SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of
earliest event reported): July 17, 1998
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
- ----------- ---------------------------- ------------------
1-6047 GPU, Inc. 13-5516989
(a Pennsylvania corporation)
300 Madison Avenue
Morristown, New Jersey 07962-1911
Telephone (973) 455-8200
1-3141 Jersey Central Power & Light Company 21-0485010
(a New Jersey corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
Telephone (610) 929-3601
1-446 Metropolitan Edison Company 23-0870160
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
Telephone (610) 929-3601
1-3522 Pennsylvania Electric Company 25-0718085
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
Telephone (610) 929-3601
<PAGE>
ITEM 5. OTHER EVENTS.
-------------
As previously reported, GPU has stated that it would consider selling
the Three Mile Island Unit No. 1 nuclear generation station ("TMI-1"), a 786 MW
generating facility jointly owned by GPU's utility subsidiaries ("GPU Energy")
as follows: Jersey Central Power & Light Company (25%); Metropolitan Edison
Company (50%); and Pennsylvania Electric Company (25%).
TMI-1 is operated by GPU's affiliate, GPU Nuclear, Inc.
On July 17, 1998, GPU announced that it had entered into a Letter of
Intent to sell TMI-1 to AmerGen Energy Company LLC, a joint venture between PECO
Energy and British Energy. The Letter of Intent initiates a 90-day period during
which GPU and AmerGen will seek to negotiate a definitive agreement for the
purchase and sale of TMI-1 and AmerGen would complete its due diligence review
of the TMI-1 facility.
The final purchase and sale agreement will require that all required
regulatory approvals and tax rulings be received within 24 months of the
execution of that agreement.
Terms of the Sale
- -----------------
The Letter of Intent uses December 31, 1999 as an assumed date for financial
closing of the sale. For certain items, an adjustment would be made if the
financial closing occurs on a different date. (GPU expects that at December 31,
1999, TMI-1 will have a book value of $593 million net of depreciation,
including $77 million of nuclear fuel.)
1. Cash Purchase Price:
The total cash purchase price for TMI-1, including the nuclear fuel in
the reactor, will be $100.6 million plus certain contingent future payments. The
cash purchase price will be as follows:
- At financial closing, AmerGen will pay GPU $23 million for
the plant;
- AmerGen will pay GPU $77.6 million for the nuclear fuel in the
reactor. These payments will be made annually in five equal
installments of $15.2 million starting on December 31, 2000.
-2-
<PAGE>
2. Contingent Payments:
AmerGen would also make certain contingent payments to GPU for the
period January 1, 2002 through December 31, 2010 as follows:
- If the Actual Market Price (to be agreed upon), for capacity
and energy, for any year is less than the Market Price Cap, the
Deal Strike Price Adjustment will be as follows: (Actual Market
Price at TMI - Deal Strike Price) x 786 MW (TMI-1's capacity) x
7,884 (a 90% capacity factor) x .65 (a sharing mechanism);
- If the Actual Market Price for capacity and energy for any
year is greater than the Market Price Cap, the Deal Strike Price
Adjustment will be as follows: (Market Price Cap - Deal Strike
Price) x 786 MW x 7,884 x .65;
- If the Actual Market Price for capacity and energy for any
year is less than the Deal Strike Price, the difference will be
credited against any future adjustment payments which would
otherwise be due to GPU;
- In no event would GPU be required to make an adjustment
payment to AmerGen;
- While the formula is not modified for the actual TMI-1
capacity factor during this period, AmerGen would be entitled to
relief for certain force majeure events;
- The Market Price Cap is as follows:
2002 29.54
2003 30.89
2004 32.28
2005 33.66
2006 34.41
2007 35.21
2008 35.74
2009 36.36
2010 27.41
- If the Actual Market Price for TMI-1's energy and capacity
were to meet or exceed the Market Price Cap in every year,
AmerGen would pay GPU an additional approximately $80 million.
-3-
<PAGE>
3. Purchase Power Agreement:
GPU will purchase energy and capacity from TMI-1 from January 1, 2000
through December 31, 2001 at the following rates:
- From January 1, 2000 through December 31, 2000, GPU
will purchase TMI-1's energy and capacity for $26.78/Mwh;
- From January 1, 2001 through December 31, 2001, the purchase
price will be $28.26/Mwh.
4. Decommissioning Liability:
At closing, GPU will make additional deposits into the TMI-1
decommissioning trusts to bring the trust totals to $320 million. If these trust
funds can not be transferred to AmerGen in a tax-efficient manner, GPU will
maintain the funds for AmerGen's benefit until they can be transferred to
AmerGen.
In 1995, a consultant to GPU performed a site-specific study to estimate
the decommissioning cost for TMI-1. The consultant's cost estimate for
radiological decommissioning and non-radiological cost of removal expressed in
1997 dollars was $409 million.
