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 March 31, 1997
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)
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 April 29, 1997, was as follows:
Shares
Registrant Title Outstanding
GPU, Inc. Common Stock, $2.50 par value 120,659,192
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
March 31, 1997
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
Combined Notes to Financial Statements 19
Combined Management's Discussion and Analysis
of Financial Condition and Results of
Operations 43
PART II - Other Information 60
Signatures 61
_________________________________
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., 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 1996
Annual Report on Form 10-K, filed by the individual registrants with the
Securities and Exchange Commission and should be read in conjunction
therewith.
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements
made that are not historical facts are forward-looking and, accordingly,
involve risks and uncertainties that could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements.
Although such forward-looking statements have been based on reasonable
assumptions, there is no assurance that the expected results will be achieved.
Some of the factors that could cause actual results to differ materially
include, but are not limited to: the effects of regulatory decisions; changes
in law and other governmental actions and initiatives; the impact of
deregulation and increased competition in the industry; industry
restructuring; expected outcomes of legal proceedings; generating plant
performance; fuel prices and availability; and uncertainties involved with
foreign operations including political risks and foreign currency
fluctuations.
2
<PAGE>
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
March 31, December 31,
1997 1996
(Unaudited)
<S>
ASSETS <C> <C>
Utility Plant:
In service, at original cost $ 9,721,068 $ 9,646,380
Less, accumulated depreciation 3,781,573 3,704,026
Net utility plant in service 5,939,495 5,942,354
Construction work in progress 254,138 277,440
Other, net 154,899 168,029
Net utility plant 6,348,532 6,387,823
Other Property and Investments:
GPU International Group investments, net 958,033 924,397
Nuclear decommissioning trusts, at market 481,391 464,011
Nuclear fuel disposal trust, at market 102,582 101,661
Other, net 53,131 51,122
Total other property and investments 1,595,137 1,541,191
Current Assets:
Cash and temporary cash investments 49,715 31,604
Special deposits 27,320 47,545
Accounts receivable:
Customers, net 280,110 270,844
Other 121,468 91,637
Unbilled revenues 140,922 114,891
Materials and supplies, at average cost or less:
Construction and maintenance 191,919 187,130
Fuel 42,999 40,207
Deferred income taxes 24,586 32,148
Prepayments 86,539 81,168
Other 3,617 -
Total current assets 969,195 897,174
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 355,852 356,517
Income taxes recoverable through future rates 524,045 527,385
Nonutility generation contract buyout costs 239,568 242,481
Unamortized property losses 105,166 100,310
Other 430,497 426,579
Total regulatory assets 1,655,128 1,653,272
Deferred income taxes 331,601 332,828
Other 135,247 128,931
Total deferred debits and other assets 2,121,976 2,115,031
Total Assets $11,034,840 $10,941,219
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
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314,458 $ 314,458
Capital surplus 751,583 750,569
Retained earnings 2,224,576 2,068,976
Total 3,290,617 3,134,003
Less, reacquired common stock, at cost 85,520 86,416
Total common stockholders' equity 3,205,097 3,047,587
Cumulative preferred stock:
With mandatory redemption 104,000 114,000
Without mandatory redemption 66,478 66,478
Subsidiary-obligated mandatorily
redeemable preferred securities 330,000 330,000
Long-term debt 3,139,631 3,177,016
Total capitalization 6,845,206 6,735,081
Current Liabilities:
Securities due within one year 164,506 178,583
Notes payable 271,314 265,547
Obligations under capital leases 132,339 143,818
Accounts payable 303,791 354,819
Taxes accrued 153,531 25,717
Deferred energy 22,232 15,559
Interest accrued 57,099 70,370
Other 210,968 282,193
Total current liabilities 1,315,780 1,336,606
Deferred Credits and Other Liabilities:
Deferred income taxes 1,560,197 1,562,979
Unamortized investment tax credits 130,821 133,572
Three Mile Island Unit 2 future costs 435,089 430,508
Regulatory liabilities 90,626 89,815
Other 657,121 652,658
Total deferred credits and other liabilities 2,873,854 2,869,532
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $11,034,840 $10,941,219
The accompanying notes are an integral part of the consolidated financial statements.
4
<PAGE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
(Except Per Share Data)
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Operating Revenues $1,042,064 $1,022,934
Operating Expenses:
Fuel 95,001 98,495
Power purchased and interchanged 250,712 277,397
Deferral of energy costs, net 6,251 3,154
Other operation and maintenance 199,605 226,597
Depreciation and amortization 113,339 96,586
Taxes, other than income taxes 94,657 91,489
Total operating expenses 759,565 793,718
Operating Income Before Income Taxes 282,499 229,216
Income taxes 88,340 68,010
Operating Income 194,159 161,206
Other Income and Deductions:
Allowance for other funds used during
construction 348 1,229
Other income/(expense), net 24,503 10,309
Income taxes (1,026) (4,002)
Total other income and deductions 23,825 7,536
Income Before Interest Charges
and Preferred Dividends 217,984 168,742
Interest Charges and Preferred Dividends:
Interest on long-term debt 46,137 46,612
Other interest 7,345 4,308
Allowance for borrowed funds used
during construction (1,185) (1,861)
Dividends on subsidiary-obligated mandatorily
redeemable preferred securities 7,222 7,222
Preferred stock dividends of subsidiaries 3,427 4,208
Total interest charges and
preferred dividends 62,946 60,489
Net Income $ 155,038 $ 108,253
Earnings Per Average Common Share $ 1.28 $ .90
Average Common Shares Outstanding 120,889 120,640
Cash Dividends Paid Per Share $ .485 $ .47
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
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Operating Activities:
Net income $ 155,038 $ 108,253
Adjustments to reconcile income to cash provided:
Depreciation and amortization 120,451 101,971
Amortization of property under capital leases 14,772 15,027
Equity in undistributed (earnings)/losses
of affiliates (32,227) 645
Nuclear outage maintenance costs, net 6,920 7,575
Deferred income taxes and investment tax
credits, net 2,852 (5,737)
Deferred energy costs, net 6,251 2,953
Accretion income (2,690) (2,903)
Allowance for other funds used
during construction (348) (1,230)
Changes in working capital:
Receivables (66,360) (56,018)
Materials and supplies (7,609) 5,697
Special deposits and prepayments (6,519) (47,737)
Payables and accrued liabilities 70,639 124,637
Nonutility generation contract buyout costs (23,550) (2,049)
Other, net (14,823) (19,901)
Net cash provided by operating activities 222,797 231,183
Investing Activities:
Cash construction expenditures (79,994) (104,470)
Contributions to decommissioning trusts (10,255) (10,084)
GPU International Group investments (35,045) (19,765)
Other, net 20,476 12,699
Net cash used for investing activities (104,818) (121,620)
Financing Activities:
Issuance of long-term debt 26,698 -
Increase/(Decrease) in notes payable, net (332) 103,489
Retirement of long-term debt (56,034) (51,103)
Capital lease principal payments (12,329) (13,667)
Dividends paid on common stock (58,493) (54,718)
Net cash required by financing activities (100,490) (15,999)
Effect of exchange rate changes on cash 622 221
Net increase in cash and temporary
cash investments from above activities 18,111 93,785
Cash and temporary cash investments, beginning of year 31,604 18,422
Cash and temporary cash investments, end of period $ 49,715 $ 112,207
Supplemental Disclosure:
Interest and preferred dividends paid $ 84,323 $ 78,313
Income taxes paid $ 4,213 $ 6,334
New capital lease obligations incurred $ 2,248 $ 21,929
Common stock dividends declared but not paid $ - $ -
The accompanying notes are an integral part of the consolidated financial statements.
6
<PAGE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Balance Sheets
<CAPTION>
In Thousands
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $4,573,945 $4,528,676
Less, accumulated depreciation 1,856,502 1,811,620
Net utility plant in service 2,717,443 2,717,056
Construction work in progress 95,573 106,512
Other, net 103,217 111,116
Net utility plant 2,916,233 2,934,684
Other Property and Investments:
Nuclear decommissioning trusts, at market 289,100 278,342
Nuclear fuel disposal trust, at market 102,582 101,661
Other, net 8,592 8,305
Total other property and investments 400,274 388,308
Current Assets:
Cash and temporary cash investments 9,141 1,321
Special deposits 6,926 6,939
Accounts receivable:
Customers, net 141,022 135,655
Other 50,268 33,228
Unbilled revenues 54,792 56,522
Materials and supplies, at average cost or less:
Construction and maintenance 94,849 92,761
Fuel 19,070 19,257
Deferred income taxes 19,785 22,509
Prepayments 7,744 21,150
Total current assets 403,597 389,342
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through future rates 142,968 142,726
Nonutility generation contract buyout costs 139,000 139,000
Three Mile Island Unit 2 deferred costs 121,308 126,448
Unamortized property losses 99,726 94,767
Other 321,958 326,620
Total regulatory assets 824,960 829,561
Deferred income taxes 141,393 138,903
Other 21,831 29,121
Total deferred debits and other assets 988,184 997,585
Total Assets $4,708,288 $4,709,919
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
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 153,713 $ 153,713
Capital surplus 510,769 510,769
Retained earnings 860,159 825,001
Total common stockholder's equity 1,524,641 1,489,483
Cumulative preferred stock:
With mandatory redemption 104,000 114,000
Without mandatory redemption 37,741 37,741
Company-obligated mandatorily
redeemable preferred securities 125,000 125,000
Long-term debt 1,173,141 1,173,091
Total capitalization 2,964,523 2,939,315
Current Liabilities:
Securities due within one year 65,884 110,075
Notes payable 7,900 31,800
Obligations under capital leases 89,231 96,150
Accounts payable:
Affiliates 36,228 71,761
Other 87,240 94,258
Taxes accrued 88,346 2,063
Deferred energy credits 22,232 15,559
Interest accrued 29,797 28,350
Other 82,438 80,195
Total current liabilities 509,296 530,211
Deferred Credits and Other Liabilities:
Deferred income taxes 665,089 664,440
Unamortized investment tax credits 58,343 59,893
Three Mile Island Unit 2 future costs 108,797 107,652
Nuclear fuel disposal fee 129,207 127,543
Regulatory liabilities 35,121 33,250
Other 237,912 247,615
Total deferred credits and other liabilities 1,234,469 1,240,393
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $4,708,288 $4,709,919
The accompanying notes are an integral part of the consolidated financial statements.
8
<PAGE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Operating Revenues $510,443 $529,274
Operating Expenses:
Fuel 24,289 28,287
Power purchased and interchanged:
Affiliates 4,367 3,583
Others 140,944 163,860
Deferral of energy and capacity costs, net 6,251 4,216
Other operation and maintenance 101,805 116,479
Depreciation and amortization 61,810 49,952
Taxes, other than income taxes 59,160 59,972
Total operating expenses 398,626 426,349
Operating Income Before Income Taxes 111,817 102,925
Income taxes 29,345 25,564
Operating Income 82,472 77,361
Other Income and Deductions:
Allowance for other funds used during
construction 131 1,003
Other income, net 3,457 2,142
Income taxes (409) (1,051)
Total other income and deductions 3,179 2,094
Income Before Interest Charges and
Dividends on Preferred Securities 85,651 79,455
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 22,768 22,514
Other interest 2,491 923
Allowance for borrowed funds used
during construction (603) (1,153)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,675 2,675
Total interest charges and dividends
on preferred securities 27,331 24,959
Net Income 58,320 54,496
Preferred stock dividends 3,162 3,586
Earnings Available for Common Stock $ 55,158 $ 50,910
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
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Operating Activities:
Net income $ 58,320 $ 54,496
Adjustments to reconcile income to cash provided:
Depreciation and amortization 64,153 53,629
Amortization of property under capital leases 8,364 8,137
Nuclear outage maintenance costs, net 4,866 5,342
Deferred income taxes and investment tax
credits, net (2,783) (5,870)
Deferred energy and capacity costs, net 6,251 4,211
Accretion income (2,690) (2,903)
Allowance for other funds used
during construction (131) (1,004)
Changes in working capital:
Receivables (20,677) 1,653
Materials and supplies (1,900) 5,220
Special deposits and prepayments 13,418 3,314
Payables and accrued liabilities 54,870 52,646
Nonutility generation contract buyout costs (15,000) -
Other, net (1,944) (4,824)
Net cash provided by operating activities 165,117 174,047
Investing Activities:
Cash construction expenditures (43,134) (46,241)
Contributions to decommissioning trusts (4,501) (4,500)
Other, net (2,611) (806)
Net cash used for investing activities (50,246) (51,547)
Financing Activities:
Decrease in notes payable, net (23,900) (800)
Retirement of long-term debt (54,191) (25,701)
Capital lease principal payments (5,798) (7,436)
Dividends paid on common stock (20,000) -
Dividends paid on preferred stock (3,162) (3,586)
Net cash required by financing activities (107,051) (37,523)
Net increase in cash and temporary
cash investments from above activities 7,820 84,977
Cash and temporary cash investments, beginning of year 1,321 922
Cash and temporary cash investments, end of period $ 9,141 $ 85,899
Supplemental Disclosure:
Interest paid $ 25,775 $ 24,642
Income taxes paid $ 211 $ 303
New capital lease obligations incurred $ 1,112 $ 21,177
The accompanying notes are an integral part of the consolidated financial statements.
10
<PAGE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
March 31, December 31,
1997 1996
(Unaudited)
<S>
ASSETS <C> <C>
Utility Plant:
In service, at original cost $2,315,120 $2,297,100
Less, accumulated depreciation 858,627 841,398
Net utility plant in service 1,456,493 1,455,702
Construction work in progress 88,571 98,171
Other, net 27,995 31,000
Net utility plant 1,573,059 1,584,873
Other Property and Investments:
Nuclear decommissioning trusts, at market 135,573 131,475
Other, net 11,412 11,261
Total other property and investments 146,985 142,736
Current Assets:
Cash and temporary cash investments 6,913 1,901
Special deposits 1,067 1,052
Accounts receivable:
Customers, net 65,249 61,522
Other 33,948 17,368
Unbilled revenues 39,919 27,019
Materials and supplies, at average cost or less:
Construction and maintenance 41,137 39,739
Fuel 10,724 11,026
Deferred income taxes 1,556 7,073
Prepayments 30,324 17,254
Total current assets 230,837 183,954
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through future rates 172,488 174,636
Three Mile Island Unit 2 deferred costs 148,158 144,782
Nonutility generation contract buyout costs 83,868 86,781
Other 60,155 56,184
Total regulatory assets 464,669 462,383
Deferred income taxes 86,801 85,169
Other 17,354 13,863
Total deferred debits and other assets 568,824 561,415
Total Assets $2,519,705 $2,472,978
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
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 66,273 $ 66,273
Capital surplus 370,200 370,200
Retained earnings 294,381 264,044
Total common stockholder's equity 730,854 700,517
Cumulative preferred stock 12,056 12,056
Company-obligated mandatorily
redeemable preferred securities 100,000 100,000
Long-term debt 563,253 563,252
Total capitalization 1,406,163 1,375,825
Current Liabilities:
Securities due within one year 40,020 40,020
Notes payable 68,542 50,667
Obligations under capital leases 27,050 29,964
Accounts payable:
Affiliates 31,829 27,556
Other 81,829 89,857
Taxes accrued 27,575 11,222
Interest accrued 11,411 18,279
Other 38,473 45,825
Total current liabilities 326,729 313,390
Deferred Credits and Other Liabilities:
Deferred income taxes 402,551 401,104
Three Mile Island Unit 2 future costs 217,495 215,204
Unamortized investment tax credits 31,133 31,584
Nuclear fuel disposal fee 29,187 28,811
Regulatory liabilities 25,838 25,981
Other 80,609 81,079
Total deferred credits and other liabilities 786,813 783,763
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2,519,705 $2,472,978
The accompanying notes are an integral part of the consolidated financial statements.
