Amendment No. 1 to
SEC File No. 70-9201
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GPU, INC. ("GPU")
GPU SERVICE, INC. ("GPUS")
300 Madison Avenue
Morristown, New Jersey 07962
JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L")
METROPOLITAN EDISON COMPANY ("Met-Ed")
PENNSYLVANIA ELECTRIC COMPANY ("Penelec")
P.O. Box 16001, Reading, Pennsylvania 19640
-------------------------------------------
(Names of companies filing this statement
and addresses of principal offices)
GPU, INC.
---------
(Name of top registered holding company
parent of the applicants)
M. A. Nalewako, Secretary Douglas E. Davidson, Esq.
M. J. Connolly, Esq., Berlack, Israels &
Assistant General Counsel Liberman LLP
GPU Service, Inc. 120 West 45th Street
300 Madison Avenue New York, New York 10036
Morristown, New Jersey 07962
S. L. Guibord, Esq.
Secretary
Jersey Central Power &
Light Company
Metropolitan Edison Company
Pennsylvania Electric Company
300 Madison Avenue
Morristown, New Jersey 07962
----------------------------------------------
(Names and addresses of agents for service)
<PAGE>
The Applicants hereby amend their Application on Form U-1,
docketed in SEC File No. 70-9201, as follows:
1. By filing the following exhibit in Item 6 thereof:
Exhibits:
D-1 Copy of Petition filed by JCP&L with the NJBPU.
2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS STATEMENT
TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GPU, INC.
JERSEY CENTRAL POWER & LIGHT
COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
GPU SERVICE, INC.
By:
T.G. Howson
Vice President and Treasurer
Date: May 14, 1998
EXHIBITS TO FILED BY EDGAR
1. By filing the following exhibit in Item 6 thereof:
Exhibits:
D-1 Copy of Petition filed by JCP&L with the NJBPU.
EXHIBIT D-1
State of New Jersey
Board of Public Utilities
- ------------------------------------------X
In the matter of the Petition :
of Jersey Central Power & Light :
Company, doing business in : Docket No. ______________
New Jersey as GPU Energy, :
for Approval of a New :
Services Agreement with GPU :
Service, Inc., Including :
Approvals of the Transfer : VERIFIED PETITION
of Utility Inventory and :
Certain Financial Commitments :
to be Undertaken In :
Connection Therewith :
- ------------------------------------------X
To The Honorable Board of Public Utilities:
Petitioner, Jersey Central Power & Light Company ("JCP&L" or
the "Company"), doing business in New Jersey as GPU Energy, an electric public
utility subject to the regulatory jurisdiction of the New Jersey Board of Public
Utilities (the "Board") and maintaining its New Jersey regional offices at 300
Madison Avenue, Morristown, New Jersey 07960, respectfully shows:
1. JCP&L is currently engaged as a New Jersey public utility
in the production, generation, purchase, transmission, distribution and sale of
electric energy and related utility services to more than 950,000 residential,
commercial and industrial customers located within 13 counties and 236
municipalities of the State of New Jersey.
2. All correspondence and other communications respecting this
Petition should be addressed to:
<PAGE>
Elizabeth Ard, Vice President,
Corporate Affairs
Michael J. Filippone, Director,
Rates - New Jersey
GPU Energy
300 Madison Avenue
Morristown, NJ 07962
- and -
Gerald W. Conway, Esq.
Marc B. Lasky, Esq.
Berlack, Israels & Liberman LLP
Madison Avenue
Morristown, NJ 07960
Background
----------
3. The subject of this Petition concerns a Plan of Realignment
(the "Plan") which has been adopted by JCP&L, to become effective on January 1,
1999, and which JCP&L's management believes is vital to the Company's ability to
continue to provide electric transmission, distribution and related customer
services on an efficient and cost-effective basis in the new and developing
competitive energy marketplace. While certain aspects of the Plan require Board
review and approval, JCP&L is in the interim taking the necessary steps to begin
to implement the Plan in order to satisfy advance commitments and insure that
the Plan will be operational by January 1, 1999.
