UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-6047 GPU, Inc. 13-5516989
(a Pennsylvania corporation)
(formerly General Public Utilities
Corporation)
100 Interpace Parkway
Parsippany, New Jersey 07054-1149
Telephone (201) 263-6500
1-3141 Jersey Central Power & Light Company 21-0485010
(a New Jersey corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
Telephone (610) 929-3601
1-446 Metropolitan Edison Company 23-0870160
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
Telephone (610) 929-3601
1-3522 Pennsylvania Electric Company 25-0718085
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
Telephone (610) 929-3601
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of
voting stock, as of October 31, 1996, was as follows:
Shares
Registrant Title Outstanding
GPU, Inc. Common Stock, $2.50 par value 120,566,356
Jersey Central Power & Light Company Common Stock, $10 par value 15,371,270
Metropolitan Edison Company Common Stock, no par value 859,500
Pennsylvania Electric Company Common Stock, $20 par value 5,290,596
<PAGE>
GPU, Inc. and Subsidiary Companies
Quarterly Report on Form 10-Q
September 30, 1996
Table of Contents
Page
PART I - Financial Information
Consolidated Financial Statements:
GPU, Inc.
Balance Sheets 3
Statements of Income 5
Statements of Cash Flows 6
Jersey Central Power & Light Company
Balance Sheets 7
Statements of Income 9
Statements of Cash Flows 10
Metropolitan Edison Company
Balance Sheets 11
Statements of Income 13
Statements of Cash Flows 14
Pennsylvania Electric Company
Balance Sheets 15
Statements of Income 17
Statements of Cash Flows 18
Notes to Financial Statements 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 42
PART II - Other Information 59
Signatures 60
_________________________________
The financial statements (not examined by independent accountants) reflect
all adjustments (which consist of only normal recurring accruals) which are,
in the opinion of management, necessary for a fair statement of the results
for the interim periods presented.
This combined Quarterly Report on Form 10-Q is separately filed by GPU,
Inc. (formerly General Public Utilities Corporation), Jersey Central Power &
Light Company, Metropolitan Edison Company and Pennsylvania Electric Company.
Information contained herein relating to any individual registrant is filed by
such registrant on its own behalf. None of these registrants make any
representations as to information relating to the other registrants. This
combined Form 10-Q supplements and updates the 1995 Annual Report on Form
10-K, filed by the individual registrants with the Securities and Exchange
Commission and should be read in conjunction therewith.
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements
made that are not historical facts are forward-looking and, accordingly,
involve risks and uncertainties that could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements.
Although such forward-looking statements have been based on reasonable
assumptions, there is no assurance that the expected results will be achieved.
Some of the factors that could cause actual results to differ materially
include, but are not limited to: the effects of regulatory decisions; changes
in law and other governmental actions and initiatives; the impact of
deregulation and increased competition in the industry; industry
restructuring; expected outcomes of legal proceedings; generating plant
performance; fuel prices and availability; economic conditions; uncertainties
involved with foreign operations; and the effects of inflation.
2
<PAGE>
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $ 9,533,328 $9,295,630
Less, accumulated depreciation 3,642,946 3,433,240
Net utility plant in service 5,890,382 5,862,390
Construction work in progress 304,796 313,471
Other, net 176,758 193,356
Net utility plant 6,371,936 6,369,217
Other Property and Investments:
Nuclear decommissioning trusts, at market 409,864 362,957
GPU International Group investments, net 838,928 288,044
Nuclear fuel disposal fund 98,256 95,393
Other, net 44,341 39,505
Total other property and investments 1,391,389 785,899
Current Assets:
Cash and temporary cash investments 51,179 18,422
Special deposits 25,381 14,877
Accounts receivable:
Customers, net 296,266 278,643
Other 124,731 69,773
Unbilled revenues 104,976 128,749
Materials and supplies, at average cost or less:
Construction and maintenance 193,043 194,769
Fuel 25,172 39,795
Deferred income taxes 29,339 20,090
Prepayments 140,766 42,746
Total current assets 990,853 807,864
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 365,949 368,712
Unamortized property losses 101,425 105,729
Income taxes recoverable through future rates 485,931 527,584
Other 595,170 437,683
Total regulatory assets 1,548,475 1,439,708
Deferred income taxes 362,833 330,186
Other 160,987 116,642
Total deferred debits and other assets 2,072,295 1,886,536
Total Assets $10,826,473 $9,849,516
The accompanying notes are an integral part of the consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314,458 $ 314,458
Capital surplus 749,859 746,449
Retained earnings 2,103,263 2,004,072
Total 3,167,580 3,064,979
Less, reacquired common stock, at cost 87,155 90,345
Total common stockholders' equity 3,080,425 2,974,634
Cumulative preferred stock:
With mandatory redemption 114,000 134,000
Without mandatory redemption 98,116 98,116
Subsidiary-obligated mandatorily
redeemable preferred securities 330,000 330,000
Long-term debt 3,024,177 2,567,898
Total capitalization 6,646,718 6,104,648
Current Liabilities:
Securities due within one year 184,435 131,246
Notes payable 301,521 123,890
Obligations under capital leases 151,864 159,565
Accounts payable 354,467 318,394
Taxes accrued 36,586 46,613
Deferred energy credits/(costs) 7,365 (13,208)
Interest accrued 58,215 69,456
Other 272,594 252,306
Total current liabilities 1,367,047 1,088,262
Deferred Credits and Other Liabilities:
Deferred income taxes 1,498,877 1,466,060
Unamortized investment tax credits 136,848 145,375
Three Mile Island Unit 2 future costs 424,905 413,031
Regulatory liabilities 92,256 97,999
Other 659,822 534,141
Total deferred credits and other liabilities 2,812,708 2,656,606
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $10,826,473 $9,849,516
The accompanying notes are an integral part of the consolidated financial statements.
4
</TABLE>
<PAGE>
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
(Except Per Share Data)
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $1,058,223 $1,095,082 $2,993,411 $2,873,702
Operating Expenses:
Fuel 98,200 102,086 284,969 272,975
Power purchased and interchanged 270,867 280,800 761,749 754,597
Deferral of energy costs, net 9,861 4,406 19,701 9,645
Other operation and maintenance 363,848 251,288 832,201 697,421
Depreciation and amortization 102,726 101,928 297,233 281,813
Taxes, other than income taxes 99,263 98,355 274,046 262,832
Total operating expenses 944,765 838,863 2,469,899 2,279,283
Operating Income Before Income Taxes 113,458 256,219 523,512 594,419
Income taxes 20,292 71,638 134,387 149,860
Operating Income 93,166 184,581 389,125 444,559
Other Income and Deductions:
Allowance for other funds used during
construction (743) 1,203 1,741 3,560
Other income, net 5,720 194,342 17,300 190,172
Income taxes 1,355 (82,264) (2,590) (80,841)
Total other income and deductions 6,332 113,281 16,451 112,891
Income Before Interest Charges
and Preferred Dividends 99,498 297,862 405,576 557,450
Interest Charges and Preferred Dividends:
Interest on long-term debt 45,708 47,680 138,316 140,159
Other interest 9,518 7,017 22,497 22,820
Allowance for borrowed funds used
during construction (2,555) (2,543) (6,378) (6,615)
Dividends on subsidiary-obligated mandatorily
redeemable preferred securities 7,222 7,222 21,666 17,594
Preferred stock dividends of subsidiaries 3,784 4,208 11,776 12,737
Total interest charges and
preferred dividends 63,677 63,584 187,877 186,695
Net Income $ 35,821 $ 234,278 $ 217,699 $ 370,755
Earnings Per Average Common Share $ .29 $ 2.02 $ 1.80 $ 3.20
Average Common Shares Outstanding 120,791 116,512 120,710 115,841
Cash Dividends Paid Per Share $ .485 $ .47 $ 1.44 $ 1.39
The accompanying notes are an integral part of the consolidated financial statements.
5
</TABLE>
<PAGE>
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Nine Months
Ended September 30,
1996 1995
<S> <C> <C>
Operating Activities:
Net income $ 217,699 $ 370,755
Adjustments to reconcile income to cash provided:
Depreciation and amortization 315,726 281,577
Amortization of property under capital leases 42,711 43,039
Three Mile Island Unit 2 costs - (170,005)
Voluntary enhanced retirement programs 122,739 -
Nuclear outage maintenance costs, net 3,597 8,178
Deferred income taxes and investment tax
credits, net 14,664 95,500
Deferred energy costs, net 19,696 9,888
Accretion income (8,708) (9,390)
Allowance for other funds used
during construction (1,741) (3,560)
Changes in working capital:
Receivables (48,788) (19,881)
Materials and supplies 16,113 10,781
Special deposits and prepayments (92,705) (37,060)
Payables and accrued liabilities (16,063) (87,028)
Nonutility generation contract buyout costs (90,450) (18,650)
Other, net (66,541) (26,668)
Net cash provided by operating activities 427,949 447,476
Investing Activities:
Cash construction expenditures (261,185) (340,168)
Contributions to decommissioning trusts (30,136) (24,974)
GPU International Group investments (541,587) (47,184)
Other, net 3,703 (3,502)
Net cash required for investing activities (829,205) (415,828)
Financing Activities:
Issuance of long-term debt 563,762 197,206
Increase/(Decrease) in notes payable, net 177,797 (123,003)
Retirement of long-term debt (71,389) (43,737)
Capital lease principal payments (42,673) (42,486)
Issuance of common stock - 29,645
Issuance of subsidiary-obligated mandatorily
redeemable preferred securities - 121,063
Redemption of preferred stock of subsidiaries (20,000) (6,049)
Dividends paid on common stock (173,484) (160,693)
Net cash provided (required) by
financing activities 434,013 (28,054)
Net increase in cash and temporary
cash investments from above activities 32,757 3,594
Cash and temporary cash investments, beginning of year 18,422 26,731
Cash and temporary cash investments, end of period $ 51,179 $ 30,325
Supplemental Disclosure:
Interest and preferred dividends paid $ 219,875 $ 200,156
Income taxes paid $ 137,980 $ 168,810
New capital lease obligations incurred $ 31,415 $ 45,469
Common stock dividends declared but not paid $ - $ -
The accompanying notes are an integral part of the consolidated financial statements.
6
</TABLE>
<PAGE>
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $4,454,886 $4,311,458
Less, accumulated depreciation 1,770,157 1,669,893
Net utility plant in service 2,684,729 2,641,565
Construction work in progress 133,159 157,885
Other, net 114,191 111,023
Net utility plant 2,932,079 2,910,473
Other Property and Investments:
Nuclear decommissioning trusts, at market 248,701 225,200
Nuclear fuel disposal fund 98,256 95,393
Other, net 7,699 7,218
Total other property and investments 354,656 327,811
Current Assets:
Cash and temporary cash investments 2,925 922
Special deposits 6,934 7,358
Accounts receivable:
Customers, net 165,929 150,002
Other 23,476 21,912
Unbilled revenues 54,071 66,389
Materials and supplies, at average cost or less:
Construction and maintenance 94,904 95,949
Fuel 8,559 18,693
Deferred income taxes 11,897 8,842
Prepayments 76,216 20,869
Total current assets 444,911 390,936
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 133,287 138,472
Unamortized property losses 95,821 100,176
Income taxes recoverable through future rates 129,080 134,787
Other 448,319 311,293
Total regulatory assets 806,507 684,728
Deferred income taxes 149,076 122,082
Other 28,054 20,359
Total deferred debits and other assets 983,637 827,169
Total Assets $4,715,283 $4,456,389
The accompanying notes are an integral part of the consolidated financial statements.
7
</TABLE>
<PAGE>
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 153,713 $ 153,713
Capital surplus 510,769 510,769
Retained earnings 829,256 816,770
Total common stockholder's equity 1,493,738 1,481,252
Cumulative preferred stock:
With mandatory redemption 114,000 134,000
Without mandatory redemption 37,741 37,741
Company-obligated mandatorily
redeemable preferred securities 125,000 125,000
Long-term debt 1,137,225 1,192,945
Total capitalization 2,907,704 2,970,938
Current Liabilities:
Securities due within one year 65,884 35,710
Notes payable 102,134 800
Obligations under capital leases 99,281 90,329
Accounts payable:
Affiliates 60,340 31,885
Other 117,218 111,225
Taxes accrued 4,555 10,516
Deferred energy credits/(costs) 11,060 (5,290)
Interest accrued 29,672 28,718
Other 87,776 71,769
Total current liabilities 577,920 375,662
Deferred Credits and Other Liabilities:
Deferred income taxes 645,847 607,188
Unamortized investment tax credits 61,971 66,874
Three Mile Island Unit 2 future costs 106,251 103,271
Nuclear fuel disposal fee 125,925 121,121
Regulatory liabilities 34,706 37,597
Other 254,959 173,738
Total deferred credits and other liabilities 1,229,659 1,109,789
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $4,715,283 $4,456,389
The accompanying notes are an integral part of the consolidated financial statements.
8
</TABLE>
<PAGE>
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $ 578,274 $ 625,479 $1,583,432 $1,546,594
Operating Expenses:
Fuel 29,438 33,454 81,664 74,263
Power purchased and interchanged:
Affiliates 8,673 9,854 21,896 13,222
Others 169,640 182,420 451,889 493,698
Deferral of energy and capacity costs, net 741 (355) 15,478 (10,746)
Other operation and maintenance 187,964 114,888 425,306 341,265
Depreciation and amortization 54,939 49,150 155,177 145,111
Taxes, other than income taxes 61,539 65,421 176,899 171,298
Total operating expenses 512,934 454,832 1,328,309 1,228,111
Operating Income Before Income Taxes 65,340 170,647 255,123 318,483
Income taxes 11,888 51,190 56,560 79,965
Operating Income 53,452 119,457 198,563 238,518
Other Income and Deductions:
Allowance for other funds used during
construction (758) 399 1,224 856
Other income, net 2,850 3,728 4,668 10,713
Income taxes (990) (1,491) (2,225) (4,273)
Total other income and deductions 1,102 2,636 3,667 7,296
Income Before Interest Charges and
Dividends on Preferred Securities 54,554 122,093 202,230 245,814
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 22,204 23,461 66,921 69,421
Other interest 3,971 2,161 8,980 7,684
Allowance for borrowed funds used
during construction (1,815) (1,651) (4,092) (3,698)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,675 2,675 8,025 3,953
Total interest charges and dividends
on preferred securities 27,035 26,646 79,834 77,360
Net Income 27,519 95,447 122,396 168,454
Preferred stock dividends 3,162 3,586 9,910 10,871
Earnings Available for Common Stock $ 24,357 $ 91,861 $ 112,486 $ 157,583
The accompanying notes are an integral part of the consolidated financial statements.
