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 June 30, 1996
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)
55 Public Square
Cleveland, Ohio 44113
Telephone (216) 622-9800
1-3583 THE TOLEDO EDISON COMPANY 34-4375005
(An Ohio Corporation)
300 Madison Avenue
Toledo, Ohio 43652
Telephone (419) 249-5000
Indicate by check mark whether each of the registrants (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrants were required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
On August 8, 1996, 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.
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 5
Balance Sheet 6
Cash Flows 7
Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
The Cleveland Electric Illuminating Company and Subsidiary
Income Statement 12
Balance Sheet 13
Cash Flows 14
Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
The Toledo Edison Company
Income Statement 18
Balance Sheet 19
Cash Flows 20
Management's Discussion and Analysis of Financial 21
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
Exhibit Index 29
-i-
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES,
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY,
AND THE TOLEDO EDISON COMPANY
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 June 30, 1996 and results of
operations and cash flows for the three months and six months ended June
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 8.
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 (1995 Form 10-K)
and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
(First 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. Centerior Funding was initially funded in May 1996.
As discussed in "Part II, Item 5. Other Information" in this Quarterly
Report on Form 10-Q, Centerior Energy announced in April 1996 that it had
entered into a partnership with an AT&T subsidiary related to wireless
communications. The total investment at June 30, 1996 approximated $17
million.
(2) Equity Distribution Restrictions
The Operating Companies can make cash available for the funding of
Centerior Energy's common stock dividends by paying dividends on their
respective common stock, which is held solely by Centerior Energy. Federal
law prohibits the Operating Companies from paying dividends out of capital
accounts. However, the Operating Companies may pay preferred and common
stock dividends out of appropriated retained earnings and current earnings.
At June 30, 1996, Cleveland Electric and Toledo Edison had $168.1 million
and $185.2 million, respectively, of appropriated retained earnings for the
payment of dividends. However, Toledo Edison is prohibited from paying a
common stock dividend by a provision in its mortgage that essentially
requires such dividends to be paid out of the total balance of retained
earnings, which currently is a deficit.
(3) Common Stock Dividends
Cash dividends per common share declared by Centerior Energy during the six
months ended June 30, 1996 and 1995 were as follows:
1996 1995
Paid February 15 $.20 $.20
Paid May 15 .20 .20
Paid August 15 .20 .20
Common stock cash dividends declared by Cleveland Electric during the six
months ended June 30, 1996 and 1995 were as follows:
1996 1995
(millions)
Paid in February $29.6 $ --
Paid in May 46.6 15.0
Toledo Edison did not declare any common stock dividends during the six
months ended June 30, 1996 and 1995.
(4) Financing Activity
During the three months ended June 30, 1996, the Operating Companies
redeemed or retired debt and preferred stock as follows:
Cleveland Electric
Mandatory redemptions consisted of $20 million principal amount of secured
medium-term notes; $3 million of Serial Preferred Stock, $88.00 Series E;
$10.7 million of Serial Preferred Stock, $91.50 Series Q; and $1.1 million
of bank loans secured by subordinated mortgage collateral and pollution
control notes.
Toledo Edison
Mandatory redemptions consisted of $12.5 million aggregate principal amount
of secured medium-term notes; $1.7 million of 9-3/8% Cumulative Preferred
Stock, $100 par value; and $1 million of bank loans secured by subordinated
mortgage collateral and pollution control notes.
(5) Asset-Backed Securitization Transactions
In May 1996, the Operating Companies began to sell on a daily basis
substantially all of their retail customer accounts receivable and unbilled
revenue receivables to Centerior Funding, a wholly owned subsidiary of
Cleveland Electric, pursuant to a five-year asset-backed securitization
agreement.
In consideration for the initial sale, the Operating Companies received
$97.4 million ($35.7 million for Cleveland Electric and $61.7 million for
Toledo Edison), $18 million of notes receivable ($7.6 million for Cleveland
Electric and $10.4 million for Toledo Edison) and a Cleveland Electric
equity contribution in Centerior Funding of $142.1 million. The cash
proceeds were used to retire maturing fixed obligations of the Operating
Companies and for general corporate purposes. The transactions between
each Operating Company and Centerior Funding were treated as sales for
financial reporting purposes.
Upon acquiring the Operating Companies' accounts receivable and unbilled
revenue receivables, Centerior Funding transferred the assets to a master
trust and subsequently raised $100 million through the issuance of
receivables-backed investor certificates representing an undivided interest
in the master trust receivables (certificates). The terms of the
transaction required Centerior Funding to record the proceeds received as
debt for financial reporting purposes. At June 30, 1996, the $100 million
obligation is recorded as a current liability in the Cleveland Electric and
Centerior Energy balance sheets.
In July 1996, Centerior Funding completed a public sale of $150 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 from the sale to retire the
$100 million of its certificates, 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.
(6) Capital Stock
In June 1996, Centerior Energy's Board of Directors increased its previous
authorization to purchase Centerior Energy common stock in the open market
from 1.5 million shares to 10% of the shares outstanding (about 14.8
million shares) and extended the buy-back period for one year through June
30, 1997. As of June 30, 1996, an aggregate of 225,500 shares had been
purchased under the July 1991 authorization. Such shares are being held as
treasury stock. No purchases have been made since August 1992.
In June 1996, Centerior Energy's Board of Directors also adopted a share
owner rights plan to protect the long-term value of share owner investment
and to encourage anyone seeking to acquire Centerior Energy to negotiate
with the Board prior to attempting a takeover. Under this plan, Centerior
Energy common stock share owners of record on July 8, 1996 were granted a
right to purchase one five-hundredth of a share of Centerior Energy
preferred stock for each share of common stock owned on that date.
Centerior Energy's Board of Directors will decide if the rights will be
exercisable in the event of an unsolicited takeover attempt that the Board
determines not to be in the best interest of Centerior Energy or its share
owners. For additional information, see "Item 5. Other Events. 1.
Shareholder Rights Plan." in the Companies' combined Current Report on Form
8-K dated June 25, 1996.
(7) Generating Plant Lease Agreement
Cleveland Electric has entered into an agreement with Jersey Central Power
& Light Company (Jersey Central) under which Jersey Central will lease
Cleveland Electric's ownership share (351,000 kilowatts) of the Seneca
Power Plant, a pumped-storage, hydro-electric generating station. The
lease, which is subject to regulatory approvals, has a June 1, 1996 to May
31, 2004 term. Total annual revenues are expected to be approximately $18
million initially with the rental rate subject to escalation provisions in
the agreement. The Federal Energy Regulatory Commission (FERC) issued an
order in August 1996 in which it concluded that the transaction should be
accounted for as a wholesale power sale rather than a lease. In its order,
the FERC also accepted the agreement for filing effective June 1, 1996 and
set the matter for hearing on August 15, 1996 to consider the rates to be
paid pursuant to the agreement.