4. JCP&L and its sister electric public utilities in
Pennsylvania, namely, Metropolitan Edison Company ("Met-Ed") and Pennsylvania
Electric Company ("Penelec"), are wholly-owned operating subsidiaries of GPU,
Inc. ("GPU"), a registered public utility holding company headquartered in
Morristown, New Jersey,
2
<PAGE>
which is subject to the jurisdiction of the Securities and Exchange Commission
("SEC") under the Public Utility Holding Company Act of 1935 ("PUHCA"). JCP&L,
Met-Ed and Penelec have each been engaged as operating electric utility
subsidiaries of GPU for more than fifty years. Since 1996, JCP&L, Met-Ed and
Penelec have been collectively doing business as GPU Energy (and are therefore
collectively referred to herein as the "GPU Energy Companies").
5. In 1971, with the approval of this Board and of the SEC (and of the
Pennsylvania Public Utility Commission with respect to Met-Ed and Penelec), GPU
caused to be formed GPU Service Corporation (now known as GPU Service, Inc.)
("GPUS"), as a mutual service company for the purpose of centralizing certain
services to be provided to the GPU Energy Companies. Pursuant to the Services
Agreement among JCP&L, Met-Ed, Penelec and GPUS dated May 3, 1971, which was
approved by the Board in form and substance by Order of Approval dated April 28,
1971 in Docket No. 713-200, GPUS was (and is currently) authorized to provide,
to the GPU Energy Companies, various management services including those
relating to accounting and auditing; budgeting and cash management; legal;
corporate functions and records; data processing; design, construction and
maintenance of generation, transmission and distribution facilities;
environmental matters; executive and administrative; finance; insurance and
employee benefit plan administration; coordination of system operations
3
<PAGE>
and load dispatching; human resources; public relations; purchasing and stores
inventory; rates; research and development; sales; system planning and
development; taxes; water resource development and similar services, all at cost
as required by PUHCA, pursuant to various approving Orders issued by the Board
(initially in Docket No. 713-200) and the SEC.
6. GPU has undertaken a number of restructuring efforts and
initiatives in recent years in an effort to enhance efficiency and to remain
competitive as the electric industry moves toward deregulation and retail
access. In 1994, for example, GPU functionally combined the energy services and
delivery businesses of Met-Ed and Penelec. In 1996, GPU combined the energy
services and delivery business of JCP&L with those of Met-Ed and Penelec. As a
result of this realignment, a single management team became responsible for the
combined energy services and delivery businesses of the GPU Energy Companies. In
addition, in 1996, certain GPUS personnel performing services related to energy
services and delivery were functionally realigned to report to the GPU Energy
Companies' management team. These services included: library services, graphic
resources, forms management, general books and plant accounting, payroll and
accounts payable, interconnected transmission services, power services,
procurement, facilities management, materials and supplies, transportation,
information technology services, human resources, communications and
environmental affairs. Finally,
4
<PAGE>
personnel performing services applicable across the GPU System, such as legal
services and consolidated accounting services, are employed by GPUS.
7. This functional consolidation has produced, and is expected
to continue to produce, cost savings and increased operational synergies through
the elimination of previously duplicated functions. The personnel performing
these consolidated functions are, in general, employed by one of the GPU Energy
Companies.
8. Currently, the GPU System's union personnel remain employed
by each separate GPU Energy Company and have not been functionally consolidated
(although they are managed by the consolidated management team).
9. In furtherance of these restructuring initiatives and in an
effort to focus on the core energy services and delivery businesses, in October
1997 the GPU Energy Companies announced their intention to begin the process of
divesting all of their non-nuclear generation facilities. The facilities are
currently owned by the GPU Energy Companies and operated by GPU Generation, Inc.
("Genco"), pursuant to authority granted by the SEC and by this Board in Docket
No. EE94030079.
10. For a variety of business reasons, the GPU Energy
Companies are now embarked on an ambitious program to replace most of their
existing information systems and to further reorganize from a function-based
business model to one based upon
5
<PAGE>
core business processes. This program began several years ago when the GPU
Energy Companies began to review their more than 150 information systems which
are used to provide and/or support customer service, work management, financial
management, materials management and human resources activities. These systems
were developed over many years and reflected the different philosophies and work
practices of the three (then separately managed) GPU Energy Companies. They did
not easily allow for the exchange of information between companies and many of
them needed extensive and expensive modifications in order to operate beyond the
year 1999.