12
<PAGE>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Operating Revenues $255,260 $237,688
Operating Expenses:
Fuel 24,489 25,913
Power purchased and interchanged:
Affiliates 4,347 6,900
Others 55,640 53,425
Deferral of energy costs, net - 2,084
Other operation and maintenance 45,656 50,529
Depreciation and amortization 25,833 24,002
Taxes, other than income taxes 16,700 15,587
Total operating expenses 172,665 178,440
Operating Income Before Income Taxes 82,595 59,248
Income taxes 28,482 20,856
Operating Income 54,113 38,392
Other Income and Deductions:
Allowance for other funds used during
construction 179 43
Other income/(expense), net 343 226
Income taxes (25) (33)
Total other income and deductions 497 236
Income Before Interest Charges and
Dividends on Preferred Securities 54,610 38,628
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 11,254 11,467
Other interest 1,668 1,099
Allowance for borrowed funds used
during construction (247) (225)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,250 2,250
Total interest charges and dividends
on preferred securities 14,925 14,591
Net Income 39,685 24,037
Preferred stock dividends 121 236
Earnings Available for Common Stock $ 39,564 $ 23,801
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
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Operating Activities:
Net income $ 39,685 $ 24,037
Adjustments to reconcile income to cash provided:
Depreciation and amortization 28,512 23,381
Amortization of property under capital leases 3,790 3,941
Nuclear outage maintenance costs, net 1,368 1,491
Deferred income taxes and investment tax
credits, net 6,156 (947)
Deferred energy costs, net - 2,084
Allowance for other funds used
during construction (179) (43)
Changes in working capital:
Receivables (33,207) 7,835
Materials and supplies (1,096) 952
Special deposits and prepayments (13,085) (24,410)
Payables and accrued liabilities 8,507 12,246
Nonutility generation contract buyout costs (8,550) (2,049)
Other, net (8,679) (4,378)
Net cash provided by operating activities 23,222 44,140
Investing Activities:
Cash construction expenditures (17,528) (31,449)
Contributions to decommissioning trusts (4,438) (4,268)
Other, net (11) (1,050)
Net cash used for investing activities (21,977) (36,767)
Financing Activities:
Increase in notes payable, net 17,875 7,793
Capital lease principal payments (3,872) (3,449)
Dividends paid on common stock (10,000) (10,000)
Dividends paid on preferred stock (236) (472)
Net cash provided/(required)
by financing activities 3,767 (6,128)
Net increase in cash and temporary cash
investments from above activities 5,012 1,245
Cash and temporary cash investments, beginning of year 1,901 1,810
Cash and temporary cash investments, end of period $ 6,913 $ 3,055
Supplemental Disclosure:
Interest paid $ 21,416 $ 21,363
Income taxes paid $ 1,655 $ 2,911
New capital lease obligations incurred $ 757 $ 497
The accompanying notes are an integral part of the consolidated financial statements.
14
<PAGE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2,749,150 $2,738,223
Less, accumulated depreciation 1,036,798 1,022,553
Net utility plant in service 1,712,352 1,715,670
Construction work in progress 69,994 72,757
Other, net 21,194 22,910
Net utility plant 1,803,540 1,811,337
Other Property and Investments:
Nuclear decommissioning trusts, at market 56,718 54,194
Other, net 7,379 7,271
Total other property and investments 64,097 61,465
Current Assets:
Cash and temporary cash investments 5,606 -
Special deposits 2,390 2,348
Accounts receivable:
Customers, net 73,839 73,190
Other 28,746 15,151
Unbilled revenues 46,211 31,350
Materials and supplies, at average cost or less:
Construction and maintenance 50,339 49,007
Fuel 13,205 9,924
Deferred income taxes 467 -
Prepayments 43,895 36,930
Total current assets 264,698 217,900
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through future rates 208,589 210,023
Three Mile Island Unit 2 deferred costs 86,386 85,287
Other 71,956 67,128
Total regulatory assets 366,931 362,438
Deferred income taxes 59,953 67,099
Other 17,694 14,826
Total deferred debits and other assets 444,578 444,363
Total Assets $2,576,913 $2,535,065
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
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 105,812 $ 105,812
Capital surplus 285,486 285,486
Retained earnings 391,840 363,702
Total common stockholder's equity 783,138 755,000
Cumulative preferred stock 16,681 16,681
Company-obligated mandatorily
redeemable preferred securities 105,000 105,000
Long-term debt 626,456 656,459
Total capitalization 1,531,275 1,533,140
Current Liabilities:
Securities due within one year 56,010 26,010
Notes payable 107,872 107,680
Obligations under capital leases 14,399 15,881
Accounts payable:
Affiliates 23,003 20,432
Other 48,922 53,424
Taxes accrued 36,181 11,223
Interest accrued 11,278 19,192
Vacations accrued 4,887 5,172
Other 14,352 12,052
Total current liabilities 316,904 271,066
Deferred Credits and Other Liabilities:
Deferred income taxes 467,426 473,268
Three Mile Island Unit 2 future costs 108,797 107,652
Unamortized investment tax credits 41,345 42,095
Nuclear fuel disposal fee 14,594 14,406
Regulatory liabilities 31,099 31,694
Other 65,473 61,744
Total deferred credits and other liabilities 728,734 730,859
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2,576,913 $2,535,065
The accompanying notes are an integral part of the consolidated financial statements.
16
<PAGE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Operating Revenues $289,753 $269,329
Operating Expenses:
Fuel 46,223 44,295
Power purchased and interchanged:
Affiliates 1,652 1,357
Others 54,128 60,112
Deferral of energy costs, net - (3,146)
Other operation and maintenance 53,888 59,899
Depreciation and amortization 25,696 22,632
Taxes, other than income taxes 18,797 15,930
Total operating expenses 200,384 201,079
Operating Income Before Income Taxes 89,369 68,250
Income taxes 30,513 21,590
Operating Income 58,856 46,660
Other Income and Deductions:
Allowance for other funds used during
construction 38 183
Other income/(expense), net 145 (861)
Income taxes (69) (2)
Total other income and deductions 114 (680)
Income Before Interest Charges and
Dividends on Preferred Securities 58,970 45,980
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 12,115 12,631
Other interest 1,999 1,020
Allowance for borrowed funds used
during construction (335) (483)
Dividends on company-obligated mandatorily
redeemable preferred securities 2,297 2,297
Total interest charges and dividends
on preferred securities 16,076 15,465
Net Income 42,894 30,515
Preferred stock dividends 144 386
Earnings Available for Common Stock $ 42,750 $ 30,129
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
Three Months
Ended March 31,
1997 1996
<S> <C> <C>
Operating Activities:
Net income $ 42,894 $ 30,515
Adjustments to reconcile income to cash provided:
Depreciation and amortization 24,736 22,207
Amortization of property under capital leases 2,108 2,191
Nuclear outage maintenance costs, net 686 742
Deferred income taxes and investment tax
credits, net 523 1,997
Deferred energy costs, net - (3,342)
Allowance for other funds used
during construction (38) (183)
Changes in working capital:
Receivables (29,105) 2,933
Materials and supplies (4,613) (475)
Special deposits and prepayments (7,007) (28,705)
Payables and accrued liabilities 18,979 (12,510)
Other, net (5,622) 2,345
Net cash provided by operating activities 43,541 17,715
Investing Activities:
Cash construction expenditures (19,488) (28,529)
Contributions to decommissioning trusts (1,316) (1,316)
Other, net - (992)
Net cash used for investing activities (20,804) (30,837)
Financing Activities:
Increase in notes payable, net 192 61,371
Retirement of long-term debt - (25,000)
Capital lease principal payments (2,149) (2,024)
Dividends paid on common stock (15,000) (20,000)
Dividends paid on preferred stock (174) (384)
Net cash provided/(required)
by financing activities (17,131) 13,963
Net increase in cash and temporary
cash investments from above activities 5,606 841
Cash and temporary cash investments, beginning of year - 1,367
Cash and temporary cash investments, end of period $ 5,606 $ 2,208
Supplemental Disclosure:
Interest paid $ 23,722 $ 23,539
Income taxes paid $ 2,347 $ 2,900
New capital lease obligations incurred $ 379 $ 255
The accompanying notes are an integral part of the consolidated financial statements.
18
</TABLE>
<PAGE>
GPU, Inc. and Subsidiary Companies
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc., a Pennsylvania corporation, is a holding company registered
under the Public Utility Holding Company Act of 1935. GPU, Inc. does not
directly operate any utility properties, but owns all the outstanding common
stock of three domestic 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 customer service, transmission and distribution operations of
these electric utilities are conducting business under the name GPU Energy.
JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU
Energy companies." The generation operations of these three electric
utilities are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc.
(GPUN). GPU, Inc. also owns all the common stock of GPU International, Inc.,
GPU Power, Inc. and GPU Electric, Inc. which primarily develop, own and
operate generation, transmission and distribution facilities and supply
businesses in the United States and in foreign countries. Collectively, these
are referred to as the "GPU International Group." Other wholly owned
subsidiaries of GPU, Inc. are GPU Advanced Resources (GPU AR), a nonregulated
subsidiary formed to engage in telecommunications services, energy services
and retail energy sales; and GPU Service, Inc. (GPUS), which provides certain
legal, accounting, financial and other services to the GPU companies. All of
these companies considered together are referred to as "GPU."
The Notes to Consolidated Financial Statements are presented below on a
combined basis for all of GPU, Inc., JCP&L, Met-Ed and Penelec.
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The GPU Energy companies have made investments in three major nuclear
projects--TMI-1 and Oyster Creek, both of which are operating generation
facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and
TMI-2 are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of
25%, 50% and 25%, respectively. Oyster Creek is owned by JCP&L. At March 31,
1997 and December 31, 1996, the GPU Energy companies' net investment in TMI-1
and Oyster Creek, including nuclear fuel, was as follows:
Net Investment (in millions)
TMI-1 Oyster Creek
March 31, 1997
JCP&L $151 $748
Met-Ed 291 -
Penelec 143 -
Total $585 $748
19
<PAGE>
GPU, Inc. and Subsidiary Companies
Net Investment (in millions)
TMI-1 Oyster Creek
December 31, 1996
JCP&L $154 $766
Met-Ed 297 -
Penelec 146 -
Total $597 $766
The GPU Energy companies' net investment in TMI-2 at March 31, 1997 and
December 31, 1996 was $87 million and $90 million, respectively (JCP&L $78
million and $81 million, respectively; Met-Ed $1 million and $1 million,
respectively; Penelec $8 million and $8 million, respectively). JCP&L is
collecting revenues for TMI-2 on a basis which provides for the recovery of
its remaining investment in the plant by 2008. Met-Ed and Penelec are
collecting revenues for TMI-2 related to their wholesale customers.
Costs associated with the operation, maintenance and retirement of
nuclear plants have continued to be significant and less predictable than
costs associated with other sources of generation, in large part due to
changing regulatory requirements, safety standards, availability of nuclear
waste disposal facilities and experience gained in the construction and
operation of nuclear facilities. The GPU Energy companies may also incur
costs and experience reduced output at their nuclear plants because of the
prevailing design criteria at the time of construction and the age of the
plants' systems and equipment. In addition, for economic or other reasons,
operation of these plants for the full term of their operating licenses cannot
be assured. Also, not all risks associated with the ownership or operation of
nuclear facilities may be adequately insured or insurable. Consequently, the
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 the Competition and the Changing
Regulatory Environment section.)
In addition to the continued operation of the Oyster Creek facility,
JCP&L is exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. JCP&L is exploring these options due
to the plant's high cost of generation compared to the current market price of
electricity. If a decision is made to retire the plant early, retirement
would likely occur in about 2000. Management believes that the current rate
structure would allow for the recovery of and return on its net investment in
the plant and provide for decommissioning costs. JCP&L plans to propose these
options to the New Jersey Board of Public Utilities (NJBPU) as part of its
July 1997 restructuring filing (See Competitive Environment, Management's
Discussion and Analysis).
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
A cleanup program was completed in 1990, and after receiving Nuclear
20
<PAGE>
GPU, Inc. and Subsidiary Companies
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 GPU, Inc. and the GPU Energy
companies. Approximately 2,100 of such claims were filed in the United States
District Court for the Middle District of Pennsylvania. Some of the claims
also seek recovery for injuries from alleged emissions of radioactivity before
and after the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies had (a) primary financial protection in the form
of insurance policies with groups of insurance companies providing an
aggregate of $140 million of primary coverage, (b) secondary financial
protection in the form of private liability insurance under an industry
retrospective rating plan providing for up to an aggregate of $335 million in
premium charges under such plan, and (c) an indemnity agreement with the NRC
for up to $85 million, bringing their total financial protection up to an
aggregate of $560 million. Under the secondary level, the GPU Energy
companies are subject to a retrospective premium charge of up to $5 million
per reactor, or a total of $15 million (JCP&L $7.5 million; Met-Ed $5 million;
Penelec $2.5 million).
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. In 1996, the U.S. Supreme Court denied petitions filed
by GPU, Inc. and the GPU Energy companies to review the Court of Appeals'
rulings.
In June 1996, the District Court granted a motion for summary judgment
filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the
2,100 pending claims. The Court ruled that there was no evidence which
created a genuine issue of material fact warranting submission of plaintiffs'
claims to a jury. The plaintiffs have appealed the District Court's ruling to
the Court of Appeals for the Third Circuit. There can be no assurance as to
the outcome of this litigation.
21
<PAGE>
GPU, Inc. and Subsidiary Companies
Based on the above, GPU, Inc. and the GPU Energy companies believe that
any liability to which they might be subject by reason of the TMI-2 accident
will not exceed their financial protection under the Price-Anderson Act.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. The disposal of spent nuclear fuel is covered
separately by contracts with the Department of Energy (DOE).
