UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-3522
Pennsylvania Electric Company
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0718085
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
1001 Broad Street
Johnstown, Pennsylvania 15907
(Address of principal executive offices) (Zip Code)
(814) 533-8111
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of
voting stock, as of October 31, 1994, was as follows:
Common stock, par value $20 per share: 5,290,596 shares outstanding.<PAGE>
Pennsylvania Electric Company
Quarterly Report on Form 10-Q
September 30, 1994
Table of Contents
Page
PART I - Financial Information
Financial Statements:
Balance Sheets 3
Statements of Income 5
Statements of Cash Flows 6
Notes to Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 18
PART II - Other Information 24
Signatures 25
_________________________________
The financial statements (not examined by independent accountants) reflect
all adjustments (which consist of only normal recurring accruals) which
are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented, subject to the ultimate
resolution of the various matters as discussed in Note 1 to the
Consolidated Financial Statements.
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<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2 511 870 $2 429 557
Less, accumulated depreciation 913 599 887 281
Net utility plant in service 1 598 271 1 542 276
Construction work in progress 85 493 81 420
Other, net 29 928 35 614
Net utility plant 1 713 692 1 659 310
Other Property and Investments:
Nuclear decommissioning trusts 29 995 24 657
Other, net 4 246 4 338
Total other property and investments 34 241 28 995
Current Assets:
Cash and temporary cash investments 1 353 1 622
Special deposits 2 467 2 622
Accounts receivable:
Customers, net 62 601 64 913
Other 17 722 9 824
Unbilled revenues 22 992 28 942
Materials and supplies, at average cost or less:
Construction and maintenance 47 095 46 994
Fuel 19 870 20 590
Deferred energy costs 16 690 17 047
Deferred income taxes 1 261 790
Prepayments 9 271 6 630
Total current assets 201 322 199 974
Deferred Debits and Other Assets:
Three Mile Island Unit 2 deferred costs 13 266 64 638
Deferred income taxes 115 819 64 577
Income taxes recoverable through future rates 237 072 234 026
Other 40 364 49 820
Total deferred debits and other assets 406 521 413 061
Total Assets $2 355 776 $2 301 340
The accompanying notes are an integral part of the consolidated financial statements.
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<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 105 812 $ 105 812
Capital surplus 261 790 265 486
Retained earnings 311 576 328 290
Total common stockholder's equity 679 178 699 588
Cumulative preferred stock 36 777 61 842
Preferred securities of subsidiary 105 000 -
Long-term debt 616 482 524 491
Total capitalization 1 437 437 1 285 921
Current Liabilities:
Debt due within one year 30 009 70 008
Notes payable 16 000 102 356
Obligations under capital leases 19 742 23 333
Accounts payable:
Affiliates 9 594 6 025
Others 48 003 85 254
Taxes accrued 4 479 11 978
Interest accrued 10 913 15 369
Vacations accrued 10 964 11 956
Other 13 168 13 511
Total current liabilities 162 872 339 790
Deferred Credits and Other Liabilities:
Deferred income taxes 466 718 455 076
Unamortized investment tax credits 48 583 51 775
Three Mile Island Unit 2 future costs 84 732 79 967
Nuclear fuel disposal fee 12 757 12 401
Other 142 677 76 410
Total deferred credits and other liabilities 755 467 675 629
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2 355 776 $2 301 340
The accompanying notes are an integral part of the consolidated financial statements.
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<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Operating Revenues $240 267 $229 447 $714 569 $679 827
Operating Expenses:
Fuel 46 813 46 863 132 576 136 177
Power purchased and interchanged:
Affiliates 1 761 600 4 859 2 790
Others 34 912 34 199 116 019 94 256
Deferral of energy costs, net 4 860 (15 224) 227 (14 606)
Other operation and maintenance 63 342 58 611 233 114 170 170
Depreciation and amortization 17 573 22 415 55 963 64 727
Taxes, other than income taxes 16 502 15 006 48 873 45 431
Total operating expenses 185 763 162 470 591 631 498 945
Operating Income Before Income Taxes 54 504 66 977 122 938 180 882
Income taxes 16 266 24 142 29 934 60 411
Operating Income 38 238 42 835 93 004 120 471
Other Income and Deductions:
Allowance for other funds used during
construction 482 474 1 333 474
Other income/(expense), net (492) 183 (63 626) (227)
Income taxes 320 122 27 764 171
Total other income and deductions 310 779 (34 529) 418
Income Before Interest Charges and
Dividends on Preferred Securities 38 548 43 614 58 475 120 889
Interest Charges and Dividends on
Preferred Securities:
Interest on long-term debt 11 796 11 463 35 187 33 657
Other interest 707 743 5 893 3 129
Allowance for borrowed funds used
during construction (501) (306) (1 445) (1 069)
Dividends on preferred securities
of subsidiary 2 195 - 2 195 -
Total interest charges and
dividends on preferred securities 14 197 11 900 41 830 35 717
Net Income 24 351 31 714 16 645 85 172
Preferred stock dividends 734 1 247 2 551 4 079
Earnings Available for Common Stock $ 23 617 $ 30 467 $ 14 094 $ 81 093
The accompanying notes are an integral part of the consolidated financial statements.
