UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from --------------- to ---------------
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
- ----------- ----------------------------------- ------------------
1-6047 GPU, Inc. 13-5516989
(a Pennsylvania corporation)
300 Madison Avenue
Morristown, New Jersey 07962-1911
Telephone (973) 401-8200
1-3141 Jersey Central Power & Light Company 21-0485010
(a New Jersey corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
1-446 Metropolitan Edison Company 23-0870160
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
1-3522 Pennsylvania Electric Company 25-0718085
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the registrant's classes of
voting stock, as of May 1, 2000, was as follows:
<TABLE>
<CAPTION>
Shares
Registrant Title Outstanding
- ----------------------------------- ----------------------------- -----------
<S> <C> <C>
GPU, Inc. Common Stock, $2.50 par value 121,323,533
Jersey Central Power & Light Company Common Stock, $10 par value 15,371,270
Metropolitan Edison Company Common Stock, no par value 859,500
Pennsylvania Electric Company Common Stock, $20 par value 5,290,596
</TABLE>
<PAGE>
GPU, Inc. and Subsidiary Companies
Quarterly Report on Form 10-Q
March 31, 2000
Table of Contents
-----------------
Page
PART I - Financial Information
Combined Management's Discussion and Analysis
of Financial Condition and Results of
Operations 1
Consolidated Financial Statements:
GPU, Inc.
---------
Balance Sheets 22
Statements of Income 24
Statements of Cash Flows 25
Jersey Central Power & Light Company
------------------------------------
Balance Sheets 26
Statements of Income 28
Statements of Cash Flows 29
Metropolitan Edison Company
---------------------------
Balance Sheets 30
Statements of Income 32
Statements of Cash Flows 33
Pennsylvania Electric Company
-----------------------------
Balance Sheets 34
Statements of Income 36
Statements of Cash Flows 37
Combined Notes to Consolidated Financial Statements 38
PART II - Other Information 58
Signatures 59
---------------------------------
The financial statements (not examined by independent accountants) reflect
all adjustments (which consist of only normal recurring accruals), which are in
the opinion of management, necessary for a fair statement of the results for the
interim periods presented.
This combined Quarterly Report on Form 10-Q is separately filed by GPU,
Inc., Jersey Central Power & Light Company, Metropolitan Edison Company and
Pennsylvania Electric Company. Information contained herein relating to any
individual registrant is filed by such registrant on its own behalf. None of
these registrants make any representations as to information relating to the
other registrants. This combined Form 10-Q supplements and updates the 1999
Annual Report on Form 10-K, filed by the individual registrants with the
Securities and Exchange Commission and should be read in conjunction therewith.
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements made
that are not historical facts are forward-looking and, accordingly, involve
estimates, forecasts, risks and uncertainties that could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. Although such forward-looking statements have been based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. Some of the factors that could cause actual results to differ
materially include, but are not limited to: the effects of regulatory decisions;
changes in law and other governmental actions and initiatives; the impact of
deregulation and increased competition in the industry; industry restructuring;
expected outcomes of legal proceedings; the completion of generation asset
divestiture; energy prices and availability; and uncertainties involved with
foreign operations including political risks and foreign currency fluctuations.
<PAGE>
GPU, Inc. and Subsidiary Companies
COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GPU, Inc. owns all the outstanding common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison
Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer
service function, transmission and distribution operations and the operations of
the remaining non-nuclear generating facilities 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 nuclear
generation operations of GPU Energy are conducted by GPU Nuclear, Inc. (GPUN).
GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own, operate and
fund the acquisition of electric and gas transmission and distribution systems
in foreign countries, and are referred to as "GPU Electric." GPU International,
Inc. and GPU Power, Inc. and their subsidiaries develop, own and operate
generation facilities in the United States (US) and foreign countries and are
referred to as the "GPUI Group." 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; MYR Group Inc. (MYR), which is a utility
infrastructure construction company; 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."
GPU RESULTS OF OPERATIONS
-------------------------
EARNINGS PER SHARE CONTRIBUTION:
- --------------------------------
(on a diluted basis) Three Months Ended
March 31,
---------------------------
2000 1999 Change
----- ----- ------
Operations:
GPU Energy companies * $ 0.79 $ 0.94 $(0.15)
GPU Electric 0.29 0.29 -
GPUI Group 0.03 0.04 (0.01)
GPU AR 0.01 0.01 -
GPU, Inc. (Corporate) (0.04) (0.01) (0.03)
----- ----- -----
Total operations 1.08 1.27 (0.19)
Non-recurring items:
GPU Energy companies - 0.22 (0.22)
----- ----- -----
Total $ 1.08 $ 1.49 $(0.41)
===== ===== =====
* Includes GPU Telcom
GPU's earnings for the first quarter 2000 were $131 million, or $1.08 per
share, compared with earnings of $190.7 million, or $1.49 per share, for the
same period in 1999. Excluding the non-recurring increase in March 1999 of $27.8
million after-tax, or $0.22 per share, for the portion of the gain on the sale
of the Homer City Generating Station related to wholesale operations, earnings
decreased $0.19 per share. This decrease was primarily due to lower revenues for
the GPU Energy companies as a result of the Pennsylvania and New Jersey rate
restructurings. Specifically, revenues decreased due to lower energy supply
sales resulting from more customers buying their energy requirements from
alternate suppliers in Pennsylvania and to a lesser extent in New Jersey, and
lower rates charged to customers in New Jersey.
1
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OPERATING REVENUES:
- -------------------
Operating revenues for the first quarter 2000 increased $107.7 million to
$1.2 billion, as compared to the first quarter 1999. The components of the
changes are as follows:
2000 vs. 1999 (in millions)
---------------------------
Three Months Ended
March 31,
------------------
GPU Energy companies:
Kilowatt-hour (KWH) revenues $(192.6)
Energy and restructuring-related
revenues 64.2
Competitive transition charge
(CTC) revenues 13.3
GPU Telcom revenues (0.1)
Other revenues (1.2)
-----
Total GPU Energy companies (116.4)
GPU Electric 210.6
GPUI Group 6.6
GPU AR 6.9
-----
Total increase $107.7
=====
GPU Energy companies
Kilowatt-hour revenues
- ----------------------
The decrease for the three months ended March 31, 2000 was primarily due
to lower generation-related revenues of approximately $89.5 million as a result
of more Pennsylvania and New Jersey customers choosing another electric energy
supplier, and lower rates charged to customers in New Jersey resulting in a
decrease in revenues of approximately $24.6 million. Also contributing to the
decrease is the fact that certain JCP&L revenues related to stranded cost
recovery are now included under energy and restructuring-related revenues,
effective August 1, 1999.
Energy and restructuring-related revenues (JCP&L only)
- ------------------------------------------------------
Changes in energy and restructuring-related revenues do not affect
earnings as they are offset by corresponding changes in expense. The increase
for the three months ended March 31, 2000 was primarily due to the inclusion of
revenues, effective August 1, 1999, for the recovery of stranded costs due to
restructuring in New Jersey. In 1999, JCP&L changed its estimate for unbilled
revenue, which resulted in the recording of additional revenues, partially
offsetting the increase in the current period.
Competitive transition charge (CTC) revenues (Met-Ed and Penelec only)
- ----------------------------------------------------------------------
CTC revenues represent Pennsylvania stranded cost recoveries permitted by
the Pennsylvania Public Utility Commission (PaPUC) in accordance with Met-Ed and
Penelec's final Restructuring Orders effective January 1, 1999. Changes in CTC
revenues generally do not affect earnings as they are offset by corresponding
changes in expense.
2
<PAGE>
GPU Electric
The increase in revenues for the three months ended March 31, 2000 was
primarily due to the inclusion of revenues from: Midlands (of which the
remaining 50% was acquired in July 1999), $151 million; Empresa Distribuidora
Electrica Regional, S.A. (Emdersa) (acquired in March 1999), $30 million; and
GPU GasNet (acquired in June 1999), $11.7 million.
GPUI Group
The increase for the three months ended March 31, 2000 was due in part to
higher energy and capacity revenues at Empresa Guaracachi S.A. (EGSA) as a
result of new generating units that began operations in June 1999.
GPU AR
The increase for the three months ended March 31, 2000 was due primarily
to more KWH sales than in the same period of 1999 and a slight increase in the
average price per KWH.
OPERATING INCOME:
- -----------------
Operating income for the first quarter 2000 increased $41.7 million to
$340.3 million, as compared to the first quarter 1999. The components of the
changes are as follows:
2000 vs. 1999 (in millions)
---------------------------
Three Months Ended
March 31,
---------------------------
GPU Energy companies $(57.0)
GPU Electric 102.5
GPUI Group (2.0)
GPU AR (0.1)
GPU, Inc. (1.7)
-----
Total increase $ 41.7
=====
GPU Energy companies
The decrease was due to lower revenues as discussed above (see Operating
Revenues section for additional information) and higher energy costs for Met-Ed
and Penelec due to the purchase of more energy since the sale of GPU Energy's
generating assets. Partially offsetting this decrease was lower operation and
maintenance (O&M) expenses primarily due to the sale of GPU Energy's generating
assets in 1999, lower depreciation expense due to the sale of generating assets
and the effect of the impairment write-down of the Oyster Creek (Oyster Creek)
nuclear generating station, which was also recorded in 1999.
GPU Electric
The increase was due primarily to the consolidation of Midlands since the
acquisition of the remaining 50% ownership in 1999, and the inclusion of Emdersa
and GPU GasNet. Prior to its purchase of the remaining 50%, GPU accounted for
its investment in Midlands under the equity method and included
3
<PAGE>
its share of Midlands' income in other income on the Consolidated Statements of
Income.
OTHER INCOME AND DEDUCTIONS:
- ----------------------------
Other income and deductions for the first quarter 2000 decreased $79.3
million to $23.1 million, as compared to the first quarter 1999. The components
of the changes are as follows:
2000 vs. 1999 (in millions)
---------------------------
Three Months Ended
March 31,
---------------------------
GPU Energy companies $(34.5)
GPU Electric (43.4)
GPUI Group (1.5)
GPU AR 0.1
GPU, Inc. -
-----
Total decrease $(79.3)
=====
GPU Energy companies
The decrease for the three months ended March 31, 2000 was primarily due
to the absence, in 2000, of the gain of $38.3 million pre-tax, as a result of
the sale of Penelec's Homer City Station.
GPU Electric
The decrease for the three months ended March 31, 2000 was due primarily
to the consolidation of Midlands since the acquisition of the remaining 50%
ownership in 1999. Prior to that, the Midlands investment was accounted for
under the equity method and GPU's share of Midlands' income was included in
other income on the Consolidated Statements of Income.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- -----------------------------------------
Interest charges and preferred dividends for the first quarter 2000
increased $49.7 million to $143 million, as compared to the first quarter 1999.
The components of the changes are as follows:
2000 vs. 1999 (in millions)
---------------------------
Three Months Ended
March 31,
---------------------------
GPU Energy companies $ (8.8)
GPU Electric 56.7
GPUI Group 0.3
GPU, Inc. 1.5
-----
Total increase $ 49.7
=====
GPU Energy companies
The decrease was primarily due to the following: in 1999 Met-Ed and
Penelec redeemed all their company-obligated mandatorily redeemable preferred
securities and cumulative preferred stock (the redemption of preferred stock
4
<PAGE>
resulted in losses of $0.5 million and $0.7 million, respectively, for Met-Ed
and Penelec); and Penelec redeemed $600 million of first mortgage bonds (FMBs).
Partially offsetting these decreases were increased interest expense associated
with Penelec's issuance of $350 million of senior notes in 1999; and the
issuance of $100 million each of trust preferred securities by Met-Ed and
Penelec, also in 1999.
GPU Electric
The increase was primarily due to higher debt levels from the 1999
acquisitions of Midlands (the remaining 50%), Emdersa and GPU GasNet, which
resulted in additional interest expense of $46.9 million.
JCP&L RESULTS OF OPERATIONS
---------------------------
JCP&L's earnings for the first quarter 2000 were $43.1 million, compared
to first quarter 1999 earnings of $51.3 million. The decrease was primarily due
to lower revenues as a result of lower rates charged to customers due to New
Jersey rate restructuring. Partially offsetting the decrease was lower
depreciation expense due to the effect of the sale of generating assets and the
impairment write-down of Oyster Creek, which was recorded in 1999.
OPERATING REVENUES:
- -------------------
Operating revenues for the first quarter 2000 decreased $64.2 million to
$452.7 million, as compared to the first quarter 1999. The components of the
changes are as follows:
2000 vs. 1999 (in millions)
---------------------------
Three Months Ended
March 31,
---------------------------
KWH revenues $(125.4)
Energy and restructuring-related
revenues 64.2
Other revenues (3.0)
-----
Decrease in revenues $( 64.2)
=====
KWH revenues
- ------------
The decrease was primarily due to the fact that certain revenues related
to stranded cost recovery are now included under energy and
restructuring-related revenues, effective August 1, 1999. The decrease was also
due in part to lower rates charged to customers in New Jersey resulting in a
decrease of revenues of approximately $24.6 million and the effect of New Jersey
customers choosing another electric energy supplier resulting in a decrease of
revenues of approximately $20 million.
Energy and restructuring-related revenues
- -----------------------------------------
The increase was primarily due to the inclusion of revenues, effective
August 1, 1999, for the recovery of stranded costs due to restructuring in New
Jersey. In 1999, JCP&L changed its estimate for unbilled revenue, which resulted
in the recording of additional revenues, partially offsetting the increase in
the current period. Changes in energy and restructuring-related
5
<PAGE>
revenues do not affect earnings as they are offset by corresponding changes in
expense.
Other revenues
- --------------
The decrease was primarily due to lower revenue taxes, which did not have
an impact on earnings.
OPERATING INCOME:
- -----------------
Operating income for the first quarter 2000 decreased $17.1 million to $96
million, as compared to the first quarter 1999. The decrease was due to lower
revenues as discussed above. Partially offsetting this decrease was lower
depreciation expense due to the effect of the sale of generating assets and the
impairment write-down of Oyster Creek in 1999.
OTHER INCOME AND DEDUCTIONS:
- ----------------------------
Other income and deductions for the first quarter 2000 increased $2.6
million to $5.6 million, as compared to the first quarter 1999. This slight
increase was due to a number of immaterial factors.
MET-ED RESULTS OF OPERATIONS
----------------------------
Met-Ed's earnings for the first quarter 2000 were $26.5 million, compared
to first quarter 1999 earnings of $32.2 million. The decrease in earnings was
primarily due to lower revenues as a result of Pennsylvania rate restructuring,
and higher energy costs, partially offset by lower O&M expense.
OPERATING REVENUES:
- -------------------
Operating revenues for the first quarter 2000 decreased $26.1 million to
$203.1 million, as compared to the first quarter 1999. The components of the
changes are as follows:
2000 vs. 1999 (in millions)
---------------------------
Three Months Ended
March 31,
---------------------------
KWH revenues $(36.7)
CTC revenues 9.4
Other revenues 1.2
-----
Decrease in revenues $(26.1)
=====
KWH revenues
- ------------
The decrease was primarily due to lower generation-related revenues of
approximately $29.1 million as a result of more Pennsylvania customers choosing
another electric energy supplier.
CTC revenues
- ------------
CTC revenues represent Pennsylvania stranded cost recoveries permitted by
the PaPUC in accordance with Met-Ed's final Restructuring Order effective
January 1, 1999. Changes in CTC revenues generally do not affect earnings as
they are offset by corresponding changes in expense.
6
<PAGE>
Other revenues
- --------------
The increase was due primarily to increased transmission revenues as a
result of customer shopping in Pennsylvania.
OPERATING INCOME:
- ----------------
Operating income for the first quarter 2000 decreased $20.9 million to
$55.3 million, as compared to the first quarter 1999. The decrease was primarily
due to lower revenues as discussed above and higher energy costs due to the
purchase of more energy since the sale of GPU Energy's generating assets.
Partially offsetting the decrease was lower O&M expense due to the sale of
generating assets.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- -----------------------------------------
Interest charges and preferred dividends for the first quarter 2000
decreased $1.1 million to $14.1 million, as compared to the first quarter 1999.
The decrease was primarily due to the redemption of all Met-Ed's
company-obligated mandatorily redeemable preferred securities and cumulative
preferred stock in 1999 (the redemption of preferred stock resulted in a loss of
$0.5 million). Partially offsetting the decrease was increased interest expense
associated with the issuance of $100 million of trust preferred securities in
1999.
PENELEC RESULTS OF OPERATIONS
-----------------------------
Penelec's earnings for the first quarter 2000 were $26.9 million, compared
to first quarter 1999 earnings of $64.6 million. Excluding the net gain of $27.8
million after-tax for the sale of Penelec's Homer City Station related to
wholesale operations, earnings for 1999 would have been $36.8 million. The
decrease in earnings on this basis was primarily due to lower revenues as a
result of Pennsylvania rate restructuring and higher energy costs, partially
offset by lower O&M and depreciation expense.
OPERATING REVENUES:
- -------------------
Operating revenues for the first quarter 2000 decreased $26.1 million to
$220.1 million, compared to the first quarter 1999. The components of the
changes are as follows:
2000 vs. 1999 (in millions)
---------------------------
Three Months Ended
March 31,
---------------------------
KWH revenues $(29.7)
CTC revenues 3.9
Other revenues (0.3)
-----
Decrease in revenues $(26.1)
=====
KWH revenues
- ------------
The decrease was primarily due to lower generation-related revenues of
approximately $40.3 million as a result of more Pennsylvania customers choosing
another electric energy supplier. This decrease was partially offset by higher
sales to other utilities.
