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FILE NO. [_______]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM U-1 APPLICATION/DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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FIRSTENERGY CORP. GPU, INC.
76 SOUTH MAIN STREET 300 MADISON AVENUE
AKRON, OHIO 44308 MORRISTOWN, NJ 07962
(NAMES OF COMPANIES FILING THIS STATEMENT AND ADDRESSES OF PRINCIPAL EXECUTIVE OFFICES)
LEILA L. VESPOLI IRA H. JOLLES
VICE PRESIDENT AND SENIOR VICE PRESIDENT AND
GENERAL COUNSEL GENERAL COUNSEL
FIRSTENERGY CORP. GPU, INC.
76 SOUTH MAIN STREET 300 MADISON AVENUE
AKRON, OHIO 44308 MORRISTOWN, NJ 07962
(NAMES AND ADDRESSES OF AGENTS FOR SERVICE)
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The Commission is requested to send copies of all notices, orders and
communications in connection with this Application/Declaration to:
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MICHAEL F. CUSICK WILLIAM J. HARMON
Winthrop, Stimson, Putnam & Roberts Jones, Day, Reavis & Pogue
One Battery Park Plaza 77 West Wacker
New York, New York 10004 Chicago, Illinois 60601
(212) 858-1000 (312) 782-3939
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DOUGLAS E. DAVIDSON
Thelen Reid & Priest LLP
40 West 57th Street
New York, New York 10019
(212) 603-2000
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TABLE OF CONTENTS
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.....................................................................1
A. DESCRIPTION OF PARTIES TO THE TRANSACTION..................................................................2
1. GENERAL DESCRIPTION OF FIRSTENERGY AND ITS AFFILIATES....................................2
(a) FIRSTENERGY................................................................................2
(b) ATSI.......................................................................................3
(c) OHIO EDISON................................................................................3
(d) PENN POWER.................................................................................4
(e) CLEVELAND ELECTRIC.........................................................................4
(f) TOLEDO EDISON..............................................................................5
(g) FIRSTENERGY PROPERTIES.....................................................................5
(h) FIRSTENERGY VENTURES.......................................................................5
(i) FIRSTENERGY TRADING........................................................................6
(j) FIRSTENERGY TRANSFER.......................................................................6
(k) FIRSTENERGY FACILITIES.....................................................................6
(l) MARBEL.....................................................................................6
(m) FIRSTENERGY SERVICES.......................................................................7
(n) FE ACQUISITION.............................................................................7
(o) FIRSTENERGY NUCLEAR........................................................................7
(p) FELHC......................................................................................7
2. DESCRIPTION OF UTILITY OPERATIONS OF FIRSTENERGY AND ITS AFFILIATES......................7
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(a) FIRSTENERGY'S AFFILIATES' UTILITY OPERATIONS...............................................7
(i) OHIO EDISON AND PENN POWER...................................................7
(ii) OVEC AND IKEC................................................................8
(iii) CLEVELAND ELECTRIC...........................................................8
(iv) TOLEDO EDISON................................................................9
(b) TRANSMISSION SYSTEM........................................................................9
(c) UTILITY REGULATION........................................................................10
(d) CORPORATE SEPARATION PLAN.................................................................10
(i) OHIO LEGISLATION REQUIRING RESTRUCTURING....................................10
(ii) THE TRANSITION PLAN.........................................................10
3. GENERAL DESCRIPTION OF GPU AND ITS AFFILIATES...........................................12
(a) JCP&L.....................................................................................12
(b) PENELEC...................................................................................12
(c) MET-ED....................................................................................13
(d) GPU CAPITAL AND GPU ELECTRIC..............................................................13
(e) GPUI AND GPU POWER........................................................................13
(f) GPUAR AND GPU TELCOM......................................................................14
(g) MYR.......................................................................................14
(h) GPU SERVICE...............................................................................14
(i) GPU NUCLEAR...............................................................................14
4. DESCRIPTION OF GPU'S DOMESTIC UTILITY OPERATIONS........................................14
(a) DOMESTIC UTILITY OPERATIONS OF THE GPU ENERGY COMPANIES...................................14
(b) TRANSMISSION SYSTEM.......................................................................15
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(c) UTILITY REGULATION........................................................................16
B. DESCRIPTION OF THE PROPOSED TRANSACTION..........................................................16
1. ELECTION RIGHT..........................................................................16
2. CONSEQUENCES OF OVER- AND UNDER-ELECTION................................................17
3. NO FRACTIONAL SHARES....................................................................17
4. TAX ADJUSTMENT..........................................................................17
C. REASONS FOR AND ANTICIPATED EFFECTS OF THE PROPOSED TRANSACTION..................................18
1. STRATEGIC ADVANTAGES....................................................................18
2. COMPETITIVE PRICES AND SERVICES.........................................................18
3. SERVICE TO MORE CUSTOMERS...............................................................18
4. COST REDUCTION..........................................................................18
D. ADDITIONAL INFORMATION...........................................................................19
ITEM 2. FEES, COMMISSIONS AND EXPENSES..........................................................................19
ITEM 3. APPLICABLE STATUTORY PROVISIONS.........................................................................19
A. SECTION 10(b).....................................................................................20
1. SECTION 10(b)(1).........................................................................20
(a) INTERLOCKING RELATIONS.....................................................................20
(b) CONCENTRATION OF CONTROL...................................................................21
2. SECTION 10(b)(2)--FAIRNESS OF CONSIDERATION AND FEES.....................................24
(a) FAIRNESS OF CONSIDERATION.................................................................24
(b) REASONABLENESS OF FEES....................................................................24
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3. SECTION 10(b)(3)........................................................................25
(a) CAPITAL STRUCTURE.........................................................................25
(b) PUBLIC INTEREST, INTEREST OF INVESTORS AND CONSUMERS, AND PROPER
FUNCTIONING OF HOLDING COMPANY SYSTEM ..............................................27
B. SECTION 10(c)....................................................................................27
1. SECTION 10(c)(1)........................................................................27
(a) SECTION 8 ANALYSIS........................................................................27
(b) SECTION 11 ANALYSIS.......................................................................28
(i) INTEGRATION.................................................................28
(ii) STRUCTURE AND VOTING POWER..................................................32
(iii) RETENTION BY FIRSTENERGY OF NON-UTILITY BUSINESSES..........................33
2. SECTION 10(c)(2). EFFICIENCIES AND ECONOMIES...........................................34
C. SECTION 10(f)....................................................................................35
ITEM 4. REGULATORY APPROVALS...................................................................................35
A. FEDERAL POWER ACT................................................................................36
B. STATE PUBLIC UTILITY REGULATION..................................................................36
C. ATOMIC ENERGY ACT................................................................................37
D. ANTITRUST CONSIDERATIONS.........................................................................37
E. TELECOMMUNICATIONS...............................................................................37
F. OTHER............................................................................................37
ITEM 5. PROCEDURE..............................................................................................37
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS......................................................................38
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A. EXHIBITS.........................................................................................38
B. FINANCIAL STATEMENTS.............................................................................41
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS................................................................42
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION
INTRODUCTION
Pursuant to Sections (9)(a)(2) and 10 of the Public Utility Holding
Company Act of 1935 (the "1935 Act" or the "Act"), FirstEnergy Corp., an Ohio
corporation ("FirstEnergy"), hereby requests that the Securities and Exchange
Commission (the "Commission") issue an order approving the proposed acquisition
by FirstEnergy of all the issued and outstanding voting securities of the
following three U.S. electric utility operating subsidiaries of GPU, Inc., a
Pennsylvania corporation ("GPU"): Jersey Central Power & Light Company
("JCP&L"), Pennsylvania Electric Company ("Penelec") and Metropolitan Edison
Company ("Met-Ed"). GPU and FirstEnergy are hereinafter collectively referred to
as the "Applicants," and JCP&L, Met-Ed and Penelec (each of which is doing
business as "GPU Energy") are referred to herein as the "GPU Energy Companies."
Met-Ed owns all of the voting securities of York Haven Power Company, a
Pennsylvania corporation ("York Haven"). FirstEnergy will acquire such voting
securities of the GPU Energy Companies through its merger with GPU pursuant to
the terms of the Agreement and Plan of Merger, dated as of August 8, 2000 (the
"Merger Agreement"), between FirstEnergy and GPU. The Merger Agreement is filed
as Exhibit B-1 hereto. The Merger Agreement provides for, among other things,
the merger of GPU with and into FirstEnergy in accordance with the laws of
Pennsylvania (the "Merger"), with FirstEnergy continuing as the surviving
corporation.
As described below, under the terms of the Merger Agreement,
FirstEnergy will pay cash for 50%, and issue FirstEnergy common shares for 50%,
of the shares of GPU common stock outstanding at the time the Merger is
completed, subject to a certain tax adjustment described below. Each GPU
shareholder (unless he or she has dissented) will have the opportunity to elect
to receive cash for all of his or her GPU shares, FirstEnergy shares for all of
his or her GPU shares, or cash for a portion and FirstEnergy shares for the rest
of his or her GPU shares.(1)
The Merger will be accounted for on a purchase accounting basis in
accordance with accounting principles generally accepted in the United States.
GPU's net assets must be adjusted to fair market value on FirstEnergy's
balance sheet as of the date of completion. To the extent the purchase price
exceeds the fair market value of GPU's net assets, goodwill will be recognized
on the balance sheets of GPU's subsidiaries and therefore on the post-Merger
consolidated balance sheet of FirstEnergy. Any goodwill resulting from the
Merger will be amortized over a period not to exceed 40 years. If the purchase
price is less than the fair market value of GPU's net assets, the value of GPU's
fixed assets will be
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(1) Under the Merger Agreement, however, unless an adjustment is made as a
result of tax considerations, 50% of all issued and outstanding shares of
GPU common stock must be exchanged for cash and 50% must be exchanged for
FirstEnergy common stock. The elections of GPU shareholders to receive cash
or FirstEnergy common shares are subject to proration because of this
provision and also because of a possible adjustment controlled by tax
considerations.
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reduced accordingly. No adjustment will be made to FirstEnergy's pre-Merger
assets and liabilities in connection with the Merger.
FirstEnergy is a holding company exempt from the registration
requirements of the 1935 Act. FirstEnergy has claimed an exemption from all
provisions of the 1935 Act (except for Section 9(a)(2) thereof) pursuant to Rule
2 thereunder.(2) FirstEnergy directly owns all of the issued and outstanding
voting securities of Ohio Edison Company, an Ohio corporation ("Ohio Edison"),
American Transmission Systems, Incorporated, an Ohio corporation ("ATSI"), The
Cleveland Electric Illuminating Company, an Ohio corporation ("Cleveland
Electric"), and The Toledo Edison Company, an Ohio corporation ("Toledo
Edison"), and indirectly owns all of the issued and outstanding voting
securities of Pennsylvania Power Company, a Pennsylvania corporation ("Penn
Power"). Herein, "FirstEnergy Companies" refers to Ohio Edison, Cleveland
Electric, Toledo Edison and Penn Power, collectively. ATSI and the FirstEnergy
Companies are all "public-utility companies" as defined in the 1935 Act.
Ohio Edison owns all of the issued and outstanding voting securities of
Penn Power and is also a "holding company" as defined in the 1935 Act. Ohio
Edison is currently exempt from the registration and other requirements of the
1935 Act, other than from Section 9(a)(2) thereof, pursuant to Section 3(a)(2)
thereof.(3)
GPU is a registered holding company under the Act and owns all of the
outstanding voting securities of the GPU Energy Companies. Following
consummation of the Merger, FirstEnergy will register with the Commission as a
holding company under the Act.
Post-Merger, FirstEnergy will hold as first tier subsidiaries seven
public utility companies: Ohio Edison, Cleveland Electric, Toledo Edison, JCP&L,
Penelec, Met-Ed and ATSI. FirstEnergy will hold as second tier subsidiaries Penn
Power and York Haven. See Post-Merger Organizational Chart, filed by amendment
as Exhibit K-1 hereto. FirstEnergy will also own a number of non-utility
subsidiaries as hereinafter described.
A. DESCRIPTION OF PARTIES TO THE TRANSACTION
1. GENERAL DESCRIPTION OF FIRSTENERGY AND ITS
AFFILIATES.
(a) FIRSTENERGY. FirstEnergy was organized under
Ohio law in 1996 and became a holding company after the merger of Ohio Edison
and Centerior Energy Corporation in November 1997. The principal executive
offices of FirstEnergy are located in Akron, Ohio.
FirstEnergy's principal business is the holding of all of the issued
and outstanding voting securities of the following fourteen direct active
subsidiaries: ATSI; Ohio Edison; Cleveland
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(2) See FirstEnergy Form U-3A-2, "Statement by Holding Company Claiming
Exemption Under Rule U-2 from the Provisions of the Public Utility Holding
Company Act of 1935," dated February 29, 2000, filed as Exhibit H-1 hereto.
(3) See Ohio Edison Company, Holding Co. Act Release No. 21019 (April 26, 1979).
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Electric; Toledo Edison; FirstEnergy Properties, Inc. ("FirstEnergy
Properties"); FirstEnergy Ventures Corp. ("FirstEnergy Ventures"); FirstEnergy
Trading Services, Inc. ("FirstEnergy Trading");(4) FirstEnergy Securities
Transfer Company ("FirstEnergy Transfer"); FirstEnergy Facilities Services
Group, LLC ("FirstEnergy Facilities"); MARBEL Energy Corporation ("MARBEL");
FirstEnergy Services Corp. ("FirstEnergy Services"); FE Acquisition Corp. ("FE
Acquisition"); FirstEnergy Nuclear Operating Company ("FirstEnergy Nuclear");
and FELHC, Inc. ("FELHC"); and all of the issued and outstanding voting
securities of the following three direct inactive subsidiaries: Centerior
Service Company ("Centerior Service"), Fertile Earth, Inc. ("Fertile Earth") and
FE Holdings, L.L.C. ("FE Holdings"). Unless otherwise noted, all these
subsidiaries are incorporated in the State of Ohio and have their principal
offices in Akron, Ohio.
FirstEnergy also owns a 15% interest in First Communications, LLC
("First Communications"), with options to acquire up to a 50% interest, and a
5.38% interest in Pantellos Corporation ("Pantellos"). First Communications
provides telecommunications services utilizing a nation-wide fiber-optic
network. First Communications offers a full plan of services including long
distance, toll free services, advanced data solutions (including DSL, private
line service and network applications) and PCS wireless. Pantellos operates and
manages an open, independent Internet e-marketplace for the purchase of goods
and services between the energy industry and its suppliers.
FirstEnergy maintains other interests in non-utility businesses. Such
interests are outlined in Exhibit L-1 hereto, which will be filed by amendment.
(b) ATSI. ATSI was organized under Ohio law in 1998.
ATSI is a "public-utility company" as defined in the Act. ATSI acquired certain
transmission assets on August 31, 2000, from the FirstEnergy Companies. ATSI
owns and operates certain major, high-voltage transmission facilities, which
consist of approximately 7,100 circuit miles of transmission lines with nominal
voltages of 345 kV, 138 kV and 69 kV. There are 37 interconnections with six
neighboring control areas.
ATSI's transmission system offers gateways into the East via high
capacity ties with Pennsylvania-New Jersey-Maryland Interconnection LLC ("PJM")
through Penelec, Duquesne Light Company and Allegheny Energy, Inc. ("Allegheny
Energy"), into the north through multiple 345 kV high-capacity ties with
Michigan Electric Coordination Systems ("MECS"), and into the South through ties
with American Electric Power Company, Inc. ("AEP") and Dayton Power & Light
Company ("Dayton Power"). In addition, ATSI is the control area operator for the
FirstEnergy system. ATSI plans, operates and maintains the transmission system
in accordance with the requirements of the North American Electric Reliability
Council and applicable regulatory agencies to ensure reliable service to
FirstEnergy's customers.
