Post-Effective Amendment No. 12 to
SEC File No. 70-8593
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GPU, INC. ("GPU")
100 Interpace Parkway
Parsippany, New Jersey 07054
GPU INTERNATIONAL, INC. ("GPUI")
EI SERVICES, INC. ("EI Services")
One Upper Pond Road, Parsippany, New Jersey 07054
JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L")
300 Madison Avenue, Morristown, New Jersey 07960
METROPOLITAN EDISON COMPANY ("Met-Ed")
PENNSYLVANIA ELECTRIC COMPANY ("Penelec")
P.O. Box 16001, Reading, Pennsylvania 19640
GPU SERVICE, INC. ("GPUS")
100 Interpace Parkway, Parsippany, New Jersey 07054
(Names of companies filing this statement
and addresses of principal offices)
GPU, INC.
(Name of top registered holding company parent of the applicants)
M.A. Nalewako, Secretary Douglas E. Davidson, Esq.
M.J. Connolly, Esq. Berlack, Israels & Liberman LLP
GPU Service, Inc. 120 West 45th Street
100 Interpace Parkway New York, New York 10036
Parsippany, New Jersey 07054
W.S. Greengrove, Secretary
GPU International, Inc.
One Upper Pond Road
Parsippany, New Jersey 07054
______________________________________________________________
(Names and addresses of agents for service)<PAGE>
GPU, GPUI, EI Services, JCP&L, Met-Ed, Penelec and GPUS
hereby post-effectively amend their Application on Form U-1,
docketed in SEC File No. 70-8593, as heretofore amended, as
follows:
1. By amending paragraph I of Item 1 thereto to
include the following additional information at the end thereof:
GPUI's specific application of the various risk
mitigation factors described above can be illustrated
by the manner in which it has acquired its ownership
interests in the Selkirk and Guaracachi Projects;
Victoria Electric/Solaris Power and Midlands
Electricity Plc.
1. Selkirk
Through EI Selkirk, GPU owns a 13.5% preferred
interest and a 20% common interest in Selkirk Cogen
Partners, L.P. ("Selkirk"). The facility is a natural
gas-fired cogeneration facility with a total electric
generating capacity of 345 MW, consisting of two units
of 80 MW and 265 MW. The 80 MW unit ("Unit 1") sells
capacity and energy to Niagara Mohawk Power Company and
the 265 MW unit ("Unit 2") sells capacity and energy to
Consolidated Edison. GPUI's original investment in
Selkirk was $20.3 million in 1994.(1) For the year
ended 1996, GPUI's investment balance was $14.3
million.
Discussion of the business, financial results and
past performance of the Selkirk Project is included in
Selkirk's 1996 Annual Report on Form 10-K, SEC File No.
33-83618.
Selkirk was developed by affiliates of J. Makowski
Co. ("Makowski") and Old State Selkirk Associates ("Old
State"), with Makowski serving as the development
manager. GPUI mitigated a substantial portion of the
Construction and Operating Risks by structuring its
investment as an option to acquire the interests of Old
State in the Project. At the time GPUI acquired the
option in 1991, Unit 1 was under construction and Unit
2 was in the development phase, and GPUI intended to
exercise the option only after both Units entered
commercial operation. Unit 1 entered commercial
operation in April 1992, and Unit 2 in September 1994.
In November 1994, GPUI exercised the option and
acquired the interest of Old State in Selkirk.
_____________________
1 The investment was authorized by the SEC in File No. 70-7828.
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Prior to acquiring the option, and then again
prior to its exercise, GPUI performed substantial due
diligence on the Project to assess all relevant risks.
That review included an analysis of the Project
contracts and legal issues by GPUI personnel, legal
counsel and an outside consultant.
Selkirk has entered into power sales agreements
with Niagara Mohawk for Unit 1 and Con Edison for Unit
2 for initial terms of 20 years.(2) The power sales
agreements each provide the purchasing utility with the
contractual right to schedule the Unit for dispatch on
a daily basis. Dispatch of the Units is required to be
based, in part, on economic criteria in accordance with
rules of the New York Power Pool, taking into account
the variable cost of electricity. The power sales
agreements also provide for a fixed capacity payment
independent of dispatch. This capacity payment provides
for the servicing of the fixed costs of the facility,
such as debt service, fixed operating and maintenance
expense, fuel transportation, and wheeling. The energy
produced and sold provides for the variable cost of
fuel and operation. These pricing terms, together with
the provisions of the fuel and steam host agreements
discussed below, help mitigate Operating and Commercial
Risks. (Dispatch rates for Units 1 and 2 for 1996 were
54.5% and 87.6%, respectively.)
Fuel supply for the Units is secured by several
15-year term agreements with major fuel suppliers.
These fuel agreements provide for a combination of
dedicated reserves and corporate warranties. Gas
transportation is secured by 20-year term agreements.
Selkirk has dedicated fuel management services which
ensure that sufficient quantities of gas are available
for the Units to meet scheduled deliveries of
electricity, as well as to take advantage of market
opportunities to resell firm gas volumes not needed for
power generation due to dispatch of the Units at
favorable prices. Such resale of excess fuel supplies
provides an additional source of revenues (expense
reduction) which produced $24.6 million in gas resale
revenues for 1996. Unit 1 and Unit 2 also have the
capability to operate on No. 2 fuel oil and are able to
switch without interrupting generation.
Selkirk sells steam to a General Electric plant
adjacent to the facility under a 20-year agreement. The
General Electric plant is required to purchase the
minimum thermal output necessary to maintain Selkirk's
status as a qualifying cogeneration facility under the
Public Utility Regulatory Policies Act of 1978. If the
__________________
2 GPUI thus believed that Commercial Risks were largely
mitigated since the Project had two long term power sales
agreements with creditworthy utilities.
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Project loses its qualifying facility status, its power
sales agreements would become subject to the jurisdiction of
FERC. To mitigate regulatory risk associated with the
unlikely loss of qualifying facility status, Selkirk has
obtained EWG status.
Units 1 and 2 were constructed pursuant to fixed
priced turnkey contracts with Bechtel Corp., a highly
regarded construction contractor. The contracts
included customary milestones and liquidated damage
provisions. GPUI thus believed that the Construction
Risks, to the extent applicable to this investment,
were adequately mitigated.
GPUI's review of the Financial Risks focused
initially on the project financing debt which had been
incurred in 1990 to finance the construction of Unit 1.
