SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1993
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-6047
GENERAL PUBLIC UTILITIES CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 13-5516989
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Interpace Parkway
Parsippany, New Jersey 07054-1149
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201)263-6500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value New York Stock Exchange
$2.50 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates as of February 28, 1994 was $3,289,961,419.
The number of shares outstanding of each of the registrant's classes of
voting stock as of February 28, 1994 was as follows:
Common Stock, par value $2.50 per share: 114,933,150 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1994 Annual Meeting of Stockholders (Part III)
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TABLE OF CONTENTS
Page
Number
Part I
Item 1. Business 1
Item 2. Properties 30
Item 3. Legal Proceedings 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 32
Item 6. Selected Financial Data 32
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 32
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
Part III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management 36
Item 13. Certain Relationships and Related Transactions 36
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 37
Signatures 38
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PART I
ITEM 1. BUSINESS.
General Public Utilities Corporation ("GPU" or the "Corporation"), a
Pennsylvania corporation, organized in 1946, is a holding company registered
under the Public Utility Holding Company Act of 1935 (1935 Act). GPU does
not operate any utility properties directly, but owns all of the outstanding
common stock of three electric utilities serving customers in New Jersey -
Jersey Central Power & Light Company (JCP&L) - and Pennsylvania -
Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company
(Penelec). The business of these subsidiaries (the Subsidiaries) consists
predominantly of the generation, transmission, distribution and sale of
electricity. GPU also owns all of the common stock of GPU Service
Corporation (GPUSC), a service company; GPU Nuclear Corporation (GPUN), which
operates and maintains the nuclear units of the Subsidiaries; and General
Portfolios Corporation (GPC), parent of Energy Initiatives, Inc. (EI), which
develops, owns and operates nonutility generating facilities. Met-Ed owns
all of the common stock of York Haven Power Company, the owner of a small
hydroelectric generating station. Penelec owns all of the common stock of
the Waverly Electric Light & Power Company, the owner of electric
distribution facilities in the Village of Waverly, New York that are leased
to Penelec. The Subsidiaries own all of the common stock of the Saxton
Nuclear Experimental Corporation (Saxton), which owns a small demonstration
nuclear reactor that has been partially decommissioned. All of these
companies considered together are referred to as the "GPU System." The
income of GPU consists almost exclusively of earnings on the common stock of
the Subsidiaries.
As a registered holding company, GPU is subject to regulation by the
Securities and Exchange Commission (SEC) under the 1935 Act. Retail rates,
conditions of service, issuance of securities and other matters are subject
to regulation in the state in which each Subsidiary operates - in New Jersey
by the New Jersey Board of Regulatory Commissioners (NJBRC) and in
Pennsylvania by the Pennsylvania Public Utility Commission (PaPUC). The
Nuclear Regulatory Commission (NRC) regulates the construction, ownership and
operation of nuclear generating stations. The Subsidiaries are also subject
to wholesale rate and other regulation by the Federal Energy Regulatory
Commission (FERC) under the Federal Power Act. (See "Regulation.")
INDUSTRY DEVELOPMENTS
The Energy Policy Act of 1992 (Energy Act) has made significant changes
to the 1935 Act and the Federal Power Act. As a result of this legislation,
the FERC is now authorized to order utilities to provide transmission or
wheeling service to third parties for wholesale power transactions provided
specified reliability and pricing criteria are met. In addition, the
legislation amends the 1935 Act to permit the development and ownership of a
broad category of independent power production facilities by utilities and
nonutilities alike without subjecting them to regulation under the 1935 Act.
These and other aspects of the Energy Act are expected to accelerate the
changing character of the electric utility industry.
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The electric utility industry appears to be undergoing a major transition
as it proceeds from a traditional rate regulated environment based on cost
recovery to some combination of a competitive marketplace and modified
regulation of certain market segments. The industry challenges resulting
from various instances of competition, deregulation and restructuring thus
far have been minor compared with the impact that is expected in the future.
The Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the
entry of competitors into the electric generation business. Since then, more
competition has been introduced through various state actions to encourage
cogeneration and, most recently, the Energy Act. The Energy Act is intended
to promote competition among utility and nonutility generators in the
wholesale electric generation market, accelerating the industry restructuring
that has been underway since the enactment of PURPA. This legislation,
coupled with increasing customer demands for lower-priced electricity, is
generally expected to stimulate even greater competition in both the
wholesale and retail electricity markets. These competitive pressures may
create opportunities to compete for new customers and revenues, as well as
increase risk which could lead to the loss of customers.
Operating in a competitive environment will place added pressures on
utility profit margins and credit quality. Utilities with significantly
higher cost structures than supportable in the marketplace may experience
reduced earnings as they attempt to meet their customers' demands for lower-
priced electricity. This prospect of increasing competition in the electric
utility industry has already led the major credit rating agencies to address
and apply more stringent guidelines in making credit rating determinations.
Among its provisions, the Energy Act allows the FERC, subject to certain
criteria, to order owners of electric transmission systems, such as the
Subsidiaries, to provide third parties with transmission access for wholesale
power transactions. The Energy Act did not give the FERC the authority,
however, to order retail transmission access. Movement toward opening the
transmission network to retail customers is currently under consideration in
several states.
The competitive forces have also begun to influence some retail pricing
in the industry. In a few instances, industrial customers, threatening to
pursue cogeneration, self-generation or relocation to other service
territories, have leveraged price concessions from utilities. Recent state
regulatory actions, such as in New Jersey, suggest that utilities may have
limited success with attempting to shift costs associated with such discounts
to other customers. Utilities may have to absorb, in whole or part, the
effects of price reductions designed to retain large retail customers. State
regulators may put a limit or cap on prices, especially for those customers
unable to pursue alternative supply options.
Insofar as the Subsidiaries are concerned, unrecovered costs will most
likely be related to generation investment, purchased power contracts, and
"regulatory assets", which are deferred accounting transactions whose value
rests on the strength of a state regulatory decision to allow future recovery
from ratepayers. In markets where there is excess capacity (as there
currently is in the region including New Jersey and Pennsylvania) and many
available sources of power supply, the market price of electricity may be too
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low to support full recovery of capital costs of certain existing power
plants, primarily the capital intensive plants such as nuclear units.
Another significant exposure in the transition to a competitive market
results if the prices of a utility's existing purchased power contracts,
consisting primarily of contractual obligations with nonutility generators,
are higher than future market prices. Utilities locked into expensive
purchased power arrangements may be forced to value the contracts at market
prices and recognize certain losses. A third source of exposure is
regulatory assets which, if not supported by regulators, would have no value
in a competitive market. Financial Accounting Standard No. 71 (FAS 71),
"Accounting for the Effects of Certain Types of Regulation", applies to
regulated utilities that have the ability to recover their costs through
rates established by regulators and charged to customers. If a portion of
the GPU System's operations continues to be regulated, FAS 71 accounting may
only be applied to that portion. Write-offs of utility plant and regulatory
assets may result for those operations that no longer meet the requirements
of FAS 71. In addition, under deregulation, the uneconomical costs of
certain contractual commitments for purchased power and/or fuel supplies may
have to be expensed. Management believes that to the extent that the GPU
System no longer qualifies for FAS 71 accounting treatment, a material
adverse effect on its results of operations and financial position may
result. At this time, it is difficult for management to project the future
level of stranded assets or other unrecoverable costs, if any, without
knowing what the market price of electricity will be, or if regulators will
allow recovery of industry transition costs from customers.
Corporate Realignment
In February 1994, the Corporation announced a corporate realignment and
related actions as a result of its ongoing strategic planning studies. GPU
Generation Corporation (GPU Generation) will be formed to operate and
maintain the fossil-fueled and hydroelectric generating units of the GPU
System; Subsidiary ownership of the generating assets will remain with the
Subsidiaries. GPU Generation will also build new generation facilities as
needed by the Subsidiaries in the future. Involvement in the independent
power generation market will continue through EI (See "Nonutility
Businesses"). Additionally, the management and staff of Penelec and Met-Ed
will be combined but the two companies will not be merged and will retain
their separate corporate existence. This action is intended to increase
effectiveness and lower cost. Included in this effort will be a search for
parallel opportunities at GPUN and JCP&L. Completion of these realignment
initiatives will be subject to various regulatory reviews and approvals from
the SEC, FERC, NJBRC and the PaPUC. The GPU System is also developing a
performance improvement and cost reduction program to help assure ongoing
competitiveness, and, among other matters, will also address workforce issues
in terms of compensation, size and skill mix. The GPU System is seeking
annual cost savings of approximately $80 million by the end of 1996 as a
result of these organizational changes.
Duquesne Transaction
In September 1990, the GPU System entered into a series of interdependent
agreements with Duquesne Light Company (Duquesne) for the purchase of a 50%
ownership interest in Duquesne's 300 megawatt (MW) Phillips Generating
Station and the joint construction and ownership of associated high voltage
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bulk transmission facilities. The Subsidiaries' share of the total cost of
these agreements was estimated to be $500 million, the major part of which
was expected to be incurred after 1994. In addition, JCP&L and Met-Ed
simultaneously entered into a related agreement with Duquesne to purchase 350
MW of capacity and energy from Duquesne for 20 years beginning in 1997. The
Subsidiaries and Duquesne filed several petitions with the PaPUC and the
NJBRC seeking certain of the regulatory authorizations required for the
transactions.
In December 1993, the NJBRC denied JCP&L's request to participate in the
proposed transactions. As a result of this action and other developments,
the Subsidiaries notified Duquesne that they were exercising their rights
under the agreements to withdraw from and thereby terminate the agreements.
Consequently, the Subsidiaries wrote off a total of approximately $25 million
they had invested in the project.
THE SUBSIDIARIES
The electric generating and transmission facilities of the Subsidiaries
are physically interconnected and are operated as a single integrated and
coordinated system serving a population exceeding 4.8 million in New Jersey
and Pennsylvania. For the year 1993, the Subsidiaries' revenues were about
equally divided between Pennsylvania customers and New Jersey customers.
During 1993, residential sales accounted for about 42% of operating revenues
from customers and 36% of kilowatt-hour (KWH) sales to customers; commercial
sales accounted for about 34% of operating revenues from customers and 32% of
KWH sales to customers; industrial sales accounted for about 22% of operating
revenues from customers and 29% of KWH sales to customers; and sales to rural
electric cooperatives, municipalities (primarily for street and highway
lighting) and others accounted for about 2% of operating revenues from
customers and 3% of KWH sales to customers. The Subsidiaries also make
interchange and spot market sales of electricity to other utilities.
Reference is made to "System Statistics" on page F-2, for additional
information concerning the GPU System's sales and revenues.
The area served by the Subsidiaries extends from the Atlantic Ocean to
Lake Erie, is generally comprised of small communities, rural and suburban
areas and includes a wide diversity of industrial enterprises, as well as
substantial farming areas. The Subsidiaries' transmission facilities are
physically interconnected with neighboring nonaffiliated utilities in
Pennsylvania, New Jersey, Maryland, New York and Ohio. The Subsidiaries are
members of the Pennsylvania-New Jersey-Maryland Interconnection (PJM) and the
Mid-Atlantic Area Council, an organization providing coordinated review of
the planning by utilities in the PJM area. The interconnection facilities
are used for substantial capacity and energy interchange and purchased power
transactions as well as emergency assistance.
The Subsidiaries along with the other members of the PJM power pool,
experienced an electric emergency due to extremely cold temperature from
January 18 through January 20, 1994. In order to maintain the electric
system and to avoid a total black-out, intermittent black-outs for periods
typically of one to two hours were instituted on January 19, 1994 to control
peak loads. In February 1994, the NJBRC, the PaPUC and the FERC initiated
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investigations of the energy emergency, and forwarded data requests to all
affected utilities. In addition, the United States House of Representatives'
Energy and Power Subcommittee, among others, has held hearings on this
matter. At this time, Management is unable to estimate the impact, if any,
from any conclusions that may be reached by the regulators.
In May 1993, the Pennsylvania Office of Consumer Advocate (Consumer
Advocate) filed a petition for review of Met-Ed's rate order with the
Pennsylvania Commonwealth Court seeking to set aside a March 1993 decision
which allowed Met-Ed to (a) recover in the future certain Three Mile Island
Unit 2 (TMI-2) retirement costs (radiological decommissioning and
nonradiological cost of removal) and (b) defer the incremental costs
associated with the adoption of the Statement of Financial Accounting
Standards No. 106 (FAS 106) "Employers' Accounting for Postretirement
Benefits Other Than Pensions." If the 1993 rate order is reversed, Met-Ed
and Penelec would be required to write off a total of approximately $170
million for TMI-2 retirement costs. In addition, the Consumer Advocate is
contesting utility deferral of FAS 106 costs in a proceeding involving
another utility. The outcome of this proceeding may affect the recovery of
FAS 106 costs for Met-Ed and Penelec. This matter is pending before the
court. (See "Rate Proceedings.")
Competition in the electric utility industry has already played a
significant role in wholesale transactions, affecting the pricing of energy
sales to electric cooperatives and municipal customers. During 1993, Penelec
successfully negotiated power supply agreements with several existing GPU
System wholesale customers in response to offers made by other utilities
seeking to provide electric service at rates lower than those of Met-Ed or
JCP&L. Penelec has made similar offers to certain wholesale customers now
being served by other utilities. Although wholesale customers represent a
relatively small portion of GPU System sales, the Subsidiaries will continue
their efforts to retain and add customers.
NUCLEAR FACILITIES
The Subsidiaries have made investments in three major nuclear projects --
Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are
operational generating facilities, and TMI-2, which was damaged during the
1979 accident. At December 31, 1993, the Subsidiaries' net investment in
TMI-1 and Oyster Creek, including nuclear fuel, was $670 million and
$784 million, respectively. TMI-1 and TMI-2 are jointly owned by JCP&L,
Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively.
Oyster Creek is owned by JCP&L.
Costs associated with the operation, maintenance and retirement of
nuclear plants have continued to increase and become less predictable, in
large part due to changing regulatory requirements and safety standards and
experience gained in the construction and operation of nuclear facilities.
The GPU System may also incur costs and experience reduced output at its
nuclear plants because of the design criteria prevailing at the time of
construction and the age of the plants' systems and equipment. In addition,
for economic or other reasons, operation of these plants for the full term of
their now assumed lives cannot be assured. Also, not all risks associated
with ownership or operation of nuclear facilities may be adequately insured
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or insurable. Consequently, the ability of electric utilities to obtain
adequate and timely recovery of costs associated with nuclear projects,
including replacement power, any unamortized investment at the end of the
plants' useful life (whether scheduled or premature), the carrying costs of
that investment and retirement costs, is not assured. Management intends, in
general, to seek recovery of any such costs described above through the
ratemaking process, but recognizes that recovery is not assured.
TMI-1
TMI-1, a 786-MW pressurized water reactor, was licensed by the NRC in
1974 for operation through 2008. The NRC has extended the TMI-1 operating
license through April 2014, in recognition of the plant's approximate six-
year construction period. During 1993, TMI-1 operated at a capacity factor
of approximately 87%. A scheduled refueling outage that year lasted 36 days;
the next refueling outage is scheduled for late 1995.
Oyster Creek
The Oyster Creek station, a 610-MW boiling water reactor, received a
provisional operating license from the NRC in 1969 and a full term operating
license in 1991. In April 1993, the NRC extended the station's operating
license from 2004 to 2009 in recognition of the plant's approximate four-
year construction period. The plant operated at a capacity factor of
approximately 87% during 1993. A scheduled refueling outage lasted 81 days
and the plant returned to service on February 16, 1993. The next refueling
outage is scheduled for September 1994.
TMI-2
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the
environment. The cleanup program was completed in 1990, and, after receiving
NRC approval, TMI-2 entered into long-term monitored storage in December
1993.
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against the Corporation and the
Subsidiaries. Approximately 2,100 of such claims are pending in the
U.S. District Court for the Middle District of Pennsylvania. Some of the
claims also seek recovery for injuries from alleged emissions of
radioactivity before and after the accident. Questions have not yet been
resolved as to whether the punitive damage claims are (a) subject to the
overall limitation of liability set by the Price-Anderson Act ($560 million
at the time of the accident) and (b) outside the primary insurance coverage
provided pursuant to that Act (remaining primary coverage of approximately
$80 million as of December 1993). If punitive damages are not covered by
insurance or are not subject to the Price-Anderson liability limitation,
punitive damage awards could have a material adverse effect on the financial
position of the GPU System.
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In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of twelve allegedly
representative cases is scheduled to begin in October 1994. In February
1994, the Court held that the plaintiffs' claims for punitive damages are not
barred by the Price-Anderson Act to the extent that the funds to pay punitive
damages do not come out of the U.S. Treasury. The Court also denied the
defendants' motion seeking a dismissal of all cases on the grounds that the
defendants complied with applicable federal safety standards regarding
permissible radiation releases from TMI-2 and that, as a matter of law, the
defendants therefore did not breach any duty that they may have owed to the
individual plaintiffs. The Court stated that a dispute about what radiation
and emissions were released cannot be resolved on a motion for summary
judgment.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of
nonradiological structures and materials. The disposal of spent nuclear fuel
is covered separately by contracts with the U.S. Department of Energy (DOE).
See Note 2 to consolidated financial statements for further information
regarding nuclear fuel disposal costs.
In 1990, the Subsidiaries submitted a report, in compliance with NRC
regulations, setting forth a funding plan (employing the external sinking
fund method) for the decommissioning of their nuclear reactors. Under this
plan, the Subsidiaries intend to complete the funding for Oyster Creek and
TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively.
The TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in
long-term storage and being decommissioned at the same time as TMI-1. Under
the NRC regulations, the funding targets (in 1993 dollars) for TMI-1 and
Oyster Creek are $143 million and $175 million, respectively. Based on NRC
studies, a comparable funding target for TMI-2 (in 1993 dollars), which takes
into account the accident, is $228 million. The NRC is currently studying
the levels of these funding targets. Management cannot predict the effect
that the results of this review will have on the funding targets. NRC
regulations and a regulatory guide provide mechanisms, including exemptions,
to adjust the funding targets over their collection periods to reflect
increases or decreases due to inflation and changes in technology and
regulatory requirements. The funding targets, while not actual cost
estimates, are reference levels designed to assure that licensees demonstrate
adequate financial responsibility for decommissioning. While the regulations
address activities related to the removal of the radiological portions of the
plants, they do not establish residual radioactivity limits nor do they
address costs related to the removal of nonradiological structures and
materials.
In 1988, a consultant to GPUN performed site-specific studies of TMI-1
and Oyster Creek that considered various decommissioning plans and estimated
the cost of the radiological portions of decommissioning each plant to range
from approximately $205 to $285 million and $220 to $320 million,
respectively (adjusted to 1993 dollars). In addition, the studies estimated
the cost of removal of nonradiological structures and materials for TMI-1 and
Oyster Creek at $72 million and $47 million, respectively.
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The ultimate cost of retiring the GPU System's nuclear facilities may be
materially different from the funding targets and the cost estimates
contained in the site-specific studies and cannot now be more reasonably
estimated than the level of the NRC funding target because such costs are
subject to (a) the type of decommissioning plan selected, (b) the escalation
of various cost elements (including, but not limited to, general inflation),
(c) the further development of regulatory requirements governing
decommissioning, (d) the absence to date of significant experience in
decommissioning such facilities and (e) the technology available at the time
of decommissioning. The Subsidiaries charge to expense and contribute to
external trusts amounts collected from customers for nuclear plant
decommissioning and nonradiological costs. In addition, the Subsidiaries
have contributed to external trusts amounts written off for nuclear plant
decommissioning in 1990 and 1991.
TMI-1 and Oyster Creek
JCP&L is collecting revenues for decommissioning, which are expected to
result in the accumulation of its share of the NRC funding target for each
plant. JCP&L has also begun collecting revenues based on estimates, adopted
in a February 26, 1993 summary rate order issued by the NJBRC, for the cost
of removal of nonradiological structures and materials at each plant based on
its share of an estimated $15.3 million for TMI-1 and $31.6 million for
Oyster Creek. In January 1993, the PaPUC granted Met-Ed revenues for
decommissioning costs of TMI-1 based on its share of the NRC funding target
and nonradiological cost of removal as estimated in the site-specific study.
Effective October 1993, the PaPUC approved a rate change for Penelec which
increased the collection of revenues for decommissioning costs for TMI-1 to a
basis equivalent to that granted Met-Ed. Collections from customers for
decommissioning expenditures are deposited in external trusts. These
external trust funds, including the interest earned, are classified as
Decommissioning Funds on the balance sheet. Provision for the future
expenditure of these funds has been made in accumulated depreciation,
amounting to $29 million for TMI-1 and $80 million for Oyster Creek at
December 31, 1993.
Management believes that TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable through the ratemaking process.
TMI-2
The Corporation and its Subsidiaries have recorded a liability amounting
to $229 million as of December 31, 1993, for the radiological decommissioning
of TMI-2, reflecting the NRC funding target. The Subsidiaries record
escalations, when applicable, in the liability based upon changes in the NRC
funding target. The Subsidiaries have also recorded a liability in the
amount of $20 million for incremental costs specifically attributable to
monitored storage. Such costs are expected to be incurred between 1994 and
2014, when decommissioning is forecast to begin. In addition, the
Subsidiaries have recorded a liability in the amount of $71 million for
nonradiological cost of removal. The above amounts for retirement costs and
monitored storage are reflected as Three Mile Island Unit 2 Future Costs on
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the balance sheet. JCP&L has made a nonrecoverable contribution of $15
million to an external decommissioning trust. Met-Ed and Penelec have made
nonrecoverable contributions of $40 million and $20 million, respectively, to
external decommissioning trusts relating to their shares of the accident-
related portion of the decommissioning liability.
The NJBRC and the PaPUC have granted JCP&L and Met-Ed, respectively,
decommissioning revenues for the remainder of the NRC funding target and
allowances for the cost of removal of nonradiological structures and
materials, although the PaPUC's order has been appealed by the Consumer
Advocate (see "Rate Proceedings"). Penelec intends to request
decommissioning revenues and an allowance for the cost of removal of
nonradiological structures and materials, equivalent to its share of the
amounts granted to Met-Ed, in its next retail base rate filing. Management
intends to seek recovery for any increases in TMI-2 retirement costs, but
recognizes that recovery cannot be assured.
As a result of TMI-2's entering long-term monitored storage, the
Subsidiaries are incurring incremental storage costs currently estimated at
$1 million annually. The Subsidiaries have deferred the $20 million for the
total estimated incremental costs attributable to monitored storage through
2014, the expected retirement date of TMI-1. The JCP&L share of these costs
has been recognized in rates by the NJBRC. Met-Ed and Penelec believe these
costs should be recoverable through the ratemaking process.
INSURANCE
The GPU System has insurance (subject to retentions and deductibles) for
its operations and facilities including coverage for property damage,
liability to employees and third parties, and loss of use and occupancy
(primarily incremental replacement power costs). There is no assurance that
the GPU System will maintain all existing insurance coverages. Losses or
liabilities that are not completely insured, unless allowed to be recovered
through ratemaking, could have a material adverse effect on the financial
position of the GPU System.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station (TMI-1 and TMI-2 are considered
one site for insurance purposes) and for Oyster Creek totals $2.7 billion per
site. In accordance with NRC regulations, these insurance policies generally
require that proceeds first be used for stabilization of the reactors and
then to pay for decontamination and debris removal expenses. Any remaining
amounts available under the policies may then be used for repair and
restoration costs and decommissioning costs. Consequently, there can be no
assurance that in the event of a nuclear incident, property damage insurance
proceeds would be available for the repair and restoration of the stations.
The Price-Anderson Act limits the GPU System's liability to third
parties for a nuclear incident at one of its sites to approximately
$9.4 billion. Coverage for the first $200 million of such liability is
provided by private insurance. The remaining coverage, or secondary
protection, is provided by retrospective premiums payable by all nuclear
reactor owners. Under secondary protection, a nuclear incident at any
licensed nuclear power reactor in the country, including those owned by
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the GPU System, could result in assessments of up to $79 million per incident
for each of the GPU System's three reactors, subject to an annual maximum
payment of $10 million per incident per reactor. In 1993, GPUN requested an
exemption from the NRC to eliminate the secondary protection requirements for
TMI-2. This matter is pending before the NRC.
The GPU System has insurance coverage for incremental replacement power
costs resulting from an accident-related outage at its nuclear plants.
Coverage commences after the first 21 weeks of the outage and continues for
three years at decreasing levels beginning at weekly amounts of $1.8 million
and $2.6 million for Oyster Creek and TMI-1, respectively.
Under its insurance policies applicable to nuclear operations and
facilities, the GPU System is subject to retrospective premium assessments of
up to $52 million in addition to those payable under the Price-Anderson Act.
NONUTILITY AND OTHER POWER PURCHASES
The Subsidiaries have entered into power purchase agreements with
independently owned power production facilities (nonutility generators) for
the purchase of energy and capacity for periods up to 25 years. The majority
of these agreements are subject to penalties for nonperformance and other
contract limitations. While a few of these facilities are dispatchable, most
are must-run and generally obligate the Subsidiaries to purchase all of the
power produced up to the contract limits. The agreements have been approved
by the state regulatory commissions and permit the Subsidiaries to recover
energy and demand costs from customers through their energy clauses. These
agreements provide for the sale of approximately 2,452 MW of capacity and
energy to the GPU System by the mid-to-late 1990s. As of December 31, 1993,
facilities covered by these agreements having 1,193 MW of capacity were in
service, and 215 MW were scheduled to commence operation in 1994. Payments
made pursuant to these agreements were $491 million for 1993 and are
estimated to aggregate $551 million for 1994. The price of the energy and
capacity to be purchased under these agreements is determined by the terms of
the contracts. The rates payable under a number of these agreements are
substantially in excess of current market prices. While the Subsidiaries
have been granted full recovery of these costs from customers by the state
commissions, there can be no assurance that the Subsidiaries will continue to
be able to recover these costs throughout the term of the related contracts.
The emerging competitive market has created additional uncertainty regarding
the forecasting of the System's energy supply needs which, in turn, has
caused the Subsidiaries to change their supply strategy to seek shorter term
agreements offering more flexibility. At the same time, the Subsidiaries are
attempting to renegotiate, and in some cases buy out, high cost long-term
nonutility generation contracts where opportunities arise. The extent to
which the Subsidiaries may be able to do so, however, or recover associated
costs through rates, is uncertain. Moreover, these efforts have led to
disputes before both the NJBRC and the PaPUC, as well as to litigation, and
may result in claims against the Subsidiaries for substantial damages. There
can be no assurance as to the outcome of these matters.
In July 1993, the PaPUC acted to initiate a rulemaking proceeding which,
in general, would establish a mandatory all-source competitive bidding
program by which utilities would meet their future capacity and energy needs.
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Also in July, a NJBRC Advisory Council recommended in a report that all New
Jersey electric utilities be required to submit integrated resource plans for
review and approval by the NJBRC.
The NJBRC has asked all electric utilities in the state to assess the
economics of their purchased power contracts with nonutility generators to
determine whether there are any candidates for potential buy-out or other
remedial measures. In response, JCP&L initially identified a 100 MW project
now under development, which it believes is economically undesirable based on
current cost projections. In November 1993, the NJBRC directed JCP&L and the
developer to negotiate contract repricing to a level more consistent with
JCP&L's current avoided cost projections or a contract buy-out. The parties
have been unable to reach agreement and on February 10, 1994 the NJBRC
decided to conduct a hearing on the matter. The developer has filed a
declaratory judgement action in federal court contesting the NJBRC's
jurisdiction in this matter and is seeking to enjoin the NJBRC proceeding.
The matter is pending before the District Court and the NJBRC.
In November 1993, the NJBRC granted two nonutility generators, having a
total of 200 MW under contract with JCP&L, a one-year extension in the in-
service dates for projects which were originally scheduled to be operational
in 1997. JCP&L is awaiting a final written NJBRC order and may appeal this
decision.
Also in November 1993, JCP&L received approval from the NJBRC to
withdraw its request for proposals for the purchase of 150 MW from nonutility
generators. In its petition requesting withdrawal, JCP&L cited, among other
reasons, that solicitations for long-term contracts would have limited its
ability to compete in a deregulated environment. As a result of the NJBRC's
decision, in January 1994, JCP&L issued an all source solicitation for the
short-term supply of energy and/or capacity to determine and evaluate the
availability of competitively priced power supply options. JCP&L is seeking
proposals from utility and nonutility generation suppliers for periods of one
to eight years in length and capable of delivering electric power beginning
in 1996. Although the intention of the solicitation is to procure short-
term and medium-term supplies of electric power, JCP&L is willing to give
some consideration to proposals in excess of eight-year terms.
In November 1993, Penelec filed an appeal with the Commonwealth Court
seeking to overturn a PaPUC order which directs Penelec to enter into two
power purchase agreements with nonutility generators for a total of 160 MW
under long-term contracts commencing in 1997 or later. Penelec believes it
does not need this additional capacity and believes the costs associated with
these contracts are not in the economic interests of its customers. The
matter is pending before the Commonwealth Court.
JCP&L and Met-Ed have entered into arrangements for two peaking
generation projects. JCP&L plans to install a gas-fired combustion turbine
at its Gilbert Generating Station and retire two steam units for an 88 MW net
increase in peaking capacity at an expected cost of $50 million. JCP&L
expects to complete the project by 1996. Met-Ed has received the PaPUC's
approval to build a 134 MW gas-fired combustion turbine adjacent to its
Portland Generating Station at a cost of $50 million. The approval has been
appealed by a nonutility generator seeking to sell Met-Ed an equivalent
amount of baseload capacity.
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The Subsidiaries have entered into agreements with other utilities for
the purchase of capacity and energy for various periods through 1999. These
agreements provide for up to 2,130 MW in 1994, declining to 1,307 MW in 1995
and 183 MW by 1999. Payments pursuant to these agreements are estimated to
aggregate $244 million in 1994. The price of the energy purchased under
these agreements is determined by contracts providing generally for the
recovery by the sellers of their costs.
RATE PROCEEDINGS
Pennsylvania
In April 1992, Met-Ed filed with the PaPUC a petition requesting a net
$55 million annual increase in retail base rates. The request for additional
revenues included provisions for higher operating expenses, capital costs and
nuclear plant decommissioning costs. In January 1993, the PaPUC issued a
rate order denying revenues for certain TMI-2 retirement and incremental
monitored storage costs and the collection of costs associated with the
adoption of FAS 106.
In March 1993, in response to a petition filed by Met-Ed for
clarification, reconsideration and amendment, the PaPUC modified portions of
its January 1993 rate order to allow for the future recovery of certain TMI-
2 retirement costs (radiological decommissioning and nonradiological cost of
removal). (See "Nuclear Plant Retirement Costs.") In addition, the PaPUC
action allowed both Met-Ed and Penelec to defer the incremental costs
associated with the adoption of FAS 106. The PaPUC directed Met-Ed to reduce
its amortization of TMI-2 to $8.3 million, retroactive to January 1993. The
recovery of certain TMI-2 retirement costs will begin when the amortization
of the TMI-2 investment ends in 1994 at the same annual amount ($6.3 million
for recovery of radiological decommissioning and $2.0 million for
nonradiological cost of removal, net of gross receipts tax). In May 1993,
the Consumer Advocate filed a petition for review with the Pennsylvania
Commonwealth Court seeking to set aside the PaPUC 1993 rate order. The
matter is pending before the court. If the 1993 rate order is reversed,
Met-Ed and Penelec would be required to write off a total of approximately
$170 million for TMI-2 retirement costs. Penelec intends to request
decommissioning revenues and an allowance for the cost of removal of
nonradiological structures and materials, equivalent to its share of the
amounts granted to Met-Ed, in its next retail base rate filing. Management
intends to seek recovery for any increases in TMI-2 retirement costs, but
recognizes that recovery cannot be assured.
The PaPUC has recently completed its generic investigation into demand-
side management (DSM) cost recovery mechanisms and issued a cost recovery and
ratemaking order in December 1993. Penelec and Met-Ed are currently
developing plans which will reflect changes since their original plans were
filed in 1991. In December 1993, the Pennsylvania Industrial Energy
Coalition (PIEC) appealed to the Commonwealth Court to reverse the PaPUC
Order. On February 4, 1994, Met-Ed and Penelec filed a petition seeking a
stay of the PaPUC's Order until the PIEC's appeal is resolved. (See "Demand
Side Management.")
In February 1994, Met-Ed made an annual filing with the PaPUC for an
increase in its Energy Cost Rate (ECR) of $4.7 million. The new rate is
expected to become effective April 1, 1994.
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In March 1994, Penelec made its annual filing with the PaPUC for an
increase in its ECR of $38.3 million. The new rate is expected to become
effective April 1, 1994.
The PaPUC is considering generic nuclear performance standards for
Pennsylvania utilities. In January 1994, Met-Ed and Penelec submitted a
proposal which, along with proposals submitted by the other Pennsylvania
utilities, may result in the PaPUC adopting a generic nuclear performance
standard.
New Jersey
In December 1993, JCP&L filed a proposal with the NJBRC seeking approval
to implement a new rate initiative designed to retain and expand the economic
base in New Jersey. Under the proposed contract rate service, large retail
customers could enter into contracts for existing electric service at
prevailing rates, with limitations on their exposure to future rate
increases. With this rate initiative, JCP&L would have to absorb any
differential in price resulting from changes in costs not provided for in the
contracts. This matter is pending before the NJBRC.
Proposed legislation has been introduced in New Jersey which is intended
to allow the NJBRC, at the request of an electric or gas utility, to adopt a
plan of regulation other than traditional ratemaking methods to encourage
economic development and job creation. This legislation would allow electric
utilities to be more competitive with nonutility generators who are not
subject to NJBRC regulation. Combined with other economic development
initiatives, this legislation, if enacted, would provide more flexibility in
responding to competitive pressures, but may also serve to accelerate the
growth of competitive pressures.
JCP&L's two operating nuclear units are subject to the NJBRC's annual
nuclear performance standard. Operation of these units at an aggregate
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the
maximum annual effect on net income of the performance standard charge at a
40% capacity factor would be approximately $10 million. While a capacity
factor below 40% would generate no specific monetary charge, it would require
the issue to be brought before the NJBRC for review. The annual measurement
period, which begins in March of each year, coincides with that used for the
Levelized Energy Adjustment Clause (LEAC).
The NJBRC has instituted a generic proceeding to address the appropriate
recovery of capacity costs associated with electric utility power purchases
from nonutility generation projects. The proceeding was initiated, in part,
to respond to contentions of the New Jersey Public Advocate, Division of Rate
Counsel (Rate Counsel), that by permitting utilities to recover such costs
through the LEAC, an excess or "double recovery" may result when combined
with the recovery of the utilities' embedded capacity costs through their
base rates. In September 1993, JCP&L and the other New Jersey electric
utilities filed motions for summary judgment with the NJBRC requesting that
the NJBRC dismiss contentions being made by Rate Counsel that adjustments for
alleged "double recovery" in prior periods are warranted. Rate Counsel has
filed a brief in opposition to the utilities' summary judgment motions
including a statement from its consultant that in his view, the "double
recovery" for JCP&L for the 1988-92 period would be approximately
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$102 million. Management believes that the position of Rate Counsel is
without merit. This matter is pending before the NJBRC.
CONSTRUCTION PROGRAM
General
During 1993, the Subsidiaries had gross plant additions of approximately
$520 million attributable principally to improvements and modifications to
existing generating stations, additions to the transmission and distribution
system and clean air requirements. During 1994, JCP&L, Met-Ed, Penelec and
GPUSC contemplate gross plant additions of approximately $275 million,
$167 million, $218 million and $3 million, respectively. The Subsidiaries'
gross plant additions are expected to total approximately $589 million in
1995. The anticipated decrease in construction expenditures during 1995 is
principally attributable to an anticipated reduction in the level of
expenditures associated with clean air requirements and nuclear generation.
The principal categories of the 1994 anticipated expenditures, which include
an allowance for other funds used during construction, are as follows:
(In Millions)
1994
Generation - Nuclear $ 93
Nonnuclear 228
Total Generation 321
Transmission & Distribution 291
Other 51
Total $663
In addition, expenditures for maturing debt are expected to be
$133 million and $91 million for 1994 and 1995, respectively. Subject to
market conditions, the Subsidiaries intend to redeem during these periods
outstanding senior securities pursuant to optional redemption provisions
thereof should it prove economical to do so.
Management estimates that approximately one-half of the GPU System's
total capital needs for 1994 and 1995 will be satisfied through internally
generated funds. The Subsidiaries expect to obtain the remainder of these
funds principally through the sale of first mortgage bonds and preferred
stock, subject to market conditions. The Subsidiaries' bond indentures and
articles of incorporation include provisions that limit the amount of long-
term debt, preferred stock and short-term debt the Subsidiaries may issue.
The Subsidiaries' interest and preferred stock dividend coverage ratios are
currently in excess of indenture or charter restrictions. Present plans call
for the Subsidiaries to issue long-term debt and preferred stock during the
next three years to finance construction activities and, depending on the
level of interest rates, refinance outstanding senior securities.
The GPU System's 1994 construction program includes $120 million in
connection with the federal Clean Air Act Amendments of 1990 (Clean Air Act)
requirements (see "Environmental Matters-Air"). The 1995 construction
program currently includes approximately $75 million for Clean Air Act
compliance.
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GPU's gross plant additions exclude nuclear fuel requirements provided
under capital leases that amounted to $46 million in 1993. When consumed,
the presently leased material, which amounted to $150 million at December 31,
1993, is expected to be replaced by additional leased material at an average
rate of approximately $60 million annually. In the event the replacement
nuclear fuel needs cannot be leased, the associated capital requirements
would have to be met by other means.
The GPU System has a projected need, due in large part to anticipated
peak load growth, of 644 MW of additional capacity by the year 1998 based on
an average growth in sales to customers of about 1.7% annually with growth
rates for the Subsidiaries projected from about 1.1% to 2.3%. GPU intends to
provide for this increased energy need through a mix of economic sources.
In response to the increasingly competitive business climate and excess
capacity of nearby utilities, the GPU System's supply plan places an emphasis
on maintaining flexibility. Supply planning focuses increasingly on short to
intermediate term commitments, reliance on "spot" markets, and avoidance of
long-term firm commitments. Through 1998, GPU's plan consists of the
continued utilization of most existing generating facilities, retirement of
certain older units, power purchases, construction of new facilities, and the
continued promotion of economic energy conservation and load management
programs. Given the future direction of the industry, GPU's present strategy
includes minimizing the financial exposure associated with new long-term
purchase commitments and the construction of new facilities by including
projected market prices in the evaluation of these options. The GPU System
will resist efforts to compel it to add or contract for new capacity at costs
that may exceed future market prices. In addition, the Subsidiaries will
seek regulatory support to renegotiate or buy out contracts with nonutility
generators where the pricing is in excess of projected market prices.
