<PAGE> 1
Exhibit D-3
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
JOINT APPLICATION FOR APPROVAL :
OF THE MERGER OF GPU, INC. WITH : APPLICATION DOCKET NO. A-_________
FIRSTENERGY CORP. :
JOINT APPLICATION
----------------------------
W. Edwin Ogden
Alan Michael Seltzer
RYAN, RUSSELL, OGDEN & SELTZER LLP
Suite 301
1100 Berkshire Boulevard
Reading, Pennsylvania 19610
(610) 372-4761
Dated: November 9, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
A. INTRODUCTION......................................................... 1
B. REQUESTED COMMISSION APPROVALS...................................... 3
C. DESCRIPTION OF THE PLANNED MERGER................................... 6
D. BENEFITS OF THE MERGER.............................................. 7
1. CUSTOMER SERVICE........................................ 9
2. ENHANCED EFFICIENCIES.................................. 11
3. CONTINUED STRONG LEADERSHIP IN
LOCAL COMMUNITIES..................................... 13
E. IMPACT ON COMPETITION............................................... 13
F. SUPPORTING TESTIMONY................................................ 14
G. ADDITIONAL SUPPORTING DATA.......................................... 15
H. OTHER REQUIRED APPROVALS............................................ 16
I. PROPOSED PROCEDURAL SCHEDULE........................................ 16
J. CONCLUSION.......................................................... 17
APPENDICES
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Exhibit A: Pennsylvania territories and retail customers served by GPU Energy
Exhibit B: Corporate History of GPU and its public utility subsidiaries
Exhibit C: Corporate History of FirstEnergy and its public utility subsidiaries
Exhibit D: Agreement and Plan of Merger
Exhibit E: S-4 Registration Statement
Exhibit F: Certified Copies of Boards of Directors Minutes Authorizing Merger
</TABLE>
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BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
JOINT APPLICATION FOR APPROVAL :
OF THE MERGER OF GPU, INC. WITH : APPLICATION DOCKET NO. A-_________
FIRSTENERGY CORP. :
JOINT APPLICATION
----------------------------
Metropolitan Edison Company ("Met-Ed") and Pennsylvania
Electric Company ("Penelec"), along with GPU, Inc. ("GPU") and FirstEnergy Corp.
("FirstEnergy"), hereby respectfully apply for Pennsylvania Public Utility
Commission ("Commission") approval, and the issuance of any and all
authorizations required under the Pennsylvania Public Utility Code ("Code"), to
effectuate the merger of GPU with and into FirstEnergy.
A. INTRODUCTION
1. Met-Ed and Penelec are electric public utilities,
incorporated under the laws of Pennsylvania, with headquarters at 2800
Pottsville Pike, Reading, Pennsylvania 19640-0001. Met-Ed and Penelec conduct
business in Pennsylvania collectively as "GPU Energy" and serve approximately
one million customers in territories encompassing over 20,000 square miles in
northern, central and eastern Pennsylvania. Attached hereto and made a part
hereof as Exhibit "A" is a summary tabulation of the Pennsylvania service
territories and retail customers of GPU Energy.
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2. GPU is a public utility holding company, duly registered
under the Public Utility Holding Company Act of 1935, with headquarters at 300
Madison Avenue, Morristown, New Jersey 07962-1957. GPU owns all of the common
stock of Met-Ed and Penelec, as well as of Jersey Central Power & Light Company,
an electric public utility that conducts business as "GPU Energy" in New Jersey.
The GPU Energy utilities together serve about 2.1 million customers in
Pennsylvania and New Jersey. A corporate history of GPU and its Pennsylvania
public utility subsidiaries is attached hereto and made part hereof, as Exhibit
"B".
3. FirstEnergy is a diversified energy services holding
company, headquartered at 76 South Main Street, Akron, Ohio 44308. FirstEnergy
was formed in 1997 as a result of the merger of Ohio Edison Company and
Centerior Energy Corporation. FirstEnergy directly owns three electric utility
operating companies in Ohio, namely, Ohio Edison Company, The Cleveland Electric
Illuminating Company and The Toledo Edison Company; and, Ohio Edison Company
owns Pennsylvania Power Company ("Penn Power"), operating in portions of western
Pennsylvania. Together these utilities serve 2.2 million customers in a 13,200
square mile area in northern and central Ohio and western Pennsylvania. A
corporate history of FirstEnergy and its public utility subsidiaries is attached
hereto and made part hereof, as Exhibit "C".
4. Met-Ed, Penelec, GPU and FirstEnergy are collectively
referred to herein as the merger "Applicants". The names and addresses of the
Applicants' attorneys are:
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W. Edwin Ogden
Alan Michael Seltzer
Ryan, Russell, Ogden & Seltzer LLP
Suite 301
1100 Berkshire Boulevard
Reading, PA 19610
(610) 372-4761
[email protected]
[email protected]
Copies of all communications pertaining to this Joint Application should also be
served upon the following individuals:
Stephen L. Feld, Esquire
FirstEnergy Corp.
76 South Main Street
Akron, Ohio 44308
Michael J. Connolly, Esquire
GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
B. REQUESTED COMMISSION APPROVALS
5. Section 1102(a)(3) of the Code requires the Commission to
issue a certificate of public convenience, upon application, to authorize a
"public utility or an affiliated interest of a public utility", to "acquire
from, or transfer to [any other entity by any means whatsoever] the title to, or
the possession or use of, any tangible or intangible property used or useful in
the public service." See 66 Pa. C. S. Section 1102(a)(3).
6. Met-Ed and Penelec are Pennsylvania "public utility"
Applicants for purposes of Code Section 1102 (a)(3). See also 66 Pa. C. S.
Section 102. GPU (as Met-Ed's and Penelec's parent holding company) and
FirstEnergy (as Penn Power's ultimate parent holding company) are Applicants
solely in their respective capacities as
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Pennsylvania "public utility" affiliates, for the purpose of compliance with
Code Section 1102(a)(3), and to the limited extent to which the Code is
otherwise applicable to such affiliates.
7. The planned merger of GPU with and into FirstEnergy will
result in a "new controlling interest" as that term is used in the Commission's
Statement of Policy at 52 Pa. Code Section 69.901, which provides that such a
merger, even though at a parent company level, should be viewed as constituting
a transfer of utility property requiring Commission approval under Code Section
1102(a)(3). The relevant portion of this Statement of Policy is set forth below:
(b) Policy.
(1) A transaction or series of transactions resulting in a
new controlling interest is jurisdictional when the
transaction or transactions result in a different entity
becoming the beneficial holder of the largest voting interest
in the utility or parent, regardless of the tier. A
transaction or series of transactions resulting in the
elimination of a controlling interest is jurisdictional when
the transaction or transactions result in the dissipation of
the largest voting interest in the utility or parent,
regardless of the tier.
(2) For purposes of this section, a controlling interest is
an interest, held by a person or a group acting in concert,
which enables the beneficial holders to control at least 20%
of the voting interest in the utility or its parent,
regardless of the remoteness of the transaction. In
determining whether a controlling interest is present, voting
power arising from a contingent right shall be disregarded.
***
8. Thus, to comply with this Statement of Policy, the
Applicants hereby request Code Section 1102(a)(3) approval from the Commission,
evidenced by the issuance of certificates of public convenience authorizing each
of the Applicants to
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complete the planned merger. Such approval is appropriately granted based upon
the Commission's finding that the merger is "necessary or proper for the
service, accommodation, convenience, or safety of the public." (66 Pa. C. S.
Section 1103). For the reasons set forth in and supported by this Joint
Application, the Applicants submit that from several distinct perspectives the
planned merger of GPU with and into FirstEnergy meets the legal requirements for
approval and will promote the public interest.
9. The Commission's consideration of the planned merger is
also required under Section 2811(e)(1) of the Code, 66 Pa. C. S. Section
2811(e)(1), which provides that in "the exercise of authority the commission
otherwise may have to approve the mergers or consolidations by electric
utilities or electricity suppliers, or the acquisition or disposition of assets
or securities of other public utilities or electricity suppliers, the commission
shall consider whether the proposed merger, consolidation, acquisition, or
disposition is likely to result in anticompetitive or discriminatory conduct,
including the unlawful exercise of market power, which will prevent retail
electricity customers in this Commonwealth from obtaining the benefits of a
properly functioning and workable competitive retail electricity market." The
Applicants have provided affirmative support as part of this Joint Application,
through the written direct testimony of Rodney Frame of Analysis
Group/Economics, to assure the Commission that no such adverse consequences will
result from the Applicants' planned merger.
10. Inasmuch as the merger is at a parent company level, no
immediate changes are contemplated with respect to any agreements among Met-Ed,
Penelec and their affiliates which the Commission has previously approved
pursuant to Section 2102
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of the Code, 66 Pa. C. S. Section 2102. The Applicants hereby formally
acknowledge their continuing obligation to make appropriate Code Section 2102
filings if, following approval and implementation of the merger, changes to the
existing and approved GPU Energy affiliated interest arrangements become
necessary or appropriate.
C. DESCRIPTION OF THE PROPOSED MERGER
11. Under the planned merger, FirstEnergy will acquire all of
GPU's outstanding shares of common stock and assume GPU's outstanding
indebtedness, and GPU will be merged with and into FirstEnergy. FirstEnergy will
become a registered holding company under the Public Utility Holding Company Act
of 1935. Thus, following completion of the merger, FirstEnergy will be subject
to all of the same requirements to which GPU has been subject under that Act,
and with which the Commission is well acquainted.
12. Following completion of the merger, Met-Ed and Penelec
will be wholly-owned public utility company subsidiaries of FirstEnergy.
13. Attached hereto and made part hereof as Exhibit "D" is a
true and correct copy of the Agreement and Plan of Merger, which provides
further details of the specific arrangements between GPU and FirstEnergy. Such
specifics are at a parent holding company level, and do not directly change the
operations of Met-Ed or Penelec. Under the post-merger organizational structure,
the new parent holding company (FirstEnergy) will replace the former parent
holding company (GPU).
14. Upon consummation of the merger, Met-Ed and Penelec will
continue to operate as Pennsylvania electric public utilities subject, as they
always have been, to the continuing jurisdiction of the Commission. Thus, the
merger will not
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adversely impact any of the day-to-day operations of the GPU Energy utilities.
Indeed, as set forth in more detail below, the merger will enhance the
capabilities of Met-Ed and Penelec to fulfill their obligations to provide safe,
adequate and reliable service to their retail customers in Pennsylvania.
D. BENEFITS OF THE MERGER
15. As of the date of this Joint Application, the combination
of FirstEnergy and GPU will create the nation's sixth largest investor-owned
electric system based on the number of customers. The merger combines companies
with the management, employee experience, and technical expertise, retail
customer base, energy and related services platform and financial resources to
grow and succeed in the rapidly changing energy marketplace.
16. An inevitable consequence of the evolving competitive
electricity generation market is that successful industry participants must be
able to seek and create economies of scale, reduce duplicative activities and
practices, and further enhance operating efficiencies. By combining their
resources, years of utility experience and considerable expertise, GPU and
FirstEnergy will significantly enhance GPU Energy's capabilities. The merger
will create a larger, stronger parent company that is better positioned to
compete and to attract capital on reasonable terms for its public utility
subsidiaries. The combined customer base of FirstEnergy and GPU, comprised of
over four million individuals, businesses and industries, will greatly enhance
the capability of the merged parent company to invest in new facilities and
emerging technologies which could be cost prohibitive for a smaller company. The
Applicants expect that the new
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merged company will be able to provide customers with a wider range of energy
services and products than either company could alone achieve.
17. The proposed merger is a natural alliance of companies
with adjoining service territories and interconnected transmission systems. Even
more important than their geographic proximity, FirstEnergy and GPU share
similar core values that emphasize attracting and retaining employees with
superior skills, knowledge, experience, motivation and dedication; a commitment
to customer service-oriented goals; and, the vision to become a premier service
provider.
18. FirstEnergy and GPU have very similar views concerning the
appropriate organizational structure and customer focus needed to succeed in
today's energy delivery business. FirstEnergy's operating utilities are
organized in such a manner as to delegate significant responsibility and
authority to regional management. Similarly, the GPU Energy companies are
completing efforts they began several months ago to reorganize themselves in a
functional way that will put authority and accountability as close as possible
to the customers and communities they serve. This shared organizational and
operating philosophy, and the related customer-focused culture that the
companies share, is important to their successful completion of post-merger
integration activities. In addition, FirstEnergy and GPU have a solid track
record of attracting, recruiting and retaining a thoroughly qualified, skilled,
motivated and dedicated workforce. Sharing such strong commitments to customers,
to employees and to local communities are key attributes to developing and
maintaining premier energy delivery services.
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19. FirstEnergy anticipates that the merger also will result
in overall aggregate cost saving opportunities. FirstEnergy has estimated total
annual savings of $150 million for the combined company. This amount is based
upon an assumed five percent (5%) reduction in operating and maintenance costs
that has been typical of other mergers, and not on a detailed evaluation of
savings. These savings would be attributed to each particular FirstEnergy
entity, as appropriate.
20. It is important to emphasize, however, that such potential
for some measure of cost savings is not the primary factor justifying the
merger. The Applicants' primary motivation is their belief that this merger
offers significant strategic advantages that will be of substantial value to
Pennsylvania's future economic growth. Although the integration process
following the merger will be complex and time-consuming, the Applicants believe
that their shared values, goals and commitment to success will help to minimize
the challenges that are an inevitable part of any merger process.
1. CUSTOMER SERVICE
21. The proposed merger will have no adverse impact on GPU
Energy's continued ability to provide safe and adequate utility service to its
customers in Pennsylvania, nor will it in any way affect the Commission's
jurisdiction over the adequacy and reliability of customer service. To the
contrary, the pooling of "best practices" knowledge by the Applicants will
benefit utility operations and customer service at all levels. As part of the
merger integration process, the GPU Energy companies will review their existing
procedures and determine how to combine their own "best practices" with those
utilized by the FirstEnergy utilities. The management structure of GPU Energy,
particularly as it is being reorganized to enhance its local
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regional focus on customer service, will ensure a high level of management
attention on distribution system reliability. In addition, FirstEnergy has
demonstrated a commitment to customer service and reliability. Combining
FirstEnergy and GPU "best practices" in the area of customer service will
further enhance the separate efforts undertaken to date to achieve a greater
degree of reliability and service to individual customer needs.
22. The present rules, regulations, terms and conditions of
service that are in effect for Met-Ed and Penelec customers will not change as a
result of Commission approval of this Joint Application and the completion of
the merger. GPU Energy will continue to be fully subject to and accountable for
the safeguards and standards promulgated by the Commission to foster safe,
adequate and reliable service.
23. GPU Energy's customer service rates likewise will continue
to be subject to full Commission jurisdiction, and will not be adversely
impacted as a result of the merger. GPU Energy retail rates currently are
subject to rate caps that were set as part of GPU Energy's approved
restructuring plan. These existing rates cannot be changed without further
authorization from the Commission. The proposed merger will have no adverse
impact on Met-Ed's and Penelec's rates charged to their Pennsylvania customers.
No merger-related costs in excess of merger related savings (that is,
transaction costs, severance payments, etc.) will become part of GPU Energy's
cost of service for ratemaking purposes.
24. Access to FirstEnergy's additional resources and expertise
in providing cost-effective supply options in competitive markets will further
complement efforts to accommodate customers who rely upon Met-Ed and Penelec for
their supply of electricity.
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25. As stated previously, FirstEnergy and GPU share a strong
commitment to enhancing customer service. The merger will facilitate and build
upon these areas of expertise and common experience, and make additional,
experienced resources available when needed to meet emergencies, storm outages
or other similar circumstances.
