Post Effective Amendment No. 13 to SEC
File No. 70-7926
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GPU, INC.("GPU")
300 Madison Avenue
Morristown, New Jersey 07962
JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L")
METROPOLITAN EDISON COMPANY ("Met-Ed")
PENNSYLVANIA ELECTRIC COMPANY ("Penelec")
2800 Pottsville Pike
Reading, Pennsylvania 19640
(Names of companies filing this statement and
address of principal executive offices)
GPU, INC.
- --------------------------------------------------------------------------------
(Name of top registered holding company parent of applicants)
T. G. Howson, Vice President and Douglas E. Davidson, Esq.
Treasurer Berlack, Israels & Liberman LLP
M. A. Nalewako, Secretary 120 West 45th Street
GPU Service, Inc. New York, New York 10036
300 Madison Avenue
Morristown, New Jersey 07962 W. Edwin Ogden, Esq.
Ryan, Russell, Ogden & Seltzer LLP
S. L. Guibord, Secretary 1100 Berkshire Boulevard
Jersey Central Power & P.O. Box 6219
Light Company Reading, Pennsylvania 19601-
Metropolitan Edison Company 0219
Pennsylvania Electric Company
2800 Pottsville Pike Robert C. Gerlach, Esq.
Reading, Pennsylvania 19640 Ballard Spahr Andrews
& Ingersoll, LLP
1735 Market Street
Philadelphia, Pennsylvania
19103
- --------------------------------------------------------------------------------
(Names and addresses of agents for service)
<PAGE>
GPU, JCP&L, Met-Ed and Penelec (the "GPU Companies") hereby
post-effectively amend their Declaration on Form U-1, docketed in SEC File No.
70-7926, as follows:
1. By deleting Exhibit A-1(b) from Item 6(a) thereof.
2. By filing the following exhibits and financial statements in Item 6
thereof:
(a) Exhibits:
F-l(d) - Opinion of Berlack, Israels & Liberman LLP.
F-2(d) - Opinion of Ryan, Russell, Ogden & Seltzer LLP.
F-3(d) - Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
H - Actual and Pro Forma Capitalization Table at
December 31, 1998.
(b) Financial Statements:
1-A - GPU (Corporate) Balance Sheets, actual and
pro forma, as at December 31, 1998, and
Statements of Income and Retained Earnings,
actual and pro forma, for the twelve months
ended December 31, 1998; pro forma journal
entries.
l-B - GPU and Subsidiary Companies Consolidated
Balance Sheets, actual and pro forma, as at
December 31, 1998, and Consolidated Statements
of Income and Retained Earnings, actual and pro
forma, for the twelve months ended December 31,
1998; pro forma journal entries.
-2-
<PAGE>
l-C - JCP&L Consolidated Balance Sheets, actual and
pro forma, as at December 31, 1998, and
Statements of Income and Retained Earnings,
actual and pro forma, for the twelve months
ended December 31, 1998; pro forma journal
entries.
l-D - Met-Ed Consolidated Balance Sheets, actual
and pro forma, as at December 31, 1998, and
Consolidated Statements of Income and Retained
Earnings, actual and pro forma, for the twelve
months ended December 31, 1998; pro forma
journal entries.
l-E - Penelec Consolidated Balance Sheets, actual
and pro forma, as at December 31, 1998, and
Consolidated Statements of Income and Retained
Earnings, actual and pro forma, for the twelve
months ended December 31, 1998; pro forma
journal entries.
-3-
<PAGE>
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
By: /s/ T/. G. Howson
---------------------------------
T. G. Howson, Vice President and
Treasurer
Date: April 28, 1999
EXHIBITS TO BE FILED BY EDGAR
Exhibits:
F-l(d) - Opinion of Berlack, Israels & Liberman LLP.
F-2(d) - Opinion of Ryan, Russell, Ogden & Seltzer LLP.
F-3(d) - Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
H - Actual and Pro Forma Capitalization Table at
December 31, 1998.
Financial Statements:
1-A - GPU (Corporate) Balance Sheets, actual and
pro forma, as at December 31, 1998, and
Statements of Income and Retained Earnings,
actual and pro forma, for the twelve months
ended December 31, 1998; pro forma journal
entries.
l-B - GPU and Subsidiary Companies Consolidated
Balance Sheets, actual and pro forma, as at
December 31, 1998, and Consolidated Statements
of Income and Retained Earnings, actual and pro
forma, for the twelve months ended December 31,
1998; pro forma journal entries.
l-C - JCP&L Consolidated Balance Sheets, actual and
pro forma, as at December 31, 1998, and
Statements of Income and Retained Earnings,
actual and pro forma, for the twelve months
ended December 31, 1998; pro forma journal
entries.
<PAGE>
-2-
l-D - Met-Ed Consolidated Balance Sheets, actual
and pro forma, as at December 31, 1998, and
Consolidated Statements of Income and Retained
Earnings, actual and pro forma, for the twelve
months ended December 31, 1998; pro forma
journal entries.
l-E - Penelec Consolidated Balance Sheets, actual
and pro forma, as at December 31, 1998, and
Consolidated Statements of Income and Retained
Earnings, actual and pro forma, for the twelve
months ended December 31, 1998; pro forma
journal entries.
EXHIBIT F-1(d)
--------------
April 28, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: GPU, Inc.
Jersey Central Power & Light Company
Metropolitan Edison Company
Pennsylvania Electric Company
Declaration on Form U-1
SEC File No. 70-7926
-----------------------------------------
Ladies and Gentlemen:
We have examined Post-Effective Amendment No. 12, dated March 30, 1999 to
the Declaration on Form U-1, dated December 24, 1991, as amended, under the
Public Utility Holding Company Act of 1935 (the "Act"), of GPU, Inc. ("GPU"),
Jersey Central Power & Light Company ("JCP&L"), Metropolitan Edison Company
("Met-Ed") and Pennsylvania Electric Company ("Penelec") (collectively referred
to herein as the "GPU Companies"), which has been docketed in SEC File No.
70-7926, as amended by Post-Effective Amendment No. 13, dated this date, of
which this opinion is to be a part. (The Declaration, as so amended and as thus
to be amended, is hereinafter referred to as the "Declaration".)
The Declaration now contemplates the issuance, sale and/or renewal,
through December 31, 2003, (i) by the GPU Companies of unsecured promissory
notes ("Bank Notes") to various commercial banks pursuant to loan participation
arrangements and lines of credit, (ii) by JCP&L, Met-Ed and Penelec of their
unsecured promissory notes as commercial paper ("Commercial Paper"), (iii) by
the GPU Companies of their unsecured promissory notes ("Unsecured Notes")
evidencing short-term borrowings from lenders including banks, insurance
companies and other institutions, and (iv) by GPU of its unsecured promissory
notes as commercial paper ("GPU Commercial Paper"). The total principal amount
of borrowings outstanding at any one time under the Bank Notes, Commercial
Paper, Unsecured Notes and GPU Commercial Paper, together with all other
borrowings contemplated by the Declaration, would not, however, exceed $150
million in the case of each of Met-Ed and Penelec, $250 million in the case of
GPU and, in the case of JCP&L, the amount permitted under JCP&L's charter.
<PAGE>
We have been counsel to GPU, a Pennsylvania corporation, for many years.
In such capacity, and as special counsel to GPU's subsidiaries, JCP&L, Met-Ed
and Penelec, we have participated in various proceedings relating to the GPU
Companies and we are familiar with the terms of the outstanding securities of
the holding company system.
In addition to the matters set forth in our previous opinion dated
December 17, 1997 and filed as Exhibit F-1(c) to the Declaration, we have
examined a copy of the Commission's Order dated December 22, 1997, permitting
the Declaration, as then amended, to become effective.
In addition, we have examined such corporate records, documents and
certificates as we have deemed necessary as a basis for this opinion.
As to matters of Pennsylvania law insofar as it applies to the
transactions contemplated by Met-Ed, we have relied upon the opinion of Ryan,
Russell, Ogden & Seltzer LLP, which is being filed as Exhibit F-2(d) to the
Declaration. As to all other matters of Pennsylvania law, we have relied upon
the opinion of Ballard Spahr Andrews & Ingersoll, LLP, which is being filed as
Exhibit F-3(d) to the Declaration.
Based upon the foregoing, we are of the opinion that, subject to the
conditions specified in the following paragraph:
(a) all State laws applicable to the proposed transactions as
contemplated in the Declaration will have been complied with;
(b) GPU, JCP&L, Met-Ed and Penelec are each validly organized and
duly existing;
(c) the Bank Notes, the Commercial Paper, the Unsecured Notes and
the GPU Commercial Paper will each be valid and binding obligations of the
respective issuers thereof in accordance with their respective terms, subject to
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws (including, without limitation, the
Atomic Energy Act of 1954, as amended, and the regulations thereunder) affecting
creditors' rights generally; and
(d) the issuance of the Bank Notes, the Commercial Paper, the
Unsecured Notes, and the GPU Commercial Paper will not violate the legal rights
of the holders of any securities issued by any of the GPU Companies or any
company which is an "associate company" thereof, as defined in the Act.
The foregoing opinions assume the following conditions shall have been
satisfied:
-2-
<PAGE>
(1) the Commission shall have entered an appropriate order forthwith
permitting the Declaration, as amended, to become effective; and
(2) the appropriate officers of each of the GPU Companies shall, on their
respective behalves, have issued and sold to the extent contemplated by the
Declaration, the Bank Notes, the Commercial Paper, the Unsecured Notes and the
GPU Commercial Paper against the receipt of cash or renewal thereof equal to the
principal amount thereof, each of which (i) is issued, sold or renewed in
accordance with the terms and under the conditions set forth in the Declaration,
(ii) is issued and sold under circumstances which are permitted under Section
12(f) of the Act and paragraph (b)(2) of Rule 70 under the Act, and (iii) in the
case of JCP&L, together with all other notes and drafts representing unsecured
borrowings at the time outstanding does not exceed such amounts as may be
imposed by its charter.
We hereby consent to the filing of this opinion as an exhibit to the
Declaration and in any proceedings before the Commission that may be held in
connection therewith.
Very truly yours,
BERLACK, ISRAELS & LIBERMAN LLP
-3-
EXHIBIT F-2(d)
--------------
April 28, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: GPU, Inc.
Jersey Central Power & Light Company
Metropolitan Edison Company
Pennsylvania Electric Company
Declaration on Form U-1
SEC File No. 70-7926
-------------------------------------
Ladies and Gentlemen:
We have examined Post-Effective Amendment No. 12, dated March 30, 1999 to
the Declaration on Form U-1, dated December 24, 1991, as amended, under the
Public Utility Holding Company Act of 1935 (the "Act"), of GPU, Inc. ("GPU"),
Jersey Central Power & Light Company ("JCP&L"), Metropolitan Edison Company
("Met-Ed") and Pennsylvania Electric Company ("Penelec") (collectively referred
to herein as the "GPU Companies"), which has been docketed in SEC File No.
70-7926, as amended by Post-Effective Amendment No. 13, dated this date, of
which this opinion is to be a part. (The Declaration, as so amended and as thus
to be amended, is hereinafter referred to as the "Declaration".)
The Declaration now contemplates the issuance, sale and/or renewal,
through December 31, 2003, (i) by the GPU Companies of unsecured promissory
notes ("Bank Notes") to various commercial banks pursuant to loan participation
arrangements and lines of credit, (ii) by JCP&L, Met-Ed and Penelec of their
unsecured promissory notes as commercial paper ("Commercial Paper"), (iii) by
the GPU Companies of their unsecured promissory notes ("Unsecured Notes")
evidencing short-term borrowings from lenders including banks, insurance
companies and other institutions, and (iv) by GPU of its unsecured promissory
notes as commercial paper ("GPU Commercial Paper"). The total principal amount
of borrowings outstanding at any one time under the Bank Notes, Commercial
Paper, Unsecured Notes and GPU Commercial Paper, together with all other
borrowings contemplated by the Declaration, would not, however, exceed $150
million in the case of each of Met-Ed and Penelec, $250 million in the case of
GPU and, in the case of JCP&L, the amount permitted under JCP&L's charter.
<PAGE>
We have been Pennsylvania counsel to Met-Ed, a Pennsylvania corporation,
for many years. In such capacity, we have participated in various proceedings
relating to Met-Ed and we are familiar with the terms of the outstanding
securities of Met-Ed.
