Amendment No. 2 to
SEC File No. 70-8569
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)
T. G. Howson, Douglas E. Davidson, Esq.
Vice President and 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>
GPU hereby amends its Declaration on Form U-1, docketed
in SEC File No. 70-8569, as follows:
1. By completing Item 2 thereof to read in its
entirety as follows:
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The estimated fees, commissions and expenses
expected to be incurred in connection with the proposed
transactions are as follows:
SEC Filing Fees: $ 2,000
Proxy Solicitation Fees: 14,000
Legal Fees:
Berlack, Israels & Liberman 25,000
Ballard Spahr Andrews &
Ingersoll 1,500
Miscellaneous 1,500
TOTAL $44,000
2. By filing the following exhibits in Item 6 thereof:
(a) Exhibits:
A-3 - Forms of Notice of Annual Meeting,
Proxy Statement and Form of Proxy -
- incorporated by reference to such
documents filed in File No. 1-5047.
F-1 - Opinion of Berlack, Israels &
Liberman.
F-2 - Opinion of Ballard Spahr Andrews &
Ingersoll.
G - Financial Data Schedules.
(b) Financial Statements:
1(a) - GPU (corporate) Balance Sheets,
actual and pro forma, as of
December 31, 1994, Statements of
Income and Retained Earnings,
actual and pro forma, for the
1<PAGE>
twelve months ended December 31,
1994; pro forma journal entries.
1(b) - GPU Consolidated Balance Sheets,
actual and pro forma, as of
December 31, 1994, Consolidated
Statements of Income and Retained
Earnings, actual and pro forma, for
the twelve months ended December
31, 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.
2<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:_____________________________
T. G. Howson,
Vice President and Treasurer
Date: March 16, 1995<PAGE>
EXHIBITS AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Exhibits:
F-1 - Opinion of Berlack, Israels & Liberman
F-2 - Opinion of Ballard Spahr Andrews &
Ingersoll
G - Financial Data Schedules
Financial Statements:
1(a) - GPU (corporate) Balance Sheets, actual
and pro forma, as of December 31, 1994,
Statements of Income and Retained
Earnings, actual and pro forma, for the
twelve months ended December 31, 1994;
pro forma journal entries.
1(b) - GPU Consolidated Balance Sheets, actual
and pro forma, as of December 31, 1994,
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended December 31,
1994; pro forma journal entries.<PAGE>
(LETTERHEAD OF BERLACK, ISRAELS & LIBERMAN)
EXHIBIT F-1
March 16, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: General Public Utilities Corporation
Declaration on Form U-1
SEC File No. 70-8569
Gentlemen:
We have examined the Declaration on Form U-1, dated
February 2, 1995, under the Public Utility Holding Company Act of
1935, as amended (the "Act"), filed by General Public Utilities
Corporation ("GPU") with the Securities and Exchange Commission
("Commission") and docketed in SEC File No. 70-8569, as amended
by Amendment No. 1 thereto, dated February 24, 1995, and
Amendment No. 2 thereto, dated this date, of which this opinion
is to be a part. (The Declaration, as thus to be amended, is
hereinafter referred to as the "Declaration").
The Declaration contemplates the amendment of GPU's
Articles of Incorporation to (1) increase the number of
authorized shares of common stock to 350,000,000 from the present
150,000,000 with a par value of $2.50 each and (2) eliminate the
remaining preemptive rights of GPU shareholders to purchase
additional shares of GPU common stock and the solicitation
therefor of proxies from shareholders. On February 27, 1995, the
Commission issued an order authorizing such solicitation (HCAR
No. 35-26239).
We have been counsel to GPU and to its subsidiaries for
many years. In such capacity, we have participated in various
proceedings relating to GPU and its subsidiaries, and we are
familiar with the terms of the outstanding securities of the
corporations comprising the GPU holding company system.<PAGE>
Securities and Exchange Commission
March 16, 1995
Page 2
We have examined copies, signed, certified or otherwise
proven to our satisfaction of the charter documents and by-laws
of GPU. We have also examined such other documents, instruments
and agreements and have made such further investigation as we
have deemed necessary as a basis for this opinion. Insofar as
matters of Pennsylvania law are concerned, we have relied on the
opinion of Ballard Spahr Andrews & Ingersoll being filed as
Exhibit F-2 to the Application.