(8) 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 are no longer
expected to provide revenues.
(9) Regulatory Matters
On April 11, 1996, The Public Utilities Commission of Ohio (PUCO) issued a
rate order granting the full price increase aggregating $119 million in
annualized revenues ($84 million for Cleveland Electric and $35 million for
Toledo Edison) requested in April 1995. The new prices were implemented
in late April 1996. The PUCO also approved changes in depreciation rates
for the Operating Companies. For a full discussion, see Note 6 to the
financial statements in the First Quarter 1996 Form 10-Q.
(10) 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 1995 Form 10-K and "Part II, Item 5. Other
Information" in this Quarterly Report on Form 10-Q and in the First Quarter
1996 Form 10-Q.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
INCOME STATEMENT
(Unaudited)
(Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------------
1996 1995 1996 1995
-------- -------- ----------- -----------
OPERATING REVENUES $ 608,966 $ 606,945 $ 1,214,221 $ 1,194,526
OPERATING EXPENSES
Fuel and Purchased Power 110,248 113,725 225,232 233,094
Other Operation and Maintenance 149,763 150,551 305,668 291,155
Generation Facilities Rental Expense, Net 39,853 39,851 79,706 79,703
Depreciation and Amortization 76,722 70,023 149,954 139,471
Taxes, Other Than Federal Income Taxes 83,411 82,424 167,363 164,380
Deferred Operating Expenses, Net 10,868 (14,706) 21,411 (30,770)
Federal Income Taxes 21,361 28,264 39,354 50,942
-------- -------- ----------- -----------
Total Operating Expenses 492,226 470,132 988,688 927,975
-------- -------- ----------- -----------
OPERATING INCOME 116,740 136,813 225,533 266,551
NONOPERATING INCOME (LOSS)
Allowance for Equity Funds Used During Construction 788 271 1,699 1,646
Other Income and Deductions, Net (539) 968 (6,999) 3,270
Deferred Carrying Charges -- 11,623 -- 23,195
Federal Income Taxes - Credit (Expense) 880 (997) 2,795 (2,797)
-------- -------- ----------- -----------
Total Nonoperating Income (Loss) 1,129 11,865 (2,505) 25,314
-------- -------- ----------- -----------
INCOME BEFORE INTEREST CHARGES 117,869 148,678 223,028 291,865
INTEREST CHARGES
Long-term Debt 83,331 87,657 166,649 174,735
Short-term Debt 2,322 2,589 4,198 5,571
Allowance for Borrowed Funds Used During Construction (774) (1,073) (1,617) (1,763)
-------- -------- ----------- -----------
Net Interest Charges 84,879 89,173 169,230 178,543
-------- -------- ----------- -----------
INCOME AFTER INTEREST CHARGES 32,990 59,505 53,798 113,322
Preferred Dividend Requirements of Subsidiaries 14,042 15,414 28,277 31,154
-------- -------- ----------- -----------
NET INCOME $ 18,948 $ 44,091 $ 25,521 $ 82,168
======== ======== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 148,027 148,032 148,027 148,032
======== ======== =========== ===========
EARNINGS PER COMMON SHARE $ .13 $ .30 $ .17 $ .56
======== ======== =========== ===========
<FN>
The accompanying notes as they relate to Centerior Energy are an integral part of this statement.
CENTERIOR ENERGY CORPORATION AND SUBSIDIARIES
BALANCE SHEET
(Thousands)
June 30, December 31,
1996 1995
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 9,837,652 $ 9,767,788
Accumulated Depreciation and Amortization (3,168,988) (3,036,181)
----------- -----------
6,668,664 6,731,607
Construction Work In Progress 86,639 101,031
----------- -----------
6,755,303 6,832,638
Nuclear Fuel, Net of Amortization 215,874 199,707
Other Property, Less Accumulated Depreciation 91,838 101,745
----------- -----------
7,063,015 7,134,090
CURRENT ASSETS
Cash and Temporary Cash Investments 136,439 179,038
Amounts Due from Customers and Others, Net 265,802 223,228
Unbilled Revenues 98,344 100,344
Materials and Supplies, at Average Cost 115,646 119,507
Fossil Fuel Inventory, at Average Cost 25,421 30,663
Taxes Applicable to Succeeding Years 183,288 255,142
Other 17,216 18,562
----------- -----------
842,156 926,484
REGULATORY AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income
Taxes, Net 1,058,570 1,067,374
Unamortized Loss from Beaver Valley Unit 2 Sale 93,960 96,206
Unamortized Loss on Reacquired Debt 85,422 88,893
Carrying Charges and Operating Expenses 1,033,789 1,053,220
Nuclear Plant Decommissioning Trusts 123,594 113,681
Other 161,964 163,156
----------- -----------
2,557,299 2,582,530
----------- -----------
$ 10,462,470 $ 10,643,104
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,920,184 $ 1,983,560
Preferred Stock
With Mandatory Redemption Provisions 190,267 220,440
Without Mandatory Redemption Provisions 450,871 450,871
Long-Term Debt 3,719,312 3,733,892
----------- -----------
6,280,634 6,388,763
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 185,023 234,771
Current Portion of Lease Obligations 81,889 94,653
Notes Payable to Banks and Others 100,000 --
Accounts Payable 154,199 152,909
Accrued Taxes 253,224 373,757
Accrued Interest 81,453 83,050
Dividends Declared 43,910 14,666
Other 65,839 73,328
----------- -----------
965,537 1,027,134
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 257,441 263,352
Accumulated Deferred Federal Income Taxes 1,903,339 1,875,080
Unamortized Gain from Bruce Mansfield Plant Sale 486,764 498,771
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 133,909 145,393
Nuclear Fuel Lease Obligations 149,414 137,260
Retirement Benefits 181,317 178,579
Other 104,115 128,772
----------- -----------
3,216,299 3,227,207
COMMITMENTS AND CONTINGENCIES (Note 10)
----------- -----------
$ 10,462,470 $ 10,643,104
=========== ===========
<FN>
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)
Six Months Ended
June 30,
-----------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $25,521 $82,168
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 149,954 139,471
Deferred Federal Income Tax 35,638 34,345
Unbilled Revenues 2,000 (7,000)
Deferred Fuel 1,591 15,687
Deferred Carrying Charges -- (23,195)
Leased Nuclear Fuel Amortization 35,798 60,005
Deferred Operating Expenses, Net 21,411 (30,770)
Allowance for Equity Funds Used During Construction (1,699) (1,646)
Changes in Amounts Due from Customers and Others, Net (42,574) 13,270
Changes in Inventories 9,103 (12,815)
Changes in Accounts Payable 1,290 (4,055)
Changes in Working Capital Affecting Operations (56,419) (69,801)
Other Noncash Items (25,643) (7,397)
-------- --------
Total Adjustments 130,450 106,099
-------- --------
Net Cash from Operating Activities 155,971 188,267
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Loans, Commercial Paper and Other Short-Term Debt 100,000 --
First Mortgage Bond Issues -- 398,900
Reacquired Common Stock (20) --
Maturities, Redemptions and Sinking Funds (94,479) (371,516)
Nuclear Fuel Lease Obligations (52,851) (39,893)
Common Stock Dividends Paid (59,211) (59,213)
Premiums, Discounts and Expenses (474) (13,456)
-------- --------
Net Cash from Financing Activities (107,035) (85,178)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (75,305) (82,767)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (1,617) (1,763)
Contributions to Nuclear Plant Decommissioning Trusts (5,897) (11,794)
Investment in Partnership (17,000) --
Other Cash Received (Applied) 8,284 (23,533)
-------- --------
Net Cash from Investing Activities (91,535) (119,857)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (42,599) (16,768)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 179,038 186,399
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $136,439 $169,631
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $165,000 $152,000
Federal Income Taxes 5,200 32,800
<FN>
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 Quarter 1996 Form 10-Q. The information under
"Capital Resources and Liquidity" remains unchanged with the following
exceptions:
During the second quarter of 1996, the Operating Companies redeemed or
retired various securities as discussed in Note 4. Also, in May and July
1996, the Operating Companies completed certain asset-backed securitization
transactions as discussed in Note 5.