7
<PAGE>
CTC revenues
- ------------
CTC revenues represent Pennsylvania stranded cost recoveries permitted by
the PaPUC in accordance with Penelec's Restructuring Order effective January 1,
1999. Changes in CTC revenues generally do not affect earnings as they are
offset by corresponding changes in expense.
OPERATING INCOME:
- ----------------
Operating income for the first quarter 2000 decreased $19 million to $53.6
million, as compared to the first quarter 1999. The decrease was primarily due
to lower revenues discussed above and higher energy costs due to the purchase of
more energy since the sale of GPU Energy's generating assets. The decrease was
partially offset by lower O&M and depreciation expense mainly due to the sale of
generating assets.
OTHER INCOME AND DEDUCTIONS:
- ----------------------------
Other income and deductions for the first quarter 2000 decreased $38.1
million to $0.8 million, as compared to the first quarter 1999. The decrease was
due to the absence, in 2000, of the gain of $38.3 million pre-tax, as a result
of the sale of Penelec's Homer City Station.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- -----------------------------------------
Interest charges and preferred dividends for the first quarter 2000
decreased $7.7 million to $9.1 million, as compared to the first quarter 1999.
The decrease was primarily due to the redemption of all Penelec's
company-obligated mandatorily redeemable preferred securities and cumulative
preferred stock (the redemption of preferred stock resulted in a loss of $0.7
million), and the redemption of $600 million of FMBs in 1999. Partially
offsetting these decreases were increased interest expense associated with the
issuance of $350 million of senior notes in 1999; and the issuance of $100
million of trust preferred securities, also in 1999.
INVESTMENTS IN FUCOs AND EWGs
---------------------------
GPU, Inc. has Securities and Exchange Commission (SEC) authorization to
finance investments in foreign utility companies (FUCOs) and exempt wholesale
generators (EWGs) up to an aggregate amount equal to 100% of GPU's average
consolidated retained earnings, or approximately $2.5 billion as of March 31,
2000. At March 31, 2000, GPU, Inc. has remaining authorization to finance
approximately $265 million of additional investments in FUCOs and EWGs. GPU,
Inc.'s investments in FUCOs and EWGs are made through GPU Electric and the GPUI
Group.
GPU ELECTRIC
-------------
GPU Electric has ownership interests in electric and gas transmission and
distribution businesses in England, Australia and Argentina. Through its
ownership in Midlands, GPU Electric also has investments in operating generating
facilities located in foreign countries totaling 4,216 megawatts (MW) (of which
GPU Electric's equity interest represents 1,134 MW) of
8
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capacity. At March 31, 2000, GPU, Inc.'s aggregate investment in GPU Electric
was $1.06 billion. GPU, Inc. has also guaranteed up to an additional $1.05
billion of outstanding GPU Electric obligations.
For a discussion of the potential sale of GPU's Australian subsidiaries, GPU
PowerNet and GPU GasNet, see the Financing section of Liquidity and Capital
Resources below.
GPUI GROUP
----------
The GPUI Group has ownership interests in six operating cogeneration
plants in the US totaling 1,014 MW (of which the GPUI Group's equity interest
represents 496 MW) of capacity and four operating generating facilities located
in foreign countries totaling 1,229 MW (of which the GPUI Group's equity
interest represents 424 MW) of capacity. At March 31, 2000, GPU, Inc.'s
aggregate investment in the GPUI Group was $250.2 million. GPU, Inc. has also
guaranteed up to an additional $29.9 million of GPUI Group obligations.
MYR
---
In April 2000, following the receipt of SEC approval, GPU, Inc. completed
its acquisition of MYR, a utility infrastructure construction company, for
approximately $215 million. For additional information, see Note 2,
Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Capital Expenditures and Investments
- ------------------------------------
GPU Energy companies
The GPU Energy companies' capital spending for the first quarter 2000 was
$54 million (JCP&L $24 million; Met-Ed $12 million; Penelec $11 million;
9
<PAGE>
Other $7 million), and was used primarily to expand and improve existing
transmission and distribution (T&D) facilities and for new customer connections.
For 2000, capital expenditures are estimated to be $349 million (JCP&L $178
million; Met-Ed $57 million; Penelec $82 million; Other $32 million), which
management estimates a substantial portion will be satisfied through internally
generated funds.
GPU Electric
GPU Electric's capital spending for the first quarter 2000 was $53.2
million, and was used primarily to fund on-going network capital replacement
schedules, network improvements and new connections in GPU PowerNet, Emdersa and
Midlands' facilities. For 2000, capital expenditures are estimated to be $213
million, which will be satisfied through both internally generated funds and
external financings.
GPUI Group
For 2000, the GPUI Group's capital spending is estimated to be $2 million,
which will be satisfied through internally generated funds. In addition, in the
first quarter 2000, the GPUI Group made an additional investment of $4 million
in Ballard Generation System, Inc., representing its final investment/milestone
payment.
Financing
- ---------
GPU, Inc.
In January 1999, the GPU, Inc. Board of Directors authorized the
repurchase of up to $350 million of GPU, Inc. common stock. Through March 31,
2000, 7.2 million shares of common stock, or approximately 6% of the outstanding
shares, have been repurchased under the program, at an average price of $34.28
per share. In addition, GPU, Inc. has entered into a forward share repurchase
agreement with Salomon Smith Barney (SSB) on March 8, 2000. Upon expiration of
the agreement, GPU, Inc. has the option to purchase additional shares acquired
by SSB at the forward price or net settle for cash or shares at the difference
between the forward price and the then market price. As of March 31, 2000, SSB
has purchased 1.8 million shares of GPU, Inc. common stock for $45.3 million
under the terms of this agreement.
GPU has various credit facilities in place, the most significant of which
are discussed below. These credit facilities generally provide GPU bank loans at
negotiated market rates.
GPU, Inc. and the GPU Energy companies have available $450 million of
short-term borrowing facilities, which include a $250 million revolving credit
agreement and various bank lines of credit. In addition, GPU, Inc., JCP&L,
Met-Ed and Penelec can issue commercial paper in amounts of up to $100 million,
$150 million, $75 million and $100 million, respectively. GPU, Inc. has
regulatory authority to have outstanding at any one time a total of $250 million
of short-term debt under these programs. JCP&L, Met-Ed and Penelec are limited
by their charters or SEC authorization to $261 million, $150 million and $150
million, respectively, of short-term debt outstanding at any one time.
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GPU, Inc. also has SEC approval to issue and sell up to $300 million of
unsecured debentures through 2001.
GPU Energy companies
Met-Ed and Penelec currently have regulatory approval to issue through
December 31, 2000 senior notes and preferred securities in aggregate amounts of
$150 million and $225 million, respectively, of which up to $25 million for each
company may consist of preferred securities. JCP&L has regulatory approval to
issue through December 31, 2000 senior notes in the aggregate amount of $300
million. Met-Ed and JCP&L intend to issue secured senior notes (collateralized
by FMBs issued to the senior note trustee) until such time as more than 80% of
the outstanding FMBs are held by the senior note trustee. At that time, the FMBs
will be cancelled and the outstanding senior notes will become unsecured
obligations. Penelec's senior notes are unsecured.
Current plans call for the GPU Energy companies to issue senior notes
during the next three years to fund the redemption of maturing senior
securities, refinance outstanding senior securities and finance construction
activities. The senior note indentures prohibit (subject to certain exceptions)
the GPU Energy companies from issuing any debt, which is senior to the senior
notes.
JCP&L and Met-Ed's FMB bond indentures include provisions that limit the
amount of FMBs the companies may issue. JCP&L and Met-Ed's interest coverage
ratios are currently in excess of their FMB indenture restrictions. JCP&L's
certificate of incorporation includes provisions that limit the amount of
preferred stock it may issue. JCP&L's preferred dividend coverage ratio is
currently in excess of these charter restrictions.
In August 1999, JCP&L filed a petition with the New Jersey Board of Public
Utilities (NJBPU) requesting authorization to issue transition bonds to
securitize the recovery of bondable stranded costs attributable to the projected
net investment in the Oyster Creek Nuclear Generating Station (Oyster Creek) at
September 1, 2000. The petition also requests that the NJBPU order provide for
the imposition and collection of a usage-based non-bypassable transition bond
charge (TBC) and for the transfer of the bondable transition property relating
to the TBC to another entity. JCP&L has amended its petition to include requests
to securitize the up-front decommissioning and outage payments it has agreed to
make under the Oyster Creek sale agreement.
In April 2000, Penelec issued two tranches totaling $50 million of
variable rate senior notes. These senior notes were converted to fixed rate
obligations through interest rate swap agreements. The $25 million 2-year
tranche and the $25 million 2.5-year tranche were swapped into fixed interest
rates of 7.12% and 7.185%, respectively.
Based on March 31, 2000 financial statements, Met-Ed and Penelec had
retained earnings available to pay common stock dividends of $26.7 million and
$31.1 million, respectively, net of amounts restricted under the companies'
respective FMB indentures. In addition, Met-Ed and Penelec had capital surplus
of $400 million and $285 million, respectively, which would also be available to
pay common dividends, to the extent authorized by the SEC and as may be
permitted under their respective FMB indentures. Met-Ed and Penelec
11
<PAGE>
have requested SEC approval to utilize amounts now accounted for as capital
surplus to declare and pay common dividends, from time to time through December
31, 2001, so long as their common equity ratios and GPU, Inc.'s common equity
ratio are not less than 30% of total capitalization. At March 31, 2000, the
common equity ratios of Met-Ed, Penelec and GPU, Inc. were 43.4%, 40.7% and
30.9%, respectively.
GPU Electric
On May 5, 2000, final bids for the purchase of GPU PowerNet and GPU GasNet
(the Australian companies) were received. GPU had previously announced its
intention to sell all, or at least 50%, of the Australian companies, for which
it paid approximately $1.9 billion (GPU PowerNet) and $675 million (GPU GasNet)
in 1997 and 1999, respectively. GPU is continuing to evaluate these bids and
negotiate with bidders. In the event the sale is consummated, GPU estimates that
it will receive less than book value for the assets, in an amount which would be
material, in addition to recognizing a foreign exchange loss of approximately
$132 million, pre-tax. GPU also expects to seek additional funds in order to
repay loans in connection with the acquisition of the Australian companies
either through new financings or other asset sales. If these efforts to complete
the sale are unsuccessful, GPU intends to pursue other financing arrangements
and/or asset sales so that it may maintain its debt ratios consistent with the
requirements of its various loan agreements.
On June 2, 2000, approximately $225 million of GPU GasNet bank debt
matures. GPU GasNet has a commitment from a bank for a three-month extension
during which time it will seek longer term refinancing of the debt. GPU is
unable to evaluate what effect not selling the Australian companies would have
on the terms of those companies' future financing requirements.
In addition, GPU had planned to use the net cash proceeds raised from the
sales of the Australian companies and from JCP&L's planned asset securitization
financing to repay short-term debt incurred in connection with domestic
acquisitions and investments made during 2000. An inability to complete the sale
of the Australian companies, or a sale for substantially less than their book
value, coupled with a delay in the securitization financing (due to a pending
challenge to another utility's NJBPU restructuring order), will delay the
repayment of this outstanding debt and, at least in the short term, restrict
GPU's access to funds for its acquisition program.
GPU Capital has a $1 billion 364-day senior revolving credit agreement
expiring in December 2000 supporting the issuance of commercial paper for its $1
billion commercial paper program established to fund GPU Electric acquisitions.
GPU, Inc. has guaranteed GPU Capital's obligations under this program. At March
31, 2000, $778 million was outstanding under the commercial paper program, of
which $375 million is included in long-term debt on the Consolidated Balance
Sheets since it is management's intent to reissue this amount of the commercial
paper on a long-term basis.
GPU Australia Holdings, Inc. has $270 million available under its senior
revolving credit facility expiring in November 2002. This facility, in
combination with other GPU, Inc. credit facilities, serves as credit support for
GPU Australia Holdings' $350 million commercial paper program. GPU, Inc. has
guaranteed GPU Australia Holdings' obligations under this program. GPU Australia
Holdings has $185 million outstanding under its commercial paper program as of
March 31, 2000.
Austran Holdings, Inc. (Austran), a wholly-owned indirect subsidiary of
GPU Electric, has a A$500 million (approximately US $303 million) commercial
paper program to refinance the maturing portion of the senior debt credit
facility used to finance the 1997 GPU PowerNet acquisition. GPU PowerNet has
guaranteed Austran's obligations under this program. As of March 31, 2000,
Austran had outstanding approximately A$423 million (approximately US $257
million) under this program.
Midlands maintains a British Pound 200 million (approximately US $318
million) syndicated revolving credit facility with a bank for working capital
purposes, which matures in May 2001. At March 31, 2000, British Pound 80 million
(approximately US $128 million) was outstanding under this facility.
GPUI Group
GPU International, Inc. has a revolving credit agreement providing for
borrowings and/or letters of credit through December 2000 of up to $30 million
outstanding at any one time. GPU, Inc. has guaranteed GPU International's
obligations under this agreement. At March 31, 2000, no borrowings or letters of
credit were outstanding under this facility.
MYR
In April 2000, GPU, Inc. completed its acquisition of MYR, which was
partially financed through the issuance of GPU, Inc. short-term debt.
12
<PAGE>
Capitalization
On April 6, 2000, the GPU Board of Directors raised the quarterly common
stock dividend of GPU, Inc. by 2.8%. On an annualized basis, the current
dividend is $2.18 per share.
COMPETITIVE ENVIRONMENT AND RATE MATTERS
----------------------------------------
GPU Business Plan
- -----------------
The GPU Energy companies expect they will continue to serve customers in
markets where there will be capped rates for varying periods and their ability
to seek rate increases will be limited. In addition, inflation could adversely
affect GPU since these increased costs may not be recoverable in an environment
where there are capped rates. Since the GPU Energy companies have, to a large
extent, exited the generation business, they will have to supply energy to
customers who do not choose an alternate supplier largely from contracted and
open market purchases. While management has identified and addressed market
risks associated with these purchases through implementation of an energy risk
management program, there can be no assurance that the GPU Energy companies will
be able to fully recover the costs to supply electricity to customers who do not
choose an alternate supplier.
In October 1999, GPU initiated a program to enhance shareholder returns
through planned cost reductions of $100 million ($55 million in 2000 and $45
million in 2001) by increasing operating efficiency and by making investments of
$40 million to $50 million to improve the reliability of its domestic utility
operations. The GPU Energy companies are targeting reductions of $30 million in
2000 and an additional $40 million in 2001. Cost reductions will be achieved by
using new tools from its enterprise resource planning system to eliminate
significant amounts of operational overhead expense and by improving the
productivity of all its operations. Midlands plans cost reductions of US $25
million in 2000 and US $5 million in 2001. These cost reductions will be
achieved by eliminating activities not provided for in its new regulated rate
level, which was effective in the Spring of 2000, and by realizing productivity
benefits from its new systems and organization. Furthermore, GPU plans to raise
at least $500 million in cash from its current investment portfolio by reducing
GPU's ownership in non-core and under-performing assets.
In March 2000, GPU, Inc. announced its participation in America's Fiber
Network LLC (AFN), of which GPU, Inc. will own 25%. AFN is a high-speed fiber
optics company with a network of more than 7,000 route miles, or 140,000 fiber
miles, connecting major markets in the eastern US to secondary markets with a
growing need for broadband access. GPU, Inc. anticipates investing approximately
$40 million in AFN through GPU Telcom, which includes existing and new fiber
routes and electronic equipment.
In April 2000, GPU, Inc. announced the formation of Telergy Mid-Atlantic
(TMA), a joint venture between GPU Telcom and Telergy, Inc. TMA combines
established telecommunications services and marketing expertise with utilities'
existing fiber networks and natural positioning in retail markets. TMA's initial
target markets are New Jersey and Pennsylvania, with future expansions planned
for contiguous regions currently served by the network of GPU Telcom. TMA plans
to offer telecommunications service and ultimately electricity, marketing them
jointly to businesses, hospitals and educational
13
<PAGE>
institutions, among others. GPU, Inc. has invested $20 million in Telergy, Inc.
through GPU Telcom.
The GPU Energy Companies' Supply Plan
- -------------------------------------
As a result of the NJBPU and the PaPUC's Restructuring Orders, the GPU
Energy companies are required to provide generation service to customers who do
not choose an alternate supplier. (For additional information, see the Provider
of Last Resort and Basic Generation Service Provider sections below.) Given that
the GPU Energy companies have largely divested their generation business, there
will be increased market risks associated with providing generation service
since the GPU Energy companies will have to supply energy to non-shopping
customers from contracted and open market purchases. Under its order, JCP&L is
permitted to recover reasonably and prudently incurred costs associated with
providing basic generation service. The PaPUC's Restructuring Orders, however,
generally do not allow Met-Ed and Penelec to recover their energy costs in
excess of established rate caps, which are in effect for varying periods. While
management has implemented an energy risk management program, there can be no
assurance that the GPU Energy companies will be able to fully recover the costs
to supply electricity to customers who do not choose an alternate supplier.