Based upon and subject to the foregoing, and assuming
that the transactions therein proposed are carried out in
accordance with the Declaration, we are of the opinion that when
(i) the proposed amendments to GPU's Articles of Incorporation
shall have been approved by the favorable vote of the holders of
a majority of the outstanding shares of GPU common stock entitled
to vote thereon, (ii) all such amendments shall become effective
in accordance with the laws of the Commonwealth of Pennsylvania,
and (iii) the Commission shall have entered an order forthwith
granting the Declaration,
(a) all State laws applicable to the proposed
transactions will have been complied with,
(b) GPU is validly organized and duly existing under
the laws of the Commonwealth of Pennsylvania, and
(c) the consummation of the transactions proposed
in the Declaration will not violate the legal rights of
the holders of any securities issued by GPU or any
"associate company" thereof, as defined in the Act.
We hereby consent to the filing of this opinion as an
exhibit to the Declaration and in any proceedings before the
Commission that may be held in connection therewith.
Very truly yours,
BERLACK, ISRAELS & LIBERMAN<PAGE>
(LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL)
EXHIBIT F-2
March 16, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: General Public Utilities Corporation
Declaration on Form U-1
SEC File No. 70-8569
Ladies and Gentlemen:
We have examined the Declaration on Form U-1, dated
February 2, 1995, under the Public Utility Holding Company Act of
1935, as amended (the "Act"), filed by General Public Utilities
Corporation ("GPU") with the Securities and Exchange Commission
("Commission") and docketed in SEC File No. 70-8569, as amended
by Amendment No. 1 thereto, dated February 24, 1995, and
Amendment No. 2 thereto, dated this date, of which this opinion
is to be a part. (The Declaration, as amended, is hereinafter
referred to as the "Declaration").
The Declaration contemplates the amendment of GPU's
Articles of Incorporation to (1) increase the number of
authorized shares of common stock to 350,000,000 from the present
150,000,000, with a par value of $2.50 each and (2) eliminate the
remaining preemptive rights of holders of GPU common stock to
purchase additional shares of GPU common stock and the
solicitation therefor of proxies from holders of GPU common
stock. On February 27, 1995, the Commission issued an order
authorizing such solicitation (HCAR No. 35-26239).
We have acted as Pennsylvania counsel to GPU and to its
subsidiaries for many years. In connection with this opinion, we
have examined copies, signed, certified or otherwise proven to
our satisfaction of the charter documents and by-laws of GPU. We
have also examined such other documents, instruments and
agreements and have made such further investigation as we have
deemed necessary as a basis for this opinion. <PAGE>
Securities and Exchange Commission
March 16, 1995
Page 2
Based upon and subject to the foregoing, and assuming
that the transactions therein proposed are carried out in
accordance with the Declaration, we are of the opinion insofar as
matters of Pennsylvania law apply, that:
(a) GPU is validly organized and duly existing under
the laws of the Commonwealth of Pennsylvania; and
(b) when (i) the proposed amendments to GPU's Articles
of Incorporation shall have been approved by the favorable vote
of the holders of a majority of the outstanding shares of GPU
common stock entitled to vote thereon, (ii) all such amendments
shall become effective in accordance with the laws of the
Commonwealth of Pennsylvania, and (iii) the Commission shall have
entered an order forthwith granting the Declaration, all State
laws applicable to the proposed transactions will have been
complied with and the consummation of the transactions proposed
in the Declaration will not violate the legal rights of the
holders of any securities issued by GPU, Pennsylvania Electric
Company, Penelec Preferred Capital, Inc., Penelec Capital, L.P.
or Ninevah Water Company.
