Post-Effective Amendment No. 11 to
SEC File No. 70-7727
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM U-1
APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ("Act")
GENERAL PUBLIC UTILITIES CORPORATION ("GPU")
100 Interpace Parkway
Parsippany, New Jersey 07054
ENERGY INITIATIVES, INC. ("EI")
One Upper Pond Road
Parsippany, New Jersey 07054
(Names of companies filing this statement and addresses
of principal executive offices)
GENERAL PUBLIC UTILITIES CORPORATION
(Name of top registered holding company parent of applicants)
T.G. Howson, Vice President Douglas E. Davidson, Esq.
and Treasurer Berlack, Israels & Liberman
M. A. Nalewako, Secretary 120 West 45th Street
GPU Service Corporation New York, New York 10036
100 Interpace Parkway
Parsippany, New Jersey 07054
B. L. Levy, President
K. A. Tomblin, Esq., Secretary
Energy Initiatives, Inc.
One Upper Pond Road
Parsippany, New Jersey 07054
(Names and addresses of agents for service)<PAGE>
GPU and EI hereby post-effectively amend their Applica-
tion on Form U-1, docketed in SEC File No. 70-7727, as heretofore
amended, as follows:
1. By filing the following exhibits and financial
statements in Item 6 thereof:
(a) Exhibits:
I - Financial Data Schedules.
(b) Financial Statements:
1-A - EI Consolidated Balance Sheets, actual
and pro forma, as at June 30, 1994 and
Consolidated Statement of Operations and
Accumulated Deficit, actual and pro
forma, for the twelve months ended June
30, 1994; pro forma journal entries.
1-B - GPU (Corporate) Balance Sheets, actual
and pro forma, as at June 30, 1994 and
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended June 30,
1994; pro forma journal entries.
1<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE PUBLIC UTILITY
HOLDING COMPANY ACT OF 1935, THE UNDERSIGNED COMPANIES HAVE DULY
CAUSED THIS STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE UNDER-
SIGNED THEREUNTO DULY AUTHORIZED.
GENERAL PUBLIC UTILITIES CORPORATION
By: ________________________________
T.G. Howson
Vice President and Treasurer
ENERGY INITIATIVES, INC.
By:______________________________
B. L. Levy, President
Date: October 18, 1994<PAGE>
EXHIBIT AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Exhibit:
I - Financial Data Schedules.
Financial Statements:
1-A - EI Consolidated Balance Sheets, actual
and pro forma, as at June 30, 1994 and
Consolidated Statement of Operations and
Accumulated Deficit, actual and pro
forma, for the twelve months ended June
30, 1994; pro forma journal entries.
1-B - GPU (Corporate) Balance Sheets, actual
and pro forma, as at June 30, 1994 and
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended June 30,
1994; pro forma journal entries.<PAGE>
Financial Statements
Item 6(b) 1-A
Page 1 of 24
<TABLE>
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 4-5) Pro Forma
ASSETS
<S> <C> <C> <C>
Property and equipment $ 717 $ - $ 717
Less, accumulated depreciation (295) - (295)
Net 422 - 422
Investment in partnerships 57 926 - 57 926
Current Assets:
Cash & temporary investments 2 847 60 000 62 847
Accounts receivable 1 361 - 1 361
Restricted Cash - Polsky Escrow 2 541 - 2,541
Deferred Income Taxes 35 - 35
Prepayments & deposits 156 - 156
Total 6 940 60 000 66 940
Non-current Assets:
Investment in Securities 15 604 - 15 604
Intangible Assets 13 622 - 13 622
Other Investments 8 146 176 000 184 146
Long Term Receivables 1 940 - 1 940
Cash Surrender Value of
Company Life Insurance 12 - 12
Deferred income taxes 1 113 - 1 113
Notes Receivable from
Partnership 1 702 - 1 702
Total 42 139 176 000 218 139
Total Assets $107 427 $236 000 $343 427
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-A
Page 2 of 24
<TABLE>
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 4-5) Pro Forma
LIABILITIES AND CAPITAL
<S> <C> <C> <C>
Common Stock & Surplus:
Common stock $ 100 $ - $ 100
Paid in capital 105 034 176 000 281 034
Appropriated retained
earnings 7 687 - 7 687
Accumulated Deficit (13 620) (3 607) (17 227)
Total 99 201 172 393 271 594
Current Liabilities:
Accounts payable 1 239 - 1 239
Accrued vacation 233 - 233
Accrued bonuses 113 - 113
Interest payable 11 5 550 5 561
Notes payable - 60 000 60 000
Taxes accrued (1 252) (1 943) (3 195)
Reserve for Equipment Disposal 246 - 246
Deferred revenues 112 - 112
Total 702 63 607 64 309
Deferred Credits:
Deferred income taxes 5 236 - 5 236
Deferred compensation 50 - 50
Deferred revenue 2 238 - 2 238
Total 7 524 - 7 524
Total Liabilities and Capital $107 427 $236 000 $343 427
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-A
Page 3 of 24
<TABLE>
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 4-5) Pro Forma
<S> <C> <C> <C>
Operating Revenues $ 3 616 $ - $ 3 616
Operating Expenses:
Operation and maintenance 5 639 - 5 639
Depreciation 172 - 172
Taxes other than income 142 - 142
Total 5 953 - 5 953
Net Operating Income (2 337) - (2 337)
Other Income and Deductions:
Equity in losses of partnerships 52 - 52
Gain on retirement of fixed assets 36 - 36
Interest & dividend income 712 - 712
Interest Expense (14) (5 550) (5 564)
Total 786 (5 550) (4 764)
Income Before Income Taxes (1 551) (5 550) (7 101)
Income tax expense (486) (1 943) (2 429)
Net Income (Loss) $ (1 065) $ (3 607) $ (4 672)
Accumulated Deficit:
Balance at Beginning of Period $ (12 555) $ - $(12 555)
Net Income (Loss) (1 065) (3 607) (4 672)
Balance at End of Period $ (13 620) $ (3 607) $(17 227)
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-A
Page 4 of 24
<TABLE>
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Other Investments $176 000
Paid in capital $176 000
To reflect the proposed increase in GPU's
capital contribution to EI for investment in
QFs, EWGs and FUCOs. ($24 million to $200 million)
(2)
Cash and temporary investments $ 30 000
Notes Payable $ 30 000
To reflect the proposed borrowings
from commercial banks and financial institutions
which are to be guaranteed by GPU.
(3)
Interest expense $ 3 075
Interest payable $ 3 075
To reflect the incremental annual interest
expense resulting from the proposed $30 million
of borrowings at 250 basis points above prime rate.
