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 June 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 July 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
June 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 17
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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PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant:
In service, at original cost $2 475 460 $2 429 557
Less, accumulated depreciation 904 699 887 281
Net utility plant in service 1 570 761 1 542 276
Construction work in progress 93 201 81 420
Other, net 32 193 35 614
Net utility plant 1 696 155 1 659 310
Current Assets:
Cash and temporary cash investments 1 235 1 622
Special deposits 2 606 2 622
Accounts receivable:
Customers, net 70 797 64 913
Other 21 276 9 824
Unbilled revenues 23 255 28 942
Materials and supplies, at average cost or less:
Construction and maintenance 46 682 46 994
Fuel 22 214 20 590
Deferred energy costs 21 585 17 047
Deferred income taxes 811 790
Prepayments 21 055 6 630
Total current assets 231 516 199 974
Deferred Debits and Other Assets:
Three Mile Island Unit 2 deferred costs 13 392 64 638
Deferred income taxes 117 193 64 577
Income taxes recoverable through future rates 237 372 234 026
Decommissioning funds 27 673 24 657
Nuclear fuel disposal fee 270 486
Other 45 374 53 672
Total deferred debits and other assets 441 274 442 056
Total Assets $2 368 945 $2 301 340
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
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PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
<CAPTION>
In Thousands
June 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 105 812 $ 105 812
Capital surplus 265 486 265 486
Retained earnings 298 455 328 290
Total common stockholder's equity 669 753 699 588
Cumulative preferred stock 61 842 61 842
Long-term debt 616 482 524 491
Total capitalization 1 348 077 1 285 921
Current Liabilities:
Debt due within one year 30 008 70 008
Notes payable 88 559 102 356
Obligations under capital leases 21 532 23 333
Accounts payable:
Affiliates 9 915 6 025
Others 62 364 85 254
Taxes accrued 13 762 11 978
Interest accrued 15 815 15 369
Vacations accrued 12 791 11 956
Other 14 756 13 511
Total current liabilities 269 502 339 790
Deferred Credits and Other Liabilities:
Deferred income taxes 463 864 455 076
Unamortized investment tax credits 49 006 51 775
Three Mile Island Unit 2 future costs 84 827 79 967
Nuclear fuel disposal fee 12 618 12 401
Other 141 051 76 410
Total deferred credits and other liabilities 751 366 675 629
Commitments and Contingencies (Note 1)
Total Liabilities and Capital $2 368 945 $2 301 340
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
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PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(Unaudited)
<CAPTION>
In Thousands
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Operating Revenues $227 122 $219 232 $474 302 $450 380
Operating Expenses:
Fuel 39 745 41 209 85 763 89 314
Power purchased and interchanged:
Affiliates 2 289 1 167 3 098 2 190
Others 36 796 34 207 81 107 60 057
Deferral of energy costs, net 2 959 (254) (4 633) 618
Other operation and maintenance 107 953 60 191 169 772 111 559
Depreciation and amortization 17 870 22 255 38 390 42 312
Taxes, other than income taxes 15 529 14 888 32 371 30 425
Total operating expenses 223 141 173 663 405 868 336 475
Operating Income Before Income Taxes 3 981 45 569 68 434 113 905
Income taxes (4 768) 13 212 13 668 36 269
Operating Income 8 749 32 357 54 766 77 636
Other Income and Deductions:
Allowance for other funds used during
construction 436 - 851 -
Other income/(expense), net (75 464) (214) (63 134) (410)
Income taxes 32 650 61 27 444 49
Total other income and deductions (42 378) (153) (34 839) (361)
Income/(Loss) Before Interest Charges (33 629) 32 204 19 927 77 275
Interest Charges:
Interest on long-term debt 11 681 11 141 23 391 22 194
Other interest 1 844 1 215 5 186 2 386
Allowance for borrowed funds used
during construction (483) (398) (944) (763)
Total interest charges 13 042 11 958 27 633 23 817
Net Income/(Loss) (46 671) 20 246 (7 706) 53 458
Preferred stock dividends 909 1 416 1 817 2 832
Earnings/(Loss) Available for Common Stock $(47 580) $ 18 830 $ (9 523) $ 50 626
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
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PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
In Thousands
Six Months
Ended June 30,
1994 1993
<S> <C> <C>
Operating Activities:
Income (loss) before preferred dividends $ (7 706) $ 53 458
Adjustments to reconcile income (loss) to cash provided:
Depreciation and amortization 34 172 39 861
Amortization of property under capital leases 4 095 4 910
