SEC File No. 70-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GENERAL PUBLIC UTILITIES CORPORATION ("GPU")
100 Interpace Parkway
Parsippany, New Jersey 07054
(Name of company filing this statement and address
of principal executive office)
Don W. Myers, Vice President and Douglas E. Davidson, Esq.
Treasurer Berlack, Israels & Liberman
M. A. Nalewako, Secretary 120 West 45th Street
GPU Service Corporation New York, New York 10036
100 Interpace Parkway
Parsippany, New Jersey 07054
(Names and addresses of agents for service)
<PAGE>
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
A. GPU proposes to issue and sell for cash from time
to time commencing with the granting of the authorization herein
sought through December 31, 1996 up to 5,000,000 additional
shares of its common stock, par value $2.50 per share (the
"Additional Common Stock"). GPU would issue and sell the
Additional Common Stock to the public from time to time either
through (i) one or more negotiated transactions with one or more
underwriters or (ii) one or more selling or placement agents who
regularly engage in the sale or placement of such securities
pursuant to a selling agency or distribution agreement, or any
combination of the foregoing. In addition, GPU may sell
Additional Common Stock to a selling agent, as principal, for
resale to the public either directly or through dealers. It is
anticipated that such sales would be made from time to time in
one or more market transactions on the floor of the New York
Stock Exchange or any regional exchange on which GPU's common
stock may be admitted to trading privileges, in block
transactions on such exchanges and/or in fixed price offerings
off the floor of such exchanges or other such special type
offerings or distributions made in accordance with the rules of
such exchanges.
B. GPU has a total of 150 million authorized shares
of common stock, of which 115,079,626 shares were issued and
outstanding at June 30, 1994. In addition, GPU had 10,703,712
reacquired shares at that date. The Additional Common Stock
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would be sold either from authorized and unissued shares or
reacquired shares.
C. The issuance and sale of the Additional Common
Stock in the manner herein proposed would not be subject to
preemptive rights of GPU's present holders of common stock by
virtue of Article 9(a) of GPU's Articles of Incorporation, as
amended, which does not provide preemptive rights for GPU's
present stockholders with respect to an issuance and sale of GPU
common stock solely for money and through, among other things, a
public offering thereof or an offering to or through underwriters
or dealers who agree promptly to make a public offering thereof.
D. GPU will utilize the net proceeds (after deduction
of commissions and expenses) from the sale of the Additional
Common Stock to make cash capital contributions (pursuant to the
authorization heretofore granted by orders dated March 6, 1992,
HCAR No. 35-25486 and March 25, 1994, HCAR No. 35-26011 or as may
be hereafter granted by the Commission) to its electric operating
subsidiaries, Jersey Central Power & Light Company, Metropolitan
Edison Company ("Met-Ed") and Pennsylvania Electric Company
("Penelec") (collectively, the "Operating Subsidiaries") which in
turn will use such funds (i) to repay outstanding indebtedness,
(ii) to redeem outstanding senior securities in accordance with
the optional redemption provisions thereof should it prove
economic to do so, (iii) for construction purposes, (iv) for
other corporate purposes, or (v) to reimburse their treasuries
for funds previously expended therefrom for such purposes. A
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portion of such net proceeds may also be used to reimburse GPU's
treasury for funds previously expended therefrom to make such
capital contributions, to repay outstanding GPU indebtedness, and
for other GPU corporate purposes, including the direct or
indirect acquisition of interests in exempt wholesale generators
("EWGs") and Foreign Utility Companies ("FUCOs").
E. (1) At June 30, 1994, GPU's consolidated
capitalization ratios were approximately as follows: Long-Term
Debt - 43.9%; Preferred Stock - 5.4%; Common Stock - 43.8%; and
Short-Term Debt - 6.9%.
(2) The reported closing price of GPU Common
Stock on the New York Stock Exchange Composite Tape on August 15,
1994 was $26.125 per share. If all of the Additional Common
Stock were sold at that price, at June 30, 1994, GPU's
consolidated capitalization ratios would be approximately as
follows: Long-Term Debt - 43.0%; Preferred Stock - 5.2%; Common
Stock - 45.0%; and Short-Term Debt - 6.8%. GPU has targeted a
common equity ratio of between 45.0% and 48.0%.
(3) As GPU has previously reported, in the
quarter ended June 30, 1994, GPU wrote off (after tax) $191.6
million or $1.66 per share, as a result of a decision by the
Pennsylvania Commonwealth Court disallowing recovery from
customers by Met-Ed of certain Three Mile Island Unit No. 2
future costs, restructuring charges associated with the GPU
System's Voluntary Enhanced Retirement Program and another
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Commonwealth Court decision, involving a non-affiliated utility,
disallowing deferral of certain post-retirement benefit costs.
The effect of these write-offs will severely restrict the ability
of Met-Ed and limit the ability of Penelec to issue senior
securities during the next twelve months. GPU believes that
restoration of the GPU System's equity capitalization,
particularly in light of the emerging competitive business
environment in the electric utility industry, is necessary in
order to continue to maintain the current credit ratings of the
Operating Subsidiaries.
