Post-Effective Amendment No. 4 to
SEC File No. 70-7862
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L")
PENNSYLVANIA ELECTRIC COMPANY ("Penelec")
METROPOLITAN EDISON COMPANY ("Met-Ed")
2800 Pottsville Pike
Reading, Pennsylvania 19605
---------------------------
(Name of companies filing this statement and addresses
of principal executive offices)
GPU, INC. ("GPU")
(Name of top registered holding company parent of applicants)
Terrance G. Howson, Douglas E. Davidson, Esq.
Vice President and Treasurer Berlack, Israels & Liberman LLP
Mary A. Nalewako, Secretary 120 West 45th Street
Michael J. Connolly, New York, New York 10036
Assistant General Counsel
GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Scott L. Guibord, Secretary Robert C. Gerlach, Esq.
Jersey Central Power & Ballard Spahr Andrews &
Light Company Ingersoll, LLP
Metropolitan Edison Company 1735 Market Street - 51st Floor
Pennsylvania Electric Company Philadelphia, PA 19103-7599
2800 Pottsville Pike
Reading, Pennsylvania 19605
W. Edwin Ogden, Esq.
Ryan, Russell, Ogden
& Seltzer LLP
1100 Berkshire Boulevard
P.O. Box 6219
Reading, PA 19610
---------------------------------------------------------------
(Names and addresses of agents for service)
<PAGE>
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
------------------------------------
A. By Orders dated August 15, 1991 (HCAR No. 25361) and October 25, 1995
(HCAR No. 26400) (collectively, the "Orders"), the Commission, among other
things, authorized JCP&L, Met-Ed and Penelec (collectively, the "GPU Companies")
to enter into separate fuel lease agreements and to establish related financing
arrangements to provide for the acquisition costs of nuclear fuel and certain
related costs and services ("Acquisition Costs") for the Three Mile Island Unit
1 nuclear generating station ("TMI-1") and the Oyster Creek nuclear generating
station ("Oyster Creek"). The GPU Companies jointly own TMI-1 in the following
percentages: Met-Ed - 50%; JCP&L - 25%; and Penelec - 25%. JCP&L owns 100% of
Oyster Creek. TMI-1 and Oyster Creek are operated and maintained on behalf of
the GPU Companies by GPU Nuclear, Inc., a subsidiary of GPU.
Pursuant to the Orders, a nuclear fuel trust ("Fuel Trust") was
established in accordance with a trust agreement ("Trust Agreement") under which
United States Trust Company of New York acts as trustee (the "Trustee"). The
Fuel Trust is the sole stockholder of two non-affiliated Delaware corporations,
TMI-1 Fuel Corp. and Oyster Creek Fuel Corp. (collectively, the "Fuel
Companies") which own certain nuclear fuel assemblies and component parts
("Nuclear Material") for use at TMI-1 and Oyster Creek, respectively. The GPU
Companies have entered into separate Existing Lease Agreements ("Existing Lease
Agreements")
-1-
<PAGE>
by which TMI-1 Fuel Corp. leases Nuclear Material for TMI-1 to the GPU Companies
in proportion to their respective undivided ownership interests in TMI-1, and
Oyster Creek Fuel Corp. leases Nuclear Material for Oyster Creek to JCP&L. In
order to finance their acquisition of Nuclear Material, the Fuel Companies have
entered into separate credit agreements, each dated as of November 17, 1995
(collectively, "Existing Credit Facilities"), providing for aggregate borrowings
of up to $210 million and under which (i) letters of credit (under which the GPU
Companies have the reimbursement obligations) have been issued by Union Bank of
Switzerland, New York Branch ("UBS"), as agent, to provide credit enhancement
for commercial paper to be issued by the Fuel Companies and (ii) revolving
credit loans may be made by the lenders under the Existing Credit Facilities to
the Fuel Companies.
The financing arrangements with UBS and the Existing Credit Facilities
lenders are scheduled to expire on November 17, 1998 unless renewed. Following
discussions with UBS and other potential lending sources, the GPU Companies have
determined not to renew the existing arrangements with UBS but instead to
replace these financing arrangements with an arrangement provided by the new
lenders. To this end, the GPU Companies and the Fuel Companies have obtained a
commitment from The First National Bank of Chicago ("First Chicago") and PNC
Bank, N.A. (collectively, the "Agents") to provide new revolving credit
facilities through
-2-
<PAGE>
a syndicate of banks ("New Lenders") in the aggregate amount of $190 million
("New Credit Facilities") to replace the Existing Credit Facilities which
support the issuance of commercial paper by the Fuel Companies. The Existing
Credit Facilities, related notes and letters of credit issued by UBS would be
terminated.
B. The Existing Lease Agreements.
------------------------------
1. The Existing Lease Agreements provide for an initial term of up
to 20 years, subject to early termination upon the occurrence of certain events.
2. (a) Under the Existing Lease Agreements, each GPU Company pays to
the lessor a monthly rental payment consisting of (i) a British Thermal Unit, or
so-called "burn-up," charge ("BTU Charge") and (ii) a lease rate paid in arrears
("Lease Rate"). The BTU Charge consists of an amount based upon the rate of
consumption of the fuel in the reactor. During the term of a lease, the GPU
Company which is a party thereto may revise the BTU Charge to reflect changes in
the anticipated operating life, energy output or utilization of the Nuclear
Material, as initially estimated. To the extent that a GPU Company makes BTU
Charge payments to the lessor under a lease, the amount of outstanding
Acquisition Costs is correspondingly reduced, thereby creating availability
under the lease for the lessor to acquire additional Nuclear Material.
(b) The Lease Rate, which is based upon the
-3-
<PAGE>
unamortized cost of the Nuclear Material from time to time, is based on the
rates payable on outstanding commercial paper or notes issued by the Fuel
Companies from time to time. Each of the GPU Companies is required to make
monthly Lease Rate payments to the lessor and to make BTU Charge payments
beginning as of the time fuel consumption commences. At May 31, 1998, an
aggregate of approximately $154 million of unrecovered Acquisition Costs were
outstanding under the Existing Lease Agreements at a current Lease Rate of 5.57%
per annum, based on the Fuel Companies outstanding commercial paper.
3. Except as provided below, upon termination of a lease, the GPU
Company which is a party thereto is obligated to pay to the lessor the
"Stipulated Casualty Value" of any Nuclear Material acquired by the lessor,
which amount is designed to reflect the then unamortized cost of the Nuclear
Material plus all other amounts which may be owed to the lessor. However, the
GPU Company would use its best efforts to dispose of such Nuclear Material on
behalf of the lessor to a third party; the proceeds of any such disposition in
excess of the Stipulated Casualty Value would be paid to the lessor. If a lease
is voluntarily terminated by the lessor, the GPU Company is required to purchase
the Nuclear Material but may, at its option, do so during the five-month notice
period at the higher of (i) its then fair market value and (ii) the Stipulated
Casualty Value. If a GPU Company does not exercise such option, or in the event
it elects voluntarily to terminate a lease, it would pay the lessor the
-4-
<PAGE>
Stipulated Casualty Value of the Nuclear Material in the manner described above.
If a GPU Company is unable to dispose of the Nuclear Material to a third party
upon termination of a lease, the lessor may then convey the Nuclear Material to
the GPU Company.
C. Existing Credit Facilities, New Credit Facilities
and Proposed Lease Amendments.
-------------------------------------------------
1. Under the Existing Credit Facilities, the Fuel Companies issue
and sell their commercial paper from time to time to finance Acquisition Costs
of Nuclear Material. To reduce borrowing costs, the Fuel Companies' commercial
paper credit is enhanced through the issuance by UBS of letters of credit
("LCs") in an aggregate face amount of up to $210,000,000 outstanding at any
time, subject to the following sublimits: JCP&L ($127.5 million), Met-Ed ($55
million) and Penelec ($27.5 million). The commercial paper is evidenced by
commercial paper notes ("CP Notes"). The CP Notes are deposited with a
commercial paper depository and sold to or through commercial paper dealers.
Each Fuel Company has agreed to reimburse the lenders for any
drawings made under the LCs issued for that Fuel Company. The Fuel Companies are
also entitled to borrow under the Existing Credit Facilities to provide for
direct borrowings in lieu of issuing CP Notes. To evidence its obligations to
repay such direct borrowings, each Fuel Company has issued to the lenders its
promissory notes ("Existing Notes"). The aggregate principal amount of Existing
Notes outstanding at any time may not exceed
-5-
<PAGE>
the lesser of (a) $210,000,000 less the outstanding principal amount of CP Notes
and (b) the Stipulated Casualty Value of all Nuclear Material under lease at
such time, less the outstanding principal amount of CP Notes.
The Existing Notes are secured by the Existing Lease Agreements,
related lease payments made thereunder and Nuclear Material, and bear interest
at either an Alternative Base Rate or a Eurodollar Rate. The Alternative Base
Rate is a fluctuating annual rate equal to the higher of (i) the UBS's publicly
announced prime rate and (ii) 50 basis points above the rate on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers. Eurodollar Rate Notes bear interest at the Eurodollar
Rate plus the Applicable Margin and are fixed at the Fuel Company's option for
interest periods of 1, 2, 3 or 6 months. The Eurodollar Rate is defined as the
annual interest rate for deposits in U.S. dollars as reported in the Dow Jones
Telerate system or if such rate is not reported, at the LIBOR rate, in each case
for the two business day period prior to such interest period. The Applicable
Margin ranges from 27.5 to 65 basis points depending on the GPU Company's senior
secured long term debt ratings assigned by Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. or Duff & Phelps.
-6-
<PAGE>
Under the Existing Credit Facilities, the Fuel Companies may, upon
three business days notice, prepay Existing Notes. In addition, the Fuel
Companies are obligated to prepay Existing Notes in amounts equal to the sum of
(a) the cost of Nuclear Material consumed plus any associated finance charges
incurred in connection therewith which the Fuel Companies are unable to
capitalize (Basic Rent) in excess of the interest and principal payments due on
indebtedness of the Fuel Companies and other costs incurred in connection with
the Existing Credit Facilities and the certain related financing documents
(Monthly Debt Service) and (b) the amount received by the Fuel Companies related
to a sale or transfer (other than by lease) of the Nuclear Material to the GPU
Companies or a third party.
Under the New Credit Facilities, the Fuel Companies will
continue to issue their commercial paper ("New CP Notes") from time to time to
finance Acquisition Costs for Nuclear Material. The New Credit Facilities would
have a term of 364 days and would permit outstanding borrowings of up to an
aggregate of the lesser of (a) $190,000,000 less the outstanding principal
amounts of New CP Notes and (b) the Stipulated Casualty Value of all Nuclear
Material then under lease, less the outstanding principal amount of New CP
Notes. The Fuel Companies would also be able to borrow directly under the New
Credit Facilities in lieu of issuing New CP Notes, and would issue their
promissory notes to the New Lenders evidencing such borrowings.
-7-
<PAGE>
There would, however, be no letter of credit or other credit support for the New
CP Notes.
Fuel Companies would pledge the Existing Lease Agreements to
the New Lenders as collateral security for such obligations.
Notes issued under the New Credit Facility would mature no
longer than 364 days from date of issuance and would bear interest at either the
ABR Rate or the Eurodollar Rate plus .40%. The ABR Rate is a fluctuating annual
rate equal to the greater of (i) First Chicago's corporate base rate or (ii) the
Federal funds rate plus 1/2% per annum. The Eurodollar Rate is the rate at which
the Agent offers to place deposits in U.S. dollars with first-class banks in the
London interbank market at 11:00 a.m. (London time) two business days prior to
the borrowing date in the approximate amount of, and for a maturity
corresponding to, First Chicago's (in its capacity as a Lender) portion of the
loan, adjusted for Federal Reserve Board reserve requirements. Interest periods
for Eurodollar Rate-based loans will be 1, 2, 3 or 6 months. Interest will be
payable in arrears (i) with respect to ABR-based loans on the last day of each
quarter, (ii) with respect to Eurodollar Rate-based loans on the last day of
each interest period and, in the case of an interest period longer than three
months, quarterly and (iii) in any event upon any prepayment (whether due to
acceleration or otherwise)
-8-
<PAGE>
and at maturity. Interest on all loans and fees will be calculated for
actual days elapsed-on the basis of a 360-day year.
2. The Fuel Companies would pay the following fees in connection
with the New Credit Facility: (i) an Arrangement Fee to the Agents of $40,000;
(ii) an annual Administration Fee to First Chicago of $16,000; and (iii) a
Commitment Fee to the New Lenders of .125% per annum on each such lender's
average daily unused commitment under the New Credit Facility.
In addition, the GPU Companies have agreed to pay certain
transaction expenses in connection with the execution of the amended and
restated Existing Lease Agreements, the establishment of the New Credit
Facilities and the consummation of the transactions contemplated thereby. The
GPU Companies will also indemnify the Fuel Companies, the Trustee and the New
Lenders against certain liability, hazards, contingencies and risks of loss in
connection with the Fuel Companies' acquisition and lease of Nuclear Material to
the GPU Companies. The GPU Companies would reimburse the Fuel Companies for all
such fees, expenses and indemnification costs and all such expenses would be
paid as additional rent payments under the amended and restated Existing Lease
Agreements.
3. In connection with the New Credit Facilities, the GPU Companies
also propose to amend and restate each of the
-9-
<PAGE>
Existing Lease Agreements between the GPU Companies and TMI-1 Fuel Corp. and
Oyster Creek Fuel Corp. in certain limited respects. (The Existing Lease
Agreements, as proposed to be amended and restated, are herein referred to as
the "Amended and Restated Lease Agreements"). The Amended and Restated Lease
Agreements would, among other things, reflect (i) a reduction in the maximum
aggregate value of Nuclear Material to be leased thereunder from $210,000,000 to
$190,000,000 (and a concurrent reduction in the related sublimits for JCP&L,
Met-Ed and Penelec to $115 million, $50 million and $25 million, respectively);
(ii) the establishment of the New Credit Facilities with the New Lenders; and
(iii) certain other modifications to the representations, covenants and events
of default provisions. The GPU Companies would continue to pay a BTU Charge and
a Lease Rate ("Basic Rent") as under the Existing Lease Agreements, although the
new Lease Rate would be based on the rates of the New CP Notes and/or the new
promissory notes. In addition, the GPU Companies would execute new letters of
representation to the New Lenders regarding performance under the Amended and
Restated Lease Agreements and preservation of collateral, and conforming changes
would be made to the Trust Agreement and ancillary lease and financing
documents, including the Security Agreement.
