SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996March 31, 1997
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.
1-9130 CENTERIOR ENERGY CORPORATION 34-1479083
(An Ohio Corporation)
6200 Oak Tree Boulevard
Independence, Ohio 44131
Telephone (216) 447-3100
1-2323 THE CLEVELAND ELECTRIC 34-0150020
ILLUMINATING COMPANY
(An Ohio Corporation)
c/o Centerior Energy Corporation
6200 Oak Tree Boulevard
Independence, Ohio 44131
Telephone (216) 622-9800
1-3583 THE TOLEDO EDISON COMPANY 34-4375005
(An Ohio Corporation)
300 Madison Avenue
Toledo, Ohio 43652
Telephone (419) 249-5000
Indicate by check mark whether each of the registrants (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrants were required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
On November 13, 1996,May 9, 1997, there were 148,025,928 shares of Centerior Energy
Corporation Common Stock outstanding. Centerior Energy Corporation is
the sole holder of the 79,590,689 shares and 39,133,887 shares of common
stock of The Cleveland Electric Illuminating Company and The Toledo
Edison Company, respectively, outstanding on that date.
This combined Form 10-Q is separately filed by Centerior Energy
Corporation ("Centerior Energy"), The Cleveland Electric Illuminating
Company ("Cleveland Electric") and The Toledo Edison Company ("Toledo
Edison"). Centerior Energy, Cleveland Electric and Toledo Edison are
sometimes referred to collectively as the "Companies". Cleveland
Electric and Toledo Edison are sometimes collectively referred to as the
"Operating Companies". Information contained herein relating to any
individual registrant is filed by such registrant on its behalf. No
registrant makes any representation as to information relating to any
other registrant, except that information relating to either or both of
the Operating Companies is also attributed to Centerior Energy.
Centerior Energy has made forward-looking statements in Note 8 to the
financial statements in this Form 10-Q regarding the merger with Ohio
Edison Company ("Ohio Edison") herein referred to and the associated
Regulatory Plan (as defined herein),
which statements are subject to risks and uncertainties, including the
impact on the Companies if: (1) competitive pressure in the electric
utility industry increases significantly;(2) state and federal
regulatory initiatives are implemented that increase competition,
threaten costs and investment recovery and impact dividends or rate
structures; (3) the provisions of the Regulatory Plan vary
significantly from what has been announced; (4) the effects of the
Regulatory Plan or other events on the carrying value of regulatory assets
and on the Operating Companies' ability to continue to apply SFAS 71 (as
defined herein) cause an impairment of property, plant and equipment or
variances from the amounts disclosed; (5) expected cost savings from the
merger cannot be fully realized; (6) costs or difficulties related to the
integration of the business of Ohio Edison and Centerior Energy are greater
than expected; (7) unanticipated developments occur which change the
Operating Companies' expectations regarding cost recovery over the
Regulatory Plan period; or (8)(3) general economic conditions, either nationally or in
the area in which the combined company will be doing business are less
favorable than expected.
-i-
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Centerior Energy Corporation and Subsidiaries
The Cleveland Electric Illuminating Company and Subsidiary
The Toledo Edison Company
Notes to the Financial Statements (Unaudited) 1
Centerior Energy Corporation and Subsidiaries
Income Statement 54
Balance Sheet 65
Cash Flows 76
Management's Discussion and Analysis of Financial 87
Condition and Results of Operations
The Cleveland Electric Illuminating Company and Subsidiary
Income Statement 129
Balance Sheet 1310
Cash Flows 1411
Management's Discussion and Analysis of Financial 1512
Condition and Results of Operations
The Toledo Edison Company
Income Statement 1914
Balance Sheet 2015
Cash Flows 2116
Management's Discussion and Analysis of Financial 2217
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security-Holders 19
Item 5. Other Information 2620
Item 6. Exhibits and Reports on Form 8-K 2722
Signatures 2823
Exhibit Index 2924
-ii-
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY,
AND THE TOLEDO EDISON COMPANY
(UNAUDITED)
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
(1) Interim Financial Statements
Centerior Energy Corporation (Centerior Energy) is the parent company of
Centerior Service Company (Service Company); two electric utilities, The
Cleveland Electric Illuminating Company (Cleveland Electric) and The
Toledo Edison Company (Toledo Edison); and three other wholly owned
subsidiaries. The two utilities are referred to collectively herein as
the "Operating Companies" and individually as an "Operating Company".
Centerior Energy, Cleveland Electric and Toledo Edison are referred to
collectively herein as the "Companies".
The comparative income statement and balance sheet and the related
statement of cash flows of each of the Companies have been prepared from
the records of each of the Companies without audit by independent public
accountants. In the opinion of management, all adjustments necessary
for a fair presentation of financial position at September 30, 1996March 31, 1997 and
results of operations and cash flows for the three months ended March
31, 1997 and nine months ended September 30,
1996 and 1995 have been included. All such adjustments were normal
recurring adjustments, except for the write-down of inactive production
facilities in the first quarter of 1996 discussed in Note 7.6.
A new Statement of Position issued by the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants,
Inc. effective January 1, 1997 provides guidance on the recognition and
disclosure of environmental remediation liabilities. The Companies'
adoption of this statement in 1997 did not materially affect their
results of operations or financial positions.
These financial statements and notes should be read in conjunction with
the financial statements and notes included in the Companies' combined
Annual Report on Form 10-K for the year ended December 31, 1995 (19951996 (1996
Form 10-K) and the Quarterly Reports on Form 10-Q
for the quarter ended March 31, 1996 (First Quarter 1996 Form 10-
Q) and the quarter ended June 30, 1996 (Second Quarter 1996 Form
10-Q). These interim period financial results are not necessarily
indicative of results for a 12-month period.
In August 1995, Cleveland Electric formed a wholly owned
subsidiary, Centerior Funding Corporation (Centerior Funding), to
serve as the transferor in connection with asset-backed
securitization transactions completed by the Operating Companies
in May and July 1996 as discussed in Note 5 to the financial
statements in the Second Quarter 1996 Form 10-Q.
(2) Equity Distribution Restrictions
The Operating Companies can make cash available for the funding ofto fund Centerior
Energy's common stock dividends by paying dividends on their respective
common stock, which is held solely by Centerior Energy. Federal law
prohibits the Operating Companies from paying dividends out of capital
accounts. However, the Operating
Companies may payCleveland Electric has since 1993 declared and paid preferred
and common stock dividends out of appropriated current net income
included in retained earnings. At the times of such declarations and
payments, Cleveland Electric had a deficit in its retained earnings.
From 1993 through 1996, Toledo Edison declared and paid preferred stock
dividends out of appropriated current net income included in retained
earnings. At the times of such declarations and payments, Toledo Edison
had a deficit in its retained earnings and currentfrom 1993 through November 1996.
Toledo Edison also has a provision in its mortgage applicable to
approximately $94 million of outstanding first mortgage bonds ($31
million of which mature in August 1997) that requires common stock
dividends to be paid out of its total balance of retained earnings. At
September
30, 1996,March 31, 1997, Toledo Edison's total retained earnings were $10
million. At March 31, 1997, Cleveland Electric and Toledo Edison had
$187.6$120.4 million and $208.9$227.7 million, respectively, of appropriated
retained earnings for the payment of dividends. However, Toledo Edison is
prohibited from paying a common stock dividend by a provisionSee "Management's
Financial Analysis -- Capital Resources and Liquidity-Liquidity"
contained in its mortgage that essentially requires such dividends to be paid
outItem 7 of the total balance1996 Form 10-K for a discussion of retained earnings, which currently is
a deficit.Federal
Energy Regulatory Commission (FERC) audit issue regarding the
declaration and payment of dividends.
(3) Common Stock Dividends
Cash dividends per common share declared by Centerior Energy during the
ninethree months ended September 30,March 31, 1997 and 1996 and 1995 were as follows:
1997 1996 1995
Paid February 15 $.20 $.20
Paid May 15 .20 .20
Paid August 15 .20 .20
Paid November 15 .20 .20
Common stock cash dividends declared by Cleveland Electric during the
ninethree months ended September 30,March 31, 1997 and 1996 and 1995 were as follows:
1997 1996 1995
(millions)
Paid in February $29.6 $--
Paid in May 46.6 15.0
Paid in August 29.6 29.6$29.6
Toledo Edison did not declare any common stock dividends during the
ninethree months ended September 30, 1996March 31, 1997 and 1995.1996.
(4) Financing Activity
During the three months ended September 30, 1996, mandatory
redemptions forMarch 31, 1997, the Operating Companies
redeemed preferred stock and debt securities as follows:
Cleveland Electric
Mandatory redemptions consisted of $80 million
principal amount of secured medium-term notes; $1$15 million of Serial Preferred
Stock, $7.35$9.125 Series C; and $0.9N.
Toledo Edison
Mandatory redemptions consisted of $8 million of firstnotes secured by
subordinated mortgage bondscollateral.
(5) Short-Term Borrowing Arrangements
In May 1997, Centerior Energy renewed a $125 million revolving credit
facility until May 7, 1998 on the same terms as the existing agreement.
Centerior Energy and pollution control notes. Also, Cleveland
Electric optionally purchasedthe Service Company may borrow under the facility,
with all borrowings jointly and retired 26,000 shares of Serial
Preferred Stock, Adjustable Rate Series L, for $1.8 million.
(5) Nuclear Fuel Financing
Nuclear fuel is financed forseverally guaranteed by the Operating
Companies through
leases with a special-purpose corporation. On August 2, 1996, the
special-purpose corporation completed a transaction in which it
issued $100 million aggregate amountCompanies. Centerior Energy plans to transfer any of intermediate-term secured
notes maturing in the 1997 through 2000 period. On October 4,
1996, the special-purpose corporation completed a two-year $100
million bank credit arrangement, replacing $150 million of bank
credit arrangements which terminated in October 1996. The
special-purpose corporation used the proceeds from these
transactions to pay its outstanding borrowings, including $84
million of intermediate-term secured notes which matured on
September 30, 1996.
(6) Generating Plant Lease Agreement
Cleveland Electric had entered into an agreement with Jersey
Central Power & Light Company (Jersey Central) under which Jersey
Central leased Cleveland Electric's ownership share (351,000
kilowatts) of the Seneca Power Plant (Seneca), a pumped-storage,
hydro-electric generating station. The agreement began June 1,
1996 and was expected to provide annual revenues of approximately
$18 million. The parties agreed to cancel the agreement effective
October 2, 1996 because the Federal Energy Regulatory Commission
(FERC) insisted on terms which were not economicborrowed funds
to the parties.
(7)Operating Companies. There have not been any borrowings under
the facility.