F. GPU submits that all of the criteria of Rule
54 under the Act with respect to the issuance and sale of
Additional Common Stock are satisfied.
(i) The average consolidated retained earnings
for GPU and its subsidiaries, as reported for the four
most recent quarterly periods in GPU's Annual Report on
Form 10-K for the year ended December 31, 1993 and
Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1993, March 31, 1994 and June 30, 1994,
as filed under the Securities Exchange Act of 1934, was
approximately $1.84 billion. At the date hereof, GPU
had invested, or committed to invest, directly or
indirectly, an aggregate of approximately $12.3 million
in EWGs and $0 in FUCOs. (GPU does not own any direct
or indirect interest in a FUCO). Accordingly, GPU's
investment in EWGs and FUCOs, assuming the entire (A)
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$130 million of anticipated gross proceeds from the
sale of the Additional Common Stock and (B) $70 million
of authorized investment on behalf of its subsidiary,
Energy Initiatives, Inc., under SEC File No. 70-7727,
are invested in EWGs or FUCOs, would be approximately
11.5% of such average consolidated retained earnings,
which is well below the 50% limitation in Rule 53.
(ii) GPU maintains books and records to identify
investments in, and earnings from, each EWG and FUCO in
which it directly or indirectly holds an interest.
(A) For each United States EWG in which GPU
directly or indirectly holds an interest:
(1) the books and records for such EWG
will be kept in conformity with United States
generally accepted accounting principles ("GAAP");
(2) the financial statements will be
prepared in accordance with GAAP; and
(3) GPU directly or through its
subsidiaries undertakes to provide the Commission
access to such books and records and financial
statements as the Commission may request.
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(B) For each FUCO or foreign EWG which is a
majority-owned subsidiary of GPU:
(1) the books and records for such
subsidiary will be kept in accordance with GAAP;
(2) the financial statements for such
subsidiary will be prepared in accordance with
GAAP; and
(3) GPU directly or through its
subsidiaries undertakes to provide the Commission
access to such books and records and financial
statements, or copies thereof in English, as the
Commission may request.
(C) For each FUCO or foreign EWG in which
GPU owns 50% or less of the voting securities, GPU directly
or through its subsidiaries will proceed in good faith, to
the extent reasonable under the circumstances, to cause
(1) such entity to maintain books and
records in accordance with GAAP;
(2) the financial statements of such entity
to be prepared in accordance with GAAP; and
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(3) access by the Commission to such books
and records and financial statements (or copies
thereof) in English as the Commission may request
and, in any event, GPU will provide the
Commission, on request, copies of such materials
as are made available to GPU and its subsidiaries.
If and to the extent that such entity's books,
records or financial statements are not maintained
in accordance with GAAP, GPU will, upon request of
the Commission, describe and quantify each
material variation therefrom as and to the extent
required by subparagraphs (a) (2) (iii) (A) and
(a) (2) (iii) (B) of Rule 53.
(iii) No more than 2% of GPU's domestic public
utility subsidiary employees will render any services,
directly or indirectly, to EWGs and FUCOs in which GPU
directly or indirectly holds an interest.
(iv) Copies of this Declaration on Form U-1 are
being provided to the New Jersey Board of Public Utilities,
the Pennsylvania Public Utility Commission and the New York
Public Service Commission, the only federal, state or local
regulatory agencies having jurisdiction over the retail
rates of GPU's electric utility subsidiaries. In addition,
GPU will submit to each such commission copies of any Rule
24 certificates required hereunder, as well as a copy of
Item 9 of GPU's Form U5S and Exhibits G and H thereof
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(commencing with the Form U5S to be filed for the calendar
year in which the authorization herein requested is
granted).
(v) None of the provisions of paragraph (b) of
Rule 53 render paragraph (a) of that Rule unavailable for
the proposed transactions.
(A) Neither GPU nor any subsidiary of GPU is
the subject of any pending bankruptcy or similar
proceeding.
(B) GPU's average consolidated retained
earnings for the four most recent quarterly
periods (approximately $1.84 billion) represented
an increase of approximately $80 million in the
average consolidated retained earnings for the
previous four quarterly periods (approximately
$1.76 billion).
(C) GPU incurred no losses from direct or
indirect investments in EWGs and FUCOs in 1993.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
The estimated fees, commissions and expenses expected
to be incurred in connection with the proposed transactions will
be filed by amendment.
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ITEM 3. APPLICABLE STATUTORY PROVISIONS.
Sections 6(a) and 7 of the Act are applicable to the
proposed transactions.
ITEM 4. REGULATORY APPROVALS.
No federal or state commission, other than your
Commission, has jurisdiction with the respect to the proposed
transactions.
ITEM 5. PROCEDURE.
GPU requests that the Commission issue an order with
respect to the transactions proposed herein at the earliest
practicable date, but in any event not later than October 31,
1994. It is further requested that (i) there not be a
recommended decision by an Administrative Law Judge or other
responsible officer of the Commission, (ii) the Office of Public
Utility Regulation be permitted to assist in the preparation of
the Commission's decision and (iii) there be no waiting period
between the issuance of the Commission's order and the date on
which it is to be become effective. It is requested that the
Commission reserve jurisdiction with respect to the price to be
paid for the Additional Common Stock and the underwriting fees
and expenses relating to the issuance thereof.