In addition, the GPU Energy Companies faced the need to make a
significant investment to upgrade their customer service information systems in
order to meet the needs of customer choice in Pennsylvania and New Jersey. The
new customer information system must be able to accommodate, among other things,
customer choices of one or more energy supplier(s) and must integrate that
information and the billing therefor with data relating to the provision of, and
billing for, retail electric delivery services.
11. After an extensive review of various options, the GPU
Energy Companies determined that it was in their best interests and the best
interests of their customers to purchase a new integrated core information
system. The GPU Energy Companies selected SAP America, Inc. ("SAP"), a worldwide
leader in
6
<PAGE>
developing computer software solutions that incorporate industry "best
practices", as the supplier of that system.
The GPU Energy Companies anticipate that implementation of
the SAP system will: (i) replace the major existing information systems and
provide a single integrated information system for all major GPU Energy
activities; (ii) standardize and align work processes; (iii) avoid the difficult
and expensive integration of existing systems; and (iv) provide for the
operation of these activities beyond 1999 (i.e., Year 2000 Compliance). Among
other things, the SAP system will enable the GPU Energy Companies to increase
their focus on customer satisfaction, including such important activities as the
planning and construction of transmission and distribution infrastructure and
prompt and coordinated responses to storm damage and similar major outages which
might occur throughout the GPU Energy system.
12. In addition, the evaluation, choice and implementation of
this integrated information system has led the GPU Energy Companies to further
evaluate their business practices and structure. In order to maximize the
benefits, efficiencies and effectiveness of the SAP system, which, to a large
degree, is comprised of "off-the-shelf" software, the GPU Energy Companies have
concluded that it is necessary to formally combine their human, technical,
material and operational resources into a single service company. The single
service company approach will allow for the most effective use of the new
integrated
7
<PAGE>
information system and will minimize the need for costly and complex
customization of the core components of the SAP system. This, in turn, will
allow the GPU Energy Companies to quickly and cost effectively install and
utilize the initial SAP software, as well as to implement future upgrades of
that system. Indeed, one of the significant values which SAP offers with this
type of system is its software development to reflect "best practice" business
approaches. Further, it is anticipated that the software will continue to be
benchmarked to reflect "best practices" for future upgrades, thus allowing GPU
to maintain its systems as "state of the art".
Overview of Plan
----------------
13. While the three GPU Energy Companies will continue
to own their respective utility plant, properties and facilities which are
necessary to continue their regulated transmission and distribution businesses,
they intend to continue the above-described initiatives by entering into a new
Services Agreement with GPUS ("New Services Agreement") and transferring
substantially all of their personnel, including the union personnel, to GPUS.(1)
The realignment is not, however, expected to involve the physical relocation of
a substantial number of employees.
- ------------------
1 However, it is contemplated that the personnel responsible for transmission
and distribution dispatching would not be transferred, and would remain employed
by one or more of the GPU Energy Companies.
8
<PAGE>
14. As part of the consolidation, GPUS will create an
Operations Division. The Operations Division will include substantially all of
the employees of the GPU Energy Companies involved in energy-related functions
who are to be transferred to GPUS. Officers of the GPU Energy Companies
(including officers of JCP&L) are expected to continue as officers of those
companies and to serve as the corresponding officers of the GPUS Operations
Division as well. The personnel involved in corporate, treasury, accounting and
certain other functions, who are currently GPUS employees, will continue to
provide these same corporate services in what is anticipated will become the
Corporate Division of GPUS.
15. The consolidation of the union personnel will result in
GPUS becoming a successor employer under the several collective bargaining
agreements to which JCP&L, Met-Ed and Penelec are parties. GPUS will notify the
unions involved and become the employer party to those agreements and formally
adopt their terms.
16. There are currently approximately 670 employees at
GPUS.(2) The realignment is expected to involve the transfer from the GPU Energy
Companies to GPUS of approximately 3,040 union and 1,760 non-union employees
(including 1,640 union and 270 non-union employees of JCP&L), having a yearly
budget payroll of
- -----------------
2 In 1991, prior to the shifting of certain functions to the GPU Energy
Companies as described above, GPUS had 1,021 employees.