We hereby consent to the filing of this opinion as an
exhibit to the Declaration and in any proceedings before the
Commission that may be held in connection therewith.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL<PAGE>
[ARTICLE] OPUR1
[MULTIPLIER] 1,000
[CURRENCY] US DOLLARS
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] DEC-31-1994 DEC-31-1994
[PERIOD-START] JAN-01-1994 JAN-01-1994
[PERIOD-END] DEC-31-1994 DEC-31-1994
[EXCHANGE-RATE] 1 1
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 0 0
[OTHER-PROPERTY-AND-INVEST] 2,741,801 2,741,851
[TOTAL-CURRENT-ASSETS] 15,142 15,092
[TOTAL-DEFERRED-CHARGES] 0 0
[OTHER-ASSETS] 0 0
[TOTAL-ASSETS] 2,756,943 2,756,943
[COMMON] 314,458 314,458
[CAPITAL-SURPLUS-PAID-IN] 670,817 670,817
[RETAINED-EARNINGS] 1,769,909 1,769,909
[TOTAL-COMMON-STOCKHOLDERS-EQ] 2,574,133 <F1> 2,574,133 <F1>
[PREFERRED-MANDATORY] 0 0
[PREFERRED] 0 0
[LONG-TERM-DEBT-NET] 0 0
[SHORT-TERM-NOTES] 126,000 126,000
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 0 0
[LONG-TERM-DEBT-CURRENT-PORT] 0 0
[PREFERRED-STOCK-CURRENT] 0 0
[CAPITAL-LEASE-OBLIGATIONS] 0 0
[LEASES-CURRENT] 0 0
[OTHER-ITEMS-CAPITAL-AND-LIAB] 56,810 56,810
[TOT-CAPITALIZATION-AND-LIAB] 2,756,943 2,756,943
[GROSS-OPERATING-REVENUE] 0 0
[INCOME-TAX-EXPENSE] 0 0
[OTHER-OPERATING-EXPENSES] 3,481 3,481
[TOTAL-OPERATING-EXPENSES] 3,481 3,481
[OPERATING-INCOME-LOSS] (3,481) (3,481)
[OTHER-INCOME-NET] 172,312 172,312
[INCOME-BEFORE-INTEREST-EXPEN] 168,831 168,831
[TOTAL-INTEREST-EXPENSE] 5,143 5,143
[NET-INCOME] 163,688 163,688
[PREFERRED-STOCK-DIVIDENDS] 0 0
[EARNINGS-AVAILABLE-FOR-COMM] 163,688 163,688
[COMMON-STOCK-DIVIDENDS] 207,215 207,215
[TOTAL-INTEREST-ON-BONDS] 0 0
[CASH-FLOW-OPERATIONS] 142 142
[EPS-PRIMARY] 1.42 1.42
[EPS-DILUTED] 1.42 1.42
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $181,051.
</FN>
/TABLE
<PAGE>
[ARTICLE] OPUR1
[MULTIPLIER] 1000
[CURRENCY] US DOLLARS
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] DEC-31-1994 DEC-31-1994
[PERIOD-START] JAN-01-1994 JAN-01-1994
[PERIOD-END] DEC-31-1994 DEC-31-1994
[EXCHANGE-RATE] 1 1
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 6,266,598 6,266,598
[OTHER-PROPERTY-AND-INVEST] 492,493 492,493
[TOTAL-CURRENT-ASSETS] 785,602 785,602
[TOTAL-DEFERRED-CHARGES] 1,665,084 1,665,084
[OTHER-ASSETS] 0 0
[TOTAL-ASSETS] 9,209,777 9,209,777
[COMMON] 314,458 314,458
[CAPITAL-SURPLUS-PAID-IN] 663,418 663,418
[RETAINED-EARNINGS] 1,775,759 1,775,759
[TOTAL-COMMON-STOCKHOLDERS-EQ] 2,572,584 <F1> 2,572,584
[PREFERRED-MANDATORY] 150,000 150,000
[PREFERRED] 303,116 <F2> 303,116
[LONG-TERM-DEBT-NET] 2,345,417 2,345,417
[SHORT-TERM-NOTES] 287,800 287,800
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 59,608 59,608
[LONG-TERM-DEBT-CURRENT-PORT] 91,165 91,165
[PREFERRED-STOCK-CURRENT] 0 0
[CAPITAL-LEASE-OBLIGATIONS] 16,982 16,982
[LEASES-CURRENT] 157,168 157,168
[OTHER-ITEMS-CAPITAL-AND-LIAB] 3,225,937 3,225,937
[TOT-CAPITALIZATION-AND-LIAB] 9,209,777 9,209,777
[GROSS-OPERATING-REVENUE] 3,649,516 3,649,516
[INCOME-TAX-EXPENSE] 152,047 152,047
[OTHER-OPERATING-EXPENSES] 3,008,944 3,008,944
[TOTAL-OPERATING-EXPENSES] 3,160,991 3,160,991
[OPERATING-INCOME-LOSS] 488,525 488,525
[OTHER-INCOME-NET] (81,155) (81,155)
[INCOME-BEFORE-INTEREST-EXPEN] 407,370 407,370
[TOTAL-INTEREST-EXPENSE] 243,682 <F3> 243,682
[NET-INCOME] 163,688 163,688
[PREFERRED-STOCK-DIVIDENDS] 0 0
[EARNINGS-AVAILABLE-FOR-COMM] 163,688 163,688
[COMMON-STOCK-DIVIDENDS] 204,233 204,233
[TOTAL-INTEREST-ON-BONDS] 183,186 183,186
[CASH-FLOW-OPERATIONS] 750,133 750,133
[EPS-PRIMARY] 1.42 1.42
[EPS-DILUTED] 1.42 1.42
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $181,051.
