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 June 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 July 31, 1996, was as follows:
Shares
Registrant Title Outstanding
GPU, Inc. Common Stock, $2.50 par value 120,519,864
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
June 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 41
PART II - Other Information 56
Signatures 58
_________________________________
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.
2<PAGE>
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $ 9,459,805 $9,295,630
Less, accumulated depreciation 3,597,647 3,433,240
Net utility plant in service 5,862,158 5,862,390
Construction work in progress 316,762 313,471
Other, net 189,675 193,356
Net utility plant 6,368,595 6,369,217
Other Property and Investments:
Nuclear decommissioning trusts, at market 401,341 362,957
GPU International Group investments, net 756,936 288,044
Nuclear fuel disposal fund 95,865 95,393
Other, net 42,136 39,505
Total other property and investments 1,296,278 785,899
Current Assets:
Cash and temporary cash investments 51,218 18,422
Special deposits 14,035 14,877
Accounts receivable:
Customers, net 286,351 278,643
Other 92,977 69,773
Unbilled revenues 125,562 128,749
Materials and supplies, at average cost or less:
Construction and maintenance 197,883 194,769
Fuel 33,285 39,795
Deferred energy costs 2,842 13,208
Deferred income taxes 24,933 27,064
Prepayments 230,000 42,746
Total current assets 1,059,086 828,046
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 365,608 368,712
Unamortized property losses 102,891 105,729
Income taxes recoverable through future rates 501,189 527,584
Other 557,325 437,683
Total regulatory assets 1,527,013 1,439,708
Deferred income taxes 357,402 330,186
Other 127,847 116,642
Total deferred debits and other assets 2,012,262 1,886,536
Total Assets $10,736,221 $9,869,698
The accompanying notes are an integral part of the consolidated financial statements.
3
<PAGE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
June 30, December 31,
1996 1995
(Unaudited)
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314,458 $ 314,458
Capital surplus 748,323 746,449
Retained earnings 2,060,681 2,004,072
Total 3,123,462 3,064,979
Less, reacquired common stock, at cost 88,732 90,345
Total common stockholders' equity 3,034,730 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 2,996,371 2,567,898
Total capitalization 6,573,217 6,104,648
Current Liabilities:
Securities due within one year 137,345 131,246
Notes payable 419,432 123,890
Obligations under capital leases 161,582 159,565
Accounts payable 291,082 318,394
Taxes accrued 36,354 46,613
Interest accrued 71,076 69,456
Other 299,087 259,280
Total current liabilities 1,415,958 1,108,444
Deferred Credits and Other Liabilities:
Deferred income taxes 1,493,975 1,466,060
Unamortized investment tax credits 139,934 145,375
Three Mile Island Unit 2 future costs 421,059 413,031
Regulatory liabilities 94,419 97,999
Other 597,659 534,141
Total deferred credits and other liabilities 2,747,046 2,656,606
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $10,736,221 $9,869,698
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 Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $ 912,254 $ 864,648 $1,935,188 $1,778,620
Operating Expenses:
Fuel 88,274 81,662 186,769 170,889
Power purchased and interchanged 213,485 222,874 490,882 473,797
Deferral of energy costs, net 6,686 4,091 9,840 5,239
Other operation and maintenance 241,756 226,420 468,353 446,133
Depreciation and amortization 97,921 90,344 194,507 179,885
Taxes, other than income taxes 83,294 78,416 174,783 164,477
Total operating expenses 731,416 703,807 1,525,134 1,440,420
Operating Income Before Income Taxes 180,838 160,841 410,054 338,200
Income taxes 46,085 34,523 114,095 78,222
Operating Income 134,753 126,318 295,959 259,978
Other Income and Deductions:
Allowance for other funds used during
construction 1,255 1,152 2,484 2,357
Other income/(expense), net 1,271 (3,370) 11,580 (4,170)
Income taxes 57 1,268 (3,945) 1,423
Total other income and deductions 2,583 (950) 10,119 (390)
Income Before Interest Charges
and Preferred Dividends 137,336 125,368 306,078 259,588
Interest Charges and Preferred Dividends:
Interest on long-term debt 45,996 47,366 92,608 92,479
Other interest 8,671 8,954 12,979 15,803
Allowance for borrowed funds used
during construction (1,962) (1,965) (3,823) (4,072)
Dividends on subsidiary-obligated mandatorily
redeemable preferred securities 7,222 5,825 14,444 10,372
Preferred stock dividends of subsidiaries 3,784 4,208 7,992 8,529
Total interest charges and
preferred dividends 63,711 64,388 124,200 123,111
Net Income $ 73,625 $ 60,980 $ 181,878 $ 136,477
Earnings Per Average Common Share $ .61 $ .53 $ 1.51 $ 1.18
Average Common Shares Outstanding 120,700 115,660 120,670 115,502
Cash Dividends Paid Per Share $ .485 $ .47 $ .955 $ .92
The accompanying notes are an integral part of the consolidated financial statements.
5
<PAGE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Six Months
Ended June 30,
1996 1995
Operating Activities:
Net income $ 181,878 $ 136,477
Adjustments to reconcile income to cash provided:
Depreciation and amortization 202,995 183,300
Amortization of property under capital leases 29,689 30,754
Nuclear outage maintenance costs, net 14,443 14,562
Deferred income taxes and investment tax
credits, net 15,181 21,488
Deferred energy costs, net 9,680 5,413
Accretion income (5,805) (6,260)
Allowance for other funds used
during construction (2,484) (2,357)
Changes in working capital:
Receivables (25,244) 13,123
Materials and supplies 3,351 (4,524)
Special deposits and prepayments (186,303) (179,280)
Payables and accrued liabilities (10,992) (75,153)
Nonutility generation contract buyout costs (69,450) (1,650)
Other, net (25,620) 5,038
Net cash provided by operating activities 131,319 140,931
Investing Activities:
Cash construction expenditures (173,018) (229,680)
Contributions to decommissioning trusts (20,515) (16,609)
GPU International Group investments (488,324) (1,710)
Other, net 16,684 (346)
Net cash used for investing activities (665,173) (248,345)
Financing Activities:
Issuance of long-term debt 503,234 168,920
Increase/(Decrease) in notes payable, net 298,352 (77,184)
Retirement of long-term debt (71,206) (3,200)
Capital lease principal payments (28,698) (27,459)
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 (115,032) (106,022)
Net cash provided by financing activities 566,650 99,714
Net increase/(decrease) in cash and temporary
cash investments from above activities 32,796 (7,700)
Cash and temporary cash investments, beginning of year 18,422 26,731
Cash and temporary cash investments, end of period $ 51,218 $ 19,031
Supplemental Disclosure:
Interest and preferred dividends paid $ 132,441 $ 122,208
Income taxes paid $ 113,083 $ 127,531
New capital lease obligations incurred $ 28,907 $ 34,376
Common stock dividends declared but not paid $ 58,452 $ 54,670
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
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $4,412,680 $4,311,458
Less, accumulated depreciation 1,762,459 1,669,893
Net utility plant in service 2,650,221 2,641,565
Construction work in progress 156,059 157,885
Other, net 120,435 111,023
Net utility plant 2,926,715 2,910,473
Other Property and Investments:
Nuclear decommissioning trusts, at market 245,232 225,200
Nuclear fuel disposal fund 95,865 95,393
Other, net 7,706 7,218
Total other property and investments 348,803 327,811
Current Assets:
Cash and temporary cash investments 4,653 922
Special deposits 7,069 7,358
Accounts receivable:
Customers, net 153,437 150,002
Other 16,306 21,912
Unbilled revenues 72,361 66,389
Materials and supplies, at average cost or less:
Construction and maintenance 98,568 95,949
Fuel 11,443 18,693
Deferred income taxes 11,657 8,842
Prepayments 144,013 20,869
Total current assets 519,507 390,936
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 133,761 138,472
Unamortized property losses 97,190 100,176
Income taxes recoverable through future rates 132,038 134,787
Other 431,608 311,293
Total regulatory assets 794,597 684,728
Deferred income taxes 147,124 122,082
Other 21,600 20,359
Total deferred debits and other assets 963,321 827,169
Total Assets $4,758,346 $4,456,389
The accompanying notes are an integral part of the consolidated financial statements.
7
<PAGE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Balance Sheets
<CAPTION>
In Thousands
June 30, December 31,
1996 1995
(Unaudited)
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 153,713 $ 153,713
Capital surplus 510,769 510,769
Retained earnings 854,899 816,770
Total common stockholder's equity 1,519,381 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 1,163,053 1,192,945
Total capitalization 2,959,175 2,970,938
Current Liabilities:
Securities due within one year 40,009 35,710
Notes payable 189,569 800
Obligations under capital leases 103,162 90,329
Accounts payable:
Affiliates 26,062 31,885
Other 98,467 111,225
Taxes accrued 10,121 10,516
Deferred energy credits/(costs) 10,151 (5,290)
Interest accrued 28,572 28,718
Other 85,094 71,769
Total current liabilities 591,207 375,662
Deferred Credits and Other Liabilities:
Deferred income taxes 648,440 607,188
Unamortized investment tax credits 63,848 66,874
Three Mile Island Unit 2 future costs 105,290 103,271
Nuclear fuel disposal fee 124,290 121,121
Regulatory liabilities 35,670 37,597
Other 230,426 173,738
Total deferred credits and other liabilities 1,207,964 1,109,789
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $4,758,346 $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 Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $ 475,884 $ 453,081 $1,005,158 $ 921,115
Operating Expenses:
Fuel 23,939 20,443 52,226 40,809
Power purchased and interchanged:
Affiliates 9,640 2,270 13,223 3,368
Others 118,389 143,007 282,249 311,278
Deferral of energy and capacity costs, net 10,521 (1,820) 14,737 (10,391)
Other operation and maintenance 120,863 112,743 237,342 226,377
Depreciation and amortization 50,286 48,280 100,238 95,961
Taxes, other than income taxes 55,388 49,883 115,360 105,877
Total operating expenses 389,026 374,806 815,375 773,279
Operating Income Before Income Taxes 86,858 78,275 189,783 147,836
Income taxes 19,108 16,441 44,672 28,775
Operating Income 67,750 61,834 145,111 119,061
Other Income and Deductions:
Allowance for other funds used during
construction 979 229 1,982 457
Other income/(expense), net (324) 3,367 1,818 6,985
Income taxes (184) (1,343) (1,235) (2,782)
Total other income and deductions 471 2,253 2,565 4,660
Income Before Interest Charges and
Dividends on Preferred Securities 68,221 64,087 147,676 123,721
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 22,203 23,461 44,717 45,960
Other interest 4,086 3,530 5,009 5,523
Allowance for borrowed funds used
during construction (1,124) (978) (2,277) (2,047)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,675 1,278 5,350 1,278
Total interest charges and dividends
on preferred securities 27,840 27,291 52,799 50,714
Net Income 40,381 36,796 94,877 73,007
Preferred stock dividends 3,162 3,586 6,748 7,285
Earnings Available for Common Stock $ 37,219 $ 33,210 $ 88,129 $ 65,722
The accompanying notes are an integral part of the consolidated financial statements.