Prior to exercise of the option, GPUI also evaluated
the mortgage bond financing which was then in place for
both Units. In particular, Selkirk issued $392 million
of first mortgage bonds at fixed interest rates in the
public markets, registered with the SEC as part of a
refinancing in 1994. The bonds were issued in two
tranches: $165 million, which mature in 2007 at an
interest rate of 8.65%, and $227 million which mature
in 2012 at an interest rate of 8.98%. These loans,
which are secured by the assets of the Partnership,
bear interest at fixed rates and are non-recourse to
the individual partners, including EI Selkirk, thus
mitigating Financial Risks. Selkirk also has entered
into currency exchange agreements to hedge against
future exchange rate fluctuations which could result in
additional costs under fuel transportation agreements
which are denominated in Canadian dollars. The amount
of total exchange over the agreement term is about $1.4
million Canadian dollars.
Legal Risks for this investment were addressed
through a due diligence review by GPUI's counsel and
receipt of customary opinions and representations.
2. Victoria Electric
Victoria Electric, Inc. ("Victoria Electric"), a
Delaware corporation, was formed as a special purpose
subsidiary to purchase a 50% ownership interest in
Solaris Power ("Solaris"), an Australian electric
distribution company, in November 1995. GPU Electric, a
wholly owned subsidiary of GPU, owns 100% of the common
stock of Victoria Electric Holdings, Inc., which in
turn owns 100% of Victoria Electric.
Victoria Electric and Australian Gas Light Company
("AGL') acquired Solaris for a total purchase price of
approximately US$712 million, of which GPU Electric's
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50% share was US$356 million. GPU Electric made an
equity investment in Solaris of approximately US$114
million. The balance of the purchase price was provided
through non-recourse borrowings by Solaris from an
Australian bank syndicate, thereby mitigating the
Financial Risk of this investment to GPU. AGL is the
largest gas distribution company in Australia.
The equity investment made by Victoria Electric in
Solaris was financed in part with an A$95 million
(US$75.5 million) credit facility agreement. The
balance of the equity investment, equal to US$48
million, was provided as a capital contribution from
GPU. The credit facility is guaranteed by GPU. (The
outstanding borrowings under the credit facility at
year end 1996 are A$90.1 million (US$71.6 million).)
The credit facility was denominated in Australian
dollars to provide for a currency hedge against
Exchange Risk. (In January 1997, A$8 million (US$6.2
million) of the outstanding borrowings were repaid with
dividend proceeds received from Solaris.)
At the time of entering into the credit facility,
A$80 million (US$63.5 million) of interest rate swap
agreements were executed, covering up to a three-year
period, to limit interest rate risk exposure. The
average cost of debt for this credit facility during
1996 was approximately 7.8%.
3. Solaris Power
Prior to submitting its bid to the State of
Victoria to acquire Solaris in 1995 in connection with
the company's privatization, GPUI conducted a
substantial due diligence effort which included an
extensive review of Solaris' business by GPUI
personnel, distribution experts from the Utility
Subsidiaries, and U.S. and Australian independent
accountants, financial advisors and lawyers. Based on
this effort, GPUI concluded that the risks associated
with the Solaris acquisition were adequately mitigated.
The principal activity of Solaris is to purchase,
distribute and supply electricity, and to provide
services, including management services, in connection
with the distribution and supply of electricity.
Solaris is one of five electric distribution companies
that have been privatized by the Victoria government.
Solaris provides electric service to more than 230,000
customers in and around Melbourne.
Solaris is subject to regulation by The Office of
The Regulator General ("ORG") and possesses licenses
authorizing it to engage in the distribution, supply or
sale of electricity. In 1994, Solaris was issued two
licenses:
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1. A distribution license to distribute
electricity for supply and to supply electricity in a
specified distribution area.
2. A retail license to sell electricity
otherwise than through the Pool to franchise customers
in Solaris' specified distribution area and to non-
franchise customers anywhere in Victoria.
These licenses provide Solaris with an exclusive
distribution service region and the right to supply
energy, subject to adhering to the terms and conditions
of the licenses. The distribution of electricity is
Solaris' core business and provides about 85% to 90% of
its profitability. Accordingly, evaluation of Solaris'
distribution license and the Company's ability to
comply with the license were key components of GPUI's
assessment of the Operating, Commercial and Legal Risks
of this investment. Regulation of the distribution
business is subject to an annual rate cap formula based
on the change in inflation less an efficiency factor,
which mitigates the Operating Risk by providing a
partial rate hedge against increased expense.
Efficiency gains and cost reduction below the rate cap
formula benefit shareholders. Regulatory review and
reset of the formula is scheduled for 2001 for all the
electric distribution companies privatized in Victoria.
The last regulatory review was carried out in June 1995
and Solaris has complied with the quarterly reporting
requirements since this date. The ORG was satisfied
that Solaris has demonstrated a commitment to
compliance and no material matters arose.
GPUI also evaluated Solaris' supply business,
which is gradually being opened to market competition.
The maximum prices which can be charged to franchise
customers have been set by the Victoria government.
(During 1996, larger industrial and commercial
customers have been progressively classified as
contestable.) Residential customers will enter the
contestable market in January 2001. When customers are
classified as contestable, any licensed retailer may
contract with the customer to supply electricity at
negotiated prices. (During 1996, Solaris successfully
participated in the contestable market maintaining its
pre-contestability share of business in the contestable
markets.)
Solaris participates in the wholesale energy
market for its energy supply business and utilizes
financial hedge contracts to minimize exposure to
fluctuations in energy prices, which help assuage
Operating Risks. Contracts have been entered into with
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electricity generators to manage the financial risks
associated with the market price of electricity to
franchise load through 2000. It is the policy of
Solaris to substantially hedge its forecast contestable
load and is entering into hedging contracts with
individual generators to cover this load.
Exposure to interest rate risk for debt is
minimized through the use of interest rate swaps. About
85% of Solaris' floating rate debt has been fixed until
December 1997 and approximately 82% thereafter for the
life of the funding facility, thereby mitigating
Financial Risks. Financial Risks have also been
mitigated by the participation of AGL as a 50% partner
in the investment, since AGL has assumed 50% of the
equity commitment. AGL's participation also addresses
Legal Risks since AGL, as an Australian utility, is
closely familiar with the Australian regulatory scheme.
4. Midlands Electricity plc
In May 1996, GPUI and Cinergy, Inc. formed Avon
Energy Partners Holdings ("Avon Holdings"), a 50/50
joint venture, to acquire Midlands Electricity plc.