In addition to the matters set forth in our previous opinion dated
December 17, 1997 and filed as Exhibit F-2(c) to the Declaration, we have
examined a copy of the Commission's Order dated December 22, 1997, permitting
the Declaration, as then amended, to become effective.
In addition, we have examined such corporate records, documents and
certificates as we have deemed necessary as a basis for this opinion.
Based upon the foregoing, we are of the opinion that, subject to the
conditions specified in the following paragraph:
(a) all Pennsylvania laws applicable to the proposed transactions as
contemplated in the Declaration will have been complied with;
(b) Met-Ed is validly organized and duly existing in Pennsylvania;
(c) the Bank Notes, the Commercial Paper, the Unsecured Notes and
the GPU Commercial Paper will each be valid and binding obligations of Met-Ed in
accordance with their respective terms, subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws (including, without limitation, the Atomic Energy Act of
1954, as amended, and the regulations thereunder) affecting creditors' rights
generally; and
(d) the issuance of the Bank Notes, the Commercial Paper, the
Unsecured Notes, and the GPU Commercial Paper will not violate the legal rights
of the holders of any securities issued by Met-Ed.
The foregoing opinions assume the following conditions shall have been
satisfied:
(1) the Commission shall have entered an appropriate order forthwith
permitting the Declaration, as amended, to become effective; and
(2) the appropriate officers of each of Met-Ed shall, on their respective
behalves, have issued and sold to the extent contemplated by the Declaration,
the Bank Notes, the Commercial Paper, the Unsecured Notes and the GPU Commercial
Paper against the receipt of cash or renewal thereof equal to the principal
amount thereof, each of which (i) is issued, sold or renewed in
-2-
<PAGE>
accordance with the terms and under the conditions set forth in the Declaration,
(ii) is issued and sold under circumstances which are permitted under Section
12(f) of the Act and paragraph (b)(2) of Rule 70 under the Act.
We hereby consent to the filing of this opinion as an exhibit to the
Declaration and in any proceedings before the Commission that may be held in
connection therewith.
Very truly yours,
RYAN, RUSSELL, OGDEN & SELTZER LLP
-3-
Exhibit F-3(d)
[Letterhead of Ballard Spahr Andrews & Ingersoll, LLP]
April 28, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: GPU, Inc.
Jersey Central Power & Light Company
Metropolitan Edison Company
Pennsylvania Electric Company
Declaration on Form U-1
SEC File No. 70-7926
-------------------------------------
Dear Sirs:
We have examined Post-Effective Amendment No. 12, dated March 30,
1999, to the Declaration on Form U-1, dated December 24, 1991, as amended, under
the Public Utility Holding Company Act of 1935 (the "Act"), of GPU, Inc.
("GPU"), Jersey Central Power & Light Company ("JCP&L"), Metropolitan Edison
Company ("Met-Ed") and Pennsylvania Electric Company ("Penelec") (collectively
referred to herein as the "GPU Companies"), which has been docketed in SEC File
No. 70-7926, as amended by Post-Effective Amendment No. 13, dated this date, of
which this opinion is to be a part. (The Declaration, as so amended and as thus
to be amended, is hereinafter referred to as the "Declaration".)
The Declaration now contemplates the issuance, sale and/or renewal,
through December 31, 2003, (i) by the GPU Companies of unsecured promissory
notes ("Bank Notes") to various commercial banks pursuant to loan participation
arrangements and lines of credit, (ii) by JCP&L, Met-Ed and Penelec of their
unsecured promissory notes as commercial paper ("Commercial Paper"), (iii) by
the GPU Companies of their unsecured promissory notes ("Unsecured Notes")
evidencing short-term borrowings from lenders including banks, insurance
companies or other institutions, and (iv) by GPU of its unsecured promissory
notes as commercial paper (AGPU Commercial Paper@). The total principal amount
of borrowings outstanding at any one time under the Bank Notes, Commercial
<PAGE>
Paper, Unsecured Notes, and GPU Commercial Paper, together with all other
borrowings contemplated by the Declaration, would not, however, exceed $150
million in the case of each of the Met-Ed and Penelec, $250 million in the case
of GPU and, in the case of JCP&L, the amount permitted under JCP&L's charter.
We have been counsel to Penelec, a Pennsylvania corporation, for
many years and are familiar with the terms of its outstanding securities. We
have also acted as Pennsylvania counsel in connection with the transactions
contemplated by the Declaration (a) to GPU, a Pennsylvania corporation, and (b)
to JCP&L, a New Jersey corporation which is qualified to do business in
Pennsylvania as a foreign corporation and owns certain interests in utility
facilities in Pennsylvania.
Based upon the foregoing, we are of the opinion, insofar as
Pennsylvania law is concerned, that, subject to the conditions specified in the
following paragraph:
(a) all Pennsylvania laws applicable to the proposed
transactions as contemplated in the Declaration will have been
complied with;
(b) GPU and Penelec are each validly organized and duly
existing;
(c) the Bank Notes, the Commercial Paper, the Unsecured Notes,
and the GPU Commercial Paper will each be valid and binding
obligations of the respective issuers thereof in accordance with
their respective terms, subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws (including, without limitation, the Atomic Energy Act of 1954,
as amended, and the regulations thereunder) affecting creditors'
rights generally; and
(d) the issuance of the Bank Notes, the Commercial Paper, the
Unsecured Notes will not violate the legal rights of the holders of
any securities issued by Penelec or any of its subsidiaries.
The foregoing opinions assume the following conditions shall have
been satisfied:
(1) the Commission shall have entered an appropriate order
forthwith permitting the Declaration, as amended, to become
effective; and
-2-
<PAGE>
(2) the appropriate officers of GPU and Penelec shall, on
their respective behalves, have issued and sold to the extent
contemplated by the Declaration, the Bank Notes, the Commercial
Paper, the Unsecured Notes, and the GPU Commercial Paper against the
receipt of cash or renewal thereof equal to the principal amount
thereof, each of which (i) is issued, sold or renewed in accordance
with the terms and under the conditions set forth in the Declaration
and (ii) is issued and sold under the circumstances which are
permitted under Section 12(f) of the Act and paragraph (b)(2) of
Rule 70 under the Act.
We hereby consent to the filing of this opinion as an exhibit to the
Declaration and in any proceedings before the Commission that may be held in
connection therewith.
Very truly yours,
BALLARD, SPAHR, ANDREWS & INGERSOLL, LLP
-3-
Item 6(a) H
CAPITALIZATION AND CAPITALIZATION RATIOS
(IN THOUSANDS)
The actual and pro forma capitalization of GPU, Inc. and Subsidiary Companies at
December 31, 1998 is as follows:
Actual Pro Forma (3)
------ -------------
Amount % Amount %
--------- --- --------- ----
Long-term debt(1) $4,386,767 50.4 $4,386,767 47.0
Notes payable 368,607 4.2 847,100 9.1
Preferred stock (2) 155,478 1.8 126,741 1.4
Subsidiary-obligated
mandatorily redeemable
preferred securities 330,000 3.8 330,000 3.5
Common equity 3,464,648 39.8 3,441,263 36.9
Trust originated
preferred securities - - 200,000 2.1
--------- ----- --------- -----
$8,705,500 100.0 $9,331,871 100.0
========= ===== ========= =====
(1) Includes securities due within one year of $561,183.
(2) Includes securities due within one year of $2,500.
(3) The pro forma capitalization excludes $1,062,877 of GPU's proportionate
share of non-recourse debt used to finance the acquisition of exempt
wholesale generators and foreign utility companies, as defined under the
Public Utility Holding Company Act of 1935, which debt is not consolidated
for financial reporting purposes. After giving effect to the non-recourse
debt, the pro forma percentages would be as follows: Long-term debt 52.4%;
Notes payable 8.2%; Preferred stock 1.2%; Subsidiary-obligated mandatorily
redeemable preferred securities 3.2%; Common equity 33.1%; and Trust
originated preferred securities 1.9%.
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-A
Page 1 of 50
GPU, Inc.
Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
ASSETS Actual Adjustments Pro Forma
- ------ ------ ----------- ---------
Investments:
<S> <C> <C> <C>
Investment in subsidiaries $ 3,591,292 $ - $ 3,591,292
Other investments 6,440 - 6,440
---------- ---------- ----------
Total investments 3,597,732 - 3,597,732
---------- ---------- ----------
Current Assets:
Cash and temporary cash investments 2,356 180,900 183,256
Accounts receivable, net 5,680 - 5,680
Prepayments 140 - 140
---------- ---------- ----------
Total current assets 8,176 180,900 189,076
---------- ---------- ----------
Deferred Debits and Other Assets:
Other 232 - 232
---------- ---------- ----------
Total deferred debits and other assets 232 - 232
---------- ---------- ----------
Total Assets $ 3,606,140 $ 180,900 $ 3,787,040
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-A
Page 2 of 50
GPU, Inc.
Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
Capitalization: ----------- -------------- ---------
<S> <C> <C> <C>
Common stock $ 331,958 $ - $ 331,958
Capital surplus 1,011,310 - 1,011,310
Retained earnings 2,230,425 (6,098) 2,224,327
Accumulated other comprehensive income/(loss) (31,304) - (31,304)
---------- ---------- ----------
Total 3,542,389 (6,098) 3,536,291
Less, reacquired common stock, at cost (77,741) - (77,741)
---------- ---------- ----------
Total capitalization 3,464,648 (6,098) 3,458,550
---------- ---------- ----------
Current Liabilities:
Notes payable 69,100 180,900 250,000
Accounts payable 551 - 551
Interest accrued 62 9,381 9,443
Dividends declared 65,917 - 65,917
Taxes accrued - (3,283) (3,283)
Other 4,502 - 4,502
---------- ---------- ----------
Total current liabilities 140,132 186,998 327,130
---------- ---------- ----------
Deferred Credits and Other Liabilities:
Other 1,360 - 1,360
---------- ---------- ----------
Total deferred credits and other liabilities 1,360 - 1,360
---------- ---------- ----------
<S> <C> <C> <C>
Total Liabilities and Capitalization $ 3,606,140 $ 180,900 $ 3,787,040
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-A
Page 3 of 50
GPU, Inc.
Statements of Income and Retained Earnings
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
(In Thousands)
Actual Adjustments Pro
Forma
Income
<S> <C> <C> <C>
Equity in earnings of subsidiaries $ 397,699 $ - $ 397,699
--------- --------- --------
Operating Expenses:
Other operation and maintenance 4,562 - 4,562
Taxes, other than income taxes 151 - 151
--------- --------- --------
Total operating expenses 4,713 - 4,713
--------- --------- --------
Operating Income Before Income Taxes 392,986 - 392,986
Income taxes - (3,283) (3,283)
--------- --------- -------
Operating Income 392,986 3,283 396,269
--------- --------- -------
Other Income and Deductions:
Other income/(expense), net (672) - (672)
--------- --------- --------
Total other income and deductions (672) - (672)
--------- --------- --------
Income Before Interest Charges 392,314 3,283 395,597
--------- --------- --------
Interest Charges:
Other interest 6,433 9,381 15,814
--------- --------- --------
Total interest charges 6,433 9,381 15,814
--------- --------- --------
Income before Extraordinary Item 385,881 (6,098) 379,783
Extraordinary item, net of tax (25,755) - (25,755)
--------- --------- --------
Net Income $ 360,126 (6,098) 354,028
========= --------- ========
Retained Earnings:
Balance at beginning of year $2,140,712 - $2,140,712
Add-Net Income 360,126 (6,098) 354,028
Deduct-Cash dividends on common stock (263,561) - (263,561)
-Other (6,852) - (6,852)
--------- --------- --------
Balance at end of year $2,230,425 $ (6,098) $2,224,327
========= ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 1-A
Page 4 of 50
GPU, Inc.
Pro Forma Journal Entries
-------------------------
(In Thousands)
(1)
Cash and temporary cash investments $180,900
Notes payable $180,900
To record the maximum liability associated with
the proposed issuance by GPU, Inc. of $100 million
of commercial paper and $80.9 million of
short-term debt. (Proposed limit on short-term
borrowings of $150 million less $69.1 million of
short-term borrowings outstanding at 12/31/98)
(2)
Other interest $ 9,381
Interest accrued $ 9,381
To record the maximum interest related to the
proposed issuance of commercial paper at an
assumed rate of 5.15% and other short-term debt at
an assumed rate of 5.23%.