Nuclear fuel is financed for 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 amount of intermediate-term secured notes maturing in the 1997
through 2000 period. The proceeds will be used to pay all or part of the
outstanding balance of the special-purpose corporation's commercial paper
borrowings and a portion of its previously issued intermediate-term secured
notes as they mature. The special-purpose corporation also plans to
complete new bank credit arrangements in the third quarter of 1996 to
replace $150 million of bank credit arrangements terminating in October
1996.
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 June 30, 1996, Cleveland Electric and Toledo Edison would have
been permitted to issue approximately $430 million and $171 million of
additional first mortgage bonds, respectively.
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 June 30, 1996, Toledo Edison could not
issue additional preferred stock. Toledo Edison will be unable to issue
preferred stock until it can meet the interest and preferred dividend
coverage test in its articles of incorporation.
Results of Operations
Factors contributing to the 0.3% and 1.6% increases in 1996 operating
revenues from 1995 for the second quarter and six months, respectively, are
shown as follows:
Changes for Period
Ended June 30, 1996
Three Six
Factors Months Months
(millions)
Kilowatt-hour Sales Volume and Mix $ 0.5 $15.5
Base Rates 11.6 11.2
Wholesale Revenues (3.2) 0.3
Fuel Cost Recovery Revenues (2.8) (8.7)
Miscellaneous Revenues (4.1) 1.4
Total $ 2.0 $19.7
Percentage changes between 1996 and 1995 billed electric kilowatt-hour
sales are summarized as follows:
Changes for Period
Ended June 30, 1996
Three Six
Customer Categories Months Months
Residential 2.9% 5.0%
Commercial 4.2 3.6
Industrial 1.0 0.3
Other (29.5) (15.3)
Total (1.3) 0.4
Second quarter 1996 total kilowatt-hour sales decreased because of 40% less
wholesale sales (included in the "Other" category). Residential and
commercial sales increased because of the cooler spring weather in the
second quarter of 1996 than in the second quarter of 1995, which increased
heating-related demand. Weather-normalized residential and commercial
sales increased 0.7% and 3.6%, respectively, for the 1996 period.
Weather-normalized commercial sales growth in the 1996 period is
attributable to a 1.4% increase in the number of commercial customers and
an increase in average customer usage of about 2%. Increased sales to
petroleum refineries and the broad-based, smaller industrial customer group
partially offset less sales to large steel industry customers.
Total kilowatt-hour sales increased for the six-month period in 1996 as
increases from weather-related demand were partially offset by a 20%
decline in wholesale sales. Residential and commercial sales increased
because of the colder winter and spring weather in the 1996 period.
Weather-normalized residential and commercial sales increased 1.4% and
2.6%, respectively, for the 1996 period. Weather-normalized commercial
sales growth in the 1996 period is attributable to a 1.8% increase in the
average number of commercial customers and an increase in average customer
usage of about 1%. Increased sales to petroleum refineries and the
broad-based, smaller industrial customer group were partially offset by
less sales to large automotive manufacturers and steel producers.
Wholesale sales in 1996 were suppressed by soft market conditions and
limited power availability for bulk power transactions because of nuclear
generating plant refueling and maintenance outages.
The increases in 1996 base rates revenues resulted primarily from the April
1996 PUCO rate order for the Operating Companies. See Note 9.
Renegotiated contracts for certain large industrial customers resulted in a
decrease in base rates which partially offset the effect of the general
price increase.
The decreases in 1996 fuel cost recovery revenues included in customer
bills resulted from changes in the fuel cost recovery factors used by the
Operating Companies to calculate these revenues. The weighted average of
the respective fuel cost recovery factors used for the second quarter of
1996 decreased about 5% for Cleveland Electric and increased about 3% for
Toledo Edison compared to the weighted average of the respective fuel cost
recovery factors used for the second quarter of 1995. The weighted average
of the respective fuel cost recovery factors used for the 1996 six-month
period decreased about 7% 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 six-month period.
Second quarter miscellaneous revenues in 1996 decreased from the 1995
amount primarily because of the retroactive effect of a reclassification of
certain revenues as credits to operating expenses.
Second quarter operating expenses in 1996 increased 4.7% 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 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. Federal income
taxes decreased as a result of lower pretax operating income. Fuel and
purchased power expenses decreased as lower fuel expense was partially
offset by higher purchased power expense.
Second quarter 1996 nonoperating income decreased primarily because the
deferral of carrying charges related to the Rate Stabilization Program
ended in November 1995. The second quarter 1996 federal income tax credit
for nonoperating income increased accordingly.
Second quarter 1996 interest charges and preferred dividend requirements
decreased because of the redemption of securities and refinancing at
favorable terms.
Second quarter net income and earnings per common share in 1996 decreased
$25.1 million and $.17, respectively, from the 1995 amounts primarily
because of the cessation of the Rate Stabilization Program deferrals and
accelerated amortizations, the commencement of the amortization of the
deferrals in December 1995 and the delay in realizing the full financial
benefits of the Companies' strategic plan initiatives. Recovery of both
the costs no longer being deferred and the amortization of the deferrals
began in late April 1996 with the implementation of the price increases.