(6) Write-down of Inactive Production Facilities
In the first quarter of 1996, Toledo Edison wrote down the net book
value of two inactive production facilities, $11.3 million, to "Other
Income and Deductions, Net" resulting in nonoperating losses for Toledo
Edison and Centerior Energy for that period. The net write-down was
$7.2 million after taxes or, for Centerior Energy, $.05 per common
share. The write-down resulted from a decision that the facilities arewere
no longer expected to provide revenues.
(8)(7) Commitments and Contingencies
Various legal actions, claims and regulatory proceedings covering
several matters are pending against the Companies. See "Item 3. Legal
Proceedings" in the 19951996 Form 10-K;10-K and "Part II, Item 5. Other
Information" in this Quarterly Report on Form 10-Q and in the
First and Second Quarter 1996 Form 10-Qs; and "Item 5. Other
Events" in the Companies' combined Current Report on Form 8-K
dated August 21, 1996.
On10-Q.
In September 13, 1996, Centerior Energy and Ohio Edison Company (Ohio
Edison) entered into an Agreementagreement and Planplan of Mergermerger to form a new
holding company, FirstEnergy Corp. (FirstEnergy). See "Item 5. Other
Events"On March 27, 1997,
Centerior Energy and Ohio Edison common stock share owners approved the
merger. Various aspects of the merger are subject to the approval of
the FERC and other regulatory authorities.
FirstEnergy plans to account for the merger as a purchase in accordance
with generally accepted accounting principles. If FirstEnergy elects to
apply, or "push down", the Companies' combined Current Report on Form 8-K dated
September 13, 1996. The merger agreement is conditioned upon, among
other matters, approvaleffects of purchase accounting to the
financial statements of the Operating Companies, Cleveland Electric
would record adjustments to: (1) reduce the carrying value of its
nuclear generating plant by The Public Utilities Commission$880 million to fair value; (2) recognize
goodwill of Ohio
(PUCO)$675 million; (3) reduce its common stock equity by $258
million; (4) reset its retained earnings to zero; and (5) reduce its
related deferred federal income tax liability by $308 million; and
Toledo Edison would record adjustments to: (1) reduce the carrying value
of a FirstEnergy regulatory plan (Regulatory Plan)its nuclear generating plant by $370 million to fair value; (2)
recognize goodwill of $307 million; (3) reduce its common stock equity
by $124 million; (4) reset its retained earnings to zero; and (5) reduce
its related deferred federal income tax liability by $130 million.
These amounts reflect FirstEnergy's estimates of the pro forma
adjustments for the Operating Companies which is mutually acceptableas of December 31, 1996. The
actual adjustments to Ohio Edison and
Centerior Energy. Implementationbe recorded could be materially different from the
estimates. FirstEnergy has not decided whether to push down the effects
of the Regulatory Plan is conditioned
upon consummation of the merger. As announced, the Regulatory Plan is
expected to include (i) a price freeze through 2005 followed by a $300
million price reduction in 2006; and (ii) a $2 billion aggregate
reduction in assets through 2005, resulting from amounts that have been
sold, revalued, recovered and amortized, and/or depreciated on an
accelerated basis. These provisions may be changed, and other
provisions may be added,purchase accounting to the Regulatory Plan prior to its filing.
Until the Regulatory Plan is filed, Centerior Energy cannot predict what
the Plan's effect on the Operating Companies' regulatory assets will be,
or whether the Plan will demonstrate that the Operating Companies will
continue to comply with Statement of Financial Accounting Standards
(SFAS) 71. If it is determined that the Regulatory Plan ultimately
approved by the PUCO does not provide for full recovery of costs and
regulatory assets, or other events cause one or bothfinancial statements of the Operating
Companies to conclude that the SFAS 71 criteria are no longer met, one
or both of the Operating Companies would be required to record a
material charge against earnings to write off regulatory assets ($1.328
billion for Cleveland Electric and $0.932 billion for Toledo Edison,
aggregating $2.260 billion for Centerior Energy at September 30, 1996),
and to evaluate whether the effects of the Regulatory Plan would cause
an impairment of property, plant and equipment. It is possible that
only a portion of operations (such as nuclear operations) would no
longer meet the criteria of SFAS 71, and, therefore, the write-off
would be limited to regulatory assets and/or property, plant and
equipment that are not reflected in cost-based prices established for
the remaining regulated operations. Any such effects from the
Regulatory Plan would be recorded at the time consummation of the merger
becomes probable. If the merger is not consummated, the Operating
Companies are not obligated to adopt either of the two provisions
described above. Any asset revaluation must be consistent with the
Operating Companies' objectives to become more competitive, reduce debt
and provide the opportunity for share owners to receive a fair return
on their investment. The Operating Companies continue to examine a
number of accelerated cost recognition and asset recovery plans.
On October 17, 1996, the FERC issued an order authorizing the
merger of Toledo Edison into Cleveland Electric without a hearing
and without significant conditions. The order included the FERC's
conclusion that it was not necessary to require the Operating Companies
to turn over control of their facilities to an independent system operator.
The FERC also approved the Operating Companies' recently filed single-system,
open-access transmission tariff. A request for authorization to transfer
certain Nuclear Regulatory Commission licenses to the merged entity was
recently withdrawn. The merger agreement between Ohio Edison and Centerior
Energy requires the approval of Ohio Edison prior to consummation
of the proposed merger of the Operating Companies. No decision on
the proposed merger of the Operating Companies is expected prior
to February 1997 when Ohio Edison and Centerior Energy common
stock shareholders are expected to vote on approval ofif the Ohio Edison-Centerior Energy merger agreement.is completed.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
INCOME STATEMENT
(Unaudited)
(Thousands, Except Per Share Amounts)
Three Months Ended
Nine Months Ended
September 30, September 30,March 31,
---------------------
---------------------------1997 1996 1995 1996 1995
-------- --------
----------- -----------
OPERATING REVENUES $ 727,119611,608 $ 739,579 $ 1,941,340 $ 1,934,105605,255
OPERATING EXPENSES
Fuel and Purchased Power 122,920 127,914 348,152 361,008121,831 114,984
Other Operation and Maintenance 169,711 167,818 475,379 458,973142,584 155,905
Generation Facilities Rental Expense, Net 39,853 39,873 119,559 119,57639,853
Depreciation and Amortization 76,835 70,420 226,789 209,89177,111 73,232
Taxes, Other Than Federal Income Taxes 80,129 81,961 247,492 246,34179,614 83,952
Amortization of Deferred Operating Expenses, Net 10,853 (16,772) 32,264 (47,542)10,858 10,543
Federal Income Taxes 54,385 63,827 93,739 114,76927,366 17,993
-------- -------- ----------- -----------
Total Operating Expenses 554,686 535,041 1,543,374 1,463,016499,217 496,462
-------- --------
----------- -----------
OPERATING INCOME 172,433 204,538 397,966 471,089112,391 108,793
NONOPERATING INCOME (LOSS)
Allowance for Equity Funds Used During Construction 695 120 2,394 1,766658 911
Other Income and Deductions, Net (3,909) (2,094) (10,908) 1,176
Deferred Carrying Charges -- 11,804 -- 34,999(5,827) (6,460)
Federal Income Taxes - Credit (Expense) 939 254 3,734 (2,543)(30) 1,915
-------- -------- ----------- -----------
Total Nonoperating Income (Loss) (2,275) 10,084 (4,780) 35,398(5,199) (3,634)
-------- -------- ----------- -----------
INCOME BEFORE INTEREST CHARGES 170,158 214,622 393,186 506,487107,192 105,159
INTEREST CHARGES
Long-termLong-Term Debt 81,192 89,204 247,841 263,939
Short-term76,503 83,318
Short-Term Debt 2,300 1,744 6,498 7,3151,648 1,876
Allowance for Borrowed Funds Used During Construction (640) (197) (2,257) (1,960)(563) (843)
-------- -------- ----------- -----------
Net Interest Charges 82,852 90,751 252,082 269,29477,588 84,351
-------- -------- ----------- -----------
INCOME AFTER INTEREST CHARGES 87,306 123,871 141,104 237,19329,604 20,808
Preferred Dividend Requirements of Subsidiaries 13,815 14,959 42,092 46,11313,507 14,235
-------- -------- ----------- -----------
NET INCOME $ 73,49116,097 $ 108,912 $ 99,012 $ 191,0806,573
======== ======== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 148,026 148,032 148,027 148,032148,028
======== ======== =========== ===========
EARNINGS PER COMMON SHARE $ .50.11 $ .74.04
======== ========
The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
BALANCE SHEET
(Thousands)
March 31, December 31,
1997 1996
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ .679,893,144 $ 1.29
======== ========9,867,193
Accumulated Depreciation and Amortization (3,352,310) (3,272,158)
----------- -----------
6,540,834 6,595,035
Construction Work In Progress 90,505 78,669
----------- -----------
6,631,339 6,673,704
Nuclear Fuel, Net of Amortization 168,125 189,148
Other Property, Less Accumulated Depreciation 87,142 89,291
----------- -----------
6,886,606 6,952,143
CURRENT ASSETS
Cash and Temporary Cash Investments 144,907 138,068
Amounts Due from Customers and Others, Net 165,367 212,680
Materials and Supplies, at Average Cost
Owned 82,906 84,846
Under Consignment 34,492 34,039
Taxes Applicable to Succeeding Years 215,913 249,961
Other 21,339 24,283
----------- -----------
664,924 743,877
REGULATORY AND OTHER ASSETS
Regulatory Assets 2,262,719 2,277,083
Nuclear Plant Decommissioning Trusts 152,885 139,667
Investment in Partnership 25,327 23,245
Other 82,336 74,187
----------- -----------
2,523,267 2,514,182
----------- -----------
$ 10,074,797 $ 10,210,202
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,943,536 $ 1,986,855
Preferred Stock
With Mandatory Redemption Provisions 189,473 189,473
Without Mandatory Redemption Provisions 448,325 448,325
Long-Term Debt 3,444,352 3,444,241
----------- -----------
6,025,686 6,068,894
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 173,239 196,033
Current Portion of Lease Obligations 84,371 87,836
Accounts Payable 100,518 138,005
Accrued Taxes 321,153 389,014
Accrued Interest 85,245 74,826
Dividends Declared 43,336 13,977
Other 64,934 72,653
----------- -----------
872,796 972,344
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 248,592 251,547
Accumulated Deferred Federal Income Taxes 1,887,576 1,876,924
Unamortized Gain from Bruce Mansfield Plant Sale 468,753 474,757
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 138,026 137,956
Nuclear Fuel Lease Obligations 106,860 122,655
Retirement Benefits 184,704 183,571
Other 141,804 121,554
----------- -----------
3,176,315 3,168,964
COMMITMENTS AND CONTINGENCIES (Note 7)
----------- -----------
$ 10,074,797 $ 10,210,202
=========== ===========
The accompanying notes as they relate to Centerior Energy are an integral part of this
statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
BALANCE SHEET
(Thousands)