(4)
Cash and temporary investments $ 30 000
Notes Payable $ 30 000
To reflect the proposed borrowings
from commercial banks and financial institutions
(SEC File No. 70-8369).<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-A
Page 5 of 24
<TABLE>
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(5)
<S> <C> <C>
Interest expense $ 2 475
Interest payable $ 2 475
To reflect the incremental annual interest
expense resulting from the proposed $30 million
of borrowings at 50 basis points above the
Citibank N.A. prime rate (SEC File No. 70-8369).
(6)
Tax accrued $ 1 943
Income tax expense $ 1 943
To reflect the decrease in the provision
for federal income taxes at a rate of 35%
attributable to the increase in interest
expense from the proposed (a) $30 million of
borrowings which are guaranteed by GPU and
(b) $30 million of borrowings (SEC File No. 70-8369).<PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 6 of 24
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<FN>
ORGANIZATION AND BUSINESS
Energy Initiatives, Inc. (EII) which commenced operations on April 1,
1985, is a wholly-owned subsidiary of General Public Utilities Corporation
(GPU). EII owns 100% of the common stock of the following active
corporations: Elmwood Energy Corporation (EEC), Hanover Energy Corporation,
Camchino Energy Corporation (Camchino), Geddes Cogeneration Corporation
(Geddes) and NCP Energy, Incorporated (NCP Energy) formerly North Canadian
Power, Incorporated (NCP). In addition, it also owns 100% of Armstrong Energy
Corporation, an inactive corporation. Each of these subsidiaries was formed
to develop, either directly, or indirectly through limited partnerships,
cogeneration or small power production facilities which are qualifying
facilities (QF's) under the Public Utility Regulatory Policies Act of 1978
(PURPA). Under PURPA regulations, EII and its subsidiaries may not own more
than a 50% interest in such facilities after commencement of operation.
In June 1990, the Securities and Exchange Commission (SEC) authorized GPU,
through General Portfolios Corporation (GPC), to contribute additional amounts
of up to $60 million to EII through December 31, 1992. In December 1992, the
SEC extended GPU's authority, through GPC, to contribute additional amounts up
to $60 million to EII through December 31, 1994. EII intends to utilize such
contributions for investment in proposed QF projects and Exempt Wholesale
Generators (EWG), as defined in the Energy Policy Act of 1992, expenditures
for preliminary project development costs, the purchase of ownership interests
in existing QF's and EWG's, and other corporate purposes.
EII also owns 100% of the stock of the following Canadian corporations:
EII Canada Holding Limited, EII Services Canada Limited, and EII Brooklyn
Power Limited. These corporations were formed to purchase ownerships and to
provide operations and management services to EWG's in Canada.
1. ACQUISITIONS, MERGERS AND INVESTMENTS
General Portfolios Corporation
In April, 1994, GPC, formerly a wholly-owned subsidiary of GPU and 100%
parent of EII, was merged with the Company. The principal assets recorded by
the Company for the merger consisted of investments in securities. As of June
30, 1994, the securities have a market value of approximately $15.6 million.<PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 7 of 24
North Canadian Power, Incorporated
In June, 1994, the Company acquired 100% of the stock of NCP (subsequently
renamed NCP Energy), a California company engaged in the business of
developing, owning and managing cogeneration and other independent power
plants in the United States and Canada. NCP Energy owns 100% of the following
corporations: NCP Lake Power, Incorporated (NCP Lake), NCP Gem, Incorporated
(NCP Gem), NCP Dade Power, Incorporated (NCP Dade), NCP Pasco, Incorporated
(NCP Pasco), NCP Ada Power, Incorporated (NCP Ada), and NCP Power Commerce,
Incorporated (NCP Commerce).
Through the stock purchase, the Company acquired partnership interests on
four of the five cogeneration facilities associated with the sale (see Note
2), along with the tangible and intangible assets of NCP, for approximately
$54 million. The ultimate acquisition of the fifth and remaining partnership
interest is contingent upon obtaining the appropriate consents of the parties
affiliated with that project.
Onondaga Cogeneration Limited Partnership
In April 1989, Geddes acquired all of the general and limited partnership
interests of Onondaga Cogeneration Limited Partnership (Onondaga), a New York
partnership engaged in the development of an approximately 79 MW cogeneration
facility in Geddes, New York (Geddes Project). Geddes accounted for its
acquisition using the purchase method (Note 2).
At the acquisition date, Geddes paid $1.3 million and assumed liabilities
of the sellers estimated to be $750,000. In June 1992, at project financing,
Geddes paid an additional $3 million to the sellers pursuant to the Restated
Acquisition Agreement. Geddes may be required to pay additional amounts to
the sellers contingent upon the consummation of certain transactions as
specified in the Restated Acquisition Agreement.
Selkirk Option
In October 1992, the Company amended its option agreement dated June 28,
1991 to purchase interests in two cogeneration facilities located in
Bethlehem, New York; a 79.9 MW facility currently in operation and a 270 MW
facility that commenced commercial operation on September 1, 1994. The
Company paid $180,440 and $3,695,210 for the option in 1992 and 1991,
respectively. The Company also paid $1,154,000 and $1,083,784 of development
contributions for the 270 MW project in accordance with the cost sharing
agreement in 1992 and 1991, respectively.
In October 1992, at project financing of the 270 MW Project, the Company
was reimbursed $2,447,368 for its development contributions. The Company also
made an equity contribution of $1,181,093 to the Project, together with a
letter of credit backed by a cash deposit in the principal amount of $7.6
million to guarantee future equity contributions to the Project. In October
1993, the Company replaced the $7.6 million deposit with a guarantee by GPU.
On September 23, 1994, the Company made its $7.6 million equity investment in
the Project.<PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 8 of 24
The option agreement provides that the option be exercised prior to
January 2, 1995 with an additional payment of $5.5 million plus accrued
interest subject to adjustment specified in the agreement. In the event the
option is not exercised by the Company, the agreement provides that the
Project shall repay all contributions made by the Company together with
interest at 12% per annum from the first distributions received by the
partnership.
Polsky Energy Corporation
In September 1993, the Company entered into a stock purchase agreement
with Polsky Energy Corporation (PEC), a Delaware corporation engaged in the
development of independent power production, whereby the Company would
purchase common stock representing 4.9% of the voting shares and, in
aggregate, not more than 29% of the total number of shares of all classes of
stock for a total purchase price not to exceed $8.5 million. The Company also
has the right to provide the operations and maintenance services for several
PEC projects under development.