Six-month operating expenses in 1996 increased 6.5% 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) 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 second 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 from
less amortization of previously deferred fuel costs than the amount
amortized in 1995.
A six-month 1996 nonoperating loss resulted primarily from the cessation of
carrying charge deferrals related to the Rate Stabilization Program in
November 1995 and Toledo Edison's write-down of two inactive production
facilities as discussed in Note 8. The six-month 1996 federal income tax
credit for nonoperating income increased accordingly.
Six-month 1996 interest charges and preferred dividend requirements
decreased because of the same reasons cited for the second quarter 1996
decrease in these charges.
Six-month net income and earnings per common share in 1996 decreased $56.6
million and $.39, respectively, from the 1995 amounts primarily because of
the cessation of the Rate Stabilization Program deferrals and accelerated
amortizations, the commencement of the amortization of the deferrals in
December 1995 and the delay in realizing the full financial benefits of the
Companies' strategic plan initiatives. Six-month 1996 earnings were also
negatively affected by Toledo Edison's write-down of two inactive
production facilities ($7.2 million after taxes and $.05 per share).
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY AND SUBSIDIARY
INCOME STATEMENT
(Unaudited)
(Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------------
1996 1995 1996 1995
-------- -------- ---------- ----------
OPERATING REVENUES $ 434,025 $ 424,362 $ 861,551 $ 834,745
OPERATING EXPENSES
Fuel and Purchased Power (1) 98,216 101,831 201,942 207,893
Other Operation and Maintenance 99,083 100,315 204,215 194,969
Generation Facilities Rental Expense, Net 13,891 13,891 27,783 27,783
Depreciation and Amortization 53,033 48,883 103,849 97,487
Taxes, Other Than Federal Income Taxes 59,750 58,559 119,760 116,247
Deferred Operating Expenses, Net 6,575 (9,564) 12,943 (20,457)
Federal Income Taxes 17,565 19,377 29,370 34,452
-------- -------- ---------- ----------
Total Operating Expenses 348,113 333,292 699,862 658,374
-------- -------- ---------- ----------
OPERATING INCOME 85,912 91,070 161,689 176,371
NONOPERATING INCOME
Allowance for Equity Funds Used During Construction 601 (122) 1,099 966
Other Income and Deductions, Net (1,016) 845 633 1,137
Deferred Carrying Charges -- 7,715 -- 15,363
Federal Income Taxes - Credit (Expense) 1,034 (408) 282 (903)
-------- -------- ---------- ----------
Total Nonoperating Income 619 8,030 2,014 16,563
-------- -------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 86,531 99,100 163,703 192,934
INTEREST CHARGES
Long-Term Debt 60,626 61,337 120,786 121,305
Short-Term Debt 1,372 1,143 2,064 1,794
Allowance for Borrowed Funds Used During Construction (627) (965) (1,146) (1,378)
-------- -------- ---------- ----------
Net Interest Charges 61,371 61,515 121,704 121,721
-------- -------- ---------- ----------
NET INCOME 25,160 37,585 41,999 71,213
Preferred Dividend Requirements 9,813 10,718 19,845 21,675
-------- -------- ---------- ----------
EARNINGS AVAILABLE FOR COMMON STOCK $ 15,347 $ 26,867 $ 22,154 $ 49,538
======== ======== ========== ==========
(1) Includes purchased power expense for
purchases from Toledo Edison. $ 25,908 $ 26,161 $ 52,580 $ 49,557
<FN>
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)
June 30, December 31,
1996 1995
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 6,917,410 $ 6,871,468
Accumulated Depreciation and Amortization (2,184,313) (2,094,092)
----------- -----------
4,733,097 4,777,376
Construction Work In Progress 66,907 73,250
----------- -----------
4,800,004 4,850,626
Nuclear Fuel, Net of Amortization 129,021 121,966
Other Property, Less Accumulated Depreciation 56,632 58,299
----------- -----------
4,985,657 5,030,891
CURRENT ASSETS
Cash and Temporary Cash Investments 41,165 69,770
Amounts Due from Customers and Others, Net 247,218 152,339
Amounts Due from Affiliates 3,040 4,729
Unbilled Revenues 91,544 78,500
Materials and Supplies, at Average Cost 76,347 79,540
Fossil Fuel Inventory, at Average Cost 17,169 21,391
Taxes Applicable to Succeeding Years 130,673 184,099
Other 7,707 7,197
----------- -----------
614,863 597,565
REGULATORY AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income
Taxes, Net 642,895 651,264
Unamortized Loss on Reacquired Debt 59,538 61,252
Carrying Charges and Operating Expenses 631,782 643,561
Nuclear Plant Decommissioning Trusts 66,904 61,497
Other 99,425 105,696
----------- -----------
1,500,544 1,523,270
----------- -----------
$ 7,101,064 $ 7,151,726
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 1,081,893 $ 1,126,762
Preferred Stock
With Mandatory Redemption Provisions 186,912 215,420
Without Mandatory Redemption Provisions 240,871 240,871
Long-Term Debt 2,659,850 2,665,981
----------- -----------
4,169,526 4,249,034
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 160,874 176,474
Current Portion of Lease Obligations 48,249 54,634
Notes Payable to Banks and Others 100,000 --
Accounts Payable 93,924 89,038
Accounts and Notes Payable to Affiliates 99,039 63,961
Accrued Taxes 220,593 296,141
Accrued Interest 58,236 58,608
Dividends Declared 6,092 15,818
Other 36,519 40,766
----------- -----------
823,526 795,440
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 180,059 184,002
Accumulated Deferred Federal Income Taxes 1,312,849 1,298,260
Unamortized Gain from Bruce Mansfield Plant Sale 303,204 310,678
Accumulated Deferred Rents for Bruce Mansfield Plant 95,192 91,604
Nuclear Fuel Lease Obligations 89,826 85,569
Retirement Benefits 69,065 65,424
Other 57,817 71,715
----------- -----------
2,108,012 2,107,252
COMMITMENTS AND CONTINGENCIES (Note 10)
----------- -----------
$ 7,101,064 $ 7,151,726
=========== ===========
<FN>
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)
Six Months Ended
June 30,
------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $41,999 $71,213
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 103,849 97,487
Deferred Federal Income Tax 22,905 24,004
Unbilled Revenues (6,000) (5,000)
Deferred Fuel (52) 15,393
Deferred Carrying Charges -- (15,363)
Leased Nuclear Fuel Amortization 20,338 33,987
Deferred Operating Expenses, Net 12,943 (20,457)
Allowance for Equity Funds Used During Construction (1,099) (966)
Changes in Amounts Due from Customers and Others, Net (29,708) 10,120
Changes in Inventories 7,415 (11,107)
Changes in Accounts Payable 4,886 1,697
Changes in Working Capital Affecting Operations (31,895) (64,495)
Other Noncash Items (12,856) (13,165)
-------- --------
Total Adjustments 90,726 52,135
-------- --------
Net Cash from Operating Activities 132,725 123,348
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Loans, Commercial Paper and Other Short-Term Debt 100,000 --
Notes Payable to Affiliates 41,411 (58,100)
First Mortgage Bond Issues -- 353,900
Maturities, Redemptions and Sinking Funds (50,614) (265,063)
Nuclear Fuel Lease Obligations (29,533) (23,092)
Dividends Paid (96,388) (36,967)
Premiums, Discounts and Expenses (249) (8,644)
-------- --------
Net Cash from Financing Activities (35,373) (37,966)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (51,455) (65,316)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (1,146) (1,378)
Contributions to Nuclear Plant Decommissioning Trusts (3,204) (6,408)
Purchases of Accounts Receivable from Affiliate (76,326) --
Other Cash Received (Applied) 6,174 (15,988)
-------- --------
Net Cash from Investing Activities (125,957) (89,090)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (28,605) (3,708)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 69,770 65,643
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $41,165 $61,935
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $119,000 $105,000
Federal Income Taxes (Refund) (6,200) 20,900
<FN>
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 Quarter 1996 Form 10-Q. The information under
"Capital Resources and Liquidity" remains unchanged with the following
exceptions:
During the second quarter of 1996, Cleveland Electric redeemed or retired
various securities as discussed in Note 4. Also, in May and July 1996, the
Operating Companies completed certain asset-backed securitization
transactions as discussed in Note 5.