D. Rule 54 Analysis.
-----------------
(a) As described below, GPU meets all of the
-10-
<PAGE>
conditions of Rule 53, except for Rule 53(a)(1). By Order dated November 5, 1997
(HCAR No. 35-26773) (the "November 5 Order"), the Commission authorized GPU to
increase to 100% of its "average consolidated retained earnings," as defined in
Rule 53, the aggregate amount which it may invest in exempt wholesale generators
("EWGs") and foreign utility companies ("FUCOs"). At March 31, 1998, GPU's
average consolidated retained earnings was approximately $2.187 billion, and
aggregate investment in EWGs and FUCOs was approximately $1.283 billion or 59%
of average consolidated retained earnings. Accordingly, under the November 5
Order, GPU may invest up to an additional $904 million in EWGs and FUCOs.
(i) GPU maintains books and records to identify investments in, and
earnings from, each EWG and FUCO in which it directly or indirectly holds
an interest.
(A) For each United States EWG in which GPU directly or indirectly holds an
interest:
(1) the books and records for such EWG will be kept in conformity with
United States generally accepted accounting principles ("GAAP");
(2) the financial statements will be prepared in accordance with GAAP;
and
-11-
<PAGE>
(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.
(C) For each FUCO or foreign EWG in which GPU owns 50% or less of the
voting securities, GPU directly or through its subsidiaries will
proceed in good faith, to the extent reasonable under the
circumstances, to cause:
(1) such entity to maintain books and records in accordance
with GAAP;
(2) the financial statements of such entity to be prepared in
accordance with GAAP; and
-12-
<PAGE>
(3) access by the Commission to such books and records and
financial statements (or copies thereof) in English as the
Commission may request and, in any event, will provide the
Commission on request copies of such materials as are made
available to GPU and its subsidiaries. If and to 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.
(ii) No more than 2% of GPU's domestic public utility subsidiary
employees will render any services, directly or indirectly, to any EWG or
FUCO in which GPU directly or indirectly holds an interest.
-13-
<PAGE>
(iii) Copies of this Post-Effective Amendment are being provided 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.(1) 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).
(iv) 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 having a book
value exceeding 10% of GPU's consolidated retained
earnings is the subject of any pending bankruptcy or
similar proceeding.
- --------------------------
(1) Penelec is also subject to retail rate regulation by the New York Public
Service Commission with respect to retail service to approximately 3,700
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% of Penelec's total operating revenues.
-14-
<PAGE>
(B) GPU's average consolidated retained earnings for the
four most recent quarterly periods (approximately $2.187
billion) represented an increase of approximately $16.3
million (or approximately 0.8%) in the average
consolidated retained earnings for the previous four
quarterly periods (approximately $2.171 billion).
(C) GPU did not incur operating losses from direct or
indirect investments in EWGs and FUCOs in 1997 in excess
of 5% of GPU's December 31, 1997 consolidated retained
earnings.
As described above, GPU meets all the conditions of Rule 53(a), except for
clause (1). With respect to clause (1), the Commission determined in the
November 5 Order that GPU's financing of investments in EWGs and FUCOs in an
amount greater than 50% of GPU's average consolidated retained earnings as
otherwise permitted by Rule 53(a)(1) would not have either of the adverse
effects set forth in Rule 53(c).
Moreover, even if the effect of the capitalization and earnings of
subsidiary EWGs and FUCOs were considered, there is no basis for the Commission
to withhold or deny approval for the transactions proposed in this
Post-Effective Amendment (the "Transactions"). The Transactions would not, by
themselves, or
-15-
<PAGE>
even considered in conjunction with the effect of the capitalization and
earnings of GPU's subsidiary EWGs and FUCOs, have a material adverse effect on
the financial integrity of the GPU system, or an adverse impact on GPU's public
utility subsidiaries, their customers, or the ability of State commissions to
protect such public utility customers.
The November 5 Order was predicated, in part, upon the assessment of GPU's
overall financial condition which took into account, among other factors, GPU's
consolidated capitalization ratio and the recent growth trend in GPU's retained
earnings. As of June 30, 1997, the most recent quarterly period for which
financial statement information was evaluated in the November 5 Order, GPU's
consolidated capitalization consisted of 49.2% equity and 50.8% debt.
GPU's March 31, 1998 consolidated capitalization consists of 45.7% equity
and 54.3% debt. Thus, since the date of the November 5 Order, there has been no
material adverse change in GPU's consolidated capitalization ratio, which
remains within acceptable ranges and limits as evidenced by the credit ratings
of GPU's electric utility subsidiaries. (2)
- ------------------------------
(2) The debt ratings of GPU's electric utility subsidiaries have not changed
since the issuance of the November 5 Order. Moreover, on February 27,
1998, Standard & Poor's Corporation assigned an "A-" credit rating to the
A$1,925 million senior bank debt of GPU PowerNet.
-16-
<PAGE>
GPU's consolidated retained earnings grew on average approximately 4.5%
per year from 1991 through 1997. Earnings attributable to GPU's investments in
EWGs and FUCOs have contributed positively to consolidated earnings, excluding
the impact of the windfall profits tax on the Midlands Electricity plc
investment.(3)
Accordingly, since the date of the November 5 Order, the capitalization
and earnings attributable to GPU's investments in EWGs and FUCOs have not had
any adverse impact on GPU's financial integrity.
Reference is made to Exhibit H filed herewith which sets forth GPU's
consolidated capitalization and earnings at March 31, 1998 and after giving
effect to the transactions proposed herein. As set forth in such exhibit, the
proposed transactions will not have a material impact on GPU's capitalization or
earnings.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
-------------------------------
The estimated fees, commission and expenses to be incurred by the GPU
Companies in connection with the proposed transaction will be supplied by a
further post-effective amendment.
- -------------------------
(3) As discussed in the November 5 Order, GPU incurred a loss for 1997 from
its investments in EWGs and FUCOs as a result of the windfal profits tax
imposed on Midlands Electricity, plc.
-17-
<PAGE>
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
--------------------------------
The GPU Companies believe that the proposed transactions may be subject to
Sections 9(a) and 10 of the Act and Rule 54 thereunder.
ITEM 4. REGULATORY APPROVALS.
---------------------
The New Jersey Board of Public Utilities ("NJBPU") has jurisdiction with
respect to JCP&L's lease of the Nuclear Material. By Order dated August 1, 1991,
the NJBPU authorized JCP&L to enter into the transactions contemplated by the
Existing Lease Agreements to which it is a party. As required by such Order,
JCP&L will notify the NJBPU in advance of the proposed amendment and restatement
of the Existing Lease Agreements. No further action is required to enter into
the proposed Transactions.
The Pennsylvania Public Utility Commission ("PaPUC") has jurisdiction with
respect to the lease of Nuclear Material for use at TMI-1 by Met-Ed and Penelec.
Met-Ed and Penelec will each file Securities Certificates with the PaPUC seeking
approval to enter into the proposed Transactions. It is expected that the PaPUC
will issue orders expressly authorizing such Transactions.
No other state commission has jurisdiction with respect to any aspect of
the proposed Transaction and, assuming your Commission authorizes and approves
all aspects of the Transaction (including the accounting therefor), no Federal
commission other
-18-
<PAGE>
than your Commission has jurisdiction with respect to any aspect thereof.
ITEM 5. PROCEDURE.
---------
It is requested that the Commission issue an order with respect to
the Transactions proposed herein at the earliest practicable date but, in any
event not later than September 10, 1998. It is further requested that (i) there
not be a recommended decision by an Administrative Law Judge or other
responsible officer of the Commission, (ii) the Office of Public Utility
Regulation be permitted to assist in the preparation of the Commission's
decision, and (iii) there be no waiting period between the issuance of the
Commission's order and the date on which it is to become effective.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
----------------------------------
(a) Exhibits:
B-1(b) - Term Sheet between the GPUCompanies and
The First National Bank of Chicago and
PNC Bank, N.A. - to be filed by
post-effective amendment.
B-2(b) - Forms of Amended and Restated Nuclear
Material Lease Agreements - to be filed by
post-effective amendment.
-19-
<PAGE>
B-2(c) - Forms of new Letters of Representation -
to be filed by post-effective amendment.
B-3(b) - Form of Amended and Restated Trust
Agreement - to be filed by post-effective
amendment.
C - None.
D-2(b) - Copy of Securities Certificate of Met-Ed
filed with the PaPUC - to be filed by
post-effective amendment.
D-2(c) - Copy of Securities Certificate of Penelec
filed with the PaPUC - to be filed by
post-effective amendment.
D-3(b) - Copy of Order of PaPUC registering
Met-Ed's Securities Certificate - to be
filed by post-effective amendment.
D-3(c) - Copy of Order of PaPUC registering
Penelec's Securities Certificate - to be
filed by post-effective amendment.
-20-
<PAGE>
E - Not Applicable.
F-1(a) - Opinion of Berlack, Israels & Liberman
LLP - to be filed by post-effective
amendment.
F-3(b) - Opinion of Ryan, Russell, Ogden & Seltzer
LLP - to be filed by post-effective
amendment.
F-4(b) - Opinion of Ballard Spahr Andrews &
Ingersoll, LLP - to be filed by
post-effective amendment.
G - Financial Data Schedules.
H - GPU Actual and Pro Forma Capitalization
ratios.
I - Proposed form of public notice.
(b)Financial Statements:
1-A(i) - GPU and Subsidiary Companies Consolidated
Balance Sheets, actual and pro forma, as at
March 31, 1998, and Consolidated Statement
of Income, actual and pro forma, and
Statements of Retained
Earnings,
-21-
<PAGE>
for the twelve months ended March 31,
1998; pro forma journal entries.
1-B(i) - JCP&L Balance Sheets, actual and pro
forma, as at March 31, 1998, and Statements
of Income, actual and pro forma, and
Statement of Retained Earnings, for the
twelve months ended March 31, 1998; pro
forma journal entries.
1-C(i) - Met-Ed Consolidated Balance Sheets, actual
and pro forma, as at March 31, 1998, and
Statements of Income, actual and pro forma,
and Statement of Retained Earnings, for the
twelve months ended March 31, 1998; pro
forma journal entries.
1-D(i) - Penelec Consolidated Balance Sheets,
actual and pro forma, as at March 31, 1998,
and Statements of Income, actual and pro
forma, and Statement of Retained Earnings,
for the twelve months ended March 31, 1998;
pro forma journal entries.
-22-
<PAGE>
Note: - - GPU (Corporate) actual and pro forma
financial statements are omitted since they
are not deemed to be relevant to the
proposed transaction.
3 - Not Applicable
4 - Statement of Material Changes since the
date of the balance sheet which are not
reflected in the notes to the financial
statements -- None.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
----------------------------------------
(a) The proposed Transactions are designed to assist the GPU
Companies in providing for the Acquisition Costs of the Nuclear Material. As
such, the issuance of an order by your Commission with respect to the
Transactions which are the subject hereof is not a major Federal action
significantly affecting the quality of the human environment.
(b) No Federal agency has prepared or is preparing an environmental
impact statement with respect to the Transactions which are the subject hereof.
Reference is made to Item 4 hereof regarding regulatory approvals with respect
to the proposed Transactions.
-23-
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF
1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS POST-EFFECTIVE AMENDMENT
TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
By:
----------------------------
T. G. Howson,
Vice President and Treasurer
Dated: July 13, 1998
EXHIBITS AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
EXHIBITS:
G - Financial Data Schedules.
H - GPU Actual and Pro Forma Capitalization
ratios.
I - Proposed form of public notice.
FINANCIAL STATEMENTS:
1-A(i) - GPU and Subsidiary Companies Consolidated
Balance Sheets, actual and pro forma, as
at March 31, 1998, and Consolidated
Statement of Income, actual and pro
forma, and Statements of Retained
Earnings, for the twelve months ended
March 31, 1998; pro forma journal entries.
1-B(i) - JCP&L Balance Sheets, actual and pro
forma, as at March 31, 1998, and Statements
of Income, actual and pro forma, and
Statement of Retained Earnings, for the
twelve months ended March 31, 1998; pro
forma journal entries.
1-C(i) - Met-Ed Consolidated Balance Sheets, actual
and pro forma, as at March 31, 1998, and
Statements of Income, actual and pro forma,
and Statement of Retained Earnings, for the
twelve months ended March 31, 1998; pro
forma journal entries.
1-D(i) - Penelec Consolidated Balance Sheets,
actual and pro forma, as at March 31, 1998,
and Statements of Income, actual and pro
forma, and Statement of Retained Earnings,
for the twelve months ended March 31, 1998;
pro forma journal entries.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<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-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1997 APR-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1998
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 7,488,943 7,550,136
<OTHER-PROPERTY-AND-INVEST> 2,083,627 2,083,627
<TOTAL-CURRENT-ASSETS> 1,058,431 1,282,772
<TOTAL-DEFERRED-CHARGES> 2,203,008 2,206,735
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 12,834,009 13,123,270
<COMMON> 331,958 331,958
<CAPITAL-SURPLUS-PAID-IN> 1,007,885 1,007,885
<RETAINED-EARNINGS> 2,259,753 <F1> 2,246,972 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,519,270 <F2> 3,506,489 <F2>
421,500 <F3> 671,500 <F3>
66,478 66,478
<LONG-TERM-DEBT-NET> 4,064,192 4,064,192
<SHORT-TERM-NOTES> 299,618 299,618
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 411,140 411,140
12,500 12,500
<CAPITAL-LEASE-OBLIGATIONS> 3,145 3,145
<LEASES-CURRENT> 131,276 192,469
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,904,890 3,895,739
<TOT-CAPITALIZATION-AND-LIAB> 12,834,009 13,123,270
<GROSS-OPERATING-REVENUE> 4,136,909 4,136,909
<INCOME-TAX-EXPENSE> 205,987 196,836
<OTHER-OPERATING-EXPENSES> 3,286,721 3,290,449
<TOTAL-OPERATING-EXPENSES> 3,492,708 3,487,285
<OPERATING-INCOME-LOSS> 644,201 649,624
<OTHER-INCOME-NET> 18,898 18,898
<INCOME-BEFORE-INTEREST-EXPEN> 663,099 668,522
<TOTAL-INTEREST-EXPENSE> 347,565 <F4> 365,769 <F4>
<NET-INCOME> 313,843 <F5> 301,062 <F5>
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 313,843 301,062
<COMMON-STOCK-DIVIDENDS> 241,517 241,517
<TOTAL-INTEREST-ON-BONDS> 274,479 274,479
<CASH-FLOW-OPERATIONS> 836,329 836,329
<EPS-PRIMARY> 2.56 2.47
<EPS-DILUTED> 2.56 2.47
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) OF <F1> ($14,733).
<F2> INCLUDES REACQUIRED COMMON STOCK OF $80,326. <F3> INCLUDES
SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED <F3> SECURITIES OF
$330,000 (ACTUAL AND PRO FORMA) AND TRUST ORIGINATED <F3> PREFERRED SECURITIES
OF $250,000 (PRO FORMA ONLY). <F4> INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED
MANDATORILY REDEEMABLE <F4> PREFERRED SECURITIES OF $28,888 (ACTUAL AND PRO
FORMA), DIVIDENDS <F4> ON TRUST ORIGINATED PREFERRED SECURITIES OF $18,126 (PRO
FORMA ONLY) <F4> AND PREFERRED STOCK DIVIDENDS OF SUBSIDIARIES OF $12,072
(ACTUAL AND <F4> PRO FORMA). <F5> INCLUDES MINORITY INTEREST NET (INCOME)/LOSS
OF ($1,691).