At the acquisition date, the Company paid $2.5 million, which represents
approximately a 12% interest in PEC, for the initial installment of the stock
purchase. The obligation for the remaining $6 million of the aggregate
purchase price is $2.5 million on July 1, 1994, $2 million on July 1, 1995,
and $1.5 million on July 1, 1996. In addition, the Company deposited $2.5
million in an escrow account to guarantee its 1994 obligation, as required by
the stock purchase agreement. On July 1, 1994, the Company paid its $2.5
million installment and secured its July 1, 1995 $2 million investment with a
letter of credit supported by a GPU guarantee. The Company has accounted for
this acquisition using the purchase method and as a result recorded the
payment of $2.5 million as goodwill that will be amortized over a period of 40
years. The Company accounts for its investment using the equity method. The
Company recorded Goodwill amortization on this investment in the amount of
$23,082, and equity losses in the amount of $15,274.
2. PARTNERSHIP INTERESTS
Lake Cogen Ltd.
Through NCP Lake and NCP Gem, NCP Energy has a 1% general partner interest
and a 41.2% limited partner interest in Lake Cogen Ltd. (Lake), a Florida
limited partnership. The Lake project is a 112 MW cogeneration facility
located on the site of Golden Gem, Inc. fruit processing operations. The
project has a 20-year Power Purchase Agreement (PPA) with Florida Power
Corporation (FPC), and a 20-year Cogeneration Services Agreement with Golden
Gem. The project was placed into commercial operation on July 1, 1993, and was
financed through a sale-leaseback with the Owner Trustee for an initial term
of 11 years. At June 30, 1994, NCP Energy had an investment in Lake of
approximately $12 million.<PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 9 of 24
Pasco Cogen Ltd.
Through NCP Dade and NCP Pasco, NCP Energy has a 1% general partner
interest and a 45.85% limited partner interest in Pasco Cogen Ltd. (Pasco), a
Florida joint venture partnership. The Pasco project is a 112 MW cogeneration
facility located on the site of Lykes Pasco, Inc. fruit processing operations.
The project has a 20-year PPA with FPC and a 20-year Steam Production Contract
with Lykes Pasco. The project was placed into commercial operation on July 1,
1993, which was funded with long-term debt of approximately $93 million. At
June 30, 1994, NCP Energy had an investment in Pasco of approximately $23
million.
Ada Cogeneration Limited Partnership
Through NCP Ada, NCP Energy has a 1% general partner interest in Ada
Cogeneration Limited Partnership (ADA), a Michigan limited partnership. The
Ada project is a 29 MW cogeneration facility located on the site of Amway
Corporation world headquarters. The project has a 35-year PPA with Consumers
Power Company and a 35-year Thermal Sales Agreement with Amway. The project
was placed into commercial operation on January 5, 1991, which was funded with
long-term debt of approximately $26 million. At June 30, 1994, NCP Energy had
an investment in Ada of approximately $4 million.
FPB Cogeneration Partners, L.P.
Through NCP Commerce, NCP Energy has a 30% co-general partner interest in
FPB Cogeneration Partners, L.P. (FPB), a 26 MW cogeneration facility located
in Commerce, California. Due to the uncertainty of future distributions of
cash flows, no consideration was paid for the partnership interests in FPB.
Consequently, there is no investment carrying amount as of June 30, 1994.
Prime Energy Limited Partnership
EEC has a 1% interest as the sole general partner and a 49% interest as
limited partner in Prime Energy Limited Partnership (PELP). PELP was
organized to construct, own and operate a 65 MW cogeneration project in
Elmwood Park, New Jersey (Marcal Project). The Marcal Project was placed in
commercial operation in July 1989 at a total capitalized cost of approximately
$61 million, which was funded with nonrecourse debt collateralized by PELP's
assets. PELP has a Power Purchase Agreement with an affiliate of EII for the
sale of electricity and capacity from the Marcal Project.
O.L.S. Power Limited Partnership
Through Camchino, EII owns a 1% interest as general partner and a 49%
interest as limited partner in O.L.S. Power Limited Partnership (O.L.S.
Power), a Delaware limited partnership. The remaining limited partnership
interests are owned by The Prudential Insurance Company of America. At
December 31, 1993 and 1992, Camchino had a total investment in O.L.S. Power of
zero and approximately $2.2 million, respectively. <PAGE>
Financial Statements
Exhibit 6(b) 1-A
Page 10 of 24
On August 3, 1989, O.L.S. Power acquired, through O.L.S. Acquisition
Corporation, all of the outstanding capital stock of O.L.S. Energy - Berkeley
(Berkeley), O.L.S. Energy - Chino (Chino) and O.L.S. Energy - Camarillo
(Camarillo) for a total purchase price of approximately $13.4 million.
Berkeley, Chino and Camarillo are each lessees, pursuant to separate sale and
leaseback agreements, of operating cogeneration facilities at the University
of California - Berkeley (22.5 MW), the California State Correctional Facility
in Chino (27 MW) and the State Hospital in Camarillo, California (27 MW),
respectively.
Onondaga Cogeneration Limited Partnership
In April 1989, Geddes acquired all of the general and limited partnership
interests of Onondaga Cogeneration Limited Partnership, a New York
partnership. In June 1992, Onondaga obtained project financing for the
construction of the Geddes Project. On the project financing date, Geddes
became the sole general partners and a limited partner in Onondaga. The
remaining limited partnership interests are owned by a non-affiliated party
who contributed $13.5 million in equity during 1992.
Construction of the project is being financed by a group of lenders through
the Onondaga County Industrial Development Authority (OCIDA). OCIDA has
provided for a construction loan of up to $89.5 million, which will, subject
to satisfaction of certain conditions, be converted to a term loan of up to
$82 million with a maturity of up to 15 years from the term loan conversion
date of the project. Geddes made its capital contribution of $13.5 million on
December 17, 1993. On December 18, 1993, the project commenced commercial
operations.
The Lenders have required Geddes to provide for up to $9 million of
additional funding, in the form of equity letters of credit, to provide for
cost overruns during the construction period and contingent obligations during
the term loan period. Geddes, through EII, has provided a letter of credit to
support other funding requirements in the amount of $9 million, which has been
guaranteed by GPU.