Nuclear fuel is financed for 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 amount of intermediate-term secured notes maturing in the 1997
through 2000 period. The proceeds will be used to pay all or part of the
outstanding balance of the special-purpose corporation's commercial paper
borrowings and a portion of its previously issued intermediate-term secured
notes as they mature. The special-purpose corporation also plans to
complete new bank credit arrangements in the third quarter of 1996 to
replace $150 million of bank credit arrangements terminating in October
1996.
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 June 30, 1996,
Cleveland Electric would have been permitted to issue approximately
$430 million of additional first mortgage bonds.
Results of Operations
Factors contributing to the 2.3% and 3.2% increases in 1996 operating
revenues from 1995 for the second quarter and six months, respectively, are
shown as follows:
Changes for Period
Ended June 30, 1996
Three Six
Factors Months Months
(millions)
Base Rates $13.7 $15.3
Kilowatt-hour Sales Volume and Mix 2.0 13.7
Wholesale Revenues 1.2 4.8
Fuel Cost Recovery Revenues (3.7) (9.7)
Miscellaneous Revenues (3.5) 2.7
Total $ 9.7 $26.8
The increases in 1996 base rates revenues resulted primarily from the April
1996 PUCO rate order. See Note 9.
Percentage changes between 1996 and 1995 billed electric kilowatt-hour
sales are summarized as follows:
Changes for Period
Ended June 30, 1996
Three Six
Customer Categories Months Months
Residential 2.6% 4.8%
Commercial 3.9 3.1
Industrial (0.6) (1.0)
Other 9.1 4.4
Total 2.2 2.0
Second quarter 1996 total kilowatt-hour sales increased because of
increased residential and commercial sales and a 14% increase in wholesale
sales (included in the "Other" category). Residential and commercial sales
increased because of the cooler spring weather in the second quarter of
1996 than in the second quarter of 1995, which increased heating-related
demand. Weather-normalized residential and commercial sales increased 0.9%
and 3.4%, respectively, for the 1996 period. Weather-normalized commercial
sales growth in the 1996 period is attributable to a 1.4% increase in the
number of commercial customers and an increase in average customer usage of
about 2%. Industrial sales decreased slightly primarily because of less
sales to large steel industry customers.
Total kilowatt-hour sales increased for the six-month period in 1996
because of weather-related demand and an 8.2% increase in wholesale sales.
Residential and commercial sales increased because of the colder winter
and spring weather in the 1996 period. Weather-normalized residential and
commercial sales increased 1.4% and 2.2%, respectively, for the 1996
period. Weather-normalized commercial sales growth in the 1996 period is
attributable to a 1.7% increase in the average number of commercial
customers and an increase in average customer usage of about 0.5%.
Industrial sales decreased primarily because of less sales to large
automotive manufacturers and steel producers.
The decreases in 1996 fuel cost recovery revenues included in customer
bills resulted from decreases in the fuel cost recovery factors used in
1996 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 5% and 7% for the second quarter and six months,
respectively.
Second quarter miscellaneous revenues in 1996 decreased from the 1995
amount primarily because of the retroactive effect of a reclassification of
certain revenues as credits to operating expenses.
Second quarter operating expenses in 1996 increased 4.4% 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 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. Federal income
taxes decreased as a result of lower pretax operating income. Lower fuel
and purchased power expenses resulted from both lower fuel expense and
lower purchased power expense.
Second quarter 1996 nonoperating income decreased primarily because the
deferral of carrying charges related to the Rate Stabilization Program
ended in November 1995. The second quarter 1996 federal income tax credit
for nonoperating income increased accordingly.
Second quarter earnings available for common stock in 1996 decreased $11.5
million from the 1995 amount primarily because of the cessation of the Rate
Stabilization Program deferrals and accelerated amortizations, the
commencement of the amortization of the deferrals in December 1995 and the
delay in realizing the full financial benefits of the Companies' strategic
plan initiatives. Recovery of both the costs no longer being deferred and
the amortization of the deferrals began in late April 1996 with the
implementation of the price increases.
Six-month operating expenses in 1996 increased 6.3% 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) 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 second 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 from
less amortization of previously deferred fuel costs than the amount
amortized in 1995.
Six-month 1996 nonoperating income decreased because the deferral of
carrying charges related to the Rate Stabilization Program ended in
November 1995. The six-month 1996 federal income tax credit for
nonoperating income increased accordingly.
Six-month earnings available for common stock in 1996 decreased $27.4
million from the 1995 amount primarily because of the cessation of the Rate
Stabilization Program deferrals and accelerated amortizations, the
commencement of the amortization of the deferrals in December 1995 and the
delay in realizing the full financial benefits of the Companies' strategic
plan initiatives.