Following the sales in 1999 of substantially all their electric generating
facilities, the GPU Energy companies have 285 MW of capacity and related energy
remaining to meet customer needs and an additional 619 MW of nuclear generation
from Oyster Creek, the sale of which is pending (see Generation Asset
Divestiture in this section). The GPU Energy companies also have contracts with
non-utility generation (NUG) facilities totaling 1,612 MW (JCP&L 928 MW; Met-Ed
273 MW; Penelec 411 MW) and JCP&L has agreements with other utilities to provide
for up to 400 MW of capacity and related energy. The GPU Energy companies have
agreed to purchase all of the capacity and energy from the Three Mile Island
Unit 1 (TMI-1) nuclear generating station (in which they sold to AmerGen Energy
Company LLC (AmerGen) in 1999) through December 31, 2001 and from Oyster Creek
(following its sale) through March 31, 2003. In addition, the GPU Energy
companies have the right to call the capacity of the Homer City Station (which
Penelec sold its 50% interest to a subsidiary of Edison Mission Energy in 1999)
(942 MW) through May 31, 2001 and the capacity of the generating stations sold
to Sithe Energies (4,117 MW) through May 31, 2002. The GPU Energy companies'
remaining capacity and energy needs will be met by short- to intermediate-term
commitments (one month to three years) during times of expected high energy
price volatility and reliance on spot market purchases during other periods.
Provider of Last Resort
- -----------------------
Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers have
been permitted to shop for their generation supplier since January 1, 1999. The
PaPUC has approved a competitive bid process to assign provider of last resort
(PLR) service for 20% of Met-Ed and Penelec's retail customers on June 1, 2000,
40% on June 1, 2001, 60% on June 1, 2002 and 80% on June 1, 2003, to licensed
generation suppliers referred to as Competitive Default Service (CDS). Any
retail customers assigned to CDS may return to Met-Ed and Penelec as the default
PLR at no additional charge. Met-Ed and Penelec may meet any remaining PLR
obligation at rates not less than the lowest rate charged by the winning CDS
provider, but no higher than Met-Ed and Penelec's rate cap.
14
<PAGE>
In 1999, Met-Ed and Penelec filed a CDS petition with the PaPUC requesting
an auction by the companies of 20% of their retail customers, for one year,
effective June 1, 2000. Subsequently, Met-Ed and Penelec issued requests for
bids to provide competitive bidding for CDS to the 20% of retail customers
beginning in June 2000, as required by the PaPUC Restructuring Orders. In
February 2000, GPU Energy announced that no bids were received in response to
its offer and, as a result, it would be increasing its forward purchasing of
electric power to accommodate the 20% of customers for whom it will now continue
to be the default supplier. In March 2000, the PaPUC adopted a proposed Order
granting Met-Ed's and Penelec's request for dismissal of their previous CDS
petition. The PaPUC has directed Met-Ed and Penelec to initiate a collaborative
process starting in June 2000 with all interested parties from the 1998
Restructuring Orders, including the PaPUC, to address the companies' PLR risks.
The GPU Energy companies estimate that the above-mentioned additional
energy purchases for the 20% of customers for whom it will continue to be the
default supplier will reduce its 2000 earnings per share by $0.04 to $0.08, but
expect to mitigate this impact through additional common stock repurchases. In
addition, management estimates that customers requiring between 200-500 MW
(which would reduce 2000 earnings per share by approximately $0.04 to $0.10) of
capacity will be returning to the GPU Energy companies from their alternate
suppliers this summer. The GPU Energy companies are currently in the process of
developing incentive programs to be offered to shopping customers in order to
reduce their supplier of last resort exposure. There can be no assurance as to
the success of these incentive programs.
Basic Generation Service Provider
- ---------------------------------
JCP&L is required to provide basic generation services (BGS) to retail
customers who choose to remain with JCP&L as generation customers for a
three-year period ending July 31, 2002. Thereafter, BGS service will be bid out
at the pre-established BGS rates. JCP&L's BGS rates are pre-determined for the
period through July 31, 2003. The specific details of the BGS bidding process
will be the subject of a future NJBPU proceeding. Any payment received or
required by JCP&L resulting from the bidding process will be deferred for future
refund or recovery.
GPU Energy Supply Market Risk
- -----------------------------
With the divestiture of nearly all their generating plants, the GPU Energy
companies are in a net short position (load in excess of supply). Consequently,
the GPU Energy companies must manage their purchase and sale of installed
capacity and ancillary services to minimize business risk associated with their
reliability obligation in the PJM Interconnection, LLC (PJM). Supply/risk
management transactions will be made based on the objective of decreasing both
price and volume uncertainty. The GPU Energy companies will enter into
supply/hedging market instruments for hedging purposes only.
Market Risk - Electricity
- -------------------------
The GPU Energy companies electricity supply profile generally reflects a
shortage of economic on-peak electricity, resulting in a net short position
(load in excess of supply). Consequently, the GPU Energy companies are generally
at risk of rising prices for electricity and electricity-related commodities.
These risks may differ during some months of the year. To
15
<PAGE>
manage these risks, the GPU Energy companies employ a portfolio approach
primarily consisting of two party forward purchases and options, but may also
include New York Mercantile Exchange (NYMEX) PJM electricity futures and similar
instruments, as they become widely available. This portfolio includes
transactions of various durations ranging from one hour to greater than one
year.
The GPU Energy companies' electricity market risks can be price-related,
volume-related or cost-related as follows:
- - Price-related risk refers to the price exposure associated with having to
purchase amounts of electricity, installed capacity, and ancillary
services for load requirements from the PJM interchange spot market. To
the extent the GPU Energy companies must rely on the PJM pool to satisfy
load requirements, financial exposure exists for the difference between
the PJM energy and installed capacity spot market prices and the rates
paid by customers.
- - Volume-related risk refers to the uncertainty associated with the amount
of load the GPU Energy companies are required to serve. Deregulation of
the electric utility industry has resulted in the ability of their
customers to purchase energy from other electric suppliers. This customer
shopping, combined with deviations in weather, which affects customer
energy usage can affect the GPU Energy companies' position.
- - Cost recovery-related risk refers to the financial risk associated with
the potential prudency audits of the NJBPU that are part of JCP&L's
deferred energy and capacity cost recovery mechanism (Market Transition
Charge). Cost recovery-related risk also refers to the prudency risk
associated with future NUG cost recovery under the Restructuring Orders
approved by the PaPUC and the NJBPU which require continued mitigation of
above market NUG costs.
Market Risk - Natural Gas
- -------------------------
As part of its NUG cost mitigation program, the GPU Energy companies
manage the natural gas requirements of certain NUGs that produce and sell energy
to JCP&L under long-term contracts. Prudently incurred costs associated with
natural gas commodity and transportation for these NUGs are included in JCP&L's
BGS rates and Market Transition Charge.
The GPU Energy companies employ a portfolio approach consisting of two
party forward purchases and NYMEX natural gas futures contracts. The GPU Energy
companies' natural gas market risks can be price-related, volume-related or cost
recovery-related as follows:
- - Price-related risk refers to the price exposure associated with having to
purchase volumes of natural gas for New Jersey NUG requirements from the
spot market.
- - Volume-related risk refers to the uncertainty associated with the amount
of natural gas required for the dispatchable NUGs.
16
<PAGE>
- - Cost recovery-related risk refers to the financial risk associated with
the potential prudency audits of the NJBPU that are part of JCP&L's BGS
rates and Market Transition Charge.
Generation Asset Divestiture
- ----------------------------
In 1999, the GPU Energy companies completed the sales of TMI-1 and
substantially all their fossil-fuel and hydroelectric generating stations.
In October 1999, JCP&L agreed to sell Oyster Creek to AmerGen, a joint
venture of PECO Energy and British Energy, for $10 million. As part of the terms
of the transaction, AmerGen will assume full responsibility for decommissioning
the plant. JCP&L will transfer at closing $430 million of decommissioning trust
funds and will fund the station's outage cost, including the fuel reload for the
next refueling outage scheduled for the Fall of 2000. AmerGen will repay these
outage costs (estimated at $88 million) to JCP&L in nine equal annual
installments without interest, beginning one year after the closing. The sale is
subject to various conditions including the receipt of satisfactory federal and
state regulatory approvals and favorable rulings by the Internal Revenue
Service.
Recent Regulatory Actions
- -------------------------
New Jersey Restructuring
In May 1999, the NJBPU issued a Summary Order with respect to JCP&L's rate
unbundling, stranded cost and restructuring filings. The Summary Order provides
for, among other things, customer choice of electric generation supplier
beginning August 1, 1999, rate reductions for all consumers and full recovery of
stranded costs. New Jersey utilities began accepting customer selection of
suppliers in October 1999. The Summary Order did not address the pending sale of
Oyster Creek, because at the time the Summary Order was issued, it was uncertain
whether the plant would be sold or retired early. JCP&L is awaiting a more
detailed order from the NJBPU.
In August 1999, JCP&L filed a petition with the NJBPU requesting
authorization to issue transition bonds to securitize the recovery of bondable
stranded costs attributable to the projected net investment in Oyster Creek at
September 1, 2000 (for additional information, see Financing section of
Liquidity and Capital Resources).
Pennsylvania Restructuring
In 1996, Pennsylvania adopted comprehensive legislation (Customer Choice
Act) which provides for the restructuring of that state's electric utility
industry. In October 1998, the PaPUC issued amended Restructuring Orders,
approving Settlement Agreements entered into by Met-Ed and Penelec, which, among
other things, provide customer choice of electric generation supplier beginning
January 1, 1999, a 1-year (1999) reduction in retail distribution rates for all
consumers and recovery of a substantial portion of what otherwise would have
become stranded costs, subject to the results of the generation divestitures. A
final determination of stranded cost recovery will be provided for in a Phase II
proceeding, which began in early 2000. An appeal by one intervenor in the
restructuring proceedings is pending before the Pennsylvania Supreme Court.
There can be no assurance as to the outcome of this appeal.
17
<PAGE>
In 1999, Penelec deposited a portion of the proceeds from its generation
asset sale into a NUG Trust, which has a balance at March 31, 2000 of $267
million. To the extent Penelec incurs above-market NUG costs in excess of the
CTC revenues allocated for such costs Penelec may withdraw amounts from the
trust.
Federal Regulation
In November 1997, the Federal Energy Regulatory Commission (FERC) issued
an order to the PJM Power Pool which, among other things, directed the GPU
Energy companies to implement a single-system transmission rate, effective April
1, 1998. The implementation of the single-system rate has not affected total
transmission revenues; however, it has increased the pricing for transmission
service in Met-Ed and Penelec's service territories and reduced the pricing for
transmission service in JCP&L's service territory.
The GPU Energy companies have requested the FERC to reconsider its ruling
requiring a single-system transmission rate. The Restructuring Orders for Met-Ed
and Penelec provide for a transmission and distribution rate cap exception to
recover the increase in the transmission rate from Met-Ed and Penelec's retail
customers in the event the FERC denies the request for reconsideration of the
single-system transmission rate. The FERC's ruling may also have an effect on
JCP&L's distribution rates. There can be no assurance as to the outcome of this
matter.
Several bills have been introduced in Congress providing for a
comprehensive restructuring of the electric utility industry. These bills
proposed, among other things, retail choice for all utility customers, the
opportunity for utilities to recover their prudently incurred stranded costs in
varying degrees, and repeal of both the Public Utility Regulatory Policies Act
(PURPA) and the Public Utility Holding Company Act of 1935 (PUHCA).
In April 1999, the Clinton administration introduced the Comprehensive
Electricity Competition Act, which proposes a flexible mandate for customer
choice by January 1, 2003, reliability standards, environmental provisions and
the repeal of both PURPA and PUHCA. The flexible mandate allows states to opt
out of the mandate if they believe consumers would be better served by an
alternative policy.
Nonutility Generation Agreements
- --------------------------------
Pursuant to the mandates of PURPA 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 terms of up to 20 years.
The NJBPU Summary Order and PaPUC Restructuring Orders provide the GPU
Energy companies assurance of full recovery of their NUG costs (including
above-market NUG costs and certain buyout costs). The GPU Energy companies have
recorded, on a present value basis, a total liability of $3.3 billion (JCP&L
$1.7 billion; Met-Ed $0.7 billion; Penelec $0.9 billion) on the Consolidated
Balance Sheets for above-market NUG costs, and JCP&L has recorded a liability of
$48 million, on a net present value basis, for above-market utility power
purchase agreements, both amounts of which are offset by a corresponding
18
<PAGE>
regulatory asset. The GPU Energy companies are continuing efforts to reduce the
above-market costs of these agreements. There can be no assurance as to the
extent to which these efforts will be successful.
ACCOUNTING MATTERS
-------------------
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting
for the Effects of Certain Types of Regulation," applies to regulated utilities
that have the ability to recover their costs through rates established by
regulators and charged to customers. In June 1997, the Financial Accounting
Standards Board's (FASB) Emerging Issues Task Force (EITF) (Issue 97-4)
concluded 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 assured a regulated cash
flow stream to recover the cost of these assets.
On May 24, 1999, the NJBPU issued a Summary Order regarding JCP&L's
unbundling, stranded cost and restructuring filings which essentially
deregulated the electric generation portion of JCP&L's business. Accordingly, in
the second quarter of 1999, JCP&L discontinued the application of FAS 71 and
adopted the provisions of Statement of Financial Accounting Standards No. 101
(FAS 101), "Regulated Enterprises - Accounting for the Discontinuation of
Application of FASB Statement No. 71" and EITF Issue 97-4 with respect to its
electric generation operations. In 1998, Met-Ed and Penelec, in conjunction with
receiving their Restructuring Orders, discontinued the application of FAS 71 and
adopted the provisions of FAS 101 and EITF 97-4 for their generation operations.
The transmission and distribution portion of the GPU Energy companies'
operations continue to be subject to the provisions of FAS 71.
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 net book values of their remaining generation facilities
determined that the net investment in Oyster Creek was impaired. As of March 31,
2000, this resulted in write-downs of $678 million to reflect Oyster Creek's
fair market value. The total impairment amount of Oyster Creek has been
reestablished as a regulatory asset since the Summary Order provides for its
recovery in the restructuring process.
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting
for Derivative Instruments and Hedging Activities" (as amended by FAS 137),
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. FAS 133 requires that companies recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. 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. FAS 133 is
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<PAGE>
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
GPU will adopt FAS 133 in the first quarter 2001 and is in the process of
evaluating the impact of the implementation of this statement. GPU's use of
derivative instruments is intended to manage the risk of interest rate, foreign
currency and commodity price fluctuations and may include such transactions as
electricity and natural gas forward and futures contracts, foreign currency
swaps, interest rate swaps and options. GPU does not intend to hold or issue
derivative instruments for trading purposes.