('Midlands"), an English regional electric company
located in and around Birmingham, England. The
outstanding shares of Midlands were purchased through a
wholly-owned subsidiary of Avon Holdings for
approximately $2.6 billion.
Midlands supplies and distributes electricity to
2.2 million customers in England and also owns a
generation business that produces electricity
domestically and internationally.
In May 1997 Midlands and Avon Holdings received an
A-2 short-term debt rating from Standard & Poor's and
Duff & Phelps. Standard & Poor's also notified Midlands
that an A- long-term debt rating was assigned to both
Midlands and Avon Holdings. Midlands has subsequently
sought credit ratings from Moody's which is currently
conducting its credit rating review.
GPU engaged in a substantial due diligence effort
prior to consummating the Midlands acquisition in an
effort to mitigate risks. As was the case with Solaris,
GPU employed a team of financial and operational
personnel from GPU System companies to perform due
diligence, as well as retaining U.S. and U.K.
financial, legal and accounting advisors, and concluded
that all relevant risks were adequately mitigated.
Midlands has been licensed under the Electricity
Act for an authorized area of distributing and
supplying electricity. The Office of Electricity
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Regulations ("OFFER" ) is the regulatory body which
ensures compliance with the provisions of the licenses.
The distribution of electricity is Midlands' core
business and provides approximately 80% of its
profitability. Regulation of the distribution business
is subject to an annual rate cap formula based on the
change in inflation less an efficiency factor.
Regulatory review and reset of the formula is scheduled
for 2000 for all the U.K. electric distribution
companies. These formulas provide for a partial price
hedge against increased expenses and thus address
Operating Risk exposure. Efficiency gains and cost
reduction below the rate cap formula benefit
shareholders.
GPUI also evaluated Midlands' supply business,
which is scheduled for total contestability in 1998.
Currently, customer load in excess of 100 kW is
contestable. When customers are contestable, any
licensed retailer may contract with the customer to
supply electricity at negotiated prices.
Midlands participates in the wholesale energy
market for its energy supply business and utilizes
hedge contracts to minimize exposure to fluctuations in
energy prices. Contracts have been entered into with
electricity generators to manage the financial risks
associated with the market price of electricity.
Midlands' policy is to substantially hedge its forecast
load by entering into hedging contracts with individual
generators. These factors help mitigate Operating Risks
on the supply side.
Midlands also has a separate generation
subsidiary, Midlands Power International, which
develops and invests in independent power projects.
Currently, about 82.5 million pounds (US$133.6 million)
is invested in projects that are in operation, with about
86% of this investment in projects located in the U.K.
Additionally, three projects are under construction
with a combined equity commitment of approximately
87.6 million pounds (US$141.9 million). One of these
projects is an expansion of an existing investment in
the U.K. The remaining two are in Pakistan and Turkey.
Substantially all of these investments were developed
with partners such that the equity holding represents a
partnership share, in most cases limited to no more
than 40%. Additionally, loans provide 70%-90% of total
capital cost on a non-recourse basis to the equity
sponsors, thereby mitigating Financial Risks. These
projects also are structured with strict contractual
arrangements with lenders, have host government
support, with bilateral and multilateral agencies such
as U.S. EXIM and OPIC participation providing political
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risk coverage and loans, which assuage Commercial and
Legal Risks. Construction Risks are mitigated through
turnkey contracts which provide for liquidated damages.
Currency denominations are limited to U.S. dollars or
British pounds, thereby mitigating Exchange Risks.
Avon Holdings has borrowed approximately 1.1 billion
pounds (US$1.8 billion) through a non-recourse term
loan and revolving credit facility to provide for the
Midlands acquisition. EI UK Holdings, Inc., ("EI UK") a
special purpose, wholly owned subsidiary of GPU Electric,
has invested approximately 332 million pounds
(US$568 million), in Avon Holdings (50% of the equity),
which has been funded through a GPU guaranteed five-
year bank term loan facility. Cinergy provided an equal
amount of equity. Financial Risks were thus mitigated
since the Avon borrowings are non-recourse to GPU.
Interest rates on 50% of the non-recourse bank
facility debt have been fixed for an average of two
years through the use of interest rate swaps. Avon is
in the process of refinancing a majority of this debt
and has targeted 75% of the debt to be at fixed
interest rates.
The EI UK debt facility was denominated in British
pounds to provide for a currency hedge. EI UK also
entered into two interest rate swap agreements for
notational amounts of 75 million pounds (US$128 million)
each, for one and two year terms, respectively.
Refinancing of this facility into longer term
maturities is under review.
As with Solaris, Legal Risks were deemed minimal
because the U.K. was not believed to present any
"country specific political risks" due to its
established legal and regulatory framework.
5. GPU Power/Guaracachi/Empresa Guaracachi
GPU Power is a wholly-owned subsidiary of GPU,
Inc. which principally owns several special purpose
subsidiaries holding investments in Empresa Guaracachi
SA ( EGSA ) in Bolivia and Termobarranquilla SA
("TEBSA"), currently under construction in Colombia.
In July 1995 GPU Power, through Guaracachi
America, Inc. ("Guaracachi"), a special purpose
subsidiary, acquired from the Bolivian Government a 50%
interest in EGSA. EGSA is an electric generating
company having an aggregate capacity of 216 megawatts
of gas-fired and oil-fired generation which was
acquired for approximately $47 million. In connection
with the investment, GPU Power has the ability to
exercise significant management control of EGSA, which
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results in consolidation for accounting purposes. The
other 50% continues to be owned by the government.
The EGSA investment was financed through
Guaracachi from a $15 million note issued by Guaracachi
to GPUI which matures in 2007 and bears interest at
rates specified in the note. The balance of the
investment, equal to approximately $32 million, was
provided through a capital contribution from GPU. In
April 1997, $1.5 million of accrued interest and $0.8
million of principal on the GPUI note was repaid from
dividends paid by EGSA.
Prior to submitting its bid to acquire a 50%
interest in EGSA, GPUI performed a due diligence
evaluation which included, among other things, a
careful evaluation of the facilities owned by EGSA and
the political, legal and regulatory climate in Bolivia.
To do this, GPUI utilized its own personnel as well as
financial, legal, engineering and accounting advisors
in Bolivia.
The four Bolivian generating companies (the three
privatized companies including EGSA plus Corporacion
Boliviana de Energia Electrica ("COBEE"), a privately-
held company operating in Bolivia for many years) have
licenses to generate and sell electricity in Bolivia.