Following the closing, AmerGen will have all liability and obligation
for all decommissioning cost liabilities and expenses for TMI-1.
5. TMI-2:
GPU will continue to own and hold the NRC license for Three Mile Island
Unit No. 2. No liability for Unit No. 2 or its decommissioning will be assumed
by AmerGen. AmerGen will, however, provide ongoing monitoring and maintenance
services for Unit No. 2 following the closing for a fee.
6. Employees:
AmerGen would employ all GPU Nuclear employees located at TMI-1 at
financial closing. AmerGen may also offer positions to GPU Nuclear's
headquarters staff. GPU will be responsible for all severance payments
associated with these employees for a one year period following financial
closing.
For those GPU employees retained by AmerGen, AmerGen will adopt pension
and other employee benefit plans that will provide similar benefits to the GPU
plans. GPU will be responsible for
-4-
<PAGE>
any enhanced benefits for these employees as part of a GPU Nuclear retirement
protection program.
AmerGen will accept the current collective bargaining agreement covering
TMI-1 union employees.
7. Approvals:
The final purchase and sale agreement will require the receipt of all
necessary federal and state regulatory approvals prior to financial closing,
including from the Nuclear Regulatory Commission, the Federal Energy Regulatory
Commission, the Securities and Exchange Commission, the Pennsylvania Public
Utility Commission and the New Jersey Board of Public Utilities. In addition,
certain rulings from the Internal Revenue Service ("IRS") or changes to the IRS
regulations and/or the Internal Revenue Code will be necessary with respect to,
among other things, the maintenance or transfer of the decommissioning trusts at
the closing.
Among other things, the regulatory approvals must be reasonably
satisfactory to the parties and contain no terms or conditions which would have
a material adverse effect on TMI-1 or the cost of the transaction to GPU,
including GPU's full recovery of TMI-1 decommissioning costs.
There can be no assurance as to the outcome of these regulatory
proceedings.
A copy of GPU's Energy related news release is annexed as an exhibit.
ITEM 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(c) Exhibits.
1. GPU News Release, dated July 17, 1998.
-5-
<PAGE>
SIGNATURE
---------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANTS HAVE DULY CAUSED THIS REPORT TO BE SIGNED ON THEIR BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GPU, INC.
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
By: /s/ T. G. Howson
-------------------------------
T. G. Howson, Vice President
and Treasurer
Date: July 17, 1998
EXHIBIT TO BE FILED BY EDGAR
Exhibits:
1. GPU News Release, dated July 17, 1998.
Exhibit (c) 1
GPU, Inc. News Release
July 17, 1998
GPU, AmerGen Energy Reach Agreement in Principle On The Sale Of TMI Unit 1
First Of Its Kind Sale Would Be a "Natural Fit" For Business Strategies of The
Three Companies
MORRISTOWN, NJ--July 17, 1998-- In a first of its kind move that advances three
companies' strategies under energy deregulation, GPU, Inc. (GPU) announced today
it has reached agreement in principle for GPU to sell its Three Mile Island
(TMI) Unit 1 Nuclear Generating Facility near Harrisburg, PA, to AmerGen Energy
Company, owned jointly by PECO Energy Company and British Energy.
While there are several significant steps still to be taken before the sale can
be completed, including 90 days of on-site due diligence and a series of
regulatory approvals, the transaction would mark the first ever sale of a
nuclear power plant in the United States.
AmerGen was formed last year as a joint venture by PECO Energy, of Philadelphia,
Pa., and British Energy, of Edinburgh, UK, to purchase and operate nuclear
plants in the US. Both have a strong commitment to the future of nuclear power
and share similar operational cultures involving people, processes, safety and
reliability.
The agreement sets the initial sale price at $100 million -- $23 million for the
reactor and $77 million, payable over five years, for the plant's nuclear fuel.
The ultimate sale price also will be determined by possible additional payments
depending on the actual energy market clearing prices through 2010.
Under the agreement, AmerGen will not purchase TMI Unit 2 or GPU's Oyster Creek
Generating Facility. GPU said it is considering continuing operation or an early
retirement of Oyster Creek. GPU will continue to own TMI Unit 2.
"Concluding this agreement will be a significant strategic move for everyone
involved," said Fred D. Hafer, chairman, president and CEO of GPU.
"This agreement helps us continue to implement our strategy of growing our
infrastructure business and exiting the merchant generation business. In doing
that, we are getting a fair price for TMI Unit 1 and defining our customers'
liability for decommissioning," said Hafer. "It also is good for our nuclear
employees to become part of an organization that is going to become a major
nuclear operating company."
<PAGE>
Officials of PECO Energy and British Energy described the prospective purchase
as a "natural fit" for the two companies' AmerGen Energy joint venture. They
cited the good operating and safety record of TMI Unit 1, the nuclear management
record of PECO Energy and British Energy, and GPU's desire to divest its nuclear
generation assets.
