,132 $ 103,741 State gross receipts* ................................... 18,516 45,271 104,851 Ohio kilowatt-hour excise* .............................. 85,762 55,795 -- Social security and unemployment ........................ 5,438 4,159 11,964 Other ................................................... 1,596 3,149 5,293 ----------- ----------- ----------- Total general taxes ............................... $ 177,021 $ 153,506 $ 225,849 =========== =========== =========== PROVISION FOR INCOME TAXES: Currently payable- Federal .............................................. $ 280,587 $ 265,305 $ 329,616 State ................................................ 55,796 51,121 18,037 ----------- ----------- ----------- 336,383 316,426 347,653 ----------- ----------- ----------- Deferred, net- Federal .............................................. (44,552) (56,105) (102,692) State ................................................ (22,184) (7,840) (7,346) ----------- ----------- ----------- (66,736) (63,945) (110,038) ----------- ----------- ----------- Investment tax credit amortization ...................... (13,732) (13,346) (25,035) ----------- ----------- ----------- Total provision for income taxes .................. $ 255,915 $ 239,135 $ 212,580 =========== =========== =========== INCOME STATEMENT CLASSIFICATION OF PROVISION FOR INCOME TAXES: Operating income ........................................ $ 229,001 $ 220,678 $ 198,436 Other income ............................................ 26,914 18,457 14,144 ----------- ----------- ----------- Total provision for income taxes .................. $ 255,915 $ 239,135 $ 212,580 =========== =========== =========== RECONCILIATION OF FEDERAL INCOME TAX EXPENSE AT STATUTORY RATE TO TOTAL PROVISION FOR INCOME TAXES: Book income before provision for income taxes ........... $ 612,074 $ 589,347 $ 549,036 =========== =========== =========== Federal income tax expense at statutory rate ............ $ 214,225 $ 206,271 $ 192,163 Increases (reductions) in taxes resulting from- Amortization of investment tax credits ............... (13,732) (13,346) (25,035) State income taxes, net of federal income tax benefit 21,848 28,133 6,949 Amortization of tax regulatory assets ................ 30,659 32,020 39,746 Other, net ........................................... 2,915 (13,943) (1,243) ----------- ----------- ----------- Total provision for income taxes .................. $ 255,915 $ 239,135 $ 212,580 =========== =========== =========== ACCUMULATED DEFERRED INCOME TAXES AT DECEMBER 31: Property basis differences .............................. $ 397,930 $ 374,138 $ 377,521 Allowance for equity funds used during construction ..... 34,407 36,587 62,604 Competitive transition charge ........................... 527,502 675,652 755,607 Customer receivables for future income taxes ............ 49,486 54,600 68,624 Deferred sale and leaseback costs ....................... (71,830) (77,099) (30,151) Unamortized investment tax credits ...................... (33,421) (38,680) (39,369) Deferred gain for asset sale to affiliated company ...... 70,812 85,311 73,312 Other comprehensive income .............................. (41,570) -- -- Other (Note 7) .......................................... 84,313 64,886 30,697 ----------- ----------- ----------- Net deferred income tax liability ................. $ 1,017,629 $ 1,175,395 $ 1,298,845 =========== =========== ===========
* Collected from customers through regulated rates and included in revenue on the Consolidated Statements of Income. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 8 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) is the Company's principal operating subsidiary. All significant intercompany transactions have been eliminated. The Company is a wholly owned subsidiary of FirstEnergy Corp. FirstEnergy holds directly all of the issued and outstanding common shares of its principal electric utility operating subsidiaries, including, the Company and The Cleveland Electric Illuminating Company (CEI), The Toledo Edison Company (TE), American Transmission Systems, Inc. (ATSI), Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). JCP&L, Met-Ed and Penelec were formerly wholly owned subsidiaries of GPU, Inc. which merged with FirstEnergy on November 7, 2001. The Company and Penn (Companies) follow the accounting policies and practices prescribed by the Securities and Exchange Commission (SEC), the Public Utilities Commission of Ohio (PUCO), the Pennsylvania Public Utility Commission (PPUC) and the Federal Energy Regulatory Commission (FERC). The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make periodic estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. (A) CONSOLIDATION- The Company consolidates all majority-owned subsidiaries, after eliminating the effects of intercompany transactions. Non-majority owned investments, including investments in limited liability companies, partnerships and joint ventures, are accounted for under the equity method when the Company is able to influence their financial or operating policies. Investments in corporations resulting in voting control of 20% or more are presumed to be equity method investments. Limited partnerships are evaluated in accordance with SEC Staff D-46, "Accounting for Limited Partnership Investments" and American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 78-9, "Accounting for Investments in Real Estate Ventures," which specify a 3 to 5 percent threshold for the presumption of influence. For all remaining investments (excluding those within the scope of Statement of Financial Accounting Standards (SFAS) 115, the Company applies the cost method. (B) 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, 2002 or 2001, with respect to any particular segment of the Companies' customers. (C) REGULATORY PLANS- In July 1999, Ohio's electric utility restructuring legislation, which allowed Ohio electric customers to select their generation suppliers beginning January 1, 2001, was signed into law. Among other things, the legislation provided for a 5% reduction on the generation portion of residential customers' bills and the opportunity to recover transition costs, including regulatory assets, from January 1, 2001 through December 31, 2005 (market development period). The period for the recovery of regulatory assets only can be extended up to December 31, 2010. The PUCO was authorized to determine the level of transition cost recovery, as well as the recovery period for the regulatory assets portion of those costs, in considering each Ohio electric utility's transition plan application. In July 2000, the PUCO approved FirstEnergy's transition plan for the Company, CEI and TE as modified by a settlement agreement with major parties to the transition plan. The application of SFAS 71, "Accounting for the Effects of Certain Types of Regulation" to the Company's generation business discontinued with the issuance of the PUCO transition plan order, as described further below. Major provisions of the settlement agreement consisted of approval of recovery of the Company's generation-related transition costs as filed of $1.6 billion net of deferred income taxes and transition costs related to regulatory assets as filed of $1.0 billion net of deferred income taxes with recovery through no later than 2006 for the Company except where a longer period of recovery is provided for in the settlement agreement. The generation-related transition costs include $1.0 billion, net of deferred income taxes of impaired generating assets recognized as regulatory assets as described further below and $1.2 billion, net of deferred income taxes of above market operating lease costs. 9 Also as part of the settlement agreement, FirstEnergy is giving preferred access over its subsidiaries to nonaffiliated marketers, brokers and aggregators to 560 megawatts (MW) of generation capacity through 2005 at established prices for sales to the Company's retail customers. Customer prices are frozen through the five-year market development period except for certain limited statutory exceptions, including the 5% reduction referred to above. In February 2003, the Company was authorized increases in annual revenues aggregating approximately $41 million to recover its higher tax costs resulting from the Ohio deregulation legislation. The Company's customers choosing alternative suppliers receive an additional incentive applied to the shopping credit (generation component) of 45% for residential customers, 30% for commercial customers and 15% for industrial customers. The amount of the incentive is deferred for future recovery from customers - recovery will be accomplished by extending the transition cost recovery period. If the customer shopping goals established in the agreement had not been achieved by the end of 2005, the transition cost recovery period could have been shortened for the Company to reduce recovery by as much as $250 million. The Company achieved its required 20% customer shopping goals in 2002. Accordingly, the Company believes that there will be no regulatory action reducing the recoverable transition costs. Pennsylvania enacted its electric utility competition law in 1996 with the phase-in of customer choice for generation suppliers completed as of January 1, 2001. In 1998, the PPUC authorized a rate restructuring plan for Penn, which essentially resulted in the deregulation of Penn's generation business. The application of SFAS 71 has been discontinued with respect to the Companies' generation operations. The SEC issued interpretive guidance regarding asset impairment measurement concluding that any supplemental regulated cash flows such as a competitive transition charge (CTC) should be excluded from the cash flows of assets in a portion of the business not subject to regulatory accounting practices. If those assets are impaired, a regulatory asset should be established if the costs are recoverable through regulatory cash flows. Consistent with the SEC guidance, $1.2 billion of impaired plant investments were recognized by the Company as regulatory assets recoverable as transition costs through future regulatory cash flows and $227 million were recognized for Penn related to its 1998 impairment of its nuclear generating unit investments to be recovered through a CTC over a seven-year transition period. Net assets included in utility plant relating to the operations for which the application of SFAS 71 was discontinued, compared to the respective company's total assets as of December 31, 2002 were $947 million and $7.16 billion, respectively, for the Company and $82 million and $908 million, respectively, for Penn. (D) UTILITY PLANT AND DEPRECIATION- Utility plant reflects the original cost of construction (except for the Companies' nuclear generating units which were adjusted to fair value including payroll and related costs such as taxes, employee benefits, administrative and general costs, and interest costs. The Companies' accounting policy for planned major maintenance projects is to expense costs and recognize liabilities as they are incurred. 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 the Company's electric plant was approximately 2.7% in 2002 and 2001, and 2.8% in 2000. The annual composite rate for Penn's electric plant was approximately 2.9% in 2002 and 2001, and 2.6% in 2000. Annual depreciation expense in 2002 included approximately $31.5 million for future decommissioning costs applicable to the Companies' ownership and leasehold interests in three nuclear generating units (Beaver Valley Units 1 and 2 and Perry Unit 1). The Companies' share of the future obligation to decommission these units is approximately $874 million in current dollars and (using a 4.0% escalation rate) approximately $1.9 billion in future dollars. The estimated obligation and the escalation rate were developed based on site specific studies. Payments for decommissioning are expected to begin in 2016, when actual decommissioning work is expected to begin. The Companies have recovered approximately $160 million for decommissioning through their electric rates from customers through December 31, 2002. The Companies have also recognized an estimated liability of approximately $10.5 million related to decontamination and decommissioning of nuclear enrichment facilities operated by the United States Department of Energy, as required by the Energy Policy Act of 1992. In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS 143, "Accounting for Asset Retirement Obligations". The new statement provides accounting standards for retirement obligations associated with tangible long-lived assets, with adoption required by January 1, 2003. