SEC File No. 70-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GENERAL PUBLIC UTILITIES CORPORATION ("GPU")
100 Interpace Parkway
Parsippany, New Jersey 07054
(Name of company filing this statement and address
of principal executive offices)
T. G. Howson, Douglas E. Davidson, Esq.
Vice President and Treasurer Berlack, Israels & Liberman LLP
M. A. Nalewako, Secretary 120 West 45th Street
GPU Service Corporation New York, New York 10036
100 Interpace Parkway
Parsippany, New Jersey 07054
(Names and addresses of agents for service)<PAGE>
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS
A. GPU proposes to issue and sell for cash from time to
time commencing with the effectiveness of the authorization
herein sought through December 31, 2001 up to $300,000,000
aggregate principal amount of unsecured debentures (the
"Debentures"). The Debentures will be issued under an Indenture
to be entered into with United States Trust Company of New York,
as trustee, and will have terms ranging from one year to up to 40
years. In addition, the Debentures may be subject to optional
and/or mandatory redemption, in whole or in part, by GPU at par
or at various premiums above the principal amount thereof. The
Debentures may also be entitled to mandatory or optional sinking
fund provisions. GPU would issue and sell the Debentures to the
public from time to time either (i) through underwriters selected
by negotiation or competitive bidding or (ii) through selling
agents acting either as agent or as principal for resale to the
public either directly or through dealers. In addition, GPU may
sell Debentures directly to purchasers through privately
negotiated transactions. GPU currently does not have any
outstanding debentures.
B. The maturity dates, interest rates (which may be fixed
or floating), redemption and sinking fund provisions, if any,
with respect to the Debentures, as well as the underwriting or
selling agent discounts and commissions with respect thereto,
will be established by negotiation or by competitive bidding.
C. GPU will utilize the net proceeds (after deduction of
commissions and expenses) from the sale of the Debentures to (a)
fund the acquisition of interests, and to make investments, in
1<PAGE>
exempt wholesale generators ("EWGs"), foreign utility companies
("FUCOs") and qualifying facilities ("QFs") and (b) make cash
capital contributions to its electric operating subsidiaries,
Jersey Central Power & Light Company, Metropolitan Edison Company
and Pennsylvania Electric Company, which in turn will use such
funds (i) to repay outstanding indebtedness, (ii) to redeem
outstanding senior securities in accordance with the optional
redemption provisions thereof or reacquire such securities in
open market transactions, (iii) for construction purposes, (iv)
for other corporate purposes, or (v) to reimburse their
treasuries for funds previously expended therefrom for such
purposes. A portion of such net proceeds may also be used to
reimburse GPU's treasury for funds previously expended therefrom
for such purposes, to repay outstanding GPU indebtedness, and for
other GPU corporate purposes.
D. At December 31, 1995, GPU's consolidated capitalization
ratios were approximately as follows: Long-Term Debt - 42.4%;
Preferred Equity - 8.8%; Common Equity - 46.8%; and Short-Term
Debt - 2.0%. After giving effect to the issuance of the
Debentures, GPU's consolidated capitalization ratios would be
approximately as follows: Long-Term Debt - 45.2%; Preferred
Equity - 8.5%; Common Equity - 44.5%; and Short-Term Debt - 1.8%.
E. GPU submits that all of the criteria of Rules 53 and 54
under the Act with respect to the proposed transactions are
satisfied:
(i) The average consolidated retained earnings
for GPU and its subsidiaries, as reported for the four
most recent quarterly periods in GPU's Annual Report on
2<PAGE>
Form 10-K for the year ended December 31, 1995, as
filed under the Securities Exchange Act of 1934, was
approximately $1.93 billion. As of December 31, 1995,
GPU had invested, or committed to invest, directly or
indirectly, an aggregate of approximately $189.5
million in EWGs and $112 million in FUCOs, representing
approximately 16% of such average consolidated retained
earnings. GPU's aggregate investment in EWGs and
FUCOs, including amounts invested pursuant to all
outstanding or pending authorizations to make
investments in EWGs or FUCOs (i.e., $500 million in SEC
File No. 70-7727, $200 million in SEC File No. 70-7926,
$30 million in SEC File No. 70-8369, and $200 million
in SEC File No. 70-8593) will not at any time exceed
the 50% limitation in Rule 53.
(i) GPU maintains books and records to identify
investments in, and earnings from, each EWG and FUCO in
which it directly or indirectly holds an interest. (A)
For each United States EWG in which GPU directly or
indirectly holds an interest:
(1) the books and records for such EWG
will be kept in conformity with United States
generally accepted accounting principles ("GAAP");
(2) the financial statements will be
prepared in accordance with GAAP; and
(3) GPU directly or through its
subsidiaries undertakes to provide the Commission
3<PAGE>
access to such books and records and financial
statements as the Commission may request.
(B) For each FUCO or foreign EWG which is a
majority-owned subsidiary of GPU:
(1) the books and records for such
subsidiary will be kept in accordance with GAAP;
(2) the financial statements for such
subsidiary will be prepared in accordance with
GAAP; and
(3) GPU directly or through its
subsidiaries undertakes to provide the Commission
access to such books and records and financial
statements, or copies thereof in English, as the
Commission may request.
(C) For each FUCO or foreign EWG in which
GPU owns 50% or less of the voting securities, GPU directly
or through its subsidiaries will proceed in good faith, to
the extent reasonable under the circumstances, to cause
(1) such entity to maintain books and
records in accordance with GAAP;
(2) the financial statements of such entity
to be prepared in accordance with GAAP; and
(3) access by the Commission to such books
and records and financial statements (or copies
thereof) in English as the Commission may request
and, in any event, will provide the Commission on
request copies of such materials as are made
available to GPU and its subsidiaries. If and to
4<PAGE>
the extent that such entity's books, records or
financial statements are not maintained in
accordance with GAAP, GPU will, upon request of
the Commission, describe and quantify each
material variation therefrom as and to the extent
required by subparagraphs (a) (2) (iii) (A) and
(a) (2) (iii) (B) of Rule 53.
(iii) No more than 2% of GPU's domestic public
utility subsidiary employees will render any services,
directly or indirectly, to any EWG or FUCO in which GPU
directly or indirectly holds an interest.
(iv) Copies of this Declaration on Form U-1 are
being provided to the New Jersey Board of Public Utilities,
the Pennsylvania Public Utility Commission and the New York
Public Service Commission, the only federal, state or local
regulatory agencies having jurisdiction over the retail
rates of GPU's electric utility subsidiaries. In addition,
GPU will submit to each such commission copies of any Rule
24 certificates required hereunder, as well as a copy of
Item 9 of GPU's Form U5S and Exhibits H and I thereof
(commencing with the Form U5S to be filed for the calendar
year in which the authorization herein requested is
granted).
(v) None of the provisions of paragraph (b) of
Rule 53 render paragraph (a) of that Rule unavailable for
the proposed transactions.
5<PAGE>
(A) Neither GPU nor any subsidiary of GPU is
the subject of any pending bankruptcy or similar
proceeding.
(B) GPU's average consolidated retained
earnings for the four most recent quarterly
periods (approximately $1.93 billion) represented
an increase of approximately $113 million (or
approximately 6%) in the average consolidated
retained earnings for the previous four quarterly
periods (approximately $1.82 billion).
(C) GPU did not incur operating losses from
direct or indirect investments in EWGs and FUCOs
in 1995 in excess of 5% of GPU's consolidated
retained earnings.
(vi) In accordance with Rule 54, the requirements
of Rule 53(a), (b) and (c) are fulfilled.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
GPU's estimated fees, commissions and expenses in
connection with the proposed transactions will be filed by
amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
GPU believes that Sections 6(a) and 7 of the Act and
Rules 53 and 54 are applicable to the proposed transactions.
ITEM 4. REGULATORY APPROVALS.
No Federal or State commission, other than your
Commission, has jurisdiction with respect to the proposed
transactions.
ITEM 5. PROCEDURE.
6<PAGE>
It is requested that the Commission issue an order with
respect to the transactions proposed herein at the earliest
practicable date but, in any event, not later than June 12, 1996.
It is further requested that (i) there not be a recommended
decision by an Administrative Law Judge or other responsible
officer of the Commission, (ii) the Office of Public Utility
Regulation be permitted to assist in the preparation of the
Commission's decision, and (iii) there be no waiting period
between issuance of the Commission's order and the date on which
it is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits:
A-1 - Form of Indenture between GPU and United
States Trust Company of New York, as
Trustee - To be filed by amendment.