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<PAGE>
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits:
A-1 - Articles of Incorporation of GPU -
Incorporated by reference to Exhibit 3-
A of the 1989 Annual Report on Form 10-
K, File No. 1-6047.
A-2 - By-laws of GPU - Incorporated by
reference to Exhibit 3-A of the 1990
Annual Report on Form 10-K, File No. 1-
6047.
A-3 - Form of Stock Certificate representing
Additional Common Stock - Incorporated
by reference to Exhibit 4, Registration
Statement on Form S-3, Registration
No. 33-30765.
B-1 - Form of Underwriting Agreement - To be
filed by amendment.
B-2 - Form of Selling Agency or Distribution
Agreement - To be filed by amendment.
C - Registration Statement on Form S-3 under
the Securities Act of 1933 relating to
the Additional Common Stock and all
amendments and exhibits thereto -
Incorporated by reference to the SEC
Registration No. to be assigned to such
registration statement.
D - Not applicable.
E - Not applicable.
F-1 - Opinion of Berlack, Israels & Liberman -
To be filed by amendment.
F-2 - Opinion of Ballard Spahr Andrews &
Ingersoll - To be filed by amendment.
G - Form of public notice.
(b) Financial Statements:
1(a) - GPU (corporate) Balance Sheets, actual
and pro forma, as of June 30, 1994,
Statements of Income and Retained
Earnings, actual and pro forma, for the
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twelve months ended June 30, 1994; pro
forma journal entries.
1(b) - GPU Consolidated Balance Sheets, actual
and pro forma, as of June 30, 1994,
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended June 30,
1994; pro forma journal entries.
2 - Reference is made to the above Financial
Statements.
3 - Not applicable.
4 - None, except as set forth in the notes
to the above Financial Statements.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
(a) The proceeds of the offering of the Additional
Common Stock received by GPU will be used by GPU to finance its
business and to finance the businesses of the Subsidiaries as
public utilities. As such, the issuance of an order by your
Commission with respect thereto is not a major Federal action
significantly affecting the quality of the human environment.
(b) No Federal agency has prepared or is preparing an
environmental impact statement with respect to the various
proposed transactions which are the subject hereof.
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<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935, THE UNDERSIGNED COMPANY HAS DULY
CAUSED THIS STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GENERAL PUBLIC UTILITIES CORPORATION
By:
Don W. Myers
Vice President and Treasurer
Date: August 19, 1994
<PAGE>
EXHIBIT AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Exhibit:
G - Form of public notice.
Financial Statements:
1(a) - GPU (corporate) Balance Sheets, actual
and pro forma, as of June 30, 1994,
Statements of Income and Retained
Earnings, actual and pro forma, for the
twelve months ended June 30, 1994; pro
forma journal entries.
1(b) - GPU Consolidated Balance Sheets, actual
and pro forma, as of June 30, 1994,
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended June 30,
1994; pro forma journal entries.
<PAGE>
EXHIBIT G
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- ___; 70 ___)
General Public Utilities Corporation
Notice of Proposal to Issue and Sell Common Stock
General Public Utilities Corporation ("GPU"), 100
Interpace Parkway, Parsippany, New Jersey 07054, has filed a
declaration with this Commission pursuant to Sections 6(a) and 7
of the Public Utility Holding Company Act of 1935 ("Act").
GPU proposes to issue and sell for cash from time to
time commencing with the granting of the authorization herein
sought through December 31, 1996 up to 5,000,000 additional
shares of its common stock, par value $2.50 per share (the
"Additional Common Stock"). GPU would issue and sell the
Additional Common Stock to the public through (i) negotiated
transactions with one or more underwriters, or (ii) one or more
selling or placement agents who regularly engage in the sale or
placement of such securities pursuant to a selling agency or
distribution agreement, or any combination of the foregoing. In
addition, GPU may sell Additional Common Stock to a selling
agent, as principal, for resale to the public either directly or
through dealers. It is anticipated that such sales would be made
from time to time in one or more market transactions on the floor
of the New York Stock Exchange or any regional exchange on which
GPU's common stock may be admitted to trading privileges, in
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block transactions on such exchanges and/or in fixed price
offerings off the floor of such exchanges or other such special
type offerings or distributions made in accordance with the rules
of such exchanges.
GPU has a total of 150 million authorized shares of
common stock, of which 115,079,626 shares were issued and
outstanding at June 30, 1994. In addition, GPU had 10,703,712
reacquired shares at that date. The Additional Common Stock
would be sold either from authorized and unissued shares or
reacquired shares.
GPU states that the proposed issuance and sale of the
Additional Common Stock would not be subject to preemptive rights
of GPU's present holders of common stock by virtue of Article
9(a) of GPU's Articles of Incorporation, as amended, which does
not provide preemptive rights for GPU's present stockholders with
respect to an issuance and sale of GPU common stock solely for
money and through, among other things, a public offering thereof
or an offering to or through underwriters or dealers who agree
promptly to make a public offering thereof.
