Post Effective Amendment No. 9 to
SEC File No. 70-7926
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GPU, INC.("GPU")
100 Interpace Parkway
Parsippany, New Jersey 07054
JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L")
METROPOLITAN EDISON COMPANY ("Met-Ed")
PENNSYLVANIA ELECTRIC COMPANY ("Penelec")
2800 Pottsville Pike
Reading, Pennsylvania 19640
(Names of companies filing this statement and
address of principal executive offices)
GPU, INC.
---------
(Name of top registered holding company parent of applicants)
T. G. Howson, Vice President Douglas E. Davidson, Esq.
and Treasurer Berlack, Israels & Liberman LLP
M. A. Nalewako, Secretary 120 West 45th Street
GPU Service, Inc. New York, New York 10036
100 Interpace Parkway
Parsippany, New Jersey 07054 W. Edwin Ogden, Esq.
Ryan, Russell, Ogden & Seltzer
S. L. Guibord, Secretary 1100 Berkshire Boulevard
Jersey Central Power & P.O. Box 6219
Light Company Reading, Pennsylvania 19601-
Metropolitan Edison Company 0219
Pennsylvania Electric Company
2800 Pottsville Pike Robert C. Gerlach, Esq.
Reading, Pennsylvania 19640 Ballard Spahr Andrews
& Ingersoll
1735 Market Street
Philadelphia, Pennsylvania
19103
----------------------------------------------
(Names and addresses of agents for service)
<PAGE>
GPU, JCP&L, Met-Ed and Penelec (the "GPU Companies") hereby
post-effectively amend their Declaration on Form U-1, docketed in SEC File No.
70-7926, as follows:
1. By amending paragraph E of Post-Effective Amendment No.
8 thereof to read in its entirety as follows:
E. GPU submits that all of the criteria of Rules 53 and 54 under the
Act with respect to the proposed transactions are satisfied:
(i) The average consolidated retained earnings for GPU and its
subsidiaries, as reported for the four most recent quarterly periods in
GPU's Annual Report on Form 10-K for the year ended December 31, 1996
and Quarterly Reports on Form 10- Q for the quarters ended March 31,
June 30, and September 30, 1997, as filed under the Securities Exchange
Act of 1934, was approximately $2.164 billion. As of September 30,
1997, GPU had invested, or committed to invest, directly or indirectly,
an aggregate of approximately $929 million in EWGs and FUCOs. GPU's
aggregate investment in EWGs and FUCOs, including amounts invested
pursuant to all other outstanding or pending authorizations to make
investments in EWGs or FUCOs, will not at any time exceed the "safe
harbor" limitation imposed by Rule 53 without prior Commission
authorization.(1)
- --------------------
1 By order dated November 5, 1997 (HCAR No. 35-26773), the Commission authorized
GPU to invest up to 100% of average consolidated earnings in EWGs and FUCOs.
<PAGE>
(ii) GPU maintains books and records to identify investments in, and
earnings from, each EWG and FUCO in which it directly or indirectly
holds an interest.
(A) For each United States EWG in which GPU directly or
indirectly holds an interest:
(1) the books and records for such EWG will be kept
in conformity with United States generally accepted
accounting principles ("GAAP");
(2) the financial statements will be prepared in
accordance with the GAAP; and
(3) GPU directly or through its
subsidiaries undertakes to provide the Commission
access to such books and records and financial
statements as the Commission may request.
(B) For each FUCO or foreign EWG which is a majority owned
subsidiary of GPU:
(1) the books and records for such subsidiary will be
kept in accordance with GAAP;
(2) the financial statements for such subsidiary
will be prepared in accordance with GAAP; and
(3) GPU directly or through its subsidiaries
undertakes to provide the Commission access to such
books and records and financial statements, or copies
thereof in English, as the Commission may request.
2
<PAGE>
(C) For each FUCO or foreign EWG in which GPU owns 50 percent
or less of the voting securities, GPU directly or through its
subsidiaries will proceed in good faith, to the extent reasonable under
the circumstances, to cause
(1) such entity to maintain books and records in
accordance with GAAP;
(2) the financial statements of such entity to be
prepared in accordance with GAAP; and
(3) access by the Commission to such books and
records and financial statements (or copies thereof)
in English as the Commission may request and, in any
event, GPU will provide the Commission on request
copies of such materials as are made available to GPU
and its subsidiaries. If and to the extent that such
entity's books, records or financial statements are
not maintained in accordance with GAAP, GPU will,
upon request of the Commission, describe and quantify
each material variation therefrom as and to the
extent required by subparagraphs (a) (2) (iii) (A)
and (a) (2) (iii) (B) of Rule 53.
(iii) No more than 2 percent of GPU's domestic public utility
subsidiary employees will render any services, directly or indirectly,
to any EWG and FUCO in which GPU directly or indirectly holds an
interest.
(iv) Copies of this Application on Form U-1 are being provided
3
<PAGE>
to the New Jersey Board of Public Utilities and the
Pennsylvania Public Utility Commission, the only federal, state or
local regulatory agencies having jurisdiction over the retail rates of
GPU's electric utility subsidiaries.(2) In addition, GPU will submit to
each such commission copies of any Rule 24 certificates required
hereunder, as well as a copy of Item 9 of GPU's Form U5S and Exhibits H
and I thereof (commencing with the Form U5S to be filed for the
calendar year in which the authorization herein requested is granted).
(v) None of the provisions of paragraph (b) of Rule 53 render paragraph
(a) of that Rule unavailable for the proposed transactions.
(A) Neither GPU nor any subsidiary of GPU is the subject of
any pending bankruptcy or similar proceeding.
(B) GPU's average consolidated retained earnings for the four
most recent quarterly periods (approximately $2,164 million)
represented an increase of approximately $22 million (or approximately
1 percent) compared to the average consolidated retained earnings for
the previous four quarterly periods (approximately $2,142 million).
- ----------------------
2 Pennsylvania Electric Company ("Penelec") is also subject to retail rate
regulation by the New York Public Service Commission with respect to retail
service to approximately 11,300 customers in Waverly, New York served by Waverly
Electric Power & Light Company, a Penelec subsidiary. Waverly Electric's
revenues are immaterial, accounting for less than 1 percent of Penelec's total
operating revenues.
4
<PAGE>
(C) GPU did not incur operating losses from direct or indirect
investments in EWGs and FUCOs in 1996 in excess of 5 percent of GPU's
December 31, 1996 consolidated retained earnings.
2. By redesignating Exhibit G (Charter Restrictions on
Unsecured Indebtedness) of Post-Effective Amendment No. 8 thereof
as Exhibit H and by filing the following exhibits and financial
statements in Item 6 thereof:
(a) Exhibits:
G - Financial Data Schedule
I - Form of Notice
(b) Financial Statements:
l-A(c) - GPU (Corporate) Balance
Sheets, actual and pro forma,
as at September 30, 1997, and
Statements of Income and
Retained Earnings, actual and
pro forma, for the twelve
months ended September 30,
1997; pro forma journal
entries.
l-B(c) - GPU and Subsidiary Companies
Consolidated Balance Sheets,
actual and pro forma, as at
September 30, 1997, and
Consolidated Statements of
Income and Retained Earnings,
actual and pro forma, for the
twelve months ended September
30, 1997; pro forma journal
entries.
l-C(c) - JCP&L Balance Sheets, actual
and pro forma, as at September
30, 1997, and Statements of
Income and Retained Earnings,
actual and pro forma, for the
5
<PAGE>
twelve months ended September
30, 1997; pro forma journal
entries.
l-D(c) - Met-Ed Consolidated Balance
Sheets, actual and pro forma,
as at September 30, 1997, and
Consolidated Statements of
Income and Retained Earnings,
actual and pro forma, for the
twelve months ended September
30, 1997; pro forma journal
entries.
l-E(c) - Penelec Consolidated Balance
Sheets, actual and pro forma,
as at September 30, 1997, and
Consolidated Statements of
Income and Retained Earnings,
actual and pro forma, for the
twelve months ended September
30, 1997; pro forma journal
entries.
4 - None
6
<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 UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GPU, INC.
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
By:
T. G. Howson,
Vice President and Treasurer
Date: November 20, 1997
EXHIBITS TO BE FILED BY EDGAR
(a) Exhibits:
G - Financial Data Schedule
I - Form of Notice
(b) Financial Statements:
l-A(c) - GPU (Corporate)
Balance Sheets,
actual and pro forma,
as at September 30,
1997, and Statements
of Income and Retained
Earnings, actual and
pro forma, for the
twelve months ended
September 30, 1997;
pro forma journal
entries.
l-B(c) - GPU and Subsidiary
Companies Consolidated
Balance Sheets, actual
and pro forma, as at
September 30, 1997,
and Consolidated
Statements of Income
and Retained Earnings,
actual and pro forma,
for the twelve months
ended September 30,
1997; pro forma
journal entries.
l-C(c) - JCP&L Balance Sheets,
actual and pro forma,
as at September 30,
1997, and Statements
of Income and Retained
Earnings, actual and
pro forma, for the
twelve months ended
September 30, 1997;
pro forma journal
entries.
l-D(c) - Met-Ed Consolidated
Balance Sheets, actual
and pro forma, as at
September 30, 1997,
and Consolidated
Statements of Income
<PAGE>
and Retained Earnings,
actual and pro forma,
for the twelve months
ended September 30,
1997; pro forma
journal entries.
l-E(c) - Penelec Consolidated
Balance Sheets, actual
and pro forma, as at
September 30, 1997,
and Consolidated
Statements of Income
and Retained Earnings,
actual and pro forma,
for the twelve months
ended September 30,
1997; pro forma
journal entries.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit G
<ARTICLE> OPUR1
<CIK> 0000040779
<NAME> GPU, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> OCT-01-1996 OCT-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1997
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 3,256,162 3,244,752
<TOTAL-CURRENT-ASSETS> 1,106 161,854
<TOTAL-DEFERRED-CHARGES> 1,148 1,148
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 3,258,416 3,407,754
<COMMON> 314,458 314,458
<CAPITAL-SURPLUS-PAID-IN> 753,082 753,082
<RETAINED-EARNINGS> 2,188,770 2,170,891
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,173,919 <F1> 3,156,040 <F1>
0 0
0 0
<LONG-TERM-DEBT-NET> 0 0
<SHORT-TERM-NOTES> 79,300 250,000
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,197 1,714
<TOT-CAPITALIZATION-AND-LIAB> 3,258,416 3,407,754
<GROSS-OPERATING-REVENUE> 0 0
<INCOME-TAX-EXPENSE> 0 (3,483)
<OTHER-OPERATING-EXPENSES> 10,278 10,278
<TOTAL-OPERATING-EXPENSES> 10,278 6,795
<OPERATING-INCOME-LOSS> (10,278) (6,795)
<OTHER-INCOME-NET> 338,434 <F2> 327,024 <F2>
<INCOME-BEFORE-INTEREST-EXPEN> 328,156 320,229
<TOTAL-INTEREST-EXPENSE> 5,312 15,264
<NET-INCOME> 322,844 304,965
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 322,844 304,965
<COMMON-STOCK-DIVIDENDS> 237,660 237,660
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> (8,842) (8,842)
<EPS-PRIMARY> 2.67 2.52
<EPS-DILUTED> 2.67 2.52
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $82,391.