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1997 APR-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1998
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 2,873,493 2,911,480
<OTHER-PROPERTY-AND-INVEST> 490,058 490,058
<TOTAL-CURRENT-ASSETS> 382,200 379,887
<TOTAL-DEFERRED-CHARGES> 930,806 930,806
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 4,676,557 4,712,231
<COMMON> 153,713 153,713
<CAPITAL-SURPLUS-PAID-IN> 510,769 510,769
<RETAINED-EARNINGS> 915,717 914,214
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,580,199 1,578,696
216,500 <F1> 216,500 <F1>
37,741 37,741
<LONG-TERM-DEBT-NET> 1,173,364 1,173,364
<SHORT-TERM-NOTES> 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 11 11
12,500 12,500
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 77,616 115,603
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,578,626 1,577,816
<TOT-CAPITALIZATION-AND-LIAB> 4,676,557 4,712,231
<GROSS-OPERATING-REVENUE> 2,055,863 2,055,863
<INCOME-TAX-EXPENSE> 113,871 113,061
<OTHER-OPERATING-EXPENSES> 1,621,772 1,624,085
<TOTAL-OPERATING-EXPENSES> 1,735,643 1,737,146
<OPERATING-INCOME-LOSS> 320,220 318,717
<OTHER-INCOME-NET> (1,149) (1,149)
<INCOME-BEFORE-INTEREST-EXPEN> 319,071 317,568
<TOTAL-INTEREST-EXPENSE> 112,561 <F2> 112,561 <F2>
<NET-INCOME> 206,510 205,007
10,952 10,952
<EARNINGS-AVAILABLE-FOR-COMM> 195,558 194,055
<COMMON-STOCK-DIVIDENDS> 140,000 <F3> 140,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 88,893 88,893
<CASH-FLOW-OPERATIONS> 454,016 454,016
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1> INCLUDES COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F1> SECURITIES OF $125,000.
<F2> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $10,700.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1997 APR-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1998
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 1,558,908 1,574,384
<OTHER-PROPERTY-AND-INVEST> 195,139 195,139
<TOTAL-CURRENT-ASSETS> 222,851 336,029
<TOTAL-DEFERRED-CHARGES> 585,545 587,323
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 2,562,443 2,692,875
<COMMON> 66,273 66,273
<CAPITAL-SURPLUS-PAID-IN> 370,200 370,200
<RETAINED-EARNINGS> 288,277 <F1> 282,501 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 724,750 718,974
100,000 <F2> 225,000 <F2>
12,056 12,056
<LONG-TERM-DEBT-NET> 576,925 576,925
<SHORT-TERM-NOTES> 81,600 81,600
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 22 22
0 0
<CAPITAL-LEASE-OBLIGATIONS> 30 30
<LEASES-CURRENT> 34,732 50,208
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,032,328 1,028,060
<TOT-CAPITALIZATION-AND-LIAB> 2,562,443 2,692,875
<GROSS-OPERATING-REVENUE> 922,597 922,597
<INCOME-TAX-EXPENSE> 53,394 49,126
<OTHER-OPERATING-EXPENSES> 732,853 733,797
<TOTAL-OPERATING-EXPENSES> 786,247 782,923
<OPERATING-INCOME-LOSS> 136,350 139,674
<OTHER-INCOME-NET> 1,335 1,335
<INCOME-BEFORE-INTEREST-EXPEN> 137,685 141,009
<TOTAL-INTEREST-EXPENSE> 59,123 <F3> 68,223 <F3>
<NET-INCOME> 78,562 72,786
483 483
<EARNINGS-AVAILABLE-FOR-COMM> 78,079 72,303
<COMMON-STOCK-DIVIDENDS> 90,000 <F4> 90,000 <F4>
<TOTAL-INTEREST-ON-BONDS> 43,254 43,254
<CASH-FLOW-OPERATIONS> 210,821 210,821
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $15,034.
<F2> INCLUDES COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES OF $100,000 (ACTUAL AND PRO FORMA) AND TRUST
<F2> ORIGINATED PREFERRED SECURITIES OF $125,000 (PRO FORMA ONLY).
<F3> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $9,000 (ACTUAL AND PRO FORMA) AND DIVIDENDS
<F3> ON TRUST ORIGINATED PREFERRED SECURITIES OF $9,063 (PRO FORMA ONLY).
<F4> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1997 APR-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1998
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 1,805,457 1,813,187
<OTHER-PROPERTY-AND-INVEST> 80,646 80,646
<TOTAL-CURRENT-ASSETS> 282,013 395,489
<TOTAL-DEFERRED-CHARGES> 467,128 469,077
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 2,635,244 2,758,399
<COMMON> 105,812 105,812
<CAPITAL-SURPLUS-PAID-IN> 285,486 285,486
<RETAINED-EARNINGS> 427,842 <F1> 422,340 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 819,140 813,638
105,000 <F2> 230,000 <F2>
16,681 16,681
<LONG-TERM-DEBT-NET> 676,445 676,445
<SHORT-TERM-NOTES> 116,000 116,000
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 11 11
0 0
<CAPITAL-LEASE-OBLIGATIONS> 3,115 3,115
<LEASES-CURRENT> 18,087 25,817
<OTHER-ITEMS-CAPITAL-AND-LIAB> 880,765 876,692
<TOT-CAPITALIZATION-AND-LIAB> 2,635,244 2,758,399
<GROSS-OPERATING-REVENUE> 1,026,838 1,026,838
<INCOME-TAX-EXPENSE> 59,680 55,607
<OTHER-OPERATING-EXPENSES> 825,244 825,715
<TOTAL-OPERATING-EXPENSES> 884,924 881,322
<OPERATING-INCOME-LOSS> 141,914 145,516
<OTHER-INCOME-NET> 1,539 1,539
<INCOME-BEFORE-INTEREST-EXPEN> 143,453 147,055
<TOTAL-INTEREST-EXPENSE> 64,679 <F3> 73,783 <F3>
<NET-INCOME> 78,774 73,272
637 637
<EARNINGS-AVAILABLE-FOR-COMM> 78,137 72,635
<COMMON-STOCK-DIVIDENDS> 45,000 <F4> 45,000 <F4>
<TOTAL-INTEREST-ON-BONDS> 49,122 49,122
<CASH-FLOW-OPERATIONS> 152,998 152,998
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $7,605.
<F2> INCLUDES COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
<F2> SECURITIES OF $105,000 (ACTUAL AND PRO FORMA) AND TRUST
<F2> ORIGINATED PREFERRED SECURITIES OF $125,000 (PRO FORMA ONLY).
<F3> INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $9,188 (ACTUAL AND PRO FORMA) AND DIVIDENDS
<F3> ON TRUST ORIGINATED PREFERRED SECURITIES OF $9,063 (PRO FORMA ONLY).
<F4> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
EXHIBIT H
Item 6
CAPITALIZATION AND CAPITALIZATION RATIOS
(IN THOUSANDS)
The capitalization of GPU, Inc. at March 31, 1998 and pro forma is as follows:
Actual Pro Forma
------ ---------
Amount % Amount %
---------- --- ---------- ----
Long-term debt(1) $4 475 332 50.9 $4 475 332 49.5
Notes payable 299 618 3.4 299 618 3.3
Preferred stock (2) 170 478 1.9 170 478 1.9
Subsidiary-obligated
mandatorily redeemable
preferred securities 330 000 3.8 330 000 3.7
Trust originated
preferred securities - - 250 000 2.8
Common equity 3 519 270 40.0 3 506 489 38.8
--------- ----- --------- -----
$8 794 698 100.0 $9 031 917 100.0
(1) Includes securities due within one year of $411 140.
(2) Includes securities due within one year of $12 500.
EXHIBIT I
SECURITIES AND EXCHANGE COMMISSION
(RELEASE NO. 35-_________; 70-____)
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
NOTICE OF PROPOSAL TO AMEND FUEL LEASE ARRANGEMENTS
Jersey Central Power & Light Company ("JCP&L"), Metropolitan Edison
Company ("Met-Ed") and Pennsylvania Electric Company ("Penelec"), 2800
Pottsville Pike, Reading, Pennsylvania (collectively, the "GPU Companies"), each
electric utility subsidiaries of GPU, Inc., a registered holding company, have
filed an application pursuant to Sections 9(a) and 10 of the Public Utility
Holding company Act of 1935 and Rule 54 thereunder.
By Orders dated August 15, 1991 (HCAR No. 25361) and October 25, 1995
(HCAR No. 26400) (collectively, the "Orders"), the Commission, among other
things, authorized JCP&L, Met-Ed and Penelec to enter into separate fuel lease
agreements and to establish related financing arrangements to provide for the
acquisition costs of nuclear fuel and certain related costs and services
("Acquisition Costs") for the Three Mile Island Unit 1 nuclear generating
station ("TMI-1") and the Oyster Creek nuclear generating station ("Oyster
Creek"). The GPU Companies jointly own TMI-1 in the following percentages:
Met-Ed - 50%; JCP&L - 25%; and Penelec - 25%. JCP&L owns 100% of Oyster Creek.
TMI-1 and Oyster Creek are operated and maintained on behalf of the GPU
Companies by GPU Nuclear, Inc., a subsidiary of GPU.
<PAGE>
Pursuant to the Orders, a nuclear fuel trust ("Fuel Trust") was
established in accordance with a trust agreement ("Trust Agreement") under which
United States Trust Company of New York acts as trustee (the "Trustee"). The
Fuel Trust is the sole stockholder of two non-affiliated Delaware corporations,
TMI-1 Fuel Corp. and Oyster Creek Fuel Corp. (collectively, the "Fuel
Companies") which own certain nuclear fuel assemblies and component parts
("Nuclear Material") for use at TMI-1 and Oyster Creek, respectively. The GPU
Companies have entered into separate Existing Lease Agreements ("Existing Lease
Agreements") by which TMI-1 Fuel Corp. leases Nuclear Material for TMI-1 to the
GPU Companies in proportion to their respective undivided ownership interests in
TMI-1, and Oyster Creek Fuel Corp. leases Nuclear Material for Oyster Creek to
JCP&L. In order to finance their acquisition of Nuclear Material, the Fuel
Companies have entered into separate credit agreements, each dated as of
November 17, 1995 (collectively, "Existing Credit Facilities"), providing for
aggregate borrowings of up to $210 million and under which (i) letters of credit
(under which the GPU Companies have the reimbursement obligations) have been
issued by Union Bank of Switzerland, New York Branch ("UBS"), as agent, to
provide credit enhancement for commercial paper to be issued by the Fuel
Companies and (ii) revolving credit loans may be made by the lenders under the
Existing Credit Facilities to the Fuel Companies.
The financing arrangements with UBS and the Existing Credit Facilities
lenders are scheduled to expire on November 17, 1998 unless renewed. Following
discussions with UBS and other potential lending sources, the GPU Companies have
determined not
<PAGE>
to renew the existing arrangements with UBS but instead to replace these
financing arrangements with an arrangement provided by the new lenders. To this
end, the GPU Companies and the Fuel Companies have obtained a commitment from
The First National Bank of Chicago ("First Chicago") and PNC Bank, N.A.
(collectively, the "Agents") to provide new revolving credit facilities through
a syndicate of banks ("New Lenders") in the aggregate amount of $190 million
("New Credit Facilities") to replace the Existing Credit Facilities which
support the issuance of commercial paper by the Fuel Companies. The Existing
Credit Facilities, related notes and letters of credit issued by UBS would be
terminated.
The Existing Lease Agreements provide for an initial term of up to
20 years, subject to early termination upon the occurrence of certain events.
Under the Existing Lease Agreements, each GPU Company pays to the lessor a
monthly rental payment consisting of (i) a British Thermal Unit, or so-called
"burn-up," charge ("BTU Charge") and (ii) a lease rate paid in arrears ("Lease
Rate"). The BTU Charge consists of an amount based upon the rate of consumption
of the fuel in the reactor. During the term of a lease, the GPU Company which is
a party thereto may revise the BTU Charge to reflect changes in the anticipated
operating life, energy output or utilization of the Nuclear Material, as
initially estimated. To the extent that a GPU Company makes BTU Charge payments
to the lessor under a lease, the amount of outstanding Acquisition Costs is
correspondingly reduced, thereby creating availability under the lease for the
lessor to acquire additional Nuclear Material.
<PAGE>
The Lease Rate, which is based upon the unamortized cost of the Nuclear
Material from time to time, is based on the rates payable on outstanding
commercial paper or notes issued by the Fuel Companies from time to time. Each
of the GPU Companies is required to make monthly Lease Rate payments to the
lessor and to make BTU Charge payments beginning as of the time fuel consumption
commences. At May 31, 1998, an aggregate of approximately $154 million of
unrecovered Acquisition Costs were outstanding under the Existing Lease
Agreements at a current Lease Rate of 5.57% per annum, based on the Fuel
Companies outstanding commercial paper. Except as provided below, upon
termination of a lease, the GPU Company which is a party thereto is obligated to
pay to the lessor the "Stipulated Casualty Value" of any Nuclear Material
acquired by the lessor, which amount is designed to reflect the then unamortized
cost of the Nuclear Material plus all other amounts which may be owed to the
lessor. However, the GPU Company would use its best efforts to dispose of such
Nuclear Material on behalf of the lessor to a third party; the proceeds of any
such disposition in excess of the Stipulated Casualty Value would be paid to the
lessor. If a lease is voluntarily terminated by the lessor, the GPU Company is
required to purchase the Nuclear Material but may, at its option, do so during
the five-month notice period at the higher of (i) its then fair market value and
(ii) the Stipulated Casualty Value. If a GPU Company does not exercise such
option, or in the event it elects voluntarily to terminate a lease, it would pay
the lessor the Stipulated Casualty Value of the Nuclear Material in the manner
described above. If a GPU Company is unable to dispose of the Nuclear Material
to a third party upon termination of a
<PAGE>
lease, the lessor may then convey the Nuclear Material to the GPU Company.
Under the Existing Credit Facilities, the Fuel Companies issue and sell
their commercial paper from time to time to finance Acquisition Costs of Nuclear
Material. To reduce borrowing costs, the Fuel Companies' commercial paper credit
is enhanced through the issuance by UBS of letters of credit ("LCs") in an
aggregate face amount of up to $210,000,000 outstanding at any time, subject to
the following sublimits: JCP&L ($127.5 million), Met-Ed ($55 million) and
Penelec ($27.5 million). The commercial paper is evidenced by commercial paper
notes ("CP Notes"). The CP Notes are deposited with a commercial paper
depository and sold to or through commercial paper dealers.
