Amendment No. 3 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
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(Names of companies filing this statement
and addresses of principal offices)
GPU, INC.
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(Name of top registered holding company
parent of the applicants)
M. A. Nalewako, Secretary Douglas E. Davidson, Esq.
M. J. Connolly, Esq., Berlack, Israels & Liberman LLP
Assistant General Counsel 120 West 45th Street
GPU Service, Inc. New York, New York 10036
300 Madison Avenue
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
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(Names and addresses of agents for service)
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GPU, GPUS, JCP&L, Met-Ed and Penelec hereby amend their Application on
Form U-1, docketed in SEC File No. 70-9201, as follows:
1. By adding the following sentence to the end of paragraph B(12) of
Item 1:
Unless and until the Commission otherwise determines by order
or "no-action" letter, GPUS will be deemed an electric utility company
(as an operator) as defined in Section 2(a)(3) under the Act.
2. By amending the third paragraph of paragraph D(1) of Item 1 as
follows:
When an Operations Division service is rendered for the
benefit of two or more companies and the benefits cannot be directly
charged, the costs will be shared by the receiving companies in
proportion to the average of: (1) gross distribution plant, (2) energy
delivered to ultimate customers 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. The formula will be applied to those functions that provide
support services for the operation of the GPU Energy Companies and
their affiliates, GPUN and Genco. Examples of these services are human
resources, communications, accounting, budgeting, payroll and the
overall general management of the GPU Energy Companies' operation. Use
of the multiple factor formula, which gives weight to more than one
measure of the size or operation of the companies, is appropriate to
apply to these types of services, because no one facet of the GPU
Energy Companies' operations is able to inordinately influence the
allocation of the cost. In addition, the versatility of the multiple
factors eliminates the need to maintain a multitude of factors, which
avoids the cost of such an effort. Below are examples of the multiple
factors, based on 1997 cost and statistical data:
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Multiple Factor Formula Allocation Percentages
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JC PN ME GPUNC Genco
All 5 Companies 39.52 24.44 21.23 9.69 5.12
Excludes Genco 40.55 26.24 23.52 9.69
Excludes Genco and 46.32 28.85 24.83
GPUN
When a Corporate Division service which is principally
utilized by the GPU Energy Companies cannot be directly charged, the
multiple factor allocation formula described above will be utilized. In
other cases, Corporate Division services which cannot be directly
charged will be allocated based on the direct payroll cost ratio
formula. This formula is based on the amount of payroll and payroll
overheads directly charged to individual GPU System Companies as a
percent of the total payroll and payroll overheads charged to all GPU
System Companies including non-utility subsidiaries. The direct payroll
cost ratio formula, which will be a new allocation formula for GPUS,
will equitably allocate the costs of Corporate Division services to all
GPU System Companies since the bulk of the allocated costs associated
with the Corporate Division is represented by payroll.
Inasmuch as GPU is in the process of divesting its generating
assets (as discussed above), allocation methods currently on file with
the Commission relating to generation will no longer be used by GPUS,
including the size factor, conventional steam capacity, nuclear steam
capacity and combustion turbine capacity.
3. By amending paragraph F(1) of Item 1 to read in its entirety as
follows:
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 similar to
the procedures currently employed by GPUS, GPUN and Genco. The initial
inventory will be acquired by GPUS from the GPU
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Energy Companies with the proceeds of loans from the GPU Energy
Companies in an aggregate amount not exceeding $60,000,000, with the
actual principal amounts for each GPU Energy Company determined based
on inventory levels at December 31, 1998. Such loans would be payable
on demand and would bear interest at each GPU Energy Company's average
short term interest rate (for 1997, such rate was 5.82% for JCP&L,
5.70% for Met-Ed and 5.78% for Penelec).