<F2> INCLUDES EQUITY IN EARNINGS OF SUBSIDIARIES, OTHER EXPENSE, NET,
<F3> AND TAXES, OTHER THAN INCOME TAXES.
</FN>
[ARTICLE] OPUR1
[CIK] 0000040779
[NAME] GPU, INC. AND SUBSIDIARY COMPANIES
[MULTIPLIER] 1,000
[CURRENCY] US DOLLARS
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] DEC-31-1996 DEC-31-1996
[PERIOD-START] OCT-01-1996 OCT-01-1996
[PERIOD-END] SEP-30-1997 SEP-30-1997
[EXCHANGE-RATE] 1 1
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 6,313,363 6,313,363
[OTHER-PROPERTY-AND-INVEST] 1,556,258 1,556,258
[TOTAL-CURRENT-ASSETS] 1,003,611 1,463,214
[TOTAL-DEFERRED-CHARGES] 2,170,117 2,170,117
[OTHER-ASSETS] 0 0
[TOTAL-ASSETS] 11,043,349 11,502,952
[COMMON] 314,458 314,458
[CAPITAL-SURPLUS-PAID-IN] 753,082 753,082
[RETAINED-EARNINGS] 2,188,770 2,170,891
[TOTAL-COMMON-STOCKHOLDERS-EQ] 3,173,919 <F1> 3,156,040 <F1>
[PREFERRED-MANDATORY] 421,500 <F2> 421,500 <F2>
[PREFERRED] 66,478 66,478
[LONG-TERM-DEBT-NET] 3,211,509 3,211,509
[SHORT-TERM-NOTES] 243,300 731,200
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 91,385 91,385
[LONG-TERM-DEBT-CURRENT-PORT] 51,316 51,316
[PREFERRED-STOCK-CURRENT] 12,500 12,500
[CAPITAL-LEASE-OBLIGATIONS] 3,815 3,815
[LEASES-CURRENT] 149,281 149,281
[OTHER-ITEMS-CAPITAL-AND-LIAB] 3,618,346 3,607,928
[TOT-CAPITALIZATION-AND-LIAB] 11,043,349 11,502,952
[GROSS-OPERATING-REVENUE] 3,987,604 3,987,604
[INCOME-TAX-EXPENSE] 231,122 220,704
[OTHER-OPERATING-EXPENSES] 3,135,784 3,135,784
[TOTAL-OPERATING-EXPENSES] 3,366,906 3,356,488
[OPERATING-INCOME-LOSS] 620,698 631,116
[OTHER-INCOME-NET] (52,850) (52,850)
[INCOME-BEFORE-INTEREST-EXPEN] 567,848 578,266
[TOTAL-INTEREST-EXPENSE] 245,004 <F3> 273,301 <F3>
[NET-INCOME] 322,844 304,965
[PREFERRED-STOCK-DIVIDENDS] 0 0
[EARNINGS-AVAILABLE-FOR-COMM] 322,844 304,965
[COMMON-STOCK-DIVIDENDS] 237,660 237,660
[TOTAL-INTEREST-ON-BONDS] 184,085 184,085
[CASH-FLOW-OPERATIONS] 755,038 755,038
[EPS-PRIMARY] 2.67 2.52
[EPS-DILUTED] 2.67 2.52
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $82,391.
<F2> INCLUDES CUMULATIVE PREFERRED STOCK WITH MANDATORY REDEMPTION OF
<F2> $91,500 AND SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES OF $330,000.
<F3> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $28,888, PREFERRED STOCK DIVIDENDS OF
<F3> SUBSIDIARIES OF $13,233, AND GAIN ON PREFERRED STOCK REDEMPTION OF
<F3> ($9,288).
</FN>
[ARTICLE] OPUR1
[CIK] 0000053456
[NAME] JERSEY CENTRAL POWER & LIGHT COMPANY
[MULTIPLIER] 1,000
[CURRENCY] US DOLLARS
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] DEC-31-1996 DEC-31-1996
[PERIOD-START] OCT-01-1996 OCT-01-1996
[PERIOD-END] SEP-30-1997 SEP-30-1997
[EXCHANGE-RATE] 1 1
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 2,879,470 2,879,470
[OTHER-PROPERTY-AND-INVEST] 439,794 439,794
[TOTAL-CURRENT-ASSETS] 441,262 613,365
[TOTAL-DEFERRED-CHARGES] 981,479 981,479
[OTHER-ASSETS] 0 0
[TOTAL-ASSETS] 4,742,005 4,914,108
[COMMON] 153,713 153,713
[CAPITAL-SURPLUS-PAID-IN] 510,769 510,769
[RETAINED-EARNINGS] 892,230 885,353
[TOTAL-COMMON-STOCKHOLDERS-EQ] 1,556,712 1,549,835
[PREFERRED-MANDATORY] 216,500 <F1> 216,500 <F1>
[PREFERRED] 37,741 37,741
[LONG-TERM-DEBT-NET] 1,173,244 1,173,244
[SHORT-TERM-NOTES] 106,800 289,500
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 0 0
[LONG-TERM-DEBT-CURRENT-PORT] 20,011 20,011
[PREFERRED-STOCK-CURRENT] 12,500 12,500
[CAPITAL-LEASE-OBLIGATIONS] 102 102
[LEASES-CURRENT] 86,214 86,214
[OTHER-ITEMS-CAPITAL-AND-LIAB] 1,532,181 1,528,461
[TOT-CAPITALIZATION-AND-LIAB] 4,742,005 4,914,108
[GROSS-OPERATING-REVENUE] 2,066,055 2,066,055
[INCOME-TAX-EXPENSE] 99,985 96,265
[OTHER-OPERATING-EXPENSES] 1,651,677 1,651,677
[TOTAL-OPERATING-EXPENSES] 1,751,662 1,747,942
[OPERATING-INCOME-LOSS] 314,393 318,113
[OTHER-INCOME-NET] 2,926 2,926
[INCOME-BEFORE-INTEREST-EXPEN] 317,319 321,039
[TOTAL-INTEREST-EXPENSE] 112,545 <F2> 123,142 <F2>
[NET-INCOME] 204,774 197,897
[PREFERRED-STOCK-DIVIDENDS] 11,800 11,800
[EARNINGS-AVAILABLE-FOR-COMM] 192,974 186,097
[COMMON-STOCK-DIVIDENDS] 130,000 <F3> 130,000 <F3>
[TOTAL-INTEREST-ON-BONDS] 90,506 90,506
[CASH-FLOW-OPERATIONS] 417,579 417,579
[EPS-PRIMARY] 0 0
[EPS-DILUTED] 0 0
<FN>
<F1> INCLUDES CUMULATIVE PREFERRED STOCK WITH MANDATORY REDEMPTION OF
<F1> $91,500 AND COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES OF $125,000.
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $10,700.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
[ARTICLE] OPUR1
[CIK] 0000065350
[NAME] METROPOLITAN EDISON COMPANY
[MULTIPLIER] 1,000
[CURRENCY] US DOLLARS
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 2-MOS
[FISCAL-YEAR-END] DEC-31-1996 DEC-31-1996
[PERIOD-START] OCT-01-1996 OCT-01-1996
[PERIOD-END] SEP-30-1997 SEP-30-1997
[EXCHANGE-RATE] 1 1
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 1,574,380 1,574,380
[OTHER-PROPERTY-AND-INVEST] 168,398 168,398
[TOTAL-CURRENT-ASSETS] 198,266 261,413
[TOTAL-DEFERRED-CHARGES] 572,936 572,936
[OTHER-ASSETS] 0 0
[TOTAL-ASSETS] 2,513,980 2,577,127
[COMMON] 66,273 66,273
[CAPITAL-SURPLUS-PAID-IN] 370,200 370,200
[RETAINED-EARNINGS] 302,500 300,246
[TOTAL-COMMON-STOCKHOLDERS-EQ] 738,973 736,719
[PREFERRED-MANDATORY] 100,000 <F1> 100,000 <F1>
[PREFERRED] 12,056 12,056
[LONG-TERM-DEBT-NET] 576,923 576,923
[SHORT-TERM-NOTES] 23,900 23,900
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 41,156 108,156
[LONG-TERM-DEBT-CURRENT-PORT] 22 22
[PREFERRED-STOCK-CURRENT] 0 0
[CAPITAL-LEASE-OBLIGATIONS] 60 60
[LEASES-CURRENT] 40,609 40,609
[OTHER-ITEMS-CAPITAL-AND-LIAB] 980,281 978,682
[TOT-CAPITALIZATION-AND-LIAB] 2,513,980 2,577,127
[GROSS-OPERATING-REVENUE] 934,560 934,560
[INCOME-TAX-EXPENSE] 66,081 64,482
[OTHER-OPERATING-EXPENSES] 710,545 710,545
[TOTAL-OPERATING-EXPENSES] 776,626 775,027
[OPERATING-INCOME-LOSS] 157,934 159,533
[OTHER-INCOME-NET] 2,438 2,438
[INCOME-BEFORE-INTEREST-EXPEN] 160,372 161,971
[TOTAL-INTEREST-EXPENSE] 59,418 <F2> 63,271 <F2>
[NET-INCOME] 100,954 98,700
[PREFERRED-STOCK-DIVIDENDS] 597 597
[EARNINGS-AVAILABLE-FOR-COMM] 104,079 <F3> 101,825 <F3>
[COMMON-STOCK-DIVIDENDS] 60,000 <F4> 60,000 <F4>
[TOTAL-INTEREST-ON-BONDS] 44,529 44,529
[CASH-FLOW-OPERATIONS] 192,983 192,983
[EPS-PRIMARY] 0 0
[EPS-DILUTED] 0 0
<FN>
<F1> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES.
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $9,000.
