SEC File No. 70-_________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
JERSEY CENTRAL POWER & LIGHT COMPANY ("JCP&L")
300 Madison Avenue
Morristown, New Jersey 07962
(Name of company filing this statement and address
of principal executive office)
GENERAL PUBLIC UTILITIES CORPORATION ("GPU")
(Name of top registered holding company parent of applicant)
T.G. Howson, Vice President and Douglas E. Davidson, Esq.
Treasurer Berlack, Israels & Liberman
M. A. Nalewako, Secretary 120 West 45th Street
GPU Service Corporation New York, New York 10036
100 Interpace Parkway
Parsippany, New Jersey 07054
Richard S. Cohen, Esq.,
Secretary
Jersey Central Power & Light
Company
300 Madison Avenue
Morristown, New Jersey 07962
(Names and addresses of agents for service)<PAGE>
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTIONS.
A. JCP&L proposes to form a limited partnership
("JCP&L Capital") under the Delaware Revised Uniform Limited
Partnership Act. JCP&L also proposes to organize a special
purpose wholly-owned subsidiary under the Delaware General
Corporation Law ("Investment Sub") for the sole purpose of acting
as the general partner of JCP&L Capital. JCP&L will acquire all
of the common stock of Investment Sub for a nominal consideration
and will capitalize Investment Sub with (i) a capital
contribution in the amount of approximately 3% of the total
capitalization of JCP&L Capital, or up to $4 million, and (ii) a
demand promissory note in the principal amount of approximately
10% of the total capitalization of JCP&L Capital, or up to $13
million, such note to accrue interest, compounded semi-annually,
at a rate equal to the Citibank, N.A. base rate as in effect from
time to time. JCP&L Capital would then issue and sell from time
to time in one or more series through December 31, 1996 up to
$125 million aggregate stated value of preferred limited partner
interests, in the form of monthly income preferred securities,
$25 per security stated value (the "Preferred Securities").
B. Investment Sub will acquire all of the general
partner interests of JCP&L Capital for up to $4 million,
representing up to a 3% interest in JCP&L Capital (the "Equity
Contribution"). JCP&L Capital will apply the proceeds from the
sale of the Preferred Securities, together with the Equity
Contribution, to purchase JCP&L's deferrable interest
subordinated debentures (the "Subordinated Debentures").
1<PAGE>
C. JCP&L will also guarantee (the "Guarantees"), on a
limited basis to the extent set forth in the Payment and
Guarantee Agreement, (i) payment of distributions on the
Preferred Securities to the extent JCP&L Capital has sufficient
cash on hand to permit such payments and funds legally available
therefor, (ii) payments to the holders of the Preferred
Securities of amounts due upon redemption of the Preferred
Securities to the extent JCP&L Capital has sufficient cash on
hand to permit such payments and funds legally available
therefor, (iii) upon a liquidation of JCP&L Capital other than in
connection with a distribution of Subordinated Debentures as
contemplated by paragraph F of this Item 1, payment of the lesser
of (x) the liquidation preference of the Preferred Securities or
(y) the amount of assets available for distribution to the
holders of the Preferred Securities in liquidation, and (iv)
certain additional amounts that may be payable in respect of the
Preferred Securities. JCP&L will also covenant in the Guarantees
to cause Investment Sub to timely perform all of its duties as
general partner of JCP&L Capital, including the general partner's
duty to pay all of the costs and expenses of JCP&L Capital, as
contemplated by paragraph H of this Item 1.
D. Each Subordinated Debenture will be issued under
an indenture to be entered into with United States Trust Company
of New York, as trustee, and will have an initial term of up to
50 years. Prior to maturity, JCP&L will pay only interest on the
Subordinated Debentures at a rate equal to the distribution rate
on the related series of Preferred Securities. Such interest
payments will constitute JCP&L Capital's only income and will be
2<PAGE>
used by it to pay monthly distributions on the Preferred
Securities and distributions on the general partner interests of
JCP&L Capital held by Investment Sub. Distributions on the
Preferred Securities will be made monthly, will be cumulative and
must be made to the extent that JCP&L Capital has legally
available funds and cash sufficient for such purposes. However,
JCP&L will have the right to defer payment of interest on the
Subordinated Debentures for up to five years, in which event
JCP&L Capital may similarly defer payment of distributions on the
Preferred Securities; provided that if distributions on the
Preferred Securities are not paid for eighteen consecutive
months, then the holders of the Preferred Securities will have
the right to appoint a special representative to enforce JCP&L
Capital's rights under the Subordinated Debentures and the rights
of the holders of the Preferred Securities under the Guarantees.
JCP&L and JCP&L Capital, as the case may be, may be required to
pay interest on any deferred interest or distributions, to the
extent permitted by applicable law. The interest rates, payment
dates, redemption and other similar provisions of each series of
Subordinated Debentures will be identical to the distribution
rates, payment dates, redemption and other similar provisions of
the related series of Preferred Securities.
E. Each Subordinated Debenture and related Guarantee
will be subordinate to all other existing and future indebtedness
for borrowed money of JCP&L and will have no cross-default
provisions with respect to other JCP&L indebtedness -- i.e., a
default under any other outstanding JCP&L indebtedness will not
result in a default under the Subordinated Debentures or the
3<PAGE>
Guarantees. However, JCP&L may not declare or pay dividends on
its outstanding Cumulative Preferred Stock or Common Stock unless
all payments then due (whether or not previously deferred) under
the Subordinated Debentures and the Guarantees have been made.
F. It is expected that JCP&L's interest payments on
the Subordinated Debentures will be deductible for income tax
purposes and that JCP&L Capital will be treated as a partnership
for federal income tax purposes. Consequently, the holders of
the Preferred Securities and Investment Sub (as the general
partner of JCP&L Capital) will receive partnership distributions
in respect of their distributions from JCP&L Capital and will not
be entitled to any "dividend received deduction" under the
Internal Revenue Code.
The Preferred Securities may be redeemable at the
option of JCP&L Capital at a price equal to their stated value
plus any accrued and unpaid distributions, (i) at any time after
five years from their date of issuance, or (ii) in the event that
(v) JCP&L Capital is required by applicable tax laws to withhold
or deduct certain amounts in connection with distributions or
other payments, or (w) JCP&L Capital is subject to federal income
tax with respect to interest received on the Subordinated
Debentures or is otherwise not treated as a partnership for
federal income tax purposes, or (x) it is determined that the
interest payments by JCP&L on the Subordinated Debentures are not
deductible for federal income tax purposes, or (y) JCP&L Capital
is subject to more than a de minimis amount of other taxes,
duties or other governmental charges, or (z) JCP&L Capital
becomes subject to regulation as an "investment company" under
4<PAGE>
the Investment Company Act of 1940, as amended. Upon occurrence
of any of the events set forth in clause (ii) of the immediately
preceding sentence, JCP&L Capital may also have the right to
dissolve and distribute the Subordinated Debentures to the
holders of the Preferred Securities in liquidation of their
interests in JCP&L Capital.
In the event that JCP&L Capital is required by
applicable tax laws to withhold or deduct certain amounts in
connection with distributions or other payments, JCP&L Capital
may also have the obligation, if the Preferred Securities are not
redeemed or Subordinated Debentures are not distributed to the
holders thereof as aforesaid, to "gross up" such payments so that
the holders of the Preferred Securities will receive the same
payment after such withholding or deduction as they would have
received if no such withholding or deduction were required. In
such latter event, JCP&L's obligations under the Subordinated
Debentures and the Guarantees would also cover any such "gross
up" obligations.
G. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of JCP&L Capital, the
holders of the Preferred Securities will be entitled to receive,
out of the assets of JCP&L Capital available for distribution to
its partners, before any distribution of assets to the general
partner of JCP&L Capital, an amount equal to the stated
liquidation preference of the Preferred Securities plus any
accrued and unpaid distributions.
H. The constituent instruments of JCP&L Capital,
including its Limited Partnership Agreement, will provide, among
5<PAGE>
other things, that JCP&L Capital's activities will be limited to
the issuance and sale of Preferred Securities from time to time
and the application of the proceeds thereof and the Equity
Contribution to the purchase of Subordinated Debentures.
Accordingly, it is not proposed that JCP&L Capital's constituent
instruments include any interest or distribution coverage or
capitalization ratio restrictions on its ability to issue and
sell Preferred Securities, as each such issuance will be
supported by a Subordinated Debenture and a Guarantee, and such
restrictions would therefore not be relevant or necessary for
JCP&L Capital to maintain an appropriate capital structure.
Moreover, the issuance of Subordinated Debentures by JCP&L will
be subject to the restriction in Article VI, paragraph Eighth (B)
of JCP&L's Restated Certificate of Incorporation which limits,
without the consent of the holders of a majority of JCP&L's
outstanding Cumulative Preferred Stock, the amount of unsecured
indebtedness which JCP&L may have outstanding at any one time to
20% of the aggregate of the total outstanding principal amount of
all bonds and other securities representing secured indebtedness
issued or assumed by JCP&L plus JCP&L's capital stock, premiums
thereon, and surplus of JCP&L as stated on its books of account.
JCP&L Capital's constituent instruments will further
state that its general partner interests are not transferrable,
that its business and affairs will be managed and controlled
directly by its general partner, and that its general partner
will be responsible for all liabilities and obligations of JCP&L
Capital.
6<PAGE>
I. JCP&L believes that the proposed financing through
the sale of the Preferred Securities will provide substantial
benefits over issuing traditional perpetual preferred stock.
While JCP&L expects that the Preferred Securities will carry a
somewhat higher "dividend" rate than a perpetual preferred issue,
the expected tax deductibility of interest payments on the
Subordinated Debentures will afford JCP&L an increased cash flow
and net income, and may ultimately contribute to lower customer
rates. At the same time, JCP&L understands that the financial
markets will view the financing JCP&L obtains through the
Preferred Securities program as having essentially the same
equity characteristics as would be the case if JCP&L were to
issue traditional perpetual preferred stock. JCP&L also
understands that the rating agencies will view the financing
JCP&L obtains through the Preferred Securities program as having
equity characteristics somewhere between sinking fund preferred
stock and traditional perpetual preferred stock. Indeed, based
on an assumed dividend rate of 9.125% for a JCP&L perpetual
preferred issue and an assumed 9.375% distribution rate for the
Preferred Securities, JCP&L believes that, over the 49 year life
of a $125 million Preferred Securities issue, it could achieve
approximately $41 million of savings, on a net present value
basis. The Preferred Securities will be included in the
capitalization section of JCP&L's consolidated balance sheet.