THE TOLEDO EDISON COMPANY
INCOME STATEMENT
(Unaudited)
(Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
OPERATING REVENUES (1) $ 210,940 $ 215,043 $ 421,733 $ 421,427
OPERATING EXPENSES
Fuel and Purchased Power 40,652 38,466 79,420 75,957
Other Operation and Maintenance 58,244 56,611 114,763 108,672
Generation Facilities Rental Expense, Net 25,962 25,960 51,923 51,920
Depreciation and Amortization 23,689 21,140 46,105 41,984
Taxes, Other Than Federal Income Taxes 23,572 23,748 47,425 47,897
Deferred Operating Expenses, Net 4,293 (5,142) 8,468 (10,313)
Federal Income Taxes 3,872 9,019 10,099 16,674
-------- -------- -------- --------
Total Operating Expenses 180,284 169,802 358,203 332,791
-------- -------- -------- --------
OPERATING INCOME 30,656 45,241 63,530 88,636
NONOPERATING INCOME (LOSS)
Allowance for Equity Funds Used During Construction 186 392 599 679
Other Income and Deductions, Net 374 1,110 (8,779) 3,128
Deferred Carrying Charges -- 3,908 -- 7,832
Federal Income Taxes - Credit (Expense) 115 (501) 3,310 (1,282)
-------- -------- -------- --------
Total Nonoperating Income (Loss) 675 4,909 (4,870) 10,357
-------- -------- -------- --------
INCOME BEFORE INTEREST CHARGES 31,331 50,150 58,660 98,993
INTEREST CHARGES
Long-Term Debt 22,704 26,321 45,863 53,431
Short-Term Debt 1,145 1,965 2,363 4,465
Allowance for Borrowed Funds Used During Construction (146) (108) (471) (385)
-------- -------- -------- --------
Net Interest Charges 23,703 28,178 47,755 57,511
-------- -------- -------- --------
NET INCOME 7,628 21,972 10,905 41,482
Preferred Dividend Requirements 4,229 4,696 8,433 9,479
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON STOCK $ 3,399 $ 17,276 $ 2,472 $ 32,003
======== ======== ======== ========
(1) Includes revenues from bulk power sales
to Cleveland Electric. $ 25,908 $ 26,161 $ 52,580 $ 49,557
<FN>
The accompanying notes as they relate to Toledo Edison are an integral part of this statement.
THE TOLEDO EDISON COMPANY
BALANCE SHEET
(Thousands)
June 30, December 31,
1996 1995
(Unaudited)
----------- -----------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility Plant In Service $ 2,920,241 $ 2,896,320
Accumulated Depreciation and Amortization (984,676) (942,088)
----------- -----------
1,935,565 1,954,232
Construction Work In Progress 19,732 27,781
----------- -----------
1,955,297 1,982,013
Nuclear Fuel, Net of Amortization 86,853 77,741
Other Property, Less Accumulated Depreciation 7,515 19,555
----------- -----------
2,049,665 2,079,309
CURRENT ASSETS
Cash and Temporary Cash Investments 52,272 93,669
Amounts Due from Customers and Others, Net 15,367 68,077
Amounts Due from Affiliates 63,036 18,905
Unbilled Revenues 6,800 21,844
Materials and Supplies, at Average Cost 39,299 39,967
Fossil Fuel Inventory, at Average Cost 8,252 9,273
Taxes Applicable to Succeeding Years 52,615 71,044
Other 3,206 4,315
----------- -----------
240,847 327,094
REGULATORY AND OTHER ASSETS
Amounts Due from Customers for Future Federal Income
Taxes, Net 415,916 416,351
Unamortized Loss from Beaver Valley Unit 2 Sale 93,960 96,206
Unamortized Loss on Reacquired Debt 25,883 27,640
Carrying Charges and Operating Expenses 402,007 409,659
Nuclear Plant Decommissioning Trusts 56,691 52,185
Other 58,761 65,345
----------- -----------
1,053,218 1,067,386
----------- -----------
$ 3,343,730 $ 3,473,789
=========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common Stock Equity $ 765,345 $ 762,877
Preferred Stock
With Mandatory Redemption Provisions 3,355 5,020
Without Mandatory Redemption Provisions 210,000 210,000
Long-Term Debt 1,059,461 1,067,603
----------- -----------
2,038,161 2,045,500
CURRENT LIABILITIES
Current Portion of Long-Term Debt and Preferred Stock 24,149 58,297
Current Portion of Lease Obligations 33,640 40,019
Accounts Payable 58,786 56,233
Accounts and Notes Payable to Affiliates 26,851 53,245
Accrued Taxes 34,491 78,178
Accrued Interest 23,105 24,250
Other 16,820 18,607
----------- -----------
217,842 328,829
DEFERRED CREDITS AND OTHER LIABILITIES
Unamortized Investment Tax Credits 77,382 79,350
Accumulated Deferred Federal Income Taxes 585,753 573,035
Unamortized Gain from Bruce Mansfield Plant Sale 183,560 188,093
Accumulated Deferred Rents for Bruce Mansfield Plant
and Beaver Valley Unit 2 38,717 53,789
Nuclear Fuel Lease Obligations 59,325 51,691
Retirement Benefits 102,671 103,060
Other 40,319 50,442
----------- -----------
1,087,727 1,099,460
COMMITMENTS AND CONTINGENCIES (Note 10)
----------- -----------
$ 3,343,730 $ 3,473,789
=========== ===========
<FN>
The accompanying notes as they relate to Toledo Edison are an integral part of this
statement.
THE TOLEDO EDISON COMPANY
CASH FLOWS
(Unaudited)
(Thousands)
Six Months Ended
June 30,
-----------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $10,905 $41,482
-------- --------
Adjustments to Reconcile Net Income
to Cash from Operating Activities:
Depreciation and Amortization 46,105 41,984
Deferred Federal Income Tax 13,368 10,603
Unbilled Revenues 8,000 (2,000)
Deferred Fuel 1,643 294
Deferred Carrying Charges -- (7,832)
Leased Nuclear Fuel Amortization 15,461 26,019
Deferred Operating Expenses, Net 8,468 (10,313)
Allowance for Equity Funds Used During Construction (599) (679)
Changes in Amounts Due from Customers and Others, Net (12,461) 3,364
Sales of Accounts Receivable to Affiliate 76,326 --
Changes in Inventories 1,689 (1,707)
Changes in Accounts Payable 2,553 (370)
Changes in Working Capital Affecting Operations (30,245) (13,159)
Other Noncash Items (12,787) 5,768
-------- --------
Total Adjustments 117,521 51,972
-------- --------
Net Cash from Operating Activities 128,426 93,454
CASH FLOWS FROM FINANCING ACTIVITIES
Notes Payable to Affiliates (20,950) --
First Mortgage Bond Issue -- 45,000
Maturities, Redemptions and Sinking Funds (43,865) (97,678)
Nuclear Fuel Lease Obligations (23,318) (16,801)
Dividends Paid (8,437) (9,544)
Premiums, Discounts and Expenses (225) (4,812)
-------- --------
Net Cash from Financing Activities (96,795) (83,835)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Applied to Construction (23,850) (17,451)
Interest Capitalized as Allowance for Borrowed Funds Used
During Construction (471) (385)
Loans to Affiliates (46,411) --
Contributions to Nuclear Plant Decommissioning Trusts (2,693) (5,386)
Other Cash Received (Applied) 397 (4,857)
-------- --------
Net Cash from Investing Activities (73,028) (28,079)
-------- --------
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (41,397) (18,460)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 93,669 87,800
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $52,272 $69,340
======== ========
Other Payment Information:
Interest (net of amounts capitalized) $46,000 $47,000
Federal Income Taxes 10,400 11,300
<FN>
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 Quarter 1996 Form 10-Q. The information under
"Capital Resources and Liquidity" remains unchanged with the following
exceptions:
During the second quarter of 1996, Toledo Edison redeemed or retired
various securities as discussed in Note 4. Also, in May and July 1996, the
Operating Companies completed certain asset-backed securitization
transactions as discussed in Note 5.