<F3> INCLUDES GAIN ON REACQUIRED PREFERRED STOCK OF $3,722.
<F4> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
[ARTICLE] OPUR1
[CIK] 0000077227
[NAME] PENNSYLVANIA ELECTRIC COMPANY
[MULTIPLIER] 1,000
[CURRENCY] US DOLLARS
<S> <C> <C>
[PERIOD-TYPE] 12-MOS 12-MOS
[FISCAL-YEAR-END] DEC-31-1996 DEC-31-1996
[PERIOD-START] OCT-01-1996 OCT-01-1996
[PERIOD-END] SEP-30-1997 SEP-30-1997
[EXCHANGE-RATE] 1 1
[BOOK-VALUE] PER-BOOK PRO-FORMA
[TOTAL-NET-UTILITY-PLANT] 1,804,831 1,804,831
[OTHER-PROPERTY-AND-INVEST] 71,133 71,133
[TOTAL-CURRENT-ASSETS] 244,365 307,970
[TOTAL-DEFERRED-CHARGES] 457,945 457,945
[OTHER-ASSETS] 0 0
[TOTAL-ASSETS] 2,578,274 2,641,879
[COMMON] 105,812 105,812
[CAPITAL-SURPLUS-PAID-IN] 285,486 285,486
[RETAINED-EARNINGS] 400,669 398,390
[TOTAL-COMMON-STOCKHOLDERS-EQ] 791,967 789,688
[PREFERRED-MANDATORY] 105,000 <F1> 105,000 <F1>
[PREFERRED] 16,681 16,681
[LONG-TERM-DEBT-NET] 676,444 676,444
[SHORT-TERM-NOTES] 33,300 33,300
[LONG-TERM-NOTES-PAYABLE] 0 0
[COMMERCIAL-PAPER-OBLIGATIONS] 50,229 117,729
[LONG-TERM-DEBT-CURRENT-PORT] 30,011 30,011
[PREFERRED-STOCK-CURRENT] 0 0
[CAPITAL-LEASE-OBLIGATIONS] 3,443 3,443
[LEASES-CURRENT] 21,096 21,096
[OTHER-ITEMS-CAPITAL-AND-LIAB] 850,103 848,487
[TOT-CAPITALIZATION-AND-LIAB] 2,578,274 2,641,879
[GROSS-OPERATING-REVENUE] 1,042,569 1,042,569
[INCOME-TAX-EXPENSE] 65,056 63,440
[OTHER-OPERATING-EXPENSES] 818,647 818,647
[TOTAL-OPERATING-EXPENSES] 883,703 882,087
[OPERATING-INCOME-LOSS] 158,866 160,482
[OTHER-INCOME-NET] 842 842
[INCOME-BEFORE-INTEREST-EXPEN] 159,708 161,324
[TOTAL-INTEREST-EXPENSE] 63,784 <F2> 67,679 <F2>
[NET-INCOME] 95,924 93,645
[PREFERRED-STOCK-DIVIDENDS] 836 836
[EARNINGS-AVAILABLE-FOR-COMM] 100,654 <F3> 98,375 <F3>
[COMMON-STOCK-DIVIDENDS] 55,000 <F4> 55,000 <F4>
[TOTAL-INTEREST-ON-BONDS] 49,050 49,050
[CASH-FLOW-OPERATIONS] 154,131 154,131
[EPS-PRIMARY] 0 0
[EPS-DILUTED] 0 0
<FN>
<F1> REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES.
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $9,188.
<F3> INCLUDES GAIN ON REACQUIRED PREFERRED STOCK OF $5,566.
<F4> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
EXHIBIT I
GPU, Inc. (70-7926)
GPU, Inc. ("GPU"), 100 Interpace Parkway, Parsippany, New Jersey 07054,
a registered holding company, and its public-utility subsidiary companies,
Jersey Central Power & Light Company ("JCP&L"), Metropolitan Edison Company
("Met-Ed")and Pennsylvania Electric Company ("Penelec"), 2800 Pottsville Pike,
Reading, Pennsylvania 19640 (collectively, the "GPU Companies"), have filed a
post-effective amendment under Sections 6(a) and 7 of the Act and Rules 53 and
54 thereunder to their Declaration on Form U-1.
By Order dated October 26, 1994 (HCAR No. 35-26150) (the "Order"), the
Commission, among other things, authorized (1) the GPU Companies to issue, sell
and renew from time to time through December 31, 1997 their respective unsecured
promissory notes ("Unsecured Promissory Notes"), maturing not more than nine
months after issuance, to various commercial banks pursuant to loan
participation arrangements and informal lines of credit ("Lines of Credit") in
amounts up to the limitations on short-term indebtedness contained in their
respective charters, and in the case of GPU, up to $200 million; (2) JCP&L,
Met-Ed and Penelec to issue and sell from time to time through December 31, 1997
their unsecured short-term promissory notes as commercial paper ("Commercial
Paper") in amounts up to the limits permitted by their respective charters;
(3) the GPU Companies to issue, sell and renew unsecured promissory notes
to lenders other than commercial banks, insurance companies or similar
institutions ("Other Short-Term Debt") from time to time through
<PAGE>
December 31, 1997 in amounts up to the limitations on short-term indebtedness
contained in their respective charters and, in the case of GPU, $200 million
and (4) the GPU Companies to issue, sell and renew unsecured promissory
notes pursuant to a revolving credit agreement ("Credit Agreement") up to
$250 million and, in the case of GPU, $200 million (Borrowings under Lines of
Credit, Commercial Paper and Other Short-Term Debt are collectively
referred to as "Short-Term Borrowings").
By Supplemental Order dated July 17, 1996 (HCAR No. 35-26544) (the
"Supplemental Order"), the Commission, among other things, (1) authorized the
GPU Companies to enter into an Amended and Restated Credit Agreement ("Restated
Credit Agreement") which permits borrowings thereunder through May 6, 2001, and
(2) increased the amount which GPU may borrow under the Restated Credit
Agreement and Short-Term Borrowings to $250 million.
Since the authorization pursuant to the Order and Supplemental Order to
issue, sell and renew Short-Term Borrowings expires on December 31, 1997, the
GPU Companies request that the period during which they may issue, sell and
renew Short-Term Borrowings be extended to December 31, 2000. In all other
respects, the transactions remain as described in the Declaration, as amended.
Interested persons wishing to comment or request a hearing on the
2
<PAGE>
post-effective amendment should submit their views in writing by December 12,
1997, to the Secretary, Securities and Exchange Commission, Washington, D.C.
20549, and serve a copy on the declarants at the addresses specified above.
Proof of service (by affidavit or, in case of an attorney at law, by
certificate) should be filed with the request. Any request for hearing shall
identify specifically the issues of fact or law that are disputed. A person who
so requests will be notified of any hearing, if ordered, and will receive a copy
of any notice or order issued in the matter. After said date, the post-effective
amendment, as filed or as amended, may be permitted to become effective.
3
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-A(c)
Page 1 of 47
GPU, INC.
BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
---------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 3) Pro Forma
----------- ------------ ---------
<S> <C> <C> <C>
Property and Investments:
Investments in subsidiaries $3,250,368 $ (11,410) $3,238,958
Other, net 5,794 - 5,794
--------- --------- ---------
Total property and investments 3,256,162 (11,410) 3,244,752
--------- --------- ---------
Current Assets:
Cash and temporary cash investments 228 160,748 160,976
Accounts receivable, net 669 - 669
Prepayments 209 - 209
--------- --------- ---------
Total current assets 1,106 160,748 161,854
--------- --------- ---------
Deferred Debits and Other Assets 1,148 - 1,148
--------- --------- ---------
Total Assets $3,258,416 $ 149,338 $3,407,754
========= ========= =========
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314,458 $ - $ 314,458
Capital surplus 753,082 - 753,082
Retained earnings 2,188,770 (17,879) 2,170,891
--------- --------- ---------
Total 3,256,310 (17,879) 3,238,431
Less, reacquired common
stock, at cost 82,391 - 82,391
--------- --------- ---------
Total capitalization 3,173,919 (17,879) 3,156,040
--------- --------- ---------
Current Liabilities:
Notes payable 79,300 170,700 250,000
Accounts payable 144 - 144
Taxes accrued 1 (3,483) (3,482)
Interest accrued 67 - 67
Other 3,579 - 3,579
--------- --------- ---------
Total current liabilities 83,091 167,217 250,308
--------- --------- ---------
Deferred credits and other
liabilities 1,406 - 1,406
--------- --------- ---------
Total Liabilities and Capital $3,258,416 $ 149,338 $3,407,754
========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-A(c)
Page 2 of 47
GPU, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 3) Pro Forma
----------- ------------ ---------
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 338,827 $ (11,410) $ 327,417
--------- -------- ---------
Expenses, Taxes and Interest:
Operation and maintenance expense 10,278 - 10,278
Other expense, net 176 - 176
Taxes, other than income taxes 217 - 217
Income tax expense/(benefit) - (3,483) (3,483)
Interest expense 5,312 9,952 15,264
--------- -------- ---------
Total expenses, taxes and
interest 15,983 6,469 22,452
--------- -------- ---------
Net Income $ 322,844 $ (17,879) $ 304,965
========= ======== =========
Retained Earnings:
Balance at beginning of period $2,103,263 $ - $2,103,263
Net income 322,844 (17,879) 304,965
Cash dividends on common stock (237,660) - (237,660)
Net unrealized gain on investments 8,670 - 8,670
Foreign currency translation
adjustments (6,741) - (6,741)
Other adjustments (1,606) - (1,606)
--------- --------- ---------
Balance at end of period $2,188,770 $ (17,879) $2,170,891
========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-A(c)
Page 3 of 47
GPU, INC.
PRO FORMA ADJUSTMENTS
AT SEPTEMBER 30, 1997
---------------------
(IN THOUSANDS)
<S> <C> <C> <C>
(1)
Cash and temporary cash investments $170,700
Notes payable $170,700
To record the proposed issuance of $170.7 million of borrowings under unsecured
debt agreements or the Revolving Credit Agreement, to bring such borrowings up
to the charter limit ($250 million charter limit less $79.3 million issued as of
September 30, 1997).
(2)
Other interest $ 9,952
Cash and temporary cash investments $ 9,952
To record annual interest expense resulting from the proposed issuance of $170.7
million in borrowings at an assumed rate of 5.83%.
(3)
Taxes accrued $ 3,483
Income taxes $ 3,483
To record the net decrease in the provision for income taxes attributable to the
proposed issuance of $170.7 million of borrowings.