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21
<PAGE>
<TABLE>
<CAPTION>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
---------------------------
In Thousands
-----------------------------
March 31, December 31,
2000 1999
------------ --------
(Unaudited)
ASSETS
Utility Plant:
<S> <C> <C>
Transmission, distribution and general plant $11,137,999 $11,240,218
Generation plant 528,342 526,228
---------- ----------
Utility plant in service 11,666,341 11,766,446
Accumulated depreciation (3,987,333) (3,929,963)
---------- ----------
Net utility plant in service 7,679,008 7,836,483
Construction work in progress 197,002 170,317
Other, net 16,344 18,128
---------- ----------
Net utility plant 7,892,354 8,024,928
---------- ----------
Other Property and Investments:
Equity investments 87,642 85,756
Goodwill, net 2,507,964 2,615,301
Nuclear decommissioning trusts, at market (Note 1) 638,091 636,284
Nuclear fuel disposal trust, at market 120,114 119,293
Other, net 839,679 837,415
---------- ----------
Total other property and investments 4,193,490 4,294,049
---------- ----------
Current Assets:
Cash and temporary cash investments 653,996 471,548
Marketable securities 29,234 26,946
Special deposits 42,674 42,687
Accounts receivable:
Customers, net 466,267 445,745
Other 230,678 185,968
Unbilled revenues 166,785 152,263
Materials and supplies, at average cost or less:
Construction and maintenance 94,894 100,807
Fuel 484 448
Deferred income taxes 64,490 72,249
Prepayments 133,235 161,602
---------- ----------
Total current assets 1,882,737 1,660,263
---------- ----------
Deferred Debits and Other Assets:
Regulatory assets, net (Note 1) 4,815,094 4,716,246
Deferred income taxes 2,593,453 2,528,393
Other 482,527 494,203
----------- ----------
Total deferred debits and other assets 7,891,074 7,738,842
----------- ----------
Total Assets $21,859,655 $21,718,082
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
<TABLE>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
---------------------------
In Thousands
---------------------
March 31, December 31,
2000 1999
------------ -----------
(Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
<S> <C> <C>
Common stock $ 331,958 $ 331,958
Capital surplus 1,011,687 1,011,721
Retained earnings 2,557,496 2,426,350
Accumulated other comprehensive income/(loss) (Note 5) (31,739) (6,341)
---------- ----------
Total 3,869,402 3,763,688
Reacquired common stock, at cost (326,686) (298,735)
---------- ----------
Total common stockholders' equity 3,542,716 3,464,953
Cumulative preferred stock:
With mandatory redemption 73,167 73,167
Without mandatory redemption 12,649 12,649
Subsidiary-obligated mandatorily redeemable
preferred securities 125,000 125,000
Trust preferred securities 200,000 200,000
Long-term debt 5,627,792 5,729,452
---------- ----------
Total capitalization 9,581,324 9,605,221
---------- ----------
Current Liabilities:
Securities due within one year 646,572 581,147
Notes payable 1,221,522 1,293,013
Bank overdraft 236,210 224,585
Obligations under capital leases 44,968 48,165
Accounts payable 547,773 489,075
Taxes accrued 376,004 309,509
Interest accrued 83,775 76,246
Other 674,225 732,110
---------- ----------
Total current liabilities 3,831,049 3,753,850
---------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes 3,627,077 3,563,078
Unamortized investment tax credits 59,411 61,364
Three Mile Island Unit 2 future costs (Note 1) 500,488 496,944
Power purchase contract loss liability (Note 1) 3,325,596 3,300,878
Other 934,710 936,747
---------- ----------
Total deferred credits and other liabilities 8,447,282 8,359,011
---------- ----------
Commitments and Contingencies (Note 1)
Total Liabilities and Capitalization $21,859,655 $21,718,082
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE>
<TABLE>
<CAPTION>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
---------------------------------
(Unaudited)
In Thousands
(Except Per Share Data)
-------------------------
Three Months
Ended March 31,
-------------------------
2000 1999
---- ----
Operating Revenues $1,176,444 $1,068,703
--------- ---------
Operating Expenses:
<S> <C> <C>
Fuel 19,483 96,476
Power purchased and interchanged 411,471 246,509
Deferred costs, net (33,514) 20,370
Other operation and maintenance 257,548 240,124
Depreciation and amortization 129,595 117,244
Taxes, other than income taxes 51,549 49,347
--------- ---------
Total operating expenses 836,132 770,070
--------- ---------
Operating Income 340,312 298,633
--------- ---------
Other Income and Deductions:
Allowance for other funds used during
construction 245 65
Equity in undistributed earnings
of affiliates, net 3,652 53,252
Other income, net 19,178 49,081
--------- ---------
Total other income and deductions 23,075 102,398
--------- ---------
Income Before Interest Charges
and Preferred Dividends 363,387 401,031
--------- ---------
Interest Charges and Preferred Dividends:
Long-term debt and notes payable 132,914 81,124
Trust preferred securities 3,673 -
Subsidiary-obligated mandatorily
redeemable preferred securities 2,675 7,222
Other interest 2,070 1,565
Allowance for borrowed funds used
during construction (830) (608)
Preferred stock dividends of subsidiaries, inclusive
of loss on reacquisition of $1,268 in 1999 2,461 3,920
--------- ---------
Total interest charges and
preferred dividends 142,963 93,223
--------- ---------
Income Before Income Taxes and Minority Interest 220,424 307,808
Income taxes 88,949 116,266
Minority interest net income 477 823
--------- ---------
Net Income $ 130,998 $ 190,719
========= =========
Basic - Earnings Per Avg. Common Share $ 1.08 $ 1.49
========= =========
- Avg. Common Shares Outstanding (In Thousands) 121,367 127,652
========= =========
Diluted - Earnings Per Avg. Common Share $ 1.08 $ 1.49
========= =========
- Avg. Common Shares Outstanding (In Thousands) 121,426 127,926
========= =========
Cash Dividends Paid Per Share $ .53 $ .515
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
<TABLE>
<CAPTION>
GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
------------------------------------
(Unaudited)
In Thousands
-------------------------
Three Months
Ended March 31,
-------------------------
2000 1999
---- ----
Operating Activities:
<S> <C> <C>
Net income $ 130,998 $ 190,719
Adjustments to reconcile income to cash provided:
Depreciation and amortization 138,634 128,602
Amortization of property under capital leases 3,209 12,855
Gain on sale of investments - (38,252)
Equity in undistributed earnings
of affiliates, net of distributions received (2,266) (48,492)
Deferred income taxes and investment tax
credits, net 17,778 (345,848)
Deferred costs, net (33,514) 20,478
Changes in working capital:
Receivables (77,853) (67,716)
Materials and supplies 2,230 2,956
Special deposits and prepayments 44,665 (633,054)
Payables and accrued liabilities 131,974 386,563
Nonutility generation contract buyout costs (5,660) (34,750)
Other, net (25,887) 40,808
-------- --------
Net cash provided/(required)
by operating activities 324,308 (385,131)
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (374,908)
Capital expenditures and investments (111,551) (82,618)
Proceeds from sale of investments - 894,450
Contributions to decommissioning trusts (7,510) (8,710)
Other, net (2,052) 26,295
-------- --------
Net cash provided/(required)
by investing activities (121,113) 454,509
-------- --------
Financing Activities:
Issuance of long-term debt 16,142 705,136
Increase/(decrease) in notes payable, net 87,427 (197,717)
Retirement of long-term debt (50,083) (382,688)
Capital lease principal payments (5,937) (10,261)
Reacquisition of common stock (22,383) (58,138)
Dividends paid on common stock (64,409) (65,917)
Redemption of preferred stock of subsidiaries - (30,004)
-------- --------
Net cash required by financing activities (39,243) (39,589)
-------- --------
Effect of exchange rate changes on cash 18,496 (43)
-------- --------
Net increase in cash and temporary
cash investments from above activities 182,448 29,746
Cash and temporary cash investments, beginning of year 471,548 72,755
-------- --------
Cash and temporary cash investments, end of period $ 653,996 $ 102,501
======== ========
Supplemental Disclosure:
Interest and preferred dividends paid $ 134,376 $ 103,264
======== ========
Income taxes paid $ 7,074 $ 2,374
======== ========
New capital lease obligations incurred $ - $ 220
======== ========
Common stock dividends declared but not paid $ - $ -
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
<TABLE>
<CAPTION>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Balance Sheets
---------------------------
In Thousands
---------------------------
March 31, December 31,
2000 1999
------------ --------
(Unaudited)
ASSETS
Utility Plant:
<S> <C> <C>
Transmission, distribution, and general plant $3,110,347 $3,097,150
Generation plant 503,209 504,545
--------- ---------
Utility plant in service 3,613,556 3,601,695
Accumulated depreciation (1,898,047) (1,872,422)
--------- ---------
Net utility plant in service 1,715,509 1,729,273
Construction work in progress 90,371 80,671
Other, net 13,102 14,781
--------- ---------
Net utility plant 1,818,982 1,824,725
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 1) 397,079 394,941
Nuclear fuel disposal trust, at market 120,114 119,293
Other, net 2,775 1,252
--------- ---------
Total other property and investments 519,968 515,486
--------- ---------
Current Assets:
Cash and temporary cash investments 89,885 68,684
Special deposits 3,001 1,035
Accounts receivable:
Customers, net 149,332 164,099
Other 89,299 69,688
Unbilled revenues 68,490 78,251
Fuel inventory, at average cost or less 243 240
Deferred income taxes - 1,652
Prepayments 6,620 23,000
--------- ---------
Total current assets 406,870 406,649
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net (Note 1) 2,856,347 2,810,854
Deferred income taxes 207,636 221,668
Other 34,892 31,615
--------- ---------
Total deferred debits and other assets 3,098,875 3,064,137
--------- ---------
Total Assets $5,844,695 $5,810,997
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
<TABLE>
<CAPTION>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Balance Sheets
---------------------------
In Thousands
----------------------------
March 31, December 31,
2000 1999
------------ --------
(Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
<S> <C> <C>
Common stock $ 153,713 $ 153,713
Capital surplus 510,769 510,769
Retained earnings 718,987 720,878
Accumulated other comprehensive income/(loss)(Note 5) 7 7
--------- ---------
Total common stockholder's equity 1,383,476 1,385,367
Cumulative preferred stock:
With mandatory redemption 73,167 73,167
Without mandatory redemption 12,649 12,649
Company-obligated mandatorily redeemable
preferred securities 125,000 125,000
Long-term debt 1,133,820 1,133,760
--------- ---------
Total capitalization 2,728,112 2,729,943
--------- ---------
Current Liabilities:
Securities due within one year 10,846 50,846
Obligations under capital leases 44,957 48,165
Accounts payable:
Affiliates 76,142 60,527
Other 72,517 82,355
Taxes accrued 50,051 13,079
Interest accrued 27,722 24,523
Other 33,985 36,169
--------- ---------
Total current liabilities 316,220 315,664
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes 582,847 570,568
Unamortized investment tax credits 30,659 32,114
Nuclear fuel disposal fee 150,054 148,009
Three Mile Island Unit 2 future costs (Note 1) 125,127 124,241
Power purchase contract loss liability (Note 1) 1,643,161 1,624,769
Other 268,515 265,689
--------- ---------
Total deferred credits and other liabilities 2,800,363 2,765,390
--------- ---------
Commitments and Contingencies (Note 1)
Total Liabilities and Capitalization $5,844,695 $5,810,997
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
<TABLE>
<CAPTION>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Statements of Income
--------------------------------
(Unaudited)
In Thousands
---------------------
Three Months
Ended March 31,
---------------------
2000 1999
---- ----
<S> <C> <C>
Operating Revenues $452,745 $516,889
------- -------
Operating Expenses:
Fuel 5,867 22,117
Power purchased and interchanged:
Affiliates 20,276 15,949
Others 194,122 153,450
Deferred costs, net (33,514) 20,370
Other operation and maintenance 98,127 107,846
Depreciation and amortization 56,143 62,696
Taxes, other than income taxes 15,729 21,334
------- -------
Total operating expenses 356,750 403,762
------- -------
Operating Income 95,995 113,127
------- -------
Other Income and Deductions:
Allowance for other funds used during
construction 216 54
Other income, net 5,432 3,019
------- -------
Total other income and deductions 5,648 3,073
------- -------
Income Before Interest Charges 101,643 116,200
------- -------
Interest Charges:
Long-term debt and notes payable 23,262 23,190
Company-obligated mandatorily
redeemable preferred securities 2,675 2,675
Other interest 152 195
Allowance for borrowed funds used
during construction (346) (232)
------- -------
Total interest charges 25,743 25,828
------- -------
Income Before Income Taxes 75,900 90,372
Income taxes 30,330 36,675
------ -------
Net Income 45,570 53,697
Preferred stock dividends 2,461 2,432
------- -------
Earnings Available for Common Stock $ 43,109 $ 51,265
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
<TABLE>
<CAPTION>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
In Thousands
---------------------
Three Months
Ended March 31,
---------------------
2000 1999
---- ----
Operating Activities:
<S> <C> <C>
Net income $ 45,570 $ 53,697
Adjustments to reconcile income to cash provided:
Depreciation and amortization 64,494 70,278
Amortization of property under capital leases 3,209 7,546
Deferred income taxes and investment tax
credits, net 7,135 9,463
Deferred costs, net (33,514) 20,478
Changes in working capital:
Receivables 4,917 (23,979)
Materials and supplies (83) 13,309
Special deposits and prepayments 14,414 19,823
Payables and accrued liabilities 43,830 5,253
Nonutility generation contract buyout costs - (30,000)
Other, net (330) 25,925
-------- --------
Net cash provided by operating activities 149,642 171,793
-------- --------
Investing Activities:
Capital expenditures and investments (24,411) (27,972)
Contributions to decommissioning trusts (5,917) (7,228)
Other, net (4,100) 4,596
-------- --------
Net cash required by for investing activities (34,428) (30,604)
-------- --------
Financing Activities:
Decrease in notes payable, net - (93,444)
Retirement of long-term debt (40,000) -
Capital lease principal payments (5,937) (4,819)
Dividends paid on common stock (45,000) (30,000)
Dividends paid on preferred stock (3,076) (2,432)
-------- --------
Net cash required by financing activities (94,013) (130,695)
-------- --------
Net increase in cash and temporary
cash investments from above activities 21,201 10,494
Cash and temporary cash investments, beginning of year 68,684 1,850
-------- --------
Cash and temporary cash investments, end of period $ 89,885 $ 12,344
======== ========
Supplemental Disclosure:
Interest and preferred dividends paid $ 25,024 $ 25,248
======== ========
Income taxes paid $ 190 $ (2,804)
======== ========
New capital lease obligations incurred $ - $ 54
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
---------------------------
In Thousands
---------------------------
March 31, December 31,
2000 1999
------------ --------
(Unaudited)
ASSETS
Utility Plant:
<S> <C> <C>
Transmission, distribution and general plant $1,505,806 $1,500,417
Generation plant 25,133 21,683
--------- ---------
Utility plant in service 1,530,939 1,522,100
Accumulated depreciation (470,211) (462,709)
--------- ---------
Net utility plant in service 1,060,728 1,059,391
Construction work in progress 24,768 25,329
Other, net 643 643
--------- ---------
Net utility plant 1,086,139 1,085,363
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 1) 144,617 144,261
Other, net 3,010 3,010
--------- ---------
Total other property and investments 147,627 147,271
--------- ---------
Current Assets:
Cash and temporary cash investments 686 10,899
Special deposits 161 160
Accounts receivable:
Customers, net 62,638 60,188
Other 91,796 123,444
Unbilled revenues 27,347 28,956
Deferred income taxes 2,945 2,945
Prepayments 15,307 16,715
--------- ---------
Total current assets 200,880 243,307
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net (Note 1) 1,265,460 1,232,865
Deferred income taxes 735,309 738,189
Other 41,721 41,198
--------- ---------
Total deferred debits and other assets 2,042,490 2,012,252
--------- ---------
Total Assets $3,477,136 $3,488,193
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
30
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
---------------------------
In Thousands
----------------------------
March 31, December 31,
2000 1999
----------- --------
(Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
<S> <C> <C>
Common stock $ 66,273 $ 66,273
Capital surplus 400,200 400,200
Retained earnings 30,074 13,581
Accumulated other comprehensive income (Note 5) 20,635 21,363
--------- ---------
Total common stockholder's equity 517,182 501,417
Trust preferred securities 100,000 100,000
Long-term debt 496,884 496,883
--------- ---------
Total capitalization 1,114,066 1,098,300
--------- ---------
Current Liabilities:
Securities due within one year 50,025 50,025
Notes payable 26,477 -
Accounts payable:
Affiliates 49,083 125,179
Other 31,577 30,106
Taxes accrued 44,473 35,976
Interest accrued 11,702 16,738
Other 16,861 18,208
--------- ---------
Total current liabilities 230,198 276,232
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes 1,004,839 993,427
Unamortized investment tax credits 14,798 15,010
Three Mile Island Unit 2 future costs (Note 1) 250,152 248,381
Nuclear fuel disposal fee 33,892 33,430
Power purchase contract loss liability (Note 1) 742,450 735,833
Other 86,741 87,580
--------- ---------
Total deferred credits and other liabilities 2,132,872 2,113,661
--------- ---------
Commitments and Contingencies (Note 1)
Total Liabilities and Capitalization $3,477,136 $3,488,193
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
---------------------------------
(Unaudited)
In Thousands
-------------------------
Three Months
Ended March 31,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Operating Revenues $203,056 $229,157
------- -------
Operating Expenses:
Fuel - 25,629
Power purchased and interchanged:
Affiliates 52 2,208
Others 92,498 40,958
Other operation and maintenance 28,000 51,915
Depreciation and amortization 15,804 19,129
Taxes, other than income taxes 11,383 13,066
------- -------
Total operating expenses 147,737 152,905
------- -------
Operating Income 55,319 76,252
------- -------
Other Income and Deductions:
Allowance for other funds used during
construction 29 11
Other income, net 2,771 1,133
------- -------
Total other income and deductions 2,800 1,144
------- -------
Income Before Interest Charges 58,119 77,396
------- -------
Interest Charges:
Long-term debt and notes payable 11,935 12,088
Trust preferred securities 1,838 -
Company-obligated mandatorily
redeemable preferred securities - 2,250
Other interest 526 422
Allowance for borrowed funds used
during construction (184) (176)
------- -------
Total interest charges 14,115 14,584
------- -------
Income Before Income Taxes 44,004 62,812
Income taxes 17,511 29,980
------- -------
Net Income 26,493 32,832
Preferred stock dividends - 66
Loss on preferred stock reacquisition - 542
------- -------
Earnings Available for Common Stock $ 26,493 $ 32,224
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
In Thousands
-------------------------
Three Months
Ended March 31,
-------------------------
2000 1999
---- ----
Operating Activities:
<S> <C> <C>
Net income $ 26,493 $ 32,832
Adjustments to reconcile income to cash provided:
Depreciation and amortization 15,883 22,223
Amortization of property under capital leases - 3,540
Deferred income taxes and investment tax
credits, net 6,211 13,356
Changes in working capital:
Receivables 29,198 (11,395)
Materials and supplies - 9,506
Special deposits and prepayments 1,407 (11,578)
Payables and accrued liabilities (72,510) (12,930)
Nonutility generation contract buyout costs (1,250) (1,250)
Other, net (18,983) (26,607)
-------- --------
Net cash provided/(required)
by operating activities (13,551) 17,697
--------- --------