The Subordinated Debentures, so long as they remain inter-company
obligations, will not appear on JCP&L's consolidated balance
sheet.
7<PAGE>
J. Rule 54 under the Act provides, among other
things, that in determining whether to approve transactions by a
subsidiary of a registered holding company, other than with
respect to exempt wholesale generators ("EWG") or foreign utility
companies ("FUCO"), the Commission shall not consider the effect
of the capitalization or earnings of any subsidiary which is an
EWG or a FUCO upon the registered holding company system if Rules
53(a), (b) and (c) under the Act are satisfied. As demonstrated
below, each of the conditions set forth in Rules 53(a)(1) through
(a)(4) have been met, and none of the conditions described in
Rules 53(b)(1) through (b)(3) exist.
1. The GPU System's average consolidated
retained earnings as reported for its four most recent quarterly
periods on GPU's Annual Report on Form 10-K for the year ended
December 31, 1993 and Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1993, March 31, 1994 and June 30,
1994 as filed under the Securities Exchange Act of 1934 was
approximately $1.84 billion. At the date of the filing of this
Application, GPU has invested or committed to invest, directly or
indirectly, an aggregate of approximately $13.4 million in EWGs
and $0 in FUCOs. Accordingly, GPU's investment in EWGs and FUCOs
equals approximately 0.7% of such average consolidated retained
earnings.
2. GPU maintains books and records to identify
investments in, and earnings from, each EWG or FUCO in which it
directly or indirectly holds an interest.
(a) For each United States EWG in which GPU
directly or indirectly holds and interest:
8<PAGE>
(i) the books and records will be kept
in conformity with United States generally accepted
accounting principles ("GAAP");
(ii) the financial statements will be
prepared in accordance with GAAP; and
(iii) GPU directly or through its
subsidiaries undertakes to provide the Commission access to
such books and records and financial statements as the
Commission may request.
(b) For each FUCO or foreign EWG which is a
majority-owned subsidiary of GPU:
(i) the books and records for such
subsidiary will be kept in accordance with GAAP;
(ii) the financial statements for such
subsidiary will be prepared in accordance with GAAP; and
(iii) GPU directly or through its
subsidiaries undertakes to provide the Commission access to
such books and records and financial statements, or copies
thereof in English, as the Commission may request.
(c) For each FUCO or foreign EWG in which
GPU owns 50% or less of the voting securities, GPU directly
or through its subsidiaries will proceed in good faith, to
the extent reasonable under the circumstances, to cause
(i) such entity to maintain books and
records in accordance with GAAP;
(ii) the financial statements of such
entity to be prepared in accordance with GAAP; and
9<PAGE>
(iii) access to be provided to the
Commission to such books and records and financial
statements (or copies thereof) in English as the Commission
may request and, in any event, will provide the Commission
on request copies of such materials as are made available to
GPU and its subsidiaries. If and to the extent that such
entity's books, records or financial statements are not
maintained in accordance with GAAP, GPU will, upon request
of the Commission, describe and quantify each material
variation therefrom as and to the extent required by
subparagraphs (a) (2) (iii) (A) and (a) (2) (iii) (B) of
Rule 53.
3. No more than 2% of the GPU System's domestic
public utility subsidiary employees are, at the date hereof,
rendering any services, directly or indirectly, to any EWG or
FUCO in which GPU directly or indirectly holds an interest.
4. Copies of this Application are being provided
to the New Jersey Board of Public Utilities ("NJBPU"), the only
federal, state or local regulatory agency having jurisdiction
over the retail rates of JCP&L. In addition, GPU will submit to
the NJBPU copies of any Rule 24 certificates required hereunder,
as well as a copy of Item 9 of GPU's Form U5S and Exhibits H and
I of Item 10 thereof (commencing with the Form U5S to be filed
for 1994, the year in which GPU acquired its indirect interest in
the partnership by which an interest in a foreign EWG is held).
5. None of the provisions of paragraph (b) of
Rule 53 render paragraph (a) of that Rule unavailable for the
proposed transactions.
10<PAGE>
(a) Neither GPU nor any subsidiary of GPU is
the subject of any pending bankruptcy or similar proceeding.
(b) GPU's average consolidated retained
earnings for the four most recent quarterly periods
(approximately $1.84 billion) represented an increase of
approximately $80 million from the average consolidated
retained earnings for the previous four quarterly periods
(approximately $1.76 billion).
(c) GPU incurred no losses from direct or
indirect investments in EWGs and FUCOs in 1993.
K. JCP&L expects to apply the net proceeds, of the
sale of Subordinated Debentures to JCP&L Capital, to the
repayment of outstanding short-term debt, for construction
purposes, and for other general corporate purposes, including the
redemption of outstanding senior securities pursuant to the
optional redemption provisions thereof. JCP&L represents that it
will not so redeem such outstanding securities unless the
estimated present value savings derived from the difference
between interest or dividend payments on a new issue of
comparable securities and those securities refunded is on an
after-tax basis greater than the estimated present value of all
redemption, tendering and issuing costs, assuming an appropriate
discount rate. Such discount rate will be based on meeting
JCP&L's long-term capital structure goals, with appropriate
adjustments for income taxes. JCP&L will not use any of the net
proceeds of the sale of Subordinated Debentures to acquire,
either directly or indirectly, any interest in any EWG or FUCO.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
11<PAGE>
The estimated fees, commissions and expenses expected
to be incurred in connection with the proposed transactions will
be filed by amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
A. The acquisition by JCP&L of shares of the capital
stock of Investment Sub, the acquisition by Investment Sub of a
demand promissory note of JCP&L and general partner interests of
JCP&L Capital and the acquisition by JCP&L Capital of the
Subordinated Debentures and the Guarantees are subject to
Sections 9(a), 10 and 12(b) of the Act and Rule 45 thereunder.
B. The issuance and sale of the Preferred Securities
by JCP&L Capital, and any distribution of Subordinated Debentures
to the holders of the Preferred Securities, are subject to
Sections 6(a) and 7 of the Act and Rule 54 thereunder.
C. JCP&L believes that the issuance of its
Subordinated Debentures and its Guarantees to JCP&L Capital will
be exempt from the declaration requirements of the Act by virtue
of Rule 45(b)(1) thereunder.
ITEM 4. REGULATORY APPROVALS.
A. The proposed transactions will require the
approval of the NJBPU under Title 48 of the New Jersey Statutes
and JCP&L will file a Petition with the NJBPU seeking such
approval. It is anticipated that the NJBPU will expressly
approve such transactions.
B. No other state commission has jurisdiction with
respect to the subject transactions and, assuming that your
12<PAGE>
Commission authorizes and approves all aspects of the subject
transactions (including the accounting therefor), no other
federal commission has jurisdiction with respect thereto. JCP&L
believes that JCP&L Capital will be exempt from regulation as an
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), by virtue of Section 3(c)(8) thereof,
which excludes from the definition of "investment company" any
company subject to regulation under the Act, and/or pursuant to
the "finance company" exemption afforded by Rule 3a-5 under the
1940 Act.
ITEM 5. PROCEDURE.
It is requested that the Commission issue an order with
respect to the transactions proposed herein at the earliest
practicable date, but in any event not later than January 10,
1995. It is further requested that (i) there not be a
recommended decision by an Administrative Law Judge or other
responsible officer of the Commission, (ii) the Office of Public
Utility Regulation be permitted to assist in the preparation of
the Commission's decision, and (iii) there be no waiting period
between the issuance of the Commission's order and the date on
which it is to become effective. It is further requested that
the Commission reserve jurisdiction with respect to the
distribution rate of each series of Preferred Securities and the
underwriting fees and expenses relating to each issuance and sale
of Preferred Securities.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Exhibits:
13<PAGE>
A-1 - Certificate of Incorporation of JCP&L
Preferred Capital, Inc. (Investment Sub)
- to be filed by amendment.
A-2 - By-Laws of JCP&L Preferred Capital, Inc.
(Investment Sub) - to be filed by
amendment.
A-3 - Certificate of Limited Partnership of
JCP&L Capital - to be filed by
amendment.
A-4 - Form of Limited Partnership Agreement of
JCP&L Capital - to be filed by
amendment.
A-5 - Form of Amended and Restated Limited
Partnership Agreement of JCP&L Capital -
to be filed by amendment.
A-6 - Form of Action creating initial series
of Preferred Securities - to be filed by
amendment.
A-7 - Form of Preferred Securities certificate
- to be filed by amendment.
A-8 - Form of Subordinated Debenture Indenture
- to be filed by amendment.
A-9 - Form of Subordinated Debenture - to be
filed by amendment.
A-10 - Form of demand promissory note from
JCP&L to Investment Sub - to be filed by
amendment.
B-1 - Form of Payment and Guarantee Agreement
- to be filed by amendment.
B-2 - Form of Underwriting Agreement - to be
filed by amendment.
C - Registration Statement on Form S-3 under
the Securities Act of 1933 relating to
the various securities which are the
subject hereof and all amendments and
exhibits thereto - Incorporated by
reference to the SEC Registration No. to
be assigned to such Registration
Statement.
D-1 - Copy of Petition filed by JCP&L with the
NJBPU - to be filed by amendment.
14<PAGE>
D-2 - Copy of NJBPU Order granting the
Petition - to be filed by amendment.
E - Not applicable.
F-1 - Opinion of Berlack, Israels & Liberman -
to be filed by amendment.
F-2 - Opinion of Richard S. Cohen, Esq. - to
be filed by amendment.