September 30, December 31,
1996 1995
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 9,835,687 $ 9,767,788
Accumulated Depreciation and Amortization (3,218,650) (3,036,181)
----------- -----------
6,617,037 6,731,607
Construction Work In Progress 92,875 101,031
----------- -----------
6,709,912 6,832,638
Nuclear Fuel, Net of Amortization 203,992 199,707
Other Property, Less Accumulated Depreciation 92,434 101,745
----------- -----------
7,006,338 7,134,090
CURRENT ASSETS
Cash and Temporary Cash Investments 284,993 179,038
Amounts Due from Customers and Others, Net 210,755 223,228
Unbilled Revenues 7,100 100,344
Materials and Supplies, at Average Cost 93,562 119,507
Fossil Fuel Inventory, at Average Cost 22,140 30,663
Taxes Applicable to Succeeding Years 109,810 255,142
Other 19,937 18,562
----------- -----------
748,297 926,484
REGULATORY AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income
Taxes, Net 1,058,817 1,067,374
Unamortized Loss from Beaver Valley Unit 2 Sale 92,837 96,206
Unamortized Loss on Reacquired Debt 83,728 88,893
Carrying Charges and Operating Expenses 1,024,207 1,053,220
Nuclear Plant Decommissioning Trusts 133,034 113,681
Other 157,610 163,156
----------- -----------
2,550,233 2,582,530
----------- -----------
$ 10,304,868 $ 10,643,104
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,964,802 $ 1,983,560
Preferred Stock
With Mandatory Redemption Provisions 189,267 220,440
Without Mandatory Redemption Provisions 448,325 450,871
Long-Term Debt 3,612,166 3,733,892
----------- -----------
6,214,560 6,388,763
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 211,423 234,771
Current Portion of Lease Obligations 84,239 94,653
Accounts Payable 114,422 152,909
Accrued Taxes 263,725 373,757
Accrued Interest 91,063 83,050
Dividends Declared 43,771 14,666
Other 66,231 73,328
----------- -----------
874,874 1,027,134
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 254,294 263,352
Accumulated Deferred Federal Income Taxes 1,899,793 1,875,080
Unamortized Gain from Bruce Mansfield Plant Sale 480,760 498,771
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 137,898 145,393
Nuclear Fuel Lease Obligations 142,464 137,260
Retirement Benefits 182,745 178,579
Other 117,480 128,772
----------- -----------
3,215,434 3,227,207
COMMITMENTS AND CONTINGENCIES (Note 8)
----------- -----------
$ 10,304,868 $ 10,643,104
=========== ===========
The accompanying notes as they relate to Centerior Energy are an integral part of this
statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
CASH FLOWS
(Unaudited)
(Thousands)
NineThree Months Ended
September 30,
------------------------March 31,
--------------------
1997 1996
1995
----------- ------------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $99,012 $191,080$16,097 $6,573
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 226,789 209,89177,111 73,232
Deferred Federal Income Tax 30,967 52,248
Unbilled Revenues 6,344 11,000Taxes 10,467 18,601
Deferred Fuel 10,777 11,438
Deferred Carrying Charges -- (34,999)10,264 (2,016)
Leased Nuclear Fuel Amortization 58,212 92,68222,853 20,688
Amortization of Deferred Operating Expenses, Net 32,264 (47,542)10,858 10,543
Allowance for Equity Funds Used During Construction (2,394) (1,766)(658) (911)
Changes in Amounts Due from Customers and Others, Net (29,341) (46,428)
Proceeds from Accounts Receivable Securitization 135,223 --47,313 4,360
Changes in Inventories 34,468 15,355Materials and Supplies 1,487 7,524
Changes in Accounts Payable (38,487) 19,373(37,487) 53,223
Changes in Working Capital Affecting Operations 34,841 (9,829)(28,169) (37,707)
Other Noncash Items (15,969) 8,3626,876 (12,463)
-------- --------
Total Adjustments 483,694 279,785120,915 135,074
-------- --------
Net Cash from Operating Activities 582,706 470,865137,012 141,647
CASH FLOWS FROM FINANCING ACTIVITIES
First Mortgage Bond Issues -- 541,850
Reacquired Common Stock (20) -- (7)
Maturities, Redemptions and Sinking Funds (178,153) (636,413)(23,000) (44,550)
Nuclear Fuel Lease Obligations (67,962) (69,298)(21,067) (32,163)
Common Stock Dividends Paid (88,816) (88,819)(29,605) (29,606)
Premiums, Discounts and Expenses (561) (13,955)-- (50)
-------- --------
Net Cash from Financing Activities (335,512) (266,635)(73,672) (106,376)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (107,451) (114,686)(42,961) (39,700)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (2,257) (1,960)(563) (843)
Contributions to Nuclear Plant Decommissioning Trusts (16,994) (11,794)(5,387) --
Investment in Partnership (21,164)(2,082) --
Other Cash Received (Applied) 6,627 (26,776)(5,508) 5,348
-------- --------
Net Cash from Investing Activities (141,239) (155,216)(56,501) (35,195)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 105,955 49,0146,839 76
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 138,068 179,038 186,399
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $284,993 $235,413$144,907 $179,114
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $235,000 $217,000$64,000 $68,000
Federal Income Taxes 5,200 77,90014,000 --
The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of the 1995
Form 10-K and in the First and Second Quarter 1996
Form 10-Qs.10-K. The information under "Capital Resources and Liquidity"
remains unchanged with the following exceptions:
During the thirdfirst quarter of 1996, Cleveland Electric1997, the Operating Companies redeemed or retired
various securities as discussed in Note 4.
In July 1996,May 1997, Centerior Funding,Energy renewed a wholly owned subsidiary of Cleveland
Electric, completed a public sale of $150$125 million of receivables-backed
investor certificates in a transaction that qualifies for sale
accounting treatment for financial reporting purposes. Centerior
Funding used the net proceeds of $148.9 million to retire $100 million
of its receivables-backed investor certificates which were issued inrevolving credit
facility until May 1996, repay its notes payable ($10 million to Cleveland Electric and $16
million to Toledo Edison) and pay a $22.9 million dividend to Cleveland
Electric.
As7, 1998 as discussed in Note 5, a special-purpose corporation completed
financing transactions in the 1996 third quarter and October 1996 to
replace expiring nuclear fuel financing arrangements.
In October 1996, Cleveland Electric completed the purchase and
retirement of $50 million principal amount of its 7.625% interest rate
first mortgage bonds due in 2002 and $10 million principal amount of its
7.42% interest rate secured medium-term notes due in 2001 for a total of
$59.1 million. Also in October 1996, Toledo Edison completed the
purchase and retirement of $15 million principal amount of its 7.25%
interest rate first mortgage bonds due in 1999 for $14.9 million. The
securities are included in current liabilities in the September 30, 1996
balance sheet.
Additional first mortgage bonds may be issued by the Operating Companies
under their respective mortgages on the basis of property additions,
cash or refundable first mortgage bonds. If the applicable interest
coverage test is met, each Operating Company may issue first mortgage
bonds on the basis of property additions and, under certain
circumstances, refundable bonds. At September 30, 1996, Cleveland
Electric and Toledo Edison would have been permitted to issue
approximately $571 million and $143 million of additional first mortgage
bonds, respectively, after giving effect to the corresponding security
retirements in October 1996 discussed above.
Under its articles of incorporation, Toledo Edison cannot issue
preferred stock unless certain earnings coverage requirements are met.
Based on earnings for the 12 months ended September 30, 1996, Toledo
Edison could not issue additional preferred stock.5.
Results of Operations
Factors contributing to the 1.7% third quarter decrease and 0.4% nine-
month1% increase in 19961997 first quarter operating
revenues from 1995 are shown as follows:
Changes for Period Ended
September 30,from
First Quarter 1996
Three Nine
Factors Months MonthsOperating Revenues
(millions)
Base Rates $ 27.7 $ 40.222.1
Kilowatt-hour Sales Volume and Mix (36.3) (22.1)(12.6)
Wholesale Revenues (3.4) (3.1)5.9
Fuel Cost Recovery Revenues (1.3) (10.0)0.8
Miscellaneous Revenues 0.8 2.2(9.8)
Total $ (12.5) $ 7.26.4
The increasesincrease in 1996first quarter 1997 base rates revenues resulted
primarily from the April 1996 rate order issued by the PUCOThe Public Utilities
Commission of Ohio (PUCO) for the Operating Companies. Renegotiated
contracts for certain large industrial customers of the Operating
Companies resulted in a decrease in base rates which partially offset
the effect of the general price increase.
Percentage changes between 1997 and 1996 and 1995first quarter billed electric
kilowatt-hour sales are summarized as follows:
Changes for Period Ended
September 30, 1996
Three Nine
Customer Categories Months Months% Change
Residential (14.9)% (2.5)(0.6)%
Commercial (3.5) 0.91.6
Industrial 1.4 0.71.7
Other (7.6) (12.1)41.5
Total (5.1) (1.6)
Third5.5
First quarter 1996 residential, commercial and1997 total kilowatt-hour sales decreasedincreased because of
cooler summer weatherincreases in the 1996 period which
reduced cooling-related demand. Weather-normalized residentialindustrial and commercial sales increased 0.6% and 3.8%, respectively, for the 1996
period. Weather-normalized commercialalong with a 56% increase
in wholesale sales growth(included in the 1996 period
is attributable to an increase in average customer usage of about 4%"Other" category). Industrial sales
increased primarily because of increasedas more sales to large automotive manufacturers andprimary metals industry customers
(including the broad-based, smaller industrial
customer group. Other sales decreased because of less sales to
wholesale and public authority customers.
Total kilowatt-hour sales decreased for the nine-month period in 1996
because of decreases from weather-related demand and a 14% decline in
wholesale sales. Residential sales decreased because of the cooler
summer weather in the 1996 period. However, commercial and industrial
sales increased for the 1996 nine-month period. Colder winter and
spring weather in the first six months of 1996 had boosted residential
and commercial sales for the first half of 1996. Weather-normalized
residential and commercial sales increased 1.1% and 3%, respectively,
for the 1996 nine-month period. Weather-normalized commercial sales
growth in the 1996 period is attributable to a 1% increase in the
average number of customers and an increase in average customer usage of
about 2%. Increased sales to petroleum refineriesnew North Star BHP Steel facility) and the broad-based,
smaller industrial customer group were partially offset by lessfewer sales
to large steel industry customers.
Wholesaleautomotive manufacturers. Commercial sales in 1996 were suppressed by soft market conditions and,
during the first six months of 1996, limited power availability for bulk
power transactionsincreased despite
milder weather because of nuclear generating plant refuelinga 1.9% increase in the number of commercial
customers and maintenance outages.greater economic activity. Residential sales declined
slightly because of the milder weather. However, weather-normalized
residential and commercial sales increased 3.8% and 2.5%, respectively,
for the 1997 period.