4. By amending the last paragraph of paragraph F(2) of Item 1 to
read in its entirety as follows:
GPUS will not engage in the sale of inventory
to persons other than the GPU Energy Companies,
except in cases of emergency or in those instances
when inventory levels are substantially in excess of
the GPU Energy Companies' requirements. Any
transactions with (x) other associates will be
effected at cost in accordance with Rules 90 and 91,
and (y) non-associates, will be made at current
market prices or at prices determined through arms
length bargaining (provided that sales of excess
inventory would also be made at prices which are not
less than GPUS' cost, unless the Commission otherwise
authorizes) and any profits resulting therefrom will
be applied to offset the cost of capital to be
charged to the GPU Energy Companies.* GPU believes
that sales of excess inventory will occur only
infrequently.(6)
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* See 17 CFR 256.01-2.
(6) The Commission has previously authorized service companies to perform
transactions with third parties at market rates. See e.g., Central and South
West Services, Inc., HCAR No. 35-26898 (July 21, 1998) (authorizing service
company to use excess resources in its engineering and construction department
to provide engineering, construction, environmental and equipment maintenance
services to non-associate companies); GPU Generation Corporation, HCAR No.
35-26570 (Sept. 11, 1996) (authorizing Genco to enter into operation and
maintenance agreements with non-associate companies); Central and South West
Services, Inc., HCAR No. 35-26206 (Dec. 28, 1994) (authorizing service company
to license and sell computer programs and provide support services to
non-associate companies); GPU Nuclear Corporation, HCAR No. 35-25464 (Jan. 31,
1992) (authorizing GPUN to provide consulting and technical services to
non-associate companies).
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5. By amending the second paragraph of paragraph G(1) of Item 1 to
read in its entirety as follows:
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.* (It is
anticipated that the savings will be shared in the following
approximate percentages: 46% by JCP&L, 25% by Met-Ed and 29% by
Penelec, estimated based on the allocation factors discussed in
paragraph D(1).) Accordingly, it is expected that the incremental cost
of the implementation of the new system ($37 - $44 million) will be
recovered through savings in two to three years. The GPU Energy
Companies are directly funding the cost of the SAP System with
internally generated funds inasmuch as the GPU Energy Companies are the
only GPU System Companies currently receiving any significant benefit
from the SAP System. If in the future, other GPU System Companies
utilize the SAP System in any significant manner, GPU would allocate to
such companies an equitable share of the costs and savings based on the
facts and circumstances existing at that time.
6. By amending the last paragraph of paragraph G(2) of Item 1 to
read in its entirety as follows:
The benefit derived from the consolidation of purchasing and
inventory comes from the integration of Work Management and Materials
and Services. Substantial benefits are expected from more efficient
material resource planning because of the on-line, real time data
access for up-to-the-minute status of material requirements and work
plans and schedules across all of GPU Energy. This equates to an
expected one-time benefit of $8 million in year 2000 based on inventory
reductions (i.e., reducing by $8 million the amount of inventory to be
purchased in 2000) and an ongoing annual savings of $1.2 million
starting in 2000
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* These savings are the basis for, and a more updated estimation of, the $18
million of savings referred to in Strategic Plan for GPU Energy Core Information
Systems filed in Exhibit N.
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based on the carrying cost reductions due to inventory optimization.
The $8 million has been estimated based on benchmark data of savings
experienced by other comparable users of SAP and has not been
specifically allocated among the GPU Energy Companies. However, GPU
believes the savings will likely be experienced in proportion to
overall inventory levels as of the end of 1997 as follows:
47%-JCP&L, 23%-Met-Ed and 30%-Penelec.
7. By amending Item 3 to read in its entirety as follows:
A. The entering into of the New Services Agreement with GPUS is
subject to Section 13 and Rule 87 under the Act.
B. The Working Capital Account and the loans to fund the
initial inventory purchase (see paragraph F(1) of Item 1), are subject
to Sections 6(a) and 7, 9(a) and 10 and 12 of the Act and Rule 45
thereunder.
C. It is further requested that GPUS be permitted to file with
the Commission Form U-13-60, supplemented by the FERC Uniform System of
Accounts, as described in CFR Part 101, in lieu of any Certificates
pursuant to Rule 24 under the Act.
8. By deleting Exhibit M of Item 6 thereof.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING COMPANY
ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS APPLICATION 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:
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T.G. Howson
Vice President and Treasurer
Date: September 24, 1998
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