In 1990, the GPU Energy companies submitted a report, in compliance with
NRC regulations, setting forth a funding plan (employing the external sinking
fund method) for the decommissioning of their nuclear reactors. Under this
plan, the GPU Energy companies intend to complete the funding for Oyster Creek
and TMI-1 by the end of the plants' license terms, 2009 and 2014,
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. Under the NRC
regulations, the funding targets (in 1997 dollars) are as follows:
(in millions)
Oyster
TMI-1 TMI-2 Creek
JCP&L $ 43 $ 69 $224
Met-Ed 86 137 -
Penelec 43 68 -
Total $172 $274 $224
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. The retirement
cost estimates under the site-specific studies are as follows (in 1997
dollars):
22
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
Oyster
GPU TMI-1 TMI-2 Creek
Radiological decommissioning $315 $383 $371
Nonradiological cost of removal 78 35 * 35
Total $393 $418 $406
* Net of $7.5 million spent as of March 31, 1997.
(in millions)
Oyster
JCP&L TMI-1 TMI-2 Creek
Radiological decommissioning $ 79 $ 96 $371
Nonradiological cost of removal 20 9 * 35
Total $ 99 $105 $406
* Net of $1.9 million spent as of March 31, 1997.
(in millions)
Met-Ed TMI-1 TMI-2
Radiological decommissioning $157 $191
Nonradiological cost of removal 39 17 *
Total $196 $208
* Net of $3.7 million spent as of March 31, 1997.
(in millions)
Penelec TMI-1 TMI-2
Radiological decommissioning $ 79 $ 96
Nonradiological cost of removal 19 9 *
Total $ 98 $105
* Net of $1.9 million spent as of March 31, 1997.
The ultimate cost of retiring the GPU Energy companies' nuclear
facilities may be different from the cost estimates contained in these site-
specific studies. Such costs are subject to (a) the escalation of various
cost elements (for reasons 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 depreciation expense and accrue
retirement costs based on amounts being collected from customers. Currently,
the GPU Energy companies are collecting retirement costs which are less than
the retirement cost estimates in the 1995 site-specific studies, and they do
not intend to increase these accruals until increased collections from
customers are obtained. Customer collections are contributed to external
trust funds. These deposits, including the related earnings, are classified
23
<PAGE>
GPU, Inc. and Subsidiary Companies
as Nuclear Decommissioning Trusts, at Market on the Consolidated Balance
Sheets. Accounting for retirement costs may change based upon the Financial
Accounting Standards Board (FASB) Exposure Draft discussed below.
The FASB has issued an Exposure Draft titled "Accounting for Certain
Liabilities Related to Closure or Removal of Long-Lived Assets," which
includes nuclear plant retirement costs. If the Exposure Draft is adopted,
Oyster Creek and TMI-1 future retirement costs would have to be recognized as
a liability immediately, rather than the current industry practice of accruing
these costs in accumulated depreciation over the life of the plants. A
regulatory asset for amounts probable of recovery through rates would also be
established. Any amounts not probable of recovery through rates would have to
be charged to expense. For TMI-2, a liability has already been recognized,
based on the 1995 site-specific study (in 1997 dollars) since the plant is no
longer operating (see TMI-2). The effective date of this accounting change
could be as early as January 1, 1998.
TMI-1 and Oyster Creek:
The 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. The Stipulation of Final Settlement
approved by the NJBPU in March 1997 allows for JCP&L's future collection of
retirement costs to increase annually to $5.2 million and $22.5 million for
TMI-1 and Oyster Creek, respectively, beginning in 1998, based on the 1995
site-specific study estimates. (See discussion of Stipulation of Final
Settlement in Rate Matters, Management's Discussion and Analysis.)
The 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.
The amounts charged to depreciation expense for the first quarter of 1997
and the provisions for the future expenditure of these funds, which have been
made in accumulated depreciation, are as follows:
(in millions)
Oyster
TMI-1 Creek
Amount expensed for the three
months ended March 31, 1997:
JCP&L $ 1 $ 3
Met-Ed 2 -
Penelec 1 -
$ 4 $ 3
24
<PAGE>
GPU, Inc. and Subsidiary Companies
(in millions)
Oyster
TMI-1 Creek
Accumulated depreciation
provision at March 31, 1997:
JCP&L $ 31 $181
Met-Ed 54 -
Penelec 22 -
$107 $181
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable from customers.
TMI-2:
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 Future Costs on the Consolidated Balance Sheets) as
of March 31, 1997 and December 31, 1996 are as follows:
(in millions)
GPU JCP&L Met-Ed Penelec
March 31, 1997 $435 $109 $217 $109
December 31, 1996 $431 $108 $215 $108
These amounts are based upon the 1995 site-specific study estimates (in 1997
and 1996 dollars, respectively) discussed above and an estimate for remaining
incremental monitored storage costs of $17 million (JCP&L $4 million; Met-Ed
$9 million; Penelec $4 million) as of March 31, 1997 and December 31, 1996, as
a result of TMI-2's entering long-term monitored storage in 1993. The GPU
Energy companies are incurring annual incremental monitored storage costs of
approximately $1 million (JCP&L $250 thousand; Met-Ed $500 thousand; Penelec
$250 thousand).
Offsetting the $435 million liability at March 31, 1997 is $269 million
(JCP&L $43 million; Met-Ed $147 million; Penelec $79 million) which is
probable of recovery from customers and included in Three Mile Island Unit 2
Deferred Costs on the Consolidated Balance Sheets, and $185 million (JCP&L $75
million; Met-Ed $78 million; Penelec $32 million) in trust funds for TMI-2 and
included in Nuclear Decommissioning Trusts, at Market on the Consolidated
Balance Sheets. Earnings on trust fund deposits are included in amounts shown
on the Consolidated Balance Sheets under Three Mile Island Unit 2 Deferred
Costs. TMI-2 decommissioning costs charged to depreciation expense in the
first quarter of 1997 amounted to $3 million (JCP&L $782 thousand; Met-Ed
$2,471 thousand; Penelec $242 thousand).
The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, TMI-2
decommissioning revenues for the NRC funding target and allowances for the
cost of removal of nonradiological structures and materials. In addition,
JCP&L is recovering its share of TMI-2's incremental monitored storage costs.
The Stipulation of Final Settlement approved by the NJBPU in March 1997
25
<PAGE>
GPU, Inc. and Subsidiary Companies
adjusts JCP&L's future revenues for retirement costs based on the 1995 site-
specific study estimates, beginning in 1998. Based on Met-Ed's rate order,
Penelec has recorded a regulatory asset for that portion of such costs which
it believes to be probable of recovery.
At March 31, 1997 the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $68 million (JCP&L $17 million,
Met-Ed $34 million; Penelec $17 million), which is the difference between the
1995 TMI-1 and TMI-2 site-specific study estimates (in 1997 dollars). 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 $68 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.
INSURANCE
GPU 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 GPU 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 GPU.
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 GPU'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 Energy companies, could
26
<PAGE>
GPU, Inc. and Subsidiary Companies
result in assessments of up to $79 million per incident for each of the GPU
Energy companies' two operating reactors, subject to an annual maximum payment
of $10 million per incident per reactor. In addition to the retrospective
premiums payable under Price-Anderson, the GPU Energy companies are also
subject to retrospective premium assessments of up to $53 million (JCP&L $32
million; Met-Ed $14 million; Penelec $7 million) in any one year under
insurance policies applicable to nuclear operations and facilities.
The GPU Energy companies have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
nuclear plants. Coverage commences after a 17 week waiting period at $3.5
million per week, and after 23 weeks of an outage, continues for three years
beginning at $1.8 million and $2.6 million per week for the first year for
Oyster Creek and TMI-1, respectively, decreasing to 80% of such amounts for
years two and three.
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
The Emerging Competitive Market and Stranded Costs:
The combination of the current market price of electricity being below
that of utility-owned generation and purchase power commitments, as well as
the ability of some customers to choose their energy suppliers has created the
potential for stranded costs in the electric utility industry. These stranded
costs, while recoverable in a regulated environment, are at risk in a
deregulated and competitive environment. The GPU Energy companies estimate
that their total potential above market costs relating to power purchase
commitments, above market generation costs, generating plant decommissioning
costs and regulatory assets at year end 1998, on a present value basis, could
range from $4.5 billion to $8 billion (JCP&L $2.5 billion to $4 billion; Met-
Ed $1 billion to $2 billion; Penelec $1 billion to $2 billion). The estimate
is subject to significant uncertainties including the future market price of
both electricity and other competitive energy sources, as well as the timing
of when these above market costs become stranded due to customers choosing
another supplier. The restructuring legislation in Pennsylvania and the
proposed restructuring plan in New Jersey provide mechanisms for utilities to
recover, subject to regulatory approval, their above market costs. These
regulatory recovery mechanisms in Pennsylvania and New Jersey will differ, but
should allow for the recovery of non-mitigable above market costs through
either distribution charges or separate nonbypassable charges to customers.
In 1996, FERC issued Order 888, which permits electric utilities to
recover their legitimate and verifiable stranded costs incurred when a
wholesale customer purchases power from another supplier using the utility's
transmission system. In addition, Pennsylvania adopted comprehensive
legislation in 1996 which provides for the restructuring of the electric
utility industry and will permit utilities the opportunity to recover their
prudently incurred stranded costs through a PaPUC-approved competitive
transition charge, subject to certain conditions, including that utilities
attempt to mitigate these costs. In 1997, the NJBPU released Phase II of the
New Jersey Energy Master Plan (NJEMP), which proposes that New Jersey electric
utilities should have an opportunity to recover their stranded costs
27
<PAGE>
GPU, Inc. and Subsidiary Companies
associated with generating capacity commitments and caused by electric retail
competition, provided that they attempt to mitigate these costs. There can be
no assurance as to the extent that stranded costs will be recoverable. The
inability of the GPU Energy companies to recover their stranded costs in whole
or in part could result in the recording of liabilities for above market
nonutility generation (NUG) costs and writedowns of uneconomic generation
plant and regulatory assets recorded in accordance with Statement of Financial
Accounting Standards No. (FAS) 71, "Accounting for the Effects of Certain
Types of Regulation." Decommissioning costs, for which a liability may have
to be recorded (See Nuclear Plant Retirement Costs), and corresponding
regulatory asset for amounts recoverable from customers, could also be subject
to writedowns. The inability to recover these stranded costs would have a
material adverse effect on GPU's results of operations. (See additional
discussion of stranded costs in Competitive Environment, Management's
Discussion and Analysis).
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 NUGs for the purchase of
energy and capacity for periods of up to 26 years (JCP&L 25 years; Met-Ed 26
years; Penelec 25 years). The following table shows actual payments from 1994
through 1996, and estimated payments from 1997 through 2001.
Payments Under NUG Agreements
(in Millions)
Total JCP&L Met-Ed Penelec
* 1994 $528 $304 $101 $123
* 1995 670 381 131 158
* 1996 739 370 177 192
** 1997 702 351 157 194
1998 691 340 152 199
1999 706 344 152 210
2000 804 347 196 261
2001 873 353 225 295
* Actual.
** The 1997 amounts consist of actual payments through March 31, 1997 and
estimated payments for the remainder of the year.
As of March 31, 1997, facilities covered by agreements having 1,652 MW
(JCP&L 896 MW; Met-Ed 356 MW; Penelec 400 MW) of capacity were in service.
While a few of these NUG 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. Substantially all unbuilt NUG
facilities for which the GPU Energy companies have executed agreements are
fully dispatchable.
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GPU, Inc. and Subsidiary Companies
The emerging competitive generation market has created uncertainty
regarding the forecasting of the companies' energy supply needs, which has
caused the GPU Energy companies to change their supply strategy to seek
shorter-term agreements offering more flexibility. The cost of near- to
intermediate-term (i.e., one to four years) energy supply from generation
facilities now in service is currently and is expected to continue to be
priced below the costs of new supply sources, at least for some time. The
projected cost of energy from new generation supply sources has also decreased
due to improvements in power plant technologies and lower forecasted fuel
prices. As a result of these developments, the rates under virtually all of
the GPU Energy companies' NUG agreements for facilities currently in operation
are substantially in excess of current and projected prices from alternative
sources.
The GPU Energy companies are seeking to reduce the above market costs of
these NUG agreements by: (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the
agreements; (3) offering contract buyouts (see Managing Nonutility Generation,
Management's Discussion and Analysis); and (4) initiating proceedings before
federal and state agencies, and in the courts, where appropriate. In addition,
the GPU Energy companies intend to avoid, to the maximum extent practicable,
entering into any new NUG agreements that are not needed or not consistent
with current market pricing, and are supporting legislative efforts to repeal
PURPA. These efforts may result in claims against GPU for substantial
damages. There can be no assurance as to the extent these efforts will be
successful in whole or in part.
In April 1997, Met-Ed and Penelec issued requests for proposals (RFPs) to
24 NUG projects which currently supply a total of approximately 760 MW under
power purchase agreements. The RFPs request the NUGs to propose buyouts,
buydowns and/or restructurings of current power purchase contracts in return
for cash payments. Met-Ed and Penelec have targeted a total of $1 billion to
carry out the buyout or buydown of these contracts, which amount may be
modified based on the proposals received. Met-Ed and Penelec plan to fund the
cash payments through the issuance of PaPUC approved securitized transition
bonds (See Competitive Environment, Management's Discussion and Analysis). To
the extent there are winning bidders, they are expected to be notified in the
second quarter of 1997, and payments are expected to be made in the first half
of 1998.
JCP&L has contracts through 2002 to purchase between 5,100 GWH and 5,200
GWH of electric generation per year at prices which are estimated to escalate
approximately 1.2% annually on a unit cost (cents/KWH) basis during this
period. From 2003 through 2008, JCP&L has contracts to purchase between 4,700
GWH and 5,100 GWH of electric generation per year at an average annual cost of
$369 million. The prices during this period are estimated to escalate
approximately 1.5% annually. After 2008, when major contracts begin to
expire, purchases steadily decline to approximately 865 GWH in 2014. The
contract unit cost is estimated to escalate approximately 4.0% annually from
2009 through 2014, with a total average annual cost of $193 million during
this period. All of JCP&L's contracts will have expired by the end of 2017.
During this entire period, the NUG fuel mix averages approximately 95% natural
gas.
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GPU, Inc. and Subsidiary Companies
Met-Ed has contracts through 1999 to purchase between 2,000 GWH and 2,100
GWH of electric generation per year at prices which are estimated to escalate
approximately 0.6% annually on a unit cost basis during this period. From
2000 through 2008, Met-Ed has contracts to purchase between 2,900 GWH and
4,300 GWH of electric generation per year at an average annual cost of $241
million. The prices during this period are estimated to escalate
approximately 2.5% annually on a unit cost basis. From 2009 through 2012,
Met-Ed is forecast to purchase between 1,500 GWH and 1,900 GWH of electric
generation per year at an average annual cost of $169 million. During this
period, the prices are estimated to escalate approximately 3.4% annually on a
unit cost basis. After 2012, Met-Ed's remaining contracts expire rapidly
through 2015; thereafter, they remain constant until the expiration of the
last contract in 2020. During this entire period, the NUG fuel mix averages
approximately 50% to 75% coal/waste coal.