(4)
Equity in earnings of subsidiaries $ 11,410
Investments in subsidiaries $ 11,410
To record GPU, Inc.'s share of the net effect of the subsidiary companies annual
interest expense and decrease in the provision for income taxes attributable to
the proposed issuance of $317.2 million of borrowings under unsecured debt
agreements or the Revolving Credit Agreement, to bring such borrowings up to the
aggregate of the subsidiary companies' respective charter limits.
Note: The effects of pro forma journal entries related to SEC File 70-8593 have
not been included in this filing since these entries will be filed pursuant to a
request for confidential treatment.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-B(c)
Page 4 of 47
GPU, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
---------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 8) Pro Forma
----------- ------------ ---------
<S> <C> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $ 9,873,012 $ - $ 9,873,012
Less, accumulated depreciation 3,953,755 - 3,953,755
---------- -------- ----------
Net utility plant in service 5,919,257 - 5,919,257
Construction work in progress 223,889 - 223,889
Other, net 170,217 - 170,217
---------- -------- ---------
Net utility plant 6,313,363 - 6,313,363
---------- -------- ----------
Other Property and Investments:
GPU International Group investments, net 850,315 - 850,315
Nuclear decommissioning trusts,
at market 544,607 - 544,607
Nuclear fuel disposal trust, at market 107,623 - 107,623
Other, net 53,713 - 53,713
---------- -------- ----------
Total other property and investments 1,556,258 - 1,556,258
---------- -------- ----------
Current Assets:
Cash and temporary cash investments 42,523 459,603 502,126
Special deposits 29,313 - 29,313
Accounts receivable:
Customers, net 293,577 - 293,577
Other 109,675 - 109,675
Unbilled revenues 129,846 - 129,846
Materials & supplies, at average
cost or less:
Construction and maintenance 185,664 - 185,664
Fuel 39,600 - 39,600
Deferred income taxes 61,031 61,031
Prepayments 112,003 - 112,003
Other 379 - 379
---------- -------- ----------
Total current assets 1,003,611 459,603 1,463,214
---------- -------- ----------
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 345,352 - 345,352
Income taxes recoverable through
future rates 526,623 - 526,623
Nonutility generation contract buyout
costs 251,068 - 251,068
Unamortized property losses 97,281 - 97,281
Other 435,616 - 435,616
---------- -------- ----------
Total regulatory assets 1,655,940 - 1,655,940
Deferred income taxes 365,234 - 365,234
Other 148,943 - 148,943
---------- -------- ----------
Total deferred debits and
other assets 2,170,117 - 2,170,117
---------- -------- ----------
Total Assets $11,043,349 $ 459,603 $11,502,952
========== ======== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-B(c)
Page 5 of 47
GPU, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 8) Pro Forma
----------- ------------ ---------
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314,458 $ - $ 314,458
Capital surplus 753,082 - 753,082
Retained earnings 2,188,770 (17,879) 2,170,891
---------- -------- ----------
Total 3,256,310 (17,879) 3,238,431
Less, reacquired common stock, at cost 82,391 - 82,391
---------- -------- ----------
Total common stockholders' equity 3,173,919 (17,879) 3,156,040
Cumulative preferred stock:
With mandatory redemption 91,500 - 91,500
Without mandatory redemption 66,478 - 66,478
Subsidiary-obligated mandatorily
redeemable preferred securities 330,000 - 330,000
Long-term debt 3,211,509 - 3,211,509
---------- -------- ----------
Total capitalization 6,873,406 (17,879) 6,855,527
---------- -------- ----------
Current Liabilities:
Securities due within one year 63,816 - 63,816
Notes payable 334,685 487,900 822,585
Obligations under capital leases 149,281 - 149,281
Accounts payable 348,188 - 348,188
Taxes accrued 33,929 (10,418) 23,511
Deferred energy 30,922 - 30,922
Interest accrued 53,908 - 53,908
Other 237,069 - 237,069
---------- -------- ----------
Total current liabilities 1,251,798 477,482 1,729,280
---------- -------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes 1,574,264 - 1,574,264
Unamortized investment tax credits 125,320 - 125,320
Three Mile Island Unit 2 future costs 444,175 - 444,175
Regulatory liabilities 92,379 - 92,379
Other 682,007 - 682,007
---------- -------- ----------
Total deferred credits and
other liabilities 2,918,145 - 2,918,145
---------- -------- ----------
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $11,043,349 $ 459,603 $11,502,952
========== ======== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-B(c)
Page 6 of 47
GPU, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 8) Pro Forma
----------- ------------ ---------
<S> <C> <C> <C>
Operating Revenues $3,987,604 $ - $3,987,604
--------- -------- ---------
Operating Expenses:
Fuel 362,549 - 362,549
Power purchased and interchanged 1,015,396 - 1,015,396
Deferral of energy costs, net 11,716 - 11,716
Other operation and maintenance 942,522 - 942,522
Depreciation and amortization 450,775 - 450,775
Taxes, other than income taxes 352,826 - 352,826
--------- -------- ---------
Total operating expenses 3,135,784 - 3,135,784
--------- -------- ---------
Operating Income Before Income Taxes 851,820 - 851,820
Income tax expense/(benefit) 231,122 (10,418) 220,704
--------- -------- ---------
Operating Income 620,698 10,418 631,116
--------- -------- ---------
Other Income and Deductions:
Allowance for other funds used during
construction 1,443 - 1,443
Other income/(expense), net (118,659) - (118,659)
Income taxes 64,366 - 64,366
--------- -------- ---------
Total other income and deductions (52,850) - (52,850)
--------- -------- ---------
Income Before Interest Charges
and Preferred Dividends 567,848 10,418 578,266
--------- -------- ---------
Interest Charges and Preferred Dividends:
Interest on long-term debt 184,085 - 184,085
Other interest 33,678 28,297 61,975
Allowance for borrowed funds used
during construction (5,592) - (5,592)
Dividends on subsidiary-obligated
mandatorily redeemable preferred
securities 28,888 - 28,888
Preferred stock dividends of
subsidiaries 13,233 - 13,233
Gain on preferred stock redemption (9,288) - (9,288)
--------- -------- ---------
Total interest charges and
preferred dividends 245,004 28,297 273,301
--------- -------- ---------
Net Income $ 322,844 $ (17,879) $ 304,965
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-B(c)
Page 7 of 47
GPU, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 8) Pro Forma
----------- ------------ ---------
<S> <C> <C> <C>
Retained Earnings:
Balance at beginning of period $2,103,263 $ - $2,103,263
Net income 322,844 (17,879) 304,965
Cash dividends on common stock (237,660) - (237,660)
Net unrealized gain on investments 8,670 - 8,670
Foreign currency translation
adjustments (6,741) - (6,741)
Other adjustments (1,606) - (1,606)
--------- ------- ---------
Balance at end of period $2,188,770 $ (17,879) $2,170,891
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-B(c)
Page 8 of 47
GPU, INC. AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
<S> <C> <C> <C>
(1)
Cash and temporary cash investments $487,900
Notes payable $487,900
To record the proposed issuance of $487.9 million of borrowings under unsecured
debt agreements or the Revolving Credit Agreement, to bring such borrowings up
to the charter limits.
(2)
Other interest $ 28,297
Cash and temporary cash investments $ 28,297
To record annual interest expense resulting from the proposed issuance of $487.9
million in borrowings at an assumed average rate of 5.80%.
(3)
Taxes accrued $ 10,418
Income taxes $ 10,418
To record the net decrease in the provision for income taxes attributable to the
proposed issuance of $487.9 million of borrowings.