(3)
Taxes accrued $ 3,283
Income taxes $ 3,283
To reflect the income tax benefit associated with
interest payments related to the proposed issuance
of short-term debt.
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-B
Page 5 of 50
GPU, Inc. and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
ASSETS Actual Adjustments Pro Forma
- ------ ------ ----------- ---------
Utility Plant:
<S> <C> <C> <C>
Transmission, distribution and general plant $ 7,579,455 $ - $ 7,579,455
Generation plant 3,445,984 - 3,445,984
---------- ---------- ----------
Utility plant in service 11,025,439 - 11,025,439
Accumulated depreciation (4,460,341) - (4,460,341)
---------- ---------- ----------
Net utility plant in service 6,565,098 - 6,565,098
Construction work in progress 94,005 - 94,005
Other, net 145,792 - 145,792
---------- ---------- ---------
Net utility plant 6,804,895 - 6,804,895
---------- ---------- ---------
Other Property and Investments:
GPUI Group equity investments 682,125 - 682,125
Goodwill, net 545,262 - 545,262
Nuclear decommissioning trusts, at market 716,274 - 716,274
Other, net 356,282 - 356,282
---------- ---------- ----------
Total other property and investments 2,299,943 - 2,299,943
---------- ---------- ----------
Current Assets:
Cash and temporary cash investments 72,755 633,683 706,438
Special deposits 62,673 - 62,673
Accounts receivable:
Customers, net 286,278 - 286,278
Other 126,088 - 126,088
Unbilled revenues 144,076 - 144,076
Materials and supplies, at average cost or less:
Construction and maintenance 155,827 - 155,827
Fuel 42,697 - 42,697
Investments held for sale 48,473 - 48,473
Deferred income taxes 47,521 - 47,521
Prepayments 76,021 - 76,021
---------- ---------- ----------
Total current assets 1,062,409 633,683 1,696,092
---------- ---------- ----------
Deferred Debits and Other Assets:
Regulatory assets, net:
Competitive transition charge 1,023,815 - 1,023,815
Other regulatory assets, net 2,882,413 - 2,882,413
Deferred income taxes 2,004,278 - 2,004,278
Other 210,356 2,518 212,874
---------- ---------- ----------
Total deferred debits and other assets 6,120,862 2,518 6,123,380
---------- ---------- ----------
Total Assets $16,288,109 $ 636,201 $16,924,310
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-B
Page 6 of 50
GPU, Inc. and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
------------ ------------- ----------
Capitalization:
<S> <C> <C> <C>
Common stock $ 331,958 $ - $ 331,958
Capital surplus 1,011,310 - 1,011,310
Retained earnings 2,230,425 (23,385) 2,207,040
Accumulated other comprehensive income/(loss) (31,304) - (31,304)
---------- ---------- ----------
Total 3,542,389 (23,385) 3,519,004
Reacquired common stock, at cost (77,741) - (77,741)
---------- ---------- ----------
Total common stockholders' equity 3,464,648 (23,385) 3,441,263
Cumulative preferred stock:
With mandatory redemption 86,500 - 86,500
Without mandatory redemption 66,478 (28,737) 37,741
Subsidiary-obligated mandatorily redeemable
preferred securities 330,000 - 330,000
Trust originated preferred securities - 200,000 200,000
Long-term debt 3,825,584 - 3,825,584
---------- ---------- ----------
Total capitalization 7,773,210 147,878 7,921,088
---------- ---------- ----------
Current Liabilities:
Securities due within one year 563,683 - 563,683
Notes payable 368,607 478,493 847,100
Obligations under capital leases 126,480 - 126,480
Accounts payable 394,815 - 394,815
Taxes accrued 92,339 (14,784) 77,555
Interest accrued 81,931 24,795 106,726
Deferred energy credits 2,411 - 2,411
Other 377,594 (181) 377,413
---------- ---------- ----------
Total current liabilities 2,007,860 488,323 2,496,183
---------- ---------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes 3,044,947 - 3,044,947
Unamortized investment tax credits 114,308 - 114,308
Three Mile Island Unit 2 future costs 483,515 - 483,515
Nonutility generation contract loss liability 1,803,820 - 1,803,820
Other 1,060,449 - 1,060,449
---------- ---------- ----------
Total deferred credits and other liabilities 6,507,039 - 6,507,039
---------- ---------- ----------
Total Liabilities and Capitalization $16,288,109 $ 636,201 $16,924,310
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-B
Page 7 of 50
GPU, Inc. and Subsidiaries
Consolidated Statements of Income and Retained Earnings
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
-------------------------------------
(In Thousands)
Actual Adjustments Pro Forma
------ ----------- ---------
<S> <C> <C> <C>
Operating Revenues $4,248,792 $ - $4,248,792
--------- --------- ----------
Operating Expenses:
Fuel 407,105 - 407,105
Power purchased and interchanged 1,122,841 - 1,122,841
Deferral of energy and capacity costs, net (25,542) - (25,542)
Other operation and maintenance 1,106,913 - 1,106,913
Depreciation and amortization 522,094 - 522,094
Taxes, other than income taxes 219,302 - 219,302
--------- --------- --------
Total operating expenses 3,352,713 - 3,352,713
--------- --------- ----------
Operating Income Before Income Taxes 896,079 - 896,079
Income taxes 238,241 (14,784) 223,457
--------- --------- --------
Operating Income 657,838 14,784 672,622
--------- --------- --------
Other Income and Deductions:
Allowance for other funds used during construction 916 - 916
Equity in undistributed earnings/(losses)
of affiliates 72,012 - 72,012
Other income, net 48,366 - 48,366
Income taxes (1,848) - (1,848)
--------- --------- --------
Total other income and deductions 119,446 - 119,446
--------- --------- --------
Income Before Interest Charges and
Preferred Dividends 777,284 14,784 792,068
--------- --------- --------
Interest Charges and Preferred Dividends:
Long-term debt 318,396 - 318,396
Subsidiary-obligated mandatorily
redeemable preferred securities 28,888 - 28,888
Other interest 35,053 24,847 59,900
Allowance for borrowed funds used
during construction (4,348) - (4,348)
Dividends on trust originated preferred securities - 14,500 14,500
Preferred stock dividends of subsidiaries 11,243 (1,178) 10,065
--------- --------- --------
Total interest charges and preferred dividends 389,232 38,169 427,401
--------- --------- --------
Minority interest net income 2,171 - 2,171
--------- --------- --------
Income Before Extraordinary Item 385,881 (23,385) 362,496
Extraordinary item (net of income tax
benefit of $16,300) (25,755) - (25,755)
--------- --------- --------
Net Income $ 360,126 $ (23,385) $ 336,741
========= ========= =======
Retained Earnings:
Balance at beginning of year $2,140,712 $ - $2,140,712
Add-Net Income 360,126 (23,385) 336,741
Deduct-Cash dividends on common stock (263,561) - (263,561)
-Other (6,852) - (6,852)
--------- ---------- --------
Balance at end of year $2,230,425 $ (23,385) $2,207,040
========= ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 8 of 50
GPU, Inc. and Subsidiaries
Pro Forma Journal Entries
-------------------------
(In Thousands)
(1)
Cash and temporary cash investments $478,493
Notes payable $478,493
To record the maximum liability associated with
the proposed issuance of $100 million of
commercial paper by GPU, Inc.; and other
short-term debt by GPU, Inc., Jersey Central Power
& Light and Subsidiary (JCP&L),Metropolitan Edison
Company and Subsidiaries (Met-Ed), and
Pennsylvania Electric Company and Subsidiaries
(Penelec). (Proposed limit on other short-term
borrowings of $735.7 million less $357.2 million
of short-term borrowings outstanding at 12/31/98)
(2)
Other interest $ 24,795
Interest accrued $ 24,795
To record the maximum interest related to the
proposed issuance of $100 million of GPU, Inc.
commercial paper at an assumed rate of 5.15%;
$80.9 million of other short-term debt at an
assumed rate of 5.23% by GPU, Inc., $163.3 million
of other short-term debt at an assumed rate of
5.22% by JCP&L, $70.4 million of other short-term
debt at an assumed rate of 5.13% by Met-Ed, $63.9
million of other short-term debt at an assumed
rate of 5.13% by Penelec.
(3)
Taxes accrued $ 8,677
Income taxes $ 8,677
To reflect the income tax benefit associated with
interest payments related to the proposed issuance
of commercial paper by GPU, Inc. and short-term
debt by GPU, Inc., JCP&L, Met-Ed, and Penelec.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 9 of 50
GPU, Inc. and Subsidiaries
Pro Forma Journal Entries
-------------------------
(In Thousands)
(4)
Cumulative preferred stock $ 28,737
Cash and temporary cash investments $ 28,737
To record the redemption of preferred stock by
Met-Ed and Penelec on February
19, 1999.
(5)
Cash and temporary cash investments $ 1,178
Preferred stock dividends $ 1,178
To record the decrease in the preferred stock
dividend balance due to the redemption of
preferred stock by Met-Ed and Penelec on February
19, 1999.
(6)
Other current liabilities $ 181
Cash and temporary cash investments $ 181
To reverse the dividend accrual at 12/31/98
relating to the redemption of preferred stock by
Met-Ed and Penelec.
(7)
Cash and temporary cash investments $200,000
Trust originated preferred securities $200,000
To reflect the proposed issuance of $200 million
trust originated preferred securities from time to
time through December 31, 2000 by JCP&L Capital
Trust. The trust originated preferred securities
and dividend payments are to be unconditionally
guaranteed by Jersey Central Power & Light Company
(SEC File No. 70-9399).
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 10 of 50
GPU, Inc. and Subsidiaries
Pro Forma Journal Entries
-------------------------
(In Thousands)
(8)
Other deferred debits $ 2,570
Cash and temporary cash investments $ 2,570
To reflect the underwriters compensation and
offering expenses paid in accordance with the
Underwriting Agreements for JCP&L Capital Trust
(SEC File No. 70-9399).
(9)
Other interest $ 52
Other deferred debits $ 52
To reflect the annual amortization of the deferred
underwriters compensation and offering expenses
which are being amortized over 49 years (SEC File
No. 70-9399).
(10)
Dividends on trust originated preferred securities $14,500
Cash and temporary cash investments $ 14,500
To reflect the annual dividends paid on the trust
originated preferred securities by JCP&L Capital
Trust at an assumed rate of 7.25% (SEC File No.
70-9399).
(11)
Taxes accrued $ 6,107
Income taxes $ 6,107
To reflect the net decrease in the provision for
Federal and State income taxes at the rate of
40.85% attributable to interest payments on the
proposed issuance of $206,200 subordinated
debentures by Jersey Central Power & Light Company
to JCP&L Capital II L.P. (SEC File No. 70-9399).