F-3 - Opinion of Richards, Layton & Finger -
to be filed by amendment.
G - Financial Data Schedules.
H - Proposed form of public notice.
I - Capitalization and Capitalization Ratios.
(b) Financial Statements:
1-A JCP&L Balance Sheets, actual and pro
forma, as at June 30, 1994, and
Statements of Income, actual and pro
forma, and Statement of Retained
Earnings, for the twelve months ended
June 30, 1994; pro forma journal
entries.
1-B GPU Consolidated Balance Sheets, actual
and pro forma, as at June 30, 1994, and
Consolidated Statements of Income,
actual and pro forma, and Statement of
Retained Earnings, for the twelve months
ended June 30, 1994; pro forma journal
entries.
2 Reference is made to Financial
Statements included in 1 above.
3 None.
4 None, except as set forth in the Notes
to Financial Statements.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The proposed transactions relate to a means of
financing JCP&L's business. Consequently, the issuance of an
order by your Commission with respect to the subject transactions
15<PAGE>
is not a major Federal action significantly affecting the quality
of the human environment.
No Federal agency has prepared or is preparing an
environmental impact statement with respect to the subject
transactions. Reference is made to Item 4 hereof regarding
regulatory approvals with respect to the proposed transactions.
16<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935, THE UNDERSIGNED COMPANY HAS DULY
CAUSED THIS STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
JERSEY CENTRAL POWER & LIGHT COMPANY
By:________________________________
T. G. Howson, Vice President and
Treasurer
Date: October 20, 1994<PAGE>
EXHIBITS AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Exhibits:
G - Financial Data Schedules
H - Proposed form of public notice
I - Capitalization and Capitalization Ratios
Financial Statements:
1-A JCP&L Balance Sheets, actual and pro
forma, as at June 30, 1994, and
Statements of Income, actual and pro
forma, and Statement of Retained
Earnings, for the twelve months ended
June 30, 1994; pro forma journal
entries.
1-B GPU Consolidated Balance Sheets, actual
and pro forma, as at June 30, 1994, and
Consolidated Statements of Income,
actual and pro forma, and Statement of
Retained Earnings, for the twelve months
ended June 30, 1994; pro forma journal
entries.<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JUL-01-1993 JUL-01-1993
<PERIOD-END> JUN-30-1994 JUN-30-1994
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 6,067,666 6,067,666
<OTHER-PROPERTY-AND-INVEST> 455,975 455,975
<TOTAL-CURRENT-ASSETS> 969,418 1,534,484
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<TOTAL-ASSETS> 9,179,128 9,748,346
<COMMON> 314,458 326,958
<CAPITAL-SURPLUS-PAID-IN> 668,928 787,053
<RETAINED-EARNINGS> 1,715,678 1,695,126
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,515,738 <F1> 2,625,811
150,000 150,000
158,242 <F2> 283,242
<LONG-TERM-DEBT-NET> 2,433,260 2,433,260
<SHORT-TERM-NOTES> 288,700 626,700
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 107,946 107,946
<LONG-TERM-DEBT-CURRENT-PORT> 93,232 93,232
0 0
<CAPITAL-LEASE-OBLIGATIONS> 20,696 20,696
<LEASES-CURRENT> 168,326 168,326
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,242,988 3,239,133
<TOT-CAPITALIZATION-AND-LIAB> 9,179,128 9,748,346
<GROSS-OPERATING-REVENUE> 3,662,442 3,662,442
<INCOME-TAX-EXPENSE> 159,821 147,754
<OTHER-OPERATING-EXPENSES> 3,023,418 3,023,952
<TOTAL-OPERATING-EXPENSES> 3,183,239 3,171,706
<OPERATING-INCOME-LOSS> 479,203 490,736
<OTHER-INCOME-NET> (84,456) (84,456)
<INCOME-BEFORE-INTEREST-EXPEN> 394,747 406,280
<TOTAL-INTEREST-EXPENSE> 239,407 <F3> 271,492
<NET-INCOME> 155,340 134,788
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 155,340 134,788
<COMMON-STOCK-DIVIDENDS> 196,586 196,586
<TOTAL-INTEREST-ON-BONDS> 185,277 185,277
<CASH-FLOW-OPERATIONS> 725,354 725,354
<EPS-PRIMARY> 1.39 1.39
<EPS-DILUTED> 1.39 1.39
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $183,326.
<F2> INCLUDES PREFERRED SECURITIES OF SUBSIDIARIES OF $125,000.
<F3> INCLUDES PREFERRED DIVIDENDS OF SUBSIDIARIES OF $22,400 [PER
<F3> BOOK] AND $34,119 [PRO-FORMA].
</FN>
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JUL-01-1993 JUL-01-1993
<PERIOD-END> JUN-30-1994 JUN-30-1994
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 2,802,302 2,802,302
<OTHER-PROPERTY-AND-INVEST> 247,199 247,199
<TOTAL-CURRENT-ASSETS> 552,382 781,903
<TOTAL-DEFERRED-CHARGES> 832,819 836,971
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 4,434,702 4,668,375
<COMMON> 153,713 153,713
<CAPITAL-SURPLUS-PAID-IN> 435,715 435,715
<RETAINED-EARNINGS> 705,068 692,368
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,294,496 1,281,796
150,000 150,000
37,741 <F1> 162,741
<LONG-TERM-DEBT-NET> 1,215,779 1,215,779
<SHORT-TERM-NOTES> 129,400 249,400
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 25,987 25,987
<LONG-TERM-DEBT-CURRENT-PORT> 60,008 60,008
0 0
<CAPITAL-LEASE-OBLIGATIONS> 5,619 5,619
<LEASES-CURRENT> 102,276 102,276
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,413,396 1,414,769
<TOT-CAPITALIZATION-AND-LIAB> 4,434,702 4,668,375
<GROSS-OPERATING-REVENUE> 1,969,728 1,969,728
<INCOME-TAX-EXPENSE> 75,375 68,536
<OTHER-OPERATING-EXPENSES> 1,645,096 1,645,630
<TOTAL-OPERATING-EXPENSES> 1,720,471 1,714,166
<OPERATING-INCOME-LOSS> 249,257 255,562
<OTHER-INCOME-NET> 12,349 12,349
<INCOME-BEFORE-INTEREST-EXPEN> 261,606 267,911
<TOTAL-INTEREST-EXPENSE> 107,371 <F2> 126,376
<NET-INCOME> 154,235 141,535
14,796 14,796
<EARNINGS-AVAILABLE-FOR-COMM> 139,439 126,739
<COMMON-STOCK-DIVIDENDS> 100,000 <F3> 100,000
<TOTAL-INTEREST-ON-BONDS> 96,639 96,639
<CASH-FLOW-OPERATIONS> 380,653 380,653
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1> INCLUDES PREFERRED SECURITIES OF SUBSIDIARY OF $125,000.
<F2> INCLUDES DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARY
<F2> OF $11,719.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT
CORPORATION.
</FN>
<PAGE>
</TABLE>
EXHIBIT H
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-______; 70-______)
JERSEY CENTRAL POWER & LIGHT COMPANY
JERSEY CENTRAL POWER & LIGHT COMPANY, 300 Madison
Avenue, Morristown, New Jersey 07962 ("JCP&L"), a subsidiary of
GENERAL PUBLIC UTILITIES CORPORATION, 100 Interpace Parkway,
Parsippany, New Jersey 07054, a Pennsylvania corporation and
registered holding company, has filed an Application pursuant to
Sections 6(a), 7, 9(a), 10 and 12(b) of the Public Utility
Holding Company Act of 1935 (the "Act") and Rules 45 and 54
thereunder.
JCP&L proposes to organize a limited partnership
("JCP&L Capital") under the Delaware Revised Uniform Limited
Partnership Act. JCP&L also proposes to organize a special
purpose wholly-owned subsidiary under either the Delaware General
Corporation Law ("Investment Sub") for the sole purpose of acting
as the general partner of JCP&L Capital. JCP&L will acquire all
of the common stock of Investment Sub for a nominal consideration
and will capitalize Investment Sub with (i) a capital
contribution in the amount of approximately 3% of the total
capitalization of JCP&L Capital, or up to $4 million, and (ii) a
demand promissory note in the principal amount of approximately
10% of the total capitalization of JCP&L Capital, or up to $13
million, such note to accrue interest, compounded semi-annually,
at a rate equal to the Citibank, N.A. base rate as in effect from
time to time. JCP&L Capital would then issue and sell from time
to time in one or more series through December 31, 1996 up to
$125 million aggregate stated value of preferred limited partner<PAGE>
interests, in the form of monthly income preferred securities,
$25 per security stated value (the "Preferred Securities").
Investment Sub will acquire all of the general partner
interests of JCP&L Capital for up to $4 million, representing up
to a 3% interest in JCP&L Capital (the "Equity Contribution").
JCP&L Capital will apply the proceeds from the sale of the
Preferred Securities, together with the Equity Contribution, to
purchase JCP&L's deferrable interest subordinated debentures (the
"Subordinated Debentures").
JCP&L will also guarantee (the "Guarantees"), on a
limited basis to the extent set forth in the Payment and
Guarantee Agreement, (i) payment of distributions on the
Preferred Securities to the extent JCP&L Capital has sufficient
cash on hand to permit such payments and funds legally available
therefor, (ii) payments to the holders of the Preferred
Securities of amounts due upon redemption of the Preferred
Securities to the extent JCP&L Capital has sufficient cash on
hand to permit such payments and funds legally available
therefor, (iii) upon a liquidation of JCP&L Capital other than in
connection with a distribution of Subordinated Debentures as
discussed below, payment of the lesser of (x) the liquidation
preference of the Preferred Securities or (y) the amount of
assets available for distribution to the holders of the Preferred
Securities in liquidation, and (iv) certain additional amounts
that may be payable in respect of the Preferred Securities.
JCP&L will also covenant in the Guarantees to cause Investment
Sub to timely perform all of its duties as general partner of
20<PAGE>
JCP&L Capital, including the general partner's duty to pay all of
the costs and expenses of JCP&L Capital.
