Amendment No. 1 to
SEC File No.70-9593
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
METROPOLITAN EDISON COMPANY ("Met-Ed")
PENNSYLVANIA ELECTRIC COMPANY ("Penelec")
2800 Pottsville Pike
Reading, Pennsylvania 19640
(Names of companies filing this statement and
address of principal executive office)
GPU, INC. ("GPU")
-----------------------------------------
(Name of top registered holding company parent of applicants)
T. G. Howson, Vice President and Douglas E. Davidson, Esq.
Treasurer Berlack, Israels & Liberman LLP
S. L. Guibord, Secretary 120 West 45th Street
GPU Service, Inc. New York, New York 10036
300 Madison Avenue
Morristown, New Jersey 07962 W. Edwin Ogden, Esq.
Ryan, Russell, Ogden & Seltzer LLP
S. L. Guibord, Secretary 1100 Berkshire Boulevard
Metropolitan Edison Company P.O. Box 6219
Pennsylvania Electric Company Reading, Pennsylvania 19601-0219
2800 Pottsville Pike
Reading, Pennsylvania 19640
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(Names and addresses of agents for service)
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Met-Ed and Penelec hereby amend their Declaration on Form U-1, docketed
in SEC File No. 70-9593, in its entirety as follows:
Item 1. Description of Proposed Transactions.
------------------------------------
A. Met-Ed and Penelec (collectively, the "Pennsylvania Subsidiaries")
are wholly owned public utility subsidiaries of GPU. Subject to the limitations
set forth in Paragraph C, below, the Pennsylvania Subsidiaries propose to
declare and pay dividends out of their capital and unearned surplus from time to
time commencing with the effectiveness of the authorization herein sought
through December 31, 2001.
Rule 46 under the Act prohibits subsidiaries of registered holding
companies from declaring or paying dividends out of capital or unearned surplus
except as the Commission may otherwise authorize. At December 31, 1999, Met-Ed
and Penelec had consolidated stockholders equity as follows:
Met-Ed Penelec
------ -------
Capital Stock $ 66,273,400 $ 105,811,920
Paid in Capital 400,200,00 285,487,454
Retained Earnings 13,580,727 59,264,607
Accumulated Other 21,362,773 10,618,251
Comprehensive Income
Accordingly, as of December 31, 1999, Rule 46 would have permitted
Met-Ed and Penelec to declare and pay dividends of approximately $14 million and
$59 million, respectively.
B. In November 1997, GPU announced that it would begin the process of
divesting its fossil fuel and hydroelectric generating assets. In 1998, Jersey
Central Power & Light Company ("JCP&L"), Met-Ed and Penelec agreed to sell
substantially all of their fossil and hydroelectric assets for a total of
approximately $2.6 billion. The sales of Penelec's ownership interests in the
Homer City and Seneca Stations - totaling about $950 million -- were completed
in March 1999 and July 1999, respectively, and the sales of substantially all of
the remaining fossil and hydroelectric assets closed in November 1999.
These generation asset sales followed Pennsylvania's enactment of the
Consumer Choice Act in December 1996 providing for the restructuring of all
Pennsylvania electric utilities. After extended proceedings before the
Pennsylvania Public Utility Commission ("PaPUC") in the fall of 1998 the
Pennsylvania Subsidiaries entered into settlement agreements with parties to the
restructuring proceedings and the PaPUC issued Restructuring Orders in October
1998. The Restructuring Orders, among other things, established
"administratively determined" stranded costs for the Pennsylvania Subsidiaries
generating assets and provided that these costs would be offset by any after tax
gain received from the generation sales. The balance of the stranded
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costs, if any, would be recovered from customers through a Competitive
Transition Charge. Met-Ed's after tax stranded costs total approximately $625
million and Penelec's after tax stranded costs total approximately $740 million.
The amount of the after tax gain from the sale of fossil and hydroelectric
generation assets is currently estimated at approximately $195 million for
Met-Ed and $520 million for Penelec. Because the after tax gain on the
generation divestiture will ultimately be applied to reduce a regulatory
liability, it will have no effect on the Pennsylvania Subsidiaries' net income,
resulting in no increase in the Pennsylvania Subsidiaries' retained earnings.
As a result of the generation sale, the Pennsylvania Subsidiaries'
intend to return to GPU the "equity capital component" associated with these
generation assets and recovered stranded costs. However, in the past, it had
been the practice of GPU's subsidiaries to pay out in dividends essentially all
of their retained earnings on a quarterly basis. GPU would then make cash
capital contributions to its subsidiaries as and to the extent needed to support
their construction programs and capital structures. As a result of this
practice, the Pennsylvania Subsidiaries have not built up any significant
retained earnings "cushion" from which they are able to return this equity
capital component to GPU.