Note: The effects of pro forma journal entries related to SEC File 70-8593 have
not been included in this filing since these entries will be filed pursuant to a
request for confidential treatment.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-C(c)
Page 9 of 47
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 13) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $4,627,088 $ - $4,627,088
Less, accumulated depreciation 1,954,935 - 1,954,935
--------- -------- ---------
Net utility plant in service 2,672,153 - 2,672,153
Construction work in progress 107,635 - 107,635
Other, net 99,682 - 99,682
--------- -------- ---------
Net utility plant 2,879,470 - 2,879,470
--------- -------- ---------
Other Property and Investments:
Nuclear decommissioning trusts,
at market 323,817 - 323,817
Nuclear fuel disposal trust, at market 107,623 - 107,623
Other, net 8,354 - 8,354
--------- -------- ---------
Total other property and investments 439,794 - 439,794
--------- -------- ---------
Current Assets:
Cash and temporary cash investments 13,469 172,103 185,572
Special deposits 6,422 - 6,422
Accounts receivable:
Customers, net 165,410 - 165,410
Other 16,887 - 16,887
Unbilled revenues 53,636 - 53,636
Materials & supplies, at average
cost or less:
Construction and maintenance 91,558 - 91,558
Fuel 15,939 - 15,939
Deferred income taxes 24,158 - 24,158
Prepayments 53,783 - 53,783
--------- -------- ---------
Total current assets 441,262 172,103 613,365
--------- -------- ---------
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through
future rates 148,752 - 148,752
Nonutility generation contract buyout
costs 143,500 - 143,500
Three Mile Island Unit 2 deferred costs 109,653 - 109,653
Unamortized property losses 92,336 - 92,336
Other 315,422 - 315,422
--------- -------- ---------
Total regulatory assets 809,663 - 809,663
Deferred income taxes 149,879 - 149,879
Other 21,937 - 21,937
--------- -------- ---------
Total deferred debits and
other assets 981,479 - 981,479
--------- -------- ---------
Total Assets $4,742,005 $ 172,103 $4,914,108
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-C(c)
Page 10 of 47
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 13) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 153,713 $ - $ 153,713
Capital surplus 510,769 - 510,769
Retained earnings 892,230 (6,877) 885,353
--------- -------- ---------
Total common stockholder's equity 1,556,712 (6,877) 1,549,835
Cumulative preferred stock:
With mandatory redemption 91,500 - 91,500
Without mandatory redemption 37,741 - 37,741
Company-obligated mandatorily
redeemable preferred securities 125,000 - 125,000
Long-term debt 1,173,244 - 1,173,244
--------- -------- ---------
Total capitalization 2,984,197 (6,877) 2,977,320
--------- -------- ---------
Current Liabilities:
Securities due within one year 32,511 - 32,511
Notes payable 106,800 182,700 289,500
Obligations under capital leases 86,214 - 86,214
Accounts payable:
Affiliates 19,873 - 19,873
Other 98,166 - 98,166
Taxes accrued 14,654 (3,720) 10,934
Deferred energy credits 30,922 - 30,922
Interest accrued 29,385 - 29,385
Other 86,736 - 86,736
--------- -------- ---------
Total current liabilities 505,261 178,980 684,241
--------- -------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes 663,579 - 663,579
Unamortized investment tax credits 55,243 - 55,243
Three Mile Island Unit 2 future costs 111,069 - 111,069
Nuclear fuel disposal fee 132,648 - 132,648
Regulatory liabilities 38,722 - 38,722
Other 251,286 - 251,286
--------- -------- ---------
Total deferred credits and
other liabilities 1,252,547 - 1,252,547
--------- -------- ---------
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $4,742,005 $ 172,103 $4,914,108
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-C(c)
Page 11 of 47
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 13) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
Operating Revenues $2,066,055 $ - $2,066,055
--------- -------- ---------
Operating Expenses:
Fuel 93,396 - 93,396
Power purchased and interchanged:
Affiliates 19,881 - 19,881
Others 589,046 - 589,046
Deferral of energy and capacity
costs, net 15,592 - 15,592
Other operation and maintenance 462,588 - 462,588
Depreciation and amortization 242,310 - 242,310
Taxes, other than income taxes 228,864 - 228,864
--------- -------- ---------
Total operating expenses 1,651,677 - 1,651,677
--------- -------- ---------
Operating Income Before Income Taxes 414,378 - 414,378
Income tax expense/(benefit) 99,985 (3,720) 96,265
--------- -------- ---------
Operating Income 314,393 3,720 318,113
--------- -------- ---------
Other Income and Deductions:
Allowance for other funds used during
construction 644 - 644
Other income, net 4,658 - 4,658
Income taxes (2,376) - (2,376)
--------- -------- ---------
Total other income and deductions 2,926 - 2,926
--------- -------- ---------
Income Before Interest Charges and
Dividends on Preferred Securities 317,319 3,720 321,039
--------- -------- ---------
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 90,506 - 90,506
Other interest 13,849 10,597 24,446
Allowance for borrowed funds used
during construction (2,510) - (2,510)
Dividends on company-obligated mandatorily
redeemable preferred securities 10,700 - 10,700
--------- -------- ---------
Total interest charges and dividends
on preferred securities 112,545 10,597 123,142
--------- -------- ---------
Net Income 204,774 (6,877) 197,897
Preferred stock dividends 11,800 - 11,800
--------- -------- ---------
Earnings Available for Common Stock $ 192,974 $ (6,877) $ 186,097
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-C(c)
Page 12 of 47
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 13) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
Retained Earnings:
Balance at beginning of period $ 829,256 $ - $ 829,256
Net income 204,774 (6,877) 197,897
Cash dividends on common stock (130,000) - (130,000)
Cash dividends on cumulative
preferred stock (11,800) - (11,800)
-------- -------- --------
Balance at end of period $ 892,230 $ (6,877) $ 885,353
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-C(c)
Page 13 of 47
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
PRO FORMA ADJUSTMENTS
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
<S> <C> <C> <C>
(1)
Cash and temporary cash investments $182,700
Notes payable $182,700
To record the proposed issuance of $182.7 million of borrowings under unsecured
debt agreements or the Revolving Credit Agreement, to bring such borrowings up
to the charter limit ($289.5 million charter limit less $106.8 million issued as
of September 30, 1997).
(2)
Other interest $ 10,597
Cash and temporary cash investments $ 10,597
To record annual interest expense resulting from the proposed issuance of $182.7
million in borrowings at an assumed rate of 5.80%.
(3)
Taxes accrued $ 3,720
Income taxes $ 3,720
To record the net decrease in the provision for income taxes attributable to the
proposed issuance of $182.7 million of borrowings.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-D(c)
Page 14 of 47
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 18) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2,384,433 $ - $2,384,433
Less, accumulated depreciation 896,917 - 896,917
--------- -------- ---------
Net utility plant in service 1,487,516 - 1,487,516
Construction work in progress 45,407 - 45,407
Other, net 41,457 - 41,457
--------- -------- ---------
Net utility plant 1,574,380 - 1,574,380
--------- -------- ---------
Other Property and Investments:
Nuclear decommissioning trusts,
at market 156,722 - 156,722
Other, net 11,676 - 11,676
--------- -------- ---------
Total other property and investments 168,398 - 168,398
--------- -------- ---------
Current Assets:
Cash and temporary cash investments 3,258 63,147 66,405
Special deposits 1,152 - 1,152
Accounts receivable:
Customers, net 62,810 - 62,810
Other 33,479 - 33,479
Unbilled revenues 37,299 - 37,299
Materials & supplies, at average
cost or less:
Construction and maintenance 38,974 - 38,974
Fuel 9,311 - 9,311
Prepayments 11,983 - 11,983
--------- -------- ---------
Total current assets 198,266 63,147 261,413
--------- -------- ---------
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through
future rates 172,186 - 172,186
Three Mile Island Unit 2 deferred costs 147,141 - 147,141
Nonutility generation contract buyout
costs 78,868 - 78,868
Other 66,618 - 66,618
--------- -------- ---------
Total regulatory assets 464,813 - 464,813
Deferred income taxes 89,932 - 89,932
Other 18,191 - 18,191
--------- -------- ---------
Total deferred debits and
other assets 572,936 - 572,936
--------- -------- ---------
Total Assets $2,513,980 $ 63,147 $2,577,127
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-D(c)
Page 15 of 47
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 18) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 66,273 $ - $ 66,273
Capital surplus 370,200 - 370,200
Retained earnings 302,500 (2,254) 300,246
--------- -------- ---------
Total common stockholder's equity 738,973 (2,254) 736,719
Cumulative preferred stock 12,056 - 12,056
Company-obligated mandatorily
redeemable preferred securities 100,000 - 100,000
Long-term debt 576,923 - 576,923
--------- -------- ---------
Total capitalization 1,427,952 (2,254) 1,425,698
--------- -------- ---------
Current Liabilities:
Securities due within one year 22 - 22
Notes payable 65,056 67,000 132,056
Obligations under capital leases 40,609 - 40,609
Accounts payable:
Affiliates 41,852 - 41,852
Other 83,892 - 83,892
Taxes accrued 11,629 (1,599) 10,030
Interest accrued 10,246 - 10,246
Other 39,765 - 39,765
--------- -------- ---------
Total current liabilities 293,071 65,401 358,472
--------- -------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes 409,370 - 409,370
Three Mile Island Unit 2 future costs 222,037 - 222,037
Unamortized investment tax credits 30,232 - 30,232
Nuclear fuel disposal fee 29,964 - 29,964
Regulatory liabilities 24,990 - 24,990
Other 76,364 - 76,364
--------- -------- ---------
Total deferred credits and
other liabilities 792,957 - 792,957
--------- -------- ---------
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2,513,980 $ 63,147 $2,577,127
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-D(c)
Page 16 of 47
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 18) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
Operating Revenues $934,560 $ - $934,560
------- ------- -------
Operating Expenses:
Fuel 92,267 - 92,267
Power purchased and interchanged:
Affiliates 17,043 - 17,043
Others 221,661 - 221,661
Deferral of energy costs, net (6,501) - (6,501)
Other operation and maintenance 223,235 - 223,235
Depreciation and amortization 104,181 - 104,181
Taxes, other than income taxes 58,659 - 58,659
------- ------- -------
Total operating expenses 710,545 - 710,545
------- ------- -------
Operating Income Before Income Taxes 224,015 - 224,015
Income tax expense/(benefit) 66,081 (1,599) 64,482
------- ------- -------
Operating Income 157,934 1,599 159,533
------- ------- -------
Other Income and Deductions:
Allowance for other funds used during
construction 578 - 578
Other income, net 3,559 - 3,559
Income taxes (1,699) - (1,699)
------- ------- -------
Total other income and deductions 2,438 - 2,438
------- ------- -------
Income Before Interest Charges and
Dividends on Preferred Securities 160,372 1,599 161,971
------- ------- -------
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 44,529 - 44,529
Other interest 6,650 3,853 10,503
Allowance for borrowed funds used
during construction (761) - (761)
Dividends on company-obligated mandatorily
redeemable preferred securities 9,000 - 9,000
------- ------- -------
Total interest charges and dividends
on preferred securities 59,418 3,853 63,271
------- ------- -------
Net Income 100,954 (2,254) 98,700
Preferred stock dividends 597 - 597
Gain on preferred stock reacquisition 3,722 - 3,722
------- ------- -------
Earnings Available for Common Stock $104,079 $ (2,254) $101,825
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-D(c)
Page 17 of 47
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 18) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
Retained Earnings:
Balance at beginning of period $252,952 $ - $252,952
Net income 100,954 (2,254) 98,700
Cash dividends on common stock (60,000) - (60,000)
Cash dividends on cumulative
preferred stock (597) - (597)
Redemption of preferred stock 3,722 - 3,722
Net unrealized gain on investments 5,780 - 5,780
Other adjustments (311) - (311)
------- ------- -------
Balance at end of period $302,500 $ (2,254) $300,246
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-D(c)
Page 18 of 47
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
<S> <C> <C> <C>
(1)
Cash and temporary cash investments $ 67,000
Notes payable $ 67,000
To record the proposed issuance of $67.0 million of borrowings under unsecured
debt agreements or the Revolving Credit Agreement, to bring such borrowings up
to the charter limit ($132.1 million charter limit less $65.1 million issued as
of September 30, 1997).
(2)
Other interest $ 3,853
Cash and temporary cash investments $ 3,853
To record annual interest expense resulting from the proposed issuance of $67.0
million in borrowings at an assumed rate of 5.75%.
