Amendment No. 1 to
SEC File No. 70-8793
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)
GENERAL PUBLIC UTILITIES CORPORATION
(Name of top registered holding company parent of applicant)
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
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. 70-8793, 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:
Filing Fees:
Securities and Exchange Commission $ 2,000
Legal Fees:
Berlack, Israels & Liberman LLP 7,500
Ballard Spahr Andrews & Ingersoll 2,500
Miscellaneous 5,000
Total $17,000
2. By filing the following exhibits in Item 6 thereof:
(a) Exhibits:
B-1 - Form of GPU Guarantee
F-1 - Opinion of Berlack, Israels &
Liberman LLP
F-2 - Opinion of Ballard Spahr Andrews &
Ingersoll
G - Financial Data Schedule
(b) Financial Statements:
1-A - GPU (Corporate) Balance Sheets,
actual and pro forma, as at December
31, 1995 and Consolidated Statements
of Income and Retained Earnings,
actual and pro forma, for the twelve
months ended December 31, 1995; pro
forma journal entries.
2 - GPU and Subsidiary Companies
Consolidated Balance Sheets, actual
and pro forma, as at December 31,
1995, and Consolidated Statements of
Income and Retained Earnings, actual
and pro forma, for the twelve months
ended December 31, 1995; pro forma
journal entries.<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 14, 1996<PAGE>
EXHIBITS AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Exhibits:
B-1 - Form of GPU Guarantee
F-1 - Opinion of Berlack, Israels &
Liberman LLP
F-2 - Opinion of Ballard Spahr Andrews &
Ingersoll
G - Financial Data Schedule
Financial Statements:
1-A - GPU (Corporate) Balance Sheets,
actual and pro forma, as at December
31, 1995 and Consolidated Statements
of Income and Retained Earnings,
actual and pro forma, for the twelve
months ended December 31, 1995; pro
forma journal entries.
2 - GPU and Subsidiary Companies
Consolidated Balance Sheets, actual
and pro forma, as at December 31,
1995, and Consolidated Statements of
Income and Retained Earnings, actual
and pro forma, for the twelve months
ended December 31, 1995; pro forma
journal entries.<PAGE>
Exhibit B-1
Draft 2/6/96
GUARANTY
GUARANTY (this "Guaranty"), dated as of the __ day of March ,
1996, made by GENERAL PUBLIC UTILITIES CORPORATION, a Pennsylvania
corporation (the "Guarantor"), in favor of each of the Banks as
parties to the Credit Agreement (as defined below).
PRELIMINARY STATEMENTS:
(1) The Banks have entered into a Credit Agreement, dated
March __, 1996 (said Agreement, as it may hereafter be amended or
otherwise modified from time to time, being the "Credit Agreement",
the terms defined therein and not otherwise defined herein being
used herein as therein defined), with GPU Service Corporation, a
corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Borrower").
(2) It is a condition precedent to the effectiveness of the
Credit Agreement that the Guarantor, as owner of 100% percent of
the outstanding shares of stock of the Borrower, shall have
executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Banks to enter into the Credit Agreement, the
Guarantor hereby agrees as follows:
SECTION 1. Guaranty. The Guarantor hereby unconditionally
guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all principal, interest
and other obligations of the Borrower under the Credit Agreement
(collectively, the "Obligations"), and agrees to pay any and all
reasonable expenses (including reasonable counsel fees and
expenses) incurred by the Banks in enforcing any rights under this
Guaranty.
SECTION 2. Guaranty Absolute. The Guarantor guarantees
that the Obligations will be paid strictly in accordance with the
terms of the Credit Agreement, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Banks with respect thereto. The
obligations of the Guarantor under this Guaranty are independent of
the Obligations, and a separate action or actions may be brought
and prosecuted against the Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against the Borrower
or whether the Borrower is joined in any such action or actions.
The liability of the Guarantor under this Guaranty shall, to the
fullest extent permitted by law, be absolute and unconditional
irrespective of:
-1-<PAGE>
(i) any lack of validity or enforceability of the
Credit Agreement or any other agreement or instrument relating
thereto;
(ii) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to departure from the
Credit Agreement, including, without limitation, any increase in
the Obligations resulting from the extension of additional credit
to the Borrower or any of its subsidiaries or otherwise;
(iii) any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver of or
consent to departure from any other guaranty, for all or any of the
Obligations;
(iv) any manner of application of collateral, or
proceeds thereof, to all or any of the Obligations, or any manner
of sale or other disposition of any collateral for all or any of
the Obligations or any other assets of the Borrower or any of its
subsidiaries;
(v) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its
subsidiaries; or
(vi) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Borrower
or a guarantor.
This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the
Obligations is rescinded or must otherwise be returned by any Bank
upon the insolvency, bankruptcy or reorganization of the Borrower
or otherwise, all as though such payment had not been made.
SECTION 3. Waiver. The Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect
to any of the Obligations and this Guaranty and any requirement
that any Bank protect, secure, perfect or insure any security
interest or lien or any property subject thereto or exhaust any
right or take any action against the Borrower or any other Person
or any collateral.