Investing Activities:
Capital expenditures and investments (11,556) (15,294)
Contributions to decommissioning trusts (1,583) (1,482)
Other, net - (10)
-------- --------
Net cash required by investing activities (13,139) (16,786)
-------- --------
Financing Activities:
Increase in notes payable, net 26,477 36,160
Capital lease principal payments - (3,619)
Redemption of preferred stock - (12,598)
Dividends paid on common stock (10,000) (30,000)
Dividends paid on preferred stock - (66)
Contribution from parent corporation - 15,000
-------- -------
Net cash provided by financing activities 16,477 4,877
-------- -------
Net increase/(decrease) in cash and temporary cash
investments from above activities (10,213) 5,788
Cash and temporary cash investments, beginning of year 10,899 442
-------- --------
Cash and temporary cash investments, end of period $ 686 $ 6,230
======== ========
Supplemental Disclosure:
Interest and preferred dividends paid $ 18,448 $ 20,374
======== ========
Income taxes paid $ 3,276 $ 1,902
======== ========
New capital lease obligations incurred $ - $ 111
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
---------------------------
In Thousands
---------------------------
March 31, December 31,
2000 1999
------------ --------
(Unaudited)
ASSETS
Utility Plant:
<S> <C> <C>
Transmission, distribution and general plant $1,743,060 $1,732,386
Accumulated depreciation (564,006) (552,449)
--------- ---------
Net utility plant in service 1,179,054 1,179,937
Construction work in progress 31,540 30,329
Other, net 2,598 2,704
--------- ---------
Net utility plant 1,213,192 1,212,970
--------- ---------
Other Property and Investments:
Nonutility generation trusts, at market 267,312 266,700
Nuclear decommissioning trusts, at market (Note 1) 96,395 97,082
Other, net 658 1,233
--------- ---------
Total other property and investments 364,365 365,015
--------- ---------
Current Assets:
Cash and temporary cash investments 129 32,250
Special deposits 233 233
Accounts receivable:
Customers, net 71,716 69,752
Other 66,012 40,204
Unbilled revenues 28,730 30,836
Deferred income taxes 7,589 7,589
Prepayments 18,385 15,484
--------- ---------
Total current assets 192,794 196,348
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net (Note 1) 693,287 672,527
Deferred income taxes 1,216,379 1,225,150
Other 23,711 23,781
--------- ---------
Total deferred debits and other assets 1,933,377 1,921,458
--------- ---------
Total Assets $3,703,728 $3,695,791
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
---------------------------
In Thousands
----------------------------
March 31, December 31,
2000 1999
------------ -----------
(Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
<S> <C> <C>
Common stock $ 105,812 $ 105,812
Capital surplus 285,486 285,486
Retained earnings 41,207 59,265
Accumulated other comprehensive income (Note 5) 10,252 10,619
--------- ---------
Total common stockholder's equity 442,757 461,182
Trust preferred securities 100,000 100,000
Long-term debt 424,687 424,641
--------- ---------
Total capitalization 967,444 985,823
--------- ---------
Current Liabilities:
Securities due within one year 13 13
Notes payable 121,200 53,600
Obligations under capital leases 11 -
Accounts payable:
Affiliates 15,143 66,223
Other 32,587 34,845
Taxes accrued 114,812 108,005
Interest accrued 13,156 6,588
Other 17,484 17,567
--------- ---------
Total current liabilities 314,406 286,841
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes 1,248,385 1,250,490
Unamortized investment tax credits 13,954 14,240
Three Mile Island Unit 2 future costs (Note 1) 125,209 124,322
Nuclear fuel disposal fee 16,948 16,717
Power Purchase contract loss liability (Note 1) 939,985 940,276
Other 77,397 77,082
--------- ---------
Total deferred credits and other liabilities 2,421,878 2,423,127
--------- ---------
Commitments and Contingencies (Note 1)
Total Liabilities and Capitalization $3,703,728 $3,695,791
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
---------------------------------
(Unaudited)
In Thousands
---------------------
Three Months
Ended March 31,
---------------------
2000 1999
---- ------
<S> <C> <C>
Operating Revenues $220,105 $246,249
------- -------
Operating Expenses:
Fuel - 36,544
Power purchased and interchanged:
Affiliates 157 1,562
Others 105,013 39,031
Other operation and maintenance 38,806 59,403
Depreciation and amortization 11,534 23,053
Taxes, other than income taxes 10,963 14,014
------- -------
Total operating expenses 166,473 173,607
------- -------
Operating Income 53,632 72,642
------- -------
Other Income and Deductions:
Other income, net 847 38,909
------- -------
Total other income and deductions 847 38,909
------- -------
Income Before Interest Charges 54,479 111,551
------- -------
Interest Charges:
Long-term debt and notes payable 7,277 13,428
Trust preferred securities 1,835 -
Company-obligated mandatorily
redeemable preferred securities - 2,297
Other interest 296 407
Allowance for borrowed funds used
during construction (300) (200)
------- -------
Total interest charges 9,108 15,932
------- -------
Income Before Income Taxes 45,371 95,619
Income taxes 18,429 30,129
------- -------
Net Income 26,942 65,490
Preferred stock dividends - 154
Loss on preferred stock reacquisition - 726
------- -------
Earnings Available for Common Stock $ 26,942 $ 64,610
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
--------------------------------------
(Unaudited)
In Thousands
----------------------
Three Months
Ended March 31,
---------------------
2000 1999
---- ----
Operating Activities:
<S> <C> <C>
Net income $ 26,942 $ 65,490
Adjustments to reconcile income to cash provided:
Depreciation and amortization 12,271 22,732
Amortization of property under capital leases - 1,769
Gain on sale of investment - (38,252)
Deferred income taxes and investment tax
credits, net 8,885 (307,797)
Changes in working capital:
Receivables (27,771) (8,184)
Materials and supplies - 32,169
Special deposits and prepayments (2,901) (611,092)
Payables and accrued liabilities (40,047) 312,561
Nonutility generation contract buyout costs (4,410) (3,500)
Other, net (18,286) (43,610)
-------- --------
Net cash required by operating activities (45,317) (577,714)
-------- --------
Investing Activities:
Capital expenditures and investments (11,494) (15,868)
Proceeds from sale of investments - 894,450
Contributions to decommissioning trusts (10) -
Other, net 2,100 911
-------- --------
Net cash provided/(required)
by investing activities ( 9,404) 879,493
--------- --------
Financing Activities:
Increase/(decrease) in notes payable, net 67,600 (86,023)
Redemption of preferred stock - (17,406)
Capital lease principal payments - (1,823)
Dividends paid on common stock (45,000) (180,000)
Dividends paid on preferred stock - (154)
-------- --------
Net cash provided/(required)
by financing activities 22,600 (285,406)
-------- --------
Net increase/(decrease) in cash and temporary
cash investments from above activities (32,121) 16,373
Cash and temporary cash investments, beginning of year 32,250 2,750
-------- --------
Cash and temporary cash investments, end of period $ 129 $ 19,123
======== ========
Supplemental Disclosure:
Interest and preferred dividends paid $ 2,031 $ 25,169
======== ========
Income taxes paid $ 3,400 $ 3,409
======== ========
New capital lease obligations incurred $ - $ 55
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
37
<PAGE>
GPU, Inc. and Subsidiary Companies
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc. owns all the outstanding common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison
Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer
service function, transmission and distribution operations and the operations of
the remaining non-nuclear generating facilities 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 nuclear
generation operations of GPU Energy are conducted by GPU Nuclear, Inc. (GPUN).
GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own, operate and
fund the acquisition of electric and gas transmission and distribution systems
in foreign countries, and are referred to as "GPU Electric." GPU International,
Inc. and GPU Power, Inc. and their subsidiaries develop, own and operate
generation facilities in the United States (US) and foreign countries and are
referred to as the "GPUI Group." 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; MYR Group Inc. (MYR), which is a utility
infrastructure construction company; 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."
These notes should be read in conjunction with the notes to consolidated
financial statements included in the 1999 Annual Report on Form 10-K. The
December 31, 1999 balance sheet data contained in the attached financial
statements was derived from audited financial statements. For disclosures
required by accounting principles generally accepted in the US, see the 1999
Annual Report on Form 10-K.
1. COMMITMENTS AND CONTINGENCIES
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
Generation Asset Divestiture:
- ----------------------------
In 1999, the GPU Energy companies completed the sales of Three Mile Island
Unit 1 (TMI-1) nuclear generating station and substantially all of their fossil
and hydroelectric generating stations. In October 1999, JCP&L agreed to sell
Oyster Creek nuclear generating station (Oyster Creek) to AmerGen Energy
Company, LLC (AmerGen), a joint venture of PECO Energy and British Energy, for
$10 million and reimbursement of the cost (estimated at $88 million) of the next
scheduled refueling outage. The sale is subject to various conditions, including
the receipt of various federal and state regulatory approvals and favorable
rulings by the Internal Revenue Service. It is currently anticipated that the
sale will close in the Summer of 2000.
JCP&L and Public Service Electric & Gas Company (PSE&G) each hold a 50%
undivided ownership interest in Yards Creek Pumped Storage Facility (Yards
Creek). In December 1998, JCP&L filed a petition with the New Jersey Board of
Public Utilities (NJBPU) seeking a declaratory order that 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 is void and unenforceable. Management
believes that the fair market value of JCP&L's ownership interest
38
<PAGE>
in Yards Creek is substantially in excess of its March 31, 2000 book value of
$22 million. There can be no assurance as to the outcome of this matter.
Stranded Costs and Regulatory Restructuring Orders:
- --------------------------------------------------
With the current market price of electricity being below the cost of some
utility-owned generation and power purchase commitments, and the ability of
customers to choose their energy suppliers, certain costs, which generally would
be recoverable in a regulated environment, may not be recoverable in a
competitive environment. These costs are generally referred to as stranded
costs.
In 1998, the Pennsylvania Public Utility Commission (PaPUC) issued
Restructuring Orders to Met-Ed and Penelec which, among other things, provide
for Met-Ed and Penelec's recovery of a substantial portion of what otherwise
would have become stranded costs, and provide for a Phase II proceeding
following the completion of their generation divestitures to make a final
determination of the extent of that stranded cost recovery. An appeal by one
intervenor in the restructuring proceedings is pending before the Pennsylvania
Supreme Court. There can be no assurance as to the outcome of this appeal.
On January 31, 2000, Met-Ed and Penelec submitted Phase II Reports to the
PaPUC addressing actual net divestiture proceeds and reconciliation of stranded
costs pursuant to the 1998 Restructuring Orders. The PaPUC and other parties,
which participated in the 1998 Restructuring Orders, are currently reviewing the
Reports. There can be no assurance as to the outcome of this matter.
In May 1999, the NJBPU issued a Summary Order with respect to JCP&L's rate
unbundling, stranded cost and restructuring filings. The Summary Order provides
for, among other things, customer choice of electric generation supplier
beginning August 1, 1999 and full recovery of stranded costs. The Summary Order
did not address the pending sale of Oyster Creek, because at the time the
Summary Order was issued, it was uncertain whether the plant would be sold or
retired early. JCP&L is awaiting a final order from the NJBPU.
As a result of the NJBPU and the PaPUC restructuring decisions, the GPU
Energy companies are required to supply electricity to customers who do not
choose an alternate supplier. Given that the GPU Energy companies have largely
divested their generation business, there will be increased market risks
associated with supplying that electricity, since the GPU Energy companies will
have to supply electricity to non-shopping customers entirely from contracted
and open market purchases. While JCP&L is permitted to recover reasonable and
prudently incurred costs associated with providing basic generation service to
non-shopping customers, Met-Ed and Penelec are generally unable to recover their
energy costs in excess of established rate caps. While management has
implemented an energy risk management program, there can be no assurance that
the GPU Energy companies will be able to fully recover the costs to supply
electricity to customers who do not choose an alternate supplier.
Generation Agreements:
- ---------------------
The evolving competitive generation market has created uncertainty
regarding the forecasting of the GPU Energy companies' energy supply needs,
which has caused the GPU Energy companies to seek shorter-term agreements
39
<PAGE>
offering more flexibility. The GPU Energy companies' supply plan focuses on
short- to intermediate-term commitments (one month to three years) covering
times of expected high energy price volatility (that is, peak demand periods)
and reliance on spot market purchases during other periods.
As of March 31, 2000, the GPU Energy companies have entered into
agreements with third party suppliers to purchase capacity and energy. Payments
pursuant to these agreements, which include firm commitments as well as certain
assumptions regarding, among other things, call/put arrangements and the timing
of the pending Oyster Creek sale, are estimated to be $607 million in 2000, $578
million in 2001, $313 million in 2002, $137 million in 2003 and $44 million in
2004.
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 non-utility generators (NUGs) for
the purchase of energy and capacity, which agreements have remaining terms of up
to 20 years. The rates under virtually all of the GPU Energy companies' NUG
agreements are substantially in excess of current and projected prices from
alternative sources. The following table shows actual payments from 1998 through
March 31, 2000, and estimated payments thereafter through 2005:
Payments Under NUG Agreements
-----------------------------
(in millions)
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
1998 788 403 174 211
1999 774 388 167 219
2000 735 382 139 214
2001 727 389 136 202
2002 731 391 140 200
2003 747 398 144 205
2004 763 403 148 212
2005 747 390 152 205
The NJBPU Summary Order and PaPUC Restructuring Orders provide the GPU
Energy companies assurance of full recovery of their NUG costs (including
above-market NUG costs and certain buyout costs). The GPU Energy companies have
recorded, on a present value basis, a total liability of $3.3 billion (JCP&L
$1.7 billion; Met-Ed $0.7 billion; Penelec $0.9 billion) on the Consolidated
Balance Sheets for above-market NUG costs, and JCP&L has recorded a liability of
$48 million, on a net present value basis, for above-market utility power
purchase agreements, both amounts of which are offset by a corresponding
regulatory asset. The GPU Energy companies are continuing efforts to reduce the
above-market costs of these agreements. There can be no assurance as to the
extent to which these efforts will be successful.
In 1997, the NJBPU approved a Stipulation of Final Settlement which, among
other things, provided for the recovery of costs associated with the buyout of
the Freehold Cogeneration power purchase agreement (Freehold buyout). The NJBPU
approved the cost recovery of up to $135 million, over a seven-year period, on
an interim basis subject to refund. The NJBPU's Summary Order provides for the
continued recovery of the Freehold buyout in the Market Transition Charge (MTC),
but has not altered the interim nature of such
40
<PAGE>
recovery, pending a final decision by the NJBPU. There can be no assurance
as to the outcome of this matter.
ACCOUNTING MATTERS
------------------
JCP&L, in 1999, and Met-Ed and Penelec in 1998, discontinued the
application of Statement of Financial Accounting Standards No. 71 (FAS 71),
"Accounting for the Effects of Certain Types of Regulation," and adopted the
provisions of Statement of Financial Accounting Standards No. 101, "Regulated
Enterprises - Accounting for the Discontinuation of Application of FASB
Statement No. 71," and Emerging Issues Task Force (EITF) Issue 97-4,
"Deregulation of the Pricing of Electricity - Issues Related to the Application
of FAS 71 and FAS 101", with respect to their electric generation operations.
The transmission and distribution portion of the GPU Energy companies'
operations continue to be subject to the provisions of FAS 71. Regulatory
assets, net as reflected in the March 31, 2000 and December 31, 1999
Consolidated Balance Sheets in accordance with the provisions of FAS 71 and EITF
Issue 97-4 were as follows:
GPU, Inc. and Subsidiary Companies
- ----------------------------------
(in thousands)
----------------------------
March 31, December 31,
2000 1999
------------- ------------
Market transition charge (MTC) / basic
generation service $2,397,387 $2,359,529
Competitive transition charge (CTC) 808,736 803,064
Reserve for generation divestiture 537,957 536,904
Power purchase contract loss not in CTC 369,290 369,290
Costs recoverable through distribution rates 291,005 296,842
Income taxes recoverable through future rates, net 286,910 280,268
Three Mile Island Unit 2 (TMI-2)
decommissioning costs 101,766 100,794
Societal benefits charge 108,541 116,941
Above-market deferred NUG costs (214,318) (252,348)
Net divestiture proceeds recoverable through MTC 59,414 37,542
Other, net 68,406 67,420
--------- ---------
Total regulatory assets, net $4,815,094 $4,716,246
========= =========
JCP&L
- -----
MTC / basic generation service $2,397,387 $2,359,529
Costs recoverable through distribution rates 291,005 296,842
Societal benefits charge 108,541 116,941
Net divestiture proceeds recoverable through MTC 59,414 37,542
--------- --------
Total regulatory assets, net $2,856,347 $2,810,854
========= =========
Met-Ed
- ------
CTC $ 597,280 $ 591,316
Power purchase contract loss not in CTC 271,270 271,270
Reserve for generation divestiture 141,029 137,037
Income taxes recoverable through future rates, net 124,311 115,713
TMI-2 decommissioning costs 65,363 65,455
Other, net 66,207 52,074
--------- ---------
Total regulatory assets, net $1,265,460 $1,232,865
========= =========
41
<PAGE>
Penelec
- -------
Reserve for generation divestiture $ 396,928 $ 399,867
Above-market deferred NUG costs (228,934) (252,893)
CTC 211,456 211,748
Income taxes recoverable through future rates, net 162,599 164,555
Power purchase contract loss not in CTC 98,020 98,020
Other, net 53,218 51,230
--------- ---------
Total regulatory assets, net $ 693,287 $ 672,527
========= =========
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting
for Derivative Instruments and Hedging Activities" (as amended by FAS 137),
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. FAS 133 requires that companies recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. 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. FAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. GPU will adopt FAS 133 in the first
quarter 2001 and is in the process of evaluating the impact of the
implementation of this statement. GPU's use of derivative instruments is
intended to manage the risk of interest rate, foreign currency and commodity
price fluctuations and may include such transactions as electricity and natural
gas forward and futures contracts, foreign currency swaps, interest rate swaps
and options. GPU does not intend to hold or issue derivative instruments for
trading purposes.
