Amendment No. 1 to
SEC File No. 70-9529
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act") (Name
of company filing this statement and address of principal executive office)
Jersey Central Power & Light Company ("JCP&L")
2800 Pottsville Pike
Reading, Pennsylvania 19605
GPU, INC. ("GPU")
(Name of top registered holding company parent of applicant)
Terrance G. Howson, Douglas E. Davidson, Esq.
Vice President and Treasurer Berlack, Israels & Liberman LLP
Michael J. Connolly, Esq. 120 West 45th Street
Vice President - Law New York, New York 10036
GPU Service, Inc.
300 Madison Avenue
Morristown, New Jersey 07962
Scott L. Guibord, Secretary
Jersey Central Power & Light
Company
2800 Pottsville Pike
Reading, Pennsylvania 19605
(Names and addresses of agents for service)
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JCP&L hereby amends its application on Form U-1, docketed in SEC File No.
70-9529, as follows:
1. By adding the following sentence between the first and second sentences
of paragraph A of Item 1:
"In addition, JCP&L hereby requests authority to form one or more
additional wholly owned corporate subsidiaries which, if formed,
will directly or indirectly own the Special Purpose Issuer."
2. By replacing the first sentence of paragraph G of Item 1 with the
following sentence:
"On August 25, 1999, JCP&L filed a petition with the BPU seeking a
bondable stranded costs rate order to authorize securitization of
the stranded costs attributable to JCP&L's projected net investment
in Oyster Creek at September 1, 2000, net of deferred income taxes
and investment tax credits attributable to the plant in the amount
of approximately $125 million."
3. By replacing the third sentence of paragraph L of Item 1 with the
following sentence:
"The Special Purpose Issuer initially will be capitalized (at least
0.5% of the total principal amount of the transition bonds) through
a direct or indirect capital contribution by JCP&L."
4. By filing the following exhibits in Item 6:
H - Actual and pro forma capitalization table - to
be filed by further amendment.
I - Proposed form of notice.
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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:/s/ T. G. Howson
T. G. Howson
Vice President and Treasurer
Date: September 24, 1999
EXHIBITS TO BE FILED BY EDGAR
Exhibits:
I - Proposed form of notice.
Exhibit I
SECURITIES AND EXCHANGE COMMISSION
(RELEASE NO. 35-________); 70-9529
Jersey Central Power & Light Company ("JCP&L"), 2800 Pottsville
Pike, Reading, Pennsylvania 19605, a subsidiary of GPU, Inc. ("GPU"), a
registered holding company, 300 Madison Avenue, Morristown, New Jersey 07962,
has filed an application with this Commission under sections 6(a), 7, 9, 10,
12(b) and 12(f) of the Act and Rules 90 and 91 thereunder.
JCP&L requests authority through December 31, 2001: (1) to form a
new wholly-owned subsidiary ("Special Purpose Issuer") which will be any one of
the following -- a trust, corporation, limited liability company or partnership;
(2) to acquire all of the common equity interests in the Special Purpose Issuer;
(3) to transfer to the Special Purpose Issuer bondable transition property
("BTP") in exchange for the net proceeds from the sale of the transition bonds;
(4) for the Special Purpose Issuer to issue and sell transition bonds from time
to time through December 31, 2001; and (5) to enter into a Servicing Agreement
and administration agreement. In addition, JCP&L hereby requests authority to
form one or more additional corporate wholly owned subsidiaries which, if
formed, will directly or indirectly own the Special Purpose Issuer.