9
<PAGE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Six Months
Ended June 30,
1996 1995
Operating Activities:
Net income $ 94,877 $ 73,007
Adjustments to reconcile income to cash provided:
Depreciation and amortization 105,803 105,012
Amortization of property under capital leases 15,924 16,712
Nuclear outage maintenance costs, net 9,938 10,821
Deferred income taxes and investment tax
credits, net 9,598 29,702
Deferred energy and capacity costs, net 14,732 (10,440)
Accretion income (5,805) (6,260)
Allowance for other funds used
during construction (1,982) (457)
Changes in working capital:
Receivables (3,800) 6,810
Materials and supplies 4,631 (4,313)
Special deposits and prepayments (122,855) (149,122)
Payables and accrued liabilities (33,727) (50,539)
Nonutility generation contract buyout costs (65,000) -
Other, net (521) (6,436)
Net cash provided by operating activities 21,813 14,497
Investing Activities:
Cash construction expenditures (76,395) (98,623)
Contributions to decommissioning trusts (9,303) (9,022)
Other, net (2,984) (873)
Net cash used for investing activities (88,682) (108,518)
Financing Activities:
Issuance of long-term debt - 49,625
Increase/(Decrease) in notes payable, net 189,000 (14,600)
Retirement of long-term debt (25,701) -
Capital lease principal payments (15,527) (13,637)
Issuance of company-obligated mandatorily
redeemable preferred securities - 121,063
Redemption of preferred stock (20,000) (6,049)
Dividends paid on common stock (50,000) (50,000)
Contributions from parent corporation - 15,000
Dividends paid on preferred stock (7,172) (7,398)
Net cash provided by financing activities 70,600 94,004
Net increase/(decrease) in cash and temporary
cash investments from above activities 3,731 (17)
Cash and temporary cash investments, beginning of year 922 1,041
Cash and temporary cash investments, end of period $ 4,653 $ 1,024
Supplemental Disclosure:
Interest paid $ 53,116 $ 51,355
Income taxes paid $ 55,828 $ 50,799
New capital lease obligations incurred $ 27,984 $ 8,746
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
10
<PAGE>
<TABLE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2,264,771 $2,240,951
Less, accumulated depreciation 802,136 763,921
Net utility plant in service 1,462,635 1,477,030
Construction work in progress 86,328 83,353
Other, net 38,021 45,587
Net utility plant 1,586,984 1,605,970
Other Property and Investments:
Nuclear decommissioning trusts, at market 109,006 95,317
Other, net 11,155 9,899
Total other property and investments 120,161 105,216
Current Assets:
Cash and temporary cash investments 1,914 1,810
Special deposits 1,064 1,256
Accounts receivable:
Customers, net 60,004 60,739
Other 15,794 22,151
Unbilled revenues 23,857 31,509
Materials and supplies, at average cost or less:
Construction and maintenance 40,961 39,337
Fuel 7,143 9,817
Deferred energy costs/(credits) 591 (1,417)
Deferred income taxes 6,362 7,595
Prepayments 32,704 6,549
Total current assets 190,394 179,346
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 148,710 149,004
Income taxes recoverable through future rates 157,455 178,513
Other 112,845 112,458
Total regulatory assets 419,010 439,975
Deferred income taxes 102,105 91,356
Other 13,222 13,612
Total deferred debits and other assets 534,337 544,943
Total Assets $2,431,876 $2,435,475
The accompanying notes are an integral part of the consolidated financial statements.
11
<PAGE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
June 30, December 31,
1996 1995
(Unaudited)
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 66,273 $ 66,273
Capital surplus 370,200 370,200
Retained earnings 265,169 248,434
Total common stockholder's equity 701,642 684,907
Cumulative preferred stock 23,598 23,598
Company-obligated mandatorily
redeemable preferred securities 100,000 100,000
Long-term debt 583,270 603,268
Total capitalization 1,408,510 1,411,773
Current Liabilities:
Securities due within one year 20,019 15,019
Notes payable 34,988 22,390
Obligations under capital leases 36,746 43,600
Accounts payable:
Affiliates 18,093 10,559
Other 79,976 91,538
Taxes accrued 14,760 19,615
Interest accrued 19,768 19,359
Other 48,376 40,362
Total current liabilities 272,726 262,442
Deferred Credits and Other Liabilities:
Deferred income taxes 374,343 380,135
Unamortized investment tax credits 32,346 33,387
Three Mile Island Unit 2 future costs 210,479 206,489
Nuclear fuel disposal fee 28,076 27,360
Regulatory liabilities 25,835 26,461
Other 79,561 87,428
Total deferred credits and other liabilities 750,640 761,260
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2,431,876 $2,435,475
The accompanying notes are an integral part of the consolidated financial statements.
12
</TABLE>
<PAGE>
<TABLE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $ 207,058 $ 190,342 $ 444,746 $ 396,091
Operating Expenses:
Fuel 22,054 20,401 47,967 42,793
Power purchased and interchanged:
Affiliates 4,848 4,942 11,748 13,900
Others 48,849 37,963 102,274 81,477
Deferral of energy costs, net (4,069) 2,837 (1,985) 1,732
Other operation and maintenance 55,609 55,200 106,138 107,841
Depreciation and amortization 24,301 21,761 48,303 44,431
Taxes, other than income taxes 12,445 13,071 28,032 26,730
Total operating expenses 164,037 156,175 342,477 318,904
Operating Income Before Income Taxes 43,021 34,167 102,269 77,187
Income taxes 11,892 5,832 32,748 17,697
Operating Income 31,129 28,335 69,521 59,490
Other Income and Deductions:
Allowance for other funds used during
construction 44 404 87 859
Other income/(expense), net (52) (1,951) 174 (4,112)
Income taxes 114 838 81 1,629
Total other income and deductions 106 (709) 342 (1,624)
Income Before Interest Charges and
Dividends on Preferred Securities 31,235 27,626 69,863 57,866
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 11,470 11,522 22,937 22,534
Other interest 932 1,584 2,031 2,573
Allowance for borrowed funds used
during construction (223) (347) (448) (742)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,250 2,250 4,500 4,500
Total interest charges and dividends
on preferred securities 14,429 15,009 29,020 28,865
Net Income 16,806 12,617 40,843 29,001
Preferred stock dividends 236 236 472 472
Earnings Available for Common Stock $ 16,570 $ 12,381 $ 40,371 $ 28,529
The accompanying notes are an integral part of the consolidated financial statements.
13
<PAGE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Six Months
Ended June 30,
1996 1995
Operating Activities:
Net income $ 40,843 $ 29,001
Adjustments to reconcile income to cash provided:
Depreciation and amortization 46,991 38,538
Amortization of property under capital leases 7,843 7,599
Nuclear outage maintenance costs, net 3,007 2,432
Deferred income taxes and investment tax
credits, net 3,410 (3,179)
Deferred energy costs, net (1,985) 1,732
Allowance for other funds used
during construction (87) (859)
Changes in working capital:
Receivables 14,744 (3,278)
Materials and supplies 1,051 1,067
Special deposits and prepayments (25,964) (14,442)
Payables and accrued liabilities 9,360 (26,306)
Nonutility generation contract buyout costs (4,450) (1,650)
Other, net (12,230) 5,927
Net cash provided by operating activities 82,533 36,582
Investing Activities:
Cash construction expenditures (37,355) (63,057)
Contributions to decommissioning trusts (8,562) (4,955)
Other, net (1,256) 18
Net cash used for investing activities (47,173) (67,994)
Financing Activities:
Issuance of long-term debt - 59,625
Increase in notes payable, net 12,598 15,973
Retirement of long-term debt (15,000) -
Capital lease principal payments (7,382) (7,562)
Dividends paid on common stock (25,000) (50,000)
Contributions from parent corporation - 10,000
Dividends paid on preferred stock (472) (472)
Net cash provided/(required) by
financing activities (35,256) 27,564
Net increase/(decrease) in cash and temporary
cash investments from above activities 104 (3,848)
Cash and temporary cash investments, beginning of year 1,810 9,246
Cash and temporary cash investments, end of period $ 1,914 $ 5,398
Supplemental Disclosure:
Interest paid $ 28,550 $ 27,913
Income taxes paid $ 24,975 $ 46,730
New capital lease obligations incurred $ 611 $ 15,261
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
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2,705,727 $2,667,842
Less, accumulated depreciation 1,006,708 974,992
Net utility plant in service 1,699,019 1,692,850
Construction work in progress 74,375 72,233
Other, net 26,857 30,876
Net utility plant 1,800,251 1,795,959
Other Property and Investments:
Nuclear decommissioning trusts, at market 47,103 42,440
Other, net 6,619 6,545
Total other property and investments 53,722 48,985
Current Assets:
Cash and temporary cash investments 4,186 1,367
Special deposits 2,829 2,718
Accounts receivable:
Customers, net 72,469 67,454
Other 27,772 29,033
Unbilled revenues 29,344 30,851
Materials and supplies, at average cost or less:
Construction and maintenance 52,154 53,237
Fuel 14,699 11,285
Deferred energy costs 12,402 9,335
Deferred income taxes 5,892 4,602
Prepayments 45,207 10,328
Total current assets 266,954 220,210
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 83,137 81,236
Income taxes recoverable through future rates 211,696 214,284
Other 18,573 19,485
Total regulatory assets 313,406 315,005
Deferred income taxes 65,717 78,754
Other 12,837 14,657
Total deferred debits and other assets 391,960 408,416
Total Assets $2,512,887 $2,473,570
The accompanying notes are an integral part of the consolidated financial statements.