Each Fuel Company has agreed to reimburse the lenders for any drawings
made under the LCs issued for that Fuel Company. The Fuel Companies are also
entitled to borrow under the Existing Credit Facilities to provide for direct
borrowings in lieu of issuing CP Notes. To evidence its obligations to repay
such direct borrowings, each Fuel Company has issued to the lenders its
promissory notes ("Existing Notes"). The aggregate principal amount of Existing
Notes outstanding at any time may not exceed the lesser of (a) $210,000,000 less
the outstanding principal amount of CP Notes and (b) the Stipulated Casualty
Value of all Nuclear Material under lease at such time, less the outstanding
principal amount of CP Notes.
The Existing Notes are secured by the Existing Lease Agreements,
related lease payments made thereunder and Nuclear Material, and bear interest
at either an Alternative Base Rate or a Eurodollar Rate. The Alternative Base
Rate is a fluctuating annual rate equal to the higher of (i) the UBS's publicly
<PAGE>
announced prime rate and (ii) 50 basis points above the rate on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers. Eurodollar Rate Notes bear interest at the Eurodollar
Rate plus the Applicable Margin and are fixed at the Fuel Company's option for
interest periods of 1, 2, 3 or 6 months. The Eurodollar Rate is defined as the
annual interest rate for deposits in U.S. dollars as reported in the Dow Jones
Telerate system or if such rate is not reported, at the LIBOR rate, in each case
for the two business day period prior to such interest period. The Applicable
Margin ranges from 27.5 to 65 basis points depending on the GPU Company's senior
secured long term debt ratings assigned by Standard & Poor's Ratings Group,
Moody's Investors Service, Inc. or Duff & Phelps.
Under the Existing Credit Facilities, the Fuel Companies may, upon
three business days notice, prepay Existing Notes. In addition, the Fuel
Companies are obligated to prepay Existing Notes in amounts equal to the sum of
(a) the cost of Nuclear Material consumed plus any associated finance charges
incurred in connection therewith which the Fuel Companies are unable to
capitalize (Basic Rent) in excess of the interest and principal payments due on
indebtedness of the Fuel Companies and other costs incurred in connection with
the Existing Credit Facilities and the certain related financing documents
(Monthly Debt Service) and (b) the amount received by the Fuel Companies related
to a sale or transfer (other than by lease) of the Nuclear Material to the GPU
<PAGE>
Companies or a third party. Under the New Credit Facilities, the Fuel Companies
will continue to issue their commercial paper ("New CP Notes") from time to time
to finance Acquisition Costs for Nuclear Material. The New Credit Facilities
would have a term of 364 days and would permit outstanding borrowings of up to
an aggregate of the lesser of (a) $190,000,000 less the outstanding principal
amounts of New CP Notes and (b) the Stipulated Casualty Value of all Nuclear
Material then under lease, less the outstanding principal amount of New CP
Notes. The Fuel Companies would also be able to borrow directly under the New
Credit Facilities in lieu of issuing New CP Notes, and would issue their
promissory notes to the New Lenders evidencing such borrowings. There would,
however, be no letter of credit or other credit support for the New CP Notes.
Fuel Companies would pledge the Existing Lease Agreements to the New
Lenders as collateral security for such obligations.
Notes issued under the New Credit Facilities would mature no longer
than 364 days from date of issuance and would bear interest at either the ABR
Rate or the Eurodollar Rate plus .40%. The ABR Rate is a fluctuating annual rate
equal to the greater of (i) First Chicago's corporate base rate or (ii) the
Federal funds rate plus 1/2% per annum. The Eurodollar Rate is the rate at which
First Chicago offers to place deposits in U.S. dollars with first-class banks in
the London interbank market at 11:00 a.m. (London time) two business days prior
to the borrowing date in the approximate amount of, and for a maturity
corresponding to, First Chicago's (in its capacity as a Lender) portion of the
loan, adjusted for Federal Reserve Board reserve requirements. Interest periods
for Eurodollar Rate-based loans will be 1, 2, 3 or 6 months. Interest will be
payable in arrears (i) with respect to ABR-based loans on the last day of each
quarter, (ii) with respect to Eurodollar Rate-based loans on the last day of
<PAGE>
each interest period and, in the case of an interest period longer than three
months, quarterly and (iii) in any event upon any prepayment (whether due to
acceleration or otherwise) and at maturity. Interest on all loans and fees will
be calculated for actual days elapsed-on the basis of a 360-day year.
The Fuel Companies would pay the following fees in connection with
the New Credit Facility: (i) an Arrangement Fee to the Agents of $40,000; (ii)
an annual Administration Fee to First Chicago of $16,000; and (iii) a Commitment
Fee to the New Lenders of .125% per annum on each such lender's average daily
unused commitment under the New Credit Facility.
In addition, the GPU Companies have agreed to pay certain
transaction expenses in connection with the execution of the amended and
restated Existing Lease Agreements, the establishment of the New Credit
Facilities and the consummation of the transactions contemplated thereby. The
GPU Companies will also indemnify the Fuel Companies, the Trustee and the New
Lenders against certain liability, hazards, contingencies and risks of loss in
connection with the Fuel Companies' acquisition and lease of Nuclear Material to
the GPU Companies. The GPU Companies would reimburse the Fuel Companies for all
such fees, expenses and indemnification costs and all such expenses would be
paid as additional rent payments under the amended and restated Existing Lease
Agreements.
In connection with the New Credit Facilities, the GPU Companies also
propose to amend and restate each of the Existing Lease Agreements between the
GPU Companies and TMI-1 Fuel Corp. and Oyster Creek Fuel Corp. in certain
<PAGE>
limited respects. (The Existing Lease Agreements, as proposed to be amended and
restated, are herein referred to as the "Amended and Restated Lease
Agreements"). The Amended and Restated Lease Agreements would, among other
things, reflect (i) a reduction in the maximum aggregate value of Nuclear
Material to be leased thereunder from $210,000,000 to $190,000,000 (and a
concurrent reduction in the related sublimits for JCP&L, Met-Ed and Penelec to
$115 million, $50 million and $25 million, respectively); (ii) the establishment
of the New Credit Facilities with the New Lenders; and (iii) certain other
modifications to the representations, covenants and events of default
provisions. The GPU Companies would continue to pay a BTU Charge and a Lease
Rate ("Basic Rent") as under the Existing Lease Agreements, although the new
Lease Rate would be based on the rates of the New CP Notes and/or the new
promissory notes. In addition, the GPU Companies would execute new letters of
representation to the New Lenders regarding performance under the Amended and
Restated Lease Agreements and preservation of collateral, and conforming changes
would be made to the Trust Agreement and ancillary lease and financing
documents, including the Security Agreement.
The Application and any amendments thereto are available for public
inspection through the Commission's Office of Public Reference. Interested
persons wishing to comment or request a hearing should submit their views in
writing by _________, 1998 to the Secretary, Securities and Exchange Commission,
Washington, D.C. 20549, and serve a copy on the applicant at the address
specified above. Proof of service (by affidavit, or in case of an attorney at
law, by certificate) should be filed with the request. Any request for a hearing
shall identify specifically the issues of fact or law that are disputed. A
person who so requests will be notified of any hearing, if ordered, and will
receive a copy of any notice or order issued in this matter. After said date,
the Application, as it may be amended, may be granted.
Financial Statements
Item 6(b) 1-A(i)
Page 1 of 46
GPU, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 5-6) Pro Forma
----------- --------------- ---------
ASSETS
Utility Plant:
In Service, at original cost $11 239 028 $ - $11 239 028
Less, accumulated depreciation 4 165 553 - 4 165 553
---------- -------- ----------
Net utility plant in service 7 073 475 - 7 073 475
Construction work in progress 244 498 - 244 498
Other, net 170 970 61 193 232 163
---------- -------- ----------
Net utility plant 7 488 943 61 193 7 550 136
---------- -------- ----------
Other Property and Investments:
GPUI Group equity investments 621 093 - 621 093
Goodwill, net 588 811 - 588 811
Nuclear decommissioning trusts,
at market 626 884 - 626 884
Nuclear fuel disposal trust,
at market 110 978 - 110 978
Other, net 135 861 - 135 861
---------- -------- ----------
Total other
property and investments 2 083 627 - 2 083 627
---------- -------- ----------
Current Assets:
Cash and temporary cash investments 130 555 224 341 354 896
Special deposits 23 611 - 23 611
Accounts receivable:
Customers, net 279 673 - 279 673
Other 111 887 - 111 887
Unbilled revenues 131 271 - 131 271
Materials and supplies, at average
cost or less:
Construction and maintenance 191 658 - 191 658
Fuel 40 758 - 40 758
Deferred income taxes 44 669 - 44 669
Prepayments 104 349 - 104 349
---------- -------- ----------
Total current assets 1 058 431 224 341 1 282 772
---------- -------- ----------
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through
future rates 521 780 - 521 780
Three Mile Island Unit 2
deferred costs 337 754 - 337 754
Nonutility generation contract
buyout costs 240 068 - 240 068
Unamortized property losses 96 355 - 96 355
Other 425 095 - 425 095
---------- -------- ----------
Total regulatory assets 1 621 052 - 1 621 052
Deferred income taxes 431 112 - 431 112
Other 150 844 3 727 154 571
---------- -------- ----------
Total deferred debits
and other assets 2 203 008 3 727 2 206 735
---------- -------- ----------
Total Assets $12 834 009 $ 289 261 $13 123 270
========== ======== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-A(i)
Page 2 of 46
GPU, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
Actual Adjustments
Unaudited) (See pages 5-6) Pro Forma
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 331 958 $ - $ 331 958
Capital surplus 1 007 885 - 1 007 885
Retained earnings 2 274 486 (12 781) 2 261 705
Accumulated other
comprehensive income/(loss) (14 733) - (14 733)
---------- -------- ----------
Total 3 599 596 (12 781) 3 586 815
Less, reacquired common stock,
at cost 80 326 - 80 326
---------- -------- ----------
Total common stockholders'
equity 3 519 270 (12 781) 3 506 489
Cumulative preferred stock:
With mandatory redemption 91 500 - 91 500
Without mandatory redemptiom 66 478 - 66 478
Subsidiary-obligated mandatorily
redeemable
preferred securities 330 000 - 330 000
Trust originated preferred
securities - 250 000 250 000
Long-term debt 4 064 192 - 4 064 192
---------- -------- ----------
Total capitalization 8 071 440 237 219 8 308 659
---------- -------- ----------
Current Liabilities:
Securities due within one year 423 640 - 423 640
Notes payable 299 618 - 299 618
Obligations under capital leases 131 276 61 193 192 469
Accounts payable 415 629 - 415 629
Taxes accrued 150 782 (9 151) 141 631
Interest accrued 51 470 - 51 470
Deferred energy credits 23 984 - 23 984
Other 276 381 - 276 381
---------- -------- ----------
Total current liabilities 1 772 780 52 042 1 824 822
---------- -------- ----------
Deferred Credits and Other
Liabilities:
Deferred income taxes 1 572 001 - 1 572 001
Unamortized investment tax credits 120 761 - 120 761
Three Mile Island Unit 2
future costs 453 596 - 453 596
Regulatory liabilities 102 768 - 102 768
Other 740 663 - 740 663
---------- -------- ----------
Total deferred credits and
other liabilities 2 989 789 - 2 989 789
---------- -------- ----------
Total Liabilities and
Capitalization $12 834 009 $ 289 261 $13 123 270
========== ======== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-A(i)
Page 3 of 46
GPU, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
------------------------------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited)(See pages 5-6) Pro Forma
-------------------------- ---------
Operating Revenues $4 136 909 $ - $4 136 909
--------- ------- ---------
Operating Expenses:
Fuel 398 415 3 672 402 087
Power purchased and interchanged,
net 1 059 473 - 1 059 473
Deferral of energy and capacity
costs, net (2 228) - (2 228)
Other operation and maintenance 1 030 622 56 1 030 678
Depreciation and amortization 479 664 - 479 664
Taxes, other than income taxes 320 775 - 320 775
--------- ------- ---------
Total operating expenses 3 286 721 3 728 3 290 449
--------- ------- ---------
Operating income before income taxes 850 188 (3 728) 846 460
Income taxes 205 987 (9 151) 196 836
--------- ------- ---------
Operating income 644 201 5 423 649 624
--------- ------- ---------
Other Income and Deductions:
Allowance for other funds used
during construction 47 - 47
Equity in undistributed
earnings/(losses) of
affiliates (41 676) - (41 676)
Other income, net 44 434 - 44 434
Income taxes 16 093 - 16 093
--------- ------- ---------
Total other income
and deductions 18 898 - 18 898
--------- ------- ---------
Income Before Interest Charges and
Preferred Dividends 663 099 5 423 668 522
--------- ------- ---------
Interest Charges and Preferred
Dividends:
Interest on long-term debt 274 479 - 274 479
Other interest 37 520 78 37 598
Allowance for borrowed funds
used during construction (5 394) - (5 394)
Dividends on company-obligated
mandatorily redeemable preferred
securities 28 888 - 28 888
Dividends on trust originated
preferred securities - 18 126 18 126
Preferred stock dividends of
subsidiaries, net
of gain on reacquisition 12 072 - 12 072
--------- ------- ---------
Total interest charges
and preferred 347 565 18 204 365 769
--------- ------- ---------
Minority interest net(income)/loss 1 691 - 1 691
--------- ------- ---------
Net Income $ 313 843 $ (12 781) $ 301 062
========= ======= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-A(i)
Page 4 of 46
GPU, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
------------------------------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 5-6) Pro Forma
Balance at beginning of period $2 209 254 $ - $2,209 254
Net income 313 843 (12 781) 301 062
Cash dividends declared
on common stock (241 517) - (241 517)
Other adjustments, net (7 094) - (7 094)
--------- ------- ---------
Balance at end of period $2 274 486 $ (12 781) $2 261 705
========= ======= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-A(i)
Page 5 of 46
GPU, INC. AND SUBSIDIARY COMPANIES
PRO FORMA JOURNAL ENTRIES
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
(1)
Other Utility Plant, net $61 193
Obligations Under Capital Leases $61 193
To record the potential incremental nuclear
fuel to be leased for TMI-1 and Oyster Creek
(proposed $190,000 limit less $128,807 of
nuclear fuel subject to lease at March 31, 1998.)
(2)
Fuel Expense $ 3 672
Cash $ 3 672
To record incremental rent expense on
the proposed nuclear fuel lease at an
annual rate of 6.0%.
(3)
Other operation and maintenance $ 56
Cash $ 56
To record annual fees associated with
the proposed nuclear fuel lease.
(4)
Taxes accrued $ 9 151
Income taxes $ 9 151
To record the decrease in income taxes
associated with the proposed nuclear fuel
lease and to reflect the net decrease
in the provision for Federal and State
income taxes at the rate of 41.5%
attributable to interest payments on the
proposed issuance of subordinated
debentures by Metropolitan Electric Company
and Pennsylvania Electric Company
(SEC File No. to be assigned).