(3)
Taxes accrued $ 1,599
Income taxes $ 1,599
To record the net decrease in the provision for income taxes attributable to the
proposed issuance of $67.0 million of borrowings.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-E(c)
Page 19 of 47
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 23) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2,776,508 $ - $2,776,508
Less, accumulated depreciation 1,070,030 - 1,070,030
--------- -------- ---------
Net utility plant in service 1,706,478 - 1,706,478
Construction work in progress 70,847 - 70,847
Other, net 27,506 - 27,506
--------- -------- ---------
Net utility plant 1,804,831 - 1,804,831
--------- -------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market 64,068 - 64,068
Other, net 7,065 - 7,065
--------- -------- ---------
Total other property and investments 71,133 - 71,133
--------- -------- ---------
Current Assets:
Cash and temporary cash investments 4,236 63,605 67,841
Special deposits 2,637 - 2,637
Accounts receivable:
Customers, net 65,357 - 65,357
Other 33,861 - 33,861
Unbilled revenues 38,911 - 38,911
Materials & supplies, at average
cost or less:
Construction and maintenance 49,587 - 49,587
Fuel 14,350 - 14,350
Deferred income taxes 466 - 466
Prepayments 34,960 - 34,960
--------- -------- ---------
Total current assets 244,365 63,605 307,970
--------- -------- ---------
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through
future rates 205,685 - 205,685
Three Mile Island Unit 2 deferred costs 88,558 - 88,558
Other 88,653 - 88,653
--------- -------- ---------
Total regulatory assets 382,896 - 382,896
Deferred income taxes 58,776 - 58,776
Other 16,273 - 16,273
--------- -------- ---------
Total deferred debits and
other assets 457,945 - 457,945
--------- -------- ---------
Total Assets $2,578,274 $ 63,605 $2,641,879
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-E(c)
Page 20 of 47
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 23) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 105,812 $ - $ 105,812
Capital surplus 285,486 - 285,486
Retained earnings 400,669 (2,279) 398,390
--------- -------- ---------
Total common stockholder's equity 791,967 (2,279) 789,688
Cumulative preferred stock 16,681 - 16,681
Company-obligated mandatorily
redeemable preferred securities 105,000 - 105,000
Long-term debt 676,444 - 676,444
--------- -------- ---------
Total capitalization 1,590,092 (2,279) 1,587,813
--------- -------- ---------
Current Liabilities:
Securities due within one year 30,011 - 30,011
Notes payable 83,529 67,500 151,029
Obligations under capital leases 21,096 - 21,096
Accounts payable:
Affiliates 20,900 - 20,900
Other 51,964 - 51,964
Taxes accrued 7,914 (1,616) 6,298
Interest accrued 10,272 - 10,272
Vacations accrued 6,193 - 6,193
Other 22,062 - 22,062
--------- -------- ---------
Total current liabilities 253,941 65,884 319,825
--------- -------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes 474,474 - 474,474
Three Mile Island Unit 2 future costs 111,069 - 111,069
Unamortized investment tax credits 39,845 - 39,845
Nuclear fuel disposal fee 14,982 - 14,982
Regulatory liabilities 30,099 - 30,099
Other 63,772 - 63,772
--------- -------- ---------
Total deferred credits and
other liabilities 734,241 - 734,241
--------- -------- ---------
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2,578,274 $ 63,605 $2,641,879
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-E(c)
Page 21 of 47
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 23) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
Operating Revenues $1,042,569 $ - $1,042,569
--------- -------- ---------
Operating Expenses:
Fuel 176,886 - 176,886
Power purchased and interchanged:
Affiliates 3,956 - 3,956
Others 204,594 - 204,594
Deferral of energy costs, net 2,625 - 2,625
Other operation and maintenance 261,216 - 261,216
Depreciation and amortization 104,284 - 104,284
Taxes, other than income taxes 65,086 - 65,086
--------- -------- ---------
Total operating expenses 818,647 - 818,647
--------- -------- ---------
Operating Income Before Income Taxes 223,922 - 223,922
Income tax expense/(benefit) 65,056 (1,616) 63,440
--------- -------- ---------
Operating Income 158,866 1,616 160,482
--------- -------- ---------
Other Income and Deductions:
Allowance for other funds used during
construction 221 - 221
Other income, net 1,108 - 1,108
Income taxes (487) - (487)
--------- -------- ---------
Total other income and deductions 842 - 842
--------- -------- ---------
Income Before Interest Charges and
Dividends on Preferred Securities 159,708 1,616 161,324
--------- -------- ---------
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 49,050 - 49,050
Other interest 7,867 3,895 11,762
Allowance for borrowed funds used
during construction (2,321) - (2,321)
Dividends on company-obligated mandatorily
redeemable preferred securities 9,188 - 9,188
--------- -------- ---------
Total interest charges and dividends
on preferred securities 63,784 3,895 67,679
--------- -------- ---------
Net Income 95,924 (2,279) 93,645
Preferred stock dividends 836 - 836
Gain on preferred stock reacquisition 5,566 - 5,566
--------- -------- ---------
Earnings Available for Common Stock $ 100,654 $ (2,279) $ 98,375
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-E(c)
Page 22 of 47
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See page 23) Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
Retained Earnings:
Balance at beginning of period $352,146 $ - $352,146
Net income 95,924 (2,279) 93,645
Cash dividends on common stock (55,000) - (55,000)
Cash dividends on cumulative
preferred stock (836) - (836)
Redemption of preferred stock 5,566 - 5,566
Net unrealized gain on investments 2,890 - 2,890
Other adjustments (21) - (21)
------- ------- -------
Balance at end of period $400,669 $ (2,279) $398,390
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b) 1-E(c)
Page 23 of 47
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT SEPTEMBER 30, 1997
(IN THOUSANDS)
<S> <C> <C> <C>
(1)
Cash and temporary cash investments $ 67,500
Notes payable $ 67,500
To record the proposed issuance of $67.5 million of borrowings under unsecured
debt agreements or the Revolving Credit Agreement, to bring such borrowings up
to the charter limit ($151.1 million charter limit less $83.6 million issued as
of September 30, 1997).
(2)
Other interest $ 3,895
Cash and temporary cash investments $ 3,895
To record annual interest expense resulting from the proposed issuance of $67.5
million in borrowings at an assumed rate of 5.77%.
(3)
Taxes accrued $ 1,616
Income taxes $ 1,616
To record the net decrease in the provision for income taxes attributable to the
proposed issuance of $67.5 million of borrowings.
</TABLE>
Financial Statements
Item 6.(b)
Page 24 of 47
GPU, INC. AND SUBSIDIARY COMPANIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 the GPU Energy companies 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 develop, own and operate generation, transmission and distribution
facilities 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, Inc. (GPU AR), a
nonregulated subsidiary formed to engage in energy services, retail energy sales
and telecommunications services; 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."
These notes should be read in conjunction with the notes to consolidated
financial statements included in the 1996 Annual Report on Form 10-K. For
disclosures required by generally accepted accounting principles, see the 1996
Annual Report on Form 10-K.
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The GPU Energy companies have made investments in three major nuclear
projects--Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are
operating generation facilities, and Three Mile Island Unit 2 (TMI-2), which was
damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned by JCP&L,
Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster
Creek is owned by JCP&L. At September 30, 1997, 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
September 30, 1997
JCP&L $156 $717
Met-Ed 302 -
Penelec 148 -
--- -
Total $606 $717
=== ===
<PAGE>
Financial Statements
Item 6.(b)
Page 25 of 47
The GPU Energy companies' net investment in TMI-2 at September 30, 1997
was $82 million (JCP&L $74 million; Met-Ed $1 million; Penelec $7 million).
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 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.
In response to an inquiry regarding the possible sale of Oyster Creek,
the GPU Energy companies have stated that they would also consider selling
TMI-1. Unlike Oyster Creek, however, the early retirement of TMI-1 is not being
considered because of its lower operating costs. In October 1997, the GPU Energy
companies entered into a confidentiality agreement with a potential buyer of
TMI-1 and Oyster Creek.
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment. A
cleanup program was completed in 1990, and after receiving Nuclear Regulatory
Commission (NRC) approval, TMI-2 entered into long-term monitored storage in
1993.
<PAGE>
Financial Statements
Item 6.(b)
Page 26 of 47
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, were 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 recover 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 Third
Circuit, before which the matter is pending. There can be no assurance as to the
outcome of this litigation.
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.
<PAGE>
Financial Statements
Item 6.(b)
Page 27 of 47
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 $ 44 $ 70 $230
Met-Ed 89 141 -
Penelec 44 70 -
-- -- -
Total $177 $281 $230
=== === ===
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):
(in millions)
Oyster
GPU TMI-1 TMI-2 Creek
Radiological decommissioning $324 $393 $381
Nonradiological cost of removal 80 35 * 36
-- -- --
Total $404 $428 $417
=== === ===
* Net of $9.3 million spent as of September 30, 1997.
<PAGE>
Financial Statements
Item 6.(b)
Page 28 of 47
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage.
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 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 (in 1997 dollars) has already been recognized,
based on the 1995 site-specific study because 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 New Jersey Board of Public Utilities (NJBPU) has granted JCP&L annual
revenues for TMI-1 and Oyster Creek retirement costs of $2.5 million and $13.5
million, respectively. These annual revenues are based on both the NRC funding
targets for radiological decommissioning costs and a site-specific study which
was performed in 1988 for nonradiological costs of removal. 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.
<PAGE>
Financial Statements
Item 6.(b)
Page 29 of 47
The Pennsylvania Public Utility Commission (PaPUC) has granted Met-Ed
annual revenues for TMI-1 retirement costs of $8.5 million based on both the NRC
funding target for radiological decommissioning costs and the 1988 site-
specific study for nonradiological costs of removal. The PaPUC also granted
Penelec annual revenues of $4.2 million for its share of TMI-1 retirement costs,
on a basis consistent with that granted Met-Ed. As part of their restructuring
plans filed with the PaPUC in June 1997, Met-Ed and Penelec have requested that
these amounts be increased to reflect the estimated retirement costs contained
in the 1995 site-specific study for radiological decommissioning and
nonradiological costs of removal.
The amounts charged to depreciation expense for the nine months ended
September 30, 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 nine
months ended September 30, 1997:
JCP&L $ 2 $ 10
Met-Ed 6 -
Penelec 3 -
--- ---
$ 11 $ 10
=== ===
(in millions)
Oyster
TMI-1 Creek
Accumulated depreciation
provision at September 30, 1997:
JCP&L $ 35 $204
Met-Ed 63 -
Penelec 27 -
--- ---
$125 $204
=== ===
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
September 30, 1997 are as follows:
(in millions)
GPU JCP&L Met-Ed Penelec
September 30, 1997 $444 $111 $222 $111
<PAGE>
Financial Statements
Item 6.(b)
Page 30 of 47
These amounts are based upon the 1995 site-specific study estimates (in 1997
dollars) discussed above and an estimate for remaining incremental monitored
storage costs of $16 million (JCP&L $4 million; Met-Ed $8 million; Penelec $4
million) as of September 30, 1997, 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 $444 million liability at September 30, 1997 is $264
million (JCP&L $37 million; Met-Ed $146 million; Penelec $81 million) which
management believes is probable of recovery from customers and included in Three
Mile Island Unit 2 Deferred Costs on the Consolidated Balance Sheets, and $208
million (JCP&L $83 million; Met-Ed $90 million; Penelec $35 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
during the nine months ended September 30, 1997 amounted to $10 million (JCP&L
$2 million; Met-Ed $7 million; Penelec $1 million).