SECTION 4. Subrogation. The Guarantor will not exercise any
rights which it may acquire by way of subrogation under this
Guaranty, by any payment made hereunder or otherwise, until all the
Obligations and all other amounts payable under this Guaranty shall
have been paid in full and the Commitments shall have expired or
terminated. If any amount shall be paid to the Guarantor on account
of such subrogation rights at any time prior to the later of (x)
the payment in full of the Obligations and all other amounts
payable under this Guaranty and (y) the expiration or termination
of the Commitments, such amount shall be held in trust for the
benefit of the Banks and shall forthwith be paid to the Agent to be
-2-<PAGE>
credited and applied upon the Obligations, whether matured or
unmatured, in accordance with the terms of the Credit Agreement or
to be held by the Agent as collateral security for any Obligations
thereafter existing. If (i) the Guarantor shall make payment to the
Banks of all or any part of the Obligations, (ii) all the
Obligations and all other amounts payable under this Guaranty shall
be paid in full and (iii) the Commitments shall have expired or
terminated, the Banks will, at the Guarantor's request, execute and
deliver to the Guarantor appropriate documents, without recourse
and without representation or warranty, necessary to evidence the
transfer by subrogation to the Guarantor of an interest in the
Obligations resulting from such payment by the Guarantor.
SECTION 5. Representations and Warranties. The Guarantor
hereby represents and warrants as follows:
(a) The Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania.
(b) The execution, delivery and performance by the Guarantor
of this Guaranty are within the Guarantor's corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene (i) the Guarantor's charter or by-laws, (ii) any
applicable law or (iii) any material contractual restriction
binding on or affecting the Guarantor, and do not result in or
require the creation of any lien upon or with respect to any of its
properties.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
the Guarantor of this Guaranty except for an order of the
Securities and Exchange Commission under the Public Utility Holding
Company Act of 1935, as amended, which order has been duly
obtained, is in full force and effect, is sufficient for its
purpose and is not subject to any pending or, to the knowledge of
the Guarantor, threatened appeal or other proceeding seeking
reconsideration or review thereof.
(d) This Guaranty is the legal, valid and binding obligation
of the Guarantor enforceable against the Guarantor in accordance
with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization and other similar laws affecting creditors' rights
generally and by general principles of equity.
(e) The audited consolidated balance sheets of the Guarantor
and its Subsidiaries as at December 31, 1995, and the related
consolidated statements of income and retained earnings of the
Guarantor and its Subsidiaries for the period then ended, copies of
which have been furnished to each Bank as of the date of this
Guaranty, fairly present the financial condition of the Guarantor
and its Subsidiaries as at such date and the results of the
operations of the Guarantor and its Subsidiaries for the period
-3-<PAGE>
ended on such date, all in accordance with generally accepted
accounting principles consistently applied, and since December 31,
1995, there has been no material adverse change in such financial
condition or results of operations.
(f) The Guarantor owns beneficially and of record 100% of the
common stock of the Borrower and at least 75% of the common stock
of each of Jersey Central Power & Light Company, a New Jersey
corporation, Metropolitan Edison Company, a Pennsylvania
corporation, and Pennsylvania Electric Company, a Pennsylvania
corporation (collectively, the "Operating Subsidiaries").
(g) Except as disclosed in the Guarantor's Annual Report on
Form 10-K for the year ended December 31, 1995, a copy of which has
been delivered to the Agent, there is no pending or, to the
Guarantor's knowledge, threatened action or proceeding affecting
the Guarantor or any of its Subsidiaries before any court,
governmental agency or arbitrator, which could reasonably be
expected to materially adversely affect the financial condition or
operations of the Guarantor or of the Guarantor and its
Subsidiaries, taken as a whole.
SECTION 6. Affirmative Covenants. The Guarantor covenants and
agrees that, so long as any part of the Obligations shall remain
unpaid or any Bank shall have any Commitment, the Guarantor will,
unless the Majority Banks shall otherwise consent in writing:
(a) Performance and Compliance with Other Agreements. Perform
and comply with each of the material provisions of each material
indenture, credit agreement, contract or other agreement by which
the Guarantor is bound, non-performance or non-compliance with
which would have a material adverse effect upon its business or
credit or in any way affect its ability to perform its obligations
hereunder except material contracts or other agreements being
contested in good faith.
(b) Preservation of Corporate Existence, Etc. Preserve and
maintain its corporate existence in the jurisdiction of its
incorporation, and qualify and remain qualified as a foreign
corporation in good standing in each jurisdiction in which such
qualification is necessary or desirable in view of its business and
operations or the ownership of its properties, except where the
failure to be so qualified would not materially adversely affect
its financial condition, operations, properties or business, and
preserve its material rights, franchises and privileges to conduct
its business substantially as conducted on the date hereof.
(c) Compliance with Laws, Etc. Comply with the requirements
of all applicable laws, rules, regulations and orders of any
governmental authority, non-compliance with which would have a
material adverse effect upon its business or credit or in any way
affect its ability to perform its obligations hereunder except
laws, rules, regulations and orders being contested in good faith.
-4-<PAGE>
(d) Inspection Rights. At any reasonable time and from time
to time, permit any Bank or any agents or representatives thereof
to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, the Guarantor and
to discuss the affairs, finances and accounts of the Guarantor with
any of its officers or directors.
(e) Ownership of Operating Subsidiaries. Maintain at all
times beneficial ownership of at least 75% of all outstanding
shares of common stock of each Operating Subsidiary.