Penelec has contracts through 2000 to purchase between 3,000 GWH and
4,000 GWH of electric generation per year at prices which are estimated to
escalate approximately 1.4% annually on a unit cost basis during this period.
From 2001 through 2008, Penelec has contracts to purchase between 3,900 GWH
and 5,000 GWH of electric generation per year at an average annual cost of
$297 million. The prices during this period are estimated to escalate
approximately 1.5% annually on a unit cost basis. From 2009 through 2017,
purchases decline from approximately 3,000 GWH to approximately 1,500 GWH in
2017. The contract unit cost is estimated to escalate approximately
3.4% annually from 2009 through 2017, with a total average annual cost of
$211 million during this period. After 2017, Penelec's remaining contracts
expire rapidly through 2020. During this entire period, the NUG fuel mix
averages approximately 65% to 95% coal/waste coal.
In February 1997, Met-Ed and Penelec entered into restructured power
purchase agreements with AES Power Corporation (AES) for 377 MW and 80 MW of
capacity and related energy, respectively, related to a combined-cycle
generating facility that AES plans to construct in Pennsylvania. The
restructured power purchase agreements are subject to PaPUC approval. Met-Ed
has paid a total of $63.5 million to previous developers and AES to terminate
the original power purchase agreements. If the restructured power purchase
agreements with AES are not approved by the PaPUC, Met-Ed and Penelec have
agreed to pay AES up to an additional $28 million and $8.3 million,
respectively.
Penelec has entered into a restructured power purchase agreement with the
developer of a proposed 80 MW coal-fired cogeneration facility. The
restructured power purchase agreement is subject to PaPUC approval. Penelec
has paid the developer $11.7 million to terminate the original power purchase
agreement. Penelec has agreed to pay the developer up to an additional $5
million, if the PaPUC does not approve the agreement or issues an order that
is not acceptable to Penelec.
This discussion of "Nonutility Generation Agreements" contains estimates
which are based on current knowledge and expectations of the outcome of future
events. The estimates are subject to significant uncertainties, including
changes in fuel prices, improvements in technology, the changing regulatory
environment and the deregulation of the electric utility industry.
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GPU, Inc. and Subsidiary Companies
The GPU Energy companies have been granted recovery of their NUG costs
(including certain buyout costs) from customers by the PaPUC and NJBPU and
expect to continue to pursue such recovery. Although the recently enacted
legislation in Pennsylvania and the Energy Master Plan in New Jersey both
include provisions for the recovery of costs under NUG agreements and certain
NUG buyout costs, there can be no assurance that the GPU Energy companies will
continue to be able to recover similar costs which may be incurred in the
future. (See Competitive Environment, Management's Discussion and Analysis
for additional discussion.)
Regulatory Assets and Liabilities:
Regulatory Assets and Regulatory Liabilities, as reflected in the March
31, 1997 and December 31, 1996 Consolidated Balance Sheets in accordance with
the provisions of FAS 71, "Accounting for the Effects of Certain Types of
Regulation", were as follows:
GPU Assets (in thousands)
March 31, December 31,
1997 1996
Income taxes recoverable through
future rates $ 524,045 $ 527,385
TMI-2 deferred costs 355,852 356,517
Nonutility generation contract buyout costs 239,568 242,481
Unamortized property losses 105,166 100,310
Other postretirement benefits 80,599 76,569
Environmental remediation 86,975 78,136
N.J. unit tax 44,399 45,877
Unamortized loss on reacquired debt 44,123 45,378
Load and demand-side management programs 35,853 40,770
N.J. low-level radwaste disposal 35,333 37,525
DOE enrichment facility decommissioning 35,026 36,352
Nuclear fuel disposal fee 21,653 21,552
Storm damage 20,028 20,226
Other 26,508 24,194
Total $1,655,128 $1,653,272
Liabilities (in thousands)
March 31, December 31,
1997 1996
Income taxes refundable through
future rates $ 86,046 $ 87,735
Other 4,580 2,080
Total $ 90,626 $ 89,815
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GPU, Inc. and Subsidiary Companies
JCP&L Assets (in thousands)
March 31, December 31,
1997 1996
Income taxes recoverable through
future rates $ 142,968 $ 142,726
TMI-2 deferred costs 121,308 126,448
Nonutility generation contract buyout costs 139,000 139,000
Unamortized property losses 99,726 94,767
Other postretirement benefits 45,603 44,024
Environmental remediation 57,991 55,285
N.J. unit tax 44,399 45,877
Unamortized loss on reacquired debt 30,839 31,469
Load and demand-side management programs 35,853 40,770
N.J. low-level radwaste disposal 35,333 37,525
DOE enrichment facility decommissioning 22,129 23,150
Nuclear fuel disposal fee 23,548 23,319
Storm damage 20,028 20,226
Other 6,235 4,975
Total $ 824,960 $ 829,561
Liabilities (in thousands)
March 31, December 31,
1997 1996
Income taxes refundable through
future rates $ 31,729 $ 32,567
Other 3,392 683
Total $ 35,121 $ 33,250
Met-Ed Assets (in thousands)
March 31, December 31,
1997 1996
Income taxes recoverable through
future rates $ 172,488 $ 174,636
TMI-2 deferred costs 148,158 144,782
Nonutility generation contract buyout costs 83,868 86,781
Unamortized property losses 3,004 3,113
Other postretirement benefits 34,996 32,545
Environmental remediation 4,121 2,575
Unamortized loss on reacquired debt 5,911 6,223
DOE enrichment facility decommissioning 8,598 8,801
Nuclear fuel disposal fee (1,345) (1,282)
Other 4,870 4,209
Total $ 464,669 $ 462,383
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GPU, Inc. and Subsidiary Companies
Liabilities (in thousands)
March 31, December 31,
1997 1996
Income taxes refundable through
future rates $ 23,166 $ 23,486
Other 2,672 2,495
Total $ 25,838 $ 25,981
Penelec Assets (in thousands)
March 31, December 31,
1997 1996
Income taxes recoverable through
future rates $ 208,589 $ 210,023
TMI-2 deferred costs 86,386 85,287
Nonutility generation contract buyout costs 16,700 16,700
Unamortized property losses 2,436 2,430
Environmental remediation 24,863 20,276
Unamortized loss on reacquired debt 7,373 7,686
DOE enrichment facility decommissioning 4,299 4,401
Nuclear fuel disposal fee (550) (485)
Other 16,835 16,120
Total $ 366,931 $ 362,438
Liabilities (in thousands)
March 31, December 31,
1997 1996
Income taxes refundable through
future rates $ 31,151 $ 31,682
Other (52) 12
Total $ 31,099 $ 31,694
Income taxes recoverable/refundable through future rates: Represents amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes,"
in 1993.
TMI-2 deferred costs: Represents costs that are recoverable through rates for
the GPU Energy companies' remaining investment in the plant and fuel core,
radiological decommissioning and the cost of removal of nonradiological
structures and materials in accordance with the 1995 site-specific study (in
1997 dollars) and JCP&L's share of long-term monitored storage costs. For
additional information, see TMI-2 Future Costs.
Nonutility generation contract buyout costs: Represents amounts incurred for
terminating power purchase contracts with NUGs, for which rate recovery has
been granted or is probable (see Managing Nonutility Generation, in
Management's Discussion and Analysis).
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River project, which are included in rates.
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GPU, Inc. and Subsidiary Companies
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."
Environmental remediation: Consists of amounts related to the investigation
and remediation of several manufactured gas plant sites formerly owned by
JCP&L, as well as several other JCP&L sites; Penelec's Seward station
property; and future closure costs of various ash disposal sites for the GPU
Energy companies. For additional information, see the Environmental Matters
section.
N.J. unit tax: Represents certain state taxes, with interest, for which JCP&L
received NJBPU approval in 1993 to recover 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 and other DSM program expenditures that are currently being recovered,
with interest, through JCP&L's retail base rates. Also includes provisions
for lost revenues between base rate cases and performance incentives.
N.J. low-level radwaste disposal: Represents 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.
DOE enrichment facility decommissioning: Represents payments to the DOE over
a 15-year period beginning in 1994.
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.
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 Consolidated Balance Sheets, are
separately disclosed in the Nuclear Plant Retirement Costs section.
Accounting Matters:
Historically, electric utility rates have been based on a utility's
costs. As a result, the GPU Energy companies account for the economic effects
of cost-based ratemaking regulation under the provisions of FAS 71. FAS 71
requires regulated entities, in certain circumstances, to defer as regulatory
assets, the impact on operations of costs expected to be recovered in future
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GPU, Inc. and Subsidiary Companies
rates. GPU has recorded on the Consolidated Balance Sheets $1.7 billion
(JCP&L $825 million; Met-Ed $465 million; Penelec $367 million) in regulatory
assets in accordance with FAS 71 (See Regulatory Assets and Liabilities
section of Competition and the Changing Regulatory Environment).
FAS 101, "Regulated Enterprises - Accounting for the Discontinuation of
Application of FASB Statement No. 71", applies when a utility fails to
continue to meet the provisions of FAS 71. Although the GPU Energy companies
currently believe they meet the requirements for continued application of FAS
71, in the event that either all or a portion of their operations are no
longer subject to FAS 71 provisions, the related regulatory assets, net of
regulatory liabilities, would have to be written off and charged to expense.
In addition, any above market costs of power purchase commitments would have
to be expensed, 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. The experience gained from
the deregulation of the telecommunications industry indicates that substantial
write-offs may result with the discontinuation of FAS 71.
FAS 121, "Accounting for the Impairment of Long-Lived Assets," 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. FAS
121 also requires the recognition of impairment losses when the carrying
amounts of those assets are greater than the estimated cash flows expected to
be generated from the use and eventual disposition of the assets. The effects
of FAS 121 have not been material to GPU's results of operations. However, as
GPU enters a more competitive environment, some assets could be subject to
impairment, thereby necessitating writedowns, which could have a material
adverse effect on GPU's results of operations and financial condition.
In response to the continuing deregulation of the electric utility
industry, the U.S. Securities and Exchange Commission (SEC) has questioned the
continued applicability of FAS 71 by California investor-owned utilities with
respect to their electric generation operations. The GPU Energy companies
believe that the SEC's concern may also apply to them since retail access
legislation has been enacted in Pennsylvania and proposed in New Jersey. In
the event that the application of FAS 71 is discontinued for electric
generation operations, a noncash write-off of previously established
regulatory assets and liabilities related to the affected operations would be
required. In addition, write-downs of plant assets could be required in
accordance with FAS 121, "Accounting for the Impairment of Long-Lived Assets,"
including a write-off of any loss from the divestiture or abandonment of
generation assets. The amount of any write-offs could have a material adverse
effect on GPU's results of operations and financial condition.
The FASB's Emerging Issues Task Force has agreed to address this issue
during the second quarter of 1997. At this time, GPU is unable to determine
when and to what extent FAS 71 will no longer be applicable.
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GPU, Inc. and Subsidiary Companies
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, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants, coal mine refuse
piles and generation facilities. With regard to electromagnetic fields, GPU
may be required to postpone or cancel the installation of, or replace or
modify, utility plant, the costs of which could be material.
To comply with Titles I and IV of the federal Clean Air Act Amendments of
1990 (Clean Air Act), the GPU Energy companies expect to spend up to $277
million (JCP&L $46 million; Met-Ed $117 million; Penelec $114 million) for air
pollution control equipment by the year 2000, of which approximately $241
million (JCP&L $43 million; Met-Ed $96 million; Penelec $102 million) has
already been spent. In developing their least-cost plan to comply with the
Clean Air Act, the GPU Energy companies will continue to evaluate major
capital investments compared to participation in the sulfur dioxide (SO2)
emission allowance market, the expected nitrogen oxide (NOx) emissions trading
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 NOx emissions it believes necessary to meet
ambient air quality standards for ozone and the statutory deadlines set by the
Clean Air Act. The GPU Energy companies expect that the U.S. Environmental
Protection Agency (EPA) will approve state implementation plans consistent
with the proposal, and that as a result, they will spend an estimated $17
million (JCP&L $1 million; Met-Ed $9 million; Penelec $7 million) (included in
the above total), beginning in 1997, to meet the 1999 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 (NAAQS) for ozone. However, the
specific requirements that will have to be met at that time have not been
finalized. In addition, the EPA has recently proposed changes to the NAAQS
for ozone, particulate matter and regional haze. The GPU Energy companies are
unable to determine what additional costs, if any, will be incurred.
GPU has been formally notified by the EPA and state environmental
authorities that it is 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 hazardous and/or toxic waste sites in the
following number of instances (in some cases, more than one company is named
for a given site):
JCP&L MET-ED PENELEC GPUN GPU INC. TOTAL
5 4 2 1 1 10
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GPU, Inc. and Subsidiary Companies
In addition, certain of the GPU companies have been requested to
participate in the remediation or supply information to the EPA and state
environmental authorities on several other sites for which they have not been
formally named as PRPs, although the EPA and state authorities may
nevertheless consider them as PRPs. Certain of the GPU companies have also
been named in lawsuits requesting damages for hazardous and/or toxic
substances allegedly released into the environment. The ultimate cost of
remediation will depend upon changing circumstances as site investigations
continue, including (a) the existing technology required for site cleanup,
(b) the remedial action plan chosen and (c) the extent of site contamination
and the portion attributed to the GPU companies involved.
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 modified
Consent Order, which became effective December 1996, that establishes a
schedule for long-term remediation, based on future operating scenarios,
including reboilering the station using fluidized bed combustion technology.
Penelec currently estimates that the remediation of the Seward station
property will range from $12 to $20 million and has a recorded liability of
$12 million at March 31, 1997. These cost estimates are subject to
uncertainties based on continuing discussions with the PaDEP as to the method
of remediation, the extent of remediation required and available cleanup
technologies. Penelec will seek, and expects, recovery of these remediation
costs in its restructuring plan to be filed with the PaPUC (see Competitive
Environment, Management's Discussion and Analysis), and has recorded a
corresponding regulatory asset of approximately $12 million at March 31, 1997.
The GPU Energy companies are required to submit applications for re-
permitting seven operating ash disposal sites to the PaDEP by July 1997,
including projected site closure procedures and related cost estimates.
Applications have been filed with the PaDEP for all of these sites. The cost
estimates for the closure of these sites range from approximately $15 million
to $29 million, and a liability of $15 million (JCP&L $1 million; Met-Ed $4
million; Penelec $10 million) is reflected on the Consolidated Balance Sheets
at March 31, 1997. JCP&L's share of these costs is deferred based on past
rate recovery precedent, and Penelec and Met-Ed expect recovery through their
restructuring plans to be filed with the PaPUC (see Competitive Environment,
Management's Discussion and Analysis). As a result, a regulatory asset of $15
million is reflected on the Consolidated Balance Sheets at March 31, 1997.