Demand-Side Management
The regulatory environments in both New Jersey and Pennsylvania encourage
the development of new conservation and load management programs. This is
evidenced by DSM incentive regulations adopted in New Jersey in 1992 and
recent approval of a cost recovery mechanism for DSM in Pennsylvania. DSM
includes utility sponsored activities designed to improve energy efficiency
in customer end-use, and includes load management programs (i.e., peak
reduction) and conservation programs (i.e., energy and peak reduction).
In New Jersey, the NJBRC approved JCP&L's DSM plan in 1992 reflecting DSM
initiatives of 67 MW of summer peak reduction by the end of 1994. Under the
approved regulation, qualified Performance Program DSM investments are
recovered over a six-year period with a return earned on the unrecovered
amounts. Lost revenues will be recovered on an annual basis and JCP&L can
also earn a performance-based incentive for successfully implementing cost
effective programs. In addition, JCP&L will continue to make certain NJBRC
mandated Core Program DSM investments which are recovered annually.
In 1990, Met-Ed and Penelec jointly filed a proposal with the PaPUC on
demand-side management (DSM) issues. The proposal recommends that the PaPUC
preapprove DSM programs of utilities to enable the collection of their costs
and that the PaPUC issue an order on a generic basis. In December 1993, the
PaPUC issued an order adopting generic guidelines for recovery of DSM
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expenses. Also, in December 1993, the Consumer Advocate and the Pennsylvania
Energy Office filed separate petitions for clarification and reconsideration
of the PaPUC's order and the PIEC appealed to the Commonwealth Court to
reverse the PaPUC order. On February 4, 1994, Met-Ed and Penelec filed a
petition seeking a stay of the PaPUC's order until the PIEC's appeal is
resolved.
FINANCING ARRANGEMENTS
The Corporation and its affiliates expect to have short-term debt
outstanding from time to time throughout the year. The peak in short-term
debt outstanding is expected to occur in the spring coinciding with normal
cash requirements for revenue tax payments.
The Corporation and the Subsidiaries have $398 million of credit
facilities, which includes a Revolving Credit Agreement (Credit Agreement)
with a consortium of banks that permits total borrowing of $150 million
outstanding at any one time. The credit facilities generally provide for the
payment of a commitment fee on the unborrowed amount of 1/8 of 1% annually.
Borrowings under these credit facilities generally bear interest based on the
prime rate or money market rates. Notes issued under the Credit Agreement,
which expires April 1, 1995, are subject to various covenants and
acceleration under certain conditions.
In 1993, the Subsidiaries refinanced higher cost long-term debt in the
principal amount of $723 million resulting in an estimated annualized after-
tax savings of $6 million. Total GPU System long-term debt issued during
1993 amounted to $957 million. In addition, the Subsidiaries redeemed $156
million of high-dividend rate preferred stock issues.
During 1993, GPU sold four million shares of common stock at $33 1/8 per
share through an underwritten public offering. The net proceeds of
$128.7 million were used primarily to reimburse the Subsidiaries for the
preferred stock redemptions.
In January 1994, Penelec issued an aggregate of $90 million of first
mortgage bonds, of which a portion of the net proceeds were used to redeem
$38 million principal amount of 6 5/8% series bonds in February 1994. Met-
Ed issued, in February 1994, an aggregate of $50 million of first mortgage
bonds, of which a portion of the net proceeds will be used to redeem
$26 million principal amount of 7% series bonds in March 1994.
The Subsidiaries have regulatory authority to issue and sell first
mortgage bonds, which may be issued as secured medium-term notes, and
preferred stock for various periods through 1995. Under existing
authorization, JCP&L, Met-Ed and Penelec may issue senior securities in the
amount of $275 million, $250 million and $330 million, respectively, of which
$100 million for each Subsidiary may consist of preferred stock. The
Subsidiaries also have regulatory authority to incur short-term debt, a
portion of which may be through the issuance of commercial paper.
Under the Subsidiaries' nuclear fuel lease agreements with nonaffiliated
fuel trusts, an aggregate of up to $250 million ($125 million each for Oyster
Creek and TMI-1) of nuclear fuel costs may be outstanding at any one time.
It is contemplated that when consumed, portions of the presently leased
material will be replaced by additional leased material. The Subsidiaries
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are responsible for the disposal costs of nuclear fuel leased under these
agreements.
REGULATION
As a registered holding company, GPU is subject to regulation by the SEC
under the 1935 Act. The GPU System companies are also subject to regulation
under the 1935 Act with respect to accounting, the issuance of securities,
the acquisition and sale of utility assets, securities or any other interest
in any business, the entering into, and performance of, service, sales and
construction contracts, and certain other matters. The SEC has determined
that the electric facilities of the Subsidiaries constitute a single
integrated public utility system under the standards of the 1935 Act. The
1935 Act also limits the extent to which the GPU System may engage in
nonutility businesses. Each Subsidiary's retail rates, conditions of
service, issuance of securities and other matters are subject to regulation
in the state in which such Subsidiary operates - in New Jersey by the NJBRC
and in Pennsylvania by the PaPUC. Moreover, with respect to wholesale rates,
the transmission of electric energy, accounting, the construction and
maintenance of hydroelectric projects and certain other matters, the
Subsidiaries are subject to regulation by the FERC under the Federal Power
Act. The NRC regulates the construction, ownership and operation of nuclear
generating stations and other related matters. (See "Electric Generation and
the Environment - Environmental Matters" for additional regulation to which
the Subsidiaries are or may be subject.)
The rates charged by the Subsidiaries for electric service are set by
regulators under statutory requirements that they be "just and reasonable."
As such, they are subject to adjustment, up or down, in the event they vary
from that statutory standard. In 1989, the NJBRC issued proposed regulations
designed to establish a mechanism to evaluate the earnings of New Jersey
utilities to determine whether their rates continue to be just and
reasonable. As proposed, the regulations would permit the NJBRC to establish
interim rates subject to refund without prior hearing. There has been no
activity concerning this matter since JCP&L filed comments with the NJBRC.
In 1992, as a result of a rulemaking proceeding, the PaPUC established
quarterly financial reporting requirements to monitor public utility
earnings.
NONUTILITY BUSINESSES
GPC was organized to make investments apart from the businesses of the
Subsidiaries. Currently, these are conducted by EI, a subsidiary of GPC, and
its subsidiaries. EI is in the business of developing, owning, operating and
investing in cogeneration and other nonutility power production facilities.
As of December 31, 1993, EI had 223 MW of capacity in operation and an option
to acquire a 20% equity interest in projects having an additional 350 MW of
capacity. EI's potential business activities and markets have been
significantly expanded as a result of the regulatory changes brought about by
the Energy Act.
In 1993, EI entered into an agreement to invest up to $8.5 million over
the next four years to acquire an up to 29% equity interest in a private
independent power development company, which has commitments or prospects to
provide more than 200 MW of electricity to utilities in Canada and plans to
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develop other projects in the United States. EI also obtained the right to
operate several of the projects. In addition, EI has been active as a bidder
and has proposals pending for the development and acquisition of additional
capacity in the United States. EI is also pursuing international development
projects in Latin America and has been designated as a successful bidder on a
proposed 750 MW repowering project in Colombia, South America. EI is also
investigating other international opportunities.
At December 31, 1993, GPU's investment in GPC was $39 million. GPU
intends to make additional investments in the development and ownership of
nonutility generating facilities in an effort to expand these business
activities. The timing and amounts of these investments, however, will
depend upon the development of appropriate opportunities. GPU does not
expect investments apart from the activities of EI to be a major part of its
business activities; however, this may change as GPU's strategic plan is
developed. (See "Regulation.")
ELECTRIC GENERATION AND THE ENVIRONMENT
Fuel
Of the portion of their energy requirements supplied by their own
generation, the Subsidiaries utilized fuels in the generation of electric
energy during 1993 in approximately the following percentages: Coal--60%;
Nuclear--38%; Gas--1% and Oil--1%. Approximately 42% of the Subsidiaries'
energy requirements in 1993 was supplied by purchases (including net
interchange) from other utilities and nonutility generators. For 1994, the
Subsidiaries estimate that their generation of electric energy will be in the
following proportions: Coal--64%; Nuclear--33%; Gas--2% and Oil--1%. The
anticipated changes in 1994 fuel utilization percentages are principally
attributable to the refueling outage scheduled during 1994 for the Oyster
Creek nuclear generating station. Approximately 43% of the Subsidiaries'
1994 energy requirements are expected to be supplied by purchases (including
net interchange) from other utilities and nonutility generators.
Fossil: The Subsidiaries have entered into long-term contracts with
nonaffiliated mining companies for the purchase of coal for certain
generating stations in which they have ownership interests. The contracts,
which expire between 1994 and the end of the expected service lives of the
generating stations, require the purchase of fixed amounts of coal. The
price of the coal under the contracts is generally based on adjustments of
indexed cost components. One contract also includes a provision for the
payment of environmental and post-employment benefits. Another coal contract
sets coal prices that generally provide for the recovery by the mining
companies of their costs of production. The Subsidiaries' share of the cost
of coal purchased under these agreements is expected to aggregate $89 million
for 1994.
The Subsidiaries' coal-fired generating stations now in service are
estimated to require an aggregate of 160 million tons of coal over the next
twenty years. Of this total requirement, approximately 13 million tons are
expected to be supplied by nonaffiliated mine-mouth coal companies with the
balance supplied through long-term contracts and spot market purchases.
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At the present time, adequate supplies of fossil fuels are readily
available to the Subsidiaries, but this situation could change rapidly as a
result of actions over which they have no control.
Nuclear: Preparation of nuclear fuel for generating station use involves
various manufacturing stages for which the GPU System contracts separately.
Stage I involves the mining and milling of uranium ores to produce natural
uranium concentrates. Stage II provides for the chemical conversion of the
natural uranium concentrates into uranium hexafluoride. Stage III involves
the process of enrichment to produce enriched uranium hexafluoride from the
natural uranium hexafluoride. Stage IV provides for the fabrication of the
enriched uranium hexafluoride into nuclear fuel assemblies for use in the
reactor core at the nuclear generating station.
For TMI-1, under normal operating conditions, there is, with minor
planned modifications, sufficient on-site storage capacity to accommodate
spent nuclear fuel through the end of its licensed life while maintaining the
ability to remove the entire reactor core. While Oyster Creek currently has
sufficient on-site storage capacity to accommodate, under normal operating
conditions, its spent nuclear fuel while maintaining the ability to remove
the entire reactor core, additional on-site storage capacity will be required
at the Oyster Creek station beginning in 1996 in order to continue operation
of the plant. Contract commitments, with an outside vendor, have been made
for on-site incremental spent fuel dry storage capacity at Oyster Creek for
1996 and 1998. Currently, public hearings on plans to build an interim spent
fuel facility at the plant are underway.
Environmental Matters
The Subsidiaries are subject to federal and state water quality, air
quality, solid waste disposal and employee health and safety legislation and
to environmental regulations issued by the U.S. Environmental Protection
Agency (EPA), state environmental agencies and other federal agencies. In
addition, the Subsidiaries are subject to licensing of hydroelectric projects
by the FERC and of nuclear power projects by the NRC. Such licensing and
other actions by federal agencies with respect to projects of the
Subsidiaries are also subject to the National Environmental Policy Act.
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but
not limited to acid rain, water quality, air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, the GPU System may be required to incur substantial additional costs
to construct new equipment, modify or replace existing and proposed
equipment, remediate or clean up waste disposal and other sites currently or
formerly used by it, including formerly owned manufactured gas plants and
mine refuse piles, and with regard to electromagnetic fields, postpone or
cancel the installation of, or replace or modify, utility plant, the costs of
which could be material. The consequences of environmental issues, which
could cause the postponement or cancellation of either the installation or
replacement of utility plant are unknown. Management believes the costs
described above should be recoverable through the ratemaking process but
recognizes that recovery cannot be assured.
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Water: The federal Water Pollution Control Act (Clean Water Act)
generally requires, with respect to existing steam electric power plants, the
application of the best conventional or practicable pollutant control
technology available and compliance with state-established water quality
standards. With respect to future plants, the Clean Water Act requires the
application of the "best available demonstrated control technology,
processes, operating methods or other alternatives" to achieve, where
practicable, no discharge of pollutants. Congress may amend the Clean Water
Act during 1994.
The EPA has adopted regulations that establish thermal and other
limitations for effluents discharged from both existing and new steam
electric generating stations. Standards of performance are developed and
enforcement of effluent limitations is accomplished through the issuance by
the EPA, or states authorized by the EPA, of discharge permits that specify
limitations to be applied. Discharge permits, which have been issued for all
of the GPU System's generating stations, where required, have expiration
dates ranging through 1998. Timely reapplications for such permits have been
filed as required by regulations.
The discharge permit received by JCP&L for the Oyster Creek station may,
among other things, require the installation of a closed-cycle cooling
system, such as a cooling tower, to meet New Jersey state water quality-
based thermal effluent limitations. Although construction of such a system
is not required in order to meet the EPA's regulations setting effluent
limitations for the Oyster Creek station (such regulations would accept the
use of the once-through cooling system now in operation at this station), a
closed-cycle cooling system may be required in order to comply with the water
quality standards imposed by the New Jersey Department of Environmental
Protection and Energy (NJDEPE) for water quality certification and
incorporated in the station's discharge permit. If a cooling tower is
required, the capital costs could exceed $150 million. In 1988, the NJDEPE
prepared a draft evaluation that assessed the impact of cooling water intake
and discharge from Oyster Creek. This evaluation concluded that the thermal
impact of water discharge from Oyster Creek operation was small and localized
but that the impact of cooling water intake was inconclusive, requiring
further study. In 1993, the NJDEPE advised GPUN that rather than conduct
hearings, it will determine GPUN's water quality standards in the context of
renewing the discharge permit. The NJDEPE has indicated that water quality
standards (on an interim basis) will be set as requested by GPUN and that
physical or operational changes to the intake structure will not be necessary
at this time. Final standards will be established based upon results of a
study to determine the optimum operational schedule for the dilution pumps.
The NJDEPE has proposed thermal and other conditions for inclusion in the
discharge permits for JCP&L's Gilbert and Sayreville generating stations
which, among other things, could require JCP&L to install cooling towers
and/or modify the water intake/discharge systems at these facilities. JCP&L
has objected to these conditions and has requested an adjudicatory hearing
with respect thereto. Implementation of these permit conditions has been
stayed pending action on JCP&L's hearing request. JCP&L has made filings
with the NJDEPE that JCP&L believes demonstrate compliance with state water
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quality standards at the Gilbert generating station and justify the issuance
of a thermal variance at the Sayreville generating station to permit the
continued use of the present once-through cooling system. Based on the
NJDEPE's review of these demonstrations, substantial modifications may be
required at these stations, which may result in material capital
expenditures.
The Subsidiaries are also subject to environmental and water diversion
requirements adopted by the Delaware River Basin Commission and the
Susquehanna River Basin Commission as administered by those commissions or
the Pennsylvania Department of Environmental Resources (PaDER) and the
NJDEPE.
During 1993, Met-Ed entered into an agreement with various agencies to
construct a fish passage facility at its York Haven hydroelectric project by
the year 2000. The present estimated installed cost of the facility is
$6.5 million.
Nuclear: Reference is made to "Nuclear Facilities" for information
regarding the TMI-2 accident, its aftermath and the GPU System's other
nuclear facilities.
New Jersey and Pennsylvania have each established, in conjunction with
other states, a low level radioactive waste (radwaste) compact for the
construction, licensing and operation of low level radwaste disposal
facilities to service their respective areas by the year 2000.
New Jersey and Connecticut have established the Northeast Compact. The
estimated cost to license and build a low level radwaste disposal facility in
New Jersey is approximately $74 million. GPUN's expected $29.5 million share
of the cost for this facility is to be paid annually over an eight year
period ending in 1999. In its February 1993 rate order, the NJBRC granted
JCP&L's request to recover these amounts currently from customers. The
facility would be available for disposal of low level waste from Oyster
Creek.
Similarly, Pennsylvania, Delaware, Maryland and West Virginia have
established the Appalachian Compact, which will build a single facility to
dispose of low level radwaste in their areas, including low level radwaste
from TMI-1. The estimated cost to license and build this facility is
approximately $60 million, of which GPUN's share is $12 million. These
payments are considered advance waste disposal fees and will be recovered
during the facility's operation.
The Subsidiaries have provided for future contributions to the
Decontamination and Decommissioning Fund (part of the Energy Act) for the
cleanup of enrichment plants operated by the Federal government. The total
liability at December 31, 1993 amounted to $47 million. The Subsidiaries
made their initial payment in 1993. The remaining amount recoverable from
ratepayers is $48 million at December 31, 1993.
Air: The Subsidiaries are subject to certain state environmental
regulations of the NJDEPE, the New Jersey Department of Health and the PaDER.
The Subsidiaries are also subject to certain federal environmental
regulations of the EPA.
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The PaDER, NJDEPE and the EPA have adopted air quality regulations
designed to implement Pennsylvania, New Jersey and federal statutes relating
to air quality.
Current Pennsylvania environmental regulations prescribe criteria that
generally limit the sulfur dioxide content of stack gas emissions from
generating stations constructed before 1972 and stations constructed after
1971 but before 1978, to 3.7 pounds and 1.2 pounds per million BTU of heat
input, respectively. On a weighted average basis, the Subsidiaries have been
able to obtain coal having a sulfur content meeting these criteria. If, and
to the extent that, the Subsidiaries cannot continue to meet such limitations
with processed coal, it may be necessary to retrofit operating stations with
sulfur removal equipment that may require substantial capital expenditures as
well as substantial additional operating costs. Such retrofitting, if it
could be accomplished to permit continued reliable operation of the
facilities concerned, would take approximately five years.
As a result of the Clean Air Act, which requires substantial reductions
in sulfur dioxide and nitrogen oxide (NOx) emissions by the year 2000, it
will be necessary for the GPU System to install and operate emission control
equipment as well as switch to slightly lower sulfur coal at some of the GPU
System's coal-fired plants in order to achieve compliance. To comply with
Title IV of the Clean Air Act, the GPU System expects to expend up to $590
million by the year 2000 for air pollution control equipment, of which
approximately $91 million has been spent as of December 31, 1993. These
capital expenditures for Penelec, Met-Ed and JCP&L are estimated to amount to
$295 million, $150 million and $145 million, respectively, for the
installation of scrubbers, low NOx burner technology and various precipitator
upgrades. The capital costs of this equipment and the increased operating
costs of the affected stations are expected to be recoverable through the
ratemaking process. Met-Ed and the other owners of the Conemaugh Generating
Station have awarded contracts for the installation of scrubbers, and
construction is underway, on the two coal units at Conemaugh; Met-Ed's
estimated 16.45% share of these costs is $64 million. This action is part of
the GPU System's plans to comply with Phase I sulfur dioxide emission
limitations. The current construction schedule provides for Conemaugh Units
1 and 2 scrubbers to be in service by January of 1995 and 1996, respectively.
In its January 1993 rate order, the PaPUC approved Met-Ed's request for
$24.5 million of current expenditures to be included in rate base
representing certain costs associated with the installation of scrubbers at
the Conemaugh Generating Station and other environmental compliance projects.
The plan for Portland Station is to meet its Phase I compliance obligation
through the use of emission allowances, including allowances allocated
directly to Portland station by the EPA and allowances resulting from the
scrubbing of Conemaugh station.
The GPU System's current strategy for Phase II compliance under the Clean
Air Act is to install scrubbers at the Keystone station and evaluate the
installation of scrubbers or fuel switching at the Homer City Unit 3 station.
Switching to lower sulfur coal is currently planned for the Titus, Portland,
Seward, and Warren Stations. Homer City Units 1 and 2 will use existing coal
cleaning technology.
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The GPU System continues to review available options to comply with the
Clean Air Act, including those which may result from the development of an
emission allowance trading market. The GPU System's compliance strategy,
especially with respect to Phase II, could change as a result of further
review, discussions with co-owners of jointly owned stations and changes in
federal and state regulatory requirements.
The ultimate impact of Title I of the Clean Air Act, which deals with the
attainment of ambient air quality standards, is highly uncertain. In
particular, this Title has established an ozone transport or emission control
region that includes 11 northeast states. Pennsylvania and New Jersey are
part of this transport region, and will be required to control NOx emissions
to a level that will provide for the attainment of the ozone standard in the
northeast. As an initial step, major sources of nitrogen oxide will be
required to implement Reasonably Available Control Technology (RACT) by May
31, 1995. This will affect the GPU System's steam generating stations.
PaDER's RACT regulations have been approved by the Environmental Quality
Board and became effective in January 1994. Large coal-fired combustion
units are required to comply with a presumptive RACT emission limitation
(technology) or may elect to use a case-by-case analysis to establish RACT
requirements. In order to comply with these RACT regulations, low NOx
burners with separate overfire air are being installed at the Portland and
Conemaugh Stations. A RACT compliance plan for Titus Station will be
finalized in early 1994. NJDEPE's RACT regulations became effective in
December 1993. These regulations establish maximum allowable emission rates
for utility boilers based on fuel used and boiler type, and on combustion
turbines based on fuel used. Existing units are eligible for emissions
averaging upon approval of an averaging plan by the NJDEPE.
The ultimate impact of Title III of the Clean Air Act, which deals with
emissions of hazardous air pollutants, is also highly uncertain.
Specifically, the EPA has not completed a Clean Air Act study to determine
whether it is appropriate to regulate emissions of hazardous air pollutants
from electric utility steam generating units. However, the Homer City Coal
Processing Plant is being studied to determine if it is a major stationary
source of air toxins.
Both the EPA and PaDER are questioning the attainment of National Ambient
Air Quality Standards (NAAQS) for sulfur dioxide in the vicinity of the
Chestnut Ridge Energy Complex (Homer City, Conemaugh, Keystone and Seward
generating stations). The Homer City, Conemaugh and Keystone generating
stations are jointly owned with nonaffiliated utilities. The EPA and the
PaDER have approved the use of a nonguideline air quality model. This model
is more representative and less conservative than the EPA guideline model and
will be used in the development of a compliance strategy for all generating
stations in the Chestnut Ridge Energy Complex.
The area around the Warren generating station has been designated as
nonattainment for sulfur dioxide. In the case of the Warren Generating
station area, Penelec began a model evaluation study in early 1993. The
results of the study will be used to determine if a nonguideline model can be
used. The study results will be available in 1994. A Consent Order and
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Agreement has been negotiated to allow the PaDER to revise the implementation
plan for Warren Station. A model evaluation study is also being conducted at
Shawville Station. The results of this study will be available in 1995.
The attainment issue has been taken into account as part of the design of
the Conemaugh Station scrubbers. Met-Ed has initiated ambient air quality
modeling studies for its Portland and Titus Stations that will take several
years to complete. While the results are uncertain, these studies may result
in a revised Pennsylvania State Implementation Plan (PaSIP) in order to
attain NAAQS for sulfur dioxide. If sulfur dioxide emissions need to be
reduced to meet the new PaSIP, Met-Ed will reevaluate its options available
for Portland and Titus Stations.
Based on the results of the studies pursuant to NAAQS, significant sulfur
dioxide reductions may be required at one or more of these stations which
could result in material capital and additional operating expenditures.
Certain other environmental regulations limit the amount of particulate
matter emitted into the environment. The Subsidiaries have installed
equipment at their coal-fired generating stations and may find it necessary
to either upgrade or install additional equipment at certain of their
stations to consistently meet particulate emission requirements.
In the fall of 1993, the Clinton Administration announced its climate
change action plan which intends to reduce greenhouse gas emissions to 1990
levels by the year 2000. The climate action plan relies heavily on voluntary
action by industry. GPU notified the DOE that it supported the voluntary
approach proposed by the President and expressed its intent to work with the
DOE.
Title IV of the Clean Air Act requires Phase I and Phase II affected
units to install a continuous emission monitoring system (CEMS) and quality
assure the data for sulfur dioxide, nitrogen oxides, opacity and volumetric
flow. In addition, Title VIII requires all affected sources to monitor
carbon dioxide emissions. Monitoring systems have been installed and
certified on Met-Ed's Phase I and Penelec's Phase I and Phase II affected
units as required by EPA and PaDER regulations. Monitoring systems have been
installed on Met-Ed's Phase II affected units and will be certified in 1994.
The PaDER has a CEMS enforcement policy to ensure consistent compliance
with air quality regulations under federal and state statutes. The CEMS
enforcement policy includes matters such as visible emissions, sulfur dioxide
emission standards, nitrogen oxide emissions and a requirement to maintain
certified continuous emission monitoring equipment. In addition, this policy
provides a mechanism for the payment of certain prescribed amounts to the
Pennsylvania Clean Air Fund (Clean Air Fund) for air pollutant emission
excesses or monitoring failures. With respect to the operation of Met-Ed's
and Penelec's generating stations for 1994, it is not anticipated that
payments to be made to the Clean Air Fund will be material in amount.
The Clean Air Act has also expanded the enforcement options available to
the EPA and the states and contains more stringent enforcement provisions and
penalties. Moreover, citizen suits can seek civil penalties for violations
of this act.
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The EPA has established Best Available Retrofit Technology (BART) sulfur
dioxide emission standards to be used for Penelec's Shawville and Seward
generating stations under the Good Engineering Practice stack height
regulation. Dependent upon the Chestnut Ridge Compliance Strategy and the
results of the Shawville Model evaluation study mentioned above, lower sulfur
coal purchases may be necessary for compliance. Discussions with the EPA
regarding this matter are continuing.
In 1988, the Environmental Defense Fund (EDF), the New Jersey
Conservation Foundation, the Sierra Club and Pennsylvanians for Acid Rain
Control requested that the NJDEPE and the NJBRC seek to reduce sulfur
deposition in New Jersey, either by reducing emissions from both in-state and
out-of-state sources, or by requiring that certain electricity imported into
New Jersey be generated from facilities meeting minimum emission standards.
JCP&L purchases a substantial portion of its net system requirements from
out-of-state coal-fired facilities, including the 1,700 MW Keystone Station
in Pennsylvania in which it owns a 16.67% interest. In addition, coal-fired
generating facilities owned by Met-Ed and Penelec supply electric energy to
JCP&L and other New Jersey members of PJM. Hearings on the EDF petition were
held during 1989 and 1990, and the matter is pending before the NJDEPE and
the NJBRC.
In New Jersey, where the bulk of the GPU System's oil-fired generating
capacity is located, NJDEPE regulations establish the maximum sulfur content
of oil, which may not exceed .3% for most of JCP&L's generating stations and
1% for the balance.
In 1993, the Subsidiaries made capital expenditures of approximately
$70 million in response to environmental considerations and have included
approximately $121 million for this purpose in their 1994 construction
programs. The operating and maintenance costs, including the incremental
costs of low-sulfur fuel, for such equipment were approximately $105 million
in 1993 and are expected to be approximately $108 million in 1994.
Electromagnetic Fields: There have been a number of scientific studies
regarding the possibility of adverse health effects from electric and
magnetic fields (EMF) that are found everywhere there is electricity. While
some of the studies have indicated some association between exposure to EMF
and cancer, other studies have indicated no such association. The studies
have not shown any causal relationship between exposure to EMF and cancer, or
any other adverse health effects. In 1990, the EPA issued a draft report
that identifies EMF as a possible carcinogen, although it acknowledges that
there is still scientific uncertainty surrounding these fields and their
possible link to adverse health effects. On the other hand, a 1992 White
House Office of Science and Technology policy report states that "there is no
convincing evidence in the published literature to support the contention
that exposures to extremely low frequency electric and magnetic fields
generated by sources such as household appliances, video display terminals,
and local power lines are demonstrable health hazards." Additional studies,
which may foster a better understanding of the subject, are presently
underway.
Certain parties have alleged that the exposure to EMF associated with the
operation of transmission and distribution facilities will produce adverse
impacts upon public health and safety and upon property values. Furthermore,
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regulatory actions under consideration by the NJDEPE and bills introduced in
the Pennsylvania legislature could, if enacted, establish a framework under
which the intensity of EMF produced by electric transmission and distribution
lines would be limited or otherwise regulated.
The Subsidiaries cannot determine at this time what effect, if any, this
matter will have on them.
Residual Waste: The PaDER has finalized the residual waste regulations
which became effective in July 1992. These regulations impose additional
restrictions on operating existing ash disposal sites and for siting future
disposal sites and will increase the costs of establishing and operating
these facilities. The main objective of these regulations is to prevent
degradation of groundwater and to abate any existing degradation.
One of the first significant compliance requirements of the regulations
is conducting groundwater assessments of landfills if existing groundwater
monitoring indicates the possibility of degradation. The assessments require
the installation of additional monitoring wells and the evaluation of one
year's worth of data. All of Penelec's active landfills require assessments.
If the assessments show degradation of the groundwater, then the next step is
to develop abatement plans. However, there is no specific timetable on the
implementation of abatement activities, if required. Penelec and Met-Ed's
landfills are to have preliminary permit modification applications submitted
to the PaDER by July 1994, and complete permit applications under evaluation
by July 1997. Met-Ed's Portland and Titus landfills have had preliminary
assessments conducted which are currently under review by the PaDER. The
Titus Station ash disposal site was upgraded in 1991 and subsequently meets
all lined facility requirements. The Portland station ash disposal site will
require significant modifications under the new regulations. Various
alternatives for upgrading the site are being evaluated. In addition, the
regulations can also be enforced at sites closed since 1980 at the PaDER's
option.
Other compliance requirements at Penelec that will be implemented in the
future include the lining of currently unlined disposal sites and storage
impoundments. Impoundments also will eventually require groundwater
monitoring systems and assessments of impact on groundwater. Groundwater
abatement may be necessary at locations where pollution problems are
identified. The removal of all the residual waste or "clean closed" will be
done at some impoundments to eliminate the need for future monitoring and
abatement requirements. Storage impoundments must have implemented
groundwater monitoring plans by 2002, but PaDER can require this at any time
prior to this date or defer full compliance beyond 2002 for some storage
impoundments at their discretion. Also being evaluated are the exercising of
beneficial use options authorized by the regulations, and source reductions.
Preliminary groundwater assessment plans have also been conducted at
Met-Ed's Portland and Titus Stations' industrial waste treatment impoundments
and are currently under review by the PaDER. Additional data will be
collected and evaluated to determine if abatement will be required. The
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Portland Station impoundments were upgraded in 1987 and meet the requirements
for lined impoundments. The Titus Station impoundments will require
significant modifications by 2002.
There are also a number of issues still to be resolved regarding certain
waivers related to Penelec's existing landfill and storage impoundment
compliance requirements. These waivers could significantly reduce the cost
of many of the Company's facility compliance upgrades.
Another aspect of the regulations deals with the storage and disposal of
polychlorinated biphenyl (PCB) wastes between two and 50 parts per million
(ppm). Federal regulations only deal with wastes over 50 ppm. The
compliance requirements for this regulation are currently being evaluated.
Hazardous/Toxic Wastes: Under the Toxic Substances Control Act (TSCA),
the EPA has adopted certain regulations governing the use, storage, testing,
inspection and disposal of electrical equipment that contains PCBs. Such
regulations permit the continued use and servicing of certain electrical
equipment (including transformers and capacitors) that contain PCBs. The
Subsidiaries have met all requirements of the TSCA necessary to allow the
continued use of equipment containing PCBs and have taken substantive
voluntary actions to reduce the amount of PCB containing electrical equipment
in the System.
Prior to 1953, the Subsidiaries owned and operated manufactured gas
plants in New Jersey and Pennsylvania. Wastes associated with the operation
and dismantlement of these gas manufacturing plants were disposed of both
on-site and off-site. Claims may be asserted against the Subsidiaries for
the cost of investigation and remediation of these waste disposal sites. The
amount of such remediation costs and penalties may be significant and may not
be covered by insurance. JCP&L has identified 17 such sites to date. JCP&L
has entered into cost sharing agreements with New Jersey Natural Gas Company
and Elizabethtown Gas Company under which JCP&L is responsible for 60% of all
costs incurred in connection with the remediation of 12 of these sites.
JCP&L has entered into Administrative Consent Orders (ACOs) with the NJDEPE
for seven of these sites and has entered into Memoranda of Agreement (MOAs)
with the NJDEPE for eight of these sites. JCP&L anticipates entering into
MOAs for the remaining sites. The ACOs specify the agreed upon obligations
of both JCP&L and the NJDEPE for remediation of the sites. The MOAs afford
JCP&L greater flexibility in the schedule for investigation and remediation
of sites. JCP&L is seeking NJDEPE approval of its plans for the remediation
of these sites. The NJDEPE has approved JCP&L's implementation program for
five of these sites.
At December 31, 1993, JCP&L has an estimated environmental liability of
$35 million recorded on its balance sheet relating to these sites. The
estimated liability is based upon ongoing site investigations and remediation
efforts, including capping the sites and pumping and treatment of ground
water. If the periods over which the remediation is currently expected to be
performed are lengthened, JCP&L believes that it is reasonably possible that
the ultimate costs may range as high as $60 million. Estimates of these
costs are subject to significant uncertainties: JCP&L does not presently own
or control most of these sites; the environmental standards have changed in
the past and are subject to future change; the accepted technologies are
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subject to further development; and the related costs for these technologies
are uncertain. If JCP&L is required to utilize different remediation
methods, the costs could be materially in excess of $60 million.
In June 1993, the NJBRC approved a mechanism for the recovery of future
manufactured gas plant remediation costs through JCP&L's Levelized Energy
Adjustment Clause (LEAC) when expenditures exceed prior collections. The
NJBRC decision provides for interest to be credited to customers until the
overrecovery is eliminated and for future costs to be amortized over seven
years with interest. JCP&L is currently awaiting a final NJBRC order. JCP&L
is pursuing reimbursement of the above costs from its insurance carriers, and
will seek to recover costs to the extent not covered by insurance through
this mechanism.
The federal Resource Conservation and Recovery Act of 1976, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) and the Superfund Amendment and Reauthorization Act of 1986
authorize the EPA to issue an order compelling responsible parties to take
cleanup action at any location that is determined to present an imminent and
substantial danger to the public or to the environment because of an actual
or threatened release of one or more hazardous substances. Pennsylvania and
New Jersey have enacted legislation giving similar authority to the PaDER and
the NJDEPE, respectively. Because of the nature of the Subsidiaries'
business, various by-products and substances are produced and/or handled that
are classified as hazardous under one or more of these statutes. The
Subsidiaries generally provide for the treatment, disposal or recycling of
such substances through licensed independent contractors, but these statutory
provisions also impose potential responsibility for certain cleanup costs on
the generators of the wastes. The GPU System companies have been notified by
the EPA and state environmental authorities that they are among the
potentially responsible parties (PRPs) who may be jointly and severally
liable to pay for the costs associated with the investigation and remediation
at 10 hazardous and/or toxic waste sites (including those described below).
In addition, the GPU System companies have been requested to supply
information to the EPA and state environmental authorities on several other
sites for which the GPU System companies have not as yet been named as PRPs.
Met-Ed and Penelec have also been named in lawsuits requesting damages for
hazardous and/or toxic substances allegedly released into the environment.
The Subsidiaries received notification in 1986 from the EPA that they are
among the more than 800 PRPs under CERCLA who may be liable to pay for the
cost associated with the investigation and remediation of the Maxey Flats
disposal site, located in Fleming County, Kentucky. JCP&L, Met-Ed, Penelec
and Saxton are alleged to have contributed, in the aggregate, approximately
2.3% of the total volume of waste shipped to the Maxey Flats site. On
September 30, 1991, the EPA issued a Record of Decision (ROD) advising that a
remedial alternative had been selected. The PRPs estimate the cost of the
remedial alternative selected and associated activities identified in the ROD
at more than $60 million, for which all responsible parties would be jointly
and severally liable.
The EPA has initiated a suit under CERCLA and other laws for the initial
cleanup of hazardous materials deposited at a waste disposal site at Harper
Drive, Millcreek Township, Pennsylvania (Millcreek site). Penelec is one of
over 50 PRPs at this site. Penelec does not know whether its insurance
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carriers will assume the responsibility to defend and indemnify it in
connection with this matter.
Two lawsuits involving property owners at or near the Millcreek site have
been filed against Penelec and other PRPs. Penelec's insurance carriers are
defending these actions but may not provide coverage in the event
compensatory damages are awarded. In addition, claims have also been made
for punitive damages which may not be covered by insurance.
Penelec, together with 24 others, has been named as a third party
defendant in an action commenced under the CERCLA by the EPA in the
U.S. District Court in Ohio. The EPA is seeking to recover costs for the
cleanup of hazardous and toxic materials disposed at the New Lyme landfill
site in Ashtabula, Ohio. Penelec, together with 22 others, has also been
named as a third party defendant in an action under the CERCLA by the state
of Ohio seeking to recover costs it has incurred and will incur in the future
at the New Lyme landfill site.
Met-Ed, together with 35 others, has been named as a third party
defendant in an action commenced under CERCLA by the EPA in the U.S. District
Court for the Eastern District of Pennsylvania. The EPA is seeking to
recover response costs for hazardous materials disposed at the Mabry/Oswald
Site in Upper Macungie and Longswamp Townships, Pennsylvania. Met-Ed has
reached settlement of its liability in this matter and expects to be
dismissed from the litigation.
The ultimate cost of remediation of these sites will depend upon changing
circumstances as site investigations continue, including (a) the technology
required for site cleanup, (b) the remedial action plan chosen and (c) the
extent of site contamination and the portion attributed to the GPU System
companies.
The GPU System companies are unable to estimate the extent of possible
remediation and associated costs of additional environmental matters.
Management believes the costs described above should be recoverable through
the ratemaking process.
EMPLOYEE RELATIONS
At February 28, 1994, the GPU System had 11,939 full-time employees. The
nonsupervisory production and maintenance employees of the Subsidiaries and
certain of their nonsupervisory clerical employees are represented for
collective bargaining purposes by local unions of the International
Brotherhood of Electrical Workers (IBEW) at JCP&L, Met-Ed and Penelec and the
Utility Workers Union of America (UWUA) at Penelec.
Penelec's five-year contracts with the IBEW and UWUA expire on May 14,
1998 and June 30, 1998, respectively. Met-Ed's three-year contract with the
IBEW expires on April 30, 1994. JCP&L's three-year contract with the IBEW
expires on October 31, 1994.
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ITEM 2. PROPERTIES.