<PAGE>
Financial Statements
Item 6(b) 1-A(i)
Page 6 of 46
GPU, INC. AND SUBSIDIARY COMPANIES
PRO FORMA JOURNAL ENTRIES
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
(5)
Cash and temporary cash investments $250 000
Trust originated preferred securities $250 000
To reflect the proposed issuance
of $125 million trust originated
preferred securities from time to
time through December 31, 2000 by
Met-Ed Capital Trust and Penelec
Capital Trust, respectively. The
trust originated preferred
securities and dividend payments
are to be unconditionally guaranteed by
Metropolitan Electric Company and
Pennsylvania Electric Company(SEC File No. to
be assigned).
(6)
Other deferred debits $ 3 805
Cash and temporary cash investments $ 3 805
To reflect the underwriters
compensation and offering expenses
paid in accordance with the Underwriting
Agreements for Met-Ed Capital Trust and Penelec
Capital Trust(SEC File No. to be assigned).
(7)
Other interest $ 78
Other deferred debits $ 78
To reflect the annual
amortization of the deferred
underwriters compensation and offering
expenses which are being amortized over
49 years (SEC File No. to be assigned).
(8)
Dividends on trust originated preferred securities $18 126
Cash and temporary cash investments $18 126
To reflect the annual dividends
paid on the trust originated
preferred securities of Met-Ed Capital
Trust (7.25%) and Penelec Capital Trust
(7.25%)(SEC File No. to be assigned).
<PAGE>
Financial Statements
Item 6(b) 1-B(i)
Page 7 of 46
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
Adjustments
Actual (see page 11) Pro Forma
------ ------------- ---------
ASSETS
Utility Plant:
In Service, at original cost $4 709 381 $ - $4 709 381
Less, accumulated depreciation 2 067 399 - 2 067 399
--------- ------- ---------
Net utility plant in service 2 641 982 - 2 641 982
Construction work in progress 120 898 - 120 898
Other, net 110 613 37 987 148 600
--------- ------- ---------
Net utility plant 2 873 493 37 987 2 911 480
--------- ------- ---------
Other Property and Investments:
Nuclear decommissioning
trusts, at market 370 136 370 136
Nuclear fuel disposal trust,
at market 110 978 - 110 978
Other, net 8 944 - 8 944
--------- -------- ---------
Total other property
and investments 490 058 - 490 058
--------- -------- ---------
Current Assets:
Cash and temporary cash
investments 10 898 (2 313) 8 585
Special deposits 6 543 - 6 543
Accounts receivable:
Customers, net 136 215 - 136 215
Other 32 157 - 32 157
Unbilled revenues 49 811 - 49 811
Materials and supplies, at
average cost or less:
Construction and maintenance 92 582 - 92 582
Fuel 15 055 - 15 055
Deferred income taxes 29 902 - 29 902
Prepayments 9 037 - 9 037
--------- -------- ---------
Total current assets 382 200 (2 313) 379 887
--------- --------- ---------
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through
future rates 136 853 - 136 853
Nonutility generation contract
buyout costs 137 500 137 500
Three Mile Island Unit 2
deferred costs 102 059 - 102 059
Unamortized property losses 91 641 - 91 641
Other 280 593 - 280 593
--------- -------- ---------
Total regulatory assets 748 646 - 748 646
Deferred income taxes 161 635 - 161 635
Other 20 525 - 20 525
--------- -------- ---------
Total deferred debits
and other assets 930 806 - 930 806
--------- -------- ---------
Total Assets $4 676 557 $ 35 674 $4 712 231
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-B(i)
Page 8 of 46
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
Adjustments
Actual (see page 11) Pro Forma
------ ------------- ---------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 153 713 $ - $ 153 713
Capital surplus 510 769 - 510 769
Retained earnings 915 717 (1 503) 914 214
--------- -------- ---------
Total common stockholders'
equity 1 580 199 (1 503) 1 578 696
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 1 173 364 - 1 173 364
--------- -------- ---------
Total capitalization 3 007 804 (1 503) 3 006 301
--------- -------- ---------
Current Liabilities:
Securities due within one year 12 511 - 12 511
Obligations under capital leases 77 616 37 987 115 603
Accounts payable:
Affiliates 4 879 - 4 879
Other 126 912 - 126 912
Taxes accrued 72 080 (810) 71 270
Deferred energy credits 23 984 23 984
Interest accrued 29 496 - 29 496
Other 98 082 - 98 082
--------- -------- ---------
Total current liabilities 445 560 37 177 482 737
--------- -------- ---------
Deferred Credits and Other
Liabilities:
Deferred income taxes 647 751 - 647 751
Unamortized investment tax credits 53 375 - 53 375
Nuclear fuel disposal fee 136 149 136 149
Three Mile Island Unit 2 future
costs 113 424 - 113 424
Regulatory liabilities 50 990 50 990
Other 221 504 - 221 504
--------- -------- ---------
Total deferred credits and
other liabilities 1 223 193 - 1 223 193
--------- -------- ---------
Total Liabilities and
Capitalization $4 676 557 $ 35 674 $4 712 231
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-B(i)
Page 9 of 46
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
------------------------------------------
(IN THOUSANDS)
Adjustments
Actual (see page 11) Pro Forma
Operating Revenues $2 055 863 $ - $2 055 863
--------- ------- ---------
Operating Expenses:
Fuel 96 401 2 279 98 680
Power purchased and interchanged:
Affiliates 14 727 - 14 727
Others 623 528 - 623 528
Deferral of energy and capacity
costs, net (2 228) - (2 228)
Other operation and maintenance 453 916 34 453 950
Depreciation and amortization 238 645 - 238 645
Taxes, other than income taxes 196 783 - 196 783
--------- ------- ---------
Total operating expenses 1 621 772 2 313 1 624 085
--------- ------- ---------
Operating Income Before Income Taxes 434 091 (2 313) 431 778
Income taxes 113 871 (810) 113 061
--------- ------- ---------
Operating income 320 220 (1 503) 318 717
--------- ------- ---------
Other Income and Deductions:
Allowance for other funds used
during construction 144 - 144
Other income, net 727 - 727
Income taxes (2 020) - (2 020)
--------- ------- ---------
Total other income and
deductions (1 149) - (1 149)
--------- ------- ---------
Income Before Interest Charges and
Dividends on Preferred Securities 319 071 (1 503) 317 568
--------- ------- ---------
Interest Charges and Dividends on
Preferred Securities:
Interest on long-term debt 88 893 - 88 893
Other interest 15 167 - 15 167
Allowance for borrowed funds used
during construction (2 199) - (2 199)
Dividends on company-obligated
mandatorily redeemable
preferred securities 10 700 - 10 700
--------- ------- ---------
Total interest charges
and dividends on preferred
securities 112 561 - 112 561
--------- ------- ---------
Net Income 206 510 (1 503) 205 007
Preferred stock dividends 10 952 - 10 952
--------- ------- ---------
Earnings Available for Common Stock $ 195 558 $ (1 503) $ 194 055
========= ======= =========
Financial Statements
Item 6(b) 1-B(i)
Page 10 of 46
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
------------------------------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 11) Pro Forma
----------- ------------- ---------
Balance at beginning of period $ 860 159 $ - $ 860 159
Net income 206 510 (1 503) 205 007
Cash dividends declared
on common stock (140 000) - (140 000)
Cash dividends on cumulative
preferred stock (10 952) - (10 952)
---------- ------- ---------
Balance at end of period $ 915 717 $ (1 503) $ 914 214
========= ====== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-B(i)
Page 11 of 46
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
(1)
Other Utility Plant, net $37 987
Obligations Under Capital Leases $37 987
To record the potential incremental
nuclear fuel to be leased for TMI-1
and Oyster Creek (proposed $115,000
limit less $77,013 of nuclear fuel
subject to lease at March 31, 1998.)
(2)
Fuel Expense $ 2 279
Cash $ 2 279
To record incremental rent expense
on the proposed nuclear fuel lease at an
annual rate of 6.0%.
(3)
Other operation and maintenance $ 34
Cash $ 34
To record annual fees under the
proposed credit agreement.
(4)
Taxes Accrued $ 810
Income Taxes $ 810
To record the decrease in income
taxes associated with the proposed
nuclear fuel lease.
<PAGE>
Financial Statements
Item 6(b) 1-C(i)
Page 12 of 46
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED)AND PRO FORMA
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 16-17) Pro Forma
---------- ----------------- ---------
ASSETS
Utility Plant:
In Service, at original cost $2 424 260 $ - $2 424 260
Less, accumulated depreciation 945 023 - 945 023
--------- ------- ---------
Net utility plant in service 1 479 237 - 1 479 237
Construction work in progress 44 255 - 44 255
Other, net 35 416 15 476 50 892
--------- ------- ---------
Net utility plant 1 558 908 15 476 1 574 384
--------- ------- ---------
Other Property and Investments:
Nuclear decommissioning
trusts, at market 183 168 - 183 168
Other, net 11 971 - 11 971
--------- ------- ---------
Total other property
and investments 195 139 - 195 139
--------- ------- ---------
Current Assets:
Cash and temporary cash
investments 3 462 113 178 116 640
Special deposits 1 109 - 1 109
Accounts receivable:
Customers, net 61 564 - 61 564
Other 27 177 - 27 177
Unbilled revenues 39 157 - 39 157
Materials and supplies, at
average cost or less:
Construction and maintenance 38 824 - 38 824
Fuel 10 175 - 10 175
Deferred income taxes 2 945 - 2 945
Prepayments 38 438 - 38 438
--------- -------- ---------
Total current assets 222 851 113 178 336 029
--------- -------- ---------
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable
through future rates 182 303 - 182 303
Three Mile Island Unit 2
deferred costs 145 032 - 145 032
Nonutility generation
contract buyout costs 73 868 - 73 868
Other 75 986 - 75 986
--------- -------- ---------
Total regulatory assets 477 189 - 477 189
Deferred income taxes 91 668 - 91 668
Other 16 688 1 778 18 466
--------- -------- ---------
Total deferred debits and
other assets 585 545 1 778 587 323
--------- -------- ---------
Total Assets $2 562 443 $ 130 432 $2 692 875
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-C(i)
Page 13 of 46
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED)AND PRO FORMA
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 16-17) Pro Forma
----------- ---------------- ---------
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 66 273 $ - $ 66 273
Capital surplus 370 200 - 370 200
Retained earnings 273 243 (5 776) 267 467
Accumulated other
comprehensive income 15 034 - 15 034
--------- -------- ---------
Total common stockholders'
equity 724 750 (5 776) 718 974
Cumulative preferred stock 12 056 - 12 056
Company-obligated mandatorily
redeemable preferred securities 100 000 - 100 000
Trust originated preferred
securities - 125 000 125 000
Long-term debt 576 925 - 576 925
--------- -------- ---------
Total capitalization 1 413 731 119 224 1 532 955
--------- -------- ---------
Current Liabilities:
Securities due within one year 22 - 22
Notes payable 81 600 - 81 600
Obligations under capital leases 34 732 15 476 50 208
Accounts payable:
Affiliates 49 158 - 49 158
Other 96 074 - 96 074
Taxes accrued 40 100 (4 268) 35 832
Interest accrued 10 599 - 10 599
Other 30 895 - 30 895
--------- -------- ---------
Total current liabilities 343 180 11 208 354 388
--------- -------- ---------
Deferred Credits and Other
Liabilities:
Deferred income taxes 420 465 - 420 465
Three Mile Island Unit 2 future costs 226 748 - 226 748
Unamortized investment tax credits 28 633 - 28 633
Nuclear fuel disposal fee 30 755 - 30 755
Regulatory liabilities 23 786 - 23 786
Other 75 145 - 75 145
--------- -------- ---------
Total deferred credits
and other liabilities 805 532 - 805 532
--------- -------- ---------
Total Liabilities and Capital $2 562 443 $ 130 432 $2 692 875
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-C(i)
Page 14 of 46
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
ACTUAL (UNAUDITED)AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
------------------------------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 16-17) Pro Forma
----------- --------------- ---------
Operating Revenues $ 922 597 $ - $ 922 597
--------- ------- ---------
Operating Expenses:
Fuel 94 308 929 95 237
Power purchased and interchanged:
Affiliates 15 442 - 15 442
Other 223 193 - 223 193
Other operation and maintenance 234 855 15 234 870
Depreciation and amortization 106 867 - 106 867
Taxes, other than income taxes 58 188 - 58 188
--------- ------- ---------
Total operating expenses 732 853 944 733 797
--------- ------- ---------
Operating Income Before Income Taxes 189 744 (944) 188 800
Income taxes 53 394 (4 268) 49 126
--------- ------- ---------
Operating income 136 350 3 324 139 674
--------- ------- ---------
Other Income and Deductions:
Allowance for other funds
used during construction (59) - (59)
Other income, net 3 312 - 3 312
Income taxes (1 918) - (1 918)
--------- ------- ---------
Total other income
and deductions 1 335 - 1 335
--------- ------- ---------
Income Before Interest Charges and
Dividends on Preferred Securities 137 685 3 324 141 009
--------- ------- ---------
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 43 254 - 43 254
Other interest 7 850 37 7 887
Allowance for borrowed funds used
during construction (981) - (981)
Dividends on company-obligated
mandatorily redeemable
preferred securities 9 000 - 9 000
Dividends on trust originated
preferred securities - 9 063 9 063
--------- ------- ---------
Total interest charges
and dividends on preferred
securities 59 123 9 100 68 223
--------- ------- ---------
Net Income 78 562 (5 776) 72 786
Preferred stock dividends 483 - 483
--------- ------- ---------
Earnings Available for Common Stock $ 78 079 $ (5 776) $ 72 303
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
Financial Statements
Item 6(b) 1-C(i)
Page 15 of 46
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
------------------------------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) See pages 16-17) Pro Forma
----------- --------------- ----------
Balance at beginning of period $ 285 213 $ - $ 285 213
Net income 78 562 (5 776) 72 786
Cash dividends declared on
common stock (90 000) - (90 000)
Cash dividends declared on
cumulative preferred stock (483) - (483)
Other adjustments, net (49) - (49)
--------- ------- ---------
Balance at end of period $ 273 243 $ (5 776) $ 267 467
========= ======= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-C(i)
Page 16 of 46
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1998
(IN THOUSANDS)
(1)
Other Utility Plant, net $15 476
Obligations Under Capital Leases $15 476
To record the potential incremental
nuclear fuel to be leased for TMI-1
(proposed $50,000 limit less $34,524
of nuclear fuel subject to lease at
March 31, 1998.)
(2)
Fuel Expense $ 929
Cash $ 929
To record incremental rent
expense on the proposed nuclear
fuel lease at an annual rate of 6.0%.
(3)
Other operation and maintenance $ 15
Cash $ 15
To record annual fees associated
with the proposed nuclear fuel lease.