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 March 31, 1997, JCP&L has spent approximately $26 million in
connection with the cleanup of these sites. In addition, JCP&L has recorded an
estimated environmental liability of $45 million relating to expected future
costs of these sites (as well as two other properties). This estimated
liability is based upon ongoing site investigations and remediation efforts,
which generally involve capping the sites and pumping and treatment of ground
water. Moreover, the cost to clean up these sites could be materially in
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GPU, Inc. and Subsidiary Companies
excess of $45 million due to significant uncertainties, including changes in
acceptable remediation methods and technologies.
In March 1997, JCP&L's request to establish a Remediation Adjustment
Clause for the recovery of MGP remediation costs was approved by the NJBPU as
part of the Stipulation of Final Settlement (See Rate Matters section,
Management's Discussion and Analysis). At March 31, 1997, JCP&L had recorded
on its Consolidated Balance Sheet a regulatory asset of $52 million, which
included approximately $45 million related to expected future costs and
approximately $7 million for past remediation expenditures in excess of
collections from customers (including interest) (See Regulatory Assets and
Liabilities).
JCP&L is pursuing reimbursement from its insurance carriers for
remediation costs already spent and for future estimated costs. In 1994,
JCP&L filed a complaint with the Superior Court of New Jersey against several
of its insurance carriers, relative to these MGP sites. Pretrial discovery
has begun in this case.
OTHER COMMITMENTS AND CONTINGENCIES
GPU International Group:
At March 31, 1997, the GPU International Group had investments totaling
approximately $790 million in facilities located in 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).
At March 31, 1997, GPU, Inc.'s aggregate investment in the GPU
International Group was $211 million; GPU, Inc. has also guaranteed up to an
additional $857 million of GPU International Group obligations. Of this
amount, $656 million is included in Long-term debt on GPU's Consolidated
Balance Sheet at March 31, 1997; $30 million relates to a GPU International,
Inc. revolving credit agreement; and $171 million relates to various other
obligations of the GPU International Group.
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 in three NUG projects
which have long-term power purchase agreements with NIMO with an aggregate
book value of approximately $34 million. In March 1997, NIMO and 19
independent power producers (IPP), including the GPU International Group,
agreed in principle to restructure or terminate their 44 power purchase
agreements. NIMO is offering $3.6 billion in cash and/or debt securities, and
46 million shares of NIMO common stock to either restructure or terminate
these power purchase agreements. The specific terms of restructured contracts
that may be executed will be negotiated separately with each IPP.
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GPU, Inc. and Subsidiary Companies
Parties to the agreement must still resolve a number of important issues
and final resolution will require the execution of separate agreements for
each project; approval by NIMO shareholders, the New York Public Service
Commission, and other state and federal agencies; third party consents;
successful financing by NIMO; and resolution of certain tax issues. The
parties are attempting to complete the transactions by the end of 1997. There
can be no assurance as to the outcome of this matter.
NIMO has also initiated an action in federal court seeking to invalidate
numerous NUG contracts, including the three GPU International, Inc. projects
discussed above. GPU International, Inc. has filed motions to dismiss the
complaint. There can be no assurance as to the outcome of these proceedings.
The Labour Party in the United Kingdom has proposed a windfall tax on
privatized utilities and other companies as part of its election campaign
platform. General elections in the United Kingdom are scheduled to be held on
May 1, 1997. If the Labour Party wins the general election, and the tax is
enacted as currently proposed, a charge to Midlands' earnings, which is
estimated to range from $110 million to $350 million (GPU's 50% share being
$55 million to $175 million), would be recorded in 1997, perhaps as early as
the second quarter. Due to the fact that (1) the Labour Party may not win the
election; (2) the windfall tax may not be enacted as currently proposed; and
(3) the amount of the proposed tax may change, there is no certainty that this
tax, if levied, would be enacted as currently proposed.
Other:
GPU's construction programs, for which substantial commitments have been
incurred and which extend over several years, contemplate expenditures of $402
million (JCP&L $185 million; Met-Ed $90 million; Penelec $120 million; Other
$7 million) during 1997. 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.
The GPU Energy companies have entered into long-term contracts with
nonaffiliated mining companies for the purchase of coal for certain generating
stations in which they have ownership interests. The contracts, which expire
at various dates between 1997 and 2004, require the purchase of either fixed
or minimum amounts of the stations' coal requirements. The price of the coal
under the contracts is based on adjustments of indexed cost components. One
of Penelec's contracts for the Homer City station also includes a provision
for the payment of postretirement benefit costs. The GPU Energy companies'
share of the cost of coal purchased under these agreements is expected to
aggregate $133 million (JCP&L $23 million; Met-Ed $29 million; Penelec $81
million) for 1997.
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 745 MW in 1997, declining to 527 MW in 1999 and 345 MW in
2000, through the expiration of the final agreement in 2004. Payments
pursuant to these agreements are estimated to be $145 million in 1997, $128
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GPU, Inc. and Subsidiary Companies
million in 1998, $104 million in 1999, $84 million in 2000 and $99 million in
2001.
In October 1996, JCP&L was named as a defendant in a breach of contract
lawsuit against Freehold Cogeneration Associates (Freehold) brought by Nestle
Beverage Company (Nestle) in the New Jersey Superior Court. The lawsuit
relates to the April 1996 agreement under which JCP&L agreed to buy out the
power purchase agreement for the proposed 110 MW Freehold cogeneration
project. Nestle is seeking damages of at least $75 million for Freehold's
alleged breach of its steam sales agreement with Nestle and approximately
$412 million in damages against JCP&L for alleged unlawful interference with
that agreement. Nestle has also requested punitive damages in an unspecified
amount. JCP&L believes the claims against it are without merit. There can be
no assurance as to the outcome of this matter.
In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU
Energy companies have entered into contracts with, and have been paying fees
to, the DOE for the future disposal of spent nuclear fuel in a repository or
interim storage facility. In December 1996, the DOE notified the GPU Energy
companies and other standard contract holders that it will be unable to begin
acceptance of spent nuclear fuel for disposal by 1998, as mandated by the
NWPA. The DOE has requested recommendations for handling the delay. In
January 1997, the GPU Energy companies, along with other electric utilities
and state agencies, petitioned the U.S. Court of Appeals to, among other
things, permit utilities to cease payments into the Federal Nuclear Waste Fund
until the DOE complies with the NWPA. The DOE's inability to accept spent
nuclear fuel by 1998 could have a material impact on GPU's results of
operations, as additional costs may be incurred to build and maintain interim
on-site storage at Oyster Creek. TMI-1 has sufficient on-site storage
capacity to accommodate spent nuclear fuel through the end of its licensed
life. There can be no assurance as to the outcome of this matter.
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste disposal facility in New Jersey, which
should commence operation by the end of 2003. GPUN's total share of the cost
for developing, constructing, and site licensing the facility is estimated to
be $58 million, which will be paid through 2002. Through March 31, 1997, $6
million has been paid. As a result, at March 31, 1997, a liability of $52
million is reflected on the Consolidated Balance Sheets. JCP&L is recovering
these costs from customers, and a regulatory asset has also been recorded.
(See the Regulatory Assets and Liabilities section.)
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 $11.7 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.
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GPU, Inc. and Subsidiary Companies
Many of GPU's computer systems must be modified due to certain
programming limitations in recognizing dates beyond 1999. GPU currently
estimates that it will cost approximately $20 million to $35 million to modify
these systems. These costs will be expensed as incurred.
As of March 31, 1997, approximately 53% of GPU's workforce was
represented by unions for collective bargaining purposes. Met-Ed, Penelec and
JCP&L's collective bargaining agreements expire in 1997, 1998 and 1999,
respectively.
During the normal course of the operation of its businesses, in addition
to the matters described above, GPU is from time to time involved in disputes,
claims and, in some cases, as a defendant 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's financial
position or results of operations, there can be no assurance that this will
continue to be the case.
2. 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. Brooklyn Energy, L.P. is being accounted for
under the equity method of accounting in anticipation of a reduction of the
percentage to 27%. Investments accounted for under the equity method follow:
Ownership
Investment Location of Operations Percentage
Brooklyn Energy, L.P. Canada 75%
Avon Energy Partners
Holdings (owns Midlands) United Kingdom 50%
Solaris Power Australia 50%
Prime Energy, L.P. United States 50%
Onondaga Cogen, L.P. United States 50%
Pasco Cogen, Ltd. United States 50%
Lake Cogen, Ltd. United States 50%
FPB Cogeneration Partners, L.P. United States 30%
Termobarranquilla S.A. Colombia 29%
Polsky Energy Corporation United States & Canada 25%
Selkirk Cogeneration Partners, L.P. United States 19%
EnviroTech Investment Fund United States 10%
Ballard Generation Systems, Inc. Canada 6%
Project Orange Associates, L.P. United States 4%
OLS Power, L.P. United States 1%
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Summarized financial information for the GPU International Group's equity
investments (which are not consolidated in the financial statements),
including both the GPU International Group's ownership interests and the non-
ownership interests, is as follows:
March 31, December 31,
Balance Sheet Data (in thousands) 1997 1996
Current Assets $ 953,689 $ 1,016,730
Noncurrent Assets 5,520,004 5,761,593
Current Liabilities (1,094,488) (1,207,038)
Noncurrent Liabilities (3,982,047) (4,080,475)
Net Assets $ 1,397,158 $ 1,490,810
GPU International Group's
Equity in Net Assets $ 689,773 $ 735,763
For the Three Months Ended
March 31, March 31,
Earnings Data (in thousands) 1997 1996
Revenues $ 1,824,884 $ 173,020
Operating Income $ 185,828 $ 32,482
Net Income $ 48,145 $ 3
GPU International Group's
Equity in Net Income/(Loss) $ 32,227 $ (645)
As of March 31, 1997 and December 31, 1996, the amount of investments
accounted for under the equity method included goodwill, net of accumulated
amortization, of approximately $23.7 million and $23.8 million, respectively,
which is amortized to expense over periods not exceeding 40 years.
Amortization expense amounted to $0.1 million and $0.2 million for the three
months ended March 31, 1997 and 1996, respectively.
In addition, the GPU International Group's 50% ownership interest in
Empresa Guaracachi, S.A., a Bolivian electric generating company, is accounted
for as a consolidated entity in GPU's financial statements. The GPU
International Group also has a 100% ownership interest in Mid-Georgia Cogen,
L.P., a cogeneration facility under construction, which is currently accounted
for as a consolidated entity in GPU's financial statements.
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COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GPU, Inc. owns all the outstanding common stock of three domestic
electric utilities -- Jersey Central Power & Light Company (JCP&L),
Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company
(Penelec). The customer service, transmission and distribution operations of
these electric utilities are conducting business under the name GPU Energy.
JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU
Energy companies." The generation operations of these three electric
utilities are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc.
(GPUN). GPU, Inc. also owns all the common stock of GPU International, Inc.,
GPU Power, Inc. and GPU Electric, Inc., which primarily develop, own and
operate generation, transmission and distribution facilities and supply
businesses in the United States and in foreign countries. Collectively, these
are referred to as the "GPU International Group." GPU Service, Inc. provides
certain legal, accounting, financial and other services to the GPU companies.
In February 1997, GPU formed GPU Advanced Resources, Inc. (GPU AR) to engage
in telecommunications services, energy services and retail energy sales. All
of these companies considered together are referred to as "GPU."
GPU RESULTS OF OPERATIONS
GPU's earnings for the first quarter ended March 31, 1997 were $155.0
million, or $1.28 per share, compared to 1996 first quarter earnings of $108.3
million, or $0.90 per share.
The increase in earnings was due primarily to higher GPU International
Group income, resulting mainly from the May 1996 acquisition of Midlands
Electricity plc (Midlands); the recording of step increases in operating
revenue by Met-Ed and Penelec as a result of including their energy cost rates
(ECRs) in base rates and the cessation of deferred energy accounting, both
effective January 1, 1997; and lower operation and maintenance expenses.
Partially offsetting these items were certain charges in connection with the
New Jersey Board of Public Utilities' (NJBPU) approval of a Stipulation of
Final Settlement (Final Settlement) (See RATE MATTERS), and a gain on sale of
securities in 1996. Also affecting the first quarter's results were lower
weather related residential sales due to warmer winter weather this year as
compared to last year, offset by increased industrial and commercial customer
usage.
OPERATING REVENUES:
Total revenues for the first quarter of 1997 increased 1.9% to $1.0
billion, as compared to the first quarter of 1996. The components of the
changes are as follows:
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GPU RESULTS OF OPERATIONS (continued)
(In Millions)
Kilowatt-hour (KWH) revenues $ 28.8
Energy revenues (10.9)
Other revenues 1.2
Increase in revenues $ 19.1
Kilowatt-hour revenues
The increase in KWH revenues for the three month period was due primarily
to the step increases recorded by Met-Ed and Penelec from inclusion of their
ECRs in base rates, and increased usage by commercial and industrial customers
offset by the warmer winter weather in the first quarter of 1997 as compared
to the first quarter of 1996. KWH revenues now includes Met-Ed and Penelec's
energy and tax revenues, consistent with the inclusion of their ECRs and State
Tax Adjustment Surcharges (STAS) in base rates, effective January 1, 1997 (See
COMPETITIVE ENVIRONMENT). Met-Ed and Penelec's energy and tax revenues for
the prior year have been reclassified for comparative purposes.
Energy revenues (JCP&L only)
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in JCP&L's levelized energy adjustment clause (LEAC)
billed to customers and expensed. The decrease was due primarily to a
decrease in 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, in the case of JCP&L.
OPERATING EXPENSES:
Power purchased and interchanged (PP&I)
For JCP&L, changes in the energy component of PP&I expense do not
significantly affect earnings since cost increases or decreases are passed
through the LEAC. For Met-Ed and Penelec, such energy cost variances are no
longer subject to deferred accounting. However, Met-Ed and Penelec's
incremental nonutility generation (NUG) costs are being deferred, based on the
Pennsylvania restructuring legislation (see COMPETITIVE ENVIRONMENT). Lower
reserve capacity expense (which is a component of PP&I) contributed to
earnings for the first quarter of 1997.
Fuel and Deferral of energy costs, net
Deferral of energy costs for 1997 only include amounts for JCP&L because
Met-Ed and Penelec's ECRs were combined with base rates effective January 1,
1997 (see COMPETITIVE ENVIRONMENT). The cessation of deferred energy
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GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
accounting by Met-Ed and Penelec did not have a significant impact on earnings
for the first quarter of 1997. For JCP&L, fuel and deferral of energy costs
do not affect earnings as they are offset by corresponding changes in energy
revenues.
Other operation and maintenance (O&M)
The decrease in other O&M expenses for the three month period was due
primarily to a decrease in winter storm repair work, and a decrease in
insurance costs.