GPU will utilize the net proceeds from the sale of the
Additional Common Stock to (i) make cash capital contributions
pursuant to authorization heretofore or which may hereafter be
granted by the Commission to its electric operating subsidiaries,
Jersey Central Power & Light Company, Metropolitan Edison Company
and Pennsylvania Electric Company, which in turn will use such
funds to (i) repay outstanding indebtedness, (ii) redeem
outstanding senior securities in accordance with the optional
redemption provisions thereof should it prove economic to do so,
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(iii) for construction purposes, (iv) for other corporate
purposes, or (v) to reimburse their treasuries for funds
previously expended therefrom for such purposes, or (vi)
reimburse GPU for funds previously expended therefrom for such
purposes. A portion of the net proceeds may also be used to
reimburse GPU's treasury for funds previously expended therefrom
to make such capital contributions, to repay outstanding GPU
indebtedness and for other GPU corporate purposes including the
direct or indirect acquisition of interests in exempt wholesale
generators and foreign utility companies as defined in Sections
32 and 33, respectively of the Act.
The declaration and any amendments thereto are
available for public inspection through the Commission's Office
of Public Reference. Interested persons wishing to comment or
request a hearing should submit their views in writing by October
15, 1994 to the Secretary, Securities and Exchange Commission,
Washington, D.C. 20549, and serve a copy on the declarant at the
address specified above. Proof of service (by affidavit or, in
the case of an attorney at law, by certificate) should be filed
with the request. Any request for a hearing shall identify
specifically the issues of fact or law that are disputed. A
person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in
this matter. After said date, the declaration, as amended or as
it may be further amended, may be granted.
For the Commission by the Division of Investment
Management, pursuant to delegated authority.
Jonathan G. Katz
Secretary
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<TABLE>
Financial Statements
Item 6(b) 1(a)
Page 1 of 20
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C>
Actual Adjustments
(Unaudited) (See page 3-4) Pro Forma
ASSETS
Investments:
Investments in subsidiaries $2 658 248 $ (7 065) $2 651 183
Other investments 3 424 - 3 424
Total investments 2 661 672 (7 065) 2 654 607
Current Assets:
Cash and temporary cash investments 21 995 207 655 229 650
Accounts receivable, net 880 - 880
Prepayments 196 - 196
Total current assets 23 071 207 655 230 726
Total Assets $2 684 743 $ 200 590 $2 885 333
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ 12 500 $ 326 958
Capital surplus 668 928 118 125 787 053
Retained earnings 1 709 750 (10 313) 1 699 437
Total 2 693 136 120 312 2 813 448
Less: reacquired common stock, at cost 183 326 - 183 326
Total common stockholders's equity 2 509 810 120 312 2 630 122
Current Liabilities:
Notes payable 118 400 82 000 200 400
Accounts payable 95 - 95
Taxes accrued 8 (1 722) (1 714)
Interest accrued 1 063 - 1 063
Other 54 426 - 54 426
Total current liabilities 173 992 80 278 254 270
Deferred credits and other liabilities 941 - 941
Total Liabilities and Capital $2 684 743 $ 200 590 $2 885 333
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
Financial Statements
Item 6(b) 1(a)
Page 2 of 20
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C>
Actual Adjustments
(Unaudited) (See page 3-4) Pro Forma
Income:
Equity in earnings of subsidiaries $ 161 459 $ (7 115) $ 154 344
Other income, net 209 - 209
Total 161 668 (7 115) 154 553
Expense, Taxes and Interest:
General expenses 3 790 3 790
Income tax expense - (1 722) (1 722)
Interest expense 2 538 4 920 7 458
Total 6 328 3 198 9 526
Net Income $ 155 340 $(10 313) $ 145 027
Retained Earnings:
Balance at beginning of period $1 762 645 $ - $1 762 645
Add - Net income 155 340 (10 313) 145 027
Deduct - Cash dividends on common stock 201 256 - 201 256
Other adjustments 6 979 - 6 979
Balance at end of period $1 709 750 $(10 313) $1 699 437
<FN>
The accompanying notes are an integral part of the financial statements.
<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1(a)
Page 3 of 20
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Cash and temporary cash investments $130 625
Common stock $ 12 500
Capital surplus $118 125
To reflect the proposed issuance of 5 million
shares of $2.50 par value common stock at $26 1/8
per share.
(2)
Cash and temporary cash investments $ 82 000
Notes payable $ 82 000
To reflect the proposed issuance of
$82 million of borrowings under the new Revolving
Credit Agreement up to the authorized limit (SEC File
No. 70-7926).
(3)
Other interest $ 4 920
Cash and temporary cash investments $ 4 920
To reflect annual interest expense resulting
from the proposed issuance of $82 million of
borrowings under the new Revolving Credit Agreement
at an assumed interest rate of 6% (SEC File
No. 70-7926).
(4)
Equity in earnings of subsidiaries $ 7 115
Investments in subsidiaries $ 7 115
To reflect the anticipated net income
effect from the (1) issuance of borrowings
under the new Revolving Credit Agreement
(SEC File No. 70-7926) and (2)leasing
of excess fiber optic system capacity
(SEC File No. 70-7850).