A-2 - Form of Debentures - Incorporated by
reference to form of Debenture contained
in Exhibit A-1.
B - Form of Underwriting, Purchase, Selling
Agency or Distribution Agreement - To be
filed by amendment.
C - Registration Statement on Form S-3 under
the Securities Act of 1933 relating to
the Debentures and all amendments and
exhibits thereto - Incorporated by
reference to the SEC Registration No. to
be assigned to such registration
statement.
D - Not applicable.
E - Not applicable.
F-1 - Opinion of Berlack, Israels & Liberman
LLP - To be filed by amendment.
F-2 - Opinion of Ballard Spahr Andrews &
Ingersoll - To be filed by amendment.
G - Financial Data Schedule.
7<PAGE>
H - Proposed form of public notice.
(b) Financial Statements:
1(a) - GPU (corporate) Balance Sheets, actual
and pro forma, as of December 31, 1995,
Statements of Income and Retained
Earnings, actual and pro forma, for the
twelve months ended December 31, 1995;
pro forma journal entries.
1(b) - GPU Consolidated Balance Sheets, actual
and pro forma, as of December 31, 1995,
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended December 31,
1995; pro forma journal entries.
2 - Reference is made to the above Financial
Statements.
3 - Not applicable.
4 - None, except as set forth in the notes
to the above Financial Statements.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
(a) The proceeds of the issuance and sale of the
Debentures will be used by GPU to finance acquisitions of, and
investments in, EWGs, FUCOs and QFs and for its business and to
finance the businesses of its subsidiaries. As such, the
issuance of an order by your Commission with respect thereto is
not a major Federal action significantly affecting the quality of
the human environment.
(b) No Federal agency has prepared or is preparing an
environmental impact statement with respect to the various
proposed transactions which are the subject hereof. Reference is
made to Item 4 hereof regarding regulatory approvals with respect
to the proposed transactions.
8<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935, THE UNDERSIGNED COMPANY HAS DULY
CAUSED THIS STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GENERAL PUBLIC UTILITIES CORPORATION
By:_____________________________
T. G. Howson,
Vice President and Treasurer
Date: April 12, 1996<PAGE>
EXHIBIT TO BE FILED BY EDGAR
Exhibits:
G - Financial Data Schedule.
H - Proposed form of public notice.<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000040779
<NAME> GENERAL PUBLIC UTILITIES CORPORATION
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1995
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 3,098,307 3,098,307
<TOTAL-CURRENT-ASSETS> 8,648 283,673
<TOTAL-DEFERRED-CHARGES> 68 68
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 3,107,023 3,382,048
<COMMON> 314,458 314,458
<CAPITAL-SURPLUS-PAID-IN> 746,449 746,449
<RETAINED-EARNINGS> 2,004,072 1,989,438
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,974,634 <F1> 2,960,000
0 0
0 0
<LONG-TERM-DEBT-NET> 0 300,000
<SHORT-TERM-NOTES> 71,800 71,800
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 60,589 50,248
<TOT-CAPITALIZATION-AND-LIAB> 3,107,023 3,382,048
<GROSS-OPERATING-REVENUE> 0 0
<INCOME-TAX-EXPENSE> 293 (10,048)
<OTHER-OPERATING-EXPENSES> 4,242 6,867
<TOTAL-OPERATING-EXPENSES> 4,535 (3,181)
<OPERATING-INCOME-LOSS> (4,535) 3,181
<OTHER-INCOME-NET> 451,750 451,750
<INCOME-BEFORE-INTEREST-EXPEN> 447,215 454,931
<TOTAL-INTEREST-EXPENSE> 7,080 29,430
<NET-INCOME> 440,135 425,501
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 440,135 425,501
<COMMON-STOCK-DIVIDENDS> 215,413 215,413
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> (507) (507)
<EPS-PRIMARY> 3.79 3.79
<EPS-DILUTED> 3.79 3.79
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $90,345.
</FN>
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000040779
<NAME> GENERAL PUBLIC UTILITIES CORP AND SUBSIDIARY COMPANIES
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1995
<PERIOD-END> DEC-31-1995 DEC-31-1995
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 6,369,217 6,369,217
<OTHER-PROPERTY-AND-INVEST> 785,899 785,899
<TOTAL-CURRENT-ASSETS> 828,046 1,111,796
<TOTAL-DEFERRED-CHARGES> 1,886,536 1,886,536
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 9,869,698 10,153,448
<COMMON> 314,458 314,458
<CAPITAL-SURPLUS-PAID-IN> 746,449 746,449
<RETAINED-EARNINGS> 2,004,072 1,989,201
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,974,634 <F1> 2,959,763
464,000 <F2> 464,000
98,116 98,116
<LONG-TERM-DEBT-NET> 2,567,898 2,877,198
<SHORT-TERM-NOTES> 123,890 123,890
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 121,246 121,246
10,000 10,000
<CAPITAL-LEASE-OBLIGATIONS> 11,696 11,696
<LEASES-CURRENT> 159,565 159,565
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,338,653 3,327,974
<TOT-CAPITALIZATION-AND-LIAB> 9,869,698 10,153,448
<GROSS-OPERATING-REVENUE> 3,804,656 3,804,656
<INCOME-TAX-EXPENSE> 173,955 163,446
<OTHER-OPERATING-EXPENSES> 3,070,150 3,073,350
<TOTAL-OPERATING-EXPENSES> 3,244,105 3,236,796
<OPERATING-INCOME-LOSS> 560,551 567,860
<OTHER-INCOME-NET> 130,472 130,472
<INCOME-BEFORE-INTEREST-EXPEN> 691,023 698,332
<TOTAL-INTEREST-EXPENSE> 250,888 <F3> 273,068
<NET-INCOME> 440,135 425,264
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 440,135 425,264
<COMMON-STOCK-DIVIDENDS> 215,413 215,413
<TOTAL-INTEREST-ON-BONDS> 188,321 188,321
<CASH-FLOW-OPERATIONS> 666,192 666,192
<EPS-PRIMARY> 3.79 3.79
<EPS-DILUTED> 3.79 3.79
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $90,345.
<F2> INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $330,000.
<F3> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY
<F3> REDEEMABLE PREFERRED SECURITIES OF $24,816 AND PREFERRED STOCK
<F3> DIVIDENDS OF SUBSIDIARIES OF $16,945.
</FN>
<PAGE>
</TABLE>
EXHIBIT H
SECURITIES AND EXCHANGE COMMISSION
(RELEASE NO. 35-_______; 70-_______)
GENERAL PUBLIC UTILITIES CORPORATION
NOTICE OF PROPOSAL TO ISSUE AND SELL DEBENTURES
General Public Utilities Corporation ("GPU"), 100 Interpace
Parkway, Parsippany, New Jersey 07054, a registered holding
company, has filed a Declaration pursuant to Sections 6(a) and 7
of the Public Utility Holding Company Act of 1935 and Rules 53
and 54 thereunder.
GPU proposes to issue and sell for cash from time to time
through December 31, 2001 up to $300,000,000 aggregate principal
amount of unsecured debentures (the "Debentures"). The
Debentures will be issued under an Indenture to be entered into
with United States Trust Company of New York, as trustee, and
will have terms ranging from one year to up to 40 years. In
addition, the Debentures may be subject to optional and/or
mandatory redemption, in whole or in part, by GPU at par or at
various premiums above the principal amount thereof. The
Debentures may also be entitled to mandatory or optional sinking
fund provisions. GPU would issue and sell the Debentures to the
public from time to time either (i) through underwriters selected
by negotiation or competitive bidding or (ii) through selling
agents acting either as agent or as principal for resale to the
public either directly or through dealers. In addition, GPU may
sell Debentures directly to purchasers through privately
negotiated transactions. GPU currently does not have any
outstanding debentures.
1<PAGE>
The maturity dates, interest rates (which may be fixed or
floating), redemption and sinking fund provisions, if any, with
respect to the Debentures, as well as the underwriting or selling
agent discounts and commissions with respect thereto, will be
established by negotiation or by competitive bidding.