No additional licenses will be granted by the Bolivian
Government before January 1, 2000, giving the four
companies the exclusive right to sell electricity in
Bolivia until that date. The four companies also have
the exclusive right to export electricity to
neighboring countries until January 1, 1999. These
exclusive rights mitigate Operating Risks of this
investment.
The Bolivian electricity market is based on the
Chilean model of segregated generation, transmission
and distribution companies. As a generator, EGSA sells
capacity and energy into this market. EGSA currently
sells all the energy generated at its three plants into
the wholesale spot market. The price of energy in the
spot market is determined on a system marginal cost
basis. EGSA sells capacity on the spot market as well.
The price of capacity is determined every six months by
the Superintendent of Electricity in accordance with
the electricity law and its implementing regulations.
The price is based on the cost of installing new
peaking capacity on the system. The amount of firm
capacity with which EGSA is credited, and for which it
receives capacity payments, is also determined every
six months, and is based on the then-current supply and
demand situation in the market. EGSA is allowed to sell
capacity and energy directly to distribution and
industrial companies via power sales contracts,
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although to date it has not chosen to do so. The firm
capacity payments provides assurance that fixed costs
such as debt service and operations and maintenance
expense are covered whether or not EGSA is selling
electricity into the spot market, thus mitigating a
substantial portion of the Operating and Commercial
Risks of this investment.
EGSA currently purchases gas via supply contracts
with Yacemientos Petroliferos y Fiscales Bolivianas
("YPFB", the Bolivian state oil and gas concern. EGSA
has separate contracts for each of its three existing
plants. These contracts expire in July 1998 and in July
2002. Bolivia is currently restructuring its gas
market. It is expected that by the time EGSA's gas
supply contracts start to expire, the restructuring
will be complete and EGSA will have the opportunity to
shop for gas from a variety of sources and suppliers.
Bolivia has recently privatized YPFB. After
privatization, Bolivia transferred existing contracts
to the companies that resulted from the privatization.
These arrangements help mitigate the Operating Risks of
fuel supply.
GPU's investment exposure was limited to the
$47 million purchase price, thereby mitigating
Financial Risks. In addition, that Risk was further
mitigated since the $47 million purchase price was
deposited with a U.S. bank and is held in a trust
administered by Guaracachi. In connection with the
acquisition, Guaracachi entered into a Capitalization
Contract with EGSA requiring that the $47 million be
invested in capital improvements and new plant within a
period of seven years from the acquisition date. The
contract provides that up to 10% of the investment can
be used for working capital requirements. The
Capitalization Contract thus mitigates Operating Risk.
The long-term debt outstanding at EGSA is
denominated in Deutsche Marks ("DM"), U.S. dollars and
a basket of DM and Norwegian currencies, all at fixed
interest rates. The DM and U.S. dollar denominated
loans represent about 82% of the outstanding debt. In
order to mitigate this Foreign Exchange Risk,
Guaracachi transferred a portion of the $47 million
capitalization amount to a DM based investment fund to
effectively hedge the foreign exchange rate fluctuation
exposure associated with the DM long-term debt held by
EGSA.
It is GPUI's policy to obtain political risk
insurance for investments in those countries where
political risk is considered a factor. Accordingly,
GPUI purchased insurance policies from OPIC and a
private insurer which insure approximately 90% of
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GPUI's equity investment against loss in such
circumstances.
2. By adding the following at the end of paragraph J of
Item 1 thereof:
The actual use of the expanded investment
authority cannot be determined at this time since the
ability to invest additional sums is limited by the
opportunities that become available in the future. The
areas of expansion being considered include additional
investments in FUCOs and EWGs in and around regions
where GPU has existing operations or development
projects underway.
As a result of various factors, however, it is
expected that a majority (i.e. over 50%) of the funds
will be invested in FUCOs which are subjected to some
sort of price regulation in the local country. These
factors included the fact that FUCO acquisitions
(through privatization or tender), tend to be larger in
investment size than EWG investment which are generally
projects financed with non-recourse debt. Also, GPU has
tended to favor investment in EWGs that have obtained
power purchase contracts with a utility or industrial
customer over those that have not contracts and plan to
sell power into a spot market. In many countries, there
has been a trend toward a completely spot based power
market (compared with contract based) limiting the
number of EWG opportunities GPU finds attractive.
Historically, investments and commitments to
invest in EWGs and FUCOs have been weighted towards
FUCOs in a ratio of approximately 25\75. As stated
above, future investment, while not necessarily in this
same ratio, will likely be weighted towards FUCOs.
3. By amending subparagraph (9) of paragraph L of Item 1
thereof to add the following at the end thereof:
GPU has reviewed the expected impact on Midlands
of the windfall profits tax which the new Labour
Government in the UK has proposed to impose on
privatized utilities. Based on Midlands' expected share
of this tax and the related effect on its earnings,
while GPU will incur aggregate losses from its EWG and
FUCO investments for 1997, those losses will not exceed
5% of GPU's anticipated consolidated retained earnings
as at December 31, 1997.
4. By amending subparagraph (b) of paragraph M to include
the following information:
GPU does not believe that investments made in EWGs
and FUCOs have negatively affected the first mortgage
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bond ratings of its utility subsidiaries, JCP&L, Met-Ed
and Penelec (collectively, the "Utility Subsidiaries")
nor the interest rates on first mortgage bonds sold by
such companies. While the rating agencies issued
cautionary statements after the May 7, 1996
announcement by GPU and Cinergy of their proposed
acquisition of Midlands, the only downgrade to occur in
the past year was at Penelec, where Penelec's senior
securities were downgraded one rating level (i.e.,.
first mortgage bonds from A to A-) by Duff & Phelps.
Duff & Phelps now rates Penelec senior securities at
the comparable level of Moody's and Standard & Poor's.
The reason given for the downgrade, however, was
Penelec's growing level of firm capacity payment
obligations owed to non-utility generators.
In support of the foregoing, various comments of
the rating agencies on the subject of GPU's EWG and
FUCO investments follow. Relevant news releases by the
rating agencies are being filed as an exhibit to this
post-effective amendment.
. Standard & Poor's Affirms GPU & Cinergy Units' Ratings
After British Acquisition Announcement, May 7, 1996
- "Although Cinergy and GPU have the debt capacity
to finance this acquisition without significant credit
impact, this potentially large acquisition may restrain
both utilities' domestic financing flexibility and
divert management attention."
- "This acquisition limits the potential for higher
ratings of both Cinergy and GPU and could eventually
result in lower ratings if future expansion goals are
not pursued in a conservative fashion."