<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1(a)
Page 4 of 20
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(5)
<S> <C> <C>
Investment in subsidiaries $ 50
Cash and temporary cash investments $ 50
To reflect the acquisition of
all the common stock of GPU Generation
Corporation, a corporation to be formed for
$50,000 (SEC File No. 70-8409).
(6)
Taxes accrued $ 1 722
Income taxes $ 1 722
To reflect the net decrease in the provision
for federal income taxes attributable to the increase
in interest expense from the issuance of short-term
debt under the new Revolving Credit Agreement (SEC
File No. 70-7926).
<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1(b)
Page 5 of 20
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 8-9) Pro Forma
<S> <C> <C> <C>
ASSETS
Utility Plant:
In Service, at original cost $8 592 187 $ - $8 592 187
Less, accumulated depreciation 3 047 231 - 3 047 231
Net utility plant in service 5 544 956 - 5 544 956
Construction work in progress 307 760 - 307 760
Other, net 214 950 - 214 950
Net utility plant 6 067 666 - 6 067 666
Current Assets:
Cash and temporary cash investments 30 333 452 145 482 478
Special deposits 11 570 - 11 570
Accounts receivable:
Customers, net 261 721 - 261 721
Other 51 252 - 51 252
Unbilled revenues 121 718 - 121 718
Materials and supplies, at average cost or less:
Construction and maintenance 189 465 - 189 465
Fuel 50 324 - 50 324
Deferred energy costs 4 899 - 4 899
Deferred income taxes 9 601 - 9 601
Prepayments 238 535 - 238 535
Total current assets 969 418 452 145 1 421 563
Deferred Debits and Other Assets:
Three Mile Island Unit 2 deferred costs 162 328 - 162 328
Unamortized property losses 110 795 - 110 795
Deferred income taxes 427 255 - 427 255
Income taxes recoverable through future rates 560 728 - 560 728
Decommissioning funds 247 037 - 247 037
Other 633 901 - 633 901
Total deferred debits and other assets 2 142 044 - 2 142 044
Total Assets $9 179 128 $ 452 145 $9 631 273
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
Financial Statements
Item 6 (b) 1(b)
Page 6 of 20
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 8-9) Pro Forma
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314 458 $ 12 500 $ 326 958
Capital surplus 668 928 118 125 787 053
Retained earnings 1 715 678 (10 313) 1 705 365
Total 2 699 064 120 312 2 819 376
Less, reacquired common stock, at cost 183 326 - 183 326
Total common stockholders' equity 2 515 738 120 312 2 636 050
Cumulative preferred stock:
With mandatory redemption 150 000 - 150 000
Without mandatory redemption 158 242 - 158 242
Long-term debt 2 433 260 - 2 433 260
Total capitalization 5 257 240 120 312 5 377 552
Current Liabilities:
Debt due within one year 93 232 - 93 232
Notes payable 396 646 338 000 734 646
Obligations under capital leases 168 326 - 168 326
Accounts payable 261 848 - 261 848
Taxes accrued 115 638 (6 167) 109 471
Interest accrued 76 450 - 76 450
Other 193 031 - 193 031
Total current liabilities 1 305 171 331 833 1 637 004
Deferred Credits and Other Liabilities:
Deferred income taxes 1 415 125 - 1 415 125
Unamortized investment tax credits 160 573 - 160 573
Three Mile Island Unit 2 future costs 339 310 - 339 310
Other 701 709 - 701 709
Total deferred credits and other liabilities 2 616 717 - 2 616 717
Total Liabilities and Capital $9 179 128 $ 452 145 $9 631 273
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1(b)
Page 7 of 20
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 8-9) Pro Forma
<S> <C> <C> <C>
Operating Revenues $3 662 442 $ 4 000 $3 666 442
Operating Expenses:
Fuel 382 321 - 382 321
Power purchased and interchanged 912 876 - 912 876
Deferral of energy costs, net (63 988) - (63 988)
Other operation and maintenance 1 083 593 200 1 083 793
Depreciation and amortization 357 436 - 357 436
Taxes, other than income taxes 351 180 - 351 180
Total operating expenses 3 023 418 200 3 023 618
Operating Income Before Income Taxes 639 024 3 800 642 824
Income taxes 159 821 (6 167) 153 654
Operating income 479 203 9 967 489 170
Other Income and Deductions:
Allowance for other funds used during
construction 3 931 - 3 931
Other income, net (158 227) - (158 227)
Income taxes 69 840 - 69 840
Total other income and deductions (84 456) - (84 456)
Income Before Interest Charges and
Preferred Dividends 394 747 9 967 404 714
Interest Charges and Preferred Dividends:
Interest on long-term debt 185 277 - 185 277
Other interest 37 027 20 280 57 307
Allowance for borrowed funds used during
construction (5 297) - (5 297)
Preferred stock dividends of subsidiaries 22 400 - 22 400
Total interest charges and preferred
dividends 239 407 20 280 259 687
Net Income $ 155 340 $(10 313) $ 145 027
Retained Earnings:
Balance at beginning of period $1 762 645 $ - $1 762 645
Add - Net income 155 340 (10 313) 145 027
Deduct - Cash dividends on common stock 201 256 - 201 256
Other adjustments 1 051 - 1 051
Balance at end of period $1 715 678 $(10 313) $1 705 365
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1(b)
Page 8 of 20
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Cash and temporary cash investments $130 625
Common stock $ 12 500
Capital surplus $118 125
To reflect the proposed issuance of 5 million
shares of $2.50 par value common stock at $26 1/8
per share.