GPU will utilize the net proceeds (after deduction of
commissions and expenses) from the sale of the Debentures to (a)
fund the acquisition of interests, and to make investments, in
exempt wholesale generators ("EWGs"), foreign utility companies
("FUCOs") and qualifying facilities ("QFs") and (b) make cash
capital contributions to its electric operating subsidiaries,
Jersey Central Power & Light Company, Metropolitan Edison Company
and Pennsylvania Electric Company, which in turn will use such
funds (i) to repay outstanding indebtedness, (ii) to redeem
outstanding senior securities in accordance with the optional
redemption provisions thereof or reacquire such securities in
open market transactions, (iii) for construction purposes, (iv)
for other corporate purposes, or (v) to reimburse their
treasuries for funds previously expended therefrom for such
purposes. A portion of such net proceeds may also be used to
reimburse GPU's treasury for funds previously expended therefrom
for such purposes, to repay outstanding GPU indebtedness, and for
other GPU corporate purposes.
At December 31, 1995, GPU's consolidated capitalization
ratios were approximately as follows: Long-Term Debt - 42.4%;
Preferred Equity - 8.8%; Common Equity - 46.8%; and Short-Term
Debt - 2.0%. After giving effect to the issuance of the
Debentures, GPU's consolidated capitalization ratios would be
2<PAGE>
approximately as follows: Long-Term Debt - 45.2%; Preferred
Equity - 8.5%; Common Equity - 44.5%; and Short-Term Debt - 1.8%.
GPU submits that all of the criteria of Rules 53 and 54
under the Act with respect to the proposed transactions have been
satisfied.
The Declaration and any amendments thereto are available
for public inspection through the Commission's Office of Public
Reference. Interested persons wishing to comment or request a
hearing should submit their views in writing by June 11, 1996 to
the Secretary, Securities and Exchange Commission, Washington,
D.C. 20549, and serve a copy on the Declarant at the address
specified above. Proof of service (by affidavit, or in case of
an attorney at law, by certificate) should be filed with the
request. Any request for a hearing shall identify specifically
the issues of fact or law that are disputed. A person who so
requests will be notified of any hearing, if ordered, and will
receive a copy of any notice or order issues in this matter.
After said date, the Declaration, as it may be amended, may be
granted.
3<PAGE>
<TABLE>
Financial Statements
Item 6(b) 1-A
Page 1 of 23
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1995
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (See page 3) Pro Forma
<S> <C> <C> <C>
ASSETS
Investments:
Investments in subsidiaries $3 093 538 $ - $3 093 538
Other investments 4 769 - 4 769
Total investments 3 098 307 - 3 098 307
Current Assets:
Cash and temporary cash investments 8 567 275 025 283 592
Accounts receivable, net 75 - 75
Prepayments 6 - 6
Total current assets 8 648 275 025 283 673
Deferred Debits and Other Assets:
Other 68 - 68
Total deferred debits and other assets 68 - 68
Total Assets $3 107 023 $ 275 025 $3 382 048
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ - $ 314 458
Capital surplus 746 449 - 746 449
Retained earnings 2 004 072 (14 634) 1 989 438
Total 3 064 979 (14 634) 3 050 345
Less: reacquired common stock, at cost 90 345 - 90 345
Total common stockholders' equity 2 974 634 (14 634) 2 960 000
Long-term debt - 300 000 300 000
Total capitalization 2 974 634 285 366 3 260 000
Current Liabilities:
Notes payable 71 800 - 71 800
Accounts payable 814 - 814
Taxes accrued 3 (10 341) (10 338)
Interest accrued 529 - 529
Other 58 030 - 58 030
Total current liabilities 131 176 (10 341) 120 835
Deferred credits and other liabilities:
Other 1 213 - 1 213
Total Deferred credits and other liabilities 1 213 - 1 213
Total Liabilities and Capital $3 107 023 $ 275 025 $3 382 048
The accompanying note is an integral part of the financial statements.
<PAGE>
Financial Statements
Item 6(b) 1-A
Page 2 of 23
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (See page 3) Pro Forma
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 450 902 $ - $ 450 902
Other income, net 848 - 848
Total 451 750 - 451 750
Expense, Taxes and Interest:
General expenses 4 242 2 625 6 867
Income tax expense 293 (10 341) (10 048)
Interest expense/(benefit) 7 080 22 350 29 430
Total 11 615 14 634 26 249
Net Income $ 440 135 $(14 634) $ 425 501
Retained Earnings:
Balance at beginning of period $1 769 909 $ - $1 769 909
Add - Net income 440 135 (14 634) 425 501
Net unrealized gain on investments 12 280 - 12 280
Other adjustments, net 36 - 36
Deduct - Cash dividends on common stock 218 288 - 218 288
Balance at end of period $2 004 072 $(14 634) $1 989 438
The accompanying note is an integral part of the financial statements.<PAGE>
Financial Statements
Item 6(b) 1-A
Page 3 of 23
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1995
(IN THOUSANDS)
(1)
<S> <C> <C>
Cash and temporary cash investments $300,000
Long-term debt $300,000
To record the proposed issuance of $300 million aggregate principal amount of
unsecured debentures.
(2)
Interest expense $22,350
Cash and temporary cash investments $22,350
To record interest expense associated with the proposed issuance of $300
million aggregate principal amount of unsecured debentures.
(3)
General expenses $2,625
Cash and temporary cash investments $2,625
To record commissions and other expenses associated with the proposed issuance
of $300 million aggregate principal amount of unsecured debentures.
(4)
Taxes accrued $10,341
Income tax expense $10,341
To record the decreased tax expense associated with the increase in interest
and general expenses.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 4 of 23
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1995
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (see pages 7&8) Pro Forma
<S> <C> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $9 295 630 $ - $9 295 630
Less, accumulated depreciation 3 433 240 - 3 433 240
Net utility plant in service 5 862 390 - 5 862 390
Construction work in progress 313 471 - 313 471
Other, net 193 356 - 193 356
Net utility plant 6 369 217 - 6 369 217
Other Property and Investments:
Nuclear decommissioning trusts 362 957 - 362 957
EI Group investments, net 288 044 - 288 044
Nuclear fuel disposal fund 95 393 - 95 393
Other, net 39 505 - 39 505
Total other property and investments 785 899 - 785 899
Current Assets:
Cash and temporary cash investments 18 422 283 750 302 172
Special deposits 14 877 - 14 877
Accounts receivable:
Customers, net 278 643 - 278 643
Other 69 773 - 69 773
Unbilled revenues 128 749 - 128 749
Materials and supplies, at average cost or less:
Construction and maintenance 194 769 - 194 769
Fuel 39 795 - 39 795
Deferred energy costs 13 208 - 13 208
Deferred income taxes 27 064 - 27 064
Prepayments 42 746 - 42 746
Total current assets 828 046 283 750 1 111 796
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 368 712 - 368 712
Unamortized property losses 105 729 - 105 729
Income taxes recoverable through future rates 527 584 - 527 584
Other 437 683 - 437 683
Total regulatory assets 1 439 708 - 1 439 708
Deferred income taxes 330 186 - 330 186
Other 116 642 - 116 642
Total deferred debits and other assets 1 886 536 - 1 886 536
Total Assets $9 869 698 $ 283 750 $10 153 448
The accompanying note is an integral part of the consolidated financial statements.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 5 of 23
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1995
(IN THOUSANDS)
Adjustments
Actual (see pages 7&8) Pro Forma
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314 458 $ - $ 314 458
Capital surplus 746 449 - 746 449
Retained earnings 2 004 072 (14 871) 1 989 201
Total 3 064 979 (14 871) 3 050 108
Less, reacquired common stock, at cost 90 345 - 90 345
Total common stockholders' equity 2 974 634 (14 871) 2 959 763
Cumulative preferred stock:
With mandatory redemption 134 000 - 134 000
Without mandatory redemption 98 116 - 98 116
Subsidiary-obligated mandatorily redeemable
preferred securities 330 000 - 330 000
Long-term debt 2 567 898 309 300 2 877 198
Total capitalization 6 104 648 294 429 6 399 077
Current Liabilities:
Securities due within one year 131 246 - 131 246
Notes payable 123 890 - 123 890
Obligations under capital leases 159 565 - 159 565
Accounts payable 318 394 - 318 394
Taxes accrued 46 613 (10 509) 36 104
Interest accrued 69 456 (170) 69 286
Other 259 280 - 259 280
Total current liabilities 1 108 444 (10 679) 1 097 765
Deferred Credits and Other Liabilities:
Deferred income taxes 1 466 060 - 1 466 060
Unamortized investment tax credits 145 375 - 145 375
Three Mile Island Unit 2 future costs 413 031 - 413 031
Regulatory liabilities 97 999 - 97 999
Other 534 141 - 534 141
Total deferred credits and other liabilities 2 656 606 - 2 656 606
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $9 869 698 $ 283 750 $10 153 448
The accompanying note is an integral part of the consolidated financial statements.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 6 of 23
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<CAPTION>
Adjustments
Actual (see pages 7&8) Pro Forma
<S> <C> <C> <C>
Operating Revenues $3 804 656 $ - $3 804 656
Operating Expenses:
Fuel 363 211 - 363 211
Power purchased and interchanged 1 022 361 - 1 022 361
Deferral of energy costs, net (5 902) - (5 902)
Other operation and maintenance 963 609 3 200 966 809
Depreciation and amortization 377 650 - 377 650
Taxes, other than income taxes 349 221 - 349 221
Total operating expenses 3 070 150 3 200 3 073 350
Operating Income Before Income Taxes 734 506 (3 200) 731 306
Income taxes 173 955 (1 255) 172 700
Operating Income 560 551 (1 945) 558 606
Other Income and Deductions:
Allowance for other funds used during
construction 5 113 - 5 113
Other income/(expense), net 216 110 - 216 110
Income taxes (90 751) 9 254 (81 497)
Total other income and deductions 130 472 9 254 139 726
Income Before Interest Charges and
Preferred Dividends 691 023 7 309 698 332
Interest Charges and Preferred Dividends:
Interest on long-term debt 188 321 22 180 210 501
Other interest 30 364 - 30 364
Allowance for borrowed funds used during
construction (9 558) - (9 558)
Dividends on subsidiary-obligated mandatorily
redeemable preferred securities 24 816 - 24 816
Preferred stock dividends of subsidiaries 16 945 - 16 945
Total interest charges and preferred
dividends 250 888 22 180 273 068
Net Income $ 440 135 $(14 871) $ 425 264
Retained Earnings:
Balance at beginning of period $1 775 759 $ - $1 775 759
Add - Net income 440 135 (14 871) 425 264
Net unrealized gain on investments 5 731 - 5 731
Other adjustments, net 735 - 735
Deduct - Cash dividends on common stock 218 288 - 218 288
Balance at end of period $2 004 072 $(14 871) $1 989 201
The accompanying note is an integral part of the consolidated financial statements.<PAGE>
Financial Statements
Item 6(b) 1-B
Page 7 of 23
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1995
(IN THOUSANDS)
(1)
<S> <C> <C>
Cash and temporary cash investments $300,000
Long-term debt $300,000
To record the proposed issuance of $300 million aggregate principal amount of
unsecured debentures.