SECTION 7. Negative Covenants. The Guarantor covenants and
agrees that, so long as any part of the Obligations shall remain
unpaid or any Bank shall have any Commitment, the Guarantor will
not, without the prior written consent of the Majority Banks:
(a) Sale of Assets, Etc. Sell, transfer, lease, assign or
otherwise convey or dispose of more than 25% of its assets (whether
now owned or hereafter acquired), in any single or series of
transactions, whether or not related, except for dispositions of
current assets in the ordinary course of business as presently
conducted.
(b) Pledge of Stock. Pledge, grant options on, create any
charge on or security interest in, or otherwise subject to any
charge or encumbrance, any of the common stock of its Operating
Subsidiaries unless the obligations of the Guarantor hereunder are
secured ratably and with equal priority, in form and substance
reasonably satisfactory to the Majority Banks.
(c) Net Worth. Fail to maintain its consolidated stockholders
equity, as reported from time to time in Guarantor's periodic
reports filed pursuant to Section 14 or 15(d) of the Securities
Exchange Act of 1934, of at least $1,000,000,000.
SECTION 8. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty, and no consent to any departure by the
Guarantor herefrom, shall in any event be effective unless the same
shall be in writing and signed by the Agent, and then such waiver
or consent shall be effective only in the specific instance and for
the specific purpose for which given, provided, however, that no
amendment, waiver or consent shall, unless in writing and signed by
all the Banks, (a) limit the liability of the Guarantor hereunder,
(b) postpone any date fixed for payment hereunder, or (c) change
the number of Banks required to take any action hereunder.
SECTION 9. Address for Notices. All notices and other
communications provided for hereunder shall be in writing and sent
by first class mail, postage prepaid, telecopier, or hand delivery
to it, if to the Guarantor, at its address at its address at 100
Interpace Parkway, Parsippany, New Jersey 07054, Attention: Vice
President and Treasurer, and if to any Bank, at its address
specified in the Credit Agreement, or, as to any party, at such
other address as shall be designated by such party in a written
notice to each other party.
-5-<PAGE>
SECTION 10. No Waiver; Remedies. No failure on the part of
any Bank to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 11. Right of Set-Off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making
by the Agent of any declaration of acceleration under the Credit
Agreement, each Bank is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at
any time owing by such Bank to or for the credit or the account of
the Guarantor against any and all of the obligations of the
Guarantor now or hereafter existing under this Guaranty, whether or
not such Bank shall have made any demand under this Guaranty and
although such obligations may be contingent and unmatured. Each
Bank agrees promptly to notify the Guarantor after any such set-off
and application made by such Bank, provided that the failure to
give such notice shall not affect the validity of such set-off and
application. The rights of each Bank under this Section are in
addition to other rights and remedies (including, without
limitation, other rights of set-off) that such Bank may have.
SECTION 12. Continuing Guaranty; Assignment under Credit
Agreement. This Guaranty is a continuing guaranty and shall (i)
remain in full force and effect until the later of (x) the payment
in full of the Obligations and all other amounts payable under this
Guaranty and (y) the expiration or termination of the Commitments,
(ii) be binding upon the Guarantor, its successors and assigns, and
(iii) inure to the benefit of, and be enforceable by, the Banks and
their respective successors, transferees and assigns. .
SECTION 13. Governing Law. This Guaranty shall be governed by,
and construed in accordance with, the laws of the State of New York
without giving effect to conflict of law principles.
-6-<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to
be executed by its officer thereunto duly authorized, as of the
date first above written.
GENERAL PUBLIC UTILITIES CORPORATION
By: ________________________________
Name:
Title:
-7-<PAGE>
Exhibit F-1
March 14, 1996
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. 70-8793
Ladies and Gentlemen:
We have examined the Declaration on Form U-1, dated
February 7, 1996, under the Public Utility Holding Company Act of
1935 (the "Act"), filed by General Public Utilities Corporation
("GPU"), a Pennsylvania corporation, with the Securities and
Exchange Commission and docketed in SEC File No. 70-8793, as
amended by Amendment No. 1 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, among other things, the
guaranty through February 1, 2006 by GPU pursuant to Guaranty
Agreements ("Guarantees") of the obligations of GPU Service
Corporation ("GPUSC") under one or more loan agreements ("Loan
Agreements") with one or more commercial banks or other
institutions, in respect of borrowings in an aggregate principal
amount not to exceed $40,000,000.
We have been counsel to GPU and its subsidiaries for many
years. In that connection, we have participated in various
proceedings related to the issuance of securities by GPU and its
subsidiaries, and we are familiar with the terms of the outstanding
securities of the corporations comprising the GPU holding company
system.
We have examined copies of the Articles of Incorporation
and By-Laws of GPU. We have also examined such other instruments,
agreements and documents and made such further investigation as we
have deemed necessary as a basis for this opinion.<PAGE>
Securities and Exchange Commission
March 14, 1996
Page 2
We are members of the Bar of the State of New York and do
not purport to be expert on the laws of any jurisdiction other than
the laws of the State of New York and the Federal laws of the
United States. The opinions expressed herein are limited to
matters governed by the laws of the State of New York and the
Federal laws of the United States. With respect to all matters of
Pennsylvania law, we have relied upon the opinion of Ballard Spahr
Andrews & Ingersoll which is being filed as Exhibit F-2 to the
Declaration.