(c) OHIO EDISON. Ohio Edison was organized under Ohio
law in 1930 and is both a public utility and a public utility holding company
which is exempt from regulation by the Commission under the 1935 Act (except for
Section 9(a)(2) thereof). Ohio Edison
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(4) An application to merge FirstEnergy Trading into FirstEnergy Services is
currently pending before the Federal Energy Regulatory Commission (the
"FERC").
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engages in the generation, distribution and sale of electric energy to
approximately 992,000 customers within a 7,500 square-mile area of central and
northeastern Ohio.
Ohio Edison owns all of the issued and outstanding voting securities of
Penn Power. Ohio Edison also owns directly 16.5% of the issued and outstanding
voting securities of Ohio Valley Electric Corporation, an Ohio corporation
("OVEC") (which, in turn, owns all of the issued and outstanding voting
securities of Indiana-Kentucky Electric Corporation ("IKEC")). OVEC is a public
utility company organized under Ohio law in 1952. On the same date, IKEC was
organized under Indiana law. The two companies were formed by 15 independent
investor-owned public utilities (including Ohio Edison, Penn Power and Toledo
Edison) to furnish electric service in the Ohio River Valley for the purpose of
providing the large electric power requirements projected for the major uranium
enrichment complex near Portsmouth, Ohio, then being built by the Atomic Energy
Commission, the predecessor to the Nuclear Regulatory Commission ("NRC").
In addition to Penn Power, Ohio Edison has seven other wholly owned
subsidiaries organized, unless otherwise noted, under Ohio law: (i) OES Capital,
Incorporated, re-organized in December 1999 under Delaware law; (ii) OES Fuel,
Incorporated; (iii) OES Finance, Incorporated; (iv) Ohio Edison Financing Trust,
organized under Delaware law; (v) Ohio Edison Financing Trust II, organized
under Delaware law;(5) (vi) OES Nuclear, Incorporated; and (vii) OES Ventures,
Incorporated ("OES Ventures"). These subsidiaries manage and finance nuclear
fuel for Ohio Edison and Penn Power, finance certain electric accounts
receivable, provide structures for investment in energy-related projects and the
raising of capital by Ohio Edison, finance and manage business opportunities not
directly related to the provision of electric service, or provide other
energy-related products and services. Ohio Edison's seventh subsidiary, OES
Ventures has a 49% beneficial interest in the PNBV Capital Trust, a business
trust organized under Delaware law to facilitate the acquisition of lease
obligation bonds relating to Ohio Edison's sale and leaseback of individual
interests in Beaver Valley Nuclear Power Station Unit No. 2 and Perry Nuclear
Power Plant Unit No. 1 and the resultant reduction in effective cost to Ohio
Edison under those leases. Finally, Ohio Edison has a 49% interest in
FirstEnergy Engineering, Incorporated, a corporation that provides engineering
services at cost as a subcontractor on construction projects undertaken by Ohio
Edison for third parties.
(d) PENN POWER. Penn Power was organized under
Pennsylvania law in 1930. Penn Power is also authorized to do business and owns
property in Ohio. Penn Power is a public utility furnishing electric service to
approximately 138,000 customers in a 1,500 square mile area of western
Pennsylvania.
(e) CLEVELAND ELECTRIC. Cleveland Electric was
organized under Ohio law in 1892 and is a public utility engaged primarily in
the generation, distribution and sale of electric energy to approximately
738,000 customers in an area of approximately 1,700 square miles in northeastern
Ohio, including the City of Cleveland. It has one subsidiary, Centerior Funding
Corporation, which is a Delaware corporation organized in 1996 that finances
accounts receivable. It also owns 10% of The Toledo Edison Capital Corporation
("TECC"), which is a
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(5) Ohio Edison Financing Trust II is inactive.
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Delaware corporation organized in 1997 that makes equity investments in
Delaware business trusts that hold lessor debt instruments issued in connection
with Cleveland Electric's and Toledo Edison's sale and leaseback of interests in
the Bruce Mansfield Plant.
(f) TOLEDO EDISON. Toledo Edison was organized under
Ohio law in 1901 and is a public utility engaged primarily in the generation,
distribution and sale of electric energy to approximately 302,000 customers in
an area of approximately 2,500 square miles in northwestern Ohio, including the
City of Toledo. It owns 90% of TECC. Toledo Edison owns directly 4% of the
issued and outstanding voting securities of OVEC.
(g) FIRSTENERGY PROPERTIES. FirstEnergy Properties
was organized in 1929 and primarily manages FirstEnergy's non-residential real
estate. It has one subsidiary, BSG Properties, Inc., organized in 1996, that
pursues real estate development for FirstEnergy.
(h) FIRSTENERGY VENTURES. FirstEnergy Ventures was
organized in 1971. Its principal business involves the ownership of stock
investments in certain unregulated enterprises and business ventures. It has
eight subsidiaries organized under Ohio law: (i) Centerior Power Enterprises,
Inc. which, will be dissolved upon the planned cancellation of a contract which
required it (together with CPICOR Management LLC, a non-affiliate) to implement
the Department of Energy clean coal project; (ii) Centerior Energy Services,
Inc., which provides various energy consulting services related to energy
management and procurement under the registered trade name the "E Group"; (iii)
Advanced Technologies Development Corp., which owns fiber optics cables,
communications towers and electronics for cell siting operations, as well as
some proprietary software for telecommunications services; (iv) Centerior
Communications Holdings, Inc., which holds an equity investment in Fiber Venture
Equity, Inc. ("Fiber Venture");(6) (v) Bay Shore Power Company, which proposes
to provide steam to a Toledo Edison generating unit and a nonaffiliated
refinery; (vi) FirstEnergy Fuel Marketing Company, which provides products and
services to electricity generators and industrial fuel suppliers, including
logistics services, contract administration, inventory management and fuel
blending; (vii) FirstEnergy Telecommunications Corp., which will be a
competitive telecommunications services provider offering services only in the
regulated activities area and which has applied for approval to operate as a
public utility within the definition of "utilities" in the State of Ohio and has
applied for "exempt telecommunications company" ("ETC") status with the Federal
Communications Commission ("FCC"); and (viii) Warrenton River Terminal, Ltd.,
which owns facilities for the transloading of bulk materials on the Ohio River.
FirstEnergy Ventures is also part owner of four Ohio limited liability
companies: Eastroc, LLC ("Eastroc"), Eastroc Technologies, LLC ("Eastroc
Technologies") and Engineered Processes, Ltd. ("Engineered Processes"), which
own or apply technologies for the production of gypsum products; and Carbon
Plus, LLC ("Carbon Plus"), which converts nonhazardous waste by-products into
new products. Divestitures of Eastroc, Eastroc Technologies and Engineered
Processes are expected by December 1, 2000, and a sale of Carbon Plus is
pending.
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(6) Fiber Venture owns a 6.5% interest in America's Fiber Network, LLC ("AFN").
AFN is a super-regional fiber optics joint venture of six energy and
telecommunications companies initially offering 7,000 route miles of
high-speed fiber connecting major markets in the eastern and central United
States.
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(i) FIRSTENERGY TRADING. FirstEnergy Trading is an
Ohio corporation organized in 1995 that is a natural gas and power marketer in
wholesale markets. A merger between FirstEnergy Trading and FirstEnergy Services
(with FirstEnergy Services to be the surviving corporation), has been approved
by the Boards of Directors of the respective companies and a joint application
to the FERC was filed on October 11, 2000 and is currently pending. Based on the
absence of protests, FirstEnergy expects FERC approval on or before December 15,
2000.
(j) FIRSTENERGY TRANSFER. FirstEnergy Transfer is an
Ohio corporation organized in 1997 to act as transfer agent and registrar for
the securities of FirstEnergy and its direct and indirect subsidiaries. It does
not act as a transfer agent or registrar for nonaffiliated companies.
(k) FIRSTENERGY FACILITIES. FirstEnergy Facilities is
a provider of mechanical contracting, facilities management and energy
management services. It is the parent company of eleven direct subsidiaries
serving a diverse group of regional and national customers. These subsidiaries
consist of the following: (i) Ancoma, Inc. of Rochester New York (New York
corporation); (ii) Colonial Mechanical Corporation of Richmond, Virginia (a
Virginia corporation); (iii) Webb Technologies, Inc. of Norfolk, Virginia (a
Virginia corporation); (iv) Dunbar Mechanical Inc. of Toledo, Ohio (Ohio
corporation); (v) Edwards Electrical & Mechanical, Inc. of Indianapolis, Indiana
(Indiana corporation); (vi) Elliott-Lewis Corporation ("Elliot-Lewis") of
Philadelphia, Pennsylvania (Pennsylvania corporation);(7) (vii) L.H. Cranston
and Sons, Inc. of Timonium, Maryland (Maryland corporation); (viii) Roth Bros.,
Inc. of Youngstown, Ohio (Ohio corporation); (ix) The Hattenbach Company of
Cleveland, Ohio (Ohio corporation); (x) R. P. C. Mechanical, Inc. of Cincinnati,
Ohio (Ohio corporation); and (xi) Spectrum Controls Systems, Inc. of Cincinnati,
Ohio (Ohio corporation).
(l) MARBEL. MARBEL is a natural gas pipeline company.
MARBEL owns interests in more than 1,800 gas and oil wells and holds interests
in more than 200,000 undeveloped acres in eastern and central Ohio. MARBEL's
subsidiaries include the Northeast Ohio Operating Companies, Inc. ("Northeast
OOC"), a non-utility holding company, and Marbel Holdco, Inc., which holds
FirstEnergy's 50% ownership in Great Lakes Energy Partners, LLC ("Great Lakes").
Great Lakes is an oil and gas exploration and production company in a
joint venture with Range Resources Corporation and holds a majority of its
assets in the Appalachian Basin, including more than 7,700 oil and natural gas
wells, drilling rights on nearly 1 million acres, proven resources of 450
billion cubic feet equivalent of natural gas and oil, and 5,000 miles of
pipeline. Great Lakes also owns intrastate gas pipelines and a small interstate
pipeline between Ohio and West Virginia.
Northeast Ohio Natural Gas Corp. is a pipeline company. It is a
wholly owned subsidiary of Northeast OOC.
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(7) Elliot-Lewis owns all of the issued and outstanding stock of A.A.
Duckett, Inc., Sautter Crane Rental, Inc., E-L Enterprises, Inc., R.L.
Anderson, Inc., and Modern Air Conditioning, Inc.
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(m) FIRSTENERGY SERVICES. FirstEnergy Services offers
energy-related products and services. A sales group was established within
FirstEnergy Services to pursue sales in the unregulated gas and electric
markets. FirstEnergy Services has two wholly owned subsidiaries, Penn Power
Energy, Inc. ("Penn Power Energy") and FirstEnergy Generation Corp. ("GenCo").
Penn Power Energy provides electric generation services and other energy
services to Pennsylvania customers under Pennsylvania's Electric Choice Program.
GenCo will operate fossil fuel plants and the Seneca pumped storage plant (most
of which it will lease from the FirstEnergy Companies), all of the output of
which will be sold at wholesale prices to FirstEnergy Services, when the
reorganization described under "Corporate Separation Plan," INFRA, is effective.
As discussed above, a proposed merger of FirstEnergy Services and FirstEnergy
Trading is pending before the FERC.
(n) FE ACQUISITION. FE Acquisition holds all of the
outstanding shares of Mid-Atlantic Energy Development Co. ("Mid-Atlantic").
Mid-Atlantic owns the three 130 MW gas fired peaking turbines, which are not yet
in service, at Richland, Ohio. Subject to FERC approval, Mid-Atlantic intends to
sell the turbines to GenCo effective January 1, 2001, prior to their going into
service, and will thereafter be dissolved. The output of these turbines will be
sold as described in the preceding paragraph.
(o) FIRSTENERGY NUCLEAR. FirstEnergy Nuclear operates
the Davis-Besse Nuclear Power Station, the Perry Nuclear Power Plant and the
Beaver Valley Nuclear Power Station under the supervision and direction of the
owners of those facilities.
(p) FELHC. FELHC serves as licensee on all the FCC
radio licenses for the FirstEnergy Companies.
Additional information regarding FirstEnergy's and its subsidiaries'
non-utility businesses may be found in Exhibit L-1 hereto (filed by amendment),
which considers the retention of such non-utility businesses by the Post-Merger
FirstEnergy system.
2. DESCRIPTION OF UTILITY OPERATIONS OF FIRSTENERGY AND ITS
AFFILIATES.
(a) FIRSTENERGY'S AFFILIATES' UTILITY OPERATIONS.
FirstEnergy does not own directly any utility properties or perform any utility
operations. Its utility operating subsidiaries are described in detail below.
(i) OHIO EDISON AND PENN POWER. Ohio Edison
furnishes electric service to communities in a 7,500 square mile area of central
and northeastern Ohio. Ohio Edison has ownership interests in certain generating
facilities located in Pennsylvania. It also engages in the sale, purchase and
interchange of electric energy with other electric companies. During the twelve
months ended December 31, 1999, the principal source of Ohio Edison's operating
revenues was derived from the sale of electricity.
Penn Power furnishes electric service to communities in a 1,500 square
mile area of western Pennsylvania. During the twelve months ended December 31,
1999, the principal source of Penn Power's operating revenues was derived from
the sale of electricity.
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Ohio Edison and Penn Power own or lease all or a portion of 31 electric
generating units, consisting of 13 coal fired units, three nuclear units, six
oil fired units, one gas/oil fired unit and eight diesel generators (located at
two sites), which have total net generating capacity of 6,057 megawatts (MW).
All of the electric properties owned by Ohio Edison and Penn Power are located
in Ohio and Pennsylvania.
Nine of the 13 coal fired units are 100% owned by Ohio Edison, and all
such units are located in Ohio. Four of the 13 coal fired units are held in a
combined Ohio Edison-Penn Power ownership along with Toledo Edison and Cleveland
Electric.
The three nuclear units consist of (i) Beaver Valley 1 (810 MW),
located in Pennsylvania, (ii) Beaver Valley 2, also located in Pennsylvania and
representing a 456 MW share from a combined Ohio Edison-Penn Power ownership and
leasehold interest of 55.61%, and (iii) Perry Unit 1, located in Ohio and
representing a 421 MW share from a combined Ohio Edison-Penn Power ownership and
leasehold interest of 35.24%.
The six oil-fired units are also located in Ohio and are held in a
combined Ohio Edison-Penn Power ownership. The oil/natural gas unit is located
in Ohio and is 100% owned by Ohio Edison. The two diesel generator sites are
located in Ohio and are held in a combined Ohio Edison-Penn Power ownership.
(ii) OVEC AND IKEC. OVEC owns the Kyger Creek
Plant at Cheshire, Ohio, which is a coal-fired facility with a capacity of 1,075
MW. IKEC owns the Clifty Creek Plant at Madison, Indiana, which is a coal-fired
facility with a capacity of 1,290 MW. These plants are connected by a 780-mile
345 kV transmission network and are interconnected with the major transmission
systems of OVEC's sponsor companies, although OVEC's generation facilities do
not interconnect directly with ATSI's transmission system.