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-C
Page 11 of 50
Jersey Central Power & Light Company and Subsidiary
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
ASSETS Actual Adjustments Pro Forma
- ------ ------ ----------- ---------
Utility Plant:
<S> <C> <C> <C>
Transmission, distribution, and general plant $ 3,108,697 $ - $ 3,108,697
Generation plant 1,646,576 - 1,646,576
---------- ---------- ----------
Utility plant in service 4,755,273 - 4,755,273
Accumulated depreciation (2,217,108) - (2,217,108)
---------- ---------- ----------
Net utility plant in service 2,538,165 - 2,538,165
Construction work in progress 48,126 - 48,126
Other, net 98,491 - 98,491
---------- ---------- ----------
Net utility plant 2,684,782 - 2,684,782
---------- ---------- ----------
Other Property and Investments:
Nuclear decommissioning trusts, at market 422,277 - 422,277
Nuclear fuel disposal trust, at market 116,871 - 116,871
Other, net 9,596 - 9,596
---------- ---------- ----------
Total other property and investments 548,744 - 548,744
---------- ---------- ----------
Current Assets:
Cash and temporary cash investments 1,850 346,223 348,073
Special deposits 6,047 - 6,047
Accounts receivable:
Customers, net 152,120 - 152,120
Other 32,562 - 32,562
Unbilled revenues 56,391 - 56,391
Materials and supplies, at average cost or less:
Construction and maintenance 79,863 - 79,863
Fuel 13,144 - 13,144
Deferred income taxes 20,812 - 20,812
Prepayments 27,648 - 27,648
---------- ---------- ----------
Total current assets 390,437 346,223 736,660
---------- ---------- ----------
Deferred Debits and Other Assets:
Other regulatory assets, net 753,885 - 753,885
Deferred income taxes 179,237 - 179,237
Other 25,037 2,518 27,555
---------- ---------- ----------
Total deferred debits and other assets 958,159 2,518 960,677
---------- ---------- ----------
Total Assets $ 4,582,122 $ 348,741 $ 4,930,863
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-C
Page 12 of 50
Jersey Central Power & Light Company and Subsidiary
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
------------ ------------- -----------
Capitalization:
<S> <C> <C> <C>
Common stock $ 153,713 $ - $ 153,713
Capital surplus 510,769 - 510,769
Retained earnings 893,016 (13,986) 879,030
Accumulated other comprehensive income/(loss) (425) - (425)
---------- ---------- -----------
Total common stockholder's equity 1,557,073 (13,986) 1,543,087
Cumulative preferred stock:
With mandatory redemption 86,500 - 86,500
Without mandatory redemption 37,741 - 37,741
Company-obligated mandatorily redeemable
preferred securities 125,000 - 125,000
Trust originated preferred securities - 200,000 200,000
Long-term debt 1,173,532 - 1,173,532
---------- ---------- ----------
Total capitalization 2,979,846 186,014 3,165,860
---------- ---------- ----------
Current Liabilities:
Securities due within one year 2,512 - 2,512
Notes payable 122,344 163,293 285,637
Obligations under capital leases 85,366 - 85,366
Accounts payable:
Affiliates 40,861 - 40,861
Other 80,233 - 80,233
Taxes accrued 5,559 (9,090) (3,531)
Interest accrued 26,678 8,524 35,202
Deferred energy credits 2,411 - 2,411
Other 104,408 - 104,408
---------- ---------- ----------
Total current liabilities 470,372 162,727 633,099
---------- ---------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes 670,961 - 670,961
Unamortized investment tax credits 50,225 - 50,225
Nuclear fuel disposal fee 141,270 - 141,270
Three Mile Island Unit 2 future costs 120,904 - 120,904
Other 148,544 - 148,544
---------- ---------- ----------
Total deferred credits and other liabilities 1,131,904 - 1,131,904
---------- ---------- ----------
Total Liabilities and Capitalization $ 4,582,122 $ 348,741 $ 4,930,863
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-C
Page 13 of 50
Jersey Central Power & Light Company and Subsidiary
Consolidated Statements of Income and Retained Earnings
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
-------------------------------------
(In Thousands)
Actual Adjustments Pro Forma
--------- --------- --------
<S> <C> <C> <C>
Operating Revenues $2,069,648 $ - $2,069,648
--------- --------- --------
Operating Expenses:
Fuel 86,431 - 86,431
Power purchased and interchanged:
Affiliates 57,643 - 57,643
Others 658,742 - 658,742
Deferral of energy and capacity costs, net (25,542) - (25,542)
Other operation and maintenance 485,054 - 485,054
Depreciation and amortization 250,675 - 250,675
Taxes, other than income taxes 94,586 - 94,586
--------- --------- --------
Total operating expenses 1,607,589 - 1,607,589
--------- --------- --------
Operating Income Before Income Taxes 462,059 - 462,059
Income taxes 164,445 (9,090) 155,355
--------- --------- --------
Operating Income 297,614 9,090 306,704
--------- --------- --------
Other Income and Deductions:
Allowance for other funds used during construction 786 - 786
Other income, net 13,227 - 13,227
Income taxes 19,367 - 19,367
--------- --------- --------
Total other income and deductions 33,380 - 33,380
--------- --------- --------
Income Before Interest Charges 330,994 9,090 340,084
--------- --------- --------
Interest Charges:
Long-term debt 87,261 - 87,261
Company-obligated mandatorily
redeemable preferred securities 10,700 - 10,700
Other interest 12,229 8,576 20,805
Allowance for borrowed funds used
during construction (1,638) - (1,638)
Dividends on trust originated preferred securities - 14,500 14,500
--------- --------- --------
Total interest charges 108,552 23,076 131,628
--------- --------- --------
Net Income 222,442 (13,986) 208,456
Preferred stock dividends 10,065 - 10,065
--------- --------- --------
Earnings Available for Common Stock $ 212,377 $ (13,986) $ 198,391
========= ========= =========
Retained Earnings:
Balance at beginning of year $ 875,639 $ - $875,639
Add-Net Income 222,442 (13,986) 208,456
Deduct-Cash dividends on common stock (195,000) - (195,000)
-Cash dividends declared on
cumulative preferred stock (10,065) - (10,065)
-------- --------- --------
Balance at end of year $ 893,016 $ (13,986) $ 879,030
======== ========= ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 1-C
Page 14 of 50
Jersey Central Power & Light Company and Subsidiary
Pro Forma Journal Entries
-------------------------
(In Thousands)
(1)
Cash and temporary cash investments $163,293
Notes payable $163,293
To record the maximum liability associated with
the proposed issuance by JCP&L of $163.3 million
of short-term debt. (Charter limit for short-term
borrowings of $285.7 million less $122.4 million
of short-term borrowings outstanding at 12/31/98)
(2)
Other interest $ 8,524
Interest accrued $ 8,524
To record the maximum interest related to the
proposed issuance of short-term debt at an assumed
rate of 5.22%.
(3)
Taxes accrued $ 2,983
Income taxes $ 2,983
To reflect the income tax benefit associated with
interest payments related to the proposed issuance
of short-term debt.
<PAGE>
Financial Statements
Item 6(b) 1-C
Page 15 of 50
Jersey Central Power & Light Company and Subsidiary
Pro Forma Journal Entries
-------------------------
(In Thousands)
(4)
Cash and temporary cash investments $200,000
Trust originated preferred securities $200,000
To reflect the proposed issuance of $200 million
trust originated preferred securities from time to
time through December 31, 2000 by JCP&L Capital
Trust. The trust originated preferred securities
and dividend payments are to be unconditionally
guaranteed by Jersey Central Power & Light Company
(SEC File No. 70-9399).
(5)
Other deferred debits $ 2,570
Cash and temporary cash investments $ 2,570
To reflect the underwriters compensation and
offering expenses paid in accordance with the
Underwriting Agreements for JCP&L Capital Trust
(SEC File No. 70-9399).
(6)
Other interest $ 52
Other deferred debits $ 52
To reflect the annual amortization of the deferred
underwriters compensation and offering expenses
which are being amortized over 49 years (SEC File
No. 70-9399).
(7)
Dividends on trust originated preferred securities $14,500
Cash and temporary cash investments $14,500
To reflect the annual dividends paid on the trust
originated preferred securities by JCP&L Capital
Trust at an assumed rate of 7.25% (SEC File No.
70-9399).
<PAGE>
Financial Statements
Item 6(b) 1-C
Page 16 of 50
Jersey Central Power & Light Company and Subsidiary
Pro Forma Journal Entries
-------------------------
(In Thousands)
(8)
Taxes accrued $ 6,107
Income taxes $ 6,107
To reflect the net decrease in the provision for
Federal and State income taxes at the rate of
40.85% attributable to interest payments on the
proposed issuance of $206,200 subordinated
debentures by Jersey Central Power & Light Company
to JCP&L Capital II L.P. (SEC File No. 70-9399).
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-D
Page 17 of 50
Metropolitan Edison Company and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
ASSETS Actual Adjustments Pro Forma
------------ ------------ ---------
Utility Plant:
<S> <C> <C> <C>
Transmission, distribution and general plant $ 1,481,958 $ - $ 1,481,958
Generation plant 765,669 - 765,669
---------- --------- ----------
Utility plant in service 2,247,627 - 2,247,627
Accumulated depreciation (1,008,438) - (1,008,438)
---------- --------- ----------
Net utility plant in service 1,239,189 - 1,239,189
Construction work in progress 19,380 - 19,380
Other, net 27,819 - 27,819
---------- --------- ----------
Net utility plant 1,286,388 - 1,286,388
---------- --------- ----------
Other Property and Investments:
Nuclear decommissioning trusts, at market 211,194 - 211,194
Other, net 11,742 - 11,742
---------- --------- ----------
Total other property and investments 222,936 - 222,936
---------- --------- ----------
Current Assets:
Cash and temporary cash investments 442 58,706 59,148
Special deposits 1,062 - 1,062
Accounts receivable:
Customers, net 60,012 - 60,012
Other 41,895 - 41,895
Unbilled revenues 43,687 - 43,687
Materials and supplies, at average cost or less:
Construction and maintenance 24,727 - 24,727
Fuel 12,218 - 12,218
Deferred income taxes 2,945 - 2,945
Prepayments 20,616 - 20,616
---------- --------- ----------
Total current assets 207,604 58,706 266,310
---------- --------- ----------
Deferred Debits and Other Assets:
Regulatory assets, net:
Competitive transition charge 680,213 - 680,213
Other regulatory assets, net 921,934 - 921,934
Deferred income taxes 714,202 - 714,202
Other 31,692 - 31,692
---------- --------- ----------
Total deferred debits and other assets 2,348,041 - 2,348,041
---------- --------- ----------
Total Assets $ 4,064,969 $ 58,706 $ 4,123,675
========== ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-D
Page 18 of 50
Metropolitan Edison Company and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
---------- ------------ ----------
Capitalization:
<S> <C> <C> <C>
Common stock $ 66,273 $ - $ 66,273
Capital surplus 370,200 - 370,200
Retained earnings 234,066 (1,865) 232,201
Accumulated other comprehensive income 16,520 - 16,520
---------- --------- ----------
Total common stockholder's equity 687,059 (1,865) 685,194
Cumulative preferred stock 12,056 (12,056) -
Company-obligated mandatorily redeemable
preferred securities 100,000 - 100,000
Long-term debt 546,904 - 546,904
---------- --------- ----------
Total capitalization 1,346,019 (13,921) 1,332,098
---------- --------- ----------
Current Liabilities:
Securities due within one year 30,024 - 30,024
Notes payable 79,540 70,400 149,940
Obligations under capital leases 27,135 - 27,135
Accounts payable:
Affiliates 75,933 - 75,933
Other 102,390 - 102,390
Taxes accrued 19,463 (1,264) 18,199
Interest accrued 16,747 3,612 20,359
Other 42,598 (121) 42,477
---------- --------- ----------
Total current liabilities 393,830 72,627 466,457
---------- --------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes 1,010,982 - 1,010,982
Unamortized investment tax credits 27,157 - 27,157
Three Mile Island Unit 2 future costs 241,707 - 241,707
Nuclear fuel disposal fee 31,912 - 31,912
Nonutility generation contract loss liability 787,440 - 787,440
Other 225,922 - 225,922
---------- --------- ----------
Total deferred credits and other liabilities 2,325,120 - 2,325,120
---------- --------- ----------
Total Liabilities and Capitalization $ 4,064,969 $ 58,706 $ 4,123,675
========== ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-D
Page 19 of 50
Metropolitan Edison Company and Subsidiaries
Consolidated Statements of Income and Retained Earnings
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
-------------------------------------
(In Thousands)
Actual Adjustments Pro Forma
--------- ------------ ---------
<S> <C> <C> <C>
Operating Revenues $ 919,594 $ - $ 919,594
--------- --------- --------
Operating Expenses:
Fuel 99,511 - 99,511
Power purchased and interchanged:
Affiliates 17,766 - 17,766
Others 220,095 - 220,095
Other operation and maintenance 247,189 - 247,189
Depreciation and amortization 109,148 - 109,148
Taxes, other than income taxes 58,459 - 58,459
--------- --------- --------
Total operating expenses 752,168 - 752,168
--------- --------- --------
Operating Income Before Income Taxes 167,426 - 167,426
Income taxes 42,979 (1,264) 41,715
--------- --------- --------
Operating Income 124,447 1,264 125,711
--------- --------- --------
Other Income and Deductions:
Allowance for other funds used during construction 130 - 130
Other income/(expense), net (13,539) - (13,539)
Income taxes 5,556 - 5,556
--------- --------- --------
Total other income and deductions (7,853) - (7,853)
--------- --------- --------
Income Before Interest Charges 116,594 1,264 117,858
--------- --------- -------
Interest Charges:
Long-term debt 42,493 - 42,493
Company-obligated mandatorily
redeemable preferred securities 9,000 - 9,000
Other interest 8,194 3,612 11,806
Allowance for borrowed funds used
during construction (813) - (813)
--------- --------- --------
Total interest charges 58,874 3,612 62,486
--------- --------- --------
Income Before Extraordinary Item 57,720 (2,348) 55,372
Extraordinary item (net of income tax
benefit of $4,708) (6,805) - (6,805)
--------- --------- --------
Net Income 50,915 (2,348) 48,567
Preferred stock dividends 483 (483) -
--------- --------- --------
Earnings Available for Common Stock $ 50,432 $ (1,865) $ 48,567
========= ========= ========
Retained Earnings:
Balance at beginning of year $ 268,634 $ - $ 268,634
Add-Net Income 50,915 (2,348) 48,567
Deduct-Cash dividends on common stock (85,000) - (85,000)
-Cash dividends on cumulative
preferred stock (483) 483 -
-------- --------- --------
Balance at end of year $ 234,066 $ (1,865) $ 232,201
======== ========= ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 1-D
Page 20 of 50
Metropolitan Edison Company and Subsidiaries
Pro Forma Journal Entries
-------------------------
(In Thousands)
(1)
Cash and temporary cash investments $ 70,400
Notes payable $ 70,400
To record the maximum liability associated with
the proposed issuance by Met-Ed of $70.4 million
of short-term debt. (Proposed limit on short-term
borrowings of $150 million less $79.6 million of
short-term borrowings outstanding at 12/31/98)
(2)
Other interest $ 3,612
Interest accrued $ 3,612
To record the maximum interest related to the
proposed issuance of short-term debt at an assumed
rate of 5.13%.