Three Mile Island Unit 2 costs 56 304 -
Voluntary enhanced retirement program 44 856 -
Nuclear outage maintenance costs, net 1 539 1 283
Deferred income taxes and investment tax
credits, net (42 831) 1 740
Deferred energy costs, net (4 539) 943
Accretion income (200) (400)
Allowance for other funds used during construction (852) -
Changes in working capital:
Receivables (11 649) (5 708)
Materials and supplies (1 311) (43)
Special deposits and prepayments (14 441) (15 066)
Payables and accrued liabilities 3 359 1 886
Other, net 20 302 134
Net cash provided by operating activities 81 098 82 998
Investing Activities:
Cash construction expenditures (90 202) (58 702)
Contributions to decommissioning trust (2 954) (15 315)
Other, net - (112)
Net cash used for investing activities (93 156) (74 129)
Financing Activities:
Issuance of long-term debt 129 100 89 408
Decrease in notes payable, net (13 739) (22 790)
Capital lease principal payments (3 873) (4 306)
Retirement of long-term debt (78 000) (28 000)
Dividends paid on common stock (20 000) (40 000)
Dividends paid on preferred stock (1 817) (2 832)
Net cash provided (required) by
financing activities 11 671 (8 520)
Net increase (decrease) in cash and temporary
cash investments from above activities (387) 349
Cash and temporary cash investments,
beginning of year 1 622 659
Cash and temporary cash investments, end of period $ 1 235 $ 1 008
Supplemental Disclosure:
Interest paid (net of amount capitalized) $ 27 080 $ 21 608
Income taxes paid $ 20 293 $ 22 726
New capital lease obligations incurred $ 2 245 $ 8 403
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
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 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). In April 1994, General Portfolios Corporation (GPC) merged into its
then subsidiary, EI. EI develops, owns, and operates nonutility generating
facilities. The Company and its affiliates including GPUSC, GPUN and GPC
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 June 30, 1994, the Company's net investment in TMI-1, including nuclear
fuel, was $159 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
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
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Pennsylvania Electric Company and Subsidiary Companies
and timely recovery of costs associated with nuclear projects, including
replacement power, any unamortized investment at the end of each plant's
useful life (whether scheduled or premature), the carrying costs of that
investment and retirement costs, is not assured. Management intends, in
general, to seek recovery of any such costs described above through the
ratemaking process, but recognizes that recovery is not assured.
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 have 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, on March 30, 1994, that the insurers would withdraw their
reservation of rights.
In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of twelve allegedly representative
cases is now scheduled to begin in April 1995. In February 1994, the Court
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Pennsylvania Electric Company and Subsidiary Companies
held that the plaintiffs' claims for punitive damages are not barred by the
Price-Anderson Act to the extent that the funds to pay punitive damages do not
come out of the U.S. Treasury. The Court also denied in February 1994, the
defendants' motion seeking a dismissal of all cases on the grounds that the
defendants complied with applicable federal safety standards regarding
permissible radiation releases from TMI-2 and that, as a matter of law, the
defendants therefore did not breach any duty that they may have owed to the
individual plaintiffs. The Court stated that a dispute about what radiation
and emissions were released cannot be resolved on a motion for summary
judgment. On July 13, 1994, however, the Court granted the defendant's motion
for interlocutory appeal of its February 1994 order, stating that the punitive
damage claims and the duty owed by the defendants raise questions of law that
contain substantial grounds for differences of opinion.
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 Decommissioning Funds 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 $6 million at June 30, 1994. These decommissioning 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 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 June 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. Such costs are expected
to be incurred between 1994 and 2014, when decommissioning is forecast to
begin. 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 June
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.