(iii) CLEVELAND ELECTRIC. Cleveland Electric is
engaged primarily in the generation, distribution and sale of electric energy to
an area of approximately 1,700 square miles in northeastern Ohio, including the
City of Cleveland. Cleveland Electric also has ownership interests in certain
generating facilities located in the Commonwealth of Pennsylvania. Cleveland
Electric also engages in the sale, purchase and interchange of electric energy
with other electric companies. During the twelve months ended December 31, 1999,
the principal source of Cleveland Electric's operating revenues was derived from
the sale of electricity.
Cleveland Electric's generating properties consist of all or a portion
of (i) 10 units at four fossil fuel plants including the Sammis Plant, located
in Stratton, Ohio, the Lake Shore Plant, located in Cleveland, Ohio, the
Eastlake Plant, located in Eastlake, Ohio, and the Ashtabula Plant, located in
Ashtabula, Ohio; (ii) a 454 MW (51.38%) share of Davis-Besse Nuclear Power
Station located in Oak Harbor, Ohio; and (iii) the 435 MW Seneca pumped storage
hydroelectric plant located in Warren, Pennsylvania. These Cleveland
Electric-owned plants have a net demonstrated capacity of 2,923 MW.
Cleveland Electric and Toledo Edison, as co-lessees, have leasehold
interests of 6.5% (51 MW), 47.56% (371 MW) and 44.38% (355 MW) of Units 1, 2,
and 3, respectively, of the coal-
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fired Bruce Mansfield Plant located in Pennsylvania. Cleveland Electric also has
a 44.81% ownership share (535 MW) of Perry Unit 1 located in Ohio, and a 24.47%
(201 MW) of Beaver Valley 2 located in Pennsylvania, and leases, as co-lessee
with Toledo Edison, another 19.88% (163 MW) of Beaver Valley 2. Cleveland
Electric owns the distribution facilities located in its service territory in
northeastern Ohio for distributing electric energy to its customers. These
distribution facilities consist primarily of distribution lines and distribution
substations and related service facilities.
(iv) TOLEDO EDISON. Toledo Edison is engaged
primarily in the generation, distribution and sale of electric energy to an area
of approximately 2,500 square miles in northwestern Ohio, including the City of
Toledo. Toledo Edison also has ownership interests in certain generating
facilities located in Pennsylvania. Toledo Edison also engages in the sale,
purchase and interchange of electric energy with other electric companies.
During the twelve months ended December 31, 1999, the principal source of Toledo
Edison's operating revenues was derived from the sale of electricity.
Toledo Edison's generating facilities consist of (i) a wholly-owned
fossil fuel electric generating station (648 MW), Bay Shore, located in Lucas
County, Ohio; (ii) a 429 MW share of Davis-Besse Nuclear Power Station located
in Oak Harbor, Ohio; and (iii) five internal combustion turbine generator units
with an aggregate capability of 77 MW located in northwestern Ohio. These plants
have a net capacity of 1,137 MW.
Toledo Edison and Cleveland Electric, as co-lessees, have leasehold
interests of 6.5% (51 MW), 47.56% (371 MW) and 44.38% (355 MW) of Units 1, 2 and
3, respectively, of the coal-fired Bruce Mansfield Plant located in
Pennsylvania.
Toledo Edison also has a 19.91% ownership share (238 MW) of Perry Unit
1. Toledo Edison has a tenant-in-common interest and leasehold interest (with
Cleveland Electric as co-lessee with respect to 150 MW) in 19.91% (163 MW) in
Beaver Valley 2.
Toledo Edison owns the distribution facilities located in its service
territory in northwestern Ohio for distributing electric energy to its
customers. These distribution facilities consist primarily of distribution lines
and distribution substations and related service facilities.
(b) TRANSMISSION SYSTEM. The FirstEnergy Companies
own and operate approximately 12,500 MW of generation resources that are
connected directly to certain transmission facilities that they transferred to
ATSI on September 1, 2000. ATSI owns and operates transmission facilities which
currently operate at voltages of generally 345 kV and 138 kV (the "Bulk
Transmission System"), and 69 kV facilities (the "Area Transmission System," and
together with the Bulk Transmission System, the "Transmission System"). The
primary function of the Transmission System is to integrate the generation
resources of the FirstEnergy Companies with their native retail and wholesale
loads. To perform this network function, the Bulk Transmission System and the
Area Transmission System are integrated and operate in a parallel manner to each
other. The FirstEnergy Companies also operate low voltage 23, 33, 34.5, and 36
kV facilities.
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The Transmission System consists of over 7,100 circuit miles of
transmission lines with nominal voltages of 345 kV, 138 kV and 69 kV. The
Transmission System services over 2.2 million customers in a 13,200 square mile
area in northern and central Ohio and western Pennsylvania. The Transmission
System has 37 interconnections at voltages of 69 kV or higher with six
neighboring control areas. The Transmission System is connected to other systems
to the East via ties with the PJM, Duquesne Light Company and Allegheny Energy.
The Transmission System is connected to other systems to the North through ties
with the MECS, and is connected to other systems to the South through ties with
AEP and Dayton Power.
The electric service areas of the GPU Energy Companies and the
FirstEnergy Companies are adjacent to, and directly interconnected with, one
another. See Maps filed as Exhibits E-1 and E-2 hereto; see also Exhibit E-3
hereto, which will be filed by amendment. As discussed below, the Transmission
System is interconnected with the GPU Transmission System (as defined below).
(c) UTILITY REGULATION. Ohio Edison, Cleveland
Electric and Toledo Edison are subject to broad regulation as to rates and other
matters by the Public Utilities Commission of Ohio (the "PUCO"). Under Ohio law,
municipalities may regulate rates, subject to appeal to the PUCO, if not
acceptable to the utility. Penn Power is subject to broad regulation as to rates
and other matters by the Pennsylvania Public Utility Commission (the "PPUC").
ATSI, the FirstEnergy Companies and FirstEnergy Trading are also
subject to the jurisdiction of the FERC under the Federal Power Act ("FPA") with
respect to wholesale electric rates, transmission service and other matters.
Construction and operation of nuclear generating units are subject to the
regulatory jurisdiction of the NRC.
(d) CORPORATE SEPARATION PLAN.
(i) OHIO LEGISLATION REQUIRING RESTRUCTURING. On
June 22, 1999, the Ohio General Assembly passed legislation requiring the
restructuring of the electric utility industry in Ohio and providing for retail
competition with regard to the generation component of electric service (Amended
Substitute Senate Bill No. 3 ("SB 3") of the 123rd General Assembly). The Ohio
governor signed SB 3 on July 6, 1999 and most provisions of SB 3 became
effective in early October 1999.
(ii) THE TRANSITION PLAN. Section 4928.31,
Revised Code, requires each electric utility to file with the PUCO a transition
plan for the company's provision of retail electric service in Ohio. On December
22, 1999, FirstEnergy, on behalf of Ohio Edison, Cleveland Electric and Toledo
Edison, filed its transition plan, as well as applications for tariff approval
and accounting authority.
FirstEnergy proposed an interim corporate separation plan. The plan
consists of a new organizational structure, a code of conduct and practices for
affiliate transactions and cost accounting. Under the transition plan,
FirstEnergy will divide its operations into three separate business units: a
Competitive Services Unit, a Corporate Support Services Unit and a Utility
Services Unit (hereinafter the "Competitive Unit," the "Support Unit" and the
"Utility Unit" respectively). The proposed interim plan provides that the
Utility Unit will own, operate, and
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control all FirstEnergy transmission and distribution facilities. The Support
Unit will provide centralized and common services to the other units. Such
services will include, but not be limited to, accounting, legal, auditing,
finance, human resources and industrial relations, communications, real estate,
information services and other shared functions. Under the interim plan, the
FirstEnergy Companies will transfer operating and functional control over all
their competitive assets, including their generating plants, to the Competitive
Unit, effective no later than January 1, 2001.
FirstEnergy cannot practically unwind all of the financial obligations
and associated liens on its operating utility companies' property; thus, it will
not be able to provide competitive retail services through a fully separated
affiliate. Therefore, FirstEnergy has presented, and the PUCO has approved, an
interim corporate separation plan, pursuant to Section 4928.17(C), Revised Code,
and Rule 4901:1-20-16(G)(1)(d), O.A.C., that would functionally separate its
utility and competitive retail operations.
FirstEnergy will make an application to the FERC for permission to
transfer by operating lease to GenCo, which will be an exempt wholesale
generator within the meaning of Section 32 of the 1935 Act ("EWG"), operating
and functional control over FirstEnergy's owned fossil generating facilities, as
well as the Seneca pumped storage facility, on or before January 1, 2001.
GenCo will also own and operate the gas fired turbines to be acquired
from Mid-Atlantic, as well as certain other combustion turbines currently under
construction by Ohio Edison. GenCo will also operate the leased generating
facilities of the FirstEnergy Companies and will sell the entire output of its
power portfolio to FirstEnergy Services at FERC approved rates. FirstEnergy
Services will utilize this power, plus the output purchased from FirstEnergy
nuclear generation and third party suppliers, to satisfy the provider of last
resort obligations of the FirstEnergy Companies, as well as any regulatory
requirements of the FirstEnergy Companies under the Ohio transition plan or
grandfathered wholesale agreements. This wholesale power arrangement (the
"Requirements Contract") will be submitted to the FERC for review and approval
under Section 205 of the FPA.
In addition, FirstEnergy Services will continue selling power to
unaffiliated purchasers at market-based rates, at both wholesale and retail,
utilizing FirstEnergy Services' market based tariff for wholesale transactions.
Existing market-based sales made by the FirstEnergy Companies will be assigned
to FirstEnergy Services to perform. The market based tariff of the FirstEnergy
Companies will remain in effect only for the limited purpose of implementing the
market support provisions of the PUCO's transition plan order. After the final
implementation of the corporate separation plan, all generating facilities will
be owned and operated by FirstEnergy Services or its subsidiaries.
The FirstEnergy Companies currently obtain network transmission service
on behalf of their retail customers under the ATSI Open Access Transmission
Tariff. This arrangement will continue to be used for customers selecting
alternate generation suppliers after January 1, 2001. FirstEnergy Services will
contract for point-to-point transmission service under the ATSI Open Access
Transmission Tariff where necessary to make its wholesale sales. ATSI will
obtain generation-based ancillary services from FirstEnergy Services under a
FERC approved rate schedule. ATSI will also enter into generator interconnection
agreements with GenCo and
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FirstEnergy Nuclear to ensure the reliable connection of FirstEnergy generators
to the Transmission System.
3. GENERAL DESCRIPTION OF GPU AND ITS AFFILIATES. GPU, Inc.
("GPU") was organized under Pennsylvania law in 1969. Its principal
executive offices are located in Morristown, New Jersey. GPU is a registered
holding company under the 1935 Act.
GPU's principal business is the holding of all of the outstanding
shares of common stock of the GPU Energy Companies - JCP&L, Penelec and Met-Ed -
and the stock of certain non-utility subsidiaries which own and operate foreign
utility systems. The customer service function and transmission and distribution
operations of these three electric utilities are conducting business under the
name "GPU Energy." The GPU Energy Companies rely almost exclusively on purchased
power agreements, principally short and intermediate term contracts and existing
power purchase agreements with non-utility generators, to supply energy to their
customers.
GPU also owns, either directly or indirectly, all of the common stock
of nine other active subsidiaries - GPU Capital, Inc. ("GPU Capital"), GPU
Electric, Inc. ("GPU Electric"), GPU International, Inc. ("GPUI"), GPU Power,
Inc. ("GPU Power"), GPU Advanced Resources, Inc. ("GPUAR"), GPU Telcom Services,
Inc. ("GPU Telcom"), MYR Group, Inc. ("MYR"), GPU Service, Inc. ("GPU Service")
and GPU Nuclear, Inc. ("GPU Nuclear").
GPU's domestic electric utility operations serve approximately two
million customers in New Jersey, Pennsylvania and New York. These companies
service a mix of residential, commercial and diversified industrial customers.
The transmission and distribution facilities of these subsidiaries are
physically interconnected and are operated as a single integrated and
coordinated system. Each of the GPU Energy Companies is described below.
(a) JCP&L. JCP&L was organized under New Jersey law
in 1925. JCP&L is engaged in the sale, purchase, transmission and distribution
of electric power to approximately one million customers located within 13
counties and 236 municipalities in northern, western and east central New
Jersey. JCP&L has two subsidiaries: JCP&L Preferred Capital, Inc., which is the
sole general partner of JCP&L Capital, L.P.; and JCP&L Transition Holdings,
Inc., which has two subsidiaries, JCP&L Transition, Inc. and JCP&L Transition
Funding LLC.
JCP&L, Penelec and Met-Ed collectively own all of the common stock of
Saxton Nuclear Experimental Corporation ("Saxton"), a Pennsylvania nonprofit
corporation organized for nuclear experimental purposes. Saxton's activities are
limited to the decommissioning of the Saxton Nuclear Experimental Station
("SNES").
(b) PENELEC. Penelec was organized under Pennsylvania
law in 1919. Penelec is engaged in the sale, purchase, transmission and
distribution of electric power to customers in approximately 31 counties in
northern and central Pennsylvania. Penelec also provides retail electric service
to approximately 3,700 customers in Waverly, New York, served by Waverly
Electric Power & Light Company ("Waverly Electric"), a direct subsidiary of
Penelec. Waverly Electric's revenues account for less than 1% of Penelec's total
operating revenue.
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Penelec also has the following subsidiaries: Nineveh Water Company,
Penelec Preferred Capital, Inc., which is the sole general partner of Penelec
Capital, L.P.; and Penelec Preferred Capital II, Inc., which is the sole general
partner of Penelec Capital II, L.P. ("Penelec Capital II") which, in turn is the
sponsor of Penelec Capital Trust ("PC Trust"). PC Trust was created in June 1999
as a statutory business trust under Delaware law solely for the purpose of
issuing trust preferred securities each representing a 7.34% Cumulative
Preferred Security of Penelec Capital II.
(c) MET-ED. Met-Ed was organized under Pennsylvania
law in 1922. Met-Ed is engaged in the sale, purchase, transmission and
distribution of electric power to customers in approximately 13 counties in
central and eastern Pennsylvania. Together, Penelec and Met-Ed serve over one
million customers in a service territory covering about one-half of the
geographic area of Pennsylvania.
Met-Ed has the following subsidiaries: York Haven; Met-Ed Preferred
Capital, Inc., which is the sole general partner of Met-Ed Capital, L.P.; and
Met-Ed Preferred Capital II, Inc., which is the sole general partner of Met-Ed
Capital II, L.P. ("Met Ed Capital II") which, in turn, is the sponsor of Met-Ed
Capital Trust ("MEC Trust"). MEC Trust was created in May 1999 as a statutory
business trust under Delaware law solely for the purpose of issuing trust
preferred securities each representing a 7.35% Cumulative Preferred Security of
Met-Ed Capital II.
(d) GPU CAPITAL AND GPU ELECTRIC. GPU Capital was
organized under Delaware law in 1998. GPU Electric was organized under Delaware
law in 1994. GPU Capital and GPU Electric and their subsidiaries (collectively
referred to as the "GPU Electric Group") own, operate and fund the acquisition
of electric and gas transmission and distribution businesses in England,
Australia and Argentina.
The GPU Electric Group indirectly owns 100% of Midlands Electricity plc
("Midlands"), an electric distribution company in the United Kingdom that serves
approximately five million residents. Through its ownership in Midlands, the GPU
Electric Group also has ownership interests in operating generating facilities
located in foreign countries totaling 4,244 MW (of which the GPU Electric
Group's equity interest represents 1,163 MW) of capacity. The GPU Electric Group
also owns GPU GasNet, which owns a high pressure gas transmission pipeline
network serving approximately 1.3 million residential customers and 40,000
industrial and commercial users throughout Victoria, Australia. The GPU Electric
Group also owns three electric distribution companies in Argentina which serve
approximately 335,000 customers.
