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)
T.G. Howson, Vice President Douglas E. Davidson, Esq.
and Treasurer Berlack, Israels & Liberman LLP
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, 1998 up to 7,000,000 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, (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, (iii)
direct sales to institutional or other purchasers through
privately negotiated transactions, or (iv) 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 (x) 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,
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 and/or (y) in private placement
transactions.
B. GPU has a total of 350 million authorized shares
of common stock, of which 120,517,726 shares were issued and
outstanding at June 1, 1996.
2<PAGE>
C. 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 to its electric
and other operating subsidiaries, including EI Energy, EI Power
and Energy Initiatives (collectively, the "EI Group") which in
turn will use such funds (i) to repay or refinance outstanding
indebtedness, including indebtedness incurred in connection with
the acquisition of Midlands Electricity plc ("Midlands"), (ii) to
redeem or repurchase other outstanding senior securities, (iii)
for construction purposes, (iv) for other corporate purposes, or
(v) to reimburse their treasuries for funds previously expended
therefrom for such purposes. A 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
or refinance outstanding GPU indebtedness, and for other GPU
corporate purposes, including the acquisition by the EI Group of
interests in qualifying facilities, exempt wholesale generators
("EWGs") and foreign utility companies ("FUCOs").
D. (1) At March 31, 1996, GPU's consolidated
capitalization ratios (after giving effect to the acquisition of
a 50% interest in Midlands) were approximately as follows: Long-
Term Debt - 45.0%; Preferred Stock - 3.2%; Common Equity - 43.9%;
Preferred Securities - 4.7%; and Short-Term Debt - 3.2%.
(2) The reported closing price of GPU Common
Stock on the New York Stock Exchange Composite Tape on May 31,
1996 was $33.50 per share. If all of the Additional Common Stock
were sold at that price, such consolidated capitalization ratios
would be approximately as follows: Long-Term Debt - 41.7%;
3<PAGE>
Preferred Stock - 3.2%; Common Equity - 47.2%; Preferred
Securities - 4.7%; and Short-Term Debt - 3.2%.
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, 1995 and
Quarterly Reports on Form 10-Q for the quarters ended
June 30, 1995, September 30, 1995 and March 31, 1996,
as filed under the Securities Exchange Act of 1934, was
approximately $1.99 billion. As of May 31, 1996, GPU
had invested, or committed to invest, directly or
indirectly, an aggregate of approximately $240 million
in EWGs and $652 million in FUCOs, which as of that
date would permit GPU to make additional such
investments of approximately $105 million and remain
within the 50% ("safe harbor") limitation of Rule 53.
GPU's aggregate investment in EWGs and FUCOs, including
amounts invested pursuant to all outstanding or pending
authorizations to make investments in EWGs or FUCOs
(i.e., $500 million in SEC File No. 77-7727, $200
million in SEC File No. 70-7926, $30 million in SEC
File No. 70-8369, $200 million in SEC File No. 70-8593
and $300 million in SEC File No. 70-8843) will not at
any time exceed the "safe harbor" limitation imposed by
Rule 53 without prior Commission authorization.
4<PAGE>
(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.
(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
5<PAGE>
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
(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
6<PAGE>
rates of GPU's electric utility subsidiaries. In addition,
GPU will submit to each such agency 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 (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 renders 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 $1.99 billion) represented
an increase of approximately $199 million in the
average consolidated retained earnings for the
previous four quarterly periods (approximately
$1.79 billion).
(C) GPU did not incur operating losses from
direct or indirect investments in EWGs and FUCOs
in 1995 in excess of 5% of GPU's consolidated
retained earnings.
(vi) In accordance with Rule 54, the requirements
of paragraphs (a), (b) and (c) of Rule 53 are fulfilled.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
7<PAGE>
The estimated fees, commissions and expenses expected
to be incurred in connection with the proposed transactions will
be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
Sections 6(a) and 7 of the Act and Rules 53 and 54
thereunder are applicable to the proposed transactions.
ITEM 4. REGULATORY APPROVALS.
No federal or state commission, other than your
Commission, has jurisdiction with 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 July 26, 1996.
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.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits:
8<PAGE>
A-1 - Articles of Incorporation of GPU as
amended through March 27, 1990 -
Incorporated by reference to Exhibit 3-A
of the 1989 Annual Report on Form 10-K,
File No. 1-6047.
A-2 - Articles of Amendment to Articles of
Incorporation of GPU dated May 5, 1995 -
Incorporated by reference to Exhibit A-4
of the Certificate Pursuant to Rule 24,
File No. 70-8569.
A-3 - 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-4 - 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
LLP - 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 March 31, 1996,
Statements of Income and Retained
Earnings, actual and pro forma, for the
9<PAGE>
twelve months ended March 31, 1996; pro
forma journal entries.
1(b) - GPU Consolidated Balance Sheets, actual
and pro forma, as of March 31, 1996,
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended March 31,
1996; 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 and in
GPU's Current Reports on Form 8-K, dated
May 8 and June 10, 1996, which are
incorporated herein by reference.
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 its Subsidiaries. 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.
10<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: June 21, 1996
EXHIBITS AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Exhibits:
(a) Exhibits:
G - Form of public notice.
(b) Financial Statements:
1(a) - GPU (corporate) Balance Sheets, actual
and pro forma, as of March 31, 1996,
Statements of Income and Retained
Earnings, actual and pro forma, for the
twelve months ended March 31, 1996; pro
forma journal entries.
1(b) - GPU Consolidated Balance Sheets, actual
and pro forma, as of March 31, 1996,
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended March 31,
1996; pro forma journal entries.
2 - Reference is made to the above Financial
Statements.
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") and
Rules 53 and 54 thereunder.
GPU proposes to issue and sell for cash from time to
time commencing with the granting of the authorization herein
sought through December 31, 1998 up to 7,000,000 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, (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, (iii) direct sales to institutional or
other purchases in privately negotiated transactions, or (iv) 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 <PAGE>
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 and/or in private placement transactions.
GPU has a total of 350 million authorized shares of
common stock, of which 120,517,726 shares were issued and
outstanding at June 1, 1996.
GPU will utilize the net proceeds from the sale of the
Additional Common Stock to (i) make cash capital contributions to
its electric utility and other subsidiaries, including EI Energy,
EI Power and Energy Initiatives (collectively, the "EI Group"),
which in turn will use such funds to (i) repay or refinance
outstanding indebtedness, including indebtedness incurred in
connection with the acquisition of Midlands Electricity plc, (ii)
redeem or repurchase outstanding senior securities, (iii) for
construction purposes, (iv) for other corporate purposes, or (v)
to reimburse their treasuries 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 acquisition by the EI Group of interests in
qualifying facilities and in exempt wholesale generators and
foreign utility companies as defined in Sections 32 and 33,
respectively of the Act.
3<PAGE>
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 July
25, 1996 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.