Consequently, the Pennsylvania Subsidiaries' equity capital component
(approximately 50%) supporting both their generation asset investment being sold
and their stranded costs cannot be returned to GPU, as the equity investor,
without essentially eliminating all of the Pennsylvania Subsidiaries' retained
earnings.(1) The debt component associated with these assets will have been
retired through the redemption or repurchase of outstanding first mortgage bonds
at the respective company. The elimination of retained earnings is detrimental
to the ability of the companies to declare and pay dividends to GPU.
Met-Ed and Penelec are each incorporated under the Pennsylvania
Business Corporation Law ("BCL")(15 Pa. C.S. section 101 et seq.). In general,
the BCL permits the payment of dividends by a corporation if, after giving
effect to the dividend payment, (a) the corporation is able to pay its debts as
they become due in the usual course of business, and (b) the corporation's total
assets are not less than its total liabilities.
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1 The capital supporting JCP&L's generation assets is approximately $210
million, which amount consists of an equity investment by GPU of
approximately $105 million and the issuance of first mortgage bonds by
JCP&L in the amount of approximately $105 million. After the generation
sale, JCP&L will have approximately $750 million in retained earnings
available from which it could declare and pay dividends. Consequently,
JCP&L is not seeking the authorization requested herein for Met-Ed and
Penelec.
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BCL section 1551. Accordingly, the BCL does not restrict Pennsylvania
corporations to paying dividends only from retained earnings. As of December 31,
1999, therefore, Pennsylvania law would have permitted Met-Ed and Penelec to
declare and pay dividends of approximately $501 million and $461 million,
respectively. Under their existing first mortgage bond indentures, however,
Met-Ed and Penelec are required to maintain retained earnings of not less than
$3.4 million and $10.1 million, respectively.
C. As noted above, under covenants contained in their first mortgage
bond indentures, Met-Ed and Penelec must maintain retained earnings of at least
$3.4 million and $10.1 million respectively. Met-Ed and Penelec would not
declare and pay dividends from their capital or unearned surplus until they had
first paid dividends from their retained earnings down to the amounts permitted
by their respective first mortgage bond indentures. In addition, without further
Commission authorization, neither Met-Ed nor Penelec would declare or pay
dividends from their capital or unearned surplus if, in its reasonable good
faith judgment at the time after giving effect to such declaration and payment,
either (1) its common equity ratio or (2) GPU's consolidated common equity ratio
as of the end of the fiscal quarter during which such declaration and payment is
made is expected to be less than 30%. Finally, all such dividends would be
declared and paid only in compliance with applicable Pennsylvania law.
D. GPU intends to maintain for the Pennsylvania Subsidiaries'
capitalization ratios that approximate the current target ranges of 51% debt; 8%
preferred securities and 41% common equity and future dividend payments by the
Pennsylvania Subsidiaries would be consistent with maintaining these targets.
E. Rule 54 Analysis
The proposed transactions (the "Transactions") contemplate the
declaration and payment of dividends by the Pennsylvania Subsidiaries and do not
relate to exempt wholesale generators ("EWGs") and foreign utility companies
("FUCOs"). Accordingly, the Transactions are subject to Rule 54, which provides
that, in determining whether to approve an application or declaration which does
not relate to any EWG or FUCO, the Commission shall not consider the effect of
the capitalization or earnings of any such EWG or FUCO which is a subsidiary of
a registered holding company if the requirements of Rule 53 (a), (b) and (c) are
satisfied.
(a) As described below, GPU meets all of the conditions of
Rule 53, except for Rule 53(a)(1). By Order dated November 5, 1997 (HCAR No.
35-26773) (the "November 5 Order"), the Commission authorized GPU to increase to
100% of its "average consolidated retained earnings," as defined in Rule 53, the
aggregate amount which it may invest in EWGs and FUCOs.
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At December 31, 1999, GPU's average consolidated retained earnings was
approximately $2.416 billion and GPU's aggregate investment in EWGs and FUCOs
was approximately $2.172 billion. Accordingly, under the November 5 Order, GPU
may invest up to an additional $244 million in FUCOs as of December 31, 1999.
(i) GPU maintains books and records to identify
investments in, and earnings from, each EWG and FUCO in which
it directly or indirectly holds an interest.
(A) For each United States EWG in which GPU
directly or indirectly holds an interest:
(1) the books and records for such EWG will
be kept in conformity with United
States generally accepted accounting
principles ("GAAP");
(2) the financial statements will be
prepared in accordance with GAAP; and
(3) GPU directly or through its
subsidiaries undertakes to provide
the Commission access to such books and
records and financial statements as
the Commission may request.