Each Subordinated Debenture will be issued under an
indenture to be entered into with United States Trust Company of
New York, as trustee, and will have an initial term of up to 50
years. Prior to maturity, JCP&L will pay only interest on the
Subordinated Debentures at a rate equal to the distribution rate
on the related series of Preferred Securities. Such interest
payments will constitute JCP&L Capital's only income and will be
used by it to pay monthly distributions on the Preferred
Securities and distributions on the general partner interests of
JCP&L Capital held by Investment Sub. Distributions on the
Preferred Securities will be made monthly, will be cumulative and
must be made to the extent that JCP&L Capital has legally
available funds and cash sufficient for such purposes. However,
JCP&L will have the right to defer payment of interest on the
Subordinated Debentures for up to five years, in which event
JCP&L Capital may similarly defer payment of distributions on the
Preferred Securities; provided that if distributions on the
Preferred Securities are not paid for eighteen consecutive
months, then the holders of the Preferred Securities will have
the right to appoint a special representative to enforce JCP&L
Capital's rights under the Subordinated Debentures and the rights
of the holders of the Preferred Securities under the Guarantees.
JCP&L and JCP&L Capital, as the case may be, may be required to
pay interest on any deferred interest or distributions, to the
extent permitted by applicable law. The interest rates, payment
dates, redemption and other similar provisions of each series of
21<PAGE>
Subordinated Debentures will be identical to the distribution
rates, payment dates, redemption and other similar provisions of
the related series of Preferred Securities.
Each Subordinated Debenture and related Guarantee will
be subordinate to all other existing and future indebtedness for
borrowed money of JCP&L and will have no cross-default provisions
with respect to other JCP&L indebtedness. However, JCP&L may not
declare or pay dividends on its outstanding Cumulative Preferred
Stock or Common Stock unless all payments then due (whether or
not previously deferred) under the Subordinated Debentures and
the Guarantees have been made.
It is expected that JCP&L's interest payments on the
Subordinated Debentures will be deductible for income tax
purposes and that JCP&L Capital will be treated as a partnership
for federal income tax purposes. Consequently, it is represented
that the holders of the Preferred Securities and Investment Sub
(as the general partner of JCP&L Capital) will receive
partnership distributions in respect of their distributions from
JCP&L Capital and will not be entitled to any "dividend received
deduction" under the Internal Revenue Code.
The Preferred Securities may be redeemable at the
option of JCP&L Capital at a price equal to their stated value
plus any accrued and unpaid distributions, (i) at any time after
five years from their date of issuance, or (ii) in the event that
(v) JCP&L Capital is required by applicable tax laws to withhold
or deduct certain amounts in connection with distributions or
other payments, or (w) JCP&L Capital is subject to federal income
tax with respect to interest received on the Subordinated
22<PAGE>
Debentures or is otherwise not treated as a partnership for
federal income tax purposes, or (x) it is determined that the
interest payments by JCP&L on the Subordinated Debentures are not
deductible for federal income tax purposes, or (y) JCP&L Capital
is subject to more than a de minimis amount of other taxes,
duties or other governmental charges, or (z) JCP&L Capital
becomes subject to regulation as an "investment company" under
the Investment Company Act of 1940, as amended. Upon occurrence
of any of the events set forth in clause (ii) above, JCP&L
Capital may also have the right to dissolve and distribute the
Subordinated Debentures to the holders of the Preferred
Securities in liquidation of their interests in JCP&L Capital.
In the event that JCP&L Capital is required by
applicable tax laws to withhold or deduct certain amounts in
connection with distributions or other payments, JCP&L Capital
may also have the obligation, if the Preferred Securities are not
redeemed or Subordinated Debentures are not distributed to the
holders thereof, to "gross up" such payments so that the holders
of the Preferred Securities will receive the same payment after
such withholding or deduction as they would have received if no
such withholding or deduction were required. In such latter
event, JCP&L's obligations under the Subordinated Debentures and
the Guarantees would also cover any such "gross up" obligations.
JCP&L represents that it will not use any of the net
proceeds from the issuance of the Subordinated Debentures to
acquire, either directly or indirectly, any interest in any EWG
or FUCO.
23<PAGE>
The Application and any amendments thereto are
available for public inspection through the Commission's Office
of Public Reference. Interested persons wishing to comment or
request a hearing should submit their views in writing by January
5, 1995 to the Secretary, Securities and Exchange Commission,
Washington, D.C. 20549, and serve a copy on the applicant at the
address specified above. Proof of service (by affidavit or, in
case of an attorney at law, by certificate) should be filed with
the request. Any request for a hearing shall identify
specifically the issues of fact or law that are disputed. A
person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in
this matter. After said date, the Application, as amended or as
it may be further amended, may be granted.
For the Commission, by the Division of Investment
Management, pursuant to delegated authority.
Jonathan G. Katz
Secretary
24<PAGE>
EXHIBIT I
<TABLE>
CAPITALIZATION AND CAPITALIZATION RATIOS
(IN THOUSANDS)
<CAPTION>
The consolidated capitalization of General Public Utilities Corporation
and Jersey Central Power & Light Company at June 30, 1994 and pro forma is as
follows:
Actual Pro Forma
Amount % Amount %
<S> <C> <C> <C> <C>
GPU Consolidated
Long-term debt $2 526 492 47.2 $2 526 492 45.3
Preferred stock 308 242 5.8 308 242 5.5
Preferred securities of
subsidiaries _ - 125 000 2.2
Common equity 2 515 738 47.0 2 625 811 47.0
Total $5 350 472 100.0 $5 585 545 100.0
JCP&L
<S> <C> <C> <C> <C>
Long-term debt $1 275 787 46.3 $1 275 787 44.4
Preferred stock 187 741 6.8 187 741 6.5
Preferred securities of
subsidiary - - 125 000 4.4
Common equity 1 294 496 46.9 1 281 796 44.7
Total $2 758 024 100.0 $2 870 324 100.0<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-A
Page 1 of 23
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments Pro
(Unaudited) (See pages 4-6) Forma
<S> <C> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $4 006 196 $4 006 196
Less, accumulated depreciation 1 450 714 1 450 714
Net utility plant in service 2 555 482 2 555 482
Construction work in progress 117 838 117 838
Other, net 128 982 128 982
Net utility plant 2 802 302 2 802 302
Current Assets:
Cash and temporary cash investments 2 981 $221 718 224 699
Special deposits 7 384 7 384
Accounts receivable:
Customers, net 134 860 134 860
Other 12 192 7 803 19 995
Unbilled revenues 68 298 68 298
Materials and supplies, at
average cost or less:
Construction and maintenance 104 115 104 115
Fuel 19 332 19 332
Deferred income taxes 6 606 6 606
Prepayments 196 614 196 614
Total current assets 552 382 229 521 781 903
Deferred Debits and Other Assets:
Three Mile Island Unit 2
deferred costs 141 153 141 153
Unamortized property losses 106 697 106 697
Deferred income taxes 129 314 129 314
Income taxes recoverable through
future rates 123 431 123 431
Decommissioning funds 158 248 158 248
Special deposits 83 150 83 150
Other 338 025 4 152 342 177
Total deferred debits and
other assets 1 080 018 4 152 1 084 170
Total Assets $4 434 702 $233 673 $4 668 375
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
</TABLE> Financial Statements
Item 6(b) 1-A
Page 2 of 23
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments Pro
(Unaudited) (See pages 4-6) Forma
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 153 713 $ 153 713
Capital surplus 435 715 435 715
Retained earnings 705 068 $(12 700) 692 368
Total common stockholder's equity 1 294 496 (12 700) 1 281 796
Cumulative preferred stock:
With mandatory redemption 150 000 150 000
Without mandatory redemption 37 741 37 741
Preferred securities of subsidiary - 125 000 125 000
Long-term debt 1 215 779 1 215 779
Total capitalization 2 698 016 112 300 2 810 316
Current Liabilities:
Debt due within one year 60 008 60 008
Notes payable 155 387 120 000 275 387
Obligations under capital leases 102 276 102 276
Accounts payable:
Affiliates 37 384 37 384
Other 109 702 8 212 117 914
Taxes accrued 79 342 (6 839) 72 503
Deferred energy credits 12 733 12 733
Interest accrued 35 944 35 944
Other 58 518 58 518
Total current liabilities 651 294 121 373 772 667
Deferred Credits and Other Liabilities:
Deferred income taxes 574 982 574 982
Unamortized investment tax credits 75 605 75 605
Three Mile Island Unit 2 future costs 84 828 84 828
Other 349 977 349 977
Total deferred credits and
other liabilities 1 085 392 1 085 392
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $4 434 702 $233 673 $4 668 375
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
<PAGE>
</TABLE> Financial Statements
Item 6(b) 1-A
Page 3 of 23
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments Pro
(Unaudited) (See pages 4-6) Forma
<S> <C> <C> <C>
Operating Revenues $1 969 728 $1 969 728
Operating Expenses:
Fuel 113 157 113 157
Power purchased and interchanged 592 270 592 270
Deferral of energy and capacity
costs, net (5 406) (5 406)
Other operation and maintenance 526 803 $ 534 527 337
Depreciation and amortization 185 330 185 330
Taxes, other than income taxes 232 942 232 942
Total operating expenses 1 645 096 534 1 645 630
Operating Income Before Income Taxes 324 632 (534) 324 098
Income taxes 75 375 (6 839) 68 536
Operating Income 249 257 6 305 255 562
Other Income and Deductions:
Allowance for other funds used during
construction 1 334 1 334
Other income, net 18 100 18 100
Income taxes (7 085) (7 085)
Total other income and deductions 12 349 12 349
Income Before Interest Charges 261 606 6 305 267 911
Interest Charges and Dividends on
Preferred Securities:
Interest on long-term debt 96 639 96 639
Other interest 12 877 7 286 20 163
Allowance for borrowed funds used during
construction (2 145) (2 145)
Dividends on preferred securities of
subsidiary - 11 719 11 719
Total interest charges and dividends
on preferred securities 107 371 19 005 126 376
Net Income 154 235 (12 700) 141 535
Preferred stock dividends 14 796 14 796
Earnings Available for Common Stock $ 139 439 $(12 700) $ 126 739
Retained Earnings:
Balance, beginning of period $ 667 868 $ 667 868
Add, net income 154 235 $(12 700) 141 535
Deduct, dividends on cumulative
preferred stock 14 796 14 796
Deduct, dividends on common stock 100 000 100 000
Deduct, other adjustments 2 239 2 239
Balance, end of period $ 705 068 $(12 700) $ 692 368<PAGE>
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-A
Page 4 of 23
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Cash and temporary cash investments $125 000
Preferred securities of subsidiary $125 000
To reflect the proposed issuance of $25
per share stated value of monthly income
preferred securities from time to time through
December 31, 1996 by JCP&L Capital.