_______________________
Secretary
4
<TABLE>
Financial Statements
Item 6(b) 1(a)
Page 1 of 28
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Adjustments
Actual (See pages 3 & 4) Pro Forma
ASSETS
<S> <C> <C> <C>
Investments:
Investments in subsidiaries $3 170 492 $ (15 596) $3 154 896
Other investments 5 059 - 5 059
Total investments 3 175 551 (15 596) 3 159 955
Current Assets:
Cash and temporary cash investments 8 977 650 578 659 555
Accounts receivable, net 25 - 25
Prepayments 247 - 247
Total current assets 9 249 650 578 659 827
Other assets 8 - 8
Total Assets $3 184 808 $ 634 982 $3 819 790
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ 17 500 $ 331 958
Capital surplus 747 563 217 000 964 563
Retained earnings 2 106 608 (35 721) 2 070 887
Total 3 168 629 198 779 3 367 408
Less: reacquired common stock, at cost 89 522 - 89 522
Total common stockholders's equity 3 079 107 198 779 3 277 886
Long-term debt - 300 000 300 000
Total capitalization 3 079 107 498 779 3 577 886
Current Liabilities:
Notes payable 100 500 149 500 250 000
Accounts payable 522 - 522
Taxes accrued 4 (13 297) (13 293)
Interest accrued 63 - 63
Other 3 336 - 3 336
Total current liabilities 104 425 136 203 240 628
Deferred credits and other liabilities 1 276 - 1 276
Total Liabilities and Capital $3 184 808 $ 634 982 $3 819 790
The accompanying note is an integral part of the financial statements.
<PAGE>
Financial Statements
Item 6(b) 1(a)
Page 2 of 28
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
Adjustments
Actual (See pages 3 & 4) Pro Forma
Income:
Equity in earnings of subsidiaries $ 483 692 $(15 596) $ 468 096
Other income, net 545 - 545
Total 484 237 (15 596) 468 641
Expense, Taxes and Interest:
General expenses 4 910 2 625 7 535
Income tax expense/(benefit) - (13 297) (13 297)
Interest expense 6 436 30 797 37 233
Total 11 346 20 125 31 471
Net Income $ 472 891 $(35 721) $ 437 170
Retained Earnings:
Balance at beginning of period $1 853 939 $ - $1 853 939
Add - Net income 472 891 (35 721) 437 170
Deduct - Cash dividends on common stock 218 288 - 218 288
Other adjustments, net 1 934 - 1 934
Balance at end of period $2 106 608 $(35 721) $2 070 887
The accompanying note is an integral part of the financial statements.
<PAGE>
Financial Statements
Item 6(b) 1(a)
Page 3 of 28
<CAPTION>
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1996
(IN THOUSANDS)
(1)
<S> <C> <C>
Cash and temporary cash investments $234,500
Common Stock $ 17,500
Capital Surplus $217,000
To reflect the proposed issuance of 7 million shares of $2.50 par value common
stock at $33 1/2 per share.
(2)
Cash and temporary cash investments $149,500
Notes payable $149,500
To record the proposed issuance of $149.5 million of borrowings under the new
Revolving Credit Agreement or under other unsecured debt agreements, to bring
such borrowings up to the requested limit for GPU of $250 million (SEC File
No. 70-7926).
(3)
Interest expense $ 8,447
Cash and temporary cash investments $ 8,447
To record annual interest expense resulting from the proposed issuance of
$149.5 million of borrowings at an assumed rate of 5.65% (SEC File No. 70-
7926).
(4)
Taxes accrued $ 2,956
Income tax expense $ 2,956
To record the net decrease in the provision for income taxes attributable to
the proposed issuance of $149.5 million of borrowings (SEC File No. 70-7926).
<PAGE>
Financial Statements
Item 6(b) 1(a)
Page 4 of 28
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1996
(IN THOUSANDS)
(5)
Equity in earnings of subsidiaries $ 15,596
Investments in subsidiaries $ 15,596
To record GPU's share of the net effect of the subsidiary companies' annual
interest expense and decrease in the provision for income taxes attributable
to the proposed issuance of $449.3 million of borrowings under the new
Revolving Credit Agreement or under other unsecured debt agreements, to bring
such borrowings up to the aggregate of the subsidiary companies' respective
charter limits (SEC File No. 70-7926).
(6)
Cash and temporary cash investments $300,000
Long-term debt $300,000
To record the proposed issuance of $300 million aggregate principal amount of
unsecured debentures.
(7)
Interest expense $22,350
Cash and temporary cash investments $22,350
To record interest expense associated with the proposed issuance of $300
million aggregate principal amount of unsecured debentures.
(8)
General expenses $2,625
Cash and temporary cash investments $2,625
To record commissions and other expenses associated with the proposed issuance
of $300 million aggregate principal amount of unsecured debentures.
(9)
Taxes accrued $10,341
Income tax expense $10,341
To record the decreased tax expense associated with the increase in interest
and general expenses (SEC File No. 70-8843).
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 5 of 28
<CAPTION>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
Adjustments
Actual (see page 8 & 9) Pro Forma
<S> <C> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $ 9 366 784 $ - $ 9 366 784
Less, accumulated depreciation 3 505 818 - 3 505 818
Net utility plant in service 5 860 966 - 5 860 966
Construction work in progress 308 005 - 308 005
Other, net 198 667 - 198 667
Net utility plant 6 367 638 - 6 367 638
Other Property and Investments:
Nuclear decommissioning trusts 385 479 - 385 479
EI Group investments, net 275 146 - 275 146
Nuclear fuel disposal fund 96 816 - 96 816
Other, net 41 859 - 41 859
Total other property and investments 799 300 - 799 300
Current Assets:
Cash and temporary cash investments 112 207 1 075 034 1 187 241
Special deposits 8 710 - 8 710
Accounts receivable:
Customers, net 297 746 - 297 746
Other 127 904 - 127 904
Unbilled revenues 107 532 - 107 532
Materials and supplies, at average cost or less:
Construction and maintenance 195 892 - 195 892
Fuel 32 738 - 32 738
Deferred energy costs 8 014 - 8 014
Deferred income taxes 23 408 - 23 408
Prepayments 96 888 - 96 888
Other 17 715 - 17 715
Total current assets 1 028 754 1 075 034 2 103 788
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 366 561 - 366 561
Unamortized property losses 104 390 - 104 390
Income taxes recoverable through future rates 515 057 - 515 057
Other 436 952 - 436 952
Total regulatory assets 1 422 960 - 1 422 960
Deferred income taxes 335 099 - 335 099
Other 130 723 - 130 723
Total deferred debits and other assets 1 888 782 - 1 888 782
Total Assets $10 084 474 $1 075 034 $11 159 508
The accompanying note is an integral part of the consolidated financial statements.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 6 of 28
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
Adjustments
Actual (see page 8 & 9) Pro Forma
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314 458 $ 17 500 $ 331 958
Capital surplus 747 563 217 000 964 563
Retained earnings 2 106 608 (35 721) 2 070 887
Total 3 168 629 198 779 3 367 408