(4)
Taxes Accrued $ 4 268
Income Taxes $ 4 268
To record the decrease in income taxes
associated with the proposed nuclear fuel
lease and to reflect the net
decrease in the provision for Federal
and State income taxes at the rate of 41.5%
attributable to interest payments on the
proposed issuance of $128,866 subordinated
debentures by Metropolitan Electric
Company to Met-Ed Capital L.P.
(SEC File No. to be assigned).
<PAGE>
Financial Statements
Item 6(b) 1-C(i)
Page 17 of 46
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
(5)
Cash and temporary cash investments $125 000
Trust originated preferred securities $125 000
To reflect the proposed issuance of
$ 125 million trust originated
preferred securities from time to
time through December 31, 2000 by
Met-Ed Capital Trust. The trust
originated preferred securities
and dividend payments are to be
unconditionally guaranteed by
Metropolitan Edison Company
(SEC File No. to be assigned).
(6)
Other deferred debits $ 1 815
Cash and temporary cash investments $ 1 815
To reflect the underwriters compensation
and offering expenses paid in
accordance with the Underwriting Agreements
for Met-Ed Capital Trust
(SEC File No. to be assigned).
(7)
Other interest $ 37
Other deferred debits $ 37
To reflect the annual amortization
of the deferred underwriters
compensation and offering expenses
which are being amortized over 49 years
(SEC File No. to be assigned).
(8)
Dividends on trust originated preferred securities $ 9 063
Cash and temporary cash investments $ 9 063
To reflect the annual dividends
paid on the trust originated
preferred securities by Met-Ed
Capital Trust at an assumed rate of 7.25%
(SEC File No. to be assigned).
<PAGE>
Financial Statements
Item 6(b) 1-D(i)
Page 18 of 46
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 22-23) Pro Forma
----------- --------------- ---------
ASSETS
Utility Plant:
In Service, at original cost $2 829 073 $ - $2 829 073
Less, accumulated depreciation 1 114 874 - 1 114 874
--------- --------- ---------
Net utility plant in service 1 714 199 - 1 714 199
Construction work in progress 67 157 - 67 157
Other, net 24 101 7 730 31 831
--------- --------- ---------
Net utility plant 1 805 457 7 730 1 813 187
--------- --------- ---------
Other Property and Investments:
Nuclear decommissioning trusts,
at market 73 580 - 73 580
Other, net 7 066 - 7 066
--------- --------- ---------
Total other property and
investments 80 646 - 80 646
--------- --------- ---------
Current Assets:
Cash and temporary cash
investments 7 544 113 476 121 020
Special deposits 2 647 - 2 647
Accounts receivable:
Customers, net 75 936 - 75 936
Other 29 433 - 29 433
Unbilled revenues 42 303 - 42 303
Materials and supplies,
at average cost or less:
Construction and maintenance 48 853 - 48 853
Fuel 15 528 - 15 528
Deferred income taxes 7 589 - 7 589
Prepayments 52 180 - 52 180
--------- -------- ---------
Total current assets 282 013 113 476 395 489
--------- -------- ---------
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable
through future rates 202 624 - 202 624
Three Mile Island Unit 2
deferred costs 90 663 - 90 663
Nonutility generation
contract buyout costs 28 700 - 28 700
Other 74 662 - 74 662
--------- -------- ---------
Total regulatory assets 396 649 - 396 649
Deferred income taxes 56 203 - 56 203
Other 14 276 1 949 16 225
--------- -------- ---------
Total deferred debits and
other assets 467 128 1 949 469 077
--------- -------- ---------
Total Assets $2 635 244 $ 123 155 $2 758 399
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-D(i)
Page 19 of 46
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 22-23) Pro Forma
----------- ---------------- ---------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 105 812 $ - $ 105 812
Capital surplus 285 486 - 285 486
Retained earnings 420 237 (5 502) 414 735
Accumulated other
comprehensive income 7 605 - 7 605
--------- -------- ---------
Total common stockholder's
equity 819 140 (5 502) 813 638
Cumulative preferred stock 16 681 - 16 681
Company-obligated mandatorily
redeemable preferred securities 105 000 - 105 000
Trust originated preferred
securities - 125 000 125 000
Long-term debt 676 445 - 676 445
--------- -------- ---------
Total capitalization 1 617 266 119 498 1 736 764
--------- -------- ---------
Current Liabilities:
Securities due within one year 11 - 11
Notes payable 116 000 - 116 000
Obligations under capital leases 18 087 7 730 25 817
Accounts payable:
Affiliates 27 410 27 410
Other 55 916 55 916
Taxes accrued 28 464 (4 073) 24 391
Interest accrued 10 118 - 10 118
Other 25 471 - 25 471
--------- -------- ---------
Total current liabilities 281 477 3 657 285 134
--------- -------- ---------
Deferred Credits and Other
Liabilities:
Deferred income taxes 481 328 - 481 328
Three Mile Island Unit 2 future
costs 113 424 - 113 424
Unamortized investment tax credits 38 753 - 38 753
Nuclear fuel disposal fee 15 378 - 15 378
Regulatory liabilities 29 424 - 29 424
Other 58 194 - 58 194
--------- -------- ---------
Total deferred credits and
other liabilities 736 501 - 736 501
--------- -------- ---------
Total Liabilities and
Capitalization $2 635 244 $ 123 155 $2 758 399
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-D(i)
Page 20 of 46
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
------------------------------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 22-23)Pro Forma
----------- --------------- ---------
Operating Revenues $1 026 838 $ - $1 026 838
--------- ------- ---------
Operating Expenses:
Fuel 173 467 464 173 931
Power purchased and interchanged:
Affiliates 1 844 - 1 844
Others 212 752 - 212 752
Other operation and maintenance 264 561 7 264 568
Depreciation and amortization 107 059 - 107 059
Taxes, other than income taxes 65 561 - 65 561
--------- ------- ---------
Total operating expenses 825 244 471 825 715
--------- ------- ---------
Operating Income Before Income Taxes 201 594 (471) 201 123
Income taxes 59 680 (4 073) 55 607
--------- ------- ---------
Operating income 141 914 3 602 145 516
--------- ------- ---------
Other Income and Deductions:
Allowance for other funds used
during construction (38) - (38)
Other income, net 2 403 - 2 403
Income taxes (826) - (826)
--------- ------- ---------
Total other income
and deductions 1 539 - 1 539
--------- ------- ---------
Income Before Interest Charges and
Dividends on Preferred Dividends 143 453 3 602 147 055
--------- ------- ---------
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 49 122 - 49 122
Other interest 8 583 41 8 624
Allowance for borrowed funds
used during construction (2 214) - (2 214)
Dividends on company-obligated
mandatorily redeemable
preferred securities 9 188 - 9 188
Dividends on trust originated
preferred securities - 9 063 9 063
--------- ------- ---------
Total interest charges and
dividends on preferred
securities 64 679 9 104 73 783
--------- ------- ---------
Net Income $ 78 774 $ (5 502) $ 73 272
Preferred stock dividends 637 - 637
--------- ------- --------
Earnings Available for Common Stock $ 78 137 $ (5 502) $ 72 635
========= ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-D(i)
Page 21 of 46
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED MARCH 31, 1998
------------------------------------------
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 22-23) Pro Forma
---------- ---------------- ---------
Balance at beginning of period $ 387 123 $ - $ 387 123
Net income 78 774 (5 502) 73 272
Cash dividends declared on
common stock (45 000) - (45 000)
Cash dividends declared on
cumulative preferred stock (637) - (637)
Other adjustments, net (23) - (23)
--------- ------- ---------
Balance at end of period $ 420 237 $ (5 502) $ 414 735
========= ======= =========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-D(i)
Page 22 of 46
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
(1)
Other Utility Plant, net $ 7 730
Obligations Under Capital Leases $ 7 730
To record the potential incremental
nuclear fuel to be leased for TMI-1
(proposed $25,000 limit less $17,270
of nuclear fuel subject to lease at
March 31, 1998).
(2)
Fuel Expense $ 464
Cash $ 464
To record incremental rent expense
on the proposed nuclear fuel lease
at an annual rate of 6.0%.
(3)
Other operation and maintenance $ 7
Cash $ 7
To record annual fees associated
with the proposed nuclear fuel lease.
(4)
Taxes Accrued $ 4 073
Income Taxes $ 4 073
To record the decrease in income taxes
associated with the proposed nuclear fuel
lease and to reflect the net decrease
in the provision for Federal and State
income taxes at the rate of 41.5%
attributable to interest payments on the
proposed issuance of $128,866
subordinated debentures by Pennsylvania
Electric Company to Penelec Capital L.P.
(SEC File No. to be assigned).
<PAGE>
Financial Statements
Item 6(b) 1-D(i)
Page 23 of 46
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
(5)
Cash and temporary cash investments $125 000
Trust originated preferred securities $125 000
To reflect the proposed issuance of
$125 million trust originated
preferred securities from time to
time through December 31, 2000 by
Penelec Capital Trust. The trust
originated preferred securities
and dividend payments are to be
unconditionally guaranteed by
Pennsylvania Electric Company
(Sec File No. to be assigned).
(6)
Other deferred debits $ 1 990
Cash and temporary cash investments $ 1 990
To reflect the underwriters
compensation and offering
expenses paid in accordance
with the Underwriting Agreements
for Penelec Capital Trust
(Sec File No. to be assigned).
(7)
Other interest $ 41
Other deferred debits $ 41
To reflect the annual amortization
of the deferred underwriters
compensation and offering expenses
which are being amortized over
49 years
(Sec File No. to be assigned).
(8)
Dividends on trust originated preferred securities $ 9 063
Cash and temporary cash investments $ 9 063
To reflect the annual dividends
paid on the trust originated
preferred securities by
Penelec Capital Trust at an
assumed rate of 7.25%
(Sec File No. to be assigned).
<PAGE>
Financial Statements
Item 6(b)
Page 24 of 46
GPU, INC.
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc., a Pennsylvania corporation, is a holding company registered
under the Public Utility Holding Company Act of 1935. GPU, Inc. does not
directly operate any utility properties, but owns all the outstanding common
stock of three domestic electric utilities serving customers in New Jersey --
Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan
Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The
customer service, transmission and distribution operations of these electric
utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and
Penelec considered together are referred to as the "GPU Energy companies." The
generation operations of 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 "GPUI Group." Other wholly-owned subsidiaries of GPU,
Inc. are GPU Advanced Resources, Inc. (GPU AR), a subsidiary engaging in energy
services and retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), a
subsidiary engaging in certain telecommunications-related businesses; 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 1997 Annual Report on Form 10-K. The
December 31, 1997 balance sheet data contained in the attached financial
statements was derived from audited financial statements. For disclosures
required by generally accepted accounting principles, see the 1997 Annual Report
on Form 10-K.
1. COMMITMENTS AND CONTINGENCIES
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 $1.5
billion and $1.2 billion, respectively. JCP&L estimates that its total above-
<PAGE>
Financial Statements
Item 6(b)
Page 25 of 46
market costs related to power purchase commitments and company-owned generation,
on a present value basis at September 30, 1998, is $1.6 billion. The $1.6
billion excludes above-market generation costs related to the Oyster Creek
Nuclear Generating Station (Oyster Creek). In July 1997, JCP&L proposed, in its
restructuring plans filed with the New Jersey Board of Public Utilities (NJBPU),
recovery of its remaining Oyster Creek plant investment as a regulatory asset,
through a nonbypassable charge to customers (see Management's Discussion and
Analysis - Competitive Environment). At March 31, 1998, JCP&L's net investment
in Oyster Creek was $710 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 Pennsylvania Public Utility
Commission (PaPUC) their proposed restructuring plans to implement competition
and customer choice in Pennsylvania as required by the comprehensive
restructuring legislation enacted in 1996. Highlights of these plans are
presented in the Competitive Environment section of Management's Discussion and
Analysis. In May 1998, an Administrative Law Judge (ALJ) issued Recommended
Decisions in Met-Ed and Penelec's restructuring proceedings. Met-Ed and Penelec
are continuing to analyze the ALJ's recommendations, which do not contain
detailed schedules recommending proposed amounts of stranded cost disallowances,
cost allocations or other rate matters. Accordingly, management is unable to
assess the full implications of the Decisions at this time. The major elements
of the ALJ's Decisions are presented in the Competitive Environment section of
Management's Discussion and Analysis. Met-Ed and Penelec intend to file
exceptions to a number of the ALJ's recommendations by May 20, 1998. The PaPUC
is scheduled to take nonbinding polls on June 4, 1998 on the Recommended
Decisions and issue final orders on June 25, 1998.
Based on preliminary review and analysis of the Recommended Decisions,
management believes that if the PaPUC were to adopt the ALJ's recommendations in
substantial part (in particular, the proposed reduction of T&D rates), it would
have a material adverse effect on Met-Ed and Penelec's stranded cost recovery
and future earnings, except to the extent offset by spending reductions. There
can be no assurance as to the outcome of these proceedings.
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.
Highlights of this plan are presented in the Competitive Environment section of
Management's Discussion and Analysis. Although 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, this would require enacting legislation
which has not yet been introduced. Management believes it is unlikely that
legislation could be enacted in time for retail competition to begin in 1998.
In October 1997, GPU announced its intention to begin a process to sell,
through a competitive bid process, up to all of the fossil-fuel and
hydroelectric generating facilities owned by the GPU Energy companies. The
<PAGE>
Financial Statements
Item 6(b)
Page 26 of 46
current schedule, which is subject to change, calls for initial non-binding bids
due in June 1998, selection of a short list of bidders in July 1998 and final
bid submission in October 1998. It is anticipated that definitive purchase
agreements will be entered into in November 1998 and the divestiture completed
by mid-1999, subject to the timely receipt of the necessary regulatory and other
approvals. For additional information, see Other Commitments and Contingencies.
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. There can be no assurance as to the extent that
stranded costs will be recoverable in Pennsylvania and New Jersey. (For
additional information, see Management's Discussion and Analysis - Competitive
Environment).
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. 71 (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. (See additional
discussion of stranded costs in Management's Discussion and Analysis Competitive
Environment).
Nonutility Generation Agreements:
- ---------------------------------
Pursuant to the requirements of the federal Public Utility Regulatory
Policies Act (PURPA) and state regulatory directives, the GPU Energy companies
have entered into power purchase agreements with NUGs for the purchase of energy
and capacity for remaining periods of up to 23 years. The following table shows
actual payments from 1995 through 1997, and estimated payments from 1998 through
2002.
Payments Under NUG Agreements
-----------------------------
(in Millions)
-------------
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
1995 $670 $381 $131 $158
1996 730 370 168 192
1997 759 384 172 203
* 1998 783 393 173 217
1999 789 395 167 227
<PAGE>
Financial Statements
Item 6(b)
Page 27 of 46
2000 860 402 208 250
2001 887 411 237 239
2002 908 423 246 239
* The 1998 amounts consist of actual payments through March 31, 1998 and
estimated payments for the remainder of the year.