26. One of the challenges confronting the electric industry is
the training of new talent to replace a growing number of experienced line crew
members who are reaching retirement age. Among the "best practices" employed by
FirstEnergy is a working partnership with local community colleges to offer
interested and qualified individuals the opportunity to learn new skills through
a new two year electric utility technology degree, with an emphasis on electric
line maintenance. Following consummation of the merger, a concerted effort will
be made to bring this type of educational opportunity to the communities served
by GPU Energy.
2. ENHANCED EFFICIENCIES
27. The Applicants are confident that the planned merger will
create new opportunities for enhanced business and utility operations
efficiencies. The merger will permit the Applicants to eliminate certain
duplicative activities and allow for more efficient use of their combined
staffing, particularly at the corporate and administrative levels. It is also
expected that reduced expenses will result from the merger in areas such as
insurance, facilities and professional services.
28. Implementation of the merger will build upon the efforts
already undertaken and achieved in recent years at GPU Energy to restructure and
streamline its workforce, and to ensure a strong local presence in each of its
operating regions in
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Pennsylvania. As previously stated, both FirstEnergy and GPU share several
fundamental principles in operating their utility businesses in a cost-effective
and efficient manner. They each have a management philosophy that places
authority and accountability at the local level, within each region of the
utility's customer base. Authority and responsibility for insuring system
performance within each region rests with its local hands-on leadership team and
their compensation is tied closely to meeting key performance goals within the
regions. Among these responsibilities are active participation in numerous
worthwhile local community activities and in city, township and other key
municipal and community meetings, to insure that these key stakeholders are
properly supported.
29. The merger will offer expanded opportunities to GPU Energy
employees for career advancement and professional growth. All existing
contracts, agreements, collective bargaining agreements and commitments which
apply to any current or former GPU Energy employees, and were entered into prior
to the merger agreement (or are otherwise provided for in the agreement), will
be honored and in no way affected by the merger. In addition, FirstEnergy has
agreed that it will consider GPU employees for positions with the combined
company using criteria including previous work history, job experience and other
qualifications. As a further indication of a strong commitment to GPU Energy,
the merger transition team includes several GPU representatives, including GPU's
current Chairman, President and Chief Executive Officer who will serve as
FirstEnergy's Chairman until his retirement.
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3. CONTINUED STRONG LEADERSHIP IN LOCAL COMMUNITIES
30. Neither Met-Ed nor Penelec are being restructured as a
result of the proposed merger. Both companies will continue to provide service
within their present service territories. As further evidence of a continuing
commitment to the local communities served by GPU Energy, for a minimum of three
years FirstEnergy will maintain the levels of existing charitable commitments of
GPU Energy. Thereafter, FirstEnergy will continue to support local charities, at
levels consistent with its commitments to other communities it serves.
31. Through FirstEnergy, Met-Ed and Penelec will continue to
play an important role in the economic growth of Pennsylvania and the local
communities they serve. Both Met-Ed and Penelec will continue as significant
employers and responsible corporate citizens, and intend to continue their
commitments and proactive support for local communities. By continuing to work
to provide increasingly reliable service, to improve customer service
satisfaction levels, to attain operational excellence and to seek deployment of
new technologies that benefit their customers, Met-Ed and Penelec will continue
to be strong and productive leaders in contributing to Pennsylvania's economic
growth.
E. IMPACT ON COMPETITION
32. As supported by the attached testimony of Rodney Frame
from Analysis Group/Economics, the merger will have no adverse effect on
competition in the supply and distribution of electricity in Pennsylvania. There
will be no concentration of generation ownership as a result of the merger,
particularly since Met-Ed and Penelec
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have completed the divestiture of substantially all of their electric generation
assets pursuant to their Commission-approved restructuring plan.
33. GPU Energy will continue to operate and provide electric
utility service within Met-Ed and Penelec service territories under the same
market conditions as currently prevail, and these utilities will remain fully
subject to the Commission's jurisdiction. Moreover, as further assurance in
support of this Joint Application, FirstEnergy also intends to have GPU Energy's
transmission system continue to be a part of the PJM Interconnection LLC.
34. As further affirmative support for this Joint Application,
the Applicants are providing herewith the written testimony, under oath, from an
independent expert, Rodney Frame, to confirm that the merger will not result in
the unlawful exercise of market power or otherwise unlawfully prevent retail
electricity customers in Pennsylvania from obtaining the benefits of a properly
functioning competitive retail market.
35. FirstEnergy's future participation as a retail competitive
electric generation supplier in Pennsylvania following approval and
implementation of the merger will remain subject to all applicable requirements
and regulations, including code of conduct provisions, imposed by the Commission
with respect to such activities.
F. SUPPORTING TESTIMONY
36. Attached to this Joint Application in support of the
relief sought by the Applicants is the sworn written testimony of the following
individuals:
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FRED D. HAFER - Chairman, Chief Executive Officer and
President of GPU. Mr. Hafer's testimony
provides a summary of the benefits to GPU
Energy's customers and employees from the
merger.
ANTHONY J. ALEXANDER - President of FirstEnergy Corp. Mr.
Alexander's testimony provides a summary of
the merger's effect on Pennsylvania from the
perspective of FirstEnergy.
MICHAEL J. CHESSER - President and Chief Executive Officer of GPU
Energy. Mr. Chesser's testimony provides a
summary of the merger from GPU Energy's
perspective.
RODNEY FRAME - Analysis Group/Economics. Mr. Frame's
testimony sets forth his analysis and
conclusions regarding market power
considerations pertaining to the proposed
merger.
G. ADDITIONAL SUPPORTING DATA
37. Attached to this Joint Application, and made part hereof,
are several appendices that provide additional data supporting the Applicants'
request for approval of the proposed merger.
38. Attached hereto as Exhibit "E" is a true and correct copy
of the required filing on Form S-4 with respect to the planned merger, as
declared effective by the Securities and Exchange Commission on October 13,
2000. Pertinent financial information concerning the Applicants is incorporated
by reference in the Form S-4 , and incorporated further herein by reference.
39. Attached hereto as Exhibit "F" are certified copies of the
meeting minutes of the Boards of Directors of the Applicants, authorizing the
merger to proceed.
40. Pursuant to the Commission's Rules of Practice and
Procedure, all annual reports, other routine periodic reports to the Commission,
certificates of public convenience, securities certificates and similar
documents on file with the Commission
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with respect to the public utility Applicants are incorporated herein by
reference and made part hereof.
H. OTHER REQUIRED APPROVALS
41. In addition to approval from the Commission, several other
regulatory approvals will be required before the merger can be concluded. These
include approvals from the Securities and Exchange Commission, the Federal
Energy Regulatory Commission, the Nuclear Regulatory Commission, the Federal
Communications Commission, a provincial regulatory authority in Argentina and
the New Jersey Board of Public Utilities. The Applicants will submit to the
Commission the Federal Energy Regulatory Commission filing, which is being made
contemporaneously with the filing of this Joint Application.
42. The proposed merger also is subject to the affirmative
vote of each company's shareholders, both scheduled to take place on November
21, 2000.
I. PROPOSED PROCEDURAL SCHEDULE
43. The planned merger is at a parent company level and does
not directly involve any Pennsylvania public utility. Thus, the Commission's
ongoing jurisdictional authority over the public utility Applicants remains
totally undisturbed by the planned merger. Given such circumstances, combined
with the ample support accompanying this Joint Application, the Applicants hope
to expedite the Commission's review and approval process.
44. The Applicants request that all reasonable steps be taken
to complete any proceeding resulting from this filing within five months, so
that the merger may be concluded in the Spring of 2001. Such a completion date
is reasonable and
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achievable since the merger has no direct affect on any jurisdictional operating
utilities and will be occurring subsequent to the completion of GPU Energy's
electric restructuring proceedings.
45. The merger will create a combined company that is bigger,
stronger and more able to compete than either FirstEnergy or GPU would be alone.
The last two years have demonstrated that uncertainty in the electric industry
and the competitive generation market will increase rapidly during this critical
transition from a regulated to a competitive structure . The proposed
FirstEnergy/GPU merger will create improved opportunities for GPU Energy's
customers, its employees and the shareholders of both parent companies. The
opportunities created by this merger should be expedited, not delayed.
J. CONCLUSION
46. For all of the reasons set forth in and supported by this
Joint Application, the proposed merger will promote the "service, accommodation,
convenience, or safety of the public"; and, thus, satisfies the legal
requirements for approval by this Commission.
WHEREFORE, the Applicants respectfully urge the Commission to
grant the approval and authorizations requested herein.
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Respectfully submitted,
Dated: November 9, 2000 /s/ W. Edwin Ogden
---------------------------------
W. Edwin Ogden
Alan Michael Seltzer
RYAN, RUSSELL, OGDEN & SELTZER LLP
Suite 301
1100 Berkshire Boulevard
Reading, PA 19610-1221
(610) 372-4761
<PAGE> 21
AFFIDAVIT
I, Fred D. Hafer, being duly sworn (affirmed) according to law, depose
and say that I am authorized to make this affidavit on behalf of GPU, Inc.,
Metropolitan Edison Company and Pennsylvania Electric Company, being the
Chairman of these corporations; that the facts above set forth are true and
correct to the best of my knowledge, information and belief; and that the said
corporations expect to be able to prove the same at any hearing hereof.
/s/ Fred D. Hafer
------------------------------
Fred D. Hafer
Sworn and subscribed before me
this 9th day of November, 2000.
/s/ Margaret M.Pinelli
----------------------
Notary
MARGARET M. PINELLI
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires Oct. 1, 2005
<PAGE> 22
AFFIDAVIT
I, Anthony J. Alexander, being duly sworn (affirmed) according to law,
depose and say that I am authorized to make this affidavit on behalf of
FirstEnergy Corp., being the holder of the office of President with that
corporation, and that the facts above set forth are true and correct to the
best of my knowledge, information and belief and FirstEnergy Corp. expects to
be able to prove the sae at any hearing hereof.
/s/ Anthony Alexander
------------------------------
Anthony Alexander
Sworn and subscribed before me
this 9th day of November, 2000.
/s/ Dorothy A. Bratanov
------------------------
Notary
Notary Public, State of Ohio
My Commission expires Feb. 24, 2003
<PAGE> 23
Exhibit A
GPU ENERGY PENNSYLVANIA TERRITORY AND CUSTOMERS
Metropolitan Edison Company ("Met-Ed") and Pennsylvania
Electric Company ("Penelec") collectively operate in Pennsylvania under the
trade name of "GPU Energy." From their corporate headquarters at 2800 Pottsville
Pike, Reading, Pennsylvania, Met-Ed and Penelec serve approximately one million
customers in territories encompassing over 20,000 square miles in northern,
central and eastern Pennsylvania.
As of September 30, 2000 Met-Ed provides service to 491,929
retail customers in the following portions of the Commonwealth of Pennsylvania:
EASTON AREA
Bucks County - Borough of Riegelsville
Townships of Bridgeton, Durham, Nockamixon and Tinicum
Monroe County - Boroughs of Delaware Water Gap, East Stroudsburg and
Stroudsburg Townships of Chestnuthill, Hamilton, Middle Smithfield, Price, Ross,
Smithfield and Stroud
Northampton County - City of Easton
Boroughs of Bangor, Bath, Chapman, East Bangor, Glendon, Nazareth, Pen Argyl,
Portland, Roseto, Stockertown, West Easton, Wilson and Wind Gap
Townships of Allen, Bethlehem, Bushkill, East Allen, Forks, Lehigh, Lower Mt.
Bethel, Lower Nazareth, Moore, Palmer, Bplainfield, Upper Mt. Bethel, Upper
Nazareth, Washington and Williams
Pike County - Townships of Delaware, Dingman and Lehman
READING AREA
Berks County - City of Reading
Boroughs of Bally, Bechtelsville, Bernville, Birdsboro, Boyertown, Centerport,
Fleetwood, Hamburg, Kenhorst, Kutztown, Laureldale, Leesport, Lenhartsville,
Lyons, Mohnton, Mt. Penn, St. Lawrence, Shillington, Shoemakersville,
Strausstown, Temple, Topton, West Reading and Wyomissing
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Townships of Albany, Alsace, Amity, Bern, Brecknock, Centre, Colebrookdale,
Cumru, District, Douglass, Earl, Exeter, Greenwich, Hereford, Jefferson,
Longswamp, Lower Alsace, Maidencreek, Maxatawny, Muhlenberg, North Heidelberg,
Oley, Ontelaunee, Penn, Perry, Pike, Richmond, Robeson, Rockland, Ruscombmanor,
Spring, Tilden, Union, Upper Bern, Washington and Windsor
Chester County - Township of Warwick
Lancaster County - Borough of Adamstown
Township of Brecknock
Lehigh County - Townships of Lowhill, Lynn and Weisenberg
Montgomery County - Townships of Douglass, Lower Pottsgrove, Upper Frederick,
New Hanover and Upper Pottsgrove
LEBANON AREA
Berks County - Borough of Womelsdorf
Townships of Bethel, Jefferson, Marion, Tulpehocken, and Upper Tulpehocken
Dauphin County - Borough of Middletown
Townships of Conewago, Derry, East Hanover, Londonderry and Lower Swatara
Lancaster County - Township of Conoy and West Donegal
Lebanon County - City of Lebanon
Boroughs of Cleona, Cornwall, Jonestown, Mt. Gretna, Myerstown, Richland and
Palmyra
Townships of Annville, Bethel, Cold Spring, East Hanover, Heidelberg, Jackson,
North Annville, North Cornwall, North Lebanon, North Londonderry, South
Annville, South Lebanon, South Londonderry, Swatara, Union, West Cornwall and
West Lebanon
YORK AREA
Adams County - Boroughs of Abbottstown, Arendtsville, Bendersville, Biglerville,
Bonneauville, Carroll Valley, East Berlin, Fairfield, Gettysburg, Littlestown,
McSherrystown, New Oxford and York Springs
Townships of Berwick, Butler, Conewago, Cumberland, Franklin, Freedom, Germany,
Hamilton, Hamiltonban, Highland, Huntington, Latimore, Menallen, Mt. Joy, Mt.
Pleasant, Oxford, Reading, Straban, Tyrone and Union
<PAGE> 25
Cumberland County - Borough of Mt. Holly Springs
Townships of Cooke, Dickinson, Monroe, South Middleton and Upper Allen
Dauphin County - Township of Londonderry
York County - City of York
Boroughs of Cross Roads, Dallastown, Dillsburg, Dover, Fawn Grove, Felton,
Franklintown, Glen Rock, Hallam, Hanover, Jacobus, Jefferson, Loganville,
Manchester, Mount Wolf, New Freedom, New Salem, North York, Railroad, Red Lion,
Seven Valleys, Shrewsbury, Spring Grove, Stewartstown, Wellsville, West York,
Windsor, Winterstown, Wrightsville, Yoe, York Haven and Yorkana
Townships of Carroll, Chanceford, Codorus, Conewago, Dover, East Hopewell, East
Manchester, Fairview, Fawn, Franklin, Heidelberg, Hellam, Hopewell, Jackson,
Lower Windsor, Manchester, Manheim, Monaghan, Newberry, North Codorus, North
Hopewell, Paradise, Penn, Shrewsbury, Springettsbury, Springfield, Spring
Garden, Warrington, Washington, West Manchester, West Manheim, Windsor and York
As of September 30, 2000 Penelec provides service to 578,259
retail customers in the following portions of the Commonwealth of Pennsylvania:
ARMSTRONG COUNTY
Townships of Cowanshannock
BEDFORD COUNTY
Bedford, Cessna, Claar, Defiance, Everett, Fishertown, Hopewell, King,
Langdondale, Loysburg, Manns Choice, New Enterprise, New Paris,
Osterburg, Pleasantville, Queen, Rainsburg, Riddlesburg, Saxton,
Schellsburg, Six Mile Run, St. Clairsville, Stonerstown, Water Side,
Wolfsburg, Woodbury, Yellow Creek and territory adjacent thereto.