3. LEASE
In August 1992, EII entered into a lease for its corporate facilities with
GPU Nuclear Corporation (GPUN), a subsidiary of GPU. EII Paid GPUN $203,309
and $103,758 in 1993 and 1992, respectively, for rental payments and other
costs associated with the lease agreement.<PAGE>
</FN>
</TABLE>
Financial Statements
Item 6(b) 1-B
Page 11 of 24
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
<S> (Unaudited) (See page 13-14) Pro Forma
ASSETS <C> <C> <C>
Investments:
Investments in subsidiaries $2 658 248 $ 162 843 $2 821 091
Other investments 3 424 - 3 424
Total investments 2 661 672 162 843 2 824 515
Current Assets:
Cash and temporary cash investments 21 995 31 655 53 650
Accounts receivable, net 880 - 880
Prepayments 196 - 196
Total current assets 23 071 31 655 54 726
Total Assets $2 684 743 $ 194 498 $2 879 241
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ 12 500 $ 326 958
Capital surplus 668 928 118 125 787 053
Retained earnings 1 709 750 (16 405) 1 693 345
Total 2 693 136 114 220 2 807 356
Less: reacquired common stock, at cost 183 326 - 183 326
Total common stockholders's equity 2 509 810 114 220 2 624 030
Current Liabilities:
Notes payable 118 400 82 000 200 400
Accounts payable 95 - 95
Taxes accrued 8 (1 722) (1 714)
Interest accrued 1 063 - 1 063
Other 54 426 - 54 426
Total current liabilities 173 992 80 278 254 270
Deferred credits and other liabilities 941 - 941
Total Liabilities and Capital $2 684 743 $ 194 498 $2 879 241
<FN>
The accompanying notes are an integral part of the financial statements.<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-B
Page 12 of 24
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See page 13-14) Pro Forma
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 161 459 $(13 207) $ 148 252
Other income, net 209 - 209
Total 161 668 (13 207) 148 461
Expense, Taxes and Interest:
General expenses 3 790 3 790
Income tax expense - (1 722) (1 722)
Interest expense 2 538 4 920 7 458
Total 6 328 3 198 9 526
Net Income $ 155 340 $(16 405) $ 138 935
Retained Earnings:
Balance at beginning of period $1 762 645 $ - $1 762 645
Add - Net income 155 340 (16 405) 138 935
Deduct - Cash dividends on common stock 201 256 - 201 256
Other adjustments 6 979 - 6 979
Balance at end of period $1 709 750 $(16 405) $1 693 345
<FN>
The accompanying notes are an integral part of the financial statements.<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-B
Page 13 of 24
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Investments in subsidiaries $176 000
Cash and temporary cash investments $176 000
To reflect the proposed increase in capital
contributions to Energy Initiatives.
(2)
Cash and temporary cash investments $130 625
Common stock $ 12 500
Capital surplus $118 125
To reflect the proposed issuance of 5 million
shares of $2.50 par value common stock at $26 1/8
per share (SEC File No. 70-8455).
(3)
Cash and temporary cash investments $ 82 000
Notes payable $ 82 000
To reflect the proposed issuance of
$82 million of borrowings under the new Revolving
Credit Agreement up to the authorized limit (SEC File
No. 70-7926).
(4)
Interest expense $ 4 920
Cash and temporary cash investments $ 4 920
To reflect annual interest expense resulting
from the proposed issuance of $82 million of
borrowings under the new Revolving Credit Agreement
at an assumed interest rate of 6% (SEC File
No. 70-7926).<PAGE>
</TABLE>
Financial Statements
Item 6(b) 1-B
Page 14 of 24
<TABLE>
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1994
(IN THOUSANDS)
<CAPTION>
(5)
<S> <C> <C>
Equity in earnings of subsidiaries $ 13 207
Investments in subsidiaries $ 13 207
To reflect the anticipated net income
effect from the (1) issuance of borrowings
under the new Revolving Credit Agreement
(SEC File No. 70-7926) and (2) JCP&L's
customer home energy improvement financing
program (SEC File No. 70-6903) and
(3) the proposed increase in borrowings
by Energy Initiatives.
(6)
Investment in subsidiaries $ 50
Cash and temporary cash investments $ 50
To reflect the acquisition of
all the common stock of GPU Generation
Corporation, a corporation to be formed for
$50,000 (SEC File No. 70-8409).
(7)
Taxes accrued $ 1 722
Income tax expense $ 1 722
To reflect the net decrease in the provision
for federal income taxes attributable to the increase
in interest expense from the issuance of short-term
debt under the new Revolving Credit Agreement (SEC
File No. 70-7926).<PAGE>
Financial Statements
Item 6(b)
Page 15 of 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<FN>
General Public Utilities Corporation (the Corporation) is a holding
company registered under the Public Utility Holding Company Act of 1935. The
Corporation does not directly operate any utility properties, but owns all
the outstanding common stock of three electric utilities -- Jersey Central
Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and
Pennsylvania Electric Company (Penelec) (the Subsidiaries). The Corporation
also owns all the common stock of GPU Service Corporation (GPUSC), a service
company; GPU Nuclear Corporation (GPUN), which operates and maintains the
nuclear units of the Subsidiaries; and Energy Initiatives, Inc. (EI). In
April 1994, General Portfolios Corporation (GPC) merged into its then
subsidiary EI. EI develops, owns and operates nonutility generating
facilities. All of these companies considered together with their
subsidiaries are referred to as the "GPU System."
These notes should be read in conjunction with the notes to consolidated
financial statements included in the 1993 Annual Report on Form 10-K. For
disclosures required by generally accepted accounting principles, see the 1993
Annual Report on Form 10-K.
1. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The Subsidiaries have made investments in three major nuclear projects -
- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are
operational generating facilities, and Three Mile Island Unit 2 (TMI-2), which
was damaged during a 1979 accident. At June 30, 1994, the Subsidiaries' net
investment in TMI-1 and Oyster Creek, including nuclear fuel, was $648 million
and $796 million, respectively. TMI-1 and TMI-2 are jointly owned by JCP&L,
Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively.
Oyster Creek is owned by JCP&L.
Costs associated with the operation, maintenance and retirement of
nuclear plants continue to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards and experience gained in the
construction and operation of nuclear facilities. The GPU System may also
incur costs and experience reduced output at its nuclear plants because of the
prevailing design criteria at the time of construction and the age of the
plants' systems and equipment. In addition, for economic or other reasons,
operation of these plants for the full term of their now assumed lives cannot
be assured. Also, not all risks associated with the ownership or operation of
nuclear facilities may be adequately insured or insurable. Consequently, the
ability of electric utilities to obtain adequate and timely recovery of costs
associated with nuclear projects, including replacement power, any unamortized
investment at the end of each plant's useful life (whether scheduled or
premature), the carrying costs of that investment and retirement costs, is not
assured. Management intends, in general, to seek recovery of any such costs
described above through the ratemaking process, but recognizes that recovery
is not assured.<PAGE>
Financial Statements
Item 6(b)
Page 16 of 24
TMI-2: The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
The cleanup program was completed in 1990. After receiving Nuclear Regulatory
Commission (NRC) approval, TMI-2 entered into long-term monitored storage in
December 1993.