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<TABLE>
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Nine Months
Ended September 30,
1994 1993
<S> <C> <C>
Operating Activities:
Income before preferred stock dividends $ 16 645 $ 85 172
Adjustments to reconcile income to cash provided:
Depreciation and amortization 51 793 59 720
Amortization of property under capital leases 6 332 6 351
Three Mile Island Unit 2 costs 56 304 -
Voluntary enhanced retirement program 44 856 -
Nuclear outage maintenance costs, net 2 326 (613)
Deferred income taxes and investment tax
credits, net (42 919) 11 620
Deferred energy costs, net 357 (14 610)
Accretion income (200) (600)
Allowance for other funds used during construction (1 333) (474)
Changes in working capital:
Receivables 364 3 145
Materials and supplies 620 5 464
Special deposits and prepayments (2 517) (4 636)
Payables and accrued liabilities (22 913) (5 832)
Other, net 23 284 (1 381)
Net cash provided by operating activities 132 999 143 326
Investing Activities:
Cash construction expenditures (129 718) (103 006)
Contributions to decommissioning trusts (4 270) (19 329)
Other, net 11 (153)
Net cash used for investing activities (133 977) (122 488)
Financing Activities:
Issuance of long-term debt 129 100 119 220
Decrease in notes payable, net (86 268) (4 620)
Capital lease principal payments (6 525) (6 606)
Issuance of preferred securities of subsidiary 101 304 -
Retirement of long-term debt (78 008) (58 008)
Redemption of preferred stock (26 168) (26 013)
Dividends paid on common stock (30 000) (40 000)
Dividends paid on preferred stock (2 726) (4 248)
Net cash provided (required) by
financing activities 709 (20 275)
Net increase (decrease) in cash and temporary
cash investments from above activities (269) 563
Cash and temporary cash investments,
beginning of year 1 622 659
Cash and temporary cash investments, end of period $ 1 353 $ 1 222
Supplemental Disclosure:
Interest paid (net of amount capitalized) $ 46 225 $ 35 587
Income taxes paid $ 45 336 $ 36 495
New capital lease obligations incurred $ 2 320 $ 11 457
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
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Pennsylvania Electric Company and Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pennsylvania Electric Company (Company), a Pennsylvania corporation
incorporated in 1919, is a wholly-owned subsidiary of General Public Utilities
Corporation (GPU), a holding company registered under the Public Utility
Holding Company Act of 1935. The Company owns all of the common stock of
Penelec Preferred Capital Inc., which is the general partner of Penelec
Capital L.P., a special purpose finance subsidiary. The Company also has two
minor wholly-owned subsidiaries.
The Company is affiliated with Jersey Central Power & Light Company
(JCP&L) and Metropolitan Edison Company (Met-Ed). The Company, JCP&L and
Met-Ed are referred to herein as the "Company and its affiliates". The
Company is also affiliated with GPU Service Corporation (GPUSC), a service
company; GPU Nuclear Corporation (GPUN), which operates and maintains the
nuclear units of the Company and its affiliates; and Energy Initiatives, Inc.
(EI), which develops, owns and operates nonutility generating facilities. The
Company and its affiliates including GPUSC, GPUN and EI considered together
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. The
year-end condensed balance sheet data contained in the attached financial
statements were derived from audited financial statements. For disclosures
required by generally accepted accounting principles, see the 1993 Annual
Report on Form 10-K.
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The Company has made investments in two major nuclear projects -- Three
Mile Island Unit 1 (TMI-1), which is an operational generating facility, and
Three Mile Island Unit 2 (TMI-2), which was damaged during a 1979 accident.
At September 30, 1994, the Company's net investment in TMI-1, including
nuclear fuel, was $156 million. TMI-1 and TMI-2 are jointly owned by the
Company, JCP&L and Met-Ed in the percentages of 25%, 25% and 50%,
respectively.
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 Company and its
affiliates may also incur costs and experience reduced output at their 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
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Pennsylvania Electric Company and Subsidiary Companies
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 (see NUCLEAR PLANT RETIREMENT
COSTS). Management intends, in general, to seek recovery of such costs
through the ratemaking process, but recognizes that recovery is not assured
(see OTHER COMMITMENTS AND CONTINGENCIES - Competition and the Changing
Regulatory Environment).