. Moody's Reviews Ratings of Three Cinergy Corporation's
Subsidiaries and One General Public Utilities
Corporation's Subsidiary for Possible Downgrade, May 7,
1996
- "Moody's initiated a review for possible downgrade
of the credit ratings of Pennsylvania Electric Company
. . ." "The review was prompted by Cinergy's and GPU's
announcement that they plan to jointly acquire Midlands
Electricity plc. . . ."
- "Moody's confirmed the credit ratings of two GPU
subsidiaries: Jersey Central Power & Light Company and
Metropolitan Edison Company."
. Moody's Confirms the Securities Ratings of Pennsylvania
Electric Company, November 26, 1996
- "In addition, the rating action reflects the
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consummation of GPU, Inc.'s proposed acquisition of a
50% equity share in Midlands Electricity plc, a
regional electric company in the United Kingdom."
. Duff & Phelps Downgrades Penelec's Senior Secured,
Unsecured and Preferred Stock Ratings, May 13, 1996
- "Importantly, DCR's rating action is not
reflective of GPU's recent acquisition of Midlands
Electricity plc which GPU recently announced it had
entered into a joint bid with Cinergy Corp. to acquire
for $2.6 billion. Notwithstanding the increased level
of debt service requirements of GPU associated with the
acquisition, DCR does not anticipate it would impact
the credit profiles of the operating subsidiaries."
. Duff & Phelps Assigns Ratings of BBB+ to GPU, Inc.'s
$300 Million Shelf Registration of Unsecured
Debentures, August 5, 1996
- "GPU's 100 percent debt-financed joint acquisition
with Cinergy of Midlands Electricity plc earlier this
year contributed to a more highly leveraged capital
structure at GPU. DCR's present rating is predicated on
the expectation that GPU will issue equity within a
short time period and continue to repay incremental
debt associated with the acquisition sufficient to
strengthen its capital structure to preacquisition
levels."
Standard & Poor's has not changed the letter
ratings for the Utility Subsidiaries since 1994;
however, the individual companies' outlook and business
position has been revised over the years and are
currently rated as follows:
JCP&L BBB+ Stable Low Average
Met-Ed BBB+ Positive Average
Penelec A- Stable Average
Moody's bond ratings have not been revised since
1994 despite the fact that Penelec's ratings were under
review from May to November 1996 (see comment related
to part A above). Current bond ratings for the Utility
Subsidiaries are as follows:
JCP&L Baa1
Met-Ed Baa1
Penelec A3
Duff & Phelps revised Penelec's ratings downward
in May 1996 as a result of the company's increased
exposure to nonutility generation. JCP&L's and Met-Ed's
ratings remained stable. Current bond ratings for the
13
<PAGE>
Utility Subsidiaries are as follows:
JCP&L BBB+
Met-Ed A-
Penelec A-
5. By amending subparagraph (b) of Paragraph M of Item 1
thereof to add the following information:
Based upon the anticipated amount and timing of
the "windfall profits tax" payable by Midlands, GPU
expects that Midlands will have sufficient cash
resources or external borrowing capabilities from
credit facilities to pay that tax without the need for
additional equity contributions loans from GPU. Indeed,
on July 4, 1997, Standard & Poor's announced that it
was not changing its rating for Midlands' debt as a
result of the windfall profits tax, although it was, at
the same time, placing a number of other UK utilities
on Credit Watch, with negative implications. A copy of
Standard & Poor's announcement is being filed as an
exhibit hereto. Both Standard & Poor's and Duff &
Phelps have subsequently reaffirmed their ratings for
both Midlands and Avon Energy Holdings.
6. By filing the following exhibits in Item 6 thereof:
I - Capitalization and pro forma Capitalization Ratios
- Filed under request for Confidential Treatment
pursuant to Rule 104
J - Certain Project Financial Information and
Projections - Filed under request for Confidential
Treatment pursuant to Rule 104.
K - Rating Agency Announcements
14
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY
CAUSED THIS STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE UNDER-
SIGNED THEREUNTO DULY AUTHORIZED.
GPU, INC.
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
By:
T. G. Howson
Vice President and Treasurer
GPU INTERNATIONAL, INC.
By:
B. L. Levy
President
Date: July 22, 1997<PAGE>
EXHIBITS TO BE FILED BY EDGAR
6. By filing the following exhibits in Item 6 thereof:
K - Rating Agency Announcements
<PAGE>
EXHIBIT K
NY -- Standard & Poor's CreditWire 5/7/96 -- Standard &
Poor's today has affirmed its single - 'A' - minus senior secured
debt rating on Cincinnati Gas & Electric Co. (CG&E), PSI Energy
Inc. (PSI), and Union Light, Heat and Power Co. (ULH&P), and its
triple - 'B' - plus senior secured rating on both Jersey Central
Power and Light Co. (JCP&L), and Metropolitan Edison Co. (Met-
Ed), and its single - 'A' - minus senior secured debt rating on
Pennsylvania Electric Co. (Penelec), following the announcement
by parents' Cinergy Corp. and General Public Utilities Co. (GPU)
that they will acquire the British regional electric distribution
company (REC), Midlands Electricity PLC, for $2.6 billion.
Midlands' board of directors has agreed to the offer. As of
December 31, 1995, Cinergy and GPU each had about $2.9 billion of
consolidated debt outstanding
The rating outlooks for CG&E, PSI, ULH&P, JCP&L, and Penelec
are stable. The outlook for Met-Ed is positive.
To execute the acquisition, Cinergy and GPU have formed a
50%/50% joint venture company, Avon Energy Partners PLC, with
entities created under their unregulated subsidiaries, Cinergy
Investments Inc. and Energy Initiatives Inc. About $1.6 billion
will be borrowed by Avon Energy Partners, without legal recourse
to any of the domestic entities. The remaining $1 billion, or
$500 million each, will be borrowed by domestic units of Cinergy
and GPU to fund their equity investment in Midlands.<PAGE>
Midlands is one of 12 RECs in the U.K. Headquartered in
Halesowan (about 100 miles north of London), it serves 2.2
million customers in west-central England, an area with about 5
million people. Overall, it appears that Midlands is a
relatively low-risk investment with solid earnings, sales growth
potential, and a stable regulatory environment. Funding the
acquisition with largely nonrecourse debt helps shield the debt
ratings of the operating units of Cinergy and GPU. However, the
borrowing costs associated with short-term financing of the
equity portion will lower consolidated coverage ratios over the
near term for both utilities. GPU is expected to issue equity
within nine to 15 months following the acquisition to pay down
between 35% and 40% of the recourse transaction-related debt, and
to continue to reduce the remaining recourse debt with either
further equity offerings or free cash flow. Cinergy is expected
to more gradually pay down its domestic borrowing with free cash
flow.