Less, reacquired common stock, at cost 89 522 - 89 522
Total common stockholders' equity 3 079 107 198 779 3 277 886
Cumulative preferred stock:
With mandatory redemption 124 000 - 124 000
Without mandatory redemption 98 116 - 98 116
Subsidiary-obligated mandatorily redeemable
preferred securities 330 000 - 330 000
Long-term debt 2 510 040 300 000 2 810 040
Total capitalization 6 141 263 498 779 6 640 042
Current Liabilities:
Securities due within one year 148 044 - 148 044
Notes payable 227 379 598 800 826 179
Obligations under capital leases 167 885 - 167 885
Accounts payable 322 576 - 322 576
Taxes accrued 154 166 (22 545) 131 621
Interest accrued 55 414 - 55 414
Other 209 617 - 209 617
Total current liabilities 1 285 081 576 255 1 861 336
Deferred Credits and Other Liabilities:
Deferred income taxes 1 456 314 - 1 456 314
Unamortized investment tax credits 142 655 - 142 655
Three Mile Island Unit 2 future costs 417 200 - 417 200
Regulatory liabilities 164 265 - 164 265
Other 477 696 - 477 696
Total deferred credits and other liabilities 2 658 130 - 2 658 130
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $10 084 474 $1 075 034 $11 159 508
The accompanying note is an integral part of the consolidated financial statements.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 7 of 28
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
Adjustments
Actual (see page 8 & 9) Pro Forma
Operating Revenues $3 913 618 $ - $3 913 618
Operating Expenses:
Fuel 372 479 - 372 479
Power purchased and interchanged 1 048 835 - 1 048 835
Deferral of energy costs, net (3 896) - (3 896)
Other operation and maintenance 970 493 2 625 973 118
Depreciation and amortization 384 695 - 384 695
Taxes, other than income taxes 354 649 - 354 649
Total operating expenses 3 127 255 2 625 3 129 880
Operating Income Before Income Taxes 786 363 - 783 738
Income taxes 198 266 (22 545) 175 721
Operating Income 588 097 19 920 608 017
Other Income and Deductions:
Allowance for other funds used during
construction 5 137 - 5 137
Other income/(expense), net 227 219 - 227 219
Income taxes (94 908) - (94 908)
Total other income and deductions 137 448 - 137 448
Income Before Interest Charges and
Preferred Dividends 725 545 19 920 745 465
Interest Charges and Preferred Dividends:
Interest on long-term debt 189 820 22 350 212 170
Other interest 27 823 33 291 61 114
Allowance for borrowed funds used during
construction (9 312) - (9 312)
Dividends on subsidiary-obligated mandatorily
redeemable preferred securities 27 491 - 27 491
Preferred stock dividends of subsidiaries 16 832 - 16 832
Total interest charges and preferred
dividends 252 654 55 641 308 295
Net Income $ 472 891 $(35 721) $ 437 170
Retained Earnings:
Balance at beginning of period $1 853 939 $ - $1 853 939
Add - Net income 472 891 (35 721) 437 170
Net unrealized gain on investments (1 188) - (1 188)
Deduct - Cash dividends on common stock 218 288 - 218 288
Other adjustments, net 746 - 746
Balance at end of period $2 106 608 $(35 721) $2 070 887
The accompanying note is an integral part of the consolidated financial statements.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 8 of 28
<CAPTION>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1996
(IN THOUSANDS)
(1)
<S> <C> <C>
Cash and temporary cash investments $234,500
Common stock $ 17,500
Capital surplus $217,000
To reflect the proposed issuance of 7 million shares of $2.50 par value common
stock at $33 1/2 per share.
(2)
Cash and temporary cash investments $598,800
Notes payable $598,800
To record the proposed issuance of $598.8 million of borrowings under the new
Revolving Credit Agreement or under other unsecured debt agreements, to bring
such borrowings up to the respective charter limits for JCP&L, Met-Ed, and
Penelec, and up to $250 million for GPU (SEC File No.70-7926).
(3)
Other interest $33,291
Cash and temporary cash investments $33,291
To record annual interest expense resulting from the proposed issuance of
$598.8 million of borrowings at an assumed weighted average rate of 5.56% (SEC
File No. 70-7926).
(4)
Taxes accrued $12,204
Income taxes $12,204
To record the net decrease in the provision for income taxes attributable to
the proposed issuance of $598.8 million of borrowings (SEC File No. 70-7926).
(5)
Cash and temporary cash investments $300,000
Long-term debt $300,000
To record the proposed issuance of $300 million aggregate principal amount of
unsecured debentures (SEC File No.70-8843).<PAGE>
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 9 of 28
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1996
(IN THOUSANDS)
(6)
Interest on long-term debt $22,350
Cash and temporary cash investments $22,350
To record interest expense associated with the proposed issuance of $300
million aggregate principal amount of unsecured debentures (SEC FILE No. 70-
8843).
(7)
Other operation and maintenance $2,625
Cash and temporary cash investments $2,625
To record commissions and other expenses associated with the proposed issuance
of $300 million aggregate principal amount of unsecured debentures (SEC File
No. 70-8843).
(8)
Taxes accrued $1,087
Income taxes $1,087
To record the decreased tax expense associated with the increase in other
operation and maintenance expenses (SEC File No. 70-8843).
(9)
Taxes accrued $9,254
Income taxes $9,254
To record the decreased tax expense associated with the increase in interest
expense (SEC File No. 70-8843).
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 10 of 28
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
General Public Utilities Corporation (GPU or 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) (collectively, the
"Subsidiaries"). The Subsidiaries' business is the generation, transmission,
distribution and sale of electricity. The Subsidiaries serve areas of New
Jersey and Pennsylvania with a population of approximately five million, with
revenues about equally divided between New Jersey and Pennsylvania customers.
The Corporation also owns all of the common stock of Energy Initiatives, Inc.,
EI Power, Inc. and EI Energy, Inc., (collectively, the "EI Group") which
develop, own and operate generation, transmission and distribution facilities
in the United States and in foreign countries; GPU Service Corporation
(GPUSC), a service company; GPU Nuclear Corporation (GPUN), which operates and
maintains the nuclear units of the Subsidiaries; and GPU Generation
Corporation (Genco), which operates and maintains the fossil-fueled and
hydroelectric units of the Subsidiaries. All of these companies considered
together with their subsidiaries are referred to as the "GPU System."
Met-Ed owns all of the common stock of York Haven Power Company, the
owner of a small hydroelectric generating station, and Penelec owns all of the
common stock of Waverly Electric Light & Power Company and Nineveh Water
Company.