Generating Stations
At December 31, 1993, the generating stations of the GPU System had an
aggregate effective summer capability of 6,739,000 net kilowatts (KW), as
follows:
Name of Year of Name of Year of
Station Installation Net KW Station Installation Net KW
COAL-FIRED: GAS/OIL-FIRED:
Homer City(a) 1969-1977 942,000 (gas or oil)
Shawville 1954-1960 597,000 Sayreville(d) 1930-1958 313,000
Portland 1958-1962 401,000 Gilbert 1930-1949 117,000
Keystone(b) 1967-1968 283,000 Combustion
Conemaugh(c) 1970-1971 280,000 (gas or oil)
Titus 1951-1953 241,000 Turbines 1960-1989 1,160,000
Seward 1950-1957 196,000 Werner (oil) 1953 58,000
Warren 1948-1949 82,000 Other(e) 1968-1977 332,000
NUCLEAR: HYDROELECTRIC 1905-1969 64,000
TMI-1 1974 786,000 PUMPED STORAGE:(f)
Oyster Creek 1969 610,000 Yards Creek 1965 190,000
Seneca 1969 87,000
TOTAL 6,739,000
(a) Represents Penelec's undivided 50% interest in the station.
(b) Represents JCP&L's undivided 16.67% interest in the station.
(c) Represents Met-Ed's undivided 16.45% interest in the station.
(d) Effective February 1, 1994, 84,000 KW of capability were retired.
(e) Consists of internal combustion and combined cycle units.
(f) Represents the Subsidiaries' undivided interests in these stations which
are net users rather than net producers of electric energy.
All the GPU System's coal-fired, hydroelectric (other than the Deep Creek
Station) and pumped storage stations (other than the Yards Creek station) are
located in Pennsylvania. The TMI-1 nuclear station is also located in
Pennsylvania. The GPU System's gas-fired and oil-fired stations (other than
some combustion turbines in Pennsylvania), the Yards Creek pumped storage
station and the Oyster Creek nuclear station are located in New Jersey. The
Deep Creek hydroelectric station is located in Maryland.
Substantially all of the Subsidiaries' properties are subject to the lien
of their respective first mortgage bond indentures.
The peak load of the GPU System, which occurred on July 9, 1993, was
8,533,000 KW.
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Transmission and Distribution System
At December 31, 1993, the GPU System owned 1,249 transmission and
distribution substations that had an aggregate installed transformer capacity
of 49,562,096 kilovoltamperes (KVA), and 6,714 circuit miles of transmission
lines, of which 441 miles were operated at 500 KV, 149 miles at 345 KV,
1,603 miles at 230 KV, 14 miles at 138 KV, 1,909 miles at 115 KV and the
balance of 2,598 miles at 69 KV, 46 KV and 34.5 KV. The Subsidiaries'
distribution system included 21,142,583 KVA of line transformer capacity,
50,085 pole miles of overhead lines and 9,897 trench miles of underground
cables.
ITEM 3. LEGAL PROCEEDINGS.
Reference is made to "Nuclear Facilities - TMI-2," "Rate Proceedings" and
"Environmental Matters" under Item 1 and to Note 1 to consolidated financial
statements contained in Item 8 for a description of certain pending legal
proceedings involving the GPU System.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Stock Trading
General Public Utilities Corporation is listed as GPU on the New York
Stock Exchange. On February 28, 1994, there were approximately fifty-thousand
registered holders of GPU common stock.
Dividends
Dividend declaration dates are the first Thursdays of April, June,
October and December. Dividend payment dates fall on the last Wednesdays of
February, May, August and November. Dividend declarations and quarterly stock
price ranges for 1993 and 1992 are set forth below.
Common Stock
Dividends Declared Price Ranges*
1993 1992
1993 1992 Quarter High/Low High/Low
April $.40 $.40 First $30 1/4 $25 3/4 $27 3/8 $24 1/2
June .425 .40 Second 32 3/8 28 5/8 26 3/8 24 1/4
October .425 .40 Third 34 3/4 31 5/8 27 3/8 25 1/2
December .425 .40 Fourth 34 28 3/4 27 7/8 25 3/8
* Based on New York Stock Exchange Composite Transactions as reported in the
Wall Street Journal.
ITEM 6. SELECTED FINANCIAL DATA.
See page F-1 for reference to Selected Financial Data required by this
item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See page F-1 for reference to Management's Discussion and Analysis of
Financial Condition and Results of Operations required by this item.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See page F-1 for reference to Financial Statements and Quarterly
Financial Data (unaudited) required by this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
33
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding GPU's directors is incorporated by reference to
pages 2 through 5 of GPU's Proxy Statement for the 1994 Annual Meeting of
Stockholders.
GPU's executive officers, their ages, positions held and business
experience during the past five years are as follows:
Year First
Name Age Position Elected
J. R. Leva (a) 61 Chairman, President and 1992
Chief Executive Officer
I. H. Jolles (b) 55 Senior Vice President & 1990
General Counsel
J. G. Graham (c) 55 Senior Vice President & 1987
Chief Financial Officer
F. A. Donofrio (d) 51 Vice President, Comptroller 1985
& Chief Accounting Officer
P. C. Mezey (e) 54 Senior Vice President, GPUSC 1992
D. W. Myers (f) 49 Vice President & Treasurer 1993
M. A. Nalewako (g) 59 Secretary 1988
P. R. Clark (h) 63 President, GPUN 1983
R. L. Wise (i) 50 President, Penelec 1986
F. D. Hafer (j) 52 President, Met-Ed 1986
D. Baldassari (k) 44 President, JCP&L 1992
R. C. Arnold (l) 56 Executive Vice President, GPUSC 1990
(a) Mr. Leva became Chairman, President and Chief Executive Officer of GPU
in 1992. He is also Chairman, President, Chief Executive Officer and a
director of GPUSC, Chairman of the Board, Chief Executive Officer and a
director of JCP&L, Met-Ed, Penelec and GPC, and Chairman of the Board
and a director of GPUN. Prior to assuming his present positions, Mr.
Leva served as President of JCP&L since 1986.
(b) Mr. Jolles became Senior Vice President and General Counsel of GPU in
1990. He is also Executive Vice President, General Counsel and a
director of GPUSC. He was previously a partner in the law firm of
Berlack, Israels & Liberman.
(c) Mr. Graham became Senior Vice President in 1989 and Chief Financial
Officer of GPU in 1987. He is also Executive Vice President, Chief
Financial Officer and a director of GPUSC; Vice President, Chief
Financial Officer and a director of JCP&L, Met-Ed and Penelec; Vice
President and Chief Financial Officer of GPUN; President and a director
of GPC and a director of EI.
(d) Mr. Donofrio became a Vice President of GPU in 1989, and in 1985 he
became Comptroller and Chief Accounting Officer of GPU. He is also
Senior Vice President - Financial Controls of GPUSC and a director of
GPUSC, GPC and EI.
34
<PAGE>
(e) Mr. Mezey became Senior Vice President - System Services of GPUSC in
1992. He previously served as Vice President of GPUSC from January 1991
through March 1992 and President of EI from February 1990 through
December 1991. Prior to joining GPU, he was Vice President - Finance
and CFO of Edgcore Technology.
(f) Mr. Myers became a Vice President and Treasurer of GPU in 1993. He is
also Vice President and Treasurer of GPUSC, JCP&L, Met-Ed, Penelec, GPUN
and GPC. Prior to assuming his present positions, Mr. Myers served as
Vice President and Comptroller of GPUN since 1986.
(g) Mrs. Nalewako became Secretary of GPU, GPUSC and GPC in 1988. She is
also Assistant Secretary of GPUN, JCP&L, Met-Ed and Penelec.
(h) Mr. Clark was elected President of GPUN in 1983. He was elected a
director of GPUN in 1980 and served as Executive Vice President from
1980 to 1983. He was designated Chief Executive Officer of GPUN in
1984.
(i) Mr. Wise became President and a director of Penelec in December 1986.
He is also a director of GPUSC and GPUN.
(j) Mr. Hafer became President of Met-Ed in March 1986. He is also a
director of Met-Ed, GPUSC and GPUN.
(k) Mr. Baldassari became President of JCP&L and a director of GPUSC and
GPUN in February 1992. Prior to assuming his present positions,
Mr. Baldassari served as Vice President - Rates and a director of JCP&L
since 1982. He also served as Vice President - Materials and Services
of JCP&L since 1990, and as Treasurer of JCP&L from October 1979 through
December 31, 1989.
(l) Mr. Arnold became Executive Vice President-Power Supply of GPUSC in
1990. He was Senior Vice President-Power Supply from 1987 to 1989. He
is also a director of GPUSC, JCP&L, Met-Ed and Penelec.
The executive officers of the GPU System are elected each year by their
respective Boards of Directors at the first meeting of the Board held
following the annual meeting of stockholders. Executive officers hold office
until the next meeting of directors following the annual meeting of
stockholders and until their respective successors are duly elected and
qualified. There are no family relationships among GPU's executive officers.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's executive officers and directors, and persons who beneficially
own more than ten percent of the Corporation's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Officers, directors and greater
than ten-percent shareholders are required by SEC regulation to furnish the
Corporation with copies of all Section 16(a) forms they file.
35
<PAGE>
Based on its review of the copies of such forms received by it, or written
representations from these reporting persons, the Corporation believes that,
during 1993 all such filing requirements applicable to its officers and
directors (the Corporation not being aware of any ten percent holder) were
complied with, with the exception that a report relating to one transaction
involving the redemption by Pennsylvania Electric Company of shares of its
cumulative preferred stock owned by Mr. Appell's wife was filed five days
late.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
pages 9 through 18 of GPU's Proxy Statement for the 1994 Annual Meeting
of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to
page 8 of GPU's Proxy Statement for the 1994 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) See page F-1 for reference to Financial Statement Schedules required by
this item.
1. Exhibits:
3-A GPUN By-Laws, as amended.
10-A General Public Utilities Corporation Restricted Stock Plan
for Outside Directors
10-B 1990 Stock Plan for Employees of General Public Utilities
Corporation and Subsidiaries
10-C Form of Restricted Units Agreement under the 1990 Stock
Plan.
10-D Retirement Plan for Outside Directors of General Public
Utilities Corporation.
10-E Incentive Compensation Plan for Officers of GPU System
Companies.
23 Consent of Independent Accountants.
(b) Reports on Form 8-K:
For the month of December 1993, dated December 10, 1993, under
Item 5 (Other Events).
For the month of February 1994, dated February 16, and February 28,
1994, under Item 5 (Other Events).
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENERAL PUBLIC UTILITIES CORPORATION
Dated: March 10, 1994 BY: /s/ J. R. Leva
J. R. Leva, Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/ J. R. Leva March 10, 1994
J. R. Leva, Chairman (Chief Executive
Officer) President and Director
/s/ J. G. Graham March 10, 1994
J. G. Graham, Senior Vice President
(Chief Financial Officer)
/s/ F. A. Donofrio March 10, 1994
F. A. Donofrio, Vice President and
Comptroller (Chief Accounting Officer)
/s/ L. J. Appell, Jr. March 10, 1994
L. J. Appell, Jr., Director
/s/ D. J. Bainton March 10, 1994
D. J. Bainton, Director
/s/ T. H. Black March 10, 1994
T. H. Black, Director
/s/ T. B. Hagen March 10, 1994
T. B. Hagen, Director
/s/ H. F. Henderson, Jr. March 10, 1994
H. F. Henderson, Jr., Director
/s/ J. M. Pietruski March 10, 1994
J. M. Pietruski, Director
/s/ C. A. Rein March 10, 1994
C. A. Rein, Director
/s/ P. R. Roedel March 10, 1994
P. R. Roedel, Director
/s/ C. A. H. Trost March 10, 1994
C. A. H. Trost, Director
/s/ P. K. Woolf March 10, 1994
P. K. Woolf, Director
38
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Supplementary Data Page
System Statistics F-2
Selected Financial Data F-3
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-4
Quarterly Financial Data F-18
Financial Statements
Report of Independent Accountants F-19
Statements of Income for the Years Ended
December 31, 1993, 1992 and 1991 F-20
Balance Sheets as of December 31, 1993 and 1992 F-21
Statements of Retained Earnings for the Years Ended
December 31, 1993, 1992 and 1991 F-23
Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991 F-24
Notes to Financial Statements F-25
Financial Statement Schedules
Schedule V - Property, Plant and Equipment for the
Years 1991-1993 F-48
Schedule VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment for the Years 1991-1993 F-50
Schedule VIII - Valuation and Qualifying Accounts for the
Years 1991-1993 F-53
Schedule IX - Short-Term Borrowings for the Years 1991-1993 F-54
Schedules other than those listed above have been omitted since they are not
required, are inapplicable or the required information is presented in the
Financial Statements or Notes thereto.
F-1
<PAGE>
<TABLE>
General Public Utilities Corporation and Subsidiary Companies
SYSTEM STATISTICS
<CAPTION>
For The Years Ended December 31, 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Capacity at System Peak (In MW):
Company owned .............................. 6,735 6,718 6,737 6,870 6,865 6,775
Contracted.................................. 3,236 3,360 3,045 2,270 2,120 1,985
Total capacity (a)...................... 9,971 10,078 9,782 9,140 8,985 8,760
Hourly Peak Load (In MW):
Summer peak................................. 8,533 8,067 8,271 7,634 7,711 7,987
Winter peak................................. 7,167 7,173 7,119 6,847 7,339 7,019
Reserve at system peak (%).................. 16.9 24.9 18.3 19.7 16.5 9.7
Load factor (%) (b)......................... 60.9 62.3 61.1 64.4 64.4 61.5
Sources of Energy:
Energy sales (In Thousands of MWH):
Net generation............................ 28,158 29,981 27,727 29,842 31,607 29,919
Power purchases and interchange........... 20,367 20,001 20,189 16,798 14,564 14,621
Total sources of energy................. 48,525 49,982 47,916 46,640 46,171 44,540
Company use, line loss, etc............... (5,166) (4,843) (4,775) (4,325) (5,026) (4,743)
Total................................... 43,359 45,139 43,141 42,315 41,145 39,797
Energy mix (%):
Coal...................................... 35 36 37 40 42 42
Nuclear................................... 22 23 18 21 21 20
Utility purchases and interchange......... 25 24 30 29 27 32
Nonutility purchases...................... 17 16 12 7 4 1
Other (gas, hydro & oil).................. 1 1 3 3 6 5
Total................................... 100 100 100 100 100 100
Energy cost (In Mills per KWH):
Coal...................................... 14.66 13.79 14.99 14.96 14.29 14.04
Nuclear................................... 5.99 5.51 6.30 6.58 6.78 5.99
Utility purchases and interchange......... 19.31 19.94 21.89 24.98 24.42 24.40
Nonutility purchases...................... 58.56 58.50 57.81 60.18 60.86 58.77
Other (gas & oil)......................... 44.60 39.98 32.87 39.22 37.96 33.77
Average................................. 22.05 20.90 21.32 19.78 18.76 17.15
Electric Energy Sales (In Thousands of MWH):
Residential................................. 14,498 13,725 13,852 13,369 13,377 13,283
Commercial.................................. 12,919 12,333 12,336 11,760 11,469 11,038
Industrial.................................. 11,699 11,901 12,035 12,344 12,422 12,800
Other....................................... 1,221 1,303 1,369 1,239 1,208 1,306
Sales to customers...................... 40,337 39,262 39,592 38,712 38,476 38,427
Sales to other utilities.................... 3,022 5,877 3,549 3,603 2,669 1,370
Total................................... 43,359 45,139 43,141 42,315 41,145 39,797
Operating Revenues (In Millions):
Residential................................. $1,465 $1,339 $1,341 $1,211 $1,181 $1,152
Commercial.................................. 1,169 1,079 1,060 951 903 848
Industrial.................................. 755 752 753 709 700 705
Other....................................... 89 89 93 86 86 90
Revenues from customers................. 3,478 3,259 3,247 2,957 2,870 2,795
Sales to other utilities.................... 67 127 84 108 81 36
Total electric revenues................. 3,545 3,386 3,331 3,065 2,951 2,831
Other revenues.............................. 51 48 41 39 41 39
Total................................... $3,596 $3,434 $3,372 $3,104 $2,992 $2,870
Price per KWH (In Cents):
Residential................................. 10.07 9.73 9.67 9.06 8.83 8.68
Commercial.................................. 9.04 8.72 8.59 8.09 7.87 7.68
Industrial.................................. 6.47 6.32 6.25 5.75 5.64 5.51
Total sales to customers.................... 8.61 8.28 8.20 7.64 7.46 7.27
Total sales................................. 8.17 7.49 7.72 7.24 7.17 7.11
Kilowatt-hour Sales per Residential Customer.. 8,575 8,215 8,374 8,146 8,238 8,305
Customers at Year-End (In Thousands).......... 1,925 1,901 1,879 1,863 1,842 1,817
<FN>
(a) Summer ratings at December 31, 1993 of owned and contracted capacity were 6,739 MW and 3,233 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
F-2
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
SELECTED FINANCIAL DATA
<CAPTION>
For The Years Ended December 31, 1993 1992 1991 * 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Common Stock Data
Earnings per share $ 2.65 $ 2.27 $ 2.49 $ 2.51 $ 2.50 $ 2.38
Cash dividends paid per share $ 1.65 $ 1.575 $ 1.45 $ 1.25 $ 1.00 $ .675
Book value per share $ 22.69 $ 21.46 $ 20.81 $ 19.83 $ 18.63 $ 17.44
Closing market price per share $ 30 7/8 $ 27 5/8 $ 27 1/4 $ 22 3/4 $ 23 5/8 $ 19
Common shares outstanding (In Thousands):
Average 111,779 110,840 110,798 110,763 112,764 119,451
At year-end 115,041 110,857 110,815 110,775 110,747 116,045
Market price to book value at year-end 136% 129% 131% 115% 127% 109%
Price/earnings ratio 11.7 12.2 10.9 9.1 9.4 8.0
Return on average common equity 11.9% 10.7% 12.0% 12.9% 13.8% 14.2%
Financial Data (In Thousands)
Operating revenues $3,596,090 $3,434,153 $3,371,599 $3,104,224 $2,991,727 $2,870,238
Other operation and maintenance expense 909,786 856,773 891,314 834,455 843,550 892,199
Net income 295,673 251,636 275,882 278,234 282,464 283,786
Net utility plant in service 5,512,057 5,244,039 5,064,254 4,833,045 4,537,154 4,264,512
Cash construction expenditures 495,517 460,073 467,050 490,546 486,911 441,408
Total assets 8,868,707 7,730,738 7,408,834 6,935,440 6,693,774 6,422,938
Long-term debt 2,320,384 2,221,617 1,992,499 1,935,956 1,867,553 1,727,914
Long-term obligations under
capital leases 23,320 24,094 27,210 27,546 21,835 23,522
Cumulative preferred stock with
mandatory redemption 150,000 150,000 100,000 100,000 - -
<FN>
* Results for 1991 reflect an increase in earnings of $0.53 per share ($58.2 million) for an accounting change recognizing
unbilled revenues and a decrease in earnings of $0.51 per share ($56.2 million) for estimated TMI-2 costs.
</TABLE>
F-3
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In 1993, earnings per share were $2.65 compared to $2.27 per share in
1992 and net income increased $44.0 million to $295.7 million. The increase
in earnings was principally due to additional revenues resulting from a
February 1993 retail base rate increase at JCP&L and higher customer sales due
primarily to the significantly warmer-than-normal summer temperatures as
compared with the mild weather in 1992. These gains were partially offset by
an increase in operation and maintenance expense, the write-off of $25 million
of costs related to the cancellation of proposed energy-related agreements,
and increased depreciation expense associated with additions to utility plant.
In June 1993, GPU increased its quarterly common stock dividend by 6.3% to
$0.425 per share. GPU's return on average common equity was 11.9% for 1993 as
compared to 10.7% for 1992.
Net income for 1992 was $251.6 million, or $2.27 per share, compared to
$275.9 million, or $2.49 per share in 1991. Earnings in 1992 were primarily
affected by a reduction in weather-related sales and increased capital costs,
partially offset by increased revenues from new residential and commercial
customers. In 1991, increased revenues due to warmer-than-normal summer
weather, the effect of a base rate increase at JCP&L and an increase in
customer additions were substantially offset by higher reserve capacity
expense and capital costs.
OPERATING REVENUES:
Revenues increased 4.7% to $3.6 billion in 1993 after increasing 1.9% to
$3.4 billion in 1992. The components of these changes are as follows:
(In Millions)
1993 1992
Kilowatt-hour (KWH) revenues $ 61.0 $(29.9)
(excluding energy portion)
Rate increases 108.7 -
Energy revenues (24.1) 72.5
Other revenues 16.3 20.0
Increase in revenues $161.9 $ 62.6
Kilowatt-hour revenues
1993
KWH revenues increased principally due to higher third quarter sales in
the JCP&L service territory resulting from the significantly warmer-than-
normal summer temperatures as compared to the milder weather during the same
F-4
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
period in 1992. An increase in weather-related sales in the Met-Ed service
territory, a 1.2% increase in the average number of customers and a slight
increase in nonweather-related usage also contributed to the increase in KWH
revenues. New customer growth, which occurred in the commercial and
residential sectors, was partially offset by a slight reduction in the number
of industrial customers.
1992
KWH revenues decreased primarily due to mild weather during the third
quarter of 1992 as compared with warmer-than-normal weather during the same
period in 1991. This decrease was partially offset by a 1.2% increase in the
average number of customers and a slight increase in nonweather-related usage.
New customer growth mostly occurred in the JCP&L service territory in the
residential and commercial sectors. The increase in nonweather-related usage
was reflected primarily in the residential and commercial sectors in the JCP&L
and Met-Ed service territories, while the dampening effects of the economy
continued to impact customer usage in the Penelec service territory.
Customer Sales by Service Class
1988 1989 1990 1991 1992 1993
In millions of MWH 38.4 38.5 38.7 39.6 39.3 40.3
Industrial and Other 36% 35% 35% 34% 33% 32%
Commercial 29% 30% 30% 31% 32% 32%
Residential 35% 35% 35% 35% 35 36
Rate increases
1993
In February 1993, the New Jersey Board of Regulatory Commissioners
(NJBRC) authorized a $123 million increase in JCP&L retail base rates, or
approximately 7% annually.
Energy revenues
1993 and 1992
Changes in energy revenues do not affect net income as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The 1993 decrease in energy revenues is principally due to lower
electric sales to other utilities as compared to 1992 when the GPU System
experienced a significant increase in sales to other utilities. Energy
revenues also increased in 1992 as a result of increases in the energy cost
rates in effect.
F-5
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
Other revenues
1993 and 1992
Generally, changes in other revenues do not affect net income as they
are offset by corresponding changes in expense, such as taxes other than
income taxes. However, earnings in 1993 were favorably affected by a one-
time benefit from the recognition of prior period transmission service
revenues approved by the Pennsylvania Public Utility Commission (PaPUC).
Other revenues increased in 1992 as a result of a timing difference in the
receipt of Pennsylvania tax surcharge revenues received during the year for
state tax increases enacted in the third quarter of 1991.
OPERATING EXPENSES:
Power purchased and interchanged
1993 and 1992
Generally, changes in the energy component of power purchased and
interchanged expense do not significantly affect earnings as they are
substantially recovered through the Subsidiaries' energy clauses. Earnings in
1993, however, were favorably impacted by a reduction in reserve capacity
expense primarily resulting from the expiration of a purchase contract with
another utility. Power purchased and interchanged increased in 1992 as a
result of an increase in nonutility generation purchases offset partially by a
reduction in purchases from other utilities.
Other operation and maintenance
1993
Other operation and maintenance (O&M) expense increased primarily due to
emergency and storm-related activities, higher than normal tree trimming
expenses and increased costs related to fossil plant outages.
1992
The decrease is due largely to the absence of $33.8 million of estimated
costs recognized in 1991 for preparing the TMI-2 plant for long-term monitored
storage. Excluding that amount, other O&M expense remained relatively stable.
Depreciation and amortization
1993 and 1992
Depreciation and amortization expense increased $20.2 million and $10.8
million, respectively, in 1993 and 1992 mostly due to additions to utility
plant, exclusive of a $60 million charge in 1991 for certain TMI-2
decommissioning costs. Additions to utility plant primarily consist of
additions to existing generating facilities to enhance system reliability and
additions to the transmission and distribution system related to new customer
growth.
F-6
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
Taxes, other than income taxes
1993 and 1992
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
1993
The reduction in other income, net is principally due to the write-off
of $25 million of costs related to the cancellation of proposed power supply
and transmission facilities agreements between the Subsidiaries and Duquesne
Light Company (Duquesne). The decrease is also due to the absence of carrying
charges on certain tax payments made by JCP&L in 1992 which are now being
recovered through rates.
1992
The decrease is mainly attributable to a reduction in interest income
resulting from the 1991 collection of federal income tax refunds, offset
partially by an increase in other income related to the anticipated recovery
of carrying charges.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
1993 and 1992
Interest on long-term debt increased in both years primarily due to the
issuance of additional long-term debt, offset partially by decreases
associated with the refinancing of higher cost debt at lower interest rates in
1993 and 1992. The decrease in other interest in 1992 was mainly the result
of a lower federal income tax deficiency accrual level as tax deficiency
payments relating to the 1983 and 1984 tax years were made in 1991. Other
interest in 1992 also declined due to a reduction in the average level of
short-term borrowing outstanding. Preferred dividends decreased in 1993
primarily due to the redemption of $156 million of preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL NEEDS:
The GPU System's capital needs were $525 million in 1993, consisting of
cash construction expenditures of $496 million and amounts for maturing
obligations of $29 million. During 1993, construction funds were primarily
used to continue to maintain and improve existing generating facilities and
add to the transmission and distribution system. Construction expenditures
are estimated to be $663 million in 1994, consisting mainly of $485 million
for ongoing system development and $120 million for clean air requirements.
Expenditures for maturing debt are expected to be $133 million for 1994 and
$91 million for 1995. In the mid 1990s, construction expenditures may include
substantial amounts for clean air requirements, the construction of new
F-7
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
generation facilities and other system needs. Management estimates
thatapproximately one-half of the GPU System's 1994 capital needs will be
satisfied through internally generated funds.
The Subsidiaries' capital leases consist primarily of leases for nuclear
fuel. These nuclear fuel leases are renewable annually, subject to certain
conditions. An aggregate of up to $250 million ($125 million each for Oyster
Creek and TMI-1) of nuclear fuel costs may be outstanding at any one time.
Nuclear fuel capital leases at December 31, 1993 totaled $150 million. When
consumed, portions of the presently leased material will be replaced by
additional leased material at a rate of approximately $60 million annually.
In the event these nuclear fuel needs cannot be leased, the associated capital
requirements would have to be met by other means.
Cash Construction Expenditures
(In millions of dollars)
1989 1990 1991 1992 1993 1994
$487 $491 $467 $460 $496 $663*
* Forecast
FINANCING:
In 1993, the Subsidiaries refinanced higher cost long-term debt in the
principal amount of $723 million resulting in an estimated annualized after-
tax savings of $6 million. Total GPU System long-term debt issued during 1993
amounted to $957 million. In addition, the Subsidiaries redeemed $156 million
of high-dividend rate preferred stock issues.
During 1993, GPU sold four million shares of common stock at $33 1/8 per
share through an underwritten public offering. The net proceeds of
$128.7 million were used primarily to reimburse the Subsidiaries for the
preferred stock redemptions.
In January 1994, Penelec issued an aggregate of $90 million of first
mortgage bonds, of which a portion of the net proceeds will be used to redeem
$38 million principal amount of 6 5/8% series bonds in late February 1994.
Met-Ed issued, in February 1994, an aggregate of $50 million of first mortgage
bonds, of which a portion of the net proceeds will be used to redeem $26
million principal amount of 7% series bonds in March 1994.
The Subsidiaries have regulatory authority to issue and sell first
mortgage bonds, which may be issued as secured medium-term notes, and
preferred stock for various periods through 1995. Under existing
authorization, JCP&L, Met-Ed and Penelec may issue senior securities in the
amount of $275 million, $250 million and $330 million, respectively, of which
$100 million for each Subsidiary may consist of preferred stock. The
Subsidiaries also have regulatory authority to incur short-term debt, a
portion of which may be through the issuance of commercial paper.
F-8
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
The GPU System's cost of capital and ability to obtain external
financing is affected by the Subsidiaries' security ratings, which continue to
remain above minimum investment grade. The Subsidiaries' first mortgage bonds
are currently rated at an equivalent of either an A or A- rating by the three
major credit rating agencies, while an equivalent of either an A- or BBB+
rating is assigned to the preferred stock issues. In addition, the
Subsidiaries' commercial paper is rated as having good to high credit quality.
During 1993, Standard & Poor's revised its financial benchmarking
standards for rating the debt of electric utilities to reflect the changing
risk profiles resulting primarily from the intensifying competitive pressures
in the industry. These guidelines now include an assessment of the company's
business risk. Standard & Poor's new rating structure changed the business
outlook for the debt ratings of approximately one-third of the industry,
including JCP&L, which moved from "A-stable" to "A-negative", meaning their
credit ratings may be lowered. JCP&L was classified as "below average" in its
business risk position due to the perceived credit risk associated with large
purchased power requirements, relatively high rates and a sluggish local
economy. Met-Ed and Penelec were both classified as having "average" business
risk positions. Moody's announced that it expects to reduce its average
credit ratings for the electric utility industry within the next three years
to take into account the effects of the new competitive environment. Duff &
Phelps also indicated that it intends to introduce a forecast element to its
quantitative analysis to, among other things, "alert investors to the
possibility of equity value reduction and credit quality deterioration."
The Subsidiaries' bond indentures and articles of incorporation include
provisions that limit the amount of long-term debt, preferred stock and short-
term debt the Subsidiaries may issue. The Subsidiaries' interest and
preferred stock coverage ratios are currently in excess of indenture or
charter restrictions. The ability to issue securities in the future will
depend on coverages at that time. Present plans call for the Subsidiaries to
issue long-term debt and preferred stock during the next three years to
finance construction activities and, depending on the level of interest rates,
refinance outstanding senior securities.
CAPITALIZATION:
The GPU System supports its credit quality rating by maintaining
capitalization ratios that permit access to capital markets at a competitive
cost. The targets and actual capitalization ratios are as follows:
Capitalization
Target Range 1993 1992 1991
Common equity 45-48% 47% 46% 46%
Preferred stock 8-10 5 9 9
Notes payable and
long-term debt 47-42 48 45 45
100% 100% 100% 100%
F-9
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
The sale of GPU common stock in 1993 was used primarily to reimburse
the Subsidiaries for preferred stock redemptions. Management believes these
actions strengthened GPU's capital structure by increasing common equity
without increasing the overall cost of capital or diluting shareholder
earnings. Recent evaluations of the industry by credit rating agencies
indicate that the Subsidiaries may have to increase their equity ratios to
maintain their current credit ratings.
In 1993, the quarterly dividend on common stock was increased by 6.3%
to an annualized rate of $1.70 per share. In addition, GPU set a target
payout ratio of 70-75% to be reached over the next few years. GPU will
continue to review its dividend policy to determine how to best serve the
long-term interests of shareholders.
NONUTILITY BUSINESS:
General Portfolios Corporation (GPC) was organized to make investments
apart from the businesses of the Subsidiaries. Currently, these are conducted
by Energy Initiatives, Inc. (EI), a subsidiary of GPC, and its subsidiaries.
EI is in the business of developing, operating and investing in cogeneration
and other nonutility power production facilities. As of December 31, 1993, EI
had five combined-cycle cogeneration plants in service aggregating 223 MW of
capacity and an option to acquire a 20% equity interest in projects having an
additional 350 MW of capacity.
As a result of the federal Energy Policy Act of 1992 (Energy Act), EI
has expanded its business activities to include development of exempt
wholesale generating facilities in both the domestic and limited international
markets.
In 1993, EI entered into an agreement to invest up to $8.5 million over
the next four years to acquire a 29% equity interest in a private independent
power development company, which has commitments or prospects to provide more
than 200 MW of electricity to utilities in Canada and plans to develop other
projects in the United States. EI also obtained the right to invest in and
operate several of the projects. In addition, EI has been active as a bidder
and has proposals pending for the development of additional capacity in the
United States. EI is also pursuing international development projects in
Latin America while investigating other international opportunities.
At December 31, 1993, GPU's investment in GPC was $39 million. GPU
intends to make additional investments in the development and ownership of
nonutility generating facilities in an effort to expand these business
activities. The timing and amounts of these investments, however, will depend
upon the development of appropriate opportunities. GPU does not expect
investments apart from these activities to be a major part of its business
activities.
F-10
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
COMPETITIVE ENVIRONMENT:
The Push Toward Competition
The electric utility industry appears to be undergoing a major
transition as it proceeds from a traditional rate regulated environment based
on cost recovery to some combination of competitive marketplace and modified
regulation of certain market segments. The industry challenges resulting from
various instances of competition, deregulation and restructuring thus far have
been minor compared with the impact that is expected in the future. The
Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the entry
of competitors into the electric generation business. Since then, more
competition has been introduced through various state actions to encourage
cogeneration and, most recently, the Energy Act. The Energy Act is intended
to promote competition among utility and nonutility generators in the
wholesale electric generation market, accelerating the industry restructuring
that has been underway since the enactment of PURPA. This legislation,
coupled with increasing customer demands for lower-priced electricity, is
generally expected to stimulate even greater competition in both the wholesale
and retail electricity markets. These competitive pressures may create
opportunities to compete for new customers and revenues, as well as increase
risk which could lead to the loss of customers.
Operating in a competitive environment will place added pressures on
utility profit margins and credit quality. Utilities with significantly
higher cost structures than supportable in the marketplace may experience
reduced earnings as they attempt to meet their customers' demands for lower-
priced electricity. This prospect of increasing competition in the electric
utility industry has already led the credit rating agencies to address and
apply more stringent guidelines in making credit rating determinations.
Among its provisions, the Energy Act allows the Federal Energy
Regulatory Commission (FERC), subject to certain criteria, to order owners of
electric transmission systems, such as the Subsidiaries, to provide third
parties transmission access for wholesale power transactions. The Energy Act
did not give the FERC the authority, however, to order retail transmission
access. That authority lies with the individual states and movement toward
opening the transmission network to retail customers is currently under
consideration in several states.
Recent Events
Competition in the electric utility industry has already played a
significant role in wholesale transactions, affecting the pricing of energy
sales to electric cooperatives and municipal customers. During 1993, Penelec
successfully negotiated power supply agreements with several existing GPU
System wholesale customers in response to offers made by other utilities
seeking to provide electric service at rates lower than those of Met-Ed or
JCP&L. Penelec has made similar offers to certain wholesale customers now
being served by other utilities. Although wholesale customers represent a
relatively small portion of GPU System sales, the Subsidiaries will continue
their efforts to retain and add customers by offering competitive rates.
F-11
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
The competitive forces have also begun to influence some retail pricing
in the industry. In a few instances, industrial customers, threatening to
pursue cogeneration, self-generation or relocation to other service
territories, have leveraged price concessions from utilities. Recent state
regulatory actions, such as in New Jersey, suggest that utilities may have
limited success with attempting to shift costs associated with such discounts
to other customers. Utilities may have to absorb, in whole or part, the
effects of price reductions designed to retain large retail customers. State
regulators may put a limit or cap on prices, especially for those customers
unable to pursue alternative supply options.
In December 1993, JCP&L filed a proposal with the NJBRC seeking
approval to implement a new rate initiative designed to retain and expand the
economic base in New Jersey. Under the proposed contract rate service, large
retail customers could enter into contracts for existing electric service at
prevailing rates, with limitations on their exposure to future rate increases.
With this rate initiative, JCP&L will have to absorb any differential in price
resulting from changes in costs not provided for in the contracts. This
matter is pending before the NJBRC.
Proposed legislation has been introduced in New Jersey which is
intended to allow the NJBRC, at the request of an electric or gas utility, to
adopt a plan of regulation other than traditional ratemaking methods to
encourage economic development and job creation. This flexible ratemaking
would allow electric utilities to be more competitive with nonutility
generators, who are not subject to NJBRC regulation. Combined with other
economic development initiatives, this legislation, if enacted, would provide
more flexibility in responding to competitive pressures, but may also serve to
accelerate the growth of competitive pressures.
Financial Exposure
In the transition from a regulated to competitive environment, there
can be a significant change in the economic value of a utility's assets.
Traditional utility regulation provides an opportunity for recovery of the
cost of plant assets, along with a return on investment, through ratemaking.
In a competitive market, the value of an asset may be determined by the market
price of the services derived from that asset. If the cost of operating
existing assets results in above market prices, a utility may be unable to
recover all of its costs, resulting in "stranded assets" and other
unrecoverable costs. This may result in write-downs to remove stranded assets
from a utility's balance sheet in recognition of their reduced economic value
and the recognition of other losses.
Unrecovered costs will most likely be related to generation investment,
purchased power contracts, and "regulatory assets", which are deferred
accounting transactions whose value rests on the strength of a state
regulatory decision to allow future recovery from ratepayers. In markets
where there is excess capacity (as there currently is in the region including
New Jersey and Pennsylvania) and many available sources of power supply, the
market price of electricity may be too low to support full recovery of capital
costs of certain existing power plants, primarily the capital intensive plants
F-12
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
such as nuclear units. Another significant exposure in the transition to a
competitive market results if the prices of a utility's existing purchase
power contracts, consisting primarily of contractual obligations with
nonutility generators, are higher than future market prices. Utilities locked
into expensive purchase power arrangements may be forced to value the
contracts at market prices and recognize certain losses. A third source of
exposure is regulatory assets which if not supported by regulators would have
no value in a competitive market. Financial Accounting Standard No. 71 (FAS
71), "Accounting for the Effects of Certain Types of Regulation", applies to
regulated utilities that have the ability to recover their costs through rates
established by regulators and charged to customers. If a portion of the GPU
System's operations continues to be regulated, FAS 71 accounting may only be
applied to that portion. Write-offs of utility plant and regulatory assets
may result for those operations that no longer meet the requirements of FAS
71. In addition, under deregulation, the uneconomical costs of certain
contractual commitments for purchased power and/or fuel supplies may have to
be expensed. Management believes that to the extent that the GPU System no
longer qualifies for FAS 71 accounting treatment, a material adverse effect on
its results of operations and financial position may result. At this time, it
is difficult for management to project the future level of stranded assets or
other unrecoverable costs, if any, without knowing what the market price of
electricity will be, or if regulators will allow recovery of industry
transition costs from customers.
Positioning the GPU System
The typical electric utility today is vertically integrated, operating
its plant assets to serve all customers within a franchised service territory.
In the future, franchised service territories may be replaced by markets whose
boundaries are defined by price, available capacity and transmission access.
This may result in changes to the organizational structure of utilities and an
emphasis on certain segments of the business among generation, transmission
and distribution.
In order to achieve a strong competitive position in a less regulated
future, the GPU System has in place a strategic planning process. In the
initial phases of the program, task forces are defining the principal
challenges facing GPU, exploring opportunities and risks, and defining and
evaluating strategic alternatives.