9
<PAGE>
approximately $265 million ($103 million in the case of JCP&L). Following the
completion of the realignment, the only employees of the GPU Energy Companies
will be approximately 50 personnel in the dispatch center (12 of whom will be
employed by JCP&L).(3)
17. Such consolidation is intended to, among other things,
ameliorate the existing payroll, operational and administrative complexities of
having functionally-related personnel employed by more than one GPU Energy
Company. Additionally, the GPU Energy Companies believe that the consolidation
will allow for a more focused and efficient management of human resources, avoid
data replication in different entities and provide other similar advantages.
18. The proposed New Services Agreement permits one or more of
the GPU Energy Companies to request that GPUS lease or otherwise provide
employees to perform Operations Division tasks. The leasing of employees is
intended to reduce the potential for the imposition of sales and use taxes
relating to the performance of services in New Jersey and is not expected to
restrict employees leased to one GPU Energy Company from providing
- --------------------
3 In addition, approximately 1,100 union employees of the GPU
Energy Companies who, through GPU Nuclear, Inc. ("GPUN") (see Docket No.
804-254), provide operation and maintenance services ("O&M") for GPU's nuclear
generating assets are expected to be transferred to GPUS in 2000, when nuclear
O&M services are incorporated into the SAP computer system. In anticipation of
the sale of GPU'S non-nuclear generating assets in 1999, the 1,630 union
employees of the GPU Energy Companies who provide O&M services for such assets
through Genco will not be transferred to GPUS.
10
<PAGE>
services to the other GPU Energy Companies or the allocation of costs among such
companies.
19. As part of this consolidation, the purchasing and
inventory functions for the transmission and distribution systems would also be
assumed by GPUS. Thus, GPUS would directly acquire, at cost, ownership of the
existing uninstalled transmission and distribution inventory of the GPU Energy
Companies, having an aggregate book value of up to $60 million (approximately
$28 million for JCP&L).(4) Such inventory, as well as additional equipment and
materials acquired by GPUS in the future, would be inventoried by GPUS and sold
to the appropriate GPU Energy Company (including JCP&L), on "at cost" basis,
calculated at GPU System average unit prices,(5) with the result that a GPU
Energy Company will be charged only for materials and fuel actually delivered to
the site at cost, when needed. GPUS will pay for the initial inventory
acquisition with the proceeds from borrowings under a new GPUS credit facility.
Future inventory purchases by GPUS will be funded with the proceeds of the sale
of inventory to the GPU Energy Companies and, to the extent necessary, by credit
facility borrowings or GPU advances.
- -------------------
4 GPUS may also procure fuel (in particular, natural gas and transportation) and
resell same, at cost, to the appropriate GPU Energy Company for an owned
generation plant or for a non-utility generator with which a GPU Energy Company
has a power supply agreement.
5. However, certain special or serialized items will be pricd on a unit basis
and not average cost.
11
<PAGE>
The GPU Energy Companies expect that the consolidation of the purchasing and
inventory tasks will enable them to more cost-effectively manage and allocate
resources.
20. Because GPUS, as a service company, may not be deemed
sufficiently credit-worthy by lenders and/or suppliers, in connection with GPUS'
expanded role it is contemplated that the GPU Energy Companies may be required,
from time to time through December 31, 2003, to enter into guaranty or support
agreements on behalf of GPUS for (i) credit facilities or lines of credit in an
aggregate amount not exceeding $100 million and (ii) credit support to an
inventory vendor in an aggregate amount not exceeding $50 million, for all of
which JCP&L would have a pro rata obligation. Any such credit facility or line
of credit borrowings would have maturities not exceeding five years, bear
interest at market rates and be subject to customary fees and other terms and
conditions.