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recorded in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. Over time the capitalized costs are depreciated and the present value of the asset retirement liability increases, resulting in a period expense. However, rate-regulated entities may recognize a regulatory asset or liability if the criteria for such treatment are met. Upon retirement, a gain or loss would be recorded if the cost to settle the retirement obligation differs from the carrying amount. 10 The Companies have identified applicable legal obligations as defined under the new standard, principally for nuclear power plant decommissioning. Upon adoption of SFAS 143, asset retirement costs of $134 million were recorded as part of the carrying amount of the related long-lived asset, offset by accumulated depreciation of $25 million. Due to the increased carrying amount, the related long-lived assets were tested for impairment in accordance with SFAS 144, "Accounting for Impairment or Disposal of Long-Lived Assets". No impairment was indicated. The asset retirement liability at the date of adoption was $298 million. As of December 31, 2002, the Companies have recorded decommissioning liabilities of $281 million. The change in the estimated liabilities resulted from changes in methodology and various assumptions, including changes in the projected dates for decommissioning. Management expects that the ultimate nuclear decommissioning costs for Penn will be tracked and recovered through its regulated rates. Therefore, Penn recognized a regulatory liability of $69 million upon adoption of SFAS 143 for the transition amounts related to establishing the asset retirement obligations for nuclear decommissioning. The remaining cumulative effect adjustment to recognize the undepreciated asset retirement cost and the asset retirement liability offset by the reversal of the previously recorded decommissioning liabilities was a $23 million increase to income ($14 million net of tax). (E) COMMON OWNERSHIP OF GENERATING FACILITIES- The Companies, together with CEI and TE, own and/or lease, 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, 2002 include the following:
COMPANIES' UTILITY ACCUMULATED CONSTRUCTION OWNERSHIP/ PLANT PROVISION FOR WORK IN LEASEHOLD GENERATING UNITS IN SERVICE DEPRECIATION PROGRESS INTEREST - ---------------- ---------- ------------ -------- -------- (IN MILLIONS) W. H. Sammis #7 ...... $ 336.1 $ 165.3 $ -- 68.80% Bruce Mansfield #1, #2 and #3 ......... 987.6 534.1 3.4 67.18% Beaver Valley #1 and #2 ......... 64.8 14.8 67.7 77.81% Perry ................ 324.9 302.4 6.4 35.24% --------- --------- --------- --------- Total ............. $ 1,713.4 $ 1,016.6 $ 77.5 ========= ========= ========= =========
(F) 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. (G) STOCK-BASED COMPENSATION- FirstEnergy applies the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its stock-based compensation plans (see Note 3c). No material stock-based employee compensation expense is reflected in net income as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the grant date resulting in substantially no intrinsic value. If FirstEnergy had accounted for employee stock options under the fair value method, a higher value would have been assigned to the options granted. The weighted average assumptions used in valuing the options and their resulting estimated fair values would be as follows:
2002 2001 2000 ---- ---- ---- Valuation assumptions: Expected option term (years) .. 8.1 8.3 7.6 Expected volatility ........... 23.31% 23.45% 21.77% Expected dividend yield ....... 4.36% 5.00% 6.68% Risk-free interest rate ....... 4.60% 4.67% 5.28% Fair value per option ........... $ 6.45 $ 4.97 $ 2.86 -------- -------- --------
The effects of applying fair value accounting to the Companies' stock options would not materially effect net income. 11 (H) 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. The Companies are included in FirstEnergy's consolidated federal income tax return. The consolidated tax liability is allocated on a "stand-alone" company basis, with the Companies recognizing any tax losses or credits they contributed to the consolidated return. (I) RETIREMENT BENEFITS- FirstEnergy's trusteed, noncontributory defined benefit pension plan covers almost all of the Companies' full-time employees. Upon retirement, employees receive a monthly pension based on length of service and compensation. On December 31, 2001, the GPU pension plans were merged with the FirstEnergy plan. 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, 2002. The assets of the FirstEnergy pension plan consist primarily of common stocks, United States government bonds and corporate bonds. The Companies provide a minimum amount of noncontributory life insurance to retired employees in addition to optional contributory insurance. Health care benefits, which include certain employee contributions, 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. As a result of the reduced market value of FirstEnergy's pension plan assets, FirstEnergy was required to recognize an additional minimum liability as prescribed by SFAS 87 and SFAS 132, "Employers' Disclosures about Pension and Postretirement Benefits," as of December 31, 2002. FirstEnergy's accumulated benefit obligation of $3.438 billion exceeded the fair value of plan assets ($2.889 billion) resulting in a minimum pension liability of $548.6 million. FirstEnergy eliminated its prepaid pension asset of $286.9 million (Companies - $57.2 million) and established a minimum liability of $548.6 million (Companies - $76.1 million), recording an intangible asset of $78.5 million (Companies - $23.2 million) and reducing OCI by $444.2 million (Companies - $64.6 million) (recording a related deferred tax asset of $312.8 million (Companies - $45.5 million)). The charge to OCI will reverse in future periods to the extent the fair value of trust assets exceed the accumulated benefit obligation. The amount of pension liability recorded as of December 31, 2002, increased due to the lower discount rate and asset returns assumed as of December 31, 2002. 12 The following sets forth the funded status of the plans and amounts recognized on FirstEnergy's Consolidated Balance Sheets as of December 31:
OTHER PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------- ----------------------- 2002 2001 2002 2001 ---- ---- ---- ---- (IN MILLIONS) Change in benefit obligation: Benefit obligation as of January 1 ........... $ 3,547.9 $ 1,506.1 $ 1,581.6 $ 752.0 Service cost ................................. 58.8 34.9 28.5 18.3 Interest cost ................................ 249.3 133.3 113.6 64.4 Plan amendments .............................. -- 3.6 (121.1) -- Actuarial loss ............................... 268.0 123.1 440.4 73.3 Voluntary early retirement program ........... -- -- -- 2.3 GPU acquisition .............................. (11.8) 1,878.3 110.0 716.9 Benefits paid ................................ (245.8) (131.4) (83.0) (45.6) --------- --------- --------- --------- Benefit obligation as of December 31 ......... 3,866.4 3,547.9 2,070.0 1,581.6 --------- --------- --------- --------- Change in fair value of plan assets: Fair value of plan assets as of January 1 .... 3,483.7 1,706.0 535.0 23.0 Actual return on plan assets ................. (348.9) 8.1 (57.1) 12.7 Company contribution ......................... -- -- 37.9 43.3 GPU acquisition .............................. -- 1,901.0 -- 462.0 Benefits paid ................................ (245.8) (131.4) (42.5) (6.0) --------- --------- --------- --------- Fair value of plan assets as of December 31 .. 2,889.0 3,483.7 473.3 535.0 --------- --------- --------- --------- Funded status of plan ........................ (977.4) (64.2) (1,596.7) (1,046.6) Unrecognized actuarial loss .................. 1,185.8 222.8 751.6 212.8 Unrecognized prior service cost .............. 78.5 87.9 (106.8) 17.7 Unrecognized net transition obligation ....... -- -- 92.4 101.6 --------- --------- --------- --------- Net amount recognized ........................ $ 286.9 $ 246.5 $ (859.5) $ (714.5) ========= ========= ========= ========= Amounts recognized on the Consolidated Balance Sheets consist of: Prepaid (accrued) benefit cost ............... $ (548.6) $ 246.5 $ (859.5) $ (714.5) Intangible asset ............................. 78.5 -- -- -- Accumulated other comprehensive loss ......... 757.0 -- -- -- --------- --------- --------- --------- Net amount recognized ........................ $ 286.9 $ 246.5 $ (859.5) $ (714.5) ========= ========= ========= ========= Companies' share of net amount recognized ................................. $ 57.2 $ 210.7 $ (171.0) $ (165.8) ========= ========= ========= ========= Assumptions used as of December 31: Discount rate ................................ 6.75% 7.25% 6.75% 7.25% Expected long-term return on plan assets ..... 9.00% 10.25% 9.00% 10.25% Rate of compensation increase ................ 3.50% 4.00% 3.50% 4.00%
FirstEnergy's net pension and other postretirement benefit costs for the three years ended December 31, 2002 were computed as follows:
OTHER PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------- ----------------------- 2002 2001 2000 2002 2001 2000 ---- ---- ---- ---- ---- ---- (IN MILLIONS) Service cost ................................... $ 58.8 $ 34.9 $ 27.4 $ 28.5 $ 18.3 $ 11.3 Interest cost .................................. 249.3 133.3 104.8 113.6 64.4 45.7 Expected return on plan assets ................. (346.1) (204.8) (181.0) (51.7) (9.9) (0.5) Amortization of transition obligation (asset) .. -- (2.1) (7.9) 9.2 9.2 9.2 Amortization of prior service cost ............. 9.3 8.8 5.7 3.2 3.2 3.2 Recognized net actuarial loss (gain) ........... -- -- (9.1) 11.2 4.9 -- Voluntary early retirement program ............. -- 6.1 17.2 -- 2.3 -- -------- -------- -------- -------- -------- -------- Net periodic benefit cost (income) ............. $ (28.7) $ (23.8) $ (42.9) $ 114.0 $ 92.4 $ 68.9 ======== ======== ======== ======== ======== ======== Companies' share of net benefit cost ........... $ 2.5 $ (3.2) $ (19.1) $ 14.8 $ 15.7 $ 24.7 -------- -------- -------- -------- -------- --------
The composite health care cost trend rate assumption is approximately 10%-12% in 2003, 9% in 2004 and 8% in 2005, decreasing to 5% in later years. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. An increase in the health care cost trend rate assumption by one percentage point would increase the total service and interest cost components by $20.7 million and the postretirement benefit obligation by $232.2 million. A decrease in the same assumption by one percentage point would decrease the total service and interest cost components by $16.7 million and the postretirement benefit obligation by $204.3 million. (J) TRANSACTIONS WITH AFFILIATED COMPANIES- Operating revenues, operating expenses and other income include transactions with affiliated companies, primarily CEI, TE, ATSI, FirstEnergy Solutions Corp. (FES) and FirstEnergy Service Company (FECO). The Ohio transition plan, as discussed in the "Regulatory Plans" section, resulted in the corporate separation of FirstEnergy's regulated and unregulated operations in 2001. Unregulated operations under FES now operate the generation 13 businesses of the Companies, CEI and TE. As a result, the Companies entered into power supply agreements (PSA) whereby FES purchases all of the Companies' nuclear generation and the Companies purchase their power from FES to meet their "provider of last resort" obligations. The primary affiliated companies transactions, including the effects of the PSA beginning in 2001, the sale and leaseback of the Companies' transmission assets to ATSI in September 2000 and FECO's providing support services at cost, are as follows:
2002 2001 2000 ---- ---- ---- (IN MILLIONS) OPERATING REVENUES: PSA revenues with FES $ 328.9 $ 355.9 $ -- Generating units rent with FES 178.4 178.8 -- Electric sales to CEI -- -- 53.4 Electric sales to TE -- -- 15.9 Ground lease with ATSI 11.9 11.9 8.8 OPERATING EXPENSES: Purchased power under PSA 911.6 1,025.9 -- Transmission expense 85.3 61.0 32.4 FirstEnergy support services 141.4 146.8 119.0 OTHER INCOME: Interest income from ATSI 15.9 16.0 5.4 Interest income from FES 12.1 12.1 -- -------- -------- --------