Management is now analyzing issues associated with various competition
and regulatory scenarios to determine how best to position the GPU System for
a competitive environment. An initial outcome of the GPU System ongoing
strategic planning process was a realignment proposed in February 1994, of
certain system operations. Subject to necessary regulatory approval, a new
subsidiary, GPU Generation Corporation, will be formed to operate and maintain
the GPU System's fossil-fueled and hydroelectric generating stations, which
are now owned and operated by the Subsidiaries. It is also intended to
combine the remaining Met-Ed and Penelec operations without merging the two
companies. GPU is also developing a performance improvement and cost
reduction program to help assure ongoing competitiveness, and, among other
matters, will also address workforce issues in terms of compensation, size and
skill mix.
F-13
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
MEETING ENERGY DEMANDS:
The Subsidiaries have a projected need, due in large part to peak load
growth, of 644 MW of additional capacity by the year 1998 based on an average
growth in sales to customers of about 1.7% annually, with growth rates for the
Subsidiaries projected from 1.1% to 2.3%. GPU intends to provide for this
increased energy need through a mix of economic sources. Current and
projected capacity and sources of energy are as follows:
Capacity
1993 1998
MW % MW %
Coal 3,022 30 3,040 29
Nuclear 1,396 14 1,406 13
Gas, hydro & oil 2,321 23 2,605 24
Contracted purchases 3,233 33 3,034 29
Uncommitted sources - - 531 5
Total 9,972 100 10,616 100
Sources of Energy
1993 1998
GWH % GWH %
Coal 16,969 35 17,949 35
Nuclear 10,614 22 9,766 19
Gas, hydro & oil 575 1 1,177 2
Contracted purchases 14,717 30 18,103 36
Uncommitted sources & interchange 5,650 12 4,233 8
Total 48,525 100 51,228 100
In response to the increasingly competitive business climate and excess
capacity of nearby utilities, the GPU System's supply plan places an emphasis
on maintaining flexibility. Supply planning focuses increasingly on short to
intermediate term commitments, reliance on "spot" markets, and avoidance of
long-term firm commitments. Through 1998, GPU's plan consists of the
continued utilization of existing generating facilities combined with power
purchases, the construction of new facilities, and the continued promotion of
economic energy conservation and load management programs. Given the future
direction of the industry, GPU's present strategy includes minimizing the
financial exposure associated with new long-term purchase commitments and the
construction of new facilities by including projected market prices in the
evaluation of these options. The GPU System will resist efforts to compel it
to add new capacity at costs that may exceed future market prices. In
addition, GPU will seek regulatory support to renegotiate or buy out contracts
with nonutility generators where the pricing is in excess of projected avoided
costs.
New Energy Supplies
The GPU System's supply plan includes the addition of 1,259 MW of
presently contracted capacity by 1998 from nonutility generation suppliers and
reflects the construction of new peaking units. The supply plan also includes
the addition of 531 MW of currently uncommitted capacity, which may be filled
F-14
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
by a combination of utility and nonutility purchases as well as company owned
facilities. Additions are principally related to the expiration of existing
commitments rather than to serve new customer load.
In July 1993, the PaPUC acted to initiate a rulemaking proceeding
which, in general, would establish a mandatory all source competitive bidding
program by which utilities would meet their future capacity and energy needs.
Also in July, a NJBRC Advisory Council recommended in a report that all New
Jersey electric utilities be required to submit integrated resource plans for
review and approval by the NJBRC.
The NJBRC has asked all electric utilities in the state to assess the
economics of their purchase power contracts with nonutility generators to
determine whether there are any candidates for potential buy out or other
remedial measures. JCP&L identified a 100 MW project now under development,
which it believes is economically undesirable based on current cost
projections. In November 1993, the NJBRC directed JCP&L and the developer to
negotiate contract repricing to a level more consistent with JCP&L's current
avoided cost projections or a contract buy out. The developer has filed a
federal court action contesting the NJBRC's jurisdiction in this matter.
In November 1993, the NJBRC granted two nonutility generators, having a
total of 200 MW under contract with JCP&L, a one-year extension in the
in-service date for projects originally scheduled to be operational in 1997.
JCP&L is awaiting a final written NJBRC order.
Also in November 1993, JCP&L received approval from the NJBRC to
withdraw its request for proposals for the purchase of 150 MW from nonutility
generators. In its petition, JCP&L cited, among other reasons, that
solicitations for long-term contracts would have limited its ability to
compete in a deregulated environment.
In November 1993, Penelec filed an appeal with the Commonwealth Court
seeking to overturn a PaPUC order which directs Penelec to enter into two
power purchase agreements with nonutility generators for a total of 160 MW
under long-term contracts commencing in 1997 or later. Penelec does not need
this additional capacity and believes the costs associated with these
contracts are not in the economic interests of its customers.
JCP&L and Met-Ed have entered into arrangements for two peaking
generation projects. JCP&L plans to install a gas-fired combustion turbine at
its Gilbert Generating Station and retire two steam units for an 88 MW net
increase in peaking capacity at an expected cost of $50 million. JCP&L
expects to complete the project by 1996. Met-Ed has filed an application with
the PaPUC for approval to build a 134 MW gas-fired combustion turbine adjacent
to its Portland Generating Station at a cost of $50 million. The application
has been opposed by a nonutility generator seeking to sell Met-Ed an
equivalent amount of baseload capacity.
In December 1993, the NJBRC denied JCP&L's petition to participate in
the proposed power supply and transmission facilities agreements between the
Subsidiaries and Duquesne. As a result of this action and other developments,
the Subsidiaries notified Duquesne that they were exercising their rights
F-15
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
under the agreements to withdraw from and thereby terminate the agreements.
The capital costs of these transactions would have totaled approximately $500
million.
In January 1994, JCP&L issued an all source solicitation for the short-
term supply of energy and/or capacity to determine and evaluate the
availability of competitively priced power supply options. JCP&L is seeking
proposals from utility and nonutility generation suppliers for periods of one
to eight years in length and capable of delivering electric power beginning in
1996. This solicitation is expected to fulfill a significant part of the
uncommitted sources identified in GPU's supply plan.
Conservation and Load Management
The regulatory environments in both New Jersey and Pennsylvania
encourage the development of new conservation and load management programs.
This is evidenced by demand-side management (DSM) incentive regulations
adopted in New Jersey in 1992 and recent approval of a cost recovery mechanism
for DSM in Pennsylvania. DSM includes utility sponsored activities designed
to improve energy efficiency in customer end-use, and includes load management
programs (i.e., peak reduction) and conservation programs (i.e., energy and
peak reduction).
In New Jersey, the NJBRC approved JCP&L's DSM plan in 1992 reflecting
DSM initiatives of 67 MW of summer peak reduction by the end of 1994. Under
the approved regulation, qualified Performance Program DSM investments are
recovered over a six-year period with a return earned on the unrecovered
amounts. Lost revenues will be recovered on an annual basis and JCP&L can
also earn a performance-based incentive for successfully implementing cost
effective programs. In addition, JCP&L will continue to make certain NJBRC
mandated Core Program DSM investments which are recovered annually.
The PaPUC has recently completed its generic investigation into DSM
cost recovery mechanisms and issued a cost recovery and ratemaking order in
December 1993. Penelec and Met-Ed are currently developing plans which will
reflect changes since their original plans were filed in 1991. New targets
for DSM initiatives are currently being determined and will be identified when
the new DSM plans are filed in the first quarter of 1994.
ENVIRONMENTAL ISSUES:
The GPU System is committed to complying with all applicable
environmental regulations in a responsible manner. Compliance with the
federal Clean Air Act Amendments of 1990 (Clean Air Act) and other
environmental needs will present a major challenge to the GPU System through
the late 1990s.
The Clean Air Act will require substantial reductions in sulfur dioxide
and nitrogen oxide emissions by the year 2000. The GPU System's current plan
includes installing and operating emission control equipment at some of the
Subsidiaries' coal-fired plants as well as switching to lower sulfur coal at
other coal-fired plants. To comply with the Clean Air Act, the GPU System
F-16
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
control equipment. GPU reviews its plans and alternatives to comply with the
expects to expend up to $590 million by the year 2000 for air pollutionClean
Air Act on a least-cost basis taking into account advances in technology and
the emission allowance market and assesses the risk of recovering capital
investments in a competitive environment. GPU may be able to defer sub-
stantial capital investments while attaining the required level of compliance
if an alternative such as increased participation in the emission allowance
market is determined to result in the least-cost plan. This and other
compliance alternatives may result in the substitution of increased operating
expenses for capital costs. At this time, costs associated with the capital
invested in this pollution control equipment and the increased operating costs
of the affected stations are expected to be recoverable through the ratemaking
process, but management recognizes that recovery is not assured.
For more information, see the Environmental Matters section of Note 1
to the consolidated financial statements.
LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS:
As a result of the TMI-2 accident and its aftermath, individual claims
for alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against GPU and the Subsidiaries and
are still pending. For more information, see Note 1 to the consolidated
financial statements.
EFFECTS OF INFLATION:
The GPU System is affected by inflation since the regulatory process
results in a time lag during which increased operating expenses are not fully
recovered in rates. Inflation may have an even greater effect in a period of
increasing competition and deregulation as GPU and the utility industry
attempt to keep rates competitive.
Inflation also affects the GPU System in the form of higher replacement
costs of utility plant. In the past, GPU anticipated the recovery of these
cost increases through the ratemaking process. However, as competition and
deregulation accelerate throughout the industry, there can be no assurance of
the recovery of these increased costs.
The GPU System is committed to long-term cost control and is continuing
to seek measures to reduce or limit the growth in operating expenses. The
prudent expenditure of capital and debt refinancing programs have kept down
increases in debt levels and capital costs.
ACCOUNTING ISSUES:
In May 1993, the Financial Accounting Standards Board issued FAS 115,
"Accounting for Certain Investments in Debt and Equity Securities", which is
effective for fiscal years beginning after December 15, 1993. FAS 115
requires the recording of unrealized gains and losses with a corresponding
offsetting entry to earnings or shareholders' equity. The impact on the GPU
System's financial position is expected to be immaterial and there will be no
impact on the results of operations. FAS 115 will be implemented in 1994.
F-17
<PAGE>
<TABLE>
General Public Utilities Corporation and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
In Thousands Except First Quarter Second Quarter
Per Share Data 1993 1992 1993 1992
<S> <C> <C> <C>
Operating revenues................. $881,154 $892,403 $863,236 $811,389
Operating income................... 134,061 124,138 116,808 90,488
Net income......................... 79,323 73,287 58,570 42,422
Earnings per share................. .72 .66 .52 .38
In Thousands Except Third Quarter Fourth Quarter
Per Share Data 1993 1992 1993 * 1992
Operating revenues................. $990,160 $890,167 $861,540 $840,194
Operating income................... 176,647 130,484 100,260 105,167
Net income......................... 126,486 83,251 31,294 52,676
Earnings per share................. 1.14 .76 .27 .47
<FN>
* Results for the fourth quarter of 1993 reflect a decrease in earnings of $0.14 per share
($15.7 million, net of income taxes of $9.0 million) for the write-off of the Duquesne
transactions.
</TABLE>
F-18
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
General Public Utilities Corporation
Parsippany, New Jersey
We have audited the consolidated financial statements and financial statement
schedules of General Public Utilities Corporation and Subsidiary Companies as
listed in the index on page F-1 of this Form 10-K. These financial statements
and financial statement schedules are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of General Public
Utilities Corporation and Subsidiary Companies as of December 31, 1993 and
1992, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1993 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As more fully discussed in Note 1 to the consolidated financial statements,
the Corporation is unable to determine the ultimate consequences of certain
contingencies which have resulted from the accident at Unit 2 of the Three
Mile Island Nuclear Generating Station ("TMI-2"). The matters which remain
uncertain are (a) the extent to which the retirement costs of TMI-2 could
exceed amounts currently recognized for ratemaking purposes or otherwise
accrued, and (b) the excess, if any, of amounts which might be paid in
connection with claims for damages resulting from the accident over available
insurance proceeds.
As discussed in Notes 6 and 8 to the consolidated financial statements, the
Corporation was required to adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes", and the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" in
1993. Also, as discussed in Note 2 to the consolidated financial statements,
the Corporation changed its method of accounting for unbilled revenues in
1991.
COOPERS & LYBRAND
New York, New York
February 2, 1994
F-19
<PAGE>
<TABLE>
General Public Utilities Corporation and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(In Thousands)
For The Years Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Operating Revenues................................... $3,596,090 $3,434,153 $3,371,599
Operating Expenses:
Fuel............................................... 363,643 356,230 388,705
Power purchased and interchanged................... 897,185 900,504 851,191
Deferral of energy costs, net...................... (6,598) 40,175 (11,419)
Other operation and maintenance.................... 909,786 856,773 891,314
Depreciation and amortization...................... 359,898 339,721 388,901
Taxes, other than income taxes..................... 344,221 328,307 332,664
Total operating expenses...................... 2,868,135 2,821,710 2,841,356
Operating Income Before Income Taxes................. 727,955 612,443 530,243
Income taxes....................................... 200,179 162,166 113,583
Operating Income..................................... 527,776 450,277 416,660
Other Income and Deductions:
Allowance for other funds used during construction. 4,831 5,606 5,084
Other income, net.................................. (7,579) 30,503 41,433
Income taxes....................................... 2,756 (11,762) (17,446)
Total other income and deductions............. 8 24,347 29,071
Income Before Interest Charges and
Preferred Dividends................................ 527,784 474,624 445,731
Interest Charges and Preferred Dividends:
Interest on long-term debt......................... 187,847 174,439 167,122
Other interest..................................... 20,612 18,966 34,372
Allowance for borrowed funds used during
construction...................................... (5,105) (6,974) (9,325)
Preferred stock dividends of subsidiaries.......... 28,757 36,557 35,918
Total interest charges and preferred dividends 232,111 222,988 228,087
Income Before Cumulative Effect of Accounting
Change............................................. 295,673 251,636 217,644
Cumulative effect as of January 1, 1991 of
accounting change for unbilled revenues, net of
income taxes of $34,390.......................... - - 58,238
Net Income........................................... $ 295,673 $ 251,636 $ 275,882
Earnings Per Average Common Share Before Cumulative
Effect of Accounting Change........................ $ 2.65 $ 2.27 $ 1.96
Cumulative Effect as of January 1, 1991 of
Accounting Change for Unbilled Revenues............ - - .53
Earnings Per Average Share........................... $ 2.65 $ 2.27 $ 2.49
Average Common Shares Outstanding (In Thousands)..... 111,779 110,840 110,798
Cash Dividends Paid Per Share........................ $ 1.65 $ 1.575 $ 1.45
F-20
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(In Thousands)
December 31, 1993 1992
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost....................... $8,441,335 $7,961,433
Less, accumulated depreciation..................... 2,929,278 2,717,394
Net utility plant in service................... 5,512,057 5,244,039
Construction work in progress...................... 267,381 314,756
Other, net......................................... 214,178 214,599
Net utility plant.............................. 5,993,616 5,773,394
Current Assets:
Cash and temporary cash investments................ 25,843 10,390
Special deposits................................... 11,868 13,444
Accounts receivable:
Customers, net................................... 253,186 226,819
Other............................................ 55,037 54,860
Unbilled revenues.................................. 113,960 108,415
Materials and supplies, at average cost or less:
Construction and maintenance..................... 187,606 187,925
Fuel............................................. 51,676 71,635
Deferred income taxes.............................. 34,219 81,302
Prepayments........................................ 79,490 36,931
Total current assets........................... 812,885 791,721
Deferred Debits and Other Assets:
Three Mile Island Unit 2 deferred costs............ 339,672 372,236
Unamortized property losses........................ 113,566 112,859
Deferred income taxes.............................. 275,257 152,189
Income taxes recoverable through future rates...... 554,590 -
Decommissioning funds.............................. 219,178 126,273
Other.............................................. 559,943 402,066
Total deferred debits and other assets......... 2,062,206 1,165,623
Total Assets................................... $8,868,707 $7,730,738
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
F-21
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(In Thousands)
December 31, 1993 1992
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock....................................... $ 314,458 $ 314,458
Capital surplus.................................... 667,683 605,015
Retained earnings.................................. 1,813,490 1,716,196
Total.......................................... 2,795,631 2,635,669
Less, reacquired common stock, at cost............. 185,258 256,334
Total common stockholders' equity.............. 2,610,373 2,379,335
Cumulative preferred stock:
With mandatory redemption........................ 150,000 150,000
Without mandatory redemption..................... 158,242 314,674
Long-term debt..................................... 2,320,384 2,221,617
Total capitalization........................... 5,238,999 5,065,626
Current Liabilities:
Debt due within one year........................... 133,232 29,207
Notes payable...................................... 216,056 101,423
Obligations under capital leases................... 161,744 168,789
Accounts payable................................... 300,181 290,592
Taxes accrued...................................... 140,132 149,211
Deferred energy credits............................ 20,787 32,528
Interest accrued................................... 73,368 65,608
Other.............................................. 174,609 186,162
Total current liabilities...................... 1,220,109 1,023,520
Deferred Credits and Other Liabilities:
Deferred income taxes.............................. 1,389,241 796,681
Unamortized investment tax credits................. 170,108 182,526
Three Mile Island Unit 2 future costs.............. 319,867 320,000
Other.............................................. 530,383 342,385
Total deferred credits and other liabilities... 2,409,599 1,641,592
Commitments and Contingencies (Note 1)
Total Liabilities and Capital.................. $8,868,707 $7,730,738
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
F-22
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
(In Thousands)
For The Years Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Balance at beginning of year....................... $1,716,196 $1,644,249 $1,535,937
Add - Net income................................. 295,673 251,636 275,882
Deduct - Cash dividends declared on common stock. 189,150 177,308 166,208
Other adjustments....................... 9,229 2,381 1,362
Balance at end of year............................. $1,813,490 $1,716,196 $1,644,249
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
F-23
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(In Thousands)
For The Years Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Operating Activities:
Income before preferred dividends of subsidiaries... $ 324,430 $ 288,193 $ 311,800
Adjustments to reconcile income to cash provided:
Depreciation and amortization..................... 362,536 340,138 391,735
Amortization of property under capital leases..... 62,816 67,820 59,874
Cumulative effect of accounting change............ - - (58,238)
Nuclear outage maintenance costs, net............. (5,266) 16,736 (21,651)
Deferred income taxes and investment tax
credits, net.................................... 63,334 8,720 (32,888)
Deferred energy costs, net........................ (5,971) 40,989 (10,205)
Accretion income.................................. (16,786) (20,500) (25,200)
Allowance for other funds used during
construction.................................... (4,831) (5,606) (5,084)
Changes in working capital:
Receivables....................................... (32,221) 23,546 56,672
Materials and supplies............................ 20,278 (1,780) (2,866)
Special deposits and prepayments.................. (38,571) (852) 9,238
Payables and accrued liabilities.................. (101,231) (47,039) 72,655
Other, net.......................................... (32,465) (23,766) 895
Net cash provided by operating activities...... 596,052 686,599 746,737
Investing Activities:
Cash construction expenditures...................... (495,517) (460,073) (467,050)
Contributions to decommissioning trust.............. (84,546) (22,714) (19,337)
Other, net.......................................... (6,604) (26,368) (28,057)
Net cash used for investing activities......... (586,667) (509,155) (514,444)
Financing Activities:
Issuance of long-term debt.......................... 947,485 585,954 278,206
Increase (decrease) in notes payable, net........... 114,705 (87,776) (38,256)
Retirement of long-term debt........................ (752,250) (387,029) (186,427)
Capital lease principal payments.................... (56,424) (70,440) (58,796)
Issuance of common stock............................ 132,500 - -
Issuance of preferred stock of subsidiaries......... - 50,000 -
Redemption of preferred stock of subsidiaries....... (163,734) (51,635) (36,363)
Dividends paid on common stock...................... (184,616) (174,538) (160,653)
Dividends paid on preferred stock of subsidiaries... (31,598) (36,711) (36,180)
Net cash provided (required) by financing
activities................................... 6,068 (172,175) (238,469)
Net increase (decrease) in cash and temporary cash
investments from above activities................... 15,453 5,269 (6,176)
Cash and temporary cash investments, beginning of year 10,390 5,121 11,297
Cash and temporary cash investments, end of year...... $ 25,843 $ 10,390 $ 5,121
Supplemental Disclosure:
Interest paid (net of amount capitalized)........... $ 222,891 $ 200,640 $ 240,233
Income taxes paid................................... $ 157,226 $ 184,062 $ 147,771
New capital lease obligations incurred.............. $ 57,609 $ 48,087 $ 62,988
Common stock dividends declared but not paid........ $ 48,861 $ 44,327 $ 41,557
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-24
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
General Public Utilities Corporation (the Corporation) is a holding
company registered under the Public Utility Holding Company Act of 1935. The
Corporation does not directly operate any utility properties, but owns all
the outstanding common stock of three electric utilities -- Jersey Central
Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and
Pennsylvania Electric Company (Penelec) (the Subsidiaries). The Corporation
also owns all the common stock of GPU Service Corporation (GPUSC), a service
company; GPU Nuclear Corporation (GPUN), which operates and maintains the
nuclear units of the Subsidiaries; and General Portfolios Corporation (GPC),
parent of Energy Initiatives, Inc., which develops, owns and operates
nonutility generating facilities. All of these companies considered together
with their subsidiaries are referred to as the "GPU System."
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The Subsidiaries have made investments in three major nuclear
projects -- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which
are operational generating facilities, and Three Mile Island Unit 2 (TMI-2),
which was damaged during a 1979 accident. At December 31, 1993, the
Subsidiaries' net investment in TMI-1 and Oyster Creek, including nuclear
fuel, was $670 million and $784 million, respectively. TMI-1 and TMI-2 are
jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and
25%, respectively. Oyster Creek is owned by JCP&L.
Costs associated with the operation, maintenance and retirement of
nuclear plants have continued to increase and become less predictable, in
large part due to changing regulatory requirements and safety standards and
experience gained in the construction and operation of nuclear facilities.
The GPU System may also incur costs and experience reduced output at its
nuclear plants because of the design criteria prevailing at the time of
construction and the age of the plants' systems and equipment. In addition,
for economic or other reasons, operation of these plants for the full term of
their now assumed lives cannot be assured. Also, not all risks associated
with ownership or operation of nuclear facilities may be adequately insured or
insurable. Consequently, the ability of electric utilities to obtain adequate
and timely recovery of costs associated with nuclear projects, including
replacement power, any unamortized investment at the end of the plants' useful
life (whether scheduled or premature), the carrying costs of that investment
and retirement costs, is not assured. Management intends, in general, to seek
recovery of any such costs described above through the ratemaking process, but
recognizes that recovery is not assured.
F-25
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
TMI-2: The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
The cleanup program was completed in 1990. After receiving Nuclear Regulatory
Commission (NRC) approval, TMI-2 entered into long-term monitored storage in
December 1993.
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against the Corporation and the
Subsidiaries. Approximately 2,100 of such claims are pending in the
U.S. District Court for the Middle District of Pennsylvania. Some of the
claims also seek recovery for injuries from alleged emissions of radioactivity
before and after the accident. Questions have not yet been resolved as to
whether the punitive damage claims are (a) subject to the overall limitation
of liability set by the Price-Anderson Act ($560 million at the time of the
accident) and (b) outside the primary insurance coverage provided pursuant to
that Act (remaining primary coverage of approximately $80 million as of
December 31, 1993). If punitive damages are not covered by insurance or are
not subject to the Price-Anderson liability limitation, punitive damage awards
could have a material adverse effect on the financial position of the GPU
System.
In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of twelve allegedly representative
cases is scheduled to begin in October 1994. In February 1994, the Court held
that the plaintiffs' claims for punitive damages are not barred by the Price-
Anderson Act to the extent that the funds to pay punitive damages do not come
out of the U.S. Treasury. The Court also denied the defendants' motion seeking
a dismissal of all cases on the grounds that the defendants complied with
applicable federal safety standards regarding permissible radiation releases
from TMI-2 and that, as a matter of law, the defendants therefore did not
breach any duty that they may have owed to the individual plaintiffs. The
Court stated that a dispute about what radiation and emissions were released
cannot be resolved on a motion for summary judgment.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. As described in the Nuclear Fuel Disposal Fee
section of Note 2, the disposal of spent nuclear fuel is covered separately by
contracts with the U.S. Department of Energy (DOE).
In 1990, the Subsidiaries submitted a report, in compliance with NRC
regulations, setting forth a funding plan (employing the external sinking fund
method) for the decommissioning of their nuclear reactors. Under this plan,
the Subsidiaries intend to complete the funding for Oyster Creek and TMI-1 by
the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2
funding completion date is 2014, consistent with TMI-2 remaining in long-term
storage and being decommissioned at the same time as TMI-1. Under the NRC
regulations, the funding targets (in 1993 dollars) for TMI-1 and Oyster Creek
F-26
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
are $143 million and $175 million, respectively. Based on NRC studies, a
comparable funding target for TMI-2 (in 1993 dollars), which takes into
account the accident, is $228 million. The NRC is currently studying the
levels of these funding targets. Management cannot predict the effect that
the results of this review will have on the funding targets. NRC regulations
and a regulatory guide provide mechanisms, including exemptions, to adjust the
funding targets over their collection periods to reflect increases or
decreases due to inflation and changes in technology and regulatory
requirements. The funding targets, while not actual cost estimates, are
reference levels designed to assure that licensees demonstrate adequate
financial responsibility for decommissioning. While the regulations address
activities related to the removal of the radiological portions of the plants,
they do not establish residual radioactivity limits nor do they address costs
related to the removal of nonradiological structures and materials.
In 1988, a consultant to GPUN performed site-specific studies of TMI-1
and Oyster Creek that considered various decommissioning plans and estimated
the cost of decommissioning the radiological portions of each plant to range
from approximately $205 to $285 million and $220 to $320 million, respectively
(adjusted to 1993 dollars). In addition, the studies estimated the cost of
removal of nonradiological structures and materials for TMI-1 and Oyster Creek
at $72 million and $47 million, respectively.
The ultimate cost of retiring the GPU System's nuclear facilities may be
materially different from the funding targets and the cost estimates contained
in the site-specific studies and cannot now be more reasonably estimated than
the level of the NRC funding target because such costs are subject to (a) the
type of decommissioning plan selected, (b) the escalation of various cost
elements (including, but not limited to, general inflation), (c) the further
development of regulatory requirements governing decommissioning, (d) the
absence to date of significant experience in decommissioning such facilities
and (e) the technology available at the time of decommissioning. The
Subsidiaries charge to expense and contribute to external trusts amounts
collected from customers for nuclear plant decommissioning and nonradiological
costs. In addition, the Subsidiaries have contributed to external trusts
amounts written off for nuclear plant decommissioning in 1990 and 1991.
TMI-1 and Oyster Creek:
JCP&L is collecting revenues for decommissioning, which are expected to
result in the accumulation of its share of the NRC funding target for each
plant. JCP&L is also collecting revenues based on estimates, adopted in rate
orders issued in 1991 and 1993 by the New Jersey Board of Regulatory
Commissioners (NJBRC), for the cost of removal of nonradiological structures
and materials at each plant based on its share of an estimated $15.3 million
for TMI-1 and $31.6 million for Oyster Creek. In January 1993, the
Pennsylvania Public Utility Commission (PaPUC) granted Met-Ed revenues for
decommissioning costs of TMI-1 based on its share of the NRC funding target
and nonradiological cost of removal as estimated in the site-specific study.
Effective October 1993, the PaPUC approved a rate change for Penelec which
increased the collection of revenues for decommissioning costs for TMI-1 to a
basis equivalent to that granted Met-Ed. Collections from customers for
F-27
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
decommissioning expenditures are deposited in external trusts and are
classified as Decommissioning Funds on the balance sheet, which includes the
interest earned on these funds. Provision for the future expenditure of these
funds has been made in accumulated depreciation, amounting to $29 million for
TMI-1 and $80 million for Oyster Creek at December 31, 1993.
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable through the ratemaking process.
TMI-2:
The Corporation and its Subsidiaries have recorded a liability amounting
to $229 million as of December 31, 1993, for the radiological decommissioning
of TMI-2, reflecting the NRC funding target. The Subsidiaries record
escalations, when applicable, in the liability based upon changes in the NRC
funding target. The Subsidiaries have also recorded a liability in the amount
of $20 million for incremental costs specifically attributable to monitored
storage. Such costs are expected to be incurred between 1994 and 2014, when
decommissioning is forecast to begin. In addition, the Subsidiaries have
recorded a liability in the amount of $71 million for nonradiological cost of
removal. The above amounts for retirement costs and monitored storage are
reflected as Three Mile Island Unit 2 Future Costs on the balance sheet.
JCP&L has made a nonrecoverable contribution of $15 million to an external
decommissioning trust. Met-Ed and Penelec have made nonrecoverable
contributions of $40 million and $20 million, respectively, to external
decommissioning trusts relating to their shares of the accident-related
portion of the decommissioning liability.
The NJBRC and the PaPUC have granted JCP&L and Met-Ed, respectively,
decommissioning revenues for the remainder of the NRC funding target and
allowances for the cost of removal of nonradiological structures and
materials. In March 1993, a PaPUC rate order for Met-Ed allowed for the
future recovery of certain TMI-2 retirement costs. The recovery of these
TMI-2 retirement costs will begin when the amortization of the TMI-2
investment ends, at the same annual amount ($6.3 million for recovery of
radiological decommissioning and $2.0 million for nonradiological cost of
removal, net of gross receipts tax). In May 1993, the Pennsylvania Office of
Consumer Advocate filed a petition for review with the Pennsylvania
Commonwealth Court seeking to set aside the PaPUC's 1993 rate order. The
matter is pending before the court. If the 1993 rate order is reversed,
Met-Ed and Penelec would be required to write off a total of approximately
$170 million for retirement costs. Penelec intends to request decommissioning
revenues and an allowance for the cost of removal of nonradiological
structures and materials, equivalent to its share of the amounts granted to
Met-Ed, in its next retail base rate filing. Management intends to seek
recovery for any increases in TMI-2 retirement costs, but recognizes that
recovery cannot be assured.
Upon TMI-2's entering long-term monitored storage, the Subsidiaries will
incur currently estimated incremental annual storage costs of $1 million. The
Subsidiaries have deferred the $20 million for the total estimated incremental
F-28
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
costs attributable to monitored storage. The JCP&L share of these costs has
been recognized in rates by the NJBRC. Met-Ed and Penelec believe these costs
should be recoverable through the ratemaking process.
INSURANCE
The GPU System has insurance (subject to retentions and deductibles) for
its operations and facilities including coverage for property damage,
liability to employees and third parties, and loss of use and occupancy
(primarily incremental replacement power costs). There is no assurance that
the GPU System will maintain all existing insurance coverages. Losses or
liabilities that are not completely insured, unless allowed to be recovered
through ratemaking, could have a material adverse effect on the financial
position of the GPU System.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station (TMI-1 and TMI-2 are considered
one site for insurance purposes) and for Oyster Creek totals $2.7 billion per
site. In accordance with NRC regulations, these insurance policies generally
require that proceeds first be used for stabilization of the reactors and then
to pay for decontamination and debris removal expenses. Any remaining amounts
available under the policies may then be used for repair and restoration costs
and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of the stations.
The Price-Anderson Act limits the GPU System's liability to third
parties for a nuclear incident at one of its sites to approximately
$9.4 billion. Coverage for the first $200 million of such liability is
provided by private insurance. The remaining coverage, or secondary
protection, is provided by retrospective premiums payable by all nuclear
reactor owners. Under secondary protection, a nuclear incident at any
licensed nuclear power reactor in the country, including those owned by the
GPU System, could result in assessments of up to $79 million per incident for
each of the GPU System's three reactors, subject to an annual maximum payment
of $10 million per incident per reactor. In 1993, GPUN requested an exemption
from the NRC to eliminate the secondary protection requirements for TMI-2.
This matter is pending before the NRC.
The GPU System has insurance coverage for incremental replacement power
costs resulting from an accident-related outage at its nuclear plants.
Coverage commences after the first 21 weeks of the outage and continues for
three years at decreasing levels beginning at $1.8 million for Oyster Creek
and $2.6 million for TMI-1, per week.
Under its insurance policies applicable to nuclear operations and
facilities, the GPU System is subject to retrospective premium assessments of
up to $52 million in any one year, in addition to those payable under the
Price-Anderson Act.
F-29
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
ENVIRONMENTAL MATTERS
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but
not limited to acid rain, water quality, air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, the GPU System may be required to incur substantial additional costs
to construct new equipment, modify or replace existing and proposed equipment,
remediate or clean up waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants and mine refuse
piles, and with regard to electromagnetic fields, postpone or cancel the
installation of, or replace or modify, utility plant, the costs of which could
be material. Management intends to seek recovery through the ratemaking
process for any additional costs, but recognizes that recovery cannot be
assured.
To comply with the federal Clean Air Act Amendments of 1990, the GPU
System expects to expend up to $590 million for air pollution control
equipment by the year 2000. Costs associated with the capital invested in
this equipment and the increased operating costs of the affected stations
should be recoverable through the ratemaking process.
The GPU System companies have been notified by the Environmental
Protection Agency (EPA) and state environmental authorities that they are
among the potentially responsible parties (PRPs) who may be jointly and
severally liable to pay for the costs associated with the investigation and
remediation at ten hazardous and/or toxic waste sites. In addition, the GPU
System companies have been requested to supply information to the EPA and
state environmental authorities on several other sites for which they have not
yet been named as PRPs. The Subsidiaries have also been named in lawsuits
requesting damages for hazardous and/or toxic substances allegedly released
into the environment. The ultimate cost of remediation will depend upon
changing circumstances as site investigations continue, including (a) the
existing technology required for site cleanup, (b) the remedial action plan
chosen and (c) the extent of site contamination and the portion attributed to
the GPU System companies.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection and Energy for the investigation and remediation of
17 formerly-owned manufactured gas plant sites. One of these sites has been
repurchased by JCP&L. JCP&L has also entered into various cost sharing
agreements with other utilities for some of the sites. At December 31, 1993,
JCP&L has an estimated environmental liability of $35 million recorded on its
balance sheet relating to these sites. The estimated liability is based upon
ongoing site investigations and remediation efforts, including capping the
sites and pumping and treatment of ground water. If the periods over which
F-30
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
the remediation is currently expected to be performed are lengthened, JCP&L
believes that it is reasonably possible that the ultimate costs may range as
high as $60 million. Estimates of these costs are subject to significant
uncertainties as JCP&L does not presently own or control most of these sites;
the environmental standards have changed in the past and are subject to future
change; the accepted technologies are subject to further development; and the
related costs for these technologies are uncertain. If JCP&L is required to
utilize different remediation methods, the costs could be materially in excess
of $60 million.
In June 1993, the NJBRC approved a mechanism for the recovery of future
manufactured gas plant remediation costs through JCP&L's Levelized Energy
Adjustment Clause (LEAC) when expenditures exceed prior collections. The
NJBRC decision provides for interest to be credited to customers until the
overrecovery is eliminated and for future costs to be amortized over seven
years with interest. JCP&L is currently awaiting a final NJBRC order. JCP&L
is pursuing reimbursement of the above costs from its insurance carriers, and
will seek to recover costs to the extent not covered by insurance through this
mechanism.
The GPU System companies are unable to estimate the extent of possible
remediation and associated costs of additional environmental matters. Also
unknown are the consequences of environmental issues, which could cause the
postponement or cancellation of either the installation or replacement of
utility plant. Management believes the costs described above should be
recoverable through the ratemaking process.
OTHER COMMITMENTS AND CONTINGENCIES
The NJBRC has instituted a generic proceeding to address the appropriate
recovery of capacity costs associated with electric utility power purchases
from nonutility generation projects. The proceeding was initiated, in part,
to respond to contentions of the New Jersey Public Advocate, Division of Rate
Counsel (Rate Counsel), that by permitting utilities to recover such costs
through the LEAC, an excess or "double recovery" may result when combined with
the recovery of the utilities' embedded capacity costs through their base
rates. In September 1993, JCP&L and the other New Jersey electric utilities
filed motions for summary judgment with the NJBRC requesting that the NJBRC
dismiss contentions being made by Rate Counsel that adjustments for alleged
"double recovery" in prior periods are warranted. Rate Counsel has filed a
brief in opposition to the utilities' summary judgment motions including a
statement from its consultant that in his view, the "double recovery" for
JCP&L for the 1988-92 period would be approximately $102 million. Management
believes that the position of Rate Counsel is without merit. This matter is
pending before the NJBRC.
F-31
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
JCP&L's two operating nuclear units are subject to the NJBRC's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40%
capacity factor would be approximately $10 million. While a capacity factor
below 40% would generate no specific monetary charge, it would require the
issue to be brought before the NJBRC for review. The annual measurement
period, which begins in March of each year, coincides with that used for the
LEAC. At the request of the PaPUC, Met-Ed and Penelec, as well as the other
Pennsylvania utilities, have supplied the PaPUC with proposals which may
result in the PaPUC adopting a generic nuclear performance standard in the
future.
In December 1993, the NJBRC denied JCP&L's request to participate in the
proposed power supply and transmission facilities agreements between the
Subsidiaries and Duquesne Light Company (Duquesne). As a result of this
action and other developments, the Subsidiaries notified Duquesne that they
were exercising their rights under the agreements to withdraw from and thereby
terminate the agreements. Consequently, the Subsidiaries wrote off the $25
million they had invested in the project.
The GPU System's construction programs, for which substantial
commitments have been incurred and which extend over several years,
contemplate expenditures of $663 million during 1994. As a consequence of
reliability, licensing, environmental and other requirements, substantial
additions to utility plant may be required relatively late in their expected
service lives. If such additions are made, current depreciation allowance
methodology may not make adequate provision for the recovery of such
investments during their remaining lives. Management intends to seek recovery
of any such costs through the ratemaking process, but recognizes that recovery
is not assured.
As a result of the Energy Policy Act of 1992 (Energy Act) and actions of
regulatory commissions, the electric utility industry appears to be moving
toward a combination of competition and a modified regulatory environment. In
accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS 71), the GPU
System's financial statements reflect assets and costs based on current cost-
based ratemaking regulations. Continued accounting under FAS 71 requires that
the following criteria be met:
a) A utility's rates for regulated services provided to its customers
are established by, or are subject to approval by, an independent
third-party regulator;
b) The regulated rates are designed to recover specific costs of
providing the regulated services or products; and
F-32
<PAGE>
General Public Utilities Corporation and Subsidiary Companies
c) In view of the demand for the regulated services and the level of
competition, direct and indirect, it is reasonable to assume that
rates set at levels that will recover a utility's costs can be
charged to and collected from customers. This criteria requires
consideration of anticipated changes in levels of demand or
competition during the recovery period for any capitalized costs.
A utility's operations can cease to meet those criteria for various reasons,
including deregulation, a change in the method of regulation, or a change in
the competitive environment for the utility's regulated services. Regardless
of the reason, a utility whose operations cease to meet those criteria should
discontinue application of FAS 71 and report that discontinuation by
eliminating from its balance sheet the effects of any actions of regulators
that had been recognized as assets and liabilities pursuant to FAS 71 but
which would not have been recognized as assets and liabilities by enterprises
in general.