BLAIR COUNTY
Altoona, Bellwood, Canoe Creek, Claysburg, Curryville, Duncansville,
East Freedom, Frankstown, Fredericksburg, Hollidaysburg, Martinsburg,
McKee, Newry, Roaring Spring, Sharpsburg, Sproul, Tyrone, Williamsburg
and territory adjacent thereto.
BRADFORD COUNTY
<PAGE> 26
Boroughs of Alba, Athens, Burlington, Canton, LeRaysville, Monroe, New
Albany, Rome, Sayre, South Waverly, Sylvania, Towanda, Troy and
Wyalusing
Townships of Albany, Armenia, Asylum, Athens, Burlington, Canton,
Columbia, Franklin, Granville, Herrick, LeRoy, Litchfield, Monroe,
North Towanda, Orwell, Overton, Pike, Ridgebury, Rome, Sheshequin,
Smithfield, South Creek, Springfield, Standing Stone, Terry, Towanda,
Troy, Tuscarora, Ulster, Warren, Wells, West Burlington, Wilmot,
Windham, Wyalusing and Wysox
CAMBRIA COUNTY
City of Johnstown
Boroughs of Amsbry, Ashville, Bakerton, Barnesboro, Belsano,
Brownstown, Carrolltown, Carrolltown Roads, Cassandra, Cherry Tree,
Chest Springs, Colver, Coupon, Cresson, Cymbria Mines, Daisytown, Dale,
Dean, Dysart, Ebensburg, Ehrenfeld, Emeigh Run, Ferndale, Franklin,
French Hill, Gallitzin, Geistown, Hastings, Hoguetown, Jamestown,
Lilly, Lorain, Loretto, Martindale, Morgantown, Nanty-Glo, Nicktown,
Patton, Portage, Revloc, Sandertown, Scalp Level, Shaft, Sonman, South
Fork, Southmont, Spangler, St. Benedict, St. Bonifacius, Summit,
Tunnelhill, Twin Rocks, Vintondale, Westmont, Wilmore and territory
adjacent thereto.
Townships of Adams, Conemaugh, Croyle, East Taylor, Jackson, Lower
Yoder, Middle Taylor, Portage, Reade, Richland, Stonycreek, Summerhill,
Upper Yoder, West Taylor and White
CENTRE COUNTY
Boroughs of Philipsburg, Snow Shoe and South Philipsburg
Townships of Burnside, Rush and Snow Shoe
CLARION COUNTY
Boroughs of Callensburg, Foxburg, Knox, Shippensville and St.
Petersburg
Townships of Ashland, Beaver, Elk, Farmington, Highland, Knox, Licking,
Paint, Richland, Salem and Washington
<PAGE> 27
CLEARFIELD COUNTY
City of DuBois
Boroughs of Brisbin, Burnside, Chester Hill, Clearfield, Coalport,
Curwensville, Glenhope, Grampian, Houtzdale, Irvona, Lumber City,
Mahaffey, Newburg, New Washington, Osceola, Ramey, Troutville,
Wallaceton and Westover
Townships of Beccaria, Bell, Bigler, Bloom, Boggs, Bradford, Brady,
Burnside, Chest, Cooper, Covington, Decatur, Ferguson, Girard, Goshen,
Graham, Greenwood, Gulich, Huston, Jordan, Karthaus, Knox, Lawrence,
Morris, Penn, Pike, Pine, Sandy, Union and Woodward
CRAWFORD COUNTY
Cities of Meadville and Titusville
Boroughs of Blooming Valley, Cambridge Springs, Centerville,
Cochranton, Conneautville, Hydetown, Linesville, Saegertown,
Spartansburg, Springboro, Townville, Venango and Woodcock
Townships of Athens, Beaver, Bloomfield, Cambridge, Conneaut,
Cussewago, East Fairfield, East Mead, Fairfield, Greenwood, Hayfield,
North Shenango, Oil Creek, Pine, Randolph, Richmond, Rockdale, Rome,
Sadsbury (portion), Sparta, Spring, Steuben, Summerhill, Summit, Union,
Venango, Vernon, West Mead and Woodcock
CUMBERLAND COUNTY
Newburg, Shippensburg and territory adjacent thereto.
ERIE COUNTY
Cities of Corry and Erie
Boroughs of Albion, Cranesville, East Springfield, Edinboro, Elgin,
Fairview, Lake City, McKean, Mill Village, North East, Platea, Union
City, Waterford, Wattsburg and Wesleyville
Townships of Amity, Concord, Conneaut, Elk Creek, Fairview, Franklin,
Girard, Greene, Greenfield, Harbourcreek, Lawrence Park, LeBoeuf,
McKean,
<PAGE> 28
Millcreek, North East, Springfield, Summit, Union, Venango, Washington,
Waterford and Wayne
FOREST COUNTY
Borough of Tionesta
Townships of Barnett, Green, Harmony, Hickory, Jenks, Kingsley and
Tionesta
FRANKLIN COUNTY
Concord, Doylestown, Dry Run, Fannettsburg, Orrstown, Roxbury, Spring
Run, Upper Strasburg and territory adjacent thereto.
HUNTINGDON COUNTY
Alexandria, Ardenheim, Barree, Birmingham, Blairs Mills, Broad Top
City, Coalmont, Dudley, Franklinville, Graysville, Huntingdon,
Mapleton, Marklesburg, McConnellstown, Mill Creek, Mount Union,
Orbisonia, Petersburg, Robertsdale, Rock Hill, Saltillo, Shade Gap,
Shirleysburg, Spruce Creek, Three Springs, Union Furnace, Water Street,
Woodvale and territory adjacent thereto.
INDIANA COUNTY
Boroughs of Armagh, Blairsville, Clymer, Glen Campbell, Homer City,
Indiana, Jacksonville, Marion Center, Plumville, Smicksburg and
Shelocta
Townships of Armstrong, Banks, Blacklick, Brush Valley, Buffington,
Burrell, Canoe, Center, Cherryhill, Conemaugh, East Mahoning, East
Wheatfield, Grant, Green, Montgomery, North Mahoning, Pine, Rayne,
Southe Mahoning, West Mahoning, West Wheatfield, White and Young
JEFFERSON COUNTY
Boroughs of Big Run, Brockway, Brookville, Corsica, Falls Creek,
Punxsutawney, Reynoldsville, Summerville, Sykesville, Timblin and
Worthville
<PAGE> 29
Townships of Barnett, Beaver, Bell, Clover, Eldred, Gaskill, Henderson,
Knox, McCalmont, Oliver, Perry, Pine Creek, Porter, Ringgold, Rose,
Snyder, Union, Warsaw, Washington, Winslow and Young
JUNIATA COUNTY
East Waterford, Honey Grove, Spruce Hill, Waterloo, Academia, Walnut
and territory adjacent thereto.
LYCOMING COUNTY
Townships of Cascade, Gamble, Jackson, Lewis, McIntyre, McNett and
Plunketts Creek
McKEAN COUNTY
City of Bradford
Boroughs of Eldred, Lewis Run and Port Allegany
Townships of Annin, Bradford, Ceres, Corydon, Eldred, Foster, Hamilton,
Keating, LaFayette, Liberty and Otto
MIFFLIN COUNTY
Alfarata, Belleville, Burnham, Kistler, Lewistown, Mattawana, Maitland,
McVeytown, Milroy, Newton Hamilton, Paintersville, Reedsville,
Yeagertown and territory adjacent thereto.
PERRY COUNTY
Blain, New Germantown and territory adjacent thereto.
POTTER COUNTY
Boroughs of Galeton, Ulysses and Shinglehouse
<PAGE> 30
Townships of Abbott, Bingham, Genesee, Harrison, Hector, Pike, Sharon,
Ulysses and West Branch
SOMERSET COUNTY
Boroughs of Addison, Benson, Boswell, Central City, Confluence,
Garrett, Jennertown, Meyersdale, New Centerville, Paint, Rockwood,
Salisbury, Shanksville, Somerset, Stoystown, Ursina and Windber
Townships of Addison, Black, Brothersvalley, Conemaugh, Elk Lick,
Jefferson, Jenner, Lincoln, Lower Turkeyfoot, Milford, Ogle, Paint,
Quemahoning, Shade, Somerset, Stonycreek, Summit and Upper Turkeyfoot
SULLIVAN COUNTY
Boroughs of Dushore, Eagles Mere and Laporte
Townships of Cherry, Colley, Davidson, Elkland, Forks, Fox, Hillsgrove,
Laporte and Shrewsbury
SUSQUEHANNA COUNTY
Boroughs of Friendsville, Great Bend, Hallstead, Hop Bottom, Lanesboro,
Little Meadows, Montrose, New Milford, Oakland, Susquehanna and
Thompson
Townships of Apolacon, Ararat, Auburn, Bridgewater, Brooklyn, Choconut,
Dimock, Forest Lake, Franklin, Gibson, Great Bend, Harford, Harmony,
Jackson, Jessup, Lathrop, Lenox, Liberty, Middletown, New Milford,
Oakland, Rush, Silver Lake, Springville and Thompson
TIOGA COUNTY
Boroughs of Blossburg, Elkland, Knoxville, Lawrenceville, Liberty,
Mansfield, Roseville, Tioga, and Westfield
Townships of Bloss, Brookville, Charleston, Chatham, Clymer, Covington,
Deerfield, Delmar, Duncan, Elk, Elkland, Farmington, Gaines, Hamilton,
Jackson, Lawrence, Liberty, Morris, Nelson, Osceola, Putnam, Richmond,
Rutland, Shippen, Sullivan, Tioga, Union, Ward and Westfield
<PAGE> 31
VENANGO COUNTY
Cities of Franklin and Oil City
Boroughs of Clintonville, Cooperstown, Emlenton, Pleasantville, Polk,
Rouseville and Utica.
Townships of Allegheny, Canal, Cherry Tree, Clinton, Cornplanter,
Cranberry, French Creek, Irwin, Jackson, Oakland, Oil Creek, Pine
Grove, Plum, Richland, Sandy Creek, Scrubgrass and Sugar Creek.
WARREN COUNTY
Boroughs of Bear Lake, Clarendon, Sugar Grove, Tidioute, Warren and
Youngsville
Townships of Brokenstraw, Columbus, Conewango, Corydon, Deerfield,
Eldred, Elk, Farmington, Freehold, Glade, Kinzua, Limestone, Mead, Pine
Grove, Pittsfield, Pleasant, Sheffield, Southwest, Spring Creek, Sugar
Gove and Triumph
WAYNE COUNTY
Borough of Starrucca
Townships of Buckingham, Manchester, Preston and Scott
WESTMORELAND COUNTY
Boroughs of Bolivar, Livermore, New Florence and Seward
Townships of Derry, Fairfield and St. Clair
WYOMING COUNTY
Boroughs of Laceyville, Meshoppen, Nicholson and Tunkhannock
Townships of Braintrim, Eaton, Exeter, Falls, Forkston, Lemon,
Mehoopany, Meshoppen, Nicholson, North Branch, North Moreland,
Tunkhannock, Washington and Windham
<PAGE> 32
Exhibit B
HISTORY OF GPU, INC. AND ITS PENNSYLVANIA UTILITY SUBSIDIARIES
GPU, Inc. is a public utility holding company registered under the
Public Utility Holding Act of 1935. GPU, Inc. was originally incorporated in
1946 in New York as General Public Utilities Corporation.
Pennsylvania Electric Company ("Penelec") and Metropolitan Edison Company
("Met-Ed") are wholly-owned public utility subsidiaries of GPU, Inc.
PENELEC HISTORY
Penelec traces its origin to 1885, when Johnstown Electric Light Company was
formed. In 1901, the Johnstown Steam Heating Company was merged with the
electric company and the charter was amended to Johnstown Light, Heat and Power
Company. A short time later, two additional electric companies were organized by
other interests to serve the Johnstown area, the Consumers Light, Heat and Power
Company and Citizens Light, Heat and Power Company. Within a few years, these
three companies came together under common ownership and were merged and
reorganized into Citizens Light, Heat and Power Company of Pennsylvania which
received its charter in 1909.
In 1911, control of the Citizens Company in Johnstown was acquired by H. D.
Walbridge and Company of New York. Walbridge and Company then organized and
financed Penn Electric Service Company to develop territory south and east of
Johnstown in Somerset and Cambria Counties. Both Citizens and Penn Electric
companies were headquartered in Johnstown, Pennsylvania.
A new company Penn Public Service Company was organized and financed by
Walbridge Company to operate and develop territory to the north and west of
Johnstown. One of the first companies purchased by Penn Public Service Company
was the Philipsburg Electric Light, Power and Heating Company. In addition,
Central Pennsylvania Light and Power Company, Centre and Clearfield Street
Railway Company and several other small companies were acquired.
In 1919, Citizens Light, Heat and Power Company of Pennsylvania, Penn Electric
Service Company and Penn Public Service Company were merged to form Penn Public
Service Corporation, which development was the beginning of the present
Pennslvania Electric Company system.
1
<PAGE> 33
In September 1925, the Associated Gas and Electric Company of New York
purchased from the Walbridge interests all of the investment in Penn
Public Service Corporation which, with all its affiliated companies,
was, in turn, designated the Western Pennsylvania Group of the
Associated System.
The name "Penn Public Service Corporation" was changed to "Pennsylvania
Electric Company" in 1927. During the next few years many small
companies were acquired and merged with Penelec, making a total of 61
mergers during the period from 1919 to 1938.
In 1943, Keystone Public Service Company, Bradford Electric Company,
and Erie County Electric Company were acquired and merged with
Pennsylvania Electric Company and the trade name "Penelec" was adopted
in 1944.
In 1956, Penelec's service territory was increased by more than
one-third through a merger with Northern Pennsylvania Power Company.
The facilities of Penelec and North Penn had been interconnected since
1954 and Penelec had been supplying substantially all of North Penn's
power requirements since 1955. As lessee of a subsidiary, The Waverly
Electric Light and Power Company, North Penn also serve the Village of
Waverly, New York and vicinity.
Brockway Light, Heat & Power Company and Colver Electric companies were
added in 1958. Three other additions to the Penelec system included
Waterford Electric Company in 1976, Rockingham Light, Heat & Power
Company and Windber Electric Corporation in 1978.
MET-ED HISTORY
The present Met-Ed had as its origin the Reading Electric Light & Power
Company in 1894 which was leased by Metropolitan Electric Company for a
period of ninety-nine years. In 1922, Metropolitan Electric Company
together with the Lebanon Valley Electric Company and the Edison
Electric Illuminating Company of Lebanon were merged to form the
original Metropolitan Edison Company. Various mergers quickly followed
including York Haven Water & Power Company and Weimer Electric Light &
Power Company in 1924. Three companies were added in 1925, these were
Hanover Power Company, Gettysburg Electric Company and Cumberland
Valley Light & Power Company.
In 1928, an additional twelve mergers took place including the addition
of Birdsboro Electric Company, The French Creek Electric Company,
Weisenberg Township Electric Company, Annville & Palmyra Electric
Company, Topton Electric Light & Power Company, Berks Lehigh Electric
Company, Bernville Electric Light, Heat & Power Company, The Boyertown
Electric Company, Hamburg Gas & Electric Company, Blue Mountain
Electric Company, Ortanna Electric Light & Power Company and the
Pennsylvania Edison Company of Easton.