FirstEnergy does not bill directly or allocate any of its costs to any subsidiary company. Costs are allocated to the Company from its affiliates, GPU Service, Inc. and FirstEnergy Service Company, both subsidiaries of FirstEnergy Corp. and both "mutual service companies" as defined in Rule 93 of the 1935 Public Utility Holding Company Act (PUHCA). The majority of costs are directly billed or assigned at no more than cost as determined by PUHCA Rule 91. The remaining costs are for services that are provided on behalf of more than one company, or costs that cannot be precisely identified and are allocated using formulas that are filed annually with the SEC on Form U-13-60. The current allocation or assignment formulas used and their bases include multiple factor formulas: the ratio of each company's amount of FirstEnergy's aggregate direct payroll, number of employees, asset balances, revenues, number of customers and other factors; and specific departmental charge ratios. Management believes that these allocation methods are reasonable. (K) 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 at cost, which approximates their fair market value. Noncash financing and investing activities included capital lease transactions amounting to $1.3 million for the year 2000. There were no capital lease transactions in 2002 and 2001. Commercial paper transactions of OES Fuel, Incorporated (a wholly owned subsidiary of the Company) that had initial maturity periods of three months or less were reported net within financing activities under long-term debt, prior to the expiration of the related long-term financing agreement in March 2002, and were reflected as currently payable long-term debt on the Consolidated Balance Sheet as of December 31, 2001. All borrowings with initial maturities of less than one year are defined as financial instruments under GAAP and are reported on the Consolidated Balance Sheets at cost, which approximates their fair market value. The following sets forth the approximate fair value and related carrying amounts of all other long-term debt, preferred stock subject to mandatory redemption and investments other than cash and cash equivalents as of December 31:
2002 2001 ---- ---- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----- ----- ----- ----- (IN MILLIONS) Long-term debt $ 1,776 $ 1,861 $ 2,101 $ 2,182 Preferred stock $ 14 $ 14 $ 135 $ 138 Investments other than cash and cash equivalents: Debt securities: - Maturity (5-10 years) $ 570 $ 539 $ 593 $ 562 - Maturity (more than 10 years) 458 532 461 514 Equity securities 12 12 13 13 All other 361 361 360 359 -------- -------- -------- -------- $ 1,401 $ 1,444 $ 1,427 $ 1,448 ======== ======== ======== ========
14 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. The Companies have no securities held for trading purposes. The investment policy for the nuclear decommissioning trust funds restricts or limits the ability to hold certain types of assets including private or direct placements, warrants, securities of FirstEnergy, investments in companies owning nuclear power plants, financial derivatives, preferred stocks, securities convertible into common stock and securities of the trust fund's custodian or managers and their parents or subsidiaries. The investments that are held in the decommissioning trusts (included as "All other" in the table above) consist of equity securities, government bonds and corporate bonds. Unrealized gains and losses applicable to the decommissioning trusts have been recognized in the trust investment with a corresponding change in other comprehensive income. Realized gains (losses) are recognized as additions (reductions) to trust asset balances. For the year 2002, net realized gains (losses) were approximately $(3.4) million and interest and dividend income totaled approximately $8.9 million. (L) 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 expected to continue to be recovered from customers under the Companies' respective transition and rate restructuring plans. Based on those plans, the Companies continue to bill and collect cost-based rates for their transmission and distribution services, which remain regulated; accordingly, it is appropriate that the Companies continue the application of SFAS 71 to those operations. The Companies recognized additional cost recovery of $270 million in 2000 as additional regulatory asset amortization in accordance with their prior Ohio and current Pennsylvania regulatory plans. The Companies recognized incremental transition cost recovery aggregating $282 million in 2002 and $274 million in 2001 in accordance with the current Ohio transition plan and Pennsylvania restructuring plan. Net regulatory assets on the Consolidated Balance Sheets are comprised of the following:
2002 2001 ---- ---- RESTATED (SEE NOTE 1(M)) (IN MILLIONS) Regulatory transition costs .................. $ 1,840.4 $ 2,050.1 Customer receivables for future income taxes . 127.2 139.5 Loss on reacquired debt ...................... 28.0 30.3 Employee postretirement benefit costs ........ 9.3 12.3 Other ........................................ 0.7 2.0 ---------- ---------- Total .................................... $ 2,005.6 $ 2,234.2 ========== ==========
(M) RESTATED FINANCIAL STATEMENTS The Company has restated its financial statements for the year ended December 31, 2002, to reflect a change in the method of amortizing the costs associated with the Ohio transition plan. The Company amortizes transition costs using the effective interest method. The amortization schedules originally developed at the beginning of the transition plan in 2001 in applying this method were based on total transition revenues, including revenues designed to recover costs which have not yet been incurred and are not reflected as regulatory assets in the financial statements prepared under generally accepted accounting principles (GAAP). OE has revised the amortization schedules under the effective interest method to consider only revenues relating to transition regulatory assets recognized on the GAAP balance sheet. The impact of this change will result in higher amortization of these regulatory assets in the first several years of the transition cost recovery period compared with the method previously applied. The change in method results in no change in total amortization of the regulatory assets recovered through the transition period, which is expected to end in 2006. 15 After giving effect to the restatement, total transition cost amortization (including above market leases) is expected to approximate the following for the years from 2003 through 2006 (in millions). 2003 ................... $402 2004 ................... 465 2005 ................... 545 2006 ................... 155
The change in amortization resulted in a decrease in net income of $5.4 million and included an increase in net income of $15.4 million from the cumulative impact of the adjustments related to 2001 and a $20.8 million decrease in net income for additional amortization expense in 2002. The net adjustment is reflected as an increase of $14.7 million in depreciation and amortization expense and a decrease of $9.3 million in income tax expense in the accompanying consolidated statement of income as restated. The Company has also included in this restatement certain immaterial adjustments that were not previously recognized in 2002. The impact of these adjustments reduced net income reported for 2002 by $1.9 million. The total decrease to net income of $7.3 million resulting from these adjustments impacted the Consolidated Statement of Income previously reported for the year ended December 31, 2002 as follows:
AS PREVIOUSLY AS REPORTED RESTATED ---------- ---------- (IN THOUSANDS) Revenues $2,948,675 $2,948,675 Expenses 2,486,990 2,494,844 Other income 42,329 42,859 ---------- ---------- Income before net interest charges 504,014 496,690 Net interest charges 140,531 140,531 ---------- ---------- Net income $ 363,483 $ 356,159 Preferred stock dividend requirements 6,510 6,510 ---------- ---------- Earnings on common stock $ 356,973 $ 349,649 ========== ==========
The change in the amortization method and the other adjustments had the following impact on the Consolidated Balance Sheet as of December 31, 2002:
INCREASE (DECREASE): (IN THOUSANDS) Current assets $ (3,500) Regulatory assets (7,200) -------- Total assets $(10,700) ======== Current liabilities $ (1,032) Deferred income taxes (8,562) Common stockholders equity (1,106) -------- Capitalization and liabilities $(10,700) ========
Net cash provided from operating activities remained unchanged at approximately $1.1 billion in 2002. 2. LEASES The Companies lease certain generating facilities, office space and other property and equipment under cancelable and noncancelable leases. The Company sold portions of its ownership interest in Perry Unit 1 and Beaver Valley Unit 2 and entered into operating leases on the portions sold for basic lease terms of approximately 29 years. During the terms of the leases, the Company continues to be responsible, to the extent of its individual combined ownership and leasehold interests, for costs associated with the units including construction expenditures, operation and maintenance expenses, insurance, nuclear fuel, property taxes and decommissioning. The Company has the right, at the end of the respective 16 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 any renewal term at a price equal to the fair market value of the facilities. The basic rental payments are adjusted when applicable federal tax law changes. OES Finance, Incorporated, a wholly owned subsidiary of the Company, maintains deposits pledged as collateral to secure reimbursement obligations relating to certain letters of credit supporting the Company's obligations to lessors under the Beaver Valley Unit 2 sale and leaseback arrangements. The deposits of approximately $278 million pledged to the financial institution providing those letters of credit are the sole property of OES Finance and are investments which are classified as "Held to Maturity." In the event of liquidation, OES Finance, as a separate corporate entity, would have to satisfy its obligations to creditors before any of its assets could be made available to the Company as sole owner of OES Finance common stock. Consistent with the regulatory treatment, the rentals for capital and operating leases are charged to operating expenses on the Consolidated Statements of Income. Such costs for the three years ended December 31, 2002, are summarized as follows:
2002 2001 2000 ------ ------ ------ (IN MILLIONS) Operating leases Interest element ........... $100.9 $102.7 $107.0 Other ...................... 34.6 31.6 35.1 Capital leases Interest element ........... 1.6 1.9 2.5 Other ...................... 1.3 1.9 2.6 ------ ------ ------ Total rentals .............. $138.4 $138.1 $147.2 ====== ====== ======
The future minimum lease payments as of December 31, 2002, are:
OPERATING LEASES ---------------------------------------- CAPITAL LEASE PNBV CAPITAL LEASES PAYMENTS TRUST NET -------- -------- -------- -------- (IN MILLIONS) 2003 ............................. $ 2.9 $ 136.9 $ 62.9 $ 74.0 2004 ............................. 4.4 137.8 58.5 79.3 2005 ............................. 4.4 138.8 56.6 82.2 2006 ............................. 4.4 139.9 59.6 80.3 2007 ............................. 0.8 139.3 59.9 79.4 Years thereafter ................. 3.4 1,272.6 356.4 916.2 -------- -------- -------- -------- Total minimum lease payments ..... 20.3 $1,965.3 $ 653.9 $1,311.4 ======== ======== ======== Executory costs .................. 7.1 -------- Net minimum lease payments ....... 13.2 Interest portion ................. 4.9 -------- Present value of net minimum lease payments .................. 8.3 Less current portion ............. 1.3 -------- Noncurrent portion ............... $ 7.0 ========