If a portion of the GPU System's operations continues to be regulated
and meets the above criteria, FAS 71 accounting may only be applied to that
portion. Write-offs of utility plant and regulatory assets may result for
those operations that no longer meet the requirements of FAS 71. In addition,
under deregulation, the uneconomical costs of certain contractual commitments
for purchased power and/or fuel supplies may have to be expensed. Management
believes that to the extent that the GPU System no longer qualifies for FAS 71
accounting treatment, a material adverse effect on its results of operations
and financial position may result.
The Subsidiaries have entered into long-term contracts with
nonaffiliated mining companies for the purchase of coal for certain generating
stations in which they have ownership interests. The contracts, which expire
between 1994 and the end of the expected service lives of the generating
stations, require the purchase of either fixed or minimum amounts of the
stations' coal requirements. The price of the coal is determined by formulas
providing for the recovery by the mining companies of their costs of
production. The Subsidiaries' share of the cost of coal purchased under these
agreements is expected to aggregate $89 million for 1994.
The Subsidiaries have entered into agreements with other utilities for
the purchase of capacity and energy for various periods through 1999. These
agreements provide for up to 2,130 MW in 1994, declining to 1,307 MW in 1995
and 183 MW by 1999. Payments pursuant to these agreements are estimated to
aggregate $244 million in 1994. The price of the energy purchased under these
agreements is determined by contracts providing generally for the recovery by
the sellers of their costs.
The Subsidiaries have also entered into power purchase agreements with
independently owned power production facilities (nonutility generators) for
the purchase of energy and capacity for periods up to 25 years. The majority
of these agreements are subject to penalties for nonperformance and other
contract limitations. While a few of these facilities are dispatchable, most
are must-run and generally obligate the Subsidiaries to purchase all of the
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General Public Utilities Corporation and Subsidiary Companies
power produced up to the contract limits. The agreements have been approved
by the state regulatory commissions and permit the Subsidiaries to recover
energy and demand costs from customers through their energy clauses. These
agreements provide for the sale of approximately 2,452 MW of capacity and
energy to the GPU System by the mid-to-late 1990s. As of December 31, 1993,
facilities covered by these agreements having 1,193 MW of capacity were in
service, and 215 MW were scheduled to commence operation in 1994. Payments
made pursuant to these agreements were $491 million, $471 million and $343
million for 1993, 1992 and 1991, respectively, and are estimated to aggregate
$551 million for 1994. The price of the energy and capacity to be purchased
under these agreements is determined by the terms of the contracts. The rates
payable under a number of these agreements are substantially in excess of
current market prices. While the Subsidiaries have been granted full recovery
of these costs from customers by the state commissions, there can be no
assurance that the Subsidiaries will continue to be able to recover these
costs throughout the term of the related contracts. The emerging competitive
market has created additional uncertainty regarding the forecasting of the
System's energy supply needs which, in turn, has caused the Subsidiaries to
change their supply strategy to seek shorter term agreements offering more
flexibility. At the same time, the Subsidiaries are attempting to
renegotiate, and in some cases buy out, high cost long-term nonutility
generation contracts where opportunities arise. The extent to which the
Subsidiaries may be able to do so, however, or recover associated costs
through rates, is uncertain. Moreover, these efforts have led to disputes
before both the NJBRC and the PaPUC, as well as to litigation, and may result
in claims against the Subsidiaries for substantial damages. There can be no
assurance as to the outcome of these matters.
During the normal course of the operation of their businesses, in
addition to the matters described above, the GPU System companies are from
time to time involved in disputes, claims and, in some cases, as defendants in
litigation in which compensatory and punitive damages are sought by customers,
contractors, vendors and other suppliers of equipment and services and by
employees alleging unlawful employment practices. It is not expected that the
outcome of these matters will have a material effect on the GPU System's
financial position or results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SYSTEM OF ACCOUNTS
The consolidated financial statements include the accounts of all
subsidiaries. Certain reclassifications of prior years' data have been made
to conform with current presentation. The Subsidiaries' accounting records
are maintained in accordance with the Uniform System of Accounts prescribed by
the Federal Energy Regulatory Commission (FERC) and adopted by the PaPUC and
NJBRC.
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General Public Utilities Corporation and Subsidiary Companies
REVENUES
The Corporation and its Subsidiaries recognize electric operating
revenues for services rendered and, beginning in 1991, an estimate of unbilled
revenues to record services provided to the end of the respective accounting
period.
DEFERRED ENERGY COSTS
Energy costs are recognized in the period in which the related energy
clause revenues are billed.
UTILITY PLANT
It is the policy of the GPU System to record additions to utility plant
(material, labor, overhead and an allowance for funds used during
construction) at cost. The cost of current repairs and minor replacements is
charged to appropriate operating and maintenance expense and clearing accounts
and the cost of renewals is capitalized. The original cost of utility plant
retired or otherwise disposed of is charged to accumulated depreciation.
DEPRECIATION
The GPU System provides for depreciation at annual rates determined and
revised periodically, on the basis of studies, to be sufficient to depreciate
the original cost of depreciable property over estimated remaining service
lives, which are generally longer than those employed for tax purposes. The
Subsidiaries used depreciation rates which, on an aggregate composite basis,
resulted in annual rates of 3.19%, 3.17% and 3.20% for the years 1993, 1992
and 1991, respectively.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The Uniform System of Accounts defines AFUDC as "the net cost for the
period of construction of borrowed funds used for construction purposes and a
reasonable rate on other funds when so used." AFUDC is recorded as a charge
to construction work in progress, and the equivalent credits are to interest
charges for the pretax cost of borrowed funds and to other income for the
allowance for other funds. While AFUDC results in an increase in utility
plant and represents current earnings, it is realized in cash through
depreciation or amortization allowances only when the related plant is
recognized in rates. On an aggregate composite basis, the annual rates
utilized were 6.80%, 7.33% and 8.39% for the years 1993, 1992 and 1991,
respectively.
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General Public Utilities Corporation and Subsidiary Companies
AMORTIZATION POLICIES
Accounting for TMI-2 and Forked River Investments:
JCP&L is collecting annual revenues for the amortization of TMI-2 of
$9.6 million. This level of revenue will be sufficient to recover the
remaining investment by 2008. In its 1993 base rate decision, the PaPUC
reduced Met-Ed's annual retail revenues for the amortization of the TMI-2
investment to $8.3 million, a level sufficient for Met-Ed to recover its
remaining investment in TMI-2 in 1994. Penelec has collected all of its TMI-
2 investment attributable to its retail customers. At December 31, 1993,
$97 million is included in Unamortized Property Losses on the balance sheet
for JCP&L's Forked River project. JCP&L is collecting annual revenues for the
amortization of this project of $11.2 million, which will be sufficient to
recover its remaining investment by the year 2006. Because the Subsidiaries
have not been provided revenues for a return on the unamortized balances of
the damaged TMI-2 facility and the cancelled Forked River project, these
investments are being carried at their discounted present values. The related
annual accretion, which represents the carrying charges that are accrued as
the asset is written up from its discounted value, is recorded in Other
Income, Net.
Nuclear Fuel:
Nuclear fuel is amortized on a unit of production basis. Rates are
determined and periodically revised to amortize the cost over the useful life.
The Subsidiaries have provided for future contributions to the
Decontamination and Decommissioning Fund (part of the Energy Act) for the
cleanup of enrichment plants operated by the federal government. The total
liability at December 31, 1993 amounted to $47 million and is primarily
reflected in Deferred Credits and Other Liabilities - Other. Utilities with
nuclear plants will contribute a total of $150 million annually, based on an
assessment computed on prior enrichment purchases, over a 15 year period up to
a total of $2.3 billion (in 1993 dollars). The Subsidiaries made their
initial payment to this fund in 1993. The Subsidiaries have recorded an asset
for remaining amounts recoverable from ratepayers of $48 million at December
31, 1993 in Deferred Debits and Other Assets - Other.
NUCLEAR OUTAGE MAINTENANCE COSTS
The GPU System accrues incremental nuclear outage maintenance costs
anticipated to be incurred during scheduled nuclear plant refueling outages.
NUCLEAR FUEL DISPOSAL FEE
The Subsidiaries are providing for estimated future disposal costs for
spent nuclear fuel at Oyster Creek and TMI-1 in accordance with the Nuclear
Waste Policy Act of 1982. The Subsidiaries entered into contracts in 1983
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General Public Utilities Corporation and Subsidiary Companies
with the DOE for the disposal of spent nuclear fuel. The total liability
under these contracts, including interest, at December 31, 1993, all of which
relates to spent nuclear fuel from nuclear generation through April 1983,
amounted to $147 million, and is reflected in Deferred Credits and Other
Liabilities - Other. As the actual liability is substantially in excess of
the amount recovered to date from ratepayers, the Subsidiaries have reflected
such excess of $25 million at December 31, 1993 in Deferred Debits and Other
Assets - Other. The rates presently charged to customers provide for the
collection of these costs, plus interest, over remaining periods of 13 years
for JCP&L, 14 years for Met-Ed and 4 years for Penelec.
The Subsidiaries are collecting 1 mill per kilowatt-hour from their
customers for spent nuclear fuel disposal costs resulting from nuclear
generation subsequent to April 1983. These amounts are remitted quarterly to
the DOE.
INCOME TAXES
The GPU System files a consolidated federal income tax return and all
participants are jointly and severally liable for the full amount of any tax,
including penalties and interest, which may be assessed against the group.
Deferred income taxes, which result primarily from liberalized
depreciation methods, deferred energy costs, decommissioning funds and
discounted Forked River and TMI-2 investments, are provided for differences
between book and taxable income. Investment tax credits (ITC) are amortized
over the estimated service lives of the related facilities.
Effective January 1, 1993, the GPU System implemented Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes" which requires the use of the liability method of financial accounting
and reporting for income taxes. Under FAS 109, deferred income taxes reflect
the impact of temporary differences between the amount of assets and
liabilities recognized for financial reporting purposes and the amounts
recognized for tax purposes.
STATEMENTS OF CASH FLOWS
For the purpose of the consolidated statements of cash flows, temporary
investments include all unrestricted liquid assets, such as cash deposits and
debt securities, with maturities generally of three months or less.
3. SHORT-TERM BORROWING ARRANGEMENTS
At December 31, 1993, the GPU System had $216 million of short-term
notes outstanding, of which $37 million was commercial paper and the remainder
was issued under bank lines of credit (credit facilities).
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General Public Utilities Corporation and Subsidiary Companies
The Corporation and the Subsidiaries have $398 million of credit
facilities, which includes a Revolving Credit Agreement (Credit Agreement)
with a consortium of banks that permits total borrowing of $150 million
outstanding at any one time. The credit facilities generally provide for the
payment of a commitment fee on the unborrowed amount of 1/8 of 1% annually.
Borrowings under these credit facilities generally bear interest based on the
prime rate or money market rates. Notes issued under the Credit Agreement
which expires April 1, 1995, are subject to various covenants and acceleration
under certain conditions.
4. LONG-TERM DEBT
At December 31, 1993, the Corporation's subsidiaries had long-term debt
outstanding, as follows:
Interest Rates
4 5/8% to 7% to 9% to
Maturities 6.97% 8 7/8% 10 1/2% Total
(In Thousands)
First mortgage bonds:
1994-2003 $555,005 $ 410,191 $188,500 $1,153,696
2004-2013 145,120 338,300 - 483,420
2014-2023 55,000 517,200 50,000 622,200
2025 150,000 - - 150,000
Total $905,125 $1,265,691 $238,500 2,409,316
Amounts due within one year (130,000)
Total 2,279,316
Other long-term debt (net of $3,232 due within one year) 46,204
Unamortized net discount (5,136)
Total $2,320,384
The above amounts do not include $125 million of 10 1/8 % first mortgage
bonds as a result of depositing with the trustee, in 1993, an amount needed
for their early redemption in April 1994. For the years 1994, 1995, 1996,
1997 and 1998, the Subsidiaries have long-term debt maturities of
$133 million, $91 million, $119 million, $145 million and $103 million,
respectively. Substantially all of the utility plant owned by the
Subsidiaries is subject to the lien of their respective mortgages.
The estimated fair value of the Corporation's long-term debt, as of
December 31, 1993 and 1992 is as follows:
(In Thousands)
Carrying Fair
Amount Value
1993 $2,320,384 $2,446,407
1992 2,221,617 2,304,701
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General Public Utilities Corporation and Subsidiary Companies
The fair value of the Corporation's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current
rates offered to the Corporation for debt of the same remaining maturities.
5. CAPITAL STOCK
COMMON STOCK
The following table presents information relating to the common stock
($2.50 par value) of the Corporation:
1993 1992
Authorized shares 150,000,000 150,000,000
Issued shares 125,783,338 125,783,338
Reacquired shares 10,816,561 14,965,309
Outstanding shares 114,966,777 110,818,029
Restricted units 74,076 38,816
In 1993, the Corporation sold four million shares of common stock through
an underwritten public offering. In 1993 and 1992, pursuant to the 1990
Restricted Stock Plan, the Corporation issued to officers restricted units
representing rights to receive shares of common stock, on a one-for-one basis,
at the end of the restriction period. The restricted units do not affect the
issued and outstanding shares of common stock until conversion at the end of
the restriction period. However, the restricted units are considered common
stock equivalents and therefore are included in average common shares
outstanding for the earnings per share computation on the income statement.
The restricted units accrue dividends on a quarterly basis. In 1993 and 1992,
the Corporation awarded to plan participants 32,740 and 39,735 restricted
units, respectively. In 1993, 1992 and 1991, the Corporation issued a total
of 3,200, 3,053 and 39,600 restricted shares, respectively, from previously
reacquired shares. No shares of common stock were reacquired in 1993, 1992 or
1991. The Corporation has standby authorization from the Securities and
Exchange Commission to repurchase up to five million shares of common stock
through 1995.
PREFERRED STOCK
At December 31, 1993, the Subsidiaries had the following issues of
cumulative preferred stock outstanding:
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General Public Utilities Corporation and Subsidiary Companies
Stated Value Shares (In Thousands)
Series per Share Outstanding Stated Value
With mandatory redemption:
7.52% - 8.65% $100 1,500,000 $150,000
Without mandatory redemption:
3.70% - 4.70% $100 723,912 $ 72,391
7.68% - 8.36% $100 850,000 85,000
Total 1,573,912 157,391
Premium 851
Total $158,242
During 1993, the Subsidiaries redeemed preferred stock as follows: JCP&L
redeemed all of its outstanding 8.12% Series and 8% Series cumulative
preferred stock (aggregate stated value of $50 million) at a total cost of
$52.4 million. Met-Ed redeemed all of its outstanding 8.32% Series H, 8.32%
Series J, 8.12% Series I and its 8.12% cumulative preferred stock (aggregate
stated value of $81 million) at a total cost of $85.3 million. Penelec
redeemed all of its outstanding 8.12% Series I cumulative preferred stock
(aggregate stated value of $25 million) at a total cost of $26.0 million.
These redemptions resulted in a net $6.9 million charge to Retained Earnings.
During 1992, JCP&L issued 500,000 shares of 7.52% series cumulative
preferred stock with mandatory redemption provisions. The series is callable
beginning in the year 2002 at various prices above its stated value. The
series is to be redeemed ratably over twenty years beginning in the year 1998.
This issue provides that JCP&L may, at its option, redeem an amount of shares
equal to its mandatory sinking fund requirement at such time as the mandatory
sinking fund redemption is made. Expenses of $0.5 million incurred in
connection with the issuance of the cumulative preferred stock were charged to
Capital Surplus on the balance sheet.
During 1992, JCP&L redeemed all its outstanding 8.75% Series H cumulative
preferred stock (aggregate stated value of $50 million), at a total cost of
$51.6 million. This resulted in a $1.6 million charge to Retained Earnings.
Additional preferred stock expenses of $0.7 million were charged to Retained
Earnings.
During 1991, Penelec redeemed all its outstanding 9% Series L cumulative
preferred stock (aggregate stated value of $35 million), at a total cost of
$36.4 million. This resulted in a $1.4 million charge to Retained Earnings.
The issued and outstanding shares of preferred stock without mandatory
redemption are callable at various prices above their stated values. At
December 31, 1993, the aggregate amount at which these shares could be called
by the Subsidiaries was $164 million. The issued and outstanding shares with
mandatory redemption have aggregate redemption requirements of $32.5 million
for the years 1994 through 1998.
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General Public Utilities Corporation and Subsidiary Companies
At December 31, 1993 and 1992, the Subsidiaries were authorized to issue
37,035,000 shares of cumulative preferred stock. If dividends on any of the
preferred stock of any of the Subsidiaries are in arrears for four quarters,
the holders of preferred stock, voting as a class, are entitled to elect a
majority of the board of directors of that subsidiary until all dividends in
arrears have been paid. A Subsidiary may not redeem preferred stock unless
dividends on all of that Subsidiary's preferred stock for all past quarterly
dividend periods have been paid or declared and set aside for payment.
6. INCOME TAXES
Effective January 1, 1993, the GPU System implemented FAS 109
"Accounting for Income Taxes". In 1993, the cumulative effect on net income
of this accounting change was immaterial. Also in 1993, the federal income
tax rate changed from 34% to 35%, retroactive to January 1, 1993, resulting in
an increase in the deferred tax assets of $9 million and an increase in the
deferred tax liabilities of $48 million. The tax rate change did not have a
material effect on net income as the changes in deferred taxes were
substantially offset by the recording of regulatory assets and liabilities.
The balance sheet effect as of December 31, 1993 of implementing FAS 109
resulted in a regulatory asset for income taxes recoverable through future
rates of $555 million (related to liberalized depreciation), and a regulatory
liability for income taxes refundable through future rates of $111 million
(related to unamortized ITC), substantially due to the recognition of amounts
not previously recorded.
A summary of the components of deferred taxes as of December 31, 1993
follows:
(In Millions)
Deferred Tax Assets Deferred Tax Liabilities
Current: Non-current:
Revenue taxes $ 12 Liberalized
Unbilled revenue 14 depreciation:
Deferred energy 6 previously flowed
Other 2 through $ 327
Total $ 34 future revenue
requirements 228 $ 555
Non-current:
Unamortized ITC $111 Liberalized
Decommissioning 48 depreciation 726
Contribution in aid Forked River 30
of construction 22 Other 78
Other 94 Total $1,389
Total $275
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General Public Utilities Corporation and Subsidiary Companies
The reconciliations from net income to book income subject to tax and
from the federal statutory rate to combined federal and state effective tax
rates are as follows:
(In Millions)
1993 1992 1991
Net income $296 $252 $276
Preferred stock dividends 29 37 36
Income tax expense 197 174 165
Book income subject to tax $522 $463 $477
Federal statutory rate 35% 34% 34%
Effect of difference between tax
and book depreciation for which
deferred taxes were not provided 2 2 3
Amortization of ITC (2) (3) (3)
State tax, net of federal benefit 4 5 3
Other (1) - (2)
Effective income tax rate 38% 38% 35%
Federal and state income tax expense is comprised of the following:
(In Millions)
1993 1992 1991
Provisions for taxes currently payable $127 $165 $161
Deferred income taxes:
Liberalized depreciation 32 34 36
New Jersey revenue tax 32 3 (7)
Deferral of energy costs 6 (16) 5
Accretion income 7 9 11
TMI-2 pre-monitored storage costs 3 8 (14)
Other 2 (16) (11)
Deferred income taxes, net 82 22 20
Amortization of ITC, net (12) (13) (16)
Income tax expense $197 $174 $165
The Internal Revenue Service has completed its examinations of the GPU
System's federal income tax returns through 1986. The GPU System and the
Internal Revenue Service have reached an agreement to settle the
Corporation's claim that TMI-2 has been retired for tax purposes. When
approved by the Joint Congressional Committee on Taxation, this settlement
will provide refunds for previously paid taxes. The Corporation estimates
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General Public Utilities Corporation and Subsidiary Companies
that the Subsidiaries would receive net refunds totaling $17 million, which
would be credited to their customers. The GPU System would also be entitled
to receive net interest estimated to total $45 million (before income taxes)
through December 31, 1993, which would be credited to income. The years 1987,
1988 and 1989 are currently under audit.
7. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance expense and other taxes charged to operating expenses
consisted of the following:
(In Millions)
1993 1992 1991
Maintenance $275 $251 $239
Other taxes:
New Jersey unit tax $202 $197 $201
Pennsylvania state gross receipts 68 67 66
Real estate and personal property 21 22 22
Other 53 42 44
Total $344 $328 $333
8. EMPLOYMENT BENEFITS
Pension Plans:
The GPU System maintains defined benefit pension plans covering
substantially all employees. The GPU System's policy is to currently fund net
pension costs within the deduction limits permitted by the Internal Revenue
Code.
A summary of the components of net periodic pension cost follows:
(In Millions)
1993 1992 1991
Service cost-benefits earned during the period $ 28.6 $ 26.3 $ 28.2
Interest cost on projected benefit obligation 91.8 87.8 80.0
Less: Expected return on plan assets (96.6) (89.5) (84.3)
Amortization (2.2) (2.5) (2.6)
Net periodic pension cost $ 21.6 $ 22.1 $ 21.3
The actual return on the plans' assets for the years 1993, 1992 and 1991
were gains of $145.9 million, $53.2 million and $191.3 million, respectively.
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General Public Utilities Corporation and Subsidiary Companies
The funded status of the plans and related assumptions at December 31,
1993 and 1992 were as follows:
(In Millions)
1993 1992
Accumulated benefit obligation (ABO):
Vested benefits $ 982.3 $ 820.6
Nonvested benefits 122.9 93.6
Total ABO 1,105.2 914.2
Effect of future compensation levels 197.2 194.3
Projected benefit obligation (PBO) $ 1,302.4 $ 1,108.5
PBO $(1,302.4) $(1,108.5)
Plan assets at fair value 1,288.6 1,167.1
PBO (in excess of) less than plan assets (13.8) 58.6
Less: Unrecognized net (gain) loss 19.8 (56.7)
Unrecognized prior service cost (5.9) (12.7)
Unrecognized net transition asset (8.6) (9.5)
Adjustment required to recognize
minimum liability (2.3) -
Accrued pension liability $ (10.8) $ (20.3)
Principal actuarial assumptions(%):
Annual long-term rate of return on plan assets 8.5 8.5
Discount rate 7.5 8.5
Annual increase in compensation levels 5.0 6.0
Changes in assumptions in 1993 primarily due to reducing the discount
rate assumption from 8.5% to 7.5%, resulted in a $122 million change in the
PBO as of December 31, 1993. The assets of the plans are held in a Master
Trust and generally invested in common stocks, fixed income securities and
real estate equity investments. The unrecognized net gain represents actual
experience different from that assumed, which is deferred and not included in
the determination of pension cost until it exceeds certain levels. Both the
unrecognized prior service cost resulting from retroactive changes in benefits
and the unrecognized net transition asset arising out of the adoption of
Statement of Financial Accounting Standards No. 87 are being amortized as a
credit to pension cost over the average remaining service periods for covered
employees.
At December 31, 1993, GPUSC had an accumulated pension obligation in
excess of amounts accrued, as a result, an additional minimum liability of
$2.3 million was accrued with a corresponding charge to Retained Earnings.
Savings Plans:
The GPU System also maintains savings plans for substantially all
employees. These plans provide for employee contributions up to specified
limits. The GPU System's savings plans provide for various levels of matching
contributions. The matching contributions for the GPU System for 1993, 1992
and 1991 were $12.2 million, $11.2 million and $9.7 million, respectively.
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General Public Utilities Corporation and Subsidiary Companies
Postretirement Benefits Other than Pensions:
The GPU System provides certain retiree health care and life insurance
benefits for substantially all employees who reach retirement age while
working for the GPU System. Health care benefits are administered by various
organizations. A portion of the costs are borne by the participants. For
1992 and 1991, the annual premium costs associated with providing these
benefits totaled approximately $16.6 million and $16.3 million, respectively.
Effective January 1, 1993, the GPU System adopted Statement of Financial
Accounting Standards No. 106 (FAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions." FAS 106 requires that the
estimated cost of these benefits, which are primarily for health care, be
accrued during the employee's active working career. The GPU System has
elected to amortize the unfunded transition obligation existing at January 1,
1993, over a period of 20 years.
A summary of the components of the net periodic postretirement benefit
cost for 1993 follows: (In Millions)
Service cost-benefits attributed to service
during the period $ 12.5
Interest cost on the accumulated postretirement
benefit obligation 34.3
Expected return on plan assets (3.4)
Amortization of transition obligation 18.1
Net periodic postretirement benefit cost 61.5
Less, deferred for future recovery (27.5)
Postretirement benefit cost, net of deferrals $ 34.0
The actual return on the plans' assets for the year 1993 was a gain of
$3.9 million.
The funded status of the plans at December 31, 1993, was as follows:
Accumulated Postretirement Benefit Obligation:
Retirees $ 207.1
Fully eligible active plan participants 72.4
Other active plan participants 223.1
Total accumulated postretirement
benefit obligation (APBO) $ 502.6
APBO $(502.6)
Plan assets at fair value 47.1
APBO (in excess of) plan assets (455.5)
Less: Unrecognized net loss 65.2
Unrecognized prior service cost 2.9
Unrecognized transition obligation 343.6
Accrued postretirement benefit liability $ (43.8)
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General Public Utilities Corporation and Subsidiary Companies
Principal actuarial assumptions (%):
Annual long-term rate of return on plan assets 8.5
Discount rate 7.5
The GPU System intends to continue funding amounts for postretirement
benefits collected from customers and other amounts with an independent
trustee, as deemed appropriate from time to time. The plan assets include
equities and fixed income securities.
In JCP&L's most recent base rate proceeding, the NJBRC allowed JCP&L to
collect $3 million annually of the incremental postretirement benefit costs,
charged to expense, recognized as a result of FAS 106. Based on the final
order and in accordance with Emerging Issues Task Force (EITF) Issue Number
92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises", JCP&L is
deferring the amounts above that level. Both Met-Ed and Penelec have begun to
defer the incremental postretirement benefit costs, charged to expense,
associated with the adoption of FAS 106 and in accordance with EITF Number
92-12 as authorized by the PaPUC in 1993. A portion of the increase in annual
costs recognized under FAS 106 of approximately $27.5 million is being
deferred and should be recoverable through the ratemaking process. The
Consumer Advocate in Pennsylvania is contesting utility deferral of FAS 106
costs in a proceeding involving another utility. The outcome of this
proceeding may affect the recovery of deferred FAS 106 costs for Met-Ed and
Penelec.
The accumulated postretirement benefits obligation was determined by
application of the terms of the medical and life insurance plans, including
the effects of established maximums on covered costs, together with relevant
actuarial assumptions and health-care cost trend rates of 14% for those not
eligible for Medicare and 11% for those eligible for Medicare for 1994,
decreasing gradually to 7% in 2000 and thereafter. These costs also reflect
the implementation of a cost cap of 6% for individuals who retire after
December 1, 1995. The effect of a 1% annual increase in these assumed cost
trend rates would increase the accumulated postretirement benefit obligation
by approximately $49 million and the aggregate of the service and interest
cost components of net postretirement health-care cost for 1994 by
approximately $5 million.
Postemployment Benefits:
In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (FAS 112) which addresses accounting by employers
who provide benefits to former or inactive employees after employment but
before retirement, which is effective for fiscal years beginning after
December 15, 1993. The GPU System adopted the accrual method required under
FAS 112 during 1993, which did not have a material impact on the financial
position or results of operations of GPU.
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General Public Utilities Corporation and Subsidiary Companies
9. JOINTLY OWNED STATIONS
Each participant in a jointly owned station finances its portion of the
investment and charges its share of operating expenses to the appropriate
expense accounts. The Subsidiaries participated with nonaffiliated utilities
in the following jointly owned stations at December 31, 1993:
Balance (In Millions)
% Accumulated
Station Owner Ownership Investment Depreciation
Homer City Penelec 50 $428.9 $151.3
Conemaugh Met-Ed 16.45 119.4 28.5
Keystone JCP&L 16.67 77.9 20.8
Yards Creek JCP&L 50 24.3 6.3
Seneca Penelec 20 16.5 4.4
10. LEASES
The GPU System's capital leases consist primarily of leases for nuclear
fuel. Nuclear fuel capital leases at December 31, 1993 and 1992 totaled
$150 million and $156 million, respectively (net of amortization of
$199 million and $153 million, respectively). The recording of capital leases
has no effect on net income because all leases, for ratemaking purposes, are
considered operating leases.
The Subsidiaries have nuclear fuel lease agreements with nonaffiliated
fuel trusts. An aggregate of up to $250 million ($125 million each for Oyster
Creek and TMI-1) of nuclear fuel costs may be outstanding at any one time. It
is contemplated that when consumed, portions of the presently leased material
will be replaced by additional leased material. The Subsidiaries are
responsible for the disposal costs of nuclear fuel leased under these
agreements. These nuclear fuel leases are renewable annually. Lease expense
consists of an amount designed to amortize the cost of the nuclear fuel as
consumed plus interest costs. For the years ended December 31, 1993, 1992 and
1991 these amounts were $66 million, $74 million and $66 million,
respectively. The leases may be terminated at any time with at least five
months notice by either party prior to the end of the current period. Subject
to certain conditions of termination, the Subsidiaries are required to
purchase all nuclear fuel then under lease at a price that will allow the
lessor to recover its net investment.
JCP&L and Met-Ed have sold and leased back substantially all of their
respective ownership interests in the Merrill Creek Reservoir Project. The
minimum lease payments under these operating leases, which have remaining
terms of 39 years, average approximately $3 million annually for each company.
F-47
<PAGE>
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
and Subsidiary Companies
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
<CAPTION>
For the Years Ended
December 31,
1991 1992(a) 1993
Column A Column F
Classification Balance at end of period
Utility Plant (at original cost):
<S> <C> <C> <C>
Electric:
Plant in service:
Intangibles $ 13,776 $ 20,720 $ 24,209
Production 3,078,578 3,190,418 3,413,671
Transmission 1,035,315 1,077,575 1,084,124
Distribution 2,955,324 3,134,420 3,352,095
General 502,096 537,268 566,204
Construction work in progress 272,730 314,756 267,381
Held for future use 18,911 18,890 18,905
Total electric utility plant 7,876,730 8,294,047 8,726,589
Nuclear fuel 2,790 2,826 10,346
Total electric 7,879,520 8,296,873 8,736,935
Water:
Plant in service:
Intangibles 1 1 1
Collection 819 819 819
Distribution - - -
Purification 10 10 10
Transmission 202 202 202
Total water 1,032 1,032 1,032
Property under capital leases, net 213,054 192,883 185,064
Total utility plant 8,093,606 8,490,788 8,923,031
Other physical property (at original cost) 7,793 7,659 8,603
Total property, plant and equipment $8,101,399 $8,498,447 $8,931,634
The information required by Columns B, C, D and E is omitted since neither
the total additions nor the total deductions during the period amount to more
than 10% of the closing balance of total property, plant and equipment.
Total Total Total
Column C, Additions, at cost.... $472,554 $472,987 $519,613
Column D, Retirements........... 116,473 62,077 66,096
Column E, Other Changes......... 4,429(b) (13,862)(c) (20,330)(d)
</TABLE>
F-48
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
and Subsidiary Companies
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (continued)
(In Thousands)
See Note 2 to consolidated financial statements contained on page F-34
for information concerning the cost of property, plant and equipment
and the depreciation and amortization methods used during the three
years ended December 31, 1993. Also see Note 10 to consolidated
financial statements contained on page F-47 for information concerning
the capital lease agreements.
(a) Reflects a reclassification of $55,500 of nuclear fuel costs
associated with decontamination of the government's enrichment
plants to Deferred Debits and Other Assets - Other to conform with
current presentation.
(b) Includes an increase in property under capital leases of $2,334,
which is comprised primarily of additions and amortization of
$62,988 and $59,874, respectively.
(c) Includes a reduction in property under capital leases of $20,172,
which is comprised primarily of additions and amortization of
$48,087 and $67,820, respectively.
(d) Includes a reduction in property under capital leases of $7,820,
which is comprised primarily of additions and amortization of
$57,609 and $62,781, respectively; and a decrease of $15,433 and
$6,115 due to the write-offs of prior years' expenditures related
to the Duquesne Project and certain nuclear equipment,
respectively.
F-49
<PAGE>
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
and Subsidiary Companies
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
For The Year Ended December 31, 1991
(In Thousands)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance Additions
at Charged to Other Balance
Beginning Costs and Changes - at End
Description of Period Expenses Retirements Add(Deduct) of Period
ACCUMULATED DEPRECIATION
AND AMORTIZATION OF
UTILITY PLANT:
<S> <C> <C> <C> <C> <C>
Electric $2,397,103 $247,129 $129,820 $ 7,277 $2,521,689
Water 166 12 - - 178
Total $2,397,269 $247,141(a) $129,820 $ 7,277(b) $2,521,867
ACCUMULATED DEPRECIATION
OF OTHER PHYSICAL
PROPERTY $ 515 $ 183 $ 66 $ - $ 632
(a) Reconciliation to depreciation and amortization
expense in consolidated statements of income:
Total additions charged to depreciation $247,141
Cost of removal (less salvage) charged directly to depreciation expense 16,992
Amortization of property losses 60,667
Decommissioning expense 63,628
Other 473
Total $388,901
(b) Other changes:
Charged to clearing accounts $ 4,711
Decommissioning funds 3,057
Miscellaneous (491)
Total $ 7,277
F-50
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
and Subsidiary Companies
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
For The Year Ended December 31, 1992
(In Thousands)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance Additions
at Charged to Other Balance
Beginning Costs and Changes - at End
Description of Period Expenses Retirements Add(Deduct) of Period
ACCUMULATED DEPRECIATION
AND AMORTIZATION OF
UTILITY PLANT:
<S> <C> <C> <C> <C> <C>
Electric $2,521,689 $256,596 $70,559 $9,478 $2,717,204
Water 178 12 - - 190
Total $2,521,867 $256,608(a) $70,559 $9,478(b) $2,717,394
ACCUMULATED DEPRECIATION
OF OTHER PHYSICAL
PROPERTY $ 632 $ 172 $ 340 $ 100(c) $ 564
(a) Reconciliation to depreciation and amortization
expense in consolidated statements of income:
Total additions charged to depreciation $256,608
Cost of removal (less salvage) charged directly to
depreciation expense 16,948
Amortization of property losses 60,547
Decommissioning expense 5,121
Other 497
Total $339,721
(b) Other changes:
Charged to clearing accounts $ 5,205
Decommissioning funds 3,712
Miscellaneous 561
Total $ 9,478
(c) Other changes:
Transfer of nonutility property $ 100
Total $ 100
F-51
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
and Subsidiary Companies
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
For The Year Ended December 31, 1993
(In Thousands)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance Additions
at Charged to Other Balance
Beginning Costs and Changes - at End
Description of Period Expenses Retirements Add(Deduct) of Period
ACCUMULATED DEPRECIATION
AND AMORTIZATION OF
UTILITY PLANT:
<S> <C> <C> <C> <C> <C>
Electric $2,717,204 $280,258 $ 77,755 $ 9,369 $2,929,076
Water 190 12 - - 202
Total $2,717,394 $280,270(a) $ 77,755 $ 9,369(b) $2,929,278
ACCUMULATED AMORTIZATION
OF NUCLEAR FUEL $ - $ 137 $ - $ - $ 137
ACCUMULATED DEPRECIATION
OF OTHER PHYSICAL
PROPERTY $ 564 $ 154 $ 270 $ 8(c) $ 456
(a) Reconciliation to depreciation and amortization
expense in consolidated statements of income:
Total additions charged to depreciation $ 280,270
Cost of removal (less salvage) charged directly to depreciation expense 20,756
Amortization of property losses 46,081
Decommissioning expense 7,920
Amortization of unit tax carrying costs 6,070
Other (1,199)
Total $ 359,898
(b) Other changes:
Charged to clearing accounts $ 4,181
Decommissioning funds 5,306
Miscellaneous (118)
Total $ 9,369
(c) Other changes:
Transfer of nonutility property $ 8
Total $ 8
F-52
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
and Subsidiary Companies
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION> (In Thousands)
Column A Column B Column C Column D Column E
Additions
Balance (1) (2)
at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for doubtful
accounts $ 7,433 $13,768 $ 4,393(a) $18,233(b) $ 7,361
Allowance for inventory
obsolescence 7,168 80 56(c) 1,623(d) 5,681
Year Ended December 31, 1992
Allowance for doubtful
accounts $ 5,955 $15,344 $ 4,275(a) $18,141(b) $ 7,433
Allowance for inventory
obsolescence 12,701 286 322(c) 6,141(d) 7,168
Year Ended December 31, 1991
Allowance for doubtful
accounts $ 4,553 $14,510 $ 3,087(a) $16,195(b) $ 5,955
Allowance for inventory
obsolescence 18,087 355 83(c) 5,824(d) 12,701
<FN>
____________________________
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Primarily sale of inventory previously written off.
(d) Inventory written off.
F-53
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
and Subsidiary Companies
SCHEDULE IX - SHORT-TERM BORROWINGS
(In Thousands)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Maximum Average Weighted
Balance Weighted Amount Amount Average
at End Average Outstanding Outstanding Interest
Category of Aggregate of Interest During the During the Rate During
Short-Term Borrowings(a) Period Rate (d) Period (b) Period (c) the Period(d)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Notes payable to banks $178,700 3.4% $218,300 $118,692 3.4%
Commercial paper 37,356 3.4 94,561 47,310 3.3
Year ended December 31, 1992
Notes payable to banks $ 76,700 3.7% $126,300 $ 95,169 4.2%
Commercial paper 24,723 3.7 157,172 84,954 4.1
Year ended December 31, 1991
Notes payable to banks $125,600 5.2% $139,400 $114,568 6.3%
Commercial paper 62,908 5.3 138,810 91,812 6.4
<FN>
(a) See Note 3 to consolidated financial statements on page F-37.
(b) Maximum amount outstanding at any month-end.
(c) Computed by dividing the total of the daily outstanding balances for the year by the
number of days in the year.
(d) Column C is computed by dividing the annualized interest expense on the year-end balance
by the outstanding year-end balance. Column F is computed by dividing total interest
expense for the year by the average daily balance outstanding. Rate excludes the
commitment fees on the Revolving Credit Agreement which were $350,000, $329,000 and
$375,000 for the years 1993, 1992 and 1991, respectively. Rate also excludes the
commitment fees on bank lines of credit, which were $207,000, $224,000 and $191,000 for
the years 1993, 1992 and 1991, respectively.
</TABLE>
F-54
<PAGE>
Exhibits to be Filed by EDGAR
3-A GPUN By-Laws, as amended.