"This should be an excellent business deal for everyone involved," said Michael
J. Egan, senior vice president and chief financial officer of PECO Energy and
chairman of AmerGen. "AmerGen's mission is to become a premier operator of
nuclear power plants in the U.S.; Unit 1 has proven to be an excellent nuclear
unit, and GPU wants to divest it at a fair price. This is the kind of 'win-win'
acquisition that was envisioned when AmerGen was formed."
AmerGen President Robin Jeffrey, the British Energy Executive Director North
America, said "we've made real progress over the last year in developing
business opportunities and are now ready to undertake due diligence on what we
hope will be the first of a tranche of AmerGen nuclear plants.
"I am confident," Jeffrey said, "that AmerGen can play a significant role in the
developing, competitive US marketplace. But we won't rush into anything...that's
what due diligence is all about. We must ensure that we get a well thought out
deal for our shareholders."
AmerGen officials pointed out that the potential acquisition also fits
geographically, since TMI Unit 1 is not far from PECO Energy's Peach Bottom and
Limerick nuclear plants, or from AmerGen headquarters near Philadelphia, thus
facilitating the management of the unit.
They added, however, that before the deal for TMI Unit 1 can be completed,
extensive, on-site due diligence must be conducted, final agreements negotiated,
and all necessary regulatory approvals received. The regulatory approval process
could take 12 to 24 months.
With the signing of a letter of intent, AmerGen has begun a 90-day period of due
diligence involving an in-depth review of all aspects of TMI Unit 1. Agencies
which must approve the sale are the Nuclear Regulatory Commission, Federal
Energy Regulatory Commission, Securities and Exchange Commission, Pennsylvania
Public Utility Commission and New Jersey Board of Public Utilities.
Under the agreement, employees working at TMI Unit 1 would become AmerGen Energy
employees. AmerGen will accept the current collective bargaining agreement
covering TMI Unit 1 union employees. AmerGen will have the option of offering
positions to GPU Nuclear headquarters staff as well.
<PAGE>
AmerGen will assume full responsibility for the decommissioning of TMI Unit 1,
which will be prefunded by GPU at the time of financial closing.
The letter of intent includes a power purchase agreement in which GPU Energy,
GPU, Inc.'s regulated energy delivery subsidiary, will purchase the energy and
capacity from TMI Unit 1 from January 1, 2000 through December 31, 2001,
assuming the deal closes on December 31, 1999.
British Energy is the UK's largest electricity Generator, with 21% market share.
It owns and operates eight modern nuclear plants with a total capacity of 9,600
MW. Headquartered in Edinburgh, Scotland, it has a market capitalization of 4bn
pounds, and 5,400 employees.
British Energy was sold into private ownership by the UK Government in 1996, and
its shares were the top performers in the UK FTSE 100 Share Index in 1997/98 - a
year during which its profits trebled. The company is seeking to invest in UK
and international energy businesses.
PECO Energy Company, based in Philadelphia, PA, is a combination electric and
natural gas distribution utility, one of the nation's largest power generators
and one of the leading wholesale power marketers in the United States. PECO
Energy delivers retail utility service to 1.5 million electric and more than
405,000 natural gas customers in southeastern Pennsylvania.
PECO Energy operates two nuclear power plants with four units. It operates
another nuclear plant under a management contract, and is a co-owner of two more
units operated by another company. It also owns and operates coal, natural gas,
oil, landfill gas, and hydro power plants. PECO Energy's Power Team operates a
24-hour energy trading floor with transactions in 47 states and Canada.
PECO Energy and its subsidiaries also provide energy commodity and related
services, power plant operations and infrastructure management,
telecommunications, and retail energy marketing to customers nationally. The
Company has $4.6 billion in annual revenues, $12 billion in total assets, and
7,000 employees.
GPU, Inc., an electric utility holding company, recorded operating revenues of
$4.1 billion in 1997. GPU Energy is the trade name for the three operating
utility subsidiaries of GPU Metropolitan Edison and Pennsylvania Electric, in
addition to JCP&L - which provide customer service, transmission and
distribution services to nearly 2 million customers in Pennsylvania and New
Jersey.
The GPU International Group has ownership and interests in electricity
distribution and supply business in England and Australia and generating
facilities in six foreign countries.
<PAGE>
The generation operations of GPU are conducted by GPU Generation, Inc. and GPU
Nuclear. Corporate functions are performed by GPU Service.
- XX -
- --------------------------------------------------------------------------------
Contact:
GPU - Jeff Dennard, 973-455-8333
PECO Energy - Bill Jones, 215-841-4129
British Energy - Doug McRoberts, 011-44-131-527-2020