The Company invested in the PNBV Capital Trust, which was established to purchase a portion of the lease obligation bonds issued on behalf of lessors in the Company's Perry Unit 1 and Beaver Valley Unit 2 sale and leaseback transactions. The PNBV capital trust arrangement effectively reduces lease costs related to those transactions. 3. CAPITALIZATION: (A) RETAINED EARNINGS- Under the Company's first mortgage indenture, the Company's consolidated retained earnings unrestricted for payment of cash dividends on the Company's common stock were $796.1 million at December 31, 2002. (B) EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)- An ESOP Trust funds most of the matching contribution for FirstEnergy's 401(k) savings plan. All of the Companies' full-time employees eligible for participation in the 401(k) savings plan are covered by the ESOP. The ESOP borrowed $200 million from the Company and acquired 10,654,114 shares of the Company's common stock (subsequently converted to FirstEnergy common stock) through market purchases. The ESOP loan is included in Other Property and Investments on the Consolidated Balance Sheets as of December 31, 2002 and 2001 as an investment 17 with FirstEnergy related to the FirstEnergy savings plan. Dividends on ESOP shares are used to service the debt. Shares are released from the ESOP on a pro rata basis as debt service payments are made. (C) STOCK COMPENSATION PLANS- In 2001, FirstEnergy assumed responsibility for two new stock-based plans as a result of its acquisition of GPU. No further stock-based compensation can be awarded under the GPU, Inc. Stock Option and Restricted Stock Plan for MYR Group Inc. Employees (MYR Plan) or the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries (GPU Plan). All options and restricted stock under both Plans have been converted into FirstEnergy options and restricted stock. Options under the GPU Plan became fully vested on November 7, 2001, and will expire on or before June 1, 2010. Under the MYR Plan, all options and restricted stock maintained their original vesting periods, which range from one to four years, and will expire on or before December 17, 2006. Additional stock based plans administered by FirstEnergy include the Centerior Equity Plan (CE Plan) and the FirstEnergy Executive and Director Incentive Compensation Plan (FE Plan). All options are fully vested under the CE Plan, and no further awards are permitted. Outstanding options will expire on or before February 25, 2007. Under the FE Plan, total awards cannot exceed 22.5 million shares of common stock or their equivalent. Only stock options and restricted stock have been granted, with vesting periods ranging from six months to seven years. Collectively, the above plans are referred to as the FE Programs. Restricted common stock grants under the FE Programs were as follows:
2002 2001 2000 ----------- ----------- ----------- Restricted common shares granted ........... 36,922 133,162 208,400 Weighted average market price .............. $ 36.04 $ 35.68 $ 26.63 Weighted average vesting period (years) .... 3.2 3.7 3.8 Dividends restricted ....................... Yes * Yes ----------- ----------- -----------
* FE Plan dividends are paid as restricted stock on 4,500 shares; MYR Plan dividends are paid as unrestricted cash on 128,662 shares Under the Executive Deferred Compensation Plan (EDCP), covered employees can direct a portion of their Annual Incentive Award and/or Long-Term Incentive Award into an unfunded FirstEnergy Stock Account to receive vested stock units. An additional 20% premium is received in the form of stock units based on the amount allocated to the FirstEnergy Stock Account. Dividends are calculated quarterly on stock units outstanding and are paid in the form of additional stock units. Upon withdrawal, stock units are converted to FirstEnergy shares. Payout typically occurs three years from the date of deferral; however, an election can be made in the year prior to payout to further defer shares into a retirement stock account that will pay out in cash upon retirement. As of December 31, 2002, there were 296,008 stock units outstanding. Stock option activities under the FE Programs for the past three years were as follows:
NUMBER OF WEIGHTED AVERAGE STOCK OPTION ACTIVITIES OPTIONS EXERCISE PRICE - ----------------------- ------- -------------- Balance, January 1, 2000 ............ 2,153,369 $ 25.32 (159,755 options exercisable) ....... 24.87 Options granted .................... 3,011,584 23.24 Options exercised .................. 90,491 26.00 Options forfeited .................. 52,600 22.20 Balance, December 31, 2000 ......... 5,021,862 24.09 (473,314 options exercisable)........ 24.11 Options granted .................... 4,240,273 28.11 Options exercised .................. 694,403 24.24 Options forfeited .................. 120,044 28.07 Balance, December 31, 2001 .......... 8,447,688 26.04 (1,828,341 options exercisable)...... 24.83 Options granted .................... 3,399,579 34.48 Options exercised .................. 1,018,852 23.56 Options forfeited .................. 392,929 28.19 Balance, December 31, 2002 ......... 10,435,486 28.95 (1,400,206 options exercisable) ..... 26.07
18 As of December 31, 2002, the weighted average remaining contractual life of outstanding stock options was 7.6 years. No material stock-based employee compensation expense is reflected in net income for stock options granted under the above plans since the exercise price was equal to the market value of the underlying common stock on the grant date. The effect of applying fair value accounting to FirstEnergy's stock options is summarized in Note 1G - "Stock-Based Compensation." (D) PREFERRED AND PREFERENCE STOCK- Penn's 7.75% series of preferred stock has a restriction which prevents early redemption prior to July 2003. All other preferred stock may be redeemed by the Companies in whole, or in part, with 30-60 days' notice. The Company has eight million authorized and unissued shares of preference stock having no par value. (E) PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION- Penn's 7.625% series has an annual sinking fund requirement for 7,500 shares. The Companies' preferred shares are retired at $100 per share plus accrued dividends. Annual sinking fund requirements are approximately $750,000 in each year 2003 through 2006 and $11.25 million in 2007. (F) LONG-TERM DEBT- Each of the Companies has a first mortgage indenture under which it issues from time to time first mortgage bonds secured by a direct first mortgage lien on substantially all of its property and franchises, other than specifically excepted property. The Companies have various debt covenants under their respective financing arrangements. The most restrictive of their debt covenants relate to the nonpayment of interest and/or principal on debt which could trigger a default and the maintenance of minimum fixed charge ratios and debt to capitalization ratios. There also exists cross-default provisions among financing arrangements of FirstEnergy and the Companies. Based on the amount of bonds authenticated by the respective mortgage bond trustees through December 31, 2002, the Companies' annual sinking and improvement fund requirements for all bonds issued under the various mortgage indentures of the Companies amounts to $39 million. The Companies expect to deposit funds with their respective mortgage bond trustees in 2003 that will then be withdrawn upon the surrender for cancellation of a like principal amount of bonds, 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) ------------- 2003 .............. $561.2 2004 .............. 258.3 2005 .............. 136.8 2006 .............. 5.6 2007 .............. 5.8 ------
Included in the table above are amounts for various variable interest rate long-term debt which have provisions by which individual debt holders have the option to "put back" or require the respective debt issuer to redeem their debt at those times when the interest rate may change prior to its maturity date. These amounts are $311 million and $161 million in 2003 and 2004, respectively, which represents the next date at which the debt holders may exercise this provision. The Companies' obligations to repay certain pollution control revenue bonds are secured by several series of first mortgage bonds. Certain pollution control revenue bonds are entitled to the benefit of irrevocable bank letters of credit of $171.5 million and noncancelable municipal bond insurance policies of $238.9 million to pay principal of, or interest on, the pollution control revenue bonds. To the extent that drawings are made under the letters of credit or policies, the Companies are entitled to a credit against their obligation to repay those bonds. The Companies pay annual fees of 1.375% of the amounts of the letters of credit to the issuing banks and are obligated to reimburse the banks for any drawings thereunder. 19 (G) COMPREHENSIVE INCOME- Comprehensive income includes net income as reported on the Consolidated Statements of Income and all other changes in common stockholder's equity except those resulting from transactions with FirstEnergy. As of December 31, 2002, accumulated other comprehensive loss consisted of a minimum liability for unfunded retirement benefits of $(64.6) million and unrealized gains on investments in securities available for sale of $5.1 million. 4. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT: Short-term borrowings outstanding as of December 31, 2002, consisted of $22.6 million of bank borrowings and $159.7 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 $170 million under a receivables financing agreement at rates based on certain bank commercial paper and is required to pay an annual fee of 0.20% on the amount of the entire finance limit. The receivables financing agreement expires in August 2003. As of December 31, 2002, the Company also had total short-term borrowings of $225.3 million from its affiliates. The weighted average interest rates on short-term borrowings outstanding as of December 31, 2002 and 2001, were 1.63% and 2.45%, respectively. The Company has lines of credit with domestic banks that provide for borrowings of up to $34 million under various interest rate options. Short-term borrowings may be made under these lines of credit on its unsecured notes. To assure the availability of these lines, the Company is required to pay annual commitment fees of 0.20%. These lines expire at various times during 2003. 5. COMMITMENTS AND CONTINGENCIES: (A) CAPITAL EXPENDITURES- The Companies' current forecast reflects expenditures of approximately $391 million for property additions and improvements from 2003-2007, of which approximately $139 million is applicable to 2003. Investments for additional nuclear fuel during the 2003-2007 period are estimated to be approximately $97 million, of which approximately $42 million applies to 2003. During the same periods, the Companies' nuclear fuel investments are expected to be reduced by approximately $85 million and $41 million, respectively, as the nuclear fuel is consumed. (B) NUCLEAR INSURANCE- The Price-Anderson Act limits the public liability relative to a single incident at a nuclear power plant to $9.5 billion. The amount is covered by a combination of private insurance and an industry retrospective rating plan. Based on their ownership and leasehold interests in the Beaver Valley Station and the Perry Plant, the Companies' maximum potential assessment under the industry retrospective rating plan (assuming the other affiliate co-owners contribute their proportionate shares of any assessments under the retrospective rating plan) would be $168.1 million per incident but not more than $19.1 million in any one year for each incident. The Companies are also insured as to their respective interests in Beaver Valley and Perry under policies issued to the operating company for each plant. Under these policies, up to $2.75 billion is provided for property damage and decontamination and decommissioning costs. The Companies have also obtained approximately $537 million of insurance coverage for replacement power costs for their respective interests in Beaver Valley and Perry. Under these policies, the Companies can be assessed a maximum of approximately $31.6 million for incidents at any covered nuclear facility occurring during a policy year which are in excess of accumulated funds available to the insurer for paying losses. The Companies intend to maintain insurance against nuclear risks as described above as long as it is available. To the extent that replacement power, property damage, decontamination, decommissioning, repair and replacement costs and other such costs arising from a nuclear incident at any of the Companies' plants exceed the policy limits of the insurance in effect with respect to that plant, to the extent a nuclear incident is determined not to be covered by the Companies' insurance policies, or to the extent such insurance becomes