On July 11, 1994, the Commonwealth Court reversed the PaPUC order. Met-Ed
plans to petition the Pennsylvania Supreme Court to review the decision. The
Company, because it is also subject to PaPUC regulation, recorded pre-tax
charges of $56.3 million for its share of such costs applicable to its retail
customers. These charges appear in the Other Income and Deductions section
of the Income Statement and are composed of $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 contribution
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
$9.1 billion. Coverage for the first $200 million of such liability is
provided by private insurance. The remaining coverage, or secondary
protection, is provided by retrospective premiums payable by all nuclear
reactor owners. Under secondary protection, a nuclear incident at any
licensed nuclear power reactor in the country, including those owned by the
GPU System, could result in assessments of up to $79 million per incident for
each of the GPU System's two operating reactors, subject to an annual maximum
payment of $10 million per incident per reactor. In July 1994, GPUN received
an exemption from the NRC to eliminate the secondary protection requirements
for TMI-2.
The 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 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 Company has reduced its previous
estimate from $295 million to $177 million primarily due to the postponement
of a scrubber installation until after 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. Management
believes that costs associated with the capital invested in this equipment and
the increased operating costs of the affected stations should be recoverable
through the ratemaking process.
The 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
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.
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 ratemaking process.
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Pennsylvania Electric Company and Subsidiary Companies
OTHER COMMITMENTS AND CONTINGENCIES
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.
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.
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
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<PAGE>
Pennsylvania Electric Company and Subsidiary Companies
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. The agreements have been approved by the PaPUC and permit the Company
to recover energy and demand costs from customers through its energy clause.
These agreements provide for the sale of approximately 414 megawatts (MW) of
capacity and energy to the Company by the mid-to-late 1990s. As of June 30,
1994, facilities covered by these agreements having 295 MW of capacity were in
service. The estimated cost of these agreements for 1994 is $121 million.
The price of the energy and capacity to be purchased under these agreements is
determined by the terms of the contracts. The rates payable under a number of
these agreements are in excess of current market prices. While the Company
has been granted full recovery of these costs from customers by the PaPUC,
there can be no assurance that the Company will continue to be able to recover
these costs throughout the term of the related contracts. The emerging
competitive market has created additional uncertainty regarding the
forecasting of the Company's energy supply needs which, in turn, has caused
the Company to change its supply strategy to seek shorter term agreements
offering more flexibility. At the same time, the Company is attempting to
renegotiate higher cost long-term nonutility generation contracts where
opportunities arise. The extent to which the Company may be able to do so,
however, or recover associated costs through rates, is uncertain. Moreover,
these efforts have led to disputes before the PaPUC, as well as to litigation
and may result in claims against the Company for substantial damages. There
can be no assurance as to the outcome of these matters.
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 during the latter part of 1994 or early
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.
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Pennsylvania Electric Company and Subsidiary Companies
The Company has requested the PaPUC to approve reduced charges to customers
for its share of the tax refund over the twelve-month period beginning
September 1, 1994. Income tax amounts refunded will have no effect on net
income.
At the same time, the Company 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.
In a proceeding involving an unaffiliated Pennsylvania utility, the
Pennsylvania Office of the Consumer Advocate (OCA) appealed a PaPUC
declaratory order permitting that utility to defer its incremental FAS 106
expense pending its next base rate order. On May 26, 1994, the Pennsylvania
Commonwealth Court reversed the PaPUC's declaratory order stating that FAS 106
expense incurred after January 1, 1993 (the effective date for the FAS 106
accounting change) but prior to its next base rate case could not be deferred
for future recovery as part of a later base rate case order, and that to
assure such future recovery constituted unlawful retroactive ratemaking.
Under these circumstances, management has determined that continued
deferral by the Company of incremental FAS 106 expense is 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.
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<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
The Company experienced a net loss for the three months ended June 30,
1994 amounting to $47.6 million compared with earnings available for common
stock of $18.8 million for the three months ended June 30, 1993. For the six
months ended June 30, 1994, the Company realized a $9.5 million net loss
compared with earnings available for common stock of $50.6 million for the
comparable period in 1993.
Earnings for the three months ended June 30, 1994 were negatively
affected by a $56.3 million write-off of certain estimated TMI-2 future costs
resulting from an unfavorable Pennsylvania Commonwealth Court order, a $45.0
million charge to income for costs related to the Voluntary Enhanced
Retirement Programs, and a $18.6 million write-off of postretirement benefit
costs not considered likely to be recovered through ratemaking. The same
factors affecting the quarterly results also affected results for the six
month period. Increased other operation and maintenance expenses also
contributed to the earnings reduction in the current six month period.