Although Cinergy and GPU have the debt capacity to finance
this acquisition without significant credit impact, this
potentially large acquisition may restrain both utilities'
domestic financing flexibility and divert management attention.
This offer is subject to final approval by divert management
attention. This offer is subject to final approval by British
regulators and Midlands shareholders. Standard & Poor's
assessment of British regulators and Midlands shareholders.
Standard & Poor's assessment of this proposed acquisition will be
reviewed as details and events unfold.
This acquisition limits the potential for higher ratings of
both Cinergy and GPU and could eventually result in lower ratings
if future expansion goals are not pursued in a conservative
fashion, Standard & Poor's said.
2<PAGE>
04 July 97 UK: UTILITY COS PLACED ON S&PWATCH: AFTER WINDFALL
TAX ANNCMNT. LONDON - (BUSINESS WIRE) - Standard & Poor's
CreditWire 7/4/97 - Standard & Poor's today has placed the
ratings of the following utilities on CreditWatch with negative
implications following the announcement of the formula for the
windfall tax under the labour government's first budget:
- Anglian Water PLC (double-'A'-minus/stable/-_ and Anglia
Water Services Ltd. (double-'A'/stable/-);
- Hyder PLC (single-'A'-plus/stable), Dwr Cymru (double-
'A'minus/stable/'A-1' plus), and South Wales Electricity PLC
(double-'A'-minus/stable/'A-1'-plus);
- Northurnbrian Water Group PLC (single-'A'-plus/stable);
- Thames Water PLC (double-'A'/stable), Thames Water Util-
ities Ltd. (double-'A'-plus/stable/0), Thames Water Finance
B.V. (double-'A'/stable/) and Thames Water Utilities Finance
PLC (double-'A'-plus/stable/-);
- Yorkshire Water PLC (double-'A'-minus/stable'A-1'-plus) and
Yorkshire Water Services Ltd. (double-'A'/stable/-);
- United Utilities PLC (-/'A-1'-plus).
The 'A-1' short-term ratings of Hyder plc, Northumbrian Water
Group plc, and the 'A-1'-plus short-term ratings of Thames Water
plc are unchanged.
The announcement of the formula for the windfall tax removes an
element of uncertainty from the utility sector. However, the
relative size of the imposition on the water and electricity
distribution sector is greater than anticipated.
While the imposition of the windfall tax will lead to weaker
financial profiles on all utilities affected, the precise impact
on each utility will depend on how the tax is financed. This
could involve a combination of new debt, equity infusions, lower
dividends, use of reserves, and further capital and operating
expenditure reductions. Standard & Poor's will be reviewing the
revised financial outlook in light of all other rating factors,
and intends to resolve the CreditWatch action as soon as
possible. Standard & Poor's believes that should some of the
ratings be lowered, it would be unlikely to be by more than one
rating notch.
The ratings of Yorkshire Electricity Group plc (double-'A'/'A-1'-
plus), London Electricity plc (double-'A'-plus/'A-1'-plus),
British Gas plc (double-'A'-minus/'A-1'-plus), and The Energy
Group plc (-/-/'A-1') remain on CreditWatch with negative
implications (British Gas double-'A'-minus/developing) where they
were placed as a result of other events. The effect of the
windfall tax will be assessed as part of the same review.
British Telecommunications plc (triple-'A'/'A-1'-plus) remains on
3<PAGE>
CreditWatch with negative implications, where it was placed
following the announcement of the merger with MCI. Standard &
Poor's, however, had already made a public indication that the
rating would be downgraded to double-'A' upon completion of the
merger. The impact of the windfall tax does not affect that
indication.
Some credit ratings have remained unchanged because of their
relative strength within the rating category. With respect to
the windfall tax, the ratings of the following utilities are
unchanged: Midlands Electricity plc (-/'A-2'); National Grid Co.
plc (double-'A'-plus/stable/'A-1'-plus); PowerGen plc (-/'A-1');
National Power plc (single-'A'/negative/'A-1'); Railtrack plc
(single-'A'-plus/stable/-); BAA plc (double-'A'-minus/stable/'A-
1'-plus); East Midlands Electricity plc (single-'A'-minus/
stable/'A-2'); Northern Electric plc (triple-'B'-plus/stable/'A-
2'); Scottish Hydro-Electric plc (single-'A'-plus/stable/'A-1');
Scottish Power plc (single-'A'-plus/stable/'A-1'); Seeboard plc
(single-'A'-minus/stable/'A-2'); Southern Electric plc (double-
'A'/ negative/'A-1'-plus); Norweb plc (/'A-1'-plus); North West
Water Ltd. (-/'A-1'-plus); South Western Electricity plc (single-
'A'/stable/A-1); Standard & Poor's said.
4<PAGE>
MOODY'S REVIEWS RATINGS OF THREE CINERGY CORPORATION'S
SUBSIDIARIES (SR. SEC. AT A3) AND ONE GENERAL PUBLIC UTILITIES
CORPORATION'S SUBSIDIARY (SR. SEC. AT A3) FOR POSSIBLE DOWNGRADE
Approximately $3.6 Billion of Debt Securities Affected
New York, <Rating Date Pending> -- Moody's Investors Service
initiated a review for possible downgrade of the credit ratings
of Pennsylvania Electric Company, a subsidiary of General Public
Utilities Corporation, and of the three operating subsidiaries of
CINERGY Corporation--Cincinnati Gas and Electric Company, PSI
Energy, Inc., and Union Light, Heat and Power Company.
The review was prompted by CINERGY's and GPU's announcement
that they plan to jointly acquire Midlands Electricity plc, a
British regional electric company, for $2.6 billion. However,
Moody's confirmed the credit ratings of two GPU subsidiaries:
Jersey Central Power and Light Company and Metropolitan Edison
Company.
Ratings under review for downgrade are:
Cincinnati Gas & Electric Company--first mortgage bonds and
secured pollution control bonds rated A3; secured shelf-
registration for senior secured debt rated (P)A3; senior
unsecured debt rated Baa1; shelf registration for senior
unsecured debt rated (P)Baa1; junior subordinated debt rated
Baa2; shelf registration for junior subordinated debt rated
(P)Baa2; preferred stock rated "baa1" shelf registration for
preferred stock rated (P)"baa1" and the company's counterparty
rating of Baa1.