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 Company
and its affiliates and GPU 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 federal Price-
Anderson Act, the Company and its affiliates 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 had been providing a defense against all TMI-2
accident related claims against the Company and its affiliates and GPU 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, in March 1994, that the insurers would withdraw their
reservation of rights, with respect to any award of punitive damages.
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Pennsylvania Electric Company and Subsidiary Companies
In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of ten allegedly representative
cases is likely to begin in 1996. 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 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. In July 1994, the Court
granted defendants' motion for interlocutory appeal of these orders, stating
that they raise questions of law that contain substantial grounds for
differences of opinion. The issues are now before the United States Court of
Appeals.
In an Order issued in April 1994, the Court: (1) noted that the
plaintiffs have agreed to seek punitive damages only against the Company and
its affiliates and GPU; 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 Company and its affiliates 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 Company and its affiliates intend to complete
the funding for TMI-1 by the end of the plant's license term, 2014. 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 target (in 1994 dollars) for TMI-1 is $157 million,
of which the Company's share is $39 million. Based on NRC studies, a
comparable funding target for TMI-2 (in 1994 dollars), which takes into
account the accident, is $250 million, of which the Company's share would be
$62 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
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Pennsylvania Electric Company and Subsidiary Companies
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 a site-specific study of TMI-1
that considered various decommissioning plans and estimated the cost of
decommissioning the radiological portions of TMI-1 to range from approximately
$225 to $309 million (adjusted to 1994 dollars), of which the Company's share
would range between approximately $56 to $77 million. In addition, the study
estimated the cost of removal of nonradiological structures and materials for
TMI-1 at $74 million (adjusted to 1994 dollars), of which the Company's share
would be $18 million.
The ultimate cost of retiring the Company and its affiliates' 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 absence to date of significant experience in
decommissioning such facilities and (e) the technology available at the time
of decommissioning. The Company is charging to expense and contributing to
external trusts amounts collected from customers for nuclear plant
decommissioning and nonradiological costs. In addition, the Company has
contributed to external trusts amounts written off for TMI-2 nuclear plant
decommissioning in 1991 and expects to make further contributions beginning in
1995 for amounts written off in 1994, described below.
TMI-1:
In 1993, the Pennsylvania Public Utility Commission (PaPUC) approved a
rate change for the Company which increased the collection of revenues for
decommissioning costs for TMI-1 based on its share of the NRC funding target
and nonradiological cost of removal as estimated in the site-specific study.
Collections from customers for retirement expenditures are deposited in
external trusts and are classified as Nuclear decommissioning trusts on the
balance sheet, which includes the interest earned on these funds. Provision
for the future expenditure of these funds has been made in accumulated
depreciation, amounting to $7 million at September 30, 1994. Retirement costs
are accrued and charged to depreciation expense over the expected service life
of TMI-1.
Management believes that any TMI-1 retirement costs, in excess of those
currently recognized for ratemaking purposes, should be recoverable through
the current ratemaking process.
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Pennsylvania Electric Company and Subsidiary Companies
TMI-2:
The Company and its affiliates have recorded a liability amounting to
$250 million (of which the Company's share was $62 million) as of
September 30, 1994, for the radiological decommissioning of TMI-2, reflecting
the NRC funding target. The Company and its affiliates record escalations,
when applicable, in the liability based upon changes in the NRC funding
target. The Company and its affiliates have also recorded a liability in the
amount of $20 million (of which the Company's share was $5 million) for
incremental costs specifically attributable to monitored storage. In
addition, the Company and its affiliates have recorded a liability in the
amount of $71 million (of which the Company's share is $18 million), for
nonradiological cost of removal. Expenditures for such costs through
September 1994 have reduced the liability to $69 million (of which the
Company's share is $17 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. In May 1993, the Pennsylvania
Office of Consumer Advocate filed a petition for review with the Pennsylvania
Commonwealth Court seeking to set aside the PaPUC's 1993 Met-Ed rate order.
In July 1994, the Commonwealth Court reversed the PaPUC order; Met-Ed has
requested the Pennsylvania Supreme Court to review that decision. The
Company, which is also subject to PaPUC regulation, recorded pre-tax charges
of $56.3 million during the second quarter 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 $38.4
million for radiological decommissioning costs, $13.2 million for the
nonradiological cost of removal and $4.7 million for incremental monitored
storage costs. The Company plans to begin making nonrecoverable funding
contributions to external trusts for these costs in the second half of 1995 to
fund its share of these costs. The Company will be similarly required to
charge to expense its retail customer share of future increases (described
above) in the estimate of the costs of retiring TMI-2. The Company's future
earnings on nonrecoverable trust fund deposits will be recorded as income.
Prior to the Commonwealth Court's decision, the Company expensed and
contributed $20 million to an external trust relating to its nonrecoverable
share of the accident-related portion of the decommissioning liability.