The effect of these losses for the three and six month periods were
partially offset by higher kilowatt-hour revenues and lower depreciation and
amortization. The effect of these losses for the six month period were
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 June 30, 1994 increased 3.6% to
$227.1 million as compared with the same period in 1993. Total revenues for
the six months ended June 30, 1994 increased 5.3% to $474.3 million compared
with the same period in 1993. The components of these changes are as follows:
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(In Millions)
Three Months Six Months
Ended Ended
June 30, 1994 June 30, 1994
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ 3.0 $ 10.3
Energy revenues 3.1 9.9
Other revenues 1.8 3.7
Increase in revenues $ 7.9 $ 23.9
Kilowatt-hour revenues
KWH revenues increased for both the three and six month periods ending
June 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. The 1992 federal Energy Policy Act
which allows transmission access and competition for wholesale customers made
this possible.
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 six month periods
ended June 30, 1994 because of higher energy cost rates in effect during the
current periods. 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.
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 both the three and six month periods
ended June 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.
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<PAGE>
Other operation and maintenance
The increase in other operation and maintenance (O&M) expense for the
three and six months ended June 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 six month period due to
higher costs related to increased outage activity at three of the Company's
coal fired generating stations and higher payroll costs resulting primarily
from emergency and storm repairs caused by winter storms.
For more information concerning charges for the Voluntary Enhanced
Retirement Programs and their affect on the Company, see Competition in the
Liquidity and Capital Resources section.
Depreciation and amortization
Depreciation and amortization expense decreased for both the three and
six 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 in both periods is principally related to the write-off of
estimated TMI-2 future costs and postretirement benefit costs. The effect of
these write-offs was partially offset in the six month period by nonrecurring
interest income resulting from refunds of previously paid federal income taxes
related to the tax retirement of TMI-2.
On July 11, 1994, the Pennsylvania Commonwealth Court overturned a 1993
Pennsylvania Public Utility Commission (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
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<PAGE>
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. For additional information concerning this charge
totaling $18.6 million, see Note 3 to the consolidated financial statements.
INTEREST CHARGES:
Other interest increased for the six 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.
PREFERRED STOCK DIVIDENDS:
Preferred stock dividends decreased for both the three and six month
periods 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 six months ended June 30, 1994
consisted of $90 million for cash construction expenditures and $40 million
for maturing obligations. The GPU System's construction expenditures for the
year were originally forecasted to be $663 million, of which the Company's
share was $218 million, and for the 1994/1995 period totaled $1.3 billion. In
conjunction with the GPU System's plans to enhance its competitive position,
the 1994/1995 construction forecast had been reduced to $1.2 billion. As a
result of the adverse Pennsylvania rate treatment of TMI-2 retirement costs,
the GPU System's goal is to further reduce its construction spending by $100
million, bringing the 1994/1995 construction forecast to $1.1 billion. The
GPU System's latest construction forecast for 1994 reflects a reduced spending
level of $586 million, of which the Company's share is $186 million. In
addition, the Company plans to begin making nonrecoverable funding
contributions to external trusts in the second half of 1995 to fund its share
of the TMI-2 retirement costs. 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.
FINANCING:
In the second quarter of 1994, the Company issued $40 million of 8.38%
series first mortgage bonds (FMBs), the net proceeds from which were used to
redeem $40 million principal amount of 9.35% series bonds that matured in May
1994.
In July 1994, the Company issued $105 million of Monthly Income Preferred
Securities (MIPS) through Penelec Capital, a special purpose finance
subsidiary. Penelec Capital then loaned the proceeds to the Company with the
Company issuing its deferrable interest subordinated debentures to Penelec
Capital. The Company will take a tax deduction for interest paid on the
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<PAGE>
subordinated debentures and, at the same time, receive some preferred equity
recognition by the credit rating agencies for the MIPS. The Company, through
this subsidiary, has authority to issue an additional $20 million of MIPS.
The Company has regulatory authority to issue and sell first mortgage
bonds, 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 also has regulatory
authority to incur short-term debt, a portion of which may be through the
issuance of commercial paper.