Union Light Heat & Power Company--first mortgage bonds rated
A3; shelf registration for first mortgage bonds rated (P)A3;
senior unsecured debt rated Baa1; and shelf registration for
senior unsecured debt rated (P)Baa1.
PSI Energy, Inc.--first mortgage bonds, secured pollution
control bonds and secured medium term notes rated A3; unsecured
pollution control bonds rated Baa1; preferred stock rated "baa1",
shelf registration for preferred stock rated (P)"baa1"; and the
company's counterparty rating of Baa1.
Pennsylvania Electric Company--first mortgage bonds, secured
pollution control revenue bonds, and secured medium term notes
rated A3; shelf registration of senior secured debt rated (P)A3;
counterparty rating rated Baa1; preferred stock rated "baa1"; and
shelf registration of monthly income preferred shares rated
(P)"baa1".
The Prime-2 short-term ratings for the commercial paper
programs of Cincinnati Gas and Electric Company, PSI Energy,
Inc., and Pennsylvania Electric Company are not on review and
remain unchanged.
5<PAGE>
Ratings confirmed are:
Jersey Central Power and Light Company's first mortgage
bonds, secured pollution control revenue bonds and secured medium
term notes rated Baa1; counterparty rating rated Baa2; preferred
stock rated "baa2"; shelf registration of preferred stock rated
(P)"baa2"; and the company's Prime-2 short-term debt rating for
commercial paper.
Metropolitan Edison Company's first mortgage bonds, secured
pollution control revenue bonds and secured medium term notes
rated Baa1; counterparty rating rated Baa2; preferred stock rated
"baa2"; shelf registration of preferred stock rated (P)"baa2";
and the company's Prime-2 short-term debt rating for commercial
paper.
The rating review will consider the likelihood that the
merger transaction will be completed and will assess the
operating strategies of the combined companies and the
anticipated benefits of the transaction. It will also focus on
the transaction's likely financial impact on CINERGY and GPU, and
the credit implications for Cincinnati Gas and Electric, PSI
Energy, Union Light, Heat and Power, and Pennsylvania Electric.
CINERGY's, GPU's and Midlands' boards of directors have
already approved a merger agreement. However, other parties are
free to put forward competing proposals for Midlands over the
next 90 days. The CINERGY and GPU offer will become
unconditional upon holders of 90% of the shares of Midlands upon
satisfaction of other conditions. In addition, the proposal
requires various regulatory approvals in the United Kingdom. If
the CINERGY and GPU proposal prevails, the resulting capital
structure for Midlands would be approximately 60% debt and 40%
equity.
Both CINERGY's and GPU's 50% equity share in Midlands will
be funded through bank borrowings at each of these holding
companies. GPU has indicated that it plans to issue 5 to 7
million common shares over the next 15 months. By contrast,
CINERGY has indicated that it currently does not plan to issue
any common equity. In addition, Avon Energy Partners plc, a
newly created company owned by CINERGY and GPU, will initially
borrow on a non-recourse basis $1.6 billion under a bank
facility.
CINERGY Corporation is a registered holding company
headquartered in Cincinnati, Ohio. General Public Utilities
Corporation is a registered holding company headquartered in
Parsippany, New Jersey.
end
6<PAGE>
MOODY'S CONFIRMS THE SECURITIES RATINGS OF PENNSYLVANIA ELECTRIC
COMPANY (SR. SEC. AT A3)
Approximately $502 Million of Securities Affected.
New York, November 26, 1996--Moody's Investors Service confirmed
the securities ratings of Pennsylvania Electric Company, an
electric operating subsidiary of GPU, Inc. The rating
confirmation concludes the rating review initiated on May 7,
1996. Moody's expects Pennsylvania Electric's prospective
financial profile will remain stable, consistent with the current
rating category. The recently proposed industry restructuring
legislation was approved by both the Senate and the House, which
bodes well for the state investor owned utilities in recovering
stranded costs during the transition to full retail access.
In addition, the rating action reflects the consummation of
GPU, Inc.'s proposed acquisition of a 50% equity share in
Midlands Electricity plc, a regional electric company in the
United Kingdom. CINERGY Corporation owns the other 50% equity
share. The acquisition is for $2.6 billion. In the second
quarter of 1997, GPU will issue approximately five to seven
million common shares publicly to refinance its portion ($500
million) of the initial bank debt utilized in purchasing
Midlands. CINERGY also financed its portion ($500 million) with
bank debt. The remaining $1.6 billion of bank debt is nonrecourse
to GPU and CINERGY. Meanwhile, Midlands is already earnings
accretive to both GPU and CINERGY.
Ratings confirmed include Pennsylvania Electric Company's
first mortgage bonds, secured pollution control revenue bonds and
secured medium-term notes at A3; shelf registration of senior
secured debt at (P)A3; counterparty rating at Baa1; preferred
stock at "baa1"; shelf registration of monthly income preferred
shares at (P)"baa1"; and short-term debt for commercial paper at
Prime-2.
Midlands Electricity plc's Prime-1 short-term debt rating
for commercial paper remains under review for possible downgrade.
The debt ratings of the three operating subsidiaries of
CINERGY Corporation, which include Cincinnati Gas and Electric
Company (A3 senior secured), Union Light Heat & Power Company (A3
senior secured) and PSI Energy, Inc. (A3 senior secured) remain
on review for possible downgrade.
GPU, Inc., a registered holding company, is headquartered in
Parsippany, New Jersey. CINERGY Corporation, a registered
holding company, is headquartered in Cincinnati, Ohio. Midlands
Electricity plc is headquartered in Halesowen, Birmingham, United
Kingdom.
7<PAGE>
PRESS RELEASE
Duff & Phelps Credit Rating Co.
DCR Downgrades Penelec's Senior Secured, Unsecured and Preferred
Stock Ratings
(Chicago - May 13, 1996) - DCR has downgraded the ratings of the
following debt and preferred securities of Pennsylvania Electric
Company ("Penelec"):
From: To:
First Mortgage Bonds/Secured
Medium Term Notes A A-(Single-A-Minus)
Collateralized PCRBs A A-(Single-A-Minus)
Monthly Income
Preferred Securities A- BBB+(Triple-B-Plus)
Preferred Stock A- BBB+(Triple-B-Plus)
Commercial Paper D-1 D-1-(D-One-Minus)
This action was taken as a result of the growing level of firm
capacity payment obligations of Penelec from nonutility
generators ("NUGs") and the associated impact of these capacity
payments on the company's credit protection measures. Presently,
Penelec's EBITDA coverage and debt ratio are weakened by the
leveraging impact of these capacity payments by roughly 1.6 times
and 11 percentage points, respectively. By the year 2000, the
impact of presently forecast capacity payment obligations grows
to 2.5 times and 18 percentage points, respectively.