On February 9, 1999, New Jersey enacted the Electric Discount and
Energy Competition Act, P.L. 1999, c. 23 (N.J.S.A. 48:3-49 et seq.) (the
"Competition Act") to restructure the
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electric utility and natural gas industries in New Jersey. The Competition Act
requires utilities to submit restructuring plans to the New Jersey Board of
Public Utilities (the "BPU"), which include claims for each utility's "stranded
costs" -- i.e., costs relating to utility investments and power purchase
commitments that would have been recoverable in a regulated environment but are
not expected to be recoverable as a result of the introduction of competition in
the generation market. Utilities may recover these stranded costs from their
distribution customers through a non-bypassable market transition charge
("MTC"), subject to approval by the BPU based upon, among other things, the
Board's findings as to the utility's use of all reasonably available mitigation
measures and an assessment of the full market value of the subject generation
assets or power purchase commitments.
The Competition Act provides for the use of securitization to
facilitate utility restructurings by empowering the BPU, at the request of a
utility, to authorize such utility, directly or indirectly, to issue transition
bonds in order to recover and/or finance a portion of its stranded costs and
assist in achieving compliance with the rate reduction requirements of the
Competition Act. Utilities must apply to the BPU for a bondable stranded costs
rate order authorizing the issuance of transition bonds and approving the amount
of the initial transition bond charge ("TBC") to be imposed on all retail
electric distribution customers.
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On August 25, 1999, JCP&L filed a petition with the BPU seeking a
bondable stranded costs rate order to authorize securitization of the stranded
costs attributable to JCP&L's projected net investment in Oyster Creek Nuclear
Generating Station ("Oyster Creek") at September 1, 2000, net of deferred income
taxes and investment credits attributable to the plant in the amount of
approximately $125 million.(1) Such amounts relating to Oyster Creek, which
would otherwise be recoverable from JCP&L's ratepayers through the MTC
commencing August 1, 1999, will be collected via the TBC once JCP&L has
securitized such amounts. Accordingly, JCP&L will seek BPU authorization to
issue approximately $422 million of transition bonds representing approximately
$400 million of the projected Oyster Creek net investment (gross plant, less
accumulated depreciation and accumulated deferred income taxes, including the
additional deferred income taxes resulting from the retirement of Oyster Creek)
at September 1, 2000 and an estimated $22 million of transaction costs,
including related fees and expenses of issuance and sale of the transition
bonds, and to refinance or retire its debt and preferred equity.(2)
Alternatively, if the
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1. JCP&L will seek a ruling from the Internal Revenue Service (the "IRS") to the
effect that the proposed treatment of such deferred income taxes and investment
tax credits as an offset to the amounts otherwise treated as stranded costs
attributable to the plant is in compliance with the "normalization" requirements
of the Internal Revenue Code. 2. The BPU has also authorized JCP&L to defer
certain costs on its books and to securitize the resulting deferred balances, if
any. JCP&L is not seeking Commission authority to securitize such balances now,
but will request such authority if and when JCP&L files a separate petition with
the BPU with respect thereto.
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IRS does not issue the tax ruling discussed in note 1, JCP&L may also securitize
the amount of its projected net investment in Oyster Creek that, because of the
IRS's failure to issue such ruling, cannot be offset by the deferred income
taxes and investment tax credits attributable to the plant of approximately $125
million.
The BTP and the related TBC revenue stream are isolated from any
credit risk associated with the utility because the utility will have
transferred them to the Special Purpose Issuer, which will be structured to be a
"bankruptcy remote" assignee. The Special Purpose Issuer, which is anticipated
to be a Delaware limited liability company, will issue transition bonds secured
by the BTP and the TBC revenue stream. The securitization will be structured so
that the transfer of the BTP will be treated as an absolute transfer of all of
the JCP&L's right, title and interest in the BTP as in a true sale, and not as a
pledge or other financing, other than for Federal and State income and franchise
tax purposes and for certain financial reporting purposes.
Pursuant to a "Sale Agreement", JCP&L will transfer the BTP created
by the irrevocable bondable stranded costs rate order to the Special Purpose
Issuer, either directly or indirectly, in exchange for the net proceeds from the
sale of the transition bonds. Such transfer will be treated as a true sale, and
not as a secured financing, for bankruptcy purposes. The Special Purpose Issuer
initially will be capitalized (at least 0.5% of the total principal amount of
the transition bonds) through a
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direct or indirect capital contribution by JCP&L. The Special Purpose Issuer
will deposit the capital contribution amount into a "Capital Subaccount."