(e) GPUI AND GPU POWER. GPUI, a Delaware corporation,
is the successor to Energy Initiatives, Inc., which was organized in 1984. GPU
Power was organized under Delaware law in 1994. GPUI and GPU Power and their
subsidiaries (collectively referred to as the "GPUI Group") develop, own and
operate generation facilities in the United States and foreign countries. The
GPUI Group has ownership interests in six operating cogeneration plants in the
United States totaling 1,014 MW (of which the GPUI Group's equity interests
represent 496 MW) of capacity and other operating generating facilities located
in foreign countries totaling 1,292 MW (of which the GPUI Group's equity
interests represent 424 MW) of capacity.
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On October 3, 2000, GPU agreed to sell GPUI to Aquila Energy
Corporation, a subsidiary of UtiliCorp United, for $225 million. The sale
includes GPUI's interests in these six domestic independent power plants, and a
one-half interest in a 715 MW development stage project. GPU anticipates closing
the sale, which is subject to certain federal and state regulatory approvals, by
the end of the year.
(f) GPUAR AND GPU TELCOM. GPUAR was organized under
Delaware law in 1996. GPUAR is an energy-related company under Rule 58 under the
1935 Act; it engages in energy-related activities, including marketing
electricity, gas and other energy commodities.
GPU Telcom was organized under Delaware law in 1996. It is an ETC under
Section 34 of the 1935 Act and is engaged in telecommunications-related
businesses.
(g) MYR. MYR was organized under Illinois law in
1982. MYR is an infrastructure service company which, together with its
subsidiaries, builds and maintains power lines and electric systems for electric
utilities, telecommunications companies and industrial and commercial
facilities.
(h) GPU SERVICE. GPU Service was organized under
Pennsylvania law in 1970. It is a subsidiary service company which provides
accounting, administrative, legal, financial and other services to the GPU
companies.
(i) GPU NUCLEAR. GPU Nuclear was organized under New
Jersey law in 1980. It administers the maintenance of Three Mile Island Unit No.
2 and the decommissioning of SNES, neither of which is operational.
Additional non-utility businesses owned by GPU and its subsidiaries may
be found on the chart filed as Exhibit L-2 hereto.
4. DESCRIPTION OF GPU'S DOMESTIC UTILITY OPERATIONS.
(a) DOMESTIC UTILITY OPERATIONS OF THE GPU ENERGY
COMPANIES. The electric generation and transmission facilities of the GPU Energy
Companies are physically interconnected and are operated as a single integrated
and coordinated system serving a population of approximately five million in New
Jersey and Pennsylvania and a small portion of New York. The area served by the
GPU Energy Companies extends from the Atlantic Ocean to Lake Erie, is generally
comprised of small communities, rural and suburban areas and includes a wide
diversity of industrial enterprises and substantial farming areas.
JCP&L provides retail service in northern, western and east central New
Jersey, which has an estimated population of approximately 2.6 million. Met-Ed
provides retail electric service in all or portions of 14 counties in the
eastern and south central parts of Pennsylvania, which has an estimated
population of almost one million. Met-Ed also sells electricity at wholesale to
four municipalities with an estimated population of over 11,400. Penelec
provides retail and wholesale electric service within a territory located in
eastern, northern and south central Pennsylvania, with a population of about 1.2
million. Penelec also provides wholesale service to six municipalities in
Pennsylvania, five municipalities in New Jersey and the Allegheny Electric
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Cooperative, Inc. Additionally, Penelec, as the lessee of the property of
Waverly Electric Light & Power Company, also serves a population of about 13,400
in Waverly, New York and vicinity. During the twelve months ended December 31,
1999, the principal source of the GPU Energy Companies' operating revenues was
derived from the distribution and resale of electricity.
In response to restructuring efforts in Pennsylvania and New Jersey,
the GPU system has divested essentially all of its generation assets. Currently,
the GPU Energy Companies have 285 MW of generating capacity remaining to meet
customer needs. They also have contracts with non-utility generators totaling
1,606 MW, and JCP&L has agreements with other utilities to provide for up to 584
MW of capacity and related energy. The GPU Energy Companies have agreed to
purchase all of the capacity and energy from Three Mile Island Unit 1 nuclear
generating station through December 31, 2001, and from Oyster Creek nuclear
generating station through March 31, 2003. In addition, the GPU Energy Companies
have the right to call on the capacity of the Homer City Station (up to 942 MW)
through May 31, 2001, and up to 4,117 MW of capacity from the generating
stations originally sold to Sithe Energies, Inc. (and now owned by Reliant
Energy, Incorporated) through May 31, 2002, to satisfy the GPU Energy Companies'
installed capacity obligations. 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.
(b) TRANSMISSION SYSTEM. The GPU Energy Companies own
transmission facilities which operate at voltages of 230 kV, 345 kV and 500 kV
(known as the "GPU Bulk Transmission System"), and 69 kV and 115 kV (known as
the "GPU Sub-Transmission System," and together with the GPU Bulk Transmission
System, the "GPU Transmission System"). The GPU Transmission System is operated
to integrate the power supply resources of both the GPU Energy Companies and
their various energy marketers doing business within the GPU Energy system for
native retail and wholesale loads. To perform its network function, the GPU Bulk
Transmission System and the GPU Sub-Transmission System are integrated and
operate in a parallel manner with each other. The GPU Bulk Transmission System
is operated at the direction of the PJM Independent System Operator ("ISO")
under the PJM Open Access Transmission Tariff. The GPU Energy Companies also
operate low voltage 46 kV and 34.5 kV facilities.
The GPU Transmission System consists of over 6,700 circuit miles of
transmission lines with nominal voltages of 500 kV, 345 kV, 230 kV, 115 kV and
69 kV facilities. The GPU Transmission System services a population of
approximately five million in New Jersey and Pennsylvania in a 24,000 square
mile area. The GPU Transmission System has 66 interconnections at voltages of 69
kV or higher with three neighboring control areas. The GPU Transmission System
is connected to other delivery systems to the west via ties with Allegheny
Energy and FirstEnergy, to the north via ties with Niagara Mohawk Power
Corporation, Central Hudson Gas and Electric Corporation and Energy East
Corporation, and to the south via ties with Allegheny Energy.
JCP&L, Penelec and Met-Ed are members of PJM, an independent system
operator in Pennsylvania, New Jersey, Maryland, Delaware, Virginia and the
District of Columbia. PJM is
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the largest centrally dispatched electric system in North America and
coordinates the transmission of electricity over the facilities of its members.
PJM also operates a wholesale power market in the Mid-Atlantic region served by
its members. PJM is the regional reliability coordinator and transmission
expansion planner and has been approved by the FERC as an ISO under the
provisions of FERC Order No. 888.
(c) UTILITY REGULATION. Each of the GPU Energy
Companies' retail rates, conditions of service, issuance of securities and other
matters are subject to regulation in the state in which each operates - in New
Jersey by the New Jersey Board of Public Utilities ("NJBPU") and in Pennsylvania
by the PPUC. Additionally, Penelec, as lessee, operates the facilities serving
the village of Waverly, New York. Penelec's retail rates for New York customers,
as well as Penelec's New York operations and property, are subject to regulation
by the New York Public Service Commission ("NYPSC"). Met-Ed's retail rates and
certain other matters are subject to regulation by the PPUC.
With respect to wholesale sales and rates, the transmission of
electricity, accounting, the construction, maintenance, ownership and operation
of hydroelectric projects and certain other matters, the GPU Energy Companies
are subject to regulation by the FERC under the FPA.
B. DESCRIPTION OF THE PROPOSED TRANSACTION
By this Application/Declaration, FirstEnergy seeks an order approving
the acquisition by FirstEnergy of all the issued and outstanding voting
securities of the GPU Energy Companies, which will be accomplished through the
Merger. Under the Merger Agreement, the separate existence of GPU will cease,
and GPU will be merged with and into FirstEnergy, with FirstEnergy continuing as
the surviving corporation. The GPU Energy Companies will become direct
subsidiaries of FirstEnergy following the Merger.
1. ELECTION RIGHT. Shortly before the Merger is completed,
FirstEnergy will give each GPU shareholder the opportunity to elect to receive,
for each share of GPU common stock he or she owns, either: $36.50 in cash,
without interest, or a number of shares of FirstEnergy common stock equal to an
exchange ratio designed to provide GPU shareholders with FirstEnergy shares
having a value of $36.50, except as noted below.
FirstEnergy will determine the exact exchange ratio by dividing $36.50
by the average of the closing sale prices for a share of FirstEnergy common
stock on the New York Stock Exchange as reported in The Wall Street Journal over
the 20-day trading period ending on the seventh trading day before the Merger is
completed. The exchange ratio, however, will be fixed at 1.2318 if the average
closing price of the FirstEnergy shares over this period is equal to or greater
than $29.6313, and at 1.5055, if the average closing price over this period is
equal to or less than $24.2438. This means that the number of FirstEnergy shares
a GPU shareholder will receive for each GPU share he or she owns will never be
less than 1.2318 nor more than 1.5055, regardless of what happens to
FirstEnergy's share price.
FirstEnergy will issue a press release before 9:00 a.m. on the sixth
trading day before the Merger occurs announcing the exchange ratio, the average
closing price of the FirstEnergy
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shares over the 20-day trading period and the deadline for submitting elections
to receive cash or FirstEnergy shares.
2. CONSEQUENCES OF OVER- AND UNDER-ELECTION. If GPU
shareholders elect to receive cash for more than 50% of the GPU shares, the
amount of cash that GPU shareholders will receive for each GPU share for which
they made a cash election will be reduced pro rata so the total amount of cash
that FirstEnergy will pay to all GPU shareholders in the Merger is the same as
the amount that FirstEnergy would have had to pay if cash elections were made
for only 50% of the GPU shares. If this reduction occurs, in addition to the
reduced amount of cash, FirstEnergy will issue, in respect of each GPU share for
which a cash election was made, FirstEnergy shares in lieu of the cash the GPU
shareholder would have otherwise received. The number of shares FirstEnergy will
issue for each GPU share subject to a cash election in this situation will be
calculated by multiplying the exchange ratio by the percentage reduction in the
cash consideration paid to GPU shareholders making cash elections.
Similarly, if GPU shareholders elect to receive FirstEnergy shares for
more than 50% of the GPU shares, the number of FirstEnergy shares GPU
shareholders will receive for each GPU share for which they made a share
election will be reduced pro rata so that the total number of shares that
FirstEnergy will issue to all GPU shareholders in the Merger is the same as the
number of shares that FirstEnergy would have had to issue if share elections had
been made for only 50% of the GPU shares. If this reduction occurs, in addition
to the reduced number of FirstEnergy shares, FirstEnergy will pay, in respect to
each GPU share for which a share election was made, cash in lieu of the
FirstEnergy shares the GPU shareholder would have otherwise received. The amount
of cash to be paid for each GPU share subject to a share election in this
situation will be calculated by multiplying $36.50 by the percentage reduction
in FirstEnergy shares issued to GPU shareholders making share elections.
In the case of an over-election for either cash or FirstEnergy shares,
those GPU shareholders who fail to make a valid election with respect to their
shares, will receive the under-elected form of consideration for those shares.
FirstEnergy, therefore, has encouraged GPU shareholders to make a valid election
with respect to all of their shares.
If all GPU shareholders together make valid cash elections for fewer
than 50% of the outstanding GPU shares and valid share elections for fewer than
50% of the outstanding GPU shares, all of the remaining cash and FirstEnergy
shares that will be paid and issued in the Merger will be allocated pro rata
among the holders of non-electing shares. This means that non-electing
shareholders would receive both cash and FirstEnergy shares for their GPU
shares.
3. NO FRACTIONAL SHARES. FirstEnergy will not issue fractional
interests in its shares in connection with the Merger. Any GPU shareholder
otherwise entitled to a fractional interest, including in connection with a tax
adjustment, will instead receive cash in an amount equal to that fraction
multiplied by the average of the closing prices of the shares of FirstEnergy
common stock over the five-day trading period ending on the trading day before
the Merger is completed.
4. TAX ADJUSTMENT. Under certain circumstances it may be
necessary for FirstEnergy to reduce the total amount of cash it pays in the
Merger in order to ensure that the
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Merger qualifies as a "reorganization" for U.S. federal income tax purposes. In
this event, all GPU shareholders who are entitled to receive cash, other than as
a result of being a dissenting shareholder or being entitled to cash in lieu of
a fractional share of FirstEnergy common stock, will receive a reduced amount of
cash, as nearly pro rata as possible, and FirstEnergy shares with a value equal
to the reduced cash amount. For these purposes, FirstEnergy will determine the
value of those FirstEnergy shares based on the closing price of the FirstEnergy
shares on the date the Merger is completed.
C. REASONS FOR AND ANTICIPATED EFFECTS OF THE PROPOSED
TRANSACTION
Through the Merger, FirstEnergy will acquire all the issued and
outstanding voting securities of the GPU Energy Companies. Set forth in Exhibit
K-3 hereto is an analysis of FirstEnergy's, GPU's and the combined company's
assets, revenues and electric customers as of September 30, 2000.
1. STRATEGIC ADVANTAGES. The Merger will combine companies
that have adjoining service areas and interconnected transmission systems. By
acquiring all of the issued and outstanding voting securities of the GPU Energy
Companies, FirstEnergy will be able to realize opportunities to eliminate
duplicative costs, maximize efficiencies and increase management and operational
flexibility in order to enhance revenues, cash flow and earnings and be a more
effective competitor.
2. COMPETITIVE PRICES AND SERVICES. FirstEnergy will naturally
be larger as a result of the Merger. The increase in size will allow FirstEnergy
to meet more effectively the demands of such customers for reliable, low-cost
power in the face of increased competition among suppliers and will create
operating efficiencies, such as an increased capacity factor for FirstEnergy's
generating plants, that will allow FirstEnergy to be able to produce and deliver
competitively priced power to customers.
3. SERVICE TO MORE CUSTOMERS. Following the Merger, the GPU
Energy Companies will be direct subsidiaries of FirstEnergy, thereby increasing
FirstEnergy's size, customer base and diversity. This will reduce FirstEnergy's
exposure to adverse changes in any sector's economic and competitive conditions.
After the Merger, FirstEnergy plans to expand relationships with customers in
its service areas, using combined distribution channels to market innovative
energy-related products throughout the region at competitive prices. FirstEnergy
will be able to provide customers with a wider range of energy services and
products and enhanced service capabilities, following the Merger, than it can at
the present time.
4. COST REDUCTION. FirstEnergy anticipates that the Merger
will result in cost reductions estimated to be approximately $1.5 billion over
ten years (or an average of $150 million per year), net of implementation costs.
FirstEnergy believes that these savings will result from a combination of
improved operating efficiencies, elimination of duplicative activities and
procurement efficiencies. FirstEnergy believes that labor reductions will be
obtained through attrition, controlled hiring and voluntary and involuntary
severance programs. In addition, FirstEnergy expects reductions in duplicative
corporate and administrative expenses to come from such areas as insurance,
facilities, professional services and advertising.
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The benefits are described in greater detail in the discussion of the
economies and efficiencies resulting from the Merger in Item 3.B.2.
D. ADDITIONAL INFORMATION
No associate company or affiliate of FirstEnergy or any affiliate of
any such associate company has any direct or indirect material interest in the
proposed transaction except as stated herein.
