SEC File No. 70-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM U-1
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GPU, INC. ("GPU")
GPU SERVICE, INC. ("GPUS")
300 Madison Avenue
Morristown, New Jersey 07962
GPU NUCLEAR CORPORATION ("GPUN")
One Upper Pond Road
Parsippany, New Jersey 07054
GPU GENERATION, INC. ("GENCO")
1001 Broad Street
Johnstown, Pennsylvania 15907
JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L")
METROPOLITAN EDISON COMPANY ("MET-ED")
PENNSYLVANIA ELECTRIC COMPANY ("PENELEC")
2800 Pottsville Pike
Reading, Pennsylvania 19605
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(Names of companies filing this statement and
addresses of principal executive offices)
GPU, INC.
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(Name of top registered holding company parent of applicants)
Scott L. Guibord Douglas E. Davidson, Esq.
Secretary Berlack, Israels & Liberman LLP
Jersey Central Power & Light Company 120 West 45th Street
Metropolitan Edison Company New York, New York 10036
Pennsylvania Electric Company
2800 Pottsville Pike
Reading, Pennsylvania 19605
M.A. Nalewako, Secretary
Michael J. Connolly, Esq., Assistant
General Counsel
GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
(Names and addresses of agents for service)
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Item 1. Description of Proposed Transactions.
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A. By Order dated March 24, 1997 (HCAR No. 35-26690), GPU was authorized
to enter into letter of credit reimbursement agreements ("Reimbursement
Agreements") in an aggregate amount of up to $40 million with respect to letters
of credit ("L/Cs") furnished on behalf of JCP&L, GPUN, GPUS and Genco to
insurers providing workers compensation coverage. The L/Cs provide security for
the obligations of such companies to pay the applicable deductible and certain
expenses. GPU is reimbursed by each such company for its pro rata share of the
L/C fees based on loss exposure. The Commission reserved jurisdiction pending
completion of the record over GPU's request to enter into Reimbursement
Agreements for L/Cs furnished by Met-Ed and Penelec.
B. By Order dated April 14, 1993 (HCAR No. 35-25793), Met-Ed and Penelec
were each authorized to enter into Reimbursement Agreements from time to time
through December 31, 1998 in an aggregate amount of up to $20 million with
respect to L/Cs furnished by them to insurance companies.
C. The following letters of credit are currently outstanding under
the 1997 and 1993 Orders:
Applicant Face Amount Expiration
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Penelec $2,725,000 December 31, 1998
Met-Ed $ 706,000 December 31, 1998
GPU (NJ employees) $9,680,000 December 31, 1998
GPU (PA employees) $4,842,000 December 31, 1998
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D. As stated above, pursuant to the 1997 Order, GPU is authorized to
obtain the L/Cs on behalf of all of the Applicants other than Met-Ed and Penelec
(for which jurisdiction was reserved), and, pursuant to the 1993 Order, Met-Ed
and Penelec were each authorized to obtain their own L/Cs. Applicants now
believe that it would be more efficient and less burdensome to obtain two L/Cs
on behalf of all of the Applicants; namely, one for all Pennsylvania employees
and one for all New Jersey employees. To accomplish this, the Applicants propose
that GPUS obtain the L/Cs on behalf of itself and JCP&L, Met-Ed, Penelec, Genco
and GPUN and enter into the related Reimbursement Agreements. In addition, to
support GPUS' reimbursement obligations and enable the L/Cs to be issued with
favorable terms and rates, GPU proposes to co-sign the Reimbursement Agreements
or enter into guarantees of same.
E. The L/Cs would be issued from time to time through December 31, 2006
with a maximum face amount with respect to all Pennsylvania employees of $20
million, and a maximum face amount with respect to all New Jersey employees of
$20 million. Drawings under the L/Cs would bear interest at not more than the
issuing bank's prime rate as in effect from time to time. The term of each L/C
would not exceed three years.