<F2> INCLUDES PREFERRED SECURITIES OF SUBSIDIARIES OF $205,000.
<F3> INCLUDES PREFERRED DIVIDENDS OF SUBSIDIARIES OF $28,384.
</FN>
/TABLE
<PAGE>
<TABLE>
Financial Statements
Item 6(b) 1(a)
Page 1 of 18
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1994
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (See page 3) Pro Forma
<S>
ASSETS <C> <C> <C>
Investments:
Investments in subsidiaries $2 737 743 $ 50 $2 737 793
Other investments 4 058 - 4 058
Total investments 2 741 801 50 2 741 851
Current Assets:
Cash and temporary cash investments 14 377 (50) 14 327
Accounts receivable, net 760 - 760
Prepayments 5 - 5
Total current assets 15 142 (50) 15 092
Total Assets $2 756 943 $ - $2 756 943
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ - $ 314 458
Capital surplus 670 817 - 670 817
Retained earnings 1 769 909 - 1 769 909
Total 2 755 184 - 2 755 184
Less: reacquired common stock, at cost 181 051 - 181 051
Total common stockholders's equity 2 574 133 - 2 574 133
Current Liabilities:
Notes payable 126 000 - 126 000
Accounts payable 262 - 262
Taxes accrued 5 - 5
Interest accrued 810 - 810
Other 54 701 - 54 701
Total current liabilities 181 778 - 181 778
Deferred credits and other liabilities 1 032 - 1 032
Total Liabilities and Capital $2 756 943 $ - $2 756 943
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
Financial Statements
Item 6(b) 1(a)
Page 2 of 18
<CAPTION>
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
Adjustments
Actual (See page 3) Pro Forma
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 171 543 $ - $ 171 543
Other income, net 769 - 769
Total 172 312 - 172 312
Expense, Taxes and Interest:
General expenses 3 481 $ - 3 481
Income tax expense - - -
Interest expense 5 143 - 5 143
Total 8 624 - 8 624
Net Income $ 163 688 $ - $ 163 688
Retained Earnings:
Balance at beginning of period $1 815 740 $ - $1 815 740
Add - Net income 163 688 - 163 688
Deduct - Cash dividends on common stock 207 215 - 207 215
Other adjustments 2 304 - 2 304
Balance at end of period $1 769 909 $ - $1 769 909
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 1(a)
Page 3 of 18
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1994
(IN THOUSANDS)
(1)
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).
<PAGE>
<TABLE>
Financial Statements
Item 6(b) 1(b)
Page 4 of 18
<CAPTION>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1994
(IN THOUSANDS)
Actual Adjustments Pro Forma
<S> <C> <C> <C>
ASSETS
Utility Plant:
In Service, at original cost $8 879 630 $ - $8 879 630
Less, accumulated depreciation 3 148 668 - 3 148 668
Net utility plant in service 5 730 962 - 5 730 962
Construction work in progress 340 248 - 340 248
Other, net 195 388 - 195 388
Net utility plant 6 266 598 - 6 266 598
Other Property and Investments:
Nuclear decommissioning trusts 260 482 - 260 482
Nonregulated investments, net 115 538 - 115 538
Nuclear fuel disposal fund 82 920 - 82 920
Other, net 33 553 - 33 553
Total other property and investments 492 493 - 492 493
Current Assets:
Cash and temporary cash investments 26 731 - 26 731
Special deposits 10 226 - 10 226
Accounts receivable:
Customers, net 248 728 - 248 728
Other 56 903 - 56 903
Unbilled revenues 113 581 - 113 581
Materials and supplies, at average cost or less:
Construction and maintenance 184 644 - 184 644
Fuel 55 498 - 55 498
Deferred energy costs 8 728 - 8 728
Deferred income taxes 18 399 - 18 399
Prepayments 62 164 - 62 164
Total current assets 785 602 - 785 602
Deferred Debits and Other Assets:
Three Mile Island Unit 2 deferred costs 157 042 - 157 042
Unamortized property losses 108 699 - 108 699
Deferred income taxes 428 897 - 428 897
Income taxes recoverable through future rates 561 498 - 561 498
Other 408 948 - 408 948
Total deferred debits and other assets 1 665 084 - 1 665 084
Total Assets $9 209 777 $ - $9 209 777
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Financial Statements
