SEC File No.70-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-l
DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
METROPOLITAN EDISON COMPANY ("Met-Ed")
PENNSYLVANIA ELECTRIC COMPANY ("Penelec")
2800 Pottsville Pike
Reading, Pennsylvania 19640
(Names of companies filing this statement and
address of principal executive office)
GPU, INC. ("GPU")
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(Name of top registered holding company parent of applicants)
T. G. Howson, Vice President and Douglas E. Davidson, Esq.
Treasurer Berlack, Israels & Liberman LLP
S. L. Guibord, Secretary 120 West 45th Street
GPU Service, Inc. New York, New York 10036
300 Madison Avenue
Morristown, New Jersey 07962 W. Edwin Ogden, Esq.
Ryan, Russell, Ogden & Seltzer LLP
S. L. Guibord, Secretary 1100 Berkshire Boulevard
Metropolitan Edison Company P.O. Box 6219
Pennsylvania Electric Company Reading, Pennsylvania 19601-0219
2800 Pottsville Pike
Reading, Pennsylvania 19640
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(Names and addresses of agents for service)
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Item 1. Description of Proposed Transactions.
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A. Met-Ed and Penelec (collectively, the "Pennsylvania Subsidiaries") are
wholly owned public utility subsidiaries of GPU. The Pennsylvania Subsidiaries
propose to declare and pay dividends out of their capital and unearned surplus
from time to time commencing with the effectiveness of the authorization herein
sought through December 31, 2002.
Rule 46 under the Act prohibits subsidiaries of registered holding
companies from declaring or paying dividends out of capital or unearned surplus
except as the Commission may otherwise authorize. At September 30, 1999, Met-Ed
and Penelec had consolidated stockholders equity as follows:
Met-Ed Penelec
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Capital Stock $ 66,273,400 $105,811,920
Paid in Capital 400,200,000 285,487,455
Retained Earnings 272,081,094 94,722,924
Accumulated Other 19,400,352 9,724,983
Comprehensive Income
Accordingly, as of September 30, 1999, Rule 46 would have permitted Met-Ed
and Penelec to declare and pay dividends of approximately $272 million and $95
million, respectively.
B. In November 1997, GPU announced that it would begin the process of
divesting its fossil fuel and hydroelectric generating assets. In 1998, Jersey
Central Power & Light Company ("JCP&L"), Met-Ed and Penelec agreed to sell
substantially all of their fossil and hydroelectric assets for a total of
approximately $2.6 billion. The sales of Penelec's ownership interests in the
Homer City and Seneca Stations - totaling about $950 million -- were completed
earlier this year, and the sales of substantially all of the remaining fossil
and hydroelectric assets closed in November 1999.
Met-Ed and Penelec received Restructuring Orders from the Pennsylvania
Public Utility Commission ("PaPUC") in October 1998 providing, among other
things, that their "stranded costs" recoverable in the restructuring proceedings
would be offset by the after tax gain received from their generation sales. The
amount of the after tax gain is currently estimated at approximately $195
million for Met-Ed and $520 million for Penelec. As a result, the after tax gain
on the generation divestiture will have no effect on the Pennsylvania
Subsidiaries' net income, resulting in no increase in the companies' retained
earnings.
In addition, until the past few years, it had been the practice of GPU's
subsidiaries to pay out in dividends essentially all of their retained earnings
from time to time. GPU would then make cash capital contributions to its
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subsidiaries as and to the extent needed to support their construction programs
and capital structures. As a result of this practice, the Pennsylvania
Subsidiaries have not built up any significant retained earnings "cushion".
Therefore, the Pennsylvania Subsidiaries' retained earnings at September
30, 1999 are not sufficient to enable them to declare and pay dividends to GPU
so that, in essence, the equity capital component (approximately 50%) supporting
their generation asset investment being sold and stranded costs cannot be
returned to the equity investors without essentially eliminating all of the
Pennsylvania Subsidiaries' retained earnings.(1) This situation is detrimental
to the financial flexibility of the companies. The debt component associated
with these assets will have been retired through the redemption or repurchase of
outstanding first mortgage bonds at the respective company.