(2)
Other deferred debits $ 4 238
Cash and temporary cash investments $ 4 238
To reflect the underwriters compensation and
offering expenses paid in accordance with
the Underwriting Agreements for JCP&L Capital.
(3)
Other interest $ 86
Other deferred debits $ 86
To reflect the annual amortization of the
deferred underwriters compensation and offering
expenses being amortized over the 49 year loan
period for the loans by JCP&L Capital to the
Company.
(4)
Other operation and maintenance $ 125
Cash and temporary cash investments $ 125
To reflect the annual expenses for the
distribution of IRS Form K-1 to holders of
the preferred securities.
(5)
Dividends on preferred securities of subsidiary $ 11 719
Cash and temporary cash investments $ 11 719
To reflect the annual dividends paid on the
monthly income preferred securities of JCP&L Capital
(9.375%).<PAGE>
<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-A
Page 5 of 23
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(6)
<S> <C> <C>
Accounts receivable - other $ 7 803
Accounts payable - other $ 7 803
To reflect an increase of $7.803 mil-
lion of notes receivable, to a total of
$15 million, in accordance with the pro-
visions of the customer home energy
improvement financing program ($7.197 mil-
lion of electric customer obligations were
acquired as of June 30, 1994 under the
program). (SEC File No. 70-6903)
(7)
Other operation and maintenance $ 409
Accounts payable - other $ 409
To reflect the increase of $.409 mil-
lion in operating expenses, to a total of
$.75 million, as a result of the adminis-
trative fee due to the participating banks
in accordance with the provisions of the
customer home energy improvement financing
program ($.341 million of administrative
fees were incurred as of June 30, 1994
under the program). (SEC File No. 70-6903)
(8)
Cash and temporary cash investments $120 000
Notes payable $120 000
To reflect the issuance of $120 million
of borrowings under the new Revolving Credit
Agreement up to the charter limit. (SEC File
No. 70-7926)
(9)
Other interest $ 7 200
Cash and temporary cash investments $ 7 200
To reflect annual interest expense
resulting from the issuance of $120 million
of borrowings under the new Revolving Credit
Agreement at an assumed interest rate of 6%.
(SEC File No. 70-7926)<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-A
Page 6 of 23
<TABLE>
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(10)
<S> <C> <C>
Taxes accrued $ 6 839
Income taxes $ 6 839
To reflect the decrease in the pro-
vision for Federal income taxes at a rate
of 35% attributable to (a) the increase in
other operation and maintenance expense as
a result of administrative fees associated
with the customer home energy improvement
financing program ($.409 million) (SEC File
No. 70-6903) and (b) the increase in
interest expense from the issuance of short-
term debt under the new Revolving Credit
Agreement ($7.2 million) (SEC File
No. 70-7926) and (c) the issuance of monthly
income preferred securities.<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1-B
Page 7 of 23
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
<S> (Unaudited) (See pages 10-12) Pro Forma
ASSETS <C> <C> <C>
Utility Plant:
In Service, at original cost $8 592 187 $ - $8 592 187
Less, accumulated depreciation 3 047 231 - 3 047 231
Net utility plant in service 5 544 956 - 5 544 956
Construction work in progress 307 760 - 307 760
Other, net 214 950 - 214 950
Net utility plant 6 067 666 - 6 067 666
Current Assets:
Cash and temporary cash investments 30 333 557 263 587 596
Special deposits 11 570 - 11 570
Accounts receivable:
Customers, net 261 721 - 261 721
Other 51 252 7 803 59 055
Unbilled revenues 121 718 - 121 718
Materials and supplies, at average cost or less:
Construction and maintenance 189 465 - 189 465
Fuel 50 324 - 50 324
Deferred energy costs 4 899 - 4 899
Deferred income taxes 9 601 - 9 601
Prepayments 238 535 - 238 535
Total current assets 969 418 565 066 1 534 484
Deferred Debits and Other Assets:
Three Mile Island Unit 2 deferred costs 162 328 - 162 328
Unamortized property losses 110 795 - 110 795
Deferred income taxes 427 255 - 427 255
Income taxes recoverable through future rates 560 728 - 560 728
Decommissioning funds 247 037 - 247 037
Other 633 901 4 152 638 053
Total deferred debits and other assets 2 142 044 4 152 2 146 196
Total Assets $9 179 128 $ 569 218 $9 748 346
<FN>
The accompanying notes are an integral part of the consolidated financial statements.<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1-B
Page 8 of 23
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
<S> (Unaudited) (See pages 10-12) Pro Forma
LIABILITIES AND CAPITAL <C> <C> <C>
Capitalization:
Common stock $ 314 458 $ 12 500 $ 326 958
Capital surplus 668 928 118 125 787 053
Retained earnings 1 715 678 (20 552) 1 695 126
Total 2 699 064 110 073 2 809 137
Less, reacquired common stock, at cost 183 326 - 183 326
Total common stockholders' equity 2 515 738 110 073 2 625 811
Cumulative preferred stock:
With mandatory redemption 150 000 - 150 000
Without mandatory redemption 158 242 - 158 242
Preferred securities of subsidiaries - 125 000 125 000
Long-term debt 2 433 260 - 2 433 260
Total capitalization 5 257 240 235 073 5 492 313
Current Liabilities:
Debt due within one year 93 232 - 93 232
Notes payable 396 646 338 000 734 646
Obligations under capital leases 168 326 - 168 326
Accounts payable 261 848 8 212 270 060
Taxes accrued 115 638 (12 067) 103 571
Interest accrued 76 450 - 76 450
Other 193 031 - 193 031
Total current liabilities 1 305 171 334 145 1 639 316
Deferred Credits and Other Liabilities:
Deferred income taxes 1 415 125 - 1 415 125
Unamortized investment tax credits 160 573 - 160 573
Three Mile Island Unit 2 future costs 339 310 - 339 310
Other 701 709 - 701 709
Total deferred credits and other liabilities 2 616 717 - 2 616 717
Total Liabilities and Capital $9 179 128 $ 569 218 $9 748 346
<FN>
The accompanying notes are an integral part of the consolidated financial statements.<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1-B
Page 9 of 23
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 10-12) Pro Forma
<S> <C> <C> <C>
Operating Revenues $3 662 442 $ - $3 662 442
Operating Expenses:
Fuel 382 321 - 382 321
Power purchased and interchanged 912 876 - 912 876
Deferral of energy costs, net (63 988) - (63 988)
Other operation and maintenance 1 083 593 534 1 084 127
Depreciation and amortization 357 436 - 357 436
Taxes, other than income taxes 351 180 - 351 180
Total operating expenses 3 023 418 534 3 023 952
Operating Income Before Income Taxes 639 024 (534) 638 490
Income taxes 159 821 (12 067) 147 754
Operating income 479 203 11 533 490 736
Other Income and Deductions:
Allowance for other funds used during
construction 3 931 - 3 931
Other income, net (158 227) - (158 227)
Income taxes 69 840 - 69 840
Total other income and deductions (84 456) - (84 456)
Income Before Interest Charges and
Preferred Dividends 394 747 11 533 406 280
Interest Charges and Preferred Dividends:
Interest on long-term debt 185 277 - 185 277
Other interest 37 027 20 366 57 393
Allowance for borrowed funds used during
construction (5 297) - (5 297)
Dividends on preferred securities of subsidiaries - 11 719 11 719
Preferred stock dividends of subsidiaries 22 400 - 22 400
Total interest charges and preferred
dividends 239 407 32 085 271 492
Net Income $ 155 340 $(20 552) $ 134 788
Retained Earnings:
Balance at beginning of period $1 762 645 $ - $1 762 645
Add - Net income 155 340 (20 552) 134 788
Deduct - Cash dividends on common stock 201 256 - 201 256
Other adjustments 1 051 - 1 051
Balance at end of period $1 715 678 $(20 552) $1 695 126
<FN>
The accompanying notes are an integral part of the consolidated financial statements.<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1-B
Page 10 of 23
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Cash and temporary cash investments $125 000
Preferred securities of subsidiary $125 000
To reflect the proposed issuance of $25
per share stated value of monthly income
preferred securities from time to time through
December 31, 1996 by JCP&L Capital.
(2)
Other deferred debits $ 4 238
Cash and temporary cash investments $ 4 238
To reflect the underwriters compensation and
offering expenses paid in accordance with
the Underwriting Agreements for JCP&L Capital.
(3)
Other interest $ 86
Other deferred debits $ 86
To reflect the annual amortization of the
deferred underwriters compensation and offering
expenses being amortized over the 49 year loan
period for the loans by JCP&L Capital to the
Company.
(4)
Other operation and maintenance $ 125
Cash and temporary cash investments $ 125
To reflect the annual expenses for the
distribution of IRS Form K-1 to holders of
the preferred securities.<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1-B
Page 11 of 23
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(5)
<S> <C> <C>
Dividends on preferred securities of subsidiary $ 11 719
Cash and temporary cash investments $ 11 719
To reflect the annual dividends paid on the
monthly income preferred securities of JCP&L Capital
(9.375%).
(6)
Cash and temporary cash investments $130 625
Common stock $ 12 500
Capital surplus $118 125
To reflect the proposed issuance of 5 million
shares of $2.50 par value common stock at $26 1/8
per share (SEC File No. 70-8455).