As a result of TMI-2's entering long-term monitored storage, in late
1993, the Company and its affiliates began incurring incremental annual
storage costs of approximately $1 million (of which the Company's share is
$.25 million). The Company and its affiliates estimate that incremental
monitored storage costs will total $20 million through 2014, (of which the
Company's share is $5 million) the expected retirement date of TMI-1.
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Pennsylvania Electric Company and Subsidiary Companies
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 Company.
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) totals $2.7 billion. 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
$9.0 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 Company and its affiliates have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
nuclear plants. Coverage for TMI-1 commences after the first 21 weeks of the
outage and continues for three years at decreasing levels beginning at $2.6
million per week.
Under its insurance policies applicable to nuclear operations and
facilities, the Company and its affiliates are subject to retrospective
premium assessments of up to $51 million in any one year (of which the
Company's share is $7 million), in addition to those payable under the
Price-Anderson Act.
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Pennsylvania Electric Company and Subsidiary Companies
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 Company 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 current
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 Company expects to expend up to $177 million for air pollution
control equipment by the year 2000. The reduction from the previous estimate
of $295 million is primarily due to the postponement of a scrubber
installation until after the year 2000. In developing its least-cost plan to
comply with the Clean Air Act, the Company will continue to evaluate major
capital investments compared to participation in the emission allowance market
and the use of low-sulfur fuel or retirement of facilities. In September
1994, the Ozone Transport Commission (OTC), consisting of representatives of
11 northeast states (including Pennsylvania) and the District of Columbia
proposed further reductions in nitrogen oxide (NOx) emissions it believes
necessary to meet ambient air quality standards for ozone and the statutory
deadlines set by the Clean Air Act Amendments of 1990. The Company expects
that the U.S. Environmental Protection Agency will approve the proposal, and
that as a result, the Company will spend an estimated $50 million, beginning
in 1997, to meet the new standards by the 1999 deadline.
The Company has been notified by the Environmental Protection Agency
(EPA) and state environmental authorities that it is 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 three hazardous
and/or toxic waste sites. In addition, the Company has been requested to
voluntarily participate in the remediation or supply information to the EPA
and state environmental authorities on several other sites for which it has
not as yet been named a PRP. The Company has 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 Company.
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Pennsylvania Electric Company and Subsidiary Companies
The Company is 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 current ratemaking process.
OTHER COMMITMENTS AND CONTINGENCIES
Competition and the Changing Regulatory Environment
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
Company'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.
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 Company'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.
-14-<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
Management believes that to the extent that the Company no longer qualifies
for FAS 71 accounting treatment, a material adverse effect on its results of
operations and financial position may result.
The Company has 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. All of these facilities are must-run and generally
obligate the Company to purchase all of the power produced up to the contract
limits. As of September 30, 1994, facilities covered by these agreements
having 295 megawatts (MW) of capacity were in service. The estimated cost of
these agreements for 1994 is $121 million. These agreements provide for the
purchase of approximately 414 MW of capacity and energy by the Company by the
mid-to-late 1990s at various prices.
The emerging competitive market has created uncertainty regarding the
forecasting of the GPU System's energy supply needs which, in turn, has caused
the Company and its affiliates to change their supply strategy to now seek
shorter term agreements offering more flexibility (see Management's Discussion
and Analysis - Competition). Due to the current availability of excess
capacity, the cost of near to intermediate-term energy supply from existing
facilities (i.e., one to eight years) is currently very competitively priced.
The forecasted cost of energy from new supply sources is now lower priced due
to improvements in power plant technologies and reduced forecast fuel prices.
As a result of these developments, the contract prices under virtually all of
the Company and its affiliates' nonutility generation agreements are
substantially in excess of current and forecasted market prices. The Company
and its affiliates intend to initiate actions geared toward substantially
reducing these above market payments. In addition, the Company and its
affiliates intend to avoid, to the maximum extent practicable, entering into
any new nonutility generation agreements that are not needed or not consistent
with current market pricing. The Company and its affiliates are also
attempting to renegotiate, and in some cases buy out, high cost long-term
nonutility generation agreements. While the Company and its affiliates thus
far have been granted substantial recovery of these costs from customers by
the PaPUC and the New Jersey Board of Public Utilities (NJBPU), there can be
no assurance that the Company and its affiliates will continue to be able to
recover these costs throughout the term of the related agreements. If the
costs under these agreements are ultimately not recoverable through
ratemaking, or in a competitive market, it could result in a material adverse
effect on the Company's as well as the GPU System's financial position and
results of operations. Moreover, efforts to lower these costs have led to
disputes before both the PaPUC and the NJBPU, as well as to litigation and may
result in claims against the Company and its affiliates for substantial
damages. There can be no assurance as to the outcome of these matters.