Met-Ed and Penelec are each incorporated under the Pennsylvania Business
Corporation Law ("BCL")(15 Pa. C.S. Section 101 et seq.). In general, the BCL
permits the payment of dividends by a corporation if, after giving effect to the
dividend payment, (a) the corporation is able to pay its debts as they become
due in the usual course of business, and (b) the corporation's total assets are
not less than its total liabilities. BCL Section 1551. Accordingly, the BCL does
not restrict Pennsylvania corporations to paying dividends only from retained
earnings. As of September 30, 1999, therefore, Pennsylvania law would have
permitted Met-Ed and Penelec to declare and pay dividends of approximately $758
million and $496 million, respectively. Under their existing first mortgage bond
indentures, however, Met-Ed and Penelec are required to maintain retained
earnings of not less than $3.4 million and $10.1 million, respectively.
All dividends would be declared and paid only in compliance with
Pennsylvania law and first mortgage bond indenture covenants.
D. GPU intends to maintain the Pennsylvania Subsidiaries' capitalization
ratios that approximate the current target ranges of 51% debt; 8% preferred
securities and 41% common equity and future dividend payments by the
Pennsylvania Subsidiaries would be consistent with maintaining these targets.
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1 The net investor supplied capital supporting JCP&L's generation assets is
$210 million. After the generation sale, JCP&L will have approximately
$750 million in retained earnings available from which it could declare
and pay dividends. Consequently, JCP&L is not seeking the authorization
requested herein for Met-Ed and Penelec.
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<PAGE>
E. Rule 54 Analysis
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The proposed transactions (the "Transactions") contemplate the declaration
and payment of dividends by the Pennsylvania Subsidiaries and do not relate to
exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs").
Accordingly, the Transactions are subject to Rule 54, which provides that, in
determining whether to approve an application or declaration which does not
relate to any EWG or FUCO, the Commission shall not consider the effect of the
capitalization or earnings of any such EWG or FUCO which is a subsidiary of a
registered holding company if the requirements of Rule 53 (a), (b) and (c) are
satisfied.
(a) As described below, GPU meets all of the conditions of Rule 53,
except for Rule 53(a)(1). By Order dated November 5, 1997 (HCAR No. 35-26773)
(the "November 5 Order"), the Commission authorized GPU to increase to 100% of
its "average consolidated retained earnings," as defined in Rule 53, the
aggregate amount which it may invest in EWGs and FUCOs. At September 30, 1999,
GPU's average consolidated retained earnings was approximately $2.367 billion
and GPU's aggregate investment in EWGs and FUCOs was approximately $2.180
billion. Accordingly, under the November 5 Order, GPU may invest up to an
additional $188 million in FUCOs as of September 30, 1999.
(i) GPU maintains books and records to identify investments in, and
earnings from, each EWG and FUCO in which it directly or indirectly
holds an interest.
(A) For each United States EWG in which GPU directly or
indirectly holds an interest:
(1) the books and records for such EWG will be
kept in conformity with United States generally accepted
accounting principles ("GAAP");
(2) the financial statements will be prepared in
accordance with GAAP; and
(3) GPU directly or through its subsidiaries
undertakes to provide the Commission access to such
books and records and financial statements as the
Commission may request.
(B) For each FUCO or foreign EWG which is a majority
owned subsidiary of GPU:
(1) the books and records for such subsidiary will
be kept in accordance with GAAP;
(2) the financial statements for such
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subsidiary will be prepared in accordance with GAAP;
and
(3) GPU directly or through its subsidiaries
undertakes to provide the Commission access to such
books and records and financial statements, or copies
thereof in English, as the Commission may request.
(C) For each FUCO or foreign EWG in which GPU owns 50%
or less of the voting securities, GPU directly or through its
subsidiaries will proceed in good faith, to the extent reasonable
under the circumstances, to cause
(1) such entity to maintain books and records
in accordance with GAAP;
(2) the financial statements of such entity to be
prepared in accordance with GAAP; and
(3) access by the Commission to such books and
records and financial statements (or copies thereof) in
English as the Commission may request and, in any event,
GPU will provide the Commission on request copies of
such materials as are made available to GPU and its
subsidiaries. If and to the extent that such entity's
books, records or financial statements are not
maintained in accordance with GAAP, GPU will, upon
request of the Commission, describe and quantify each
material variation therefrom as and to the extent
required by subparagraphs (a) (2) (iii) (A) and (a) (2)
(iii) (B) of Rule 53.
(ii) No more than 2% of GPU's domestic public utility
subsidiary employees will render any services, directly or
indirectly, to any EWG and FUCO in which GPU directly or indirectly
holds an interest.