The year 1930 brought the addition of Fleetwood & Kutztown Electric
Light, Heat & Power Company into the fold, and in 1936, Boiling Springs
Electric Company
2
<PAGE> 34
became part of the merged company. Edison Light & Power Company was
merged with Met-Ed in 1950.
Met-Ed is the holder of all of the common stock of York Haven Power
Company, the owner of a small, hydroelectric generating station.
3
<PAGE> 35
EXHIBIT C
HISTORY OF FIRSTENERGY
FirstEnergy Corp. is a diversified energy services holding company
headquartered in Akron, Ohio. Formed in 1997 through the merger of Ohio Edison
Company and the former Centerior Energy Corp., its electric utility operating
companies - Ohio Edison and its Pennsylvania Power subsidiary, The Illuminating
Company and Toledo Edison - comprise the nation's 10th largest investor-owned
electric system, serving 2.2 million customers within 13,200 square miles of
northern and central Ohio and western Pennsylvania. FirstEnergy produces nearly
$6.3 billion in annual revenues and owns more than $18 billion in assets,
including ownership in 16 power plants.
FirstEnergy also is involved in the exploration and production of oil
and natural gas, and the transmission and marketing of natural gas, including
service to more than 130,000 business and residential customers. Its resources
include interests in more than 7,700 oil and gas wells, with proved reserves of
450 billion cubic equivalent of natural gas and 5,000 miles of pipelines.
FirstEnergy offers a wide array of energy-related products and services
- including heating, ventilating, air conditioning, refrigeration and energy
management services - through its FirstEnergy Facilities Services Group, Inc.
subsidiary, which includes 11 leading electrical and mechanical enterprises
headquartered in Ohio, Pennsylvania, Indiana, Maryland, New York, New Jersey and
Virginia.
For more information, visit our Internet site -
www.firstenergycorp.com.
<PAGE> 36
HISTORY OF OHIO EDISON COMPANY
Ohio Edison can trace its roots back more than a century to some 200
predecessor companies in northeastern and central Ohio. In the 1880s, many small
companies were providing communities with street lighting. The first electric
arc street light service appeared in Akron, the current headquarters of Ohio
Edison, in 1879, when the Barberton Match Company pioneered the use of
electricity by means of a 13-horsepower engine-driven electric motor that
operated 17 arc lamps in its plant.
Some companies were using electricity to power their street car
systems. As these electric transit companies grew, they were encouraged to
supply electric service to residents adjacent to their rail lines. This new
revenue opportunity turned into the main source of a company's income when the
interurban lines were gradually replaced by automobiles and buses.
The Ohio Edison of today had its beginnings in 1930, when it was
organized as a consolidation of five smaller companies, including the
Pennsylvania-Ohio Power and Light Company of Youngstown, The Northern Traction
and Light Company of Akron, The Ohio Edison Company of Springfield, The Akron
Steam Heating Company, and The London Light and Power Company of Springfield.
In 1944, Ohio Edison acquired Pennsylvania Power Co., which today
remains an Ohio Edison subsidiary.
The next major expansion of Ohio Edison came in 1950 when the Company
acquired Ohio Public Service Company, which served 322 communities in northern
Ohio.
By the early 1 990s, the Ohio Edison System had exceeded the 1-million
mark in total customers.
In 1997, Ohio Edison merged with Centerior Energy Corp. to form
FirstEnergy Corp., headquartered in Akron.
Currently, Ohio Edison remains a FirstEnergy electric utility operating
company and serves approximately 1.1 million residential, commercial and
industrial customers.
2
<PAGE> 37
HISTORY OF PENNSYLVANIA POWER COMPANY
On July 1, 1926, the Shenango Valley Electric Company, the Mercer
County Light, Heat & Power Company and the New Castle Electric Company joined to
form Pennsylvania Power Company.
Four years later, the company merged with Harmony Electric Company and
Peoples Power Company. In 1931, as part of the Commonwealth and Southern
Corporation, Penn Power was set up as a separate operating unit, headquartered
in New Castle, Pennsylvania. Divisional offices also were established in Sharon
and Greenville.
In 1944, Ohio Edison acquired all the outstanding common stock of Penn
Power, and it remains a subsidiary of Ohio Edison today.
Currently, Penn Power serves about 150,000 electric customers in the
Pennsylvania counties of Lawrence, Mercer, Beaver, Butler, Crawford and
Allegheny.
3
<PAGE> 38
HISTORY OF THE ILLUMINATING COMPANY
When the industrial revolution spread to this country, Cleveland
ultimately became a leader, but it wasn't until the advent of electric service
in the late 1800s that industrial growth here really shifted into high gear.
And from the beginning, The Cleveland Electric Illuminating Company made
electricity for lighting the city streets and powering the factories and
businesses that drove the revolution and the economy.
In 1878, Cleveland engineer Charles Brush patented an arc lamp that ran
on electricity. Within a year, he collaborated with the Cleveland Telegraph
Supply Company to build a demonstration project to light Public Square. By 1884,
Brush's inventiveness led to the creation of the world's first streetcar on
Central Avenue. The Cleveland General Electric Company bought Brush's electric
company in 1892, along with several others in the city, and two years later
changed the name to The Cleveland Electric Illuminating Company (CEI).
In 1986, The Illuminating Company merged with Toledo Edison and formed
Centerior Energy Corporation.
In 1997, Centerior Energy merged with Ohio Edison to form FirstEnergy
Corp., headquartered in Akron.
Currently, The Illuminating Company remains a FirstEnergy electric
utility operating company and serves approximately 750,000 residential,
commercial and industrial customers in northeast Ohio.
4
<PAGE> 39
HISTORY OF TOLEDO EDISON
The roots of Toledo Edison are deeply intertwined with those of the
early streetcar and electric companies in Toledo. Through a complex set of
mergers, acquisitions and new business ventures at the turn-of-the-century and
beyond, the Toledo Edison Company emerged in 1921 to provide electric, gas and
steamheating services. The Company expanded during the 1920s through a series
of acquisitions and by the end of the decade served most of Northwest Ohio.
Toledo Edison continued to grow and prosper over the next several
decades. In the 1960s, the Company began exploring the use of nuclear power,
leading to the construction of the Davis-Besse Nuclear Power Plant in Oak
Harbor, Ohio, on Lake Erie. Davis-Besse began generating power in 1977.
In 1986, Toledo Edison merged with The Illuminating Company and formed
Centerior Energy Corporation.
In 1997, Centerior Energy merged with Ohio Edison to form FirstEnergy
Corp., headquartered in Akron.
Currently, Toledo Edison remains a FirstEnergy electric utility
operating company and serves approximately 300,000 residential, commercial and
industrial customers in northwest Ohio.
5
<PAGE> 40
EXHIBIT D - COPY OF AGREEMENT AND PLAN OF MERGER
BETWEEN FIRSTENERGY CORP. AND GPU, INC.
DATED AS OF AUGUST 8, 2000.
EXHIBIT INTENTIONALLY OMITTED.
<PAGE> 41
EXHIBIT E - S-4 REGISTRATION STATEMENT.
EXHIBIT INTENTIONALLY OMITTED.
<PAGE> 42
EXHIBIT F
CERTIFIED COPIES OF BOARDS OF DIRECTORS MINUTES
AUTHORIZING MERGER
<PAGE> 43
Extract From the Minutes of a Meeting of the Board of Directors of
FirstEnergy Corp. held August 8, 2000
----------------
Mr. Burg described the discussions he had had with members of the Board
of Directors during the night of August 7, 2000, wherein he had described his
negotiation of a proposed merger of FirstEnergy Corp. with GPU, Inc. on the
terms authorized by the Board of Directors at its meeting on August 4, 2000, and
the successful negotiation and preparation of a definitive Merger Agreement
incorporating those terms by the two companies and their respective counsel. Mr.
Burg described the request of the chairman of GPU, Inc., on the evening of
August 7, 2000, after a GPU, Inc. board meeting, to change the terms of the
proposed merger so that, while the value of the transaction remained at $36.50,
the shareholders of GPU, Inc. would be offered the opportunity to elect to
receive such value in cash or common shares of FirstEnergy Corp., subject in
each case to proration to ensure that the aggregate consideration to all
shareholders would be 50 percent cash and 50 percent stock, with the value of
FirstEnergy Corp. shares determined based on a 20-day average trading price
ending shortly before the closing date for the merger, subject to a minimum
price of $24.2438 and a maximum price of $29.6313 per share of FirstEnergy Corp.
common stock.
Mr. Burg had told the Board of Directors that Morgan Stanley & Co.
Incorporated had performed a revised analysis of the proposed merger using the
proposed new terms and had furnished the results of such analysis, which
included various hypothetical assumptions, to the management of FirstEnergy
Corp. Mr. Burg discussed the implications of Morgan Stanley's analysis and
advised that Morgan Stanley would render a fairness opinion with respect to the
revised terms of the proposed merger. Mr. Burg then answered questions of the
Board.
After the presentation and discussions were conducted to the Board's
satisfaction, Mr. Burg stated that the officers of FirstEnergy Corp. continue to
believe that it is advantageous for FirstEnergy Corp. to consider and enter into
the merger with GPU on the revised terms presented at this meeting.
Upon motion duly made and seconded, the following resolutions were
thereupon unanimously adopted:
RESOLVED: That this Board of Directors has determined that it
is advisable for FirstEnergy Corp. to engage in a strategic business
combination with GPU, Inc., whereby GPU, Inc. will merge with and into
FirstEnergy Corp. (the "Merger"), with FirstEnergy Corp. continuing as
the surviving corporation, and each issued and outstanding share of
GPU, Inc.'s common stock will be converted into the right to receive
$36.50 in cash and/or shares of common stock of FirstEnergy Corp.,
substantially upon the terms and conditions set forth in the draft
Agreement and Plan of Merger (the "Agreement") previously presented to
the Board of Directors but reflecting the terms approved by the Board
of Directors at this meeting.;
<PAGE> 44
-2-
RESOLVED FURTHER: That the Agreement be, and it hereby is
adopted, approved and authorized and the Chairman and Chief Executive
Officer or the President of FirstEnergy Corp. is hereby authorized to
execute and deliver, on behalf of FirstEnergy Corp., the Agreement with
such changes therein as he may, in his sole discretion, approve (such
approval to be conclusively evidenced by his execution hereof);
RESOLVED FURTHER: That in all other respects the resolutions
of this Board of Directors adopted at its meeting on August 4, 2000,
are confirmed; and
RESOLVED FURTHER: That all acts and deeds heretofore done by
any director, officer or assistant officer of FirstEnergy Corp. for and
on behalf of FirstEnergy Corp. in entering into, executing,
acknowledging or attesting any arrangements, agreements, instruments or
documents in connection with the Merger or in furtherance of the
intentions of these resolutions are hereby ratified, approved and
confirmed.
------------------
I, Edward J. Udovich, Assistant Corporate Secretary of FirstEnergy
Corp., do hereby certify that the foregoing is a true and correct copy of
resolutions duly adopted at meeting of the Board of Directors of FirstEnergy
Corp. duly called and held on August 8, 2000, at which a quorum was in
attendance and voting throughout, and that said resolutions have not since been
rescinded but are still in full force and effect.
Executed this 26th day October 2000.
/s/ Edward J. Udovich
--------------------------------
Assistant Corporate Secretary
<PAGE> 45
Extract From the Minutes of the Meeting of the Board of Directors of
FirstEnergy Corp. held August 4, 2000
-----------------------
Mr. Burg introduced representatives from Morgan Stanley Dean Witter
("Morgan Stanley") who serve as financial advisor to FirstEnergy Corp.; and
Winthrop, Stimson, Putnam & Roberts (WSP&R), who serve as legal counsel to
FirstEnergy Corp.
Mr. Alexander discussed the terms of the merger agreement with GPU,
Inc., a corporation incorporated under the laws of the Commonwealth of
Pennsylvania, the related proposed amendments to the Articles of Incorporation
for FirstEnergy Corp. and the communications plan. Morgan Stanley
representatives provided a detailed financial analysis and summary of the
proposed merger and discussed the fairness of the merger. Messrs. Marsh and
Clark, Ms. Vespoli, and Mr. Cusick of WSP&R discussed various financial,
business and legal aspects of the proposed merger and matters related to GPU,
Inc. Each presenter answered questions of the Board regarding the transaction.
After all presentations and discussions were conducted to the Board's
satisfaction, Mr. Burg stated that the officers of FirstEnergy Corp. have
determined that it is advantageous for FirstEnergy Corp. to consider and enter
into a strategic business combination with GPU, Inc.
Upon motion duly made and seconded, the following resolutions were
thereupon unanimously adopted:
RESOLVED: That this Board of Directors has determined that it
is advisable for FirstEnergy Corp. to engage in a strategic business
combination with GPU, Inc., whereby GPU, Inc. will merge with and into
FirstEnergy Corp. (the "Merger"), with FirstEnergy Corp. continuing as
the surviving corporation, and each issued and outstanding share of
GPU, Inc.'s common stock will be converted into the right to receive
$18.25 and 0.69 shares of common stock of FirstEnergy Corp.,
substantially upon the terms and conditions set forth in the draft
Agreement and Plan of Merger (the "Agreement") presented at this
meeting, and the Chairman and Chief Executive Officer is authorized to
propose such a transaction to GPU, Inc.;
<PAGE> 46
-2-
RESOLVED FURTHER: That the Agreement be, and it hereby is
adopted, approved and authorized and the Chairman and Chief Executive
Officer or the President of FirstEnergy Corp. are hereby authorized to
execute and deliver, on behalf of FirstEnergy Corp., the Agreement,
substantially in the form presented at this meeting, with such changes
therein as he may, in his sole discretion, approve (such approval to be
conclusively evidenced by his execution hereof);
RESOLVED FURTHER: The proposed amendment to Article IV-A of
the Articles of Incorporation of FirstEnergy Corp., increasing the
authorized shares of common stock of FirstEnergy Corp. from 300 million
to 375 million, is hereby approved.