-15-<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
During the second quarter, GPU 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, GPU said that its goal was to achieve $80 million in annual cost
savings by the end of 1996. Approximately 82% of eligible GPU System employees
have accepted the retirement programs, resulting in a pre-tax charge to
earnings of $127 million, of which the Company's share was $45 million. These
charges are included as Other operation and maintenance expense on the Income
Statement.
At the request of the PaPUC, the Company, as well as the other
Pennsylvania utilities, have supplied the PaPUC with proposals for the
establishment of a nuclear performance standard. The Company expects the
PaPUC to adopt a generic nuclear performance standard as a part of its
respective energy cost rate clause in 1995.
During the normal course of the operation of its business, in addition
to the matters described above, the Company is from time to time involved in
disputes, claims and, in some cases, as defendants in litigation in which
compensatory 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 Company'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 Company recorded net income tax refunds aggregating
$4 million based on its share of the retirement of TMI-2 for tax purposes.
In September 1994, the Company received approval from the PaPUC to reduce
charges to customers for its share of the tax refund. Income tax amounts
refunded will have no effect on net income.
At the same time, the Company has also recorded a total of $11.5 million
of net interest income representing its share of 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 the Company 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 the Company's base rates.
-16-<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
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. In May 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 determined that continued deferral
by the Company of incremental FAS 106 expense was no longer appropriate.
Therefore, during the second quarter the Company wrote off $14.6 million of
such expense deferred since January 1, 1993. In addition, $4.0 million of the
Company'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, the
Company will annually charge to income approximately $9.6 million for the
incremental FAS 106 expense, currently applicable to retail customers.
-17-<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following is management's discussion of significant factors that
affected the Company's interim financial condition and results of operations.
This should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Company's
1993 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Earnings available for common stock for the three months ended
September 30, 1994 were $23.6 million compared with $30.5 million for the
third quarter of 1993. Earnings available for common stock for the nine
months ended September 30, 1994 were $14.1 million compared with $81.1 million
for the comparable period in 1993.
The decrease in earnings for the three months ended September 30, 1994
was primarily the result of the absence of one-time benefits from the
recognition of prior period transmission service revenues and proceeds from
the settlement of a property insurance claim both of which were recognized in
the third quarter of 1993. Also contributing to the decrease in earnings was
an increase in postretirement benefit costs.
Earnings for the nine months ended September 30, 1994 continue to be
negatively affected by a $56.3 million second quarter write-off of certain
estimated TMI-2 future costs, a $45.0 million second quarter charge to income
for costs related to the Voluntary Enhanced Retirement Programs, and a $18.6
million second quarter write-off of postretirement benefit costs. The same
factors affecting the quarterly results also affected results for the nine
month period. The effect of these losses for the nine months ended
September 30, 1994 was partially offset by nonrecurring interest income
resulting from refunds of previously paid federal income taxes related to the
tax retirement of TMI-2.
OPERATING REVENUES:
Total revenues for the three months ended September 30, 1994 increased
4.7% to $240.3 million as compared with the same period in 1993. Total
revenues for the nine months ended September 30, 1994 increased 5.1% to $714.6
million compared with the same period in 1993. The components of these
changes are as follows:
-18-<PAGE>
(In Millions)
Three Months Nine Months
Ended Ended
September 30, 1994 September 30, 1994
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ (1.3) $ 9.0
Energy revenues 20.7 30.6
Other revenues (8.6) (4.9)
Increase in revenues $ 10.8 $ 34.7
Kilowatt-hour revenues
KWH revenues decreased for the three month period ending September 30,
1994 primarily from lower capacity sales to associated companies partially
offset by higher usage by the Company's municipal wholesale customers. KWH
revenues increased for the nine month period ending September 30, 1994
primarily from higher usage by the Company's principal wholesale customer and
higher usage by municipal wholesale customers. Wholesale purchases by these
customers are now resold to consumers both inside and outside the Company's
service territory. KWH revenues also increased for the nine month period from
higher KWH usage by both residential and commercial customers. These
increases in revenues for the nine month period were partially offset by
decreased capacity sales to associated companies.
Energy revenues
Changes in energy revenues do not normally affect net income as they
reflect corresponding changes in the energy cost rates billed to customers and
expensed. Energy revenues increased for both the three and nine month periods
ended September 30, 1994 because of higher energy cost rates in effect during
the current periods. Energy revenues also increased for both periods as a
result of a 1993 reclassification of certain transmission service revenues to
other revenues. The reclassification resulted from a favorable Pennsylvania
Public Utility Commission (PaPUC) order which allowed the Company to exclude
these transmission service revenues from the Company's energy cost rate. For
the nine month period ended September 30, 1994, these increases were partially
offset by decreased sales to non-associated utilities.