Based upon the foregoing, and assuming (i) that the
transactions therein proposed are authorized by GPU's board of
directors and are carried out in accordance with the Declaration,
(ii) that the execution, delivery and performance of each Loan
Agreement will not violate any applicable law or any restriction
imposed by any court or governmental body having jurisdiction over
GPUSC or any contract binding on GPUSC, and (iii) compliance by GPU
with the applicable guaranty limitations in its Credit Agreement,
dated March 19, 1992, as amended, we are of the opinion that when
the Commission shall have entered an order forthwith permitting the
Declaration to become effective,
(a) all State laws applicable to the proposed
transactions will have been complied with;
(b) GPU is validly organized and duly existing;
(c) the Guaranty Agreements will be valid and binding
obligations of GPU in accordance with their terms, subject to
the effect of any applicable bankruptcy, insolvency, reorgani-
zation, fraudulent conveyance, moratorium, or other similar
laws affecting creditors' rights generally and general prin-
ciples of equity limiting the availability of equitable
remedies; and
(d) the consummation of the proposed transactions will
not violate the legal rights of the holders of any securities
issued by GPU or any company which is an "associate company"
of GPU, 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 Com-
mission that may be held in connection therewith.
Very truly yours,
BERLACK, ISRAELS & LIBERMAN LLP<PAGE>
Exhibit F-2
March 14, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: General Public Utilities Corporation
Declaration on Form U-1
SEC File No. 70-8793
Ladies and Gentlemen:
We have examined the Declaration on Form U-1, dated
February 7, 1996, under the Public Utility Holding Company Act of
1935 (the "Act"), filed by General Public Utilities Corporation
("GPU"), a Pennsylvania corporation, with the Securities and
Exchange Commission and docketed in SEC File No. 70-8793, as
amended by Amendment No. 1 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, among other things, the
guaranty through February 1, 2006 by GPU pursuant to Guaranty
Agreements ("Guarantees") of the obligations of GPU Service
Corporation ("GPUSC") under one or more loan agreements (the "Loan
Agreements) entered into from time to time through February 1, 2006
with one or more commercial banks or other institutions, in respect
of borrowings in an aggregate principal amount not to exceed
$40,000,000.
We have been Pennsylvania counsel to GPU and certain of
its subsidiaries for many years. In connection with the delivery
of this opinion, we have examined copies of the Articles of
Incorporation and By-Laws of GPU. We have also examined such other
instruments, agreements and documents and made such further
investigation as we have deemed necessary as a basis for this
opinion.<PAGE>
Securities and Exchange Commission
March 14, 1996
Page 2
Based upon the foregoing, and assuming (i) that the
transactions therein proposed are authorized by GPU's board of
directors and are carried out in accordance with the Declaration,
(ii) that the execution, delivery and performance of each Loan
Agreement will not violate any applicable law or any restriction
imposed by any court or governmental body having jurisdiction over
GPUSC or any contract binding on GPUSC, and (iii) compliance by GPU
with the applicable guaranty limitations in its Credit Agreement,
dated March 19, 1992, as amended, we are of the opinion, insofar as
Pennsylvania law is concerned, that:
(a) all Pennsylvania laws applicable to the
proposed transactions will have been complied with;
(b) GPU is validly organized and duly
existing; 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
Pennsylvania Electric Company or any of its subsidiaries.
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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000040779
<NAME> GENERAL PUBLIC UTILITIES CORPORATION
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1995
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 3,098,307 3,098,307
<TOTAL-CURRENT-ASSETS> 8,648 8,648
<TOTAL-DEFERRED-CHARGES> 68 68
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 3,107,023 3,107,023
<COMMON> 314,458 314,458
<CAPITAL-SURPLUS-PAID-IN> 746,449 746,449
<RETAINED-EARNINGS> 2,004,072 2,004,072
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,974,634 <F1> 2,974,634
0 0
0 0
<LONG-TERM-DEBT-NET> 0 0
<SHORT-TERM-NOTES> 71,800 71,800
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 60,589 60,589
<TOT-CAPITALIZATION-AND-LIAB> 3,107,023 3,107,023
<GROSS-OPERATING-REVENUE> 0 0
<INCOME-TAX-EXPENSE> 293 293
<OTHER-OPERATING-EXPENSES> 4,242 4,242
<TOTAL-OPERATING-EXPENSES> 4,535 4,535
<OPERATING-INCOME-LOSS> (4,535) (4,535)
<OTHER-INCOME-NET> 451,750 451,750
<INCOME-BEFORE-INTEREST-EXPEN> 447,215 447,215
<TOTAL-INTEREST-EXPENSE> 7,080 7,080
<NET-INCOME> 440,135 440,135
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 440,135 440,135
<COMMON-STOCK-DIVIDENDS> 215,413 215,413
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> (507) (507)
<EPS-PRIMARY> 3.79 3.79
<EPS-DILUTED> 3.79 3.79
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $90,345.