unavailable in the future, the Companies would remain at risk for such costs. (C) ENVIRONMENTAL MATTERS- Various federal, state and local authorities regulate the Companies with regard to air and water quality and other environmental matters. In accordance with the Ohio transition plan discussed in "Regulatory Plans" in Note 1, generation operations and any related additional capital expenditures for environmental compliance are the responsibility of FirstEnergy's competitive services business unit. 20 The Companies are required to meet federally approved sulfur dioxide (SO2) regulations. Violations of such regulations can result in shutdown of the generating unit involved and/or civil or criminal penalties of up to $31,500 for each day the unit is in violation. The Environmental Protection Agency (EPA) has an interim enforcement policy for SO2 regulations in Ohio that allows for compliance based on a 30-day averaging period. The Companies cannot predict what action the EPA may take in the future with respect to the interim enforcement policy. The Companies believe they are in compliance with the current SO2 and nitrogen oxides (NOx) reduction requirements under the Clean Air Act Amendments of 1990. SO2 reductions are being achieved by burning lower-sulfur fuel, generating more electricity from lower-emitting plants, and/or using emission allowances. NOx reductions are being achieved through combustion controls and the generation of more electricity at lower-emitting plants. In September 1998, the EPA finalized regulations requiring additional NOx reductions from the Companies' Ohio and Pennsylvania facilities. The EPA's NOx Transport Rule imposes uniform reductions of NOx emissions (an approximate 85% reduction in utility plant NOx emissions from projected 2007 emissions) across a region of nineteen states and the District of Columbia, including Ohio and Pennsylvania, based on a conclusion that such NOx emissions are contributing significantly to ozone pollution in the eastern United States. State Implementation Plans (SIP) must comply by May 31, 2004 with individual state NOx budgets established by the EPA. Pennsylvania submitted a SIP that requires compliance with the NOx budgets at the Companies' Pennsylvania facilities by May 1, 2003 and Ohio submitted a SIP that requires compliance with the NOx budgets at the Companies' Ohio facilities by May 31, 2004. In July 1997, the EPA promulgated changes in the National Ambient Air Quality Standard (NAAQS) for ozone emissions and proposed a new NAAQS for previously unregulated ultra-fine particulate matter. In May 1999, the U.S. Court of Appeals found constitutional and other defects in the new NAAQS rules. In February 2001, the U.S. Supreme Court upheld the new NAAQS rules regulating ultra-fine particulates but found defects in the new NAAQS rules for ozone and decided that the EPA must revise those rules. The future cost of compliance with these regulations may be substantial and will depend if and how they are ultimately implemented by the states in which the Companies operate affected facilities. In 1999 and 2000, the EPA issued Notices of Violation (NOV) or a Compliance Order to nine utilities covering 44 power plants, including the W. H. Sammis Plant. In addition, the U.S. Department of Justice filed eight civil complaints against various investor-owned utilities, which included a complaint against the Companies in the U.S. District Court for the Southern District of Ohio, for which hearings began on February 3, 2003. The NOV and complaint allege violations of the Clean Air Act based on operation and maintenance of the Sammis Plant dating back to 1984. The complaint requests permanent injunctive relief to require the installation of "best available control technology" and civil penalties of up to $27,500 per day of violation. Although unable to predict the outcome of these proceedings, the Companies believe the Sammis Plant is in full compliance with the Clean Air Act and the NOV and complaint are without merit. Penalties could be imposed if the Sammis Plant continues to operate without correcting the alleged violations and a court determines that the allegations are valid. The Sammis Plant continues to operate while these proceedings are pending (see Note 9). In December 2000, the EPA announced it would proceed with the development of regulations regarding hazardous air pollutants from electric power plants. The EPA identified mercury as the hazardous air pollutant of greatest concern. The EPA established a schedule to propose regulations by December 2003 and issue final regulations by December 2004. The future cost of compliance with these regulations may be substantial. As a result of the Resource Conservation and Recovery Act of 1976, as amended, and the Toxic Substances Control Act of 1976, federal and state hazardous waste regulations have been promulgated. Certain fossil-fuel combustion waste products, such as coal ash, were exempted from hazardous waste disposal requirements pending the EPA's evaluation of the need for future regulation. The EPA has issued its final regulatory determination that regulation of coal ash as a hazardous waste is unnecessary. In April 2000, the EPA announced that it will develop national standards regulating disposal of coal ash under its authority to regulate nonhazardous waste. The effects of compliance on the Companies with regard to environmental matters could have a material adverse effect on the Companies' earnings and competitive position. These environmental regulations affect the Companies' earnings and competitive position to the extent they compete with companies that are not subject to such regulations and therefore do not bear the risk of costs associated with compliance, or failure to comply, with such regulations. The Companies believe they are in material compliance with existing regulations but are unable to predict whether environmental regulations will change and what, if any, the effects of such change would be. (D) LEGAL MATTERS- Various lawsuits, claims and proceedings related to the Companies' normal business operations are pending against FirstEnergy and its subsidiaries. The most significant applicable to the Companies are described above. 21 6. RECENTLY ISSUED ACCOUNTING STANDARDS: FIN 46, "Consolidation of Variable Interest Entities - an interpretation of ARB 51" In January 2003, the FASB issued this interpretation of ARB No. 51, "Consolidated Financial Statements". The new interpretation provides guidance on consolidation of variable interest entities (VIEs), generally defined as certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This Interpretation requires an enterprise to disclose the nature of its involvement with a VIE if the enterprise has a significant variable interest in the VIE and to consolidate a VIE if the enterprise is the primary beneficiary. VIEs created after January 31, 2003 are immediately subject to the provisions of FIN 46. VIEs created before February 1, 2003 are subject to this interpretation's provisions beginning in the first interim or annual reporting period beginning after June 15, 2003 (our third quarter of 2003). The FASB also identified transitional disclosure provisions for all financial statements issued after January 31, 2003. The Company currently has transactions with an entity in connection with a sale and leaseback arrangement which fall within the scope of this interpretation and which is reasonably possible of meeting the definition of a VIE in accordance with FIN 46. The Company currently consolidates the majority of these entities and believes it will continue to consolidate following the adoption of FIN 46. In addition to the entities the Company is currently consolidating the Company believes that the PNBV Capital Trust, which was used to acquire a portion of the off-balance sheet debt issued in connection with the sale and leaseback of OE's interest in the Perry Nuclear Plant and Beaver Valley Unit 2, would require consolidation. Ownership of the trust includes a three-percent equity interest by a nonaffiliated party and a three-percent equity interest by OES Ventures, a wholly owned subsidiary of the Company. Full consolidation of the trust under FIN 46 would change the characterization of the PNBV trust investment to a lease obligation bond investment. Also, consolidation of the outside minority interest would be required, which would increase assets and liabilities by $11.6 million. 7. OTHER INFORMATION: The following financial data provides supplemental unaudited information to the consolidated financial statements previously reported in 2001 and 2000: (A) CONSOLIDATED STATEMENTS OF CASH FLOWS
2002 2001 2000 --------- --------- --------- (IN THOUSANDS) Other Cash Flows From Operating Activities: Accrued taxes ................................... $ 208,945 $ 26,606 $ 24,863 Accrued interest ................................ (4,844) (1,053) (3,466) Prepayments and other ........................... 38,737 26,393 (3,252) All other ....................................... (29,909) (76,858) (9,392) --------- --------- --------- Total-Other ................................... $ 212,929 $ (24,912) $ 8,753 ========= ========= ========= Other Cash Flows from Investing Activities: Retirements and transfers . ..................... $ 7,476 $ 15,528 $ (6,854) Nuclear decommissioning trust investments ....... (15,688) (15,816) (8,879) Other investments ............................... 18,820 3,209 -- All other ....................................... 23,524 (33) 7,350 --------- --------- --------- Total-Other ................................... $ 34,132 $ 2,888 $ (8,383) ========= ========= =========
(B) CONSOLIDATED STATEMENTS OF TAXES
2002 2001 2000 -------- -------- -------- (IN THOUSANDS) Other Accumulated Deferred Income Taxes at December 31: Retirement Benefits .................. $ 20,969 $ 24,591 $ 30,896 All other ............................ 63,344 40,295 (199) -------- -------- -------- Total-Other ........................ $ 84,313 $ 64,886 $ 30,697 ======== ======== ========
22 8. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED): The following summarizes certain consolidated operating results by quarter for 2002 and 2001.
THREE MONTHS ENDED MARCH 31, 2002 (A) JUNE 30, 2002 (A) SEPTEMBER 30, 2002 (A) DECEMBER 31, 2002 (A) - ------------------ --------------------- --------------------- --------------------- --------------------- AS PREVIOUSLY AS AS PREVIOUSLY AS AS PREVIOUSLY AS AS PREVIOUSLY AS REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED -------- -------- -------- -------- -------- -------- -------- -------- (IN MILLIONS) Operating Revenues ........... $707.8 $707.8 $744.5 $744.5 $813.3 $813.3 $683.1 $683.1 Operating Expenses and Taxes . 610.7 600.4 605.9 611.1 658.8 664.5 611.6 618.8 Operating Income ............. 97.1 107.4 138.6 133.4 154.5 148.8 71.5 64.2 ------ ------ ------ ------ ------ ------ ------ ------ Other Income ................. 0.5 0.5 15.1 15.1 14.2 14.2 12.5 13.0 Net Interest Charges ......... 41.2 41.2 35.9 35.9 33.7 33.7 29.7 29.8 Net Income ................... $ 56.4 $ 66.7 $117.8 $112.6 $135.0 $129.3 $ 54.3 $ 47.5 ====== ====== ====== ====== ====== ====== ====== ====== Earnings on Common Stock ..... $ 53.8 $ 64.0 $115.2 $110.1 $134.4 $128.6 $ 53.6 $ 46.9 ====== ====== ====== ====== ====== ====== ====== ======
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, THREE MONTHS ENDED 2001 2001 2001 2001 - ------------------ ------ ------ ------ ------ (IN MILLIONS) Operating Revenues ............... $783.1 $744.7 $815.7 $712.9 Operating Expenses and Taxes ..... 694.3 606.8 693.2 595.3 ------ ------ ------ ------ Operating Income ................. 88.8 137.9 122.5 117.6 Other Income ..................... 12.4 17.8 18.7 19.8 Net Interest Charges ............. 47.0 50.5 45.0 42.8 ------ ------ ------ ------ Net Income ....................... $ 54.2 $105.2 $ 96.2 $ 94.6 ====== ====== ====== ====== Earnings on Common Stock ......... $ 51.5 $102.5 $ 93.5 $ 92.0 ====== ====== ====== ======