The Company has met its interest and preferred dividend coverage
requirements contained in its indenture and charter, respectively, in spite of
the results of the TMI-2 future costs write-offs, together with certain other
costs recognized in the second quarter of 1994. The Company has sufficient
coverage to issue only up to $80 million of FMBs and $12 million of preferred
stock at an assumed 9% interest and dividend rate through June 1995. In
addition, the Company will have the ability to issue $68 million of FMBs on
the basis of previously issued and retired bonds. The ability of the Company
to issue MIPS, which have no such coverage restrictions, is not affected by
these write-offs.
GPU plans to seek regulatory approval to issue up to approximately $125
million of additional common stock through 1995. The sale of such additional
common stock would be principally designed to restore the Company and its
affiliates' common equity ratios and maintain their current bond ratings in
light of the substantial second quarter 1994 write-offs.
The Company's ability to obtain external financing is reflected in its
security ratings, which are periodically reviewed by the three major credit
rating agencies. In June 1994, Standard & Poor's (S&P) and Duff & Phelps
(D&P) reaffirmed the Company's credit ratings. However, the S&P rating
outlook, which is a financial benchmarking standard for rating the debt of
electric utilities to reflect the changing risk profiles resulting primarily
from the intensifying competitive pressures in the industry, was revised. The
Company's rating outlook was lowered from "stable" to "negative". Though the
Company's position was recognized as strong, it was given a negative outlook
due to S&P's judgement that there has been a general weakening of overall GPU
System credit quality.
Following a review that was prompted by the Commonwealth Court's order
denying recovery of TMI-2 future costs, Moody's downgraded the Company's
credit ratings in August 1994 citing the Company and Met-Ed's weakened
financial flexibility and constraints on GPU's plans to strengthen the Company
and its affiliates' financial profiles to meet competitive challenges.
Moody's now assigns the Company's FMBs an equivalent A- rating; preferred
stock an equivalent BBB+ rating; and commercial paper a Prime 2 rating. In
August 1994, the Company's credit ratings were reaffirmed by D&P. S&P has
indicated that the effect of the Court's order on the Company's credit ratings
is uncertain pending its review of a more detailed strategy from management to
deal with the ruling's financial implications. Although credit quality has
been reduced, the Company's credit ratings remain above investment grade.
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<PAGE>
In June 1994, Moody's announced that it developed a new method to
calculate the minimum price an electric utility must charge its customers in
order to recover all of its generation costs. Moody's believes that an
assessment of relative cost position will become increasingly critical to the
credit analysis of electric utilities in a competitive marketplace. Specific
rating actions are not anticipated, however, until the pace and implications
of utility market deregulation are more certain.
GPU GENERATION CORPORATION:
In March 1994, the Company and its affiliates filed applications seeking
regulatory approval to enter into operating agreements with GPU Generation
Corporation (GPUGC) pursuant to GPU's reorganization plan announced in
February 1994. If approved, 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. The Company and its affiliates' applications are pending
before the New Jersey Board of Public Utilities, the PaPUC and the Securities
and Exchange Commission (SEC). One of the Company's municipal wholesale
customers has requested that the SEC hold an evidentiary hearing on the
Company and its affiliates' application.
COMPETITION:
In April 1994, GPU announced that it offered Voluntary Enhanced
Retirement Programs to certain bargaining and non-bargaining employees as part
of a corporate realignment plan designed to reduce costs and enhance GPU's
future competitive position in the changing electric utility industry.
Results for the three months ended June 30, 1994 reflect the acceptance by
approximately 1,350 employees, representing about 11% of the GPU System work
force. The future payroll savings expected from the retirement program are
estimated to be $59 million annually. The early retirement costs will be paid
from pension and postretirement benefit plan trusts. Savings from the
Programs reflect limiting the replacement of employees to 10% and are expected
to begin in the third quarter of 1994.
In April 1994, the PaPUC initiated an investigation into the role of
competition in Pennsylvania's electric utility industry. The PaPUC directed
that all interested parties file comments within five months on such issues
as: whether the electric transmission and generation systems should be opened
to retail wheeling, and what would be the effects on the Pennsylvania economy;
the appropriate pricing methodology for wheeling services; treatment of
stranded investment; the benefits, if any, for the customer; the impact on the
obligation to serve and the public policy goal of universal service; the
impact of retail wheeling on transmission safety and reliability; utility
financial health; and, ratemaking and legal issues. Following the initial
comment period, parties would have an additional month to file replies. A
PaPUC Staff report is expected to be issued in early 1995, following which the
PaPUC is to decide whether to conduct a rulemaking proceeding.