</FN>
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000040779
<NAME> GENERAL PUBLIC UTILITIES CORP AND SUBSIDIARY COMPANIES
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1995
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 6,369,217 6,369,217
<OTHER-PROPERTY-AND-INVEST> 785,899 785,899
<TOTAL-CURRENT-ASSETS> 828,046 836,771
<TOTAL-DEFERRED-CHARGES> 1,886,536 1,886,536
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 9,869,698 9,878,423
<COMMON> 314,458 314,458
<CAPITAL-SURPLUS-PAID-IN> 746,449 746,449
<RETAINED-EARNINGS> 2,004,072 2,003,835
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,974,634 <F1> 2,974,397
464,000 <F2> 464,000
98,116 98,116
<LONG-TERM-DEBT-NET> 2,567,898 2,577,198
<SHORT-TERM-NOTES> 123,890 123,890
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 121,246 121,246
10,000 10,000
<CAPITAL-LEASE-OBLIGATIONS> 11,696 11,696
<LEASES-CURRENT> 159,565 159,565
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,338,653 3,338,315
<TOT-CAPITALIZATION-AND-LIAB> 9,869,698 9,873,423
<GROSS-OPERATING-REVENUE> 3,804,656 3,804,656
<INCOME-TAX-EXPENSE> 173,955 173,787
<OTHER-OPERATING-EXPENSES> 3,070,150 3,070,725
<TOTAL-OPERATING-EXPENSES> 3,244,105 3,244,512
<OPERATING-INCOME-LOSS> 560,551 560,144
<OTHER-INCOME-NET> 130,472 130,472
<INCOME-BEFORE-INTEREST-EXPEN> 691,023 690,616
<TOTAL-INTEREST-EXPENSE> 250,888 <F3> 250,718
<NET-INCOME> 440,135 439,898
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 440,135 439,898
<COMMON-STOCK-DIVIDENDS> 215,413 215,413
<TOTAL-INTEREST-ON-BONDS> 188,321 188,321
<CASH-FLOW-OPERATIONS> 666,192 666,192
<EPS-PRIMARY> 3.79 3.79
<EPS-DILUTED> 3.79 3.79
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $90,345.
<F2> INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $330,000.
<F3> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY
<F3> REDEEMABLE PREFERRED SECURITIES OF $24,816 AND PREFERRED STOCK
<F3> DIVIDENDS OF SUBSIDIARIES OF $16,945.
</FN>
<PAGE>
</TABLE>
<TABLE>
Financial Statements
Item 6(b) 1-A
Page 1 of 22
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1995
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (See page 3) Pro Forma
<S> <C> <C> <C>
ASSETS
Investments:
Investments in subsidiaries $3 093 538 $ - $3 093 538
Other investments 4 769 - 4 769
Total investments 3 098 307 - 3 098 307
Current Assets:
Cash and temporary cash investments 8 567 - 8 567
Accounts receivable, net 75 - 75
Prepayments 6 - 6
Total current assets 8 648 - 8 648
Deferred Debits and Other Assets:
Other 68 - 68
Total deferred debits and other assets 68 - 68
Total Assets $3 107 023 $ - $3 107 023
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ - $ 314 458
Capital surplus 746 449 - 746 449
Retained earnings 2 004 072 - 2 004 072
Total 3 064 979 - 3 064 979
Less: reacquired common stock, at cost 90 345 - 90 345
Total common stockholders's equity 2 974 634 - 2 974 634
Current Liabilities:
Notes payable 71 800 - 71 800
Accounts payable 814 - 814
Taxes accrued 3 - 3
Interest accrued 529 - 529
Other 58 030 - 58 030
Total current liabilities 131 176 - 131 176
Deferred credits and other liabilities:
Other 1 213 - 1 213
Total Deferred credits and other liabilities 1 213 - 1 213
Total Liabilities and Capital $3 107 023 $ - $3 107 023
The accompanying note is an integral part of the financial statements.<PAGE>
Financial Statements
Item 6(b) 1-A
Page 2 of 22
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
Adjustments
Actual (See page 3) Pro Forma
Income:
Equity in earnings of subsidiaries $ 450 902 $ - $ 450 902
Other income, net 848 - 848
Total 451 750 - 451 750
Expense, Taxes and Interest:
General expenses 4 242 - 4 242
Income tax expense 293 - 293
Interest expense 7 080 - 7 080
Total 11 615 - 11 615
Net Income $ 440 135 $ - $ 440 135
Retained Earnings:
Balance at beginning of period $1 769 909 $ - $1 769 909
Add - Net income 440 135 - 440 135
Net unrealized gain on investments 12 280 - 12 280
Other adjustments, net 36 - 36
Deduct - Cash dividends on common stock 218 288 - 218 288
Balance at end of period $2 004 072 $ - $2 004 072
The accompanying note is an integral part of the financial statements.<PAGE>
Financial Statements
Item 6(b) 1-A
Page 3 of 22
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1995
(IN THOUSANDS)
The Corporation's guarantee of GPU Service Corporation's New Loan Agreement
does not require any pro forma adjustments to the financial statements
(Corporate) of the Corporation.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 4 of 22
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1995
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (see page 7) Pro Forma
<S> <C> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $9 295 630 $ - $9 295 630
Less, accumulated depreciation 3 433 240 - 3 433 240
Net utility plant in service 5 862 390 - 5 862 390
Construction work in progress 313 471 - 313 471
Other, net 193 356 - 193 356
Net utility plant 6 369 217 - 6 369 217
Other Property and Investments:
Nuclear decommissioning trusts 362 957 - 362 957
EI Group investments, net 288 044 - 288 044
Nuclear fuel disposal fund 95 393 - 95 393
Other, net 39 505 - 39 505
Total other property and investments 785 899 - 785 899
Current Assets:
Cash and temporary cash investments 18 422 8 725 27 147