(2)
Cash and temporary cash investments $338 000
Notes payable $338 000
To reflect the proposed issuance of
$338 million of borrowings under the new
Revolving Credit Agreement up to the charter
limits (SEC File No. 70-7926).
(3)
Other interest $ 20 280
Cash and temporary cash investments $ 20 280
To reflect annual interest expense resulting
from the proposed issuance of $338 million of
borrowings under the new Revolving Credit Agreement
at an assumed interest rate of 6% (SEC File
No. 70-7926).
(4)
Cash and temporary cash investments $ 4 000
Operating revenues $ 4 000
To reflect the anticipated annual revenues
and cash derived from the leasing of excess fiber
optic system capacity to nonaffiliates (SEC File
No. 70-7850).
<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1(b)
Page 9 of 20
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(5)
<S> <C> <C>
Other operation and maintenance $ 200
Cash and temporary cash investments $ 200
To reflect the anticipated annual administrative
costs associated with entering into the leasing of
excess fiber optic system capacity to nonaffiliates
(SEC File No. 70-7850).
(6)
Taxes accrued $ 6 167
Income taxes $ 6 167
To reflect the net decrease in the provision
for federal and state income taxes attributable to
the (1) increase in interest expense from the proposed
issuance of short-term debt under the new Revolving Credit
Agreements (SEC File no. 70-7926) and (2) increase in
Operating Income Before Income Taxes derived from the
leasing of excess fiber optic system capacity
(SEC File No. 70-7850).
</TABLE>
<PAGE>
Financial Statements
Item 6(b)
Page 10 of 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Energy Initiatives, Inc. (EI). In
April 1994, General Portfolios Corporation (GPC) merged into its then
subsidiary EI. EI develops, owns and operates nonutility generating
facilities. All of these companies considered together with their
subsidiaries are referred to as the "GPU System."
These notes should be read in conjunction with the notes to consolidated
financial statements included in the 1993 Annual Report on Form 10-K. For
disclosures required by generally accepted accounting principles, see the 1993
Annual Report on Form 10-K.
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 June 30, 1994, the Subsidiaries' net
investment in TMI-1 and Oyster Creek, including nuclear fuel, was $648 million
and $796 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 continue to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, 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
prevailing design criteria 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 the 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 each plant's 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.
<PAGE>
Financial Statements
Item 6(b)
Page 11 of 20
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, approximately 2,100
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 and the suppliers of equipment and services
to TMI-2, and are pending in the United States District Court for the Middle
District of Pennsylvania. Some of such claims also seek recovery on the basis
of alleged emissions of radioactivity before, during and after the accident.
If, notwithstanding the developments noted below, punitive damages are
not covered by insurance and are not subject to the liability limitations of
the federal Price-Anderson Act ($560 million at the time of the accident),
punitive damage awards could have a material adverse effect on the financial
position of the GPU System.
At the time of the TMI-2 accident, as provided for in the Price-
Anderson Act, the Subsidiaries had (a) primary financial protection in the
form of insurance policies with groups of insurance companies providing an
aggregate of $140 million of primary coverage, (b) secondary financial
protection in the form of private liability insurance under an industry
retrospective rating plan providing for premium charges deferred in whole or
in major part under such plan, and (c) an indemnity agreement with the NRC,
bringing their total primary and secondary insurance financial protection and
indemnity agreement with the NRC up to an aggregate of $560 million.
The insurers of TMI-2 have been providing a defense against all TMI-2
accident related claims against the Corporation and the Subsidiaries and their
suppliers under a reservation of rights with respect to any award of punitive
damages. However, the defendants in the TMI-2 litigation and the insurers
agreed, on March 30, 1994, that the insurers would withdraw their reservation
of rights.
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 now scheduled to begin in April 1995. 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 in February 1994, 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. On July 13, 1994, however, the Court granted defendant's
motion for interlocutory appeal of its February 1994 order, stating that the
punitive damage claims and the duty owed by the defendants raise questions of
law that contain substantial grounds for differences of opinion.
<PAGE>
Financial Statements
Item 6(b)
Page 12 of 20
In an Order issued in April 1994, the Court: (1) noted that the
plaintiffs have agreed to seek punitive damages only against the Corporation
and the Subsidiaries; and (2) stated in part that the Court is of the opinion
that any punitive damages owed must be paid out of and limited to the amount
of primary and secondary insurance under the Price-Anderson Act and,
accordingly, evidence of the defendants' net worth is not relevant in the
pending proceeding.
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.
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 1994 dollars) for TMI-1 and Oyster Creek
are $157 million and $189 million, respectively. Based on NRC studies, a
comparable funding target for TMI-2 (in 1994 dollars), which takes into
account the accident, is $250 million. The NRC continues to study 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 $225 to $309 million and $239 to $350 million, respectively
(adjusted to 1994 dollars). In addition, the studies estimated the cost of
removal of nonradiological structures and materials for TMI-1 and Oyster Creek
at $74 million and $48 million, respectively (adjusted to 1994 dollars).