(2)
Interest on long-term debt $22,350
Cash and temporary cash investments $22,350
To record interest expense associated with the proposed issuance of $300
million aggregate principal amount of unsecured debentures.
(3)
Other operation and maintenance $2,625
Cash and temporary cash investments $2,625
To record commissions and other expenses associated with the proposed issuance
of $300 million aggregate principal amount of unsecured debentures.
(4)
Taxes accrued $ 1,087
Income taxes $ 1,087
To record the decreased tax expense associated with the increase in other
operation and maintenance expenses.
(5)
Taxes accrued $ 9,254
Income taxes $ 9,254
To record the decreased tax expense associated with the increase in interest
expense.
(6)
Cash and temporary cash investments $40,000
Long-term debt $40,000
To record borrowings under the New Loan Agreement (SEC File No. 70-8793).<PAGE>
Financial Statements
Item 6(b) 1-B
Page 8 of 23
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1995
(IN THOUSANDS)
(7)
Long-term debt $30,700
Cash and temporary cash investments $30,700
To record repayment of existing loans (SEC File No. 70-8793).
(8)
Interest accrued $170
Interest expense $170
To record interest savings from the New Loan Agreement, assuming interest
expense of $2,860 under the existing loans (principal balance of $30,700 at a
an estimated blended rate of 9.32%) versus interest expense of $2,690 under
the new loan (principal balance of $40,000 at an estimated rate of 6.725%)
(SEC File No. 70-8793).
(9)
Other operation & maintenance expense $575
Cash and temporary cash investments $575
To record fees associated with the New Loan Agreement, including a prepayment
premium on the existing loans, legal and bank fees (SEC File No. 70-8793).
(10)
Taxes accrued $168
Tax expense $168
To record the decreased tax expense associated with a net increase in expenses
(SEC File No. 70-8793). </TABLE>
<PAGE>
Financial Statements
Item 6(b)
Page 9 of 23
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
General Public Utilities Corporation (the Corporation) is a holding
company registered under the Public Utility Holding Company Act of 1935. The
Corporation does not directly operate any utility properties, but owns all the
outstanding common stock of three electric utilities -- Jersey Central Power &
Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania
Electric Company (Penelec) (the Subsidiaries). The Subsidiaries serve areas
of New Jersey and Pennsylvania with a population of approximately five
million, with revenues about equally divided between New Jersey and
Pennsylvania customers. The Corporation also owns all the common stock of GPU
Service Corporation (GPUSC), a service company; GPU Nuclear Corporation
(GPUN), which operates and maintains the nuclear units of the Subsidiaries;
and Energy Initiatives, Inc., EI Power, Inc. and EI Energy, Inc.,
(collectively, the "EI Group"), which develop, own and operate generation,
transmission and distribution facilities in the United States and in foreign
countries. All of these companies considered together with their subsidiaries
are referred to as the "GPU System."
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The Subsidiaries have made investments in three major nuclear projects--
Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are
operational generating facilities, and Three Mile Island Unit 2 (TMI-2), which
was damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned by
JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%,
respectively. Oyster Creek is owned by JCP&L. At December 31, the
Subsidiaries' net investment in TMI-1 and Oyster Creek, including nuclear
fuel, was as follows:
Net Investment (in millions)
TMI-1 Oyster Creek
December 31, 1995 $640 $785
December 31, 1994 $627 $817
The Subsidiaries' net investment in TMI-2 at December 31, 1995 and 1994
was $95 million and $103 million, respectively, of which JCP&L's remaining
investment was $85 million and $89 million, respectively. JCP&L is collecting
revenues for TMI-2 on a basis which provides for the recovery of its remaining
investment in the plant by 2008. Met-Ed and Penelec are collecting revenues
for TMI-2 related to their wholesale customers.
Costs associated with the operation, maintenance and retirement of
nuclear plants continue to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards, availability of nuclear waste
disposal facilities and experience gained in the construction and operation of
nuclear facilities. The GPU System may also incur costs and experience
reduced output at its nuclear plants because of the prevailing design criteria
<PAGE>
Financial Statements
Item 6(b)
Page 10 of 23
at the time of construction and the age of the plants' systems and equipment.
In addition, for economic or other reasons, operation of these plants for the
full term of their now-assumed lives cannot be assured. Also, not all risks
associated with the ownership or operation of nuclear facilities may be
adequately insured or insurable. Consequently, the ability of electric
utilities to obtain adequate and timely recovery of costs associated with
nuclear projects, including replacement power, any unamortized investment at
the end of each plant's useful life (whether scheduled or premature), the
carrying costs of that investment and retirement costs, is not assured (see
NUCLEAR PLANT RETIREMENT COSTS). Management intends, in general, to seek
recovery of such costs through the ratemaking process, but recognizes that
recovery is not assured (see COMPETITION AND THE CHANGING REGULATORY
ENVIRONMENT).
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
The cleanup program was completed in 1990, and after receiving Nuclear
Regulatory Commission (NRC) approval, TMI-2 entered into long-term monitored
storage in December 1993.
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against the Corporation and the
Subsidiaries. Approximately 2,100 of such claims are pending in the United
States District Court for the Middle District of Pennsylvania. Some of the
claims also seek recovery for injuries from alleged emissions of radioactivity
before and after the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the Subsidiaries had (a) primary financial protection in the form of
insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial protection in the
form of private liability insurance under an industry retrospective rating
plan providing for up to an aggregate of $335 million in premium charges under
such plan, and (c) an indemnity agreement with the NRC for up to $85 million,
bringing their total primary, secondary and tertiary financial protection up
to an aggregate of $560 million. Under the secondary level, the Subsidiaries
are subject to a retrospective premium charge of up to $5 million per reactor,
or a total of $15 million.
The insurers of TMI-2 had been providing a defense against all TMI-2
accident-related claims against the Corporation and the Subsidiaries and their
suppliers (the defendants) under a reservation of rights with respect to any
award of punitive damages. However, in March 1994, the defendants in the
TMI-2 litigation and the insurers agreed that the insurers would withdraw
their reservation of rights with respect to any award of punitive damages. A
trial of ten allegedly representative cases is scheduled to begin in June
1996.