Penelec's credit outlook going forward will depend on the ability
of management to continue to reduce operating costs and maintain
its relatively favorable competitive position; the commitment of
GPU management to financially support Penelec's credit profile;
and the direction of deregulation and public policy in
Pennsylvania. Representatives in the Pennsylvania legislature
recently put forth bills that could potentially open up retail
competition by 1998 or 1999, and a final report by the PaPUC
addressing industry restructuring and retail wheeling is
scheduled to be released shortly. The timeline and methodology
for transitioning to a competitive marketplace-and in particular,
the treatment of stranded cost recovery-will be a key determinant
of Penelec's future credit outlook.
Positively, Penelec's affiliates and parent, General Public
Utilities Corporation ("GPU"), has made significant progress in
buying out and/or renegotiating unbuilt NUG contracts. Penelec
is in litigation to cancel two additional unbuilt NUGs. Penelec
and GPU management have also been successful in reducing
operating costs through the reduction of management layers and
centralized operations and voluntary employee retirement and
reduction plans. Despite the progress noted in this regard, the
growing level of NUG obligations going forward, over which
management has limited control, offset many of the financial
benefits of past and anticipated cost reductions.
8<PAGE>
DCR's revised ratings incorporate DCR's recognition of
management's commitment to credit quality, Penelec's stable
service territory and adequate power supply. Construction
expenditures are manageable and are expected to be largely funded
with a growing level of internal cash. Unit costs of generation
and retail rates are competitive within the region, and Penelec's
strategy is to continue to reduce operating costs and defer
general rate filings in order to improve its competitive
position. Penelec's dependence on large scale industrial
customers is modest.
Importantly, DCR's rating action is not reflective of GPU's
recent acquisition of Midlands Electricity plc, which GPU
recently announced it had entered into a joint bid with Cinergy
Corp. to acquire for $2.6 billion. Notwithstanding the increased
level of debt service requirements of GPU associated with the
acquisition, DCR does not anticipate it would impact the credit
profiles of the operating subsidiaries.
Penelec is a wholly owned subsidiary of General Public Utilities
Corporation (GPU), a registered utility holding company based in
Parsippany, New Jersey, and provides electric service to roughly
571,000 retail and wholesale customers in Pennsylvania. The
company is affiliated with Metropolitan Edison and Jersey Central
Power and Light, which are also wholly owned subsidiaries of GPU.
Combined, JCP&L, MedEd and Penelec provide electric service to
over 1.9 million customers in New Jersey and Pennsylvania.
9<PAGE>
FIRST! August 5, 1996
DCR ASSIGNS RATING OF 'BBB+' TO GPU INC.'S $300 MILLION SHELF
REGISTRATION OF UNSECURED DEBENTURES
CHICAGO, August 2/PRNewswire/via Individual Inc.-Duff & Phelps
Credit Rating Co. (DCR) has assigned a new rating of 'BBB+'
(Triple-B-Plus) to GPU, Inc.'s (GPU) $300 million shelf
registration of unsecured debentures. GPU has stated that the
net proceeds from the eventual issuance(s) will be used to either
finance or refinance acquisitions and investments made by the EI
Group (now GPU International, GPU Electric and GPU Power) or to
make cash capital contributions to its subsidiaries.
GPU's rating largely reflects the operating performance and
outlook of its key operating subsidiaries: Pennsylvania Electric,
senior secured rated 'A-' (Single-A-Minus); Metropolitan Edison,
'A-' (Single-A-Minus); and Jersey Central Power & Light, 'BBB+'
(Triple-B-Plus). However, GPU's 100 percent debt-financed joint
acquisition with Cinergy of Midlands Electricity plc earlier this
year contributed to a more highly leveraged capital structure at
GPU. DCR's present rating is predicated on the expectation that
GPU will issue equity within a short time period and continue to
repay incremental debt associated with the acquisition sufficient
to strengthen its capital structure to preacquisition levels.
Presently, GPU's utility operating subsidiaries comprise the
large majority of GPU's assets and operating income. JCP&L,
which comprises roughly half of GPU's operating revenues, has a
positive credit outlook, with its profile having improved over
the last several years as a result of actions taken by management
to strengthen its capital structure, reduce its strandable costs
and underlying cost structure and improve its competitive
position. JCP&L also recently signed an alternate ratemaking
settlement with New Jersey Board of Public Utilities staff, which
in DCR's view, better positions the company competitively going
forward, and provides additional flexibility to deal with
stranded assets.
Penelec's and MetEd's financial outlooks are currently stable,
and will depend in the future on the ability of management to
continue to reduce operating costs, achieve success in canceling
unbuilt NUG contracts, maintain their relative favorable
competitive positions, and on the direction of public policy.
Positively, a recent recommendation by the Pennsylvania Public
Utilities Commission to introduce full retail generation
competition into the state's electric industry represented a
measured, rational approach to the implementation. The
recommendation appears to increase the likelihood of stranded
assets mitigation and majority recovery for both MetEd and
Penelec. While much of the plan requires legislative enactment
to become mandatory, it makes a significant inroad in determining
the direction of industry restructuring in Pennsylvania.
10<PAGE>
While the diversified group of companies and investments,
formerly under the 'EI Group' umbrella, comprised a small
proportion of operating revenues last year, DCR expects they will
compromise a growing proportion going forward as GPU takes
advantage of its U.K. platform from which to initiate foreign
initiatives. Even so, DCR's rating is premised on the
expectation that any significant, new near-term acquisitions
would not be fully debt-financed, but financed with a balance of
debt and equity in order to maintain credit quality at current
levels.
GPU, Inc. is a utility holding company that owns all of the
outstanding stock of its three electric utility operating
subsidiaries, which serve customers in New Jersey and
Pennsylvania. GPU also owns all of the common stock of GPU
International (formerly Energy Initiatives), GPU Electric
(formerly EI Energy) and GPU Power (formerly EI Power) which
develop, own and operate power and distribution facilities in the
United States and abroad.
11<PAGE>