These notes should be read in conjunction with the notes to consolidated
financial statements included in the 1995 Annual Report on Form 10-K. For
disclosures required by generally accepted accounting principles, see the 1995
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 operating
generation 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 March 31, 1996 and December 31, 1995 the
Subsidiaries' net investment in TMI-1 and Oyster Creek, including nuclear
fuel, was as follows:
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 11 of 28
Net Investment (Millions)
TMI-1 Oyster Creek
March 31, 1996
JCP&L $163 $791
Met-Ed 312 -
Penelec 153 -
Total $628 $791
Net Investment (Millions)
TMI-1 Oyster Creek
December 31, 1995
JCP&L $166 $785
Met-Ed 318 -
Penelec 156 -
Total $640 $785
The Subsidiaries' net investment in TMI-2 at March 31, 1996 was
$94 million (JCP&L, Met-Ed and Penelec's shares are $84 million, $2 million,
and $8 million, respectively). The Subsidiaries' net investment in TMI-2 at
December 31, 1995 was $95 million (JCP&L, Met-Ed and Penelec's shares are
$85 million, $2 million, and $8 million, respectively). JCP&L is collecting
revenues for TMI-2 on a basis which provides for the recovery of its remaining
investment in the plant by 2008. Met-Ed and Penelec are collecting revenues
for TMI-2 from their wholesale customers.
Costs associated with the operation, maintenance and retirement of
nuclear plants have continued to be significant and less predictable than
costs associated with other sources of generation, in large part due to
changing regulatory requirements, safety standards, availability of nuclear
waste disposal facilities 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 any such costs through the ratemaking process, but recognizes that
recovery is not assured (see COMPETITION AND THE CHANGING REGULATORY
ENVIRONMENT).
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
The cleanup program was completed in 1990, and after receiving Nuclear
Regulatory Commission (NRC) approval, TMI-2 entered into long-term monitored
storage in 1993.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 12 of 28
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against the Corporation and the
Subsidiaries. Approximately 2,100 of such claims are pending in the United
States District Court for the Middle District of Pennsylvania. Some of the
claims also seek recovery for injuries from alleged emissions of radioactivity
before and after the accident.
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 up to an aggregate of $335 million in premium charges under
such plan, and (c) an indemnity agreement with the NRC for up to $85 million,
bringing their total primary, secondary and tertiary financial protection up
to an aggregate of $560 million. Under the secondary level, the Subsidiaries
are subject to a retrospective premium charge of up to $5 million per reactor,
or a total of $15 million (JCP&L, Met-Ed and Penelec's shares are $7.5
million, $5 million and $2.5 million, respectively).
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 (the defendants) under a reservation of rights with respect to any
award of punitive damages. However, in 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.
A trial of ten allegedly representative cases is scheduled to begin in
June 1996.
In October 1995, the U.S. Court of Appeals for the Third Circuit ruled
that the Price-Anderson Act provides coverage under its primary and secondary
levels for punitive as well as compensatory damages, but that punitive damages
could not be recovered against the Federal Government under the third level of
financial protection. In so doing, the Court of Appeals referred to the
"finite fund" (the $560 million of financial protection under the Price-
Anderson Act) to which plaintiffs must resort to get compensatory as well as
punitive damages.
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located
at the time of the accident (as the Corporation and its Subsidiaries
proposed). The Court of Appeals also held that each plaintiff still must
demonstrate exposure to radiation released during the TMI-2 accident and that
such exposure had resulted in injuries.
The U.S. Supreme Court has denied petitions filed by the Corporation and
its Subsidiaries to review the Court of Appeals' rulings with respect to the
availability of punitive damages and the standard of care.
Based on the above, the Corporation and its Subsidiaries believe that any
liability to which they might be subject by reason of the TMI-2 accident will
not exceed their financial protection under the Price-Anderson Act.
There can be no assurance as to the outcome of this litigation.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 13 of 28
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's remaining in long-
term storage and being decommissioned at the same time as TMI-1. Based on NRC
studies, a comparable funding target has been developed for TMI-2 which takes
the accident into account. Under the NRC regulations, the funding targets (in
1996 dollars) are as follows:
(Millions)
Oyster
Creek TMI-1 TMI-2
JCP&L $191 $ 40 $ 63
Met-Ed - 79 127
Penelec - 40 63
Total $191 $159 $253
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. 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.
The Subsidiaries charge to expense and contribute to external trusts
amounts collected from customers for nuclear plant decommissioning and
nonradiological costs. In addition, JCP&L has contributed amounts written off
for TMI-2 nuclear plant decommissioning in 1990, and Met-Ed and Penelec have
contributed amounts written off for TMI-2 nuclear plant decommissioning in
1991, to TMI-2's external trust (see TMI-2 Future Costs). Amounts deposited
in external trusts, including the interest earned on these funds, are
classified as Nuclear Decommissioning Trusts on the Balance Sheet.
In 1995, a consultant to GPUN performed site-specific studies of the TMI
site, including both Units 1 and 2, and of Oyster Creek, that considered
various decommissioning methods and estimated the cost of decommissioning the
radiological portions and the cost of removal of the nonradiological portions
of each plant, using the prompt removal/dismantlement method. GPUN management
has reviewed the methodology and assumptions used in the site-specific
studies, is in agreement with them, and believes the results are reasonable as
follows (in 1996 dollars):
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 14 of 28
(Millions)
Oyster
GPU System Creek TMI-1 TMI-2
Radiological decommissioning $351 $299 $363
Nonradiological cost of removal 34 74 37
*
Total $385 $373 $400
* Net of $4 million spent as of March 31, 1996.
(Millions)
Oyster
JCP&L Creek TMI-1 TMI-2
Radiological decommissioning $351 $75 $ 91
Nonradiological cost of removal 34 18 9
*
Total $385 $93 $100
* Net of $1 million spent as of March 31, 1996.
(Millions)
Met-Ed TMI-1 TMI-2
Radiological decommissioning $149 $181
Nonradiological cost of removal 38 19 *
Total $187 $200
* Net of $2 million spent as of March 31, 1996.
(Millions)
Penelec TMI-1 TMI-2
Radiological decommissioning $75 $ 91
Nonradiological cost of removal 18 9 *
Total $93 $100
* Net of $1 million spent as of March 31, 1996.
The ultimate cost of retiring the GPU System's nuclear facilities may be
different from the cost estimates contained in these site-specific studies.
Such costs are subject to (a) the quarterly escalation of various cost
elements (including, but not limited to, general inflation), (b) the further
development of regulatory requirements governing decommissioning, (c) the
technology available at the time of decommissioning, and (d) the availability
of nuclear waste disposal facilities.
In February 1996 the Financial Accounting Standards Board (FASB) issued
an Exposure Draft titled "Accounting for Certain Liabilities Related to
Closure or Removal of Long-Lived Assets," which includes nuclear plant
retirement costs. If the Exposure Draft's current provisions are finalized,
Oyster Creek and TMI-1 future retirement costs will have to be recognized as a
liability currently, rather than recorded over the life of the plants (as is
currently the practice), with an offsetting asset recorded for amounts
collectible through rates. Any amounts not collectible through rates will
have to be charged to expense. For TMI-2, a liability has already been
recognized, based on the 1995 site-specific study (in 1996 dollars) since the
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 15 of 28
plant is no longer operating (see TMI-2 Future Costs). A final statement is
expected to be effective for fiscal years beginning after December 15, 1996.