In October 1995, the U.S. Court of Appeals for the Third Circuit ruled
that the Price-Anderson Act provides coverage under its primary and secondary
levels for punitive as well as compensatory damages, but that punitive damages
could not be recovered against the Federal Government under the third level of
<PAGE>
Financial Statements
Item 6(b)
Page 11 of 23
financial protection. In so doing, the Court of Appeals referred to the
"finite fund" (the $560 million of financial protection under the Price-
Anderson Act) to which plaintiffs must resort to get compensatory as well as
punitive damages. The Corporation and its Subsidiaries have asked the U.S.
Supreme Court to review that portion of the Court of Appeals' decision that
punitive damages may be recovered in public liability actions under the Price-
Anderson Act. The Corporation and its Subsidiaries do not know whether
plaintiffs will appeal any aspect of the Court of Appeals' decision.
Based upon the Court of Appeals' decision, the Corporation and its
Subsidiaries believe that any liability to which they might be subject by
reason of the TMI-2 accident will not exceed their financial protection under
the Price-Anderson Act.
The Court of Appeals also found that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located
at the time of the accident (as the Corporation and its Subsidiaries
proposed). The Court of Appeals had also held that each plaintiff still must
demonstrate exposure to radiation released during the TMI-2 accident and that
such exposure had resulted in injuries. The Corporation and its Subsidiaries
have requested that the U. S. Supreme Court review this issue. They do not
know whether plaintiffs will do so as well.
There can be no assurance as to the outcome of this litigation.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. As described in the NUCLEAR FUEL DISPOSAL FEE
section of Note 2, the disposal of spent nuclear fuel is covered separately by
contracts with the U.S. Department of Energy (DOE).
In 1990, the Subsidiaries submitted a report, in compliance with NRC
regulations, setting forth a funding plan (employing the external sinking fund
method) for the decommissioning of their nuclear reactors. Under this plan,
the Subsidiaries intend to complete the funding for Oyster Creek and TMI-1 by
the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2
funding completion date is 2014, consistent with TMI-2's remaining in long-
term storage and being decommissioned at the same time as TMI-1. Under the
NRC regulations, the funding targets (in 1995 dollars) for TMI-1 and Oyster
Creek are $157 million and $189 million, respectively. Based on NRC studies,
a comparable funding target for TMI-2 has been developed which takes the
accident into account ($250 million in 1995 dollars). The NRC continues to
study the levels of these funding targets. Management cannot predict the
effect that the results of this review will have on the funding targets. The
funding targets, while not considered cost estimates, are reference levels
designed to assure that licensees demonstrate adequate financial
responsibility for decommissioning. While the regulations address activities
related to the removal of the radiological portions of the plants, they do not
establish residual radioactivity limits nor do they address costs related to
the removal of nonradiological structures and materials.
<PAGE>
Financial Statements
Item 6(b)
Page 12 of 23
The Subsidiaries charge to expense and contribute to external trusts
amounts collected from customers for nuclear plant decommissioning and
nonradiological costs. In addition, the Subsidiaries have contributed amounts
written off for TMI-2 nuclear plant decommissioning in 1990 and 1991 to
TMI-2's external trust (see TMI-2 Future Costs). Amounts deposited in
external trusts, including the interest earned on these funds, are classified
as Nuclear Decommissioning Trusts on the Balance Sheet.
In 1995, a consultant to GPUN performed site-specific studies of the TMI
site, including both Units 1 and 2, and of Oyster Creek, that considered
various decommissioning methods and estimated the cost of decommissioning the
radiological portions and the cost of removal of the nonradiological portions
of each plant, using the prompt removal/dismantlement method. GPUN management
has reviewed the methodology and assumptions used in the site-specific
studies, is in agreement with them, and believes the results are reasonable as
follows:
(in millions)
Oyster
Creek TMI-1 TMI-2
Radiological decommissioning $347 $295 $358
Nonradiological cost of removal 33 73 37*
Total $380 $368 $395
* Net of $3 million spent as of December 31, 1995.
The ultimate cost of retiring the GPU System's nuclear facilities may be
different from the cost estimates contained in these site-specific studies.
Such costs are subject to (a) the escalation of various cost elements
(including, but not limited to, general inflation), (b) the further
development of regulatory requirements governing decommissioning, (c) the
technology available at the time of decommissioning, and (d) the availability
of nuclear waste disposal facilities.
The Financial Accounting Standards Board (FASB) is reviewing the utility
industry's accounting practices for closure and removal of long-lived assets,
including nuclear plant retirement costs. If the FASB's tentative conclusions
are adopted, Oyster Creek and TMI-1 future retirement costs will have to be
recognized as a liability currently, rather than recorded over the life of the
plants (as is currently the practice), with an offsetting asset recorded for
amounts collectible through rates. Any amounts not collectible through rates
will have to be charged to expense. For TMI-2, a liability has already been
recognized since the plant is no longer operating (see TMI-2 Future Costs).
The FASB is expected to release an Exposure Draft in early 1996, and a final
statement is expected to be effective for fiscal years beginning after
December 15, 1996.
TMI-1 and Oyster Creek:
JCP&L is collecting revenues for decommissioning, which are expected to
result in the accumulation of its share of the NRC funding target for each
plant. JCP&L is also collecting revenues, based on estimates of $15.3 million
for TMI-1 and $31.6 million for Oyster Creek adopted in previous rate orders
issued by the New Jersey Board of Public Utilities (NJBPU), for its share of
the cost of removal of nonradiological structures and materials. The
<PAGE>
Financial Statements
Item 6(b)
Page 13 of 23
Pennsylvania Public Utility Commission (PaPUC) previously granted Met-Ed
revenues for decommissioning costs of TMI-1 based on its share of the NRC
funding target and nonradiological cost of removal estimated in an earlier
1988 site-specific study to be $74 million (in 1995 dollars). The PaPUC also
approved a rate change for Penelec which increased the collection of revenues
for decommissioning costs for TMI-1 to a basis equivalent to that granted Met-
Ed. Collections from customers for retirement expenditures are deposited in
external trusts. Provision for the future expenditure of these funds has been
made in accumulated depreciation, amounting to $73 million for TMI-1 and $138
million for Oyster Creek at December 31, 1995. Oyster Creek and TMI-1
retirement costs are charged to depreciation expense over the expected service
life of each nuclear plant, and amounted to $13 million and $15 million,
respectively, for 1995.
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable under the current ratemaking process.
TMI-2 Future Costs:
The estimated liabilities for TMI-2 Future Costs (reflected as Three Mile
Island Unit 2 Future Costs on the Balance Sheet) as of December 31, 1995 and
1994 are as follows:
(in millions) (in millions)
1995 1994
Radiological Decommissioning $358 $250
Nonradiological Cost of Removal 37* 72*
Incremental Monitored Storage 18 19
Total $413 $341
* Net of $3 million and $2 million spent as of December 31, 1995 and
December 31, 1994, respectively.
The 1994 liability for radiological decommissioning was based on the
NRC funding target, while the 1994 liability for nonradiological cost of
removal was based on the 1988 site-specific study for TMI-1 ($74 million).
The 1995 liability recorded on the Balance Sheet for radiological
decommissioning and nonradiological cost of removal is based on the 1995 site-
specific study.
Offsetting the $413 million liability is $271 million which is probable
of recovery from customers and included in Three Mile Island Unit 2 Deferred
Costs on the Balance Sheet, and $143 million in trust funds for TMI-2 and
included in Nuclear Decommissioning Trusts on the Balance Sheet. Of the $271
million still to be recovered from customers, $66 million represents an
increase from 1994 due to the 1995 site-specific study. Earnings on trust
fund deposits collected from customers are included in amounts shown on the
Balance Sheet under Three Mile Island Unit 2 Deferred Costs. TMI-2
decommissioning costs charged to expense in 1995 amounted to $14 million.