RESOLVED FURTHER: That this Board of Directors hereby directs
that the Agreement and the contemplated merger and the amendment to
FirstEnergy Corp.'s Articles of Incorporation be submitted to a vote at
a special or annual meeting of the shareholders of FirstEnergy Corp.;
that pursuant to Article IX of the Articles of Incorporation of
FirstEnergy Corp., this Board of Directors hereby provides that the
approval of the holders of shares entitling them to exercise a majority
of the voting power of FirstEnergy Corp. shall be required for the
approval of the Agreement, the Merger and the amendment to the Articles
of Incorporation; that the record date for such meeting shall be
designated by the Chairman and Chief Executive Officer or the President
of FirstEnergy Corp., and that the Board of Directors recommends that
the shareholders of FirstEnergy Corp. approve the Agreement, the Merger
and the amendment of FirstEnergy Corp.'s Articles of Incorporation
contemplated thereby at such meeting;
RESOLVED FURTHER: That each officer and each assistant officer
of FirstEnergy Corp., is authorized to prepare and file on behalf of
FirstEnergy Corp. all regulatory and informational filings (including,
without limitation, a Hart-Scott-Rodino Premerger Notification Form,
and filings or applications with The Public Utilities Commission of
Ohio, The Pennsylvania Public Utility Commission, The New Jersey Board
of Public Utilities, the Federal Energy Regulatory Commission, the
Federal Communications Commission, the Nuclear Regulatory Commission
and the Securities and Exchange Commission) necessary or desirable in
connection with the transactions contemplated by the Agreement;
<PAGE> 47
-3-
RESOLVED FURTHER: That each director, each officer and each
assistant officer of FirstEnergy Corp. is authorized to prepare a
Registration Statement on Form S-4 covering the securities of
FirstEnergy Corp. to be issued in connection with the Merger, which
will contain the joint proxy statement/prospectus of FirstEnergy Corp.
and GPU, Inc., and to file such Registration Statement and/or such
joint proxy statement/prospectus with the Securities and Exchange
Commission, and such directors and officers are hereby authorized to
file any amendment thereto on behalf of FirstEnergy Corp.;
RESOLVED FURTHER: That the engagement by FirstEnergy Corp. of
Morgan Stanley to render its opinion to this Board of Directors as to
the fairness to FirstEnergy Corp. (in light of the conversion ratio
applicable to the holders of GPU, Inc., common stock with respect to
the Merger) is hereby ratified and confirmed, and the execution, on
behalf of FirstEnergy Corp., of an engagement letter or agreement
between FirstEnergy Corp. and Morgan Stanley by any officer or any
assistant officer is hereby authorized, ratified and confirmed;
RESOLVED FURTHER: That it is desirable and in the best
interest of FirstEnergy Corp. that its securities to be issued in the
Merger be qualified or registered for sale in various states; that each
officer and each assistant officer is hereby authorized to determine
the states in which appropriate action shall be taken to qualify or
register for sale all or such part of FirstEnergy Corp.'s securities as
said officers may deem advisable; that said officers are hereby
authorized to perform on behalf of FirstEnergy Corp. any and all such
acts as they may deem necessary or advisable in order to comply with
the applicable laws of any such states, and in connection therewith to
execute and file all requisite papers and documents, including, but not
limited to applications, reports, surety bonds, irrevocable consents
and appointments of attorneys for service of process, and that the
execution by such officers of any such paper or document or the doing
by them of any act in connection with the foregoing matters which shall
conclusively establish their authority therefor from FirstEnergy Corp.
and the approval and ratification by FirstEnergy Corp. of the papers
and documents so executed and the actions so taken;
<PAGE> 48
-4-
RESOLVED FURTHER: That each officer and each assistant officer
of FirstEnergy Corp. is hereby authorized to execute and deliver, on
behalf of FirstEnergy Corp., any agreement or other document, and to do
or cause to be done all acts, in either case as each of them, acting
individually, may deem necessary or desirable or as counsel may advise,
in connection with the transactions contemplated by the Agreement and
the foregoing resolutions; and
RESOLVED FURTHER: That all acts and deeds heretofore done by
any director, officer or assistant officer of FirstEnergy Corp. for and
on behalf of FirstEnergy Corp. in entering into, executing,
acknowledging or attesting any arrangements, agreements, instruments or
documents in connection with the Merger and the amendment to the
Articles of Incorporation or in furtherance of the intentions of these
resolutions are hereby ratified, approved and confirmed.
-------------------
I, Edward J. Udovich, Assistant Corporate Secretary of FirstEnergy
Corp., do hereby certify that the foregoing is a true and correct copy of
resolutions duly adopted at meeting of the Board of Directors of FirstEnergy
Corp. duly called and held on August 4, 2000, at which a quorum was in
attendance and voting throughout, and that said resolutions have not since been
rescinded but are still in full force and effect.
Executed this 26th day of October 2000.
/s/ Edward J. Udovich
-----------------------------------
Assistant Corporate Secretary
<PAGE> 49
GPU, INC.
CERTIFIED COPY OF CERTAIN RESOLUTIONS OF THE BOARD OF DIRECTORS
ADOPTED ON AUGUST 8, 2000
--------------------------------
WHEREAS, GPU, Inc. (the "Corporation") proposes to enter into an Agreement and
Plan of Merger (the "Merger Agreement") with FirstEnergy Corp., an Ohio
corporation ("FirstEnergy"), pursuant to which the Corporation would be
merged (the "Merger") with and into FirstEnergy and, among other
things, each share of GPU's common stock, par value $2.50 per share
("GPU Common Stock"), issued and outstanding at the effective time of
the Merger (other than shares of GPU Common Stock held in treasury by
GPU) would be converted into the right to receive (i) $36.50 in cash,
without interest (the "Cash Consideration"), (ii) a number of validly
issued, fully paid and nonassessable shares of FirstEnergy Common Stock
equal to the Exchange Ratio (as defined in the Merger Agreement) or
(iii) a combination of cash and shares as provided in Sections 2.01
(e), (g) and (h) of the Merger Agreement ((i), (ii) or (iii) as
applicable, the "Merger Consideration"). The "Exchange Ratio" shall be
equal to the quotient (rounded to the nearest ten thousandth, or if
there is no nearest ten thousandth, the next higher ten thousandth) of
the Cash Consideration divided by the FirstEnergy Share Price (as
defined below); provided, however, that if the FirstEnergy Share Price
is less than $24.2438, the "Exchange Ratio" shall be 1.5055, and if the
FirstEnergy Share Price is greater than $29.6313, the "Exchange Ratio"
shall be 1.2318. The "FirstEnergy Share Price" shall be equal to the
average of the closing prices of the shares of FirstEnergy Common Stock
on the New York Stock Exchange ("NYSE") Composite Transactions
Reporting System, as reported in The Wall Street Journal (but subject
to correction for typographical or other manifest errors in such
reporting), over the 20 trading days ending on the trading day
immediately preceding the fifth Business Day (as defined in Rule
14d-1(g)(3) under the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder (the "Exchange Act")) prior to the
Election Deadline, as defined in the Merger Agreement. The amount of
cash and the amount of stock to be received by shareholders of GPU will
be subject to a Cash Election and a Stock Election as more fully set
forth in the Merger Agreement.
NOW, THEREFORE, BE IT RESOLVED, that the Merger Agreement (a draft of which
was presented to the Board of Directors at this meeting) and the
transactions contemplated thereby, including the Merger, and all
agreements and documents related thereto and contemplated thereby
("Related Documents"), are hereby authorized and approved, and each of
the Chief Executive Officer, Chief Financial Officer and General
Counsel (the "Authorized Officers"), or any person designated by the
Authorized Officers,
1
<PAGE> 50
is hereby authorized and empowered, for and on behalf of the
Corporation, to execute and deliver the Merger Agreement and the
Related Documents with such changes in the terms thereof as the
individual executing the same shall approve, such approval to be
conclusively evidenced by the execution thereof;
RESOLVED, that the Board of Directors has determined that the Merger Agreement
and the Related Documents and the transactions contemplated thereby are
fair to and in the best interest of the Corporation and the
shareholders of the Corporation;
RESOLVED, that the Board of Directors recommends that the shareholders of the
Corporation vote in favor of the adoption of the Merger Agreement.
RESOLVED, that each of the Authorized Officers or their designees is hereby
authorized and empowered, for and on behalf of the Corporation, to
prepare, execute and file Articles of Merger pursuant to Section 1927
of the Pennsylvania Business Corporation Law (the "PBCL") with the
Department of State of the Commonwealth of Pennsylvania and to do all
acts and things necessary or proper to effect the Merger;
RESOLVED, that each of the Authorized Officers or their designees is hereby
authorized and empowered, for and on behalf of the Corporation, to
prepare, execute, and cause to be filed with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of 1934,
as amended (the "1934 Act"), a proxy statement of the Corporation
relating to the Special Meeting (which may be a joint proxy statement
of the Corporation and FirstEnergy), and such other reports, statements
and filings under the 1934 Act that any of said officers may determine
to be necessary or advisable in connection with the Merger Agreement,
the Related Documents and the transactions contemplated thereby, with
power in any of said officers to cause to be filed any amendments
(including, without limitation, post-effective amendments) or
supplements thereto, in each case together with all documents required
by and exhibits to such reports, statements and other filings, or any
amendments or supplements thereto, as any of said officers, in his or
her discretion, may deem necessary or advisable in connection with the
Merger Agreement, the Related Documents and the transactions
contemplated hereby, all in accordance with the requirements of the
1934 Act, as applicable;
RESOLVED, that each of the Authorized Officers or their designees is hereby
authorized and empowered, for and on behalf of the Corporation, to
prepare, execute and file (i) with the Department of Justice and the
Federal Trade Commission a Notification and Report Form pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
any other
2
<PAGE> 51
reports, documents or information necessary or advisable to be filed
thereunder, and (ii) any other reports, documents, applications or
information as may be necessary or advisable to be filed with any
governmental authority, in each case, with respect to or in connection
with the consummation of the transactions contemplated by the Merger
Agreement and the Related Documents (including, without limitation,
filings under the Public Utility Holding Company Act of 1935; filings
with the Federal Energy Regulatory Commission; filings with the Nuclear
Regulatory Commission; filings with the Federal Communications
Commission; and filings with the relevant New Jersey and Pennsylvania
state regulatory authorities);
RESOLVED, that each of the Authorized Officers or their designees is hereby
authorized and empowered, for and on behalf of the Corporation, to take
all such other actions: (i) seeking all consents and approvals of
governmental authorities necessary or advisable in connection with the
Merger Agreement taking such actions, if any, as are necessary or
advisable to comply with the requirements of federal, state, and
foreign laws or regulations, (ii) retaining such advisors, consultants
and agents (including, but not limited to, stock transfer agents) as
any of said officers, may deem necessary or advisable, and (iii)
executing and delivering all agreements, undertakings, obligations,
financing arrangements, instruments and other documents and taking such
action as such officers, or any of them, consider necessary or
advisable, in each case in order to effectuate the foregoing
resolutions and to carry out the intent and purposes thereof or
otherwise to effectuate any of the transactions contemplated by the
foregoing resolutions; and
RESOLVED, that any and all actions heretofore taken by any officer of the
Corporation in connection with the Merger Agreements, Related Documents
and the transactions contemplated thereby are hereby ratified and
approved.
--------------------
THIS IS TO CERTIFY that the undersigned is Secretary of GPU, Inc., a
corporation of the Commonwealth of Pennsylvania; that the above and foregoing is
a true and correct copy of certain resolutions duly and regularly adopted by the
Board of Directors of said Corporation at a meeting thereof duly convened and
held on the 8th day of August, 2000, at which meeting a quorum was present and
voted; and that said resolutions are in full force and effect.
WITNESS the signature of the undersigned as such officer of the
Corporation and its corporate seal hereunto affixed this 9th day of October,
2000.
/s/ Scott L. Guibord
--------------------------------
(SEAL) Scott L. Guibord, Secretary
3
<PAGE> 52
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Joint Application for Approval of the : Application Docket No.
Merger of GPU, Inc. with FirstEnergy : A-
Corp. :
DIRECT TESTIMONY
OF
ANTHONY J. ALEXANDER
Regarding Merger Overview and Benefits
<PAGE> 53
APPLICANTS' STATEMENT NO. 1
DIRECT TESTIMONY OF ANTHONY J. ALEXANDER
I. QUALIFICATIONS
Q. Please state your name and business address.
A. My name is Anthony J. Alexander. My business address is 76 South Main
Street, Akron, Ohio 44308.
Q. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY?
A. I am employed as President of FirstEnergy Corp., a position I have held
since February 1, 2000.
I started my career as an accountant in the Tax Department of
Ohio Edison Company ("Ohio Edison" or "OE") in 1972. After receiving my
law degree, I joined the OE Legal Department in 1976. I attended the
Harvard School of Business Program for Management Development in 1986.
In 1989, after several promotions, I was named Vice President and
General Counsel of OE. I was named Senior Vice president and General
Counsel in 1991 and Executive Vice President and General Counsel in
1997. When FirstEnergy was formed in November 1997, I was named
Executive Vice President and General Counsel of FirstEnergy and for
each of its utility operating companies. I was named President of
FirstEnergy effective February 1, 2000.
My responsibilities have included communications, legal,
governmental affairs, sales and marketing, business development, power
trading and wholesale transactions, generation, and for a short period
distribution operations. I also have
2
<PAGE> 54
responsibility over our Heating, Ventilation and Air Conditioning
(HVAC) and natural gas businesses.
II. PURPOSE OF TESTIMONY
Q. MR. ALEXANDER, WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS
PROCEEDING?
A. The purpose of my testimony is to provide the Pennsylvania Public
Utility Commission ("Commission") with an overview of and relevant
background concerning the proposed merger between FirstEnergy Corp.
("First Energy") and GPU, Inc. ("GPU"). My testimony provides
affirmative support for the proposed merger and outlines benefits of
the merger to GPU Energy's Pennsylvania customers. Among other things,
I will address the impact of the proposed merger on overall operations
and reliability, customer service, enhanced efficiencies, employee
impacts, continued involvement in local communities and the impact on
competition generally in Pennsylvania.
III. DESCRIPTION OF THE FIRSTENERGY COMPANIES
Q. PLEASE DESCRIBE FIRSTENERGY.
A. FirstEnergy is a diversified energy services holding company
headquartered in Akron, Ohio. It was formed in 1997 as a result of the
merger of OE and Centerior Energy Corporation, which owned The
Cleveland Electric Illuminating Company ("Cleveland Electric" or "CEI")
and the Toledo Edison Company ("Toledo Edison" or "TE"). FirstEnergy
presently owns three electric utility operating companies in Ohio,
namely, Ohio Edison, Cleveland Electric and Toledo Edison. Ohio Edison
owns Pennsylvania Power Company ("Penn Power" or "PP"), an electric
utility operating in portions of western Pennsylvania and subject to
this
3
<PAGE> 55
Commission's jurisdiction. Ohio Edison, Cleveland Electric and Toledo
Edison are regulated by the Public Utilities Commission of Ohio.
Together, these FirstEnergy utilities serve 2.2 million customers in a
13,200 square mile area in northern and central Ohio and western
Pennsylvania.
FirstEnergy owns American Transmission Systems, Inc. ("ATSI")
and FirstEnergy Trading Services, Inc., as well as other businesses
including gas exploration and production operations, a regulated gas
business and a number of mechanical contractors located throughout the
northeastern United States.
In response to the restructuring of the utility industry,
FirstEnergy, through its state licensed affiliates, primarily First
Energy Services Corp., has been and will be pursuing retail electric
customers in a number of states, including Ohio, Pennsylvania, New
Jersey, Delaware and Maryland.
Q. DO THE FIRSTENERGY UTILITY SUBSIDIARIES CURRENTLY OWN ANY ELECTRIC
GENERATING FACILITIES?
A. Yes. Ohio Edison, Toledo Edison, Cleveland Electric and Penn Power
currently own and operate 16 power plants, which consist of a mix of
fossil and combustion turbine generators and nuclear generators, with a
total capacity of approximately 12,100 megawatts. Approximately 30% of
the capacity is nuclear and 40% of the energy generated by the system
is from nuclear plants. FirstEnergy is increasing the amount of its
peaking capacity by installing three, 130 megawatt natural gas-fired
turbines at the Richland Substation in Defiance, Ohio. We also plan to
add another 765 megawatts of peaking capacity by the end of 2002.
Q. PLEASE DESCRIBE FIRSTENERGY'S TRANSMISSION SYSTEM.
4
<PAGE> 56
A. OE, CEI, TE and PP have historically owned approximately 7,100 circuit
miles of transmission lines of 69 kV or above and 120 substations;
1,153 miles of 345 kV lines; 3,667 miles of 138 kV lines; and 2,279
miles of 69 kV lines. On September 1, 2000, FirstEnergy's utilities
transferred their transmission facilities to ATSI. ATSI now provides
open access transmission service over its transmission facilities under
a tariff made effective by FERC. FirstEnergy's operating companies
receive network integration service from ATSI under the same terms and
conditions that are available to all non-affiliated network customers.