Process-Based Organization
--------------------------
21. As mentioned above, this restructuring and the purchase of
the SAP computer system are also tied to the decision of GPU Energy management
to undertake a realignment of departmental and functional resources into a
process-based organization. As transmission and distribution companies focused
on satisfying customer needs, the GPU Energy Companies have determined that
their business is, or should be, focused on three core business processes and
three support processes, as listed on
12
<PAGE>
Attachment 1 hereto. The three core business processes are as follows:
Manage and Service Delivery Assets;
Provide Customer Service; and
Manage Energy Risk
The three support processes are as follows:
Provide Support Services;
Manage Financial Performance; and
Develop Business Opportunities.
A GPU Energy Vice President is responsible for each process and the multiple
sub-processes beneath it. The core business processes and sub-processes cut
across formerly functional/departmental lines to effectively group the types,
kinds and number of personnel necessary to deliver a particular distribution
product or service to the customer in a manner designed to result in maximum
customer satisfaction. The support processes and sub-processes resemble the
former functional/departmental alignment of GPU Energy insofar as the kinds of
personnel in them are concerned. However, these support processes are designed
as "centers of excellence" which have centralized management responsibility for
the resources. Such arrangement allows the core processes to remain undistracted
by the management of support needs.
For instance, the three core business processes will require
the management of human resources issues including
13
<PAGE>
hiring, training, benefits, etc. The "Provide Support
Services" process will be responsible for providing, among other things, these
types of resources or services to the core business processes. This will be
accomplished through the sub-processes referred to as "Attract, Retain and
Develop Personnel" and "Manage Employee Relations". These sub-processes will
provide the coordinated expertise of human resource professionals as an
integrated tool for the core business processes and their respective
sub-processes.
22. One of the key efficiencies gained through this process
orientation is the elimination of transactions or "hand-offs" between former
functions or departments. The entire "team" of employees grouped in any core
business process or in any support process are focused on and committed to the
target of that process a product or service delivered to satisfy, or even
exceed, customer expectations.
Cost Allocation
---------------
23. The New Services Agreement will provide that the services
rendered by GPUS will be furnished at cost. Records will be maintained by each
core business or support process of the Operations Division of GPUS in order to
accumulate all costs of doing business and to determine the cost of service.
These costs will include wages and salaries of employees and related expenses
such as insurance, taxes, pensions and other employee welfare expenses. In
addition, the Corporate Division of GPUS will
14
<PAGE>
maintain records of general administrative expenses, which
will include the costs of operating GPUS as a corporate entity.
24. Where appropriate, charges for services rendered or
personnel assigned or leased to a particular GPU Energy Company and related
expenses and non-personnel expenses (e.g., use of automotive equipment, etc.)
relating to a particular GPU Energy Company will be billed directly to such GPU
Energy Company. When a service is rendered for the benefit of two or more
companies, the costs will be shared by the receiving companies in proportion to
the average of: (1) gross distribution plant, (2) energy delivered to ultimate
consumers in KWH, and (3) operating and maintenance expense excluding purchased
power. This multiple factor formula is the one currently in use and the factors
are updated annually.
25. All other costs will be fairly and equitably allocated in
accordance with Rules 90 and 91 under PUHCA. Calculations under these allocation
formulae will be reviewed periodically and revised as appropriate to fully
allocate all costs by each year-end.
26. All charges for services will be determined from the time
records of employees. Records of such related expenses will be maintained and
subjected to periodic review. Out-of-pocket expenses which are incurred for a
GPU Energy Company will be billed at cost. Charges for non-personnel expenses,
such as for use of automobiles not assigned exclusively to a GPU Energy Company,
15
<PAGE>
will normally be computed on the basis of costs per hour.
Controls
--------
27. A number of factors ensure that the GPU Energy Companies
have the means to judge the need for GPUS services and to monitor the quality
and value of the services being provided. These factors, which are described
below, include the budget process, work order procedures to track and document
the initiation of services, billing and review procedures to ensure the accuracy
of GPUS billings, review and approval of work orders and billings by personnel
who are separate from the billing function, and internal audit examinations.
(a) It is anticipated that the President of the GPU
Energy Companies will serve as a member of the GPUS Board of Directors
and as President of the GPUS Operations Division. In addition, all GPU
Energy officers are expected to serve as officers of the Operations
Division. Consequently, GPU Energy (and, in particular, JCP&L) officers
will be informed of, and directly participate in, all material
decisions of the GPUS Operations Division.