The NJBPU has granted JCP&L decommissioning revenues for the remainder of
the NRC funding target and allowances for the cost of removal of
nonradiological structures and materials. In 1993, a PaPUC rate order
permitted Met-Ed future recovery of certain TMI-2 retirement costs, based on
<PAGE>
Financial Statements
Item 6(b)
Page 14 of 23
the NRC funding target, and the cost of removal of nonradiological structures
and materials, based on the 1988 site-specific study. The Pennsylvania Office
of Consumer Advocate appealed that order to the Commonwealth Court, which
reversed the PaPUC order in 1994. Consequently, Met-Ed recorded pre-tax
charges totaling $127.6 million during 1994. Penelec, which is also subject
to PaPUC regulation, recorded pre-tax charges of $56.3 million during 1994 for
its share of such costs applicable to its retail customers. These charges
appear in the Other Income and Deductions section of the 1994 Consolidated
Statement of Income and are composed of $121 million for radiological
decommissioning costs, $48.2 million for the nonradiological cost of removal
and $14.7 million for incremental monitored storage costs. In September 1995,
the Pennsylvania Supreme Court reversed the Commonwealth Court decision. Met-
Ed and Penelec have therefore reversed the previous write-offs, resulting in
pre-tax income of $127.6 million and $56.3 million, respectively, being
credited to the Other Income and Deductions section of the 1995 Consolidated
Statement of Income. However, notwithstanding the Supreme Court's decision,
Met-Ed and Penelec have determined that the recovery of the incremental
monitored storage costs is no longer probable, and have recorded pre-tax
charges to operating income of $10 million and $4.7 million, respectively,
during 1995.
At December 31, 1995 the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $63 million, which is the difference
between the 1995 TMI-1 and TMI-2 site-specific study estimates of $295 million
and $358 million, respectively. In connection with rate case resolutions at
the time, JCP&L, Met-Ed and Penelec made contributions to irrevocable external
trusts relating to their shares of the accident-related portions of the
decommissioning liability. In 1990, JCP&L contributed $15 million and in
1991, Met-Ed and Penelec contributed $40 million and $20 million respectively,
to irrevocable external trusts. These contributions were not recovered from
customers and have been expensed. The Subsidiaries will not pursue recovery
from customers for any of these amounts contributed in excess of the $63
million accident-related portion referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement
costs, and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot
be assured.
As a result of TMI-2's entering long-term monitored storage in late 1993,
the Subsidiaries are incurring incremental storage costs of approximately $1
million annually. The Subsidiaries estimate that the remaining storage costs
will total $18 million through 2014, the expected retirement date of TMI-1.
JCP&L's rates reflect its $5 million share of these costs.
INSURANCE
The GPU System has insurance (subject to retentions and deductibles) for
its operations and facilities including coverage for property damage,
liability to employees and third parties, and loss of use and occupancy
(primarily incremental replacement power costs). There is no assurance that
the GPU System will maintain all existing insurance coverages. Losses or
<PAGE>
Financial Statements
Item 6(b)
Page 15 of 23
liabilities that are not completely insured, unless allowed to be recovered
through ratemaking, could have a material adverse effect on the financial
position of the GPU System.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station and for Oyster Creek totals
$2.7 billion per site. In accordance with NRC regulations, these insurance
policies generally require that proceeds first be used for stabilization of
the reactors and then to pay for decontamination and debris removal expenses.
Any remaining amounts available under the policies may then be used for repair
and restoration costs and decommissioning costs. Consequently, there can be
no assurance that in the event of a nuclear incident, property damage
insurance proceeds would be available for the repair and restoration of that
station.
The Price-Anderson Act limits the GPU System's liability to third parties
for a nuclear incident at one of its sites to approximately $8.9 billion.
Coverage for the first $200 million of such liability is provided by private
insurance. The remaining coverage, or secondary financial protection, is
provided by retrospective premiums payable by all nuclear reactor owners.
Under secondary financial protection, a nuclear incident at any licensed
nuclear power reactor in the country, including those owned by the GPU System,
could result in assessments of up to $79 million per incident for each of the
GPU System's two operating reactors, subject to an annual maximum payment of
$10 million per incident per reactor. In addition to the retrospective
premiums payable under Price-Anderson, the GPU System is also subject to
retrospective premium assessments of up to $69 million in any one year under
insurance policies applicable to nuclear operations and facilities.
The GPU System has insurance coverage for incremental replacement power
costs resulting from an accident-related outage at its nuclear plants.
Coverage commences after the first 21 weeks of the outage and continues for
three years beginning at $1.8 million for Oyster Creek and $2.6 million for
TMI-1 per week for the first year, decreasing to 80 percent of such amounts
for years two and three.
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
Nonutility Generation Agreements:
Pursuant to the requirements of the federal Public Utility Regulatory
Policies Act (PURPA) and state regulatory directives, the Subsidiaries have
entered into power purchase agreements with nonutility generators (NUGs) for
the purchase of energy and capacity for periods up to 26 years. The majority
of these agreements contain certain contract limitations and subject the NUGs
to penalties for nonperformance. While a few of these facilities are
dispatchable, most are must-run and generally obligate the Subsidiaries to
purchase, at the contract price, the net output up to the contract limits. As
of December 31, 1995, facilities covered by these agreements having 1,624 MW
(JCP&L 892 MW, Met-Ed 335 MW and Penelec 397 MW) of capacity were in service.
Actual payments from 1993 through 1995, and estimated payments from 1996
through 2000 to NUGs, assuming that all facilities which have existing
agreements, or which have obtained orders granting them agreements, enter
service, are as follows:
<PAGE>
Financial Statements
Item 6(b)
Page 16 of 23
Payments Under Nonutility Agreements
(in millions)
Total JCP&L Met-Ed Penelec
1993 $ 491 $ 292 $ 95 $ 104
1994 528 304 101 123
1995 670 381 131 158
* 1996 696 369 151 176
* 1997 739 400 155 184
* 1998 837 430 210 197
* 1999 931 442 211 278
* 2000 987 463 216 308
* Estimate
Of these amounts, payments to the projects which are not in service at
December 31, 1995 total $40 million, $123 million, $202 million and $231
million for 1997, 1998, 1999 and 2000, respectively.
In the year 2000 these agreements, in the aggregate, will provide
approximately 2,062 MW (JCP&L 1,002 MW, Met-Ed 485 MW and Penelec 575 MW) of
capacity and energy to the GPU System, at varying prices.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the System's energy supply needs which has caused
the Subsidiaries to change their supply strategy to seek shorter-term
agreements offering more flexibility. Due to the current availability of
excess capacity in the marketplace, the cost of near- to intermediate-term
(i.e., one to eight years) energy supply from generation facilities now in
service is currently and is expected to continue to be priced below the costs
of new supply sources, at least for some time. The projected cost of energy
from new generation supply sources has also decreased due to improvements in
power plant technologies and reduced forecasted fuel prices. As a result of
these developments, the rates under virtually all of the Subsidiaries' NUG
agreements are substantially in excess of current and projected prices from
alternative sources.
The Subsidiaries are seeking to reduce the above market costs of these
NUG agreements by (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the
agreements; (3) offering contract buyouts while seeking to recover the costs
through their energy adjustment clauses (see Managing Nonutility Generation,
in Management's Discussion and Analysis of Financial Condition and Results of
Operations); and (4) initiating proceedings before federal and state agencies,
and in the courts, where appropriate. In addition, the Subsidiaries intend to
avoid, to the maximum extent practicable, entering into any new NUG agreements
that are not needed or not consistent with current market pricing and are
supporting legislative efforts to repeal PURPA. These efforts may result in
claims against the GPU System for substantial damages. There can, however, be
no assurance as to what extent the Subsidiaries' efforts will be successful in
whole or in part.
<PAGE>
Financial Statements
Item 6(b)
Page 17 of 23
While the Subsidiaries thus far have been granted recovery of their NUG
costs from customers by the PaPUC and NJBPU, there can be no assurance that
the Subsidiaries will continue to be able to recover these costs throughout
the term of the related agreements. The GPU System currently estimates that
for 1998, when substantially all of these NUG projects are scheduled to be in
service, above market payments (benchmarked against the expected cost of
electricity produced by a new gas-fired combined-cycle facility) will range
from $240 million to $350 million. The amount of these estimated above-market
payments may increase or decrease substantially based upon, among other
things, payment escalations in the contract terms, changes in fuel prices and
changes in the capital and operating cost of new generating equipment.
Regulatory Assets and Liabilities:
In accordance with Statement of Financial Accounting Standards No. 71
(FAS 71), "Accounting for the Effects of Certain Types of Regulation," the GPU
System's financial statements reflect assets and costs based on current cost-
based ratemaking regulation. Continued accounting under FAS 71 requires that
the following criteria be met:
a) A utility's rates for regulated services provided to its customers
are established by, or are subject to approval by, an independent
third-party regulator;
b) The regulated rates are designed to recover specific costs of
providing the regulated services or products; and
c) In view of the demand for the regulated services and the level of
competition, direct and indirect, it is reasonable to assume that
rates set at levels that will recover a utility's costs can be
charged to and collected from customers. This criteria requires
consideration of anticipated changes in levels of demand or
competition during the recovery period for any capitalized costs.