15
<PAGE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
June 30, December 31,
1996 1995
(Unaudited)
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 105,812 $ 105,812
Capital surplus 285,486 285,486
Retained earnings 349,848 327,814
Total common stockholder's equity 741,146 719,112
Cumulative preferred stock 36,777 36,777
Company-obligated mandatorily
redeemable preferred securities 105,000 105,000
Long-term debt 616,475 642,487
Total capitalization 1,499,398 1,503,376
Current Liabilities:
Securities due within one year 76,009 75,009
Notes payable 109,225 27,100
Obligations under capital leases 19,309 22,751
Accounts payable:
Affiliates 5,322 13,806
Other 51,111 66,687
Taxes accrued 12,472 16,019
Interest accrued 21,082 19,567
Vacations accrued 6,527 9,976
Other 18,964 19,448
Total current liabilities 320,021 270,363
Deferred Credits and Other Liabilities:
Deferred income taxes 453,739 462,354
Unamortized investment tax credits 43,740 45,114
Three Mile Island Unit 2 future costs 105,290 103,271
Nuclear fuel disposal fee 14,038 13,680
Regulatory liabilities 32,914 33,941
Other 43,747 41,471
Total deferred credits and other liabilities 693,468 699,831
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2,512,887 $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 Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues $ 246,788 $ 238,451 $ 516,117 $ 491,863
Operating Expenses:
Fuel 42,281 40,818 86,576 87,287
Power purchased and interchanged:
Affiliates 722 2,643 2 079 4,270
Others 46,247 41,904 106,359 81,042
Deferral of energy costs, net 234 3,074 (2,912) 13,898
Other operation and maintenance 65,916 64,779 125,815 118,925
Depreciation and amortization 23,334 20,303 45,966 39,493
Taxes, other than income taxes 15,461 15,462 31,391 31,870
Total operating expenses 194,195 188,983 395,274 376,785
Operating Income Before Income Taxes 52,593 49,468 120,843 115,078
Income taxes 15,085 12,250 36,675 31,750
Operating Income 37,508 37,218 84,168 83,328
Other Income and Deductions:
Allowance for other funds used during
construction 232 519 415 1,041
Other income/(expense), net 59 (2,406) (802) (3,629)
Income taxes 64 989 62 1,359
Total other income and deductions 355 (898) (325) (1,229)
Income Before Interest Charges and
Dividends on Preferred Securities 37,863 36,320 83,843 82,099
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 12,323 12,383 24,954 23,985
Other interest 2,249 2,004 3,269 3,961
Allowance for borrowed funds used
during construction (615) (640) (1,098) (1,283)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,297 2,297 4,594 4,594
Total interest charges and dividends
on preferred securities 16,254 16,044 31,719 31,257
Net Income 21,609 20,276 52,124 50,842
Preferred stock dividends 386 386 772 772
Earnings Available for Common Stock $ 21,223 $ 19,890 $ 51,352 $ 50,070
The accompanying notes are an integral part of the consolidated financial statements.
17
<PAGE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Six Months
Ended June 30,
1996 1995
Operating Activities:
Net income $ 52,124 $ 50,842
Adjustments to reconcile income to cash provided:
Depreciation and amortization 44,681 37,529
Amortization of property under capital leases 4,415 4,296
Nuclear outage maintenance costs, net 1,498 1,309
Deferred income taxes and investment tax
credits, net 2,516 (4,412)
Deferred energy costs, net (3,067) 14,121
Allowance for other funds used
during construction (415) (1,041)
Changes in working capital:
Receivables (2,247) (3,005)
Materials and supplies (2,331) (1,278)
Special deposits and prepayments (34,990) (19,168)
Payables and accrued liabilities (25,950) 13,039
Other, net 7,667 2,285
Net cash provided by operating activities 43,901 94,517
Investing Activities:
Cash construction expenditures (59,524) (66,956)
Contributions to decommissioning trusts (2,650) (2,632)
Other, net (979) -
Net cash used for investing activities (63,153) (69,588)
Financing Activities:
Issuance of long-term debt - 59,670
Increase/(Decrease) in notes payable, net 82,125 (54,657)
Retirement of long-term debt (25,000) -
Capital lease principal payments (4,282) (4,113)
Dividends paid on common stock (30,000) (30,000)
Contributions from parent corporation - 5,000
Dividends paid on preferred stock (772) (772)
Net cash provided/(required) by
financing activities 22,071 (24,872)
Net increase in cash and temporary
cash investments from above activities 2,819 57
Cash and temporary cash investments, beginning of year 1,367 1,191
Cash and temporary cash investments, end of period $ 4,186 $ 1,248
Supplemental Disclosure:
Interest paid $ 30,194 $ 28,765
Income taxes paid $ 30,734 $ 27,489
New capital lease obligations incurred $ 312 $ 7,631
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 GPU Energy) consists
predominantly of the generation, transmission, distribution and sale of
electricity. The Company also owns all of the common stock of Energy
Initiatives, Inc. (known as GPU International, Inc.), EI Power, Inc. (known as
GPU Power, Inc.) and EI Energy, Inc. (known as GPU Electric, 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 GPU Energy, and GPU Generation, Inc. (Genco), which operates
and maintains GPU Energy's 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
GPU Energy has 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 June 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
June 30, 1996
JCP&L $160 $783
Met-Ed 307 -
Penelec 150 -
Total $617 $783
19
<PAGE>
Net Investment (Millions)
TMI-1 Oyster Creek
December 31, 1995
JCP&L $166 $785
Met-Ed 318 -
Penelec 156 -
Total $640 $785
GPU Energy's net investment in TMI-2 at June 30, 1996 was $93 million
(JCP&L, Met-Ed and Penelec's shares are $83 million, $2 million, and $8
million, respectively). GPU Energy's net investment in TMI-2 at December 31,
1995 was $95 million (JCP&L, Met-Ed and Penelec's shares are $85 million, $2
million, and $8 million, respectively). JCP&L is collecting revenues for TMI-
2 on a basis which provides for the recovery of its remaining investment in
the plant by 2008. Met-Ed and Penelec are collecting revenues for 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. GPU Energy may also incur costs and
experience reduced output at its nuclear plants because of the prevailing
design criteria at the time of construction and the age of the plants' systems
and equipment. In addition, for economic or other reasons, operation of these
plants for the full term of their now-assumed lives cannot be assured. Also,
not all risks associated with the ownership or operation of nuclear facilities
may be adequately insured or insurable. Consequently, the ability of electric
utilities to obtain adequate and timely recovery of costs associated with
nuclear projects, including replacement power, any unamortized investment at
the end of each plant's useful life (whether scheduled or premature), the
carrying costs of that investment and retirement costs, is not assured (see
NUCLEAR PLANT RETIREMENT COSTS). Management intends, in general, to seek
recovery of any such costs through the ratemaking process, but recognizes that
recovery is not assured (see COMPETITION AND THE CHANGING REGULATORY
ENVIRONMENT).
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
The cleanup program was completed in 1990, and after receiving Nuclear
Regulatory Commission (NRC) approval, TMI-2 entered into long-term monitored
storage in 1993.
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 GPU Energy.
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, GPU Energy 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 its total primary, secondary and tertiary financial protection up to
an aggregate of $560 million. Under the secondary level, GPU Energy is
subject to a retrospective premium charge of up to $5 million per reactor, or
a total of $15 million (JCP&L, Met-Ed and Penelec's shares are $7.5 million,
$5 million and $2.5 million, respectively).
The insurers of TMI-2 had been providing a defense against all TMI-2
accident-related claims against the Company and GPU Energy and its suppliers
under a reservation of rights with respect to any award of punitive damages.
However, in 1994 the defendants and the insurers agreed that the insurers
would withdraw their reservation of rights with respect to any award of
punitive damages.
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 GPU Energy 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. It is expected that the plaintiffs will appeal the ruling.
Based on the above, the Company and GPU Energy believe that any liability
to which they might be subject by reason of the TMI-2 accident will not exceed
their financial protection under the Price-Anderson Act.
There can be no assurance as to the outcome of this litigation.
21
<PAGE>
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, GPU Energy submitted a report, in compliance with NRC
regulations, setting forth a funding plan (employing the external sinking fund
method) for the decommissioning of its nuclear reactors. Under this plan, GPU
Energy intends to complete the funding for Oyster Creek and TMI-1 by the end
of the plants' license terms, 2009 and 2014, respectively. The TMI-2 funding
completion date is 2014, consistent with TMI-2's remaining in long-term
storage and being decommissioned at the same time as TMI-1. Based on NRC
studies, a comparable funding target 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 $ 40 $ 64 $194
Met-Ed 81 128 -
Penelec 40 64 -
Total $161 $256 $194
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 TMI-1 TMI-2 Creek
Radiological decommissioning $303 $367 $356
Nonradiological cost of removal 75 37 * 34
Total $378 $404 $390
* Net of $4 million spent as of June 30, 1996.
22
<PAGE>
(Millions)
Oyster
JCP&L TMI-1 TMI-2 Creek
Radiological decommissioning $ 76 $ 92 $356
Nonradiological cost of removal 19 9 * 34
Total $ 95 $101 $390
* Net of $1 million spent as of June 30, 1996.
(Millions)
Met-Ed TMI-1 TMI-2
Radiological decommissioning $151 $183
Nonradiological cost of removal 37 19 *
Total $188 $202
* Net of $2 million spent as of June 30, 1996.
(Millions)
Penelec TMI-1 TMI-2
Radiological decommissioning $76 $ 92
Nonradiological cost of removal 19 9 *
Total $95 $101
* Net of $1 million spent as of June 30, 1996.
The ultimate cost of retiring GPU Energy's nuclear facilities may be
different from the cost estimates contained in these site-specific studies.
Such costs are subject to (a) the quarterly escalation of various cost
elements (including, but not limited to, general inflation), (b) the further
development of regulatory requirements governing decommissioning, (c) the
technology available at the time of decommissioning, and (d) the availability
of nuclear waste disposal facilities.