ITEM 2. FEES, COMMISSIONS AND EXPENSES
The fees, commissions and expenses to be paid or incurred, directly or
indirectly, in connection with the transactions contemplated herein, including
other related matters, are estimated as follows:
Commission filing for the Registration Statement on Form S-4...... $426,702
Accountants' fees................................................. *
Legal fees and expenses relating to the Act....................... *
Other legal fees.................................................. *
Stockholder communication and proxy solicitation.................. *
Exchanging, printing and engraving of stock certificates.......... *
Investment bankers' fees and expenses
Morgan Stanley & Co. Incorporated ........................... $15,000,000
Consultant's Fees
Salomon Smith Barney Inc..................................... *
NYSE listing fee ................................................. *
Miscellaneous..................................................... *
TOTAL............................................................. *
* To be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS
The GPU Energy Companies are electric utility companies as defined in
Section 2(a)(3) of the Act, as well as public utility companies as defined in
Section 2(a)(5) of the Act. Accordingly, it is believed that Sections 9(a)(2),
10 and 11(b) of the Act are applicable to the acquisition by FirstEnergy of all
of the issued and outstanding voting securities of the GPU Energy Companies.
FirstEnergy intends to make, either by a separate Application/Declaration or by
an amendment hereto, applications under, INTER ALIA, Sections 6, 7 and 12 of the
Act in respect of matters covered thereunder related to financing FirstEnergy's
obligations under the Merger Agreement and its conduct after the consummation of
the Merger. To the extent that the acquisition of such voting securities is
considered by the Commission to require authorization, approval or exemption
under any section of the Act or provision of the rules or regulations thereunder
other than those specifically referred to herein, request for such
authorization, approval or exemption is hereby made.
Because FirstEnergy will be directly acquiring five percent or more of
all the issued and the outstanding voting securities, as defined in Section
2(a)(17) of the Act, of the GPU Energy
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Companies, such acquisition will be subject to Section 9(a)(2) of the Act. Thus,
FirstEnergy believes that the acquisition of such voting securities of the GPU
Energy Companies cannot proceed without the Commission's approval pursuant to
Section 10 of the Act. The relevant statutory standards to be satisfied are set
forth in Sections 10(b), 10(c), and 10(f) of the Act.
In addition, as discussed below, the standards of Section 11(b) of the
Act are satisfied. Post-Merger, FirstEnergy should therefore be able to retain
all of the non-utility businesses FirstEnergy currently owns, as well as those
owned by GPU.
A. SECTION 10(b)
Section 10(b) of the 1935 Act provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless the Commission finds that:
(1) such acquisition will tend towards
interlocking relations or the concentration of control of
public utility companies, of a kind or to an extent
detrimental to the public interest or the interest of
investors or consumers;
(2) in case of the acquisition of securities
or utility assets, the consideration, including all fees,
commissions, and other remuneration, to whomsoever paid, to be
given, directly or indirectly, in connection with such
acquisition is not reasonable or does not bear a fair relation
to the sums invested in or the earning capacity of the utility
assets to be acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate
the capital structure of the holding company system of the
applicant or will be detrimental to the public interest of
consumers or the proper functioning of such holding company
system.
The acquisition by FirstEnergy of all of the issued and outstanding
voting securities of the GPU Energy Companies and the requests contained in this
Application/Declaration are well within the precedent of transactions approved
by the Commission as consistent with the 1935 Act. As demonstrated below, the
acquisition by FirstEnergy of all of the issued and outstanding voting
securities of the GPU Energy Companies will benefit both consumers and
stockholders of FirstEnergy, and the other federal regulatory authorities with
jurisdiction over such acquisition will have approved it as in the public
interest.
1. SECTION 10(b)(1).
(a) INTERLOCKING RELATIONS. The acquisition by
FirstEnergy of all of the issued and outstanding voting securities of the GPU
Energy Companies will not tend towards interlocking relations or the
concentration of control of public utility companies, of a kind or to an extent
detrimental to the public interest or the interest of investors or consumers.
Notwithstanding the above, as in the case of virtually every
transaction subject to Section 9(a)(2), there may exist among FirstEnergy and
its public utility subsidiaries interlocking
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<PAGE> 27
directors and officers only of such nature and to such extent as normally exist
in public utility holding company systems among affiliated and associated
companies. See CIPSCO, Inc., Holding Company Act Release No. 25152 (Sept. 18,
1990).
Under the Merger Agreement, the Board of Directors of FirstEnergy after
the Merger will consist of sixteen members, ten of whom will be designated by
the current Board of Directors of FirstEnergy and six of whom will be designated
by the current Board of Directors of GPU prior to the effective time of the
Merger. Prior to the effective time, GPU will determine how the GPU designated
directors will be allocated among the three classes of FirstEnergy's Board of
Directors, so long as two of those directors are allocated to each class.
If, during the two-year period following the effective time of the
Merger, there are fewer than six directors on the FirstEnergy Board of Directors
who were either initially designated to the FirstEnergy Board by GPU or
subsequently appointed by the FirstEnergy Board to replace a director initially
designated by GPU, the vacancy or vacancies will be filled by the appointment of
a person or persons recommended by not less than 80% of the remaining members of
the then existing FirstEnergy Board of Directors. In addition, at all times
during this two-year period, the chairman of at least one of the standing
committees of FirstEnergy's Board of Directors must be a director initially
designated by GPU or a director who replaced such an individual.
Fred D. Hafer, current Chairman, President and Chief Executive Officer
of GPU, will serve as Chairman of FirstEnergy from the effective time until he
reaches the age of 62 or is no longer willing or able to so serve. Mr. Hafer was
59 as of September 20, 2000. In addition, from the effective time until
otherwise determined by the Board of Directors after the Merger, Mr. H. Peter
Burg, currently Chairman and Chief Executive Officer of FirstEnergy, will serve
as Vice Chairman and Chief Executive Officer of FirstEnergy and will assume the
role of Chairman upon retirement of Mr. Hafer. All other officers of FirstEnergy
will be designated by FirstEnergy's Board of Directors.
(b) CONCENTRATION OF CONTROL. It is well
settled that the public interest is to be judged primarily in the context of the
problems with which the 1935 Act was designed to deal, as set forth in Section
1(b) thereof. Vermont Yankee Nuclear Power Corporation, Holding Co. Act Release
No. 15958, (Feb. 6, 1968), REV'D ON OTHER GROUNDS SUB. NOM., MUNICIPAL ELECTRIC
ASS'N OF MASS. V. S.E.C., 413 F.2d 1052 (D.C. Cir. 1969). Viewed from this
perspective, the acquisition by FirstEnergy of all of the issued and outstanding
voting securities of the GPU Energy Companies in no way contradicts the
requirements of Section 10(b)(1).
Section 10(b)(1) is intended to avoid "an excess of concentration and
bigness" while preserving the "opportunities for economies of scale, the
elimination of duplicate facilities and activities, the sharing of production
capacity and reserves and generally more efficient operations" afforded by the
coordination of local utilities into an integrated system. American Electric
Power Co., Holding Co. Act Release No. 20633 (July 21, 1978). In applying
Section 10(b)(1) to utility acquisitions, the Commission must determine whether
the acquisition will create "the type of structures and combinations at which
the Act was specifically directed." ID. As discussed below, the acquisition by
FirstEnergy of all of the issued and outstanding voting securities of the GPU
Energy Companies, in the context of the Merger, will not create a "huge,
complex, and irrational system" of a type at which the 1935 Act is directed, but
rather will afford
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the opportunity to achieve economies of scale and efficiencies which are
expected to benefit investors and consumers. ID.
The Merger will not lead to the type of concentration of control over
utilities, unrelated to operating efficiencies, that Section 10(b)(1) was
intended to prevent. In addition, the GPU Energy Companies have divested
substantially all of their generation assets. No increased concentration of
generation ownership will result from the Merger.
SIZE: When considering the issue of concentration of control pursuant
to Section 10(b)(1), the Commission "considers various factors, including the
size of the resulting system and the competitive effects of the acquisition."
Entergy Corp., Holding Co. Act Release No. 25952 (December 17, 1993), REQUEST
FOR RECONSIDERATION DENIED, Holding Co. Act Release No. 26037 (April 28, 1994),
REMANDED SUB NOM., CAJUN ELEC. POWER CO-OP., INC. V. S.E.C., No. 94-1112, 1994
WL 704047 (D.C. Cir. Nov. 16, 1994).
Size alone is not suspect. Rather, as the 1935 Act provides, the
concern is an enlargement of the system that is "of a kind or to an extent
detrimental to the public interest or the interest of investors or consumers"
caused "by the growth and extension of holding companies [that] bears no
relation to economy of management and operation or the integration and
coordination of related operating properties." Sections 10(b)(1) and 1(b)(4) of
the 1935 Act.
For purposes of comparison, the Table filed as Exhibit K-2 hereto
provides certain operating information derived from publicly available
documents(8) for a selected group of public utility systems. These data identify
and rank the largest public utility systems in the United States. Among the
utilities presented, FirstEnergy ranges from the twelfth to the fourteenth
largest public utility system in the United States depending on the criterion of
measurement used as of December 31, 1999. Giving effect to the Merger as of
December 31, 1999, on a pro forma basis, post-Merger FirstEnergy would have
ranged from the fifth largest to the twelfth largest public utility system in
the United States, again depending on the criterion of measurement.
The data show that, as of December 31, 1999, four companies would have
been larger than post-Merger FirstEnergy in terms of regulated sales; five
companies would have been larger than post-Merger FirstEnergy in terms of number
of customer served; and eleven companies would have been larger than post-Merger
FirstEnergy in terms of capacity. In addition, post-Merger FirstEnergy would be
the sixth largest in terms of assets and tenth largest in terms of operating
revenues, giving effect to the Merger as of June 30, 2000, and the fourteenth
largest in terms of market capitalization, giving effect to the Merger as of
October 17, 2000. Thus, the data show that post-Merger FirstEnergy will be
comparable in size to other large public utility systems.
The combined assets of post-Merger FirstEnergy will total approximately
$40 billion. The combined operating revenues of FirstEnergy and GPU for the
twelve month period ended
----------
(8) In addition to filings made with the Commission and the FERC, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") relied upon data obtained from a
subscription service, SNL Securities, which compiles information from
filings with the Commission.
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June 30, 2000, would have totaled approximately $12 billion. By
comparison, there are nine other companies that are larger than the post-Merger
FirstEnergy system based on operating revenues, giving effect to the Merger as
of June 30, 2000.
Indeed, the Commission has approved a number of acquisitions that
created utilities comparable in size to post-Merger FirstEnergy. For example,
the Commission recently approved the merger of two registered holding companies,
American Electric Power Co., Inc. and Central and Southwest Corporation (the
"AEP and CSW Merger"), where the pro-forma financial information showed
operating revenues of approximately $12.4 billion, net income of $975 million,
customers numbering 4.8 million and assets totaling $35.7 billion. The Merger is
comparable to the AEP and CSW Merger. See American Electric Power Co., Inc.,
Holding Co. Act Release No. 27186 (June 14, 2000), REQUEST FOR RECONSIDERATION
DENIED, Holding Co. Act Release No. 27232 (Sept. 20, 2000); compare New Century
Energies, Inc., Holding Co. Act Release No. 27212 (Aug. 16, 2000); Exelon
Corporation, Holding Co. Act Release No. 27256 (Oct. 19, 2000), MODIFIED by,
Holding Co. Act Release No. 27259; Dominion Resources, Inc., Holding Co. Act
Release No. 27113 (Dec. 15, 1999).
EFFICIENCIES AND ECONOMIES: The Commission has rejected a mechanical
size analysis under Section 10(b)(1) in favor of assessing the size of the
resulting system with reference to the efficiencies and economies that can be
achieved through the integration and coordination of utility operations.
American Electric Power Co., Inc., SUPRA, Holding Co. Act. Release No. 20633.
The Commission has repeatedly confirmed through its decisions that size alone is
not determinative. Thus, in Centerior Energy Corp., Holding Co. Act Release No.
24073 (April 29, 1986), the Commission stated that a "determination of whether
to prohibit enlargement of a system by acquisition is to be made on the basis of
all the circumstances, not on the basis of size alone." See also Entergy Corp.,
SUPRA, Holding Co. Act Release No. 25952.
By virtue of the Merger, FirstEnergy will be in a position to realize
the "opportunities for economies of scale, the elimination of duplicate
facilities and activities, the sharing of production capacity and reserves and
generally more efficient operations" described by the Commission in American
Electric Power Co., Inc., SUPRA, Holding Co. Act Release No. 20633. Among other
things, the Merger is expected to make possible the offering of a broader array
of products and services; savings through reduction of operating expenses and
cost of capital; savings through elimination or postponement of certain capital
expenditures; and savings through greater purchasing power. These expected
economies and efficiencies from the combined utility operations are described in
greater detail in Item 3.B.2 below.
COMPETITIVE EFFECTS: As the Commission noted in Northeast Utilities,
Holding Co. Act Release No. 25221 (Dec. 21, 1990), AFF'D AS MODIFIED, Holding
Co. Act Release No. 25273 (March 15, 1991), AFF'D, CITY OF HOLYOKE GAS & ELEC.
DEPT. V. S.E.C., 972 F.2d 358 (D.C. Cir. 1992), the "antitrust ramifications of
an acquisition must be considered in light of the fact that public utilities are
regulated monopolies and that federal and state administrative agencies regulate
the rates charged consumers." Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Merger may not be consummated until
the applicable waiting periods have expired or been terminated. A filing is
being made with the Department of Justice (the "DOJ") and the Federal Trade
Commission (the "FTC") under the HSR Act, describing the effects of the Merger
on competition in the relevant market.
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In addition, the competitive impact of the Merger will be fully
considered by the FERC before its approval of the Merger. A detailed explanation
of the reasons why the transaction will not threaten competition in relevant
geographic and product markets is set forth in the joint application of
FirstEnergy and GPU filed with the FERC, a copy of which is filed as Exhibit D-1
hereto. The Commission may appropriately rely upon the FERC with respect to such
matters. Entergy Corp., SUPRA, Holding Co. Act Release No. 25952 (citing CITY OF
HOLYOKE GAS & ELECTRIC DEPT. V. S.E.C., SUPRA, 972 F.2d at 363-64).
2. SECTION 10(b)(2)--FAIRNESS OF CONSIDERATION AND FEES.
(a) FAIRNESS OF CONSIDERATION. Section 10(b)(2)
of the 1935 Act requires the Commission to determine whether the consideration
in connection with a proposed acquisition of securities is reasonable and
whether it bears a fair relation to the investment in and the earning capacity
of the utility assets underlying the securities being acquired. As noted
earlier, shortly before the Merger is completed, FirstEnergy will give each GPU
shareholder the opportunity to elect to receive, for each share of GPU common
stock owned, either $36.50 in cash, without interest; or a number of shares of
FirstEnergy common stock (the exchange ratio) designed to provide GPU
shareholders with FirstEnergy shares having a value of $36.50, subject to
adjustment.
This price was reached through a process of vigorous arm's-length
negotiations, accommodation, and compromise. Such negotiations were preceded by
extensive due diligence, analysis and evaluation of the assets, liabilities and
business prospects of each of FirstEnergy and GPU. See "The Merger" beginning on
page 25 of the Joint Proxy Statement/Prospectus filed as Exhibit C-2 hereto.
Prices arrived at through arm's-length negotiations are particularly persuasive
evidence that Section 10(b)(2) is satisfied. See American Electric Power Co.,
Inc., SUPRA, Holding Co. Act Release No. 27186.