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 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 September 30, 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.
<PAGE>
Financial Statements
Item 6.(b)
Page 31 of 47
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 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 $52 million (JCP&L $31 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.
<PAGE>
Financial Statements
Item 6.(b)
Page 32 of 47
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
The Emerging Competitive Market and Stranded Costs:
The current market price of electricity being below the cost of some
utility-owned generation and power purchase commitments, combined with 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 potentially recoverable in a regulated environment, are at risk in
a deregulated and competitive environment. Met-Ed and Penelec estimate that
their total above-market costs related to power purchase commitments,
company-owned generation, generating plant decommissioning, regulatory assets
and transition expenses, on a present value basis at year-end 1998, are $1.4
billion and $1.3 billion, respectively. JCP&L estimates that its total
above-market costs related to power purchase commitments and company-owned
generation, on a present value basis at September 30, 1998, is $1.8 billion. The
$1.8 billion excludes above-market generation costs related to Oyster Creek. In
July 1997, JCP&L proposed, in its restructuring plans filed with the NJBPU,
recovery of its remaining Oyster Creek plant investment as a regulatory asset,
through a nonbypassable charge to customers. At September 30, 1997, JCP&L's net
investment in Oyster Creek was $717 million. These estimates are 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 Energy Master Plan (NJEMP)
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 differ, but should allow for the recovery of
non-mitigable above-market costs through either distribution charges or separate
nonbypassable charges to customers.
In June 1997, Met-Ed and Penelec filed with the PaPUC their proposed
restructuring plans to implement competition and customer choice in Pennsylvania
as required by the comprehensive restructuring legislation enacted in 1996. In
July 1997, JCP&L filed with the NJBPU its proposed restructuring plan for a
competitive electric marketplace in New Jersey as required by the NJEMP. The
PaPUC has stated that it will review and hold hearings on Met-Ed and Penelec's
restructuring plans with decisions due by mid 1998. The NJBPU has stated that it
intends to complete its review of JCP&L's plan so as to permit retail
competition to begin in October 1998. In October 1997, GPU announced that it
intends to begin a process to sell, through an auction, up to all of the fossil
fuel and hydroelectric generating facilities owned by the GPU Energy companies.
The GPU Energy companies will file supplemental information to their
restructuring plans as a consequence of this development. There can be no
assurance as to the extent that stranded costs will be recoverable in
Pennsylvania and New Jersey.
<PAGE>
Financial Statements
Item 6.(b)
Page 33 of 47
In 1996, the Federal Energy Regulatory Commission (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 NJEMP, which proposes that New Jersey electric utilities should have an
opportunity to recover their stranded costs associated with generating capacity
commitments and caused by electric retail competition, provided that they
attempt to mitigate these costs.
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 the 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.
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 736 367 173 196
1998 691 340 152 199
1999 706 344 152 210
2000 782 347 196 239
2001 805 353 225 227
* Actual.
** The 1997 amounts consist of actual payments through September 30, 1997 and
estimated payments for the remainder of the year.
<PAGE>
Financial Statements
Item 6.(b)
Page 34 of 47
As of September 30, 1997, facilities covered by agreements having 1,657
MW (JCP&L 896 MW; Met-Ed 356 MW; Penelec 405 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.
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; 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 requested the NUGs to propose buyouts,
buydowns and/or restructurings of current power purchase contracts in return for
cash payments which would be funded through the issuance of PaPUC approved
securitized transition bonds. Met-Ed and Penelec are currently negotiating with
two bidders to enter into definitive buyout agreements by the end of 1997.
Payments would be made in 1998, subject to Met-Ed's and Penelec's ability to
obtain the required funding through securitization.
<PAGE>
Financial Statements
Item 6.(b)
Page 35 of 47
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% 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 is estimated to average approximately 95% natural gas.
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 is estimated to average 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 is estimated to average approximately 65% to 95%
coal/waste coal.
<PAGE>
Financial Statements
Item 6.(b)
Page 36 of 47
In February 1997, Met-Ed and Penelec entered into revised 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. Met-Ed and Penelec have paid $63.4
million and $5 million, respectively, to previous developers and AES to
terminate the original power purchase agreements. In July 1997, the PaPUC
ordered that the issue of recovery of the related buyout costs and approval of
the revised power purchase agreements with AES be considered in Met-Ed and
Penelec's restructuring proceedings. If the revised 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 $5 million, respectively.
In 1994, pursuant to a PaPUC order, Penelec entered into a power purchase
agreement with Erie Power Partners L.P. (Erie), the developer of a proposed 80
MW coal-fired cogeneration facility. In November 1996, Penelec and Erie entered
into an amended power purchase agreement and Penelec paid Erie $11.7 million to
terminate the original agreement. In September 1997, Penelec agreed to the
buyout of the amended power purchase agreement for up to an additional $12
million. Of this amount, Penelec paid $5 million to Erie in October 1997.
Penelec will pay up to the remaining $7 million to the extent the PaPUC approves
recovery. However, Penelec has agreed to pay 50% of any amount not approved by
the PaPUC. Penelec has filed with the PaPUC requesting that the issue of
recovery of the buyout costs be considered in Penelec's restructuring
proceeding.
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.
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 NJEMP 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.
Regulatory Assets and Liabilities:
Regulatory Assets and Regulatory Liabilities, as reflected in the
September 30, 1997 Consolidated Balance Sheets in accordance with the provisions
of FAS 71, "Accounting for the Effects of Certain Types of Regulation", were as
follows:
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b)
Page 37 of 47
GPU (In thousands)
<S> <C> <C>
Assets Liabilities
Income taxes recoverable/refundable
through future rates $ 526,623 $ 82,666
TMI-2 deferred costs 345,352 -
Nonutility generation contract buyout costs 251,068 -
Unamortized property losses 97,281 -
Other postretirement benefits 88,220 -
Environmental remediation 90,174 -
N.J. unit tax 41,360 -
Unamortized loss on reacquired debt 41,701 -
Load and demand-side management programs 27,365 -
N.J. low-level radwaste disposal 31,479 -
DOE enrichment facility decommissioning 32,702 -
Nuclear fuel disposal fee 20,273 -
Storm damage 28,937 -
Other 33,405 9,713
--------- ---------
Total $1,655,940 $ 92,379
========= =========
JCP&L (In thousands)
Assets Liabilities
Income taxes recoverable/refundable
through future rates $ 148,752 $ 30,052
TMI-2 deferred costs 109,653 -
Nonutility generation contract buyout costs 143,500 -
Unamortized property losses 92,336 -
Other postretirement benefits 50,191 -
Environmental remediation 61,190 -
N.J. unit tax 41,360 -
Unamortized loss on reacquired debt 29,433 -
Load and demand-side management programs 27,365 -
N.J. low-level radwaste disposal 31,479 -
DOE enrichment facility decommissioning 20,414 -
Nuclear fuel disposal fee 22,416 -
Storm damage 28,937 -
Other 2,637 8,670
--------- ---------
Total $ 809,663 $ 38,722
========= =========
Met-Ed (In thousands)
Assets Liabilities
Income taxes recoverable/refundable
through future rates $ 172,186 $ 22,527
TMI-2 deferred costs 147,141 -
Nonutility generation contract buyout costs 78,868 -
Unamortized property losses 2,769 -
Other postretirement benefits 38,029 -
Environmental remediation 4,121 -
Unamortized loss on reacquired debt 5,523 -
DOE enrichment facility decommissioning 8,192 -
Nuclear fuel disposal fee (1,454) -
Other 9,438 2,463
--------- ---------
Total $ 464,813 $ 24,990
========= =========
</TABLE>
<TABLE>
<CAPTION>
Financial Statements
Item 6.(b)
Page 38 of 47
Penelec (In thousands)
Assets Liabilities
<S> <C> <C>
Income taxes recoverable/refundable
through future rates $ 205,685 $ 30,087
TMI-2 deferred costs 88,558 -
Nonutility generation contract buyout costs 28,700 -
Unamortized property losses 2,176 -
Environmental remediation 24,863 -
Unamortized loss on reacquired debt 6,745 -
DOE enrichment facility decommissioning 4,096 -
Nuclear fuel disposal fee (689) -
Other 22,762 12
--------- ---------
Total $ 382,896 $ 30,099
========= =========
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.
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River project, which are included in rates.
Other postretirement benefits: Includes costs associated with the adoption of
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which are deferred in accordance with Emerging Issues Task Force
Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises."
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.
</TABLE>
Financial Statements
Item 6.(b)
Page 39 of 47
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 rates. GPU has
recorded on the Consolidated Balance Sheets $1.7 billion (JCP&L $809 million;
Met-Ed $465 million; Penelec $382 million) in regulatory assets in accordance
with FAS 71 (see Regulatory Assets and Liabilities section of Competition and
the Changing Regulatory Environment).
In response to the continuing deregulation of the electric utility
industry, the 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 also applies to them since retail access
legislation has been enacted in Pennsylvania and proposed in New Jersey.
<PAGE>
Financial Statements
Item 6.(b)
Page 40 of 47
In response to the concerns expressed by the Staff of the SEC, the FASB's
Emerging Issues Task Force (EITF) agreed to discuss the issues surrounding the
continued applicability of FAS 71 to the electric utility industry. In May and
July 1997, the EITF met to discuss these issues and they concluded that
utilities are no longer subject to FAS 71, for the generation portion of their
business, as soon as they know details of their individual transition plans. The
EITF also concluded that utilities can continue to carry previously recorded
regulated assets (including those related to generation) on their balance sheet
if regulators have guaranteed a regulated cash flow stream to recover the cost
of these assets. While the EITF's consensus must be complied with, the SEC has
the final regulatory authority for accounting by public companies.
In light of retail access legislation enacted in Pennsylvania and the
NJEMP in New Jersey, the GPU Energy companies believe they will no longer meet
the requirements for continued application of FAS 71, for the generation portion
of their business, no later than mid 1998 for Met-Ed and Penelec, and October
1998 for JCP&L, the expected approval dates of their restructuring plans filed
with state regulators. Once the GPU Energy companies are able to determine that
the generation portion of their operations is no longer subject to the
provisions of FAS 71, the related regulatory assets, net of regulatory
liabilities, would, to the extent that recovery is not granted through their
respective restructuring plans, have to be written off and charged to expense.