Other revenues
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes. However, earnings were negatively affected for both the three and nine
month periods ended September 1994 primarily from the absence of a one-time
benefit from the recognition of prior period transmission service revenues
recognized in the third quarter of 1993, mentioned above.
-19-<PAGE>
OPERATING EXPENSES:
Power purchased and interchanged
Changes in power purchased and interchanged expense related to energy do
not normally affect earnings as they are billed to customers through the
energy cost rate. However, earnings for the nine month period ended
September 30, 1994 were adversely affected because of energy costs relative to
nonutility purchases not being recovered in wholesale rates. The wholesale
portion of these costs increased because of higher nonutility generation
purchases and an increase in the Company's sales to wholesale customers.
Other operation and maintenance
The increase in other operation and maintenance (O&M) expense for the
three months ended September 30, 1994 is primarily the result of expensing, in
the third quarter of 1994, the retail jurisdictional amount of incremental
postretirement benefit costs. In 1993 the Company had been deferring these
costs. Also contributing to the increase in O&M expense for the three month
period was the recognition, in the third quarter of 1993, of proceeds from the
settlement of a property insurance claim.
The increase in O&M expense for the nine months ended September 30, 1994
is largely attributable to a $45 million charge for costs related to the
Voluntary Enhanced Retirement Programs. Other O&M expense also increased for
the nine month period due to higher costs, primarily during the first quarter
of 1994, related to increased outage activity at the Company's coal fired
generating stations and higher payroll costs resulting primarily from
emergency and storm repairs caused by winter storms. The same factors
affecting the quarterly results also affected results for the nine month
period.
Depreciation and amortization
Depreciation and amortization expense decreased for both the three and
nine month periods primarily from the absence, in 1994, of TMI-2 amortization
attributable to its retail customers. The Company had collected all of its
TMI-2 investment attributable to its retail customers in 1993.
Taxes, other than income taxes
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
The decrease for the nine months ended September 30, 1994 is principally
related to the second quarter 1994 write-off of estimated TMI-2 future costs
and postretirement benefit costs. The effect of these write-offs was
partially offset in the nine month period by nonrecurring interest income
resulting from refunds of previously paid federal income taxes related to the
tax retirement of TMI-2.
-20-<PAGE>
On July 11, 1994, the Pennsylvania Commonwealth Court overturned a 1993
PaPUC order that permitted Met-Ed to recover estimated TMI-2 future costs from
customers. As a result, the Company recorded second quarter charges of $56.3
million for its share of such costs. These charges were composed of $51.6
million for retirement costs and $4.7 million for monitored storage costs.
For more information concerning these charges, see Note 1 to the consolidated
financial statements.
In the second quarter of 1994, the Company wrote-off $14.6 million in
deferred postretirement benefit costs related to the adoption of Statement of
Financial Accounting Standards No. 106 as a result of a Commonwealth Court
decision reversing a PaPUC order that allowed a nonaffiliated utility, outside
a base rate case, to defer certain postretirement benefit costs for future
recovery from customers. The Company had deferred such costs under a similar
accounting order issued by the PaPUC. In addition, the Company wrote-off $4.0
million for the remaining transition obligation related to postretirement
benefit costs for the employees who participated in the Voluntary Enhanced
Retirement Programs.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Other interest
Other interest increased for the nine month period primarily from the tax
retirement of TMI-2, which resulted in an increase in interest expense on
additional amounts owed for tax years in which depreciation deductions with
respect to TMI-2 had been taken.
Dividends on preferred securities of subsidiary
Penelec Capital L.P., a special purpose finance subsidiary, issued
$105 million of Monthly Income Preferred Securities in July 1994. Dividends
paid on the Monthly Income Preferred Securities caused the increase for both
the three and nine month periods.
PREFERRED STOCK DIVIDENDS:
Preferred stock dividends decreased for the nine month period primarily
because of the redemption of $25 million of high-dividend rate preferred stock
in September 1993.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL NEEDS:
The Company's capital needs for the nine months ended September 30, 1994
consisted of $130 million for cash construction expenditures and $40 million
for maturing obligations. The Company's construction forecast for 1994 is
currently $186 million. Expenditures for maturing debt are expected to be $70
million for 1994. Management estimates that approximately one-half of the
1994 capital needs will be satisfied through internally generated funds.
-21-<PAGE>
FINANCING:
In the third quarter of 1994, the Company redeemed $25 million of 8.36%
preferred stock with a portion of the proceeds from the issuance of Monthly
Income Preferred Securities in July 1994. In November 1994, the Company
redeemed at maturity $30 million of 8.50% series first mortgage bonds (FMBs).