Finally, nationally recognized investment bankers for each of GPU and
FirstEnergy have reviewed extensive information concerning the companies and
analyzed the exchange ratios employing a variety of valuation methodologies, and
have opined that the exchange ratios are fair, from a financial point of view,
to the respective stockholders of GPU and FirstEnergy. The investment bankers'
opinions are filed as Appendix B and Appendix C to the Joint Proxy
Statement/Prospectus, Exhibit C-2 hereto. The assistance of independent
consultants in setting consideration has been recognized by the Commission as
evidence that the requirements of Section 10(b)(2) have been met. See The
National Grid Group plc, Holding Co. Act Release No. 27154 (March 15, 2000).
(b) REASONABLENESS OF FEES. An estimate of the
fees and expenses to be paid in connection with the Merger is set forth in Item
2 hereof. The estimated amounts to be paid are fees for necessary professional
services and other expenses incurred or to be incurred in connection with
carrying out the Merger. FirstEnergy believes that such fees and expenses are
reasonable and fair in light of the size and nature of the Merger and comparable
transactions, and the standards of Section 10(b)(2) are thus satisfied.
As set forth in Item 2 of this Application/Declaration, FirstEnergy and
GPU, together, expect to incur a combined total of approximately $______
million(9) in fees, commissions and
--------------
(9) to be Filed by Amendment
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<PAGE> 31
expenses in connection with the Merger, excluding expenses related to
integrating the operations of the combined company. Such fees will be paid on an
arm's-length basis to third parties and are consistent with fees, commissions
and expenses paid for similar transactions and approved by the Commission as
reasonable. See, e.g., American Electric Power Co., Inc., SUPRA, Holding Co. Act
Release No. 27186 (fees and expenses estimated at $72.7 million); The National
Grid Group, plc, SUPRA, Holding Co. Act Release No. 27154 (estimate of fees and
expenses of approximately $54.2 million).
Morgan Stanley has been retained by FirstEnergy to act as financial
advisor to FirstEnergy with respect to the Merger. Pursuant to the letter
agreement dated as of June 1, 2000, between FirstEnergy and Morgan Stanley,
Morgan Stanley is entitled to (i) an advisory fee of approximately $50,000 to
$75,000, which is payable in the event the transaction is not consummated, and
(ii) a transaction fee of approximately $15,000,000, which is payable as
follows: one-third upon announcement of the transaction, one-third upon approval
of the transaction by FirstEnergy's shareholders and one-third upon closing of
the transaction. Any amount paid or payable to Morgan Stanley as advisory or
announcement fees will be credited against the transaction fee. FirstEnergy has
also agreed to reimburse Morgan Stanley for expenses incurred by Morgan Stanley
in performing its services.
In the past Salomon Smith Barney Inc. ("Salomon") has provided
investment banking services to GPU, FirstEnergy and/or their respective
affiliates for which it has received compensation. Pursuant to Salomon's
engagement letter with GPU, dated August 6, 2000, GPU agreed to pay Salomon a
fee for its services as financial advisor to GPU in connection with the Merger
totaling 0.40% of the transaction value, a significant portion of which will be
received upon the closing of the Merger. Additionally, GPU has agreed to
reimburse Salomon for its reasonable out-of pocket expenses.
The investment banking fees paid by FirstEnergy and GPU are lower than,
or are comparable to, fees paid in other similar transactions and approved by
the Commission as reasonable. The fees reflect the financial marketplace, in
which investment banking firms actively compete with each other to act as
financial advisors to merger partners.
3. SECTION 10(b)(3). Section 10(b)(3) requires the Commission
to determine whether the acquisition by FirstEnergy of all of the issued and
outstanding voting securities of the GPU Energy Companies in the context of the
Merger will unduly complicate FirstEnergy's capital structure or will be
detrimental to the public interest, the interests of investors or consumers or
the proper functioning of FirstEnergy's system.
(a) CAPITAL STRUCTURE. The Commission has
previously determined that transactions similar to the Merger would not unduly
complicate the applicant's corporate structure. See, e.g. American Electric
Power Co., SUPRA, Holding Co. Act Release No. 27186 (merger resulted in
increased debt with decreased equity, but "well within the 60%/30% debt/common
equity ratio that the Commission has generally viewed as adequate for registered
holding companies"); compare Entergy Corp., SUPRA, Holding Co. Act Release No.
25982 (debt-equity figures were "well within the 65%/30% debt/common equity
ratio generally prescribed by the Commission").
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The Commission has approved common equity to total capitalization
ratios as low as 27.6%. See Northeast Utilities, SUPRA, Holding Co. Act Release
No. 25221 (common equity ratio within two years would be greater than 30%);
Exelon Corporation, SUPRA, Holding Co. Act Release No. 27256 (anticipated
consolidated common equity of Exelon was 29.7% of total capitalization; Exelon
would achieve a consolidated common equity ratio of at least 30% by December 31,
2002); compare The National Grid Group, plc, SUPRA, Holding Co. Act Release No.
27154 (28.5% common stock equity would be increased to 30% or above by March 31,
2002).
If the Merger were consummated on December 31, 2001, the projected
combined consolidated capital structure of post-Merger FirstEnergy as of such
date would be as follows:
Combined Company Consolidated Capital
Structure
as of December 31, 2001
(in $ millions)
Common Stock Equity............... $ 7,052 30.51%
Preferred Stock................... $ 1,189 5.15%
Long-Term Debt.................... $11,295 48.87%
Short-Term Debt................... $ 1,464 6.33%
Merger Debt....................... $ 2,112 9.14%
------- -------
Total............................. $23,112 100.00%
======= =======
Post-Merger FirstEnergy's combined consolidated common stock equity to
total capitalization ratio is 30.51%. Such an amount satisfies the requirements
of the Act. See e.g., Dominion Resources, Inc., SUPRA, Holding Co. Act Release
No. 27113 (the combined system would have 33% common equity for its consolidated
capital structure, and each of the operating companies would maintain at least
30% common equity for its respective capital structure).
FirstEnergy will have incurred debt associated with the Merger. The
increased debt, however, will not cause post-Merger FirstEnergy to fall below
the 30% common stock equity ratio. Compare, e.g., Northeast Utilities, Holding
Co. Act Release No. 27147 (March 7, 2000) (Northeast Utilities' pro forma common
equity ratio would have been 29.1%; Northeast Utilities common equity ratio was
expected to be above 30% by December 31, 2001, although the utilities expected
that their common stock equity ratios would be below 30% during the
authorization period); The National Grid Group, plc, SUPRA, Holding Co. Act
Release No. 27154 (restructuring parent-level debt not applicable; Commission
analyzed under section 7(d); although National Grid's common stock equity ratio
was as low as 28.5%, that number did not reflect the company's financial
strength where the company had high agency ratings).
The corporate capital structure of FirstEnergy after the Merger will
not be unduly complicated. In the Merger, FirstEnergy will acquire all of the
issued and outstanding voting securities of the GPU Energy Companies. Thus,
there will be no minority interest in any such companies following the Merger.
See Consolidated Natural Gas Co., Holding Co. Act Release No. 25040 (Feb. 14,
1990). Moreover, there will be no change to any of FirstEnergy's subsidiaries'
common equity ratios; nor will there be any changes to such subsidiaries'
securities.
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<PAGE> 33
GPU, the current holding company of the GPU system, will disappear in the
Merger. Thus, there will be no intermediate companies between FirstEnergy and
the principal operating utilities.
(b) PUBLIC INTEREST, INTEREST OF INVESTORS AND
CONSUMERS, AND PROPER FUNCTIONING OF HOLDING COMPANY SYSTEM. Section 10(b)(3)
also requires the Commission to determine whether the proposed acquisition by
FirstEnergy will be detrimental to the interests of the general public,
investors or consumers, or the proper functioning of the combined system.
As set forth more fully in Item 3.B.2 and elsewhere herein, the
acquisition by FirstEnergy of all of the issued and outstanding voting
securities of the GPU Energy Companies, in the context of the Merger, is
expected to result in substantial cost savings and synergies and will integrate
and improve the efficiency of the operations of the post-Merger FirstEnergy
system. FirstEnergy's acquisition of all of the issued and outstanding voting
securities of the GPU Energy Companies, therefore, will be in the public
interest and the interests of investors and consumers, and will not be
detrimental to the proper functioning of the resulting holding company system.
B. SECTION 10(c)
Section 10(c) of the 1935 Act provides that:
Notwithstanding the provisions of subsection (b), the
Commission shall not approve:
(1) an acquisition of securities or utility
assets, or of any other interest, which is unlawful under the
provisions of Section 8 or is detrimental to the carrying out
of the provisions of Section 11; or
(2) the acquisition of securities or utility
assets of a public utility or holding company unless the
Commission finds that such acquisition will serve the public
interest by tending towards the economical and the efficient
development of an integrated public utility system . . . .
1. SECTION 10(c)(1). Consistent with the standards set forth
in Section 10(c)(1) of the Act, the proposed acquisition by FirstEnergy of all
of the issued and outstanding voting securities of the GPU Energy Companies, in
the context of the Merger, will not be unlawful under the provisions of Section
8 of the Act, or detrimental to the carrying out of the provisions of Section 11
of the 1935 Act. Following consummation of the Merger, FirstEnergy will register
as a holding company.
(a) SECTION 8 ANALYSIS. Section 8 prohibits a
registered holding company or any of its subsidiaries from acquiring, owning
interests in or operating both a gas utility company and an electric utility
company serving substantially the same area if prohibited by state law.
Neither FirstEnergy nor any of its subsidiaries owns or has any
financial interest in, or operates, any gas utility company, as defined in
Section 2(a)(4) of the 1935 Act, and because
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FirstEnergy will not own or have any financial interest in any gas utility
company following the Merger, FirstEnergy will not have acquired, and will not
own or operate, a gas utility company.
(b) SECTION 11 ANALYSIS.
(i) INTEGRATION. Section 10(c)(1) also
requires that an acquisition not be detrimental to carrying out the provisions
of Section 11 of the Act. Section 11(b)(1), in pertinent part, requires, with
limited exceptions, a registered holding company and its subsidiaries to limit
their operations to "a single integrated public-utility system."
Section 2(a)(29)(a) of the Act defines an integrated public utility
system with respect to electric utility companies as:
a system consisting of one or more units of
generating plants and/or transmission lines and/or
distribution facilities, whose utility assets,
whether owned by one or more electric utility
companies, are physically interconnected or capable
of interconnection and which under normal
circumstances may be economically operated as a
single interconnected and coordinated system confined
in its operations to a single area or region, in one
or more states, not so large as to impair
(considering the state of the art and area or region
affected) the advantages of localized management,
efficient operation, and the effectiveness of
regulation.
On the basis of the statutory definition above, the Commission has
established four standards that must be met before the Commission will find that
an integrated public utility system will result from a proposed acquisition of
securities:
(1) the utility assets of the system are
physically interconnected or capable of physical
interconnection;
(2) the utility assets, under normal
conditions, may be economically operated as a single
interconnected and coordinated system;
(3) the system must be confined in its
operations to a single area or region; and
(4) the system must not be so large as to
impair (considering the state of the art and the area or
region affected) the advantages of localized management,
efficient operation, and the effectiveness of regulation.
ENVIRONMENTAL ACTION, INC. V. S.E.C., 895 F.2d 1255, 1263 (9th Cir.
1990) (quoting In re Electric Energy, Inc., 38 S.E.C. 658, 668 (1958)). The
acquisition by FirstEnergy of all of the issued and outstanding voting
securities of the GPU Energy Companies satisfies each of these requirements.
PHYSICAL INTERCONNECTION. Upon consummation of the Merger, FirstEnergy
and the GPU Energy Companies, will be "physically interconnected or capable of
physical interconnection" within the meaning of Section 2(a)(29)(A). The
electric service areas of the
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GPU Energy Companies and FirstEnergy's current electric utility subsidiaries'
service areas are adjacent to one another. (See Maps filed as Exhibits E-1, E-2
and E-3 hereto.) The Merger will unite a continuous, geographically compact
system across Ohio, Pennsylvania, New Jersey and into New York.
ATSI and GPU have one direct connection in the form of a direct tie
line (the "Existing Interconnection"). This 345 kV line has ratings
corresponding to 1643 MW in the Summer and 1781 MW in the Winter.(10) This
interconnection is referred to as the Ashtabula-Erie West transmission line.
Subsidiaries of each of the Applicants own the portion of the transmission line
in their respective service territory. ATSI also has three ties to the east with
Allegheny Energy: one at 345 kV, one at 138 kV, and a normally open tie at 69
kV. The combined Summer and Winter normal ratings of these 345 kV and 138 kV
lines are 1616 MW and 1995 MW. Allegheny Energy in turn has numerous
interconnections with PJM, including 15 direct interconnections to the GPU
Energy Companies at voltages of 115 kV and above.
In view of the above, the facts presented clearly support a finding
that FirstEnergy and the GPU Energy Companies are "physically interconnected or
capable of physical interconnection" within the meaning of Section 2(a)(29)(A)
of the Act.
SINGLE INTERCONNECTED AND COORDINATED SYSTEM. The proposed operation of
the post-Merger FirstEnergy system will differ from the traditionally vertically
integrated monopoly utility model. As retail competition and corporate
restructuring are implemented on the combined FirstEnergy system, the Applicants
will be required to separate the competitive energy procurement and sales
function, including the operation of their electric generating facilities, from
the transmission and distribution functions. This competitive energy procurement
and sales function will be located in FirstEnergy Services. The post-Merger
transmission and distribution operations will be located in ATSI and the
FirstEnergy Companies, respectively. In accordance with the corporate
separation plan required under Ohio law (see Item 1.A.2), generation will
ultimately be transferred to GenCo.
Section 2(a)(29)(A) of the Act requires that the utility assets, under
normal circumstances, may be "economically operated as a single interconnected
and coordinated system." Until recently, the Commission had interpreted this
language to refer to the physical operation of utility assets as a system in
which, among other things, the generation and/or flow of current within the
system may be centrally controlled and allocated as need or economy directs. See
UNITIL Corp., Holding Co. Act Release No. 25524 (April 24, 1992). Recent orders
by the Commission have broadened this interpretation of Section 2(a)(29)(A).
While the definition reflects an assumption that the holding company
would coordinate the operations of the integrated system, the Commission has
recognized the "Congress did not intend to impose rigid concepts but instead
expressly included flexible considerations" to accommodate changes in the
electric utility industry. Mississippi Valley Generating Co., 36
----------
(10) This interconnection capacity from 1643 to 1781 MW is greater than
that found acceptable in the AEP and CSW Merger (250 MW) and in the
recent Exelon Corporation merger (100 MW). See American Electric Power
Co., Inc., SUPRA, Holding Co. Act Release No. 27186; Exelon
Corporation, SUPRA, Holding Co. Act Release No. 27256.
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S.E.C. 159, 186 (1955), cited in Yankee Atomic Electric Co., 36 S.E.C. 552, 565
(1965). Thus, the Commission has considered advances in technology and the
particular operating circumstances in applying the integration standards.
The Commission has also recognized that FERC's initiative to create
large, multi-company transmission organizations has created situations where the
transmission systems of the merging entities may be located in whole or in part
within different regional transmission organizations. Energy East Corp., Holding
Co. Act Release No. 27224 (Aug. 31, 2000); American Electric Power Co., Inc.,
SUPRA, Holding Co. Act Release No. 27186. Companies participating in Regional
Transmission Organizations ("RTO") are required to transfer ownership or
operating control of their transmission facilities to the RTO. The FERC has
required in its Order No. 2000 that an approved RTO must ensure the integration
of reliability between other RTOs, and should maintain an open architecture in
its structure that permits the RTO to evolve and expand as is necessary to
increase the efficiency of its operations.