(a) See Note 1(M) for discussion of restated financial data. 9. SUBSEQUENT EVENTS ENVIRONMENTAL MATTERS- On August 8, 2003, FirstEnergy, OE and Penn reported a development regarding a complaint filed by the U.S. Department of Justice with respect to the W.H. Sammis Plant (see Note 5(C) Commitments and Contingencies - Environmental Matters). As reported, on August 7, 2003, the United States District Court for the Southern District of Ohio ruled that 11 projects undertaken at the Sammis Plant between 1984 and 1998 required pre-construction permits under the Clean Air Act. The ruling concludes the liability phase of the case, which deals with applicability of Prevention of Significant Deterioration provisions of the Clean Air Act. The remedy phase, which is currently scheduled to be ready for trial beginning March 15, 2004, will address civil penalties and what, if any, actions should be taken to further reduce emissions at the plant. In the ruling, the Court indicated that the remedies it "may consider and impose involved a much broader, equitable analysis, requiring the Court to consider air quality, public health, economic impact, and employment consequences. The Court may also consider the less than consistent efforts of the EPA to apply and further enforce the Clean Air Act." Management is unable to predict the ultimate outcome of this matter. The potential penalties that may be imposed, as well as the capital expenditures necessary to comply with substantive remedial measures that may be required, may have a material adverse impact on the Company's financial condition. Management is unable to predict the ultimate outcome of this matter. The potential penalties that may be imposed, as well as the capital expenditures necessary to comply with substantive remedial measures that may be required, may have a material adverse impact on the Company's financial condition. RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET IMPLEMENTED- SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" In May 2003, the FASB issued SFAS 150, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, certain financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and is effective at the beginning of the first interim period beginning after June 15, 2003 (OE's third quarter of 2003) for all other financial instruments. OE did not enter into or modify any financial instruments within the scope of SFAS 150 during June 2003. Upon adoption of SFAS 150, effective July 1, 2003, OE expects to classify as debt the preferred stock of consolidated subsidiaries subject to mandatory redemptions with a carrying value of approximately $13.5 million as of June 30, 2003. Subsidiary preferred dividends on OE's Consolidated Statements of Income are currently included in net interest 23 charges. Therefore, the application of SFAS 150 will not require the reclassification of such preferred dividends to net interest charges. DIG Implementation Issue No. C20 for SFAS 133, "Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) Regarding Contracts with a Price Adjustment Feature" In June 2003, the FASB cleared DIG Issue C20 for implementation in fiscal quarters beginning after July 10, 2003 which would correspond to OE's fourth quarter of 2003. The issue supersedes earlier DIG Issue C11, "Interpretation of Clearly and Closely Related in Contracts That Qualify for the Normal Purchases and Normal Sales Exception." DIG Issue C20 provides guidance regarding when the presence in a contract of a general index, such as the Consumer Price Index, would prevent that contract from qualifying for the normal purchases and normal sales (NPNS) exception under SFAS 133, as amended, and therefore exempt from the mark-to-market treatment of certain contracts. DIG Issue C20 is to be applied prospectively to all existing contracts as of its effective date and for all future transactions. If it is determined under DIG Issue C20 guidance that the NPNS exception was claimed for an existing contract that was not eligible for this exception, the contract will be recorded at fair value, with a corresponding adjustment of net income as the cumulative effect of a change in accounting principle in the fourth quarter of 2003. OE is currently assessing the new guidance and has not yet determined the impact on its financial statements. EITF Issue No. 01-08, "Determining whether an Arrangement Contains a Lease" In May 2003, the EITF reached a consensus regarding when arrangements contain a lease. Based on the EITF consensus, an arrangement contains a lease if (1) it identifies specific property, plant or equipment (explicitly or implicitly), and (2) the arrangement transfers the right to the purchaser to control the use of the property, plant or equipment. The consensus will be applied prospectively to arrangements committed to, modified or acquired through a business combination, beginning in the third quarter of 2003. OE is currently assessing the new EITF consensus and has not yet determined the impact on its financial position or results of operations following adoption. 24 REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors of Ohio Edison Company: In our opinion, the accompanying consolidated balance sheet and consolidated statement of capitalization and the related consolidated statements of income, common stockholder's equity, preferred stock, cash flows and taxes present fairly, in all material respects, the financial position of Ohio Edison Company (a wholly owned subsidiary of FirstEnergy Corp.) and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The consolidated financial statements of Ohio Edison Company and subsidiaries as of December 31, 2001 and for each of the two years in the period ended December 31, 2001 were audited by other independent auditors who have ceased operations. Those independent auditors expressed an unqualified opinion on those financials statements in their report dated March 18, 2002. As discussed in Note 1(M) to the consolidated financial statements, the Company has restated its previously issued consolidated financial statements for the year ended December 31, 2002. PricewaterhouseCoopers LLP Cleveland, Ohio February 28, 2003, except as to Note 1(M), which is as of August 18, 2003 25 The following report is a copy of a report previously issued by Arthur Andersen LLP (Andersen). This report has not been reissued by Andersen and Andersen did not consent to the incorporation by reference of this report (as included in this Form 10-K/A) into any of the Company's registration statements. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF OHIO EDISON COMPANY: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Ohio Edison Company (an Ohio corporation and wholly owned subsidiary of FirstEnergy Corp.) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, common stockholder's equity, preferred stock, cash flows and taxes for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ohio Edison Company and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Cleveland, Ohio, March 18, 2002. PART IV 3. EXHIBITS - OHIO EDISON 2-1 - Agreement and Plan of Merger, dated as of September 13, 1996, between Ohio Edison Company (OE) and Centerior Energy Corporation. (September 17, 1996 Form 8-K, Exhibit 2-1) 3-1 - Amended Articles of Incorporation, Effective June 21, 1994, constituting OE's Articles of Incorporation. (1994 Form 10-K, Exhibit 3-1) 3-2 - Amended and Restated Code of Regulations, amended March 15, 2002. (2001 Form 10-K, Exhibit 3-2) (B) 4-1 - Indenture dated as of August 1, 1930 between OE and Bankers Trust Company, (now the Bank of New York), as Trustee, as amended and supplemented by Supplemental Indentures:
DATED AS OF FILE REFERENCE EXHIBIT NO. ----------- -------------- ----------- March 3, 1931 2-1725 B1, B-1(a),B-1(b) November 1, 1935 2-2721 B-4 January 1, 1937 2-3402 B-5 September 1, 1937 Form 8-A B-6 June 13, 1939 2-5462 7(a)-7 August 1, 1974 Form 8-A, August 28, 1974 2(b) July 1, 1976 Form 8-A, July 28, 1976 2(b) December 1, 1976 Form 8-A, December 15, 1976 2(b) June 15, 1977 Form 8-A, June 27, 1977 2(b) SUPPLEMENTAL INDENTURES: September 1, 1944 2-61146 2(b)(2) April 1, 1945 2-61146 2(b)(2) September 1, 1948 2-61146 2(b)(2) May 1, 1950 2-61146 2(b)(2) January 1, 1954 2-61146 2(b)(2) May 1, 1955 2-61146 2(b)(2) August 1, 1956 2-61146 2(b)(2) March 1, 1958 2-61146 2(b)(2) April 1, 1959 2-61146 2(b)(2) June 1, 1961 2-61146 2(b)(2) September 1, 1969 2-34351 2(b)(2) May 1, 1970 2-37146 2(b)(2) September 1, 1970 2-38172 2(b)(2) June 1, 1971 2-40379 2(b)(2) August 1, 1972 2-44803 2(b)(2) September 1, 1973 2-48867 2(b)(2) May 15, 1978 2-66957 2(b)(4) February 1, 1980 2-66957 2(b)(5) April 15, 1980 2-66957 2(b)(6) June 15, 1980 2-68023 (b)(4)(b)(5) October 1, 1981 2-74059 (4)(d) October 15, 1981 2-75917 (4)(e) February 15, 1982 2-75917 (4)(e) July 1, 1982 2-89360 (4)(d) March 1, 1983 2-89360 (4)(e) March 1, 1984 2-89360 (4)(f) September 15, 1984 2-92918 (4)(d) September 27, 1984 33-2576 (4)(d) November 8, 1984 33-2576 (4)(d) December 1, 1984 33-2576 (4)(d) December 5, 1984 33-2576 (4)(e) January 30, 1985 33-2576 (4)(e) February 25, 1985 33-2576 (4)(e) July 1, 1985 33-2576 (4)(e) October 1, 1985 33-2576 (4)(e)
26
DATED AS OF FILE REFERENCE EXHIBIT NO ----------- -------------- ---------- January 15, 1986 33-8791 (4)(d) May 20, 1986 33-8791 (4)(d) June 3, 1986 33-8791 (4)(e) October 1, 1986 33-29827 (4)(d) August 25, 1989 33-34663 (4)(d) February 15, 1991 33-39713 (4)(d) May 1, 1991 33-45751 (4)(d) May 15, 1991 33-45751 (4)(d) September 15, 1991 33-45751 (4)(d) April 1, 1992 33-48931 (4)(d) June 15, 1992 33-48931 (4)(d) September 15, 1992 33-48931 (4)(e) April 1, 1993 33-51139 (4)(d) June 15, 1993 33-51139 (4)(d) September 15, 1993 33-51139 (4)(d) November 15, 1993 1-2578 (4)(2) April 1, 1995 1-2578 (4)(2) May 1, 1995 1-2578 (4)(2) July 1, 1995 1-2578 (4)(2) June 1, 1997 1-2578 (4)(2) April 1, 1998 1-2578 (4)(2) June 1, 1998 1-2578 (4)(2) September 29, 1999 1-2578 (4)(2) April 1, 2000 1-2578 (4)(2)(a) April 1, 2000 1-2578 (4)(2)(b) June 1, 2001 1-2578
(B) 4-2 - General Mortgage Indenture and Deed of Trust dated as of January 1, 1998 between OE and the Bank of New York, as Trustee. (Registration No. 333-05277, Exhibit 4(g)) 10-1 - Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(2) 10-2 - Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3)) 10-3 - Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(3)) 10-4 - Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10-K, Exhibit 10-4) 10-5 - Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (Registration No. 2-68906, Exhibit 10-4) 10-6 - Amendment dated as of December 23, 1993 to Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980 among the CAPCO Group. (1993 Form 10-K, Exhibit 10-6) 10-7 - CAPCO Basic Operating Agreement, as amended September 1, 1980. (Registration No. 2-68906, Exhibit 10-5) 10-8 - Amendment No. 1 dated August 1, 1981, and Amendment No. 2 dated September 1, 1982 to CAPCO Basic Operating Agreement, as amended September 1, 1980. (September 30, 1981 Form 10-Q, Exhibit 20-1 and 1982 Form 10-K, Exhibit 19-3, respectively) 10-9 - Amendment No. 3 dated July 1, 1984 to CAPCO Basic Operating Agreement, as amended September 1, 1980. (1985 Form 10-K, Exhibit 10-7) 10-10 - Basic Operating Agreement between the CAPCO Companies as amended October 1, 1991. (1991 Form 10-K, Exhibit 10-8) 27 10-11 - Basic Operating Agreement between the CAPCO Companies as amended January 1, 1993. (1993 Form 10-K, Exhibit 10-11) 10-12 - Memorandum of Agreement effective as of September 1, 1980 among the CAPCO Group. (1982 Form 10-K, Exhibit 19-2) 10-13 - Operating Agreement for Beaver Valley Power Station Units Nos. 1 and 2 as Amended and Restated September 15, 1987, by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 10-15) 10-14 - Construction Agreement with respect to Perry Plant between the CAPCO Group dated as of July 22, 1974. (Registration No. 2-52251 of Toledo Edison Company, Exhibit 5(yy)) 10-15 - Amendment No. 3 dated as of October 31, 1980 to the Bond Guaranty dated as of October 1, 1973, as amended, with respect to the CAPCO Group. (Registration No. 2-68906 of Pennsylvania Power Company, Exhibit 10-16) 10-16 - Amendment No. 4 dated as of July 1, 1985 to the Bond Guaranty dated as October 1, 1973, as amended, by the CAPCO Companies to National City Bank as Bond Trustee. (1985 Form 10-K, Exhibit 10-30) 10-17 - Amendment No. 5 dated as of May 1, 1986, to the Bond Guaranty by the CAPCO Companies to National City Bank as Bond Trustee. (1986 Form 10-K, Exhibit 10-33) 10-18 - Amendment No. 6A dated as of December 1, 1991, to the Bond Guaranty dated as of October 1, 1973, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, The Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-33) 10-19 - Amendment No. 6B dated as of December 30, 1991, to the Bond Guaranty dated as of October 1, 1973 by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, The Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-34) 10-20 - Bond Guaranty dated as of December 1, 1991, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, The Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-35) 10-21 - Memorandum of Understanding dated March 31, 1985 among the CAPCO Companies. (1985 Form 10-K, Exhibit 10-35) (C) 10-22 - Ohio Edison System Executive Supplemental Life Insurance Plan. (1995 Form 10-K, Exhibit 10-44) (C) 10-23 - Ohio Edison System Executive Incentive Compensation Plan. (1995 Form 10-K, Exhibit 10-45.) (C) 10-24 - Ohio Edison System Restated and Amended Executive Deferred Compensation Plan. (1995 Form 10-K, Exhibit 10-46.) (C) 10-25 - Ohio Edison System Restated and Amended Supplemental Executive Retirement Plan. (1995 Form 10-K, Exhibit 10-47.) (C) 10-26 - Severance pay agreement between Ohio Edison Company and W. R. Holland. (1995 Form 10-K, Exhibit 10-48.) (C) 10-27 - Severance pay agreement between Ohio Edison Company and H. P. Burg. (1995 Form 10-K, Exhibit 10-49.) (C) 10-28 - Severance pay agreement between Ohio Edison Company and A. J. Alexander. (1995 Form 10-K, Exhibit 10-50.) (C) 10-29 - Severance pay agreement between Ohio Edison Company and J. A. Gill. (1995 Form 10K, Exhibit 10-51.) 