(b) As in the past, operating and construction
budgets will continue to be prepared separately for each of the GPU
Energy Companies (including JCP&L), for review and approval by their
respective Boards of Directors. Expenditures are monitored against
these budgets on a
16
<PAGE>
monthly basis. Each GPU Energy Company's financial results are produced
quarterly for internal analysis and are reviewed by the GPU Energy
Boards of Directors and are issued to the public and state regulatory
commissions quarterly. The internal auditing department will continue
to review GPUS charges. Separate individual audit opinions of the
financial condition and results of operations of each GPU Energy
Company are obtained annually from an independent public accounting
firm.
(c) Each GPU Energy Company pays to GPUS all costs
that reasonably can be identified and related to a particular
transaction or service performed on its behalf. These costs will be
documented using work order (or equivalent costs collectors,(6)
collectively, "work orders") numbers in accordance with the FERC's
Uniform System of Accounts. The Plan and Analyze Finances Sub-Process
("Finance Sub-Process"), which is separate from the Manage Accounting
Operations Sub-Process ("Accounting Sub-Process"), analyzes each
month's GPUS departmental billing
--------------------
6 The SAP system has three costs collectors which are equivalent to work
orders: "orders", "cost centers" and "work breakdown structures" ("WBSs").
Orders include work orders, sales orders, internal orders and services orders.
Each employee will be assigned to a cost center which will be responsible for
collecting routine costs such as for meter reading and line repairs. WBSs are
analogous to work orders and are required for projects exceeding certain dollar
thresholds or durations, or which involve investing in capital assets. To ensure
proper record-keeping, every employee will be required to charge time against a
designated order, WBS or cost center number.
17
<PAGE>
summaries to the GPU Energy Companies to ensure billing to the proper
company. All GPU Energy time documents are reviewed and approved by a
GPUS Operations Division business process manager, including review of
the time document charges in relationship to a process and employees'
work schedules. The review also ensures that the time document
indicates the work order number charged. Pursuant to controls built
into GPUS's accounting system, a transaction requiring a work order
will not be processed unless there is a work order number provided. All
project work orders for one or more GPU Energy Companies in excess of
$50,000 must be approved by an Operations Division process manager
(with officer and, ultimately, GPU Energy Company board approval
required for higher thresholds).
(d) GPUS bills to the GPU Energy Companies, which are
generated by the Accounting Sub-Process, are reviewed and approved by
individuals in the Finance Sub-Process. Detailed GPUS information
(i.e., time sheets, invoices) is available upon request. Such Finance
Sub-Process individuals will, if necessary, contact responsible GPUS
managers for explanations of unusual items. In general, disagreements
are resolved, if possible, by direct communication and negotiation
between such individuals and the appropriate GPUS Operations or
Corporate Division. When consensus on selected matters cannot be
18
<PAGE>
reached, the matter will be referred to GPU Energy Company and GPUS
executives. The basis for the allocation of costs will be reviewed
annually by each sub-process to ensure that the allocation basis
continues to be reasonable and to have a relationship to the types of
services or functions provided by the sub-process cost centers. GPUS
will continue to monitor these matters to ensure that the allocation
methods effectively allocate costs according to benefits received. The
GPUS accounting staff verifies that every multiple party work order has
the correct cost allocation method.
(e) Another control which is performed every month is
the reconciliation of GPUS billings to GPUS expenses with regard to
services rendered for the GPU Energy Companies. Such reconciliation
ensures that all expenses have been billed, and it also immediately
detects any over-or under-billings. Internal audits provide an
additional control measure. All GPUS charges will be processed through
the SAP system, which will be subject to periodic internal audit. This
system will accumulate charges utilizing work orders. Therefore, an
evaluation of the work order process will be an integral part of the
audit. The GPUS internal audit department, which is independent of the
Operations Division, will continue to meet at least twice a year with
the Audit Committee of the GPU Board of Directors (which Audit
Committee is comprised solely of outside directors), and the Boards of
19
<PAGE>
the GPU Energy Companies, to review audit plans and findings. In
addition, the GPUS Vice President-Audit will continue to have open and
direct access to the Chairman of the Audit Committee. These procedures
will ensure that costs associated with the services performed by GPUS
on behalf of the GPU Energy Companies are properly authorized,
allocated and tracked.