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 its share ($3.83 million)
of an estimate of $15.3 million for TMI-1 and $31.6 million for Oyster Creek
adopted in previous rate orders issued by the New Jersey Board of Public
Utilities (NJBPU), for its share of the cost of removal of nonradiological
structures and materials. The Pennsylvania Public Utility Commission (PaPUC)
previously granted Met-Ed revenues for decommissioning costs of TMI-1 based on
its share ($37.5 million) of the NRC funding target and nonradiological cost
of removal estimated in an earlier 1988 site-specific study to be $75 million
(in 1996 dollars). The PaPUC also permitted Penelec to increase 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
expenditure of these funds has been made in accumulated depreciation,
amounting to $80 million (JCP&L, Met-Ed and Penelec's shares are $25 million,
$39 million and $16 million, respectively) for TMI-1 and $146 million for
Oyster Creek at March 31, 1996. TMI-1 and Oyster Creek retirement costs are
charged to depreciation expense over the expected service life of each nuclear
plant, and amounted to $4 million (JCP&L, Met-Ed and Penelec's shares are $1
million, $2 million and $1 million, respectively) and $3 million,
respectively, for the first quarter of 1996.
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable under the current ratemaking process.
TMI-2 Future Costs:
The estimated liabilities for TMI-2 Future Costs (reflected as Three Mile
Island Unit 2 Future Costs on the Balance Sheet) as of March 31, 1996 and
December 31, 1995 are as follows:
(Millions)
GPU JCP&L Met-Ed Penelec
March 31, 1996
Radiological Decommissioning $363 $ 91 $181 $ 91
Nonradiological Cost of Removal 37* 9 19 9
Incremental Monitored Storage 18 4 9 5
Total $418 $104 $209 $105
* Net of $4 million (JCP&L, Met-Ed and Penelec's shares are $1 million, $2
million and $1 million, respectively) spent as of March 31, 1996.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 16 of 28
(Millions)
GPU JCP&L Met-Ed Penelec
December 31, 1995
Radiological Decommissioning $358 $90 $179 $89
Nonradiological Cost of Removal 37* 9 19 9
Incremental Monitored Storage 18 4 9 5
Total $413 $103 $207 $103
* Net of $3 million spent (JCP&L, Met-Ed and Penelec's shares are $.75
million, $1.5 million and $.75 million, respectively) as of
December 31, 1995.
Offsetting the $418 million liability is $273 million (JCP&L, Met-Ed and
Penelec's shares are $51 million, $147 million and $75 million, respectively)
which is probable of recovery from customers and included in Three Mile Island
Unit 2 Deferred Costs on the Balance Sheet, and $151 million (JCP&L, Met-Ed
and Penelec's shares are $63 million, $61 million and $27 million,
respectively) in trust funds for TMI-2 and included in Nuclear Decommissioning
Trusts on the Balance Sheet. Earnings on trust fund deposits collected from
customers are included in amounts shown on the Balance Sheet under Three Mile
Island Unit 2 Deferred Costs. TMI-2 decommissioning costs charged to
depreciation expense for the first quarter of 1996 amounted to $3 million
(JCP&L, Met-Ed and Penelec's shares are $0.8 million, $2 million and $0.2
million, respectively).
The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively,
decommissioning revenues for the remainder of the NRC funding target and
allowances for the cost of removal of nonradiological structures and
materials. Based on Met-Ed's rate order, Penelec has recorded a regulatory
asset for that portion of such costs which it believes to be probable of
recovery.
At March 31, 1996 the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $64 million (JCP&L, Met-Ed and
Penelec's shares are $16 million, $32 million and $16 million, respectively),
which is the difference between the 1995 TMI-1 and TMI-2 site-specific study
estimates (in 1996 dollars) of $299 million and $363 million, respectively
(JCP&L, Met-Ed and Penelec's shares are $75 million and $91 million, $149
million and $181 million, and $75 million and $91 million, respectively). In
connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec
made contributions to irrevocable external trusts relating to their shares of
the accident-related portions of the decommissioning liability. In 1990,
JCP&L contributed $15 million and in 1991, Met-Ed and Penelec contributed
$40 million and $20 million respectively, to irrevocable external trusts.
These contributions were not recovered from customers and have been expensed.
The Subsidiaries will not pursue recovery from customers for any of these
amounts contributed in excess of the $64 million accident-related portion
referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement
costs, and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot
be assured.
As a result of TMI-2's entering long-term monitored storage in 1993, the
Subsidiaries are incurring incremental storage costs of approximately
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 17 of 28
$1 million (JCP&L, Met-Ed and Penelec's shares are $.25 million, $.5 million,
and $.25 million, respectively) annually. The Subsidiaries estimate that the
remaining storage costs will total $18 million through 2014, the expected
retirement date of TMI-1. JCP&L's rates reflect its 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, subject to an annual maximum payment of
$10 million per incident per reactor. In addition to the retrospective
premiums payable under Price-Anderson, the GPU System is also subject to
retrospective premium assessments of up to $68 million (JCP&L, Met-Ed and
Penelec's shares are $41 million, $18 million and $9 million, respectively) in
any one year under insurance policies applicable to nuclear operations and
facilities.
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 to 80 percent of such amounts
for years two and three.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 18 of 28
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
Nonutility Generation Agreements:
Pursuant to the requirements of the federal Public Utility Regulatory
Policies Act (PURPA) and state regulatory directives, the Subsidiaries have
entered into power purchase agreements with nonutility generators (NUGs) for
the purchase of energy and capacity for periods up to 25 years each for JCP&L
and Penelec, and 26 years for Met-Ed. The majority of these agreements
contain certain contract limitations and subject the NUGs to penalties for
nonperformance. While a few of these facilities are dispatchable, most are
must-run and generally obligate the Subsidiaries to purchase, at the contract
price, the net output up to the contract limits. As of March 31, 1996,
facilities covered by these agreements having 1,624 MW (JCP&L, Met-Ed and
Penelec's shares are 892 MW, 335 MW and 397 MW, respectively) of capacity were
in service. Actual payments from 1993 through 1995, and estimated payments
from 1996 through 2000 to NUGs, assuming that all facilities which have
existing agreements, or which have obtained orders granting them agreements,
enter service, are as follows:
Payments Under NUG Agreements
(Millions)
Total JCP&L Met-Ed Penelec
1993 $ 491 $ 292 $ 95 $ 104
1994 528 304 101 123
1995 670 381 131 158
* 1996 695 368 151 176
* 1997 719 379 156 184
* 1998 794 385 212 197
* 1999 882 391 213 278
* 2000 933 405 219 309
* Estimate
Of these amounts, payments to the projects which are not in service at
March 31, 1996 are estimated as follows:
Payments Under NUG Agreements Not In Service
(Millions)
Total JCP&L Met-Ed Penelec
1997 $ 17 $ 1 $16 $ -
1998 76 3 68 5
1999 149 3 69 77
2000 175 3 74 98
In the year 2000 NUG agreements, in the aggregate, will provide
approximately 1,962 MW (JCP&L 902 MW, Met-Ed 485 MW and Penelec 575 MW) of
capacity and energy to the GPU System, 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 seek shorter-term
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 19 of 28
agreements offering more flexibility. Due to the current availability of
excess capacity in the marketplace, the cost of near- to intermediate-term
(i.e., one to eight years) energy supply from generation facilities now in
service is currently and is expected to continue to be priced below the costs
of new supply sources, at least for some time. 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' NUG
agreements are substantially in excess of current and projected prices from
alternative sources.