As a result of the accident and its aftermath, approximately 2,100
individual claims for alleged personal injury (including claims for punitive
damages), which are material in amount, have been asserted against the
Corporation and the Subsidiaries and the suppliers of equipment and services
to TMI-2, and are pending in the United States District Court for the Middle
District of Pennsylvania. Some of such claims also seek recovery on the basis
of alleged emissions of radioactivity before, during and after the accident.
If, notwithstanding the developments noted below, punitive damages are
not covered by insurance and are not subject to the liability limitations of
the federal Price-Anderson Act ($560 million at the time of the accident),
punitive damage awards could have a material adverse effect on the financial
position of the GPU System.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the Subsidiaries had (a) primary financial protection in the form of
insurance policies with groups of insurance companies providing an aggregate
of $140 million of primary coverage, (b) secondary financial protection in the
form of private liability insurance under an industry retrospective rating
plan providing for premium charges deferred in whole or in major part under
such plan, and (c) an indemnity agreement with the NRC, bringing their total
primary and secondary insurance financial protection and indemnity agreement
with the NRC up to an aggregate of $560 million.
The insurers of TMI-2 have been providing a defense against all TMI-2
accident related claims against the Corporation and the Subsidiaries and their
suppliers under a reservation of rights with respect to any award of punitive
damages. However, the defendants in the TMI-2 litigation and the insurers
agreed, on March 30, 1994, that the insurers would withdraw their reservation
of rights.
In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of twelve allegedly representative
cases is now scheduled to begin in April 1995. In February 1994, the Court
held that the plaintiffs' claims for punitive damages are not barred by the
Price-Anderson Act to the extent that the funds to pay punitive damages do not
come out of the U.S. Treasury. The Court also denied in February 1994, the
defendants' motion seeking a dismissal of all cases on the grounds that the
defendants complied with applicable federal safety standards regarding
permissible radiation releases from TMI-2 and that, as a matter of law, the
defendants therefore did not breach any duty that they may have owed
to the individual plaintiffs. The Court stated that a dispute about what
radiation and emissions were released cannot be resolved on a motion for
summary judgment. On July 13, 1994, however, the Court granted defendant's
motion for interlocutory appeal of its February 1994 order, stating that the
punitive damage claims and the duty owed by the defendants raise questions of
law that contain substantial grounds for differences of opinion.<PAGE>
Financial Statements
Item 6(b)
Page 17 of 24
In an Order issued in April 1994, the Court: (1) noted that the
plaintiffs have agreed to seek punitive damages only against the Corporation
and the Subsidiaries; and (2) stated in part that the Court is of the opinion
that any punitive damages owed must be paid out of and limited to the amount
of primary and secondary insurance under the Price-Anderson Act and,
accordingly, evidence of the defendants' net worth is not relevant in the
pending proceeding.
NUCLEAR PLANT RETIREMENT COSTS
Retirement costs for nuclear plants include decommissioning the
radiological portions of the plants and the cost of removal of nonradiological
structures and materials. The disposal of spent nuclear fuel is covered
separately by contracts with the U.S. Department of Energy.
In 1990, the Subsidiaries submitted a report, in compliance with NRC
regulations, setting forth a funding plan (employing the external sinking fund
method) for the decommissioning of their nuclear reactors. Under this plan,
the Subsidiaries intend to complete the funding for Oyster Creek and TMI-1 by
the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2
funding completion date is 2014, consistent with TMI-2 remaining in long-term
storage and being decommissioned at the same time as TMI-1. Under the NRC
regulations, the funding targets (in 1994 dollars) for TMI-1 and Oyster Creek
are $157 million and $189 million, respectively. Based on NRC studies, a
comparable funding target for TMI-2 (in 1994 dollars), which takes into
account the accident, is $250 million. The NRC continues to study the levels
of these funding targets. Management cannot predict the effect that the
results of this review will have on the funding targets. NRC regulations and
a regulatory guide provide mechanisms, including exemptions, to adjust the
funding targets over their collection periods to reflect increases or
decreases due to inflation and changes in technology and regulatory
requirements. The funding targets, while not actual cost estimates, are
reference levels designed to assure that licensees demonstrate adequate
financial responsibility for decommissioning. While the regulations address
activities related to the removal of the radiological portions of the plants,
they do not establish residual radioactivity limits nor do they address costs
related to the removal of nonradiological structures and materials.
In 1988, a consultant to GPUN performed site-specific studies of TMI-1
and Oyster Creek that considered various decommissioning plans and estimated
the cost of decommissioning the radiological portions of each plant to range
from approximately $225 to $309 million and $239 to $350 million, respectively
(adjusted to 1994 dollars). In addition, the studies estimated the cost of
removal of nonradiological structures and materials for TMI-1 and Oyster Creek
at $74 million and $48 million, respectively (adjusted to 1994 dollars).
The ultimate cost of retiring the GPU System's nuclear facilities may be
materially different from the funding targets and the cost estimates contained
in the site-specific studies and cannot now be more reasonably estimated than
the level of the NRC funding target because such costs are subject to (a) the
type of decommissioning plan selected, (b) the escalation of various cost
elements (including, but not limited to, general inflation), (c) the further
development of regulatory requirements governing decommissioning, (d) the <PAGE>
Financial Statements
Item 6(b)
Page 18 of 24
absence to date of significant experience in decommissioning such facilities
and (e) the technology available at the time of decommissioning. The
Subsidiaries charge to expense and contribute to external trusts amounts
collected from customers for nuclear plant decommissioning and non-
radiological costs. In addition, the Subsidiaries have contributed to
external trusts amounts written off for TMI-2 nuclear plant decommissioning in
1990 and 1991 and expect to make further contributions beginning in 1995 for
amounts written off in 1994 described below.
TMI-1 and Oyster Creek:
JCP&L is collecting revenues for decommissioning, which are expected to
result in the accumulation of its share of the NRC funding target for each
plant. JCP&L is also collecting revenues, based on estimates, for the cost of
removal of nonradiological structures and materials at each plant based on its
share of an estimated $15.3 million for TMI-1 and $31.6 million for Oyster
Creek. In 1993, the Pennsylvania Public Utility Commission (PaPUC) granted
Met-Ed revenues for decommissioning costs of TMI-1 based on its share of the
NRC funding target and nonradiological cost of removal as estimated in the
site-specific study. Also in 1993, the PaPUC approved a rate change for
Penelec which increased the collection of revenues for decommissioning costs
for TMI-1 to a basis equivalent to that granted Met-Ed. Collections from
customers for retirement expenditures are deposited in external trusts and are
classified as Decommissioning Funds on the balance sheet, which includes the
interest earned on these funds. Provision for the future expenditures of
these funds has been made in accumulated depreciation, amounting to
$38 million for TMI-1 and $93 million for Oyster Creek at June 30, 1994.