10-A General Public Utilities Corporation Restricted
Stock Plan for Outside Directors
10-B 1990 Stock Plan for Employees of General Public
Utilities Corporation and Subsidiaries
10-C Form of Restricted Units Agreement under
the 1990 Stock Plan.
10-D Retirement Plan for Outside Directors of
General Public Utilities Corporation.
10-E Incentive Compensation Plan for Officers of
GPU System Companies.
23 Consent of Independent Accountants.
<PAGE>
GPU NUCLEAR CORPORATION
BY-LAWS
Offices
1. The principal office of the Corporation shall be in Parsippany,
New Jersey. The Corporation may also have offices at such other places as the
Board of Directors may from time to time designate or the business of the
Corporation may require.
Seal
2. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words Corporate Seal and
New Jersey . If authorized by the Board of Directors, the corporate seal may
be affixed to any certificates of stock, bonds, debentures, notes or other
engraved, lithographed or printed instruments, by engraving, lithographing or
printing thereon such seal or a facsimile thereof, and such seal or facsimile
thereof so engraved, lithographed or printed thereon shall have the same force
and effect, for all purposes, as if such corporate seal had been affixed
thereto by indentation.
Stockholders Meetings
3. All meetings of stockholders shall be held at the principal office
of the Corporation or at such other place as shall be stated in the notice of
the meeting. Such meetings shall be presided over by the chief executive
officer of the Corporation or, in his absence, by such other officer as shall
have been designated for the purpose by the Board of Directors, except when by
statute the election of a presiding officer is required.
4. Annual meetings of stockholders shall be held during the month of
May in each year on such day and at such time as shall be determined by the
Board of Directors and specified in the notice of the meeting. At the annual
meeting the stockholders entitled to vote shall elect by ballot a Board of
Directors and transact such other business as may properly be brought before
the meeting. Prior to any meeting of stockholders at which an election of
directors is to be held, the Board of Directors shall appoint one judge of
election to serve at such meeting. If there be a failure to appoint a judge or
if such judge be absent or refuse to act or if his office becomes vacant, the
stockholders present at the meeting, by a per capita vote, shall choose
temporary judges of the number required. No director or officer of the
Corporation shall be eligible to appointment or election as a judge.
5. Except as otherwise provided by law or by the Certificate of
Incorporation, as amended, the holders of a majority of the shares of stock of
the Corporation issued and outstanding entitled to vote, present in person or
by proxy, shall be requisite for, and shall constitute a quorum at, any
meeting of the stockholders. If, however, the holders of a majority of such
shares of stock shall not be present or represented by proxy at any such
meeting, the stockholders entitled to vote thereat, present in person or by
proxy, shall have power, by vote of the holders of a majority of the shares of
<PAGE>
capital stock present or represented at the meeting, to adjourn the meeting
from time to time without notice other than announcement at the meeting, until
the holders of the amount of stock requisite to constitute a quorum, as
aforesaid, shall be present in person or by proxy. At any adjourned meeting at
which such quorum shall be present, in person or by proxy, any business may be
transacted which might have been transacted at the meeting as originally
noticed.
6. At each meeting of stockholders each holder of record of shares of
capital stock then entitled to vote shall be entitled to vote in person, or by
proxy appointed by instrument executed in writing by such stockholder or by
his duly authorized attorney; but no proxy shall be valid after the expiration
of eleven months from the date of its execution unless the stockholder
executing it shall have specified therein the length of time it is to continue
in force, which shall be for some specified period not in excess of three
years. At all elections of directors each holder of record of shares of
capital stock then entitled to vote, shall be entitled to vote the number of
shares owned by him for as many persons as there are directors to be elected
and for whose election such holder is entitled to vote. Except as otherwise
provided by law or by the Certificate of Incorporation, as amended, each
holder of record of shares of capital stock entitled to vote at any meeting of
stockholders shall be entitled to one vote for every share of capital stock
standing in his name on the books of the Corporation. Shares of capital stock
of the Corporation belonging to the Corporation or to a corporation in which
the Corporation holds shares entitled to cast the plurality of the votes
required for the election of directors, shall not be voted and shall not be
counted in determining the total number of outstanding shares for voting
purposes at any given time. All elections shall be determined by a plurality
vote, and, except as otherwise provided by law or by the Certificate of
Incorporation, as amended, all other matters shall be determined by a vote of
the holders of a majority of the shares of the capital stock present or
represented at a meeting and voting on such questions.
7. A complete list of the stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order, with the residence of
each, and the number of shares held by each, shall be prepared and certified
by the Secretary and shall be available at the time and place of such meeting
and open to the examination of any stockholder during the whole time of the
meeting.
8. Special meetings of the stockholders for any purpose or purposes,
unless otherwise prescribed by law, may be called by the Chairman of the Board
of Directors or by the President, and shall be called by the President or
Secretary at the request in writing of any two members of the Board of
Directors, or at the request in writing of holders of record of ten percent of
the shares of capital stock of the Corporation issued and outstanding.
Business transacted at all special meetings of the stockholders shall be
confined to the purposes stated in the call.
9. (a) Notice of every meeting of stockholders, setting forth the
time and the place and briefly the purpose or purposes thereof, shall be
mailed, not less than ten nor more than sixty days prior to such meeting, to
<PAGE>
each stockholder of record (at his address appearing on the stock books of the
Corporation, unless he shall have filed with the Secretary of the Corporation
a written request that notices intended for him be mailed to some other
address, in which case it shall be mailed to the address designated in such
request) as of a date fixed by the Board of Directors pursuant to Section 41
of the By-Laws. Except as otherwise provided by law, by the Certificate of
Incorporation, as amended, or by the By-Laws, items of business, in addition
to those specified in the notice of meeting, may be transacted at the annual
meeting.
(b) Whenever by any provision of law, the vote of stockholders
at a meeting thereof is required or permitted to be taken in connection with
any corporate action, the meeting and vote of stockholders may be dispensed
with, if all the stockholders who would have been entitled to vote upon the
action if such meeting were held, shall consent in writing to such corporate
action being taken, and all such consents shall be filed with the Secretary of
the Corporation. However, this section shall not be construed to alter or
modify any provision of law or of the Certificate of Incorporation under which
the written consent of the holders of less than all outstanding shares is
sufficient for corporate action.
Directors
10. The business and affairs of the Corporation shall be managed by
its Board of Directors, which shall consist of not less than five nor more
than twelve directors as shall be fixed from time to time by a resolution
adopted by a majority of the entire Board of Directors; provided, however,
that no decrease in the number of directors constituting the entire Board of
Directors shall shorten the term of any incumbent director. Each director
shall be at least eighteen years of age. Directors need not be stockholders of
the Corporation. Directors shall be elected at the annual meeting of
stockholders, or, if any such election shall not be held, at a stockholders
meeting called and held in accordance with the provisions of the Business
Corporation Act of the State of New Jersey. Each director shall serve until
the next annual meeting of stockholders and thereafter until his successor
shall have been elected and shall qualify.
11. In addition to the powers and authority by the By-Laws expressly
conferred upon it, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation, as amended, or by the By-Laws directed or
required to be exercised or done by the stockholders.
12. Unless otherwise required by law, in the absence of fraud no
contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any domestic or foreign
corporation, firm or association of any type or kind in which one or more of
its directors are directors or are otherwise interested, shall be void or
voidable solely by reason of such common directorship or interest, or solely
because such director or directors are present at or participate in the
meeting of the Board or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such
purposes if:
<PAGE>
(a) The contract or transaction is fair and reasonable as to the
Corporation as at the time it is authorized, approved or ratified; or
(b) The fact of the common directorship or interest is disclosed
or known to the Board or committee and the Board or committee authorizes,
approves, or ratifies the contract or transaction by unanimous written
consent, provided at least one director so consenting is disinterested, or by
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(c) The fact of common directorship or interest is disclosed or
known to the stockholders, and they authorize, approve or ratify the contract
or transaction.
The interest of any director or officer in any such contract or
transaction shall be fully disclosed at such meeting and a director who is so
interested may be counted at any such meeting for the purpose of determining
the existence of a quorum to consider and vote upon any contract or
transaction in which he is so interested.
No director or officer shall be liable to account to the Corporation for
any profit realized by him from or through any such contract or transaction of
the Corporation by reason of his interest as aforesaid in such contract or
transaction if such contract or transaction shall be authorized, approved or
ratified as aforesaid.
No contract or other transaction between the Corporation and any of its
affiliates shall in any case be void or voidable or otherwise affected because
of the fact that directors or officers of the Corporation are directors or
officers of such affiliate, nor shall any such director or officer, because of
such relation, be deemed interested in such contract or other transaction
under any of the provisions of this Section 12, nor shall any such director be
liable to account because of such relation. For the purpose of this Section
12, the term affiliate shall mean any corporation which is an affiliate of
the Corporation within the meaning of the Public Utility Holding Company Act
of 1935, as said Act shall at the time be in effect.
Nothing herein shall create liability in any of the events described in
this Section 12 or prevent the authorization, ratification or approval, in any
other manner provided by law, of any contract or transaction described in this
Section 12.
Meetings of the Board of Directors
13. The first meeting of the Board of Directors, for the purpose of
organization, the election of Officers, and the transaction of any other
business which may come before the meeting, shall be held on call of the
Chairman of the Board within one week after the annual meeting of
stockholders. If the Chairman of the Board shall fail to call such meeting, it
may be called by the President or by any director. Notice of such meeting
shall be given in the manner prescribed for Special meetings of the Board of
Directors.
<PAGE>
14. Regular meetings of the Board of Directors may be held without
notice except for the purpose of taking action on matters as to which notice
is in the By-Laws required to be given, at such time and place as shall from
time to time be designated by the Board, but in any event at intervals of not
more than three months. Special meetings of the Board of Directors may be
called by the Chairman of the Board or by the President or in the absence or
disability of the Chairman of the Board and the President, by a Vice
President, or by any two directors, and may be held at the time and place
designated in the call and notice of the meeting.
15. Except as otherwise provided by the By-Laws, any item or business
may be transacted at any meeting of the Board of Directors, whether or not
such item of business shall have been specified in the notice of meeting.
Where notice of any meeting of the Board of Directors is required to be given
by the By-Laws, the Secretary or other officer performing his duties shall
give notice either personally or by telephone or telegraph at least
twenty-four hours before the meeting, or by mail at least three days before
the meeting. Meetings may be held at any time and place without notice if all
the directors are present or if those not present waive notice in writing
either before or after the meeting.
16. At all meetings of the Board of Directors or a committee thereof a
majority of the entire Board or committee shall be requisite for, and shall
constitute, a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law or by the Certificate of Incorporation, as
amended, or by the By-Laws.
17. Any action required or permitted to be taken by the Board or any
committee of the Board may be taken without a meeting if, prior or subsequent
to such action, all members of the Board or the committee consent in writing
to the adoption of a resolution authorizing the action. The resolution and the
written consents thereto by the members of the Board or committee shall be
filed with the minutes of the proceedings of the Board or committee. Any
regular or special meeting may be adjourned for not more than ten days to any
place by a majority of the directors present at the meeting whether or not a
quorum shall be present at such meeting and no notice of the adjourned meeting
shall be required other than announcement at the meeting.
Committees
18. The Board of Directors may, by the vote of a majority of the
entire Board, create an Executive Committee, consisting of two or more
members, of whom one shall be the President. The other members of the
Executive Committee shall be designated by the Board of Directors from their
number, shall hold office for such period as the Board of Directors shall
determine and may be removed at any time by the Board of Directors. When a
member of the Executive Committee ceases to be a director, he shall cease to
be a member of the Executive Committee. The Executive Committee shall have all
the powers specifically granted to it by the By-Laws and, between meetings of
the Board of Directors, may also exercise all the powers of the Board of
<PAGE>
Directors except as limited by law or the Certificate of Incorporation. The
Executive Committee shall have no power to amend or repeal any action taken by
the Board, and shall be subject to any restriction imposed by law, by the
By-Laws, or the Board of Directors.
19. The Executive Committee shall cause to be kept regular minutes of
its proceedings, which may be transcribed in the regular minute book of the
Corporation, and all such proceedings shall be reported to the Board of
Directors at its next succeeding meeting, and the action of the Executive
Committee shall be subject to revision or alteration by the Board of
Directors, provided that no rights which, in the absence of such revision or
alteration, third persons would have had shall be affected by such revision or
alteration. A majority of the Executive Committee shall constitute a quorum at
any meeting. The Board of Directors may by vote of a majority of the entire
Board fill any vacancies in the Executive Committee. The Executive Committee
shall designate one of its number as Chairman of the Executive Committee and
may, from time to time, prescribe rules and regulations for the calling and
conduct of meetings of the Committee, and other matters relating to its
procedure and the exercise of its powers.
20. From time to time the Board of Directors may appoint any other
committee or committees for any purpose or purposes, which committee or
committees shall have such powers and such tenure of office as shall be
specified in the resolution of appointment. The chief executive officer of the
Corporation shall be a member ex officio of all committees of the Board unless
otherwise directed by the Board in respect of any committee or committees.
Compensation and Reimbursement of Directors and Members
of the Executive Committee
21. Directors, other than salaried officers of the Corporation or its
affiliates, shall receive compensation for their services as directors at such
rate as shall be fixed from time to time by the Board, which rate may include
an annual retainer or a fee for attendance at each regular or special meeting
of the Board, or both. All directors shall be reimbursed for their reasonable
expenses, if any, of attendance at each regular or special meeting of the
Board of Directors. Directors, other than salaried officers of the Corporation
or its affiliates, may participate in any plan maintained by the Corporation
for its employees if so authorized by the Board, and the Corporation may make
contributions for such directors under any such plan on the same basis as for
employees of the Corporation.
22. Directors, other than salaried officers of the Corporation or its
affiliates, who are members of any committee of the Board shall receive
compensation for their services as such members at such rate as shall be fixed
from time to time by the Board, which rate may include an annual retainer or a
fee for attendance at each regular or special meeting of the committee or
both. All members of any committee of the Board shall be reimbursed for their
reasonable expenses, if any, in attending meetings of such committee or
otherwise performing their duties as members of such committee.
<PAGE>
Officers
23. The officers of the Corporation shall be chosen by vote of a
majority of directors then in office and shall be a President, one or more
Vice Presidents, a Secretary, a Treasurer, and a Comptroller, one or more
Assistant Secretaries, one or more Assistant Treasurers, and one or more
Assistant Comptrollers. The President shall be chosen from among the
directors. None of the other officers need be a director. The President may
not occupy any other office. With the above exception, any two offices may be
occupied and the duties thereof may be performed by one person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity.
24. The salaries and other compensation of the officers (other than
assistant officers) of the Corporation shall be determined from time to time
by the Board of Directors. The salaries and other compensation of the
assistant officers of the Corporation shall be determined from time to time by
the chief executive officer.
25. The Board of Directors or the Executive Committee may appoint such
officers and such representatives or agents as shall be deemed necessary, who
shall hold office for such terms, exercise such powers, perform such duties,
and receive such salaries or other compensation, as shall be determined from
time to time by action of the Board of Directors, or, pending action of the
Board of Directors, by the Executive Committee.
26. The salary or other compensation of all other employees shall, in
the absence of any action by the Board of Directors, be fixed by the chief
executive officer of the Corporation or by such other officer as shall be
designated for that purpose by the Board of Directors.
27. The officers of the Corporation shall hold office until the first
meeting of the Board of Directors after the next succeeding annual meeting of
stockholders and until their respective successors are chosen and qualify. Any
officer elected pursuant to Section 23 of the By-Laws may be removed at any
time, with or without cause, by the vote of a majority of directors then in
office. Any other officer and any representative, employee or agent of the
Corporation may be removed at any time, with or without cause, by action of
the Board of Directors, or, in the absence of action by the Board of
Directors, by the Executive Committee, or the chief executive officer of the
Corporation, or such other officer as shall have been designated for that
purpose by the chief executive officer of the Corporation.
Chairman of the Board
28. (a) The Board of Directors may choose annually from its
membership a Chairman of the Board who, as such, shall be an officer of the
Board of Directors but not an officer of the Corporation. He shall, when
present, preside at all meetings of the Board, and shall have such other
duties and power as shall be prescribed by the Board of Directors.
<PAGE>
(b) He shall hold office until the first meeting of the Board of
Directors after the next succeeding annual meeting of stockholders and until
his successor is chosen and qualifies. He may be removed at any time, with or
without cause, by the vote of a majority of the total number of directors
provided for in Section 10 of the By-Laws. He may resign at any time, such
resignation to be made in writing and transmitted to the Secretary. Such
resignation shall take effect from the time of its acceptance, unless some
time be fixed in the resignation, and then from that time. If the office of
the Chairman of the Board shall become vacant for any reason, the Board of
Directors, at a meeting the notice of which shall have specified the filling
of such vacancy as one of its purposes, may choose a successor who shall hold
office for the unexpired term.
(c) The compensation of the Chairman of the Board shall be fixed
from time to time by the Board of Directors.
The President
29. (a) The President shall be the chief executive officer of the
Corporation. He shall, except as otherwise by law provided, preside at all
meetings of the stockholders and, in the absence of the Chairman of the Board,
at all meetings of the Board of Directors. He shall have supervision,
direction and control of the conduct of the business of the Corporation,
subject, however, to the control of the Board of Directors and the Executive
Committee, if three be one.
(b) He may sign in the name and on behalf of the Corporation any
and all contracts, agreements or other instruments pertaining to matters which
arise in the ordinary course of business of the Corporation, and, when
authorized by the Board of Directors or the Executive Committee, shall sign in
the name of and on behalf of the Corporation any and all contracts, agreements
or other instruments of any nature pertaining to the business of the
Corporation.
(c) He may, unless otherwise directed by the Board of Directors
pursuant to Section 38 of the By-Laws, attend in person or by substitute or
proxy appointed by him and act and vote in behalf of the Corporation at all
meetings of the stockholders of any corporation in which the Corporation holds
stock.
(d) He shall, whenever it may in his opinion be necessary,
prescribe the duties of officers and employees of the Corporation whose duties
are not otherwise defined.
(e) He shall be a member of the Executive Committee, if there be
one.
(f) He shall have such other powers and perform such other
duties as may be prescribed from time to time by law, by the By-Laws, or by
the Board of Directors.
<PAGE>
Vice President
30. (a) The Vice President shall, in the absence or disability of
the President, have supervision, direction and control of the conduct of the
business of the Corporation, subject, however, to the control of the Board of
Directors and the Executive Committee, if there be one.
(b) He may sign in the name of and on behalf of the Corporation
any and all contracts, agreements or other instruments pertaining to matters
which arise in the ordinary course of business of the Corporation, and, when
authorized by the Board of Directors or the Executive Committee, if there be
one, except in cases where the signing thereof shall be expressly delegated by
the Board of Directors or the Executive Committee to some other officer or
agent of the Corporation.
(c) He may, at the request or in the absence or disability of
the President or in the case of the failure of the President to appoint a
substitute or proxy as provided in Subsection 29(c) of the ByLaws, unless
otherwise directed by the Board of Directors pursuant to Section 38 of the
By-Laws, attend in person or by substitute or proxy appointed by him and act
and vote in behalf of the Corporation at all meetings of the stockholders of
any corporation in which the Corporation holds stock and grant any consent,
waiver or power of attorney in respect of such stock.
(d) He shall have such other powers and perform such other
duties as may be prescribed from time to time by law, by the By-Laws, or by
the Board of Directors.
(e) If there be more than one Vice President, the Board of
Directors may designate one or more of such Vice Presidents as an Executive
Vice President. The Board of Directors may assign to such Vice Presidents
their respective duties and may, designate the order in which the respective
Vice Presidents shall have supervision, direction and control of the business
of the Corporation in the absence or disability of the President.
The Secretary
31. (a) The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in books to be kept for that purpose; and shall
perform like duties for the Executive Committee and any other committees
created by the Board of Directors.
(b) He shall give, or cause to be given, notice of all meetings
of the stockholders, the Board of Directors, or the Executive Committee of
which notice is required to be given by law or by the By-Laws.
(c) He shall have such other powers and perform such other
duties as may be prescribed from time to time by law, by the By-Laws, or the
Board of Directors.
<PAGE>
(d) Any records kept by the Secretary shall be the property of
the Corporation and shall be restored to the Corporation in case of his death,
resignation, retirement or removal from office.
(e) He shall be the custodian of the seal of the Corporation
and, pursuant to Section 45 of the By-Laws and in other instances where the
execution of documents in behalf of the Corporation is authorized by the
By-Laws or by the Board of Directors, may affix the seal to all instruments
requiring it and attest the ensealing and the execution of such instruments.
(f) He shall have control of the stock ledger, stock certificate
book and all books containing minutes of any meeting of the stockholders,
Board of Directors, or Executive Committee or other committee created by the
Board of Directors, and of all formal records and documents relating to the
corporate affairs of the Corporation.
(g) Any Assistant Secretary or Assistant Secretaries shall
assist the Secretary in the performance of his duties, shall exercise his
powers and duties at his request or in his absence or disability, and shall
exercise such other powers and duties as may be prescribed by the Board of
Directors.
The Treasurer
32. (a) The Treasurer shall be responsible for the safekeeping of
the corporate funds and securities of the Corporation, and shall maintain and
keep in his custody full and accurate accounts of receipts and disbursements
in books belonging to the Corporation, and shall deposit all moneys and other
funds of the Corporation in the name and to the credit of the Corporation, in
such depositories as may be designated by the Board of Directors.
(b) He shall disburse the funds of the Corporation in such
manner as may be ordered by the Board of Directors, taking proper vouchers for
such disbursements.
(c) Pursuant to Section 45 of the By-Laws, he may, when
authorized by the Board of Directors, affix the seal to all instruments
requiring it and shall attest the ensealing and execution of said instruments.
(d) He shall exhibit at all reasonable times his accounts and
records to any director of the Corporation upon application during business
hours at the office of the Corporation where such accounts and records are
kept.
(e) He shall render an account of all his transactions as
Treasurer at all regular meetings of the Board of Directors, or whenever the
Board may require it, and at such other times as may be requested by the Board
or by any director of the Corporation.
(f) If required by the Board of Directors, he shall give the
Corporation a bond, the premium on which shall be paid by the Corporation, in
such form and amount and with such surety or sureties as shall be satisfactory
to the Board, for the faithful performance of the duties of his office, and
<PAGE>
for the restoration to the Corporation in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the Corporation.
(g) He shall perform all duties generally incident to the office
of Treasurer, and shall have other powers and duties as from time to time may
be prescribed by law, by the By-Laws, or by the Board of Directors.
(h) Any Assistant Treasurer or Assistant Treasurers shall assist
the Treasurer in the performance of his duties, shall exercise his powers and
duties at his request or in his absence or disability, and shall exercise such
other powers and duties as may be prescribed by the Board of Directors. If
required by the Board of Directors, any Assistant Treasurer shall give the
Corporation a bond, the premium on which shall be paid by the Corporation,
similar to that which may be required to be given by the Treasurer.
Comptroller
33. (a) The Comptroller of the Corporation shall be the principal
accounting officer of the Corporation and shall be accountable and report
directly to the Board of Directors. If required by the Board of Directors, the
Comptroller shall give the Corporation a bond, the premium on which shall be
paid by the Corporation in such form and amount and with such surety or
sureties as shall be satisfactory to the Board, for the faithful performance
of the duties of his office.
(b) He shall keep or cause to be kept full and complete books of
account of all operations of the Corporation and of its assets and
liabilities.
(c) He shall have custody of all accounting records of the
Corporation other than the record of receipts and disbursements and those
relating to the deposit or custody of money or securities of the Corporation,
which shall be in the custody of the Treasurer.
(d) He shall exhibit at all reasonable times his books of
account and records to any director of the Corporation upon application during
business hours at the office of the Corporation where such books of account
and records are kept.
(e) He shall render reports of the operations and business and
of the condition of the finances of the Corporation at regular meetings of the
Board of Directors, and at such other times as he may be requested by the
Board or by any director of the Corporation, and shall render a full financial
report at the annual meeting of the stockholders, if called upon to do so.
(f) He shall receive and keep in his custody an original copy of
each written contract made by or on behalf of the Corporation.
(g) He shall receive periodic reports from the Treasurer of the
Corporation of all receipts and disbursements, and shall see that correct
vouchers are taken for all disbursements for any purpose.
<PAGE>
(h) He shall perform all duties generally incident to the office
of Comptroller, and shall have such other powers and duties as from time to
time may be prescribed by law, by the By-Laws, or by the Board of Directors.
(i) Any Assistant Comptroller or Assistant Comptrollers shall
assist the Comptroller in the performance of his duties, shall exercise his
powers and duties at his request or in his absence or disability and shall
exercise such other powers and duties as may be conferred or required by the
Board of Directors. If required by the Board of Directors, any Assistant
Comptroller shall give the Corporation a bond, the premium on which shall be
paid by the Corporation, similar to that which may be required to be given by
the Comptroller.
Vacancies
34. If the office of any director becomes vacant by reason of death,
resignation, retirement, disqualification, or otherwise (including an increase
in the number of directors), the remaining directors, by the vote of a
majority of those then in office, at a meeting, the notice of which shall have
specified the filling of such vacancy as one of its purposes, may choose a
successor, who shall hold office for the unexpired term in respect of which
such vacancy occurs. If the office of any officer of the Corporation shall
become vacant for any reason, the Board of Directors, at a meeting, the notice
of which shall have specified the filling of such vacancy as one of its
purposes, may choose a successor who shall hold office for the unexpired term
in respect of which such vacancy occurred. Pending action by the Board of
Directors at such meeting, the Board of Directors or the Executive Committee
may choose a successor temporarily to serve as an officer of the Corporation.
Resignations
35. An officer or any director of the Corporation may resign at any
time, such resignation to be made in writing and transmitted to the Secretary.
Such resignation shall take effect from the time of its acceptance, unless
some time be fixed in the resignation, and then from that time. Nothing herein
shall be deemed to relieve any officer from liability for breach of any
contract of employment resulting from any such resignation.
Duties of Officers May be Delegated
36. In case of the absence or disability of any officer of the
Corporation, or for any other reason the Board of Directors may deem
sufficient, the Board, by vote of a majority of directors then in office may,
notwithstanding any other provisions of the By-Laws, delegate or assign, for
the time being, the powers or duties, or any of them, of such officer to any
other officer or to any director.
Indemnification of Directors, Officers and Employees
37. (a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed civil, criminal, administrative or arbitrative action, suit or
<PAGE>
proceeding, and any appeal therein and any inquiry or investigation which
could lead to such action, suit or proceeding, other than a proceeding by or
in the right of the Corporation, by reason of the fact that he was a director,
officer or employee of the Corporation (and may indemnify any person who was
an agent of the Corporation), or a person serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, whether or not for profit, to the fullest
extent permitted by law, including without limitation indemnification against
liabilities (amounts paid or incurred in satisfaction of settlements,
judgments, fines and penalties) and expenses (reasonable costs, disbursements
and counsel fees) incurred by such person in connection with such proceeding,
if
(i) Such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; and
(ii) With respect to any criminal proceeding, such person had no
reasonable cause to believe his conduct was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that such person did not meet the applicable
standards of conduct set forth in Section 37(a)(i) or this Section 37(a)(ii).
(b) The Corporation shall pay the expenses of a person in
connection with any proceeding by or in the right of the Corporation to
procure a judgment in its favor which involves a person by reason of his being
or having been a director, officer or employee of the Corporation (and may pay
the expenses of an agent of the Corporation) if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation. However, in such proceeding no indemnification shall be
provided in respect of any claim, issue or matter as to which person shall
have been adjudged to be liable to the Corporation, unless and only to the
extent that the Superior Court or the court in which such proceeding was
brought shall determine upon application that despite the adjudication of
liability, but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses as the Superior Court
or such other court shall deem proper.
(c) The Corporation shall indemnify a corporate agent, as
defined in N.J.S. 14A:3-5(1), against expenses to the extent that such
corporate agent has been successful on the merits or otherwise in any
proceeding referred to in Section 37 or in defense of any claim, issue or
matter therein.
(d) Any indemnification under Section 37(a) and, unless ordered
by a court, under Section 37(b), may be made by the Corporation only as
authorized in a specific case upon a determination that indemnification is
proper in the circumstances because the director, officer, employee or agent
met the applicable standard of conduct set forth therein. Unless otherwise
provided in the certificate of incorporation or By-Laws, such determination
shall be made
<PAGE>
(i) By the Board of Directors or a committee thereof, acting by
a majority vote of a quorum consisting of directors who were not parties to or
otherwise involved in the proceeding; or
(ii) If such a quorum is not obtainable, or, even if obtainable
and such quorum of the Board of Directors or committee by a majority vote of
the disinterested directors so directs, by independent legal counsel, in a
written opinion, such counsel to be designated by the Board of Directors.
(e) Expenses incurred by the director, officer or employee in
connection with such a proceeding shall (and expenses incurred by an agent in
connection with such a proceeding may) be paid by the Corporation in advance
of the final disposition of the proceeding as authorized by the Board of
Directors upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified as provided in this section.
(f) The indemnification and advancement of expenses provided by
or granted pursuant to the other subsections of this section shall not exclude
any other rights, including the right to be indemnified against liabilities
and expenses incurred in proceedings by or in the right of the Corporation, to
which a person may be otherwise entitled, provided that no indemnification
shall be made to or on behalf of a person if a judgment or other final
adjudication adverse to such person establishes that his acts or omissions (a)
were in breach of his duty of loyalty to the Corporation or its shareholders,
as defined in subsection (3) of N.J.S.A. 14A:2-7, (b) were not in good faith
or involved a knowing violation of law or (c) resulted in receipt by the
corporate agent of an improper personal benefit.
(g) The Corporation shall have the power to purchase and
maintain insurance on behalf of any director, officer, employee or agent of
the Corporation against any expenses incurred in any proceeding and any
liabilities asserted against him by reason of his being or having been such,
whether or not the Corporation would have the power to indemnify him against
such expenses and liabilities under the provisions of this Section. The
Corporation may purchase such insurance from, or such insurance may be
reinsured in whole or in part by, an insurer owned by or otherwise affiliated
with the Corporation, whether or not such insurer does business with other
insureds.
(h) For purposes of this Section: (i) the Corporation shall be
deemed to have requested an officer, director, employee or agent to serve as
fiduciary with respect to an employee benefit plan where the performance by
such person of duties to the Corporation also imposes duties on, or otherwise
involves services by, such person as a fiduciary with respect to the plan;
(ii) excise taxes assessed with respect to any transaction with an employee
benefit plan shall be deemed fines ; and (iii) action taken or omitted by
such person with respect to an employee benefit plan in the performance of
duties for a purpose reasonably believed to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Corporation.
<PAGE>
(i) All rights of indemnification under this Section shall be
deemed a contract between the Corporation and the person entitled to
indemnification under this Section pursuant to which the Corporation and each
such person intend to be legally bound. Any repeal, amendment or modification
hereof shall be prospective only and shall not limit, but may expand, any
rights or obligations in respect of any proceeding whether commenced prior to
or after such change to the extent such proceeding pertains to actions or
failures to act occurring prior to such change.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section shall continue as to a person who has
ceased to be an officer, director, employee or agent in respect of matters
arising prior to such time, and shall inure to the benefit of the heirs,
executors and administrators of such person.
Stock of Other Corporations
38. The Board of Directors may authorize any director, officer or
other person on behalf of the Corporation to attend, act and vote at meetings
of the stockholders of any corporation in which the Corporation shall hold
stock, and to exercise thereat any and all of the rights and powers incident
to the ownership of such stock and to execute waivers of notice of such
meetings and calls therefor.
Certificates of Stock
39. The certificates of stock of the Corporation shall be numbered and
shall be entered in the books of the Corporation as they are issued. They
shall exhibit the holder's name and number of shares and may include his
address. No fractional shares of stock shall be issued. Certificates of stock
shall be signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary, and shall
be sealed with the seal of the Corporation or a facsimile thereof. Where any
certificate of stock is countersigned by a transfer agent or registrar who is
not an officer or employee of the Corporation, the signatures of any such
President, Vice President, Secretary, Assistant Secretary, Treasurer, or
Assistant Treasurer upon such certificate may be facsimiles, engraved or
printed. In case any such officer who has signed or whose facsimile signature
has been placed upon certificate shall have ceased to be such before such
certificate of stock is issued, it may be issued by the Corporation with the
same effect as if such officer had not ceased to be such at the date of its
issue.
Transfer of Stock
40. Transfers of stock shall be made on the books of the Corporation
only by the person named in the certificate or by attorney, lawfully
constituted in writing, and upon surrender of the certificate therefor.
<PAGE>
Fixing of Record Date
41. The Board of Directors is hereby authorized to fix a time, not
exceeding sixty (60) days preceding the date of any meeting of stockholders or
the date fixed for the payment of any dividend or the making of any
distribution, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of capital stock,
as a record time for the determination of the stockholders entitled to notice
of and to vote at such meeting or entitled to receive any such dividend,
distribution, rights or interests, as the case may be; and all persons who are
holders of record of capital stock at the time so fixed and no others, shall
be entitled to notice of and to vote at such meeting, and only stockholders of
record at such time shall be entitled to receive any such notice, dividend,
distribution, rights or interests.
Registered Stockholders
42. The Corporation shall be entitled to treat the holder of any share
or shares of stock as the holder in fact thereof and accordingly shall not be
bound to recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by statutes of the State of New
Jersey.
Lost Certificates
43. Any person claiming a certificate of stock to be lost or destroyed
shall make an affidavit or affirmation of that fact, whereupon a new
certificate may be issued of the same tenor and for the same number of shares
as the one alleged to be lost or destroyed; provided, however, that the Board
of Directors may require, as a condition to the issuance of a new certificate,
the payment of the reasonable expenses of such issuance or the furnishing of a
bond of indemnity in such form and amount and with such surety or sureties, or
without surety, as the Board of Directors shall determine, or both the payment
of such expenses and the furnishings of such bond, and may also require the
advertisement of such loss in such manner as the Board of Directors may
prescribe.
Inspection of Books
44. The Board of Directors may determine whether and to what extent,
and at what time and places and under what conditions and regulations, the
accounts and books of the Corporation (other than the books required by
statute to be open to the inspection of stockholders), or any of them, shall
be open to the inspection of stockholders, and no stockholder shall have any
right to inspect any account or book or document of the Corporation, except as
such right may be conferred by statutes of the State of New Jersey or by the
By-Laws or by resolution of the Board of Directors or of the stockholders.
<PAGE>
Checks, Notes, Bonds and Other Instruments
45. (a) All checks or demands for money and notes of the Corporation
shall be signed by such person or persons (who may but need not be an officer
or officers of the Corporation) as the Board of Directors may from time to
time designate, either directly or through such officers of the Corporation as
shall, by resolution of the Board of Directors, be authorized to designate
such person or persons. If authorized by the Board of Directors, the
signatures of such persons, or any of them, upon any checks for the payment of
money may be made by engraving, lithographing or printing thereon a facsimile
of such signatures, in lieu of actual signatures, and such facsimile
signatures so engraved, lithographed or printed thereon shall have the same
force and effect as if such persons had actually signed the same.
(b) All bonds, mortgages and other instruments requiring a seal,
when required in connection with matters which arise in the ordinary course of
business or when authorized by the Board of Directors, shall be executed on
behalf of the Corporation by the President or a Vice President, and the seal
of the Corporation shall be thereupon affixed by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, who shall, when
required, attest the ensealing and execution of said instrument. If authorized
by the Board of Directors, a facsimile of the seal may be employed and such
facsimile of the seal may be engraved, lithographed or printed and shall have
the same force and effect as an impressed seal. If authorized by the Board of
Directors, the signatures of the President or a Vice President or the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
upon any engraved, lithographed or printed bonds, debentures, notes or other
instruments may be made by engraving, lithographing or printing thereon a
facsimile of such signatures, in lieu of actual signatures, and such facsimile
signatures so engraved, lithographed or printed thereon shall have the same
force and effect as if such officers had actually signed the same. In case any
officer who has signed, or whose facsimile signature appears on, any such
bonds, debentures, notes or other instruments shall cease to be such officer
before such bonds, debentures, notes or other instruments shall have been
delivered by the Corporation, such bonds, debentures, notes or other
instruments may nevertheless be adopted by the Corporation and be issued and
delivered as though the person who signed the same, or whose facsimile
signature appears thereon, had not ceased to be such officer of the
Corporation.
Receipts for Securities
46. All receipts for stocks, bonds or other securities by the
Corporation shall be signed by the Treasurer or an Assistant Treasurer, or by
such other person or persons as the Board of Directors or Executive Comrnittee
shall designate.
Fiscal Year
47. The fiscal year shall begin the first day of January in each year.
<PAGE>
Dividends
48. (a) Dividends in the form of cash or securities, upon the
capital stock of the Corporation, to the extent permitted by law, may be
declared by the Board of Directors at any regular or special meeting.
(b) The Board of Directors shall have power to fix and
determine, and from time to time vary, the amount to be reserved as working
capital; to determine whether any, and if any, what part of any, surplus of
the Corporation shall be declared as dividends; to determine the date or dates
for the declaration and payment or distribution of dividends; and, before
payment of any dividend or the making of any distribution to set aside out of
the surplus of the Corporation such amount or amounts as the Board of
Directors from time to time, in its absolute discretion, may think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for such
other purpose as it shall deem to be in the interests of the Corporation.
Directors Annual Statement
49. The Board of Directors shall present or cause to be presented at
each annual meeting of stockholders, and when called for by vote of the
stockholders at any special meeting of the stockholders, a full and clear
statement of the business and condition of the Corporation.
Notices
50. (a) Whenever under the provisions of the By-Laws notice is
required to be given to any director, officer or stockholder, it shall not be
construed to require personal notice, but, except as otherwise specifically
provided, such notice may be given in writing, by mail, by depositing a copy
of the same in a post office, letter box or mail chute, maintained by the
United States Postal Service, postage prepaid, addressed to such stockholder,
officer or director, at his address as the same appears on the books of the
Corporation.
(b) A stockholder, director or officer may waive in writing any
notice required to be given to him by law or by the By-Laws.
Participation in Meetings by Telephone
51. At any meeting of the Board of Directors or the Executive
Committee or any other committee designated by the Board of Directors, one or
more directors may participate in such meeting in lieu of attendance in person
by means of the conference telephone or similar communications equipment by
means of which all persons participating in the meeting will be able to hear
and speak.
Oath of Judges of Election
52. The judges of election appointed to act at any meeting of the
stockholders shall, before entering upon the discharge of their duties, be
sworn faithfully to execute the duties of judge at such meeting with strict
impartiality and according to the best of their ability.