The Subsidiaries are seeking to reduce the above market costs of these
NUG agreements by (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the
agreements; (3) offering contract buyouts while seeking to recover the costs
through their energy adjustment clauses and (4) initiating proceedings before
federal and state agencies, and in the courts, where appropriate. In addition,
the Subsidiaries intend to avoid, to the maximum extent practicable, entering
into any new NUG agreements that are not needed or not consistent with current
market pricing and are supporting legislative efforts to repeal PURPA. These
efforts may result in claims against the GPU System for substantial damages.
There can, however, be no assurance as to the extent to which the
Subsidiaries' efforts will be successful in whole or in part.
While the Subsidiaries thus far have been granted recovery of their NUG
costs (including substantially all buyout costs) from customers by the PaPUC
and NJBPU, there can be no assurance that the Subsidiaries will continue to be
able to recover similar costs which may be incurred in the future. The GPU
System currently estimates that for 1998, when substantially all of these NUG
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 $225 million to $330 million (JCP&L $85 to
$130 million; Met-Ed $50 million to $80 million; and Penelec $90 million to
$120 million). The amount of these estimated above-market payments may
increase or decrease substantially based upon, among other things, payment
escalations in the contract terms, changes in fuel prices and changes in the
capital and operating cost of new generating equipment.
Regulatory Assets and Liabilities:
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 regulation. 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
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 20 of 28
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.
In accordance with the provisions of FAS 71, the Subsidiaries have
deferred certain costs pursuant to actions of the NJBPU, PaPUC and Federal
Energy Regulatory Commission (FERC) and are recovering or expect to recover
such costs in electric rates charged to customers. Regulatory assets are
reflected in the Deferred Debits and Other Assets section of the Consolidated
Balance Sheet, and regulatory liabilities are reflected in the Deferred
Credits and Other Liabilities section of the Consolidated Balance Sheet.
Regulatory assets and liabilities, as of March 31, 1996 and December 31, 1995,
were as follows:
GPU System Assets (in thousands)
March 31, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $ 515,057 $ 527,584
TMI-2 deferred costs 366,561 368,712
Unamortized property losses 104,390 105,729
NUG contract termination costs 84,132 84,132
Other postretirement benefits 63,695 58,362
N.J. unit tax 50,146 51,518
Unamortized loss on reacquired debt 48,980 50,198
Load and demand-side management programs 47,412 48,071
DOE enrichment facility decommissioning 37,728 38,519
Manufactured gas plant remediation 30,134 29,608
Nuclear fuel disposal fee 21,974 21,946
N.J. low-level radwaste disposal 20,415 21,778
Storm damage 19,558 18,294
Other 12,778 15,257
Total $1,422,960 $1,439,708
Liabilities (in thousands)
March 31, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $93,254 $94,931
Other 3,546 3,068
Total $96,800 $97,999
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 21 of 28
Assets (in thousands)
JCP&L March 31, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $134,110 $134,787
TMI-2 deferred costs 135,548 138,472
Unamortized property losses 98,827 100,176
NUG contract termination costs 17,482 17,482
Other postretirement benefits 35,311 32,390
N.J. unit tax 50,146 51,518
Unamortized loss on reacquired debt 33,573 34,285
Load and demand side management programs 47,412 48,071
DOE enrichment facility decommissioning 24,008 24,503
Manufactured gas plant remediation 30,134 29,608
Nuclear fuel disposal fee 23,314 23,165
N.J. low-level radwaste disposal 20,415 21,778
Storm damage 19,558 18,294
Other 7,699 10,199
Total $677,537 $684,728
Liabilities (in thousands)
March 31, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $35,522 $36,343
Other 1,112 1,254
Total $36,634 $37,597
Assets (in thousands)
Met-Ed March 31, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $168,276 $178,513
TMI-2 deferred costs 148,831 149,004
Unamortized property losses 3,241 3,273
NUG contract termination costs 66,650 66,650
Other postretirement benefits 28,384 25,972
Unamortized loss on reacquired debt 6,764 6,945
DOE enrichment facility decommissioning 9,147 9,344
Nuclear fuel disposal fee (1,080) (1,025)
Other 1,285 1,299
Total $431,498 $439,975
Liabilities (in thousands)
March 31, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $24,396 $24,765
Other 2,149 1,696
Total $26,545 $26,461
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 22 of 28
Assets (in thousands)
Penelec March 31, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $212,671 $214,284
TMI-2 deferred costs 82,182 81,236
Unamortized property losses 2,322 2,280
Unamortized loss on reacquired debt 8,643 8,968
DOE enrichment facility decommissioning 4,573 4,672
Nuclear fuel disposal fee (260) (194)
Other 3,794 3,759
Total $313,925 $315,005
Liabilities (in thousands)
March 31, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $33,336 $33,823
Other 285 118
Total $33,621 $33,941
Income taxes recoverable/refundable through future rates: Represents amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes,"
in 1993.
TMI-2 deferred costs: Represents costs that are recoverable through rates for
the Subsidiaries' remaining investment in the plant and fuel core,
radiological decommissioning and the cost of removal of nonradiological
structures and materials in accordance with the 1995 site-specific study (in
1996 dollars) and JCP&L's share of long-term monitored storage costs. For
additional information, see TMI-2 Future Costs.
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River Project, which are included in rates.
NUG contract termination costs: Represents one-time costs incurred for
terminating power purchase contracts with NUGs, for which rate recovery has
been granted or is probable.
Other postretirement benefits: Includes costs associated with the adoption of
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which are deferred in accordance with Emerging Issues Task Force
Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises."
N.J. unit tax: JCP&L received NJBPU approval in 1993 to recover, with
interest, over a ten-year period on an annuity basis, $71.8 million of Gross
Receipts and Franchise Tax not previously recovered from customers.
Unamortized loss on reacquired debt: Represents premiums and expenses incurred
in the early redemption of long-term debt. In accordance with FERC
regulations, reacquired debt costs are amortized over the remaining original
life of the retired debt.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 23 of 28
Load and demand-side management (DSM) programs: Consists of load management
costs that are currently being recovered, with interest, through JCP&L's
retail base rates pursuant to a 1993 NJBPU order, and other DSM program
expenditures that are recovered annually, with interest. Also includes
provisions for lost revenues between base rate cases and performance
incentives.