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 Sheet.
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 FASB Exposure Draft discussed below.
The Financial Accounting Standards Board (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
23
<PAGE>
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 is expected to be
January 1, 1998.
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,
allows 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 $84 million (JCP&L, Met-Ed and
Penelec's shares are $26 million, $42 million and $16 million, respectively)
for TMI-1 and $152 million for Oyster Creek at June 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 $7 million
(JCP&L, Met-Ed and Penelec's shares are $1 million, $4 million and $2 million,
respectively) and $7 million, respectively, for the six months ended June 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 Sheet) as of June 30, 1996 and
December 31, 1995 are as follows:
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<PAGE>
(Millions)
GPU JCP&L Met-Ed Penelec
June 30, 1996
Radiological Decommissioning $367 $ 92 $183 $ 92
Nonradiological Cost of Removal 37* 9 19 9
Incremental Monitored Storage 17 4 9 4
Total $421 $105 $211 $105
* Net of $4 million (JCP&L, Met-Ed and Penelec's shares are $1 million, $2
million and $1 million, respectively) spent as of June 30, 1996.
(Millions)
GPU JCP&L Met-Ed Penelec
December 31, 1995
Radiological Decommissioning $358 $90 $179 $89
Nonradiological Cost of Removal 37* 9 19 9
Incremental Monitored Storage 18 4 9 5
Total $413 $103 $207 $103
* Net of $3 million spent (JCP&L, Met-Ed and Penelec's shares are $.75
million, $1.5 million and $.75 million, respectively) as of
December 31, 1995.
Offsetting the $421 million liability at June 30, 1996 is $273 million
(JCP&L, Met-Ed and Penelec's shares are $51 million, $147 million and
$75 million, respectively) which is probable of recovery from customers and
included in Three Mile Island Unit 2 Deferred Costs on the Balance Sheet, and
$157 million (JCP&L, Met-Ed and Penelec's shares are $65 million, $64 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 six months ended June 30, 1996 amounted to $7
million (JCP&L, Met-Ed and Penelec's shares are $1.6 million, $5 million and
$0.4 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. The Final Settlement pending before the NJBPU adjusts JCP&L's
future revenues for retirement costs based on the 1995 site-specific study
estimates. Based on Met-Ed's rate order, Penelec has recorded a regulatory
asset for that portion of such costs which it believes to be probable of
recovery.
At June 30, 1996 the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $64 million (JCP&L, Met-Ed and
Penelec's shares are $16 million, $32 million and $16 million, respectively),
which is the difference between the 1995 TMI-1 and TMI-2 site-specific study
estimates (in 1996 dollars) of $303 million and $367 million, respectively
(JCP&L, Met-Ed and Penelec's shares are $76 million and $92 million,
$151 million and $183 million, and $76 million and $92 million, respectively).
25
<PAGE>
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 $64 million accident-
related portion referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement
costs, and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot
be assured.
As a result of TMI-2's entering long-term monitored storage in 1993, GPU
Energy is incurring incremental storage costs of approximately $1 million
(JCP&L, Met-Ed and Penelec's shares are $.25 million, $.5 million, and $.25
million, respectively) annually. GPU Energy estimates 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 Companies, could result in assessments of up to $79 million per
incident for each of GPU Companies' two operating reactors, subject to an
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annual maximum payment of $10 million per incident per reactor. In addition to
the retrospective premiums payable under Price-Anderson, the GPU Companies are
also subject to retrospective premium assessments of up to $68 million (JCP&L,
Met-Ed and Penelec's shares are $41 million, $18 million and $9 million,
respectively) in any one year under insurance policies applicable to nuclear
operations and facilities.
The GPU 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 percent of such amounts
for years two and three.
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
Nonutility Generation Agreements:
Pursuant to the requirements of the federal Public Utility Regulatory
Policies Act (PURPA) and state regulatory directives, the 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 June 30, 1996,
facilities covered by these agreements having 1,624 MW (JCP&L, Met-Ed and
Penelec's shares are 892 MW, 335 MW and 397 MW, respectively) of capacity were
in service. Actual payments 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 717 380 145 192
* 1999 761 387 143 231
* 2000 810 399 145 266
* Estimate (1996 amounts are comprised of actual payments from January through
May and estimates for the remainder of the year.)
Of these amounts, payments to the projects which are not in service at
June 30, 1996 are estimated as follows:
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Payments Under NUG Agreements Not In Service
(Millions)
Total JCP&L Met-Ed Penelec
1997 $ - $ - $ - $ -
1998 3 3 - -
1999 33 3 - 30
2000 59 4 - 55
These amounts for the years 1998 through 2000 do not include estimated
payments 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 and Blue Mountain
facilities, and is negotiating for the interests of the Altoona facility.
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. Penelec has agreed to pay AES up to
$8.3 million if negotiations for the proposed 80 MW Altoona facility are
unsuccessful. (See Managing Nonutility Generation in Management's Discussion
and Analysis).
In the year 2000, NUG agreements, in the aggregate, will provide
approximately 2,189 MW (JCP&L 902 MW, Met-Ed 712 MW and Penelec 575 MW) of
capacity and energy to GPU Energy, at varying prices.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the companies' energy supply needs which has
caused GPU Energy to change its supply strategy to seek shorter-term
agreements offering more flexibility. Due to the current availability of
excess capacity in the marketplace, the cost of near- to intermediate-term
(i.e., one to eight years) energy supply from generation facilities now in
service is currently and is expected to continue to be priced below the costs
of new supply sources, at least for some time. The projected cost of energy
from new generation supply sources has also decreased due to improvements in
power plant technologies and reduced forecasted fuel prices. As a result of
these developments, the rates under virtually all of GPU Energy's NUG
agreements are substantially in excess of current and projected prices from
alternative sources.
GPU Energy is 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 the
companies' energy adjustment clauses (see Managing Nonutility Generation, in
Management's Discussion and Analysis of Financial Condition and Results of
Operations) and (4) initiating proceedings before federal and state agencies,
and in the courts, where appropriate. In addition, GPU Energy intends to
avoid, to the maximum extent practicable, entering into any new NUG agreements
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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 to which GPU Energy's efforts will be
successful in whole or in part.
GPU Energy has been granted recovery of its NUG costs (including
substantially all buyout costs) from customers by the PaPUC and NJBPU and
expects to continue to pursue such recovery. There can be no assurance that
GPU Energy will continue to be able to recover similar costs which may be
incurred in the future. The GPU Companies currently estimate that for 1998,
when substantially all of these NUG projects are scheduled to be in service,
above market payments (benchmarked against the expected cost of electricity
produced by a new gas-fired combined cycle facility) will range from
$190 million to $280 million (JCP&L $85 to $130 million; Met-Ed $40 million to
$60 million; and Penelec $65 million to $90 million). The amount of these
estimated above-market payments may increase or decrease substantially based
upon, among other things, payment escalations in the contract terms, changes
in fuel prices and changes in the capital and operating cost of new generating
equipment.
Regulatory Assets and Liabilities:
In accordance with Statement of Financial Accounting Standards No. 71
(FAS 71), "Accounting for the Effects of Certain Types of Regulation," the GPU
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.
A utility's operations can cease to meet those criteria for various
reasons, including deregulation, a change in the method of regulation, or a
change in the competitive environment for the utility's regulated services.
Regardless of the reason, a utility whose operations cease to meet those
criteria should discontinue application of FAS 71 and report that
discontinuation by eliminating from its Balance Sheet the effects of any
actions of regulators that had been recognized as assets and liabilities
pursuant to FAS 71, but which would not have been recognized as assets and
liabilities by enterprises in general.
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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 Sheet, and regulatory liabilities are reflected in the
Deferred Credits and Other Liabilities section of the Consolidated Balance
Sheet. Regulatory assets and liabilities, as of June 30, 1996 and December
31, 1995, were as follows:
GPU and Subsidiary Companies Assets (In Thousands)
June 30, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $ 501,189 $ 527,584
TMI-2 deferred costs 365,608 368,712
NUG contract termination costs 202,738 84,132
Unamortized property losses 102,891 105,729
Other postretirement benefits 68,457 58,362
N.J. unit tax 48,750 51,518
Unamortized loss on reacquired debt 47,764 50,198
Load and demand-side management programs 45,843 48,071
DOE enrichment facility decommissioning 36,932 38,519
Manufactured gas plant remediation 30,976 29,608
Nuclear fuel disposal fee 24,384 21,946
N.J. low-level radwaste disposal 19,051 21,778
Storm damage 20,621 18,294
Other 11,809 15,257
Total $1,527,013 $1,439,708
Liabilities (In Thousands)
June 30, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $91,577 $94,931
Other 2,842 3,068
Total $94,419 $97,999
Assets (In Thousands)
JCP&L June 30, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $132,038 $134,787
TMI-2 deferred costs 133,761 138,472
NUG contract termination costs 139,000 17,482
Unamortized property losses 97,190 100,176
Other postretirement benefits 38,148 32,390
N.J. unit tax 48,750 51,518
Unamortized loss on reacquired debt 32,862 34,285
Load and demand side management programs 45,843 48,071
DOE enrichment facility decommissioning 23,508 24,503
Manufactured gas plant remediation 30,976 29,608
Nuclear fuel disposal fee 25,863 23,165
N.J. low-level radwaste disposal 19,051 21,778
Storm damage 20,621 18,294
Other 6,986 10,199
Total $794,597 $684,728
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Liabilities (In Thousands)
JCP&L June 30, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $34,701 $36,343
Other 969 1,254
Total $35,670 $37,597
Assets (In Thousands)
Met-Ed June 30, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $157,455 $178,513
TMI-2 deferred costs 148,710 149,004
NUG contract termination costs 63,738 66,650
Unamortized property losses 3,321 3,273
Other postretirement benefits 30,309 25,972
Unamortized loss on reacquired debt 6,584 6,945
DOE enrichment facility decommissioning 8,949 9,344
Nuclear fuel disposal fee (1,146) (1,025)
Other 1,090 1,299
Total $419,010 $439,975
Liabilities (In Thousands)
June 30, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $24,027 $24,765
Other 1,808 1,696
Total $25,835 $26,461
Assets (In Thousands)
Penelec June 30, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $211,696 $214,284
TMI-2 deferred costs 83,137 81,236
Unamortized property losses 2,380 2,280
Unamortized loss on reacquired debt 8,318 8,968
DOE enrichment facility decommissioning 4,475 4,672
Nuclear fuel disposal fee (333) (194)
Other 3,733 3,759
Total $313,406 $315,005
Liabilities (In Thousands)
June 30, December 31,
1996 1995
Income taxes recoverable/refundable
through future rates $32,849 $33,823
Other 65 118
Total $32,914 $33,941
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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
GPU Energy's 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 of Financial Condition and Results of Operations).