28 (D) 10-30 - Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Hereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-1.) (D) 10-31 - Amendment No. 1 dated as of September 1, 1987 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 thereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company (now The Bank of New York), as Indenture Trustee, and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-46.) (D) 10-32 - Amendment No. 3 dated as of May 16, 1988 to Participation Agreement dated as of March 16, 1987, as amended among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-47.) (D) 10-33 - Amendment No. 4 dated as of November 1, 1991 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-47.) (D) 10-34 - Amendment No. 5 dated as of November 24, 1992 to Participation Agreement dated as of March 16, 1987, as amended, among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company as Lessee. (1992 Form 10-K, Exhibit 10-49.) (D) 10-35 - Amendment No. 6 dated as of January 12, 1993 to Participation Agreement dated as of March 16, 1987 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-50.) (D) 10-36 - Amendment No. 7 dated as of October 12, 1994 to Participation Agreement dated as of March 16, 1987 as amended, among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-54.) (D) 10-37 - Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1986 Form 10-K, Exhibit 28-2.) (D) 10-38 - Amendment No. 1 dated as of September 1, 1987 to Facility Lease dated as of March 16, 1997 between The First National Bank of Boston, as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-49.) (D) 10-39 - Amendment No. 2 dated as of November 1, 1991, to Facility Lease dated as of March 16, 1987, between The First National Bank of Boston, as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-50.) (D) 10-40 - Amendment No. 3 dated as of November 24, 1992 to Facility Lease dated as March 16, 1987 as amended, between The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited partnership, as Owner Participant and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-54.) 29 (D) 10-41 - Amendment No. 4 dated as of January 12, 1993 to Facility Lease dated as of March 16, 1987 as amended, between, The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-59.) (D) 10-42 - Amendment No. 5 dated as of October 12, 1994 to Facility Lease dated as of March 16, 1987 as amended, between, The First National Bank of Boston, as Owner Trustee, with Perry One Alpha Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-60.) (D) 10-43 - Letter Agreement dated as of March 19, 1987 between Ohio Edison Company, Lessee, and The First National Bank of Boston, Owner Trustee under a Trust dated March 16, 1987 with Chase Manhattan Realty Leasing Corporation, required by Section 3(d) of the Facility Lease. (1986 Form 10-K, Exhibit 28-3.) (D) 10-44 - Ground Lease dated as of March 16, 1987 between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with the Owner Participant, Tenant. (1986 Form 10-K, Exhibit 28-4.) (D) 10-45 - Trust Agreement dated as of March 16, 1987 between Perry One Alpha Limited Partnership, as Owner Participant, and The First National Bank of Boston. (1986 Form 10-K, Exhibit 28-5.) (D) 10-46 - Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of March 16, 1987 with Perry One Alpha Limited Partnership, and Irving Trust Company, as Indenture Trustee. (1986 Form 10-K, Exhibit 28-6.) (D) 10-47 - Supplemental Indenture No. 1 dated as of September 1, 1987 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee and Irving Trust Company (now The Bank of New York), as Indenture Trustee. (1991 Form 10-K, Exhibit 10-55.) (D) 10-48 - Supplemental Indenture No. 2 dated as of November 1, 1991 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and The Bank of New York, as Indenture Trustee. (1991 Form 10-K, Exhibit 10-56.) (D) 10-49 - Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-7.) (D) 10-50 - Amendment No. 1 dated as of November 1, 1991 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership and Ohio Edison Company. (1991 Form 10-K, Exhibit 10-58.) (D) 10-51 - Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-69.) (D) 10-52 - Amendment No. 3 dated as of October 12, 1994 to Tax Indemnification Agreement dated as of March 16, 1987 between Perry One, Inc. and PARock Limited Partnership and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-70.) (D) 10-53 - Partial Mortgage Release dated as of March 19, 1987 under the Indenture between Ohio Edison Company and Bankers Trust Company, as Trustee, dated as of the 1st day of August 1930. (1986 Form 10-K, Exhibit 28-8.) (D) 10-54 - Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-9.) 30 (D) 10-55 - Additional Support Agreement dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, and Ohio Edison Company. (1986 Form 10-K, Exhibit 28-10.) (D) 10-56 - Bill of Sale, Instrument of Transfer and Severance Agreement dated as of March 19, 1987 between Ohio Edison Company, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership. (1986 Form 10-K, Exhibit 28-11.) (D) 10-57 - Easement dated as of March 16, 1987 from Ohio Edison Company, Grantor, to The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, Grantee. (1986 Form 10-K, File Exhibit 28-12.) 10-58 - Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, the Original Loan Participants listed in Schedule 1 Hereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1986 Form 10-K, as Exhibit 28-13.) 10-59 - Amendment No. 1 dated as of September 1, 1987 to Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, The Original Loan Participants Listed in Schedule 1 thereto, as Original Loan Participants, PNPP Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-65.) 10-60 - Amendment No. 4 dated as of November 1, 1991, to Participation Agreement dated as of March 16, 1987 among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-66.) 10-61 - Amendment No. 5 dated as of November 24, 1992 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, 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.) 10-62 - Amendment No. 6 dated as of January 12, 1993 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-80.) 10-63 - Amendment No. 7 dated as of October 12, 1994 to Participation Agreement dated as of March 16, 1987 as amended among Security Pacific Capital Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-81.) 10-64 - Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, Lessor, and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-14.) 10-65 - Amendment No. 1 dated as of September 1, 1987 to Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-68.) 31 10-66 - Amendment No. 2 dated as of November 1, 1991 to Facility Lease dated as of March 16, 1987 between The First National Bank of Boston as Owner Trustee, Lessor and Ohio Edison Company, Lessee. (1991 Form 10-K, Exhibit 10-69.) 10-67 - Amendment No. 3 dated as of November 24, 1992 to Facility Lease dated as of March 16, 1987, as amended, between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-75.) 10-68 - Amendment No. 4 dated as of January 12, 1993 to Facility Lease dated as of March 16, 1987 as amended between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-76.) 10-69 - Amendment No. 5 dated as of October 12, 1994 to Facility Lease dated as of March 16, 1987 as amended between, The First National Bank of Boston, as Owner Trustee, with Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-87.) 10-70 - Letter Agreement dated as of March 19, 1987 between Ohio Edison Company, as Lessee, and The First National Bank of Boston, as Owner Trustee under a Trust, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, required by Section 3(d) of the Facility Lease. (1986 Form 10-K, Exhibit 28-15.) 10-71 - Ground Lease dated as of March 16, 1987 between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, Tenant. (1986 Form 10-K, Exhibit 28-16.) 10-72 - Trust Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation, as Owner Participant, and The First National Bank of Boston. (1986 Form 10-K, Exhibit 28-17.) 10-73 - Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, and Irving Trust Company, as Indenture Trustee. (1986 Form 10-K, Exhibit 28-18.) 10-74 - Supplemental Indenture No. 1 dated as of September 1, 1987 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and Irving Trust Company (now The Bank of New York), as Indenture Trustee. (1991 Form 10-K, Exhibit 10-74.) 10-75 - Supplemental Indenture No. 2 dated as of November 1, 1991 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee and The Bank of New York, as Indenture Trustee. (1991 Form 10-K, Exhibit 10-75.) 10-76 - Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1986 Form 10-K, Exhibit 28-19.) 10-77 - Amendment No. 1 dated as of November 1, 1991 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1991 Form 10-K, Exhibit 10-77.) 10-78 - Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-96.) 10-79 - Amendment No. 3 dated as of October 12, 1994 to Tax Indemnification Agreement dated as of March 16, 1987 between Security Pacific Capital Leasing Corporation and Ohio Edison Company. (1994 Form 10-K, Exhibit 10-97.) 32 10-80 - Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-20.) 10-81 - Additional Support Agreement dated as of March 16, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, and Ohio Edison Company. (1986 Form 10-K, Exhibit 28-21.) 10-82 - Bill of Sale, Instrument of Transfer and Severance Agreement dated as of March 19, 1987 between Ohio Edison Company, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, Buyer. (1986 Form 10-K, Exhibit 28-22.) 10-83 - Easement dated as of March 16, 1987 from Ohio Edison Company, Grantor, to The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, Grantee. (1986 Form 10-K, Exhibit 28-23.) 10-84 - Refinancing Agreement dated as of November 1, 1991 among Perry One Alpha Limited Partnership, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York, as New Collateral Trust Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-82.) 10-85 - Refinancing Agreement dated as of November 1, 1991 among Security Pacific Leasing Corporation, as Owner Participant, PNPP Funding Corporation, as Funding Corporation, PNPP II Funding Corporation, as New Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee, The Bank of New York, as Collateral Trust Trustee, The Bank of New York as New Collateral Trust Trustee and Ohio Edison Company, as Lessee. (1991 Form 10-K, Exhibit 10-83.) 10-86 - Ohio Edison Company Master Decommissioning Trust Agreement for Perry Nuclear Power Plant Unit One, Perry Nuclear Power Plant Unit Two, Beaver Valley Power Station Unit One and Beaver Valley Power Station Unit Two dated July 1, 1993. (1993 Form 10-K, Exhibit 10-94.) 10-87 - Nuclear Fuel Lease dated as of March 31, 1989, between OES Fuel, Incorporated, as Lessor, and Ohio Edison Company, as Lessee. (1989 Form 10-K, Exhibit 10-62.) 10-88 - Receivables Purchase Agreement dated as November 28, 1989, as amended and restated as of April 23, 1993, between OES Capital, Incorporated, Corporate Asset Funding Company, Inc. and Citicorp North America, Inc. (1994 Form 10-K, Exhibit 10-106.) 10-89 - Guarantee Agreement entered into by Ohio Edison Company dated as of January 17, 1991. (1990 Form 10-K, Exhibit 10-64.) 