Item 6(b) 1(b)
Page 5 of 18
<CAPTION>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1994
(IN THOUSANDS)
Actual Adjustments Pro Forma
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314 458 $ - $ 314 458
Capital surplus 663 418 - 663 418
Retained earnings 1 775 759 - 1 775 759
Total 2 753 635 - 2 753 635
Less, reacquired common stock, at cost 181 051 - 181 051
Total common stockholders' equity 2 572 584 - 2 572 584
Cumulative preferred stock:
With mandatory redemption 150 000 - 150 000
Without mandatory redemption 98 116 - 98 116
Preferred securities of subsidiaries 205 000 - 205 000
Long-term debt 2 345 417 - 2 345 417
Total capitalization 5 371 117 - 5 371 117
Current Liabilities:
Debt due within one year 91 165 - 91 165
Notes payable 347 408 - 347 408
Obligations under capital leases 157 168 - 157 168
Accounts payable 317 259 - 317 259
Taxes accrued 80 027 - 80 027
Interest accrued 66 628 - 66 628
Other 213 041 - 213 041
Total current liabilities 1 272 696 - 1 272 696
Deferred Credits and Other Liabilities:
Deferred income taxes 1 438 743 - 1 438 743
Unamortized investment tax credits 156 262 - 156 262
Three Mile Island Unit 2 future costs 341 139 - 341 139
Other 629 820 - 629 820
Total deferred credits and other liabilities 2 565 964 - 2 565 964
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $9 209 777 $ - $9 209 777
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Financial Statements
Item 6(b) 1(b)
Page 6 of 18
<CAPTION>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
Actual Adjustments Pro Forma
<S> <C> <C> <C>
Operating Revenues $3 649 516 $ - $3 649 516
Operating Expenses:
Fuel 363 834 - 363 834
Power purchased and interchanged 894 560 - 894 560
Deferral of energy costs, net (29 025) - (29 025)
Other operation and maintenance 1 076 925 - 1 076 925
Depreciation and amortization 353 705 - 353 705
Taxes, other than income taxes 348 945 - 348 945
Total operating expenses 3 008 944 - 3 008 944
Operating Income Before Income Taxes 640 572 - 640 572
Income taxes 152 047 - 152 047
Operating income 488 525 - 488 525
Other Income and Deductions:
Allowance for other funds used during
construction 4 712 - 4 712
Other income, net (152 236) - (152 236)
Income taxes 66 369 - 66 369
Total other income and deductions (81 155) - (81 155)
Income Before Interest Charges and
Preferred Dividends 407 370 - 407 370
Interest Charges and Preferred Dividends:
Interest on long-term debt 183 186 - 183 186
Other interest 39 227 - 39 227
Allowance for borrowed funds used during
construction (7 115) - (7 115)
Dividends on preferred securities of subsidiaries 7 692 - 7 692
Preferred stock dividends of subsidiaries 20 692 - 20 692
Total interest charges and preferred
dividends 243 682 - 243 682
Net Income $ 163 688 $ - $ 163 688
Retained Earnings:
Balance at beginning of period $1 813 490 $ - $1 813 490
Add - Net income 163 688 - 163 688
Deduct - Cash dividends on common stock 207 215 - 207 215
Other adjustments (5 796) - (5 796)
Balance at end of period $1 775 759 $ - $1 775 759
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
<PAGE>
Financial Statements
Item 6(b)
Page 7 of 18
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 Energy Initiatives, Inc. (EI) and EI
Power, Inc., which develop, own and operate 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. 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. At December 31, the
Subsidiaries' net investment in TMI-1, TMI-2 and Oyster Creek, including
nuclear fuel, was as follows:
Net Investment (Millions)
TMI-1 TMI-2 Oyster Creek
1994 $627 $103 $817
1993 $670 $115 $784
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 (see NUCLEAR PLANT RETIREMENT COSTS). Management intends, in general,
to seek recovery of such costs through the ratemaking process, but recognizes
that recovery is not assured (see COMPETITION AND THE CHANGING REGULATORY
ENVIRONMENT).