(3)
Taxes accrued $ 1,264
Income taxes $ 1,264
To reflect the income tax benefit associated with
interest payments related to the proposed issuance
of short-term debt.
(4)
Cumulative preferred stock $ 12,056
Cash and temporary cash investments $ 12,056
To record the redemption of preferred stock by
Met-Ed on February 19, 1999.
<PAGE>
Financial Statements
Item 6(b) 1-D
Page 21 of 50
Metropolitan Edison Company and Subsidiaries
Pro Forma Journal Entries
-------------------------
(In Thousands)
(5)
Other current liabilities $ 121
Cash and temporary cash investments $ 121
To reverse the dividend accrual at 12/31/98 relating to the redemption of
preferred stock by Met-Ed.
(6)
Cash and temporary cash investments $ 483
Preferred stock dividends $ 483
To record the decrease in the preferred stock
dividend balance due to the redemption of
preferred stock by Met-Ed on February 19, 1999.
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-E
Page 22 of 50
Pennsylvania Electric Company and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
ASSETS Actual Adjustments Pro Forma
----------- ------------- -----------
Utility Plant:
<S> <C> <C> <C>
Transmission, distribution and general plant $ 1,768,621 $ - $ 1,768,621
Generation plant 1,033,739 - 1,033,739
---------- ---------- ----------
Utility plant in service 2,802,360 - 2,802,360
Accumulated depreciation (1,175,842) - (1,175,842)
---------- ---------- ----------
Net utility plant in service 1,626,518 - 1,626,518
Construction work in progress 18,862 - 18,862
Other, net 19,482 - 19,482
---------- ---------- ----------
Net utility plant 1,664,862 - 1,664,862
---------- ---------- ----------
Other Property and Investments:
Nuclear decommissioning trusts, at market 82,803 - 82,803
Other, net 7,705 - 7,705
---------- ---------- ----------
Total other property and investments 90,508 - 90,508
---------- ---------- ----------
Current Assets:
Cash and temporary cash investments 2,750 47,854 50,604
Special deposits 2,632 - 2,632
Accounts receivable:
Customers, net 69,887 - 69,887
Other 28,893 - 28,893
Unbilled revenues 43,998 - 43,998
Materials and supplies, at average cost or less:
Construction and maintenance 39,452 - 39,452
Fuel 17,107 - 17,107
Deferred income taxes 7,589 - 7,589
Prepayments 31,551 - 31,551
---------- ---------- ----------
Total current assets 243,859 47,854 291,713
---------- ---------- ----------
Deferred Debits and Other Assets:
Regulatory assets, net:
Competitive transition charge 343,602 - 343,602
Other regulatory assets, net 1,206,594 - 1,206,594
Deferred income taxes 951,471 - 951,471
Other 23,911 - 23,911
---------- ---------- ----------
Total deferred debits and other assets 2,525,578 - 2,525,578
---------- ---------- ----------
Total Assets $ 4,524,807 $ 47,854 $ 4,572,661
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Item 6(b) 1-E
Page 23 of 50
Pennsylvania Electric Company and Subsidiaries
Consolidated Balance Sheets
Actual (audited) and Pro Forma (unaudited)
December 31, 1998
-----------------
(In Thousands)
LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma
------------ ------------ ---------
Capitalization:
<S> <C> <C> <C>
Common stock $ 105,812 $ - $ 105,812
Capital surplus 285,486 - 285,486
Retained earnings 367,653 (1,436) 366,217
Accumulated other comprehensive income 8,353 - 8,353
---------- ---------- ----------
Total common stockholder's equity 767,304 (1,436) 765,868
Cumulative preferred stock 16,681 (16,681) -
Company-obligated mandatorily redeemable
preferred securities 105,000 - 105,000
Long-term debt 626,434 - 626,434
---------- ---------- ----------
Total capitalization 1,515,419 (18,117) 1,497,302
---------- ---------- ----------
Current Liabilities:
Securities due within one year 50,012 - 50,012
Notes payable 86,023 63,900 149,923
Obligations under capital leases 13,979 - 13,979
Accounts payable:
Affiliates 47,164 - 47,164
Other 47,795 - 47,795
Taxes accrued 32,755 (1,147) 31,608
Interest accrued 19,700 3,278 22,978
Other 37,272 (60) 37,212
---------- ---------- ----------
Total current liabilities 334,700 65,971 400,671
---------- ---------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes 1,338,235 - 1,338,235
Unamortized investment tax credits 36,926 - 36,926
Three Mile Island Unit 2 future costs 120,904 - 120,904
Nuclear fuel disposal fee 15,956 - 15,956
Nonutility generation contract loss liability 1,016,380 - 1,016,380
Other 146,287 - 146,287
---------- ---------- ----------
Total deferred credits and other liabilities 2,674,688 - 2,674,688
---------- ---------- ----------
Total Liabilities and Capitalization $ 4,524,807 $ 47,854 $ 4,572,661
========== ========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 1-E
Page 24 of 50
Pennsylvania Electric Company and Subsidiaries
Consolidated Statements of Income and Retained Earnings
Actual (audited) and Pro Forma (unaudited)
For The Year Ended December, 31, 1998
-------------------------------------
(In Thousands)
Actual Adjustments Pro Forma
--------- ----------- ----------
Operating Revenues $1,032,226 $ - $1,032,226
--------- --------- ---------
Operating Expenses:
Fuel 176,548 - 176,548
Power purchased and interchanged:
Affiliates 2,729 - 2,729
Others 233,395 - 233,395
Other operation and maintenance 275,107 - 275,107
Depreciation and amortization 109,800 - 109,800
Taxes, other than income taxes 63,874 - 63,874
--------- --------- --------
Total operating expenses 861,453 - 861,453
--------- --------- ---------
Operating Income Before Income Taxes 170,773 - 170,773
Income taxes 45,150 (1,147) 44,003
---------- --------- ---------
Operating Income 125,623 1,147 126,770
--------- --------- ---------
Other Income and Deductions:
Other income/(expense), net (6,429) - (6,429)
Income taxes 2,613 - 2,613
--------- --------- ---------
Total other income and deductions (3,816) - (3,816)
--------- --------- ---------
Income Before Interest Charges 121,807 1,147 122,954
--------- --------- ---------
Interest Charges:
Long-term debt 47,729 - 47,729
Company-obligated mandatorily
redeemable preferred securities 9,188 - 9,188
Other interest 8,197 3,278 11,475
Allowance for borrowed funds used
during construction (1,897) - (1,897)
--------- --------- ---------
Total interest charges 63,217 3,278 66,495
--------- --------- ---------
Income Before Extraordinary Item 58,590 (2,131) 56,459
Extraordinary item (net of income tax
benefit of $11,592) (18,950) - (18,950)
--------- --------- ---------
Net Income 39,640 (2,131) 37,509
Preferred stock dividends 695 (695) -
--------- --------- -------
Earnings Available for Common Stock $ 38,945 $ (1,436) $ 37,509
========= ========= ========
Retained Earnings:
Balance at beginning of year $ 393,708 $ - $ 393,708
Add-Net Income 39,640 (2,131) 37,509
Deduct-Cash dividends on common stock (65,000) - (65,000)
-Cash dividends declared on
cumulative preferred stock (695) 695 -
-------- --------- --------
Balance at end of year $ 367,653 $ (1,436) $366,217
======== ========= ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Financial Statements
Item 6(b) 1-E
Page 25 of 50
Pennsylvania Electric Company and Subsidiaries
Pro Forma Journal Entries
-------------------------
(In Thousands)
(1)
Cash and temporary cash investments $ 63,900
Notes payable $ 63,900
To record the maximum liability associated with
the proposed issuance by Penelec of $63.9 million
of short-term debt. (Proposed limit on short-term
borrowings of $150 million less $86.1 million of
short-term borrowings outstanding at 12/31/98).
(2)
Other interest $ 3,278
Interest accrued $ 3,278
To record the maximum interest related to the
proposed issuance of short-term debt at an assumed
rate of 5.13%.
(3)
Taxes accrued $ 1,147
Income taxes $ 1,147
To reflect the income tax benefit associated with
interest payments related to
the proposed issuance of short-term debt.
(4)
Cumulative preferred stock $ 16,681
Cash and temporary cash investments $ 16,681
To record the redemption of preferred stock by
Penelec on February 19, 1999.
<PAGE>
Financial Statements
Item 6(b) 1-E
Page 26 of 50
Pennsylvania Electric Company and Subsidiaries
Pro Forma Journal Entries
(In Thousands)
(5)
Other current liabilities $ 60
Cash and temporary cash investments $ 60
To reverse the dividend accrual at 12/31/98
relating to the redemption of preferred stock by
Penelec.
(6)
Cash and temporary cash investments $ 695
Preferred stock dividends $ 695
To record the decrease in the preferred stock
dividend balance due to the redemption of
preferred stock by Penelec on February 19, 1999.
<PAGE>
Financial Statements
Item 6(b)
Page 27 of 50
GPU, Inc. and Subsidiary Companies
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). The "GPUI Group," as
referred to in this report, develops, owns, operates and funds the acquisition
of generation, transmission and distribution facilities worldwide through GPU
International, Inc., GPU Power, Inc., GPU Capital, Inc. and GPU Electric, Inc.,
a subsidiary of GPU Capital, Inc. (Effective January 1, 1999, GPU International,
Inc. and GPU Power, Inc., will develop, own, operate and fund the acquisition of
generation facilities worldwide and will be referred to as the "GPUI Group." GPU
Capital, Inc. and GPU Electric, Inc., will develop, own, operate and fund the
acquisition of transmission and distribution systems outside the United States
and will be referred to as "GPU Electric".) Other subsidiaries of GPU, Inc.
include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail
energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in
telecommunications-related businesses; and GPU Service, Inc. (GPUS), which
provides legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
1. ACCOUNTING FOR EXTRAORDINARY AND NON-RECURRING ITEMS
Pennsylvania Restructuring Write-offs
- -------------------------------------
Historically, the rates an electric utility charges its customers have been
based on the utility's costs of operation. As a result, the GPU Energy companies
were required to 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.
In response to the continuing deregulation of the electric utility
industry, the SEC has questioned the continued applicability of FAS 71 by
investor-owned utilities with respect to their electric generation operations.
In response to these concerns, the Financial Accounting Standards Board's (FASB)
EITF concluded in June 1997 that utilities are no longer subject to FAS 71, for
the relevant portion of their business, when they know details of their
individual transition plans to a competitive electric generation marketplace.
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.