9
</TABLE>
<PAGE>
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Nine Months
Ended September, 30
1996 1995
<S> <C> <C>
Operating Activities:
Net income $ 122,396 $ 168,454
Adjustments to reconcile income to cash provided:
Depreciation and amortization 163,880 157,747
Amortization of property under capital leases 22,493 24,342
Voluntary enhanced retirement programs 62,909 -
Nuclear outage maintenance costs, net (3,322) 12,588
Deferred income taxes and investment tax
credits, net 2,475 16,733
Deferred energy and capacity costs, net 15,473 (10,814)
Accretion income (8,708) (9,390)
Allowance for other funds used
during construction (1,224) (856)
Changes in working capital:
Receivables (5,173) (27,061)
Materials and supplies 11,179 (1,042)
Special deposits and prepayments (54,923) (39,111)
Payables and accrued liabilities (36,664) (55,906)
Nonutility generation contract buyout costs (65,000) (17,000)
Other, net (2,767) (15,120)
Net cash provided by operating activities 223,024 203,564
Investing Activities:
Cash construction expenditures (124,081) (158,272)
Contributions to decommissioning trusts (13,504) (13,523)
Other, net (5,643) (3,153)
Net cash required for investing activities (143,228) (174,948)
Financing Activities:
Issuance of long-term debt - 49,625
Increase/(Decrease) in notes payable, net 101,500 (73,100)
Retirement of long-term debt (25,710) (9)
Capital lease principal payments (23,249) (21,978)
Issuance of company-obligated mandatorily
redeemable preferred securities - 121,063
Redemption of preferred stock (20,000) (6,049)
Dividends paid on common stock (100,000) (95,000)
Contributions from parent corporation - 15,000
Dividends paid on preferred stock (10,334) (10,983)
Net cash required by financing activities (77,793) (21,431)
Net increase in cash and temporary
cash investments from above activities 2,003 7,185
Cash and temporary cash investments, beginning of year 922 1,041
Cash and temporary cash investments, end of period $ 2,925 $ 8,226
Supplemental Disclosure:
Interest paid $ 78,674 $ 78,411
Income taxes paid $ 70,267 $ 78,675
New capital lease obligations incurred $ 30,321 $ 11,377
The accompanying notes are an integral part of the consolidated financial statements.
10
</TABLE>
<PAGE>
<TABLE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2,274,292 $2,240,951
Less, accumulated depreciation 821,183 763,921
Net utility plant in service 1,453,109 1,477,030
Construction work in progress 94,834 83,353
Other, net 34,204 45,587
Net utility plant 1,582,147 1,605,970
Other Property and Investments:
Nuclear decommissioning trusts, at market 112,986 95,317
Other, net 11,245 9,899
Total other property and investments 124,231 105,216
Current Assets:
Cash and temporary cash investments 4,818 1,810
Special deposits 1,188 1,256
Accounts receivable:
Customers, net 63,304 60,739
Other 21,496 22,151
Unbilled revenues 23,947 31,509
Materials and supplies, at average cost or less:
Construction and maintenance 41,523 39,337
Fuel 6,177 9,817
Deferred income taxes 9,569 7,868
Prepayments 22,138 6,549
Total current assets 194,160 181,036
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 148,623 149,004
Income taxes recoverable through future rates 146,277 178,513
Other 129,392 112,458
Total regulatory assets 424,292 439,975
Deferred income taxes 101,354 91,356
Other 13,876 13,612
Total deferred debits and other assets 539,522 544,943
Total Assets $2,440,060 $2,437,165
The accompanying notes are an integral part of the consolidated financial statements.
11
</TABLE>
<PAGE>
<TABLE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 66,273 $ 66,273
Capital surplus 370,200 370,200
Retained earnings 252,952 248,434
Total common stockholder's equity 689,425 684,907
Cumulative preferred stock 23,598 23,598
Company-obligated mandatorily
redeemable preferred securities 100,000 100,000
Long-term debt 563,251 603,268
Total capitalization 1,376,274 1,411,773
Current Liabilities:
Securities due within one year 40,020 15,019
Notes payable 52,077 22,390
Obligations under capital leases 33,060 43,600
Accounts payable:
Affiliates 18,740 10,559
Other 79,371 91,538
Taxes accrued 15,575 19,615
Deferred energy credits 7,575 1,417
Interest accrued 12,718 19,359
Other 49,004 40,635
Total current liabilities 308,140 264,132
Deferred Credits and Other Liabilities:
Deferred income taxes 372,304 380,135
Unamortized investment tax credits 31,825 33,387
Three Mile Island Unit 2 future costs 212,403 206,489
Nuclear fuel disposal fee 28,446 27,360
Regulatory liabilities 25,213 26,461
Other 85,455 87,428
Total deferred credits and other liabilities 755,646 761,260
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2,440,060 $2,437,165
The accompanying notes are an integral part of the consolidated financial statements.
12
</TABLE>
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<TABLE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $ 243,077 $ 241,664 $ 687,823 $ 637,755
Operating Expenses:
Fuel 23,645 24,826 71,612 67,619
Power purchased and interchanged:
Affiliates 4,270 8,930 16,018 22,830
Others 50,422 43,732 152,696 125,209
Deferral of energy costs, net 8,038 8,102 6,053 9,834
Other operation and maintenance 81,871 63,313 188,009 171,154
Depreciation and amortization 24,522 30,536 72,825 74,967
Taxes, other than income taxes 19,617 14,352 47,649 41,082
Total operating expenses 212,385 193,791 554,862 512,695
Operating Income Before Income Taxes 30,692 47,873 132,961 125,060
Income taxes 7,117 12,752 39,865 30,449
Operating Income 23,575 35,121 93,096 94,611
Other Income and Deductions:
Allowance for other funds used during
construction 314 297 401 1,156
Other income/(expense), net (105) 134,038 69 129,926
Income taxes 42 (56,950) 123 (55,321)
Total other income and deductions 251 77,385 593 75,761
Income Before Interest Charges and
Dividends on Preferred Securities 23,826 112,506 93,689 170,372
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 11,182 11,841 34,119 34,375
Other interest 2,101 1,291 4,132 3,864
Allowance for borrowed funds used
during construction (89) (267) (537) (1,009)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,250 2,250 6,750 6,750
Total interest charges and dividends
on preferred securities 15,444 15,115 44,464 43,980
Net Income 8,382 97,391 49,225 126,392
Preferred stock dividends 236 236 708 708
Earnings Available for Common Stock $ 8,146 $ 97,155 $ 48,517 $ 125,684
The accompanying notes are an integral part of the consolidated financial statements.
13
</TABLE>
<PAGE>
<TABLE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Nine Months
Ended September 30,
1996 1995
<S> <C> <C>
Operating Activities:
Net income $ 49,225 $ 126,392
Adjustments to reconcile income to cash provided:
Depreciation and amortization 77,173 64,014
Amortization of property under capital leases 11,785 9,950
Three Mile Island Unit 2 costs - (118,209)
Voluntary enhanced retirement programs 26,204 -
Nuclear outage maintenance costs, net 4,618 (3,003)
Deferred income taxes and investment tax
credits, net 8,487 58,774
Deferred energy costs, net 6,157 9,834
Allowance for other funds used
during construction (401) (1,156)
Changes in working capital:
Receivables 5,652 (14,030)
Materials and supplies 1,454 8,034
Special deposits and prepayments (15,521) (2,654)
Payables and accrued liabilities (27,692) (14,032)
Nonutility generation contract buyout costs (25,450) (1,650)
Other, net (10,641) (20,451)
Net cash provided by operating activities 111,050 101,813
Investing Activities:
Cash construction expenditures (52,089) (85,958)
Contributions to decommissioning trusts (12,685) (7,504)
Other, net (973) 12
Net cash required for investing activities (65,747) (93,450)
Financing Activities:
Issuance of long-term debt - 87,911
Increase in notes payable, net 29,687 1,100
Capital lease principal payments (11,255) (11,262)
Contributions from parent corporation - 10,000
Retirement of long term debt (15,019) (40,519)
Dividends paid on common stock (45,000) (60,000)
Dividends paid on preferred stock (708) (708)
Net cash required by financing activities (42,295) (13,478)
Net increase/(decrease) in cash and temporary
cash investments from above activities 3,008 (5,115)
Cash and temporary cash investments, beginning of year 1,810 9,246
Cash and temporary cash investments, end of period $ 4,818 $ 4,131
Supplemental Disclosure:
Interest paid $ 50,840 $ 50,393
Income taxes paid $ 36,954 $ 52,353
New capital lease obligations incurred $ 725 $ 20,903
The accompanying notes are an integral part of the consolidated financial statements.
14
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2,726,660 $2,667,842
Less, accumulated depreciation 1,024,280 974,992
Net utility plant in service 1,702,380 1,692,850
Construction work in progress 76,803 72,233
Other, net 24,730 30,876
Net utility plant 1,803,913 1,795,959
Other Property and Investments:
Nuclear decommissioning trusts, at market 48,177 42,440
Other, net 6,281 6,545
Total other property and investments 54,458 48,985
Current Assets:
Cash and temporary cash investments 1,750 1,367
Special deposits 2,884 2,718
Accounts receivable:
Customers, net 66,621 67,454
Other 18,703 29,033
Unbilled revenues 26,958 30,851
Materials and supplies, at average cost or less:
Construction and maintenance 50,521 53,237
Fuel 10,436 11,285
Deferred energy costs 11,270 9,335
Deferred income taxes 7,408 4,602
Prepayments 33,230 10,328
Total current assets 229,781 220,210
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 84,039 81,236
Income taxes recoverable through future rates 210,574 214,284
Other 23,063 19,485
Total regulatory assets 317,676 315,005
Deferred income taxes 68,512 78,754
Other 15,674 14,657
Total deferred debits and other assets 401,862 408,416
Total Assets $2,490,014 $2,473,570
The accompanying notes are an integral part of the consolidated financial statements.
15
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 105,812 $ 105,812
Capital surplus 285,486 285,486
Retained earnings 352,146 327,814
Total common stockholder's equity 743,444 719,112
Cumulative preferred stock 36,777 36,777
Company-obligated mandatorily
redeemable preferred securities 105,000 105,000
Long-term debt 616,462 642,487
Total capitalization 1,501,683 1,503,376
Current Liabilities:
Securities due within one year 76,010 75,009
Notes payable 70,635 27,100
Obligations under capital leases 17,452 22,751
Accounts payable:
Affiliates 8,682 13,806
Other 51,319 66,687
Taxes accrued 13,407 16,019
Interest accrued 11,632 19,567
Vacations accrued 6,276 9,976
Other 31,339 19,448
Total current liabilities 286,752 270,363
Deferred Credits and Other Liabilities:
Deferred income taxes 454,428 462,354
Unamortized investment tax credits 43,052 45,114
Three Mile Island Unit 2 future costs 106,251 103,271
Nuclear fuel disposal fee 14,223 13,680
Regulatory liabilities 32,337 33,941
Other 51,288 41,471
Total deferred credits and other liabilities 701,579 699,831
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2,490,014 $2,473,570
The accompanying notes are an integral part of the consolidated financial statements.
16
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $ 256,143 $ 249,234 $ 772,260 $ 741,097
Operating Expenses:
Fuel 45,117 43,806 131,693 131,093
Power purchased and interchanged:
Affiliates 166 973 2,245 5,243
Others 50,900 54,648 157,259 135,690
Deferral of energy costs, net 1,082 (3,341) (1,830) 10,557
Other operation and maintenance 96,989 73,717 222,804 192,642
Depreciation and amortization 23,265 22,242 69,231 61,735
Taxes, other than income taxes 18,107 18,582 49,498 50,452
Total operating expenses 235,626 210,627 630,900 587,412
Operating Income Before Income Taxes 20,517 38,607 141,360 153,685
Income taxes 1,287 7,696 37,962 39,446
Operating Income 19,230 30,911 103,398 114,239
Other Income and Deductions:
Allowance for other funds used during
construction (299) 507 116 1,548
Other income/(expense), net 67 58,888 (735) 55,259
Income taxes 14 (24,594) 76 (23,235)
Total other income and deductions (218) 34,801 (543) 33,572
Income Before Interest Charges and
Dividends on Preferred Securities 19,012 65,712 102,855 147,811
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 12,322 12,378 37,276 36,363
Other interest 2,179 1,647 5,448 5,608
Allowance for borrowed funds used
during construction (651) (625) (1,749) (1,908)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,297 2,297 6,891 6,891
Total interest charges and dividends
on preferred securities 16,147 15,697 47,866 46,954
Net Income 2,865 50,015 54,989 100,857
Preferred stock dividends 386 386 1,158 1,158
Earnings Available for Common Stock $ 2,479 $ 49,629 $ 53,831 $ 99,699
The accompanying notes are an integral part of the consolidated financial statements.
17
</TABLE>
<PAGE>
<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Nine Months
Ended September 30,
1996 1995
<S> <C> <C>
Operating Activities:
Net income $ 54,989 $ 100,857
Adjustments to reconcile income to cash provided:
Depreciation and amortization 66,236 56,519
Amortization of property under capital leases 6,197 5,695
Three Mile Island Unit 2 costs - (51,796)
Voluntary enhanced retirement programs 33,626 -
Nuclear outage maintenance costs, net 2,301 (1,407)
Deferred income taxes and investment tax
credits, net (1,453) 19,771
Deferred energy costs, net (1,934) 10,868
Allowance for other funds used
during construction (116) (1,548)
Changes in working capital:
Receivables 15,056 14,802
Materials and supplies 3,565 3,789
Special deposits and prepayments (23,068) (7,859)
Payables and accrued liabilities (46,698) 1,652
Other, net (1,106) 3,275
Net cash provided by operating activities 107,595 154,618
Investing Activities:
Cash construction expenditures (84,119) (98,089)
Contributions to decommissioning trusts (3,947) (3,947)
Other, net (581) -
Net cash required for investing activities (88,647) (102,036)
Financing Activities:
Issuance of long-term debt - 59,670
Increase/(Decrease) in notes payable, net 43,535 (61,453)
Capital lease principal payments (5,933) (6,194)
Contributions from parent corporation - 5,000
Retirement of long-term debt (25,009) (9)
Dividends paid on common stock (30,000) (45,000)
Dividends paid on preferred stock (1,158) (1,158)
Net cash required by financing activities (18,565) (49,144)
Net increase in cash and temporary
cash investments from above activities 383 3,438
Cash and temporary cash investments, beginning of year 1,367 1,191
Cash and temporary cash investments, end of period $ 1,750 $ 4,629
Supplemental Disclosure:
Interest paid $ 55,499 $ 50,846
Income taxes paid $ 42,863 $ 40,701
New capital lease obligations incurred $ 369 $ 10,451
The accompanying notes are an integral part of the consolidated financial statements.