NUCLEAR FACILITIES
------------------
Investments:
- -----------
In December 1999, the GPU Energy companies sold TMI-1 to AmerGen for
approximately $100 million. In addition, JCP&L has agreed to sell Oyster Creek
to AmerGen for $10 million and reimbursement of the cost (estimated at $88
million) of the next refueling outage. JCP&L's net investment, including nuclear
fuel, in Oyster Creek as of March 31, 2000 and December 31, 1999 was $10
million. The net investment reflects the impairment write-down resulting from
the proposed sale of the facility to AmerGen. JCP&L, Met-Ed and Penelec jointly
own TMI-2, which was damaged during a 1979 accident, in the percentages of 25%,
50% and 25%. JCP&L's net investment in TMI-2 as of March 31, 2000 and December
31, 1999 was $59 million and $61 million, respectively. 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. Met-Ed and Penelec's remaining investments in
TMI-2 were written off in 1998 after receiving the PaPUC's Restructuring Orders.
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. Also, not all risks associated with the ownership or
operation of nuclear facilities may be adequately insured or
42
<PAGE>
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.
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 US 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.
In 1995, the US 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 US 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 the ten initial "test
cases," which had been selected for a test case trial as well as all of the
remaining 2,100 pending claims. The Court ruled that there was no evidence which
created a genuine issue of material fact warranting submission of plaintiffs'
claims to a jury. The plaintiffs appealed the District Court's ruling to the
Court of Appeals for the Third Circuit. In November 1999, the Third Circuit
affirmed the District Court's dismissal of the ten "test cases," but set aside
the dismissal of the additional pending claims, remanding them
43
<PAGE>
to the District Court for further proceedings. In remanding these claims, the
Third Circuit held that the District Court had erred in extending its summary
judgment decision to the other plaintiffs and imposing on these plaintiffs the
District Court's finding that radiation exposures below 10 rems were too
speculative to establish a causal link to cancer. The Court of Appeals stated
that the non-test case plaintiffs should be permitted to present their own
individual evidence that exposure to radiation from the accident caused their
cancers.
GPU, Inc. and the GPU Energy companies believe that the Third Circuit has
misinterpreted the record before the District Court as it applies to the
non-test case plaintiffs, and in November 1999, filed petitions seeking a
rehearing and reconsideration of the Court's decision regarding the remaining
claims. The "test case" plaintiffs also requested a rehearing of the Court's
decision upholding the dismissal of their claims. In January 2000, the Court of
Appeals denied both petitions. In April 2000, GPU, Inc. and the GPU Energy
companies filed a petition with the US Supreme Court seeking review of the Third
Circuit Court of Appeals decision. The plaintiffs have also sought Supreme Court
review. There can be no assurance as to the outcome of this litigation.
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 US Department of Energy (DOE).
In 1995, a consultant to GPUN performed site-specific studies of TMI-2 and
Oyster Creek (updated in 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. Under NRC regulations, JCP&L is making periodic payments
to complete the funding for Oyster Creek retirement costs by the end of the
plant's license term of 2009. The TMI-2 funding completion date is 2014,
consistent with TMI-2 remaining in long-term storage. The NRC may require an
acceleration of the decommissioning funding for Oyster Creek if the pending sale
is not completed and the plant is retired early. The retirement cost estimates
under the 1995 site-specific studies, assuming decommissioning of TMI-2 and
Oyster Creek in 2014 and 2009, respectively, are as follows (in 2000 dollars):
(in millions)
Oyster
TMI-2 Creek
----- -----
Radiological decommissioning $439 $596
Nonradiological cost of removal 35* 32
--- ---
Total $474 $628
=== ===
* Net of $12.6 million spent as of March 31, 2000.
44
<PAGE>
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage. The ultimate cost of retiring
the GPU Energy companies' nuclear facilities may be different from the cost
estimates contained in these site-specific studies. Also, the cost estimates
contained in these site-specific studies are significantly greater than the
decommissioning funding targets established by the NRC.
The 1995 Oyster Creek site-specific study was updated in 1998 in response
to the previously announced potential early closure of the plant in 2000. An
early shutdown would increase the retirement costs shown above to $637 million
($605 million for radiological decommissioning and $32 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. For additional information, see OTHER COMMITMENTS AND CONTINGENCIES
section.
The agreements to sell Oyster Creek to AmerGen provide, among other
things, that upon financial closing, JCP&L will transfer $430 million in
decommissioning trust funds to AmerGen, which will assume all liability for
decommissioning Oyster Creek.
The NJBPU has granted JCP&L annual revenues for Oyster Creek retirement
costs of $22.5 million based on the 1995 site-specific study. In August 2000,
the recovery of Oyster Creek retirement costs escalates to $34.4 million
annually if the plant is retired in 2000.
In the event JCP&L does not complete the pending sale of Oyster Creek,
management believes that any retirement costs, in excess of those currently
recognized for ratemaking purposes, should be recoverable from customers.
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
March 31, 2000 and December 31, 1999 are $500 million (JCP&L $125 million;
Met-Ed $250 million; Penelec $125 million) and $497 million (JCP&L $124 million;
Met-Ed $249 million; Penelec $124 million), respectively. These amounts are
based upon the 1995 site-specific study estimates (in 2000 and 1999 dollars,
respectively) discussed above and an estimate for remaining incremental
monitored storage costs of $27 million (JCP&L $7 million; Met-Ed $13 million;
Penelec $7 million) as of March 31, 2000 and December 31, 1999, as a result of
TMI-2 entering long-term monitored storage in 1993.
Offsetting the $500 million liability as of March 31, 2000 is $199 million
(JCP&L $15 million; Met-Ed $147 million; Penelec $37 million), which management
believes is probable of recovery from customers and included in Regulatory
assets, net on the Consolidated Balance Sheets, and $354 million (JCP&L $113
million; Met-Ed $145 million; Penelec $96 million) in trust funds for TMI-2 and
included in Nuclear decommissioning trusts, at market on the Consolidated
Balance Sheets.
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 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.
45
<PAGE>
As of March 31, 2000, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $78 million (JCP&L $19.5 million;
Met-Ed $39 million; Penelec $19.5 million), which is based on the 1995
site-specific study estimates (in 2000 dollars).
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.
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. 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 Oyster Creek totals $2.75 billion. In addition,
GPU has purchased property and decontamination insurance coverage for TMI-2
totaling $150 million. 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 Oyster Creek to approximately $9.5 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 Oyster Creek, could result in an assessment of up to
$88 million per incident, subject to an annual maximum payment of $10 million
per incident per reactor. Although TMI-2 is exempt from this assessment, the
plant is still covered by the provisions of the Price-Anderson Act. 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
$10.5 million for insurance policies currently in effect applicable to nuclear
operations and facilities. The GPU Energy companies are also subject to other
retrospective premium assessments related to policies applicable to TMI-1 prior
to the sale of the plant to AmerGen.
JCP&L has insurance coverage for incremental replacement power costs
should an accident-related outage at Oyster Creek occur. Coverage would commence
after a 12-week waiting period at $2.1 million per week for 52 weeks, decreasing
to 80% of such amount for the next 110 weeks.
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<PAGE>
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 disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants (MGP), coal mine
refuse piles and generation facilities. In addition, federal and state law
provides for payment by responsible parties for damage to natural resources.
GPU has been formally notified by the Environmental Protection Agency
(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 the following number of instances (in some cases, more than
one company is named for a given site):
JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL
----- ------ ------- ---- --------- -----
6 4 2 1 1 11
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/or 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. As of
March 31, 2000, a liability of approximately $6 million was recorded for nine
PRP sites where it is probable that a loss has been incurred and the amount
could be reasonably estimated.
The ultimate cost of remediation of all these and other hazardous waste
sites 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 US District
Court for the District of Delaware for enforcement of its Unilateral Order
(Order) issued against GPU, Inc. to clean up the former Dover Gas Light Company
(Dover) manufactured gas production site (Site) in Dover, Delaware. Dover was
part of the AGECO/AGECORP group of companies from 1929 until 1942; GPU, Inc.
emerged from the AGECO/AGECORP reorganization proceedings in 1946. All of
Dover's common stock, which was sold in 1942 to an unaffiliated entity, was
subsequently acquired by Chesapeake Utilities Corporation (Chesapeake), which
merged with Dover in 1960. Chesapeake is currently performing the cleanup at the
Site. According to the complaint, the EPA is seeking (1) enforcement of the
Order against GPU; (2) recovery of its past response costs; (3) a declaratory
judgment that GPU is liable for any remaining cleanup costs of the Site; and (4)
statutory penalties for noncompliance with the Order. The EPA has stated that it
has incurred approximately $1 million of past response costs as of December 31,
1999. The EPA estimates the total Site
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<PAGE>
cleanup costs at approximately $4.2 million. Consultants to Chesapeake have
estimated the remaining remediation ground water costs to be approximately $11.3
million to $19 million. In accordance with its penalty policy, and in
discussions with GPU, the EPA has demanded penalties calculated at a daily rate
of $8,800, rather than the statutory maximum of $27,500 per day. As of March 31,
2000, if the statutory maximum were applied, the total amount of penalties would
be approximately $36.5 million. GPU believes that it has meritorious defenses to
the imposition of penalties, or that if a penalty is assessed, it should be at a
lower daily rate. Chesapeake has also sued GPU, Inc. for contribution to the
cleanup of the Dover Site. The US District Court for the District of Delaware
has consolidated the case filed by Chesapeake with the case filed by the EPA and
discovery is proceeding. There can be no assurance as to the outcome of these
proceedings.
In connection with the 1999 sale of its Seward Generation Station to Sithe
Energies, Penelec has assumed up to $6 million of remediation costs associated
with certain coal mine refuse piles which are the subject of an earlier consent
decree with the Pennsylvania Department of Environmental Protection. Penelec
expects recovery of these remediation costs in Phase II of its restructuring
proceeding and has recorded a corresponding regulatory asset.
JCP&L has entered into agreements with the NJDEP 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 March
31, 2000, JCP&L has spent approximately $37 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 the $52
million due to significant uncertainties, including changes in acceptable
remediation methods and technologies.
In 1997, the NJBPU approved JCP&L's request to establish a Remediation
Adjustment Clause for the recovery of MGP remediation costs. As a result of the
NJBPU's Summary Order, effective August 1, 1999, the recovery of these costs was
transferred to the Societal Benefits Charge. As of March 31, 2000, JCP&L had
recorded on its Consolidated Balance Sheet a regulatory asset of $45 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, and has settled with all but
one of those insurance carriers.
OTHER COMMITMENTS AND CONTINGENCIES
-----------------------------------
Class Action Litigation:
- -----------------------
GPU Energy
In July 1999, New Jersey experienced a severe heat storm that resulted in
major power outages and temporary service interruptions, which affected JCP&L's
service territory. As a result, the NJBPU initiated an investigation into the
reliability of the transmission and distribution systems of all New
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Jersey utilities and their response to power outages. This investigation was
completed in April 2000, resulting in Phase I and Phase II Reports. Both Reports
contain, among other things, recommendations as to certain actions that should
be undertaken by JCP&L, and were adopted by NJBPU orders requiring JCP&L to act
on the recommendations and to report back on such implementation. JCP&L has
begun to act on these recommendations. The NJBPU order adopting the Phase II
Report stated that there is not a prima facie case demonstrating that overall
JCP&L provided unsafe, inadequate or improper service to its customers. In
addition, two class action lawsuits were commenced in New Jersey Superior Court
in July 1999 against GPU, Inc. and JCP&L, seeking both compensatory and punitive
damages for alleged losses suffered due to service interruptions. The GPU
defendants originally requested the Court to stay or dismiss the litigation in
deference to the NJBPU's primary jurisdiction. The Court denied the motion,
consolidated the two actions, and certified them as class actions on behalf of a
class that includes JCP&L customers as well as "all dependents, tenants,
employees, and other intended beneficiaries of customers who suffered damages as
a result" of the outages. In January 2000 the Appellate Division agreed to
review the Court's decision on primary jurisdiction. The NJBPU has filed a brief
with the Appellate Division stating its view that its adoption of the Phase II
Report completed its exercise of its primary jurisdiction. In response to GPU's
demand for a statement of damages, the plaintiffs have stated that they are
seeking damages of $700 million, subject to the results of pre-trial discovery.
GPU has notified its insurance carriers who have reserved their rights to
contest coverage under GPU's insurance policies for losses, which GPU may incur.
There can be no assurance as to the outcome of these matters.
GPU Electric
As a result of the September 1998 fire and explosion at the Longford
natural gas plant in Victoria, Australia, Victorian gas users (plaintiffs) have
brought a class action in the Australian Federal Court against Esso Australia
Limited and its affiliate (Esso), the owner and operator of the plant, for
losses suffered due to the lack of natural gas supply and related damages. The
plaintiffs claim that Esso was, among other things, negligent in designing,
maintaining and operating the Longford plant and also assert claims under
Australian fair trade practices law.
Esso has joined as third party defendants the State of Victoria (State)
and various State-owned entities which operated the Victorian gas industry prior
to its privatization, including Transmission Pipelines Australia (TPA) and its
affiliate Transmission Pipelines (Assets) Australia (TPAA). GPU, Inc., through
GPU GasNet, acquired the assets of TPA and the shares of TPAA from the State in
June 1999. Esso asserts that the State and the gas industry were negligent in
that, among other things, they failed to ensure that the gas system would
provide a secure supply of gas to users and also asserts claims under the
Australian fair trade practices law. In addition, GPU GasNet and other private
entities (Buyers) that purchased the Victorian gas assets from the State have
joined Esso as third party defendants. Esso asserts that if the gas industry is
liable as alleged, that liability has been transferred to the Buyers as part of
the State's privatization process.
Under the acquisition agreement with the State, GPU GasNet has indemnified
TPA and the State against third party claims arising out of, among other things,
the operation of TPA's business. TPA and the State have commenced proceedings
against GPU GasNet to enforce the indemnity in respect of any liability that may
flow to TPA as a result of Esso's claim.
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GPU GasNet and TPAA have filed answers denying liability to Esso, which
could be material, and intend shortly to file an answer denying liability to the
State and TPA. GPU GasNet and TPAA have notified their insurance carriers of
this action. The insurers have reserved their rights to deny coverage. There can
be no assurance as to the outcome of this matter.
Investments and Guarantees:
- --------------------------
GPU, Inc.
GPU, Inc. has made significant investments in foreign businesses and
facilities through its subsidiaries, GPU Electric and the GPUI Group. As of
March 31, 2000, GPU, Inc.'s investment in GPU Electric and the GPUI Group was
$1.06 billion and $250.2 million, respectively. As of that date, GPU, Inc. has
also guaranteed an additional $1.05 billion and $29.9 million (including $8.7
million of guarantees related to domestic operations) of GPU Electric and GPUI
Group outstanding obligations, respectively. Although management attempts to
mitigate the risks of investing in certain foreign countries by, among other
things, securing political risk insurance, GPU faces additional risks inherent
to operating in such locations, including foreign currency fluctuations.
GPU Electric
On May 5, 2000, final bids for the purchase of GPU PowerNet and GPU GasNet
(the Australian companies) were received. GPU had previously announced its
intention to sell all, or at least 50%, of the Australian companies, for which
it paid approximately $1.9 billion (GPU PowerNet) and $675 million (GPU GasNet)
in 1997 and 1999, respectively. GPU is continuing to evaluate these bids and
negotiate with bidders. In the event the sale is consummated, GPU estimates that
it will receive less than book value for the assets, in an amount which would be
material, in addition to recognizing a foreign exchange loss of approximately
$132 million, pre-tax. GPU also expects to seek additional funds in order to
repay loans in connection with the acquisition of the Australian companies
either through new financings or other asset sales. If these efforts to complete
the sale are unsuccessful, GPU intends to pursue other financing arrangements
and/or asset sales so that it may maintain its debt ratios consistent with the
requirements of its various loan agreements.
On June 2, 2000, approximately $225 million of GPU GasNet bank debt
matures. GPU GasNet has a commitment from a bank for a three-month extension
during which time it will seek longer term refinancing of the debt. GPU is
unable to evaluate what effect not selling the Australian companies would have
on the terms of those companies' future financing requirements.
In addition, GPU had planned to use the net cash proceeds raised from the
sales of the Australian companies and from JCP&L's planned asset securitization
financing to repay short-term debt incurred in connection with domestic
acquisitions and investments made during 2000. An inability to complete the sale
of the Australian companies, or a sale for substantially less than their book
value, coupled with a delay in the securitization financing (due to a pending
challenge to another utility's NJBPU restructuring order), will delay the
repayment of this outstanding debt and, at least in the short term, restrict
GPU's access to funds for its acquisition program.
Midlands has a 40% equity interest in a 586 MW power project in Pakistan
(the Uch Power Project), which was originally scheduled to begin commercial
operation in late 1998. In June 1999, certain Project lenders for the Uch Power
Project issued notices of default to the Project sponsors (including Midlands)
for, among other things, failure to pay principal and interest under various
loan agreements. In November 1999, the Project sponsors and lenders reached an
agreement under which repayment of the construction loan will be extended,
principal and interest payments deferred, and the sponsors will fund the
completion of the plant through the remaining equity contribution commitments.
Testing of the plant has begun, but the start of commercial operations has been
further delayed pending the resolution of certain technical problems, which are
being addressed.