<PAGE>
Financial Statements
Item 6(b)
Page 28 of 50
In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders
(Restructuring Orders) which, among other things, essentially remove from
regulation the costs associated with providing electric generation service to
Pennsylvania consumers, effective January 1, 1999. Accordingly, in 1998 Met-Ed
and Penelec discontinued the application of FAS 71 and adopted the provisions of
FAS 101 and EITF Issue 97-4 with respect to their electric generation
operations. The transmission and distribution portion of Met-Ed and Penelec's
operations continue to be subject to the provisions of FAS 71. JCP&L expects to
discontinue the application of FAS 71 and adopt FAS 101 and EITF Issue 97-4 for
its electric generation operations no later than its receipt of NJBPU approval
of its restructuring plans, which is expected in the second quarter of 1999.
Also, as a result of the Restructuring Orders, Met-Ed and Penelec recorded
non-recurring charges for customer refunds of 1998 revenues, and for the
establishment of a sustainable energy fund.
For the year ended December 31, 1998, the net effect on earnings of the
PaPUC's Restructuring Orders was as follows:
(in millions, except per share data)
Met-Ed Penelec Total
------ ------- -----
Write-off of existing Pennsylvania
generation regulatory assets $ 8.0 $ 2.8 $ 10.8
Write-off of existing FERC
generation regulatory assets 1.5 17.6 19.1
Write-off of FERC portion of TMI-1
impairment and TMI-1 decommissioning 2.0 10.2 12.2
------- ------- -------
Extraordinary loss (pre-tax)
due to FAS 101 write-off 11.5 30.6 42.1
Obligation to refund 1998 revenues 27.2 29.2 56.4
Establishment of sustainable energy fund 5.7 6.4 12.1
------- ------- -------
Total pre-tax write-off 44.4 66.2 110.6
Income tax benefit (18.4) (26.4) (44.8)
------- ------- -------
Total after-tax write-off $ 26.0 $ 39.8 $ 65.8
======= ======= =======
GPU loss per average common share
due to Pennsylvania restructuring $ 0.21 $ 0.31 $ 0.52
======= ======= =======
FAS 121 Impairment Tests on Generation Facilities
- -------------------------------------------------
In accordance with Statement of Financial Accounting Standards No. 121 (FAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", impairment tests performed by the GPU Energy
companies on the December 31, 1998 net book value of their generation facilities
determined that the net
<PAGE>
Financial Statements
Item 6(b)
Page 29 of 50
investment in TMI-1 was impaired, resulting in a write-down of $518 million
(pre-tax) to reflect TMI-1's fair market value. Of the amount written down for
TMI-1, $508 million was established as a regulatory asset because management
believes it is probable of recovery in the restructuring process and $10 million
(the FERC jurisdictional portion) was charged to expense as an extraordinary
item.
2. 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 stranded
costs in the electric utility industry. These stranded costs, while generally
recoverable in a regulated environment, are at risk in a deregulated and
competitive environment. The PaPUC's Restructuring Orders issued in 1998 granted
Met-Ed and Penelec recovery of a substantial portion of their stranded costs.
New Jersey legislation enacted in 1999, among other things, also provides for
the recovery of stranded costs.
In 1997, Met-Ed and Penelec filed with the PaPUC their proposed
restructuring plans to implement competition and customer choice in
Pennsylvania. In June 1998, the PaPUC entered restructuring rate orders on the
restructuring plans. As a result of the orders, Met-Ed and Penelec wrote-off in
the second quarter of 1998, $320 million and $150 million pre-tax, respectively.
Following appeals and extended negotiations, in October 1998, the PaPUC adopted
Restructuring Orders, approving the Settlement Agreements entered into by
Met-Ed, Penelec, the PaPUC and all but two of the intervenors in the
restructuring proceedings who have appealed the Restructuring Orders. One of
these appeals remains pending and is scheduled to be heard in April 1999. There
can be no assurance as to the outcome of these appeals. In the third quarter, as
a result of the Restructuring Orders, Met-Ed and Penelec reversed $313 million
and $142 million pre-tax, respectively, of the write-offs recorded in the second
quarter and recorded additional non-recurring charges of $38 million and $58
million pre-tax, for Met-Ed and Penelec, respectively. For additional
information, see Note 1, Accounting for Extraordinary and Non-recurring Items.
In 1997, the NJBPU released Phase II of the Energy Master Plan (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.
In 1997, JCP&L filed with the NJBPU its proposed restructuring plan for a
competitive electric marketplace in New Jersey as required by the NJEMP. In this
plan, JCP&L estimated that its total above-market costs related to power
purchase commitments and company-owned generation, on a present value basis, was
$1.6 billion excluding above-market generation costs related to Oyster Creek.
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. JCP&L
<PAGE>
Financial Statements
Item 6(b)
Page 30 of 50
proposed recovery of its remaining Oyster Creek plant investment as a regulatory
asset, through a nonbypassable charge to customers. At December 31, 1998,
JCP&L's net investment in Oyster Creek was $682 million.
In 1998, hearings on JCP&L's stranded cost and unbundled rate filings were
completed before an Administrative Law Judge (ALJ) and a recommended decision
was issued. In 1999, legislation to deregulate New Jersey's electricity market
was enacted which generally provides for, among other things, customer choice of
electric generation supplier for all consumers beginning no later than August 1,
1999; a 5% rate reduction for all customers beginning August 1, 1999 with
another 5% rate reduction to be phased in over the next three years (which must
be maintained for one year after the end of the three year phase-in); the
aggregation of electric generation service by a government or private
aggregator; the unbundling of customer bills; the ability to recover stranded
costs and the ability to securitize stranded costs. The NJBPU is expected to
issue final decisions on JCP&L's stranded cost, unbundled rate and restructuring
filings in the second quarter of 1999.
The inability of JCP&L to recover its stranded costs in whole or in part
could result in the recording of liabilities for above-market NUG costs,
decommissioning costs, and write-downs of uneconomic generation plant and
regulatory assets recorded in accordance with FAS 71 and EITF Issue 97-4. The
inability to recover these stranded costs could have a material adverse effect
on GPU's results of operations.
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 $272 million; Met-Ed $283 million; Penelec $508 million) at
December 31, 1998. The net proceeds from the sale will be used to reduce the
capitalization of the respective GPU Energy companies, repurchase GPU, Inc.
common stock, fund previously incurred liabilities in accordance with the
Pennsylvania settlement, and may also be applied to reduce short-term debt,
finance further acquisitions, and to reduce acquisition debt of the GPUI Group.
In August 1998, Penelec and New York State Electric & Gas Corporation
(NYSEG) entered into definitive agreements with Edison Mission Energy to sell
the Homer City Station for a total purchase price of approximately $1.8 billion.
Penelec and NYSEG each own a 50% interest in the station, and will share equally
in the net sale proceeds. The sale, which is subject to various federal and
state regulatory approvals, is expected to be completed in the first quarter of
1999.
In November 1998, the GPU Energy companies entered into definitive
agreements with Sithe Energies and FirstEnergy Corporation to sell all their
remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's
50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a
total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed
$677 million; Penelec $604 million). The sales are expected to be completed in
mid-1999, subject to the timely receipt of the necessary regulatory and other
approvals.
<PAGE>
Financial Statements
Item 6(b)
Page 31 of 50
JCP&L and Public Service Electric & Gas Company (PSE&G) each hold a 50%
undivided ownership interest in Yards Creek. In December 1998, JCP&L filed a
petition with the NJBPU seeking a declaratory order that, among other things,
PSE&G's right of first refusal to purchase JCP&L's ownership interest at its
current book value under a 1964 agreement between the companies was void and
unenforceable. PSE&G subsequently commenced a lawsuit in New Jersey Superior
Court requesting, among other things, that JCP&L be directed to sell its
ownership interest to PSE&G in accordance with the 1964 agreement as well as
injunctive relief and damages. In January 1999, the Court granted motions filed
by JCP&L and the NJBPU and dismissed PSE&G's complaint on the grounds that the
NJBPU had primary jurisdiction in the matter. Management believes that the fair
market value of JCP&L's ownership interest in Yards Creek is substantially in
excess of its December 31, 1998 book value of $22 million. There can be no
assurance of the outcome of this matter.
Nonutility Generation Agreements:
Pursuant to the mandates of the federal Public Utility Regulatory Policies
Act and state regulatory directives, the GPU Energy companies have been required
to enter into power purchase agreements with NUGs for the purchase of energy and
capacity for remaining periods of up to 22 years. The following table shows
actual payments from 1996 through 1998, and estimated payments from 1999 through
2003.
Payments Under NUG Agreements
-----------------------------
(in millions)
-------------
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
* 1996 $730 $370 $168 $192
* 1997 759 384 172 203
* 1998 788 403 174 211
1999 798 399 170 229
2000 816 404 169 243
2001 805 413 166 226
2002 819 425 169 225
2003 827 422 173 232
* Actual.
As of December 31, 1998, NUG facilities covered by agreements having 1,687
MW (JCP&L 918 MW; Met-Ed 364 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.
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
(one month to three years) during periods of expected high energy price
volatility and reliance on spot market purchases during other periods. The
projected cost of energy from new generation supply sources has also decreased
due to improvements in power plant technologies and lower forecasted
<PAGE>
Financial Statements
Item 6(b)
Page 32 of 50
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 1998 PaPUC Restructuring Orders and the legislation in New Jersey
provide for full recovery of the above-market costs of NUG agreements. The GPU
Energy companies will continue efforts to reduce the above-market costs of these
agreements and will, where beneficial, attempt to renegotiate the prices of the
agreements, offer contract buyouts and attempt to convert must-run agreements to
dispatchable agreements. There can be no assurance as to the extent to which
these efforts will be successful.
In 1997, the NJBPU approved a Final Settlement which, among other things,
provides for the recovery of costs associated with the buyout of the Freehold
Cogeneration project. The Final Settlement provides for recovery through the
LEAC of buyout costs up to $130 million, and 50% of any costs from $130 million
to $140 million, over a seven-year period for the termination of the Freehold
power purchase agreement. The NJBPU approved the cost recovery on an interim
basis subject to refund, pending further review by the NJBPU. There can be no
assurance as to the outcome of this matter.
In 1998, Met-Ed and Penelec entered into definitive buyout agreements with
two NUG project developers. These agreements are contingent upon Met-Ed and
Penelec obtaining a final and non-appealable PaPUC order allowing for the full
recovery of the buyout payments through retail rates. The Restructuring Orders
established terms and conditions that would enable the buyout agreements to
proceed; however, until appeals to the Restructuring Orders are resolved, there
can be no assurance as to the outcome of these matters.
JCP&L has contracts through 2002 to purchase between 5,250 GWH and 5,450
GWH of electric generation per year at an average annual cost of $410 million.
The prices during this period are estimated to escalate approximately 0.9%
annually on a unit cost (cents/KWH) basis. From 2003 through 2008, JCP&L has
contracts to purchase between 5,000 GWH and 5,300 GWH of electric generation per
year at an average annual cost of $429 million. The prices during this period
are estimated to escalate approximately 1.9% annually. After 2008, when major
contracts begin to expire, purchases steadily decline to approximately 1,180 GWH
in 2014. The contract unit cost is estimated to escalate approximately 2.6%
annually from 2009 through 2014, with a total average annual cost of $229
million during this period. All of JCP&L's contracts will have expired by the
end of 2020.
Met-Ed has contracts through 2008 to purchase between 2,200 GWH and 2,400
GWH of electric generation per year at an average annual cost of $173 million.
The prices during this period are estimated to escalate approximately 2.0%
annually on a unit cost basis. From 2009 through 2012, Met-Ed is forecast to
purchase between 1,800 GWH and 2,200 GWH of electric generation per year at an
average annual cost of $173 million. During this period, the prices are
estimated to decrease approximately 0.7% annually on a unit cost basis. After
2012, Met-Ed's remaining contracts expire rapidly through 2016; thereafter, they
remain constant until the expiration of the last contract in 2020.
<PAGE>
Financial Statements
Item 6(b)
Page 33 of 50
Penelec has contracts through 2010 to purchase between 3,250 GWH and 3,500
GWH of electric generation per year at an average annual cost of $237 million.