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."
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.
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.
Manufactured gas plant remediation: Consists of costs which are probable of
recovery, with interest, associated with the investigation and remediation of
several gas manufacturing plants. For additional information, see
ENVIRONMENTAL MATTERS.
Nuclear fuel disposal fee: Represents amounts recoverable through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and
TMI-1 in accordance with the Nuclear Waste Policy Act of 1982.
N.J. low-level radwaste disposal: Represents the accrual of the estimated
assessment for the siting of a disposal facility for low-level waste from
Oyster Creek, less amortization as allowed in JCP&L's rates.
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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.
GPU Energy continues to be subject to cost-based ratemaking regulation.
However, in the event that either all or a portion of its operations are no
longer subject to these provisions, the related regulatory assets, net of
regulatory liabilities, would have to be written off. In addition, any above
market costs of purchased power commitments would have to be expensed (see
Nonutility Generation Agreements), and additional depreciation expense would
have to be recorded for any differences created by the use of a regulated
depreciation method that is different from that which would have been used
under generally accepted accounting principles for enterprises in general.
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 may no longer be applicable.
In 1995, the FASB issued FAS 121, which is effective for fiscal years
beginning after June 15, 1995. FAS 121 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
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
GPU Energy enters 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
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costs to construct new equipment, modify or replace existing and proposed
equipment, remediate, decommission or clean up waste disposal and other sites
currently or formerly used by it, including formerly owned manufactured gas
plants, mine refuse piles and generating facilities, and with regard to
electromagnetic fields, postpone or cancel the installation of, or replace or
modify, utility plant, the costs of which could be material.
To comply with the federal Clean Air Act Amendments of 1990 (Clean Air
Act), GPU Energy expects to spend up to $410 million (JCP&L, Met-Ed and
Penelec's shares are $42 million, $163 million, and $205 million,
respectively) for air pollution control equipment by the year 2000, of which
approximately $238 million (JCP&L, Met-Ed and Penelec's shares are $42
million, $95 million, and $101 million, respectively) has already been spent.
In developing their least-cost plan to comply with the Clean Air Act, the GPU
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. GPU
Energy expects that the U.S. Environmental Protection Agency (EPA) will
approve state implementation plans consistent with the proposal, and that as a
result, it will spend an estimated $60 million (Met-Ed and Penelec's shares
are $14 million and $46 million, respectively) (included in the Clean Air Act
total), beginning in 1997, to meet the seasonal reductions agreed upon by the
OTC. The OTC has stated that it anticipates that additional Nox reductions
will be necessary to meet the Clean Air Act's 2005 National Ambient Air
Quality Standard for ozone. However, the specific requirements that will have
to be met at that time have not been finalized. GPU Energy is 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
waste sites, broken down by company as follows. (In some cases, more than one
GPU Company is named for a given site):
JCP&L MET-ED PENELEC GPUN GPU
PRPs 6 4 2 1 1
In addition, the GPU Energy 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 Energy 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.
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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 June 30, 1996, Penelec
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 costs
are subject to uncertainties based on the extent of remediation required and
available technologies. If Penelec decides against reboilering the station
using fluidized bed combustion technology, an additional liability of $9.75
million will be booked at that time. No decision has been made to reboiler
Seward station, and the associated capital expenditure has not been included
in the GPU Companies' capital forecasts. Penelec is required to notify the
PaDEP by December 31, 1997 whether or not it will reboiler the station.
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 June 30, 1996, JCP&L has spent approximately $21 million in
connection with these sites. In addition to funds already spent, JCP&L has
recorded an estimated environmental liability of $28.5 million relating to
future costs of these sites, as well as two other properties. The additional
estimated liability is based upon ongoing site investigations and remediation
efforts, including capping the sites and pumping and treatment of ground
water. However, if the periods over which the remediation is currently
expected to be performed are lengthened, JCP&L believes that it is reasonably
possible that the additional future costs may increase from $28.5 million to
$50 million. Estimates of these costs are subject to significant
uncertainties because JCP&L does not presently own or control most of these
sites; the environmental standards have changed in the past and are subject to
future change; the accepted technologies are subject to further development;
and the related costs for these technologies are uncertain. If JCP&L is
required to utilize different remediation methods, the additional costs could
be materially in excess of $50 million.
In 1993, the NJBPU approved a mechanism similar to JCP&L's Levelized
Energy Adjustment Clause (LEAC) for the recovery of future MGP remediation
costs. However, the NJBPU later directed that recovery of MGP remediation
costs cease until such costs equaled the funds already collected from
customers. At June 30, 1996, remediation costs exceeded collections by
approximately $3 million. JCP&L will continue to defer these remediation
costs and accrue interest as previously authorized by the NJBPU. The Final
Settlement pending before the NJBPU allows JCP&L to continue this accounting
treatment and establish an adjustment clause for the recovery of remediation
costs in the future.
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JCP&L is pursuing reimbursement of the remediation costs from its
insurance carriers. In 1994, JCP&L filed a complaint with the Superior Court
of New Jersey against several of its insurance carriers, relative to these MGP
sites. JCP&L requested the Court to order the insurance carriers to reimburse
JCP&L for all amounts it has paid, or may be required to pay, in connection
with the remediation of the sites. Pretrial discovery has begun in this case.
OTHER COMMITMENTS AND CONTINGENCIES
In June and July 1996, management offered voluntary enhanced retirement
programs to more than 750 bargaining and 400 non-bargaining employees. If
between 60% and 80% of the eligible employees accept the offer, depending on
the age and years of service of those employees, the program could result in a
1996 pre-tax charge to earnings of between $90 million and $125 million in the
third quarter.
The GPU Companies' construction programs, for which substantial
commitments have been incurred and which extend over several years,
contemplate expenditures of $471 million (JCP&L, Met-Ed, Penelec and GPUS's
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.
GPU Energy has entered into long-term contracts with nonaffiliated mining
companies for the purchase of coal for certain generating stations in which it
has 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. GPU Energy's share of the cost of coal
purchased under these agreements is expected to aggregate $116 million (JCP&L,
Met-Ed and Penelec's shares are $22 million, $18 million and $76 million,
respectively) for 1996.
JCP&L has entered into agreements with other utilities to purchase
capacity and energy for various periods through 2004. These agreements will
provide for up to 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 June 1996, JCP&L entered into an eight year agreement with Cleveland
Electric Illuminating Corporation (CEI) to lease CEI's 351 MW share of the
Seneca Pumped Storage Hydro Electric plant. Penelec owns 20% of the Seneca
plant. The future minimum rental payments under the lease are fixed and
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escalate over the lease term based on expected inflation. Rental payments
over the next five years are as follows: $11 million in 1996, $19 million in
1997, $19 million in 1998, $20 million in 1999 and $20 million in 2000.
Through the lease term, future minimum rental payments will total
approximately $184 million. For the six months ended June 30, 1996, rent
expense associated with this lease was $1.5 million.
Genco is constructing a 141 MW gas-fired combustion turbine at JCP&L's
Gilbert generating station. This estimated $50 million project, of which $36
million has been spent, is expected to be in service by the end of 1996. In
1995, the NJDEP issued an air permit for the facility based, in part, on the
NJBPU's 1994 order which found that New Jersey's Electric Facility Need
Assessment Act is not applicable and that construction of this facility,
without a market test, is consistent with New Jersey energy policies. An
industry trade group representing NUGs has appealed the NJDEP's issuance of
the air permit and the NJBPU's order to the Appellate Division of the New
Jersey Superior Court. There can be no assurance as to the outcome of this
proceeding.
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. JCP&L, the NJBPU staff and the
Ratepayer Advocate have entered into a Final Settlement of this proceeding,
which is now pending before the NJBPU (See RATE MATTERS in Management's
Discussion and Analysis). There can be no assurance as to the outcome of this
proceeding.
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40%
capacity factor would be approximately $10 million before tax. While a
capacity factor below 40% would generate no specific monetary charge, it would
require the issue to be brought before the NJBPU for review. The annual
measurement period, which begins in March of each year, coincides with that
used for the LEAC. Legislation has been proposed in New Jersey which would
require the NJBPU to conduct a formal investigation whenever a nuclear plant
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 June 30, 1996, approximately 52% of the GPU Companies' workforce
was represented by unions for collective bargaining purposes. JCP&L
employees' collective bargaining agreement, covering 44% of the GPU Companies'
union employees, is due to expire in October 1996.
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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 the restructuring plan, NIMO has
insisted on renegotiating all of its contracts with NUGs, and has claimed that
it has the right to use eminent domain to condemn NUG facilities, if such
negotiations are not successful. There can be no assurance as to the outcome
of this matter.
NIMO has also initiated actions in federal and state court seeking to
invalidate numerous NUG contracts or limit the amount of annual generation
produced by the NUG, and is withholding allegedly "excess" payments made in
respect of "over generation" under these contracts, including the contracts
for one of the GPU International, Inc.'s projects. NIMO alleges to have
overpaid GPU International, Inc. approximately $7 million for the years 1993
through 1995. 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 June 30, 1996, the GPU International Group had investments totaling
$638 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 of Financial Condition and Results of Operations).
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.
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, Inc.
(Holdings). Holdings is a 50/50 joint venture formed to acquire Midlands
Electricity plc (Midlands), an English regional electric company (REC). Avon
has made a successful cash tender offer of approximately $2.6 billion for the
outstanding shares of Midlands. 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.