Oyster Creek and TMI-1 retirement costs are accrued and charged to
depreciation expense over the expected service life of each nuclear plant.
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable through the ratemaking process.
TMI-2:
The Corporation and its Subsidiaries have recorded a liability amounting
to $250 million as of June 30, 1994, for the radiological decommissioning of
TMI-2, reflecting the NRC funding target. The Subsidiaries record
escalations, when applicable, in the liability based upon changes in the NRC
funding target. The Subsidiaries have also recorded a liability in the amount
of $20 million for incremental costs specifically attributable to monitored
storage. Such costs are expected to be incurred between 1994 and 2014, when
decommissioning is forecast to begin. In addition, the Subsidiaries had
recorded a liability in the amount of $71 million for nonradiological cost of
removal. Expenditures for such costs through June 1994 have reduced the
liability to $69 million. The above amounts for retirement costs and
monitored storage are reflected as Three Mile Island Unit 2 Future Costs on
the balance sheet.
In March 1993, a PaPUC rate order for Met-Ed allowed for the future
recovery of certain TMI-2 retirement costs. The recovery of these TMI-2
retirement costs was to begin when the amortization of the TMI-2 investment
ended in 1994. In May 1993, the Pennsylvania Office of Consumer Advocate filed
a petition for review with the Pennsylvania Commonwealth Court seeking to set<PAGE>
Financial Statements
Item 6(b)
Page 19 of 24
aside the PaPUC's 1993 rate order. On July 11, 1994, the Commonwealth Court
reversed the PaPUC order. Met-Ed plans to petition the Pennsylvania Supreme
Court to review the decision. As a consequence of the Commonwealth Court
decision, Met-Ed recorded pre-tax charges totaling $127.6 million. Penelec,
because it is also subject to PaPUC regulation, recorded pre-tax charges of
$56.3 million for its share of such costs applicable to its retail customers.
These charges appear in the Other Income and Deductions section of the Income
Statement and are composed of $121.0 million for radiological decommissioning
costs, $48.2 million for the nonradiological cost of removal and $14.7 million
for incremental monitored storage costs. Met-Ed and Penelec plan to begin
making nonrecoverable funding contributions to external trusts for these costs
in the second half of 1995 to fund their share of these costs. The
Pennsylvania Subsidiaries will be similarly required to charge to expense
their share of future increases (described above) in the estimate of the costs
of retiring TMI-2. Future earnings on trust fund deposits for Met-Ed and
Penelec will be recorded as income. Prior to the Commonwealth Court's
decision, Met-Ed and Penelec expensed and contributed $40 million and
$20 million respectively, to external trusts relating to their nonrecoverable
shares of the accident-related portion of the decommissioning liability.
JCP&L has also expensed and made a nonrecoverable contribution of $15 million
to an external decommissioning trust. JCP&L's share of earnings on trust fund
deposits are offset against amounts shown on the balance sheet under Three
Mile Island Unit-2 Deferred Costs as collectible from customers.
The New Jersey Board of Public Utilities (NJBPU), formerly the New
Jersey Board of Regulatory Commissioners, has granted decommissioning revenues
for JCP&L's share of the remainder of the NRC funding target and allowances
for the cost of removal of nonradiological structures and materials. JCP&L,
which is not affected by the Commonwealth Court's ruling, intends to seek
recovery for any increases in TMI-2 retirement costs, but recognizes that
recovery cannot be assured.
As a result of TMI-2's entering long-term monitored storage, in late
1993, the Subsidiaries began incurring incremental annual storage costs of
approximately $1 million. The Subsidiaries estimate that incremental
monitored storage costs will total $20 million through 2014, the expected
retirement date of TMI-1. JCP&L's $5 million share of these costs has been
recognized in rates by the NJBPU.
INSURANCE
The GPU System has insurance (subject to retentions and deductibles) for
its operations and facilities including coverage for property damage,
liability to employees and third parties, and loss of use and occupancy
(primarily incremental replacement power costs). There is no assurance that
the GPU System will maintain all existing insurance coverages. Losses or
liabilities that are not completely insured, unless allowed to be recovered
through ratemaking, could have a material adverse effect on the financial
position of the GPU System.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station (TMI-1 and TMI-2 are considered
one site for insurance purposes) and for Oyster Creek totals $2.7 billion per <PAGE>
Financial Statements
Item 6(b)
Page 20 of 24
site. In accordance with NRC regulations, these insurance policies generally
require that proceeds first be used for stabilization of the reactors and then
to pay for decontamination and debris removal expenses. Any remaining amounts
available under the policies may then be used for repair and restoration costs
and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear incident, property damage insurance proceeds would be
available for the repair and restoration of that station.
The Price-Anderson Act limits the GPU System's liability to third
parties for a nuclear incident at one of its sites to approximately
$9.1 billion. Coverage for the first $200 million of such liability is
provided by private insurance. The remaining coverage, or secondary
protection, is provided by retrospective premiums payable by all nuclear
reactor owners. Under secondary protection, a nuclear incident at any
licensed nuclear power reactor in the country, including those owned by the
GPU System, could result in assessments of up to $79 million per incident for
each of the GPU System's two operating reactors, subject to an annual maximum
payment of $10 million per incident per reactor. In July 1994, GPUN received
an exemption from the NRC to eliminate the secondary protection requirements
for TMI-2.
The GPU System has insurance coverage for incremental replacement power
costs resulting from an accident-related outage at its nuclear plants.
Coverage commences after the first 21 weeks of the outage and continues for
three years at decreasing levels beginning at $1.8 million for Oyster Creek
and $2.6 million for TMI-1, per week.
Under its insurance policies applicable to nuclear operations and
facilities, the GPU System is subject to retrospective premium assessments of
up to $51 million in any one year, in addition to those payable under the
Price-Anderson Act.
ENVIRONMENTAL MATTERS
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters, including but
not limited to acid rain, water quality, air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, the GPU System may be required to incur substantial additional costs
to construct new equipment, modify or replace existing and proposed equipment,
remediate or clean up waste disposal and other sites currently or formerly
used by it, including formerly-owned manufactured gas plants and mine refuse
piles, and with regard to electromagnetic fields, postpone or cancel the
installation of, or replace or modify, utility plant, the costs of which could
be material. Management intends to seek recovery through the ratemaking
process for any additional costs, but recognizes that recovery cannot be
assured.