<PAGE>
Financial Statements
Item 6(b)
Page 8 of 18
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 accident 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 the 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 had 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, in March 1994, the defendants in the TMI-2 litigation and
the insurers agreed that the insurers would withdraw their reservation of
rights, with respect to any award of punitive damages.
In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of ten allegedly representative
cases is likely to begin in 1996. 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
<PAGE>
Financial Statements
Item 6(b)
Page 9 of 18
General Public Utilities Corporation and Subsidiary Companies
for summary judgment. In July 1994, the Court granted defendants' motion for
interlocutory appeal of these orders, stating that they raise questions of law
that contain substantial grounds for differences of opinion. The issues are
now before the United States Court of Appeals.
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 (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 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 has been developed which takes the
accident into account (see TMI-2 Future Costs). 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 considered 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).
<PAGE>
Financial Statements
Item 6(b)
Page 10 of 18
General Public Utilities Corporation and Subsidiary Companies
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 amounts written off for
TMI-2 nuclear plant decommissioning in 1990 and 1991 to TMI-2's external trust
and will await resolution of the case pending before the Pennsylvania Supreme
Court before making any further contributions for amounts written off by Met-
Ed and Penelec in 1994. Amounts deposited in external trusts, including the
interest earned on these funds, are classified as Nuclear Decommissioning
Trusts on the balance sheet.
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 of $15.3 million
for TMI-1 and $31.6 million for Oyster Creek adopted in rate orders issued in
1991 and 1993 by the New Jersey Board of Public Utilities (NJBPU), for its
share of the cost of removal of nonradiological structures and materials. 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
that 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. Provision for the
future expenditures of these funds has been made in accumulated depreciation,
amounting to $46 million for TMI-1 and $100 million for Oyster Creek at
December 31, 1994. Oyster Creek and TMI-1 retirement costs are 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 current ratemaking process.
TMI-2 Future Costs:
The Corporation and its Subsidiaries have recorded a liability for the
radiological decommissioning of TMI-2, reflecting the NRC funding target in
1994 dollars. The Subsidiaries record escalations, when applicable, in the
liability based upon changes in the NRC funding target. The Subsidiaries have
also recorded a liability for incremental costs specifically attributable
to monitored storage. In addition, the Subsidiaries have recorded a liability for
<PAGE>
Financial Statements
Item 6(b)
Page 11 of 18
General Public Utilities Corporation and Subsidiary Companies
nonradiological cost of removal consistent with the TMI-1 site-specific study
and have spent $2 million as of December 31, 1994. Estimated Three Mile
Island Unit 2 Future Costs as of December 31, 1994 and 1993 are as follows:
(Millions) (Millions)
1994 1993
Radiological Decommissioning $250 $229
Nonradiological Cost of Removal 72 71
Incremental Monitored Storage 19 20
Total $341 $320
The above amounts are reflected as Three Mile Island Unit 2 Future Costs
on the balance sheet. At December 31, 1994, $109 million was in trust funds
for TMI-2 and included in Nuclear Decommissioning Trusts on the balance sheet,
and $56 million was recoverable from customers and included in Three Mile
Island Unit 2 Deferred Costs on the balance sheet.
In 1993, a PaPUC rate order for Met-Ed allowed for the future recovery
of certain TMI-2 retirement costs. The Pennsylvania Office of Consumer
Advocate requested the Commonwealth Court to set aside the PaPUC's 1993 rate
order and in 1994, the Commonwealth Court reversed the PaPUC order. In
December 1994, the Pennsylvania Supreme Court granted Met-Ed's request to
review that decision. As a consequence of the Commonwealth Court decision,
Met-Ed recorded pre-tax charges totaling $127.6 million during 1994. Penelec,
which is also subject to PaPUC regulation, recorded pre-tax charges of
$56.3 million during 1994, 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 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 will await resolution of the case pending before the Pennsylvania
Supreme Court before making any nonrecoverable funding contributions to
external trusts for their share of these costs. The Pennsylvania Subsidiaries
will be similarly required to charge to expense their share of future
increases 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 NJBPU 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.