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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 service 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
sheet in GPU International Group investments, net, and its proportionate share
of earnings from Holdings is reflected on the consolidated income statement in
Other Income and Deductions. Avon beneficially owned approximately 28% and
100% of the outstanding common stock of Midlands at May 31, and June 30,
respectively. As of June 30, 1996, Avon had purchased Midlands shares at a
cost of approximately $2.5 billion. Accordingly, EI UK has recorded its
proportionate share of Holdings' second 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 by Avon 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 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:
Ownership
Investment Location of Operations Percentage
Brooklyn Energy, LP Canada 75%
Avon Energy Partners
Holdings, Inc. (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%
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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 6/30/96 12/31/95
Current Assets $ 738,886 $ 248,012
Noncurrent Assets 5,848,621 1,962,238
Current Liabilities (1,213,774) (220,796)
Noncurrent Liabilities (4,125,426) (1,693,669)
Net Assets 1,248,307 295,785
GPU International Group's
Equity in Net Assets $ 615,276 $ 25,341
(In Thousands)
Six Months Ended
Earnings Data 6/30/96 6/30/95
Revenue $ 1,451,068 $ 194,932
Operating Income 208,093 36,344
Net Income/(Loss) 233,321 (4,084)
GPU International Group's
Equity in Net Income/(Loss) $ 2,595 $ (1,110)
As of June 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.
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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) (collectively GPU
Energy). The Company also owns all the common stock of Energy Initiatives,
Inc. (known as GPU International, Inc.), EI Power, Inc. (known as GPU Power,
Inc.) and EI Energy, Inc. (known as GPU Electric, Inc.) (collectively 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 is engaged in the development, ownership and
operation of generation, transmission and distribution facilities 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 second quarter ended June 30, 1996, were $73.6
million, or $0.61 per share, compared to 1995 second quarter earnings of $61.0
million or $0.53 per share. The increase in second quarter earnings was due
primarily to higher weather-related sales this year compared to last, an
increase in new customer sales and lower reserve capacity expense primarily
due to declining power purchases by JCP&L from Pennsylvania Power & Light
Company (PP&L). This was partially offset by higher depreciation expense due
to plant additions and higher operation and maintenance (O&M) expense due in
part to increased emergency and storm repair work.
For the six months ended June 30, 1996, GPU's earnings were $181.9
million, or $1.51 per share, compared to earnings of $136.5 million, or $1.18
per share, for the same period last year. The same factors affecting the
quarterly results also affected the results for the six month period. In
addition, earnings for the current six month period versus last year
benefitted from gains on the sales of securities.
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OPERATING REVENUES:
Total revenues for the second quarter of 1996 increased 5.5% to $912.3
million, as compared to the second quarter of 1995. For the six months ended
June 30, 1996, revenues increased 8.8% to $1.94 billion, as compared to the
same period last year. The components of the changes are as follows:
(In Millions)
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ 36.0 $ 66.0
Energy revenues 5.6 72.3
Other revenues 6.0 18.3
Increase in revenues $ 47.6 $156.6
Kilowatt-hour revenues
The increase in KWH revenues for the three and six month periods was due
primarily to higher weather-related sales to residential customers and
increased new 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 three and six month periods
was due primarily to higher energy cost rates in effect and increased customer
sales. For the three month period, this increase was substantially 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 power purchased and
interchanged (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 three and six month period earnings
increases.
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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 six 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
The increase in other O&M for the three and six month periods was due
partially to higher emergency and storm repair work.
Depreciation and amortization
The increase in depreciation and amortization expense for the three and
six month periods 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 increase in other income for the three month period was due primarily
to higher GPU International Group pre-tax income. The six month period
increase was due primarily to gains on the sales of securities held by the GPU
International Group of $10 million (pre-tax).
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Other interest
The decrease in other interest expense for the six month period was due
primarily to lower short-term debt levels.
Dividends on subsidiary-obligated mandatorily redeemable preferred securities
The increase for the three and six month periods was due to JCP&L issuing
in May 1995, through a special-purpose finance subsidiary, $125 million stated
value of monthly income preferred securities.
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<PAGE>
JCP&L RESULTS OF OPERATIONS
JCP&L's earnings for the second quarter ended June 30, 1996 were $37.2
million, compared to 1995 second quarter earnings of $33.2 million. The
increase in second quarter earnings was due to higher weather-related and new
customer sales this year as compared to last year and lower reserve capacity
expense primarily due to declining power purchases from PP&L. This was
partially offset by increased depreciation expense mainly due to plant
additions and higher O&M expense due in part to increased emergency and storm
repair work.
For the six months ended June 30, 1996 earnings were $88.1 million,
compared to $65.7 million for the same period last year. The same factors
affecting the quarterly results also affected the results for the six month
period. In addition, earnings compared to last year benefitted from a
performance award for the efficient operation of JCP&L's nuclear generating
stations.
OPERATING REVENUES:
Total revenues for the second quarter of 1996 increased 5.0% to $475.9
million, as compared to the second quarter of 1995. For the six months ended
June 30, 1996, revenues increased 9.1% to $1 billion, as compared to the same
period last year. The components of the changes are as follows:
(In Millions)
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ 17.8 $ 33.6
Energy revenues 1.6 40.1
Other revenues 3.4 10.3
Increase in revenues $ 22.8 $ 84.0
Kilowatt-hour revenues
The increase in KWH revenues for the three and six month periods was due
primarily to higher weather-related sales to residential customers and
increased new 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 three and six month periods
was due primarily to higher energy cost rates in effect and increased sales to
customers. For the three month period, the increase was mostly offset by
lower sales to other utilities.
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JCP&L 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.
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 (which is a component of PP&I) due to lower power purchases
from PP&L contributed to the three and six month periods earnings increases.
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 six month period increased due to
a $6.3 million (pre-tax) performance award for the efficient operation of
JCP&L's nuclear generating stations.
Other operation and maintenance
The increase in other O&M for the three and six month periods was due
partially to higher emergency and storm repair work.
Depreciation and amortization
The increase in depreciation and amortization expense for the three month
and six 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/(expense), net
The decrease in other income for the three and six month periods was due
primarily to the write-off of nonutility generation (NUG) buyout costs for the
Crown/Vista project (see Rate Matters) not deemed recoverable through
ratemaking.
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INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Interest on long-term debt
The decrease in interest on long-term debt for the three and six month
periods was due to lower levels of long-term debt.
Dividends on company-obligated mandatorily redeemable preferred securities
The increase for the three and six month periods 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 second quarter ended June 30, 1996 were $16.6
million, compared to 1995 second quarter earnings of $12.4 million. The
increase in second quarter earnings was due primarily to higher weather-
related sales and new customer sales this year compared to last year.
For the six months ended June 30, 1996, Met-Ed's earnings were $40.4
million, compared to earnings of $28.5 million for the same period last year.
The same factors affecting the quarterly results also affected the results for
the six month period. In addition, the current six month period benefitted
from lower reserve capacity expense.
OPERATING REVENUES:
Total revenues for the second quarter of 1996 increased 8.8% to $207.1
million, as compared to the second quarter of 1995. For the six months ended
June 30, 1996, revenues increased 12.3% to $444.7 million, as compared to the
same period last year. The components of the changes are as follows:
(In Millions)
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ 7.8 $ 15.6
Energy revenues 5.9 27.3
Other revenues 3.1 5.8
Increase in revenues $ 16.8 $ 48.7
Kilowatt-hour revenues
The increase in KWH revenues for the three and six month periods was due
primarily to higher weather-related residential sales and increased new
customer sales.
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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 three and six month periods
was due primarily to higher energy cost rates in effect. For the six month
period, the increase was also due to higher sales to customers and 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 (which is a component of PP&I) contributed to the three and
six month periods earnings increases.
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.
Depreciation and amortization
The increase in depreciation and amortization expense for the three and
six month periods was due primarily 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.
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PENELEC RESULTS OF OPERATIONS
Penelec's earnings for the second quarter ended June 30, 1996 were $21.2
million, compared to 1995 second quarter earnings of $19.9 million. Earnings
in the quarter increased due primarily to higher weather-related sales this
year compared to last year, partially offset by higher depreciation expense.
For the six months ended June 30, 1996, Penelec's earnings were $51.4
million, compared to earnings of $50.1 million for the same period last year.
The same factors affecting the quarterly results also affected the results for
the six month period. In addition, earnings for the six month period were
reduced due to higher other O&M expense, partially offset by lower reserve
capacity expense.
OPERATING REVENUES:
Total revenues for the second quarter of 1996 increased 3.5% to $246.8
million, as compared to the second quarter of 1995. Total revenues for the
six months ended June 30, 1996 increased 4.9% to $516.1 million compared with
the same period in 1995. The components of the changes are as follows:
(In Millions)
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ 12.6 $ 18.3
Energy revenues .7 8.2
Other revenues (4.9) (2.2)
Increase in revenues $ 8.4 $ 24.3
Kilowatt-hour revenues
The increase in KWH revenues for the three and six month periods was due
primarily to higher weather-related residential sales and increased new
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 six month period was due
primarily to higher energy cost rates in effect and increased sales to
customers.
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.
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PENELEC RESULTS OF OPERATIONS (continued)
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. However, lower reserve
capacity expense (which is a component of PP&I) contributed to the six month
period 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 six month period was due partially to
increased emergency and storm repair work.
Depreciation and amortization
The increase in depreciation and amortization expense for the three and
six 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.
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
The increase in other income for the three and six month periods was due
to the 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.
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GPU INTERNATIONAL GROUP
Through June 30, 1996, GPU's aggregate investment in the GPU
International Group was $209 million; GPU has also guaranteed an additional
$809 million of GPU International Group obligations, including amounts for the
acquisition of Midlands Electricity plc, discussed below. GPU has obtained
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 remaining SEC
authorization at June 30, 1996 to finance up to $113 million of additional
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
Electricity plc (Midlands), an English regional electric company (REC). Avon
has made a successful cash tender offer of approximately $2.6 billion, for 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, Inc. For more
information, see Notes 2 and 3 to GPU's Consolidated Financial Statements.
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 180 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.
LIQUIDITY AND CAPITAL RESOURCES
Capital Needs
The GPU Companies' capital needs for the six months ended June 30, 1996
consisted of cash construction expenditures of $173 million (JCP&L $76
million; Met-Ed $37 million; Penelec $60 million). Construction expenditures
for the year are forecasted to be $471 million (JCP&L $242 million; Met-Ed $88
million; Penelec $124 million). Expenditures for maturing obligations will
total $131 million (JCP&L $36 million; Met-Ed $15 million; Penelec $75
million; Other $5 million) 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.