(B) For each FUCO or foreign EWG which is a
majority owned subsidiary of GPU:
(1) the books and records for such
subsidiary will be kept in accordance
with GAAP;
(2) the financial statements for such
subsidiary will be prepared in
accordance with GAAP; and
(3) GPU directly or through its
subsidiaries undertakes to provide
the Commission access to such books and
records and financial statements, or
copies thereof in English, as the
Commission may request.
(C) For each FUCO or foreign EWG in which
GPU owns 50% or less of the voting securities, GPU directly or
through its subsidiaries will proceed in good faith, to the
extent reasonable under the circumstances, to cause
(1) such entity to maintain books and
records in accordance with GAAP;
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(2) the financial statements of such
entity to be prepared in accordance with
GAAP; and
(3) access by the Commission to such
books and records and financial
statements (or copies thereof) in
English as the Commission may request
and, in any event, GPU will provide the
Commission on request copies of such
materials as are made available to
GPU and its subsidiaries. If
and to the extent that such entity's
books, records or financial statements
are not maintained in accordance with
GAAP, GPU will, upon request of the
Commission, describe and quantify each
material variation therefrom as and to
the extent required by subparagraphs
(a) (2) (iii) (A) and (a) (2) (iii) (B)
of Rule 53.
(ii) No more than 2% of GPU's domestic public utility
subsidiary employees will render any services, directly or
indirectly, to any EWG and FUCO in which GPU directly or
indirectly holds an interest.
(iii) Copies of this Declaration on Form U-1 are
being provided to the New Jersey Board of Public Utilities and
the Pennsylvania Public Utility Commission, the only federal,
state or local regulatory agencies having jurisdiction over
the retail rates of GPU's electric utility subsidiaries.(2) In
addition, GPU will submit to each such commission copies of
any amendments to this Declaration and a copy of Item 9 of
GPU's Form U5S and Exhibits H and I thereof (commencing with
the Form U5S to be filed for the calendar year in which the
authorization herein requested is granted).
(iv) None of the provisions of paragraph (b) of Rule
53 render paragraph (a) of that Rule unavailable for the
proposed transactions.
(A) Neither GPU nor any subsidiary of GPU
having a book value exceeding 10% of GPU's consolidated
retained earnings is the subject of any pending bankruptcy or
similar proceeding.
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2 Penelec is also subject to retail rate regulation by the New York
Public Service Commission with respect to retail service to
approximately 3,700 customers in Waverly, New York served by Waverly
Electric Power & Light Company, a Penelec subsidiary. Waverly
Electric's revenues are immaterial, accounting for less than 1% of
Penelec's total operating revenues.
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(B) GPU's average consolidated retained
earnings for the four most recent quarterly periods
(approximately $2.416 billion) represented an increase of
approximately $49 million (or approximately 2%) compared to
the average consolidated retained earnings for the previous
four quarterly periods (approximately $2.367 billion).
(C) GPU did not incur operating losses from
direct or indirect investments in EWGs and FUCOs in 1999 in
excess of 5% of GPU's December 31, 1999 consolidated retained
earnings.
As described above, GPU meets all the conditions of Rule 53(a), except
for clause (1). With respect to clause (1), the Commission determined in the
November 5 Order that GPU's financing of investments in EWGs and FUCOs in an
amount greater than 50% of GPU's average consolidated retained earnings as
otherwise permitted by Rule 53(a)(1) would not have either of the adverse
effects set forth in Rule 53(c).
Moreover, even if the effect of the capitalization and earnings of
subsidiary EWGs and FUCOs were considered, there is no basis for the Commission
to withhold or deny approval for the transactions proposed in this Declaration.
The Transactions would not, by themselves, or even considered in conjunction
with the effect of the capitalization and earnings of GPU's subsidiary EWGs and
FUCOs, have a material adverse effect on the financial integrity of the GPU
system, or an adverse impact on GPU's public utility subsidiaries, their
customers, or the ability of State commissions to protect such public utility
customers.
The November 5 Order was predicated, in part, upon the assessment of
GPU's overall financial condition which took into account, among other factors,
GPU's consolidated capitalization ratio and the recent growth trend in GPU's
retained earnings. As of June 30, 1997, the most recent quarterly period for
which financial statement information was evaluated in the November 5 Order,
GPU's consolidated capitalization consisted of 49.2% equity and 50.8% debt. As
stated in the November 5 Order, GPU's June 30, 1997 pro forma capitalization,
reflecting the November 6, 1997 acquisition of PowerNet Victoria, was 39.3%
equity and 61.7% debt.