<PAGE>
Financial Statements
Item 6(b)
Page 12 of 18
General Public Utilities Corporation and Subsidiary Companies
As a result of TMI-2's entering long-term monitored storage in late
1993, the Subsidiaries are incurring incremental annual storage costs of
approximately $1 million. The Subsidiaries estimate that the remaining annual
storage costs will total $19 million through 2014, the expected retirement
date of TMI-1. JCP&L's rates reflect its $5 million share of these costs.
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 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 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
$8.9 billion. Coverage for the first $200 million of such liability is
provided by private insurance. The remaining coverage, or secondary financial
protection, is provided by retrospective premiums payable by all nuclear
reactor owners. Under secondary financial 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 (TMI-2 is excluded under
an exemption received from the NRC in 1994), subject to an annual maximum
payment of $10 million per incident per reactor.
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 beginning at $1.8 million for Oyster Creek and $2.6 million for
TMI-1 per week for the first year, decreasing by 20 percent for years two and
three.
Under its insurance policies applicable to nuclear operations and
facilities, the GPU System is subject to retrospective premium assessments of
up to $69 million in any one year, in addition to those payable (up to $20
million annually per incident) under the Price-Anderson Act.
<PAGE>
Financial Statements
Item 6(b)
Page 13 of 18
General Public Utilities Corporation and Subsidiary Companies
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
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 (FAS 71),
"Accounting for the Effects of Certain Types of Regulation," 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.
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 at the
contract price all of the power produced up to the contract limits. As of
December 31, 1994, facilities covered by these agreements having 1,416 MW
(JCP&L 882 MW, Met-Ed 239 MW and Penelec 295 MW) of capacity were in service
and 130 MW were scheduled
<PAGE>
Financial Statements
Item 6(b)
Page 14 of 18
General Public Utilities Corporation and Subsidiary Companies
to commence operation in 1995. Payments made pursuant to these agreements were
$528 million, $491 million and $471 million for 1994, 1993 and 1992,
respectively. For the years 1995, 1996, 1997, 1998, and 1999, payments
pursuant to these agreements are estimated to aggregate $694 million,
$918 million, $1,088 million, $1,304 million and $1,337 million, respectively.
These agreements, together with those for facilities which are not yet in
operation, provide for the purchase of approximately 2,596 MW (JCP&L 1,176 MW,
Met-Ed 846 MW and Penelec 574 MW) of capacity and energy by the GPU System by
the mid-to-late 1990s, at varying prices.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the System's energy supply needs which has caused
the Subsidiaries to change their supply strategy to now seek shorter-term
agreements offering more flexibility (see Management's Discussion and Analysis
-COMPETITIVE ENVIRONMENT). Due to the current availability of excess capacity
in the market place, the cost of near- to intermediate-term (i.e., one to
eight years) energy supply from existing generation facilities is currently
competitively priced. The projected cost of energy from new generation supply
sources has also decreased due to improvements in power plant technologies and
reduced forecasted fuel prices. As a result of these developments, the rates
under virtually all of the Subsidiaries' nonutility generation agreements are
substantially in excess of current and projected prices from alternative
sources. These agreements have been entered into pursuant to the requirements
of the federal Public Utility Regulatory Policies Act and state regulatory
directives. The Subsidiaries have initiated lawful actions which are intended
to substantially reduce these above market payments. In addition, the
Subsidiaries intend to avoid, to the maximum extent practicable, entering into
any new nonutility generation agreements that are not needed or not consistent
with current market pricing. The Subsidiaries are also attempting to
renegotiate, and in some cases buy out, high cost long-term nonutility
generation agreements.
While the Subsidiaries thus far have been granted recovery of their
nonutility generation costs from customers by the PaPUC and NJBPU, there can
be no assurance that the Subsidiaries will continue to be able to recover
these costs throughout the term of the related agreements. GPU currently
estimates that in 1998, when substantially all of the these nonutility
generation projects are scheduled to be in service, above market payments
(benchmarked against the expected cost of electricity produced by a new gas-
fired combined cycle facility) will range from $300 million to $450 million
annually. Moreover, efforts to lower these costs 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.
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
<PAGE>
Financial Statements
Item 6(b)
Page 15 of 18
General Public Utilities Corporation and Subsidiary Companies
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,
decommission 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 generating facilities, 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.