The decreasesincrease in 1996first quarter 1997 fuel cost recovery revenues included
in customer bills resulted from changes in the weighted average of the
fuel cost recovery factors used by the Operating Companies to calculate
these revenues.
The weighted
averageFirst quarter miscellaneous revenues in 1997 decreased from the 1996
amount primarily because of the respective fuel cost recovery factors used forreclassification of certain revenues as
credits to operating expenses commencing in the thirdsecond quarter of 1996
decreased about 2% for Cleveland Electric and increased
about 1.5% for Toledo Edison compareda first quarter 1997 refund payment related to the weighted average of the
respective fuel cost recovery factors used for the third quarter of
1995. The weighted average of the respective fuel cost recovery factors
used for the 1996 nine-month period decreased about 5% for Cleveland
Electric and increased about 2% for Toledo Edison compared to the
weighted average of the respective fuel cost recovery factors used for
the 1995 nine-month period.
Thirda canceled generating
plant lease agreement.
First quarter operating expenses in 19961997 increased 3.7%0.6% from the 19951996
amount. The cessation of the Rate Stabilization Program deferralsHigher fuel and the commencement of their amortization in December 1995purchased power expenses resulted from increased
purchased power requirements in the decrease in deferred operating expenses.1997 period. Depreciation and
amortization expenses increased primarily because of a net increase in depreciation related to changes in
depreciation rates approved in the April 1996 PUCO rate order
and the cessation of the accelerated amortization of unrestricted
investment tax credits under the Rate Stabilization Program, which was
reported in 1995order. Federal
income taxes increased as a reductionresult of depreciation expense. Federal income
taxeshigher pretax operating income.
Other operation and maintenance expenses decreased as a result of
lower pretax operating income. Fuelongoing cost cutting and purchased power expenses decreased as lower fuel expense was partially
offset by slightly higher purchased power expense.
Other operation and maintenance expenses for the 1996 third quarter
included a $22.7 million charge for an ongoing inventory reduction
program. The ongoing streamlining of the supply chain process includeswork force reductions; a shift in management philosophy toward increased use of technology,
consolidated warehousing and just-in-time purchase and delivery. Other
operation and maintenancecertain
payroll expenses to the nonoperating classification for work related to
the 1995 third quarter had
included charges totaling $14.6 million for an inventory reductionOhio Edison-Centerior Energy merger; and the recognitionaforementioned
reclassification of certain expense reimbursements as credits to
operating expenses. Taxes, other than federal income taxes, decreased
primarily because of lower property and payroll tax accruals.
The first quarter 1997 total nonoperating loss was larger than the first
quarter 1996 total nonoperating loss. The first quarter 1997
nonoperating loss resulted primarily from both merger-related expenses
and certain costs associated with preliminary engineering
studies. Other cost-control measures helped to reduce thirdan accounts receivable securitization.
The first quarter
1996 other operation and maintenance expenses below the third quarter
1995 level, exclusive of the charges discussed above.
Third quarter 1996 nonoperating income decreased primarily because the
deferral of carrying charges related to the Rate Stabilization Program
ended in November 1995.
Third quarter 1996 interest charges and preferred dividend requirements
decreased because of the redemption of securities and refinancing at
favorable terms.
Nine-month operating expenses in 1996 increased 5.5% from the 1995
amount. The cessation of the Rate Stabilization Program deferrals and
the commencement of their amortization in December 1995 resulted in the
decrease in deferred operating expenses. Other operation and
maintenance expenses increased because of increases in nuclear power
production expenses (attributable to refueling and maintenance outages,
and the end of accelerated amortization of certain excess interim spent
nuclear fuel storage costs under the Rate Stabilization Program), the
third quarter 1996 inventory reduction charge, and expenses related to
distribution operations and improvements in customer service and sales
and marketing efforts. Depreciation and amortization expenses increased
for the same reasons cited for the third quarter 1996 increase in these
expenses. Federal income taxes decreased as a result of lower pretax
operating income. Fuel and purchased power expenses decreased as lower
fuel expense related to less generation was partially offset by higher
purchased power expense.
A nine-month 1996 nonoperating loss resulted primarily from Toledo
Edison's write-down of two inactive production facilities as discussed
in Note 7. The deferral of carrying charges related to the Rate
Stabilization Program ended in November 1995. The nine-month 1996
federal income tax credit for nonoperating income increased accordingly.
Nine-month 19966.
First quarter 1997 interest charges and preferred dividend requirements
decreased because of the same reasons citedredemption of securities in 1996.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
two new statements of financial accounting standards, one for the
third quarter 1996
decreasecomputation and presentation of earnings per share and one for the
disclosure of information about capital structure. Both statements are
effective for year-end December 31, 1997 reporting. Centerior
Energy's adoption of the statement for reporting earnings per share in
these charges.1997 is not expected to have a material effect on its reporting of
earnings per common share. Centerior Energy's adoption of the statement
for reporting about capital structure in 1997 will not affect its
financial condition.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY
INCOME STATEMENT
(Unaudited)
(Thousands)
Three Months Ended
Nine Months Ended
September 30, September 30,March 31,
---------------------
-------------------------1997 1996 1995 1996 1995
-------- --------
---------- ----------
OPERATING REVENUES $ 506,491431,627 $ 525,833 $ 1,368,042 $ 1,360,578427,526
OPERATING EXPENSES
Fuel and Purchased Power (1) 102,941 110,104 304,883 317,997110,530 103,726
Other Operation and Maintenance 115,118 113,421 319,333 308,39091,447 105,132
Generation Facilities Rental Expense, Net 13,892 13,892
41,675 41,675
Depreciation and Amortization 53,279 49,290 157,128 146,77753,297 50,816
Taxes, Other Than Federal Income Taxes 56,537 58,288 176,297 174,53556,686 60,010
Amortization of Deferred Operating Expenses, Net 6,567 (11,229) 19,510 (31,686)6,368
Federal Income Taxes 37,434 47,140 66,804 81,59219,203 11,805
-------- -------- ---------- ----------
Total Operating Expenses 385,768 380,906 1,085,630 1,039,280351,622 351,749
-------- --------
---------- ----------
OPERATING INCOME 120,723 144,927 282,412 321,29880,005 75,777
NONOPERATING INCOME (LOSS)
Allowance for Equity Funds Used During Construction 366 290 1,465 1,256327 498
Other Income and Deductions, Net (4,506) 804 (3,873) 1,941
Deferred Carrying Charges -- 7,991 -- 23,354(4,649) 1,649
Federal Income Taxes - Credit (Expense) 1,449 (538) 1,731 (1,441)658 (752)
-------- -------- ---------- ----------
Total Nonoperating Income (Loss) (2,691) 8,547 (677) 25,110(3,664) 1,395
-------- -------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 118,032 153,474 281,735 346,40876,341 77,172
INTEREST CHARGES
Long-Term Debt 58,628 62,889 179,414 184,19454,393 60,160
Short-Term Debt 1,063 844 3,127 2,6382,177 692
Allowance for Borrowed Funds Used During Construction (380) (236) (1,526) (1,614)(459) (519)
-------- -------- ---------- ----------
Net Interest Charges 59,311 63,497 181,015 185,21856,111 60,333
-------- --------
---------- ----------
NET INCOME 58,721 89,977 100,720 161,19020,230 16,839
Preferred Dividend Requirements 9,563 10,452 29,408 32,1279,315 10,032
-------- -------- ---------- ----------
EARNINGS AVAILABLE FOR COMMON STOCK $ 49,15810,915 $ 79,525 $ 71,312 $ 129,0636,807
======== ======== ========== ==========
(1) Includes purchased power expense for
purchases from Toledo Edison. $ 24,93328,920 $ 25,939 $ 77,513 $ 75,49626,672
The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY
BALANCE SHEET
(Thousands)
September 30,March 31, December 31,
1997 1996 1995
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 6,911,8576,960,941 $ 6,871,4686,938,535
Accumulated Depreciation and Amortization (2,212,724) (2,094,092)(2,306,322) (2,252,321)
----------- -----------
4,699,133 4,777,3764,654,619 4,686,214
Construction Work In Progress 69,801 73,25062,173 56,853
----------- -----------
4,768,934 4,850,6264,716,792 4,743,067
Nuclear Fuel, Net of Amortization 121,678 121,966100,764 113,030
Other Property, Less Accumulated Depreciation 56,707 58,29951,553 53,547
----------- -----------
4,947,319 5,030,8914,869,109 4,909,644
CURRENT ASSETS
Cash and Temporary Cash Investments 85,234 69,77026,698 30,273
Amounts Due from Customers and Others, Net 191,445 152,339146,187 189,547
Amounts Due from Affiliates 1,502 4,729
Unbilled Revenues 5,000 78,500347 5,634
Materials and Supplies, at Average Cost
60,276 79,540
Fossil Fuel Inventory, at Average Cost 11,104 21,391Owned 50,777 51,686
Under Consignment 23,497 23,655
Taxes Applicable to Succeeding Years 77,935 184,099156,147 181,609
Other 10,029 7,19711,416 15,237
----------- -----------
442,525 597,565415,069 497,641
REGULATORY AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income
Taxes, Net 643,024 651,264
Unamortized Loss on Reacquired Debt 58,681 61,252
Carrying Charges and Operating Expenses 626,007 643,561Regulatory Assets 1,341,785 1,349,693
Nuclear Plant Decommissioning Trusts 71,986 61,49783,067 75,573
Other 85,788 105,69660,725 44,980
----------- -----------
1,485,486 1,523,2701,485,577 1,470,246
----------- -----------
$ 6,875,3306,769,755 $ 7,151,7266,877,531
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,102,1281,034,701 $ 1,126,7621,044,283
Preferred Stock
With Mandatory Redemption Provisions 185,912 215,420186,118 186,118
Without Mandatory Redemption Provisions 238,325 240,871238,325
Long-Term Debt 2,599,076 2,665,9812,441,297 2,441,215
----------- -----------
4,125,441 4,249,0343,900,441 3,909,941
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 140,874 176,474129,874 144,668
Current Portion of Lease Obligations 49,468 54,63449,266 51,592
Accounts Payable 52,486 89,03857,092 82,694
Accounts and Notes Payable to Affiliates 59,437 63,961170,966 171,433
Accrued Taxes 227,225 296,141253,143 315,998
Accrued Interest 65,185 58,60860,247 52,487
Dividends Declared 6,092 15,8185,692 15,228
Other 40,947 40,76640,156 43,672
----------- -----------
641,714 795,440766,436 877,772
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 178,088 184,002174,158 176,130
Accumulated Deferred Federal Income Taxes 1,311,649 1,298,2601,316,529 1,305,601
Unamortized Gain from Bruce Mansfield Plant Sale 299,467 310,678291,993 295,730
Accumulated Deferred Rents for Bruce Mansfield Plant 98,183 91,60499,351 98,767
Nuclear Fuel Lease Obligations 85,465 85,56964,968 73,947
Retirement Benefits 71,352 65,42474,512 72,843
Other 63,971 71,71581,367 66,800
----------- -----------
2,108,175 2,107,2522,102,878 2,089,818