18
</TABLE>
<PAGE>
GPU, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc. (GPU or the Company) (formerly General Public Utilities
Corporation), a Pennsylvania corporation, is a holding company registered
under the Public Utility Holding Company Act of 1935. The Company does not
directly operate any utility properties, but owns all the outstanding common
stock of three electric utilities serving customers in New Jersey -- Jersey
Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan
Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The
business of these subsidiaries (known collectively as the GPU Energy
companies) consists predominantly of the generation, transmission,
distribution and sale of electricity. The Company also owns all of the common
stock of GPU International, Inc. (formerly Energy Initiatives, Inc.), GPU
Power, Inc. (formerly EI Power, Inc.) and GPU Electric, Inc. (formerly EI
Energy, Inc.), (collectively, the GPU International Group) which develop, own
and operate generation, transmission and distribution facilities and supply
businesses in the United States and in foreign countries. GPU Service, Inc.
(GPUS), a service company; GPU Nuclear, Inc. (GPUN), which operates and
maintains the nuclear units of the GPU Energy companies; and GPU Generation,
Inc. (Genco), which operates and maintains the GPU Energy companies' fossil-
fueled and hydroelectric units, are also wholly-owned subsidiaries of the
Company. All of these companies considered together with their subsidiaries
are referred to as the "GPU Companies."
These notes should be read in conjunction with the notes to consolidated
financial statements included in the 1995 Annual Report on Form 10-K. The
year-end condensed balance sheet data contained in the attached financial
statements was derived from audited financial statements. For disclosures
required by generally accepted accounting principles, see the 1995 Annual
Report on Form 10-K.
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The GPU Energy companies 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 September 30, 1996 and
December 31, 1995, the GPU Energy companies' net investment in TMI-1 and
Oyster Creek, including nuclear fuel, was as follows:
Net Investment (Millions)
TMI-1 Oyster Creek
September 30, 1996
JCP&L $156 $775
Met-Ed 301 -
Penelec 148 -
Total $605 $775
19
<PAGE>
Net Investment (Millions)
TMI-1 Oyster Creek
December 31, 1995
JCP&L $166 $785
Met-Ed 318 -
Penelec 156 -
Total $640 $785
The GPU Energy companies' net investment in TMI-2 at September 30, 1996
was $92 million (of which JCP&L's, Met-Ed's and Penelec's shares were
$82 million, $2 million and $8 million, respectively). The GPU Energy
companies' net investment in TMI-2 at December 31, 1995 was $95 million (of
which JCP&L's, Met-Ed's and Penelec's shares were $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 their remaining
investments in 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 Energy companies may also incur
costs and experience reduced output at their 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.
A cleanup program was completed in 1990, and after receiving Nuclear
Regulatory Commission (NRC) approval, TMI-2 entered into long-term monitored
storage in 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 Company and the GPU Energy
companies. Approximately 2,100 of such claims were filed 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.
20
<PAGE>
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies 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 financial protection up to an
aggregate of $560 million. Under the secondary level, the GPU Energy
companies are subject to a retrospective premium charge of up to $5 million
per reactor, or a total of $15 million (of which JCP&L's, Met-Ed's and
Penelec's shares are $7.5 million, $5 million and $2.5 million, respectively).
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 defendants 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 Company and the GPU Energy companies to review the Court of Appeals'
rulings.
In June 1996, the District Court granted a motion for summary judgment
filed by the Company and the GPU Energy companies, and dismissed all of the
2,100 pending claims. The Court ruled that there was no evidence which
created a genuine issue of material fact warranting submission of plaintiffs'
claims to a jury. The plaintiffs have appealed the District Court's ruling to
the Court of Appeals for the Third Circuit. There can be no assurance as to
the outcome of this litigation.
Based on the above, the Company and the GPU Energy companies 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.
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 GPU Energy companies 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 GPU Energy companies intend to complete the funding for Oyster Creek
and TMI-1 by the end of the plants' license terms, 2009 and 2014,
21
<PAGE>
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 was
developed for TMI-2 which took the accident into account. The NRC funding
targets (in 1996 dollars) are as follows:
(Millions)
Oyster
TMI-1 TMI-2 Creek
JCP&L $ 42 $ 67 $221
Met-Ed 86 136 -
Penelec 42 67 -
Total $170 $270 $221
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 NRC
regulations address activities related to the removal of the radiological
portions of the plants, they do not establish residual radioactivity limits
nor do they address costs related to the removal of nonradiological structures
and materials.
In 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 these studies, is in
agreement with them, and believes the results are reasonable. They are as
follows (in 1996 dollars):
(Millions)
Oyster
GPU Energy Companies TMI-1 TMI-2 Creek
Radiological decommissioning $306 $372 $360
Nonradiological cost of removal 76 36 * 34
Total $382 $408 $394
* Net of $5 million spent as of September 30, 1996.
(Millions)
Oyster
JCP&L TMI-1 TMI-2 Creek
Radiological decommissioning $ 77 $ 93 $360
Nonradiological cost of removal 19 9 * 34
Total $ 96 $102 $394
* Net of $1 million spent as of September 30, 1996.
22
<PAGE>
(Millions)
Met-Ed TMI-1 TMI-2
Radiological decommissioning $152 $186
Nonradiological cost of removal 38 18 *
Total $190 $204
* Net of $3 million spent as of September 30, 1996.
(Millions)
Penelec TMI-1 TMI-2
Radiological decommissioning $77 $ 93
Nonradiological cost of removal 19 9 *
Total $96 $102
* Net of $1 million spent as of September 30, 1996.
The ultimate cost of retiring the GPU Energy companies' 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.
The GPU Energy companies charge to expense and accrue retirement costs
based on amounts being collected from customers and contribute these amounts
to external trust funds. In addition, JCP&L has contributed amounts it wrote
off for TMI-2 nuclear plant decommissioning in 1990, and Met-Ed and Penelec
have contributed amounts they wrote 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 Sheets.
Currently, the GPU Energy companies are collecting retirement costs which are
less than the estimates in the 1995 site-specific studies, and will not
increase their accruals until increased collections are permitted in rates.
(See TMI-1 and Oyster Creek and TMI-2 Future Costs for discussion of the
Stipulation of Final Settlement for JCP&L.) Accounting for retirement costs
may change based upon the Financial Accounting Standards Board (FASB) Exposure
Draft discussed below.
The FASB has 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 is adopted,
Oyster Creek and TMI-1 future retirement costs would have to be recognized as
a liability immediately, rather than the current industry practice of accruing
these costs in accumulated depreciation over the life of the plants. A
regulatory asset for amounts probable of recovery through rates would also be
established. Any amounts not probable of recovery through rates would 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 plant is no
longer operating (see TMI-2 Future Costs). The effective date of this
accounting change could be as early as January 1, 1998.
23
<PAGE>
This Exposure Draft also applies to fossil-fueled and hydroelectric
generating plants. For these assets, a liability will have to be recognized
when a legal or constructive obligation exists to perform dismantlement or
removal activities.
TMI-1 and Oyster Creek:
The New Jersey Board of Public Utilities (NJBPU) has granted JCP&L annual
revenues for TMI-1 and Oyster Creek retirement costs of $2.5 million and
$13.5 million, respectively. These annual revenues are based on both the NRC
funding targets for radiological decommissioning costs and a site-specific
study which was performed in 1988 for nonradiological costs of removal. A
Stipulation of Final Settlement (Final Settlement), pending before the NJBPU,
would allow for annual increases in JCP&L's future collection of retirement
costs of $2.7 million and $9 million for TMI-1 and Oyster Creek, respectively,
beginning in 1998. These annual increases are based on the 1995 site-specific
study estimates. (See discussion of the NJBPU's Final Settlement in RATE
MATTERS, Management's Discussion and Analysis.) The Pennsylvania Public
Utility Commission (PaPUC) has granted Met-Ed annual revenues for TMI-1
retirement costs of $8.5 million based on both the NRC funding target for
radiological decommissioning costs and the 1988 site-specific study for
nonradiological costs of removal. The PaPUC also granted Penelec annual
revenues of $4.2 million for its share of TMI-1 retirement costs, on a basis
consistent with that granted Met-Ed.
Provision for the future expenditure of these funds has been made in
accumulated depreciation, amounting to $88 million (of which JCP&L's, Met-Ed's
and Penelec's shares are $26 million, $44 million and $18 million,
respectively) for TMI-1 and $155 million for Oyster Creek at September 30,
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
$11 million (of which JCP&L's, Met-Ed's and Penelec's shares are $2 million,
$6 million and $3 million, respectively) and $10 million, respectively, for
the nine months ended September 30, 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 Sheets) as of September 30, 1996 and
December 31, 1995 are as follows:
(Millions)
Total JCP&L Met-Ed Penelec
September 30, 1996
Radiological Decommissioning $372 $ 93 $186 $ 93
Nonradiological Cost of Removal 36* 9 18 9
Incremental Monitored Storage 17 4 9 4
Total $425 $106 $213 $106
* Net of $5 million (of which JCP&L's, Met-Ed's and Penelec's shares were $1
million, $3 million and $1 million, respectively) spent as of September 30,
1996.
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<PAGE>
(Millions)
Total 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 (of which JCP&L's, Met-Ed's and Penelec's shares
were $.75 million, $1.5 million and $.75 million, respectively) as of
December 31, 1995.
Offsetting the $425 million liability at September 30, 1996 is
$274 million (of which JCP&L's, Met-Ed's and Penelec's shares are $51 million,
$147 million and $76 million, respectively) which is probable of recovery from
customers and included in Three Mile Island Unit 2 Deferred Costs on the
Balance Sheet, and $159 million (of which JCP&L's, Met-Ed's and Penelec's
shares are $65 million, $66 million and $28 million, respectively) in trust
funds for TMI-2 and included in Nuclear Decommissioning Trusts on the Balance
Sheet. Earnings on trust fund deposits 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 nine months
ended September 30, 1996 amounted to $10 million (of which JCP&L's, Met-Ed's
and Penelec's shares are $2 million, $7 million and $1 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. The Final Settlement pending before the NJBPU would adjust JCP&L's
future revenues for retirement costs based on the 1995 site-specific study
estimates, beginning in 1998.
At September 30, 1996 the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $66 million (of which JCP&L's,
Met-Ed's and Penelec's shares are $16 million, $34 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 $306 million and $372 million,
respectively (of which JCP&L's, Met-Ed's and Penelec's shares are $77 million
and $93 million, $152 million and $186 million, and $77 million and
$93 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 GPU Energy companies will not pursue recovery from customers
for any of these amounts contributed in excess of the $66 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.
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As a result of TMI-2's entering long-term monitored storage in 1993, the
GPU Energy companies are incurring incremental storage costs of approximately
$1 million (of which JCP&L's, Met-Ed's and Penelec's shares are $.25 million,
$.5 million and $.25 million, respectively) annually. The GPU Energy
companies estimate that the remaining storage costs will total $17 million
through 2014, the expected retirement date of TMI-1. JCP&L's rates reflect
its share of these costs.
INSURANCE
The GPU Companies have insurance (subject to retentions and deductibles)
for their 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 Companies 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 Companies.
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 Companies' liability to third
parties for a nuclear incident at one of their 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 Energy companies, could result in assessments of up to $79 million per
incident for each of the GPU Energy companies' 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
Energy companies are also subject to retrospective premium assessments of up
to $68 million (of which JCP&L's, Met-Ed's 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 Energy companies have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
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% of such
amounts for years two and three.
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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 GPU Energy companies
have entered into power purchase agreements with nonutility generators (NUGs)
for the purchase of energy and capacity for periods of 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 GPU Energy companies to purchase, at the
contract price, the output up to the contract limits. As of September 30,
1996, facilities covered by these agreements having 1,624 MW (of which
JCP&L's, Met-Ed's and Penelec's shares are 892 MW, 335 MW and 397 MW,
respectively) of capacity were in service. Actual payments to NUGs from 1993
through 1995, and estimated payments from 1996 through 2000, 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 701 362 157 182
* 1997 697 373 140 184
* 1998 714 377 145 192
* 1999 728 384 143 201
* 2000 751 395 145 211
* Estimates (1996 amounts consist of actual payments through August). The
1996 amounts are reflected in the rates currently being charged by the
GPU Energy companies.
From 1996 through 2000, JCP&L is forecast to purchase between 5,500 GWH
and 5,800 GWH of electric generation per year at contract prices which are
estimated to escalate approximately 0.7% annually on a unit cost (cents/KWH)
basis during this period. From 2001 through 2008, JCP&L is forecast to
purchase between 5,700 GWH and 5,800 GWH of electric generation per year at an
average annual cost of $467 million. The contract prices during this period
are estimated to escalate approximately 4.0% annually. After 2008, when major
contracts begin to expire, purchases steadily decline to approximately
1,900 GWH in 2014. The contract unit cost is estimated to escalate
approximately 1.7% annually from 2009 through 2014, with a total average
annual cost of $267 million during this period. All of JCP&L's contracts will
expire at the end of 2015. During this entire period, the NUG fuel mix
averages approximately 95% natural gas.
From 1996 through 2000, Met-Ed is forecast to purchase between 1,900 GWH
and 2,100 GWH of electric generation per year at contract prices which are
estimated to escalate approximately 0.7% annually on a unit cost basis during
this period. From 2001 through 2008, Met-Ed is forecast to purchase between
1,500 GWH and 1,900 GWH of electric generation per year at an average annual
cost of $149 million. The contract prices during this period are estimated to
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escalate approximately 3.6% annually on a unit cost basis. From 2009 through
2012, Met-Ed is forecast to purchase between 1,300 GWH and 1,500 GWH of
electric generation per year at an average annual cost of $141 million.
During this period, the contract prices are estimated to escalate
approximately 1.2% annually on a unit cost basis. After 2012, Met-Ed's
remaining contracts expire rapidly through 2015. During this entire period,
the NUG fuel mix averages approximately 60%-75% coal/waste coal.
From 1996 through 2000, Penelec is forecast to purchase approximately
2,900 GWH of electric generation per year at contract prices which are
estimated to escalate approximately 3.8% annually on a unit cost basis during
this period. From 2001 through 2008, Penelec is forecast to purchase between
2,800 GWH and 2,900 GWH of electric generation per year at an average annual
cost of $221 million. The contract prices during this period are estimated to
escalate approximately 2.2% annually on a unit cost basis. After 2008, when
major contracts begin to expire, purchases steadily decline to approximately
1,500 GWH in 2017. The contract unit cost is estimated to escalate
approximately 3.5% annually from 2009 through 2017, with a total average
annual cost of $194 million during this period. After 2017, Penelec's
remaining contracts expire rapidly through 2019. During this entire period,
the NUG fuel mix averages approximately 95% coal/waste coal.