To comply with the federal Clean Air Act Amendments (Clean Air Act) of
1990, the GPU System expects to expend up to $380 million for air pollution
control equipment by the year 2000. The GPU System has reduced its previous
estimate from $590 million to $380 million primarily due to the postponement
of two scrubber installations until after 2000. In developing its least-cost
plan to comply with the Clean Air Act, the GPU System will continue to
evaluate major capital investments compared to participation in the emission <PAGE>
Financial Statements
Item 6(b)
Page 21 of 24
allowance market and the use of low-sulfur fuel or retirement of facilities.
Management believes that costs associated with the capital invested in this
equipment and the increased operating costs of the affected stations should be
recoverable through the ratemaking process.
The GPU System companies have been notified by the Environmental
Protection Agency (EPA) and state environmental authorities that they are
among the potentially responsible parties (PRPs) who may be jointly and
severally liable to pay for the costs associated with the investigation and
remediation at ten hazardous and/or toxic waste sites. In addition, the GPU
System companies have been requested to supply information to the EPA and
state environmental authorities on several other sites for which they have not
yet been named as PRPs. The Subsidiaries have also been named in lawsuits
requesting damages for hazardous and/or toxic substances allegedly released
into the environment. The ultimate cost of remediation will depend upon
changing circumstances as site investigations continue, including (a) the
existing technology required for site cleanup, (b) the remedial action plan
chosen and (c) the extent of site contamination and the portion attributed to
the GPU System companies.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection for the investigation and remediation of 17 formerly-
owned manufactured gas plant sites. One of these sites has been repurchased
by JCP&L. JCP&L has also entered into various cost sharing agreements with
other utilities for some of the sites. At June 30, 1994, JCP&L has an
estimated environmental liability of $35 million recorded on its balance
sheet relating to these sites. The estimated liability is based upon ongoing
site investigations and remediation efforts, including capping the sites and
pumping and treatment of ground water. If the periods over which the
remediation is currently expected to be performed are lengthened, JCP&L
believes that it is reasonably possible that the ultimate costs may range as
high as $60 million. Estimates of these costs are subject to significant
uncertainties as JCP&L does not presently own or control most of these sites;
the environmental standards have changed in the past and are subject to future
change; the accepted technologies are subject to further development; and the
related costs for these technologies are uncertain. If JCP&L is required to
utilize different remediation methods, the costs could be materially in excess
of $60 million.
In 1993, the NJBPU approved a mechanism similar to JCP&L's Levelized
Energy Adjustment Clause (LEAC) for the recovery of future manufactured gas
plant remediation costs when expenditures exceed prior collections. The NJBPU
decision provides for interest to be credited to customers until the
overrecovery is eliminated and for future costs to be amortized over seven
years with interest. JCP&L is awaiting a final NJBPU order. JCP&L is pursuing
reimbursement of the above costs from its insurance carriers, and will seek to
recover costs to the extent not covered by insurance through this mechanism.
The GPU System companies are unable to estimate the extent of possible
remediation and associated costs of additional environmental matters. Also
unknown are the consequences of environmental issues, which could cause the
postponement or cancellation of either the installation or replacement of
utility plant. Management believes the costs described above should be
recoverable through the ratemaking process.<PAGE>
Financial Statements
Item 6(b)
Page 22 of 24
OTHER COMMITMENTS AND CONTINGENCIES
During the second quarter, the Corporation announced it was offering
voluntary enhanced retirement programs to certain employees. The enhanced
retirement programs are part of a corporate realignment announced in February
1994. At that time, the Corporation said that its goal was to achieve $80
million in annual cost savings by the end of 1996. Approximately 82% of
eligible employees have accepted the retirement programs, resulting in a pre-
tax charge to earnings of $127 million. These charges are included as Other
operation and maintenance expense on the Income Statement.
The NJBPU has instituted a generic proceeding to address the appropriate
recovery of capacity costs associated with electric utility power purchases
from nonutility generation projects. The proceeding was initiated, in part,
to respond to contentions of the Office of the Ratepayer Advocate (Ratepayer
Advocate), that by permitting utilities to recover such costs through the
LEAC, an excess or "double recovery" may result when combined with the
recovery of the utilities' embedded capacity costs through their base rates.
In 1993, JCP&L and the other New Jersey electric utilities filed motions for
summary judgment with the NJBPU requesting that the NJBPU dismiss contentions
being made by Ratepayer Advocate that adjustments for alleged "double
recovery" in prior periods are warranted. Ratepayer Advocate has filed a
brief in opposition to the utilities' summary judgment motions including a
statement from its consultant that in his view, the "double-recovery" for
JCP&L for the 1988-92 LEAC periods would be approximately $102 million. In
February 1994, the NJBPU ruled that the 1991 LEAC period was considered closed
but subsequent LEACs remain open for further investigation. It is anticipated
that the proceeding will be transmitted to the Office of Administrative Law
for further action. Management estimates that the potential exposure for LEAC
periods subsequent to 1991 is approximately $28 million through February 1995,
the end of the current LEAC period. Management is unable to estimate the
outcome of this proceeding.
As a result of the Energy Policy Act of 1992 and actions of regulatory
commissions, the electric utility industry appears to be moving toward a
combination of competition and a modified regulatory environment. In
accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS 71), the GPU
System's financial statements reflect assets and costs based on current cost-
based ratemaking regulations. Continued accounting under FAS 71 requires that
the following criteria be met:
a) A utility's rates for regulated services provided to its customers
are established by, or are subject to approval by, an independent
third-party regulator;
b) The regulated rates are designed to recover specific costs of
providing the regulated services or products; and
c) In view of the demand for the regulated services and the level of
competition, direct and indirect, it is reasonable to assume that
rates set at levels that will recover a utility's costs can be
charged to and collected from customers. This criteria requires
consideration of anticipated changes in levels of demand or
competition during the recovery period for any capitalized costs.<PAGE>
Financial Statements
Item 6(b)
Page 23 of 24
A utility's operations can cease to meet those criteria for various
reasons, including deregulation, a change in the method of regulation, or a
change in the competitive environment for the utility's regulated services.
Regardless of the reason, a utility whose operations cease to meet those
criteria should discontinue application of FAS 71 and report that
discontinuation by eliminating from its balance sheet the effects of any
actions of regulators that had been recognized as assets and liabilities
pursuant to FAS 71 but which would not have been recognized as assets and
liabilities by enterprises in general.