FirstEnergy has stated to the FERC that it will satisfy the FERC's
Order No. 2000 RTO requirements in the following manner. The GPU Energy
Companies will remain in PJM, and ATSI will participate in the Alliance RTO. In
the event that the Alliance RTO is not approved by the FERC, FirstEnergy will
join another RTO, which meets the FERC's Order No. 2000 requirements. PJM has
also made a filing to satisfy the FERC's Order No. 2000 requirements for RTOs.
The Alliance RTO has proposed an inter-RTO agreement that if implemented by PJM
and the Alliance would address inter-RTO planning issues. Additionally,
transmission planning for the ATSI system will continue to be performed in
compliance with East Central Area Reliability Coordination Agreement ("ECAR")
reliability region criteria and under the supervision of the Alliance RTO. The
transmission systems of PJM and ECAR are also assessed on a seasonal basis by
two separate inter-regional coordination study groups, MAAC(11)-ECAR-NPCC(12)
and VACAR(13)-ECAR-MAAC.
The GPU Energy Companies' participation in PJM and ATSI's participation
in the Alliance RTO is similar to the relationship approved in EnergyEast Corp.,
SUPRA, Holding Co. Act Release No. 27224. There New York State Electric & Gas
Corporation and Central Maine Power Company had transferred scheduling and
operational control over high-voltage transmission facilities to two Independent
System Operators ("ISOs"), which combined the transmission and generation assets
of the participants as a single electrical system, ensuring that transmission
capacity was provided to enable the market to function. The Commission noted
that these two ISOs coordinate their scheduling and operations so as to enable
"cross-border" transactions to occur seamlessly. The Commission stated: "The
high degree of integrated operations insures that the two systems are operated
as a coordinated system in which the flow of energy is `centrally controlled and
allocated, as need or economy directs,' and in which no generator, purchaser, or
transmission owner operates in isolation." Compare American Electric Power Co.,
Inc., SUPRA, Holding Co. Act Release No. 27186.
----------
(11) "MAAC" means Mid-Atlantic Area Council.
(12) "NPCC" means Northeast Power Coordinating Council.
(13) "VACAR" means Virginia-Carolina Systems.
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Although coordination by PJM and the Alliance RTO should meet the
newest standards of the Act as interpreted by the Commission, there are other
means of coordination. Post-Merger, FirstEnergy's electric utility companies
will also coordinate their energy production, trading and selling activities
across the three state region so that utilization of existing assets can be
maximized and new generating resources can be obtained on the most economic
basis. Post-Merger, the electric utility companies will have available
FirstEnergy's generating facilities, including new gas turbine capacity, to help
satisfy the provider of last resort obligations imposed by New Jersey, Ohio and
Pennsylvania law. The siting or acquisition of new generating resources will be
planned on a single system basis with a view towards achieving locational
efficiencies now possible with the combined system. Both the purchase and
selling of power for the new FirstEnergy system will be coordinated within a
single entity, FirstEnergy Services. Purchase of production inputs, operation
and maintenance of generating facilities, billing and administration and
acquisition of transmission services will also be consolidated within
FirstEnergy Services and its subsidiaries. The Applicants expect the
consolidation of the energy procurement and sales function within a single
entity to allocate resources more efficiently, thereby decreasing overall
production costs for the post-Merger FirstEnergy system.
SINGLE AREA OR REGION. The "single integrated system" of FirstEnergy
and its subsidiaries are currently confined in its operations to a single area
or region, namely, the northeastern part of the United States. Exhibit E-3 shows
the "single integrated system" of post-Merger FirstEnergy, which will be
confined to Ohio, Pennsylvania, New Jersey and a small portion of New York. See
American Electric Power Co., Inc., SUPRA, Holding Co. Act Release No. 27186.
LOCALIZED MANAGEMENT, EFFICIENT OPERATION AND EFFECTIVE REGULATION. The
Commission's past decisions on "localized management" show that the acquisition
by FirstEnergy of all of the issued and outstanding voting securities of the GPU
Energy Companies fully preserves the advantages of localized management. In such
cases, the Commission has evaluated localized management in terms of: (i)
responsiveness to local needs, see American Electric Power Co., Inc., SUPRA,
Holding Co. Act Release No. 20633 (advantages of localized management evaluated
in terms of whether an enlarged system could be "responsive to local needs");
General Public Utilities Corp., Holding Co. Act Release No. 13116 (March 2,
1956)(localized management evaluated in terms of "local problems and matters
involving relations with consumers"); (ii) whether management and directors were
drawn from local utilities, see Centerior Energy Corp., Holding Co. Act Release
No. 24073 (April 29, 1986)(advantages of localized management would not be
compromised by the affiliation of two electric utilities under a new holding
company because the new holding company's "management [would be] drawn from the
present management" of the two utilities); (iii) the preservation of corporate
identities, see Northeast Utilities, SUPRA, Holding Co. Act Release No. 25221
(utilities "will be maintained as separate New Hampshire corporations . .
.[;] [t]herefore the advantages of localized management will be preserved");
Columbia Gas System, Inc., Holding Co. Act Release No. 24599 (March 15,
1988)(benefits of local management maintained where the utility to be added
would be a separate subsidiary); and (iv) the ease of communications, see
American Electric Power Co., Inc., SUPRA, Holding Co. Act Release No. 20633
(distance of corporate headquarters from local management was a "less
important factor in determining what is in the public interest" given the
"present-day ease of communications and transportation").
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The acquisition by FirstEnergy of all of the issued and outstanding
voting securities of the GPU Energy Companies satisfies all of these factors.
FirstEnergy's management, following the Merger, will be drawn from the
present management of FirstEnergy and that of GPU. As discussed above in Item
3.A.1, under the Merger Agreement, the Board of Directors of FirstEnergy after
the Merger will consist of sixteen members, ten of whom will be designated by
the current Board of Directors of FirstEnergy and six of whom will be designated
by the current Board of Directors of GPU prior to the effective time of the
Merger, with special provisions for pre-Merger representation and in the event
of vacancies for the first two years following the effective time of the Merger.
In addition, Fred D. Hafer, current Chairman, President and Chief Executive
Officer of GPU, will serve as Chairman of FirstEnergy from the effective time
until he reaches the age of 62 or is no longer willing or able to so serve.
The proposed transaction will have no adverse impact on the GPU Energy
Companies' continued ability to provide safe, adequate and proper utility
service to its customers, nor will it in any way affect the state regulatory
authority's continuing jurisdiction over the adequacy and reliability of
customer service. Post-Merger FirstEnergy will c4ontinue to use the "GPU Energy"
name in connection with the provision of services to customers of JCP&L, Met-Ed
and Penelec (until otherwise determined by post-Merger FirstEnergy), while
reflecting its affiliation with FirstEnergy.
Although the headquarters of the combined company will be located in
Akron, Ohio, FirstEnergy has agreed that JCP&L will maintain its offices and a
presence in Morristown, New Jersey, and that Met-Ed and Penelec will maintain
their offices and presence in Reading, Pennsylvania, subject to the authority
of the Board of Directors of post-Merger FirstEnergy to manage the combined
company's affairs. Local control over operations of the GPU Energy Companies
will be preserved. The FirstEnergy Companies have been organized in such a way
as to delegate operating responsibility and authority to regional management,
rather than to central control. The GPU Energy Companies are in the process of
being reorganized on the basis of a regional model that is consistent with
FirstEnergy's philosophy.
Initially, the Pennsylvania and New Jersey service territories will
each be segmented into two regions, each of which will have designated to it a
Regional President. The Regional President and his or her staff will have the
authority and the obligation to oversee the region's distribution operations and
its relationships with the communities that it serves, as well as the
responsibility for maintaining and improving local reliability and customer
service quality.
Post-Merger the GPU Energy Companies will become direct subsidiaries of
FirstEnergy. They will retain their separate corporate identities within the
FirstEnergy system. Moreover, with modern-day telecommunications capabilities,
there should be no difficulty in the ability of these companies to communicate
with FirstEnergy's headquarters in nearby Ohio.
(ii) STRUCTURE AND VOTING POWER. Section
11(b)(2) of the Act directs the Commission "to ensure that the corporate
structure or continued existence of any company in the holding-company system
does not unduly or unnecessarily complicate the structure, or unfairly or
inequitably distribute voting power among security holders, of such
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<PAGE> 39
holding-company system." The acquisition by FirstEnergy of all of the issued and
outstanding voting securities of the GPU Energy Companies in the context of the
Merger is consistent with Section 11(b)(2). The resulting capital structure is
not unduly complicated, as discussed in Item 3.A.3 above. See Sierra Pacific
Resources, Holding Co. Act Release No. 24566 (Jan. 28, 1988), AFF'D SUB NOM,
ENVIRONMENTAL ACTION, INC. V. S.E.C., 895 F.2d 1255 (9th Cir. 1990) (Commission
incorporates its Section 10(b)(3) capital structure analysis into its Section
11(b)(2) corporate structure analysis).
Section 11(b)(2) also requires FirstEnergy to have a simple corporate
structure. In particular, Section 11(b)(2) limits a registered holding company
to no more than two tiers of holding companies and directs the Commission to
evaluate the facts and circumstances "to ensure that the corporate structure or
continued existence of any company in the holding-company system does not unduly
or unnecessarily complicate the structure . . . of such holding-company system."
Post-Merger FirstEnergy will be within the requirements of Section 11(b)(2).
FirstEnergy, Ohio Edison and Met-Ed will be the only holding companies
within the FirstEnergy system. Only FirstEnergy will be a registered holding
company and only Ohio Edison and Met-Ed will have any utility company
subsidiaries. In prior proceedings, the Commission has determined that the
existence of a second tier holding company satisfies the Section 11(b)(2) test.
See, e.g., Entergy Corp., SUPRA, Holding Co. Act Release No. 25952 (Commission
found that addition of an exempt sub-holding company to a registered holding
company system did not create an undue or unnecessary corporate complexity).
Second, the acquisition of all of the issued and outstanding voting
securities of the GPU Energy Companies by FirstEnergy will not unduly or
unnecessarily complicate the structure of the FirstEnergy system. Rather, these
subsidiaries will join FirstEnergy's other direct subsidiaries as first-tier
subsidiaries. This is a straightforward way to integrate the GPU Energy
Companies into the FirstEnergy system and does not serve to complicate the
system's structure. Moreover, GPU will not survive as a subholding company.
(iii) RETENTION BY FIRSTENERGY OF
NON-UTILITY BUSINESSES. As a result of the Merger, the non-utility businesses
and interests of GPU will be acquired by FirstEnergy. The non-utility businesses
and interests of GPU have been considered by the Commission and found to be
within the standards of Section 11, see, e.g., GPU, Inc., Holding Co. Act
Release No. 35-27165 (April 14, 2000) (MYR approved). Filed as Exhibit L-2
hereto is a list of the non-utility businesses and interests of GPU with the
applicable exemption or Commission Order showing the approval by the Commission
of the acquisition or retention by GPU of such non-utility businesses, which
will be transferred to FirstEnergy as part of the Merger.
FirstEnergy is seeking authorization to retain the non-utility
interests it currently holds, as well the non-utility interests of GPU it will
hold post-Merger, which have already been considered by the Commission and held
to be retainable under the standards of Section 11. Set forth in Exhibit L-1
hereto (to be filed by amendment) are a list of the non-utility businesses and
interests held by FirstEnergy. As set forth in Exhibit L-1 hereto, there is
sufficient precedent to permit retention by FirstEnergy of the non-utility
interests currently held by FirstEnergy and its subsidiaries.
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2. SECTION 10(c)(2). EFFICIENCIES AND ECONOMIES. As
the following discussion will demonstrate, the Merger will serve the public
interest by tending towards the economical and efficient development of an
integrated public-utility system, as required by Section 10(c)(2) of the Act.
The acquisition by FirstEnergy of all of the issued and outstanding
voting securities of the GPU Energy Companies will produce economies and
efficiencies more than sufficient to satisfy the standards of Section 10(c)(2)
of the Act. FirstEnergy anticipates that its acquisition of all of the issued
and outstanding voting securities of the GPU Energy Companies will result in
cost reductions. The savings following the Merger is estimated to be
approximately $1.5 billion over ten years (or an average of $150 million per
year), net of implementation costs. This estimate is based upon an assumed five
percent reduction in nongenerating operating and maintenance costs which has
been typical of other mergers of public utility companies.
Generally, these estimated net cost savings result from a combination
of improved operating efficiencies, elimination of duplicative activities and
procurement efficiencies. In addition, other benefits will be realized by
post-Merger FirstEnergy system. While difficult to quantify, FirstEnergy
believes that these benefits are substantial and include competitive pricing and
increased service. These additional benefits are described below.
COMPETITIVE PRICING. By acquiring all of the issued and outstanding
voting securities of the GPU Energy Companies, FirstEnergy will be able to more
effectively meet customer demand for reliable, low-cost power in the face of
increased competition among suppliers and will create operating efficiencies,
such as an increased capacity factor for FirstEnergy's generating plants, that
will allow FirstEnergy to be able to produce and deliver competitively priced
power to such customers.
INCREASED SERVICE. FirstEnergy's customer base will increase in size
and become more diverse following the acquisition of all of the issued and
outstanding voting securities of the GPU Energy Companies. The combined service
territories of post-Merger FirstEnergy will be more diverse than FirstEnergy's
and the GPU Energy Companies' individual service territories, reducing exposure
to adverse changes in any sector's economic and competitive conditions. After
the Merger, FirstEnergy plans to expand relationships with existing customers
and to develop relationships with new customers in its service areas, using
combined distribution channels to market innovative energy-related products
throughout the region at competitive prices. FirstEnergy will be able to provide
customers with a wider range of energy services and products and enhanced
service capabilities, following the Merger, than it can at the present time.
OPERATING EFFICIENCIES. FirstEnergy expects that the Merger will create
operating efficiencies, such as enhanced system flexibility in the delivery of
energy and a potentially increased capacity factor for its generating plants as
a result of off-peak power being available for use by the GPU Energy Companies.
ADMINISTRATIVE SAVINGS. FirstEnergy believes that labor reductions will
be obtained through attrition, controlled hiring and voluntary and involuntary
severance programs. FirstEnergy anticipates that, over time, the Merger will
permit the elimination of certain duplicative activities and will allow for the
more efficient use of combined staffing, particularly
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with respect to corporate and administrative positions at the service company
and holding company levels. FirstEnergy also expects reductions in duplicative
corporate and administrative expenses to come from such areas as insurance,
facilities, professional services and advertising.
From a reliability perspective, the Merger is expected to facilitate
synergies between FirstEnergy and GPU and build upon areas of expertise and
common experience. One major component of customer service reliability will be
fostered by making additional resources available when needed to meet
emergencies, such as storms and other related matters.
As of December 31, 1999, post-Merger FirstEnergy, with assets of
approximately $40 billion, would have been the sixth largest investor-owned
electric utility system in the United States. The scale of post-Merger
FirstEnergy will enable it to compete more effectively in the increasingly
competitive electric utility industry. Post-Merger FirstEnergy will possess the
management, employee experience, technical expertise, retail customer base,
energy and related services platform and financial resources to grow and succeed
in the rapidly changing energy marketplace.
It has become apparent over the last few years that the evolving
competitive electricity market requires participants to seek and create
economies of scale, reduce duplicative activities and practices and enhance
operating and procurement efficiencies in an effort to be competitive. By
combining their resources, their years of utility experience and considerable
expertise, GPU and FirstEnergy will significantly enhance each other's overall
capabilities. The sum of these companies will truly be better than their
individual components. The Merger will create a stronger parent company that is
better positioned to compete and to attract capital on reasonable terms for its
public utility subsidiaries.