The estimates in the above table and related disclosures do not include
amounts under purchase power agreements totaling 457 MW being negotiated by
Penelec and Met-Ed with the AES Power Company (AES). AES has acquired the
interests of the developers of the proposed York County, Blue Mountain and
Altoona facilities. Met-Ed and Penelec have agreed to pay restructuring costs
and conduct negotiations with AES for new, competitively priced power purchase
agreements. If these negotiations are unsuccessful, Met-Ed has agreed to pay
AES an additional $5 million for the proposed York County facility and
$23 million for the proposed Blue Mountain facility, and Penelec has agreed to
pay AES up to $8.3 million for the proposed 80 MW Altoona facility. In
addition, the estimates do not include amounts payable under a power purchase
agreement between Penelec and the developers of a proposed 80 MW coal-fired
cogeneration facility in Erie, Pennsylvania, the terms of which are the
subject of negotiations.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the companies' energy supply needs which has
caused the GPU Energy companies to change their supply strategy to seek
shorter-term agreements offering more flexibility. The cost of near- to
intermediate-term (i.e., one to four 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 GPU Energy companies' NUG agreements are substantially in excess of
current and projected prices from alternative sources.
The GPU Energy companies currently estimate that for 1998, when
substantially all of these NUG projects are scheduled to be in service, above
market payments (excluding those to the AES and Erie projects discussed above)
benchmarked against the expected cost of electricity produced by a new gas-
fired combined cycle facility, will range from $175 million to $260 million
(of which JCP&L's, Met-Ed's and Penelec's shares are $85 million to
$130 million, $40 million to $60 million, and $50 million to $70 million,
respectively). The amount of these estimated above-market payments may
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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.
The GPU Energy companies 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) and (4) initiating proceedings before
federal and state agencies, and in the courts, where appropriate. In addition,
the GPU Energy companies 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 Companies for
substantial damages. There can, however, be no assurance as to the extent
these efforts will be successful in whole or in part.
The GPU Energy companies have been granted recovery of their NUG costs
(including certain buyout costs) from customers by the PaPUC and NJBPU and
expect to continue to pursue such recovery. There can be no assurance that
the GPU Energy companies will continue to be able to recover similar costs
which may be incurred in the future. (See OTHER COMMITMENTS AND CONTINGENCIES
for discussion of the NJBPU generic proceeding addressing the recovery of NUG
capacity costs.)
The discussion of "Nonutility Generation Agreements" on pages 27 through
29 contains estimates which are based on current knowledge and expectations of
the outcome of future events. The estimates are subject to significant
uncertainties, including changes in fuel prices, improvements in technology,
the changing regulatory environment and the deregulation of the electric
utility industry.
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
Companies' 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.
The GPU Energy companies' 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 their regulated services.
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Regardless of the reason, should the GPU Energy companies' operations cease to
meet those criteria, they should discontinue application of FAS 71 and report
that discontinuation by eliminating from their Balance Sheets 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 GPU Energy companies
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 Sheets, and regulatory liabilities are reflected in the
Deferred Credits and Other Liabilities section of the Consolidated Balance
Sheets. Regulatory assets and liabilities, as of September 30, 1996 and
December 31, 1995, were as follows:
GPU and Subsidiary Companies Assets (In Thousands)
September 30, December 31,
1996 1995
Income taxes recoverable through
future rates $ 485,931 $ 527,584
TMI-2 deferred costs 365,949 368,712
NUG contract termination costs 223,325 84,132
Unamortized property losses 101,425 105,729
Other postretirement benefits 73,175 58,362
Manufactured gas plant remediation 53,156 29,608
N.J. unit tax 47,327 51,518
Unamortized loss on reacquired debt 46,568 50,198
Load and demand-side management programs 43,113 48,071
DOE enrichment facility decommissioning 36,126 38,519
Nuclear fuel disposal fee 23,482 21,946
N.J. low-level radwaste disposal 17,688 21,778
Storm damage 20,423 18,294
Other 10,787 15,257
Total $1,548,475 $1,439,708
Liabilities (In Thousands)
September 30, December 31,
1996 1995
Income taxes refundable through
future rates $ 89,899 $ 94,931
Other 2,357 3,068
Total $ 92,256 $ 97,999
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JCP&L Assets (In Thousands)
September 30, December 31,
1996 1995
Income taxes recoverable through
future rates $ 129,080 $ 134,787
TMI-2 deferred costs 133,287 138,472
NUG contract termination costs 139,000 17,482
Unamortized property losses 95,821 100,176
Other postretirement benefits 41,157 32,390
Manufactured gas plant remediation 53,156 29,608
N.J. unit tax 47,327 51,518
Unamortized loss on reacquired debt 32,165 34,285
Load and demand side management programs 43,113 48,071
DOE enrichment facility decommissioning 22,998 24,503
Nuclear fuel disposal fee 25,107 23,165
N.J. low-level radwaste disposal 17,688 21,778
Storm damage 20,423 18,294
Other 6,185 10,199
Total $ 806,507 $ 684,728
Liabilities (In Thousands)
September 30, December 31,
1996 1995
Income taxes refundable through
future rates $ 33,880 $ 36,343
Other 826 1,254
Total $ 34,706 $ 37,597
Met-Ed Assets (In Thousands)
September 30, December 31,
1996 1995
Income taxes recoverable through
future rates $ 146,277 $ 178,513
TMI-2 deferred costs 148,623 149,004
NUG contract termination costs 79,325 66,650
Unamortized property losses 3,192 3,273
Other postretirement benefits 32,018 25,972
Unamortized loss on reacquired debt 6,403 6,945
DOE enrichment facility decommissioning 8,752 9,344
Nuclear fuel disposal fee (1,216) (1,025)
Other 918 1,299
Total $ 424,292 $ 439,975
Liabilities (In Thousands)
September 30, December 31,
1996 1995
Income taxes refundable through
future rates $ 23,657 $ 24,765
Other 1,556 1,696
Total $ 25,213 $ 26,461
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Penelec Assets (In Thousands)
September 30, December 31,
1996 1995
Income taxes recoverable through
future rates $ 210,574 $ 214,284
TMI-2 deferred costs 84,039 81,236
NUG contract termination costs 5,000 -
Unamortized property losses 2,412 2,280
Unamortized loss on reacquired debt 8,000 8,968
DOE enrichment facility decommissioning 4,376 4,672
Nuclear fuel disposal fee (409) (194)
Other 3,684 3,759
Total $ 317,676 $ 315,005
Liabilities (In Thousands)
September 30, December 31,
1996 1995
Income taxes refundable through
future rates $ 32,362 $ 33,823
Other (25) 118
Total $ 32,337 $ 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 GPU Energy companies' 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.
NUG contract termination costs: Represents amounts 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).
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River Project, which are included in rates.
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."
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.
N.J. unit tax: Represents certain state taxes for which JCP&L received NJBPU
approval in 1993 to recover, with interest, over a ten-year period.
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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.
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: Represents payments to the DOE over
a 15-year period beginning in 1994, which are currently being collected
through the GPU Energy companies' energy adjustment clauses.
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 amortization amount is included in JCP&L's retail base
rates and is charged to expense.
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 GPU Energy companies 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 and
charged to expense. 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. Under Financial Accounting
Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived
Assets," described below, the GPU Companies would be required to recognize
impairment losses for long-lived assets (including uneconomical generation
plant), identifiable intangibles and capital leases if the carrying amounts of
those assets are greater than estimated cash flows expected to be generated
from the use and eventual disposition of the assets. The experience gained
from the deregulation of the telecommunications industry indicates that
substantial write-offs may result with the discontinuation of FAS 71. At this
time, the Company is unable to determine when and to what extent FAS 71 will
no longer be applicable.
In 1995, the FASB issued FAS 121, which requires that regulatory assets
meet the recovery criteria of FAS 71 on an ongoing basis in order to avoid a
writedown. In addition, FAS 121 requires that long-lived assets, identifiable
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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.
The implementation of FAS 121 by the GPU Companies 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 GPU Energy companies 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 Companies' results of operations and
financial condition.
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 Companies may be required to incur substantial additional
costs to construct new equipment, modify or replace existing and proposed
equipment, remediate, decommission or cleanup 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 GPU Energy companies expect to spend up to $410 million (of which
JCP&L's, Met-Ed's 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 $241 million (of which JCP&L's, Met-Ed's and
Penelec's shares are $44 million, $95 million and $102 million, respectively)
has already been spent. In developing their least-cost plan to comply with
the Clean Air Act, the GPU Energy companies 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 GPU Energy companies 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 (of which Met-Ed's 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 GPU Energy companies are unable
to determine what additional costs, if any, will be incurred.
The GPU 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
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waste sites. The GPU Companies have been named PRPs as follows (in some
cases, more than one GPU Company is named for a given site):
JCP&L MET-ED PENELEC GPUN GPU
6 4 2 1 1
In addition, the GPU Companies 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 them
as PRPs. The GPU Companies 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
Companies.
Pursuant to federal environmental monitoring requirements, Penelec has
reported to the Pennsylvania Department of Environmental Protection (PaDEP)
that contaminants from coal mine refuse piles were identified in storm water
run-off at Penelec's Seward station property. Penelec signed a Consent Order,
which became effective April 21, 1995, and is negotiating with the PaDEP to
determine a schedule for long-term remediation, based on future operating
scenarios, including reboilering the station using fluidized bed combustion
technology. This remediation approach would allow the existing refuse piles
to be mixed with the ash produced by the reboilered station, at an estimated
cost of approximately $2.25 million. Negotiations with the PaDEP indicate
that this approach would be acceptable, and as of September 30, 1996, Penelec
has recorded an estimated environmental liability of $2.25 million on its
Balance Sheet. If the station is not reboilered using such technology,
remediation of the site is estimated to range from $12 million to $25 million.
These cost estimates are subject to uncertainties based on continuing
discussions with the PaDEP as to the method of remediation, the extent of
remediation required and available cleanup technologies. Penelec's plans to
reboiler the station are contingent upon its ability to market the output
through third party power sales agreements. Unsuccessful efforts to date to
market the station's power have reduced the likelihood that the plant will be
reboilered. Penelec is currently reviewing its available options. If the
decision is not to reboiler the station using fluidized bed combustion
technology, an additional liability of $9.75 million will be recorded.
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
sites. As of September 30, 1996, JCP&L has spent approximately $22 million in
connection with the cleanup of these sites. In addition, JCP&L has recorded an
estimated environmental liability of $50 million relating to expected future
costs of these sites (as well as two other properties). This estimated
liability is based upon ongoing site investigations and remediation efforts,
which generally involve capping the sites and pumping and treatment of ground
water. JCP&L increased the estimated liability by $22 million in the third
quarter of 1996 to reflect an extension of the period during which operation
and maintenance expenditures relating to these sites are now considered most
likely to be incurred. Moreover, the cost to clean up these sites could be
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materially in excess of $50 million due to significant uncertainties,
including changes in acceptable remediation methods and technologies.
In 1994, the NJBPU approved a mechanism similar to JCP&L's Levelized
Energy Adjustment Clause (LEAC) for the recovery of future MGP remediation
costs. However, the NJBPU has also directed that recovery of MGP remediation
costs cease until such expenditures equaled the funds already collected from
customers. At September 30, 1996, JCP&L had recorded on its Balance Sheet a
regulatory asset of $53 million, which included approximately $50 million
related to expected future costs discussed above and $3 million for
remediation expenditures in excess of collections from customers (net of
interest) (see Regulatory Assets and Liabilities). JCP&L is continuing to
defer these remediation expenditures and accrue interest as previously
authorized by the NJBPU, and is continuing to defer estimated future
remediation costs. The Final Settlement pending before the NJBPU allows JCP&L
to continue this accounting treatment and establishes an adjustment clause for
the recovery of remediation costs in the future.
JCP&L is pursuing reimbursement from its insurance carriers for
remediation costs already spent and for future estimated costs. 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. Pretrial discovery
has begun in this case.
OTHER COMMITMENTS AND CONTINGENCIES
In June and July 1996, management offered voluntary enhanced retirement
programs to 745 bargaining and 399 non-bargaining employees. Of these
employees, 493 bargaining and 347 non-bargaining accepted the retirement
programs, resulting in an 8% reduction in GPU's total workforce and a third
quarter pre-tax charge to earnings of $122.7 million (of which JCP&L's,
Met-Ed's and Penelec's shares were $62.9 million, $26.2 million and
$33.6 million, respectively). The charges for these programs are included in
Other Operation and Maintenance on the Income Statement.
The GPU Companies' construction programs, for which substantial
commitments have been incurred and which extend over several years,
contemplate expenditures of $471 million (of which JCP&L's, Met-Ed's,
Penelec's and GPUS' shares are $242 million, $88 million, $124 million and
$17 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.
The GPU Energy companies 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 GPU Energy companies'
share of the cost of coal purchased under these agreements is expected to
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aggregate $116 million (of which JCP&L's, Met-Ed's 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 734 MW in 1996, declining to 527 MW in 1999 and 345 MW in
2004. Payments pursuant to these agreements are estimated to be $164 million
in 1996, $145 million in 1997, $128 million in 1998, $104 million in 1999 and
$84 million in 2000.
In October 1996, JCP&L was named as a defendant in a breach of contract
lawsuit against Freehold Cogeneration Associates (Freehold) brought by Nestle
Beverage Company (Nestle) in the New Jersey Superior Court. The lawsuit
relates to the April 1996 agreement under which JCP&L agreed to buy out the
power purchase agreement for the proposed 110 MW Freehold cogeneration
project. Nestle is seeking damages of at least $75 million for Freehold's
alleged breach of its steam sales agreement with Nestle and approximately
$412 million in damages against JCP&L for alleged unlawful interference with
that agreement. Nestle has also requested punitive damages in an unspecified
amount. JCP&L believes the claims against it are without merit.
Freehold had previously filed a complaint against Nestle in Baltimore
County Court seeking, among other things, a declaratory judgment that Freehold
had validly terminated the steam sales agreement and had no liability to
Nestle thereunder. Nestle has filed a motion to dismiss that complaint.
There can be no assurance of the outcome of these proceedings.
Genco has constructed a 141 MW gas-fired combustion turbine at JCP&L's
Gilbert generating station. This estimated $50 million project, of which
$48 million has been spent, was placed in service in July 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 appealed the NJDEP's issuance of the air permit and the
NJBPU's order to the Appellate Division of the New Jersey Superior Court. In
October 1996, the Appellate Division dismissed the appeal.