(iii) Copies of this Declaration on Form U-1 are being
provided to the New Jersey Board of Public Utilities and the
Pennsylvania Public Utility Commission, the only federal, state or
local regulatory agencies having jurisdiction over the retail rates
of GPU's electric utility subsidiaries.(2) In addition,
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2 Penelec is also subject to retail rate regulation by the New York Public
Service Commission with respect to retail service to approximately 3,700
customers in Waverly, New York served by Waverly Electric Power & Light
Company, a Penelec subsidiary. Waverly Electric's revenues are immaterial,
accounting for less than 1% of Penelec's total operating revenues.
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<PAGE>
GPU will submit to each such commission copies of any amendments to
this Declaration and a copy of Item 9 of GPU's Form U5S and Exhibits
H and I thereof (commencing with the Form U5S to be filed for the
calendar year in which the authorization herein requested is
granted).
(iv) None of the provisions of paragraph (b) of Rule 53 render
paragraph (a) of that Rule unavailable for the proposed
transactions.
(A) Neither GPU nor any subsidiary of GPU having a book
value exceeding 10% of GPU's consolidated retained earnings is the
subject of any pending bankruptcy or similar proceeding.
(B) GPU's average consolidated retained earnings for the
four most recent quarterly periods (approximately $2.367 billion)
represented an increase of approximately $51 million (or
approximately 2%) compared to the average consolidated retained
earnings for the previous four quarterly periods (approximately
$2.316 billion).
(C) GPU did not incur operating losses from direct or
indirect investments in EWGs and FUCOs in 1998 in excess of 5% of
GPU's September 30, 1999 consolidated retained earnings.
As described above, GPU meets all the conditions of Rule 53(a), except for
clause (1). With respect to clause (1), the Commission determined in the
November 5 Order that GPU's financing of investments in EWGs and FUCOs in an
amount greater than 50% of GPU's average consolidated retained earnings as
otherwise permitted by Rule 53(a)(1) would not have either of the adverse
effects set forth in Rule 53(c).
Moreover, even if the effect of the capitalization and earnings of
subsidiary EWGs and FUCOs were considered, there is no basis for the Commission
to withhold or deny approval for the transactions proposed in this Declaration.
The Transactions would not, by themselves, or even considered in conjunction
with the effect of the capitalization and earnings of GPU's subsidiary EWGs and
FUCOs, have a material adverse effect on the financial integrity of the GPU
system, or an adverse impact on GPU's public utility subsidiaries, their
customers, or the ability of State commissions to protect such public utility
customers.
The November 5 Order was predicated, in part, upon the assessment of GPU's
overall financial condition which took into account, among other factors, GPU's
consolidated capitalization ratio and the recent growth trend in GPU's retained
earnings. As of June 30, 1997, the most recent quarterly period for which
financial statement information was evaluated in the November 5 Order, GPU's
consolidated capitalization consisted of 49.2%
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<PAGE>
equity and 50.8% debt. As stated in the November 5 Order, GPU's June 30, 1997
pro forma capitalization, reflecting the November 6, 1997 acquisition of
PowerNet Victoria, was 39.3% equity and 61.7% debt.
GPU's September 30, 1999 consolidated capitalization consists of 33.9%
equity and 66.1% debt. Thus, since the date of the November 5 Order, there has
been no material adverse change in GPU's consolidated capitalization ratio,
which remains within acceptable ranges and limits as evidenced by the credit
ratings of GPU's electric utility subsidiaries.(3)
GPU's consolidated retained earnings grew on average approximately 4.2%
per year from 1993 through 1998. Earnings attributable to GPU's investments in
EWGs and FUCOs have contributed positively to consolidated earnings, excluding
the impact of the windfall profits tax on the Midlands Electricity plc
investment.(4)
Accordingly, since the date of the November 5 Order, the capitalization
and earnings attributable to GPU's investments in EWGs and FUCOs have not had
any adverse impact on GPU's financial integrity.
Reference is made to Exhibit H which sets forth GPU's consolidated
capitalization at September 30, 1999 and after giving effect to the transactions
proposed herein. As set forth in such exhibit, the proposed transactions will
not have a material impact on GPU's capitalization or earnings.
Item 2. Fees, Commissions and Expenses.
-------------------------------
The estimated fees, commissions and expenses to be incurred by the GPU
Energy Companies in connection with the proposed transactions will be filed by
amendment.
Item 3. Applicable Statutory Provisions.
--------------------------------
The GPU Energy Companies believe that Section 12 of the Act and Rules 46
and 54 are applicable to the transactions proposed herein.