ATSI has 37 interconnections with six other electric systems, including
a 345 kV interconnection with GPU Energy, Penelec in particular, at the
Ohio-Pennsylvania border, known as the Ashtabula-Erie West tie line.
FirstEnergy's utilities also own approximately 57,000 miles of
distribution facilities.
The FirstEnergy companies have been active participants in the
formation of the Alliance Regional Transmission Organization
("Alliance"). The Federal Energy Regulatory Commission currently is
reviewing the application for approval of the Alliance RTO. Upon such
approval, ATSI will transfer operational control of its transmission
facilities to the Alliance.
IV. SUMMARY OF THE MERGER
Q. CAN YOU BRIEFLY DESCRIBE THE CORPORATE MERGER BEING UNDERTAKEN BY
FIRSTENERGY AND GPU.
A. The proposed merger represents a natural alliance of companies with
adjoining service areas and interconnected transmission systems and is
a strategic step in preparing FirstEnergy to be a premier energy
services provider in states that have
5
<PAGE> 57
mandated industry restructuring and retail customer choice. These
states are Ohio, which requires customer choice as of January 1, 2001;
and Pennsylvania and New Jersey, where retail customer choice has
already commenced under state law. Attached to this testimony as AJA
Exhibit No. 1 is a map showing the combined service areas of
FirstEnergy and GPU. Retail competition introduces significant new
risks and challenges to companies that were until recently service
providers in franchised areas. The proposed merger is intended in large
part to enhance the combined capabilities of FirstEnergy and GPU to
meet the challenges of this changing utility industry.
Under the planned merger, FirstEnergy will acquire all of
GPU's outstanding shares of common stock and assume GPU's outstanding
indebtedness, and GPU will be merged with and into FirstEnergy. As the
surviving parent company, FirstEnergy will become a registered public
utility holding company under the Public Utility Holding Company Act of
1935 and will continue to be headquartered in Akron, Ohio. The GPU
Energy companies in Pennsylvania -- Metropolitan Edison Company
("Met-Ed") and Pennsylvania Electric Company ("Penelec") -- will
operate under the name of GPU Energy while reflecting their affiliation
with FirstEnergy, until otherwise determined. They will continue to
function as operating companies. FirstEnergy also intends to have GPU
Energy's transmission system continue to be a part of the PJM
Interconnection LLC.
V. BENEFITS OF THE MERGER
Q. MR. ALEXANDER, WHAT ARE THE GENERAL BENEFITS OF THIS MERGER?
6
<PAGE> 58
A. As of the date of the commencement of this proceeding, the combined
FirstEnergy and GPU will create the nation's sixth largest
investor-owned electric system based on the number of customers. The
merged companies will possess the management, employee experience,
technical expertise, retail customer base, energy and related services
platform and financial resources to grow and succeed in the rapidly
changing energy marketplace. It has become apparent over the last few
years that the evolving competitive electricity market requires
successsful industry participants to seek and create economies of
scale, reduce duplicative activities and practices and enhance
operating and procurement efficiencies. By combining their resources,
years of utility experience and considerable expertise, GPU and
FirstEnergy will significantly enhance each other's overall
capabilities. The sum of these companies will truly be better than
their individual components. For example, the combined service
territories will be more diverse than the individual service
territories, thereby reducing exposure to adverse changes in any
sector's economic and competitive conditions. The merger will create a
larger, stronger parent company that is better positioned to compete
and to attract capital on reasonable terms for its public utility
subsidiaries.
With over 4 million customers, the new FirstEnergy will have
reached a significant milestone in size, allowing it the enhanced
capability to invest in new facilities and emerging technologies. This
larger company will have a greater capability to provide customers with
a wider array of energy services and products than either company could
do on a stand-alone basis.
Q. HOW WILL THE MERGER AFFECT CUSTOMER RATES?
7
<PAGE> 59
A. Met-Ed's and Penelec's rates will continue to be subject to the full
jurisdiction of the Commission, including the provisions of the
Commission's order dated October 20, 1998 at Docket Nos. R-00974008 and
R-00974009 which approved the GPU Energy's restructuring settlement.
Q. HOW WILL THE PROPOSED MERGER FURTHER CUSTOMER SERVICE AND RELIABILITY
INITIATIVES IN PENNSYLVANIA?
A. The proposed merger will have no adverse impact on GPU Energy's
continued ability to provide safe and adequate utility service to its
customers in Pennsylvania, nor will it affect the Commission's
jurisdiction over adequacy and reliability of customer service. Perhaps
most importantly, this merger will provide enhanced customer service
opportunities and increased value. As part of the merger integration
process, FirstEnergy and GPU intend to conduct a detailed analysis of
their existing procedures and policies to determine how they can
combine and develop their own "best practices" in order to enhance
utility service to customers. Streamlining operations, reducing overall
complexity and reliance upon a regional focus will ensure a continued
high level of management attention on distribution system reliability
and overall customer service.
Individually, FirstEnergy and GPU have developed a strong
corporate commitment to customer service and reliability. By combining
the best practices of their respective companies, customer service will
be further enhanced. Met-Ed and Penelec will continue to be fully
subject to and accountable for the safeguards and standards promulgated
by the Commission to foster safe, adequate and reliable service.
8
<PAGE> 60
From a reliability perspective, the merger is expected to
facilitate synergies between FirstEnergy and GPU and build upon areas
of expertise and common experience. For example, one major component of
customer service reliability will be fostered by making additional
resources available when needed to meet emergencies, such as storms and
other related matters.
Similarly, a critical issue confronting the electric industry
is the training of new talent to replace a growing number of
experienced line crew members who are reaching retirement age. Among
the practices employed by FirstEnergy is a partnership with local
community colleges to offer interested and qualified individuals the
opportunity to learn new skills through a new two-year electric utility
technology degree, with an emphasis on electric line maintenance.
Following consummation of the merger, a concerted effort will be made
to bring this type of educational opportunity to the communities served
by GPU Energy.
Q. HOW WILL THE MERGER CREATE NEW OPPORTUNITIES FOR GPU ENERGY EMPLOYEES
AS WELL AS ENHANCED BUSINESS AND EFFICIENT UTILITY OPERATIONS?
A. The merger will permit FirstEnergy and GPU to eliminate certain
duplicative activities and allow for more efficient use of their
combined staffing, particularly at the corporate and administrative
levels. Specifically, we expect to see reduced expenses resulting in
such areas as insurance, facilities and professional services. The
merger is also expected to build upon the efforts already undertaken
and achieved in recent years at GPU Energy to restructure and
streamline its work force.
9
<PAGE> 61
FirstEnergy expects to continue to maintain its overall
management philosophy that places authority and accountability at the
local level, within each region of the utility's customer base. Indeed,
GPU Energy's most recent restructuring is consistent with that
approach. Authority and responsibility for ensuring system performance
within each region rests with local hands-on leadership and their
compensation is tied closely to meeting key performance goals within
the regions.
Also, GPU Energy employees will be joining the ranks of one of
the safest utility systems to work for in the country. In 1999,
FirstEnergy ranked sixth of fifty-five participating Edison Electric
Institute ("EEI") companies in total company safety. Among companies
with more than 7,000 employees, FirstEnergy ranked second of eighteen
participating EEI companies.
While some savings will inevitably result from a reduction in
employees, FirstEnergy will consider GPU employees for positions within
the combined company using criteria including previous work history,
job experience and other qualifications. Indeed, the merger will offer
expanded opportunities to GPU Energy employees for career advancement
and professional growth. FirstEnergy's strong commitment to GPU Energy
and its employees has been evidenced repeatedly to date in many ways,
such as the active participation by members of GPU Energy on the
Transition Team including GPU's current Chairman, President and Chief
Executive Officer, who will serve as FirstEnergy's chairman until his
retirement. Moreover, FirstEnergy will also honor the terms of all of
GPU Energy's existing union contracts.
10
<PAGE> 62
Q. HOW WILL THE PROPOSED MERGER BENEFIT GPU ENERGY'S SERVICE TERRITORY AND
THE LOCAL COMMUNITIES IN WHICH IT OPERATES?
A. Since neither of GPU Energy's two Pennsylvania operating companies are
being directly restructured as a result of the proposed merger, both of
them will continue to provide service within their respective service
territories. In further support of various GPU communities, FirstEnergy
intends to maintain the levels of all existing charitable commitments
of GPU Energy for at least the next three years. Thereafter,
FirstEnergy will continue to support local charities in a manner
consistent with what it does in the communities it presently serves.
Through FirstEnergy, GPU Energy's Pennsylvania operating companies will
continue to be significant employers and responsible corporate citizens
who will provide proactive support for the local communities in which
they operate.
Q. WILL THE MERGER CREATE COST SAVINGS?
A. Yes. FirstEnergy anticipates that the merger will result in overall
aggregate cost savings opportunities that are currently estimated to be
about $150 million per year on a total combined company basis.
Q. HOW DID FIRSTENERGY ARRIVE AT ITS COST SAVINGS ESTIMATES?
A. The estimated total annual savings of $150 million for the combined
company is based upon an assumed five percent (5%) reduction in
operating and maintenance costs. This estimated savings amount is
typical of calculations developed in other mergers and is not based on
a detailed evaluation of savings. These savings would be attributed to
each particular FirstEnergy entity, as appropriate.
11
<PAGE> 63
It is important to emphasize, however, that the potential for
cost savings is not the primary factor justifying the merger. This
merger is primarily intended to create significant strategic
advantages, not capable of quantification. The value of this merger is
in large measure the economies of scale and scope, increased
efficiencies, as well as the values, goals and commitments to success
that are shared by FirstEnergy and GPU.
VI. IMPACTS ON COMPETITION
Q. WILL THE MERGER HAVE ANY ADVERSE IMPACT ON COMPETITION WITHIN
PENNSYLVANIA?
A. No. I do not believe that the merger will have any adverse affect on
competition in the supply and distribution of electricity in
Pennsylvania. There will be no concentration of generation ownership
after the merger, particularly since GPU Energy has completed the
divestiture of substantially all of its electric generation assets
under previously approved Commission restructuring plans. In addition,
GPU Energy will continue to operate and provide electric utility
service in its Pennsylvania franchise territories under the same market
conditions as currently exist.
The testimony of Rodney Frame from Analysis Group/Economics,
Applicants' Statement No. 4, indicates that an important prerequisite
for having competitive retail electricity markets is making sure that
competing retailers can purchase wholesale electricity in markets that
are characterized by the absence of market power. Mr. Frame's analysis
shows that the merger of FirstEnergy and GPU will not adversely affect
competition or create the potential for the exercise
12
<PAGE> 64
of market power in wholesale electricity markets. Mr. Frame also
concludes that the proposed merger will have no adverse impact on
retail electricity markets in which Pennsylvania customers purchase
electricity, and will not prevent retail electric customers from
obtaining the benefits of a properly functioning and workable
competitive retail electricity market.
VII. CONCLUSION
Q. DOES THIS CONCLUDE YOUR PRESENT TESTIMONY?
A. Yes.
13
<PAGE> 65
AJA EXHIBIT NO. 1
FIRST ENERGY(R)
[MAP OF FIRST ENERGY AND GPU TERRITORIES]
[MAP]
<PAGE> 66
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Joint Application for Approval of the : Application Docket No.
Merger of GPU, Inc. with FirstEnergy : A-
Corp. :
DIRECT TESTIMONY
OF
FRED D. HAFER
Regarding the Merger of FirstEnergy Corp., and GPU, Inc.
<PAGE> 67
APPLICANTS' STATEMENT NO. 2
DIRECT TESTIMONY OF FRED D. HAFER
I. QUALIFICATIONS
Q. PLEASE STATE YOUR FULL NAME AND BUSINESS ADDRESS.
A: My name is Fred D. Hafer. I maintain business offices at 300 Madison
Avenue, Morristown, New Jersey 07962 and 2800 Pottsville Pike, Reading,
Pennsylvania 19605.
Q. BY WHOM ARE YOU EMPLOYED, AND IN WHAT CAPACITY?
A. I am employed as Chairman, President and Chief Executive Officer of
GPU, Inc. ("GPU"). I also serve as Chairman of its Pennsylvania public
utility subsidiaries, Metropolitan Edison Company ("Met-Ed") and
Pennsylvania Electric Company ("Penelec"), each of which does business
in Pennsylvania under the trade name GPU Energy ("GPU Energy"). GPU
Energy serves approximately 1 million customers in Pennsylvania, and is
subject to the regulatory jurisdiction of the Pennsylvania Public
Utility Commission ("Commission").
Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND YOUR WORK EXPERIENCE
WITH GPU.
A. I have been employed in the GPU system since 1962, when I started as an
engineering trainee. In 1970, I was named Treasurer of GPU Service,
Inc. ("GPUS"), and in 1977 I was named Vice President of Rate Case
Management of GPUS. I became President of Met-Ed in 1986 and President
of the combined companies, Met-Ed and Penelec, in 1994. In 1996, I led
the formation of GPU's combined domestic wires business, which is
currently doing business as GPU Energy. I became President and Chief
Operating Officer of GPU and GPUS in 1996 and was elected to the
additional positions of
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Chairman and Chief Executive Officer in 1997. In that capacity I have
led the negotiations with FirstEnergy Corp. ("First Energy") pertaining
to the proposed merger on behalf of GPU.
II. PURPOSE OF TESTIMONY
Q. MR. HAFER, WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. I will provide an overview of the proposed merger between GPU, Inc. and
FirstEnergy Corp. ("FirstEnergy").
III. SUMMARY OF THE MERGER
Q. CAN YOU BRIEFLY DESCRIBE THE CORPORATE MERGER BEING UNDERTAKEN BY GPU
AND FIRSTENERGY?
A. As also explained in Mr. Alexander's testimony (Applicants' Statement
No. 1 ), on August 8, 2000 GPU and FirstEnergy announced that both
companies' boards of directors had unanimously approved a definitive
merger agreement under which FirstEnergy would (i) acquire all of the
outstanding shares of GPU's common stock for approximately $4.5 billion
in cash and FirstEnergy common stock and (ii) assume approximately $7.4
billion of GPU's debt and preferred stock. The combined company would
have an equity value of approximately $8.5 billion. Under the Agreement
and Plan of Merger, dated August 8, 2000 (Exhibit D to the Joint
Application), GPU will be merged with and into FirstEnergy, which will
be the surviving corporation. Holders of GPU common stock will be able
to choose to receive (i) $36.50 in cash for each share of GPU common
stock, or (ii) FirstEnergy common stock, the amount to be determined by
an exchange ratio set forth in the Merger Agreement. Under the Merger
Agreement, however, unless an adjustment is made as a result of tax
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considerations, 50 percent of all issued and outstanding shares of GPU
common stock must be exchanged for cash and 50 percent must be
exchanged for FirstEnergy common stock.
Q. WHAT WILL YOUR ROLE BE IN THE NEW MERGED COMPANY?
A. As set forth in the Merger Agreement, I will be Chairman of the Board
until I retire in three years at age 62.
Q. PLEASE DESCRIBE THE STRUCTURE OF THE MERGED COMPANY?
A. The surviving parent company (FirstEnergy Corp.) will become a
registered public utility holding company under the Public Utility
Holding Company Act of 1935 and will be headquartered in Akron, Ohio.
The Board of Directors of the surviving parent company will consist of
10 members from FirstEnergy's current Board and 6 from GPU's current
Board.
After the merger, FirstEnergy will, among other things, own
all of the common stock of each of the GPU Energy companies as well as
of Ohio Edison Company, The Toledo Edison Company and The Cleveland
Electric Illuminating Company, which are FirstEnergy's existing
electric public utility companies in Ohio. Ohio Edison will continue to
own all of the common stock of Pennsylvania Power Company. Together,
these companies will serve approximately 4.3 million customers within
37,200 square miles of Ohio, Pennsylvania and New Jersey.