In 1993, the NJBPU 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 levelized energy
adjustment clause (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. 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. The Final Settlement which is now
pending before the NJBPU would resolve all remaining issues in this
proceeding. (See RATE MATTERS in Management's Discussion and Analysis).
There can be no assurance as to the outcome of this proceeding.
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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
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 September 30, 1996, approximately 53% of the GPU Companies'
workforce was represented by unions for collective bargaining purposes. The
JCP&L collective bargaining agreement, covering 44% of the GPU Energy
companies' union employees, expired in October 1996. On November 6, 1996,
union and management representatives reached agreement on a tentative work
contract, which is subject to approval by the union membership.
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. GPU International, Inc. has ownership interests, with an aggregate book
value of approximately $33 million, in three NUG projects which have long-term
purchase power agreements with NIMO. In August 1996, NIMO offered to buyout
or restructure 44 of its NUG power purchase agreements, including those for
the three GPU International, Inc. projects. GPU International, Inc., in
conjunction with the other NUG developers, is discussing the proposal with
NIMO. There can be no assurance as to the outcome of this matter.
NIMO has also initiated actions in federal court seeking to invalidate
numerous NUG contracts, including those for the GPU International, Inc.
projects. GPU International, Inc. 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 September 30, 1996, the GPU International Group had investments
totaling approximately $700 million in facilities located in several foreign
countries. Although management attempts to mitigate the risk of investing in
certain foreign countries by securing political risk insurance, the GPU
International Group faces additional risks inherent to operating in such
locations, including foreign currency fluctuations (see GPU INTERNATIONAL
GROUP in Management's Discussion and Analysis).
During the normal course of the operation of their businesses, in
addition to the matters described above, the GPU 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 Companies' financial position or results of
operations, there can be no assurance that this will continue to be the case.
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2. ACQUISITION OF MIDLANDS ELECTRICITY PLC
In May 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners
plc (Avon), a wholly owned subsidiary of Avon Energy Partners Holdings
(Holdings). Holdings is a 50/50 joint venture formed to acquire Midlands
Electricity plc (Midlands), an English regional electric company (REC).
Through a cash tender offer, Avon has acquired the outstanding shares of
Midlands for approximately $2.6 billion. GPU's 50% interest in Holdings is
held by EI UK Holdings, Inc. (EI UK), a wholly-owned subsidiary of GPU
Electric, Inc.
EI UK and Cinergy have each invested approximately $500 million in
Holdings. EI UK has borrowed approximately $500 million through a GPU
guaranteed five-year bank term loan facility to fund its investment in
Holdings. Holdings has borrowed approximately $1.6 billion through a non-
recourse term loan and revolving credit facility to provide for the balance of
the acquisition price.
Midlands, one of 12 RECs in the United Kingdom, distributes and supplies
electricity to 2.2 million customers in England in an area with a population
of five million. Midlands also owns a generation business that produces
electricity domestically and internationally and a gas supply company that
provides natural gas to 8,000 customers in England.
EI UK accounts for its 50% investment in Holdings using the equity method
of accounting (see Note 3 - GPU INTERNATIONAL GROUP EQUITY INVESTMENTS).
Accordingly, EI UK's investment is reported on GPU's consolidated Balance
Sheets in GPU International Group investments, net, and its proportionate
share of earnings from Holdings is reflected on the consolidated Income
Statements in Other Income and Deductions. Avon beneficially owned
approximately 28% and 100% of the outstanding common stock of Midlands at May
31, and September 30, respectively. As of September 30, 1996, Avon had
purchased Midlands shares at a cost of approximately $2.6 billion.
Accordingly, EI UK has recorded its proportionate share of Holdings' second
and third quarter income, which is reflected in GPU's results of operations.
The acquisition of Midlands by Avon is accounted for under the purchase
method of accounting. The total acquisition cost will exceed the preliminary
estimated value of net assets by approximately $1.7 billion. This excess
amount is considered goodwill and is amortized to expense on a straight line
basis over 40 years. The amount of goodwill will be revised by the end of
1996 when the final valuation of net assets is expected to be completed.
3. GPU INTERNATIONAL GROUP EQUITY INVESTMENTS
The GPU International Group has investments in joint ventures and
affiliates involved in power production, transmission and distribution in the
United States and foreign countries. The GPU International Group uses the
equity method of accounting for its investments in which it has the ability to
exercise significant influence (generally evidenced by a 20% to 50% ownership
interest). Brooklyn Energy, LP, in which the GPU International Group
currently has a 75% ownership interest, is being accounted for under the
equity method of accounting because of agreements that may reduce the GPU
International Group's ownership interest to 27% based on actual plant
performance. Investments accounted for under the equity method follow:
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Ownership
Investment Location of Operations Percentage
Brooklyn Energy, LP Canada 75%
Avon Energy Partners
Holdings (Midlands) United Kingdom 50%
Solaris Power Australia 50%
Prime Energy, LP United States 50%
Onondaga Cogen, LP United States 50%
Pasco Cogen, Ltd. United States 50%
Lake Cogen, Ltd. United States 42%
FPB Cogeneration Partners, LP United States 30%
Termobarranquilla S.A. Colombia 29%
Polsky Energy Corporation United States & Canada 25%
Selkirk Cogeneration Partners, LP United States 19%
EnviroTech Investment Fund United States 10%
Project Orange Associates, LP United States 4%
Ada Cogeneration, LP * United States 1%
OLS Power, LP United States 1%
* Sold on November 1, 1996
Summarized financial information for the GPU International Group's equity
investments, including both the GPU International Group's ownership interests
and the non-ownership interests, is as follows:
(In Thousands)
Balance Sheet Data 9/30/96 12/31/95
Current Assets $ 637,188 $ 248,012
Noncurrent Assets 6,205,851 1,962,238
Current Liabilities (1,013,494) (220,796)
Noncurrent Liabilities (4,502,301) (1,693,669)
Net Assets $ 1,327,244 $ 295,785
GPU International Group's
Equity in Net Assets $ 656,001 $ 25,341
(In Thousands)
Nine Months Ended
Earnings Data 9/30/96 9/30/95
Revenue $ 1,270,796 $ 293,979
Operating Income $ 181,168 $ 69,118
Net Income/(Loss) $ 40,418 $ (845)
GPU International Group's
Equity in Net Income/(Loss) $ 15,252 $ (1,516)
As of September 30, 1996, the amount of investments accounted for under
the equity method included goodwill in the amount of approximately
$1.7 billion, which is amortized to expense over periods not exceeding
40 years.
The GPU International Group also has a 50% ownership interest in Empresa
Guaracachi, S.A., a Bolivian electric generating company, which was acquired
in 1995 for approximately $47 million. Empresa Guaracachi is accounted for as
a consolidated entity in GPU's financial statements.
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In addition, the GPU International Group has a 100% ownership interest in
Mid-Georgia Cogen, L.P., a cogeneration facility under construction, which is
currently accounted for as a consolidated entity in GPU's financial
statements. Management intends to form a partnership during the construction
period, at which time it will begin using the equity method to account for its
investment.
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GPU, Inc. and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition
and Results of Operations
GPU, Inc. (GPU or the Company) (formerly General Public Utilities
Corporation) 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) (known collectively as
the GPU Energy companies). The Company also owns all the common stock of GPU
International, Inc. (formerly Energy Initiatives, Inc.), GPU Power, Inc.
(formerly EI Power, Inc.) and GPU Electric, Inc. (formerly EI Energy, Inc.)
(collectively the GPU International Group); GPU Service, Inc. (GPUS); GPU
Nuclear, Inc. (GPUN); and GPU Generation, Inc. (Genco). All of these
companies considered together with their subsidiaries are referred to as the
"GPU Companies".
The GPU International Group develops, owns and operates generation,
transmission and distribution facilities and supply businesses in the United
States and foreign countries. The GPU International Group has 50% ownership
interests in distribution and supply businesses serving 2.2 million customers
in England (see Note 2 to GPU's Consolidated Financial Statements), and
230,000 customers in Australia. The GPU International Group also has
ownership interests in eleven operating combined-cycle cogeneration plants
located in the United States totaling 932 MW of capacity and twelve operating
generating facilities located in foreign countries totaling 2,514 MW of
capacity.
The following is management's discussion of significant factors that
affected the interim financial condition and results of operations. This
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the GPU Companies'
combined 1995 Annual Report on Form 10-K.
GPU RESULTS OF OPERATIONS
GPU's earnings for the third quarter ended September 30, 1996 were
$35.8 million (unaudited), or $0.29 per share, compared to 1995 third quarter
earnings of $234.3 million (unaudited), or $2.02 per share.
Earnings for the three months ended September 30, 1996 would have been
$110.3 million, or $0.91 per share, compared to earnings of $137.8 million, or
$1.18 per share for the same period in 1995, if third quarter 1995 and 1996
nonrecurring items are excluded. This decrease in earnings was due primarily
to lower weather-related sales this year compared to last year.
The 1996 nonrecurring item consisted of a $74.5 million after-tax charge
to income, or $0.62 per share, for costs related to voluntary enhanced
retirement programs, which were accepted by 840 bargaining and non-bargaining
employees, representing about 8% of GPU's total workforce.
The 1995 nonrecurring items consisted of a reversal of $104.9 million
after-tax of expense, or $0.91 per share, for certain future Three Mile Island
Unit 2 (TMI-2) retirement costs written off by Met-Ed and Penelec in 1994.
This reversal resulted from a 1995 Pennsylvania Supreme Court decision that
overturned a 1994 Pennsylvania Commonwealth Court order, and restored a 1993
Pennsylvania Public Utility Commission (PaPUC) order allowing Met-Ed to
42
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GPU RESULTS OF OPERATIONS (continued)
recover such costs from customers. Partially offsetting this increase was a
charge to income of $8.4 million after-tax, or $0.07 per share, for TMI-2
monitored storage costs deemed not probable of recovery through ratemaking.
For the nine months ended September 30, 1996, earnings were
$217.7 million (unaudited), or $1.80 per share, compared to earnings of
$370.8 million (unaudited), or $3.20 per share, for the same period last year.
The decrease in earnings for the nine months was due to the same nonrecurring
items in 1996 and 1995 that affected the three month results. Excluding these
nonrecurring items, earnings for the nine months ended September 30, 1996
would have been $292.2 million, or $2.42 per share, compared to earnings of
$274.3 million, or $2.36 per share for the same period in 1995.
Earnings for the nine months versus last year, excluding the nonrecurring
items, increased due to higher new customer sales and lower reserve capacity
expense. In addition, earnings benefitted from increased earnings by GPU
International, which includes gains on the sales of securities. These were
partially offset by higher depreciation expense due to plant additions and
increased operation and maintenance expense due in part to greater storm and
emergency activities.
OPERATING REVENUES:
Total revenues for the third quarter of 1996 decreased 3.4% to
$1.06 billion, as compared to the third quarter of 1995. For the nine months
ended September 30, 1996, revenues increased 4.2% to $2.99 billion, as
compared to the same period last year. The components of the changes are as
follows:
(In Millions)
Three Months Nine Months
Ended Ended
September 30, 1996 September 30, 1996
Kilowatt-hour (KWH) revenues
(excluding energy portion) $(28.2) $ 37.8
Energy revenues (10.9) 61.4
Other revenues 2.1 20.4
Increase/(decrease) in revenues $(37.0) $119.6
Kilowatt-hour revenues
The decrease in KWH revenues for the three month period was due primarily
to lower weather-related sales to residential customers. The increase in KWH
revenues for the nine month period was due primarily to increased new
residential and commercial customer sales.
Energy revenues
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The decrease in energy revenues for the three month period was due
primarily to lower sales to other utilities, partially offset by higher energy
cost rates in effect. The increase in the nine month period was due primarily
to higher energy cost rates in effect and increased residential and commercial
customer sales, partially offset by lower sales to other utilities.
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GPU RESULTS OF OPERATIONS (continued)
Other revenues
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes. However, increased transmission revenues contributed to the three and
nine months earnings.
OPERATING EXPENSES:
Power purchased and interchanged (PP&I)
Generally, changes in the energy component of PP&I expense do not
significantly affect earnings since these cost increases are substantially
recovered through the GPU Energy companies' energy adjustment clauses.
However, lower reserve capacity expense, which is a component of PP&I,
contributed to the nine month earnings increase.
Fuel and Deferral of energy costs, net
Generally, changes in fuel expense and deferral of energy costs do not
affect earnings as they are offset by corresponding changes in energy
revenues. However, earnings for the nine month period increased due to a
$6.3 million pre-tax performance award earned by JCP&L for the efficient
operation of its nuclear generating stations.
Other operation and maintenance (O&M)
The increase in other O&M for the three and nine month periods was due
primarily to a $122.7 million pre-tax charge related to the 1996 retirement
programs. Partially offsetting these increases was a 1995 write-off of
$14.7 million pre-tax, for TMI-2 monitored storage costs deemed not probable
of recovery through ratemaking. Greater storm and emergency activities in
1996 also contributed to the nine month increase.
Depreciation and amortization
The increase in depreciation and amortization expense for the nine month
period was due primarily to additions to plant in service and higher
depreciation rates for Met-Ed and Penelec.
Taxes, other than income taxes
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income, net
The decrease in other income for the three and nine month periods was due
primarily to the 1995 reversal of $183.9 million pre-tax of expense for TMI-2
retirement costs previously written off by Met-Ed and Penelec. Increases in
GPU International Group pre-tax income partially offset the three and nine
month decreases. The nine month increase for the GPU International Group
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GPU RESULTS OF OPERATIONS (continued)
included pre-tax gains in 1996 of $10 million for the sales of investment
securities.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Other interest
The increase in other interest for the three month period was due to
higher short-term debt levels.
Dividends on subsidiary-obligated mandatorily redeemable preferred securities
The increase for the nine month period was due to JCP&L issuing in May
1995, through a special-purpose finance subsidiary, $125 million stated value
of monthly income preferred securities.
JCP&L RESULTS OF OPERATIONS
JCP&L's earnings for the third quarter ended September 30, 1996 were
$24.4 million (unaudited), compared to 1995 third quarter earnings of
$91.9 million (unaudited). The decrease in third quarter earnings was due in
part to a $39.4 million (includes JCP&L's share of costs allocated from Genco,
GPUN and GPUS) after-tax charge in 1996 for voluntary enhanced retirement
programs, which were accepted by 341 bargaining and non-bargaining employees
of JCP&L, or about 11.5% of its total workforce. Excluding this nonrecurring
item, earnings for the third quarter of 1996 would have been $63.8 million.