GPU has requested authorization from the Securities and Exchange
Commission (SEC) to issue up to 5 million shares of additional common stock
through 1996. The proceeds from the sale of such additional common stock
would be principally used to increase the Company and its affiliates' common
equity ratios.
The Company has regulatory authority to issue and sell FMBs, which may be
issued as secured medium-term notes, and preferred stock for various periods
through 1995. Under existing authorization, the Company may issue senior
securities in the amount of $290 million, of which $100 million may consist of
preferred stock. The Company, through its subsidiary Penelec Capital L.P.,
has authority to issue an additional $20 million of Monthly Income Preferred
Securities. The Company also has regulatory authority to incur short-term
debt, a portion of which may be through the issuance of commercial paper.
As a result of the TMI-2 future costs write-offs, together with certain
other costs recognized in the second quarter of 1994, the Company was unable
to meet its preferred dividend coverage requirements in its charter. The
Company will be unable to meet the coverage requirements for issuing preferred
stock until the first quarter of 1995. The Company has sufficient coverage to
issue only $11 million of FMBs based on its interest coverage requirements in
its indenture, plus an additional $68 million of FMBs on the basis of
previously issued and retired bonds. The ability of the Company to issue its
remaining authorized Monthly Income Preferred Securities, which have no such
coverage restrictions, is not affected by these write-offs.
On August 9, 1994, Standard & Poor's (S&P) reduced the credit ratings of
the Company's securities citing the implications of the Pennsylvania
Commonwealth Court order denying recovery of TMI-2 future costs. S&P now
assigns the Company's FMBs an A- rating and preferred stock and Monthly Income
Preferred Securities a BBB+ rating. S&P also revised its outlook for the
Company from "negative" to "stable".
GPU GENERATION CORPORATION:
In the third quarter of 1994, the PaPUC authorized the Company and Met-Ed
to enter into an operating agreement with the proposed GPU Generation
Corporation (GPUGC) whereby GPUGC would undertake responsibility for the
operation, maintenance and rehabilitation of all non-nuclear generation
facilities owned and operated by the Company and its affiliates as well as the
responsibility for the design, construction, start-up and testing of any new
non-nuclear generation facilities which the Company and its affiliates may
need in the future. Similar applications for regulatory approval are pending
with the New Jersey Board of Public Utilities and the SEC.
-22-<PAGE>
COMPETITION:
Due to the current availability of excess capacity, the cost of near to
intermediate-term energy supply from existing facilities (i.e., one to eight
years) is currently very competitively priced. In addition to the energy
purchase opportunities from existing facilities, the forecasted cost of energy
from new supply sources is now lower than the forecasted price in prior years
due to improvements in power plant technologies and reduced forecast fuel
prices. As a result of these developments, the contract prices payable under
virtually all of the Company and its affiliates' nonutility generation
agreements are substantially in excess of current and forecasted market
prices. The current and anticipated above-market payments for nonutility
generation (NUG) contracted power is likely to adversely impact the
competitive position of the Company and its affiliates. In addition, if the
costs under these agreements are ultimately not recoverable through
ratemaking, or in a competitive market, it could result in a material adverse
effect on the Company's as well as the GPU System's financial position and
results of operations. Therefore, the Company and its affiliates plan on
initiating actions to either eliminate or substantially reduce the above-
market payments under NUG contracts. The Company and its affiliates intend to
communicate with legislators, regulators and customers as to the adverse
economic impacts of these above-market contracts; initiate regulatory and
legislative actions to mitigate the future economic impact of these contracts;
and aggressively pursue NUG contract restructurings including contract
buyouts. As part of the program to reduce above-market payments under NUG
agreements, the Company and its affiliates intend to implement a program under
which the natural gas fuel and transportation for the Company and its
affiliates' gas-fired facilities, as well as up to approximately 1,100
megawatts of NUG contract capacity, would be pooled and managed by a non-
affiliated fuel manager. The Company and its affiliates are in the process of
initiating discussions with the NUGs involved, negotiating a management
agreement with a fuel manager and reviewing the extent to which state and
federal regulatory approvals may be necessary. For more information
concerning NUG purchased power, see Note 1, "Other Commitments and
Contingencies - Competition and the changing regulatory environment" to the
consolidated financial statements.
MEETING ENERGY DEMANDS:
In 1993, the Company filed an appeal with the Commonwealth Court to
overturn a PaPUC order which directs the Company to enter into two power
purchase agreements with nonutility generators for a total 160 MW under long-
term contracts commencing in 1997 or later. The Company does not need this
additional capacity and believes the costs associated with these contracts are
not in the economic interests of its customers. In August 1994, the
Commonwealth Court denied the Company's appeal to overturn the PaPUC order.
The Company intends to seek review of this decision by the Pennsylvania
Supreme Court.