JCP&L requests authority for the Special Purpose Issuer to issue up
to $548 million in transition bonds, which amount includes approximately $125
million of additional transition bonds that might be issued if the tax ruling
discussed in note 1 is not issued. The Special Purpose Issuer may issue
transition bonds in one or more series, and each such series may be issued in
one or more classes. Different series may have different maturities and interest
rates and each series may have classes with such maturities, interest rates and
other terms as JCP&L shall determine from time to time in the future. The TBC
for each series will be structured to provide for the recovery of the principal
amount of the related transition bonds and the related interest, fees and
expenses. There will be a date on which each of the transition bonds is expected
to be repaid and a legal final maturity date by which the transition bonds must
be repaid. Neither the expected final maturity nor the legal final maturity will
be later than 15 years and 17 years, respectively, from the date of issuance of
the related transition bonds. The expected final maturity date must be earlier
than the legal final maturity date to meet rating agency requirements because
the TBC is calculated by taking into account projections of such variables as
the anticipated level of charge-offs, delinquencies, and usage, which may differ
from the amounts actually experienced.
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Pursuant to a Servicing Agreement between JCP&L and the Special
Purpose Issuer, JCP&L will act as a servicer of the TBC revenue stream. In this
capacity, JCP&L will, among other things: (1) bill customers and make
collections on behalf of the Special Purpose Issuer and (2) file with the BPU
for periodic adjustments to the TBC to achieve a level which allows for payment
of all debt service and full recovery of amounts authorized by the Board to be
collected through the TBC in accordance with the expected amortization schedule
for each series and class of transition bonds. JCP&L may, subject to certain
conditions, subcontract with other companies to carry out some of its servicing
responsibilities.
JCP&L will be entitled to receive a servicing fee for its servicing
activities and reimbursement for certain of its expenses in the manner set forth
in the Servicing Agreement. The servicing fee must be comparable to one
negotiated at arms-length, which would be reasonable and sufficient for a
similar, unaffiliated entity performing similar services. This rating agency
requirement is meant to assure that the Special Purpose Issuer would be able to
operate independently and, accordingly, the fee must be increased to retain a
third party servicer if for any reason JCP&L could not continue to perform these
services. As a result, the servicing fee will be set at an annual level of not
more than 0.15% of the initial principal amount of the transition bonds if JCP&L
is the servicer and 1.25% if a third party, that is not concurrently billing for
other charges, is
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acting as servicer.
Personnel employed by GPU Service, Inc. ("GPUS") will provide
ministerial services on an as-needed basis to the Special Purpose Issuer
pursuant to an administration agreement ("AA") to be entered into between the
Special Purpose Issuer and GPUS. The services to be provided will consist
primarily of internal administrative matters relating to the Special Purpose
Issuer such as providing notices required under its transition bond
documentation, maintaining its books and records and maintaining authority to do
business in appropriate jurisdictions. Under the AA, the Special Purpose Issuer
will reimburse GPUS for the cost of the services provided, computed in
accordance with Rules 90 and 91 under the Act, as well as other applicable rules
and regulations. As described above, JCP&L will be retained under the Servicing
Agreement to collect and manage the BTP and associated TBC revenues and to make
appropriate filings with the BPU.
JCP&L will use the net proceeds from the sale of the transition
bonds to reduce eligible stranded costs through the retirement of debt or
equity, or both, as permitted by the Competition Act. JCP&L's unbundled rates
being implemented in connection with its restructuring filing already provide
for the anticipated savings from the transition bonds to be passed through to
customers.
The Application, as amended, is available for public inspection
through the Commission's Office of Public Reference.
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Interested persons wishing to comment or request a hearing should submit their
views in writing by ________________, 1999 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, may be granted.
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