Uch has renegotiated several of the project agreements with the Government
of Pakistan and its agencies. In April 2000, Uch signed a Memorandum of
Understanding with Pakistani authorities, in which it agreed,
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among other things, to accept a reduction in the power purchase tariff averaging
approximately 8% over the project term. The agreement also extends the term of
the project from 22 to 30 years. Commercial operations are now planned to
commence on June 1, 2000. There remains risk that project revenues may be
delayed due to the poor economic situation in Pakistan.
Midlands' investment in the Uch Power Project as of March 31, 2000 was
approximately $34.7 million, plus a guarantee letter of credit of $5.2 million,
and its share of the projected completion costs represents an additional $6.3
million commitment. Cinergy Corp. has agreed to fund up to an aggregate of $20
million of the required capital contributions and/or certain future "cash
losses," which could be incurred on the Uch Power Project. Cinergy has
reimbursed Midlands for $3.7 million of capital contributions as of March 31,
2000, leaving a remaining commitment of up to $16.3 million. There can be no
assurance as to the outcome of this matter.
As part of the 1999 sale of the Midlands' supply business and the purchase
of the 50% of Midlands that GPU did not already own, certain long-term
obligations under natural gas supply contracts were retained. Most of these
contracts were at fixed prices in excess of the market price of gas as of March
31, 2000. A liability was previously established for the estimated loss under
such contracts, which extend to September 2005. The estimated liability as of
March 31, 2000 was $47 million.
GPUI Group
On July 9, 1999, DIAN (the Colombian national tax authority) issued a
"Special Requirement" on the Termobarranquilla S.A., Empresa de Servicios
Publicos (TEBSA, an investment in which GPU Power has a 29% interest) 1996
income tax return, which challenges the exclusion from taxable income of an
inflation adjustment related to the value of assets used for power generation.
The failure to give notice of this Special Requirement to the US Export Import
Bank may be asserted as an event of default under the loan agreement. The
occurrence of an event of default would entitle TEBSA's lenders to accelerate
the payment of outstanding loans of TEBSA and require payment of certain standby
equity commitments by TEBSA's shareholders and equity guarantors, which include
a subsidiary of GPU Power and GPU, Inc., respectively. The lenders have not
asserted that an event of default has occurred or indicated whether they will
pursue remedies under the project financing documents. As of March 31, 2000, GPU
Power has an investment of approximately $85.5 million in TEBSA and GPU, Inc.
has guaranteed $21.3 million in standby equity commitments. There can be no
assurance as to the outcome of these matters.
GPU Telcom
In March 2000, GPU, Inc. announced its participation in America's Fiber
Network LLC (AFN), of which GPU, Inc. will own 25%. AFN is a high-speed fiber
optics company with a network of more than 7,000 route miles, or 140,000 fiber
miles, connecting major markets in the eastern US to secondary markets with a
growing need for broadband access. GPU, Inc. anticipates investing approximately
$40 million in AFN through GPU Telcom, which includes existing and new fiber
routes and electronic equipment.
In April 2000, GPU, Inc. announced the formation of Telergy Mid-Atlantic
(TMA), a joint venture between GPU Telcom and Telergy, Inc. TMA combines
established telecommunication services and marketing expertise with utilities'
existing fiber networks and natural positioning in serving retail markets. GPU,
Inc. has invested $20 million in Telergy, Inc. through GPU Telcom.
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<PAGE>
Other:
- -----
Concurrent with GPU's July 1999 acquisition of the 50% of Midlands which
it did not already own, GPU began to evaluate existing restructuring plans and
formulate additional plans to reduce operating expenses and achieve ongoing cost
reductions. As of December 31, 1999, GPU had identified and approved a cost
reduction plan. At the acquisition date, Midlands had recorded a liability of
$28.6 million related to previous cost reduction plans. GPU retained $25.7
million of this liability, related to contractual termination and other
severance benefits for 276 employees identified in a 1999 business process
reengineering project. GPU identified an additional 355 employees (234 in
Engineering Services, 38 in metering, 21 in Network Services and 62 from other
specific functions) to be terminated as part of the plan and recorded an
additional liability of $39.3 million. A net charge of $18.2 million for GPU's
50% share of these adjustments was included in expense in 1999 and the other 50%
was recorded in Goodwill as a purchase accounting adjustment.
In the first quarter 2000, a change in the investment return assumptions,
due to better than expected investment performance, resulted in a reduction of
approximately $6.9 million in the estimated liability, from $29.5 million at
December 31, 1999 to $22.6 million. Consequently, goodwill was credited for $3.5
million (50% of the change in estimate) and $3.5 million was credited to income
in the first quarter 2000. Also in the first quarter 2000, $11.3 million was
paid to 272 employees. The remaining severance liability of $11.3 million for
the remaining 187 employees is included in Other current liabilities, and $28.3
million to be funded out of pension plan assets is included as a pension
liability. Management expects the plan will be substantially completed by
September 2000.
GPU AR has entered into contracts to supply electricity to retail
customers through June 2002. In connection with meeting its supply obligations,
GPU AR has entered into purchase commitments for energy and capacity with
payment obligations totaling approximately $26.8 million as of March 31, 2000.
GPU, Inc. has guaranteed up to $19.1 million of these payments.
In accordance with the Nuclear Waste Policy Act of 1982 (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. AmerGen has assumed all liability for disposal costs related
to spent fuel generated after its purchase of TMI-1 and has agreed to assume
this liability for Oyster Creek following its purchase of that plant. In 1996,
the DOE notified the GPU Energy companies and other standard contract holders
that it would 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. 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. 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 Utah. There can
be no assurance as to the outcome of these matters.
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GPU, Inc. and consolidated affiliates have approximately 10,300 employees
worldwide, of whom 6,100 are employed in the US and 3,500 are employed in the
United Kingdom (UK). The majority of the US workforce is employed by the GPU
Energy companies, of which approximately 3,300 are represented by unions for
collective bargaining purposes. In the UK, approximately 3,100 Midlands
employees are represented by unions, and the terms and conditions of various
bargaining agreements are generally reviewed annually, on April 1. JCP&L and
Penelec's collective bargaining agreements with the International Brotherhood of
Electrical Workers expire on October 31, 2002 and May 14, 2002, respectively.
Met-Ed's collective bargaining agreement with the International Brotherhood of
Electrical Workers expired April 30, 2000, and negotiations are currently
underway. Penelec's collective bargaining agreement with the Utility Workers
Union of America expires on June 30, 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.
2. ACQUISITIONS
MYR Group Inc.
--------------
In April 2000, following the receipt of SEC approval, GPU, Inc. completed
its acquisition of MYR Group Inc. (MYR) for approximately $215 million. MYR, a
suburban Chicago-based infrastructure construction company, is the fifth largest
specialty contractor in the US. MYR provides a complete range of power line and
commercial/industrial electrical construction services for electric utilities,
telecommunications providers, commercial and industrial facilities and
government agencies across the US. MYR also builds cellular towers for the
wireless communications market. The acquisition was partially financed through
the issuance of GPU, Inc. short-term debt and will be accounted for under the
purchase method of accounting. To the extent the total acquisition cost exceeds
the estimated value of net assets acquired, goodwill will be recorded and
amortized on a straight-line basis over 40 years.
3. ACCOUNTING FOR DERIVATIVE INSTRUMENTS
GPU's use of derivative instruments is intended primarily to manage the
risk of interest rate, foreign currency and commodity price fluctuations. GPU
does not intend to hold or issue derivative instruments for trading purposes.
Commodity Derivatives:
- ---------------------
The GPU Energy companies use futures contracts to manage the risk of
fluctuations in the market price of electricity and natural gas. These contracts
qualify for hedge accounting treatment under current accounting rules since
price movements of the commodity derivatives are highly correlated with the
underlying hedged commodities and the transactions are designated as
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hedges at inception. Accordingly, under the deferral method of accounting, gains
and losses related to commodity derivatives are recognized in Power purchased
and interchanged in the Consolidated Statements of Income when the hedged
transaction closes or if the commodity derivative is no longer sufficiently
correlated. Prior to income or loss recognition, deferred gains and losses
relating to these transactions are recorded in Current Assets or Current
Liabilities in the Consolidated Balance Sheets.
Interest Rate Swap Agreements:
- -----------------------------
GPU Electric uses interest rate swap agreements to manage the risk of
increases in variable interest rates. As of March 31, 2000, these agreements
covered approximately $1.4 billion of debt, including commercial paper, and were
scheduled to expire on various dates through November 2007. Differences between
amounts paid and received under interest rate swaps are recorded as adjustments
to the interest expense of the underlying debt since the swaps are related to
specific assets, liabilities or anticipated transactions. All of the agreements
effectively convert variable rate debt, including commercial paper, to fixed
rate debt. For the quarter ended March 31, 2000, fixed rate interest expense
incurred in connection with the swap agreements exceeded the variable rate
interest expense that would have been incurred had the swaps not been in place
by approximately $1.9 million.
In April 2000, Penelec issued a total of $50 million of variable rate
senior notes as unsecured medium-term notes. These variable rate securities were
converted to fixed rate obligations through interest rate swap agreements.
Currency Swap Agreements:
- ------------------------
GPU Electric uses currency swap agreements to manage currency risk caused
by fluctuations in the US dollar exchange rate related to debt issued in the US
by Avon Energy Partners Holdings (Avon). These swap agreements effectively
convert principal and interest payments on this US dollar debt to fixed sterling
principal and interest payments, and expire on the maturity dates of the bonds.
Interest expense is recorded based on the fixed sterling interest rate. As of
March 31, 2000, these currency swap agreements covered British Pound 517 million
(US $850 million) of debt. Interest expense would have been British Pound 9.1
million (US $14.5 million) as compared to British Pound 9.8 million (US $15.6
million) for the quarter ended March 31, 2000 had these agreements not been in
place.
Indexed Swap Agreement:
- ----------------------
In June 1998, Onondaga Cogeneration L.P. (Onondaga), a GPU
International, Inc. subsidiary, and Niagara Mohawk Power Corporation (NIMO)
renegotiated their existing power purchase agreement and entered into a
10-year power put indexed swap agreement.
The power put agreement gives Onondaga the right, but not the obligation,
to sell energy and capacity to NIMO at a proxy market price up to the specified
contract quantity.
Under the indexed swap agreement, Onondaga pays NIMO the market price of
energy and capacity and NIMO pays Onondaga a contract price which is fixed for
the first two years and then adjusted monthly, according to an indexing formula,
for the remaining term. As of March 31, 2000, the unamortized
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balance of the swap contract was valued at $53.3 million, and was included in
Other - Deferred Debits and Other Assets on the Consolidated Balance Sheets.
This valuation was derived using the discounted estimated cash flows related to
payments expected to be received by Onondaga. A corresponding amount was
recorded in deferred revenue (which is included in Other - Current Liabilities
on the Consolidated Balance Sheets) and will be recognized to income over a
period not to exceed 10 years.
Concurrent with the establishment of a competitive market for electricity
in New York (Power Exchange) and meeting specific trading volume criteria,
certain rights between Onondaga and NIMO expire under the power put agreement.
As a result, in 2000, GPU International, Inc. expects to recognize in income all
unamortized deferred revenue, including that from the indexed swap agreement,
which will be largely offset by an impairment of the Onondaga facility and a
provision for out-of-market gas transportation costs.
4. SEGMENT INFORMATION
The following is presented in accordance with Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
GPU's reportable segments are strategic business units that are managed
separately due to their different operating and regulatory environments. GPU's
management evaluates the performance of its business units based upon income
before extraordinary and non-recurring items. For the purpose of providing
segment information, domestic electric utility operations (GPU Energy) is
comprised of the three electric utility operating companies serving customers in
New Jersey and Pennsylvania, as well as GPU Generation, Inc. (sold in late
1999), GPUN, GPU Telcom and GPUS. For additional information on GPU's
organizational structure and businesses, see preface to the Notes to
Consolidated Financial Statements.
55
<PAGE>
<TABLE>
<CAPTION>
GPU, Inc. and Subsidiary Companies
Business Segment Data (in thousands)
Income
Interest Before Extra-
Depreciation Charges and Income Tax ordinary and Capital
Operating and Preferred Expense/ Non-recurring Total Expenditures
Revenues Amortization Dividends (Benefit)(a) Items Assets(b) and Investments
--------- ------------ --------- ----------- ------------ --------- -------------
For the three months ended March 31, 2000
- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Domestic Segments:
Electric Utility Operations
(GPU Energy) $ 851,531 $ 83,698 $ 51,427 $ 66,192 $ 96,432 $13,497,216 $ 54,001
Independ Power Prod
(GPU International) 23,010 2,332 254 828 1,251 371,149 4,183
Electric Retail Energy Sales
(GPU AR) 23,329 - - 1,120 1,645 24,329 7
------- ------ ------ ------ ------ ---------- ------
Subtotal 897,870 86,030 51,681 68,140 99,328 13,892,694 58,191
------- ------ ------ ------ ------ ---------- ------
Foreign Segments:
Electric/Gas Utility Operations:
(GPU Electric)
Electric Distribution -
United Kingdom 166,298 25,562 46,626 19,068 33,043 4,701,666 44,010
Electric Distribution -
Argentina 43,422 3,313 7,208 400 745 611,841 5,199
Electric Transmission -
Australia 47,208 10,271 24,014 1,589 2,952 1,728,898 1,689
Gas Transmission -
Australia 11,942 2,805 10,543 (1,426) (2,004) 744,107 1,936
Independ Power Prod - S. America
(GPU Power) 9,704 1,614 1,076 1,178 2,135 244,856 26
------- ------ ------ ------ ------ ---------- ------
Subtotal 278,574 43,565 89,467 20,809 36,871 8,031,368 52,860
------- ------ ------ ------ ------ ---------- ------
Corporate and Eliminations - - 1,815 - (5,201) (64,407) 500
------- ------ ------ ------ ------ ---------- ------
Consolidated Total $1,176,444 $ 129,595 $ 142,963 $ 88,949 $ 130,998 $21,859,655 $ 111,551
========== ========== ========== ======== ========== =========== =========
For the three months ended March 31, 1999
- ------------------------------------------
Domestic Segments:
Electric Utility Operations
(GPU Energy) $ 967,895 $ 104,882 $60,264 86,496 $ 120,557 $13,244,301 $ 60,276
Independ Power Prod
(GPU International) 17,958 (533) 454 2,184 3,511 359,374 239
Electric Retail Energy Sales
(GPU AR) 16,460 - - 1,081 1,681 24,630 14
--------- ------- ------ ------ ------- ---------- ------
Subtotal 1,002,313 104,349 60,718 89,761 125,749 13,628,305 60,529
--------- ------- ------ ------ ------- ---------- ------
Foreign Segments:
Electric/Gas Utility Operations:
(GPU Electric)
Electric Distribution -
United Kingdom 304 - 4,927 13,395 33,999(c) 4,687,476 -
Electric Distribution -
Argentina 10,772 1,165 1,866 128 293 579,907 5,540
Electric Transmission -
Australia 47,188 10,384 24,885 1,460 3,292 1,824,309 -
Gas Transmission -
Australia - - - - - 795,527 -
Independ Power Prod - S. America
(GPU Power) 8,864 1,346 772 1,062 1,597 238,644 16,549
--------- ------- ------ ------ ------- ---------- ------
Subtotal 67,128 12,895 32,450 16,045 39,181 8,125,863 22,089
--------- ------- ------ ------ ------- ---------- ------
Corporate and Eliminations (738) - 55 - (2,003) (36,086) -
--------- ------- ------ ------ ------- ---------- ------
Consolidated Total $1,068,703 $ 117,244 $ 93,223 $105,806 $ 162,927 $21,718,082 $ 82,618
========== ========== ========== ======== ========== =========== ========
<FN>
(a) Represents income taxes on income before extraordinary and non-recurring
items.
(b) The comparative 1999 Total Assets is as of December 31, 1999.
(c) Includes equity in net income of investee accounted for under the equity
method of $52.5 million, for the period prior to the consolidation of
Midlands.
</FN>
</TABLE>
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5. COMPREHENSIVE INCOME
For the three months ended March 31, 2000 and 1999, comprehensive income
is summarized below.
(in thousands)
Three months
Ended March 31,
-----------------
GPU, Inc. and Subsidiary Companies 2000 1999
- ---------------------------------- ---- ----
Net income $130,998 $ 190,719
------- --------
Other comprehensive income/(loss), net of tax:
Net unrealized gains/(loss) on investments 14,089 (2,195)
Foreign currency translation (39,487) 1,452
------- --------
Total other comprehensive income/(loss) (25,398) (743)
------- --------
Comprehensive income $105,600 $ 189,976
======= ========
JCP&L
- -----
Net income $ 45,570 $ 53,697
------- -------
Other comprehensive income/(loss), net of tax:
Net unrealized gains/(loss) on investments - -
------- ----
Comprehensive income $ 45,570 $ 53,697
======= =======
Met-Ed
- ------
Net income $ 26,493 $ 32,832
------- --------
Other comprehensive income/(loss), net of tax:
Net unrealized gains/(loss) on investments (728) 1,646
------- --------
Comprehensive income $ 25,765 $ 34,478
======= ========
Penelec
- -------
Net income $ 26,942 $ 65,490
------- --------
Other comprehensive income/(loss), net of tax:
Net unrealized gains/(loss) on investments (366) 752
------- --------
Comprehensive income $ 26,576 $ 66,242
======= ========
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PART II
ITEM 1 - LEGAL PROCEEDINGS
Information concerning the current status of certain legal
proceedings instituted against GPU, Inc. and the GPU Energy
companies discussed in Part I of this report in Combined Notes to
Consolidated Financial Statements is incorporated herein by
reference and made a part hereof.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(12) Statements Showing Computation of Ratio of Earnings to
Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends Based on SEC
Regulation S-K, Item 503
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
(27) Financial Data Schedules
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
(b) Reports on Form 8-K
GPU, Inc.:
---------
Dated April 18, 2000, under Item 5 (Other Events).