<PAGE>
Amendments
53. The By-Laws may be altered or amended by the affirmative vote of
the holders of a majority of the capital stock represented and entitled to
vote at a meeting of the stockholders duly held, provided by the notice of
such meeting shall have included notice of such proposed amendment. The
By-Laws may also be altered or amended by the affirmative vote of a majority
of directors then in office at a meeting of the Board of Directors, the notice
of which shall have included notice of the proposed amendment. In the event of
the adoption, amendment, or repeal of any By-Law by the Board of Directors
pursuant to this Section, there shall be set forth in the notice of the next
meeting of stockholders for the election of directors the By-Law so adopted,
amended or repealed together with a concise statement of the changes made. By
the affirmative vote of the holders of a majority of the capital stock
represented and entitled to vote at such meeting, the By-Laws may, without
further notice, be altered or amended by amending or repealing such action by
the Board of Directors.
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS
AS AMENDED AND RESTATED AS OF JUNE 1, 1993
TO REFLECT AMENDMENTS AS OF
NOVEMBER 2, 19989, JULY 1, 1991 AND JUNE 1, 1993
AND THE STOCK SPLIT, EFFECTIVE MAY 29, 1991
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS
1. Purpose. The purpose of this restricted Stock Plan for
Outside Directors (the "Plan") is to enable General Public
Utilities Corporation ("GPU") to attract and retain persons of
outstanding competence to serve on its Board of Directors by
paying such persons a portion of their compensation in GPU Common
Stock pursuant to the terms hereof.
2. Definitions.
(a) The term "Outside Director" or "Participant" means a
member of the Board of Directors of GPU who is not an employee
(within the meaning of the Employee Retirement Income Security
Act of 1974) of GPU or any of its Subsidiaries. A director of
GPU who is also an employee of GPU or any of its Subsidiaries
shall become eligible to participate in this Plan and shall be
entitled to receive an award of restricted stock upon the
termination of such employment.
(b) The term "Subsidiary" means any corporation 50% or more
of the outstanding Common Stock of which is owned, directly or
indirectly, by GPU.
(c) The term "Service" shall mean service as an Outside
Director.
3. Eligibility. All Outside Directors of GPU shall receive
stock awards hereunder.
4. Stock Awards.
(a) A total of 33,000(1) shares of GPU Common Stock shall be
available for awards under the Plan. Such shares shall be either
previously unissued shares or reacquired shares. Any restricted
shares awarded under this Plan with respect to which the
restrictions do not lapse and which are forfeited as provided
herein shall again be available for other awards under the plan.
(b) Effective June 1993, each Outside Director shall
receive an award of 300 shares of GPU Common Stock with
respect to each calendar year or portion thereof
beginning in 1993. Awards shall be made in January of
each year. All awards of shares made hereunder shall
be subject to the restrictions set forth in Section 5.
______________________
(1) Initially, 20,000 shares were authorized to be issued under
the Plan. On May 29, 1991, GPU effected a two-for-one stock
split by way of a stock dividend, leaving 33,000 shares
available for issuance under the Plan on and after July 1,
1991 after giving effect to shares previously awarded.
<PAGE>
(c) Subject to the provisions of Section 5, certificates
representing shares of GPU Common Stock awarded
hereunder shall be issued in the name of the respective
Participants. During the period of time such shares
are subject to the restrictions set forth in Section 5,
such certificates shall be endorsed with a legend to
that effect, and shall be held by GPU or an agent
therefor. The Participant shall, nevertheless, have
all the other rights of a shareholder, including the
right to vote and the right to receive all cash
dividends paid with respect to such shares.
Subject to the requirements of applicable law, certificates
representing such shares shall be delivered to the Participant
within 30 days after the lapse of the restrictions to which they
are subject.
(d) If as a result of a stock dividend, stock split,
recapitalization (or other adjustment in the stated
capital of GPU), or as the result of a merger,
consolidation, or other reorganization, the common
shares of GPU are increased, reduced, or otherwise
changed, the number of shares available and to be
awarded hereunder shall be appropriately adjusted, and
if by virtue thereof a Participant shall be entitled to
new or additional or different shares, such shares to
which the Participant shall be entitled shall be
subject to the terms, conditions, and restrictions
herein contained relating to the original shares. In
the event that warrants or rights are awarded with
respect to shares awarded hereunder, and the recipient
exercises such rights or warrants, the shares or
securities issuable upon such exercise shall be
likewise subject to the terms, conditions, and
restrictions herein contained relating to the original
shares.
5. Restrictions.
(a) Shares are awarded to a Participant on the condition
that he or she serves or has served as an Outside
Director until:
(i) the Participant's death or disability, or
(ii) the Participant's failure to stand for re-
election at the end of the term during
which the Participant reaches age 70; or
(iii) the Participant's resignation or failure to
stand for re-election prior to the end of
the term during which the Participant
reaches age 70 with the consent of the
Board, i.e., approval thereof by a least
80% of the directors voting thereon, with
the affected director abstaining; or
<PAGE>
(iv) the Participant's failure to be re-elected
after being duly nominated.
Termination of Service of a Participant for any other reason,
including, without limitation, any involuntary termination
effected by Board action, shall result in forfeiture of all
shares awarded.
(b) Shares awarded hereunder may not be sold, exchanged,
transferred, pledged, hypothecated, or otherwise
disposed of (herein, "Transferred") other than to GPU
pursuant to Section 5(a) during the period commencing
on the date of the award of such shares and ending on
the date of termination of the Outside Director's
Service; provided, however, that in no event may any
shares awarded hereunder be Transferred for a period of
six months following the date of the award thereof,
except in the case of the recipient's death or
disability, other than to GPU pursuant to Section 5(a)
hereof.
(c) Each Participant shall represent and warrant to and
agree with GPU that he or she (i) takes any shares
awarded under the Plan for investment only and not for
purposes of sale or other disposition and will also
take for investment only and not for purposes of sale
or other disposition any rights, warrants, shares, or
securities which may be issued on account of ownership
of such shares, and (ii) will not sell or transfer any
shares awarded or any shares received upon exercise of
any such rights or warrants except in accordance with
(A) an opinion of counsel for GPU (or other counsel
acceptable to GPU) that such shares,s rights, warrants,
or other securities may be disposed of without
registration under the Securities Act of 1933, or (B)
an applicable "no action" letter issued by the Staff of
the Commission.
6. Administrative Committee. An Administrative Committee (the
"Committee") shall have full power and authority to construe
and administer the Plan. Any action taken under the
provisions of the Plan by the Committee arising out of or in
connection with the administration, construction, or effect
of the Plan or any rules adopted thereunder shall, in each
case, lie within the discretion of the Committee and shall
be conclusive and binding under GPU and upon all
Participants, and all persons claiming under or through any
of them. The Committee shall have as members the Chief
Executive Officer of GPU and two officers of GPU or its
Subsidiaries designated by the Chief Executive Officer. In
the absence of such designation, the other members of the
Committee shall be the Chief Financial Officer and the
Secretary of GPU.
<PAGE>
7. Approval: Effective Date: The Plan is subject to the
approval of a majority of the holders of GPU's Common Stock
present and entitled to vote at a meeting of shareholders, and of
the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935. The Plan shall be effective January
1, 1989.
8. Amendment. The Plan may be amended or repealed by the Board
of Directors of GPU, provided that if any such amendment requires
shareholder approval to meet the requirements of the then
applicable rules under Section 16(b) of the Securities Exchange
act of 1934, such amendment shall require the approval of a
majority of the holders of GPU's Common Stock present and
entitled to vote at a meeting of shareholders, and provided that
such action shall not adversely affect any Participant's rights
under the Plan with respect to awards which were made prior to
such action. Notwithstanding the foregoing, Section 4(b) of the
Plan may not be amended more often than once every six months
other than to comport with changes in the Internal Revenue Code
or the Employee Retirement Income Security Act, or the rules
thereunder.
<PAGE>
GENERAL PUBLIC UTILITIES CORPORATION
1990 STOCK PLAN FOR EMPLOYEES OF
GENERAL PUBLIC UTILITIES CORPORATION
AND SUBSIDIARIES
AS AMENDED AND RESTATED
TO REFLECT AMENDMENTS
THROUGH NOVEMBER 4, 1993
<PAGE>
1990 STOCK PLAN FOR EMPLOYEES OF
GENERAL PUBLIC UTILITIES CORPORATION
AND SUBSIDIARIES
1. Purpose
General Public Utilities Corporation (the "Corporation")
desires to attract and retain employees of outstanding talent.
The Stock Plan for Employees of General Public Utilities
Corporation and Subsidiaries (the "Plan") affords eligible
employees the opportunity to acquire proprietary interests in the
Corporation and thereby encourages their highest levels of
performance.
2. Scope and Duration
(a) Awards under the Plan may be granted in the
following forms:
(i) incentive stock options ("incentive stock
options") as provided in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and non-
qualified stock options ("non-qualified options") (the
term "options" includes incentive stock options and non-
qualified options);
(ii) shares of Common Stock of the Corporation (the
"Common Stock") which are restricted as provided in
paragraph 10 ("restricted shares"); or
(iii) rights to acquire shares of Common Stock which
are restricted as provided in paragraph 10 ("units" or
"restricted units").
Options may be accompanied by stock appreciation rights
("rights").
(b) The maximum aggregate number of shares of Common
Stock as to which awards of options, restricted shares, units or
rights may be made from time to time under the Plan is 1,974,190
shares.(1) Shares issued pursuant to this Plan may be in whole
or in part, as the Board of Directors of the Corporation (the
"Board of Directors") shall from time to time determine,
authorized but unissued shares or issued shares reacquired by the
____________________
(1) Initially, 1,000,000 shares were authorized to be issued
under the Plan. On May 29, 1991, the Corporation
effected a two-for-one-stock split by way of a stock
dividend, leaving 1,974,190 shares available for issuance
under the Plan on and after that date, after giving
effect to shares previously awarded.
1
<PAGE>
Corporation. If for any reason any shares as to which an option
has been granted cease to be subject to purchase thereunder or
any restricted shares or restricted units are forfeited to the
Corporation, or to the extent that any awards under the Plan
denominated in shares or units are paid or settled in cash or are
surrendered upon the exercise of an option, then (unless the Plan
shall have been terminated) such shares or units, and any shares
surrendered to the Corporation upon such exercise, shall become
available for subsequent awards under the Plan unless such shares
or units, if so made available for subsequent awards under the
Plan, would not be exempt from Section 16(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") pursuant to Rule 16b-
3, as amended, thereunder; provided, however, that shares
surrendered to the Corporation upon the exercise of an incentive
stock option and shares subject to an incentive stock option
surrendered upon the exercise of a right shall not be available
for subsequent award of additional stock options under the Plan.
(c) No incentive stock option shall be granted
hereunder after November 30, 1999.
3. Administration
(a) The Plan shall be administered by those members of
the Personnel and Compensation Committee, or any successor
thereto, of the Board of Directors who are "disinterested
persons" within the meaning of Rule 16b-3, as amended, under
Section 16(b) of the Exchange Act or by such other committee
consisting of not less than two persons each of whom shall
qualify as "disinterested persons," as may be determined by the
Board of Directors ("the Committee").
(b) The Committee shall have plenary authority in its
sole discretion, subject to and not inconsistent with the express
provisions of this Plan: (i) to grant options, to determine the
purchase price of the Common Stock covered by each option, the
term of each option, the employees to whom, and the time or times
at which, options shall be granted and the number of shares to be
covered by each option; (ii) to designate options as incentive
stock options or non-qualified options and to determine which
options shall be accompanied by rights; (iii) to grant rights and
to determine the purchase price of the Common Stock covered by
each right or related option, the term of each right or related
option, the employees to whom, and the time or times at which,
rights or related options shall be granted and the number of
shares to be covered by each right or related option; (iv) to
grant restricted shares and restricted units and to determine the
term of the Restricted Period (as defined in paragraph 10) and
other conditions applicable to such shares or units, the
employees to whom, and the time or times at which, restricted
shares or restricted units shall be granted and the number of
shares or units to be covered by each grant; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations
2
<PAGE>
relating to the Plan; (vii) to determine the terms and provisions
of the option and rights agreements (which need not be identical)
and the restricted share and restricted unit agreements (which
need not be identical) entered into in connection with awards
under the Plan, including any provisions of such agreements that
may permit a recipient of an award of restricted units to elect,
prior to the vesting of such units, to defer the payment of cash
and/or the delivery of shares of Common Stock otherwise to be
made upon the vesting of such restricted units, and/or to defer
the payment of any cash compensation awarded to the recipient
with respect to such restricted units, or with respect to any
restricted stock awarded to the recipient, either under this Plan
or the GPU System Companies Deferred Compensation Plan for
Elected Officers (a "Deferral"); and to make all other
determinations deemed necessary or advisable for the
administration of the Plan. Without limiting the foregoing, the
Committee shall have plenary authority in its sole discretion,
subject to and not inconsistent with the express provisions of
the Plan, (1) to select GPU Officers (as defined below) for
participation in the Plan, (2) to determine the timing, price and
amount of any grant or award under the Plan to any GPU Officer,
(3) either (A) to determine the form in which payment of any
right granted or awarded under the Plan will be made (i.e., cash,
securities or any combination thereof) or (B) to approve the
election of the employee to receive cash in whole or in part in
settlement of any right granted or awarded under the Plan. As
used herein, the term "GPU Officer" shall mean an officer (other
than an assistant officer) of the Corporation, any member of the
Corporation's Corporate Executive Council (as it may be
constituted from time to time), and any person who may from time
to time be designated an executive officer of the Corporation by
its Board of Directors. The exercise by the Committee of the
powers granted in clauses (i), (ii), (iii), (iv), and
(vii) hereof shall be subject to the approval of a committee of
the Board of Directors comprised only of "disinterested persons"
within the meaning of Rule 16b-3, as amended, under Section 16(b)
of the Exchange Act with respect to a recipient of an award
hereunder who is an officer (other than assistant officer) of the
Corporation, the Chairman or President of Jersey Central Power &
Light Company, Metropolitan Edison Company, Pennsylvania Electric
Company, GPU Nuclear Corporation, GPU Service Corporation, or
General Portfolios Corporation (the "Board Committee"). (The
Committee and the Board Committee are sometimes hereinafter
referred to as the "Committees.")
(c) The Committees may delegate to one or more of their
members or to one or more agents such administrative duties as
they may deem advisable, and the Committees or any person to whom
they have delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the
Committees or such person may have under the Plan; provided, that
the Committees may not delegate any duties to a member of the
Board of Directors who would not qualify as a "disinterested
person" to administer the Plan as contemplated by Rule 16b-3, as
3
<PAGE>
amended, or other applicable rules under the Exchange Act. The
Committees may employ attorneys, consultants, accountants or
other persons and the Committees, the Corporation and its
officers and directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken
and all interpretations and determinations made by the Committees
in good faith shall be final and binding upon all employees who
have received awards, the Corporation and all other interested
persons. Notwithstanding the foregoing, any action taken or any
interpretation or determination made by the Committees after the
occurrence of a "Change in Control" (as defined in paragraph 7(c)
hereof) which adversely affects the rights of any employee to any
award hereunder shall be subject to judicial review under a "de
novo" rather than a deferential standard. No member or agent of
the Committees shall be personally liable for any action,
determination, or interpretation made in good faith with respect
to the Plan or awards made thereunder, and all members and agents
of the Committees shall be fully protected by the Corporation in
respect of any such action, determination or interpretation.
4. Eligibility; Factors to be Considered in Making Awards
(a) Only employees of the Corporation or its
subsidiaries may receive awards under the Plan. The term
"subsidiary" means any corporation one hundred (100%) percent of
the common stock of which is owned, directly or indirectly, by
the Corporation. A director of the Corporation or of a
subsidiary who is not also an employee will not be eligible to
receive an award.
(b) In determining the employees to whom awards shall
be granted and the number of shares or units to be covered by
each award, the Committee shall take into account the nature of
the employee's duties, his or her present and potential
contributions to the success of the Corporation and such other
factors as it shall deem relevant in connection with
accomplishing the purposes of the Plan.
(c) Awards may be granted singly, in combination or in
tandem and may be made in combination or in tandem with or in
replacement of, or as alternatives to, awards or grants under any
other employee plan maintained by the Corporation or its
subsidiaries. An award made in the form of an option, a unit or
a right may provide, in the discretion of the committee, for
(i) the crediting to the account of, or the current payment to,
each employee who has such an award of an amount equal to the
cash dividends and stock dividends paid by the Corporation upon
one share of Common Stock for each restricted unit, or share of
Common Stock subject to an option or right, included in such
award, and for each restricted unit which is the subject of the
Deferral ("Dividend Equivalents"), or (ii) the deemed
reinvestment of such Dividend Equivalents and stock dividends in
shares of Common Stock or the deemed reinvestment of units in
additional units , which deemed reinvestment in each case shall
4
<PAGE>
be deemed to be made in accordance with the provisions of
paragraph 10 and credited to the Employee's account ("Additional
Deemed Shares"). Such Additional Deemed Shares shall be subject
to the same restrictions (including but not limited to provisions
regarding forfeitures) applicable with respect to the option,
unit or right with respect to which such credit is made.
Dividend Equivalents not deemed reinvested as stock dividends
shall not be subject to forfeiture, and may bear amounts
equivalent to interest or cash dividends as the Committee may
determine. An employee who has been granted incentive stock
options under the Plan may be granted an additional award or
awards, subject to such limitations as may be imposed by the Code
with respect to incentive stock options.
(d) The Committee, in its sole discretion, may grant to
an employee who has been granted an award under the Plan or any
other employee plan maintained by the Corporation, one of its
subsidiaries, or any successor thereto, in exchange for the
surrender and cancellation of such award, a new award in the same
or a different form and containing such terms, including without
limitation a price which is different (either higher or lower)
than any price provided in the award so surrendered and
cancelled, as the Committee may deem appropriate.
5. Option Price
(a) The purchase price of the Common Stock covered by
each option shall be determined by the Committee; provided,
however, that in the case of incentive stock options, the
purchase price shall not be less than 100% of the fair market
value of the Common Stock on the date the option is granted.
Fair market value shall mean the closing price of the Common
Stock as reported on the New York Stock Exchange Composite Tape
for the date on which the option is granted, or if there are no
sales on such date, on the next preceding day on which there were
sales. Such price shall be subject to adjustment as provided in
paragraph 13. The price so determined shall also be applicable
in connection with the exercise of any related right.
(b) The purchase price of the shares as to which an
option is exercised shall be paid in full at the time of
exercise; payment may be made in cash, which may be paid by check
or other instrument acceptable to the Corporation, in shares of
the Common Stock, valued at the closing price of the Common Stock
as reported on the New York Stock Exchange Composite Tape for the
date of exercise, or if there were no sales on such date, on the
next preceding day on which there were sales, or (if permitted by
the Committee and subject to such terms and conditions as it may
determine) by surrender of outstanding awards under the Plan. In
addition, the employee shall pay any amount necessary to satisfy
applicable federal, state or local tax requirements promptly upon
notification of the amount due. The Committee may permit such
amount to be paid in shares of Common Stock previously owned by
5
<PAGE>
the employee, or a portion of the shares of Common Stock that
otherwise would be distributed to such employee upon exercise of
the option, or a combination of cash and shares of such Common
Stock.
6. Term of Options
The term of each incentive stock option granted under the
Plan shall be such period of time as the Committee shall
determine, but not more than ten years from the date of grant,
subject to earlier termination as provided in paragraphs 11 and
12. The term of each non-qualified stock option granted under
the Plan shall be such period of time as the Committee shall
determine, subject to earlier termination as provided in
paragraphs 11 and 12.
7. Exercise of Options
(a) Each option shall become exercisable in whole or in
part, as the Committee shall determine provided, however, that
the Committee may also, in its discretion, accelerate the
exercisability of any option in whole or in part at any time.
(b) Subject to the provisions of the Plan and unless
otherwise provided in the option agreement, an option granted
under the Plan shall become exercisable in full at the earliest
of the employee's death, Eligible Retirement (as defined below),
or Total Disability (as defined in paragraph 12). For purposes
of this Plan, the term "Eligible Retirement" shall mean the date
upon which an employee, having attained an age of not less than
fifty-five, terminates his or employment with the Corporation or
subsidiary, provided that such employee is immediately eligible
to receive a pension (whether or not he or she otherwise elects
to defer such receipt) under Section 3.1 or 3.3 of the "Employee
Pension Plan" maintained by the Corporation or each of its
subsidiaries for salaried employees, or any successor plan
thereto.
(c) Notwithstanding the foregoing, an option shall
become immediately exercisable as to all shares of Common Stock
remaining subject to the option on or following a Change in
Control of the Corporation (the date upon which such event occurs
shall be referred to herein as an "Acceleration Date"). A
"Change in Control" shall be deemed to occur at the time when
either (i) any entity, person (within the meaning of Section
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act) (other than any Company, or any
subsidiary of any Company, or any savings, pension or other plan
for the benefit of employees of any Company or its subsidiaries)
which theretofore was beneficial owner (as defined in Rule 13d-3
under the Exchange Act) of less than 20% of the Corporation's
then outstanding Common Stock either (x) acquires shares of
Common Stock of the Corporation in a transaction or series of
6
<PAGE>
transactions that results in such entity, person or group
directly or indirectly owning beneficially 20% or more of the
outstanding Common Stock of the Corporation, or (y) acquires by
proxy or otherwise the right to vote for the election of
directors, for any merger, combination or consolidation of the
Corporation or any of its direct or indirect subsidiaries, or for
any other matter or question more than 20% of the then
outstanding voting securities of the Corporation (except where
such acquisition is made by a person or persons appointed by at
least a majority of the Board of Directors of the Corporation to
act as proxy for any purpose); or (ii) the election or
appointment, within a twelve-month period, of persons to the
Corporation's Board of Directors who were not directors of the
Corporation at the beginning of such twelve-month period, and
whose election or appointment was not approved by a majority of
those persons who were directors at the beginning of such period,
where such newly elected or appointed directors constitute 30% or
more of the directors of the Board of Directors of the
Corporation.
(d) An option may be exercised, at any time or from
time to time (subject, in the case of an incentive stock option,
to such restrictions as may be imposed by the Code), as to any or
all full shares as to which the option has become exercisable,
provided, however, that an option may not be exercised at any one
time as to less than 100 shares (or less than the number of
shares as to which the option is then exercisable, if that number
is less than 100 shares).
(e) Subject to the provisions of paragraphs 11 and 12,
in the case of incentive stock options, no option may be
exercised at any time unless the holder thereof is then an
employee of the Corporation or one of its subsidiaries. For
purposes of this subparagraph 7(e), subsidiary shall include, as
under Treasury Regulations Section 1.421-7(h)(3) and (4), example
(3), any corporation which is a subsidiary of the Corporation
during the entire portion of the requisite period of employment
during which it is the employer of the holder.
(f) Upon the exercise of an option or portion thereof
in accordance with the Plan, the option agreement and such rules
and regulations as may be established by the Committee, the
holder thereof shall have the rights of a shareholder with
respect to the shares issued as a result of such exercise.
8. Award and Exercise of Rights
(a) A right may be awarded by the Committee in
connection with any option granted under the Plan, either at the
time the option is granted or thereafter at any time prior to the
exercise, termination or expiration of the option ("tandem
right"), or separately ("freestanding right"). Each tandem right
shall be subject to the same terms and conditions as the related
option and shall be exercisable only to the extent the option is
7
<PAGE>
exercisable. No right shall be exercisable for cash by a GPU
Officer within six months from the date the right is awarded (and
then, as to a tandem right, only to the extent the related option
is exercisable) or, if the exercise price of the right is not
fixed on the date of the award, within six months from the date
when the exercise price is so fixed, and in any case only when
the GPU Officer's election to receive cash in full or partial
satisfaction of the right, as well as the GPU Officer's exercise
of the right for cash, is made during a Quarterly Window Period
(as defined below); provided, that a right may be exercised by a
GPU Officer for cash outside a Quarterly Window Period if the
date of exercise is automatic or has been fixed in advance under
the Plan and is outside the GPU Officer's control. The term
"Quarterly Window Period" shall mean the period beginning on the
third business day following the date of release of each of the
Corporation's quarterly and annual summary statements of sales
and earnings and ending on the twelfth business day following
such release; and the date of any such release shall be deemed to
be the date it either (A) appears on a wire service, (B) appears
on a financial news service, (C) appears in a newspaper of
general circulation, or (D) is otherwise made publicly available,
for example, by press releases to a wire service, financial news
service, or newspapers or general circulation. Subject to the
foregoing, a right shall be exercisable (as to a tandem right,
only to the extent the related option is exercisable) on or after
an Acceleration Date.
(b) A right shall entitle the employee upon exercise in
accordance with its terms (subject, in the case of a tandem
right, to the surrender unexercised of the related option or any
portion or portions thereof which the employee from time to time
determines to surrender for this purpose) to receive, subject to
the provisions of the Plan and such rules and regulations as from
time to time may be established by the Committee, a payment
having an aggregate value equal to the product of (A) the excess
of (i) the fair market value on the exercise date of one share of
Common Stock over (ii) the exercise price per share, in the case
of a tandem right, or the price per share specified in the terms
of the right, in the case of a freestanding right, multiplied by
(B) the number of shares with respect to which the right shall
have been exercised. The payment may be made in the form of all
cash, all shares of Common Stock, or a combination thereof, as
elected by the employee, subject (where the employee is a GPU
Officer) to paragraph 8(a) hereof.
(c) The exercise price per share specified in a right
shall be as determined by the Committee, provided that, in the
case of a tandem right accompanying an incentive stock option,
the exercise price shall be not less than fair market value of
the Common Stock subject to such option on the date of grant.
(d) If upon the exercise of a right the employee is to
receive a portion of the payment in shares of Common Stock, the
number of shares shall be determined by dividing such portion by
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<PAGE>
the fair market value of a share on the exercise date. The
number of shares received may not exceed the number of shares
covered by any option or portion thereof surrendered. Cash will
be paid in lieu of any fractional share.
(e) No payment will be required from an employee upon
exercise of a right, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be
withheld or paid promptly by the employee upon notification of
the amount due and prior to or concurrently with delivery of cash
or a certificate representing shares. The Committee may permit
such amount to be paid in shares of Common Stock previously owned
by the employee, or a portion of the shares of Common Stock that
otherwise would be distributed to such employee upon exercise of
the right, or a combination of cash and shares of such Common
Stock.
(f) The fair market value of a share shall mean the
closing price of the Common Stock as reported on the New York
Stock Exchange Composite Tape for the date of exercise, or if
there are no sales on such date, on the next preceding day on
which there were sales; provided, however, that in the case of
rights that relate to an incentive stock option, the Committee
may prescribe, by rules of general application, such other
measure of fair market value as the Committee may in its
discretion determine but not in excess of the maximum amount that
would be permissible under Section 422 of the Code without
disqualifying such option under Section 422.
(g) Upon exercise of a tandem right, the number of
shares subject to exercise under the related option shall
automatically be reduced by the number of shares represented by
the option or portion thereof surrendered.
(h) A right related to an incentive stock option may
only be exercised if the fair market value of a share of Common
Stock on the exercise date exceeds the option price.
9. Non-Transferability of Options, Rights and Units;
Holding Periods for GPU Officers
(a) Options, rights, and units granted under the Plan
shall not be transferable by the grantee thereof otherwise than
by will or the laws of descent and distribution; provided, that
the designation of a beneficiary by an employee shall not
constitute a transfer; and options and rights may be exercised
during the lifetime of the employee only by the employee or,
unless such exercise would disqualify an option as an incentive
stock option, by the employee's guardian or legal representative.
(b) Notwithstanding anything contained in this Plan to
the contrary, (i) any shares of Common Stock awarded hereunder to
a GPU Officer may not be transferred or disposed of for at least
six months from the date of award thereof, (ii) any option, right
9
<PAGE>
or unit awarded hereunder to a GPU Officer, or the shares of
Common Stock into which any such option, right or unit is
exercised or converted, may not be transferred or disposed of for
at least six months following the date of acquisition by the GPU
Officer of such option, right or unit, and (iii) the Committee
shall take no action whose effect would cause a GPU Officer to be
in violation of clause (i) or (ii) above.
10. Award and Delivery of Restricted
Shares or Restricted Units
(a) At the time an award of restricted shares or
restricted units is made, the Committee shall establish a period
of time (the "Restricted Period") applicable to such award. Each
award of restricted shares or restricted units may have a
different Restricted Period. The Committee may, in its sole
discretion, at the time an award is made, prescribe conditions
for the incremental lapse of restrictions during the Restricted
Period and for the lapse or termination of restrictions upon the
satisfaction of other conditions in addition to or other than the
expiration of the Restricted Period with respect to all or any
portion of the restricted shares or restricted units. Subject to
Section 9 hereof, the Committee may also, in its sole discretion,
shorten or terminate the Restricted Period, or waive any
conditions for the lapse or termination of restrictions with
respect to all or any portion of the restricted shares or
restricted units. Notwithstanding the foregoing but subject to
Section 9 hereof, all restrictions shall lapse, and the
Restricted Period shall terminate, with respect to all restricted
shares or restricted units upon the earliest to occur of an
employee's Eligible Retirement, death, Total Disability or the
occurrence of an Acceleration Date.
(b) (1) Unless such shares are issued as uncertificated
shares pursuant to subparagraph (3) below, a stock certificate
representing the number of restricted shares granted to an
employee shall be registered in the employee's name but shall be
held in custody by the Corporation or an agent therefor for the
employee's account. The employee shall generally have the rights
and privileges of a shareholder as to such restricted shares,
including the right to vote such restricted shares, except that,
subject to the provisions of paragraph 11, the following
restrictions shall apply: (i) the employee shall not be entitled
to delivery of the certificate until the expiration or
termination of the Restricted Period and the satisfaction of any
other conditions prescribed by the Committee; (ii) none of the
restricted shares may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of during the Restricted Period
and until the satisfaction of any other conditions prescribed by
the Committee at the time of award; and (iii) all of the
restricted shares shall be forfeited and all rights of the
employee to such restricted shares shall terminate without
further obligation on the part of the Corporation unless the
employee has remained an employee of the Corporation or any of
10
<PAGE>
its subsidiaries until the expiration or termination of the
Restricted Period and the satisfaction of any other conditions
prescribed by the Committee at the time of award applicable to
such restricted shares. At the discretion of the Committee,
(i) cash and stock dividends with respect to the restricted
shares may be either currently paid or withheld by the
Corporation for the employee's account, and interest may be paid
on the amount of cash dividends withheld at a rate and subject to
such terms as determined by the Committee or (ii) the Committee
may require that all cash dividends be applied to the purchase of
additional shares of Common Stock, and such purchased shares,
together with any stock dividends related to such restricted
shares (such purchased shares and stock dividends are hereafter
referred to as "Additional Restricted Shares") shall be treated
as Additional Shares, subject to forfeiture on the same terms and
conditions as the original grant of the restricted shares to the
employee.
(2) The purchase of any such Additional Restricted Shares
shall be made either (x) through the Corporation's Dividend
Reinvestment and Stock Purchase Plan, in which event the price of
such shares so purchased through the reinvestment of dividends
shall be as determined in accordance with the provisions of that
plan and no stock certificate representing such Additional
Restricted Shares shall be registered in the employee's name or
(y) in accordance with such alternative procedure as is
determined by the Committee in which event the price of such
purchased shares shall be the closing price of the Common Stock
as reported on the New York Stock Exchange Composite Tape for the
date on which such purchase is made, or if there were no sales on
such date, the next preceding day on which there were sales. In
the event that the Committee shall not require reinvestment, cash
or stock dividends so withheld by the Committee shall not be
subject to forfeiture. Upon the forfeiture of any restricted
shares (including any Additional Restricted Shares), such
forfeited shares shall be transferred to the Corporation without
further action by the employee. The employee shall have the same
rights and privileges, and be subject to the same restrictions,
with respect to any shares received pursuant to paragraph 13.
(3) Notwithstanding anything herein to the contrary,
shares representing Restricted Shares or Additional Restricted
Shares may be issued as uncertificated shares.
(c) Upon the expiration or termination of the
Restricted Period and the satisfaction of any other conditions
prescribed by the Committee at the time of award, or at such
earlier time as provided for in paragraph 11, the restrictions
applicable to the restricted shares (including Additional
Restricted Shares) shall lapse and a stock certificate for the
number of restricted shares (including any Additional Restricted
Shares) with respect to which the restrictions have lapsed shall
be delivered, free of all such restrictions, except any that may
be imposed by law, to the employee or the employee's beneficiary
11
<PAGE>
or estate, as the case may be. The Corporation shall not be
required to deliver any fractional share of Common Stock but will
pay, in lieu thereof, the fair market value (determined as of the
date the restrictions lapse) of such fractional share to the
employee or the employee's beneficiary or estate, as the case may
be.
No payment will be required from the employee upon the issuance
or delivery of any restricted shares, except that any amount
necessary to satisfy applicable federal, state or local tax
requirements shall be withheld or paid promptly upon notification
of the amount due and prior to or concurrently with the issuance
or delivery of a certificate representing such shares. The
Committee may permit such amount to be paid in shares of Common
Stock previously owned by the employee, or a portion of the
shares of Common Stock that otherwise would be distributed to
such employee upon the lapse of the restrictions applicable to
the restricted shares, or a combination of cash and shares of
such Common Stock.
(d) In the case of an award of restricted units, no
shares of Common Stock shall be issued at the time the award is
made, and the Corporation shall not be required to set aside a
fund for the payment of any such award.
(e) Subject to subparagraph (g) below:
(i) Upon the expiration or termination of the
Restricted Period or the occurrence of an Acceleration
Date and the satisfaction of any other conditions
prescribed by the Committee or at such earlier time as
provided for in paragraph 11, the Corporation shall
deliver to the employee or the employee's beneficiary or
estate, as the case may be, one share of Common Stock for
each restricted unit with respect to which the
restrictions have lapsed ("vested unit").
(ii) In addition, if the Committee has not required
the deemed reinvestment of such Dividend Equivalents
pursuant to paragraph 4, at such time the Corporation
shall deliver to the employee cash equal to any Dividend
Equivalents or stock dividends credited with respect to
each such vested unit and, to the extent determined by
the Committee, the interest thereupon. However, if the
Committee has required such deemed reinvestment in
connection with such restricted unit, in addition to the
stock represented by such vested unit, the Corporation
shall deliver the number of Additional Deemed Shares
credited to the employee with respect to such vested
unit.
(iii) Notwithstanding the foregoing, the Committee
may, in its sole discretion, elect to pay cash or part
cash and part Common Stock in lieu of delivering only
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<PAGE>
Common Stock for the vested units and related Additional
Deemed Shares. If a cash payment is made in lieu of
delivering Common Stock, the amount of such cash payment
shall be equal to the closing price of the Common Stock
as reported on the New York Stock Exchange Composite Tape
for the date on which the Restricted Period lapsed with
respect to such vested unit and related Additional Deemed
Shares, or if there are no sales on such date, on the
next preceding day on which there were sales.
(f) Upon the occurrence of an Acceleration Date, all
outstanding vested units (including restricted units whose
restrictions have lapsed as a result of the occurrence of such
acceleration date) and credited Dividend Equivalents or related
Additional Deemed Shares shall be payable as soon as practicable
but in no event later than 90 days after such Acceleration Date
in cash, in shares of Common Stock, or part in cash and part in
Common Stock, as the Committee, in its sole discretion, shall
determine.
(i) Subject to subparagraph (g) below, to the extent
that an employee receives cash in payment for his or her
vested units and Additional Deemed Shares, such employees
shall receive an amount equal to the product of (x) the
number of vested units and Additional Deemed Shares
credited to such employee's account for which such
employee is receiving payment in cash multiplied by (y)
the highest closing price per share of Common Stock
occurring during the ninety (90) day period preceding and
the ninety (90) day period following the Acceleration
Date (the "Multiplication Factor").
(ii) Subject to subparagraph (g) below, to the extent
that an employee receives Common Stock in payment for his
or her vested units and Additional Deemed Shares, such
employee shall receive the number of shares of Common
Stock determined by dividing (x) the product of (I) the
number of vested units and Additional Deemed Shares
credited to such employee's account for which such
employee is receiving payment in Common Stock multiplied
by (II) the Multiplication Factor, by (y) the fair market
value per share of the Common Stock for the day preceding
the payment date, or if there are no sales on such date,
on the next preceding day on which there were sales.
(g) No payment will be required from the employee upon
the award of any restricted units, the crediting or payment of
any Dividend Equivalents or Additional Deemed Shares, or the
delivery of Common Stock or the payment of cash in respect of
vested units, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be
withheld or paid promptly upon notification of the amount due.
The Committee may permit such amount to be paid in shares of
13
<PAGE>
Common Stock previously owned by the employee, or a portion of
the shares of Common Stock that otherwise would be distributed to
such employee in respect of vested units and Additional Deemed
Shares, or a combination of cash and shares of such Common Stock.
(h) In addition, the Committee shall have the right, in
its absolute discretion, upon or prior to the vesting of any
restricted shares (including Additional Restricted Shares) and
restricted units (including Additional Deemed Shares) to award
cash compensation to the employee for the purpose of aiding the
employee in the payment of any and all federal, state and local
income taxes payable as a result of such vesting, if the
performance of the Corporation during the Restricted Period meets
such criteria as the Committee shall have prescribed.
(i) Notwithstanding any other provision in this paragraph
10 to the contrary, any payment of cash and/or delivery of any
shares of Common Stock otherwise required to be made hereunder on
any date with respect to any restricted units awarded to an
employee, or with respect to any cash compensation awarded to an
employee pursuant to subparagraph (h) above, may be deferred, at
the employee's election, either under this Plan or under the GPU
System Companies Deferred Compensation Plan for Elected Officers,
to the extent such deferral is permitted under, and upon such
terms and conditions as may be set forth in, the written
agreement between the employee and the Corporation (whether as
initially entered into, or as subsequently amended) evidencing
the award of such units, or cash compensation, to the employee.
11. Termination of Employment
In the event that the employment of an employee to whom
an option or right has been granted under the Plan shall be
terminated for any reason other than as set forth in
paragraph 12, such option or right may, subject to the provisions
of the Plan, be exercised (but only to the extent that the
employee was entitled to do so at the termination of his or her
employment) at any time within three (3) months after such
termination, but in no case later than the date on which the
option or right terminates.
Unless otherwise determined by the Committee, if an
employee to whom restricted shares or restricted units have been
granted ceases to be an employee of the Corporation or of a
subsidiary prior to the end of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee
at the time of grant for any reason other than as set forth in
paragraph 12, the employee shall immediately forfeit all
restricted shares and restricted units, including all Additional
Restricted Shares or Additional Deemed Shares related thereto.
Any option, right, restricted share or restricted unit
agreement, or any rules and regulations relating to the Plan, may
contain such provisions as the Committee shall approve with
14
<PAGE>
reference to the determination of the date employment terminates
and the effect of leaves of absence. Any such rules and
regulations with reference to any option agreement shall be
consistent with the provisions of the Code and any applicable
rules and regulations thereunder. Nothing in the Plan or in any
award granted pursuant to the Plan shall confer upon any employee
any right to continue in the employ of the Corporation of any of
its subsidiaries or interfere in any way with the right of the
Corporation or any such subsidiary to terminate such employment
at any time.