Depreciation and amortization
The increase in depreciation and amortization expense for the three month
period was due primarily to additions to plant in service.
Taxes, other than income taxes
For JCP&L, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues. However,
effective January 1, 1997, Met-Ed and Penelec's STAS were combined with base
rates, and are no longer subject to annual adjustment. Therefore,
fluctuations in such taxes can impact earnings (see COMPETITIVE ENVIRONMENT).
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
The increase in other income/(expense) was due primarily to increased
income at GPU Electric of approximately $24 million, mainly due to the
inclusion of Midlands, partially offset by GPU International's sale of
securities in the first quarter of 1996, which resulted in a gain of $9.5
million (pre tax).
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Other interest
The increase in other interest for the three month period was due
primarily to higher short-term debt levels.
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GPU, Inc. and Subsidiary Companies
JCP&L RESULTS OF OPERATIONS
JCP&L's earnings for the first quarter ended March 31, 1997 were $55.2
million, compared to 1996 first quarter earnings of $50.9 million. The
increase in earnings was due primarily to a reduction in purchased power and
other O&M expenses, partially offset by lower weather-related residential
sales and certain charges in connection with the NJBPU's approval of the Final
Settlement (See RATE MATTERS).
OPERATING REVENUES:
Total revenues for the first quarter of 1997 decreased 3.6% to $510
million, as compared to the first quarter of 1996. The components of the
changes are as follows:
(In Millions)
Kilowatt-hour revenues
(excluding energy portion) $ (5.5)
Energy revenues (12.9)
Other revenues (0.4)
Decrease in revenues $(18.8)
Kilowatt-hour revenues
The decrease in KWH revenues was due to reduced sales to residential
customers due to warmer winter weather this year as compared to last year,
partially offset by increased usage by existing commercial and industrial
customers, and a slight increase in the number of residential and commercial
customers. Also contributing to the decrease was a charge related to JCP&L's
final settlement (see RATE MATTERS), representing the portion of JCP&L's
return on equity which exceeds the maximum amount allowed, and must be applied
against customers' base rates.
Energy revenues
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The decrease in energy revenues was due primarily to a decrease in
sales to other utilities, and to residential customers due to the warmer
winter weather, partially offset by higher energy cost rates in effect.
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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GPU, Inc. and Subsidiary Companies
JCP&L 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 the energy adjustment clause. However, lower reserve
capacity expense (which is a component of PP&I) due to reduced purchases from
Pennsylvania Power & Light contributed to earnings for the first quarter of
1997.
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.
Other operation and maintenance
The decrease in other O&M expenses was primarily due to decreases in
project expenses at Oyster Creek, and a decrease in storm and emergency
related activity.
Depreciation and amortization
The increase in depreciation and amortization expense was due primarily
to charges related to JCP&L's Final Settlement (see RATE MATTERS). One of the
charges represents the portion of JCP&L's return on equity which exceeds the
maximum amount allowed, and must be applied against JCP&L's stranded costs.
The other charge represents an allowance for forecasted nuclear additions.
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, net was due largely to the first quarter
1996 write-off of $2.4 million of inventory in connection with the retirement
of the Werner and Gilbert generating stations.
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GPU, Inc. and Subsidiary Companies
JCP&L RESULTS OF OPERATIONS (continued)
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Other Interest
The increase in other interest expense is due to higher short-term debt
levels.
MET-ED RESULTS OF OPERATIONS
Met-Ed's earnings for the first quarter ended March 31, 1997 were $39.6
million, compared to 1996 first quarter earnings of $23.8 million. The
increase in earnings was due primarily to the step increase in operating
revenue resulting from the inclusion of the ECR in base rates and the
cessation of deferred energy accounting, effective January 1, 1997 (See
COMPETITIVE ENVIRONMENT). Also affecting the first quarter's results were
lower weather related residential sales due to warmer winter weather this year
as compared to last year, offset by increased usage by customers and lower
operation and maintenance expenses.
OPERATING REVENUES:
Total revenues for the first quarter of 1997 increased 7.4% to $255
million as compared to the first quarter of 1996. The components of the
changes are as follows:
(In Millions)
Kilowatt-hour revenues $ 16.9
Other revenues 0.7
Increase in revenues $ 17.6
Kilowatt-hour revenues
The increase in KWH revenues was due primarily to the step increase
resulting from the inclusion of the energy cost rates in base rates, amounting
to $13 million. Also contributing to the increase was increased usage by
customers and a slight increase in the number of customers. Partially
offsetting these items were lower weather related sales due to warmer winter
weather this year as compared to last year, and reduced sales to other
utilities.
OPERATING EXPENSES:
Fuel and Deferral of energy costs, net
Effective January 1, 1997, Met-Ed no longer defers energy costs, due to
the inclusion of the ECR in base rates and the cessation of deferred energy
accounting.
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MET-ED RESULTS OF OPERATIONS (continued)
Other operation and maintenance
The decrease in other O&M expenses was due primarily to a reduction in
storm and emergency related activity, and a decrease in property and liability
insurance costs.
Depreciation and amortization
The increase in depreciation and amortization was due to additions to
plant in service.
Taxes, other than income taxes
The increase in taxes other than income taxes was primarily due to the
step increase from inclusion of the ECR in base rates, which resulted in
increased accruals for Pennsylvania gross receipts tax, along with a
corresponding increase in revenues. Such revenues are now included with KWH
revenues, since the STAS is included with base rates effective January 1, 1997
(see COMPETITIVE ENVIRONMENT).
PENELEC RESULTS OF OPERATIONS
Penelec's earnings for the first quarter ended March 31, 1997 were $42.8
million, compared to 1996 first quarter earnings of $30.1 million. The
increase in earnings was due primarily to the step increase in operating
revenue resulting from the inclusion of the energy cost rates in base rates
and the cessation of deferred energy accounting, effective January 1, 1997
(See COMPETITIVE ENVIRONMENT). Also contributing to the increase were lower
operation and maintenance expenses, and increased usage by customers. These
items were partially offset by lower weather related residential sales due to
warmer winter weather this year as compared to last year.
OPERATING REVENUES:
Total revenues for the first quarter of 1997 increased 7.6% to $290
million, as compared to the first quarter of 1996. The components of the
changes are as follows:
(In Millions)
Kilowatt-hour revenues $ 17.4
Other revenues 3.0
Increase in revenues $ 20.4
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GPU, Inc. and Subsidiary Companies
PENELEC RESULTS OF OPERATIONS (continued)
Kilowatt-hour revenues
The increase in KWH revenues was due primarily to the step increase
resulting from the inclusion of the energy cost rates in base rates, amounting
to $15 million; and increased usage by customers. Partially offsetting these
items were lower weather related sales due to warmer winter weather this year
as compared to last year, and reduced sales to other utilities.
OPERATING EXPENSES:
Power purchased and interchanged
The decrease in PP&I is due to decreased purchases from other utilities
and power marketers. Effective January 1, 1997, these energy cost variances
are no longer subject to deferred accounting. However, incremental NUG costs
are being deferred, based on the Pennsylvania restructuring legislation (see
COMPETITIVE ENVIRONMENT).
Fuel and Deferral of energy costs, net
Effective January 1, 1997, Penelec no longer defers energy costs, due to
the inclusion of the ECR in base rates and the cessation of deferred energy
accounting.
Other operation and maintenance
The decrease in other O&M expenses was due to a reduction in pension and
employee insurance costs, primarily a result of the reduced number of
employees following the voluntary enhanced retirement program in 1996.
Depreciation and amortization
The increase in depreciation and amortization expense was due to
additions to plant in service, and an increase in depreciation rates.
Taxes, other than income taxes
The increase in taxes other than income taxes was primarily due to the
step increase from inclusion of the ECR in base rates, which resulted in
increased accruals for Pennsylvania gross receipts tax, along with a
corresponding increase in revenues. Such revenues are now included with KWH
revenues, since the STAS is included with base rates effective January 1, 1997
(see COMPETITIVE ENVIRONMENT).
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GPU INTERNATIONAL GROUP
The GPU International Group develops, owns and operates electric
generation, transmission and distribution facilities and supply businesses in
the U.S. and foreign countries. It has also made investments in certain
advanced technologies related to the electric power industry. The GPU
International Group has ownership interests in distribution and supply
businesses in England and Australia, nine operating cogeneration plants in the
U.S. totaling 873 MW (of which the GPU International Group's equity interest
represents 261 MW) of capacity, and eleven operating generating facilities
located in foreign countries totaling 2,620 MW (of which the GPU International
Group's equity interest represents 527 MW) of capacity.
The GPU International Group is continuing to pursue investment
opportunities and has commitments, both domestically and internationally, in 5
generating facilities under construction totaling 3,172 MW (of which the GPU
International Group's equity interest represents 816 MW) of capacity.
At March 31, 1997, GPU, Inc.'s aggregate investment in the GPU
International Group was $211 million; GPU, Inc. has also guaranteed up to an
additional $857 million of GPU International Group obligations. GPU, Inc. has
Securities and Exchange Commission (SEC) approval to finance investments in
foreign utility companies and exempt wholesale generators up to an aggregate
amount equal to 50% of GPU's average consolidated retained earnings, or
approximately $1 billion. At March 31, 1997, GPU, Inc. had remaining
authorization to finance an additional $44 million of such investments. A
request to increase this limit to 100% of GPU's average consolidated retained
earnings, or to approximately $2 billion at March 31, 1997, is pending.
The Labour Party in the United Kingdom has proposed a windfall tax on
privatized utilities and other companies as part of its election campaign
platform. General elections in the United Kingdom are scheduled to be held on
May 1, 1997. If the Labour Party wins the general election, and the tax is
enacted as currently proposed, a charge to Midlands' earnings, which is
estimated to range from $110 million to $350 million (GPU's 50% share being
$55 million to $175 million), would be recorded in 1997, perhaps as early as
the second quarter. Due to the fact that (1) the Labour Party may not win the
election; (2) the windfall tax may not be enacted as currently proposed; and
(3) the amount of the proposed tax may change, there is no certainty that this
tax, if levied, would be enacted as currently proposed.
Management expects that the GPU International Group will provide a
substantial portion of GPU's future earnings growth and intends on making
additional investments in its business activities. The timing and amounts of
these investments, however, will depend upon the availability of appropriate
opportunities and financing capabilities, including receipt of regulatory
authorization from the SEC.
For additional information on the GPU International Group's investments,
see Note 2 to GPU's Consolidated Financial Statements.
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LIQUIDITY AND CAPITAL RESOURCES
Capital Needs
GPU's cash construction expenditures for the three months ended March 31,
1997 were $80 million (JCP&L $43 million; Met-Ed $18 million; Penelec $19
million). Construction expenditures for the year are forecasted to be $402
million (JCP&L $185 million; Met-Ed $90 million; Penelec $120 million; Other
$7 million), Expenditures for maturing obligations will total $179 million
(JCP&L $110 million; Met-Ed $40 million; Penelec $26 million; Other $3
million) in 1997. GPU and the GPU Energy companies estimate that a
substantial portion of their 1997 capital needs will be satisfied through
internally generated funds.
Financing
GPU, Inc. has received SEC approval to issue and sell up to $300
million of unsecured debentures through 2001 and up to seven million shares of
additional common stock through 1998. GPU, Inc. has no current plans to issue
these securities. Any sale of such securities will, among other things,
depend upon future capital requirements and market conditions.
As a result of Pennsylvania legislation (see Competitive Environment
section), Met-Ed and Penelec each plan to sell securitized transition bonds
through a separate trust or other similar entity, and would use the proceeds
to reduce capitalization and further mitigate stranded costs resulting from
customer choice. Met-Ed and Penelec plan to use securitization proceeds to
fund any cash payments expected to be made under the NUG Request for Proposals
(RFPs), should proposals materialize that are economically justified (See the
Managing Nonutility Generation section of THE GPU ENERGY COMPANIES' SUPPLY
PLAN). The timing and amount of any sale will depend upon PaPUC approval of
restructuring plans, as well as market conditions. See COMPETITIVE
ENVIRONMENT for further discussion of these bonds.
The GPU Energy companies have regulatory authority to issue and sell
first mortgage bonds (FMBs), including secured medium-term notes, and
preferred stock through various periods into 1997. In March 1997, JCP&L filed
a request with the NJBPU to extend such authorization to June 1999. Met-Ed and
Penelec also intend to seek regulatory approval in 1997 to extend their
authorizations for a two year period. Under existing authorizations, JCP&L,
Met-Ed and Penelec may issue these senior securities in aggregate amounts of
$145 million, $190 million and $120 million, respectively, of which up to $100
million for each company may consist of preferred stock. The GPU Energy
companies also have regulatory authority to incur short-term debt, a portion
of which may be through the issuance of commercial paper.
In January 1997, JCP&L redeemed an aggregate of $54.2 million principal
amount of FMBs, of which $24.2 million were redeemed prior to maturity.
Met-Ed is planning to issue $13.7 million of tax-exempt FMBs through
the Indiana County Industrial Development Authority in June 1997 to replace
short-term financing currently in place, related to a solid waste disposal
facility at the jointly owned Conemaugh station.
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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 the companies may issue. The GPU Energy companies'
interest and preferred dividend coverage ratios are currently in excess of
indenture and charter restrictions. The amount of FMBs that the GPU Energy
companies could issue based on the bondable value of property additions is in
excess of amounts currently authorized.
Capitalization
On April 3, 1997, the quarterly dividend on GPU, Inc.'s common stock was
increased by 3.1% to an annualized rate of $2.00 per share. The dividend is
payable May 28, 1997 to shareholders of record April 25, 1997.
COMPETITIVE ENVIRONMENT
The GPU Energy companies estimate that their total potential above market
costs relating to power purchase commitments, above market generation costs,
generating plant decommissioning costs and regulatory assets at year end 1998,
on a present value basis, could range from $4.5 billion to $8 billion (JCP&L
$2.5 billion to $4 billion; Met-Ed $1 billion to $2 billion; Penelec $1
billion to $2 billion). The estimate is subject to significant uncertainties
including the future market price of both electricity and other competitive
energy sources, as well as the timing of when these above market costs become
stranded due to customers choosing another supplier. As discussed below, both
the restructuring legislation in Pennsylvania and the proposed restructuring
plan in New Jersey provide mechanisms for utilities to recover, subject to
regulatory approval, their above market costs. These regulatory recovery
mechanisms in Pennsylvania and New Jersey will differ, but should allow for
the recovery of non-mitigable above market costs through either distribution
charges or separate nonbypassable charges to customers.