Item 4. Regulatory Approval.
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No Federal or State Commission, other than your Commission, has
jurisdiction with respect to the proposed transactions.
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3 The first mortgage bonds of JCP&L, Met-Ed and Penelec are rated A+ by
Standard & Poors Corporation, and Baa1, A3 and A2, respectively, by
Moody's Investors Service, Inc.
4 As discussed in the November 5 Order, GPU incurred a loss for 1997 from
its investments in EWGs and FUCOs as a result of the 1997 windfall profits
tax imposed on Midlands Electricity, plc.
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<PAGE>
Item 5. Procedure.
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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 15, 2000. It is further requested that (i) there not be a
recommended decision by an Administrative Law Judge or other responsible officer
of the Commission, (ii) the Office of Public Utility Regulation be permitted to
assist in the preparation of the Commission's decision, and (iii) there be no
waiting period between the issuance of the Commission's order and the date on
which it is to become effective.
Item 6. Exhibits And Financial Statements.
----------------------------------
a) Exhibits:
A - Not applicable
B - Not applicable
C - Not applicable
D - Not applicable
E - Not applicable
F(1)(a) - Opinion of Berlack, Israels & Liberman LLP -- to be
filed by amendment.
F(2)(a) - Opinion of Ryan, Russell, Ogden & Seltzer LLP -- to
be filed by amendment.
G - Financial Data Schedules -- to be filed by amendment.
H - Actual and Pro Forma Capitalization and Capitalization
Ratios as at September 30, 1999 -- to be filed by amendment.
I - Form of public notice
b) Financial Statements:
1-A - GPU and Subsidiary Companies Consolidated
Balance Sheets, actual and pro forma, as at
September 30, 1999, and Consolidated Statement
of Income and Retained Earnings, actual and pro
forma, for the twelve months ended September
30, 1999; pro forma journal entries -- to be
filed by amendment.
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<PAGE>
1-B - GPU (Corporate) Balance Sheets, actual and pro
forma, as at September 30, 1999 and Statements of
Income and Retained Earnings, actual and pro
forma, for the twelve months ended September 30,
1999; pro forma journal entries -- to be filed by
amendment.
l-C - Met-Ed Consolidated Balance Sheets, actual and
pro forma, as at September 30, 1999, and
Consolidated Statements of Income and Retained
Earnings, actual and pro forma, for the twelve
months ended September 30, 1999; pro forma journal
entries -- to be filed by amendment.
l-D - Penelec Consolidated Balance Sheets, actual and
pro forma, as at September 30, 1999, and
Consolidated Statements of Income and Retained
Earnings, actual and pro forma, for the twelve
months ended September 30, 1999; pro forma journal
entries -- to be filed by amendment.
2 - Reference is made to the financial statements
included in 1 above.
3 - None.
4 - None, except as set forth in the Notes to the
Financial Statements.
Item 7. Information as to Environmental Effects.
----------------------------------------
(a) The proposed transactions will be carried out for the purpose of
financing the Pennsylvania Subsidiaries' business activities. As such, the
issuance of an order by your Commission with respect thereto is not a major
Federal action significantly affecting the quality of the human environment.
(b) No Federal agency has prepared or is preparing an environmental
impact statement with respect to the proposed transactions which are the subject
hereof.
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<PAGE>
SIGNATURE
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PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY HOLDING COMPANY
ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY CAUSED THIS STATEMENT TO BE
SIGNED ON THEIR BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
METROPOLITAN EDISON COMPANY
PENNSYLVANIA ELECTRIC COMPANY
By: /s/ T. G. Howson
--------------------------
T. G. Howson,
Vice President and Treasurer
Date: December 3, 1999
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EXHIBITS TO BE FILED BY EDGAR
Exhibits
I - Form of public notice
2
81554-1
Exhibit I
SECURITIES AND EXCHANGE COMMISSION
(RELEASE NO. 35- ); 70-
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Metropolitan Edison Company ("Met-Ed") and Pennsylvania Electric
Company ("Penelec"), 2800 Pottsville Pike, Reading, Pennsylvania 19605, have
filed with the Commission a Declaration pursuant to Section 12 of the Public
Utility Holding Company Act of 1935 ("Act") and Rules 46 and 54 thereunder.