DOE enrichment facility decommissioning: These costs, representing payments
to the DOE over a 15-year period beginning in 1994, are currently being
collected through the Subsidiaries' energy adjustment clauses.
Manufactured gas plant remediation: Consists of costs which are probable of
recovery, with interest, associated with the investigation and remediation of
several gas manufacturing plants. For additional information, see
ENVIRONMENTAL MATTERS.
Nuclear fuel disposal fee: Represents amounts recoverable through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and
TMI-1 in accordance with the Nuclear Waste Policy Act of 1982.
N.J. low-level radwaste disposal: Represents the accrual of the estimated
assessment for the siting of a disposal facility for low-level waste from
Oyster Creek, less amortization as allowed in JCP&L's rates.
Storm damage: Relates to incremental noncapital costs associated with various
storms in the JCP&L service territory that are not recoverable through
insurance. These amounts were deferred based upon past rate recovery
precedent. An annual amount for recovery of storm damage expense is included
in JCP&L's retail base rates.
Amounts related to the decommissioning of TMI-1 and Oyster Creek, which
are not included in Regulatory Assets on the Balance Sheet, are separately
disclosed in NUCLEAR PLANT RETIREMENT COSTS.
The Subsidiaries continue to be subject to cost-based ratemaking
regulation. However, in the event that either all or a portion of their
operations are no longer subject to these provisions, the related regulatory
assets, net of regulatory liabilities, would have to be written off. In
addition, any above market costs of purchased power commitments would have to
be expensed (see Nonutility Generation Agreements), and additional
depreciation expense would have to be recorded for any differences created by
the use of a regulated depreciation method that is different from that which
would have been used under generally accepted accounting principles for
enterprises in general. At this time, the Corporation is unable to determine
when and to what extent FAS 71 may no longer be applicable.
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, decommission or clean up waste disposal and other sites currently
or formerly used by it, including formerly owned manufactured gas plants, mine
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 24 of 28
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 of 1990 (Clean Air
Act), the Subsidiaries expect to spend up to $410 million (JCP&L, Met-Ed and
Penelec's shares are $42 million, $163 million, and $205 million,
respectively) for air pollution control equipment by the year 2000, of which
approximately $237 million (JCP&L, Met-Ed and Penelec's shares are $42
million, $96 million, and $99 million, respectively) has already been spent.
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 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
Subsidiaries expect that the U.S. Environmental Protection Agency (EPA) will
approve state implementation plans consistent with the proposal, and that as a
result, they will spend an estimated $60 million (Met-Ed and Penelec's shares
are $14 million and $46 million, respectively) (included in the Clean Air Act
total), beginning in 1997, to meet the seasonal reductions agreed upon by the
OTC. The OTC has stated that it anticipates that additional NOx reductions
will be necessary to meet the Clean Air Act's 2005 National Ambient Air
Quality Standard 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 additional costs, if any, will be incurred.
The GPU System companies have been formally 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 11 hazardous and/or toxic
waste sites, broken down by company as follows:
JCP&L MET-ED PENELEC GPUN GPU TOTAL
PRPs 6 4 2 1 1 11*
* In some cases, the Subsidiaries are named separately for the same site.
In addition, the Subsidiaries have been requested to participate in the
remediation or supply information to the EPA and state environmental
authorities on several other sites for which they have not been formally named
as PRPs, although the EPA and state authorities may nevertheless consider the
Subsidiaries 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 (NJDEP) for the investigation and remediation of 17
formerly owned manufactured gas plant (MGP) sites. JCP&L has also entered
into various cost-sharing agreements with other utilities for most of the
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 25 of 28
sites. As of March 31, 1996 JCP&L has an estimated environmental liability of
$29 million recorded on its Balance Sheet relating to these sites, as well as
two other properties. 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 future costs may range as
high as $50 million. Estimates of these costs are subject to significant
uncertainties because: 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 $50 million.
In 1993, the NJBPU approved a mechanism similar to JCP&L's Levelized
Energy Adjustment Clause (LEAC) for the recovery of future MGP remediation
costs when expenditures exceed prior collections. The NJBPU decision also
provided for interest on any overrecovery 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 pursuing reimbursement of the remediation costs
from its insurance carriers. In 1994, JCP&L filed a complaint with the
Superior Court of New Jersey against several of its insurance carriers,
relative to these MGP 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. Pretrial discovery has
begun in this case.
OTHER COMMITMENTS AND CONTINGENCIES
In 1994, the energy services and delivery businesses of Met-Ed and
Penelec were functionally combined. In March 1996, plans were announced to
combine the operations of JCP&L and certain divisions of GPUSC with those of
Met-Ed/Penelec.
In connection with this combination, in April 1996, management announced
that it intends to offer a voluntary enhanced retirement program to more than
400 non-bargaining employees in Pennsylvania and New Jersey, and that a
similar program will be discussed with the bargaining units. If between 60%
and 80% of the eligible bargaining and non-bargaining employees were to accept
the offer, depending on the age and years of service of those employees, the
program could result in a 1996 pre-tax charge to earnings of between $90
million and $125 million.
The GPU System's construction programs, for which substantial commitments
have been incurred and which extend over several years, contemplate
expenditures of $491 million (JCP&L, Met-Ed, Penelec and GPUSC's shares are
$256 million, $97 million, $124 million and $14 million, respectively) during
1996. 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.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 26 of 28
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 at various
dates between 1996 and 2004, require the 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 of
Penelec's contracts for the Homer City station also includes a provision for
the payment of postretirement benefit costs. The Subsidiaries' share of the
cost of coal purchased under these agreements is expected to aggregate $116
million (JCP&L, Met-Ed and Penelec's shares are $22 million, $18 million and
$76 million, respectively) for 1996.
JCP&L has entered into agreements with other utilities to purchase
capacity and energy for various periods through 2004. These agreements will
provide for up to 1,085 MW in 1996, declining to 878 MW in 1999 and 696 MW in
2004. Payments pursuant to these agreements are estimated to be $174 million
in 1996, $164 million in 1997, $147 million in 1998, $123 million in 1999 and
$105 million in 2000.
Genco is constructing a 141 MW gas-fired combustion turbine at JCP&L's
Gilbert generating station. This estimated $50 million project, of which $35
million has been spent, is expected to be in-service by mid-1996. In 1995,
the NJDEP issued an air permit for the facility based, in part, on the NJBPU's
1994 order which found that New Jersey's Electric Facility Need Assessment Act
is not applicable and that construction of this facility, without a market
test, is consistent with New Jersey energy policies. An industry trade group
representing NUGs has appealed the NJDEP's issuance of the air permit and the
NJBPU's order to the Appellate Division of the New Jersey Superior Court.
There can be no assurance as to the outcome of this proceeding.