In 1996, Pennsylvania adopted comprehensive legislation which provides
for the restructuring of the electric utility industry. The legislation,
among other things, permits one-third of Pennsylvania retail consumers to
choose their electric supplier beginning January 1, 1999, and all retail
consumers by January 1, 2001. The legislation requires the unbundling of
rates for transmission, distribution and generation services. Utilities would
have the opportunity to recover their prudently incurred stranded costs that
result from customers choosing another supplier through a PaPUC approved
competitive transition charge, subject to certain conditions, including that
they attempt to mitigate these costs. For a discussion of stranded costs, see
the Competition and the Changing Regulatory Environment section of Note 1 to
GPU's Consolidated Financial Statements.
Met-Ed and Penelec are scheduled to file their respective restructuring
plans with the PaPUC on June 2, 1997. The PaPUC is required to conduct public
hearings prior to its approval of these plans.
The legislation provides utilities the opportunity to reduce their
stranded costs through the issuance of transition bonds with maturities of up
to 10 years. The sale proceeds could be used to buy out or buy down
53
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GPU, Inc. and Subsidiary Companies
uneconomic NUG contracts, to reduce capitalization, or both. Principal and
interest payments on the bonds would be paid by all distribution service
customers through a nonbypassable intangible transition charge. Reduced
financing costs associated with the sale of transition bonds would be used to
provide rate reductions for all customers. In order to securitize stranded
costs, each Pennsylvania utility is required to file with the PaPUC for a
qualified rate order. Met-Ed and Penelec expect to file for such rate orders
during 1997.
Effective January 1, 1997, transmission and distribution rates charged to
Pennsylvania retail customers are generally capped for 4 1/2 years, and
generation rates are generally capped for up to nine years. Transmission and
distribution of electricity will continue as a regulated monopoly and the
PaPUC will ensure that adequate electrical reserves exist to maintain reliable
service. An independent system operator (ISO) will be responsible for
coordinating the generation and transmission of electricity in an efficient
and nondiscriminatory manner.
As part of this restructuring, Met-Ed and Penelec filed, in December
1996, tariff supplements requesting approval to, among other things, include
their currently effective ECRs and STAS in base rates, effective for all bills
rendered after January 1, 1997. In February 1997 the PaPUC approved this
request. Since rates that can be charged to customers for generation are
capped for up to nine years, Met-Ed and Penelec's future earnings are subject
to market volatility. Increases or decreases in fuel costs are no longer
subject to deferred accounting and are reflected in net income as incurred.
Met-Ed and Penelec will continue their efforts to manage fuel costs and will
mitigate, to the extent possible, any excessive risks. As a result of
including their ECRs in base rates and the cessation of deferred energy
accounting, both effective January 1, 1997, Met-Ed and Penelec experienced
step increases in reported revenues totaling approximately $28 million (Met-Ed
$13 million; Penelec $15 million) in the first quarter of 1997.
In March 1997 a State Senator and several consumer groups filed a lawsuit
with the Commonwealth Court of Pennsylvania challenging the constitutionality
of the procedure used to enact the Pennsylvania restructuring legislation. The
lawsuit asks the court to void the legislation and permanently enjoin the
PaPUC from taking any action thereunder. There can be no assurance as to the
outcome of this proceeding.
The PaPUC has also issued a final order that sets forth the guidelines
for retail access pilot programs in Pennsylvania. These pilot programs shall
include residential, commercial and industrial class customers, and utilities
are required to commit about 5% of load to retail access programs and unbundle
their rates to allow customers to choose their electric generation supplier.
In March 1997, Met-Ed and Penelec filed with the PaPUC their plan for a pilot
program that would offer approximately 51,000 (Met-Ed 23,000; Penelec 28,000)
customers the ability to choose their electric generation supplier. The pilot
program, which is subject to PaPUC approval, is anticipated to begin in the
fourth quarter of 1997 and to be in effect for at least one year.
54
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GPU, Inc. and Subsidiary Companies
In April 1997, the NJBPU issued its final findings and recommendations
for restructuring the electric utility industry in New Jersey. The NJBPU
intends to submit the plan to the Governor and the Legislature in May 1997 for
their consideration . The NJBPU recommends, among other things, that certain
electric retail customers be permitted to choose their supplier beginning
October 1998, expanding to include all retail customers by July 1, 2000. The
NJBPU also recommends a near-term electric rate reduction of 5% to 10% with
the phase in of retail competition, and combined with the effects of separate
proposed legislation which modifies the state's energy tax policy, an
aggregate rate reduction of at least 10% to 15% over time.
The NJBPU proposes that utilities have an opportunity to recover their
stranded costs associated with generating capacity commitments provided that
they attempt to mitigate these costs. Also, NUG contracts which cannot be
mitigated will be eligible for stranded cost recovery. The determination of
stranded cost recovery by the NJBPU would be undertaken on a case-by-case
basis, with no guarantee for full recovery of these costs. A separate market
transition charge (MTC) would be established for each utility to allow
utilities to recover stranded costs over 4 to 8 years. The MTC would be
capped to ensure that customers experience the NJBPU's recommended overall
rate reduction of 5% to 10%. New Jersey is also considering securitization as
a mechanism to help mitigate stranded costs.
In addition, the NJBPU is proposing that beginning October 1998,
utilities unbundle their rates to allow customers to choose their electric
generation supplier. Transmission and distribution of electricity would
continue as a regulated monopoly and utilities would be responsible for
connecting customers to the system and for providing distribution service.
Transmission service would be provided by an ISO, who would be responsible for
maintaining the reliability of the regional power grid and would be regulated
by the Federal Energy Regulatory Commission (FERC).
The NJBPU proposes requiring electric utilities in New Jersey to file by
July 15, 1997, complete restructuring plans, stranded cost filings and
unbundled rate filings. The NJBPU intends to complete its review of these
filings by October 1998.
In addition to the continued operation of the Oyster Creek facility,
JCP&L is exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. JCP&L is exploring these options due
to the plant's high cost of generation compared to the current market price of
electricity. If a decision is made to retire the plant early, retirement
would likely occur in about 2000. Management believes that the current rate
structure would allow for the recovery of and return on its net investment in
the plant and provide for decommissioning costs. JCP&L plans to propose these
options to the NJBPU as part of its July 1997 restructuring filing.
JCP&L is seeking NJBPU approval of a one-year pilot program offering
customers in Monroe Township, New Jersey a choice of their electric energy
supplier. The pilot program is scheduled to begin in July 1997; customer
education forums for township residents and businesses were held in March
55
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GPU, Inc. and Subsidiary Companies
1997. At the end of the first year, Monroe Township will have the option of
renewing the pilot. Monroe Township had been exploring the possibility of
establishing its own municipal electric system.
In 1997, several bills were introduced in Congress providing for a
comprehensive restructuring of the electric utility industry. These bills
propose, among other things, retail choice for all utility customers beginning
as early as January 1999, the opportunity for utilities to recover their
prudently incurred stranded costs in varying degrees, and repeal of both the
Public Utility Regulatory Policies Act (PURPA) and the Public Utility Holding
Company Act of 1935.
In 1996, the GPU Energy companies, along with six other electric utility
members of the Pennsylvania-New Jersey-Maryland (PJM) Power Pool (together,
the supporting PJM companies), filed with the FERC a transmission tariff and
agreements (including, among other things, establishing an ISO to operate the
energy market and transmission system), that would create a new wholesale
energy market to meet the requirements of FERC Order 888, and to increase
competition in the Mid-Atlantic region.
On February 28, 1997, the FERC issued an order directing PJM to adopt all
recommendations proposed by the supporting PJM companies except with regard to
congestion pricing, which the FERC ordered implementation of PECO Energy's
proposal on an interim basis. The FERC has stated that it expects it will
order PJM to adopt the supporting PJM companies' proposal on congestion
pricing after certain issues are resolved concerning implementation of this
proposal. Effective March 31, 1997, the PJM Power Pool converted to a limited
liability corporation governed by an independent board of managers; an ISO is
expected to eventually be formed to operate the PJM power pool.
RATE MATTERS
Pennsylvania adopted comprehensive legislation in 1996 which provides for
the restructuring of the electric utility industry. For additional
information and related rate matters, see the Competitive Environment section.
In 1996, the NJBPU approved a provisional settlement for a combined LEAC
and Demand-Side Factor (DSF) increase of $27.9 million annually. The DSF is
applied to customer rates so electric utilities can recover their demand-side
management program costs, which include activities designed to improve
efficiency in customer electricity use and load-management programs that
reduce peak demand.
Also in 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. An
Administrative Law Judge (ALJ) issued a decision recommending approval of the
Final Settlement, but the NJBPU ordered additional evidentiary hearings on the
recovery of buyout costs for the Freehold cogeneration project discussed below
(see The GPU Energy Companies' Supply Plan - Managing Nonutility Generation).
In December 1996, the ALJ issued a further decision recommending that recovery
of the Freehold buyout costs be approved, subject to possible revocation or
modification, if it was determined that the project was not viable when it was
56
<PAGE>
GPU, Inc. and Subsidiary Companies
bought out. In December 1996 an Addendum revising the Final Settlement was
agreed upon by JCP&L, the staff of the NJBPU and the Division of Ratepayer
Advocate. In January 1997, the NJBPU staff recommended that rate recovery of
the Freehold buyout costs be permitted. On March 24, 1997, the NJBPU approved
the Final Settlement, including the recovery of Freehold buyout costs.
However, the Freehold cost recovery was granted on an interim basis, subject
to refund, pending further review. Currently, no date has been set for this
additional review.
Provisions of the Final Settlement, as revised by the Addendum, include a
further annual increase of $7 million in the LEAC in addition to those noted
above and an annual reduction of $11 million in base rates. Base rates are
frozen at that level until the year 2000, and the LEAC rate is frozen through
the year 1999. The final settlement provides for the establishment of a
remediation adjustment clause (RAC) for the recovery of manufactured gas plant
remediation costs. JCP&L could seek a LEAC/DSF/RAC rate increase if the
combined LEAC/DSF/RAC 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 postretirement benefit 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
removal costs estimated in the 1995 site-specific studies performed for GPUN.
Also, included in base rates is recovery of the remaining investments in the
58 MW Werner Unit 4 and 72 MW Gilbert Unit 3 generating plants, which were
retired in 1996.
The Final Settlement also provides for recovery through the LEAC of:
(1) buyout costs up to $130 million, and 50% of any costs from $130 million to
$140 million, over a seven-year period for the termination of the Freehold
power purchase agreement (such recovery is interim and is subject to refund,
pending further review); 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 is not required to refund any amounts
previously collected. The Final Settlement provides annual allowances for the
recovery of forecasted additions to nuclear plant. The Final Settlement also
provides that if JCP&L's return on equity exceeds 12.2%, excluding demand-side
management and nuclear performance incentives, the excess will be used to
reduce both customer rates and certain regulatory assets.
57
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GPU, Inc. and Subsidiary Companies
THE GPU ENERGY COMPANIES' SUPPLY PLAN
Managing Nonutility Generation
The GPU Energy companies have contracts and anticipated commitments with
NUG suppliers under which a total of 1,652 MW (JCP&L 896 MW; Met-Ed 356 MW;
Penelec 400 MW) of capacity are currently in service. For information on NUG
costs, see the Competition and the Changing Regulatory Environment section of
Note 1 to GPU's Consolidated Financial Statements.
The GPU Energy companies are seeking to reduce the above market costs of
NUG agreements by: (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the
agreements; (3) offering contract buyouts; and (4) initiating proceedings
before federal and state agencies, and in the courts, where appropriate. In
addition, the GPU Energy companies intend to avoid, to the maximum extent
practicable, entering into any new NUG agreements that are not needed or not
consistent with current market pricing and are supporting legislative efforts
to repeal PURPA. These efforts may result in claims against GPU for
substantial damages. There can, however, be no assurance as to what extent
these efforts will be successful in whole or in part.
In 1996, JCP&L entered into an agreement with Freehold Cogeneration
Associates (Freehold), the developer of a proposed 110 MW gas-fired
cogeneration project, that terminates JCP&L's long-term obligation to purchase
power from the project. JCP&L expects that the buyout will save customers
$1.1 billion over the term of the power purchase contract based on the
projected cost of alternative sources of energy. JCP&L has agreed to pay
Freehold $125 million, of which $80 million has been paid through March 1997,
and the remainder will be paid in 1998 and 1999. Associated with this buyout
are certain payments to third parties, which could be material in amount. As
part of the Final Settlement (see Rate Matters section), JCP&L has been
granted recovery of buyout costs, on an interim basis, of up to $130 million,
and 50% of any costs from $130 million to $140 million, over a seven-year
period.
In October 1996, JCP&L was named as a defendant in a breach of contract
lawsuit against Freehold brought by Nestle Beverage Company (Nestle) in New
Jersey Superior Court. Nestle is seeking damages of at least $75 million for
Freehold's alleged breach of the steam sales agreement and approximately
$412 million in damages against JCP&L for alleged unlawful interference with
that agreement. Nestle has also requested punitive damages in an unspecified
amount. JCP&L believes the claims against it are without merit (see Other
Commitments and Contingencies section of Note 1 to GPU's Consolidated
Financial Statements).
In December 1996, Met-Ed and Penelec requested PaPUC approval to, among
other things, include their currently effective ECRs in base rates including
NUG buyout costs already in the ECR, effective January 1, 1997, and defer for
future rate recovery NUG buyout costs not yet reflected in rates. The PaPUC
has approved this request. For additional information, see the Competitive
Environment section.
58
<PAGE>
GPU, Inc. and Subsidiary Companies
In April 1997, Met-Ed and Penelec issued RFPs to 24 NUG projects which
currently supply a total of approximately 760 MW under power purchase
agreements. The RFPs request the NUGs to propose buyouts, buydowns and/or
restructurings of current power purchase contracts in return for cash
payments. Met-Ed and Penelec have targeted a total of $1 billion to carry out
the buyout or buydown of these contracts, which amount may be modified based
on the proposals received. Met-Ed and Penelec plan to fund the cash payments
through the issuance of PaPUC approved securitized transition bonds (See
Competitive Environment). To the extent there are winning bidders, they are
expected to be notified in the second quarter of 1997, and payments are
expected to be made in the first half of 1998.
ACCOUNTING MATTERS
In response to the continuing deregulation of the electric utility
industry, the SEC has questioned the continued applicability of FAS 71 by
California investor-owned utilities with respect to their electric generation
operations. The GPU Energy companies believe that the SEC's concern may also
apply to them, since retail access legislation has been enacted in
Pennsylvania and proposed in New Jersey. In the event that the application of
FAS 71 is discontinued for electric generation operations, a noncash write-off
of previously established regulatory assets and liabilities related to the
affected operations would be required. In addition, write-downs of plant
assets could be required in accordance with FAS 121, "Accounting for the
Impairment of Long-Lived Assets," including a write-off of any loss from a
potential divestiture or abandonment of generation assets. The amount of any
write-offs could have a material adverse effect on GPU's results of operations
and financial condition. The FASB's Emerging Issues Task Force has agreed to
address this issue during the second quarter of 1997.