Nuclear fuel is financed for 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 amount of intermediate-term secured notes maturing in the 1997
through 2000 period. The proceeds will be used to pay all or part of the
outstanding balance of the special-purpose corporation's commercial paper
borrowings and a portion of its previously issued intermediate-term secured
notes as they mature. The special-purpose corporation also plans to
complete new bank credit arrangements in the third quarter of 1996 to
replace $150 million of bank credit arrangements terminating in October
1996.
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 June 30, 1996,
Toledo Edison would have been permitted to issue approximately $171 million
of additional first mortgage bonds.
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 June 30, 1996, Toledo Edison could not
issue additional preferred stock. Toledo Edison will be unable to issue
preferred stock until it can meet the interest and preferred dividend
coverage test in its articles of incorporation.
Results of Operations
Factors contributing to the 1.9% second quarter decrease and 0.1% six-month
increase in 1996 operating revenues from 1995 are shown as follows:
Changes for Period
Ended June 30, 1996
Three Six
Factors Months Months
(millions)
Base Rates $(2.1) $(4.1)
Kilowatt-hour Sales Volume and Mix (1.4) 1.9
Wholesale Revenues (2.3) 0.8
Fuel Cost Recovery Revenues 0.9 1.0
Miscellaneous Revenues 0.8 0.7
Total $(4.1) $ 0.3
The impact of the price increase authorized by the PUCO in April 1996, as
discussed in Note 9, was offset by a change in the implementation of summer
prices. As a result of this change, higher summer prices are now in effect
for most customers from June through September. 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 1996 and 1995 billed electric kilowatt-hour
sales are summarized as follows:
Changes for Period
Ended June 30, 1996
Three Six
Customer Categories Months Months
Residential 3.6% 5.4%
Commercial 5.0 5.2
Industrial 4.0 2.7
Other (11.3) (7.9)
Total (0.1) 0.7
Second quarter 1996 total kilowatt-hour sales decreased slightly as less
wholesale sales (included in the "Other" category) completely offset
increased residential, commercial and industrial sales. Residential and
commercial sales increased because of the cooler spring weather in the
second quarter of 1996 than in the second quarter of 1995, which increased
heating-related demand. Weather-normalized residential and commercial
sales increased 0.1% and 4.2%, respectively, for the 1996 period.
Weather-normalized commercial sales growth in the 1996 period is
attributable to a 1.6% increase in the number of commercial customers and
an increase in average customer usage of about 2.5%. Industrial sales
increased on the strength of increased sales to petroleum refineries and
the broad-based, smaller industrial customer group.
Total kilowatt-hour sales for the six-month period in 1996 increased as
increased residential, commercial and industrial sales completely offset
less wholesale sales. Residential and commercial sales increased because
of the colder winter and spring weather in the 1996 period.
Weather-normalized residential and commercial sales increased 1.3% and
3.8%, respectively, for the 1996 period. Weather-normalized commercial
sales growth in the 1996 period is attributable to a 2% increase in the
average number of commercial customers and an increase in average customer
usage of about 2%. Industrial sales increased on the strength of increased
sales to petroleum refineries and the broad-based, smaller industrial
customer group.
Wholesale sales in 1996 were suppressed by soft market conditions and
limited power availability for bulk power transactions because of nuclear
generating plant refueling and maintenance outages.
The increases in 1996 fuel cost recovery revenues included in customer
bills resulted from increases in the fuel cost recovery factors used in
1996 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 3% and 2% for the second quarter and six months,
respectively.
Second quarter operating expenses in 1996 increased 6.2% 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 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. Fuel and
purchased power expenses increased as higher purchased power expense was
partially offset by lower fuel expense. Federal income taxes decreased as
a result of lower pretax operating income.
Second quarter 1996 nonoperating income decreased primarily because the
deferral of carrying charges related to the Rate Stabilization Program
ended in November 1995.
Second quarter 1996 interest charges and preferred dividend requirements
decreased because of the redemption of securities and refinancing at
favorable terms.
Second quarter earnings available for common stock in 1996 decreased $13.9
million from the 1995 amount primarily because of the cessation of the Rate
Stabilization Program deferrals and accelerated amortizations, the
commencement of the amortization of the deferrals in December 1995 and the
delay in realizing the full financial benefits of the Companies' strategic
plan initiatives. Recovery of both the costs no longer being deferred and
the amortization of the deferrals began in late April 1996 with the
implementation of the price increases.
Six-month operating expenses in 1996 increased 7.6% 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) and expenses related to
distribution operations and improvements in customer service and sales and
marketing efforts. Fuel and purchased power expenses and depreciation and
amortization expenses increased for the same reasons cited for the second
quarter 1996 increases in these expenses. Federal income taxes decreased
as a result of lower pretax operating income.
A six-month 1996 nonoperating loss resulted primarily from the cessation of
carrying charge deferrals related to the Rate Stabilization Program in
November 1995 and the write-down of two inactive production facilities as
discussed in Note 8. The six-month 1996 federal income tax credit for
nonoperating income increased accordingly.
Six-month 1996 interest charges and preferred dividend requirements
decreased because of the same reasons cited for the second quarter 1996
decrease in these charges.
Six-month earnings available for common stock in 1996 decreased $29.5
million from the 1995 amount primarily because of the cessation of the Rate
Stabilization Program deferrals and accelerated amortizations, the
commencement of the amortization of the deferrals in December 1995, the
delay in realizing the full financial benefits of the Companies' strategic
plan initiatives and the write-down of two inactive production facilities.