The NJBPU has instituted a generic proceeding to address the appropriate
recovery of capacity costs associated with electric utility power purchases
from NUG projects. The proceeding was initiated, in part, to respond to
contentions of the Division of the 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 1994, the NJBPU ruled that the
LEAC periods prior to March 1991 were considered closed but subsequent LEAC
periods remain open for further investigation. This matter is pending before
a NJBPU Administrative Law Judge. JCP&L estimates that the potential refund
liability for the LEAC periods from March 1991 through February 1996, the end
of the most recent LEAC period, is $55 million. 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 $10 million before tax. 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. Legislation has been proposed in New Jersey which would
require the NJBPU to conduct a formal investigation whenever a nuclear plant
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 27 of 28
is, or is anticipated to be, out of service for more than three months, to
determine whether costs associated with the outage should be excluded from
rates.
As of March 31, 1996, approximately 53% of the GPU System's workforce was
represented by unions for collective bargaining purposes. JCP&L employees'
collective bargaining agreement is due to expire in October 1996, representing
44% of the GPU System's union employees.
Niagara Mohawk Power Corporation (NIMO) has filed with the New York
Public Service Commission a proposed restructuring plan that it claims may be
needed to avoid seeking reorganization under Chapter XI of the Bankruptcy
Code. Energy Initiatives has ownership interests, with an aggregate book
value of approximately $35 million, in three NUG projects which have long-term
purchase power agreements with NIMO. In the restructuring plan, NIMO has
insisted on renegotiating all of its contracts with NUGs, and has claimed that
it has the right to use eminent domain to condemn NUG facilities, if such
negotiations are not successful. There can be no assurance as to the outcome
of this matter.
NIMO has also initiated actions in federal and state court seeking to
invalidate numerous NUG contracts or limit the amount of annual generation
produced by the NUG, and is withholding allegedly "excess" payments made in
respect of "over generation" under these contracts, including the contracts
for one of Energy Initiatives' projects. NIMO alleges to have overpaid Energy
Initiatives approximately $7 million for the years 1993 through 1995. Energy
Initiatives has filed motions to dismiss the complaint and is vigorously
defending these actions. There can be no assurance as to the outcome of these
proceedings.
At March 31, 1996, the EI Group had investments totalling $163 million in
facilities located in four foreign countries. Although management attempts to
mitigate the risk of investing in certain foreign countries by securing
political risk insurance, the EI Group faces additional risks inherent to
operating in such locations, including foreign currency fluctuations.
In 1995, the FASB issued FAS 121, "Accounting for the Impairment of Long-
Lived Assets," which is effective for fiscal years beginning after June 15,
1995. FAS 121 requires that long-lived assets, identifiable intangibles,
capital leases and goodwill be reviewed for impairment whenever events occur
or changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. In addition, FAS 121 requires that regulatory assets
meet the recovery criteria of FAS 71, "Accounting for the Effects of Certain
Types of Regulation," on an ongoing basis in order to avoid a writedown (see
Regulatory Assets and Liabilities).
The implementation of FAS 121 by the GPU System in 1995 did not have an
impact on results of operations because management believes the carrying
amounts of all assets are probable of recovery from customers. However, as
the Subsidiaries enter a more competitive environment, some assets could be
subject to impairment, thereby necessitating writedowns, which could have a
material adverse effect on the GPU System's results of operations and
financial condition.
<PAGE>
Financial Statements
Item 6(b) 1(b)
Page 28 of 28
The FASB exposure draft relating to closure and removal of long-lived
assets (see NUCLEAR PLANT RETIREMENT COSTS), applies to all long-lived assets,
including fossil-fueled generating plants. For these assets, a liability will
have to be recognized whenever a legal or constructive obligation exists to
perform dismantlement or removal activities.
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 the
public, customers, contractors, vendors and other suppliers of equipment and
services and by employees alleging unlawful employment practices. While
management does not expect that the outcome of these matters will have a
material effect on the GPU System's financial position or results of
operations, there can be no assurance that this will continue to be the case.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INCOME-TAX-EXPENSE> 0 (13,297)
<OTHER-OPERATING-EXPENSES> 4,910 7,535
<TOTAL-OPERATING-EXPENSES> 4,910 (5,762)
<OPERATING-INCOME-LOSS> (4,910) 5,762
<OTHER-INCOME-NET> 484,237 468,641
<INCOME-BEFORE-INTEREST-EXPEN> 479,327 474,403
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<NET-INCOME> 472,891 437,170
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<EARNINGS-AVAILABLE-FOR-COMM> 472,891 437,170
<COMMON-STOCK-DIVIDENDS> 218,288 218,288
<TOTAL-INTEREST-ON-BONDS> 0 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-END> MAR-31-1996 MAR-31-1996
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<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 6,367,638 6,367,638
<OTHER-PROPERTY-AND-INVEST> 799,300 799,300
<TOTAL-CURRENT-ASSETS> 1,028,754 2,103,788
<TOTAL-DEFERRED-CHARGES> 1,888,782 1,888,782
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 10,084,474 11,159,508
<COMMON> 314,458 331,958
<CAPITAL-SURPLUS-PAID-IN> 747,563 964,563
<RETAINED-EARNINGS> 2,106,608 2,070,887
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,079,107 <F1> 3,277,886
454,000 <F2> 454,000
98,116 98,116
<LONG-TERM-DEBT-NET> 2,510,040 2,810,040
<SHORT-TERM-NOTES> 205,415 804,215
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 21,964 21,964
<LONG-TERM-DEBT-CURRENT-PORT> 128,044 128,044
20,000 20,000
<CAPITAL-LEASE-OBLIGATIONS> 10,274 10,274
<LEASES-CURRENT> 167,885 167,885
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,389,629 3,367,084
<TOT-CAPITALIZATION-AND-LIAB> 10,084,474 11,159,508
<GROSS-OPERATING-REVENUE> 3,913,618 3,913,618
<INCOME-TAX-EXPENSE> 198,266 175,721
<OTHER-OPERATING-EXPENSES> 3,127,255 3,129,880
<TOTAL-OPERATING-EXPENSES> 3,325,521 3,305,601
<OPERATING-INCOME-LOSS> 588,097 608,017
<OTHER-INCOME-NET> 137,448 137,448
<INCOME-BEFORE-INTEREST-EXPEN> 725,545 745,465
<TOTAL-INTEREST-EXPENSE> 252,654 <F3> 308,295
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0 0
<EARNINGS-AVAILABLE-FOR-COMM> 472,891 437,170
<COMMON-STOCK-DIVIDENDS> 218,288 218,288
<TOTAL-INTEREST-ON-BONDS> 189,820 212,170
<CASH-FLOW-OPERATIONS> 732,004 732,004
<EPS-PRIMARY> 4.04 3.52
<EPS-DILUTED> 4.04 3.52
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $89,522.
<F2> INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $330,000.
<F3> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY
<F3> REDEEMABLE PREFERRED SECURITIES OF $27,491 AND PREFERRED STOCK
<F3> DIVIDENDS OF SUBSIDIARIES OF $16,832.
</FN>
</TABLE>