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
<PAGE>
Financial Statements
Item 6(b)
Page 13 of 20
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 non-
radiological costs. In addition, the Subsidiaries have contributed to
external trusts amounts written off for TMI-2 nuclear plant decommissioning in
1990 and 1991 and expect to make further contributions beginning in 1995 for
amounts written off in 1994 described below.
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, 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 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. Also in 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 retirement 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 expenditures of
these funds has been made in accumulated depreciation, amounting to
$38 million for TMI-1 and $93 million for Oyster Creek at June 30, 1994.
Oyster Creek and TMI-1 retirement costs are accrued and charged to
depreciation expense over the expected service life of each nuclear plant.
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 $250 million as of June 30, 1994, 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 had
recorded a liability in the amount of $71 million for nonradiological cost of
removal. Expenditures for such costs through June 1994 have reduced the
liability to $69 million. The above amounts for retirement costs and
monitored storage are reflected as Three Mile Island Unit 2 Future Costs on
the balance sheet.
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 was to begin when the amortization of the TMI-2 investment
ended in 1994. In May 1993, the Pennsylvania Office of Consumer Advocate filed
a petition for review with the Pennsylvania Commonwealth Court seeking to set
<PAGE>
Financial Statements
Item 6(b)
Page 14 of 20
aside the PaPUC's 1993 rate order. On July 11, 1994, the Commonwealth Court
reversed the PaPUC order. Met-Ed plans to petition the Pennsylvania Supreme
Court to review the decision. As a consequence of the Commonwealth Court
decision, Met-Ed recorded pre-tax charges totaling $127.6 million. Penelec,
because it is also subject to PaPUC regulation, recorded pre-tax charges of
$56.3 million for its share of such costs applicable to its retail customers.
These charges appear in the Other Income and Deductions section of the Income
Statement and are composed of $121.0 million for radiological decommissioning
costs, $48.2 million for the nonradiological cost of removal and $14.7 million
for incremental monitored storage costs. Met-Ed and Penelec plan to begin
making nonrecoverable funding contributions to external trusts for these costs
in the second half of 1995 to fund their share of these costs. The
Pennsylvania Subsidiaries will be similarly required to charge to expense
their share of future increases (described above) in the estimate of the costs
of retiring TMI-2. Future earnings on trust fund deposits for Met-Ed and
Penelec will be recorded as income. Prior to the Commonwealth Court's
decision, Met-Ed and Penelec expensed and contributed $40 million and
$20 million respectively, to external trusts relating to their nonrecoverable
shares of the accident-related portion of the decommissioning liability.
JCP&L has also expensed and made a nonrecoverable contribution of $15 million
to an external decommissioning trust. JCP&L's share of earnings on trust fund
deposits are offset against amounts shown on the balance sheet under Three
Mile Island Unit-2 Deferred Costs as collectible from customers.
The New Jersey Board of Public Utilities (NJBPU), formerly the New
Jersey Board of Regulatory Commissioners, has granted decommissioning revenues
for JCP&L's share of the remainder of the NRC funding target and allowances
for the cost of removal of nonradiological structures and materials. JCP&L,
which is not affected by the Commonwealth Court's ruling, 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, in late
1993, the Subsidiaries began incurring incremental annual storage costs of
approximately $1 million. The Subsidiaries estimate that incremental
monitored storage costs will total $20 million through 2014, the expected
retirement date of TMI-1. JCP&L's $5 million share of these costs has been
recognized in rates by the NJBPU.
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
<PAGE>
Financial Statements
Item 6(b)
Page 15 of 20
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 that station.
The Price-Anderson Act limits the GPU System's liability to third
parties for a nuclear incident at one of its sites to approximately
$9.1 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 two operating reactors, subject to an annual maximum
payment of $10 million per incident per reactor. In July 1994, GPUN received
an exemption from the NRC to eliminate the secondary protection requirements
for TMI-2.
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 $51 million in any one year, in addition to those payable under the
Price-Anderson Act.
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 (Clean Air Act) of
1990, the GPU System expects to expend up to $380 million for air pollution
control equipment by the year 2000. The GPU System has reduced its previous
estimate from $590 million to $380 million primarily due to the postponement
of two scrubber installations until after 2000. In developing its least-cost
plan to comply with the Clean Air Act, the GPU System will continue to
evaluate major capital investments compared to participation in the emission
<PAGE>
Financial Statements
Item 6(b)
Page 16 of 20
allowance market and the use of low-sulfur fuel or retirement of facilities.
Management believes that 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 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 June 30, 1994, 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 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 1993, the NJBPU approved a mechanism similar to JCP&L's Levelized
Energy Adjustment Clause (LEAC) for the recovery of future manufactured gas
plant remediation costs when expenditures exceed prior collections. The NJBPU
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 awaiting a final NJBPU 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.