In March 1997, Statement of Financial Accounting Standards No. 128
(FAS 128), "Earnings Per Share", was issued. FAS 128 requires a dual
presentation of basic and diluted earnings per share for companies that have
common stock equivalents, including GPU. The two earnings per share
computations for GPU are not expected to be materially different from one
another. FAS 128 will be effective for year-end 1997 reporting.
59
<PAGE>
GPU, Inc. and Subsidiary Companies
PART II
ITEM 1 - LEGAL PROCEEDINGS
Information concerning the current status of certain legal
proceedings instituted against the Company and the GPU Energy
companies as a result of the March 28, 1979 nuclear accident at
Unit 2 of the Three Mile Island nuclear generating station
discussed in Part I of this report in Notes to Consolidated
Financial Statements is incorporated herein by reference and made
a part hereof.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(12) Statements Showing Computation of Ratio of Earnings to
Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends Based on SEC
Regulation S-K, Item 503
(27) Financial Data Schedule
(b) Reports on Form 8-K:
GPU, Inc.:
Dated April 2, 1997, under Item 5 (Other Events).
Dated April 11, 1997, under Item 5 (Other Events).
Jersey Central Power & Light Company:
Dated April 2, 1997, under Item 5 (Other Events).
Dated April 11, 1997, under Item 5 (Other Events).
60
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GPU, Inc. and Subsidiary Companies
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.
April 30, 1997 By: /s/ J. G. Graham
J. G. Graham, Senior Vice President
(Chief Financial Officer)
April 30, 1997 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
April 30, 1997 By: /s/ D. Baldassari
D. Baldassari, President
April 30, 1997 By: /s/ D. W. Myers
D. W. Myers, Vice President -
Finance and Rates & Comptroller
(Principal Accounting Officer)
61
<PAGE>
<TABLE>
Exhibit 12A
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>
Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
OPERATING REVENUES $1,042,064 $1,022,934
OPERATING EXPENSES 759,565 793,718
Interest portion of rentals (A) 5,958 6,391
Fixed charges of service company
subsidiaries (B) 690 896
Net expense 766,213 801,005
OTHER INCOME AND DEDUCTIONS:
Allowance for funds used
during construction 1,533 3,090
Other income, net 24,503 10,309
Fixed charges of the GPU
International Group (C) 10,964 1,647
Total other income and deductions 37,000 15,046
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 312,851 $ 236,975
FIXED CHARGES:
Interest on funded indebtedness $ 57,615 $ 48,958
Other interest (D) 14,743 11,727
Preferred stock dividends of
subsidiaries on a pretax basis (F) 5,360 6,901
Interest portion of rentals (A) 5,958 6,391
Total fixed charges $ 83,676 $ 73,977
RATIO OF EARNINGS TO FIXED CHARGES 3.74 3.20
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (E) 3.74 3.20
<PAGE>
Exhibit 12A
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
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. The Company has removed the fixed charges from operating expenses
and included such amounts in fixed charges as interest on funded indebtedness
and other interest for this 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. The Company has removed the fixed charges from other income and
deductions and included such amounts in fixed charges as interest on funded
indebtedness and other interest for this statement.
(D) Includes dividends on subsidiary-obligated mandatorily redeemable preferred
securities of $7,222 and $7,222 for the three month periods ended March 31,
1997 and 1996, respectively.
(E) GPU, Inc., the parent holding company, does not have any preferred stock
outstanding, therefore, the ratio of earnings to combined fixed charges and
preferred stock dividends is the same as the ratio of earnings to fixed
charges.
(F) Calculation of preferred stock dividends of subsidiaries on a pretax basis is
as follows:
<CAPTION>
Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
Income before provision for income taxes and
preferred stock dividends of subsidiaries
and gain on preferred stock reacquisition $247,831 $184,473
Income before preferred stock dividends of
subsidiaries and gain on preferred stock
reacquisition 158,465 112,461
Pretax earnings ratio 156.4% 164.0%
Preferred stock dividends of subsidiaries 3,427 4,208
Preferred stock dividends of subsidiaries on
a pretax basis 5,360 6,901
<PAGE>
Exhibit 12B
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>
Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
OPERATING REVENUES $510,443 $529,274
OPERATING EXPENSES 398,626 426,349
Interest portion of rentals (A) 2,695 2,762
Net expense 395,931 423,587
OTHER INCOME:
Allowance for funds used
during construction 734 2,156
Other income, net 3,457 2,142
Total other income 4,191 4,298
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $118,703 $109,985
FIXED CHARGES:
Interest on funded indebtedness $ 22,768 $ 22,514
Other interest (B) 5,166 3,598
Interest portion of rentals (A) 2,695 2,762
Total fixed charges $ 30,629 $ 28,874
RATIO OF EARNINGS TO FIXED CHARGES 3.88 3.81
Preferred stock dividend requirement $ 3,162 $ 3,586
Ratio of income before provision for
income taxes to net income (C) 151.0% 148.8%
Preferred stock dividend requirement
on a pretax basis 4,775 5,336
Fixed charges, as above 30,629 28,874
Total fixed charges and
preferred stock dividends $ 35,404 $ 34,210
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 3.35 3.21
<PAGE>
Exhibit 12B
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
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) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $2,675 for the three month period ended March 31, 1997.
(C) Represents income before provision for income taxes of $88,074 and $81,111
for the three month periods ended March 31, 1997 and 1996, respectively,
divided by net income of $58,320 and $54,496, respectively for the same
periods.
<PAGE>
Exhibit 12C
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>
Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
OPERATING REVENUES $255,260 $237,688
OPERATING EXPENSES 172,665 178,440
Interest portion of rentals (A) 1,155 1,179
Net expense 171,510 177,261
OTHER INCOME AND DEDUCTIONS:
Allowance for funds used
during construction 426 268
Other income/(expense), net 343 226
Total other income and deductions 769 494
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 84,519 $ 60,921
FIXED CHARGES:
Interest on funded indebtedness $ 11,254 $ 11,467
Other interest (B) 3,918 3,349
Interest portion of rentals (A) 1,155 1,179
Total fixed charges $ 16,327 $ 15,995
RATIO OF EARNINGS TO FIXED CHARGES 5.18 3.81
Preferred stock dividend requirement $ 121 $ 236
Ratio of income before provision for
income taxes to net income (C) 171.8% 186.9%
Preferred stock dividend requirement
on a pretax basis 208 441
Fixed charges, as above 16,327 15,995
Total fixed charges and
preferred stock dividends $ 16,535 $ 16,436
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 5.11 3.71
<PAGE>
Exhibit 12C
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
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) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $2,250 for the three month periods ended March 31, 1997 and
1996, respectively.
(C) Represents income before provision for income taxes of $68,192 and $44,926
for the three month periods ended March 31, 1997 and 1996, respectively,
divided by net income of $39,685 and $24,037, respectively for the same
periods.
<PAGE>
Exhibit 12D
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>
Three Months Ended
March 31, March 31,
1997 1996
<S> <C> <C>
OPERATING REVENUES $289,753 $269,329
OPERATING EXPENSES 200,384 201,079
Interest portion of rentals (A) 1,070 1,329
Net expense 199,314 199,750
OTHER INCOME AND DEDUCTIONS:
Allowance for funds used
during construction 373 666
Other income/(expense), net 145 (861)
Total other income and deductions 518 (195)
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 90,957 $ 69,384
FIXED CHARGES:
Interest on funded indebtedness $ 12,115 $ 12,631
Other interest (B) 4,296 3,317
Interest portion of rentals (A) 1,070 1,329
Total fixed charges $ 17,481 $ 17,277
RATIO OF EARNINGS TO FIXED CHARGES 5.20 4.02
Preferred stock dividend requirement $ 144 $ 386
Ratio of income before provision for
income taxes to net income (C) 171.3% 170.8%
Preferred stock dividend requirement
on a pretax basis 247 659
Fixed charges, as above 17,481 17,277
Total fixed charges and
preferred stock dividends $ 17,728 $ 17,936
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 5.13 3.87
<PAGE>
Exhibit 12D
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
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) Includes dividends on company-obligated mandatorily redeemable preferred
securities of $2,297 for the three month periods ended March 31, 1997 and
1996, respectively.
(C) Represents income before provision for income taxes of $73,476 and $52,107
for the three month periods ended March 31, 1997 and 1996, respectively,
divided by net income of $42,894 and $30,515, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,348,532
<OTHER-PROPERTY-AND-INVEST> 1,595,137
<TOTAL-CURRENT-ASSETS> 969,195
<TOTAL-DEFERRED-CHARGES> 2,121,976
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 11,034,840
<COMMON> 314,458
<CAPITAL-SURPLUS-PAID-IN> 751,583
<RETAINED-EARNINGS> 2,224,576
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,205,097 <F1>
434,000 <F2>
66,478
<LONG-TERM-DEBT-NET> 3,139,631
<SHORT-TERM-NOTES> 203,590
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 67,724
<LONG-TERM-DEBT-CURRENT-PORT> 144,506
20,000
<CAPITAL-LEASE-OBLIGATIONS> 5,577
<LEASES-CURRENT> 132,339
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,615,898
<TOT-CAPITALIZATION-AND-LIAB> 11,034,840
<GROSS-OPERATING-REVENUE> 1,042,064
<INCOME-TAX-EXPENSE> 88,340
<OTHER-OPERATING-EXPENSES> 759,565
<TOTAL-OPERATING-EXPENSES> 847,905
<OPERATING-INCOME-LOSS> 194,159
<OTHER-INCOME-NET> 23,825
<INCOME-BEFORE-INTEREST-EXPEN> 217,984
<TOTAL-INTEREST-EXPENSE> 62,946 <F3>
<NET-INCOME> 155,038
0
<EARNINGS-AVAILABLE-FOR-COMM> 155,038
<COMMON-STOCK-DIVIDENDS> 58,493
<TOTAL-INTEREST-ON-BONDS> 184,200
<CASH-FLOW-OPERATIONS> 222,797
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $85,520.
<F2> INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES OF $330,000.
<F3> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $7,222 AND PREFERRED STOCK DIVIDENDS OF
<F3> SUBSIDIARIES OF $3,427.
</FN>
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000053456
<NAME> JERSEY CENTRAL POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,916,233
<OTHER-PROPERTY-AND-INVEST> 400,274
<TOTAL-CURRENT-ASSETS> 403,597
<TOTAL-DEFERRED-CHARGES> 988,184
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,708,288
<COMMON> 153,713
<CAPITAL-SURPLUS-PAID-IN> 510,769
<RETAINED-EARNINGS> 860,159
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,524,641
229,000 <F1>
37,741
<LONG-TERM-DEBT-NET> 1,173,141
<SHORT-TERM-NOTES> 7,900
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 45,884
20,000
<CAPITAL-LEASE-OBLIGATIONS> 600
<LEASES-CURRENT> 89,231
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,580,150
<TOT-CAPITALIZATION-AND-LIAB> 4,708,288
<GROSS-OPERATING-REVENUE> 510,443
<INCOME-TAX-EXPENSE> 29,345
<OTHER-OPERATING-EXPENSES> 398,626
<TOTAL-OPERATING-EXPENSES> 427,971
<OPERATING-INCOME-LOSS> 82,472
<OTHER-INCOME-NET> 3,179
<INCOME-BEFORE-INTEREST-EXPEN> 85,651
<TOTAL-INTEREST-EXPENSE> 27,331 <F2>
<NET-INCOME> 58,320
3,162
<EARNINGS-AVAILABLE-FOR-COMM> 55,158
<COMMON-STOCK-DIVIDENDS> 20,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 89,902
<CASH-FLOW-OPERATIONS> 165,117
<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 $2,675.
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,573,059
<OTHER-PROPERTY-AND-INVEST> 146,985
<TOTAL-CURRENT-ASSETS> 230,837
<TOTAL-DEFERRED-CHARGES> 568,824
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,519,705
<COMMON> 66,273
<CAPITAL-SURPLUS-PAID-IN> 370,200
<RETAINED-EARNINGS> 294,381
<TOTAL-COMMON-STOCKHOLDERS-EQ> 730,854
100,000 <F1>
12,056
<LONG-TERM-DEBT-NET> 563,253
<SHORT-TERM-NOTES> 35,290
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 33,252
<LONG-TERM-DEBT-CURRENT-PORT> 40,020
0
<CAPITAL-LEASE-OBLIGATIONS> 261
<LEASES-CURRENT> 27,050
<OTHER-ITEMS-CAPITAL-AND-LIAB> 977,669
<TOT-CAPITALIZATION-AND-LIAB> 2,519,705
<GROSS-OPERATING-REVENUE> 255,260
<INCOME-TAX-EXPENSE> 28,482
<OTHER-OPERATING-EXPENSES> 172,665
<TOTAL-OPERATING-EXPENSES> 201,147
<OPERATING-INCOME-LOSS> 54,113
<OTHER-INCOME-NET> 497
<INCOME-BEFORE-INTEREST-EXPEN> 54,610
<TOTAL-INTEREST-EXPENSE> 14,925 <F2>
<NET-INCOME> 39,685
121
<EARNINGS-AVAILABLE-FOR-COMM> 39,564
<COMMON-STOCK-DIVIDENDS> 10,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 45,160
<CASH-FLOW-OPERATIONS> 23,222
<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 $2,250.
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,803,540
<OTHER-PROPERTY-AND-INVEST> 64,097
<TOTAL-CURRENT-ASSETS> 264,698
<TOTAL-DEFERRED-CHARGES> 444,578
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,576,913
<COMMON> 105,812
<CAPITAL-SURPLUS-PAID-IN> 285,486
<RETAINED-EARNINGS> 391,840
<TOTAL-COMMON-STOCKHOLDERS-EQ> 783,138
105,000 <F1>
16,681
<LONG-TERM-DEBT-NET> 626,456
<SHORT-TERM-NOTES> 73,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 34,472
<LONG-TERM-DEBT-CURRENT-PORT> 56,010
0
<CAPITAL-LEASE-OBLIGATIONS> 3,882
<LEASES-CURRENT> 14,399
<OTHER-ITEMS-CAPITAL-AND-LIAB> 863,475
<TOT-CAPITALIZATION-AND-LIAB> 2,576,913
<GROSS-OPERATING-REVENUE> 289,753
<INCOME-TAX-EXPENSE> 30,513
<OTHER-OPERATING-EXPENSES> 200,384
<TOTAL-OPERATING-EXPENSES> 230,897
<OPERATING-INCOME-LOSS> 58,856
<OTHER-INCOME-NET> 114
<INCOME-BEFORE-INTEREST-EXPEN> 58,970
<TOTAL-INTEREST-EXPENSE> 16,076 <F2>
<NET-INCOME> 42,894
144
<EARNINGS-AVAILABLE-FOR-COMM> 42,750
<COMMON-STOCK-DIVIDENDS> 15,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 49,138
<CASH-FLOW-OPERATIONS> 43,541
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES OF $105,000
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $2,297.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
<PAGE>
</TABLE>