A utility's operations can cease to meet those criteria for various
reasons, including deregulation, a change in the method of regulation, or a
change in the competitive environment for the utility's regulated services.
Regardless of the reason, a utility whose operations cease to meet those
criteria should discontinue application of FAS 71 and report that
discontinuation by eliminating from its Balance Sheet the effects of any
actions of regulators that had been recognized as assets and liabilities
pursuant to FAS 71, but which would not have been recognized as assets and
liabilities by enterprises in general.
In accordance with the provisions of FAS 71, the Subsidiaries have
deferred certain costs pursuant to actions of the NJBPU, PaPUC and Federal
Energy Regulatory Commission (FERC) and are recovering or expect to recover
such costs in electric rates charged to customers. Regulatory assets are
reflected in the Deferred Debits and Other Assets section of the Consolidated
Balance Sheet, and regulatory liabilities are reflected in the Deferred
Credits and Other Liabilities section of the Consolidated Balance Sheet.
Regulatory assets and liabilities, as reflected in the December 31, 1995
Consolidated Balance Sheet, were as follows:
<PAGE>
Financial Statements
Item 6(b)
Page 18 of 23
(in thousands)
Assets Liabilities
Income taxes recoverable/refundable
through future rates $ 527,584 $94,931
TMI-2 deferred costs 368,712 -
Unamortized property losses 105,729 -
NUG contract termination costs 84,132 -
Other postretirement benefits 58,362 -
N.J. unit tax 51,518 -
Unamortized loss on reacquired debt 50,198 -
Load and demand-side management programs 48,071 -
DOE enrichment facility decommissioning 38,519 -
Manufactured gas plant remediation 29,608 -
Nuclear fuel disposal fee 21,946 -
N.J. low-level radwaste disposal 21,778 -
Storm damage 18,294 -
Oyster Creek deferred costs 4,830 -
Other 10,427 3,068
Total $1,439,708 $97,999
Income taxes recoverable/refundable through future rates: Represents amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes,"
in 1993.
TMI-2 deferred costs: Represents costs that are recoverable through rates for
the Subsidiaries' remaining investment in the plant and fuel core,
radiological decommissioning and the cost of removal of nonradiological
structures and materials in accordance with the 1995 site-specific study, and
JCP&L's share of long-term monitored storage costs. For additional
information, see TMI-2 Future Costs.
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River Project, which are included in rates.
NUG contract termination costs: Represents one-time costs incurred for
terminating power purchase contracts with NUGs, for which rate recovery has
been granted or is probable (see Managing Nonutility Generation, in
Management's Discussion and Analysis of Financial Condition and Results of
Operations).
Other postretirement benefits: Includes costs associated with the adoption of
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which are deferred in accordance with Emerging Issues Task Force
Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises."
N.J. unit tax: JCP&L received NJBPU approval in 1993 to recover, with
interest, over a ten-year period on an annuity basis, $71.8 million of Gross
Receipts and Franchise Tax not previously recovered from customers.
Unamortized loss on reacquired debt: Represents premiums and expenses incurred
in the early redemption of long-term debt. In accordance with FERC
regulations, reacquired debt costs are amortized over the remaining original
life of the retired debt.
<PAGE>
Financial Statements
Item 6(b)
Page 19 of 23
Load and demand-side management (DSM) programs: Consists of load-management
costs that are currently being recovered, with interest, through JCP&L's
retail base rates pursuant to a 1993 NJBPU order, and other DSM program
expenditures that are recovered annually. Also includes provisions for lost
revenues between base rate cases and performance incentives.
DOE enrichment facility decommissioning: These costs, representing payments
to the DOE over a 15-year period beginning in 1994, are currently being
collected through the Subsidiaries' energy adjustment clauses.
Manufactured gas plant remediation: Consists of costs being recovered
associated with the investigation and remediation of several gas manufacturing
plants. For additional information, see ENVIRONMENTAL MATTERS.
Nuclear fuel disposal fee: Represents amounts recoverable through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and
TMI-1 in accordance with the Nuclear Waste Policy Act of 1982.
N.J. low-level radwaste disposal: Represents the accrual of the estimated
assessment for the siting of a disposal facility for low-level waste from
Oyster Creek, less amortization as allowed in JCP&L's rates.
Storm damage: Relates to incremental noncapital costs associated with various
storms in the JCP&L service territory that are not recoverable through
insurance. These amounts were deferred based upon past rate recovery
precedent. An annual amount for recovery of storm damage expense is included
in JCP&L's retail base rates.
Oyster Creek deferred costs: Consists of replacement power and operation and
maintenance (O&M) costs deferred in accordance with orders from the NJBPU.
JCP&L has been granted recovery of these costs through rates at an annual
amount until fully amortized.
Amounts related to the decommissioning of TMI-1 and Oyster Creek, which
are not included in Regulatory Assets on the Balance Sheet, are separately
disclosed in NUCLEAR PLANT RETIREMENT COSTS.
The Subsidiaries continue to be subject to cost-based ratemaking
regulation. However, in the event that either all or a portion of their
operations are no longer subject to these provisions, the related regulatory
assets, net of regulatory liabilities, would have to be written off. In
addition, any above market costs of purchased power commitments would have to
be expensed (see Nonutility Generation Agreements), and increased depreciation
expense would have to be recorded for any differences created by the use of a
regulated depreciation method that is different from that which would have
been used under generally accepted accounting principles for enterprises in
general. The Corporation is unable to estimate when and to what extent FAS 71
may no longer be applicable.
ENVIRONMENTAL MATTERS
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but
not limited to acid rain, water quality, air quality, global warming,
<PAGE>
Financial Statements
Item 6(b)
Page 20 of 23
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, the GPU System may be required to incur substantial additional costs
to construct new equipment, modify or replace existing and proposed equipment,
remediate, decommission or clean up waste disposal and other sites currently
or formerly used by it, including formerly owned manufactured gas plants, mine
refuse piles and generating facilities, and with regard to electromagnetic
fields, postpone or cancel the installation of, or replace or modify, utility
plant, the costs of which could be material.
To comply with the federal Clean Air Act Amendments of 1990 (Clean Air
Act), the Subsidiaries expect to spend up to $410 million for air pollution
control equipment by the year 2000, of which approximately $234 million has
already been spent. In developing its least-cost plan to comply with the
Clean Air Act, the GPU System will continue to evaluate major capital
investments compared to participation in the emission allowance market and the
use of low-sulfur fuel or retirement of facilities. In 1994, the Ozone
Transport Commission (OTC), consisting of representatives of 12 northeast
states (including New Jersey and Pennsylvania) and the District of Columbia,
proposed reductions in nitrogen oxide (NOx) emissions it believes necessary to
meet ambient air quality standards for ozone and the statutory deadlines set
by the Clean Air Act. The Subsidiaries expect that the U.S. Environmental
Protection Agency (EPA) will approve state implementation plans consistent
with the proposal, and that as a result, they will spend an estimated $60
million (included in the Clean Air Act total), beginning in 1997, to meet the
seasonal reductions agreed upon by the OTC. The OTC has stated that it
anticipates that additional NOx reductions will be necessary to meet the Clean
Air Act's 2005 National Ambient Air Quality Standard for ozone. However, the
specific requirements that will have to be met at that time have not been
finalized. The Subsidiaries are unable to determine what additional costs, if
any, will be incurred.
The GPU System companies have been notified by the EPA and state
environmental authorities that they are among the potentially responsible
parties (PRPs) who may be jointly and severally liable to pay for the costs
associated with the investigation and remediation at 11 hazardous and/or toxic
waste sites. In addition, the Subsidiaries have been requested to voluntarily
participate in the remediation or supply information to the EPA and state
environmental authorities on several other sites for which they have not yet
been named as PRPs. The Subsidiaries have also been named in lawsuits
requesting damages for hazardous and/or toxic substances allegedly released
into the environment. The ultimate cost of remediation will depend upon
changing circumstances as site investigations continue, including (a) the
existing technology required for site cleanup, (b) the remedial action plan
chosen and (c) the extent of site contamination and the portion attributed to
the GPU System companies.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection (NJDEP) for the investigation and remediation of 17
formerly owned manufactured gas plant sites. JCP&L has also entered into
various cost-sharing agreements with other utilities for most of the sites.