Special deposits 14 877 - 14 877
Accounts receivable:
Customers, net 278 643 - 278 643
Other 69 773 - 69 773
Unbilled revenues 128 749 - 128 749
Materials and supplies, at average cost or less:
Construction and maintenance 194 769 - 194 769
Fuel 39 795 - 39 795
Deferred energy costs 13 208 - 13 208
Deferred income taxes 27 064 - 27 064
Prepayments 42 746 - 42 746
Total current assets 828 046 8 725 836 771
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 368 712 - 368 712
Unamortized property losses 105 729 - 105 729
Income taxes recoverable through future rates 527 584 - 527 584
Other 437 683 - 437 683
Total regulatory assets 1 439 708 - 1 439 708
Deferred income taxes 330 186 - 330 186
Other 116 642 - 116 642
Total deferred debits and other assets 1 886 536 - 1 886 536
Total Assets $9 869 698 $ 8 725 $9 878 423
The accompanying note is an integral part of the consolidated financial statements.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 5 of 22
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1995
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (see page 7) Pro Forma
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314 458 $ - $ 314 458
Capital surplus 746 449 - 746 449
Retained earnings 2 004 072 (237) 2 003 835
Total 3 064 979 (237) 3 064 742
Less, reacquired common stock, at cost 90 345 - 90 345
Total common stockholders' equity 2 974 634 (237) 2 974 397
Cumulative preferred stock:
With mandatory redemption 134 000 - 134 000
Without mandatory redemption 98 116 - 98 116
Subsidiary-obligated mandatorily redeemable
preferred securities 330 000 - 330 000
Long-term debt 2 567 898 9 300 2 577 198
Total capitalization 6 104 648 9 063 6 113 711
Current Liabilities:
Securities due within one year 131 246 - 131 246
Notes payable 123 890 - 123 890
Obligations under capital leases 159 565 - 159 565
Accounts payable 318 394 - 318 394
Taxes accrued 46 613 (168) 46 445
Interest accrued 69 456 (170) 69 286
Other 259 280 - 259 280
Total current liabilities 1 108 444 (338) 1 108 106
Deferred Credits and Other Liabilities:
Deferred income taxes 1 466 060 - 1 466 060
Unamortized investment tax credits 145 375 - 145 375
Three Mile Island Unit 2 future costs 413 031 - 413 031
Regulatory liabilities 97 999 - 97 999
Other 534 141 - 534 141
Total deferred credits and other liabilities 2 656 606 - 2 656 606
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $9 869 698 $ 8 725 $9 878 423
The accompanying note is an integral part of the consolidated financial statements.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 6 of 22
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, 1995
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (see page 7) Pro Forma
<S> <C> <C> <C>
Operating Revenues $3 804 656 $ - $3 804 656
Operating Expenses:
Fuel 363 211 - 363 211
Power purchased and interchanged 1 022 361 - 1 022 361
Deferral of energy costs, net (5 902) - (5 902)
Other operation and maintenance 963 609 575 964 184
Depreciation and amortization 377 650 - 377 650
Taxes, other than income taxes 349 221 - 349 221
Total operating expenses 3 070 150 575 3 070 725
Operating Income Before Income Taxes 734 506 (575) 733 931
Income taxes 173 955 (168) 173 787
Operating Income 560 551 (407) 560 144
Other Income and Deductions:
Allowance for other funds used during
construction 5 113 - 5 113
Other income/(expense), net 216 110 - 216 110
Income taxes (90 751) - (90 751)
Total other income and deductions 130 472 - 130 472
Income Before Interest Charges and
Preferred Dividends 691 023 (407) 690 616
Interest Charges and Preferred Dividends:
Interest on long-term debt 188 321 (170) 188 151
Other interest 30 364 - 30 364
Allowance for borrowed funds used during
construction (9 558) - (9 558)
Dividends on subsidiary-obligated mandatorily
redeemable preferred securities 24 816 - 24 816
Preferred stock dividends of subsidiaries 16 945 - 16 945
Total interest charges and preferred
dividends 250 888 (170) 250 718
Net Income $ 440 135 $ (237) $ 439 898
Retained Earnings:
Balance at beginning of period $1 775 759 $ - $1 775 759
Add - Net income 440 135 (237) 439 898
Net unrealized gain on investments 5 731 - 5 731
Other adjustments, net 735 - 735
Deduct - Cash dividends on common stock 218 288 - 218 288
Balance at end of period $2 004 072 $ (237) $2 003 835
The accompanying note is an integral part of the consolidated financial statements.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 7 of 22
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1995
(IN THOUSANDS)
(1)
<S> <C> <C>
Cash $40,000
Long-Term Debt $40,000
To record borrowings under the New Loan Agreement.
(2)
Long-Term Debt $30,700
Cash $30,700
To record repayment of existing loans.
(3)
Interest Accrued $170
Interest Expense $170
To record interest savings from the New Loan Agreement, assuming interest
expense of $2,860 under the existing loans (principal balance of $30,700 at a
an estimated blended rate of 9.32%) versus interest expense of $2,690 under
the new loan (principal balance of $40,000 at an estimated rate of 6.725%).
(4)
Other Operation & Maintenance Expense $575
Cash $575
To record fees associated with the New Loan Agreement, including a prepayment
premium on the existing loans, legal and bank fees.