The earnings decrease on this basis was due to lower weather-related sales and
increased other O&M expense this year compared to last year.
For the nine months ended September 30, 1996, earnings were
$112.5 million (unaudited), compared to $157.6 million (unaudited) for the
same period last year. The same nonrecurring item affecting the quarterly
results also affected the results for the nine month period. Excluding the
third quarter 1996 charge for the retirement programs, earnings for the
current nine month period would have been $151.9 million. On this basis, the
earnings decrease was due primarily to increased other O&M expense this year
compared to last year, partially offset by increased new customer sales and a
performance award for the efficient operation of JCP&L's nuclear generating
stations in 1996.
OPERATING REVENUES:
Total revenues for the third quarter of 1996 decreased 7.5% to
$578.3 million, as compared to the third quarter of 1995. For the nine months
ended September 30, 1996, revenues increased 2.4% to $1.6 billion, as compared
to the same period last year. The components of the changes are as follows:
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JCP&L RESULTS OF OPERATIONS (continued)
(In Millions)
Three Months Nine Months
Ended Ended
September 30, 1996 September 30, 1996
Kilowatt-hour (KWH) revenues
(excluding energy portion) $(30.7) $ 2.9
Energy revenues (12.9) 27.2
Other revenues (3.6) 6.7
Increase/(decrease) in revenues $(47.2) $ 36.8
Kilowatt-hour revenues
The decrease in KWH revenues for the three month period was due to lower
weather-related sales to residential customers, partially offset by increased
new residential and commercial customer sales. The increase in KWH revenues
for the nine month period was due primarily to increased new residential and
commercial customer sales.
Energy revenues
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The decrease in energy revenues for the three month period was due
to lower sales to other utilities and to residential customers, partially
offset by higher energy cost rates in effect. The increase in energy revenues
for the nine month period was due primarily to higher energy cost rates in
effect and increased residential and commercial customer sales, partially
offset by lower sales to other utilities.
Other revenues
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes.
OPERATING EXPENSES:
Power purchased and interchanged
Generally, changes in the energy component of PP&I expense do not
significantly affect earnings since these cost increases are substantially
recovered through JCP&L's energy adjustment clause. However, lower reserve
capacity expense resulting from reduced purchases from Pennsylvania Power &
Light Company contributed to the three and nine months earnings. The
reduction in reserve capacity expense for the three month period was offset by
increased capacity purchases from Cleveland Electric Illuminating Company.
Fuel and Deferral of energy and capacity costs, net
Generally, changes in fuel expense and deferral of energy and capacity
costs do not affect earnings as they are offset by corresponding changes in
energy revenues. However, earnings for the nine month period increased due to
a $6.3 million pre-tax performance award for the efficient operation of
JCP&L's nuclear generating stations.
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JCP&L RESULTS OF OPERATIONS (continued)
Other operation and maintenance
The increase in other O&M expense for the three month period was due
primarily to a $62.9 million pre-tax charge for the 1996 retirement programs
and increased transmission charges from associated companies. The nine month
period increase was due primarily to the 1996 retirement programs and greater
storm and emergency activities.
Depreciation and amortization
The increase in depreciation and amortization expense for the three month
and nine month periods was due primarily to additions to plant in service.
Taxes, other than income taxes
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income, net
The decrease in other income for the nine month period was due in part to
the write-off of nonutility generation (NUG) buyout costs for the Crown/Vista
project (see Rate Matters) deemed not recoverable through ratemaking.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Interest on long-term debt
The decrease in interest on long-term debt for the three and nine month
periods was due to lower levels of long-term debt.
Other interest
The increase in other interest for the three and nine month periods was
due primarily to higher short-term debt levels.
Dividends on company-obligated mandatorily redeemable preferred securities
The increase for the nine month period was due to JCP&L issuing in May
1995, through a special-purpose finance subsidiary, $125 million stated value
of monthly income preferred securities.
MET-ED RESULTS OF OPERATIONS
Met-Ed's earnings for the third quarter ended September 30, 1996 were
$8.1 million (unaudited), compared to 1995 third quarter earnings of
$97.2 million (unaudited). The decrease in earnings was due primarily to the
effect of 1996 and 1995 nonrecurring items. Excluding these nonrecurring
items, earnings for the third quarter would have been $23.5 million, compared
to earnings of $30.1 million for the same period last year. This decrease in
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MET-ED RESULTS OF OPERATIONS (continued)
third quarter earnings was due primarily to lower weather-related sales,
partially offset by increased new customer sales this year compared to last
year.
The 1996 nonrecurring item consisted of a charge to income of
$15.4 million (includes Met-Ed's share of costs allocated from Genco, GPUN and
GPUS) after-tax for voluntary enhanced retirement programs, which were
accepted by 163 bargaining and non-bargaining employees of Met-Ed, or about
7.5% of its total workforce.
The 1995 nonrecurring items consisted of a reversal of $72.8 million
after-tax of expense, for certain future TMI-2 retirement costs written off in
1994. This reversal resulted from a 1995 Pennsylvania Supreme Court decision
that overturned a 1994 Pennsylvania Commonwealth Court order, and restored a
1993 PaPUC order allowing Met-Ed to recover such costs from customers.
Partially offsetting this increase was a charge to income of $5.7 million
after-tax for TMI-2 monitored storage costs deemed not probable of recovery
through ratemaking.
For the nine months ended September 30, 1996, Met-Ed's earnings were
$48.5 million (unaudited), compared to earnings of $125.7 million (unaudited)
for the same period last year. Excluding the 1996 and 1995 nonrecurring items
mentioned above, earnings for the nine months ended September 30, 1996 would
have been $63.9 million, compared to earnings of $58.6 million for the same
period in 1995. This earnings increase was due primarily to higher new
customer sales and lower reserve capacity expense.
OPERATING REVENUES:
Total revenues for the third quarter of 1996 increased .6% to
$243.1 million, as compared to the third quarter of 1995. For the nine months
ended September 30, 1996, revenues increased 7.9% to $687.8 million, as
compared to the same period last year. The components of the changes are as
follows:
(In Millions)
Three Months Nine Months
Ended Ended
September 30, 1996 September 30, 1996
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ 3.8 $ 19.4
Energy revenues (0.5) 26.8
Other revenues (1.9) 3.9
Increase in revenues $ 1.4 $ 50.1
Kilowatt-hour revenues
The increase in KWH revenues for the three month period was due primarily
to higher commercial and industrial customer usage and increased new
residential and commercial customer sales, partially offset by lower weather-
related sales to residential and commercial customers. The increase in KWH
revenues for the nine month period was due to higher new residential and
commercial customer sales and higher weather-related sales to residential
customers as compared to the same period last year.
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MET-ED RESULTS OF OPERATIONS (continued)
Energy revenues
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The increase in energy revenues for the nine month period was due
primarily to higher energy cost rates in effect. Also contributing to this
increase was higher sales to residential and commercial customers, partially
offset by lower sales to other utilities.
Other revenues
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes.
OPERATING EXPENSES:
Power purchased and interchanged
Generally, changes in the energy component of PP&I expense do not
significantly affect earnings since these cost increases are substantially
recovered through Met-Ed's energy adjustment clause. However, lower reserve
capacity expense contributed to the nine month earnings.
Fuel and Deferral of energy costs, net
Generally, changes in fuel expense and deferral of energy costs do not
affect earnings as they are offset by corresponding changes in energy
revenues.
Other operation and maintenance
The increase in other O&M for the three and nine month periods was due to
a $26.2 million pre-tax charge related to the 1996 retirement programs.
Partially offsetting these increases was a 1995 write-off of $10 million pre-
tax, for TMI-2 monitored storage costs deemed not probable of recovery through
ratemaking.
Depreciation and amortization
The decrease in depreciation and amortization expense for the three and
nine month periods was due to 1995 adjustments related to TMI-2
decommissioning. These adjustments more than offset 1996 increases in
depreciation expense resulting from additions to plant in service and higher
depreciation rates.
Taxes, other than income taxes
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
49
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MET-ED RESULTS OF OPERATIONS (continued)
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
The decrease in other income for the three and nine month periods was due
primarily to the 1995 reversal of $127.6 million pre-tax of expense for TMI-2
retirement costs previously written off.
PENELEC RESULTS OF OPERATIONS
Penelec's earnings for the third quarter ended September 30, 1996 were
$2.4 million (unaudited), compared to 1995 third quarter earnings of
$49.6 million (unaudited). The decrease in earnings was due to the effect of
1996 and 1995 nonrecurring items. Excluding these nonrecurring items,
earnings for the third quarter would have been $22.1 million, compared to
earnings of $20.2 million for the same period last year.
The 1996 nonrecurring item consisted of a charge to income of
$19.7 million (includes Penelec's share of costs allocated from Genco, GPUN
and GPUS) after-tax for voluntary enhanced retirement programs, which were
accepted by 165 bargaining and non-bargaining employees of Penelec, or about
7.5% of its total workforce.
The 1995 nonrecurring items consisted of a reversal of $32.1 million
after-tax of expense, for certain future TMI-2 retirement costs written off in
1994. This reversal resulted from a 1995 Pennsylvania Supreme Court decision
that overturned a 1994 Pennsylvania Commonwealth Court order, and restored a
1993 PaPUC order allowing an affiliate (Met-Ed) to recover such costs from
customers. Partially offsetting this increase was a charge to income of
$2.7 million after-tax for TMI-2 monitored storage costs deemed not probable
of recovery through ratemaking.
For the nine months ended September 30, 1996, Penelec's earnings were
$53.8 million (unaudited), compared to earnings of $99.7 million (unaudited)
for the same period last year. Excluding the 1996 and 1995 nonrecurring items
mentioned above, earnings for the nine months ended September 30, 1996 would
have been $73.5 million, compared to earnings of $70.3 million for the same
period in 1995.
OPERATING REVENUES:
Total revenues for the third quarter of 1996 increased 2.8% to
$256.1 million, as compared to the third quarter of 1995. Total revenues for
the nine months ended September 30, 1996 increased 4.2% to $772.3 million
compared with the same period in 1995. The components of the changes are as
follows:
(In Millions)
Three Months Nine Months
Ended Ended
September 30, 1996 September 30, 1996
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ (5.3) $ 13.0
Energy revenues 0.6 8.8
Other revenues 11.6 9.4
Increase in revenues $ 6.9 $ 31.2
50
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PENELEC RESULTS OF OPERATIONS (continued)
Kilowatt-hour revenues
The decrease in KWH revenues for the three month period was due primarily
to lower weather-related sales. The increase for the nine month period was
due primarily to higher weather-related sales to residential customers and
increased new commercial customer sales.
Energy revenues
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The increase in energy revenues for the nine month period was due
primarily to higher energy cost rates in effect and increased sales to
residential and commercial customers, partially offset by lower sales to other
utilities.
Other revenues
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes. However, increased transmission revenues contributed to the three and
nine months earnings.
OPERATING EXPENSES:
Power purchased and interchanged
Generally, changes in the energy component of PP&I expense do not
significantly affect earnings since these cost increases are substantially
recovered through Penelec's energy adjustment clause.
Fuel and Deferral of energy costs, net
Generally, changes in fuel expense and deferral of energy costs do not
affect earnings as they are offset by corresponding changes in energy
revenues.
Other operation and maintenance
The increase in other O&M for the three and nine month periods was due to
a $33.6 million pre-tax charge related to the 1996 retirement programs.
Partially offsetting these increases was a 1995 write-off of $4.7 million pre-
tax, for TMI-2 monitored storage costs deemed not probable of recovery through
ratemaking.
Depreciation and amortization
The increase in depreciation and amortization expense for the three and
nine month periods was due to additions to plant in service and higher
depreciation rates.
Taxes, other than income taxes
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
51
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PENELEC RESULTS OF OPERATIONS (continued)
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
The decrease in other income for the three and nine month periods was due
primarily to the 1995 reversal of $56.3 million pre-tax of expense for TMI-2
retirement costs previously written off. Partially offsetting this decrease
for the nine month period was a write-off in 1995 of $2.5 million of deferred
postretirement benefit (OPEB) costs related to wholesale customers which were
deemed not recoverable through ratemaking.
GPU INTERNATIONAL GROUP
At September 30, 1996, GPU's aggregate investment in the GPU
International Group was $209 million; GPU has also guaranteed an additional
$813 million of GPU International Group obligations, including amounts for the
acquisition of Midlands Electricity plc (Midlands), discussed below. GPU has
Securities and Exchange Commission (SEC) approval to finance investments in
foreign utility companies (FUCO) and exempt wholesale generators (EWG) (both
domestically and internationally) up to an aggregate amount equal to 50% of
GPU's average consolidated retained earnings. GPU has requested SEC approval
to increase this limit to 100% of GPU's average consolidated retained
earnings. At September 30, 1996, GPU had remaining authorization to finance
an additional $114 million of investments in FUCOs and EWGs.
In May 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners
plc (Avon), a wholly owned subsidiary of Avon Energy Partners Holdings, Inc.
(Holdings). Holdings is a 50/50 joint venture formed to acquire Midlands, an
English regional electric company (REC). Avon purchased through a cash tender
offer of approximately $2.6 billion the outstanding shares of Midlands. GPU's
50% interest in Holdings is held by EI UK Holdings, Inc., a wholly owned
subsidiary of GPU Electric. For more information, see Notes 2 and 3 to GPU's
Consolidated Financial Statements.
In October 1996, GPU Power, through its wholly-owned subsidiary GPU Power
Philippines, Inc., purchased the rights to acquire up to a 40% interest in
Magellan Utilities Development Corporation (MUDC). MUDC plans to construct a
300 MW coal generating plant in the Philippines at a cost of approximately
$350 million, of which GPU Power's equity contribution is expected to be
approximately $40 million.
The GPU International Group is continuing to pursue investment
opportunities and has commitments, both domestically and internationally, in
five generating facilities under construction totaling 2,866 MW of capacity,
and in a 236 MW gas-fired project in Wisconsin for which a long-term power
purchase agreement has been executed.
The following sections of MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS are being presented for the GPU
Companies on a combined basis.
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LIQUIDITY AND CAPITAL RESOURCES
Capital Needs
The GPU Companies' capital needs for the nine months ended September 30,
1996 consisted of cash construction expenditures of $261 million (of which
JCP&L's, Met-Ed's and Penelec's shares were $124 million, $52 million and
$84 million, respectively). Construction expenditures for the year are
forecasted to be $471 million (of which JCP&L's, Met-Ed's and Penelec's shares
are $242 million, $88 million and $124 million, respectively). Expenditures
for maturing obligations will total $131 million (of which JCP&L's, Met-Ed's
and Penelec's shares are $36 million, $15 million and $75 million,
respectively) in 1996. GPU and the GPU Energy companies estimate that a
substantial portion of their anticipated capital needs in 1996 will be
satisfied through internally generated funds.