12. Eligible Retirement, Death or Total Disability of
Employee
If any employee to whom an option, right, restricted
share or restricted unit has been granted under the Plan shall
die, or suffer a Total Disability, while employed by the
Corporation or one of its subsidiaries or if an employee
terminates his or her employment pursuant to an Eligible
Retirement, such option or right may be exercised, as set forth
herein, or such restricted shares or restricted unit shall be
deemed to be vested, whether or not the employee was otherwise
entitled at such time to exercise such option or right, or be
treated as vested in such share or unit. Subject to the
restrictions otherwise set forth in this Plan, such option or
right shall be exercisable by the employee, a legatee or legatees
of the employee under the employee's last will, or by the
employee's personal representatives or distributees, whichever is
applicable, at any time (but in no case later than the date on
which the option or right terminates in accordance with the terms
of grant) within three years after the date of the earlier of
(i) the employee's death or Total Disability (if the employee
shall have died or suffered a Total Disability while employed by
the Corporation or its subsidiaries), or (ii) such employee's
Eligible Retirement.
For purposes of this paragraph 12, "Total Disability" is
defined as the permanent inability of an employee, as a result of
accident or sickness, to perform any and every duty pertaining to
such employee's occupation or employment for which the employee
is suited by reason of the employee's previous training,
education and experience.
13. Adjustments Upon Changes in Capitalization, etc.
Notwithstanding any other provision of the Plan, the
Committee may at any time make or provide for such adjustments to
the Plan, to the number and class of shares available thereunder
or to any outstanding options, restricted shares or restricted
units as it shall deem appropriate to prevent dilution or
enlargement of rights, including adjustments in the event of
distributions to holders of Common Stock other than a normal cash
dividend, changes in the outstanding Common Stock by reason of
stock dividends, split-ups, recapitalizations, mergers,
15
<PAGE>
consolidations, combinations or exchanges of shares, separations,
reorganizations, liquidations and the like. In the event of any
offer to holders of Common Stock generally relating to the
acquisition of their shares, the Committee may make such
adjustment as it deems equitable in respect of outstanding
options, rights, and restricted units including in the
Committee's discretion revision of outstanding options, rights,
and restricted units so that they may be exercisable for or
payable in the consideration payable in the acquisition
transaction. Any such determination by the Committee shall be
conclusive. No adjustment shall be made in the minimum number of
shares with respect to which an option may be exercised at any
time. Any fractional shares resulting from such adjustments to
options, rights, limited rights, or restricted units shall be
eliminated.
14. Effective Date
The Plan as amended shall become effective as of June 1,
1990, subject to the approval of the Corporation's shareholders
at the Corporation's 1990 Annual Meeting of Shareholders. The
Committee may, in its discretion, grant awards under the Plan,
the grant, exercise or payment of which shall be expressly
subject to the conditions that to the extent required at the time
of grant, exercise or payment (i) the shares of Common Stock
covered by such awards shall be duly listed, upon official notice
of issuance, upon the New York Stock Exchange, and (ii) if the
Corporation deems it necessary or desirable a Registration
Statement under the Securities Act of 1933 with respect to such
shares shall be effective.
15. Termination and Amendment
The Board of Directors of the Corporation may suspend,
terminate, modify or amend the Plan, provided that if any such
amendment requires shareholder approval to meet the requirement
of the then applicable rules under Section 16(b) of the Exchange
Act, such amendment shall be subject to the approval of the
Corporation's shareholders. If the Plan is terminated, the terms
of the Plan shall, notwithstanding such termination, continue to
apply to awards granted prior to such termination. In addition,
no suspension, termination, modification or amendment of the Plan
may, without the consent of the employee to whom an award shall
theretofore have been granted, adversely affect the rights of
such employee under such award.
16. Written Agreements
Each award of options, rights, restricted shares or
restricted units shall be evidenced by a written agreement,
executed by the employee and the Corporation, which shall contain
such restrictions, terms and conditions as the Committee may
require.
16
<PAGE>
17. Effect on Other Stock Plans
The adoption of the Plan shall have no effect on awards
made or to be made pursuant to other stock plans covering
employees of the Corporation, its subsidiaries, or any successors
thereto.
17
<PAGE>
RESTRICTED UNITS AGREEMENT UNDER
THE 1990 STOCK PLAN FOR EMPLOYEES OF
GENERAL PUBLIC UTILITIES CORPORATION
AND SUBSIDIARIES
<PAGE>
AGREEMENT made as of __________, by and between General Public
Utilities Corporation (the "Corporation") and __________ (the
"Recipient"):
WHEREAS, the Corporation maintains the 1990 Stock Plan for
Employees of General Public Utilities Corporation and
Subsidiaries (the "Plan") under which the Personnel and
Compensation Committee of the Corporation's Board of Directors
(the "Committee") may, among other things, award units
("Restricted Units") representing rights to acquire shares of the
Corporation's Common Stock, $2.50 par value ("Common Stock") to
such employees of the Corporation and its subsidiaries as the
Committee may determine, subject to such terms, conditions, or
restrictions as it may deem appropriate;
WHEREAS, pursuant to the Plan, the Committee has granted to the
Recipient an award of Restricted Units subject to the terms and
conditions set forth in this Agreement; and
WHEREAS, the Plan requires that an award of Restricted Units be
evidenced by a written agreement between the Corporation and the
Recipient that contains such restrictions, terms and conditions
as the Committee may require;
NOW, THEREFORE, the parties hereto agree as follows:
1. Award of Restricted Units; Nature of Rights
(a) In accordance with the provisions of the Plan, the Committee
awarded to the Recipient on _______________ (the "Award Date")
__________ Restricted Units. Each such unit shall entitle the
Recipient, upon the vesting of such unit as provided in Section 2
hereof, to receive one share of Common Stock, or a cash payment
in lieu of such share, subject to the terms, conditions, and
restrictions set forth herein.
(b) Prior to the issuance, as provided in Section 4 hereof, of
shares of Common Stock with respect to the Recipient's Restricted
Units and any additional units credited to the Recipient pursuant
to Section 3 hereof ("Additional Restricted Units"), or with
respect to the Recipient's "Deferred Vested Units" as defined in
Section 4(g)(ii) hereof and any additional Deferred Vested Units
credited to the Recipient pursuant to Section 4(g)(vi) hereof,
the Recipient shall not be entitled to any of the rights of a
stockholder of the Corporation by reason of such Restricted
Units, Additional Restricted Units, or Deferred Vested Units.
(c) Notwithstanding anything in this Agreement to the contrary,
the Recipient shall have the status of a mere unsecured creditor
of the Corporation with respect to his or her right to receive
any payment hereunder; and this Agreement shall constitute a mere
promise by the Corporation to make payments in the future in
1
<PAGE>
accordance with the terms hereof. It is the intention of the
parties hereto that the arrangements set forth in this Agreement
be treated as unfunded for tax purposes and, if it should be
determined that Title I of ERISA is applicable to such
arrangements, for purposes of Title I of ERISA.
2. Vesting of Units
(a) The Recipient's Restricted Units and Additional Restricted
Units shall become vested upon the earliest to occur of the
following dates (such earliest occurring date is hereafter
referred to as the "Vesting Date"):
(i) the fifth anniversary of the Award Date, if the
Recipient's employment with the Corporation or any
subsidiary has not terminated for any reason before such
fifth anniversary;
(ii) the date as of which the Recipient's employment
with the Corporation or any subsidiary terminates as a
result of the Recipient's death, or as a result of the
Recipient's "Total Disability" or "Eligible Retirement", as
those terms are defined in the Plan;
(iii) an "Acceleration Date", as defined in the Plan;
or
(iv) any date earlier than the dates specified in (i),
(ii) and (iii) above that the Committee, in its sole
discretion, determines to be the date as of which any or all
of the Recipient's Restricted Units and Additional
Restricted Units should become vested for purposes of this
Agreement.
(b) If the Recipient's employment with the Corporation or any
subsidiary should terminate before the Recipient's Restricted
Units and Additional Restricted Units have become vested in
accordance with paragraph (a) above, all of the Recipient's
rights with respect to such Restricted Units and Additional
Restricted Units shall be forfeited as of the date of such
termination.
(c) For purposes of this Agreement, (i) the term "subsidiary"
shall have the same meaning as in paragraph 4(a) of the Plan and
(ii) the transfer of a Recipient's employment from one subsidiary
to another shall not be treated as a termination of the
Recipient's employment.
2
<PAGE>
3. Additional Restricted Units
(a) As of each date prior to the Vesting Date on which a
dividend is paid on the Common Stock ("Dividend Payment Date"),
there shall be credited to the Recipient hereunder a number of
Additional Restricted Units determined by multiplying (i) the sum
of the Recipient's Restricted Units and the total number of
Additional Restricted Units previously credited to the Recipient
pursuant to this Section 3, by (ii) the quotient resulting from
dividing (A) the per share amount of the dividend so paid by (B)
the price per share used for the reinvestment of dividends paid
on such Dividend Payment Date under the provisions of the
Corporation's Dividend Reinvestment and Stock Purchase Plan.
(b) Any Additional Restricted Units credited to the Recipient
pursuant to this Section 3 shall be subject to the same terms,
conditions and restrictions as are applicable with respect to the
Recipient's Restricted Units.
4. Payment for Vested Units
(a) Upon the Vesting Date, the Recipient shall become entitled
to receive payment with respect to the Restricted Units and
Additional Restricted Units which have become vested on such date
(such Restricted Units and Additional Restricted Units are
hereafter referred to as the Recipient's "Vested Units").
Payment shall be made as soon as practicable after the Vesting
Date, in the manner hereinafter set forth in this Section 4.
(b) Except as otherwise provided in paragraph (c) below, payment
with respect to the Recipient's Vested Units shall be made by the
issuance to the Recipient of shares of Common Stock. Except as
otherwise provided in paragraph (d) (ii) below, one share of
Common Stock shall be issued for each of the Recipient's Vested
Units. The Recipient shall own any shares of Common Stock so
issued free and clear of any restrictions and shall be free to
hold or dispose of such shares at will, subject, however, to the
restriction provided in paragraph 9(b)(ii) of the Plan and any
other restriction that may be imposed by law.
(c) The Committee, in its sole discretion, may determine that
payment with respect to any or all of the Recipient's Vested
Units shall be made in cash instead of in shares of Common Stock,
and payment with respect to any fractional part of a Vested Unit
shall be made in cash. Except as otherwise provided in paragraph
(d) (i) below, the amount of the cash payment to be made with
respect to any Vested Units shall be equal to (and the amount of
the cash payment to be made with respect to any fractional part
of a Vested Unit shall be based upon) the per share closing price
of one share of Common Stock as reported on the New York Stock
Exchange Composite Tape for the Vesting Date, or if there are no
sales of Common Stock on such date, for the next preceding day on
which there were sales of Common Stock.
3
<PAGE>
(d) Upon the occurrence of an Acceleration Date, the amount
payable with respect to the Recipient's Vested Units (including
any Restricted Units and Additional Restricted Units that became
vested prior to such date but for which payment hereunder has not
been made as of such date but not including any Deferred Vested
Units standing to the Recipient's credit on such date) shall be
determined as follows:
(i) To the extent that the payment for any of the
Recipient's Vested Units is to be made in cash pursuant to
paragraph (c) above, the amount of cash to be paid for such
Vested Units shall be equal to the product of (A) the number
of such Vested Units, multiplied by (B) the highest closing
price per share of the Common Stock, as reported on the
New York Stock Exchange Composite Tape, occurring during the
90-day period preceding and the 90-day period following the
Acceleration Date (the "Multiplication Factor").
(ii) To the extent that payment for any of the Recipient's
Vested Units is to be made in shares of Common Stock
pursuant to paragraph (b) above, the number of shares of
Common Stock to be issued with respect to such Vested Units
shall be determined by dividing (A) the product of (y) the
number of such Vested Units multiplied by (z) the
Multiplication Factor, by (B) the per share closing price
of the Common Stock as reported on the New York Stock
Exchange Composite Tape for the day preceding the payment
date, or if there are no sales of Common Stock on such date,
for the next preceding day on which there were sales of
Common Stock.
(e) If the Recipient has died prior to the date on which payment
is to be made hereunder with respect to the Recipient's Vested
Units or Deferred Vested Units, the payment otherwise required to
be made to the Recipient shall be made to the Recipient's
beneficiary or estate, as the case may be.
(f) Notwithstanding any provision herein to the contrary, any
payment required to be made with respect to a Recipient's Vested
Units (but not including any Deferred Vested Units standing to
the Recipient's credit hereunder) as a result of or following the
occurrence of an Acceleration Date shall be made as soon as
practicable after such date but in the case of any cash payment
to an Officer Participant (as defined in the Plan) no less than
six months following the Award Date.
(g) Notwithstanding any other provisions of this Section 4 to
the contrary, payment with respect to part or all of the
Recipient's Vested Units shall be deferred, and shall be made at
the time and in the manner hereinafter set forth, if the
Recipient so elects in accordance with the following provisions:
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<PAGE>
(i) An election by the Recipient hereunder shall be
made in writing, on a form furnished to the Recipient
for such purpose by the Committee. The form shall be
filed with the Committee at least one year prior to the
Vesting Date.
(ii) In the Recipient's election form, the Recipient
shall specify the number of Vested Units payment with
respect to which the Recipient wishes to defer (such
number is referred to as the Recipient's "Deferred
Vested Units"); the date on which payment with respect
to the Recipient's Deferred Vested Units shall be made,
or commence (the "Payment Commencement Date") in
accordance with clause (iii) below; and the method by
which payment with respect to the Recipient's Deferred
Vested Units shall be made (the "Payment Method") in
accordance with clause (iv) below.
(iii) The Recipient may select, as the Payment
Commencement Date, the first business day of the third
calendar year following the calendar year in which the
Vesting Date occurs, or of any later calendar year.
Alternatively, the Recipient may select, as the Payment
Commencement Date, the earlier of (A) the first
business day of any calendar year which the Recipient
is permitted to select under the preceding sentence, or
(B) the first business day of the calendar year
following the date as of which the Recipient's
employement with the Corporation or any subsidiary
terminates as a result of the Recipient's Eligible
Retirement or Total Disability.
(iv) The Recipient may select, as the Payment Method,
either (A) a single lump sum payment, or (B) payment in
annual installments, over a period of at least five
year, or such greater number of years as the Recipient
specifies in his or her election form. With each such
annual installment, payment shall be made with respect
to a number of the Recipient's Deferred Vested Units
equal to the quotient resulting from dividing (C) the
total number of Deferred Vested Units standing to the
Recipient's credit hereunder on the applicable payment
date (including any additional Deferred Vested Units
credited to the Recipient pursuant to subparagraph (vi)
below), by (D) the number of installment payments
remaining to be made on such date. Immediately after
each annual installment payment has been made, the
number of Deferred Vested Units standing to the
Recipient's credit hereunder shall be reduced by the
number of Deferred Vested Units with respect to which
such payment was made.
(v) Any election made hereunder by the Recipient shall
be irrevocable.
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<PAGE>
(vi) Until payment has been made with respect to all of
the Recipient's Deferred Vested Units (including those
credited to the Recipient under this subparagraph),
there shall be credited to the Recipient hereunder, as
of each Dividend Payment Date, a number of additional
Deferred Vested Units determined by multiplying (A) the
number of Deferred Vested Units (including any
additional Deferred Vested Units previously credited to
the Recipient under this subparagraph) standing to the
Recipient's credit hereunder on the day immediately
preceding such Dividend Payment Date, by (B) the
quotient referred to in Section 3(a)(ii) hereof.
(vii) Payment with respect to the Recipient's
Deferred Vested Units shall be made in cash, or in
shares of Common Stock, or in any combination of cash
or such shares, as the Committee shall determine in its
sole discretion. The amount of the cash payment to be
made with respect to any Deferred Vested Units shall be
equal to (and with respect to any fractional part of a
Deferred Vested Unit, shall be based upon) the per
share closing price of one share of Common Stock as
reported on the New York Stock Exchange Composite Tape
for the last business day immediately preceding the
date on which such cash payment is to be made.
(viii) A deferral election otherwise permitted to
be made hereunder shall be subject to the following
limitations:
(A) If the Vesting Date should occur
within one year from the date on which the
Recipient's election form is filed with the
Committee, or if the vesting Date occurs more than
one year from such date but occurs as a result of
the occurrence of an Acceleration Date, the
Recipient's deferral election shall not be given
effect, and payment with respect to the
Recipient's Vested Units shall be made in
accordance with the other applicable provisions of
this Section 4.
(B) No deferral election shall be
effective hereunder if at any time during a
12-month period ending on the Vesting Date, the
Recipient received a hardship withdrawal under
Section 7.1(e) of the General Public Utilities
Corporation and Subsidiary System Companies
Employee Savings Plan.
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<PAGE>
(ix) Notwithstanding any other provision in this
paragraph (g) to the contrary, to the extent the
Committee in its sole discretion so determines, payment
with respect to any part or all of the Recipient's
Deferred Vested Units may be made to the Recipient, or
to the Recipient's beneficiary or estate, on any date
earlier than the date on which such payment is to be
made pursuant to the Recipient's election hereunder, in
the following circumstances: (A) in the event of the
Recipient's death prior to the Payment Commencement
Date specified in the Recipient's election hereunder;
(B) in the event the Recipient becomes entitled to
receive payments under any GPU System Company's Long-
Term Disability Plan or Employee Pension Plan as a
result of incurring a Total Disability; and (C) in the
event the Recipient requests such early payment and the
Committee, in its sole discretion, determines that such
early payment is necessary to help the Recipient meet
some severe financial need arising from circumstances
which were beyond the Recipient's control and which
were not foreseen by the Recipient at the Time the
recipient made his or her election hereunder.
5. Performance Cash Incentive Award
(a) For purposes of this Section 5:
(i) "Peer Companies" shall mean the companies included
in the Edison Electric Institute's ("EEI") Investor-
Owned Electric Utility Index (or any similar successor
index) published from time to time by EEI (the
"Index").
(ii) "GPU Total Return" shall mean the annualized GPU
Total Shareholder Return for the years included in the
applicable Performance Period.
(iii) "GPU Total Shareholder Return" shall mean
for any given calendar year the percentage obtained by
dividing (A) the sum of (x) the closing price (as
reported in The Wall Street Journal, Eastern Edition)
of a share of the Common Stock (the "Closing Price") on
the last trading day of such calendar year less (y) the
Closing Price on the first trading day of such calendar
year (the "First Day's Price") plus (z) the sum of all
cash dividends declared by GPU during such calendar
year in respect of one share of the Common Stock, by
(B) the First Day's Price.
7
<PAGE>
(iv) "Gross-up Percentage" shall mean the "Percentage
Used" as determined for purposes of the GPU Service
Corporation Employee Relocation Plan (or, any similar
provision in a successor plan or policy) for the
calendar year with respect to which the Recipient is
entitled to receive a Performance Cash Incentive Award
pursuant to paragraph (b) of this Section 5, after
including in the Recipient's gross income for that
calendar year (A) the amount recognized on account of
the payment made with respect to the Recipient's Vested
Units pursuant to Section 4 hereof, and (B) if, on the
Vesting Date, there is in effect for the Recipient an
election under Section 4(g) hereof to defer payments
with respect to any of the Recipient's Vested Units,
such additional amount as would have been recognized
with respect to the Recipient's Deferred Vested Units
if such election had not been made, and if payment with
respect to such Deferred Vested Units had been made to
the recipient on the Vesting Date in cash, in an amount
determined under Section 4(c) hereof.
(v) "Industry Total Return" shall mean the annualized
total shareholder return for the Peer Companies, as
determined by the Index, for the years included in the
applicable Performance Period.
(vi) "Performance Period" shall mean the five calendar
years preceding the Vesting Date, except that in the
case of a Vesting Date described in clause (ii), (iii),
or (iv) of Section 2(a) hereof, the Performance Period
shall be the calendar years beginning on the January 1
of the year which includes the Award Date and ending on
the December 31 which immediately precedes the Vesting
date. Notwithstanding the foregoing, in the event that
the Vesting Date occurs during the calendar year which
includes the Award Date, the Performance Period shall
be the immediately preceding calendar year.
(b) If, with respect to the applicable Performance Period, the
GPU Total Return exceeds the Industry Total Return, the Recipient
shall be entitled to receive a cash payment (the "Performance
Cash Incentive Award") with respect to the calendar year in which
the Vesting Date for the Recipient's Vested Units occurs. The
Performance Cash Incentive Award so payable shall be in an amount
equal to the product of (i) the applicable Gross-up Percentage,
multiplied by (ii) the sum percent (A) the amount of gross income
the Recipient recognizes for federal income tax purposes on
account of the payment made with respect to the Recipient's
Vested Units pursuant to Section 4 hereof; and (B) if, on the
Vesting Date, there is in effect for the Recipient an election
under Section 4(g) hereof to defer payment with respect to any of
the Recipient's Vested Units, the amount of gross income the
Recipient would have recognized for federal income tax purposes
for the year in which the Vesting Date occurs, on account of
8
<PAGE>
payment with respect to the Recipient's Deferred Vested Units, if
such election had not been made and if payment with respect to
such Deferred Vested Units had been made to the Recipient on the
Vesting Date in cash in an amount determined under Section 4(c)
hereof.
(c) Payment with respect to the Performance Cash Incentive Award
payable to the Recipient pursuant to paragraph (b) above, shall
be made to the Recipient on such date or dates following the
Vesting Date as the Committee determines in its discretion but in
no event shall payment be made later than by April 1 of the
calendar year following the year in which the Vesting Date
occurs.
(d) Notwithstanding the provisions of paragraphs (b) and
(c) above, no payment shall be made pursuant to this Agreement or
the Plan with respect to any portion of the Performance Cash
Incentive Award that becomes payable to the Recipient hereunder,
to the extent that there is in effect for the Recipient on the
Vesting Date an election under the applicable provisions of the
GPU System Companies Deferred Compensation Plan for Elected
Officers (the "DCP") to defer such portion under the terms of the
DCP. In such event, the obligation to make payment under this
Agreement and the Plan with respect to any amount so deferred
shall be fully discharged upon the crediting of such amount (less
any required tax withholding) to the Recipient's Account under
the DCP; and payment with respect to the amount so deferred shall
be made to the Recipient in accordance with the applicable
provisions of DCP.
6. Withholding Taxes
In connection with the issuance of any Common Stock or the making
of any cash payment in accordance with the provisions of this
Agreement, the Corporation shall withhold the taxes then required
by applicable federal, state and local law to be so withheld. In
lieu thereof, the Corporation may require the Recipient (or, in
the event of the Recipient's death, the Recipient's beneficiary
or estate) to pay to the Corporation an amount equal to the
amount of taxes so required to be withheld. Such payment to the
Corporation shall be made in cash, in shares of Common Stock with
a market value equal to such withholding obligation, or in any
combination thereof, as determined by the Committee.
7. Administration
(a) The Committee shall have full authority and sole discretion
(subject only to the express provisions of the Plan) to decide
all matters relating to the administration and interpretation of
the Plan and this Agreement. All such Committee determinations
shall be final, conclusive, and binding upon the Corporation, the
Recipient, the Recipient's estate and any and all other
9
<PAGE>
interested parties. Notwithstanding the foregoing, any
determination made by the Committee after the occurrence of a
"Change in Control" (as defined in the Plan) shall be subject to
judicial review under a "de novo" rather than a deferential
standard. The Recipient hereby acknowledges receipt of the
Corporation's Prospectus which includes the text of the Plan.
(b) This Agreement shall be subject to the terms of the Plan,
and in the case of any inconsistency between the Plan and this
Agreement, the provisions of the Plan shall govern.
8. Nonassignability
The Recipient's rights to payments under this Agreement shall not
be subject in any manner to anticipation, alienation, sale,
transfer (other than transfer by will or by the laws of descent
and distribution), assignment, pledge, encumbrance, attachment or
garnishment by the Recipient's creditors or the creditors of the
Recipient's spouse or any other beneficiary.
9. Right to Continued Employment
Nothing in the Plan or this Agreement shall confer on the
Recipient any right to continue as an employee of the Corporation
or any subsidiary or in any way affect the Corporation or any
subsidiary's right to terminate the Recipient's employment at any
time.
10. Force and Effect
The various provisions of this Agreement are severable in their
entirety. Any determination of invalidity or unenforceability of
any one provision shall have no effect on the continuing force
and effect of the remaining provisions.
11. Prevailing Laws
This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania applicable to contracts made, and to be enforced,
within the Commonwealth of Pennsylvania.
12. Successors
This Agreement shall be binding upon and inure to the benefit of
the successors, assigns and heirs of the respective parties.
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<PAGE>
13. Notice
Any notice to the Corporation hereunder shall be in writing
addressed to:
Vice President, Human Resources
GPU Service Corporation
100 Interpace Parkway
Parsippany, NJ 07054
Any notice to the Recipient hereunder shall be in writing
addressed to:
-----------------------------------------------------------
-----------------------------------------------------------
or such other address as the Recipient shall specify to the
Corporation in writing.
14. Entire Agreement
This Agreement contains the entire understanding of the parties
and shall not be modified or amended except in writing and duly
signed by each of the parties hereto. No waiver by either party
of any default under this Agreement shall be deemed a waiver of
any later default set forth above.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, as of the date set forth above.
GENERAL PUBLIC UTILITIES CORPORATION
By:_____________________________
James R. Leva
Chairman, President and Chief
Executive Officer
_____________________________
(Recipient)
____________________________________________________________
Revised 11/04/93
11
<PAGE>
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
OF GENERAL PUBLIC UTILITIES CORPORATION
AS AMENDED AND RESTATED
SEPTEMBER 2, 1993
<PAGE>
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
OF GENERAL PUBLIC UTILITIES CORPORATION
1. Purpose
The Retirement Plan for Outside Directors of General Public
Utilities Corporation (the "Plan") is designed to enhance the
ability of General Public Utilities Corporation ("GPU") to
attract and retain competent and experienced Outside Directors by
providing retirement benefits and death benefits for Eligible
Outside Directors who retire or die after the Plan's Effective
Date.
2. Definitions
Except as otherwise specified or as the context may otherwise
require, the following terms have the meanings indicated below
for all purposes of this Plan:
Outside Director means a member of the Board of Directors of GPU
who, during the period involved, is not or was not an Officer or
an employee of GPU or a subsidiary thereof.
Board Service means service as an Outside Director of GPU both
before and after the Effective Date.
Compensation means the sum of: (a) the monthly retainer paid in
cash to an Outside Director as compensation for services as a
Director of GPU, excluding any fees paid for attendance at
meetings of the Board of Directors of GPU or any committee of
such Board of Directors and also excluding any additional
retainer paid for service as a Committee Chairman, and (b)
one-twelfth of the cash value of all shares awarded to,the
Outside Director pursuant to the Restricted Stock Plan for
Outside Directors as the annual award hereunder for the year
preceding his or her retirement, and not subsequently forfeited.
The cash value of a share shall be its closing price as reported
for New York Stock Exchange-Composite Transactions on the date of
award.
Effective Date means the date of adoption of this Plan by the
Board of Directors of GPU.
Retirement or Retires means the cessation of service as an
Outside Director for any reason other than (i) acceptance of
employment as an officer or employee of GPU or a subsidiary
thereof or (ii) death.
Vested benefit means the benefit under the Plan that shall have
accrued to an Outside Director who is eligible to receive
benefits under the Plan.
<PAGE>
3. Eligibility
An Outside Director who has completed at least fifty-four (54)
months of Board Service and who Retires from the Board of
Directors of GPU or dies before Retirement on or after the
Effective Date shall be eligible for benefits as provided herein.
4. Pension Benefits of Eligible Retired Outside Directors Before
Death
The accumulated amount of pension benefits payable to an outside
Director eligible to receive benefits hereunder shall be equal to
the product of (a) the number of months of such Outside
Director's Board Service under this Plan times (b) the monthly
compensation of such Outside Director at the date of such Outside
Director's Retirement under the Plan. Such pension benefits
shall be paid in monthly installments equal to the monthly
compensation of each Outside Director at the date of such Outside
Director's Retirement unless directed otherwise by the Personnel
and Compensation Committee of the Board of Directors of GPU.
Such pension benefits shall commence on the first day of the
month following the Director's 60th birthday or the Director's
Retirement under the Plan, whichever is later, and shall continue
during the Retired Outside Director's life until the date when
the total payments to the Retired Outside Director shall be equal
to the Outside Director's accumulated pension benefits at the
date of such Director's Retirement.
5. Benefits Payable by Reason of Death of Eligible Outside
Director Prior to Payment in Full of the Director's
Accumulated Pension Benefits
(a) After Retirement of the Eligible Outside Director
The monthly payments previously made to the Outside Director
shall be continued to the Outside Director's surviving spouse
(or, if applicable, designated beneficiary) until the
aggregate of the payments to the Outside Director and such
surviving spouse or beneficiary shall be equal to the Outside
Director's accumulated pension benefits at the date of such
Director's Retirement.
(b) Prior to the Retirement of the Eligible Outside Director
There shall be paid to the Outside Director's surviving
spouse (or, if applicable, designated beneficiary) monthly
installments equal to the monthly compensation of each
Outside Director at the date of such Outside Director's death
until the aggregate of the payments to such surviving spouse
(or, if applicable, designated beneficiary) shall be equal to
the Outside Director's accumulated amount of pension benefits
at the date of the Outside Director's death. Payment of such
monthly installments shall begin on the first day of the
month next following the Outside Director's death or, if
<PAGE>
later, the first day of the month in which the Outside
Director's 60th birthday would have occurred if the outside
Director had survived.
6. Designated Beneficiary of Eligible Outside Director
If an Eligible Outside Director shall die without leaving a
surviving spouse or if the Outside Director's surviving spouse
shall die prior to disbursement in full of the outside Director's
accumulated pension benefits, the payments which would otherwise
have been made to the Outside Director's surviving spouse shall
be made to the Outside Director's designated beneficiary (or
beneficiaries). Such designations shall be made on forms
provided by GPU to the Outside Director. Any such designation by
an Outside Director may be revoked by the Outside Director at any
time before or after Retirement.
7. Provision for Benefits
All benefits payable hereunder shall be provided from the general
assets of GPU. No Outside Director shall acquire any interest in
any specific assets of GPU by reason of this Plan.
8. Amendment and Termination
The Board of Directors of GPU reserves the right to terminate
this Plan or amend this Plan prospectively in any respect at any
time, but no such amendment may reduce (a) the benefits of any
Outside Director who has previously retired hereunder, or (b) the
benefits accrued herewith by any Outside Director prior to the
effective date of such amendment.
9. Administration
This Plan shall be administered by the Personnel and Compensation
Committee of the Board of Directors of GPU. Such Committee's
final decision, in making any determination or construction under
this Plan and in exercising any discretionary power, shall in all
instances be final and binding on all persons having or claiming
any rights under this Plan.
10. Miscellaneous
Nothing herein contained shall be deemed to give any Outside
Director the right to be retained as a Director of GPU, nor shall
it interfere with the Outside Director's right to terminate such
directorship at any time. No benefit payable hereunder shall be
subject to alienation or assignment, except as otherwise provided
by law.
<PAGE>
INCENTIVE COMPENSATION PLAN FOR ELECTED OFFICERS OF
GPU SERVICE CORPORATION
(AS AMENDED AND RESTATED MARCH 4, 1993
1. Purpose.
The purpose of the Incentive Compensation Plan for
Elected Officers of GPU Service Corporation (the "Plan") is to
attract and retain highly qualified employees, to obtain from
each the best possible performance, and to underscore the
importance to them of achieving particular business objectives
established for GPU Service Corporation and its affiliates.
2. Definitions.
For the purposes of the Plan, the following terms shall
have the following meanings:
A. Awards. Incentive Compensation Awards made
pursuant to the Plan.
B. Board. The Board of Directors of General Public
Utilities Corporation, unless otherwise specified.
C. Chief Executive Officer. The Chief Executive
Officer of the Corporation.
D. Committee. The Personnel and Compensation
Committee of the Board or any successor thereto.
E. Corporation. GPU Service Corporation, unless
otherwise specified.
F. Employee. An individual who was on the active
salaried payroll of the Corporation or an affiliate of the
Corporation at any time during the period for which an Award
is made.
G. Officer. An Officer of the Corporation who is
elected by the Corporation's Board of Directors and is an
Employee of the Corporation, but not including Assistant
Comptrollers, Assistant Secretaries and Assistant Treasurers.
H. Performance Period. The fiscal year (currently
calendar) for which Awards are made.
3. Effective Date.
The effective date of the Plan is July 1, 1987.
4. Amounts Available for Awards.
A. The aggregate amount available for Awards for any
Performance Period shall be determined by the Board upon the
recommendation of the Committee.
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<PAGE>
B. No Awards shall be made for a Performance Period if
during such Performance Period no dividends were declared or paid
on shares of Common Stock of General Public Utilities
Corporation.
5. Eligibility for Awards.
A. The Chief Executive Officer shall determine the
Officers, if any, who are eligible for Awards for each
Performance Period, subject, in the case of Officers who are also
Officers of General Public Utilities Corporation, to the
concurrence of the Board.
B. The Chief Executive Officer may include, among
Officers eligible for Awards for a Performance Period, Officers
whose employment terminated (whether by reason of retirement,
death, disability or other cause) during such Performance Period.
6. Determination of Amounts of Awards.
The Chief Executive Officer shall determine the amounts
of Awards subject, in the case of Officers who are also Officers
of General Public Utilities Corporation, to the concurrence of
the Board, either at or following the end of the Performance
Period to which they relate. The amount of the Awards to be made
for any Performance Period shall be so determined in accordance
with the methods and procedures set forth in the GPU System
Officer Incentive Compensation Administrative Manual as in effect
for such Performance Period (the "Manual").
Notwithstanding the foregoing or any other provision
herein or in the Manual to the contrary, if a Change in Control,
as defined in Section 7(c) of the 1990 Stock Plan for Employees
of General Public Utilities Corporation and Subsidiaries, occurs
after the close of any Performance Period but prior to the time
Awards for such Performance Period have been made, the following
provisions shall apply:
(i) each System objective and each objective of each
Subsidiary for such Performance Period shall be deemed to
have been 100% achieved;
(ii) the System Final Pool and each Subsidiary's Final
Pool for such Performance Period shall be deemed to be 100%,
respectively, of the System's Target Pool, and each such
Subsidiary's Target Pool, for such Performance Period;
(iii) each Officer who, prior to the occurrence of such
Change in Control, was determined to be eligible for an Award
for such Performance Period ("Eligible Officer") shall be
entitled to receive an Award for such Performance Period; and
2
<PAGE>
(iv) the amount of the Award to be made to each
Eligible Officer shall be determined by multiplying the
Corporation's Final Pool for the Performance Period by a
fraction the numerator of which is the amount of the Eligible
Officer's Annual Base Salary that was taken into account in
determining the Corporation's Target Pool for the Performance
Period, and the denominator of which is the aggregate amount
of the Annual Base Salaries of all Eligible Officers so taken
into account.
7. Form of Awards.
Awards shall be made in cash.
8. Payment of Awards.
Unless it has been deferred pursuant to the
Corporation's Deferred Compensation Plan for Elected Officers, an
Award shall be paid as soon as practicable after it is made, but
in any event by no later than 60 days after the date on which the
Award has been made.
9. Special Awards and Other Plans.
Nothing contained in the Plan shall prohibit the
Corporation from granting special performance or recognition
awards under such conditions, and in such form and manner as it
sees fit, or from establishing other incentive compensation plans
providing for the payment of incentive compensation to Employees;
provided, however, that an Officer who receives an Award under
this Plan shall not receive an award for the same Performance
Period under any other annual incentive plan.
10. Amendment and Interpretation of the Plan.
A. The Chief Executive Officer shall have the right to
amend, modify, suspend, or terminate the Plan at any time or from
time to time, provided that any amendment to Section 4, Section 6
or this Section 10.A shall be subject to the concurrence of the
Board. No amendment or termination of the Plan shall reduce or
otherwise affect an Award already made hereunder without the
consent of the Officer affected.
B. The decision of the Chief Executive Officer with
respect to any questions arising in connection with the adminis-
tration or interpretation of the Plan shall be final, conclusive
and binding. Notwithstanding the foregoing, any decision made by
the Chief Executive Officer after the occurrence of a "Change in
Control" (as defined in Section 7(c) of the 1990 Stock Plan for
Employees of General Public Utilities Corporation and
Subsidiaries) shall be subject to judicial review, under a
"de novo", rather than a deferential standard.
3
<PAGE>
11. Miscellaneous.
A. All expenses and costs in connection with the
operation of the Plan shall be borne by the Corporation.
B. All Awards under the Plan are subject to applicable
withholding for federal, state and local taxes.
C. The Participation of any Officer in the Plan may be
terminated at any time. No promise or representation, either
express or implied, is made to any Officer with respect to con-
tinued employment, transfer or promotion because of his or her
participation in the Plan.
D. Each Officer who is a participant in the Plan shall
have the status of a general unsecured creditor of the
Corporation. The Plan shall constitute a mere promise by the
Corporation to make payments in the future of the Awards provided
for herein. It is the intention of the Corporation that the
arrangements reflected in this Plan be treated as unfunded for
tax purposes and, if it should be determined that Title I of
ERISA is applicable to such arrangements, for purposes of Title I
of ERISA.
E. An Officer's rights to payments under the Plan
shall not be subject in any manner to anticipate, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment by creditors of the Officer or the Officer's
beneficiary.
4
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
General Public Utilities Corporation on Forms S-8 (File Nos. 33-28203,
33-32325, 33-42078, 33-34661, 33-32326, 33-51087 and 33-51035) and Form S-3
(File Number 33-30765) of our report dated February 2, 1994, on our audits of
the consolidated financial statements and financial statement schedules of
General Public Utilities Corporation and Subsidiaries as of December 31, 1993
and 1992 and for each of the three years in the period ended December 31,
1993, which report is included in this Annual Report on Form 10-K for the year
ended December 31, 1993. Our report on the audits of the financial statements
and financial statement schedules of General Public Utilities Corporation and
Subsidiaries as of December 31, 1993 and 1992 and for each of the three years
in the period ended December 31, 1993, contains explanatory paragraphs related
to certain contingencies which have resulted from the accident at Unit 2 of
the Three Mile Island Nuclear Generating Station, the adoption of the
provisions of Financial Accounting Standards Board's Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", and SFAS
No. 106, Pensions", in 1993, and the change in the method of accounting for
unbilled revenues in 1991.
COOPERS & LYBRAND
New York, New York
March 10, 1994
<PAGE>