After the merger, it is anticipated that GPU's and
FirstEnergy's distribution operations will operate in their respective
service territories with regionally-based management.
The combination of FirstEnergy and GPU would create the
nation's sixth largest investor-owned electric system, based on
customers served. (As of June 30, 2000, the combined revenues of
FirstEnergy and GPU for the previous 12 months totaled $12.0 billion
and assets of the companies totaled $38.6 billion).
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Q. WHY DO YOU BELIEVE THE MERGER IS BENEFICIAL AND SHOULD BE APPROVED BY
THIS COMMISSION?
A. I believe that the merger will create one of the premier energy
delivery companies in the nation and will help GPU Energy continue its
commitment to excellence in customer service. The combination of GPU's
and FirstEnergy's considerable resources and expertise will strengthen
the ability of the merged company's regulated distribution companies in
Ohio, New Jersey and Pennsylvania to provide cost-effective and
reliable service in the rapidly evolving competitive energy
marketplace, thereby strengthening the prospects for continuing growth
in Pennsylvania's economy (as well as in the economies of the other
states in which FirstEnergy will operate).
In addition, the combined company will be in a position to
continue to recruit and attract qualified, motivated and skilled
individuals as well as to offer greater career opportunities for its
existing employees, all of which will ultimately benefit customers
through improved service and innovation.
Finally, GPU and FirstEnergy are a good fit in terms of
strategic objectives, culture and values, locations and systems. I
fully expect that this consistency will make for a smooth transition
that quickly captures and incorporates into the merged organization the
best practices and advantages that each party brings to this
combination.
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Q. WILL THIS MERGER ADVERSELY AFFECT GPU ENERGY'S PRESENCE IN THE
PENNSYLVANIA COMMUNITIES IT SERVES?
A. No. The new merged company will have a very strong presence in
Pennsylvania. In particular, GPU Energy's Pennsylvania operations and
associated work force will remain in Pennsylvania, as described more
fully in the testimony of Michael J. Chesser, the President and CEO of
GPU Energy, in Applicants' Statement No. 3. Indeed, GPU Energy has been
and is currently reorganizing its operations into a regional model
consistent with that of FirstEnergy.
In addition, GPU Energy's significant commitment to the area's
institutional and non-profit organizations will continue. Charitable
contributions will be maintained at their current level for at least
three years and thereafter will be provided for in a manner consistent
with that of the FirstEnergy regions.
GPU Energy employees also have a long history of serving their
community, either through volunteer organizations or service on
township commissions, school boards, and borough councils. We fully
expect our employees to continue their commitments to these endeavors
after the merger.
Finally, we expect the merged FirstEnergy, through the GPU
Energy companies, to continue their important role in the economic
health and well-being of Pennsylvania, both as a significant employer
and as a responsible corporate citizen -- a strong tradition for
supporting local communities through charitable contributions and
through the extensive volunteerism of employees.
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IV. CONCLUSION
Q. DOES THIS CONCLUDE YOUR PRESENT TESTIMONY?
A. Yes.
6
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BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Joint Application For Approval of the : Application Docket No.
Merger of GPU, Inc. with FirstEnergy : A-
Corp. :
DIRECT TESTIMONY
OF
MICHAEL J. CHESSER
Regarding GPU Energy Operations and Employees in the context
of the Merger of GPU Inc., with and into FirstEnergy Corp.
<PAGE> 74
APPLICANTS' STATEMENT NO. 3
DIRECT TESTIMONY OF MICHAEL J. CHESSER
I. QUALIFICATIONS
Q. PLEASE STATE YOUR FULL NAME AND BUSINESS ADDRESS.
A: My name is Michael J. Chesser. My office is located at 2800 Pottsville
Pike, Reading, Pennsylvania 19605.
Q. BY WHOM ARE YOU EMPLOYED, AND IN WHAT CAPACITY?
A. Since April 2000, I have been employed as President and Chief Executive
Officer of GPU Energy.
Up until April 2000, I was Chairman, Chief Executive and
President of Itron, a provider to the utility industry of automated
meter reading solutions for collecting, communicating, and analyzing
electric, gas, and water usage, a position I held since June 1999.
Prior to joining Itron, I was President and Chief Operating
Officer of Atlantic Energy, Inc., at the time of its merger with
Delmarva Power to form Conectiv. Earlier in my career, I was Vice
President of Marketing and Gas Operations at Baltimore Gas and Electric
Company (BGE). Prior to being named a Vice President, I was the manager
of the Southern Division for BGE.
Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND.
A. I hold an undergraduate degree in aerospace engineering from Georgia
Tech and a MBA in finance from Loyola College of Maryland. I have also
attended the Advanced Management Program at Harvard.
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II. PURPOSE OF TESTIMONY
Q. MR. CHESSER, WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. This testimony addresses the effects and benefits of the proposed
merger on GPU Energy's operations and employees and on its continued
commitment to the local communities it serves. I will also confirm that
from my perspective as the current President and CEO of the GPU Energy
companies in Pennsylvania, Metropolitan Edison Company ("Met-Ed") and
Pennsylvania Electric Company ("Penelec"), the proposed merger will
benefit GPU Energy's operations, employees and the local communities
they serve.
III. EXECUTIVE SUMMARY
Q. CAN YOU BRIEFLY DESCRIBE THE CORPORATE MERGER BEING UNDERTAKEN BY GPU
AND FIRSTENERGY?
A. As explained in greater detail in the written direct testimony of Fred
D. Hafer, the GPU, Inc. Chairman, President and Chief Executive Officer
(Applicants' Statement No. 2 ) and Anthony J. Alexander, FirstEnergy's
President (Applicants' Statement. No. 1), this is a corporate merger at
a parent holding company level. The surviving parent company
(FirstEnergy Corp.) will become a registered public utility holding
company under the Public Utility Holding Company Act of 1935, will
continue to be headquartered in Akron, Ohio, and will own all of the
common stock of each of the GPU Energy companies. Since this is a
merger at the parent level, Met-Ed and Penelec will continue to
function as Pennsylvania electric distribution public utilities in
their respective service territories, with appropriate regional and
local offices and management dedicated to maintaining
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and enhancing their level of service to customers. Met-Ed and Penelec
will operate under the name of GPU Energy while reflecting their
affiliation with FirstEnergy, and remain subject to this Commission's
jurisdiction.
IV. OPERATIONS AND EMPLOYMENT
Q. MR. CHESSER, WHAT WILL BE THE EFFECT OF THE MERGER ON OPERATIONS AND
EMPLOYMENT AT GPU ENERGY?
A. The merger of GPU and FirstEnergy, and the implementation and
coordination of the two companies "best practices", is expected to lead
to operational efficiencies and enhancements at GPU Energy. Most
importantly, there will continue to be significant leadership and
managerial presence in Pennsylvania. In effect, GPU Energy is going to
be even a better company than it is today, with an even stronger
presence and commitment to the communities we serve.
As the culmination of a process that began well before the
announcement of the merger, GPU Energy is being re-organized now to
adopt a regional model that is, as I understand it, consistent with the
FirstEnergy philosophy wherein the FirstEnergy operating companies have
been organized in such a way as to delegate operating responsibility
and authority to regional management, rather than to central control.
In connection with the GPU Energy reorganization, we have initially
segmented the Pennsylvania service territory into two regions, each of
which will have a designated Regional President. The Regional President
and his/her staff will have the authority and the obligation to oversee
the region's distribution operations, its relationships with the
communities that it serves, and the responsibility for maintaining and
improving local reliability and customer
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service quality. The essential elements of the GPU Energy
organizational design are the establishment of clear "line of sight"
accountabilities, an emphasis on efficiency, an integration of
technological innovation, and the institution of effective local
networks to produce operational excellence.
Q. HOW WILL THE SAFETY AND RELIABILITY OF GPU ENERGY'S DISTRIBUTION SYSTEM
BE AFFECTED BY THE MERGER?
A. The safety and reliability of their distribution systems is both GPU's
and FirstEnergy's primary focus to which they already devote
significant resources. FirstEnergy, through its regional approach, is
committed to providing efficient, safe and reliable electric service,
and GPU Energy will continue its commitment and expand this focus after
the merger. In fact, operational safety and reliability are two of the
measures for which the new GPU Energy Regional Presidents will be
responsible within their regions. Met-Ed and Penelec, as FirstEnergy
companies, will be expected to continue this long-standing commitment
and focus in these areas after the merger.
Q. WHAT ASSURANCE CAN YOU PROVIDE THAT THE MERGER WILL NOT ADVERSELY
AFFECT GPU ENERGY'S COMMITMENT TO DISTRIBUTION RELIABILITY?
A. The management structure currently used by FirstEnergy and the approach
being implemented at GPU Energy are designed to assure high-level
management attention to distribution reliability and delivery service
operations. Indeed, the regional approach the companies share provides
a basis for regional organizations to respond to local circumstances,
including reliability issues and concerns, while maintaining a common
vision and strategy. I expect that an increased
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management focus on distribution reliability will result from the
merger and will yield benefits for our customers. GPU and First Energy
support aggressive programs to improve or maintain the reliability of
their utilities' distribution systems. They recognize that distribution
system reliability continues to be the heart of good customer service
and improved customer satisfaction, and that their success depends on
meeting customers' increased expectations for service reliability.
FirstEnergy has demonstrated to GPU that it has a strong commitment to
distribution system reliability and to improvements in the efficiency,
dependability and quality of delivery service. This mutual commitment
to excellence should result in improved performance at both companies.
In addition, as noted above, GPU believes that the combined
company, by virtue of its greater resources and sharing of "best
practices" will be even better positioned to meet future customer
demands and to ensure that the highest quality of service will be
provided. For example, GPU Energy will work with FirstEnergy to develop
procedures that facilitate making additional resources to GPU Energy
available when necessary to respond to emergency situations such as
storm restoration.
Q. HOW WILL THE COMMISSION MONITOR GPU ENERGY'S RELIABILITY PERFORMANCE?
A. The Commission still will be in a position to closely monitor GPU
Energy's reliability performance. The Commission's Bureau of
Conservation, Economics and Energy Planning is charged with monitoring
the reliability data submitted yearly by the electric distribution
companies ("EDCs") and will report to the Commission on reliability
performance of each EDC based on the final
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benchmarks and standards. Commission oversight in this area will be
unaffected by the merger.
Q. DO YOU SEE ANY CHANGES IN THE QUALITY OF GPU ENERGY'S CUSTOMER SERVICE
AS A RESULT OF THIS MERGER?
A. I believe that the merger will have a positive effect on customer
service as it will enable the merger partners to use our combined
talents and expertise to enhance customer service. Just as GPU Energy
has a strong commitment to safety and reliability, we are equally
committed to improving customer service. As part of the merger
integration process, GPU Energy plans to review its customer service
procedures with those of FirstEnergy and determine how to integrate and
incorporate the best practices of each company.
Indeed, an important element of both customer service and
reliability will be fostered through the merger by making additional
resources available when needed to meet emergencies, such as storms and
other related matters. This relationship will provide enhanced
capability in terms of emergency service restoration at critical and
often traumatic times for our customers.
Furthermore, I believe that nurturing local relationships and
having an intimate understanding of the values, issues, aspirations and
concerns of the communities that we serve are critical to providing and
delivering excellent customer service and satisfaction. Again, the
regional approach of both companies demands and is organized to
encourage community involvement and leadership as the way in which to
build such relationships.
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<PAGE> 80
Q. WILL THE MERGER ADVERSELY AFFECT THE QUALITY OF GPU ENERGY'S CUSTOMER
SERVICE OR THE COMMISSION'S OVERSIGHT OF SUCH SERVICE?
A. No. The Competition Act states that "customer services shall, at a
minimum, be maintained at the same level of quality under retail
competition." 66 Pa. C.S.Sec.2807(D). The Commission will continue to
monitor GPU Energy's customer service performance to ensure that this
statutory mandate is satisfied. As I noted in my earlier answer, GPU
Energy's goal has not been to merely maintain customer services at the
same level, but to enhance those services. This will continue to be a
GPU Energy goal after the merger. Accordingly, GPU Energy's quality of
customer service will not be adversely affected by the merger.
Q. DO YOU ANTICIPATE ANY STAFF REDUCTIONS AT GPU ENERGY AS A RESULT OF THE
MERGER?
A. FirstEnergy and GPU anticipate that the proposed merger will permit
them to eliminate certain duplicative activities and will allow for the
more efficient use of their combined staffing, particularly with
respect to corporate and administrative positions at the service
company and holding company levels. Additionally, FirstEnergy has
agreed that it will consider GPU employees for positions with the
combined company resulting from the merger, using criteria including
previous work history, job experience and other qualifications. All of
GPU's existing contracts, agreements, collective bargaining agreements
and commitments which apply to any current or former employees of GPU,
which were entered into prior to the date of execution of the Merger
Agreement or are otherwise provided for in
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<PAGE> 81
or by the Merger Agreement, will be honored and in no way affected by
the proposed merger.
Over the past several years, GPU Energy has undertaken
thorough assessments of its business and reorganized many of its
functions. As a result of the current reorganization process begun
under my direction during this past summer, the staffing levels
throughout GPU Energy are being fully evaluated and some staff
reduction opportunities have been identified. We expect that some of
these reductions (I.E., those not affected by the merger integration
process) will be implemented by mid-year 2001.
V. COMMITMENT TO THE COMMUNITY
Q. WILL THIS MERGER ADVERSELY AFFECT GPU ENERGY'S PRESENCE IN THE
COMMUNITIES IT SERVES IN PENNSYLVANIA?
A. No. An essential component of the regional approach I described earlier
is a local presence, increased autonomy for regional operating
decisions and strong local and regional relationships. Thus, given
FirstEnergy's strong support for this approach, I think we can be
assured that the new merged company will have a very strong presence in
this area. As noted by others, GPU Energy's Pennsylvania operations,
along with the associated work force, will remain in Pennsylvania, with
an emphasis on regional management of its operations.
VI. CONCLUSION
Q. DOES THIS CONCLUDE YOUR PRESENT TESTIMONY?
A. Yes.
8
<PAGE> 82
Prepared Direct Testimony and Exhibits of Rodney Frame
Before the Federal Energy Regulatory Commission.
Attachment Intentionally Omitted. See FERC Application.
<PAGE> 83
BEFORE THE
PENNSYLVANIA PUBLIC UTILITY COMMISSION
Joint Application for Approval of the : Application Docket No.
Merger of GPU, Inc. with FirstEnergy : A-
Corp. :
DIRECT TESTIMONY
OF
RODNEY FRAME
Regarding Impacts on Market Power
<PAGE> 84
APPLICANTS' STATEMENT NO. 4
DIRECT TESTIMONY OF RODNEY FRAME
Q. PLEASE STATE YOUR NAME AND POSITION.
A. My name is Rodney Frame. I am a Principal with Analysis
Group/Economics.
Q. WHAT IS YOUR BUSINESS ADDRESS?
A. My business address is 1747 Pennsylvania Avenue, N.W., Suite 250,
Washington, DC 20006.
Q. WHAT IS ANALYSIS GROUP/ECONOMICS?
A. Analysis Group/Economics is a consulting firm that provides
microeconomic and financial analyses for complex litigation, regulatory
proceedings and corporate strategic planning. We have offices in
Cambridge, MA, Washington, DC, New York City, Montreal, Canada and Los
Angeles, Menlo Park and San Francisco, CA. We have approximately 140
employees.