F. GPUS would allocate the fees for each L/C based on loss exposure
(determined generally by payroll) in the applicable state. GPUS would seek
reimbursement for a draw on an L/C from
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the Applicant which failed to pay the applicable deductible which resulted in
such draw. Upon receipt of the authorization herein requested, GPU, Met-Ed and
Penelec would relinquish their authority to enter into L/C Reimbursement
Agreements pursuant to the 1997 and 1993 Orders, provided that such
relinquishment would not affect any currently outstanding L/C's delivered under
such orders.
G. Rule 54 Analysis.
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(a) As described below, GPU meets all of the 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 million, and aggregate
investment in EWGs and FUCOs was approximately $1,283 million 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.
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(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
(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
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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
(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)
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(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.
(iii) Copies of this Declaration on Form U-1 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.
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(1) Penelec is also subject to retail rate regulation by the New York Public
Service Commission with respect to retail service to approximately 11,300
customers in Waverly, New York served by Waverly Electric Power & Light
Company, a Penelec subsidiary. Waverly Electric's revenues are immaterial,
accounting for less than 1% of Penelec's total operating revenues.
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(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 ending bankruptcy or
similar proceeding.
(B) GPU's average consoldiated retained earnings for
the four most recent quarterly periods
(approximately $2,187 million) 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 million).
(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).
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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 Declaration
(the "Transactions"). The Transactions would not, by themselves, or 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,
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which remains within acceptable ranges and limits as evidenced by the credit
ratings of GPU's electric utility subsidiaries. Moreover, on February 12, 1998,
GPU sold an additional 7 million shares of common stock and applied
approximately $229 million of the net proceeds to reduce outstanding
indebtedness.(2)
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.
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(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.
(3) As discussed in the November 5 Order, GPU incurred a loss for 1997 from its
investment in EWGs and FUCOs as a result of the windfall profits tax imposed on
Midlands Electricity, plc.
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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.
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The estimated fees, commissions and expenses to be incurred in
connection herewith will be filed by amendment.
ITEM 3. Applicable Statutory Provisions.
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Sections 6(a), 7 and 12 of the Act and Rules 45, 53 and 54 are
applicable to the proposed transactions.
ITEM 4. Regulatory Approval.
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No state or federal commission (other than your Commission) has
jurisdiction over the proposed transactions.
ITEM 5. Procedure.
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It is requested that the Commission issue an order with respect to the
transactions proposed herein at the earliest
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practicable date but, in any event, not later than September 30, 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.
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(a) Exhibits:
A-1 Form of Letter of Credit - incorporated by
reference to Exhibit A-1 (SEC File No. 70-8323).
A-2 Form of Reimbursement Agreement - incorporated
by reference to Exhibit A-2 (SEC File No. 70-
8323).
B Form of Endorsement to Insurance Policy -
incorporated by reference to Exhibit B (SEC File
No. 70-8323).
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C Not applicable.
D Not applicable.
E Not applicable.
F-1 Opinion of Berlack, Israels & Liberman LLP -- to be
filed by amendment.
F-2 Opinion of Michael J. Connolly, Esq. --to be filed
by amendment.
H Pro Forma Capitalization -- to be filed by
amendment.
(b) Financial Statements:
1 Financial statements of the Applicants have been
omitted since the proposed transaction will not
have a material effect thereon.
2 None
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Note: GPU Corporate and Consolidated actual and pro
forma financial statements are omitted since
they are not deemed to be material or relevant
or necessary for a proper disposition of the
proposed transactions.
3 None
4 None.
ITEM 7. Information as to Environmental Effects.
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The issuance of an order by your Commission with respect to the subject
transactions is not a major federal action significantly affecting the quality
of the human environment.
No federal agency has prepared or is preparing an environmental impact
statement with respect to the subject transactions.
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS STATEMENT
TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GPU, INC.
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
GPU SERVICE, INC.
GPU NUCLEAR, INC.
GPU GENERATION, INC.
By: _________________________________
T. G. Howson
Vice President and Treasurer
Date: June 10, 1998