At December 31, 1999, GPU's common equity and debt represented 30.2%
and 66.2%, respectively. As set forth in Exhibit H hereto, GPU expects its
common equity ratio to increase during 2000 to approximately 35% of consolidated
capitalization, principally as a result of the planned sale of certain FUCO
investments. Thus, since the date of the November 5 Order, there has been no
material adverse change in GPU's consolidated
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capitalization ratio, which remains within acceptable ranges and limits as
evidenced by the credit ratings of GPU's electric utility subsidiaries.(3)
GPU's consolidated retained earnings grew on average approximately 6.5%
per year from 1994 through 1999. Earnings attributable to GPU's investments in
EWGs and FUCOs have contributed positively to consolidated earnings.
Accordingly, since the date of the November 5 Order, the capitalization
and earnings attributable to GPU's investments in EWGs and FUCOs have not had
any adverse impact on GPU's financial integrity.
Reference is made to Exhibit H which sets forth GPU's consolidated
capitalization at December 31, 1999 and after giving effect to the transactions
proposed herein. As set forth in such exhibit, the proposed transactions will
not have a material impact on GPU's capitalization or earnings.
Item 2. Fees, Commissions and Expenses.
------------------------------
The estimated fees, commissions and expenses to be incurred by the GPU
Energy Companies in connection with the proposed transactions will be filed by
amendment.
Item 3. Applicable Statutory Provisions.
-------------------------------
The GPU Energy Companies believe that Section 12 of the Act and Rules
46 and 54 are applicable to the transactions proposed herein.
Item 4. Regulatory Approval.
-------------------
No Federal or State Commission, other than your Commission, has
jurisdiction with respect to the proposed transactions.
Item 5. Procedure.
---------
It is requested that the Commission issue an order with respect to the
transactions proposed herein at the earliest practicable date but, in any event,
not later than March 17, 2000. It is further requested that (i) there not be a
recommended decision by an Administrative Law Judge or other responsible officer
of the Commission, (ii) the Office of Public Utility Regulation be permitted to
assist in the preparation of
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3 The first mortgage bonds of JCP&L, Met-Ed and Penelec are rated A+
by Standard & Poors Corporation, and Baa1, A3 and A2, respectively,
by Moody's Investors Service, Inc.
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the Commission's decision, and (iii) there be no waiting period between the
issuance of the Commission's order and the date on which it is to become
effective.
Item 6. Exhibits And Financial Statements.
---------------------------------
Exhibits:
a) A - Not applicable
B - Not applicable
C - Not applicable
D - Not applicable
E - Not applicable
F(1)(a) - Opinion of Berlack, Israels & Liberman LLP -- to be
filed by amendment.
F(2)(a) - Opinion of Ryan, Russell, Ogden & Seltzer LLP
-- to be filed by amendment.
G - Financial Data Schedules -- to be filed by
amendment.
H - Actual and Pro Forma Capitalization and
Capitalization Ratios as at December 31, 1999.
I - Form of public notice - previously filed.
b) Financial Statements:
1-A - GPU and Subsidiary Companies
Consolidated Balance Sheets, actual
and pro forma, as at December 31,
1999, and Consolidated Statement of
Income and Retained Earnings, actual
and pro forma, for the twelve months
December 31, 1999; pro forma journal
entries -- to be filed by amendment.
1-B - GPU (Corporate) Balance Sheets,
actual and pro forma, as at December
31, 1999 and Statements of Income
and Retained Earnings, actual and
pro forma, for the twelve months
ended December 31, 1999; pro forma
journal entries -- to be filed by
amendment.
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l-C - Met-Ed Consolidated Balance
Sheets, actual and pro forma, as at
December 31, 1999, and Consolidated
Statements of Income and Retained
Earnings, actual and pro forma, for
the twelve months ended December 31,
1999; pro forma journal entries --
to be filed by amendment.
l-D - Penelec Consolidated Balance
Sheets, actual and pro forma, as at
December 31, 1999, and Consolidated
Statements of Income and Retained
Earnings, actual and pro forma, for
the twelve months ended December 31,
1999; pro forma journal entries --
to be filed by amendment.
2 - Reference is made to the financial statements
included in 1 above.
3 - None.
4 - None, except as set forth in the Notes to the
Financial Statements.
Item 7. Information as to Environmental Effects.
----------------------------------------
(a) The proposed transactions will be carried out for the
purpose of financing the Pennsylvania Subsidiaries' business activities. As
such, the issuance of an order by your Commission with respect thereto is not a
major Federal action significantly affecting the quality of the human
environment.