10-90 - Transfer and Assignment Agreement among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1990 Form 10-K, Exhibit 10-65.) 10-91 - Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of January 4, 1991. (1990 Form 10-K, Exhibit 10-66.) 10-92 - Transfer and Assignment Agreement dated May 20, 1994 among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1994 Form 10-K, Exhibit 10-110.) 10-93 - Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of May 20, 1994. (1994 Form 10-K, Exhibit 10-111.) 33 10-94 - Transfer and Assignment Agreement dated October 12, 1994 among Ohio Edison Company and Chemical Bank, as trustee under the OE Power Contract Trust. (1994 Form 10-K, Exhibit 10-112.) 10-95 - Renunciation of Payments and Assignment among Ohio Edison Company, Monongahela Power Company, West Penn Power Company, and the Potomac Edison Company dated as of October 12, 1994. (1994 Form 10-K, Exhibit 10-113.) (E) 10-96 - Participation Agreement dated as of September 15, 1987, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company as Lessee. (1987 Form 10-K, Exhibit 28-1.) (E) 10-97 - Amendment No. 1 dated as of February 1, 1988, to Participation Agreement dated as of September 15, 1987, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-2.) (E) 10-98 - Amendment No. 3 dated as of March 16, 1988 to Participation Agreement dated as of September 15, 1987, as amended, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-99.) (E) 10-99 - Amendment No. 4 dated as of November 5, 1992 to Participation Agreement dated as of September 15, 1987, as amended, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-100.) (E) 10-100 - Amendment No. 5 dated as of September 30, 1994 to Participation Agreement dated as of September 15, 1987, as amended, among Beaver Valley Two Pi Limited Partnership, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-118.) (E) 10-101 - Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-3.) (E) 10-102 - Amendment No. 1 dated as of February 1, 1988, to Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-4.) (E) 10-103 - Amendment No. 2 dated as of November 5, 1992, to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-103.) (E) 10-104 - Amendment No. 3 dated as of September 30, 1994 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Beaver Valley Two Pi Limited Partnership, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-122.) (E) 10-105 - Ground Lease and Easement Agreement dated as of September 15, 1987, between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, Tenant. (1987 Form 10-K, Exhibit 28-5.) 34 (E) 10-106 - Trust Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Limited Partnership, as Owner Participant, and The First National Bank of Boston. (1987 Form 10-K, Exhibit 28-6.) (E) 10-107 - Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-7.) (E) 10-108 - Supplemental Indenture No. 1 dated as of February 1, 1988 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with Beaver Valley Two Pi Limited Partnership and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-8.) (E) 10-109 - Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-9.) (E) 10-110 - Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-128.) (E) 10-111 - Amendment No. 2 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between Beaver Valley Two Pi Inc. and PARock Limited Partnership as General Partners and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-129.) (E) 10-112 - Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-10.) (E) 10-113 - Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-131.) (E) 10-114 - Amendment No. 2 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between HG Power Plant, Inc., as Limited Partner and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-132.) (E) 10-115 - Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-11.) (E) 10-116 - Additional Support Agreement dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, and Ohio Edison Company. (1987 Form 10-K, Exhibit 28-12.) (F) 10-117 - Participation Agreement dated as of September 15, 1987, among Chrysler Consortium Corporation, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-13.) (F) 10-118 - Amendment No. 1 dated as of February 1, 1988, to Participation Agreement dated as of September 15, 1987, among Chrysler Consortium Corporation, as Owner Participant, the Original Loan Participants listed in Schedule 1 Thereto, as Original Loan Participants, BVPS Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-14.) 35 (F) 10-119 - Amendment No. 3 dated as of March 16, 1988 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-114.) (F) 10-120 - Amendment No. 4 dated as of November 5, 1992 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-115.) (F) 10-121 - Amendment No. 5 dated as of January 12, 1993 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-139.) (F) 10-122 - Amendment No. 6 dated as of September 30, 1994 to Participation Agreement dated as of September 15, 1987, as amended, among Chrysler Consortium Corporation, as Owner Participant, BVPS Funding Corporation, BVPS II Funding Corporation, The First National Bank of Boston, as Owner Trustee, The Bank of New York, as Indenture Trustee and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-140.) (F) 10-123 - Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, Lessor, and Ohio Edison Company, as Lessee. (1987 Form 10-K, Exhibit 28-15.) (F) 10-124 - Amendment No. 1 dated as of February 1, 1988, to Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, Lessor, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-16.) (F) 10-125 - Amendment No. 2 dated as of November 5, 1992 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-118.) (F) 10-126 - Amendment No. 3 dated as of January 12, 1993 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1992 Form 10-K, Exhibit 10-119.) (F) 10-127 - Amendment No. 4 dated as of September 30, 1994 to Facility Lease dated as of September 15, 1987, as amended, between The First National Bank of Boston, as Owner Trustee, with Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-145.) (F) 10-128 - Ground Lease and Easement Agreement dated as of September 15, 1987, between Ohio Edison Company, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, Tenant. (1987 Form 10-K, Exhibit 28-17.) (F) 10-129 - Trust Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and The First National Bank of Boston. (1987 Form 10-K, Exhibit 28-18.) (F) 10-130 - Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-19.) (F) 10-131 - Supplemental Indenture No. 1 dated as of February 1, 1988 to Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of 36 September 15, 1987 with Chrysler Consortium Corporation and Irving Trust Company, as Indenture Trustee. (1987 Form 10-K, Exhibit 28-20.) (F) 10-132 - Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, Lessee. (1987 Form 10-K, Exhibit 28-21.) (F) 10-133 - Amendment No. 1 dated as of November 5, 1992 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-151.) (F) 10-134 - Amendment No. 2 dated as of January 12, 1993 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-152.) (F) 10-135 - Amendment No. 3 dated as of September 30, 1994 to Tax Indemnification Agreement dated as of September 15, 1987, between Chrysler Consortium Corporation, as Owner Participant, and Ohio Edison Company, as Lessee. (1994 Form 10-K, Exhibit 10-153.) (F) 10-136 - Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-22.) (F) 10-137 - Additional Support Agreement dated as of September 15, 1987, between The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, and Ohio Edison Company. (1987 Form 10-K, Exhibit 28-23.) 10-138 - Operating Agreement dated March 10, 1987 with respect to Perry Unit No. 1 between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-24.) 10-139 - Operating Agreement for Bruce Mansfield Units Nos. 1, 2 and 3 dated as of June 1, 1976, and executed on September 15, 1987, by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-25.) 10-140 - Operating Agreement for W. H. Sammis Unit No. 7 dated as of September 1, 1971 by and between the CAPCO Companies. (1987 Form 10-K, Exhibit 28-26.) 10-141 - OE-APS Power Interchange Agreement dated March 18, 1987, by and among Ohio Edison Company and Pennsylvania Power Company, and Monongahela Power Company and West Penn Power Company and The Potomac Edison Company. (1987 Form 10-K, Exhibit 28-27.) 10-142 - OE-PEPCO Power Supply Agreement dated March 18, 1987, by and among Ohio Edison Company and Pennsylvania Power Company and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-28.) 10-143 - Supplement No. 1 dated as of April 28, 1987, to the OE-PEPCO Power Supply Agreement dated March 18, 1987, by and among Ohio Edison Company, Pennsylvania Power Company, and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-29.) 10-144 - APS-PEPCO Power Resale Agreement dated March 18, 1987, by and among Monongahela Power Company, West Penn Power Company, and The Potomac Edison Company and Potomac Electric Power Company. (1987 Form 10-K, Exhibit 28-30.) 12.2 - Consolidated fixed charge ratios. 13.1 - OE 2002 Annual Report to Stockholders (Only those portions expressly incorporated by reference in this Form 10-K/A are to be deemed "filed" with the SEC.) 21.1 - List of Subsidiaries of the Registrant at December 31, 2002. 37 * 23.1 - Consent of Independent Accountants. * 31.1 - Certification of chief executive officer, pursuant to Rule 13a-15(e)/15d-15(e). * 31.2 - Certification of chief financial officer, pursuant to Rule 13a-15(e)/15d-15(e). * 32 - Certification of chief executive officer and chief financial officer, pursuant to 18 U.S.C. Section 1350. * Indicates revised exhibits included in this Form 10-K/A in electronic format. Reference is made to the original 10-K for the other exhibits filed therewith. REPORTS ON FORM 8-K OE OE filed four reports on Form 8-K since September 30, 2003. A report dated August 5, 2003 reported the pending restatement of 2002 FE, OE, CEI and TE financial statements. A report dated August 8, 2003 reported a U.S. District Court ruling with respect to the W. H. Sammis Plant under the Clean Air Act. A report dated September 12, 2003 reported that FE, OE, CEI and TE have received an informal data request from the Securities and Exchange Commission related to the recent restatement of their 2002 financial statements. A report dated October 21, 2003 reported the filing of a proposed rate stabilization plan with the PUCO. 38 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 ------------------- Registrant /s/Harvey L. Wagner ---------------------------------------- Harvey L. Wagner Vice President and Controller Chief Accounting Officer Date: November 13, 2003 39 EX-23.1 3 l04078bexv23w1.txt EX-23.1 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 OHIO EDISON COMPANY CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 33-49413, 33-51139, 333-01489 and 333-05277) of Ohio Edison Company of our report dated February 28, 2003, except as to Note 1(M), which is as of August 18, 2003, relating to the consolidated financial statements, which appears in this Annual Report on Form 10-K/A. PricewaterhouseCoopers LLP Cleveland, Ohio November 13, 2003 41 EX-31.1 4 l04078bexv31w1.txt EX-31.1 CEO 302 CERTIFICATION EXHIBIT 31.1 CERTIFICATION I, H. Peter Burg, certify that: 1. I have reviewed this amended annual report on Form 10-K/A of Ohio Edison Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ H. Peter Burg ------------------------------ H. Peter Burg Chief Executive Officer 42 EX-31.2 5 l04078bexv31w2.txt EX-31.2 CFO 302 CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, Richard H. Marsh, certify that: 1. I have reviewed this amended annual report on Form 10-K/A of Ohio Edison Company; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Richard H. Marsh ---------------------------------- Richard H. Marsh Chief Financial Officer 43 EX-32 6 l04078bexv32.txt EX-32 906 CERTIFICATION EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Annual Report of Ohio Edison Company on Form 10-K/A, as amended, for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each undersigned officer of the Company does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OXLEY Act of 2002, that to the best of his knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ H. Peter Burg ------------------------------ H. Peter Burg Chief Executive Officer November 13, 2003 /s/ Richard H. Marsh ------------------------------ Richard H. Marsh Chief Financial Officer November 13, 2003 44 -----END PRIVACY-ENHANCED MESSAGE-----