As of March 31, 1998, facilities covered by agreements having 1,666 MW
(JCP&L 905 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 GPU Energy companies'
future supply plan will likely focus on short- to intermediate-term commitments
and reliance on spot market purchases. The projected cost of energy from new
generation supply sources has also decreased due to improvements in power plant
technologies and lower forecasted fuel prices. As a result of these
developments, the rates under virtually all of the GPU Energy companies' NUG
agreements for facilities currently in operation are substantially in excess of
current and projected prices from alternative sources.
The GPU Energy companies are seeking to reduce the above-market costs of
these NUG agreements by: (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the agreements;
(3) offering contract buyouts (see Management's Discussion and Analysis - The
GPU Energy Companies' Supply Plan,); 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 to which these efforts will be successful
in whole or in part.
In 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. In January 1998, Met-Ed and Penelec entered into definitive buyout
agreements with two bidders. The PaPUC is considering Met-Ed and Penelec's
requests for approval of these agreements as part of their pending restructuring
proceedings.
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
<PAGE>
Financial Statements
Item 6(b)
Page 28 of 46
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.
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 are recovering certain of their NUG costs
(including certain buyout costs) from customers. 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. (See Management's
Discussion and Analysis - Competitive Environment for additional discussion.)
Regulatory Assets and Liabilities:
- ----------------------------------
Regulatory Assets and Regulatory Liabilities, as reflected in the March 31,
1998 and December 31, 1997 Consolidated Balance Sheets in accordance with the
provisions of FAS 71, "Accounting for the Effects of Certain Types of
Regulation", were as follows:
GPU, Inc. and Subsidiary Companies Assets (in thousands)
- ---------------------------------- ---------------------
March 31, December 31,
1998 1997
------------- --------
Income taxes recoverable through
future rates $ 521,780 $ 510,680
Three Mile Island Unit 2 (TMI-2) deferred costs 337,754 345,326
Nonutility generation contract buyout costs 240,068 245,568
Unamortized property losses 96,355 99,532
Other postretirement benefits 88,519 89,569
Environmental remediation 71,807 90,308
N.J. unit tax 38,204 39,797
Unamortized loss on reacquired debt 39,280 40,489
Load and demand-side management programs 18,414 23,164
N.J. low-level radwaste disposal 29,653 31,479
DOE enrichment facility decommissioning 32,377 33,472
Nuclear fuel disposal fee 20,688 21,512
Storm damage 30,215 31,097
Nonutility generation costs 32,163 24,857
Other 23,775 22,402
--------- ---------
Total $1,621,052 $1,649,252
========= =========
Liabilities (in thousands)
--------------------------
March 31, December 31,
1998 1997
---------- -------
Income taxes refundable through
future rates $ 87,568 $ 89,247
Other 15,200 12,527
--------- ---------
Total $ 102,768 $ 101,774
========= =========
<PAGE>
Financial Statements
Item 6(b)
Page 29 of 46
JCP&L Assets (in thousands)
- ----- March 31, December 31,
1998 1997
------------- --------
Income taxes recoverable through
future rates $ 136,853 $ 128,111
TMI-2 deferred costs 102,059 109,498
Nonutility generation contract buyout costs 137,500 140,500
Unamortized property losses 91,641 94,726
Other postretirement benefits 48,977 49,807
Environmental remediation 41,683 61,324
N.J. unit tax 38,204 39,797
Unamortized loss on reacquired debt 28,029 28,729
Load and demand-side management programs 18,414 23,164
N.J. low-level radwaste disposal 29,653 31,479
DOE enrichment facility decommissioning 20,439 21,223
Nuclear fuel disposal fee 23,045 23,781
Storm damage 30,215 31,097
Other 1,934 2,466
--------- ---------
Total $ 748,646 $ 785,702
========= =========
Liabilities (in thousands)
--------------------------
March 31, December 31,
1998 1997
------------- --------
Income taxes refundable through
future rates $ 36,861 $ 37,759
Other 14,129 11,467
--------- ---------
Total $ 50,990 $ 49,226
========= =========
Met-Ed Assets (in thousands)
- ------ ---------------------
- ------ March 31, December 31,
1998 1997
------------- --------
Income taxes recoverable through
future rates $ 182,303 $ 178,927
TMI-2 deferred costs 145,032 146,290
Nonutility generation contract buyout costs 73,868 76,368
Unamortized property losses 2,579 2,650
Other postretirement benefits 39,542 39,762
Environmental remediation 4,121 4,121
Unamortized loss on reacquired debt 5,134 5,329
DOE enrichment facility decommissioning 7,959 8,166
Nuclear fuel disposal fee (1,540) (1,511)
Nonutility generation costs 12,602 10,265
Other 5,589 4,515
--------- ---------
Total $ 477,189 $ 474,882
========= =========
Liabilities (in thousands)
--------------------------
March 31, December 31,
1998 1997
------------- --------
Income taxes refundable through
future rates $ 21,393 $ 21,749
Other 2,393 2,446
--------- ---------
Total $ 23,786 $ 24,195
========= =========
<PAGE>
Financial Statements
Item 6(b)
Page 30 of 46
Penelec Assets (in thousands)
- ------- ---------------------
March 31, December 31,
1998 1997
------------- --------
Income taxes recoverable through
future rates $ 202,624 $ 203,642
TMI-2 deferred costs 90,663 89,538
Nonutility generation contract buyout costs 28,700 28,700
Unamortized property losses 2,135 2,156
Environmental remediation 26,003 24,863
Unamortized loss on reacquired debt 6,117 6,431
DOE enrichment facility decommissioning 3,979 4,083
Nuclear fuel disposal fee (817) (758)
Nonutility generation costs 19,561 14,592
Other 17,684 16,853
--------- ---------
Total $ 396,649 $ 390,100
========= =========
Liabilities (in thousands)
--------------------------
March 31, December 31,
1998 1997
------------- --------
Income taxes refundable through
future rates $ 29,314 $ 29,739
Other 110 46
--------- ---------
Total $ 29,424 $ 29,785
========= =========
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
1998 dollars) and JCP&L's share of long-term monitored storage costs. For
additional information, see Nuclear Plant Retirement Costs.
Nonutility generation contract buyout costs: Represents amounts incurred for
terminating power purchase contracts with NUGs, for which rate recovery has been
granted or is probable (see Management's Discussion and Analysis - The GPU
Energy Companies' Supply Plan).
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
(EITF) 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 Environmental Matters.
<PAGE>
Financial Statements
Item 6(b)
Page 31 of 46
N.J. unit tax: Represents certain state taxes, with interest, for which JCP&L
received NJBPU approval in 1993 to recover over a ten-year period.
Unamortized loss on reacquired debt: Represents premiums and expenses incurred
in the early redemption of long-term debt. In accordance with FERC regulations,
reacquired debt costs are amortized over the remaining original life of the
retired debt.
Load and demand-side management (DSM) programs: Consists of load management
costs and other DSM program expenditures that are currently being recovered,
with interest, through JCP&L's retail base rates and demand-side factor. 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.
Department of Energy (DOE) enrichment facility decommissioning: Represents
payments to the DOE over a 15-year period which began in 1994.
Nuclear fuel disposal fee: Represents amounts recoverable through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and Three
Mile Island Unit 1 (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.
Nonutility generation costs: Represents incremental NUG operating costs incurred
above amounts reflected in Met-Ed and Penelec's current rates, for which rate
recovery is probable but has not yet been granted (see Management's Discussion
and Analysis Competitive Environment).
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. At March
31, 1998, GPU has recorded on the Consolidated Balance Sheets $1.6 billion in
regulatory assets in accordance with FAS 71 (see Regulatory Assets and
Liabilities section of Competition and the Changing Regulatory Environment).
<PAGE>
Financial Statements
Item 6(b)
Page 32 of 46
In response to the continuing deregulation of the electric utility
industry, the Securities and Exchange Commission (SEC) questioned the continued
applicability of FAS 71 by investor-owned utilities with respect to their
electric generation operations.
In response to the concerns expressed by the Staff of the SEC, the
Financial Accounting Standards Board's (FASB) EITF agreed to discuss the issues
surrounding the continued applicability of FAS 71 to the electric utility
industry. In 1997, the EITF met to discuss these issues and 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, as well as any newly established regulated assets (including
those related to generation), on their balance sheets 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
NJBPU's final findings and recommendations, 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, by 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
provided for through their respective restructuring plans, have to be written
off and charged to expense. 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.
Additionally, the inability of the GPU Energy companies to recover their
above-market costs of power purchase commitments, in whole or in part, could
result in the recording of liabilities and corresponding charges to expense. The
amount of charges 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 position.
In December 1997, the PaPUC rejected PECO Energy Company's (PECO)
restructuring settlement and approved an alternate plan for PECO based on its
findings in that case. PECO took a pre-tax charge to 1997 income of $3.1 billion
reflecting the effects of the PaPUC order. Met-Ed and Penelec believe that the
PaPUC's decision in the PECO case was based on the specific facts and
circumstances of that proceeding. Met-Ed and Penelec further believe that they
have demonstrated in their restructuring proceedings ample evidence to
distinguish sufficiently their cases from PECO's and that the PaPUC should not,
therefore, apply its findings in the PECO case to their pending restructuring
plans. If, however, the PaPUC were to apply these findings, it would have a
material adverse impact on Met-Ed and Penelec's stranded cost recovery,
restructuring proceedings and future earnings.
<PAGE>
Financial Statements
Item 6(b)
Page 33 of 46
In April 1998, PECO and other parties to PECO's restructuring proceeding,
including Met-Ed and Penelec, filed a joint petition for settlement (Joint
Petition) with the PaPUC. The Joint Petition represents a comprehensive
settlement that resolves numerous issues on appeal by the parties to the
settlement, including an agreement by Met-Ed, Penelec and PECO to withdraw from
each others respective restructuring cases. Additionally, PECO has agreed not to
participate when the PaPUC reviews Met-Ed and Penelec's sale of their generating
facilities. The Joint Petition was tentatively approved by the PaPUC and the
final vote is currently scheduled for May 14, 1998. There can be no assurance as
to the outcome of this matter.
Should the restructuring proceedings in New Jersey and Pennsylvania result
in substantial disallowance of certain capital additions; the disallowance of
certain stranded costs; reduction in cost of capital allowances on certain
elements of plant and cost deferrals; and tariff rate unbundling reflecting an
allocation of costs to the transmission and distribution activities lower than
that proposed by the GPU Energy companies, management believes that the outcome
of these proceedings would have a material adverse effect on GPU's future
earnings.
FAS 121 requires that regulatory assets meet the recovery criteria of FAS
71 on an ongoing basis in order to avoid a write-down. 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.
NUCLEAR FACILITIES
The GPU Energy companies have made investments in three major nuclear
projects -- TMI-1 and Oyster Creek, both of which are operating generation
facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2
are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50%
and 25%, respectively. Oyster Creek is owned by JCP&L. At March 31, 1998 and
December 31, 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
----- ------------
March 31, 1998
--------------
JCP&L $152 $710
Met-Ed 293 -
Penelec 143 -
--- ---
Total $588 $710
=== ===
Net Investment (in millions)
----------------------------
TMI-1 Oyster Creek
----- ------------
December 31, 1997
-----------------
JCP&L $155 $701
Met-Ed 300 -
Penelec 147 -
--- ---
Total $602 $701
=== ===
<PAGE>
Financial Statements
Item 6(b)
Page 34 of 46
The GPU Energy companies' net investment in TMI-2 at March 31, 1998 and
December 31, 1997 was $82 million and $84 million, respectively (JCP&L $74
million and $76 million, respectively; Met-Ed $1 million and $1 million,
respectively; Penelec $7 million and $7 million, respectively). JCP&L is
collecting revenues for TMI-2 on a basis which provides for the recovery of its
remaining investment in the plant by 2008. Met-Ed and Penelec are collecting
revenues for TMI-2 related to their wholesale customers.
Costs associated with the operation, maintenance and retirement of nuclear
plants have continued to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards, availability of nuclear waste
disposal facilities and experience gained in the construction and operation of
nuclear facilities. The GPU Energy companies may also incur costs and experience
reduced output at their nuclear plants because of the prevailing design criteria
at the time of construction and the age of the plants' systems and equipment. In
addition, for economic or other reasons, operation of these plants for the full
term of their operating licenses cannot be assured. Also, not all risks
associated with the ownership or operation of nuclear facilities may be
adequately insured or insurable. Consequently, the recovery of costs associated
with nuclear projects, including replacement power, any unamortized investment
at the end of each plant's useful life (whether scheduled or premature), the
carrying costs of that investment and retirement costs, is not assured. (See
Competition and the Changing Regulatory Environment.)
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. Although 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, there can be no assurance that
such costs will be fully recoverable. (See Management's Discussion and Analysis
- - Competitive Environment).
The GPU Energy companies have also entered into a confidentiality agreement
with a potential purchaser of TMI-1. Unlike Oyster Creek, however, the early
retirement of TMI-1 is not being considered because of its lower operating
costs. In the event that TMI-1 is sold, there can be no assurance of full
recovery of its remaining investment.
TMI-2:
- ------
The 1979 TMI-2 accident resulted in individual claims for alleged personal
injury (including claims for punitive damages), which are material in amount,
have been asserted against GPU, Inc. and the GPU Energy companies. Approximately
2,100 of such claims were filed in the United States District Court for the
Middle District of Pennsylvania. Some of the claims also seek recovery for
injuries from alleged emissions of radioactivity before and after the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies had (a) primary financial protection in the form
of insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial
<PAGE>
Financial Statements
Item 6(b)
Page 35 of 46
protection in the form of private liability insurance under an industry
retrospective rating plan providing for up to an aggregate of $335 million in
premium charges under such plan, and (c) an indemnity agreement with the NRC for
up to $85 million, bringing their total financial protection up to an aggregate
of $560 million. Under the secondary level, the GPU Energy companies are subject
to a retrospective premium charge of up to $5 million per reactor, or a total of
$15 million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million).
In October 1995, the U.S. Court of Appeals for the Third Circuit ruled that
the Price-Anderson Act provides coverage under its primary and secondary levels
for punitive as well as compensatory damages, but that punitive damages could
not be recovered against the Federal Government under the third level of
financial protection. In so doing, the Court of Appeals referred to the "finite
fund" (the $560 million of financial protection under the Price-Anderson Act) to
which plaintiffs must resort to get compensatory as well as punitive damages.
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate exposure to radiation released
during the TMI-2 accident and that such exposure had resulted in injuries. In
1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU
Energy companies to review the Court of Appeals' rulings.
In June 1996, the District Court granted a motion for summary judgment
filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100
pending claims. The Court ruled that there was no evidence which created a
genuine issue of material fact warranting submission of plaintiffs' claims to a
jury. The plaintiffs have appealed the District Court's ruling to the Court of
Appeals for the Third Circuit, 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.