COMMITMENTS AND CONTINGENCIES (Note 8)7)
----------- -----------
$ 6,875,3306,769,755 $ 7,151,7266,877,531
=========== ===========
The accompanying notes as they relate to Cleveland Electric are an integral part of this
statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY
CASH FLOWS
(Unaudited)
(Thousands)
NineThree Months Ended
September 30,March 31,
----------------------
1997 1996
1995
----------- --------------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $100,720 $161,190
----------- ---------$20,230 $16,839
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 157,128 146,77753,297 50,816
Deferred Federal Income Tax 21,514 36,106
Unbilled Revenues 5,500 9,000Taxes 10,736 14,388
Deferred Fuel 3,245 13,900
Deferred Carrying Charges -- (23,354)7,696 (2,639)
Leased Nuclear Fuel Amortization 33,537 52,55213,411 11,339
Amortization of Deferred Operating Expenses, Net 19,510 (31,686)6,567 6,368
Allowance for Equity Funds Used During Construction (1,465) (1,256)(327) (498)
Changes in Amounts Due from Customers and Others, Net (16,219) (35,066)
Proceeds from Accounts Receivable Securitization 57,988 --43,360 1,678
Changes in Inventories 29,551 6,824Materials and Supplies 1,067 6,643
Changes in Accounts Payable (36,552) (3,565)(25,602) 27,758
Changes in Working Capital Affecting Operations 38,596 (16,558)(27,289) (31,665)
Other Noncash Items (7,157) (2,438)2,336 (9,791)
-------- --------
Total Adjustments 305,176 151,23685,252 74,397
-------- --------
Net Cash from Operating Activities 405,896 312,426105,482 91,236
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable to Affiliates 1,281 (58,100)
First Mortgage Bond Issues -- 442,8502,781 (5,000)
Maturities, Redemptions and Sinking Funds (134,288) (428,455)(15,000) (15,800)
Nuclear Fuel Lease Obligations (38,532) (39,776)(12,450) (18,194)
Dividends Paid (135,598) (77,078)
Premiums, Discounts and Expenses (307) (8,644)(39,141) (39,865)
-------- --------
Net Cash from Financing Activities (307,444) (169,203)(63,810) (78,859)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (74,747) (89,534)(32,812) (25,105)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (1,526) (1,614)(459) (519)
Contributions to Nuclear Plant Decommissioning Trusts (9,194) (6,408)(2,928) --
Other Cash Received (Applied) 2,479 (18,389)(9,048) 3,486
-------- --------
Net Cash from Investing Activities (82,988) (115,945)(45,247) (22,138)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 15,464 27,278(3,575) (9,761)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 30,273 69,770 65,643
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $85,234 $92,921$26,698 $60,009
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $169,000 $149,000$47,000 $47,000
Federal Income Taxes (Refund) (6,200) 60,3008,300 --
The accompanying notes as they relate to Cleveland Electric are an integral part of this statement.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of the 1995
Form 10-K and in the First and Second Quarter 1996
Form 10-Qs.10-K. The information under "Capital Resources and Liquidity"
remains unchanged with the following exceptions:
During the thirdfirst quarter of 1996,1997, Cleveland Electric redeemed or retired
various securitiespreferred
stock as discussed in Note 4.
In July 1996, Centerior Funding, a wholly owned subsidiary of Cleveland Electric completedis a public sale of $150party to a $125 million of receivables-backed
investor certificates in a transaction that qualifies for sale
accounting treatment for financial reporting purposes.revolving credit
facility which Centerior Funding used the net proceeds of $148.9 million to retire $100 million
of its receivables-backed investor certificates which were issuedEnergy renewed in May 1996, repay its notes payable ($10 million to Cleveland Electric and $16
million to Toledo Edison) and pay a $22.9 million dividend to Cleveland
Electric.
As1997 until May 7, 1998 as
discussed in Note 5, a special-purpose corporation completed
financing transactions in the 1996 third quarter and October 19965. Centerior Energy plans to replace expiring nuclear fuel financing arrangements.
In October 1996, Cleveland Electric completed the purchase and
retirement of $50 million principal amounttransfer any of its
7.625% interest rate
first mortgage bonds due in 2002 and $10 million principal amount of its
7.42% interest rate secured medium-term notes due in 2001 for a total of
$59.1 million. The securities are included in current liabilities inborrowed funds under the September 30, 1996 balance sheet.
Additional first mortgage bonds may be issued by Cleveland Electric
under its mortgage on the basis of property additions, cash or
refundable first mortgage bonds. If the applicable interest coverage
test is met, Cleveland Electric may issue first mortgage bonds on the
basis of property additions and, under certain circumstances, refundable
bonds. At September 30, 1996, Cleveland Electric would have been
permitted to issue approximately $571 million of additional first
mortgage bonds after giving effectfacility to the October 1996 security
retirements discussed above.Operating Companies.
Results of Operations
Factors contributing to the 3.7% third quarter decrease and 0.5% nine-
month1% increase in 19961997 first quarter operating
revenues from 1995 are shown as follows:
Changes for Period Ended
September 30,from
First Quarter 1996
Three Nine
Factors Months MonthsOperating Revenues
(millions)
Base Rates $ 20.2 33.418.7
Kilowatt-hour Sales Volume and Mix (38.2) (22.4)(15.0)
Wholesale Revenues (0.9) 3.97.5
Fuel Cost Recovery Revenues (1.8) (11.5)2.3
Miscellaneous Revenues 1.44 .1(9.4)
Total $(19.3) $ 7.54.1
The increasesincrease in 1996first quarter 1997 base rates revenues resulted
primarily from the April 1996 rate order issued by the PUCO.
Renegotiated contracts for certain large industrial customers resulted
in a decrease in base rates which partially offset the effect of the
general price increase.
Percentage changes between 1997 and 1996 and 1995first quarter billed electric
kilowatt-hour sales are summarized as follows:
Changes for Period Ended
September 30, 1996
Three Nine
Customer Categories Months Months% Change
Residential (15.4)% (2.8)%0.5%
Commercial (3.7) 0.51.2
Industrial (0.6) (0.8)(1.7)
Other 5.8 5.278.5
Total (4.4) (0.3)
Third8.0
Despite milder weather, first quarter 1996 residential, commercial and1997 total kilowatt-hour sales
decreased because of cooler summer weatherrose as increases in residential and commercial sales along with a 99%
increase in wholesale sales (included in the 1996 period which
reduced cooling-related demand."Other" category) were
partially offset by a decline in industrial sales. Weather-normalized
residential and commercial sales increased 0.8%5.4% and 2.8%2.2%, respectively,
for the 1997 period. The number of commercial customers at March 31,
1997 was 1.3% above the March 31, 1996 period. Weather-normalized commercial sales growth in the 1996 period
is attributable to an increase in average customer usage of about 3%.number. Industrial sales
decreased as lessprimarily because of fewer sales to large automotive
manufacturers and the broad-based, smaller industrial customer group
were partially offset by increased sales to large steel industry customers.
Other sales increased as increased wholesale sales were
partially offset by less sales to public authorities.
Total kilowatt-hour sales decreased for the nine-month period in 1996 as
decreases from weather-related demand were partially offset by a 10%The increase in wholesale sales. Residential sales decreased because of the
cooler summer weather in the 1996 period. Colder winter and spring
weather in the first six months of 1996 had boosted residential and
commercial sales for the first half of 1996. Weather-normalized
residential and commercial sales increased 1.2% and 2.4%, respectively,
for the 1996 nine-month period. Weather-normalized commercial sales
growth in the 1996 period is attributable to a 1% increase in the
average number of customers and an increase in average customer usage of
about 1.5%. Industrial sales decreased primarily because of less sales
to large automotive manufacturers and the broad-based, smaller
industrial customer group.
The decreases in 1996 fuel cost recovery revenues included in customer bills
resulted from decreasesa 3% increase in the weighted average of the fuel cost
recovery factors used in 1996the first quarter of 1997 to calculate these
revenues compared to those used in 1995. The
decreases in the weighted averages of the fuel cost recovery factors for
1996 were about 2% and 5% for the thirdfirst quarter and nine months,
respectively.
Miscellaneousaverage.
First quarter miscellaneous revenues in 1996 increased1997 decreased from the 1995 amounts1996
amount primarily because of the newreclassification of certain revenues as
credits to operating expenses commencing in the second quarter of 1996
and a first quarter 1997 refund payment related to the Senecaa canceled generating
plant lease agreement
discussed in Note 6.
Thirdagreement.
First quarter operating expenses in 19961997 were virtually the same as in
1996. Higher fuel and purchased power expenses resulted from increased
1.3% from the 1995
amount. The cessation of the Rate Stabilization Program deferrals and
the commencement of their amortization in December 1995 resultedpurchased power requirements in the decrease in deferred operating expenses.1997 period. Depreciation and
amortization expenses increased primarily because of a net increase in depreciation related to changes in
depreciation rates approved in the April 1996 PUCO rate order
and the cessation of the accelerated amortization of unrestricted
investment tax credits under the Rate Stabilization Program, which was
reported in 1995order. Federal
income taxes increased as a reductionresult of depreciation expense. Federal income
taxeshigher pretax operating income.
Other operation and maintenance expenses decreased as a result of
ongoing cost cutting and work force reductions; a shift of certain
payroll expenses to the nonoperating classification for work related to
the Ohio Edison-Centerior Energy merger; and the aforementioned
reclassification of certain expense reimbursements as credits to
operating expenses. Taxes, other than federal income taxes, decreased
primarily because of lower pretax operating income. Lower
fuelproperty and purchased power expensespayroll tax accruals.
A first quarter 1997 nonoperating loss resulted primarily from both
lower fuel expenseCleveland Electric's share of merger-related expenses and lower purchased power expense.
Other operation and maintenance expenses for the 1996 third quarter
included a $16.6 million charge for an ongoing inventory reduction
program. The ongoing streamlining of the supply chain process includes
a shift in management philosophy toward increased use of technology,
consolidated warehousing and just-in-time purchase and delivery. Other
operation and maintenance expenses for the 1995 third quarter had
included charges totaling $11.4 million for an inventory reduction and
the recognition ofcertain costs
associated with preliminary engineering
studies. Other cost-control measures helped to reduce thirdan accounts receivable securitization.
First quarter 1996 other operation1997 interest charges and maintenance expenses below the third quarter
1995 level, exclusivepreferred dividend requirements
decreased because of the charges discussed above.
Third quarter 1996 nonoperating income decreased primarily becauseredemption of securities in 1996.