(f) Finally, an important factor in determining
incentive compensation for GPUS non-union personnel is the
profitability of the GPU Energy Companies. This should also provide a
strong incentive to ensure that services are provided efficiently and
economically.
Financial Aspects
-----------------
28. Article 6 of the New Services Agreement provides for a
Working Capital Account pursuant to which each GPU Energy Company will provide
necessary working capital to GPUS from time to time. This is consistent with the
procedures currently employed by GPUS, GPUN and Genco.
29. GPU estimates that the aggregate cost of the
implementation of the SAP computer system (including process redesign, hardware,
software, data conversions, testing and training) will be $108-$115 million. GPU
also estimates, however, that it would have been necessary to spend
approximately $71 million for necessary computer system upgrades relating to
compliance with retail access initiatives and Year 2000 compliance if it had not
20
<PAGE>
decided to implement the SAP system and to consolidate all employees in GPUS.
Accordingly, the incremental cost of the implementation of the SAP computer
system, relating principally to the replacement of the existing systems with SAP
and the change to a process-oriented management approach, is estimated at
approximately $37 to $44 million.
30. GPU estimates that the implementation of the SAP computer
system will result in significant financial savings, in addition to the
efficiencies described above. In particular, GPU estimates labor-related savings
of approximately $20 million annually (of which approximately 46% would be
applicable to JCP&L).
31. The forecasted savings relating to the Plan were taken
into account by JCP&L in formulating its proposed rate reductions in the
stranded costs, rate unbundling and restructuring filings (the "Filings")
pending in Docket Nos. EO97070459, EO97070458 and EO97070460, respectively,
pursuant to the Energy Master Plan - Phase II Final Report dated April 30, 1997,
Findings and Recommendations for Restructuring the Electric Power Industry in
New Jersey, In the Matter of the Energy Master Plan Phase II Proceeding to
------------------------------------------------------------------
Investigate the Future Structure of the Electric Power Industry, Docket No.
- --------------------------------------------------------------------
EX94120585Y. But for its willingness to assume these anticipated savings, the
Company would not have been in a position to offer the level of rate reductions
reflected in the Filings, without jeopardizing its financial position and
21
<PAGE>
perception in the financial community. As a result, the anticipated Plan-related
savings should not be viewed as "incremental" savings which are available for
further reductions, beyond those already proposed in the Filings.
Procedure and Authorizations
----------------------------
32. The GPU Energy Companies, including JCP&L, have begun to
configure the SAP system and the related installation and training, as was
necessary in order to be ready for implementation of the Plan on January 1,
1999. None of these preparatory steps leading up to implementation of the Plan
on January 1, 1999 is subject to Board jurisdiction or requires prior Board
approval, as none of such steps would violate any existing Board Order or any
applicable statute or regulation. Given that system configuration and employee
training have begun, the GPU Energy Companies will be required to implement the
Plan on January 1, 1999, subject, of course, to the Board's ultimate authority,
upon completion of its review, to approve, disapprove or modify such aspects of
the Plan as may require the Board's approval. The Company, therefore, urges the
Board to complete its review so as to be in a position to formally approve,
prior to year-end 1998, those aspects of Plan implementation that require its
approval. Alternatively, in the event this Petition has not yet been approved by
the time the Company begins to implement the plan on January 1, 1999, it is
respectfully requested that the Board authorize such implementation on an
22
<PAGE>
interim basis, in reliance on JCP&L's commitment that it will, within six months
of the later of (i) the Board's Order or (ii) January 1, 1999, make such
adjustments or unwind such components of the Plan as may be necessary to satisfy
the conditions of the Board's final Order if the Board were ultimately to
disapprove or require a material change in the Plan.
33. Annexed hereto as Attachment 2 to this Verified Petition
is a true and correct copy of the proposed New Services Agreement between and
among the GPU Energy Companies (including JCP&L) and GPUS, in substantially the
form in which it will be executed upon receipt of all necessary approvals
(including those of this Board and the SEC).