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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 $160 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.
On May 1, 1996, JCP&L redeemed $20 million stated value of 8.48%
cumulative preferred stock pursuant to mandatory and optional sinking fund
provisions.
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 is seeking 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. Moodys and Duff &
Phelps credit rating agencies have assigned ratings of Baa2 and BBB+ to the
proposed sale of debentures, respectively.
GPU has also requested SEC approval to issue up to 7 million shares of
additional common stock through 1998. The net proceeds of 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). Net proceeds may also be
used to: 1) 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 or reacquire such 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, 2) reimburse the Company's treasury for funds
previously expended therefrom for such purposes, 3) repay outstanding
indebtedness of the Company, and 4) for other Company corporate purposes.
COMPETITIVE ENVIRONMENT:
In April 1996, the Federal Energy Regulatory Commission (FERC) issued
Order 888 (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
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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, GPU Energy 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, GPU Energy, 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, of 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 GPU Energy
in July 1996, in accordance with Order 888.
In June 1996, the Senate Banking Committee approved S.1317 which, if
adopted, would repeal the Public Utility Holding Company Act (PUHCA) and
implement other reform recommendations contained in a 1995 report by the SEC
staff.
In July 1996, Representative Schaefer introduced comprehensive electric
utility restructuring legislation in the House of Representatives. Among the
provisions, the proposed legislation would give all electric utility retail
customers the right to purchase electric energy services from any provider by
no later than December 15, 2000. If the states failed to implement retail
choice with basic federal standards, the FERC would be directed to do so for
them. Among other things, this legislation also provides for the repeal of
both the Public Utility Regulatory Policies Act of 1978 (PURPA) and of PUHCA,
when all customers have supplier choice.
Pennsylvania has adopted legislation that clarifies the Pennsylvania
Public Utility Commission's (PaPuc) authority to permit electric utilities to
recover in rates the costs of restructuring, buying out or buying down
contracts with NUGs.
52
<PAGE>
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.
In July 1996, the PaPUC issued a report on electric competition
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 will 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 June and July 1996, management offered voluntary enhanced retirement
programs to more than 750 bargaining and 400 non-bargaining employees. If
between 60% and 80% of the eligible employees accept the offer, depending on
the age and years of service of those employees, the program could result in a
1996 pre-tax charge to earnings of between $90 million and $125 million in the
third quarter of 1996.
RATE MATTERS:
In June 1996, the New Jersey Board of Public Utilities (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
issues (Final Settlement). An Administrative Law Judge (ALJ) has issued a
decision recommending approval of the Final Settlement and the matter is
awaiting NJBPU approval, tentatively scheduled for September 1996. 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
Nuclear Plant Retirement Costs 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, scheduled to be retired in 1996.
53
<PAGE>
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
$135 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 percent, 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, effective January 1, 1996, nuclear depreciation was
increased by $17 million annually, including amounts for forecasted additions
to nuclear plant, offset by decreases in depreciation for transmission,
distribution and general plant totaling $12 million annually.
THE GPU SUPPLY PLAN:
Managing Nonutility Generation
The GPU Energy companies have contracts and anticipated commitments with
NUG suppliers under which a total of 1,624 MW (JCP&L 892 MW; Met-Ed 335 MW;
Penelec 397 MW) of capacity are currently in service and an additional 565 MW
(JCP&L 10 MW; Met-Ed 377 MW; Penelec 178 MW) are currently scheduled to be in
service by 2000.
GPU Energy is seeking to reduce the above market costs of NUG agreements,
including (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 administrative agencies, and in the courts, where appropriate. In
addition, GPU Energy intends 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
GPU Energy's efforts will be successful in whole or in part.
In April 1996, JCP&L entered into an agreement with Freehold Cogeneration
Associates (Freehold), the developers of a proposed 100 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 will pay Freehold $125
million over three years, beginning in 1996. Associated with this buyout are
certain payments to third parties, the amounts of which are currently being
negotiated and 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 costs from $130 million to $135 million, over a seven-year period,
related to the termination of this purchase power agreement.
54
<PAGE>
In 1993, the PaPUC ordered Penelec to enter into long-term contracts to
purchase a total of 160 MW from two NUGs commencing in 1997 or later.
Penelec's subsequent appeal of the PaPUC order to the Commonwealth Court was
denied, but the case was remanded back to the PaPUC to recalculate the avoided
costs to be paid. In January 1996, an ALJ issued a decision recommending a
levelized avoided cost which is in excess of current market prices. In June
1996, the Pennsylvania Supreme Court reaffirmed the PaPUC and Commonwealth
Court decisions requiring Penelec to enter into these contracts. Penelec has
filed an application for reargument with the Pennsylvania Supreme Court.
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 will purchase the interests of
the developers, and Penelec and AES will attempt to negotiate a new,
competitively priced power purchase agreement by early October, 1996. If
negotiations to execute a new power purchase agreement are unsuccessful,
Penelec has agreed to pay AES up to $8.3 million. Penelec would seek energy
cost rate (ECR) recovery for any of these buyout costs paid to AES.
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
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 February 1996, Met-Ed
filed a petition with the PaPUC requesting recovery of the costs associated
with the buyout through energy cost rates. A settlement agreement permitting
Met-Ed to recover up to $35 million in buyout costs over three years,
beginning in 1997, is awaiting an ALJ recommendation.
55
<PAGE>
PART II
ITEM 1 - LEGAL PROCEEDINGS
Information concerning the current status of certain legal
proceedings instituted against the Company and GPU Energy 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on May 2, 1996,
Theodore H. Black was reelected as a director of the Company for a
three year term expiring at the 1999 annual meeting by a vote of
101,996,489 for and 882,363 withheld.
Paul R. Roedel, Carlisle A. H. Trost, and Patricia K. Woolf, whose
terms expire at the 1997 annual meeting, and Henry F. Henderson,
Jr., James R. Leva, John M. Pietruski, and Catherine A. Rein,
whose terms expire at the 1998 annual meeting, continue to serve
as directors following the meeting.
At the Annual Meeting, stockholders approved by a vote of
95,620,809 shares for, 6,286,980 shares against and 971,062 shares
abstaining, amendments to the Restricted Stock Plan for Outside
Directors. Stockholders rejected by a vote of 7,914,008 shares
for, 79,676,934 shares against and 4,073,620 shares abstaining, a
stockholder proposal requesting that the Company issue a report on
carbon dioxide emissions and the costs thereof.
Stockholders also ratified at the Annual Meeting the selection of
Coopers & Lybrand L.L.P. as independent auditor for the year 1996
by a vote of 102,130,220 shares for, 350,582 shares against and
398,050 shares abstaining.
ITEM 5 - OTHER EVENTS
As previously announced, effective July 1, 1996, Fred D. Hafer was
elected President, Chief Operating Officer and a director of the
Company. Mr. Hafer, who had been President, Chief Operating
Officer and a director of both Metropolitan Edison Company and
Pennsylvania Electric Company, is expected to be elected to the
additional posts of Chairman and Chief Executive Officer when
James R. Leva retires in May 1997.
56
<PAGE>
PART II
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K:
GPU, Inc.:
Dated May 8, 1996, under Item 5 (Other Events).
Dated June 10, 1996, under Item 5 (Other Events).
Dated August 2, 1996, under Item 5 (Other Events).
Jersey Central Power & Light Company:
Dated June 11, 1996, under Item 5 (Other Events).
Metropolitan Edison Company:
Dated June 11, 1996, under Item 5 (Other Events).
Pennsylvania Electric Company:
Dated June 11, 1996, under Item 5 (Other Events).
57
<PAGE>
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.
August 7, 1996 By: /s/ J. G. Graham
J. G. Graham, Senior Vice President
(Chief Financial Officer)
August 7, 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
August 7, 1996 By: /s/ D. Baldassari
D. Baldassari, President
August 7, 1996 By: /s/ D. W. Myers
D. W. Myers, Vice President -
Finance and Rates & Comptroller
(Principal Accounting Officer)
58
<PAGE>
<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>
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
OPERATING REVENUES $1,935,188 $1,778,620
OPERATING EXPENSES 1,525,134 1,440,420
Interest portion of rentals (A) 13,245 11,668
Interest on funded indebtedness and
other interest of service company
subsidiaries (B) 1,637 1,799
Net expense 1,510,252 1,426,953
OTHER INCOME:
Allowance for funds used
during construction 6,307 6,429
Other income/(expense), net 11,580 (4,170)
Interest on funded indebtedness and
other interest of GPU International
Group (C) 7,499 -
Total other income 25,386 2,259
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 450,322 $ 353,926
FIXED CHARGES:
Interest on funded indebtedness $ 101,093 $ 93,987
Other interest (D) 28,074 26,466
Interest portion of rentals (A) 13,245 11,668
Total fixed charges $ 142,412 $ 132,121
RATIO OF EARNINGS TO FIXED CHARGES 3.16 2.68
Preferred stock dividend requirement $ 7,992 $ 8,529
Ratio of income before provision for
income taxes to net income (E) 162.2% 153.0%
Preferred stock dividend requirement
on a pretax basis 12,963 13,049
Fixed charges, as above 142,412 132,121
Total fixed charges and
preferred stock dividends $ 155,375 $ 145,170
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 2.90 2.44
<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 $14,444 and $10,372 for the six month periods ended June 30,
1996 and 1995, respectively.
(E) Represents income before provision for income taxes and preferred stock
dividends of $307,910 and $221,805 for the six month periods ended June 30,
1996 and 1995, respectively, divided by income before preferred stock
dividends of $189,870 and $145,006, 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>
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
OPERATING REVENUES $1,005,158 $921,115
OPERATING EXPENSES 815,375 773,279
Interest portion of rentals (A) 5,761 6,429
Net expense 809,614 766,850
OTHER INCOME:
Allowance for funds used
during construction 4,259 2,504
Other income, net 1,818 6,985
Total other income 6,077 9,489
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 201,621 $163,754
FIXED CHARGES:
Interest on funded indebtedness $ 44,717 $ 45,960
Other interest (B) 10,359 6,801
Interest portion of rentals (A) 5,761 6,429
Total fixed charges $ 60,837 $ 59,190
RATIO OF EARNINGS TO FIXED CHARGES 3.31 2.77
Preferred stock dividend requirement $ 6,748 $ 7,285
Ratio of income before provision for
income taxes to net income (C) 148.4% 143.2%
Preferred stock dividend requirement
on a pretax basis 10,014 10,432
Fixed charges, as above 60,837 59,190
Total fixed charges and
preferred stock dividends $ 70,851 $ 69,622
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 2.85 2.35
<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 $5,350 and $1,278 for the six month periods ended June 30, 1996
and 1995, respectively.