New Accounting Standard
In February 1997, the deferralFASB issued a new statement of carrying charges related tofinancial
accounting standards for the Rate Stabilization Program
ended in November 1995. The third quarter 1996 federal income tax creditdisclosure of information about capital
structure effective for nonoperating income increased accordingly.
Nine-month operating expenses in 1996 increased 4.5% from the 1995
amount. The cessationyear-end December 31, 1997 reporting. Cleveland
Electric's adoption of the Rate Stabilization Program deferrals and
the commencement of their amortizationstatement in December 1995 resulted in the
decrease in deferred operating expenses. Other operation and
maintenance expenses increased because of increases in nuclear power
production expenses (attributable to refueling and maintenance outages,
and the end of accelerated amortization of certain excess interim spent
nuclear fuel storage costs under the Rate Stabilization Program), the
third quarter 1996 inventory reduction charge, and expenses related to
distribution operations and improvements in customer service and sales
and marketing efforts. Depreciation and amortization expenses increased
for the same reasons cited for the third quarter 1996 increase in these
expenses. Federal income taxes decreased as a result of lower pretax
operating income. Lower fuel and purchased power expenses resulted
primarily from less amortization of previously deferred fuel costs than
the amount amortized in 1995.
Nine-month 1996 nonoperating income decreased because the deferral of
carrying charges related to the Rate Stabilization Program ended in
November 1995. The nine-month 1996 federal income tax credit for
nonoperating income increased accordingly.1997 will not affect its
financial condition.
THE TOLEDO EDISON COMPANY
INCOME STATEMENT
(Unaudited)
(Thousands)
Three Months Ended
Nine Months Ended
September 30, September 30,March 31,
---------------------
---------------------1997 1996 1995 1996 1995
-------- --------
-------- --------
OPERATING REVENUES (1) $ 252,198217,060 $ 245,830 $ 673,931 $ 667,257210,793
OPERATING EXPENSES
Fuel and Purchased Power 46,928 44,239 126,348 120,19643,314 38,768
Other Operation and Maintenance 59,287 60,881 174,050 169,55356,317 56,519
Generation Facilities Rental Expense, Net 25,961 25,981 77,884 77,90125,961
Depreciation and Amortization 23,556 21,130 69,661 63,11423,814 22,416
Taxes, Other Than Federal Income Taxes 23,503 23,555 70,928 71,45222,794 23,853
Amortization of Deferred Operating Expenses, Net 4,287 (5,543) 12,755 (15,856)4,291 4,175
Federal Income Taxes 17,011 16,730 27,110 33,404
-------- --------8,212 6,227
-------- --------
Total Operating Expenses 200,533 186,973 558,736 519,764
-------- --------184,703 177,919
-------- --------
OPERATING INCOME 51,665 58,857 115,195 147,49332,357 32,874
NONOPERATING INCOME (LOSS)
Allowance for Equity Funds Used During Construction 330 (169) 929 510332 413
Other Income and Deductions, Net 96 (2,905) (8,683) 223
Deferred Carrying Charges -- 3,813 -- 11,645(427) (9,153)
Federal Income Taxes - Credit (Expense) (92) 1,100 3,218 (182)
-------- --------(225) 3,195
-------- --------
Total Nonoperating Income (Loss) 334 1,839 (4,536) 12,196
-------- --------(320) (5,545)
-------- --------
INCOME BEFORE INTEREST CHARGES 51,999 60,696 110,659 159,68932,037 27,329
INTEREST CHARGES
Long-Term Debt 22,564 26,315 68,427 79,74622,111 23,159
Short-Term Debt 1,712 905 4,075 5,3701,190 1,218
Allowance for Borrowed Funds Used During Construction (260) 39 (731) (346)
-------- --------(104) (325)
-------- --------
Net Interest Charges 24,016 27,259 71,771 84,770
-------- --------23,197 24,052
-------- --------
NET INCOME 27,983 33,437 38,888 74,9198,840 3,277
Preferred Dividend Requirements 4,250 4,507 12,683 13,9864,194 4,204
-------- --------
-------- --------
EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK $ 23,7334,646 $ 28,930 $ 26,205 $ 60,933
======== ========(927)
======== ========
(1) Includes revenues from bulk power sales
to Cleveland Electric. $ 24,93328,920 $ 25,939 $ 77,513 $ 75,49626,672
The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY
BALANCE SHEET
(Thousands)
September 30,March 31, December 31,
1997 1996 1995
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 2,923,8302,932,203 $ 2,896,3202,928,657
Accumulated Depreciation and Amortization (1,005,926) (942,088)(1,045,988) (1,019,836)
----------- -----------
1,917,904 1,954,2321,886,215 1,908,821
Construction Work In Progress 23,073 27,78126,443 21,479
----------- -----------
1,940,977 1,982,0131,912,658 1,930,300
Nuclear Fuel, Net of Amortization 82,314 77,74167,361 76,118
Other Property, Less Accumulated Depreciation 8,283 19,5558,456 8,460
----------- -----------
2,031,574 2,079,3091,988,475 2,014,878
CURRENT ASSETS
Cash and Temporary Cash Investments 164,664 93,66963,416 81,454
Amounts Due from Customers and Others, Net 15,973 68,07715,948 16,308
Amounts Due from Affiliates 22,054 18,905
Unbilled Revenues 2,100 21,844130,574 95,336
Materials and Supplies, at Average Cost
33,286 39,967
Fossil Fuel Inventory, at Average Cost 11,036 9,273Owned 32,127 33,160
Under Consignment 10,994 10,383
Taxes Applicable to Succeeding Years 31,875 71,04459,766 68,352
Other 3,346 4,3153,628 3,479
----------- -----------
284,334 327,094316,453 308,472
REGULATORY AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income
Taxes, Net 416,034 416,351
Unamortized Loss from Beaver Valley Unit 2 Sale 92,837 96,206
Unamortized Loss on Reacquired Debt 25,047 27,640
Carrying Charges and Operating Expenses 398,200 409,659Regulatory Assets 921,175 927,629
Nuclear Plant Decommissioning Trusts 61,048 52,18569,818 64,093
Other 65,010 65,34539,483 42,408
----------- -----------
1,058,176 1,067,3861,030,476 1,034,130
----------- -----------
$ 3,374,0843,335,404 $ 3,473,7893,357,480
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 789,059807,883 $ 762,877803,237
Preferred Stock
With Mandatory Redemption Provisions 3,355 5,0203,355
Without Mandatory Redemption Provisions 210,000 210,000
Long-Term Debt 1,013,090 1,067,6031,003,055 1,003,026
----------- -----------
2,015,504 2,045,5002,024,293 2,019,618
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 70,549 58,29743,365 51,365
Current Portion of Lease Obligations 34,771 40,01935,105 36,244
Accounts Payable 58,971 56,23352,987 46,496
Accounts and Notes Payable to Affiliates 26,160 53,24525,454 30,016
Accrued Taxes 38,717 78,17856,203 72,829
Accrued Interest 25,884 24,25024,998 22,348
Other 16,039 18,60716,437 18,722
----------- -----------
271,091 328,829254,549 278,020
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 76,206 79,35074,434 75,417
Accumulated Deferred Federal Income Taxes 582,247 573,035565,331 565,600
Unamortized Gain from Bruce Mansfield Plant Sale 181,293 188,093176,760 179,027
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 39,715 53,78938,675 39,188
Nuclear Fuel Lease Obligations 56,758 51,69141,699 48,491
Retirement Benefits 102,508 103,060104,210 102,214
Other 48,762 50,44255,453 49,905
----------- -----------
1,087,489 1,099,4601,056,562 1,059,842
COMMITMENTS AND CONTINGENCIES (Note 8)7)
----------- -----------
$ 3,374,0843,335,404 $ 3,473,7893,357,480
=========== ===========
The accompanying notes as they relate to Toledo Edison are an integral part of this
statement.
THE TOLEDO EDISON COMPANY
CASH FLOWS
(Unaudited)
(Thousands)
NineThree Months Ended
September 30,
------------------------March 31,
----------------------
1997 1996
1995
----------- --------------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $38,888 $74,919$8,840 $3,277
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 69,661 63,11423,814 22,416
Deferred Federal Income Tax 9,863 16,244
Unbilled Revenues 844 2,000Taxes (269) 4,403
Deferred Fuel 7,532 (2,463)
Deferred Carrying Charges -- (11,645)2,567 623
Leased Nuclear Fuel Amortization 24,677 40,1319,442 9,349
Amortization of Deferred Operating Expenses, Net 12,755 (15,856)4,291 4,175
Allowance for Equity Funds Used During Construction (929) (510)(332) (413)
Changes in Amounts Due from Customers and Others, Net (12,597) (11,398)
Proceeds from Accounts Receivable Securitization 77,235 --360 3,784
Changes in Inventories 4,918 8,531Materials and Supplies 422 881
Changes in Accounts Payable 2,738 27,6456,491 32,445
Changes in Working Capital Affecting Operations (3,260) (2,014)(15,042) (12,698)
Other Noncash Items (8,812) 10,8004,540 (2,672)
-------- --------
Total Adjustments 184,625 124,57936,284 62,293
-------- --------
Net Cash from Operating Activities 223,513 199,49845,124 65,570
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable to Affiliates (20,950) -- First Mortgage Bond Issues -- 99,000(20,950)
Maturities, Redemptions and Sinking Funds (43,865) (199,183)(8,000) (28,750)
Nuclear Fuel Lease Obligations (29,430) (29,522)(8,617) (13,969)
Dividends Paid (12,702) (14,155)(4,193) (4,226)
Premiums, Discounts and Expenses (254) (5,311)-- (50)
-------- --------
Net Cash from Financing Activities (107,201) (149,171)(20,810) (67,945)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (32,704) (25,152)(10,149) (14,595)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (731) (346)(104) (325)
Loans to Affiliates (6,281)(32,582) --
Contributions to Nuclear Plant Decommissioning Trusts (7,800) (5,386)(2,459) --
Other Cash Received (Applied) 2,199 (5,421)2,942 3,451
-------- --------
Net Cash from Investing Activities (45,317) (36,305)(42,352) (11,469)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS 70,995 14,022(18,038) (13,844)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 81,454 93,669 87,800
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $164,664 $101,822$63,416 $79,825
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $66,000 $69,000$19,000 $21,000
Federal Income Taxes 10,400 17,5004,300 --
The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of the 1995
Form 10-K and in the First and Second Quarter 1996
Form 10-Qs.10-K. The information under "Capital Resources and Liquidity"
remains unchanged with the following exceptions:
AsDuring the first quarter of 1997, Toledo Edison redeemed notes as
discussed in Note 5, a special-purpose corporation completed
financing transactions in the 1996 third quarter and October 1996 to
replace expiring nuclear fuel financing arrangements.