(7)
Cash and temporary cash investments $338 000
Notes payable $338 000
To reflect the proposed issuance of
$338 million of borrowings under the new
Revolving Credit Agreement up to the charter
limits (SEC File No. 70-7926).
(8)
Other interest $ 20 280
Cash and temporary cash investments $ 20 280
To reflect annual interest expense resulting
from the proposed issuance of $338 million of
borrowings under the new Revolving Credit Agreement
at an assumed interest rate of 6% (SEC File
No. 70-7926).<PAGE>
</TABLE>
Financial Statements
Item 6 (b) 1-B
Page 12 of 23
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(9)
<S> <C> <C>
Accounts receivable - other $ 7 803
Accounts payable - other $ 7 803
To reflect an increase of $7.803 mil-
lion of notes receivable, to a total of
$15 million, in accordance with the pro-
visions of the customer home energy
improvement financing program ($7.197 mil-
lion of electric customer obligations were
acquired as of June 30, 1994 under the
program). (SEC File No. 70-6903)
(10)
Other operation and maintenance $ 409
Accounts payable - other $ 409
To reflect the increase of $.409 mil-
lion in operating expenses, to a total of
$.75 million, as a result of the adminis-
trative fee due to the participating banks
in accordance with the provisions of the
customer home energy improvement financing
program ($.341 million of administrative
fees were incurred as of June 30, 1994
under the program). (SEC File No. 70-6903)
(11)
Taxes accrued $ 12 067
Income taxes $ 12 067
To reflect the net decrease in the provision
for federal and state income taxes attributable to
the (1) increase in interest expense from the
proposed issuance of short-term debt under the new
Revolving Credit Agreements (SEC File no. 70-7926)
and (2) the increase in other operation and
maintenance expense as a result of administrative
fees associated with the customer home energy
improvement financing program (SEC File No. 70-6903)
and (3) the proposed issuance of monthly income preferred
securities.<PAGE>
<FN>
Financial Statements
Item 6(b)
Page 13 of 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General Public Utilities Corporation (the Corporation) is a holding
company registered under the Public Utility Holding Company Act of 1935. The
Corporation does not directly operate any utility properties, but owns all
the outstanding common stock of three electric utilities -- Jersey Central
Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and
Pennsylvania Electric Company (Penelec) (the Subsidiaries). The Corporation
also owns all the common stock of GPU Service Corporation (GPUSC), a service
company; GPU Nuclear Corporation (GPUN), which operates and maintains the
nuclear units of the Subsidiaries; and Energy Initiatives, Inc. (EI). In
April 1994, General Portfolios Corporation (GPC) merged into its then
subsidiary EI. EI develops, owns and operates nonutility generating
facilities. All of these companies considered together with their
subsidiaries are referred to as the "GPU System."
These notes should be read in conjunction with the notes to consolidated
financial statements included in the 1993 Annual Report on Form 10-K. For
disclosures required by generally accepted accounting principles, see the 1993
Annual Report on Form 10-K.
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The Subsidiaries have made investments in three major nuclear projects -
- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are
operational generating facilities, and Three Mile Island Unit 2 (TMI-2), which
was damaged during a 1979 accident. At June 30, 1994, the Subsidiaries' net
investment in TMI-1 and Oyster Creek, including nuclear fuel, was $648 million
and $796 million, respectively. TMI-1 and TMI-2 are jointly owned by JCP&L,
Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively.
Oyster Creek is owned by JCP&L.
Costs associated with the operation, maintenance and retirement of
nuclear plants continue to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards and experience gained in the
construction and operation of nuclear facilities. The GPU System may also
incur costs and experience reduced output at its nuclear plants because of the
prevailing design criteria at the time of construction and the age of the
plants' systems and equipment. In addition, for economic or other reasons,
operation of these plants for the full term of their now assumed lives cannot
be assured. Also, not all risks associated with the ownership or operation of
nuclear facilities may be adequately insured or insurable. Consequently, the
ability of electric utilities to obtain adequate and timely recovery of costs
associated with nuclear projects, including replacement power, any unamortized
investment at the end of each plant's useful life (whether scheduled or
premature), the carrying costs of that investment and retirement costs, is not
assured. Management intends, in general, to seek recovery of any such costs
described above through the ratemaking process, but recognizes that recovery
is not assured.<PAGE>
Financial Statements
Item 6(b)
Page 14 of 23
TMI-2: The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
The cleanup program was completed in 1990. After receiving Nuclear Regulatory
Commission (NRC) approval, TMI-2 entered into long-term monitored storage in
December 1993.
As a result of the accident and its aftermath, approximately 2,100
individual claims for alleged personal injury (including claims for punitive
damages), which are material in amount, have been asserted against the
Corporation and the Subsidiaries and the suppliers of equipment and services
to TMI-2, and are pending in the United States District Court for the Middle
District of Pennsylvania. Some of such claims also seek recovery on the basis
of alleged emissions of radioactivity before, during and after the accident.
If, notwithstanding the developments noted below, punitive damages are
not covered by insurance and are not subject to the liability limitations of
the federal Price-Anderson Act ($560 million at the time of the accident),
punitive damage awards could have a material adverse effect on the financial
position of the GPU System.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the Subsidiaries had (a) primary financial protection in the form of
insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial protection in the
form of private liability insurance under an industry retrospective rating
plan providing for premium charges deferred in whole or in major part under
such plan, and (c) an indemnity agreement with the NRC, bringing their total
primary and secondary insurance financial protection and indemnity agreement
with the NRC up to an aggregate of $560 million.
The insurers of TMI-2 have been providing a defense against all TMI-2
accident related claims against the Corporation and the Subsidiaries and their
suppliers under a reservation of rights with respect to any award of punitive
damages. However, the defendants in the TMI-2 litigation and the insurers
agreed, on March 30, 1994, that the insurers would withdraw their reservation
of rights.
In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of twelve allegedly representative
cases is now scheduled to begin in April 1995. In February 1994, the Court
held that the plaintiffs' claims for punitive damages are not barred by the
Price-Anderson Act to the extent that the funds to pay punitive damages do not
come out of the U.S. Treasury. The Court also denied in February 1994, the
defendants' motion seeking a dismissal of all cases on the grounds that the
defendants complied with applicable federal safety standards regarding
permissible radiation releases from TMI-2 and that, as a matter of law, the
defendants therefore did not breach any duty that they may have owed
to the individual plaintiffs. The Court stated that a dispute about what
radiation and emissions were released cannot be resolved on a motion for
summary judgment. On July 13, 1994, however, the Court granted defendant's
motion for interlocutory appeal of its February 1994 order, stating that the
punitive damage claims and the duty owed by the defendants raise questions of
law that contain substantial grounds for differences of opinion.<PAGE>
Financial Statements
Item 6(b)
Page 15 of 23
In an Order issued in April 1994, the Court: (1) noted that the
plaintiffs have agreed to seek punitive damages only against the Corporation
and the Subsidiaries; and (2) stated in part that the Court is of the opinion
that any punitive damages owed must be paid out of and limited to the amount
of primary and secondary insurance under the Price-Anderson Act and,
accordingly, evidence of the defendants' net worth is not relevant in the
pending proceeding.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. The disposal of spent nuclear fuel is covered
separately by contracts with the U.S. Department of Energy.
In 1990, the Subsidiaries submitted a report, in compliance with NRC
regulations, setting forth a funding plan (employing the external sinking fund
method) for the decommissioning of their nuclear reactors. Under this plan,
the Subsidiaries intend to complete the funding for Oyster Creek and TMI-1 by
the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2
funding completion date is 2014, consistent with TMI-2 remaining in long-term
storage and being decommissioned at the same time as TMI-1. Under the NRC
regulations, the funding targets (in 1994 dollars) for TMI-1 and Oyster Creek
are $157 million and $189 million, respectively. Based on NRC studies, a
comparable funding target for TMI-2 (in 1994 dollars), which takes into
account the accident, is $250 million. The NRC continues to study the levels
of these funding targets. Management cannot predict the effect that the
results of this review will have on the funding targets. NRC regulations and
a regulatory guide provide mechanisms, including exemptions, to adjust the
funding targets over their collection periods to reflect increases or
decreases due to inflation and changes in technology and regulatory
requirements. The funding targets, while not actual cost estimates, are
reference levels designed to assure that licensees demonstrate adequate
financial responsibility for decommissioning. While the regulations address
activities related to the removal of the radiological portions of the plants,
they do not establish residual radioactivity limits nor do they address costs
related to the removal of nonradiological structures and materials.
In 1988, a consultant to GPUN performed site-specific studies of TMI-1
and Oyster Creek that considered various decommissioning plans and estimated
the cost of decommissioning the radiological portions of each plant to range
from approximately $225 to $309 million and $239 to $350 million, respectively
(adjusted to 1994 dollars). In addition, the studies estimated the cost of
removal of nonradiological structures and materials for TMI-1 and Oyster Creek
at $74 million and $48 million, respectively (adjusted to 1994 dollars).
The ultimate cost of retiring the GPU System's nuclear facilities may be
materially different from the funding targets and the cost estimates contained
in the site-specific studies and cannot now be more reasonably estimated than
the level of the NRC funding target because such costs are subject to (a) the
type of decommissioning plan selected, (b) the escalation of various cost
elements (including, but not limited to, general inflation), (c) the further
development of regulatory requirements governing decommissioning, (d) the <PAGE>
Financial Statements
Item 6(b)
Page 16 of 23
absence to date of significant experience in decommissioning such facilities
and (e) the technology available at the time of decommissioning. The
Subsidiaries charge to expense and contribute to external trusts amounts
collected from customers for nuclear plant decommissioning and non-
radiological costs. In addition, the Subsidiaries have contributed to
external trusts amounts written off for TMI-2 nuclear plant decommissioning in
1990 and 1991 and expect to make further contributions beginning in 1995 for
amounts written off in 1994 described below.