PART II. OTHER INFORMATION
Item 5. Other Information
1. Retail Wheeling Bill
For background relating to this topic, see "Item 7. Management's
Financial Analysis--Outlook--Competition" in the 1995 Form 10-K and
"Item 5. Other Information. 1. Retail Wheeling Bill" in the First
Quarter 1996 Form 10-Q.
On March 21, 1996, House Bill 653 was introduced in the Ohio House of
Representatives by Representative Ronald Amstutz (R-Wooster) which,
if enacted, would provide for the deregulation of the electric
utility industry in Ohio. Hearings were held on H.B. 653 in the
House Public Utilities Committee in April and May 1996, but the
Companies do not expect the bill to pass during the legislative
session which runs through the end of the year.
2. FERC Open-Access Transmission
For background relating to this topic, see "Item 7. Management's
Financial Analysis--Outlook--Competition" in the 1995 Form 10-K.
On April 24, 1996, the Federal Energy Regulatory Commission ("FERC")
issued final order No. 888 which required that all public utilities
which own, control or operate transmission facilities file open-
access transmission tariffs on or before July 9, 1996. The Operating
Companies filed their open-access transmission tariff with the FERC
on July 9, 1996, and such tariff is in effect as of that date.
3. Transmission Alliance
The Operating Companies joined Ohio Edison Company of Akron, Ohio,
Virginia Electric and Power Company of Richmond, Virginia, and
Allegheny Power Service Corporation of Hagerstown, Maryland in an
alliance to understand better the available transmission capacities
of the participating utilities and to compensate the participating
utilities for the wholesale use of their facilities to transmit
power. The information obtained from this alliance will increase
transmission reliability for the utilities by improved scheduling and
coordination of bulk power transactions. The Operating Companies
intend to compare information obtained from this arrangement to
information obtained from the Midwest Independent System Operation,
which may be created after further negotiations among the Operating
Companies and other public utilities in the Midwestern United States.
The comparison will assist the Operating Companies in determining
which of the two arrangements will be most beneficial for a
successful transition to a more competitive marketplace.
4. AT&T Telecommunications Partnership
On April 17, 1996, a wholly owned subsidiary of Centerior Energy and
an AT&T Wireless Services subsidiary entered into a joint venture
aimed at bringing state-of-the-art wireless communications technology
to Northeast Ohio. The new venture, AT&T PCS Cleveland, LLC, is
structured as a limited liability company and is part of AT&T
Wireless Services, which successfully bid last year for personal
communications services ("PCS") licenses that, in conjunction with
its present cellular markets, will afford AT&T Wireless Services
coverage of 80% of the United States. One of the licenses awarded
was for Northeast Ohio. The limited liability company will operate a
PCS network which will provide wireless communications services to
Greater Cleveland and surrounding areas in Northeast Ohio, as well as
areas in Western Pennsylvania. The subsidiary of Centerior Energy
has a 25% interest in AT&T PCS Cleveland, LLC, and would be obligated
to invest no more than $60 million in the venture through April 2001.
Centerior Energy believes that the AT&T/Centerior Energy partnership
will allow the Operating Companies to provide enhancements in
electric service to their customers, improve data communications with
their power plants and better control the flow of electricity through
their power lines.
5. PUCO Rate Order
For background relating to this topic, see "Note 6 to the Financial
Statements (Unaudited)--(6) Regulatory Matters" in the First Quarter
1996 10-Q.
The City of Cleveland, the Office of the Ohio Consumers' Council,
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 of the PUCO's April 11, 1996 rate order. The
Operating Companies will oppose such appeals.
6. PUCO Order 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.
On August 12, 1996, the City of Clyde filed with the Ohio Supreme
Court an appeal of the PUCO's April 11, 1996 order.
7. Garfield Heights Appeal
For background relating to this topic, see "Item 1. Business--
Operations--Competitive Conditions--Cleveland Electric" in the 1995
Form 10-K.
On July 31, 1996, the Ohio Supreme Court issued its decision in the
City of Garfield Heights rate ordinance appeal. The Court determined
that the PUCO in its June 29, 1995 order did not abuse its discretion
by refusing to express an opinion on the non-rate aspects of the
City's ordinances and by refusing to assess the hearing expenses and
costs against the City.
8. Medical Center Co. -- FERC Petition
For background relating to this topic, see "Item 1. Business--
Operations--Competitive Conditions--Cleveland Electric" in the 1995
Form 10-K.
On July 31, 1996, the FERC ruled that Cleveland Electric is obligated
to provide transmission service to Cleveland Public Power ("CPP").
This will enable 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.
9. City of Cleveland Lawsuit
On August 5, 1996, the City of Cleveland filed with the Court of
Common Pleas of Cuyahoga County a complaint against Cleveland
Electric seeking an order requiring Cleveland Electric to remove
certain lamp posts, street lights, and/or utility poles and assessing
penalties for failure to take such action. Cleveland Electric plans
to oppose the complaint.
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 June 30, 1996, 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 April 11, 1996 and filed on April 29, 1996 included
two items under "Item 5. Other Events". The first, "1. 1995 Rate
Requests", reported on the rate order issued by the PUCO in connection
with the Operating Companies' pending rate cases. The second, "2.
PUCO Order on Request by the City of Clyde", reported on the PUCO's
denial of a request by the City of Clyde, Ohio, to require Toledo
Edison to abandon service within Clyde.
A Form 8-K dated June 25, 1996 and filed on August 1, 1996 included
three items under "Item 5. Other Events". The first, "1. Shareholder
Rights Plan", reported on the declaration by Centerior Energy's Board
of Directors ("Board") of a Rights dividend distribution and the
corresponding Shareholder Rights Agreement. The second, "2. Common
Stock Buy-back Program", reported on the Board's one-year extension of
Centerior Energy's existing common stock buy-back program. The third,
"3. Management Changes", reported two vice presidential changes in the
Service Company. This Form 8-K also included, under "Item 7.
Financial Statements and Exhibits", Exhibit 4 Rights Agreement, dated
June 25, 1996.
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: August 14, 1996
EXHIBIT INDEX
The following exhibits are submitted herewith:
CENTERIOR ENERGY EXHIBIT
Exhibit Number Description
27(a) Financial Data Schedule for the period ended
June 30, 1996.
CLEVELAND ELECTRIC EXHIBITS
Exhibit Number Description
27(b) Financial Data Schedule for the period ended
June 30, 1996.
TOLEDO EDISON EXHIBITS
Exhibit Number Description
27(c) Financial Data Schedule for the period ended
June 30, 1996.