In October 1996,4.
Toledo Edison completed the purchase and retirement of
$15is a party to a $125 million principal amountrevolving credit facility
which Centerior Energy renewed in May 1997 until May 7, 1998 as
discussed in Note 5. Centerior Energy plans to transfer any of its
7.25% interest rate first mortgage
bonds due in 1999 for $14.9 million. The securities are included in
current liabilities inborrowed funds under the September 30, 1996 balance sheet.
Additional first mortgage bonds may be issued by Toledo Edison under its
mortgage on the basis of property additions, cash or refundable first
mortgage bonds. If the applicable interest coverage test is met, Toledo
Edison may issue first mortgage bonds on the basis of property additions
and, under certain circumstances, refundable bonds. At September 30,
1996, Toledo Edison would have been permitted to issue approximately
$143 million of additional first mortgage bonds after giving effectfacility to the October 1996 first mortgage bond retirement discussed above.
Under its articles of incorporation, Toledo Edison cannot issue
preferred stock unless certain earnings coverage requirements are met.
Based on earnings for the 12 months ended September 30, 1996, Toledo
Edison could not issue additional preferred stock.Operating Companies.
Results of Operations
Factors contributing to the 2.6% and 1% increases3% increase in 19961997 first quarter operating
revenues from 1995 for the third quarter and nine months, respectively, are shown as follows:
Changes for Period Ended
September 30,from
First Quarter 1996
Three Nine
Factors Months MonthsOperating Revenues
(millions)
Base Rates $ 7.5 $ 6.83.4
Kilowatt-hour Sales Volume and Mix 1.9 0.42.4
Wholesale Revenues (1.9) (1.1)2.9
Fuel Cost Recovery Revenues 0.5 1.5(1.5)
Miscellaneous Revenues (1.6) (0.9)
Total $ 6.4 $ 6.76.3
The increase in thirdfirst quarter 1997 base rates revenues in 1996 resulted
primarily from the April 1996 rate order issued by the PUCO.
Renegotiated contracts for certain large industrial customers also
resulted in a decrease in base rates which partially offset the effect
of the general price increase.
For the nine-month period in 1996, the impact of the April 1996 price
increase was offset by a change in the implementation of summer prices.
As a result of this change, higher summer prices were in effect for
most customers from June through September 1996. Previously, higher
summer prices were in effect from May through September. Consequently,
base rates revenues for the May 1996 billing period were lower relative
to the May 1995 amount. Renegotiated contracts for certain large
industrial customers also resulted in a decrease in base rates which
partially offset the effect of the general price increase.
Percentage changes between 1997 and 1996 and 1995first quarter billed electric
kilowatt-hour sales are summarized as follows:
Changes for Period Ended
September 30, 1996
Three Nine
Customer Categories Months Months% Change
Residential (13.7)% (1.8)(3.1)%
Commercial (3.0) 2.12.9
Industrial 5.0 3.58.2
Other (12.0) (9.5)21.0
Total (4.9) (1.3)
Third8.1
First quarter 19961997 total kilowatt-hour sales decreased as less
residentialincreased because of
increases in industrial and commercial sales along with lessa 26% increase
in wholesale sales (included in the "Other" category), completely offset increased industrial
sales. Residential and commercial sales decreased because of the cooler
summer weather in the third quarter of 1996 versus the third quarter of 1995,
which reduced cooling-related demand. Weather-normalized commercial
sales increased 7.6% for the 1996 period. Weather-normalized commercial
sales growth in the 1996 period is attributable to a 1% increase in the
average number of customers and an increase in average customer usage of
about 6%. Industrial sales
increased on the strength ofgrowth reflected increased sales to large primary metals, automotive and
glass manufacturers.
Total kilowatt-hour sales for the nine-month period in 1996 decreased as
less residential and wholesale sales completely offset increased
commercial and industrial sales. Residential sales decreased because of
the cooler summer weather in the 1996 period. Colder winter and spring
weather in the first six months of 1996 had boosted residential and
commercial sales for the first half of 1996. Weather-normalized
residential and commercial sales increased 0.9% and 5.1%, respectively,
for the 1996 nine-month period. Weather-normalized commercial sales
growth in the 1996 period is attributable to a 1.6% increase in the
average number of customers and an increase in average customer usage of
about 3.5%. Industrial sales increased on the strength of increased
sales to petroleum refineries, large automotive manufacturers and the broad-based, smaller industrial customer
group. WholesaleIndustrial sales in 1996 were suppressed by soft market conditions and,
duringfor the first six months of 1996, limited power availability for bulk
power transactions1997 period included sales to the new
North Star BHP Steel facility. Commercial sales increased despite milder
weather because of nuclear generating plant refuelinga 3.3% increase in the number of commercial customers
and maintenance outages.greater economic activity. Residential sales declined because of
the milder weather. However, weather-normalized commercial and
residential sales increased 3.6% and 0.3%, respectively, for the 1997
period.
The increasesdecrease in 1996 fuel cost recovery revenues included in customer bills
resulted from increasesa 5% decrease in the weighted average of the fuel cost
recovery factors used in 1996the first quarter of 1997 to calculate these
revenues compared to those used in 1995. The
increases in the weighted averages of the fuel cost recovery factors for
1996 were about 1.5% and 2% for the thirdfirst quarter and nine months,
respectively.
Thirdaverage.
First quarter operating expenses in 19961997 increased 7.3%3.8% from the 19951996
amount. The cessation of the Rate Stabilization Program deferrals and
the commencement of their amortization in December 1995 resulted in the
decrease in deferred operating expenses. FuelHigher fuel and purchased power expenses resulted from
increased because of higher purchased power expense.requirements in the 1997 period. Depreciation
and amortization expenses increased primarily because of a net increase in
depreciation related to changes in
depreciation rates approved in the April 1996 PUCO rate order and the cessation of the accelerated amortization of
unrestricted investment tax credits under the Rate Stabilization Program,
which was reported in 1995 as a reduction of depreciation expense.
Other operation and maintenance expenses for the 1996 third quarter
included a $6.1 million charge for an ongoing inventory reduction
program. The ongoing streamlining of the supply chain process includes
a shift in management philosophy toward increased use of technology,
consolidated warehousing and just-in-time purchase and delivery. Other
operation and maintenance expenses for the 1995 third quarter had
included charges totaling $3.2 million for an inventory reduction and
the recognition of costs associated with preliminary engineering
studies. Other cost-control measures helped to reduce third quarter
1996 other operation and maintenance expenses below the third quarter
1995 level, exclusive of the charges discussed above.
Third quarter 1996 nonoperating income decreased primarily because the
deferral of carrying charges related to the Rate Stabilization Program
ended in November 1995.
Third quarter 1996 interest charges and preferred dividend requirements
decreased because of the redemption of securities and refinancing at
favorable terms.
Nine-month operating expenses in 1996 increased 7.5% from the 1995
amount. The cessation of the Rate Stabilization Program deferrals and
the commencement of their amortization in December 1995 resulted in the
decrease in deferred operating expenses. Depreciation and amortization
expenses increased for the same reasons cited for the third quarter 1996
increase in these expenses. Fuel and purchased power expenses increased
as higher purchased power expense was partially offset by lower fuel
expense. Other operation and maintenance expenses increased because of
increases in nuclear power production expenses (attributable to
refueling and maintenance outages, and the end of accelerated
amortization of certain excess interim spent nuclear fuel storage costs
under the Rate Stabilization Program), the third quarter 1996 inventory
reduction charge, and expenses related to improvements in customer
service and sales and marketing efforts.order. Federal
income taxes decreasedincreased as a result of lowerhigher pretax operating income.
A nine-monthTaxes, other than federal income taxes, decreased primarily because of
lower property and payroll tax accruals.
The first quarter 1997 total nonoperating loss was smaller than the
first quarter 1996 total nonoperating loss. The first quarter 1997
nonoperating loss resulted primarily from both Toledo Edison's share of
expenses related to the Ohio Edison-Centerior Energy merger and certain
costs associated with an accounts receivable securitization. The first
quarter 1996 nonoperating loss resulted primarily from the write-
downwrite-down of
two inactive production facilities as discussed in Note 7. The
deferral of carrying charges related to the Rate Stabilization Program
ended in November 1995. The nine-month 1996 federal income tax credit
for nonoperating income increased accordingly.
Nine-month 19966.
First quarter 1997 interest charges and preferred dividend requirements
decreased slightly because of the same reasons citedredemption of securities in 1996.
New Accounting Standard
In February 1997, the FASB issued a new statement of financial
accounting standards for the third quarter 1996
decreasedisclosure of information about capital
structure effective for year-end December 31, 1997 reporting. Toledo
Edison's adoption of the statement in these charges.1997 will not affect its financial
condition.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
1. Centerior Energy
a. A Special Meeting of Centerior Energy's common stock share
owners was held on March 27, 1997.
b. The only matter submitted to share owners at the Special
Meeting was for the approval and adoption of an Agreement
and Plan of Merger between Ohio Edison and Centerior Energy.
The vote on this issue was as follows:
Broker
For Against Abstain Non-Vote
112,633,407 2,219,786 935,047 Not Applicable
2. Centerior Energy
a. Centerior Energy's Annual Meeting of share owners was held on
May 8, 1997.
b. Proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities Exchange Act of 1934. There
was no solicitation in opposition to management's nominees for
directors as listed in the proxy statement dated April 3, 1997,
and all such nominees were elected.
c. Three matters were submitted to share owners for a vote at the
Annual Meeting.
Issue 1 was the election of 11 directors of Centerior Energy.
The vote on this issue was as follows:
Broker
Nominee For Withheld Non-Vote
R. P. Anderson 116,211,692 4,643,968 7,108,921
A. C. Bersticker 116,326,706 4,528,954 7,108,921
T. A. Commes 116,397,916 4,457,744 7,108,921
W. F. Conway 116,246,440 4,609,220 7,108,921
W. R. Embry 116,141,102 4,714,558 7,108,921
R. J. Farling 116,097,124 4,758,536 7,108,921
R. A. Miller 113,866,343 6,989,317 7,108,921
F. E. Mosier 116,226,823 4,628,837 7,108,921
Sr. M. M. Reinhard 116,098,360 4,757,301 7,108,921
R. C. Savage 116,274,966 4,580,694 7,108,921
W. J. Williams 116,236,011 4,619,649 7,108,921
Issue 2 was the ratification of the appointment by the Board of
Directors of Arthur Andersen LLP as the independent accountants
of Centerior Energy, Cleveland Electric and Toledo Edison for
1997.