Q. WHAT IS YOUR FORMAL EDUCATIONAL BACKGROUND?
A. I received a bachelor's degree in business from George Washington
University in Washington, DC. Also at George Washington, I completed
all requirements for my Ph.D. in Economics with the exception of my
thesis. My graduate studies at George Washington were funded under the
National Science Foundation Graduate Traineeship program.
Q. PLEASE DESCRIBE YOUR PROFESSIONAL EXPERIENCE.
A. I have been employed by Analysis Group/Economics since January 1998.
Prior to my affiliation with Analysis Group/Economics, I was a Vice
President at National Economic
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<PAGE> 85
Research Associates, Inc. ("NERA"), where I was employed from 1984 to
January 1998. Most of my work in the last several years, both at
Analysis Group/Economics and at NERA, has involved consulting with
electric utility clients on a variety of competition related matters
including retail competition and restructuring issues, wholesale bulk
power markets and competition, transmission access and pricing, mergers
and acquisitions and contracting for generation supplies from
nonutility suppliers. I frequently address market power concerns in my
work. I have testified on numerous occasions on these and related
topics, before the Federal Energy Regulatory Commission ("FERC"), state
regulatory commissions, federal and local courts and the Commerce
Commission of New Zealand. I frequently speak before industry groups on
competition related topics. From 1976 to 1984, I was a Senior Economist
with Transcomm, Inc. in Falls Church, VA. There I directed a number of
projects concerning market structure and ratemaking in the
telecommunications industry, competition among electric utilities, and
postal ratemaking. Prior to my affiliation with Transcomm, I worked as
an independent economic consultant advising clients mostly on
telecommunications issues.
A copy of my resume is included in Exhibit RF No. 1.
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
A. FirstEnergy Corp. ("FirstEnergy") and GPU, Inc. ("GPU"), the parent of
Pennsylvania Electric Company ("Penelec") and Metropolitan Edison
Company ("Met-Ed"), have proposed to merge and are requesting approval
for that merger from the Pennsylvania Public Utility Commission
("Commission"). My testimony addresses competitive issues associated
with this merger.
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<PAGE> 86
Q. WHAT IS YOUR UNDERSTANDING OF THE NATURE OF THE COMMISSION'S REVIEW OF
COMPETITIVE ISSUES AND MARKET POWER IN THIS MERGER PROCEEDING?
A. Under Section 2811 of the Electricity Generation Customer Choice and
Competition Act, 66 Pa. C. S.ss. 2811, the Commission has the authority
to monitor the market for the supply and distribution of electricity to
retail customers and to take certain steps to prevent anticompetitive
or discriminatory conduct and the unlawful exercise of market power. In
the context of its otherwise applicable authority to approve mergers or
consolidations of electric utilities, the Commission is also required
to "consider whether the proposed merger, consolidation, acquisition or
disposition is likely to result in anticompetitive or discriminatory
conduct, including the unlawful exercise of market power, which will
prevent retail electricity customers in this Commonwealth from
obtaining the benefits of a properly functioning and workable
competitive retail electricity market."
Q. WHAT IS YOUR CONCLUSION?
A. I conclude that the proposed merger of FirstEnergy and GPU will have no
adverse impact on retail electricity markets in which Pennsylvania
customers purchase electricity and will not prevent retail electricity
customers from obtaining the benefits of a properly functioning and
workably competitive retail electricity market.
Q. WHAT PARTICULAR STUDIES HAVE YOU UNDERTAKEN TO ADDRESS THIS QUESTION
AND TO REACH YOUR CONCLUSIONS?
A. Exhibit RF No. 1 is a copy of testimony that I prepared addressing the
competitive effects of the proposed merger in wholesale electricity
markets that is being filed concurrently
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<PAGE> 87
with FERC. That testimony applies the Appendix A Competitive Analysis
Screen1 that FERC uses to assess the effects of proposed mergers in
wholesale electricity markets to the proposed FirstEnergy-GPU merger.
As described therein, the Appendix A Competitive Analysis Screen
measures changes in concentration of Economic Capacity and Available
Economic Capacity in multiple individual destination markets. Economic
Capacity is all capacity that can be delivered into the destination
market at a cost that is no greater than 1.05 times the competitive
price, after accounting for transmission prices, losses and
constraints. Available Economic Capacity is equal to Economic Capacity
less that required to meet native load and contractual obligations.
The individual destination markets examined in my Appendix A
study include both the entirety of the control area operated by the PJM
Interconnection LLC ("PJM"), as well as certain sub regions within PJM
delineated by important internal transmission limits. All of GPU's
retail customers are located within the PJM destination market that is
studied in my FERC testimony, while some of those customers also are
located in certain of the smaller geographic markets that are
delineated based upon internal transmission limits within PJM.(2)
-------------------------------
1 Appendix A is attached to FERC's Merger Policy Statement, Inquiry
Concerning the Commission's Merger Policy Under the Federal Power Act:
Policy Statement, Order No. 592, 77 FERC (Paragraph). 61,263, issued
December 18, 1996.
2 There are three important internal interfaces within PJM that are used in
my FERC testimony to define smaller geographic markets than all of PJM. I
refer to these internal interfaces as the Eastern Interface, the Central
Interface and the Western Interface. At times when these internal
interfaces within PJM are at or close to their limits for west-to-east
flows, it may be appropriate in market power investigations to examine
separate geographic markets that are bounded by these interfaces. One such
market is referred to in my FERC testimony as PJM East, which is the area
in PJM to the east of the Eastern Interface. A small portion of Met-Ed's
retail service territory is located in PJM East. Another such market is
referred to in my FERC testimony as PJM Central/East, which is the area in
PJM to the east of the Central Interface. PJM East comprises a portion of
PJM Central/East. All of Met-Ed's retail service territory is located in
PJM Central/East. PJM Central/East comprises a portion of PJM
West/Central/East. Another such market is referred to in my FERC testimony
as PJM West/Central/East. All of Penelec's retail service territory and
all of Met-Ed's retail service territory are located in
PJM/West/Central/East.
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My FERC Appendix A analysis includes both a base case as well
as a number of sensitivity analyses that allow me to model the effects
of changes in key input assumptions such as transmission prices and
capacities and natural gas prices plus the effects of further asset
sales by GPU. All of my analyses are performed for different seasons
and time periods, including some time periods where very high
competitive market prices are assumed. This approach allows me to study
the effects of the proposed merger under a variety of different system
conditions and assumptions about now unknown future conditions.
Q. WHAT ARE THE RESULTS OF YOUR APPENDIX A COMPETITIVE ANALYSIS SCREEN?
A. Those results are shown in the exhibits attached to my FERC testimony
(which, as indicated, is Exhibit RF No. 1 to this testimony). In all
cases, for the markets in PJM (whether all of PJM or a sub part of PJM
delineated by important internal transmission limits), the merger
induced changes in concentration are below potential threshold levels
for concern as indicated in the joint US Department of Justice and
Federal Trade Commission 1992 Horizontal Merger Guidelines (Merger
Guidelines).
The Merger Guidelines, and FERC's Merger Policy Statement
which is based upon the Merger Guidelines, both measure merger induced
changes in concentration using the Herfindahl-Hirschmann Index or HHI.
The HHI for a market is equal to the sum of the squared market shares
of the individual firms in the market.(3) The Merger Guidelines (and
FERC's Merger Policy Statement) consider markets with HHIs less than
1000 to be unconcentrated. Mergers in unconcentrated markets ordinarily
require no
-----------------------------------
3 Thus, a market with 10 equally sized suppliers has an HHI of 1000 (i.e.,
10 squared equals 100; 10 times 100 equals 1000) while a market with 4
equally sized suppliers has an HHI of 2500 (i.e., 25 squared equals 625; 4
times 625 equals 2500).
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further investigation no matter what the level of the HHI change that
results from the merger. The Merger Guidelines consider markets with
HHIs between 1000 and 1800 to be "moderately concentrated." Mergers
where the post merger HHI portrays a moderately concentrated market
ordinarily require no further investigation under the Merger Guidelines
if the merger induced change in HHI is less than 100. The Merger
Guidelines consider markets with HHIs greater than 1800 to be "highly
concentrated." Mergers where the post merger HHI portrays a highly
concentrated market ordinarily require no further investigation under
the Merger Guidelines if the merger induced change in HHI is less than
50.
My analyses indicate that, for the Economic Capacity measure,
the destination markets in PJM fall into the unconcentrated or
moderately concentrated categories under the Merger Guidelines, but
that in all cases the merger induced HHI changes are below the
threshold level of 100 for moderately concentrated markets that might
indicate that further inquiry was necessary in order to give the
proposed merger a clean bill of health.(4) My analyses also indicate
that GPU has no Available Economic Capacity in any destination market,
at any price level or under any set of assumptions about future
conditions. Accordingly, the merger induced HHI change using this
measure necessarily must be zero.(5)
Based on this analysis, I conclude that the proposed merger
will not adversely affect competition in wholesale electricity markets
within PJM.
----------------------------
4 The HHI changes in the destination markets that I examined outside of PJM
also generally fall below the Merger Guidelines threshold levels. However,
there are two destination markets outside of PJM where the merger induced
HHI changes do exceed the threshold levels during off peak periods. I
discuss in my FERC testimony why these limited off peak screen violations
do not present legitimate competitive concerns.
5 The HHI change from a merger is equal to 2 x a x b where "a" and "b" are
the pre merger shares of the merging parties. If one of the merging
parties has a pre merger share of zero, then 2 x a x b necessarily is
zero.
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<PAGE> 90
Q. ARE THESE RESULTS SURPRISING?
A. Not at all. They are consistent with a priori expectations. GPU has
sold most of the generating assets that it formerly owned and now owns
only 285 MW. Moreover, while it has interim contract rights to the
output from some of the sold resources, and other resources that it has
contracted for, those rights cover far less than required to meet its
expected sales to retail customers under its continuing service
obligations. Its presence as a seller in the marketplace therefore must
be relatively small. Moreover, while FirstEnergy owns or has contract
rights to approximately 13,000 MW of electricity generating resources,
all but 435 MW, represented by its Seneca pumped storage hydroelectric
facility, is located outside of PJM and must compete with other
resources for a portion of the limited import capability into PJM. When
the limited import capability into PJM is allocated among FirstEnergy
and other potential suppliers, the share that First Energy ultimately
receives is relatively small in comparison to the market size as a
whole. Accordingly, for destination markets within PJM, the effect of
the FirstEnergy-GPU merger is to combine two relatively small
suppliers, which means that the merger induced concentration changes
will be small. The Appendix A analysis that I have conducted, and which
is reported on in my FERC testimony, simply reinforces these a priori
expectations.
Q. YOUR APPENDIX A COMPETITIVE SCREEN ANALYSIS ASSESSES THE EFFECTS OF THE
PROPOSED MERGER IN WHOLESALE ELECTRICITY MARKETS. IS SUCH AN ANALYSIS
ALSO IMPORTANT FOR ASSESSING THE EFFECTS OF THE PROPOSED MERGER ON
COMPETITION IN RETAIL ELECTRICITY MARKETS?
8
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A. Yes. In my view, the most important factor for maintaining competitive
retail markets is ensuring that retailing entities are able to procure
the wholesale supplies that they need to resell to their customers in
markets that are characterized by an absence of market power. Previous
studies that I conducted jointly with Professor Paul Joskow from MIT6
should provide comfort that this is the case for wholesale electricity
markets within PJM. The study that Professor Joskow and I conducted,
among other things, measured concentration of control of generating
capacity within PJM (for multiple seasons and demand levels, for the
entire PJM and for the PJM West/Central/East, the PJM Central/East and
the PJM East) and determined that the concentration was sufficiently
low to support an inference that market based pricing was appropriate
for the supply of energy and certain ancillary services through the PJM
Independent System Operator. That study also found that certain market
rules and procedures in place in PJM also would mitigate potential
concerns about the exercise of market power. My current Appendix A
analysis provides comfort that the proposed FirstEnergy-GPU merger will
not adversely affect this preexisting situation. That is, there should
be no concerns about market power being exercised in wholesale
electricity markets within PJM either before or after the
FirstEnergy-GPU merger. The existence of PJM's Market Monitoring Unit
("MMU") should further mitigate concerns on this score. The MMU
monitors compliance with various market rules, actual or potential
design flaws in those rules and the potential of any participant to
exercise undue market power. Ultimately, with the approval of the PJM's
board, it is empowered to file reports or complaints or other
-------------------------------
6 See Supporting Companies Report on Horizontal Market Power Issues in
Docket No. ER97-3729-000 and FERC's favorable discussion of it at 86 FERC
Paragraph. 61,248. This study was used to support market based (as opposed
to cost based) pricing for energy and certain ancillary services within
PJM.
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appropriate regulatory filings to address design flaws, compliance,
market power and other issues and seek appropriate remedial measures.
Q. ARE THERE OTHER REASONS TO BELIEVE THAT THE PROPOSED FIRSTENERGY-GPU
MERGER WILL NOT ADVERSELY AFFECT COMPETITION OR CREATE THE POTENTIAL
FOR THE EXERCISE OF MARKET POWER IN RETAIL MARKETS WHERE PENNSYLVANIA
CONSUMERS PURCHASE ELECTRICITY?
A. Yes. My Appendix A study indicates that the proposed FirstEnergy-GPU
merger will not adversely affect competition in the wholesale energy
markets that competing retailers use to assemble their bulk power
portfolio. But, at least in principle, there also might be concern that
the merger could adversely affect competition in the pure "retailing"
function, that is retailing divorced from the supply of wholesale
energy. After all, both GPU and FirstEnergy are actual or competing
electricity retailers and so post merger there will be one fewer market
place participant. I do not believe that this is a significant merger
related concern, however. The important question in assessing the
competitive effects of a proposed merger is not whether the merger will
remove a participant from the market. This always will be the case in a
horizontal merger. Rather, the important question is whether a merger
will reduce competition by "too much." While it is not clear how retail
electricity markets ultimately will evolve in Pennsylvania, there are
more than 50 electricity retailers that now have been licensed by the
Commission. The loss of one independent supplier does not seem
particularly important when so many others remain. For this reason, I
do not believe that the merger of FirstEnergy and GPU will adversely
affect electricity competition at the retail level in Pennsylvania.
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There is another important consideration as well that
reinforces this conclusion. The key issue in the competitive assessment
of a merger or any other proposed action involves how consumers fare,
that is, whether the prices that they pay are likely to increase or
whether the quantity and quality of service that they receive is likely
to decline. The manner in which retail competition is being introduced
in Pennsylvania contains an important protection on this score. Penelec
and Met-Ed are each required to continue to provide unbundled
generation service to their traditional native load customers at prices
that are capped at regulated price cap levels for an extended time
period. Penelec and Met-Ed cannot increase the prices that they charge
above the price cap level except for special ratemaking that can only
be authorized by the Commission. Customers therefore have the benefits
of market supply when that is expected to produce lower prices and the
benefits of regulated price caps when those price caps are expected to
produce lower prices. Accordingly, the merger cannot increase the price
that customers pay for unbundled generation service from Penelec and
Met-Ed and therefore, by definition, cannot adversely affect
competition or allow the exercise of market power.
Q. PLEASE SUMMARIZE YOUR TESTIMONY.
A. My FERC Appendix A analysis included as Exhibit RF No. 1 to this
testimony indicates that the merger will not adversely affect
competition in the wholesale electricity markets which are used to
provide electricity to Pennsylvania customers. This provides strong
support for concluding that the merger likewise will not adversely
affect competition in retail electricity markets in Pennsylvania.
Additional support for this conclusion is provided by the large number
of retailers that now are licensed to do business in Pennsylvania as
well as the price caps applicable to Penelec and Met-Ed.
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Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes.
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