TMI-1 and Oyster Creek:
JCP&L is collecting revenues for decommissioning, which are expected to
result in the accumulation of its share of the NRC funding target for each
plant. JCP&L is also collecting revenues, based on estimates, for the cost of
removal of nonradiological structures and materials at each plant based on its
share of an estimated $15.3 million for TMI-1 and $31.6 million for Oyster
Creek. In 1993, the Pennsylvania Public Utility Commission (PaPUC) granted
Met-Ed revenues for decommissioning costs of TMI-1 based on its share of the
NRC funding target and nonradiological cost of removal as estimated in the
site-specific study. Also in 1993, the PaPUC approved a rate change for
Penelec which increased the collection of revenues for decommissioning costs
for TMI-1 to a basis equivalent to that granted Met-Ed. Collections from
customers for retirement expenditures are deposited in external trusts and are
classified as Decommissioning Funds on the balance sheet, which includes the
interest earned on these funds. Provision for the future expenditures of
these funds has been made in accumulated depreciation, amounting to
$38 million for TMI-1 and $93 million for Oyster Creek at June 30, 1994.
Oyster Creek and TMI-1 retirement costs are accrued and charged to
depreciation expense over the expected service life of each nuclear plant.
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable through the ratemaking process.
TMI-2:
The Corporation and its Subsidiaries have recorded a liability amounting
to $250 million as of June 30, 1994, for the radiological decommissioning of
TMI-2, reflecting the NRC funding target. The Subsidiaries record
escalations, when applicable, in the liability based upon changes in the NRC
funding target. The Subsidiaries have also recorded a liability in the amount
of $20 million for incremental costs specifically attributable to monitored
storage. Such costs are expected to be incurred between 1994 and 2014, when
decommissioning is forecast to begin. In addition, the Subsidiaries had
recorded a liability in the amount of $71 million for nonradiological cost of
removal. Expenditures for such costs through June 1994 have reduced the
liability to $69 million. The above amounts for retirement costs and
monitored storage are reflected as Three Mile Island Unit 2 Future Costs on
the balance sheet.
In March 1993, a PaPUC rate order for Met-Ed allowed for the future
recovery of certain TMI-2 retirement costs. The recovery of these TMI-2
retirement costs was to begin when the amortization of the TMI-2 investment
ended in 1994. In May 1993, the Pennsylvania Office of Consumer Advocate filed
a petition for review with the Pennsylvania Commonwealth Court seeking to set<PAGE>
Financial Statements
Item 6(b)
Page 17 of 23
aside the PaPUC's 1993 rate order. On July 11, 1994, the Commonwealth Court
reversed the PaPUC order. Met-Ed plans to petition the Pennsylvania Supreme
Court to review the decision. As a consequence of the Commonwealth Court
decision, Met-Ed recorded pre-tax charges totaling $127.6 million. Penelec,
because it is also subject to PaPUC regulation, recorded pre-tax charges of
$56.3 million for its share of such costs applicable to its retail customers.
These charges appear in the Other Income and Deductions section of the Income
Statement and are composed of $121.0 million for radiological decommissioning
costs, $48.2 million for the nonradiological cost of removal and $14.7 million
for incremental monitored storage costs. Met-Ed and Penelec plan to begin
making nonrecoverable funding contributions to external trusts for these costs
in the second half of 1995 to fund their share of these costs. The
Pennsylvania Subsidiaries will be similarly required to charge to expense
their share of future increases (described above) in the estimate of the costs
of retiring TMI-2. Future earnings on trust fund deposits for Met-Ed and
Penelec will be recorded as income. Prior to the Commonwealth Court's
decision, Met-Ed and Penelec expensed and contributed $40 million and
$20 million respectively, to external trusts relating to their nonrecoverable
shares of the accident-related portion of the decommissioning liability.
JCP&L has also expensed and made a nonrecoverable contribution of $15 million
to an external decommissioning trust. JCP&L's share of earnings on trust fund
deposits are offset against amounts shown on the balance sheet under Three
Mile Island Unit-2 Deferred Costs as collectible from customers.
The New Jersey Board of Public Utilities (NJBPU), formerly the New
Jersey Board of Regulatory Commissioners, has granted decommissioning revenues
for JCP&L's share of the remainder of the NRC funding target and allowances
for the cost of removal of nonradiological structures and materials. JCP&L,
which is not affected by the Commonwealth Court's ruling, intends to seek
recovery for any increases in TMI-2 retirement costs, but recognizes that
recovery cannot be assured.
As a result of TMI-2's entering long-term monitored storage, in late
1993, the Subsidiaries began incurring incremental annual storage costs of
approximately $1 million. The Subsidiaries estimate that incremental
monitored storage costs will total $20 million through 2014, the expected
retirement date of TMI-1. JCP&L's $5 million share of these costs has been
recognized in rates by the NJBPU.
INSURANCE
The GPU System has insurance (subject to retentions and deductibles) for
its operations and facilities including coverage for property damage,
liability to employees and third parties, and loss of use and occupancy
(primarily incremental replacement power costs). There is no assurance that
the GPU System will maintain all existing insurance coverages. Losses or
liabilities that are not completely insured, unless allowed to be recovered
through ratemaking, could have a material adverse effect on the financial
position of the GPU System.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station (TMI-1 and TMI-2 are considered
one site for insurance purposes) and for Oyster Creek totals $2.7 billion per <PAGE>
Financial Statements
Item 6(b)
Page 18 of 23
site. In accordance with NRC regulations, these insurance policies generally
require that proceeds first be used for stabilization of the reactors and then
to pay for decontamination and debris removal expenses. Any remaining amounts
available under the policies may then be used for repair and restoration costs
and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of that station.
The Price-Anderson Act limits the GPU System's liability to third
parties for a nuclear incident at one of its sites to approximately
$9.1 billion. Coverage for the first $200 million of such liability is
provided by private insurance. The remaining coverage, or secondary
protection, is provided by retrospective premiums payable by all nuclear
reactor owners. Under secondary protection, a nuclear incident at any
licensed nuclear power reactor in the country, including those owned by the
GPU System, could result in assessments of up to $79 million per incident for
each of the GPU System's two operating reactors, subject to an annual maximum
payment of $10 million per incident per reactor. In July 1994, GPUN received
an exemption from the NRC to eliminate the secondary protection requirements
for TMI-2.
The GPU System has insurance coverage for incremental replacement power
costs resulting from an accident-related outage at its nuclear plants.
Coverage commences after the first 21 weeks of the outage and continues for
three years at decreasing levels beginning at $1.8 million for Oyster Creek
and $2.6 million for TMI-1, per week.
Under its insurance policies applicable to nuclear operations and
facilities, the GPU System is subject to retrospective premium assessments of
up to $51 million in any one year, in addition to those payable under the
Price-Anderson Act.
ENVIRONMENTAL MATTERS
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but
not limited to acid rain, water quality, air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, the GPU System may be required to incur substantial additional costs
to construct new equipment, modify or replace existing and proposed equipment,
remediate or clean up waste disposal and other sites currently or formerly
used by it, including formerly-owned manufactured gas plants and mine refuse
piles, and with regard to electromagnetic fields, postpone or cancel the
installation of, or replace or modify, utility plant, the costs of which could
be material. Management intends to seek recovery through the ratemaking
process for any additional costs, but recognizes that recovery cannot be
assured.
To comply with the federal Clean Air Act Amendments (Clean Air Act) of
1990, the GPU System expects to expend up to $380 million for air pollution
control equipment by the year 2000. The GPU System has reduced its previous
estimate from $590 million to $380 million primarily due to the postponement
of two scrubber installations until after 2000. In developing its least-cost
plan to comply with the Clean Air Act, the GPU System will continue to
evaluate major capital investments compared to participation in the emission <PAGE>
Financial Statements
Item 6(b)
Page 19 of 23
allowance market and the use of low-sulfur fuel or retirement of facilities.
Management believes that costs associated with the capital invested in this
equipment and the increased operating costs of the affected stations should be
recoverable through the ratemaking process.
The GPU System companies have been notified by the Environmental
Protection Agency (EPA) and state environmental authorities that they are
among the potentially responsible parties (PRPs) who may be jointly and
severally liable to pay for the costs associated with the investigation and
remediation at ten hazardous and/or toxic waste sites. In addition, the GPU
System companies have been requested to supply information to the EPA and
state environmental authorities on several other sites for which they have not
yet been named as PRPs. The Subsidiaries have also been named in lawsuits
requesting damages for hazardous and/or toxic substances allegedly released
into the environment. The ultimate cost of remediation will depend upon
changing circumstances as site investigations continue, including (a) the
existing technology required for site cleanup, (b) the remedial action plan
chosen and (c) the extent of site contamination and the portion attributed to
the GPU System companies.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection for the investigation and remediation of 17 formerly-
owned manufactured gas plant sites. One of these sites has been repurchased
by JCP&L. JCP&L has also entered into various cost sharing agreements with
other utilities for some of the sites. At June 30, 1994, JCP&L has an
estimated environmental liability of $35 million recorded on its balance
sheet relating to these sites. The estimated liability is based upon ongoing
site investigations and remediation efforts, including capping the sites and
pumping and treatment of ground water. If the periods over which the
remediation is currently expected to be performed are lengthened, JCP&L
believes that it is reasonably possible that the ultimate costs may range as
high as $60 million. Estimates of these costs are subject to significant
uncertainties as JCP&L does not presently own or control most of these sites;
the environmental standards have changed in the past and are subject to future
change; the accepted technologies are subject to further development; and the
related costs for these technologies are uncertain. If JCP&L is required to
utilize different remediation methods, the costs could be materially in excess
of $60 million.
In 1993, the NJBPU approved a mechanism similar to JCP&L's Levelized
Energy Adjustment Clause (LEAC) for the recovery of future manufactured gas
plant remediation costs when expenditures exceed prior collections. The NJBPU
decision provides for interest to be credited to customers until the
overrecovery is eliminated and for future costs to be amortized over seven
years with interest. JCP&L is awaiting a final NJBPU order. JCP&L is pursuing
reimbursement of the above costs from its insurance carriers, and will seek to
recover costs to the extent not covered by insurance through this mechanism.