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 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
<PAGE>
Financial Statements
Item 6(b)
Page 36 of 46
developed for TMI-2 which took the accident into account. Under the NRC
regulations, the funding targets (in 1998 dollars) are as follows:
(in millions)
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
JCP&L $ 45 $ 72 $310
Met-Ed 91 144 -
Penelec 45 72 -
--- --- ---
Total $181 $288 $310
=== === ===
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 NRC may require an
acceleration of the decommissioning funding for Oyster Creek if the plant is
retired early. The retirement cost estimates under the site-specific studies are
as follows (in 1998 dollars):
(in millions)
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
Radiological decommissioning $333 $404 $391
Nonradiological cost of removal 82 33 * 38
--- --- ---
Total $415 $437 $429
=== === ===
* Net of $11.2 million spent as of March 31, 1998.
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. Customer
collections are contributed to external trust funds. These deposits, including
the related earnings, are classified as Nuclear decommissioning
<PAGE>
Financial Statements
Item 6(b)
Page 37 of 46
trusts, at market on the Consolidated Balance Sheets. Accounting for retirement
costs may change based upon the FASB Exposure Draft discussed below.
The FASB has issued an Exposure Draft titled "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," 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 1998 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 has not yet
been established.
TMI-1 and Oyster Creek:
- -----------------------
The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek
retirement costs of $2.5 million and $13.5 million, respectively. These annual
revenues are based on both the NRC funding targets for radiological
decommissioning costs and a site-specific study which was performed in 1988 for
nonradiological costs of removal. The Stipulation of Final Settlement approved
by the NJBPU in 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.
The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of
$8.5 million based on both the NRC funding target for radiological
decommissioning costs and the 1988 site-specific study for nonradiological costs
of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for
its share of TMI-1 retirement costs, on a basis consistent with that granted
Met-Ed. 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 first quarter of 1998
and the provisions for the future expenditure of these funds, which have been
made in accumulated depreciation, are as follows:
(in millions)
Oyster
TMI-1 Creek
----- -----
Amount expensed for the three
months ended March 31, 1998:
JCP&L $ 1 $ 6
Met-Ed 2 -
Penelec 1 -
--- ---
$ 4 $ 6
=== ===
<PAGE>
Financial Statements
Item 6(b)
Page 38 of 46
(in millions)
Oyster
TMI-1 Creek
----- -----
Accumulated depreciation
provision at March 31, 1998:
JCP&L $ 41 $235
Met-Ed 75 -
Penelec 32 -
--- ---
$148 $235
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable from customers.
TMI-2:
- ------
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 Future Costs on the Consolidated Balance Sheets) as of
March 31, 1998 and December 31, 1997 are as follows:
(in millions)
GPU JCP&L Met-Ed Penelec
--- ----- ------ -------
March 31, 1998 $453 $113 $227 $113
December 31, 1997 $449 $112 $225 $112
These amounts are based upon the 1995 site-specific study estimates (in
1998 and 1997 dollars, respectively) 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 March 31, 1998 and December 31,
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 $453 million liability at March 31, 1998 is $256 million
(JCP&L $29 million; Met-Ed $144 million; Penelec $83 million) which is probable
of recovery from customers and included in Three Mile Island Unit 2 deferred
costs on the Consolidated Balance Sheets, and $238 million (JCP&L $94 million;
Met-Ed $105 million; Penelec $39 million) in trust funds for TMI-2 and included
in Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets.
Earnings on trust fund deposits are included in amounts shown on the
Consolidated Balance Sheets under Three Mile Island Unit 2 deferred costs. TMI-2
decommissioning costs charged to depreciation expense in the first quarter of
1998 amounted to $3 million (JCP&L $573 thousand; Met-Ed $2,496 thousand;
Penelec $255 thousand).
The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, TMI-2
decommissioning revenues for the NRC funding target and allowances for the cost
of removal of nonradiological structures and materials. In addition, JCP&L is
recovering its share of TMI-2's incremental monitored storage costs. The
Stipulation of Final Settlement approved by the NJBPU in 1997 adjusts JCP&L's
future revenues for retirement costs based on the 1995 site-specific
<PAGE>
Financial Statements
Item 6(b)
Page 39 of 46
study estimates, beginning in 1998. Based on Met-Ed's rate order, Penelec has
recorded a regulatory asset for that portion of such costs which it believes to
be probable of recovery.
At March 31, 1998, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $71 million (JCP&L $18 million, Met-Ed
$35 million; Penelec $18 million), which is the difference between the 1995
TMI-1 and TMI-2 site-specific study estimates (in 1998 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 $71 million accident-related portion
referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement costs,
and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot be
assured.
INSURANCE
---------
GPU has insurance (subject to retentions and deductibles) for its
operations and facilities including coverage for property damage, liability to
employees and third parties, and loss of use and occupancy (primarily
incremental replacement power costs). There is no assurance that GPU will
maintain all existing insurance coverages. Losses or liabilities that are not
completely insured, unless allowed to be recovered through ratemaking, could
have a material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station and for Oyster Creek totals $2.7
billion per site. In accordance with NRC regulations, these insurance policies
generally require that proceeds first be used for stabilization of the reactors
and then to pay for decontamination and debris removal expenses. Any remaining
amounts available under the policies may then be used for repair and restoration
costs and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of that station.
The Price-Anderson Act limits GPU's liability to third parties for a
nuclear incident at one of its sites to approximately $8.9 billion. Coverage for
the first $200 million of such liability is provided by private insurance. The
remaining coverage, or secondary financial protection, is provided by
retrospective premiums payable by all nuclear reactor owners. Under secondary
financial protection, a nuclear incident at any licensed nuclear power reactor
in the country, including those owned by the GPU Energy companies, could 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 the Price-Anderson Act, the GPU Energy companies are
<PAGE>
Financial Statements
Item 6(b)
Page 40 of 46
also subject to retrospective premium assessments of up to $26.5 million (JCP&L
$17.0 million; Met-Ed $6.3 million; Penelec $3.2 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.
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 (MGP), 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 $248
million (JCP&L $44 million; Met-Ed $98 million; Penelec $106 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.
Effective November 1997, the Pennsylvania Environmental Quality Board adopted
regulations implementing the OTC's proposed NOx reductions and in December 1997,
the New Jersey Department of Environmental Protection developed a proposal with
the electric utility industry on a plan to implement the OTC's proposed NOx
reductions. The GPU Energy companies expect that the U.S. Environmental
Protection Agency (EPA) will approve state implementation plans, including those
in Pennsylvania and New Jersey, and that as a result, they will spend an
estimated $6 million (JCP&L $0.2 million; Met-Ed $2.8 million; Penelec $3.0
million) (included in the above total), 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
<PAGE>
Financial Statements
Item 6(b)
Page 41 of 46
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
----- ------ ------- ---- -------- -----
7 4 2 1 1 12
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 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 $0.5 million 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 Corporation has also sued GPU, Inc. for a contribution to the cleanup
of the Dover site. In December 1997, the Court refused to dismiss the complaint;
GPU has requested that the Court reconsider its decision. 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
<PAGE>
Financial Statements
Item 6(b)
Page 42 of 46
operating scenarios. 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 March 31, 1998. 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 (see
Management's Discussion and Analysis - Competitive Environment), and has
recorded a corresponding regulatory asset of approximately $12 million at March
31, 1998.
In 1997, the GPU Energy companies filed with the PaDEP applications for
re-permitting seven (JCP&L - one; Met-Ed - three; Penelec - three) 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 $17 million to $22 million, and a liability of $17 million (JCP&L
$1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the
Consolidated Balance Sheets at March 31, 1998. 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 (see Management's Discussion and Analysis
Competitive Environment). As a result, a regulatory asset of $17 million is
reflected on the Consolidated Balance Sheets at March 31, 1998.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection for the investigation and remediation of 17 formerly
owned MGP sites. JCP&L has also entered into various cost-sharing agreements
with other utilities for most of the sites. As of March 31, 1998, JCP&L has
spent approximately $28 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 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 March 31, 1998, JCP&L had recorded on its
Consolidated Balance Sheet a regulatory asset of $35 million.
JCP&L is continuing to pursue 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.
<PAGE>
Financial Statements
Item 6(b)
Page 43 of 46
OTHER COMMITMENTS AND CONTINGENCIES
-----------------------------------
Year 2000 Issue:
- ----------------
GPU is addressing year 2000 issues as they relate to its business, its
operations and operating systems, and its relationship with customers, banks,
partners, vendors, suppliers and service providers. Comprehensive reviews of all
computers, equipment, systems and applications are being performed; remediation
plans are being developed; and certain corrective actions have begun. GPU's
remediation plans include, among other things, the upgrade or replacement of
computers, equipment and computer software. GPU currently anticipates that its
year 2000 remediation efforts will, in all material respects, be completed by
the end of 1999. In the event corrective actions are not completed by this date,
certain computers, equipment, systems and applications may not function
properly, which could have a material adverse effect on GPU's operations.
As part of their year 2000 solution, the GPU Energy companies have
purchased and are installing an integrated information system (Project
Enterprise) that will help them manage business growth and meet the mandates of
electric utility deregulation. The system is scheduled to be fully operational
in early 1999. As a result of the planned implementation of Project Enterprise,
the GPU Energy Companies will avoid spending an estimated $8 million (JCP&L $3
million; Met-Ed $2 million; Penelec $3 million) in modifications to existing
systems to make them year 2000 compliant.
The GPU Energy Companies currently estimate they will spend an additional
$24 million (JCP&L $11 million; Met-Ed $7 million; Penelec $6 million) on year
2000 remediation of their computers, equipment and computer software. Of this
amount, approximately $7 million (JCP&L $3 million; Met-Ed $2 million; Penelec
$2 million) would have been spent in any event because of maintenance and
cyclical replacement plans that are already in place.
The GPUI Group currently estimates it will spend approximately $7 million
to become year 2000 ready, primarily to replace or modify equipment.
GPUI Group:
- -----------
At March 31, 1998, the GPUI Group had investments totaling approximately
$2.4 billion in businesses and facilities located in foreign countries. Although
management attempts to mitigate the risk of investing in certain foreign
countries by securing political risk insurance, the GPUI Group faces additional
risks inherent to operating in such locations, including foreign currency
fluctuations (see Management's Discussion and Analysis - GPUI Group).
At March 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group was
$518 million; GPU, Inc. has also guaranteed up to an additional $913 million of
GPUI Group obligations. Of this amount, $726 million is included in Long-term
debt and Securities due within one year on GPU's Consolidated Balance Sheet at
March 31, 1998; $30 million of that amount relates to a GPU International, Inc.
revolving credit agreement; and $157 million relates to various other
obligations of the GPUI 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 $28 million. In July 1997,
NIMO and 16 independent power producers (IPP), including the
<PAGE>
Financial Statements
Item 6(b)
Page 44 of 46
GPUI 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. In February 1998, the New York Public Service Commission approved
NIMO's restructuring agreement.
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, 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 by
mid-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.
Other:
- ------
In October 1997, GPU announced its intention to begin a process to sell,
through a competitive bid process, up to all of the fossil-fuel and
hydroelectric generating facilities owned by the GPU Energy companies. These
facilities, comprised of 26 operating stations, support organizations and
development sites, total approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300
MW; Penelec 2,100 MW) of capacity and have a net book value of approximately
$1.1 billion (JCP&L $288 million; Met-Ed $305 million; Penelec $546 million) at
March 31, 1998. The net proceeds from the sale would be used to reduce the
capitalization of the respective GPU Energy companies and may also be applied to
reduce short-term debt, finance further acquisitions, and to reduce acquisition
debt of the GPUI Group. In April 1998, GPU mailed Confidential Offering
Memoranda to qualified buyers. One Memorandum covers 25 fossil-fueled and
hydroelectric stations, support organizations and development sites and a second
Memorandum is for the 1,884 MW coal-fired Homer City Station, which Penelec is
selling together with its 50% joint owner, New York State Electric & Gas
Corporation.
The current schedule, which is subject to change, calls for initial
non-binding bids due in June 1998, selection of a short list of bidders in July
1998 and final bid submission in October 1998. It is anticipated that definitive
purchase agreements will be entered into in November 1998 and the divestiture
completed by mid-1999, subject to the timely receipt of the necessary regulatory
and other approvals. For the Homer City Station, initial, non-binding bids will
be due in May, with the winning bidder expected to be announced by the end of
July 1998.
GPU's capital programs, for which substantial commitments have been
incurred and which extend over several years, contemplate expenditures of $582
million (JCP&L $204 million; Met-Ed $92 million; Penelec $121 million; Other
$165 million) during 1998. 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
<PAGE>
Financial Statements
Item 6(b)
Page 45 of 46
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 1998 and 2007, 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. The GPU Energy
companies' share of the cost of coal purchased under these agreements is
expected to aggregate $171 million (JCP&L $26 million; Met-Ed $55 million;
Penelec $90 million) for 1998.
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 614 MW in 1998, declining to 529 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 $129 million in 1998, $111 million in 1999, $83
million in 2000, $92 million in 2001, and $101 million in 2002.
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 Court of Appeals compel the DOE to begin disposing of spent nuclear
fuel beginning not later than January 31, 1998. In November 1997, the Court
declined to compel the DOE to begin disposing of spent fuel by the statutory
deadline or to authorize the utilities to cease payments into the Nuclear Waste
Fund. 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 June 1997, a consortium of electric
utilities, including GPUN, filed a license application with the NRC seeking
permission to build an interim above-ground disposal facility for spent nuclear
fuel in northwestern Utah. There can be no assurance as to the outcome of these
matters.
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste disposal facility in New Jersey, which
should commence operation by the end of 2003. GPUN's total share of the cost for
developing, constructing and site licensing the facility is estimated to be $58
million, which will be paid through 2002. Through March 31, 1998, $6 million has
been paid. As a result, at March 31, 1998, 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 of Competition and the Changing
Regulatory Environment.) In February 1998, the New Jersey Low-Level Radwaste
Facility Siting Board (Siting Board) voted to suspend the siting
<PAGE>
Financial Statements
Item 6(b)
Page 46 of 46
process in New Jersey. The Siting Board is reviewing its legal and financial
obligations, subject to review from the Governor. GPUN cannot determine at this
time what effect, if any, this matter will have on its operations.
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 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.
At March 31, 1998, GPU, Inc. and consolidated affiliates had 9,401
employees worldwide, of which about 9,000 employees were located in the U.S. The
majority of the U.S. workforce is employed by the GPU Energy companies, of which
4,862 are represented by unions for collective bargaining purposes. JCP&L,
Met-Ed and Penelec's collective bargaining agreements with the International
Brotherhood of Electrical Workers expire in 1999, 2000 and 2002, respectively.
Penelec's five-year contract with the Utility Workers Union of America expires
on June 30, 1998, and renegotiations have begun.
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.