Dated May 1, 2000, under Item 5 (Other Events).
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<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
GPU, INC.
May 12, 2000 By: /s/ B. L. Levy
--------------------------------
B. L. Levy, Senior Vice President and
Chief Financial Officer
May 12, 2000 By: /s/ P. E.Maricondo
--------------------------------
P. E. Maricondo, Vice President
and Comptroller
(principal accounting officer)
JERSEY CENTRAL POWER & LIGHT COMPANY
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
May 12, 2000 By: /s/ M. J.Chesser
--------------------------------
M. J. Chesser, President and
Chief Executive Officer
May 12, 2000 By: /s/ M. P. O'Flynn
--------------------------------
M. P. O'Flynn, Vice President- Finance
and Rates & Comptroller
(principal accounting officer)
59
Exhibit 12A
Page 1 of 2
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
----------------------------------------------
UNAUDITED
Three Months Ended
-------------------------
March 31, March 31,
2000 1999
--------- -----------
OPERATING REVENUES $1,176,444 $1,073,733
--------- ---------
OPERATING EXPENSES 836,132 775,100
Interest portion of rentals (A) 5,754 7,739
Fixed charges of service company
subsidiaries (B) 1,216 1,143
--------- --------
Net expense 829,162 766,218
--------- --------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds used
during construction 1,075 673
Equity in undistributed earnings
of affiliates, net 3,652 53,252
Other income, net 19,178 49,081
Minority interest net income (477) (823)
--------- --------
Total other income and deductions 23,428 102,183
--------- --------
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 370,710 $ 409,698
========= =========
FIXED CHARGES:
Interest on funded indebtedness $ 133,919 $ 82,821
Other interest (C) 8,629 8,233
Preferred stock dividends of
subsidiaries on a pretax basis (E) 4,100 6,260
Interest portion of rentals (A) 5,754 7,739
--------- ---------
Total fixed charges $ 152,402 $ 105,053
========= =========
RATIO OF EARNINGS TO FIXED CHARGES 2.43 3.90
==== ====
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (D) 2.43 3.90
==== ====
<PAGE>
Exhibit 12A
Page 2 of 2
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
----------------------------------------------
UNAUDITED
- --------------------------
NOTES:
(A) GPU has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded
such components from Operating Expenses.
(B) Represents fixed charges of GPU Service, Inc. and GPU Nuclear, Inc. which
are accounted for as operating expenses in GPU's consolidated income
statement. GPU has removed the fixed charges from operating expenses and
included such amounts in fixed charges as interest on funded indebtedness
and other interest for this statement.
(C) Includes amount for subsidiary-obligated mandatorily redeemable preferred
securities of $2,675 and $7,222 for the three month periods ended March
31, 2000 and 1999, respectively, and amount for trust preferred securities
of $3,673 for the three month period ended March 31, 2000.
(D) GPU, Inc., the parent holding company, does not have any preferred stock
outstanding, therefore, the ratio of earnings to combined fixed charges
and preferred stock dividends is the same as the ratio of earnings to
fixed charges.
(E) Calculation of preferred stock dividends of subsidiaries on a pretax basis
is as follows:
Three Months Ended
----------------------------
March 31, March 31,
2000 1999
-------- --------
Income before provision for income taxes and
preferred stock dividends of subsidiaries $222,408 $310,905
Income before preferred stock dividends of
subsidiaries 133,459 194,639
Pretax earnings ratio 166.6% 159.7%
Preferred stock dividends of subsidiaries 2,461 3,920
Preferred stock dividends of subsidiaries on
a pretax basis 4,100 6,260
Exhibit 12B
Page 1 of 2
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
----------------------------------------------
UNAUDITED
Three Months Ended
-----------------------
March 31, March 31,
2000 1999
----------- --------
OPERATING REVENUES $452,745 $516,889
------- -------
OPERATING EXPENSES 356,750 403,762
Interest portion of rentals (A) 2,222 2,464
------- -------
Net expense 354,528 401,298
------- -------
OTHER INCOME:
Allowance for funds used
during construction 562 286
Other income, net 5,432 3,019
------- -------
Total other income 5,994 3,305
------- -------
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $104,211 $118,896
======= =======
FIXED CHARGES:
Interest on funded indebtedness $ 23,262 $ 23,190
Other interest (B) 2,827 2,870
Interest portion of rentals (A) 2,222 2,464
------- -------
Total fixed charges $ 28,311 $ 28,524
======= =======
RATIO OF EARNINGS TO FIXED CHARGES 3.68 4.17
==== ====
Preferred stock dividend requirement $ 2,461 $ 2,432
Ratio of income before provision for
income taxes to net income (C) 166.6% 168.3%
------- -------
Preferred stock dividend requirement
on a pretax basis 4,100 4,093
Fixed charges, as above 28,311 28,524
------- -------
Total fixed charges and
preferred stock dividends $ 32,411 $ 32,617
======= =======
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 3.22 3.65
==== ====
<PAGE>
Exhibit 12B
Page 2 of 2
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
----------------------------------------------
UNAUDITED
- ----------------------------
NOTES:
(A) JCP&L has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded
such components from Operating Expenses.
(B) Includes amount for company-obligated mandatorily redeemable preferred
securities of $2,675 and $2,675 for the three month periods ended March
31, 2000 and 1999, respectively.
(C) Represents income before provision for income taxes of $75,900 and $90,372
for the three month periods ended March 31, 2000 and 1999, respectively,
divided by net income of $45,570 and $53,697, respectively for the same
periods.
Exhibit 12C
Page 1 of 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
----------------------------------------------
UNAUDITED
Three Months Ended
-----------------------
March 31, March 31,
2000 1999
----------- --------
OPERATING REVENUES $203,056 $229,157
------- -------
OPERATING EXPENSES 147,737 152,905
Interest portion of rentals (A) 255 1,466
------- -------
Net expense 147,482 151,439
------- -------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds used
during construction 213 187
Other income, net 2,771 1,133
------- -------
Total other income and deductions 2,984 1,320
------- -------
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 58,558 $ 79,038
======= =======
FIXED CHARGES:
Interest on funded indebtedness $ 11,935 $ 12,088
Other interest (B) 2,364 2,672
Interest portion of rentals (A) 255 1,466
------- -------
Total fixed charges $ 14,554 $ 16,226
======= =======
RATIO OF EARNINGS TO FIXED CHARGES 4.02 4.87
==== ====
Preferred stock dividend requirement $ - $ 66
Ratio of income before provision for
income taxes to net income (C) 166.1% 191.3%
------- -------
Preferred stock dividend requirement
on a pretax basis - 126
Fixed charges, as above 14,554 16,226
------- -------
Total fixed charges and
preferred stock dividends $ 14,554 $ 16,352
======= =======
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 4.02 4.83
==== ====
<PAGE>
Exhibit 12C
Page 2 of 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
----------------------------------------------
UNAUDITED
NOTES:
(A) Met-Ed has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded
such components from Operating Expenses.
(B) Includes amount for trust preferred securities of $1,838 for the three
month period ended March 31, 2000, and amount for company-obligated
mandatorily redeemable preferred securities of $2,250 for the three month
period ended March 31, 1999.
(C) Represents income before provision for income taxes of $44,004 and $62,812
for the three month periods ended March 31, 2000 and 1999, respectively,
divided by net income of $26,493 and $32,832, respectively for the same
periods.
Exhibit 12D
Page 1 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
----------------------------------------------
UNAUDITED
Three Months Ended
-----------------------
March 31, March 31,
2000 1999
----------- --------
OPERATING REVENUES $220,105 $246,249
------- -------
OPERATING EXPENSES 166,473 173,607
Interest portion of rentals (A) 699 1,449
------- -------
Net expense 165,774 172,158
------- -------
OTHER INCOME AND DEDUCTIONS:
Allowance for funds used
during construction 300 200
Other income, net 847 657
------- -------
Total other income and deductions 1,147 857
------- -------
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 55,478 $ 74,948
======= =======
FIXED CHARGES:
Interest on funded indebtedness $ 7,277 $ 13,428
Other interest (B) 2,131 2,704
Interest portion of rentals (A) 699 1,449
------- -------
Total fixed charges $ 10,107 $ 17,581
======= =======
RATIO OF EARNINGS TO FIXED CHARGES 5.49 4.26
==== ====
Preferred stock dividend requirement $ - $ 154
Ratio of income before provision for
income taxes to net income (C) 168.4% 146.0%
------- -------
Preferred stock dividend requirement
on a pretax basis - 225
Fixed charges, as above 10,107 17,581
------- -------
Total fixed charges and
preferred stock dividends $ 10,107 $ 17,806
======= =======
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 5.49 4.21
==== ====
<PAGE>
Exhibit 12D
Page 2 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
----------------------------------------------
UNAUDITED
NOTES:
(A) Penelec has included the equivalent of the interest portion of all rentals
charged to income as fixed charges for this statement and has excluded
such components from Operating Expenses.
(B) Includes amount for trust preferred securities of $1,835 for the three
month period ended March 31, 2000, and amount for company-obligated
mandatorily redeemable preferred securities of $2,297 for the three month
period ended March 31, 1999.
(C) Represents income before provision for income taxes of $45,371 and $95,619
for the three month periods ended March 31, 2000 and 1999, respectively,
divided by net income of $26,942 and $65,490, respectively for the same
periods.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000040779
<NAME> GPU, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 7,892,354
<OTHER-PROPERTY-AND-INVEST> 4,193,490
<TOTAL-CURRENT-ASSETS> 1,882,737
<TOTAL-DEFERRED-CHARGES> 7,891,074
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 21,859,655
<COMMON> 331,958
<CAPITAL-SURPLUS-PAID-IN> 1,011,687
<RETAINED-EARNINGS> 2,525,757 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 3,542,716 <F2>
398,167 <F3>
12,649
<LONG-TERM-DEBT-NET> 5,627,792
<SHORT-TERM-NOTES> 1,095,045
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 126,477
<LONG-TERM-DEBT-CURRENT-PORT> 646,572
0
<CAPITAL-LEASE-OBLIGATIONS> 2,037
<LEASES-CURRENT> 44,968
<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,363,232
<TOT-CAPITALIZATION-AND-LIAB> 21,859,655
<GROSS-OPERATING-REVENUE> 1,176,444
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 836,132
<TOTAL-OPERATING-EXPENSES> 836,132
<OPERATING-INCOME-LOSS> 340,312
<OTHER-INCOME-NET> 23,075
<INCOME-BEFORE-INTEREST-EXPEN> 363,387
<TOTAL-INTEREST-EXPENSE> 142,963 <F4>
<NET-INCOME> 130,998 <F5>
0
<EARNINGS-AVAILABLE-FOR-COMM> 130,998
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 169,677
<CASH-FLOW-OPERATIONS> 324,308
<EPS-BASIC> 1.08
<EPS-DILUTED> 1.08
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) OF
<F1> ($31,739).
<F2> INCLUDES REACQUIRED COMMON STOCK OF $326,686.
<F3> INCLUDES AMOUNTS FOR SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $125,000 AND TRUST PREFERRED
<F3> SECURITIES OF $200,000.
<F4> INCLUDES AMOUNT FOR SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE <F4>
PREFERRED SECURITIES OF $2,675, PREFERRED STOCK DIVIDENDS OF <F4> SUBSIDIARIES
OF $2,461, AND TRUST PREFERRED SECURITIES OF $3,673. <F5> INCLUDES MINORITY
INTEREST NET (INCOME)/LOSS OF ($477) AND <F5> INCOME TAX EXPENSE OF $88,949.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000053456
<NAME> JERSEY CENTRAL POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,818,982
<OTHER-PROPERTY-AND-INVEST> 519,968
<TOTAL-CURRENT-ASSETS> 406,870
<TOTAL-DEFERRED-CHARGES> 3,098,875
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,844,695
<COMMON> 153,713
<CAPITAL-SURPLUS-PAID-IN> 510,769
<RETAINED-EARNINGS> 718,994 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,383,476
198,167 <F2>
12,649
<LONG-TERM-DEBT-NET> 1,133,820
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 10,846
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 44,957
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,060,780
<TOT-CAPITALIZATION-AND-LIAB> 5,844,695
<GROSS-OPERATING-REVENUE> 452,745
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 356,750
<TOTAL-OPERATING-EXPENSES> 356,750
<OPERATING-INCOME-LOSS> 95,995
<OTHER-INCOME-NET> 5,648
<INCOME-BEFORE-INTEREST-EXPEN> 101,643
<TOTAL-INTEREST-EXPENSE> 25,743 <F3>
<NET-INCOME> 45,570 <F4>
2,461
<EARNINGS-AVAILABLE-FOR-COMM> 43,109
<COMMON-STOCK-DIVIDENDS> 45,000 <F5>
<TOTAL-INTEREST-ON-BONDS> 95,397
<CASH-FLOW-OPERATIONS> 149,642
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $7.
<F2> INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F2> PREFERRED SECURITIES OF $125,000.
<F3> INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE
<F3> PREFERRED SECURITIES OF $2,675.
<F4> AMOUNT IS NET OF INCOME TAX EXPENSE OF $30,330.
<F5> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000065350
<NAME> METROPOLITAN EDISON COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,086,139
<OTHER-PROPERTY-AND-INVEST> 147,627
<TOTAL-CURRENT-ASSETS> 200,880
<TOTAL-DEFERRED-CHARGES> 2,042,490
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,477,136
<COMMON> 66,273
<CAPITAL-SURPLUS-PAID-IN> 400,200
<RETAINED-EARNINGS> 50,709 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 517,182
100,000 <F2>
0
<LONG-TERM-DEBT-NET> 496,884
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 26,477
<LONG-TERM-DEBT-CURRENT-PORT> 50,025
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,286,568
<TOT-CAPITALIZATION-AND-LIAB> 3,477,136
<GROSS-OPERATING-REVENUE> 203,056
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 147,737
<TOTAL-OPERATING-EXPENSES> 147,737
<OPERATING-INCOME-LOSS> 55,319
<OTHER-INCOME-NET> 2,800
<INCOME-BEFORE-INTEREST-EXPEN> 58,119
<TOTAL-INTEREST-EXPENSE> 14,115 <F3>
<NET-INCOME> 26,493 <F4>
0
<EARNINGS-AVAILABLE-FOR-COMM> 26,493
<COMMON-STOCK-DIVIDENDS> 10,000 <F5>
<TOTAL-INTEREST-ON-BONDS> 45,843
<CASH-FLOW-OPERATIONS> (13,551)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $20,635.
<F2> REPRESENTS TRUST PREFERRED SECURITIES OF $100,000.
<F3> INCLUDES AMOUNT FOR TRUST PREFERRED SECURITIES OF $1,838.
<F4> AMOUNT IS NET OF INCOME TAX EXPENSE OF $17,511.
<F5> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000077227
<NAME> PENNSYLVANIA ELECTRIC COMPANY
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,213,192
<OTHER-PROPERTY-AND-INVEST> 364,365
<TOTAL-CURRENT-ASSETS> 192,794
<TOTAL-DEFERRED-CHARGES> 1,933,377
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,703,728
<COMMON> 105,812
<CAPITAL-SURPLUS-PAID-IN> 285,486
<RETAINED-EARNINGS> 51,459 <F1>
<TOTAL-COMMON-STOCKHOLDERS-EQ> 442,757
100,000 <F2>
0
<LONG-TERM-DEBT-NET> 424,687
<SHORT-TERM-NOTES> 21,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 100,000
<LONG-TERM-DEBT-CURRENT-PORT> 13
0
<CAPITAL-LEASE-OBLIGATIONS> 2,037
<LEASES-CURRENT> 11
<OTHER-ITEMS-CAPITAL-AND-LIAB> 2,613,023
<TOT-CAPITALIZATION-AND-LIAB> 3,703,728
<GROSS-OPERATING-REVENUE> 220,105
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 166,473
<TOTAL-OPERATING-EXPENSES> 166,473
<OPERATING-INCOME-LOSS> 53,632
<OTHER-INCOME-NET> 847
<INCOME-BEFORE-INTEREST-EXPEN> 54,479
<TOTAL-INTEREST-EXPENSE> 9,108 <F3>
<NET-INCOME> 26,942 <F4>
0
<EARNINGS-AVAILABLE-FOR-COMM> 26,942
<COMMON-STOCK-DIVIDENDS> 45,000 <F5>
<TOTAL-INTEREST-ON-BONDS> 28,437
<CASH-FLOW-OPERATIONS> (44,426)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $10,252.
<F2> REPRESENTS TRUST PREFERRED SECURITIES OF $100,000.
<F3> INCLUDES AMOUNT FOR TRUST PREFERRED SECURITIES OF $1,835.
<F4> AMOUNT IS NET OF INCOME TAX EXPENSE OF $18,429.
<F5> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
</TABLE>