<PAGE>
Financial Statements
Item 6(b)
Page 17 of 20
OTHER COMMITMENTS AND CONTINGENCIES
During the second quarter, the Corporation announced it was offering
voluntary enhanced retirement programs to certain employees. The enhanced
retirement programs are part of a corporate realignment announced in February
1994. At that time, the Corporation said that its goal was to achieve $80
million in annual cost savings by the end of 1996. Approximately 82% of
eligible employees have accepted the retirement programs, resulting in a pre-
tax charge to earnings of $127 million. These charges are included as Other
operation and maintenance expense on the Income Statement.
The NJBPU 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 Office of the Ratepayer Advocate (Ratepayer
Advocate), 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 1993, JCP&L and the other New Jersey electric utilities filed motions for
summary judgment with the NJBPU requesting that the NJBPU dismiss contentions
being made by Ratepayer Advocate that adjustments for alleged "double
recovery" in prior periods are warranted. Ratepayer Advocate 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 LEAC periods would be approximately $102 million. In
February 1994, the NJBPU ruled that the 1991 LEAC period was considered closed
but subsequent LEACs remain open for further investigation. It is anticipated
that the proceeding will be transmitted to the Office of Administrative Law
for further action. Management estimates that the potential exposure for LEAC
periods subsequent to 1991 is approximately $28 million through February 1995,
the end of the current LEAC period. Management is unable to estimate the
outcome of this proceeding.
As a result of the Energy Policy Act of 1992 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
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.
<PAGE>
Financial Statements
Item 6(b)
Page 18 of 20
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 currently.
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 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 2,457 MW of capacity and
energy to the GPU System by the mid-to-late 1990s. As of June 30, 1994,
facilities covered by these agreements having 1,198 MW of capacity were in
service with another 215 MW scheduled to commence operation in 1994. The
estimated cost of these agreements for 1994 is $551 million. 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 NJBPU 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.
JCP&L's two operating nuclear units are subject to the NJBPU'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
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Financial Statements
Item 6(b)
Page 19 of 20
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 NJBPU 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 for the
establishment of a nuclear performance standard. Met-Ed and Penelec expect
the PaPUC to adopt a generic nuclear performance standard as a part of their
respective energy cost rate (ECR) clauses during the latter part of 1994 or
early 1995.
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. INCOME TAXES
In March 1994, as a result of a settlement of a federal income tax
refund claim for 1986, the Subsidiaries recorded net income tax refunds
aggregating $17 million based on the retirement of TMI-2 for tax purposes.
Met-Ed and Penelec have requested the PaPUC to approve reduced charges to
customers for their respective shares of the tax refund over the twelve-month
period beginning September 1, 1994. JCP&L intends to refund the tax refund
amounts to its customers by reducing the recovery period for its investment in
TMI-2. Income tax amounts refunded will have no effect on net income.
At the same time, the Subsidiaries also recorded a total of $46 million
of net interest income representing net interest receivable from the Internal
Revenue Service associated with this refund settlement.
3. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In March 1993, the PaPUC issued a generic policy statement permitting
the deferral of incremental expense associated with the adoption by
Pennsylvania utilities of Statement of Financial Accounting Standards No. 106
(FAS 106), "Employers' Accounting for Postretirement Benefits Other Than
Pensions."
Consistent with the PaPUC policy statement, in 1993 Penelec filed a
petition with and the PaPUC issued a declaratory order approving the annual
deferral of such FAS 106 incremental expense until such expense can be
recognized in Penelec's base rates.
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Financial Statements
Item 6(b)
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In a proceeding involving an unaffiliated Pennsylvania utility, the
Pennsylvania Office of the Consumer Advocate (OCA) appealed a PaPUC
declaratory order permitting that utility to defer its incremental FAS 106
expense pending its next base rate order. On May 26, 1994, the Pennsylvania
Commonwealth Court reversed the PaPUC's declaratory order stating that FAS 106
expense incurred after January 1, 1993 (the effective date for the FAS 106
accounting change) but prior to its next base rate case could not be deferred
for future recovery as part of a later base rate case order, and that to
assure such future recovery constituted unlawful retroactive ratemaking.
Under these circumstances, management has determined that continued
deferral by Penelec of incremental FAS 106 expense is no longer appropriate.
Therefore, during the second quarter Penelec wrote off $14.6 million of such
expense deferred since January 1, 1993. In addition, $4.0 million of
Penelec's FAS 106 unrecognized transition obligation resulting from employees
who have elected to participate in the voluntary enhanced retirement programs,
was also written off during the second quarter. These charges appear in the
Other Income and Deductions section of the Income Statement. Moreover,
Penelec will annually charge to income approximately $9.6 million for the
incremental FAS 106 expense, currently applicable to retail customers.
The Court's ruling in this case does not affect Met-Ed, which had
earlier received PaPUC authorization as part of a 1993 retail base rate order
to defer incremental FAS 106 expense. In addition, the Court affirmed in June
1994 a PaPUC base rate order granting an unaffiliated water utility recovery
in current rates of its transition obligation resulting from the adoption of
FAS 106, however, the OCA has filed a petition with the Pennsylvania Supreme
Court to review the Commonwealth Court's decision. The NJBPU provided rate
treatment for incremental postretirement benefit costs, pursuant to FAS 106,
in JCP&L's 1993 retail base rate order.
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