Financing
The GPU Energy companies have regulatory authority to issue and sell
first mortgage bonds (FMBs), which may be issued as secured medium-term notes,
and preferred stock through various periods into 1997. Under existing
authorizations, JCP&L, Met-Ed and Penelec may issue these senior securities in
aggregate amounts of $225 million, $190 million and $120 million,
respectively, of which $100 million for each company may consist of preferred
stock. The GPU Energy companies have regulatory authority to incur short-term
debt, a portion of which may be through the issuance of commercial paper.
In October 1996, Penelec issued $20 million principal amount of 6.80%
FMBs, and $20 million principal amount of 7.02% FMBs. The net proceeds from
these issuances will be used by Penelec to reduce short-term debt and for
other corporate purposes. On October 28, 1996, Penelec redeemed at maturity
$30 million principal amount of 7.45% FMBs.
The GPU Energy companies' bond indentures and articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock
and short-term debt each company may issue. The GPU Energy companies'
interest and preferred dividend coverage ratios are currently in excess of
indenture and charter restrictions.
GPU has received SEC approval to issue and sell up to $300 million
aggregate principal amount of unsecured debentures through December 31, 2001.
The net proceeds from the sale of the debentures will be used by the Company
to: 1) finance or refinance acquisitions and investments by the GPU
International Group, 2) make cash capital contributions to the Company's
subsidiaries, which in turn will apply such funds a) to repay outstanding
indebtedness, b) to redeem outstanding senior securities in open market
transactions, c) for construction purposes, d) for other corporate purposes,
or e) to reimburse their treasuries for funds previously expended therefrom
for such purposes, 3) reimburse the Company's treasury for funds previously
expended therefrom for such purposes, 4) repay outstanding indebtedness of the
Company, and 5) for other Company corporate purposes.
GPU has also received SEC approval to issue up to 7 million shares of
additional common stock through 1998. The net proceeds from the sale of the
additional common stock will be used by the Company to repay a portion of
indebtedness incurred by the GPU International Group to acquire Midlands (see
Note 2 to GPU's Consolidated Financial Statements). The net proceeds may also
53
<PAGE>
be used for the same purposes as the proceeds from the sale of debentures
described above.
COMPETITIVE ENVIRONMENT
In April 1996, the Federal Energy Regulatory Commission (FERC) issued
Order 888 (the Order) adopting the rules proposed in its Notice of Proposed
Rulemaking on open access nondiscriminatory transmission services by
utilities. The Order provides open access to the interstate transmission
network and thereby encourages a fully competitive wholesale electric power
market. The Order requires electric utilities to, among other things: 1) file
nondiscriminatory open access transmission tariffs which would be available to
all wholesale sellers and buyers of electricity; 2) accept service under these
new tariffs for their own wholesale transactions; and 3) be permitted to
recover their legitimate and verifiable "stranded costs" incurred when a
franchise customer purchases power from another supplier using the utility's
transmission system.
In addition, while the Order does not require "corporate unbundling,"
which the FERC defines as the disposing of ancillary services or creating
separate affiliates to manage transmission services, it does call for
"functional unbundling" of transmission and ancillary services.
In July 1996, the GPU Energy companies filed pro forma tariffs offering
both point-to-point and network service in accordance with Order 888. These
tariffs became effective on July 9, 1996.
In July 1996, the GPU Energy companies, along with six other electric
utility members of the Pennsylvania-New Jersey-Maryland (PJM) Power Pool,
filed with the FERC a transmission tariff and agreements that would create by
year-end 1996, a new wholesale energy market to meet the requirements of FERC
Order 888, and to increase competition in the Mid-Atlantic region. The
Mid-Atlantic energy agreements include: 1) the requirements and standards
under which an independent system operator (ISO) will operate the energy
market and transmission system; 2) a transmission owners agreement and tariff
that provides pool-wide transmission service with ten zones, each reflecting
an existing PJM company's transmission costs, and an average transmission rate
for service across or out of the power pool; 3) establishment of a
Mid-Atlantic spot energy market; and 4) requiring the ownership of, or
contracting for, sufficient transmission and generation capacity, including
the sharing of generating capacity reserves, to meet reliability requirements.
The proposed PJM tariff and agreements, if accepted for filing by FERC, would
be effective January 1, 1997, and would supersede the tariffs filed by the GPU
Energy companies in July 1996, in accordance with Order 888. PECO Energy
Company (PECO), which opposes the PJM companies' proposed restructuring plan,
has filed its own plan with the FERC.
A number of parties, including PECO, have intervened in this proceeding.
Among other things, the interveners contend that the proposal would leave
excessive control of the transmission system to the PJM member utilities and
that the plan's ten zone transmission pricing is anticompetitive and preserves
utility market power. This proceeding is pending before the FERC.
A number of bills have been introduced in Congress proposing a
comprehensive restructuring of the electric utility industry, including
providing retail choice to all utility customers, and repeal (under certain
circumstances) of the Public Utility Regulatory Policies Act of 1978 and the
54
<PAGE>
Public Utility Holding Company Act. It is expected that similar legislation
will be introduced in the next Congress.
Legislation has been introduced in the Pennsylvania legislature that
would allow all consumers to choose their electric provider, with transition
periods ranging from 1998 to 2002. Representatives from various stakeholder
groups have been discussing draft comprehensive legislation which, if adopted,
would restructure the electric utility industry in Pennsylvania including,
among other things, a provision for recovery of stranded costs.
In July 1996, the PaPUC issued a report recommending that 1) all retail
customers be permitted to choose their electric generation provider by the
year 2005; 2) electric transmission and distribution continue to be regulated;
3) utilities be permitted to recover non-mitigable stranded assets and
establish a competitive transition charge for consumers who choose alternative
generation suppliers; 4) flexible and performance-based rates be encouraged;
and 5) public purpose programs such as energy efficiency and renewable energy
be continued.
As part of this transition to retail choice, the PaPUC has urged electric
utilities to file voluntary retail access pilot programs for approval. These
pilot programs would include all classes of customers, and utilities would be
required to commit about 5% of peak load to retail access programs and
unbundle their tariffs. The PaPUC may issue an order containing general
guidelines for program design and is seeking to have legislation passed to
make these programs mandatory. Implementation of these programs could occur
as early as April 1997, when all Pennsylvania electric utilities are expected
to have filed program proposals with the PaPUC.
In October 1996, Met-Ed and Penelec notified the PaPUC of their plan for
a proposed two-year pilot program that would offer approximately 50,000
residential, commercial and industrial customers the opportunity to choose
their electric-generation supplier.
Subject to New Jersey Board of Public Utilities (NJBPU) approval, JCP&L
intends to establish a pilot program offering customers in Monroe Township,
New Jersey a choice of their electric-generation supplier. JCP&L anticipates
filing its plan with the NJBPU by December, 1996. Monroe Township has been
exploring the possibility of establishing its own municipal electric system.
In June and July 1996, management offered voluntary enhanced retirement
programs to 745 bargaining and 399 non-bargaining employees. Of these
employees, 493 bargaining and 347 non-bargaining accepted the retirement
programs, resulting in an 8% reduction in GPU's total workforce and a third
quarter pre-tax charge to earnings of $122.7 million (of which JCP&L's,
Met-Ed's and Penelec's shares were $62.9 million, $26.2 million and
$33.6 million, respectively). GPU anticipates funding the programs' related
pension costs of $71 million within one year.
RATE MATTERS
In June 1996, the NJBPU approved a provisional settlement for a combined
levelized energy adjustment clause (LEAC) and Demand Side Factor (DSF)
increase of $27.9 million annually.
Also in June 1996, JCP&L, the staff of the NJBPU and the Division of
Ratepayer Advocate reached an agreement on a variety of pending rate-related
55
<PAGE>
issues (Final Settlement). An Administrative Law Judge (ALJ) has issued a
decision recommending approval of the Final Settlement, but the NJBPU has
ordered additional evidentiary hearings on the recovery of buyout costs for
the Freehold cogeneration project discussed below (see Managing Nonutility
Generation). There can be no assurance as to the outcome of this proceeding.
Provisions of the Final Settlement include a further annual increase of
$7 million in the LEAC in addition to those noted above and an annual
reduction of $9 million in base rates. Base rates would be frozen at that
level until the year 2000, and the LEAC rate frozen through the year 1999.
JCP&L could seek a LEAC rate increase if the deferred LEAC balance is
projected to exceed $40 million, or a base rate increase under certain other
conditions, such as a major change in the current regulatory environment. The
Final Settlement provides for recovery in base rates beginning in 1998 of all
OPEB costs recorded in accordance with Statement of Financial Accounting
Standards No. 106 including amounts previously deferred and an increase in
decommissioning expense to reflect the radiological decommissioning and
nonradiological cost of removal costs estimated in the 1995 site specific
studies performed for GPUN (see the Nuclear Plant Retirement Costs section of
Note 1 to GPU's Consolidated Financial Statements). Also included in base
rates would be recovery of the remaining investments in the 58 MW Werner Unit
4 and 72 MW Gilbert Unit 3 generating plants, which were retired in the third
quarter of 1996.
The Final Settlement also provides for recovery through the LEAC of:
1) buyout costs up to $130 million, and 50% of any costs from $130 million to
$140 million, over a seven-year period for the termination of the power
purchase agreement with Freehold Cogeneration Associates, and 2) $14 million
of the $17 million buyout costs, over a two year period, for the termination
of the agreement to purchase power from the proposed 200 MW Crown/Vista
project. JCP&L wrote-off the remaining $3 million of buyout costs for the
Crown/Vista project in the second quarter of 1996.
In addition, the Final Settlement resolves the NJBPU's generic proceeding
regarding recovery of capacity costs associated with electric power purchases
from NUG projects which the Division of the Ratepayer Advocate claimed to
result in a double recovery. JCP&L would not have to refund any amounts
previously collected. The Final Settlement also provides that if JCP&L's
return on equity exceeds 12.2%, excluding demand side management and nuclear
performance incentives, the excess would be used to reduce both customer
energy rates and certain regulatory assets. In accordance with the Final
Settlement, $9 million is provided annually, effective January 1, 1996, for
the recovery of forecasted additions to nuclear plant.
THE GPU SUPPLY PLAN
New Energy Supplies
In January 1996, JCP&L issued an all-supply source solicitation for the
supply of energy and capacity to meet its forecasted needs. In October 1996,
four potential suppliers were selected to provide capacity for four years,
beginning in June 1999. The offers provide for both firm and option purchases
of capacity and energy from sources in New Jersey, Pennsylvania and New York.
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Managing Nonutility Generation
The GPU Energy companies have contracts and anticipated commitments with
NUG suppliers under which a total of 1,624 MW (of which JCP&L's, Met-Ed's and
Penelec's shares are 892 MW, 335 MW and 397 MW, respectively) of capacity are
currently in service. For information on NUG costs, see the Competition and
the Changing Regulatory Environment section of Note 1 to GPU's Consolidated
Financial Statements.
The GPU Energy companies are seeking to reduce the above market costs of
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 GPU Energy companies 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 Companies
for substantial damages. There can, however, be no assurance as to what
extent these efforts will be successful in whole or in part.
In April 1996, JCP&L entered into an agreement with Freehold Cogeneration
Associates (Freehold), the developer of a proposed 110 MW gas-fired
cogeneration project, that terminates JCP&L's long-term obligation to purchase
power from the project. JCP&L expects that the buyout will save customers
$1.2 billion over the term of the power purchase contract based on the
projected cost of alternative sources of energy. JCP&L has agreed to pay
Freehold $125 million, of which $65 million was paid in 1996 and the remainder
to be paid over a three year period. Associated with this buyout are certain
payments to third parties, which could be material in amount. As part of the
Final Settlement (see Rate Matters), JCP&L would recover buyout costs up to
$130 million, and 50% of any additional related costs up to $140 million, over
a seven-year period.
In October 1996, JCP&L was named as a defendant in a breach of contract
lawsuit against Freehold brought by Nestle Beverage Company (Nestle) in New
Jersey Superior Court. Nestle is seeking damages of at least $75 million for
Freehold's alleged breach of the steam sales agreement and approximately
$412 million in damages against JCP&L for alleged unlawful interference with
that agreement. Nestle has also requested punitive damages in an unspecified
amount. JCP&L believes the claims against it are without merit (see the Other
Commitments and Contingencies section of Note 1 to GPU's Consolidated
Financial Statements).
In July 1996, Penelec entered into agreements with the developers of a
proposed 80 MW cogeneration facility in Altoona, Pennsylvania and AES Power
Corporation (AES). Under the agreements, AES purchased the interests of the
developers, and Penelec and AES will attempt to negotiate a new, competitively
priced power purchase agreement. If these negotiations are unsuccessful,
Penelec has agreed to pay AES up to $8.3 million. In August 1996, Penelec
filed a petition with the PaPUC for the recovery of $5 million in
restructuring costs over one year through energy cost rates (ECR).
In July 1996, Met-Ed entered into agreements with the developers of the
proposed 150 MW Blue Mountain cogeneration facility and AES. Under the
agreements, AES purchased the interests of the developers. Met-Ed has paid AES
$18.5 million and has agreed to conduct negotiations with AES for a new power
57
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purchase agreement that is competitively priced. If these negotiations are
unsuccessful, Met-Ed would pay AES an additional $23 million. Met-Ed intends
to seek ECR recovery for these buyout costs.
In September 1995, Met-Ed and the developers of a proposed 227 MW York
County coal-fired cogeneration plant entered into an agreement whereby, Met-Ed
will pay the developer up to $30 million to terminate the coal-fired facility,
and an additional $5 million if the agreement cannot be restructured to
provide for the development of a gas-fired facility. In January 1996, Met-Ed
was notified by the developers that they had assigned to AES their rights
under the terms of the restructuring agreement. In August 1996, the PaPUC
issued an order permitting Met-Ed to recover up to $35 million in buyout costs
over three years, beginning in 1997.
58
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PART II
ITEM 1 - LEGAL PROCEEDINGS
Information concerning the current status of certain legal
proceedings instituted against the Company and the GPU Energy
companies as a result of the March 28, 1979 nuclear accident at
Unit 2 of the Three Mile Island nuclear generating station
discussed in Part I of this report in Notes to Consolidated
Financial Statements is incorporated herein by reference and made
a part hereof.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(12) Statements Showing Computation of Ratio of Earnings to
Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends Based on SEC
Regulation S-K, Item 503
(27) Financial Data Schedule
(b) Reports on Form 8-K:
GPU, Inc.:
Dated October 21, 1996, under Item 5
Jersey Central Power & Light Company:
Dated October 21, 1996, under Item 5
59
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
GPU, INC.