The Company has contracts and anticipated commitments with nonutility
generation suppliers under which a total of 295 MW of capacity is currently in
service and an additional 119 MW are currently scheduled or anticipated to be
in service by 1999.
-23-<PAGE>
</FN>
</TABLE>
PART II
ITEM 1 - LEGAL PROCEEDINGS
Information concerning the current status of certain legal
proceedings instituted against the Company and its affiliates and
GPU as a result of the March 28, 1979 nuclear accident at Unit 2
of the Three Mile Island nuclear generating station discussed in
Part I of this report in Notes to Consolidated Financial
Statements is incorporated herein by reference and made a part
hereof.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(12) Statements Showing Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
(27) Financial Data Schedule
(b) Reports on Form 8-K:
(1) For the month of August 1994, dated August 9, 1994
under Item 5 (Other Events).
-24-<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENNSYLVANIA ELECTRIC COMPANY
November 4, 1994 By: /s/ F. D. Hafer
F. D. Hafer, President
November 4, 1994 By: /s/ D. L. O'Brien
D. L. O'Brien, Comptroller
(Principal Accounting Officer)
-25-<PAGE>
<TABLE>
Exhibit 12
Page 1 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<CAPTION>
Nine Months Ended
September 30, September 30,
1994 1993
<S> <C> <C>
OPERATING REVENUES $714 569 $679 827
OPERATING EXPENSES 591 631 498 945
Interest portion of rentals (A) 2 747 2 578
Net expense 588 884 496 367
OTHER INCOME AND DEDUCTIONS:
Allowance for funds used
during construction 2 778 1 543
Other income/(expense), net (63 626) (227)
Total other income and deductions (60 848) 1 316
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 64 837 $184 776
FIXED CHARGES:
Interest on funded indebtedness $ 35 187 $ 33 657
Other interest (B) 8 088 3 129
Interest portion of rentals (A) 2 747 2 578
Total fixed charges $ 46 022 $ 39 364
RATIO OF EARNINGS TO FIXED CHARGES 1.41 4.69
Preferred stock dividend requirement 2 551 4 079
Ratio of income before provision for
income taxes to net income (C) 113.0% 170.7%
Preferred stock dividend requirement
on a pretax basis 2 884 6 964
Fixed charges, as above 46 022 39 364
Total fixed charges and
preferred stock dividends $ 48 906 $ 46 328
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 1.33 3.99<PAGE>
Exhibit 12
Page 2 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
UNAUDITED
<FN>
NOTES:
(A) The Company has included the equivalent of the interest portion
of all rentals charged to income as fixed charges for this statement
and has excluded such components from Operating Expenses.
(B) Includes dividends on preferred securities of subsidiary of $2,195 for
the nine months ended September 30, 1994.
(C) Represents income before provision for income taxes of $18,815 and
$145,412, for the nine months ended September 30, 1994 and September 30,
1993, respectively, divided by net income of $16,645 and $85,172,
respectively.<PAGE>
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,713,692
<OTHER-PROPERTY-AND-INVEST> 34,241
<TOTAL-CURRENT-ASSETS> 201,322
<TOTAL-DEFERRED-CHARGES> 406,521
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,355,776
<COMMON> 105,812
<CAPITAL-SURPLUS-PAID-IN> 261,790
<RETAINED-EARNINGS> 311,576
<TOTAL-COMMON-STOCKHOLDERS-EQ> 679,178
0
141,777 <F1>
<LONG-TERM-DEBT-NET> 616,482
<SHORT-TERM-NOTES> 16,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,009
0
<CAPITAL-LEASE-OBLIGATIONS> 7,118
<LEASES-CURRENT> 19,742
<OTHER-ITEMS-CAPITAL-AND-LIAB> 845,470
<TOT-CAPITALIZATION-AND-LIAB> 2,355,776
<GROSS-OPERATING-REVENUE> 714,569
<INCOME-TAX-EXPENSE> 29,934
<OTHER-OPERATING-EXPENSES> 591,631
<TOTAL-OPERATING-EXPENSES> 621,565
<OPERATING-INCOME-LOSS> 93,004
<OTHER-INCOME-NET> (34,529)
<INCOME-BEFORE-INTEREST-EXPEN> 58,475
<TOTAL-INTEREST-EXPENSE> 41,830 <F2>
<NET-INCOME> 16,645
2,551
<EARNINGS-AVAILABLE-FOR-COMM> 14,094
<COMMON-STOCK-DIVIDENDS> 30,000 <F3>
<TOTAL-INTEREST-ON-BONDS> 46,244
<CASH-FLOW-OPERATIONS> 132,999
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> INCLUDES PREFERRED SECURITIES OF SUBSIDIARY OF $105,000.
<F2> INCLUDES DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARY
<F2> OF $2,195.
<F3> REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
</FN>
<PAGE>
</TABLE>