If a portion of the GPU System's operations continues to be regulated
and meets the above criteria, FAS 71 accounting may only be applied to that
portion. Write-offs of utility plant and regulatory assets may result for
those operations that no longer meet the requirements of FAS 71. In addition,
under deregulation, the uneconomical costs of certain contractual commitments
for purchased power and/or fuel supplies may have to be expensed currently.
Management believes that to the extent that the GPU System no longer qualifies
for FAS 71 accounting treatment, a material adverse effect on its results of
operations and financial position may result.
The Subsidiaries have entered into power purchase agreements with
independently owned power production facilities (nonutility generators) for
the purchase of energy and capacity for periods up to 25 years. The majority
of these agreements are subject to penalties for nonperformance and other
contract limitations. While a few of these facilities are dispatchable, most
are must-run and generally obligate the Subsidiaries to purchase all of the
power produced up to the contract limits. The agreements have been approved
by the state regulatory commissions and permit the Subsidiaries to recover
energy and demand costs from customers through their energy clauses. These
agreements provide for the sale of approximately 2,457 MW of capacity and
energy to the GPU System by the mid-to-late 1990s. As of June 30, 1994,
facilities covered by these agreements having 1,198 MW of capacity were in
service with another 215 MW scheduled to commence operation in 1994. The
estimated cost of these agreements for 1994 is $551 million. The price of the
energy and capacity to be purchased under these agreements is determined by
the terms of the contracts. The rates payable under a number of these
agreements are substantially in excess of current market prices. While the
Subsidiaries have been granted full recovery of these costs from customers by
the state commissions, there can be no assurance that the Subsidiaries will
continue to be able to recover these costs throughout the term of the related
contracts. The emerging competitive market has created additional uncertainty
regarding the forecasting of the System's energy supply needs which, in turn,
has caused the Subsidiaries to change their supply strategy to seek shorter
term agreements offering more flexibility. At the same time, the Subsidiaries
are attempting to renegotiate, and in some cases buy out, high cost long-term
nonutility generation contracts where opportunities arise. The extent to
which the Subsidiaries may be able to do so, however, or recover associated
costs through rates, is uncertain. Moreover, these efforts have led to
disputes before both the NJBPU and the PaPUC, as well as to litigation and may
result in claims against the Subsidiaries for substantial damages. There can
be no assurance as to the outcome of these matters.
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or <PAGE>
Financial Statements
Item 6(b)
Page 24 of 24
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40%
capacity factor would be approximately $10 million. While a capacity factor
below 40% would generate no specific monetary charge, it would require the
issue to be brought before the NJBPU for review. The annual measurement
period, which begins in March of each year, coincides with that used for the
LEAC. At the request of the PaPUC, Met-Ed and Penelec, as well as the other
Pennsylvania utilities, have supplied the PaPUC with proposals for the
establishment of a nuclear performance standard. Met-Ed and Penelec expect
the PaPUC to adopt a generic nuclear performance standard as a part of their
respective energy cost rate (ECR) clauses during the latter part of 1994 or
early 1995.
During the normal course of the operation of their businesses, in
addition to the matters described above, the GPU System companies are from
time to time involved in disputes, claims and, in some cases, as defendants in
litigation in which compensatory and punitive damages are sought by customers,
contractors, vendors and other suppliers of equipment and services and by
employees alleging unlawful employment practices. It is not expected that the
outcome of these matters will have a material effect on the GPU System's
financial position or results of operations. <PAGE>
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JUL-01-1993 JUL-01-1993
<PERIOD-END> JUN-30-1994 JUN-30-1994
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 2,661,672 2,824,515
<TOTAL-CURRENT-ASSETS> 23,071 54,726
<TOTAL-DEFERRED-CHARGES> 0 0
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 2,684,743 2,879,241
<COMMON> 314,458 326,958
<CAPITAL-SURPLUS-PAID-IN> 668,928 787,053
<RETAINED-EARNINGS> 1,709,750 1,693,345
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,509,810 <F1> 2,624,030
0 0
0 0
<LONG-TERM-DEBT-NET> 0 0
<SHORT-TERM-NOTES> 118,400 200,400
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 56,533 54,811
<TOT-CAPITALIZATION-AND-LIAB> 2,684,743 2,879,241
<GROSS-OPERATING-REVENUE> 0 0
<INCOME-TAX-EXPENSE> 0 (1,722)
<OTHER-OPERATING-EXPENSES> 3,790 3,790
<TOTAL-OPERATING-EXPENSES> 3,790 2,068
<OPERATING-INCOME-LOSS> (3,790) (2,068)
<OTHER-INCOME-NET> 161,668 148,461
<INCOME-BEFORE-INTEREST-EXPEN> 157,878 146,393
<TOTAL-INTEREST-EXPENSE> 2,538 7,458
<NET-INCOME> 155,340 138,935
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 155,340 138,935
<COMMON-STOCK-DIVIDENDS> 196,586 196,586
<TOTAL-INTEREST-ON-BONDS> 0 0,
<CASH-FLOW-OPERATIONS> (1,848) (1,848)
<EPS-PRIMARY> 1.39 1.39
<EPS-DILUTED> 1.39 1.39
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $183,326.
</FN>
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JUL-01-1993 JUL-01-1993
<PERIOD-END> JUN-30-1994 JUN-30-1994
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 99,374 275,374
<TOTAL-CURRENT-ASSETS> 6,940 66,940
<TOTAL-DEFERRED-CHARGES> 1,113 1,113
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 107,427 343,427
<COMMON> 100 100
<CAPITAL-SURPLUS-PAID-IN> 105,034 281,034
<RETAINED-EARNINGS> (5,933) (9,540)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 99,201 271,594
0 0
0 0
<LONG-TERM-DEBT-NET> 0 0
<SHORT-TERM-NOTES> 0 60,000
<LONG-TERM-NOTES-PAYABLE> 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,226 11,833
<TOT-CAPITALIZATION-AND-LIAB> 107,427 343,427
<GROSS-OPERATING-REVENUE> 3,616 3,616
<INCOME-TAX-EXPENSE> (486) (2,429)
<OTHER-OPERATING-EXPENSES> 5,953 5,953
<TOTAL-OPERATING-EXPENSES> 5,467 3,524
<OPERATING-INCOME-LOSS> (1,851) 92
<OTHER-INCOME-NET> 800 800
<INCOME-BEFORE-INTEREST-EXPEN> (1,051) 892
<TOTAL-INTEREST-EXPENSE> 14 5,564
<NET-INCOME> (1,065) (4,672)
0 0
<EARNINGS-AVAILABLE-FOR-COMM> (1,065) (4,672)
<COMMON-STOCK-DIVIDENDS> 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> (3,008) (3,008)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
</FN>
<PAGE>
</TABLE>