(C) Represents income before provision for income taxes of $140,784 and $104,564
for the six month periods ended June 30, 1996 and 1995, respectively, divided
by net income of $94,877 and $73,007, 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>
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
OPERATING REVENUES $444,746 $396,091
OPERATING EXPENSES 342,477 318,904
Interest portion of rentals (A) 2,700 2,547
Net expense 339,777 316,357
OTHER INCOME:
Allowance for funds used
during construction 535 1,601
Other income/(expense), net 174 (4,112)
Total other income 709 (2,511)
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $105,678 $ 77,223
FIXED CHARGES:
Interest on funded indebtedness $ 22,937 $ 22,534
Other interest (B) 6,531 7,073
Interest portion of rentals (A) 2,700 2,547
Total fixed charges $ 32,168 $ 32,154
RATIO OF EARNINGS TO FIXED CHARGES 3.29 2.40
Preferred stock dividend requirement $ 472 $ 472
Ratio of income before provision for
income taxes to net income (C) 180.0% 155.4%
Preferred stock dividend requirement
on a pretax basis 850 733
Fixed charges, as above 32,168 32,154
Total fixed charges and
preferred stock dividends $ 33,018 $ 32,887
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 3.20 2.35
<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 $4,500 for the six month periods ended June 30, 1996 and 1995,
respectively.
(C) Represents income before provision for income taxes of $73,510 and $45,069
for the six month periods ended June 30, 1996 and 1995, respectively, divided
by net income of $40,843 and $29,001, 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>
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
OPERATING REVENUES $516,117 $491,863
OPERATING EXPENSES 395,274 376,785
Interest portion of rentals (A) 2,468 1,067
Net expense 392,806 375,718
OTHER INCOME:
Allowance for funds used
during construction 1,513 2,324
Other expense, net (802) (3,629)
Total other income 711 (1,305)
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $124,022 $114,840
FIXED CHARGES:
Interest on funded indebtedness $ 24,954 $ 23,985
Other interest (B) 7,863 8,555
Interest portion of rentals (A) 2,468 1,067
Total fixed charges $ 35,285 $ 33,607
RATIO OF EARNINGS TO FIXED CHARGES 3.52 3.42
Preferred stock dividend requirement $ 772 $ 772
Ratio of income before provision for
income taxes to net income (C) 170.2% 159.8%
Preferred stock dividend requirement
on a pretax basis 1,314 1,234
Fixed charges, as above 35,285 33,607
Total fixed charges and
preferred stock dividends $ 36,599 $ 34,841
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 3.39 3.30
<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 $4,594 for the six month periods ended June 30, 1996 and 1995,
respectively.
(C) Represents income before provision for income taxes of $88,737 and $81,233
for the six month periods ended June 30, 1996 and 1995, respectively, divided
by net income of $52,124 and $50,842, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,368,595
<OTHER-PROPERTY-AND-INVEST> 1,296,278
<TOTAL-CURRENT-ASSETS> 1,059,086
<TOTAL-DEFERRED-CHARGES> 2,012,262
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,736,221
<COMMON> 314,458
<CAPITAL-SURPLUS-PAID-IN> 748,323
<RETAINED-EARNINGS> 2,060,681
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,034,730 <F1>
444,000 <F2>
98,116
<LONG-TERM-DEBT-NET> 2,996,371
<SHORT-TERM-NOTES> 291,040
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 128,392
<LONG-TERM-DEBT-CURRENT-PORT> 127,345
10,000
<CAPITAL-LEASE-OBLIGATIONS> 8,945
<LEASES-CURRENT> 161,582
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,435,700
<TOT-CAPITALIZATION-AND-LIAB> 10,736,221
<GROSS-OPERATING-REVENUE> 1,935,188
<INCOME-TAX-EXPENSE> 114,095
<OTHER-OPERATING-EXPENSES> 1,525,134
<TOTAL-OPERATING-EXPENSES> 1,639,229
<OPERATING-INCOME-LOSS> 295,959
<OTHER-INCOME-NET> 10,119
<INCOME-BEFORE-INTEREST-EXPEN> 306,078
<TOTAL-INTEREST-EXPENSE> 124,200 <F3>
<NET-INCOME> 181,878
0
<EARNINGS-AVAILABLE-FOR-COMM> 181,878
<COMMON-STOCK-DIVIDENDS> 115,032
<TOTAL-INTEREST-ON-BONDS> 188,450
<CASH-FLOW-OPERATIONS> 131,319
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $88,732.
<F2> INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES OF $330,000.
<F3> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $14,444 AND PREFERRED STOCK DIVIDENDS OF
<F3> SUBSIDIARIES OF $7,992.
</FN>
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000053456
<NAME> JERSEY CENTRAL POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 06-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,926,715
<OTHER-PROPERTY-AND-INVEST> 348,803
<TOTAL-CURRENT-ASSETS> 519,507
<TOTAL-DEFERRED-CHARGES> 963,321
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,758,346
<COMMON> 153,713
<CAPITAL-SURPLUS-PAID-IN> 510,769
<RETAINED-EARNINGS> 854,899
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,519,381
239,000 <F1>
37,741
<LONG-TERM-DEBT-NET> 1,163,053
<SHORT-TERM-NOTES> 121,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 68,569
<LONG-TERM-DEBT-CURRENT-PORT> 30,009
10,000
<CAPITAL-LEASE-OBLIGATIONS> 1,628
<LEASES-CURRENT> 103,162
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,464,803
<TOT-CAPITALIZATION-AND-LIAB> 4,758,346
<GROSS-OPERATING-REVENUE> 1,005,158
<INCOME-TAX-EXPENSE> 44,672
<OTHER-OPERATING-EXPENSES> 815,375
<TOTAL-OPERATING-EXPENSES> 860,047
<OPERATING-INCOME-LOSS> 145,111
<OTHER-INCOME-NET> 2,565
<INCOME-BEFORE-INTEREST-EXPEN> 147,676
<TOTAL-INTEREST-EXPENSE> 52,799 <F2>
<NET-INCOME> 94,877
6,748
<EARNINGS-AVAILABLE-FOR-COMM> 88,129
<COMMON-STOCK-DIVIDENDS> 50,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 91,359
<CASH-FLOW-OPERATIONS> 21,813
<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 $5,350.
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,586,984
<OTHER-PROPERTY-AND-INVEST> 120,161
<TOTAL-CURRENT-ASSETS> 190,394
<TOTAL-DEFERRED-CHARGES> 534,337
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,431,876
<COMMON> 66,273
<CAPITAL-SURPLUS-PAID-IN> 370,200
<RETAINED-EARNINGS> 265,169
<TOTAL-COMMON-STOCKHOLDERS-EQ> 701,642
100,000 <F1>
23,598
<LONG-TERM-DEBT-NET> 583,270
<SHORT-TERM-NOTES> 26,490
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 8,498
<LONG-TERM-DEBT-CURRENT-PORT> 20,019
0
<CAPITAL-LEASE-OBLIGATIONS> 653
<LEASES-CURRENT> 36,746
<OTHER-ITEMS-CAPITAL-AND-LIAB> 930,960
<TOT-CAPITALIZATION-AND-LIAB> 2,431,876
<GROSS-OPERATING-REVENUE> 444,746
<INCOME-TAX-EXPENSE> 32,748
<OTHER-OPERATING-EXPENSES> 342,477
<TOTAL-OPERATING-EXPENSES> 375,225
<OPERATING-INCOME-LOSS> 69,521
<OTHER-INCOME-NET> 342
<INCOME-BEFORE-INTEREST-EXPEN> 69,863
<TOTAL-INTEREST-EXPENSE> 29,020 <F2>
<NET-INCOME> 40,843
472
<EARNINGS-AVAILABLE-FOR-COMM> 40,371
<COMMON-STOCK-DIVIDENDS> 25,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 46,247
<CASH-FLOW-OPERATIONS> 82,533
<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 $4,500.
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,800,251
<OTHER-PROPERTY-AND-INVEST> 53,722
<TOTAL-CURRENT-ASSETS> 266,954
<TOTAL-DEFERRED-CHARGES> 391,960
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,512,887
<COMMON> 105,812
<CAPITAL-SURPLUS-PAID-IN> 285,486
<RETAINED-EARNINGS> 349,848
<TOTAL-COMMON-STOCKHOLDERS-EQ> 741,146
105,000 <F1>
36,777
<LONG-TERM-DEBT-NET> 616,475
<SHORT-TERM-NOTES> 57,900
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 51,325
<LONG-TERM-DEBT-CURRENT-PORT> 76,009
0
<CAPITAL-LEASE-OBLIGATIONS> 4,666
<LEASES-CURRENT> 19,309
<OTHER-ITEMS-CAPITAL-AND-LIAB> 804,280
<TOT-CAPITALIZATION-AND-LIAB> 2,512,887
<GROSS-OPERATING-REVENUE> 516,117
<INCOME-TAX-EXPENSE> 36,675
<OTHER-OPERATING-EXPENSES> 395,274
<TOTAL-OPERATING-EXPENSES> 431,949
<OPERATING-INCOME-LOSS> 84,168
<OTHER-INCOME-NET> (325)
<INCOME-BEFORE-INTEREST-EXPEN> 83,843
<TOTAL-INTEREST-EXPENSE> 31,719 <F2>
<NET-INCOME> 52,124
772
<EARNINGS-AVAILABLE-FOR-COMM> 51,352
<COMMON-STOCK-DIVIDENDS> 30,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 50,844
<CASH-FLOW-OPERATIONS> 43,901
<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 $4,594.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
<PAGE>
</TABLE>