(b) No Federal agency has prepared or is preparing an
environmental impact statement with respect to the proposed transactions which
are the subject hereof.
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SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS STATEMENT
TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
By: /s/ T. G. Howson
-----------------
T. G. Howson,
Vice President and Treasurer
Date: February 18, 2000
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EXHIBIT TO BE FILED BY EDGAR
Exhibit:
H - Actual and Pro Forma Capitalization and Capitalization
Ratios as at December 31, 1999.
Exhibit H
Page 1 of 2
<TABLE>
GPU, INC. CONSOLIDATED
ACTUAL AND PRO FORMA CAPITALIZATION
(IN THOUSANDS)
<CAPTION>
The actual and pro forma capitalization of GPU, Inc. and Subsidiary
Companies at December 31, 1999 is as follows:
Actual Pro Forma(1)
--------------- ---------------
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Long-term debt $ 6,420,910 56.0% $5,365,228 56.5%
Notes payable 1,171,869 10.2% 385,832 4.0%
Trust preferred securities 200,000 1.7% 200,000 2.1%
Subsidiary-obligated mantadorily
Redeemable preferred securities 125,000 1.1% 125,000 1.3%
Preferred stock 96,649 0.8% 96,649 1.0%
Common equity 3,464,953 30.2% 3,339,953 35.1%
---------- ----- --------- -----
Total $11,479,381 100.0% $9,502,662 100.0%
========== ===== ========= =====
(1) Reflects the following adjustments:
(a) The sale in April 2000 of GPU Powernet and GPU Gasnet for their book value of $2,389 million (which amount includes
the related acquisition and other debt).
(b) GPU acquisition of MYR Group Inc., for $225 million in cash for which authorization is being sought in SEC File No.
70-9599.
(c) The issuance through a JCP&L affiliate of asset securitization bonds for $587 million in the third quarter of 2000.
(d) GPU common stock repurchases of up to $125 million from time to time as subject to favorable market conditions
following the sale of the Australian assets.
</TABLE>
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Exhibit H
Page 2 of 2
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GPU ENERGY SUBSIDIARIES
ACTUAL AND PRO FORMA CAPITALIZATION
(IN THOUSANDS)
<CAPTION>
The actual and pro forma capitalization of JCP&L, Met-Ed and Penelec
Companies at December 31, 1999 is as follows:
JCP&L
Actual Pro Forma(1)
--------------- ---------------
Capitalization Amount % Amount %
- -------------- ------ --- ------ ---
<S> <C> <C> <C> <C>
Long-term debt $1,173,773 42.2% $1,561,773 52.6%
Notes payable - 0.0% - 0.0%
Trust preferred securities - 0.0% - 0.0%
Subsidiary-obligated mantadorily
redeemable preferred securities 125,000 4.5% 125,000 4.2%
Preferred stock 96,649 3.5% 96,649 3.3%
Common equity 1,385,367 49.8% 1,185,367 39.9%
--------- ----- --------- -----
Total $2,780,789 100.0% $2,968,789 100.0%
========= ===== ========= =====
(1) Includes the Asset Securitization Issuance of $587 million less a paydown on debt of $199 million.
Met-Ed
Actual Pro Forma(2)
--------------- ---------------
Capitalization Amount % Amount %
- -------------- ------ --- ------ ---
<S> <C> <C> <C> <C>
Long-term debt $ 546,908 47.6% $ 596,908 52.0%
Notes payable - 0.0% 105,000 9.1%
Trust preferred securities 100,000 8.7% 100,000 8.7%
Subsidiary-obligated mantadorily
redeemable preferred securities - 0.0% - 0.0%
Preferred stock - 0.0% - 0.0%
Common equity 501,417 43.7% 346,417 30.2%
--------- ----- --------- -----
Total $1,148,325 100.0% $1,148,325 100.0%
========= ===== ========= =====
(2) Assumes additional dividends of $155 million.
Penelec
Actual Pro Forma(3)
--------------- ---------------
Capitalization Amount % Amount %
- -------------- ------ --- ------ ---
<S> <C> <C> <C> <C>
Long-term debt $ 424,654 40.9% $ 474,654 45.7%
Notes payable 53,600 5.2% 148,600 14.3%
Trust preferred securities 100,000 9.6% 100,000 9.6%
Subsidiary-obligated mantadorily
redeemable preferred securities - 0.0% - 0.0%
Preferred stock - 0.0% - 0.0%
Common equity 461,182 44.4% 316,182 30.4%
--------- ----- --------- -----
Total $1,039,436 100.0% $1,039,436 100.0%
========= ===== ========= =====
(3) Assumes additional dividends of $145 million.
</TABLE>