34. Annexed hereto as Attachment 3 is a true and correct copy
of the Application on Form U-1, which the GPU Energy Companies have filed with
the SEC under PUHCA regarding the proposed New Services Agreement, the contents
of which are hereby incorporated by reference as part of this Verified Petition.
35. JCP&L hereby respectfully requests the Board's
authorization and approval to enter into the New Services Agreement, in
substantially the form annexed hereto as Attachment 2, pursuant to the Board's
general jurisdiction over any "management, advisory service, construction or
engineering contract" with an affiliate in accordance with N.J.S.A. 48:3-7.1.
--------
In addition, to the extent that the transfer of JCP&L's
existing utility inventory to GPUS may be considered to be the "sale" or
23
<PAGE>
"dispos[al]" thereof within the meaning of N.J.S.A. 48:3-7, JCP&L hereby
-------
respectfully requests that the Board either (a) approve such sale or disposal of
inventory property, pursuant to N.J.S.A. 48:3-7, or (b) determine that the
-------
proposed transfer of ownership of the inventory to GPUS pursuant to the New
Services Agreement is and will be in the ordinary course of JCP&L's utility
business and, thus, does not require such approval beyond the Board's approval
of the New Services Agreement itself. Because of the unique aspects of the
proposed transfer of inventory to GPUS, JCP&L requests that, to the extent
approval under N.J.S.A. 48:3-7 is deemed necessary, the advertising requirements
-------
set forth in N.J.S.A. 14:1-5.6(b), and any other pertinent requirements
-------
regarding the approval of leases of utility property, be waived on the grounds
that such waiver is appropriate in the circumstances and will not adversely
affect the public interest.
36. Lastly, with respect to the provision by JCP&L to GPUS of
guaranty or support agreements with respect to GPUS' credit facilities, lines of
credit or purchase obligations in connection with the inventory services to be
rendered to JCP&L, JCP&L respectfully requests such authorization and approval
by the Board pursuant to N.J.S.A. 48:3-7.2, 48:3-9 and such other provisions of
--------
Title 48 as may be pertinent thereto.
37. JCP&L further agrees that the Board's approval of the New
Services Agreement and related transactions, as requested herein, shall not
24
<PAGE>
affect, or in any way limit, the exercise of the Board's authority, or of this
State, in any future petition or proceeding with respect to rates, franchises,
service, financing, accounting, capitalizations, depreciation or any other
matters affecting the Company.
WHEREFORE, the Petitioner, Jersey Central Power &
Light Company, doing business as GPU Energy, does hereby respectfully request
that the Board issue an Order (a) approving and authorizing said Petitioner to
enter into the New Services Agreement with GPU Service, Inc., (b) granting all
other approvals and authorizations as hereinabove requested, and (c) granting
such further relief as may be lawful and proper in the circumstances hereof.
Dated: May 8, 1998 Respectfully submitted,
BERLACK, ISRAELS & LIBERMAN LLP
Attorneys for Petitioner, Jersey
Central Power & Light Company,
doing business as GPU Energy
By:/s/Marc B. Lasky
Marc B. Lasky
Of Counsel
65 Madison Avenue
Morristown, New Jersey 07960
(973)644-3400
25
<PAGE>
AFFIDAVIT
---------
OF
--
VERIFICATION
------------
Michael J. Filippone, being duly sworn upon his oath, deposes and says:
1. I am Director - Rates for New Jersey of Jersey Central Power &
Light Company, doing business as GPU Energy, the Petitioner named in the
above-captioned matter, and I am duly authorized by said Petitioner to make this
Affidavit of Verification on its behalf.
2. I have read the contents of the foregoing Verified Petition
and Attachments attached thereto, and I hereby verify that the statements of
fact and other information contained therein are true and correct to the best of
my knowledge, information and belief.
/s/Michael J. Filippone
-----------------------
Michael J. Filippone
Sworn to and subscribed before
me this 8th day of May, 1998
/s/Marc B. Lasky
-------------
An Attorney-at-Law of
the State of New Jersey
26
<PAGE>
Attachment 1
[OMITTED]
27
<PAGE>
Attachment 2
[OMITTED]
28
<PAGE>
Attachment 3
[OMITTED]
29