The 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. In addition, write-downs of
plant assets could be required in accordance with FAS 121, "Accounting for the
Impairment of Long-Lived Assets," discussed below. The amount of write-offs
resulting from the discontinuation of FAS 71 will depend on the final outcome of
the GPU Energy companies' individual restructuring proceedings, and could have a
material adverse effect on GPU's results of operations and financial condition.
FAS 121 requires that regulatory assets meet the recovery criteria of FAS
71 on an ongoing basis in order to avoid a writedown. In addition, FAS 121
requires that long-lived assets, identifiable intangibles, capital leases and
goodwill be reviewed for impairment whenever events occur or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. 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.
<PAGE>
Financial Statements
Item 6.(b)
Page 41 of 47
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.
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 $242
million (JCP&L $43 million; Met-Ed $96 million; Penelec $103 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 for ozone.
However, the specific requirements that will have to be met at that time have
not been finalized. In addition, in July 1997 the EPA adopted new, more
stringent, rules on ozone and particulate matter. Several groups have filed suit
in the U.S. Court of Appeals to overturn these new air quality standards on the
grounds that, among other things, they are based on inadequate scientific
evidence. Also, legislation has been introduced in the Congress that would
impose a four-year moratorium on any new standards under the Clean Air Act. The
GPU Energy companies are unable to determine what additional costs, if any, will
be incurred if the EPA rules are upheld.
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
----- ------ ------- ---- -------- -----
6 4 2 1 1 11
<PAGE>
Financial Statements
Item 6.(b)
Page 42 of 47
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 (which are material in amount) 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.
In August 1997, the EPA filed a complaint against GPU, Inc. in the United
States District Court for the District of Delaware for enforcement of its
unilateral order issued against GPU, Inc. to clean up the former Dover Gas Light
Company (Dover) manufactured gas production site in Dover, Delaware. Dover was
part of the AGECO/AGECORP group of companies from 1929 until 1942 and GPU, Inc.
emerged from the AGECO/AGECORP reorganization proceedings. All of the common
stock of Dover was sold in 1942 by a member of the AGECO/AGECORP group to an
unaffiliated entity, and was subsequently acquired by Chesapeake Utilities
Corporation. According to the complaint, the EPA is seeking up to $500 thousand
in past costs, $4.2 million for work in connection with the cleanup of the Dover
site and approximately $19 million in penalties. GPU, Inc. has responded to the
EPA complaint stating that such claims should be dismissed because, among other
things, they are barred by the operation of the Final Decree entered by the
United States District Court for the Southern District of New York at the
conclusion of the 1946 reorganization proceedings of AGECO/AGECORP. Chesapeake
Utilities has also sued GPU, Inc. for a contribution to the cleanup of the Dover
site. There can be no assurance as to the outcome of these proceedings.
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 submitting
a plan 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 million to $20 million and has a recorded liability of $12
million at September 30, 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
has requested, and expects to receive, recovery of these remediation costs in
its restructuring plan filed with the PaPUC, and has recorded a corresponding
regulatory asset of approximately $12 million at September 30, 1997.
<PAGE>
Financial Statements
Item 6.(b)
Page 43 of 47
In 1997, the GPU Energy companies filed with the PaDEP applications for
re-permitting seven operating ash disposal sites, including projected site
closure procedures and related cost estimates. The cost estimates for the
closure of these sites range from approximately $16 million to $29 million, and
a liability of $16 million (JCP&L $1 million; Met-Ed $4 million; Penelec $11
million) is reflected on the Consolidated Balance Sheets at September 30, 1997.
JCP&L has requested recovery of its share of closure costs in its restructuring
plan filed with the NJBPU in July 1997. Penelec and Met-Ed expect recovery
through their restructuring plans filed with the PaPUC in June 1997. As a
result, a regulatory asset of $16 million is reflected on the Consolidated
Balance Sheets at September 30, 1997.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection for the investigation and remediation of 17 formerly
owned manufactured gas plant (MGP) sites. JCP&L has also entered into various
cost-sharing agreements with other utilities for most of the sites. As of
September 30, 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 $46 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 excess of $46 million
due to significant uncertainties, including changes in acceptable remediation
methods and technologies.
In July 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. At September 30, 1997, JCP&L had
recorded on its Consolidated Balance Sheet a regulatory asset of $54 million,
which included approximately $46 million related to expected future costs and
approximately $8 million for past remediation expenditures in excess of
collections from customers (including interest).
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 is
continuing.
OTHER COMMITMENTS AND CONTINGENCIES
GPU International Group:
At September 30, 1997, the GPU International Group had investments
totaling approximately $625 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.
<PAGE>
Financial Statements
Item 6.(b)
Page 44 of 47
At September 30, 1997, GPU, Inc.'s aggregate investment in the GPU
International Group was $218 million; GPU, Inc. has also guaranteed up to an
additional $842 million of GPU International Group obligations. Of this amount,
$639 million is included in Long-term debt on GPU's Consolidated Balance Sheet
at September 30, 1997; $30 million of that amount relates to a GPU
International, Inc. revolving credit agreement; and $173 million relates to
various other obligations of the GPU International Group.
GPU International, Inc. has ownership interests in three NUG projects
which have long-term power purchase agreements with Niagara Mohawk Power
Corporation (NIMO) with an aggregate book value of approximately $31 million. In
July 1997, NIMO and 16 independent power producers (IPP), including the GPU
International Group, executed a master agreement providing for the restructuring
or termination of 29 power purchase agreements, pursuant to which NIMO has
agreed to pay an aggregate of $3.6 billion in cash and/or debt securities, and
to issue an aggregate of 46 million shares of NIMO common stock. The specific
terms of restructured contracts that may be executed are being negotiated
separately with each IPP.
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. While the parties are attempting
to complete the transactions in early 1998, 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. This proceeding has been stayed pending the outcome of the
restructuring negotiations.
In August 1997, the Government of the United Kingdom imposed a windfall
profits tax on privatized utilities, including Midlands Electricity plc
(Midlands), in which GPU has a 50% ownership interest. As a result, GPU recorded
a one-time charge to income in the third quarter of 1997 of $109.3 million, or
$0.90 per share. The tax is payable in two equal installments by December 1,
1997 and 1998.
Other:
In October 1997, GPU announced that it intends to begin a process to sell,
through an auction, up to all of the fossil fuel and hydroelectric generating
facilities owned by the GPU Energy companies. These facilities total
approximately 5,300 MW of capacity and have a net book value of approximately
$1.1 billion at September 30, 1997. The net proceeds from the sale would be used
to reduce the capitalization of the respective GPU Energy companies. It is
anticipated that it will take approximately twelve to eighteen months to
complete the sale.
<PAGE>
Financial Statements
Item 6.(b)
Page 45 of 47
GPU's construction programs, for which substantial commitments have been
incurred and which extend over several years, contemplate expenditures of $364
million (JCP&L $171 million; Met-Ed $84 million; Penelec $104 million; Other $5
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 million in
1998, $104 million in 1999, $84 million in 2000 and $99 million in 2001.
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
requested recommendations from contract holders 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. In May 1997, a joint petition was filed requesting
that the U.S. Court of Appeals compel the DOE to comply with a 1996 decision in
which the Court held that the DOE has an unconditional obligation under the NWPA
to begin accepting spent nuclear fuel beginning not later than January 31, 1998.
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. In July 1997, a consortium of electric utilities, including
GPUN, filed a license application with the NRC seeking permission to build a
temporary above-ground disposal facility for spent nuclear fuel in northwestern
Utah. There can be no assurance as to the outcome of these matters.
<PAGE>
Financial Statements
Item 6.(b)
Page 46 of 47
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 September 30, 1997, $6 million
has been paid. As a result, at September 30, 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 Levelized Energy
Adjustment Clause.
GPU has contracted for an integrated information system to manage the
company's business growth, accomplish year 2000 compliance and meet the mandates
of electric utility deregulation. The system is scheduled to be fully
operational in early 1999. The estimated annual project costs of the system for
the years 1997 through 1999 are $21 million, $61 million and $24 million
respectively.
As of September 30, 1997, approximately 53% of GPU's workforce was
represented by unions for collective bargaining purposes. Penelec, JCP&L, and
Met-Ed's collective bargaining agreements expire in 1998, 1999 and 2000,
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 GPU's financial position or results of
operations, there can be no assurance that this will continue to be the case.
<PAGE>
Financial Statements
Item 6.(b)
Page 47 of 47
2. ACQUISITION OF POWERNET
In November 1997, GPU Electric acquired the business of PowerNet Victoria
(PowerNet) from the State of Victoria, Australia for A$2.6 billion
(approximately U.S. $1.9 billion). PowerNet owns and maintains the existing high
voltage electricity transmission system in the State of Victoria. The PowerNet
transmission system serves all of Victoria covering an area of approximately
87,900 square miles and a population of approximately 4.5 million.
The PowerNet acquisition is being financed through: (1) a senior debt
facility of A$1.9 billion (approximately U.S. $1.4 billion), which is non-
recourse to GPU, Inc.; (2) a five-year U.S. $450 million equity loan which is
guaranteed by GPU, Inc.; and (3) an equity contribution from GPU, Inc. of U.S.
$50 million. In early 1998, GPU, Inc. expects to issue and sell up to seven
million shares of common stock, the net proceeds of which will be used to
reduce indebtedness associated with the PowerNet and Midlands acquisitions.
Pursuant to the PowerNet acquisition, the GPU International Group entered
into various interest rate swap agreements to mitigate the risk of increases in
variable interest rates on the A$1.9 billion (approximately U.S. $1.4 billion)
senior debt facility. These swaps became effective on November 6, 1997, and are
scheduled to expire on various dates through November 2007. The GPU
International Group expects to record amounts paid and received under the
agreements as adjustments to the interest expense of the underlying debt.
The acquisition of PowerNet will be accounted for under the purchase
method of accounting. The total acquisition costs exceed the preliminary
estimated value of net assets by approximately U.S. $880 million. This excess
amount is considered goodwill and will be amortized on a straight-line basis
over 40 years. The amount of goodwill will be revised within twelve months when
the final valuation of net assets is completed.
GPU Electric owns a 50% interest in Solaris Power (Solaris), an
Australian distribution company serving customers in and around Melbourne, which
was acquired in 1995. Under Victoria's cross-ownership restrictions, GPU
Electric is required to reduce its ownership interest in Solaris to not more
than 20% within six months. GPU Electric plans to sell all of its ownership
interest in Solaris and will use the net proceeds to repay debt associated with
the Solaris acquisition (U.S. $57 million) and the balance to repay a portion of
the PowerNet equity loan.