November 6, 1996 By: /s/ J. G. Graham
J. G. Graham, Senior Vice President
(Chief Financial Officer)
November 6, 1996 By: /s/ F. A. Donofrio
F. A. Donofrio, Vice President
and Comptroller
(Chief Accounting Officer)
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
November 6, 1996 By: /s/ D. Baldassari
D. Baldassari, President
November 6, 1996 By: /s/ D. W. Myers
D. W. Myers, Vice President -
Finance and Rates & Comptroller
(Principal Accounting Officer)
60
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<TABLE>
Exhibit 12
Page 1 of 2
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
OPERATING REVENUES $2,993,411 $2,873,702
OPERATING EXPENSES 2,469,899 2,279,283
Interest portion of rentals (A) 19,061 17,784
Interest on funded indebtedness and
other interest of service company
subsidiaries (B) 2,912 2,696
Net expense 2,447,926 2,258,803
OTHER INCOME:
Allowance for funds used
during construction 8,119 10,175
Other income, net 17,300 190,172
Interest on funded indebtedness and
other interest of GPU International
Group (C) 17,799 452
Total other income 43,218 200,799
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 588,703 $ 815,698
FIXED CHARGES:
Interest on funded indebtedness $ 157,919 $ 142,593
Other interest (D) 45,271 40,873
Interest portion of rentals (A) 19,061 17,784
Total fixed charges $ 222,251 $ 201,250
RATIO OF EARNINGS TO FIXED CHARGES 2.65 4.05
Preferred stock dividend requirement $ 11,776 $ 12,737
Ratio of income before provision for
income taxes to net income (E) 159.7% 160.2%
Preferred stock dividend requirement
on a pretax basis 18,806 20,405
Fixed charges, as above 222,251 201,250
Total fixed charges and
preferred stock dividends $ 241,057 $ 221,655
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 2.44 3.68
<PAGE>
Exhibit 12
Page 2 of 2
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
NOTES:
(A) The Company has included the equivalent of the interest portion of all
rentals charged to income as fixed charges for this statement and has
excluded such components from Operating Expenses.
(B) Represents fixed charges of GPU Service, Inc. and GPU Nuclear, Inc., which
are accounted for as Operating Expenses in the Company's consolidated income
statement.
(C) Represents fixed charges of the GPU International Group, which are accounted
for as Other Income and Deductions in the Company's consolidated income
statement.
(D) Includes dividends on subsidiary-obligated mandatorily redeemable preferred
securities of $21,666 and $17,594 for the nine month periods ended September
30, 1996 and 1995, respectively.
(E) Represents income before provision for income taxes and preferred stock
dividends of $366,452 and $614,193 for the nine month periods ended September
30, 1996 and 1995, respectively, divided by income before preferred stock
dividends of $229,475 and $383,492, respectively for the same periods.
</TABLE>
<PAGE>
<TABLE>
Exhibit 12
Page 1 of 2
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
Nine Months Ended
September, September,
1996 1995
<S> <C> <C>
OPERATING REVENUES $1,583,432 $1,546,594
OPERATING EXPENSES 1,328,309 1,228,111
Interest portion of rentals (A) 8,299 9,385
Net expense 1,320,010 1,218,726
OTHER INCOME:
Allowance for funds used
during construction 5,316 4,554
Other income, net
4,668 10,713
Total other income 9,984 15,267
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 273,406 $ 343,135
FIXED CHARGES:
Interest on funded indebtedness $ 66,921 $ 69,421
Other interest (B) 17,005 11,637
Interest portion of rentals (A) 8,299 9,385
Total fixed charges $ 92,225 $ 90,443
RATIO OF EARNINGS TO FIXED CHARGES 2.96 3.79
Preferred stock dividend requirement $ 9,910 $ 10,871
Ratio of income before provision for
income taxes to net income (C) 148.0% 150.0%
Preferred stock dividend requirement
on a pretax basis 14,667 16,306
Fixed charges, as above 92,225 90,443
Total fixed charges and
preferred stock dividends $ 106,892 $ 106,749
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 2.56 3.21
<PAGE>
Exhibit 12
Page 2 of 2
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
NOTES:
(A) JCP&L has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded such
components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $8,025 and $3,953 for the nine month periods ended
September 30, 1996 and 1995, respectively.
(C) Represents income before provision for income taxes of $181,181 and $252,692
for the nine month periods ended September 30, 1996 and 1995, respectively,
divided by net income of $122,396 and $168,454, respectively for the same
periods.
</TABLE>
<PAGE>
<TABLE>
Exhibit 12
Page 1 of 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
OPERATING REVENUES $687,823 $637,755
OPERATING EXPENSES 554,862 512,695
Interest portion of rentals (A) 3,858 4,059
Net expense 551,004 508,636
OTHER INCOME:
Allowance for funds used
during construction 938 2,165
Other income, net 69 129,926
Total other income 1,007 132,091
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $137,826 $261,210
FIXED CHARGES:
Interest on funded indebtedness $ 34,119 $ 34,375
Other interest (B) 10,882 10,614
Interest portion of rentals (A) 3,858 4,059
Total fixed charges $ 48,859 $ 49,048
RATIO OF EARNINGS TO FIXED CHARGES 2.82 5.33
Preferred stock dividend requirement $ 708 $ 708
Ratio of income before provision for
income taxes to net income (C) 180.7% 167.9%
Preferred stock dividend requirement
on a pretax basis 1,279 1,189
Fixed charges, as above 48,859 49,048
Total fixed charges and
preferred stock dividends $ 50,138 $ 50,237
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 2.75 5.20
<PAGE>
Exhibit 12
Page 2 of 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
NOTES:
(A) Met-Ed has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded such
components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $6,750 for the nine month periods ended September 30, 1996 and
1995, respectively.
(C) Represents income before provision for income taxes of $88,967 and $212,162
for the nine months ended September 30, 1996 and 1995, respectively, divided
by net income of $49,225 and $126,392, respectively for the same periods.
</TABLE>
<PAGE>
<TABLE>
Exhibit 12
Page 1 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
Nine Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
OPERATING REVENUES $772,260 $741,097
OPERATING EXPENSES 630,900 587,412
Interest portion of rentals (A) 3,454 1,785
Net expense 627,446 585,627
OTHER INCOME:
Allowance for funds used
during construction 1,865 3,456
Other income/(expense), net (735) 55,259
Total other income 1,130 58,715
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $145,944 $214,185
FIXED CHARGES:
Interest on funded indebtedness $ 37,276 $ 36,363
Other interest (B) 12,339 12,499
Interest portion of rentals (A) 3,454 1,785
Total fixed charges $ 53,069 $ 50,647
RATIO OF EARNINGS TO FIXED CHARGES 2.75 4.23
Preferred stock dividend requirement $ 1,158 $ 1,158
Ratio of income before provision for
income taxes to net income (C) 168.9% 162.1%
Preferred stock dividend requirement
on a pretax basis 1,956 1,877
Fixed charges, as above 53,069 50,647
Total fixed charges and
preferred stock dividends $ 55,025 $ 52,524
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 2.65 4.08
<PAGE>
Exhibit 12
Page 2 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
NOTES:
(A) Penelec has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded such
components from Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $6,891 for the nine month periods ended September 30, 1996 and
1995, respectively.
(C) Represents income before provision for income taxes of $92,875 and $163,538
for the nine month periods ended September 30, 1996 and 1995, respectively,
divided by net income of $54,989 and $100,857 respectively for the same
periods.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000040779
<NAME> GPU, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,371,936
<OTHER-PROPERTY-AND-INVEST> 1,391,389
<TOTAL-CURRENT-ASSETS> 990,907
<TOTAL-DEFERRED-CHARGES> 2,072,295
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,826,527
<COMMON> 314,458
<CAPITAL-SURPLUS-PAID-IN> 749,859
<RETAINED-EARNINGS> 2,103,263
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,080,425 <F1>
444,000 <F2>
98,116
<LONG-TERM-DEBT-NET> 3,024,177
<SHORT-TERM-NOTES> 168,960
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 132,561
<LONG-TERM-DEBT-CURRENT-PORT> 174,435
10,000
<CAPITAL-LEASE-OBLIGATIONS> 7,736
<LEASES-CURRENT> 151,864
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,534,253
<TOT-CAPITALIZATION-AND-LIAB> 10,826,527
<GROSS-OPERATING-REVENUE> 2,993,411
<INCOME-TAX-EXPENSE> 134,387
<OTHER-OPERATING-EXPENSES> 2,469,899
<TOTAL-OPERATING-EXPENSES> 2,604,286
<OPERATING-INCOME-LOSS> 389,125
<OTHER-INCOME-NET> 16,451
<INCOME-BEFORE-INTEREST-EXPEN> 405,576
<TOTAL-INTEREST-EXPENSE> 187,877 <F3>
<NET-INCOME> 217,699
0
<EARNINGS-AVAILABLE-FOR-COMM> 217,699
<COMMON-STOCK-DIVIDENDS> 173,482
<TOTAL-INTEREST-ON-BONDS> 186,478
<CASH-FLOW-OPERATIONS> 427,947
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $87,155.
<F2> INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES OF $330,000.
<F3> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $21,666 AND PREFERRED STOCK DIVIDENDS OF
<F3> SUBSIDIARIES OF $11,776.
</FN>
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000053456
<NAME> JERSEY CENTRAL POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,932,079
<OTHER-PROPERTY-AND-INVEST> 354,656
<TOTAL-CURRENT-ASSETS> 444,911
<TOTAL-DEFERRED-CHARGES> 983,637
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,715,283
<COMMON> 153,713
<CAPITAL-SURPLUS-PAID-IN> 510,769
<RETAINED-EARNINGS> 829,256
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,493,738
239,000 <F1>
37,741
<LONG-TERM-DEBT-NET> 1,137,225
<SHORT-TERM-NOTES> 32,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 70,134
<LONG-TERM-DEBT-CURRENT-PORT> 55,884
10,000
<CAPITAL-LEASE-OBLIGATIONS> 1,275
<LEASES-CURRENT> 99,281
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,539,005
<TOT-CAPITALIZATION-AND-LIAB> 4,715,283
<GROSS-OPERATING-REVENUE> 1,583,432
<INCOME-TAX-EXPENSE> 56,560
<OTHER-OPERATING-EXPENSES> 1,328,309
<TOTAL-OPERATING-EXPENSES> 1,384,869
<OPERATING-INCOME-LOSS> 198,563
<OTHER-INCOME-NET> 3,667
<INCOME-BEFORE-INTEREST-EXPEN> 202,230
<TOTAL-INTEREST-EXPENSE> 79,834 <F2>
<NET-INCOME> 122,396
9,910
<EARNINGS-AVAILABLE-FOR-COMM> 112,486
<COMMON-STOCK-DIVIDENDS> 100,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 90,102
<CASH-FLOW-OPERATIONS> 223,006
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES OF $125,000.
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $8,025.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000065350
<NAME> METROPOLITAN EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,582,147
<OTHER-PROPERTY-AND-INVEST> 124,231
<TOTAL-CURRENT-ASSETS> 194,160
<TOTAL-DEFERRED-CHARGES> 539,522
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,440,060
<COMMON> 66,273
<CAPITAL-SURPLUS-PAID-IN> 370,200
<RETAINED-EARNINGS> 252,952
<TOTAL-COMMON-STOCKHOLDERS-EQ> 689,425
100,000 <F1>
23,598
<LONG-TERM-DEBT-NET> 563,251
<SHORT-TERM-NOTES> 29,885
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 22,192
<LONG-TERM-DEBT-CURRENT-PORT> 40,020
0
<CAPITAL-LEASE-OBLIGATIONS> 510
<LEASES-CURRENT> 33,060
<OTHER-ITEMS-CAPITAL-AND-LIAB> 938,119
<TOT-CAPITALIZATION-AND-LIAB> 2,440,060
<GROSS-OPERATING-REVENUE> 687,823
<INCOME-TAX-EXPENSE> 39,865
<OTHER-OPERATING-EXPENSES> 554,862
<TOTAL-OPERATING-EXPENSES> 594,727
<OPERATING-INCOME-LOSS> 93,096
<OTHER-INCOME-NET> 593
<INCOME-BEFORE-INTEREST-EXPEN> 93,689
<TOTAL-INTEREST-EXPENSE> 44,464 <F2>
<NET-INCOME> 49,225
708
<EARNINGS-AVAILABLE-FOR-COMM> 48,517
<COMMON-STOCK-DIVIDENDS> 45,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 45,588
<CASH-FLOW-OPERATIONS> 111,050
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES.
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $6,750.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000077227
<NAME> PENNSYLVANIA ELECTRIC COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,803,913
<OTHER-PROPERTY-AND-INVEST> 54,458
<TOTAL-CURRENT-ASSETS> 229,781
<TOTAL-DEFERRED-CHARGES> 401,862
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,490,014
<COMMON> 105,812
<CAPITAL-SURPLUS-PAID-IN> 285,486
<RETAINED-EARNINGS> 352,146
<TOTAL-COMMON-STOCKHOLDERS-EQ> 743,444
105,000 <F1>
36,777
<LONG-TERM-DEBT-NET> 616,462
<SHORT-TERM-NOTES> 30,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 40,235
<LONG-TERM-DEBT-CURRENT-PORT> 76,010
0
<CAPITAL-LEASE-OBLIGATIONS> 4,389
<LEASES-CURRENT> 17,452
<OTHER-ITEMS-CAPITAL-AND-LIAB> 819,845
<TOT-CAPITALIZATION-AND-LIAB> 2,490,014
<GROSS-OPERATING-REVENUE> 772,260
<INCOME-TAX-EXPENSE> 37,962
<OTHER-OPERATING-EXPENSES> 630,900
<TOTAL-OPERATING-EXPENSES> 668,862
<OPERATING-INCOME-LOSS> 103,398
<OTHER-INCOME-NET> (543)
<INCOME-BEFORE-INTEREST-EXPEN> 102,855
<TOTAL-INTEREST-EXPENSE> 47,866 <F2>
<NET-INCOME> 54,989
1,158
<EARNINGS-AVAILABLE-FOR-COMM> 53,831
<COMMON-STOCK-DIVIDENDS> 30,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 50,788
<CASH-FLOW-OPERATIONS> 107,595
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES.
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $6,891.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
<PAGE>
</TABLE>