To comply with the federal Clean Air Act Amendments (Clean Air Act) of
1990, the Subsidiaries expect to spend up to $380 million for air pollution
control equipment by the year 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 allowance market
and the use of low-sulfur fuel or retirement of facilities. In September
1994, the Ozone Transport Commission (OTC), consisting of representatives of
12 northeast states (including New Jersey and Pennsylvania) and the District
of Columbia, proposed reductions in nitrogen oxide (NOx) emissions it believes
necessary to meet ambient air quality standards for ozone and the statutory
deadlines set by the Clean Air Act. The Corporation expects that the U.S.
Environmental Protection Agency (EPA) will approve the proposal, and that as a
result, the Subsidiaries will spend an estimated $60 million, beginning in
1997, to meet the reductions set by the OTC. The OTC requires additional NOx
reductions to meet the Clean Air Act's 2005 National Ambient Air Quality
Standards for ozone. However, the specific requirements that will have to be
met, at that time, have not been finalized. The Subsidiaries are unable to
determine what, if any, additional costs will be incurred.
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 13 hazardous and/or toxic
waste sites. In addition, the Subsidiaries have been requested to voluntarily
participate in the remediation or 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 Subsidiaries.
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. As of December 31, 1994, JCP&L has an
estimated environmental liability of $32 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
<PAGE>
Financial Statements
Item 6(b)
Page 16 of 18
General Public Utilities Corporation and Subsidiary Companies
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. A final NJBPU order dated December 16, 1994 indicated
that interest is to be accrued retroactive to June 1993. JCP&L is pursuing
reimbursement of the above costs from its insurance carriers. In November
1994, JCP&L filed a complaint with the Superior Court of New Jersey against
several of its insurance carriers, relative to these manufactured gas plant
sites. JCP&L requested the Court to order the insurance carriers to reimburse
JCP&L for all amounts it has paid, or may be required to pay, in connection
with the remediation of the sites.
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.
OTHER COMMITMENTS AND CONTINGENCIES
During 1994, the Corporation's Subsidiaries offered Voluntary Enhanced
Retirement Programs (VERP) to certain employees. The enhanced retirement
programs were part of a corporate realignment undertaken in 1994.
Approximately 82% of eligible employees accepted the retirement programs,
resulting in a pre-tax charge to earnings of $127 million. These charges are
included as Other Operation and Maintenance on the income statement.
The GPU System's construction programs, for which substantial
commitments have been incurred and which extend over several years,
contemplate expenditures of $482 million during 1995. As a consequence of
reliability, licensing, environmental and other requirements, 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 such costs through
the ratemaking process, but recognizes that recovery is not assured.
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 1995 and the end of the expected service lives of the generating
stations, require the
<PAGE>
Financial Statements
Item 6(b)
Page 17 of 18
General Public Utilities Corporation and Subsidiary Companies
purchase of either fixed or minimum amounts of the stations' coal
requirements. The price of the coal under the contracts is based on
adjustments of indexed cost components. One contract also includes a
provision for the payment of environmental and postretirement benefits. The
Subsidiaries' share of the cost of coal purchased under these agreements is
expected to aggregate $98 million for 1995.
The Subsidiaries have entered into agreements and JCP&L is completing
contract negotiations with three other utilities to purchase capacity and
energy for various periods through 2004. These agreements, including
contracts under negotiation, will provide for up to 1,308 MW in 1995,
declining to 1,096 MW in 1997 and 696 MW by 2004. For the years 1995, 1996,
1997, 1998, and 1999, payments pursuant to these agreements are estimated to
aggregate $208 million, $175 million, $162 million, $145 million and $128
million, respectively. JCP&L's contract negotiations are the result of their
all-source solicitation for competitively priced, short- to intermediate-term
energy and capacity, described in the New Energy Supplies section of
Management's Discussion and Analysis.
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 Division 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. 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 1994, the NJBPU
ruled that the 1991 LEAC period was considered closed but subsequent LEACs
remain open for further investigation. This matter is pending before a NJBPU
Administrative Law Judge. Management estimates that the potential exposure
for LEAC periods subsequent to 1991 is approximately $67 million through
February 1996, the end of the next LEAC period. There can be no assurance as
to the outcome of this proceeding.
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
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 $11 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 in 1995.
<PAGE>
Financial Statements
Item 6(b)
Page 18 of 18
General Public Utilities Corporation and Subsidiary Companies
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 types of matters would have a material effect on the GPU
System's financial position or results of operations.
</FN>
</TABLE>
<PAGE>