C. SECTION 10(f)
Section 10(f) provides that
The Commission shall not approve any acquisition as to which
an application is made under this section unless it appears to
the satisfaction of the Commission that such State laws as may
apply in respect of such acquisition have been complied with,
except where the Commission finds that compliance with such
State laws would be detrimental to the carrying out of the
provisions of section 11.
As described in Item 4 of this Application/Declaration, FirstEnergy and
GPU intend to comply with all applicable state laws related to the acquisition
by FirstEnergy of all of the issued and outstanding voting securities of the GPU
Energy Companies in the context of the Merger.
ITEM 4. REGULATORY APPROVALS
Set forth below is a summary of the regulatory approvals that the
Applicants have obtained or expect to obtain in connection with FirstEnergy's
acquisition of all of the issued and outstanding voting securities of the GPU
Energy Companies. Except as set forth below, no other
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state or local regulatory body or agency, and no other federal commission or
agency, has jurisdiction over the transactions proposed herein.
A. FEDERAL POWER ACT
Section 203 of the FPA provides that no public utility may sell or
otherwise dispose of its jurisdictional facilities, directly or indirectly,
merge or consolidate its facilities with those of any other person, or acquire
any security of any other public utility without first having obtained
authorization from the FERC. Because FirstEnergy and GPU own "jurisdictional
facilities" under the FPA, FERC approval under Section 203 is required before
FirstEnergy and GPU may consummate the Merger. Section 203 provides that the
FERC is required to grant its approval if the Merger is found to be consistent
with the public interest.
On November 9, 2000, GPU and FirstEnergy filed a joint application with
the FERC (a copy of which is filed as Exhibit D-1 hereto), requesting the
required FERC approval. A copy of an order approving the Merger by the FERC will
be filed by amendment as Exhibit D-2.
B. STATE PUBLIC UTILITY REGULATION
PUCO. FirstEnergy believes that approval of the Merger by the PUCO is
not required.
PPUC. Penn Power, Met-Ed and Penelec are currently subject to the
jurisdiction of the PPUC. Under Chapter 11 of the Pennsylvania Public Utility
Code, any public utility must obtain a certificate of public convenience before
it (or any affiliate) may acquire from, or transfer to, another entity the title
to, or the possession or use of, any property used or useful in the public
service. In addition, under the PPUC's policy, a merger that results in the
change in control of an existing Pennsylvania public utility, which includes a
change in the controlling interest of the utility's parent) requires the
issuance of a certificate of public convenience by the PPUC.
On November 9, 2000, GPU, Met-Ed, Penelec and FirstEnergy filed a joint
application with the PPUC. A copy of the application is attached hereto as
Exhibit D-3. The order will be filed by amendment as Exhibit D-4.
NJBPU. The transfer of the ownership or control or the Merger of GPU
and FirstEnergy, as the parent company of JCP&L, is subject to the jurisdiction
of the NJBPU. Pursuant to Title 48 of the New Jersey Statutes Annotated, no
person may acquire or seek to acquire control of a public utility directly or
indirectly through the medium of an affiliated or parent corporation without
first requesting and receiving approval of the NJBPU. In addition, the prior
authorization of the NJBPU is required for any transfer of stock to another
public utility, or a transfer that vests another corporation with a majority
interest in the stock of a public utility.
On November 9, 2000, FirstEnergy, GPU and JCP&L filed a joint petition
seeking approval of the NJBPU consistent with these requirements. A copy of the
petition to the NJBPU is filed as Exhibit D-5 hereto, and the resulting order
will be filed by amendment as Exhibit D-6 hereto.
NYPSC. It is believed that approval of the Merger by the NYPSC is not
required.
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C. ATOMIC ENERGY ACT
The Atomic Energy Act of 1954, as amended, provides that an NRC license
for nuclear generating facilities may not be transferred or in any manner
disposed of, directly or indirectly, through the transfer of control, unless the
NRC finds that the transfer complies with the Atomic Energy Act and consents to
the transfer.
On September 26, 2000 FirstEnergy and GPU filed a joint application
with the NRC, requesting its approval of the indirect transfer of control of the
interests in the possession-only licenses for Three Mile Island Unit No. 2 and
Saxton, to the extent required by the Atomic Energy Act. A copy of this
application is filed as Exhibit D-7 hereto, and the order granting approval of
such indirect transfer of control will be filed by amendment as Exhibit D-8
hereto.
D. ANTITRUST CONSIDERATIONS
The HSR Act and the rules and regulations thereunder provide that a
transaction such as the Merger may not be consummated until certain information
has been submitted to the DOJ and the FTC and specified HSR Act waiting period
requirements have been satisfied. The expiration or termination of the HSR Act
waiting period would not preclude the DOJ or the FTC from challenging the Merger
on antitrust grounds. If the Merger is not consummated within twelve months
after the expiration or termination of the HSR Act waiting period, new
pre-merger notifications would need to be submitted to the DOJ and the FTC and a
new HSR Act waiting period would have to expire or be terminated before the
Merger could be consummated. FirstEnergy and GPU will comply with the provisions
of the HSR Act.
E. TELECOMMUNICATIONS
GPU, itself or through one or more subsidiaries, holds various radio
licenses subject to the jurisdiction of the FCC under Title III of the
Communications Act. Under Section 310 of the Communications Act, no station
license may be assigned or transferred, directly or indirectly, except upon
application to and approval by the FCC. On November 14 and 15, 2000,
applications were made with the FCC for authority to transfer control of certain
licenses held by the GPU Energy Companies to FELHC. The Applicants expect the
FCC to approve the transfer of the licenses prior to the consummation of the
Merger.
F. OTHER
FirstEnergy may file other applications for, or request, certain other
consents or authorizations by federal, state or municipal agencies in connection
with the issuance of securities, system operations and franchises or any other
activities subject to regulatory approval.
ITEM 5. PROCEDURE
The Applicants request that there be no 30-day waiting period between
the issuance of the Commission's order and the date on which it is to become
effective. The Applicants submit that a recommended decision by a hearing or
other responsible officer of the Commission is not needed with respect to the
proposed transaction and that the Division of Investment Management
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may assist with the preparation of the Commission's decision and/or order in
this matter unless such Division opposes the matters covered hereby.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS
A. EXHIBITS
EXHIBIT
-------
A-1 Articles of Incorporation of GPU, Inc., as amended -
Incorporated by reference to Exhibit 3-A-2, 1996 Annual Report
on Form 10-K, SEC File No. 1-6047.
A-2 By-Laws of GPU, Inc., as amended - Incorporated by reference to
Exhibit 3-B, 1999 Annual Report on Form 10-K, SEC File No.
1-6047.
A-3 Restated Certificate of Incorporation of JCP&L, as amended -
Incorporated by reference to Exhibit 3-A, 1990 Annual Report on
Form 10-K, SEC File No. 1-3141.
A-4 Certificate of Amendment to Restated Certificate of
Incorporation of JCP&L, dated June 19, 1992 - Incorporated by
reference to Exhibit A-2(a), Certificate Pursuant to Rule 24,
SEC File No. 70-7949.
A-5 Certificate of Amendment to Restated Certificate of
Incorporation of JCP&L, dated June 19, 1992 - Incorporated by
reference to Exhibit A-2(a)(I), Certificate Pursuant to Rule
24, SEC File No. 70-7949.
A-6 By-Laws of JCP&L, as amended - Incorporated by reference to
Exhibit 3-B, 1993 Annual Report on Form 10-K, SEC File No.
1-3141.
A-7 Restated Articles of Incorporation of Penelec dated March 8,
1999 - Incorporated by reference to Exhibit 3-G, 1999 Annual
Report on Form 10-K, SEC File No. 1-3522.
A-8 By-Laws of Penelec, as amended.
A-9 Restated Articles of Incorporation of Met-Ed dated March 8,
1999 - Incorporated by reference to Exhibit 3-E, 1999 Annual
Report on form 10-K, SEC File No. 1-446.
A-10 By-Laws of Met-Ed, as amended.
A-11 Amended Articles of Incorporation of FirstEnergy - Incorporated
by reference to Exhibit (3)-1, Form S-4 Registration Statement
filed on February 3, 1997, SEC File No. 333-21011.
A-12 FirstEnergy Amended Code of Regulations - Incorporated by
reference to Exhibit (3)-2 , Form S-4 Registration Statement
filed on February 3, 1997, SEC File No. 333-21011.
B-1 Agreement and Plan of Merger dated as of August 8, 2000,
between GPU
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EXHIBIT
-------
and FirstEnergy - Incorporated by reference to Appendix A to
the Joint Proxy Statement/Prospectus, Exhibit C-2 hereto.
C-1 Amendment No. 1 to Registration Statement on Form S-4 filed on
October 13, 2000, SEC File No. 333-46444 (excluding all
exhibits thereto).
C-2 Joint Proxy Statement/Prospectus, included in Form S-4
Registration Statement, Exhibit C-1 hereto.
D-1 Joint Application of FirstEnergy and GPU to the FERC.
D-2 Order of the FERC.*
D-3 Joint Application to the PPUC.
D-4 Order of the PPUC.*
D-5 Joint Petition to NJBPU.
D-6 Order of the NJBPU.*
D-7 Joint Application of FirstEnergy and GPU to the NRC.
D-8 Order of the NRC.*
E-1 Map of FirstEnergy system as of December 31, 1999.+
E-2 Map of GPU system.+
E-3 Map of Post-Merger FirstEnergy system.*+
F-1 Preliminary Opinion of Counsel.*
F-2 Past Tense Opinion of Counsel (to be filed with certificate of
notification).*
G-1 Financial Data Schedules.*
H-1 FirstEnergy Form U-3A-2, "Statement by Holding Company Claiming
Exemption under Rule U-2 from the Provisions of the Public
Utility Holding Company Act of 1935," dated February 29, 2000 -
Incorporated by reference to such filing, File No. 69-423.
I-1 Form of Notice of Application.*
J-1 Form 10-K Annual Report of GPU for the year ended December 31,
1999 - Incorporated by reference to such filing, SEC File No.
1-6047.
J-2 Form 10-K Annual Report of JCP&L for the year ended December
31, 1999 - Incorporated by reference to such filing, SEC File
No. 1-3141.
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<PAGE> 46
EXHIBIT
-------
J-3 Form 10-K Annual Report of Penelec for the year ended December
31, 1999 - Incorporated by reference to such filing, SEC File
No. 1-3522.
J-4 Form 10-K Annual Report of Met-Ed for the year ended December
31, 1999 - Incorporated by reference to such filing, SEC File
No. 1-0446.
J-5 Form 10-K Annual Report of FirstEnergy for the year ended
December 31, 1999 - Incorporated by reference to such filing,
SEC File No. 333-21011.
J-6 Form 10-Q Quarterly Report of GPU for the quarter ended
September 30, 2000 -Incorporated by reference to such filing,
SEC File No. 1-6047.
J-7 Form 10-Q Quarterly Report of JCP&L for the quarter ended
September 30, 2000 - Incorporated by reference to such filing,
SEC File No. 1-3141.
J-8 Form 10-Q Quarterly Report of Penelec for the quarter ended
September 30, 2000 - Incorporated by reference to such filing,
SEC File No. 1-3522.
J-9 Form 10-Q Quarterly Report of Met-Ed for the quarter ended
September 30, 2000 -Incorporated by reference to such filing,
SEC File No. 1-0446.
J-10 Form 10-Q Quarterly Report of FirstEnergy for the quarter ended
September 30, 2000 - Incorporated by reference to such filing,
SEC File No. 333-21011.
K-1 Organizational Chart of Post-Merger FirstEnergy.*
K-2 Comparison of Electric Utility Companies on Various Indicators
of Size.
K-3 Analysis of Assets, Revenues and Electric Customers of
FirstEnergy, GPU and the Combined Company.
L-1 Retention of FirstEnergy's Non-Utility Businesses.*
L-2 GPU's Non-Utility Businesses with Applicable Exemption or
Commission Order.
M-1 Morgan Stanley Fairness Opinion, filed as Appendix B to the
Joint Proxy Statement/Prospectus, Exhibit C-2 hereto.
M-2 Salomon Fairness Opinion, filed as Appendix C to the Joint
Proxy Statement/Prospectus, Exhibit C-2 hereto.
----------------------
*To be filed by amendment.
+To be filed by paper copy.
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B. FINANCIAL STATEMENTS
--------------------
EXHIBIT
-------
FS-1 GPU Consolidated Balance Sheet as of December 31, 1999 -
Incorporated by reference to Form 10-K Annual Report for the
year ended December 31, 1999, Exhibit J-1 hereto.
FS-2 GPU Consolidated Statements of Income for fiscal years 1997,
1998 and 1999 - Incorporated by reference to Form 10-K Annual
Report for the year ended December 31, 1999, Exhibit J-1
hereto.
FS-3 JCP&L Consolidated Balance Sheet as of December 31, 1999 -
Incorporated by reference to Form 10-K Annual Report for the
year ended December 31, 1999, Exhibit J-2 hereto.
FS-4 JCP&L Consolidated Statements of Income for its fiscal years
1997, 1998 and 1999 - Incorporated by reference to Form 10-K
Annual Report for the year ended December 31, 1999, Exhibit J-2
hereto.
FS-5 Penelec Consolidated Balance Sheet as of December 31, 1999 -
Incorporated by reference to Form 10-K Annual Report for the
year ended December 31, 1999, Exhibit J-3 hereto.
FS-6 Penelec Consolidated Statements of Income for fiscal years
1997, 1998 and 1999 - Incorporated by reference to Form 10-K
Annual Report for the year ended December 31, 1999, Exhibit J-3
hereto.
FS-7 Met-Ed Consolidated Balance as of December 31, 1999 -
Incorporated by reference to Form 10-K Annual Report for the
year ended December 31, 1999, Exhibit J-4 hereto.
FS-8 Met-Ed Consolidated Statements of Income for fiscal years 1997,
1998 and 1999 - Incorporated by reference to Form 10-K Annual
Report for the year ended December 31, 1999, Exhibit J-4
hereto.
FS-9 FirstEnergy Consolidated Balance Sheet as of December 31, 1999
- Incorporated by reference to Form 10-K Annual Report for the
year ended December 31, 1999, Exhibit J-5 hereto.
FS-10 FirstEnergy Consolidated Statements of Income for fiscal years
1997, 1998 and 1999 - Incorporated by reference to Form 10-K
Annual Report for the year ended December 31, 1999, Exhibit J-5
hereto.
----------
*To be filed by amendment.
There have been no material changes, not in the ordinary course of
business, to the aforementioned balance sheets from September 30, 2000, to the
date of this Application/Declaration.
41
<PAGE> 48
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS
---------------------------------------
The proposed transactions neither involve a "major federal actions"
significantly affecting the quality of the human environment" as set forth in
Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4321
ET SEQ. Consummation of the Merger will not result in changes in the operations
of FirstEnergy or any of the GPU Energy Companies that would have any impact on
the environment. No federal agency is preparing an environmental impact
statement with respect to this matter.
SIGNATURE
---------
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, the undersigned companies have duly caused this Application/Declaration
to be signed on their behalf by the undersigned thereunto duly authorized.
Date: November 20, 2000
FIRSTENERGY CORP.
By: /s/
------------------------------------------------
H. Peter Burg
Chairman and Chief Executive Officer
GPU, INC.
By: /s/
------------------------------------------------
T. G. Howson
Vice-President and Treasurer
42