(5)
Taxes Accrued $168
Tax Expense $168
To record the decreased tax expense associated with a net increase in
expenses. </TABLE>
<PAGE>
Financial Statements
Item 6(b)
Page 8 of 22
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
NOTE 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 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 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 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. 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 and Oyster Creek, including nuclear
fuel, was as follows:
Net Investment (in millions)
TMI-1 Oyster Creek
December 31, 1995 $640 $785
December 31, 1994 $627 $817
The Subsidiaries' net investment in TMI-2 at December 31, 1995 and 1994
was $95 million and $103 million, respectively, of which JCP&L's remaining
investment was $85 million and $89 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 related to their wholesale customers.
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, 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
<PAGE>
Financial Statements
Item 6(b)
Page 9 of 22
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).
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 December 1993.
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against the Corporation and the
Subsidiaries. Approximately 2,100 of such claims are pending in the 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.
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 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. 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
<PAGE>
Financial Statements
Item 6(b)
Page 10 of 22
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 Corporation and its Subsidiaries have asked the U.S.
Supreme Court to review that portion of the Court of Appeals' decision that
punitive damages may be recovered in public liability actions under the Price-
Anderson Act. The Corporation and its Subsidiaries do not know whether
plaintiffs will appeal any aspect of the Court of Appeals' decision.
Based upon the Court of Appeals' decision, 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.
The Court of Appeals also found 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 had 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 Corporation and its Subsidiaries
have requested that the U. S. Supreme Court review this issue. They do not
know whether plaintiffs will do so as well.
There can be no assurance as to the outcome of this litigation.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. As described in the NUCLEAR FUEL DISPOSAL FEE
section of Note 2, the disposal of spent nuclear fuel is covered separately by
contracts with the U.S. Department of Energy (DOE).
In 1990, the Subsidiaries submitted a report, in compliance with NRC
regulations, setting forth a funding plan (employing the external sinking fund
method) for the decommissioning of their nuclear reactors. Under this plan,
the Subsidiaries intend to complete the funding for Oyster Creek and TMI-1 by
the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2
funding completion date is 2014, consistent with TMI-2's remaining in long-
term storage and being decommissioned at the same time as TMI-1. Under the
NRC regulations, the funding targets (in 1995 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 ($250 million in 1995 dollars). 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.
<PAGE>
Financial Statements
Item 6(b)
Page 11 of 22
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 (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 millions)
Oyster
Creek TMI-1 TMI-2
Radiological decommissioning $347 $295 $358
Nonradiological cost of removal 33 73 37*
Total $380 $368 $395
* Net of $3 million spent as of December 31, 1995.
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 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.
The Financial Accounting Standards Board (FASB) is reviewing the utility
industry's accounting practices for closure and removal of long-lived assets,
including nuclear plant retirement costs. If the FASB's tentative conclusions
are adopted, 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 since the plant is no longer operating (see TMI-2 Future Costs).
The FASB is expected to release an Exposure Draft in early 1996, and 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 estimates 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
<PAGE>
Financial Statements
Item 6(b)
Page 12 of 22
Pennsylvania Public Utility Commission (PaPUC) previously granted Met-Ed
revenues for decommissioning costs of TMI-1 based on its share of the NRC
funding target and nonradiological cost of removal estimated in an earlier
1988 site-specific study to be $74 million (in 1995 dollars). The PaPUC also
approved a rate change for Penelec which increased the collection of revenues
for decommissioning costs for TMI-1 to a basis equivalent to that granted Met-
Ed. Collections from customers for retirement expenditures are deposited in
external trusts. Provision for the future expenditure of these funds has been
made in accumulated depreciation, amounting to $73 million for TMI-1 and $138
million for Oyster Creek at December 31, 1995. Oyster Creek and TMI-1
retirement costs are charged to depreciation expense over the expected service
life of each nuclear plant, and amounted to $13 million and $15 million,
respectively, for 1995.
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 December 31, 1995 and
1994 are as follows:
(in millions) (in millions)
1995 1994
Radiological Decommissioning $358 $250
Nonradiological Cost of Removal 37* 72*
Incremental Monitored Storage 18 19
Total $413 $341
* Net of $3 million and $2 million spent as of December 31, 1995 and
December 31, 1994, respectively.
The 1994 liability for radiological decommissioning was based on the
NRC funding target, while the 1994 liability for nonradiological cost of
removal was based on the 1988 site-specific study for TMI-1 ($74 million).
The 1995 liability recorded on the Balance Sheet for radiological
decommissioning and nonradiological cost of removal is based on the 1995 site-
specific study.
Offsetting the $413 million liability is $271 million which is probable
of recovery from customers and included in Three Mile Island Unit 2 Deferred
Costs on the Balance Sheet, and $143 million in trust funds for TMI-2 and
included in Nuclear Decommissioning Trusts on the Balance Sheet. Of the $271
million still to be recovered from customers, $66 million represents an
increase from 1994 due to the 1995 site-specific study. 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 expense in 1995 amounted to $14 million.