The prices during this period are estimated to escalate approximately 1.2%
annually on a unit cost basis. From 2011 through 2018, purchases decline from
approximately 2,600 GWH to approximately 1,350 GWH in 2018. The contract unit
cost is estimated to decrease approximately 0.1% annually from 2011 through
2018, with a total average annual cost of $154 million during this period. After
2018, Penelec's remaining contracts expire rapidly through 2020.
The GPU Energy companies are recovering certain of their NUG costs
(including certain buyout costs) from customers. The Restructuring Orders
provide assurance of full recovery of these costs for Met-Ed and Penelec. Met-Ed
and Penelec recorded a liability of $1.8 billion (Met-Ed $0.8 million; Penelec
$1.0 million) for their above-market NUG costs, which is fully offset by
Regulatory assets, net on the Consolidated Balance Sheets. The restructuring
legislation in New Jersey includes provisions for the recovery of costs under
NUG agreements and NUG buyout costs.
Regulatory assets, net:
- -----------------------
In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders which,
among other things, essentially remove from regulation the costs associated with
providing electric generation service to Pennsylvania consumers, effective
January 1, 1999. Accordingly, in 1998 Met-Ed and Penelec discontinued the
application of FAS 71 and adopted the provisions of FAS 101 and EITF Issue 97-4
with respect to their electric generation operations. The transmission and
distribution portion of Met-Ed and Penelec's operations will continue to be
subject to the provisions of FAS 71. See Note 1, Accounting for Extraordinary
and Non-recurring Items.
JCP&L expects to discontinue the application of FAS 71 and adopt FAS 101
and EITF Issue 97-4 for its electric generation operations no later than its
receipt of NJBPU approval of its restructuring plans, which is expected in the
second quarter of 1999.
Regulatory assets, net as reflected in the December 31, 1998 and 1997
Consolidated Balance Sheets in accordance with the provisions of FAS 71 and EITF
Issue 97-4 were as follows:
<PAGE>
Financial Statements
Item 6(b)
Page 34 of 50
GPU, Inc. and Subsidiaries (in thousands)
- -------------------------- --------------
1998 1997
---------- -----------
Competitive transition charge per PaPUC Order $1,023,815 $ -
========= =========
Other regulatory assets, net:
Reserve for generation divestiture (JCP&L) $ 136,804 $ -
Phase II reserve for
generation divestiture (Met-Ed and Penelec) 1,356,580 -
Income taxes recoverable through future rates 449,638 510,680
Income taxes refundable through future rates (52,701) (89,247)
Net investment in TMI-2 65,787 83,951
TMI-2 decommissioning costs 119,571 257,180
Nonutility generation contract buyout costs 123,208 245,568
Unamortized property losses 80,287 99,532
Other postretirement benefits 73,770 89,569
Environmental remediation 50,214 90,308
N.J. unit tax 33,244 39,797
Unamortized loss on reacquired debt 32,247 40,489
Load and demand-side management programs 12,568 23,164
DOE enrichment facility decommissioning 28,956 33,472
Nuclear fuel disposal fee 21,092 21,512
Storm damage 30,166 31,097
Deferred nonutility generation costs
not in current rates (16,067) 24,857
Future nonutility generation costs not in CTC 369,290 -
Public utility realty taxes (PURTA) 8,060 -
Other regulatory liabilities (50,319) (13,959)
Other regulatory assets 10,018 59,508
--------- ---------
Total other regulatory assets, net $2,882,413 $1,547,478
========= =========
JCP&L
- -----
(in thousands)
--------------
1998 1997
----------- ----------
Other regulatory assets, net:
Reserve for generation divestiture $ 136,804 $ -
Income taxes recoverable through future rates 172,752 128,111
Income taxes refundable through future rates (35,535) (37,759)
Net investment in TMI-2 65,787 75,541
TMI-2 decommissioning costs 19,192 30,024
Nonutility generation contract buyout costs 120,708 140,500
Unamortized property losses 80,287 94,726
Other postretirement benefits 46,486 49,807
Environmental remediation 50,214 61,324
N.J. unit tax 33,244 39,797
Unamortized loss on reacquired debt 25,981 28,729
Load and demand-side management programs 12,568 23,164
DOE enrichment facility decommissioning 18,049 21,223
Nuclear fuel disposal fee 21,092 23,781
Storm damage 30,166 31,097
Other regulatory liabilities (49,840) (11,467)
Other regulatory assets 5,930 37,878
--------- ---------
Total other regulatory assets, net $ 753,885 $ 736,476
========= =========
<PAGE>
Financial Statements
Item 6(b)
Page 35 of 50
Met-Ed
- ------
Competitive transition charge per PaPUC Order $ 680,213 $ -
========= =========
Other regulatory assets, net:
Phase II reserve for
generation divestiture $ 421,807 $ -
Income taxes recoverable through future rates 133,585 178,927
Income taxes refundable through future rates (10,804) (21,749)
Net investment in TMI-2 - 1,187
TMI-2 decommissioning costs 68,091 145,103
Nonutility generation contract buyout costs 2,500 76,368
Unamortized property losses - 2,650
Other postretirement benefits 27,284 39,762
Environmental remediation - 4,121
Unamortized loss on reacquired debt 3,023 5,329
DOE enrichment facility decommissioning 7,409 8,166
Nuclear fuel disposal fee - (1,511)
Deferred nonutility generation costs
not in current rates (7,746) 10,265
Future nonutility generation costs not in CTC 271,270 -
Public utility realty taxes (PURTA) 3,699 -
Other regulatory liabilities (83) (2,446)
Other regulatory assets 1,899 4,515
--------- ---------
Total other regulatory assets, net $ 921,934 $ 450,687
========= =========
Penelec (in thousands)
- ------- --------------
1998 1997
---------- ---------
Competitive transition charge per PaPUC Order $ 343,602 $ -
========= =========
Other regulatory assets, net:
Phase II reserve for
generation divestiture 934,773 -
Income taxes recoverable through future rates 143,301 203,642
Income taxes refundable through future rates (6,362) (29,739)
Net investment in TMI-2 - 7,223
TMI-2 decommissioning costs 32,288 82,053
Nonutility generation contract buyout costs - 28,700
Unamortized property losses - 2,156
Environmental remediation - 24,863
Unamortized loss on reacquired debt 3,243 6,431
DOE enrichment facility decommissioning 3,498 4,083
Nuclear fuel disposal fee - (758)
Deferred nonutility generation costs
not in current rates (8,321) 14,592
Future nonutility generation costs not in CTC 98,020 -
Public utility realty taxes (PURTA) 4,361 -
Other regulatory liabilities (396) (46)
Other regulatory assets 2,189 17,115
--------- ---------
Total other regulatory assets, net $1,206,594 $ 360,315
========= =========
<PAGE>
Financial Statements
Item 6(b)
Page 36 of 50
Competitive transition charge: Represents the stranded cost recovery amounts
allowed by the PaPUC, which are to be collected from customers of Met-Ed and
Penelec, beginning January 1, 1999, over 12-year and 11-year transition periods,
respectively, except for above-market NUG costs which will be recovered over the
lives of the related power purchase contracts. The CTC amounts will be adjusted
in a Phase II rate restructuring order, after divestiture of the generation
assets is complete. Stranded costs, as defined by the Pennsylvania Customer
Choice Act, include an electric utility's known and measurable
generation-related costs, which would have been recoverable in the former
regulated market, but are not recoverable in a competitive electric generation
market.
Reserve for generation divestiture (JCP&L): Represents generation divestiture
shortfall which is probable of recovery in future rates, inclusive of
divestiture transaction costs.
Phase II reserve for generation divestiture (Met-Ed and Penelec): Represents
generation divestiture CTC shortfall to be addressed in a Phase II rate
restructuring order, inclusive of future closure costs of various ash disposal
sites; amounts related to the remediation of Penelec's Seward station property;
costs for a voluntary enhanced retirement program offered to all or certain
Genco employees; certain income tax-related items; and divestiture transaction
costs.
Income taxes recoverable/refundable through future rates: Represents amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes," in
1993.
Net investment in TMI-2: Represents costs that are recoverable through rates for
the GPU Energy companies' remaining investment in the plant and fuel core.
TMI-2 decommissioning costs: Represents costs that are recoverable through rates
for the GPU Energy companies' radiological decommissioning and the cost of
removal of nonradiological structures and materials in accordance with the 1995
site-specific study (in 1998 dollars). 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.
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 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 37 of 50
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.
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 TMI-1
in accordance with the Nuclear Waste Policy Act of 1982 (NWPA).
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.
Deferred nonutility generation costs not in current rates: Represents NUG
operating costs which are not reflected in Met-Ed and Penelec's current rates,
for which rate recovery has been assured.
Future nonutility generation costs not in CTC: Represents future NUG operating
costs which are not presently included in Met-Ed and Penelec's CTC, for which
recovery has been assured. The amounts collected will be adjusted every five
years over the life of each NUG contract.
Public utility realty taxes (PURTA): Represents additional assessments under the
public utility realty tax, which are recoverable through Met-Ed and Penelec's
state tax adjustment surcharges.
ACCOUNTING MATTERS
------------------
In 1998, Statement of Financial Accounting Standards No. 133 (FAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was issued. FAS
133 requires that companies recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value. To
comply with this statement, GPU will be required to include its derivative
transactions on its balance sheet at fair value, and recognize the subsequent
changes in fair value as either gains or losses in earnings or report them as a
component of other comprehensive income, depending upon the intended use and
designation of the derivative as a hedge.
<PAGE>
Financial Statements
Item 6(b)
Page 38 of 50
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. GPU expects to adopt this statement in the first quarter of
2000. GPU is in the process of evaluating the impact of FAS 133.
In 1998, the FASB's EITF issued guidance on accounting for energy
contracts with EITF Issue 98-10, "Accounting for Energy Trading and Risk
Management Activities," which is effective for fiscal years beginning after
December 15, 1998. EITF Issue 98-10 addresses whether certain types of contracts
for the sale and purchase of energy commodities should be marked to market or
accounted for under accrual accounting. GPU will adopt EITF Issue 98-10 in the
first quarter of 1999. The adoption of EITF Issue 98-10 is not expected to have
a material impact on GPU's financial position or results of operations.
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 restructuring proceeding in New Jersey could 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 JCP&L.
Management believes that the outcome of that proceeding could have a material
adverse effect on GPU's future earnings.
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 December 31, 1998 and
1997, the GPU Energy companies' net investment in TMI-1 and Oyster Creek,
including nuclear fuel, was as follows:
<PAGE>
Financial Statements
Item 6(b)
Page 39 of 50
Net Investment (in millions)
----------------------------
TMI-1 Oyster Creek
----- ------------
1998
----
JCP&L $ 18 $682
Met-Ed 36 -
Penelec 17 -
--- ----
Total $ 71 $682
=== ===
1997
JCP&L $155 $701
Met-Ed 300 -
Penelec 147 -
--- ----
Total $602 $701
=== ===
The GPU Energy companies' net investment in TMI-2 at December 31, 1998 was
$66 million for JCP&L and $84 million, (JCP&L $76 million, Met-Ed $1 million;
Penelec $7 million) at December 31, 1997. 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. In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders,
discontinued the application of FAS 71 and adopted the provisions of FAS 101 and
EITF Issue 97-4 with respect to their electric generation operations.
Accordingly, Met-Ed and Penelec wrote-off their remaining investment in TMI-2 of
$1 million and $7 million, respectively.
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
has been exploring the sale or early retirement of the plant to mitigate costs
associated with its continued operation. GPU does not anticipate making a final
decision on the plant before the NJBPU rules on JCP&L's restructuring filing. 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,
<PAGE>
Financial Statements
Item 6(b)
Page 40 of 50
there can be no assurance that such costs will be fully recoverable.
In October 1998, GPU entered into definitive agreements to sell TMI-1 to
AmerGen, a joint venture between PECO Energy and British Energy.
TMI-2:
- ------
As a result of the 1979 TMI-2 accident, individual claims for alleged
personal injury (including claims for punitive damages), which are material in
amount, were 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 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 Nuclear Regulatory Commission
(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 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 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
<PAGE>
Financial Statements
Item 6(b)
Page 41 of 50
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 remaining in
long-term storage and being decommissioned at the same time as TMI-1. Based on
NRC studies, a comparable funding target was developed for TMI-2 which took the
accident into account. Under the NRC regulations, the funding targets (in 1998
dollars) for TMI-1, TMI-2, and Oyster Creek are as follows:
(in millions)
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
JCP&L $ 67 $106 $328
Met-Ed 134 214 -
Penelec 67 106 -
--- --- ---
Total $268 $426 $328
=== === ===
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 address costs
related to the removal of nonradiological structures and materials.