Met-Ed and Penelec (collectively, the "Pennsylvania Subsidiaries")
are wholly owned public utility subsidiaries of GPU, Inc., a registered holding
company,. The Pennsylvania Subsidiaries propose to declare and pay dividends out
of their capital and unearned surplus from time to time commencing with the
effectiveness of the authorization therein sought through December 31, 2002.
Rule 46 under the Act prohibits subsidiaries of registered holding
companies from declaring or paying dividends out of capital or unearned surplus
except as the Commission may otherwise authorize. At September 30, 1999, Met-Ed
and Penelec had consolidated stockholders equity as follows:
Met-Ed Penelec
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Capital Stock $ 66,273,400 $105,811,920
Paid in Capital 400,200,000 285,487,455
Retained Earnings 272,081,094 94,722,924
Accumulated Other 19,400,352 9,724,983
Comprehensive Income
Accordingly, as of September 30, 1999, Rule 46 would have permitted Met-Ed
and Penelec to declare and pay dividends of approximately $272 million and $95
million, respectively.
In November 1997, GPU announced that it would begin the process of
divesting its fossil fuel and hydroelectric generating assets. In 1998, Jersey
Central Power & Light Company ("JCP&L"), Met-Ed and Penelec agreed to sell
substantially all of their fossil and hydroelectric assets for a total of
approximately $2.6 billion. The sales of Penelec's ownership interests in the
Homer City and Seneca Stations - totaling about $950 million -- were completed
earlier this year, and the sales of substantially all of the remaining fossil
and hydroelectric assets closed in November 1999.
Met-Ed and Penelec received Restructuring Orders from the Pennsylvania
Public Utility Commission ("PaPUC") in October 1998 providing, among other
things, that their "stranded costs" recoverable in the restructuring proceedings
would be offset by
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<PAGE>
the after tax gain received from their generation sales. The amount of the after
tax gain is currently estimated at approximately $195 million for Met-Ed and
$520 million for Penelec. As a result, the after tax gain on the generation
divestiture will have no effect on the Pennsylvania Subsidiaries' net income,
resulting in no increase in the companies' retained earnings.
In addition, until the past few years, it had been the practice of GPU's
subsidiaries to pay out in dividends essentially all of their retained earnings
from time to time. GPU would then make cash capital contributions to its
subsidiaries as and to the extent needed to support their construction programs
and capital structures. As a result of this practice, the Pennsylvania
Subsidiaries have not built up any significant retained earnings "cushion".
Therefore, the Pennsylvania Subsidiaries' retained earnings at September
30, 1999 are not sufficient to enable them to declare and pay dividends to GPU
so that, in essence, the equity capital component (approximately 50%) supporting
their generation asset investment being sold and stranded costs cannot be
returned to the equity investors without essentially eliminating all of the
Pennsylvania Subsidiaries' retained earnings.(1) This situation is detrimental
to the financial flexibility of the companies. The debt component associated
with these assets will have been retired through the redemption or repurchase of
outstanding first mortgage bonds at the respective company.
Met-Ed and Penelec are each incorporated under the Pennsylvania Business
Corporation Law ("BCL")(15 Pa. C.S. Section 101 et seq.). In general, the BCL
permits the payment of dividends by a corporation if, after giving effect to the
dividend payment, (a) the corporation is able to pay its debts as they become
due in the usual course of business, and (b) the corporation's total assets are
not less than its total liabilities. BCL Section 1551. Accordingly, the BCL does
not restrict Pennsylvania corporations to paying dividends only from retained
earnings. As of September 30, 1999, therefore, Pennsylvania law would have
permitted Met-Ed and Penelec to declare and pay dividends of approximately $758
million and $496 million, respectively. Under their existing first mortgage bond
indentures, however, Met-Ed and Penelec are required to maintain retained
earnings of not less than $3.4 million and $10.1 million, respectively.
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1 The net investor supplied capital supporting JCP&L's generation assets is
$210 million. After the generation sale, JCP&L will have approximately
$750 million in retained earnings available from which it could declare
and pay dividends. Consequently, JCP&L is not seeking the authorization
requested herein for Met-Ed and Penelec.
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<PAGE>
All dividends would be declared and paid only in compliance with
Pennsylvania law and first mortgage bond indenture covenants.
GPU intends to maintain the Pennsylvania Subsidiaries'
capitalization ratios that approximate the current target ranges of 51% debt; 8%
preferred securities and 41% common equity and future dividend payments by the
Pennsylvania Subsidiaries would be consistent with maintaining these targets.
The Declaration, as amended, is 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
- ----------------, 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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