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<PAGE>
In June 1994, the Federal Energy Regulatory Commission (FERC) issued a
Notice of Proposed Rulemaking regarding the recovery by utilities of
legitimate and verifiable stranded costs. Among other things, the FERC has
proposed that utilities be allowed to recover such stranded costs associated
with existing wholesale requirements contracts, but not under new wholesale
contracts unless expressly provided for in the contract. With respect to so-
called retail stranded costs, while it stated a "strong" policy preference
that state regulatory agencies address recovery of these costs, the FERC also
set forth alternative proposals for how it would address the matter if the
states failed to do so. Subsequent to FERC's Notice of Proposed Rulemaking,
however, the U.S. Court of Appeals for the District of Columbia in an
unrelated case questioned the FERC's authority to permit utilities to recover
stranded costs. The Court directed that the FERC conduct an evidentiary
hearing in the case to determine whether permitting stranded cost recovery was
so inherently anticompetitive as to violate antitrust laws.
MEETING ENERGY DEMANDS:
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.
CONSERVATION AND LOAD MANAGEMENT:
The PaPUC completed its generic investigation into demand-side management
(DSM) cost recovery mechanisms and issued a cost recovery and ratemaking order
in December 1993. In April 1994, the Company filed a new DSM plan which
includes DSM initiatives totaling approximately 19 MW over a five-year period.
The Company is awaiting a PaPUC decision.
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<PAGE>
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By consent of the sole stockholder dated July 1, 1994 the
following were elected directors of the Company for the ensuing
year:
Robert C. Arnold
John F. Furst
John G. Graham
Fred D. Hafer
James R. Leva
George R. Repko
Robert S. Zechman
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.
(b) Reports on Form 8-K:
(1) For the month of May 1994, dated June 10, 1994 under
Item 5 (Other Events).
(2) For the month of July 1994, dated July 12, 1994 under
Item 5 (Other Events).
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<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
August 8, 1994 By: \s\ F. D. Hafer
F. D. Hafer, President
August 8, 1994 By: \s\ D. L. O'Brien
D. L. O'Brien, Comptroller
(Principal Accounting Officer)
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<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>
Six Months Ended
June 30, June 30,
1994 1993
<S> <C> <C>
OPERATING REVENUES $474 302 $450 380
OPERATING EXPENSES 405 868 336 475
Interest portion of rentals (A) 1 815 1 744
Net expense 404 053 334 731
OTHER INCOME AND DEDUCTIONS:
Allowance for funds used
during construction 1 795 763
Other deductions, net (63 134) (410)
Total other income and deductions (61 339) 353
EARNINGS AVAILABLE FOR FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS (excluding
taxes based on income) $ 8 910 $116 002
FIXED CHARGES:
Interest on funded indebtedness $ 23 391 $ 22 194
Other interest 5 186 2 386
Interest portion of rentals (A) 1 815 1 744
Total fixed charges $ 30 392 $ 26 324
RATIO OF EARNINGS TO FIXED CHARGES 0.29 (C) 4.41
Preferred stock dividend requirement 1 817 2 832
Ratio of income (loss) before provision for
income taxes to net income (loss) (B) 278.8% 167.8%
Preferred stock dividend requirement
on a pretax basis 5 065 4 751
Fixed charges, as above 30 392 26 324
Total fixed charges and
preferred stock dividends $ 35 457 $ 31 075
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS 0.25 (C) 3.73
<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) Represents income (loss) before provision for income taxes of $(21,482) and
$89,678, for the six months ended June 30, 1994 and June 30, 1993,
respectively, divided by net income (loss) of $(7,706) and $53,458,
respectively.
(C) Pre-tax earnings for the six months ended June 30, 1994 are inadequate to
cover both fixed charges and combined fixed charges and preferred stock
dividends. The deficiency in pre-tax earnings for the ratio of earnings to
fixed charges and the ratio of earnings to combined fixed charges and
preferred stock dividends is $21,482 and $26,547, respectively, which
represents additional pre-tax earnings needed to reach a one-to-one ratio.
</FN>
</TABLE>
<PAGE>