As of December 31, 1995, JCP&L has an estimated environmental liability of $29
million recorded on its Balance Sheet relating to these sites. The estimated
liability is based upon ongoing site investigations and remediation efforts,
including capping the sites and pumping and treatment of ground water. If the
periods over which the remediation is currently expected to be performed are
<PAGE>
Financial Statements
Item 6(b)
Page 21 of 23
lengthened, JCP&L believes that it is reasonably possible that the future
costs may range as high as $50 million. Estimates of these costs are subject
to significant uncertainties because: JCP&L does not presently own or control
most of these sites; the environmental standards have changed in the past and
are subject to future change; the accepted technologies are subject to further
development; and the related costs for these technologies are uncertain. If
JCP&L is required to utilize different remediation methods, the costs could be
materially in excess of $50 million.
In 1993, the NJBPU approved a mechanism similar to JCP&L's Levelized
Energy Adjustment Clause (LEAC) for the recovery of future manufactured gas
plant remediation costs when expenditures exceed prior collections. The NJBPU
decision also provided for interest on any overrecovery to be credited to
customers until the overrecovery is eliminated and for future costs to be
amortized over seven years with interest. JCP&L is pursuing reimbursement of
the remediation costs from its insurance carriers. In 1994, JCP&L filed a
complaint with the Superior Court of New Jersey against several of its
insurance carriers, relative to these manufactured gas plant sites. JCP&L
requested the Court to order the insurance carriers to reimburse JCP&L for all
amounts it has paid, or may be required to pay, in connection with the
remediation of the sites. Pretrial discovery has begun in this case.
The GPU System companies are unable to estimate the extent of possible
remediation and associated costs of additional environmental matters. Also
unknown are the consequences of environmental issues, which could cause the
postponement or cancellation of either the installation or replacement of
utility plant.
OTHER COMMITMENTS AND CONTINGENCIES
The GPU System's construction programs, for which substantial commitments
have been incurred and which extend over several years, contemplate
expenditures of $491 million during 1996. As a consequence of reliability,
licensing, environmental and other requirements, additions to utility plant
may be required relatively late in their expected service lives. If such
additions are made, current depreciation allowance methodology may not make
adequate provision for the recovery of such investments during their remaining
lives. Management intends to seek recovery of such costs through the
ratemaking process, but recognizes that recovery is not assured.
The Subsidiaries have entered into long-term contracts with nonaffiliated
mining companies for the purchase of coal for certain generating stations in
which they have ownership interests. The contracts, which expire at various
dates between 1996 and 2004, require the purchase of either fixed or minimum
amounts of the stations' coal requirements. The price of the coal under the
contracts is based on adjustments of indexed cost components. One contract
also includes a provision for the payment of postretirement benefit costs.
The Subsidiaries' share of the cost of coal purchased under these agreements
is expected to aggregate $115 million for 1996.
JCP&L has entered into agreements with other utilities to purchase
capacity and energy for various periods through 2004. These agreements will
provide for up to 1,085 MW in 1996, declining to 878 MW in 1999 and 696 MW in
<PAGE>
Financial Statements
Item 6(b)
Page 22 of 23
2004. For the years 1996, 1997, 1998, 1999 and 2000, payments pursuant to
these agreements are estimated to be $174 million, $164 million, $145 million,
$124 million, and $95 million, respectively.
JCP&L is constructing a 141 MW gas-fired combustion turbine at its
Gilbert generating station. This estimated $50 million project, of which $34
million has been spent, is expected to be in-service by mid-1996. In 1995,
the NJDEP issued an air permit for the facility based, in part, on the NJBPU's
1994 order which found that New Jersey's Electric Facility Need Assessment Act
is not applicable and that construction of this facility, without a market
test, is consistent with New Jersey energy policies. An industry trade group
representing NUGs has appealed the NJDEP's issuance of the air permit and the
NJBPU's order to the Appellate Division of the New Jersey Superior Court.
There can be no assurance as to the outcome of this proceeding.
The NJBPU has instituted a generic proceeding to address the appropriate
recovery of capacity costs associated with electric utility power purchases
from NUG projects. The proceeding was initiated, in part, to respond to
contentions of the Division of the Ratepayer Advocate that by permitting
utilities to recover such costs through the LEAC, an excess or "double"
recovery may result when combined with the recovery of the utilities' embedded
capacity costs through their base rates. In 1994, the NJBPU ruled that the
LEAC periods prior to March 1991 were considered closed but subsequent LEAC
periods remain open for further investigation. This matter is pending before
a NJBPU Administrative Law Judge. JCP&L estimates that the potential refund
liability for the LEAC periods from March 1991 through February 1996, the end
of the current LEAC period, is $55 million. There can be no assurance as to
the outcome of this proceeding.
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40%
capacity factor would be approximately $10 million before tax. While a
capacity factor below 40% would generate no specific monetary charge, it would
require the issue to be brought before the NJBPU for review. The annual
measurement period, which begins in March of each year, coincides with that
used for the LEAC.
As of December 31, 1995, approximately 52% of the GPU System's workforce
was represented by unions for collective bargaining purposes. JCP&L
employees' collective bargaining agreement is due to expire in 1996,
representing 45% of GPU's union employees.
Niagara Mohawk Power Corporation (NIMO) has filed with the New York
Public Service Commission a proposed restructuring plan that it claims may be
needed to avoid seeking reorganization under Chapter XI of the Bankruptcy
Code. Energy Initiatives has ownership interests, with an aggregate book
value of approximately $35 million, in three NUG projects which have long-term
purchase power agreements with NIMO. In the restructuring plan, NIMO has
insisted on renegotiating all of its contracts with NUGs, and has claimed that
it has the right to use eminent domain to condemn NUG facilities, if such
negotiations are not successful. There can be no assurance as to the outcome
of this matter.
<PAGE>
Financial Statements
Item 6(b)
Page 23 of 23
NIMO has also initiated actions in federal and state court seeking to
invalidate numerous NUG contracts or limit the amount of annual generation
produced by the NUG, and is withholding allegedly "excess" payments made in
respect of "over generation" under these contracts, including the contracts
for two of Energy Initiatives' projects. NIMO alleges to have overpaid Energy
Initiatives approximately $10 million for the years 1993 through 1995. Energy
Initiatives has filed motions to dismiss these complaints and is vigorously
defending these actions. There can be no assurance as to the outcome of these
proceedings.
At December 31, 1995, the EI Group had investments totaling $160 million
in facilities located in four foreign countries. Although management attempts
to mitigate the risk of investing in certain foreign countries by securing
political risk insurance, the EI Group faces additional risks inherent to
operating in such locations, including foreign currency fluctuations (see EI
GROUP, in Management's Discussion and Analysis of Financial Condition and
Results of Operations).
In March 1995, the FASB issued FAS 121, "Accounting for the Impairment of
Long-Lived Assets," which is effective for fiscal years beginning after June
15, 1995. FAS 121 requires that long-lived assets, identifiable intangibles,
capital leases and goodwill be reviewed for impairment whenever events occur
or changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. In addition, FAS 121 requires that regulatory assets
meet the recovery criteria of FAS 71, "Accounting for the Effects of Certain
Types of Regulation," on an ongoing basis in order to avoid a writedown (see
Regulatory Assets and Liabilities).
The implementation of FAS 121 by the GPU System in 1995 did not have an
impact on results of operations because management believes the carrying
amounts of all assets are probable of recovery from customers. However, as
the Subsidiaries enter a more competitive environment, some assets could be
subject to impairment, thereby necessitating writedowns, which could have a
material adverse effect on the GPU System's results of operations and
financial condition.
The FASB exposure draft relating to closure and removal of long-lived
assets (see NUCLEAR PLANT RETIREMENT COSTS), applies to all long-lived assets,
including fossil-fueled generating plants. For these assets, a liability will
have to be recognized wherever a legal or constructive obligation exists to
perform dismantlement or removal activities.
During the normal course of the operation of their businesses, in
addition to the matters described above, the GPU System companies are from
time to time involved in disputes, claims and, in some cases, as defendants in
litigation in which compensatory and punitive damages are sought by the
public, customers, contractors, vendors and other suppliers of equipment and
services and by employees alleging unlawful employment practices. While
management does not expect that the outcome of these matters will have a
material effect on the GPU System's financial position or results of
operations, there can be no assurance that this will continue to be the case.
<PAGE>