The GPU System companies are unable to estimate the extent of possible
remediation and associated costs of additional environmental matters. Also
unknown are the consequences of environmental issues, which could cause the
postponement or cancellation of either the installation or replacement of
utility plant. Management believes the costs described above should be
recoverable through the ratemaking process.<PAGE>
Financial Statements
Item 6(b)
Page 20 of 23
OTHER COMMITMENTS AND CONTINGENCIES
During the second quarter, the Corporation announced it was offering
voluntary enhanced retirement programs to certain employees. The enhanced
retirement programs are part of a corporate realignment announced in February
1994. At that time, the Corporation said that its goal was to achieve $80
million in annual cost savings by the end of 1996. Approximately 82% of
eligible employees have accepted the retirement programs, resulting in a pre-
tax charge to earnings of $127 million. These charges are included as Other
operation and maintenance expense on the Income Statement.
The NJBPU has instituted a generic proceeding to address the appropriate
recovery of capacity costs associated with electric utility power purchases
from nonutility generation projects. The proceeding was initiated, in part,
to respond to contentions of the Office of the Ratepayer Advocate (Ratepayer
Advocate), that by permitting utilities to recover such costs through the
LEAC, an excess or "double recovery" may result when combined with the
recovery of the utilities' embedded capacity costs through their base rates.
In 1993, JCP&L and the other New Jersey electric utilities filed motions for
summary judgment with the NJBPU requesting that the NJBPU dismiss contentions
being made by Ratepayer Advocate that adjustments for alleged "double
recovery" in prior periods are warranted. Ratepayer Advocate has filed a
brief in opposition to the utilities' summary judgment motions including a
statement from its consultant that in his view, the "double-recovery" for
JCP&L for the 1988-92 LEAC periods would be approximately $102 million. In
February 1994, the NJBPU ruled that the 1991 LEAC period was considered closed
but subsequent LEACs remain open for further investigation. It is anticipated
that the proceeding will be transmitted to the Office of Administrative Law
for further action. Management estimates that the potential exposure for LEAC
periods subsequent to 1991 is approximately $28 million through February 1995,
the end of the current LEAC period. Management is unable to estimate the
outcome of this proceeding.
As a result of the Energy Policy Act of 1992 and actions of regulatory
commissions, the electric utility industry appears to be moving toward a
combination of competition and a modified regulatory environment. In
accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS 71), the GPU
System's financial statements reflect assets and costs based on current cost-
based ratemaking regulations. Continued accounting under FAS 71 requires that
the following criteria be met:
a) A utility's rates for regulated services provided to its customers
are established by, or are subject to approval by, an independent
third-party regulator;
b) The regulated rates are designed to recover specific costs of
providing the regulated services or products; and
c) In view of the demand for the regulated services and the level of
competition, direct and indirect, it is reasonable to assume that
rates set at levels that will recover a utility's costs can be
charged to and collected from customers. This criteria requires
consideration of anticipated changes in levels of demand or
competition during the recovery period for any capitalized costs.<PAGE>
Financial Statements
Item 6(b)
Page 21 of 23
A utility's operations can cease to meet those criteria for various
reasons, including deregulation, a change in the method of regulation, or a
change in the competitive environment for the utility's regulated services.
Regardless of the reason, a utility whose operations cease to meet those
criteria should discontinue application of FAS 71 and report that
discontinuation by eliminating from its balance sheet the effects of any
actions of regulators that had been recognized as assets and liabilities
pursuant to FAS 71 but which would not have been recognized as assets and
liabilities by enterprises in general.
If a portion of the GPU System's operations continues to be regulated
and meets the above criteria, FAS 71 accounting may only be applied to that
portion. Write-offs of utility plant and regulatory assets may result for
those operations that no longer meet the requirements of FAS 71. In addition,
under deregulation, the uneconomical costs of certain contractual commitments
for purchased power and/or fuel supplies may have to be expensed currently.
Management believes that to the extent that the GPU System no longer qualifies
for FAS 71 accounting treatment, a material adverse effect on its results of
operations and financial position may result.
The Subsidiaries have entered into power purchase agreements with
independently owned power production facilities (nonutility generators) for
the purchase of energy and capacity for periods up to 25 years. The majority
of these agreements are subject to penalties for nonperformance and other
contract limitations. While a few of these facilities are dispatchable, most
are must-run and generally obligate the Subsidiaries to purchase all of the
power produced up to the contract limits. The agreements have been approved
by the state regulatory commissions and permit the Subsidiaries to recover
energy and demand costs from customers through their energy clauses. These
agreements provide for the sale of approximately 2,457 MW of capacity and
energy to the GPU System by the mid-to-late 1990s. As of June 30, 1994,
facilities covered by these agreements having 1,198 MW of capacity were in
service with another 215 MW scheduled to commence operation in 1994. The
estimated cost of these agreements for 1994 is $551 million. The price of the
energy and capacity to be purchased under these agreements is determined by
the terms of the contracts. The rates payable under a number of these
agreements are substantially in excess of current market prices. While the
Subsidiaries have been granted full recovery of these costs from customers by
the state commissions, there can be no assurance that the Subsidiaries will
continue to be able to recover these costs throughout the term of the related
contracts. The emerging competitive market has created additional uncertainty
regarding the forecasting of the System's energy supply needs which, in turn,
has caused the Subsidiaries to change their supply strategy to seek shorter
term agreements offering more flexibility. At the same time, the Subsidiaries
are attempting to renegotiate, and in some cases buy out, high cost long-term
nonutility generation contracts where opportunities arise. The extent to
which the Subsidiaries may be able to do so, however, or recover associated
costs through rates, is uncertain. Moreover, these efforts have led to
disputes before both the NJBPU and the PaPUC, as well as to litigation and may
result in claims against the Subsidiaries for substantial damages. There can
be no assurance as to the outcome of these matters.
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or <PAGE>
Financial Statements
Item 6(b)
Page 22 of 23
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40%
capacity factor would be approximately $10 million. While a capacity factor
below 40% would generate no specific monetary charge, it would require the
issue to be brought before the NJBPU for review. The annual measurement
period, which begins in March of each year, coincides with that used for the
LEAC. At the request of the PaPUC, Met-Ed and Penelec, as well as the other
Pennsylvania utilities, have supplied the PaPUC with proposals for the
establishment of a nuclear performance standard. Met-Ed and Penelec expect
the PaPUC to adopt a generic nuclear performance standard as a part of their
respective energy cost rate (ECR) clauses during the latter part of 1994 or
early 1995.
During the normal course of the operation of their businesses, in
addition to the matters described above, the GPU System companies are from
time to time involved in disputes, claims and, in some cases, as defendants in
litigation in which compensatory and punitive damages are sought by customers,
contractors, vendors and other suppliers of equipment and services and by
employees alleging unlawful employment practices. It is not expected that the
outcome of these matters will have a material effect on the GPU System's
financial position or results of operations.
2. INCOME TAXES
In March 1994, as a result of a settlement of a federal income tax
refund claim for 1986, the Subsidiaries recorded net income tax refunds
aggregating $17 million based on the retirement of TMI-2 for tax purposes.
Met-Ed and Penelec have requested the PaPUC to approve reduced charges to
customers for their respective shares of the tax refund over the twelve-month
period beginning September 1, 1994. JCP&L intends to refund the tax refund
amounts to its customers by reducing the recovery period for its investment in
TMI-2. Income tax amounts refunded will have no effect on net income.
At the same time, the Subsidiaries also recorded a total of $46 million
of net interest income representing net interest receivable from the Internal
Revenue Service associated with this refund settlement.
3. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In March 1993, the PaPUC issued a generic policy statement permitting
the deferral of incremental expense associated with the adoption by
Pennsylvania utilities of Statement of Financial Accounting Standards No. 106
(FAS 106), "Employers' Accounting for Postretirement Benefits Other Than
Pensions."
Consistent with the PaPUC policy statement, in 1993 Penelec filed a
petition with and the PaPUC issued a declaratory order approving the annual
deferral of such FAS 106 incremental expense until such expense can be
recognized in Penelec's base rates. <PAGE>
Financial Statements
Item 6(b)
Page 23 of 23
In a proceeding involving an unaffiliated Pennsylvania utility, the
Pennsylvania Office of the Consumer Advocate (OCA) appealed a PaPUC
declaratory order permitting that utility to defer its incremental FAS 106
expense pending its next base rate order. On May 26, 1994, the Pennsylvania
Commonwealth Court reversed the PaPUC's declaratory order stating that FAS 106
expense incurred after January 1, 1993 (the effective date for the FAS 106
accounting change) but prior to its next base rate case could not be deferred
for future recovery as part of a later base rate case order, and that to
assure such future recovery constituted unlawful retroactive ratemaking.
Under these circumstances, management has determined that continued
deferral by Penelec of incremental FAS 106 expense is no longer appropriate.
Therefore, during the second quarter Penelec wrote off $14.6 million of such
expense deferred since January 1, 1993. In addition, $4.0 million of
Penelec's FAS 106 unrecognized transition obligation resulting from employees
who have elected to participate in the voluntary enhanced retirement programs,
was also written off during the second quarter. These charges appear in the
Other Income and Deductions section of the Income Statement. Moreover,
Penelec will annually charge to income approximately $9.6 million for the
incremental FAS 106 expense, currently applicable to retail customers.
The Court's ruling in this case does not affect Met-Ed, which had
earlier received PaPUC authorization as part of a 1993 retail base rate order
to defer incremental FAS 106 expense. In addition, the Court affirmed in June
1994 a PaPUC base rate order granting an unaffiliated water utility recovery
in current rates of its transition obligation resulting from the adoption of
FAS 106, however, the OCA has filed a petition with the Pennsylvania Supreme
Court to review the Commonwealth Court's decision. The NJBPU provided rate
treatment for incremental postretirement benefit costs, pursuant to FAS 106,
in JCP&L's 1993 retail base rate order.
</FN>
</TABLE> <PAGE>