A consultant to GPUN performed site-specific studies of TMI-1 (1995), TMI-2
(1995) and Oyster Creek (1995 and 1998), 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
<PAGE>
Financial Statements
Item 6(b)
Page 42 of 50
estimates under the site-specific studies, assuming decommissioning at the end
of the plants' license terms, are as follows (in 1998 dollars):
(in millions)
-------------
Oyster
TMI-1 TMI-2 Creek
----- ----- -----
Radiological decommissioning $346 $421 $572
Nonradiological cost of removal 85 34 * 31
--- --- ---
Total $431 $455 $603
=== === ===
* Net of $12.3 million spent as of December 31, 1998.
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage.
The 1995 Oyster Creek site-specific study was updated in response to the
previously announced potential early closure of the plant in the year 2000. An
early shutdown would increase the retirement costs shown above to $611 million
($580 million for radiological decommissioning and $31 million for
nonradiological cost of removal). Both estimates include substantial spending
for an on-site dry storage facility for spent nuclear fuel and significant costs
for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of
1982 (see Other Commitments and Contingencies).
In October 1998, GPU entered into definitive agreements to sell TMI-1 to
AmerGen. The agreements provide, among other things, that upon closing, the GPU
Energy companies will fund the TMI-1 decommissioning trusts up to $320 million
and AmerGen will assume all TMI-1 decommissioning liabilities. If all the
necessary regulatory approvals, as well as certain Internal Revenue Service
rulings, are obtained, the transfer of all the TMI-1 decommissioning liabilities
and expenses to AmerGen will take place at the financial closing.
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 trusts, at
market on the Consolidated Balance Sheets.
<PAGE>
Financial Statements
Item 6(b)
Page 43 of 50
TMI-1 and Oyster Creek:
The Final Settlement approved by the NJBPU in 1997 has granted JCP&L annual
revenues for TMI-1 and Oyster Creek retirement costs of $5.2 million and $22.5
million, respectively. These annual revenues are 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. In the Restructuring Orders, the PaPUC granted recovery of an interim
level of TMI-1 decommissioning costs as part of the CTC. This amount will be
adjusted in Phase II of Met-Ed and Penelec's restructuring proceedings, once the
net proceeds from the generation asset divestiture are determined.
The amounts charged to depreciation expense in 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 in 1998:
JCP&L $ 5 $ 22
Met-Ed 9 -
Penelec 4 -
--- ---
Total $ 18 $ 22
=== ===
Accumulated depreciation provision
at December 31, 1998:
JCP&L $ 49 $273
Met-Ed 74 -
Penelec 35 -
--- ---
Total $158 $273
=== ===
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
December 31, 1998 and 1997 are as follows:
<PAGE>
Financial Statements
Item 6(b)
Page 44 of 50
(in millions)
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
1998 $484 $121 $242 $121
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 $29 million (JCP&L $7 million; Met-Ed $15
million; Penelec $7 million ) for 1998 and $16 million (JCP&L $4 million; Met-Ed
$8 million; Penelec $4 million) for 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 $1.8 million (JCP&L
$450 thousand; Met-Ed $900 thousand ; Penelec $450 thousand).
Offsetting the $484 million liability at December 31, 1998 is $252 million
(JCP&L $23 million; Met-Ed $147 million; Penelec $82 million) which management
believes is probable of recovery from customers and included in Regulatory
assets, net on the Consolidated Balance Sheets, and $266 million (JCP&L $103
million; Met-Ed $120 million; Penelec $43 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 Regulatory assets, net. TMI-2
decommissioning costs charged to depreciation expense in 1998 amounted to $13
million (JCP&L $2 million; Met-Ed $10 million; Penelec $1 million).
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on
the 1995 site-specific estimates. In addition, JCP&L is recovering its share of
TMI-2's incremental monitored storage costs. The PaPUC Restructuring Orders
granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of
the CTC, but also allowed Met-Ed and Penelec to defer as a regulatory asset
those amounts that are above the level provided for in the CTC.
At December 31, 1998, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $75 million (JCP&L $19 million; Met-Ed
$37 million; Penelec $19 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 have made
contributions to irrevocable external trusts relating to their shares of the
accident-related portions of the decommissioning liability in the amounts of $15
million, $40 million and $20 million, respectively. These contributions were not
recoverable from customers and have been expensed. The GPU Energy companies will
not pursue recovery from customers for any amounts contributed in excess of the
$75 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.
<PAGE>
Financial Statements
Item 6(b)
Page 45 of 50
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, some of which will change as certain
generating assets are sold. 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 $9.8 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 $88 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 also subject
to retrospective premium assessments of up to $26.8 million (JCP&L $16.9
million; Met-Ed $6.6 million; Penelec $3.3 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
<PAGE>
Financial Statements
Item 6(b)
Page 46 of 50
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 have spent $242 million (JCP&L
$44 million; Met-Ed $95 million; Penelec $103 million) to date. Effective
November 1997, the Pennsylvania Environmental Quality Board adopted regulations
implementing the NOx reductions proposed by the Ozone Transport Commission
(OTC), 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 these state
implementation plans, and that as a result, they would expect to spend an
estimated $0.6 million (JCP&L $30 thousand; Met-Ed $340 thousand; Penelec $200
thousand) in 1999 to meet the seasonal reductions agreed upon by the OTC. In
July 1997 and October 1998 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 scientific evidence. The GPU Energy
companies are unable to determine what additional costs, if any, will be
incurred if the EPA rules are upheld. Moreover, the timing and amounts of
expenditures under the Clean Air Act will be dependent upon the timing of the
sales of the related generating facilities.
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 some
cases, more than one company is named for a given site):
JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL
----- ------ ------- ---- --------- -----
8 4 2 1 1 13
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
(Chesapeake). According to
<PAGE>
Financial Statements
Item 6(b)
Page 47 of 50
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 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, Inc. has requested that the Court
reconsider its decision. The parties continue to engage in settlement
discussions. 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 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 December 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
expects recovery of these remediation costs in Phase II of its restructuring
proceeding and has recorded a corresponding regulatory asset of approximately
$12 million at December 31, 1998.
In 1997, the GPU Energy companies filed with the PaDEP applications for
re-permitting seven 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 December 31, 1998.
JCP&L has requested recovery of its share of closure costs in its restructuring
plan filed with the NJBPU in July 1997. Met-Ed and Penelec expect recovery of
these costs in Phase II of their restructuring proceedings. As a result, a
regulatory asset of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec
$12 million) is reflected on the Consolidated Balance Sheets at December 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 December 31, 1998, JCP&L has
spent approximately $32 million in connection with the cleanup of these sites.
In addition, JCP&L has recorded an estimated environmental liability of $52
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 $52 million due to significant uncertainties,
including changes in acceptable remediation methods and technologies.
<PAGE>
Financial Statements
Item 6(b)
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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
Final Settlement. At December 31, 1998, JCP&L had recorded on its Consolidated
Balance Sheet a regulatory asset of $44 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.
OTHER COMMITMENTS AND CONTINGENCIES
-----------------------------------
GPUI Group:
- -----------
At December 31, 1998, the GPUI Group had investments totaling approximately
$1.2 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.
At December 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group was
$590 million; GPU, Inc. has also guaranteed up to an additional $761 million of
GPUI Group obligations. Of this amount, $735 million is included in Long-term
debt and Securities due within one year on GPU's Consolidated Balance Sheet at
December 31, 1998, and $26 million relates to various other obligations of the
GPUI Group.
Midlands has invested in a power project in Pakistan (Uch Power Project)
which was originally scheduled to begin commercial operation in late 1998. The
Uch Power Project is a 586 MW facility of which Midlands is a 40% owner.
Construction of the Uch Power Project is complete, but commercial operation has
been delayed pending resolution of a dispute with the Pakistani government. In
July 1998, the Pakistani government-owned utility issued a notice of intent to
terminate certain key project agreements. The notice asserted that various forms
of corruption were involved in the original granting of the agreements to the
Uch investors by the predecessor Pakistani government. The Uch investors,
including Midlands, strongly deny the allegations and are continuing to explore
remedies to the situation. GPU Electric believes that similar notices were
received by a number of other independent power projects in Pakistan. In
December 1998, the Pakistani government offered to withdraw these notices.
Through its 50% ownership in Midlands, GPU Electric's current investment in
the Uch Power Project is approximately $32 million, and project lenders could
require GPU Electric to make additional capital contributions to the project of
approximately $12 million under certain conditions. There can be no assurance as
to the outcome of this matter.
Lake Cogen, Ltd. (Lake), an independent power project owned by GPU
International, is pursuing legal proceedings against Florida Power Corporation
(FPC) to resolve an ongoing disagreement involving the pricing under the power
purchase agreement between
<PAGE>
Financial Statements
Item 6(b)
Page 49 of 50
Lake and FPC. GPU International's total investment in Lake, including guaranteed
lease payments, is approximately $21 million. A court decision is expected in
February 1999. There can be no assurance as to the outcome of this proceeding.
Other:
GPU's capital programs, for which substantial commitments have been incurred
and which extend over several years, contemplate expenditures of $436 million
(JCP&L $183 million; Met-Ed $97 million; Penelec $98 million; Other $58 million)
during 1999.
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 1999 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 $212 million (JCP&L $27 million; Met-Ed $57 million;
Penelec $128 million) for 1999. These contracts will be assumed by Sithe
Energies, upon the closing of its purchase of the GPU Energy companies' fossil
generation facilities.
JCP&L has entered into agreements with other utilities to purchase capacity
and energy for various periods through 2004. These agreements provide for up to
629 MW in 1999, declining to 445 MW in 2000 through 2003 and 345 MW in 2004 when
the final agreement expires. Payments pursuant to these agreements are estimated
to be $114 million in 1999, $91 million in 2000, $99 million in 2001, $109
million in 2002, $113 million in 2003 and $48 million in 2004.
In accordance with the 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. Following its
purchase of TMI-1, AmerGen will assume liabilities for disposal costs related to
spent fuel generated after the sale. In 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 November 1997, the Court denied this request. The
DOE's inability to accept spent nuclear fuel 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.
<PAGE>
Financial Statements
Item 6(b)
Page 50 of 50
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste disposal facility in New Jersey, which
was expected to commence operation by the end of 2003. GPUN's total share of the
cost for developing, constructing and site licensing the facility was estimated
to be $58 million. Through December 31, 1998, GPUN has made payments of $6
million. JCP&L is recovering the costs to construct this facility from
customers, and $27 million has been collected to date. In February 1998, the New
Jersey Low-Level Radwaste Facility Siting Board (Siting Board) voted to suspend
the siting process in New Jersey. The Siting Board is in the process of
determining what activities are required by law to be continued, and the level
of funding required to support these activities. The Siting Board intended to
return the unused funds to the generators, but the Governor has overruled this
decision. Legislation is pending in New Jersey, however, that would mandate
returning the unused funds to the generators, of which GPUN's share is
approximately $2.6 million. GPUN cannot determine at this time what effect, if
any, this matter will have on its operations.
Pennsylvania, Delaware, Maryland and West Virginia have established the
Appalachian Compact to construct a facility for the disposal of low-level
radwaste in those states, including low-level radwaste from TMI-1. To date,
pre-construction costs of $33 million, out of an estimated $88 million, have
been paid. Eleven nuclear plants have so far shared equally in the
pre-construction costs; GPUN has contributed $3 million on behalf of TMI-1.
Pennsylvania has suspended the search for a low-level radwaste disposal site in
the state. GPUN cannot determine at this time what effect, if any, this may 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 LEAC.
At December 31, 1998, GPU, Inc. and consolidated affiliates had 8,957
employees worldwide (JCP&L 2,258; Met-Ed 2,654; Penelec 1,780; GPUI Group 454;
all other companies 1,811), of which 8,611 employees were located in the U.S.
The majority of the U.S. workforce is employed by the GPU Energy companies, of
which approximately 4,650 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 collective bargaining agreement with the Utility Workers
Union of America expires in 2001.
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.