The NJBPU has granted JCP&L decommissioning revenues for the remainder of
the NRC funding target and allowances for the cost of removal of
nonradiological structures and materials. In 1993, a PaPUC rate order
permitted Met-Ed future recovery of certain TMI-2 retirement costs, based on
<PAGE>
Financial Statements
Item 6(b)
Page 13 of 22
the NRC funding target, and the cost of removal of nonradiological structures
and materials, based on the 1988 site-specific study. The Pennsylvania Office
of Consumer Advocate appealed that order to the Commonwealth Court, which
reversed the PaPUC order in 1994. Consequently, 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 1994 Consolidated
Statement of Income 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. In September 1995,
the Pennsylvania Supreme Court reversed the Commonwealth Court decision. Met-
Ed and Penelec have therefore reversed the previous write-offs, resulting in
pre-tax income of $127.6 million and $56.3 million, respectively, being
credited to the Other Income and Deductions section of the 1995 Consolidated
Statement of Income. However, notwithstanding the Supreme Court's decision,
Met-Ed and Penelec have determined that the recovery of the incremental
monitored storage costs is no longer probable, and have recorded pre-tax
charges to operating income of $10 million and $4.7 million, respectively,
during 1995.
At December 31, 1995 the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $63 million, which is the difference
between the 1995 TMI-1 and TMI-2 site-specific study estimates of $295 million
and $358 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 $63
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 late 1993,
the Subsidiaries are incurring incremental storage costs of approximately $1
million 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 $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
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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 $69 million 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.
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 26 years. 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 December 31, 1995, facilities covered by these agreements having 1,624 MW
(JCP&L 892 MW, Met-Ed 335 MW and Penelec 397 MW) 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:
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Payments Under Nonutility Agreements
(in millions)
Total JCP&L Met-Ed Penelec
1993 $ 491 $ 292 $ 95 $ 104
1994 528 304 101 123
1995 670 381 131 158
* 1996 696 369 151 176
* 1997 739 400 155 184
* 1998 837 430 210 197
* 1999 931 442 211 278
* 2000 987 463 216 308
* Estimate
Of these amounts, payments to the projects which are not in service at
December 31, 1995 total $40 million, $123 million, $202 million and $231
million for 1997, 1998, 1999 and 2000, respectively.
In the year 2000 these agreements, in the aggregate, will provide
approximately 2,062 MW (JCP&L 1,002 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
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 (see Managing Nonutility Generation,
in Management's Discussion and Analysis of Financial Condition and Results of
Operations); 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 what extent the Subsidiaries' efforts will be successful in
whole or in part.
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While the Subsidiaries thus far have been granted recovery of their NUG
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. 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 $240 million to $350 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
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 reflected in the December 31, 1995
Consolidated Balance Sheet, were as follows:
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Financial Statements
Item 6(b)
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(in thousands)
Assets Liabilities
Income taxes recoverable/refundable
through future rates $ 527,584 $94,931
TMI-2 deferred costs 368,712 -
Unamortized property losses 105,729 -
NUG contract termination costs 84,132 -
Other postretirement benefits 58,362 -
N.J. unit tax 51,518 -
Unamortized loss on reacquired debt 50,198 -
Load and demand-side management programs 48,071 -
DOE enrichment facility decommissioning 38,519 -
Manufactured gas plant remediation 29,608 -
Nuclear fuel disposal fee 21,946 -
N.J. low-level radwaste disposal 21,778 -
Storm damage 18,294 -
Oyster Creek deferred costs 4,830 -
Other 10,427 3,068
Total $1,439,708 $97,999
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, 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 (see Managing Nonutility Generation, in
Management's Discussion and Analysis of Financial Condition and Results of
Operations).
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)
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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. 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 being recovered
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.
Oyster Creek deferred costs: Consists of replacement power and operation and
maintenance (O&M) costs deferred in accordance with orders from the NJBPU.
JCP&L has been granted recovery of these costs through rates at an annual
amount until fully amortized.
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 increased 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. The Corporation is unable to estimate 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,
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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
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 for air pollution
control equipment by the year 2000, of which approximately $234 million 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 (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 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. 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 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 sites. JCP&L has also entered into
various cost-sharing agreements with other utilities for most of the sites.
As of December 31, 1995, JCP&L has an estimated environmental liability of $29
million recorded on its Balance Sheet relating to these sites. The estimated
liability is based upon ongoing site investigations and remediation efforts,
including capping the sites and pumping and treatment of ground water. If the
periods over which the remediation is currently expected to be performed are
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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 manufactured gas
plant 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 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. Pretrial discovery has begun in this case.
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
The GPU System's construction programs, for which substantial commitments
have been incurred and which extend over several years, contemplate
expenditures of $491 million 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.
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 contract
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 $115 million 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
<PAGE>
Financial Statements
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2004. For the years 1996, 1997, 1998, 1999 and 2000, payments pursuant to
these agreements are estimated to be $174 million, $164 million, $145 million,
$124 million, and $95 million, respectively.
JCP&L is constructing a 141 MW gas-fired combustion turbine at its
Gilbert generating station. This estimated $50 million project, of which $34
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 current 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.
As of December 31, 1995, approximately 52% 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 1996,
representing 45% of GPU'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.
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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 two of Energy Initiatives' projects. NIMO alleges to have overpaid Energy
Initiatives approximately $10 million for the years 1993 through 1995. Energy
Initiatives has filed motions to dismiss these complaints and is vigorously
defending these actions. There can be no assurance as to the outcome of these
proceedings.
At December 31, 1995, the EI Group had investments totaling $160 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 (see EI
GROUP, in Management's Discussion and Analysis of Financial Condition and
Results of Operations).
In March 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.
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 wherever 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.
<PAGE>