The vote on this issue was as follows:
Broker
For Against Abstain Non-Vote
118,514,019 1,254,749 1,086,892 7,108,921
- 19 -
Issue 3 was a share owner proposal to eliminate all
discretionary voting when the individual share owner has not
actually voted by marking the proxy card. The vote on this
issue was as follows:
Broker
For Against Abstain Non-Vote
15,700,936 79,222,813 4,893,382 28,147,450
3. Cleveland Electric
a. In lieu of an Annual Meeting, Cleveland Electric's sole share
owner, Centerior Energy (the sole share owner of all 79,590,689
outstanding shares of Cleveland Electric common stock), elected
directors of Cleveland Electric through a Written Action of
Sole Share Owner on May 8, 1997.
b. The directors elected pursuant to the Written Action were:
Robert J. Farling
Murray R. Edelman
Fred J. Lange, Jr.
c. No other matters were addressed in the Written Action in lieu
of an Annual Meeting.
4. Toledo Edison
a. In lieu of an Annual Meeting, Toledo Edison's sole share owner,
Centerior Energy (the sole share owner of all 39,133,887
outstanding shares of Toledo Edison common stock), elected
directors of Toledo Edison through a Written Action of Sole
Share Owner on May 8, 1997.
b. The directors elected pursuant to the Written Action were:
Robert J. Farling
Murray R. Edelman
Fred J. Lange, Jr.
c. No other matters were addressed in the Written Action in lieu
of an Annual Meeting.
Item 5. Other Information
1. PUCO1996 Rate Order
For background relating to this topic see "Note 6 to the
Financial Statements (Unaudited) -- (6) Regulatory Matters" in the
First Quarter 1996 Form 10-Q and "Item 5. Other Information. 5.
PUCO1. Business-
Electric Rates-1996 Rate Order" in the Second Quarter Companies Annual Report on
Form 10-K for the year ended December 31, 1996 ("1996 Form 10-Q.10-K").
The City of Cleveland, the Office of the Ohio Consumers'Consumer's Counsel
("OCC"), the Ohio Council of Retail Merchants, the Empowerment
Center of Greater Cleveland, the City of Toledo, the Lucas County
Board of Commissioners and Congresswoman Marcy Kaptur have filed appeals
with the Ohio Supreme Court offrom the PUCO's April 11, 1996 rate
order for the Operating Companies. The Ohio Supreme Court granted
the Operating Companies have
filedCompanies' motions to dismiss the appeals filed by Congresswoman Kaptur
andof the
Lucas County Board of Commissioners because neither was a
party to the PUCO proceeding. The appellants filed their merit
briefs with the Ohio Supreme Courtand Congresswoman Marcy Kaptur
on November 20, 1996. On April 4, 1996,1997, the OCC filed a motion to
- 20 -
stay the appeal because of the Rate Stipulation agreed to by the
OCC regarding the FirstEnergy merger, and the Operating Companies
expect to file their reply briefs withfiled a memorandum in support of the Supreme Court by December 4, 1996.
2. PUCO Orderstay on Request by City of Clyde
For background relating to this topic, see "Item 5. Other Events.
2. PUCO Order on Request by City of Clyde" in the Companies'
combined Current Report on Form 8-K dated April 11, 1996; "Item 5.
Other Information. 6. PUCO Order on Request by City of Clyde"
in the Second Quarter 1996 Form 10-Q; and "Item 5. Other Events.
2. City of Clyde" in the Companies' combined Current Report on
Form 8-K dated August 21, 1996 ("8/21/96 Form 8-K").
On August 28, 1996, the14, 1997. The
Ohio Supreme Court granted OCC's motion to stay on April 21, 1997.
2. Joint Select Committee Hearings
Ohio's General Assembly has commissioned a WritJoint Committee to study
electric utility deregulation. The Joint Committee is conducting
hearings concerning various issues regarding electric utility
deregulation and plans to have a report completed by October 1997
to present to the full General Assembly for its consideration. The
Operating Companies and other interested parties will be providing
testimony on the issues as the hearings continue throughout the
summer.
3. Rachel Transmission Line
On March 24, 1997, the Ohio Power Siting Board ("OPSB") granted
Cleveland Electric a Certificate of Mandamus against the City of Clyde, Ohio, requiring the CityEnvironmental Compatibility and
Public Need ("Certificate") to allow buildings which existedconstruct its nine-mile "Rachel"
138,000-volt transmission line in the City priorGeauga County, Ohio. The
transmission line is necessary to its February
1995 Ordinance to receiveprovide high-quality and reliable
electric service from Toledo Edison or
fromto the City's electric company, atgeneral area, which has experienced above
average load growth over the optionlast several decades. On April 24,
1997, Citizens for a Better Way filed an Application for Rehearing
of the customer.
On November 5, 1996, voters inOPSB's decision; however, because the City of Clyde passed a
referendum rescindingApplication for
Rehearing was filed late, it is anticipated that the Ordinance.
3. Medical Center Co. -- FERC PetitionOPSB will not
entertain substantive modifications to the Certificate.
4. Chase Brass
For background relating to this topic, see "Item 1. Business--
Operations--Competitive Conditions--Cleveland Electric"Business-
Operations-Competitive Conditions-Toledo Edison" in the 1995 Form 10-K; "Item 5. Other Information. 8. Medical Center
Co.--FERC Petition" in the Second Quarter 1996 Form
10-Q;10-K.
Chase Brass & Copper Co., Inc. ("Chase Brass"), a former Toledo
Edison customer, and "Item 5. Other Events. 3. Medical Center"other surrounding businesses and residences in
Jefferson Township, Ohio, have sought incorporation as a
municipality to be named the 8/21/96 Form
8-K.
On July 31, 1996,Village of Holiday City. The Williams
County (Ohio) Board of Commissioners and the FERC ruled that Cleveland Electric is
obligated to provide transmission service to Cleveland Public
Power ("CPP"). This ruling enabled CPP to provide electric
service to Medical Center Co. beginning in August 1996. The FERC
concluded that such transmission service by Cleveland Electric to
CPP does not violate the Federal Power Act. The FERC also
dismissed Cleveland Electric's request for stranded cost recovery,
without prejudice to its refiling and demonstrating that such
request meets the criteria for seeking stranded cost recovery
under FERC Order 888. Cleveland Electric has sought rehearing of
the FERC ruling and has agreed to provide the requested
transmission service to CPP. On September 18, 1996, the FERC
granted rehearing for further consideration of the issues.
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4. City of Cleveland Lawsuit
For background relating to this topic, see "Item 5. Other
Information. 9. City of Cleveland Lawsuit" in the Second Quarter
1996 Form 10-Q.
On August 5, 1996, the City of Cleveland filed with theWilliams County Court
of Common Pleas of Cuyahoga County a complaint against Cleveland
Electric seekingissued an order requiring Cleveland Electricpermitting the area to remove
certain lamp posts, street lights and/or utility poles and
assessing penalties for failurebe
incorporated. Toledo Edison previously appealed the Court's order
to take such action. Cleveland
Electric has filedthe Sixth District Court of Appeals, but the Court of Appeals
ruled against Toledo Edison, finding a motion to dismiss the complaint for lack of jurisdiction, which motion is decisional.
5. Cost Reduction Efforts
For background relatingstanding. Toledo
Edison then appealed to this topic, see "Item 5. Other
Information. Cost Reduction Efforts"the Ohio Supreme Court. On April 23, 1997,
the Ohio Supreme Court denied Toledo Edison's appeal. Toledo
Edison does not plan to apply for reconsideration at the Court.
The new municipality can negotiate with other utilities for
electric power. The other businesses in the First Quarter 1996
Form 10-Q.
Onproposed municipality
previously terminated their service with Toledo Edison and are
receiving electric service from the Village of Montpelier, one of
the consortium now supplying Chase Brass.
5. Davis-Besse Plant Outage
The Davis-Besse Nuclear Power Station automatically shut down on
Sunday, May 13, 1996,4, 1997, when a fire suppression system on the
Companies announced their intention to reducestation's main transformer malfunctioned. Although there was no
fire, protective circuitry disconnected the numbertransformer from the
electrical system. Safety systems automatically take the plant
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offline under these conditions. Plant personnel are investigating
the cause of employees from 6,800 at January 1, 1996 to 6,300the malfunction. It is anticipated that the plant
will be back on line by December 31, 1996. At September 30, 1996, the Operating Companies
and Centerior Service Company had 6,279 employees, with further
reductions expected prior to year end. The Companies also are
decommissioning two older fossil-fueled generating unitsend of May, 1997. This is the first
unplanned shut down at the Acme Stationplant in Toledo and the C-Plant in Ashtabula and reducing
generating activities at three other plants. These steps are part
of an ongoing effort to reduce annual operating costs and are
expected to result in annualized savings of at least $30 million.years.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index following.
b. Reports on Form 8-K
During the quarter ended September 30, 1996,March 31, 1997, Centerior Energy,
Cleveland Electric and Toledo Edison each filed two Current Reports
on Form 8-K with the Securities and Exchange Commission.
A Form 8-K dated August 21, 1996January 28, 1997 and filed on September 13, 1996
included three items under "Item 5. Other Events". The first,
"Management Changes", reported on the election of Lew W. Myers as
Vice President - Nuclear--Perry. The second, "2. City of Clyde",
reported on the status of Toledo Edison's litigation with the City
of Clyde. The third, "3. Medical Center", reported on the status
of proceedings against Ohio Power Company.
A Form 8-K dated September 13, 1996 and filed on September 17,
1996that date included one
item under "Item 5. Other Events". That item, "Merger with Ohio Edison""Recent Financial
Results (Unaudited)", reported Centerior Energy's operating
revenues, net income and earnings per share for 1996.
A Form 8-K dated January 30, 1997 and filed on February 6, 1997
included one item under "Item 5. Other Events". That item, "Rate
Reduction and Economic Development Plan", discussed a rate
reduction plan approved by the PUCO for the Operating Companies
which would take effect upon the consummation of the merger agreement
betweenof
Centerior Energy andwith Ohio Edison.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized. The person signing this
report on behalf of each such registrant is also signing in his capacity
as each registrant's Chief Accounting Officer.
CENTERIOR ENERGY CORPORATION
(Registrant)
THE CLEVELAND ELECTRIC
ILLUMINATING COMPANY
(Registrant)
THE TOLEDO EDISON COMPANY
(Registrant)
By: E. LYLE PEPIN
E. Lyle Pepin, Controller and Chief
Accounting Officer of each
Registrant
Date: November 14, 1996May 15, 1997
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EXHIBIT INDEX
The following exhibits are submitted herewith:
CENTERIOR ENERGY EXHIBIT
Exhibit Number Description
27(a) Financial Data Schedule for the period
ended September 30, 1996.March 31, 1997.
CLEVELAND ELECTRIC EXHIBITS
Exhibit Number Description
27(b) Financial Data Schedule for the period
ended September 30, 1996.March 31, 1997.
TOLEDO EDISON EXHIBITS
Exhibit Number Description
27(c) Financial Data Schedule for the period
ended September 30, 1996.March 31, 1997.
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