Amendment No. 2 to
SEC File No. 70-8369
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
GENERAL PORTFOLIOS CORPORATION ("GPC")
Mellon Bank Center
Tenth and Market Streets
Wilmington, Delaware 19801
ENERGY INITIATIVES, INC. ("EI")
One Upper Pond Road
Parsippany, NJ 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)
Don W. Myers, 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, NJ 07054
B.L. Levy, President
K.A. Tomblin, Secretary
Energy Initiatives, Inc.
One Upper Pond Road
Parsippany, NJ 07054
_________________________________________________________________
(Names and addresses of agents for service)
<PAGE>
GPU, GPC and EI hereby amend their Application on Form
U-1, as heretofore amended, docketed in SEC File No. 70-8369, as
follows:
By filing the following financial statements in Item 6
thereof:
"1-A GPU (Corporate) Balance Sheets, actual and
pro forma, as at December 31, 1993, and
Consolidated Statements of Income, actual and
pro forma, and Statement of Retained
Earnings, for the twelve months ended
December 31, 1993; pro forma journal entries.
1-B EI Consolidated Balance Sheets, actual and
pro forma, as at December 31, 1993, and
Consolidated Statements of Income, actual and
pro forma, and Statement of Retained
Earnings, for the twelve months ended
December 31, 1993; pro forma journal entries.
2. GPU Consolidated Balance Sheets, actual and
pro forma, as at December 31, 1993, and
Consolidated Statements of Income, actual and
pro forma, and Statement of Retained
Earnings, for the twelve months ended
December 31, 1993; pro forma journal
entries."
<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
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
GENERAL PUBLIC UTILITIES CORPORATION
GENERAL PORTFOLIOS CORPORATION
By:
Don W. Myers, Vice President and
Treasurer
ENERGY INITIATIVES, INC.
By:__________________________
B.L. Levy, President
Date: March 22, 1994
<PAGE>
FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Financial Statements:
1-A - GPU (Corporate) Balance Sheets, actual
and pro forma, as at December 31, 1993,
and Consolidated Statements of Income,
actual and pro forma, and Statement of
Retained Earnings, for the twelve months
ended December 31, 1993; pro forma
journal entries.
1-B - EI Consolidated Balance Sheets, actual
and pro forma, as at December 31, 1993,
and Consolidated Statements of Income,
actual and pro forma, and Statement of
Retained Earnings, for the twelve months
ended December 31, 1993; pro forma
journal entries.
2. - GPU Consolidated Balance Sheets, actual
and pro forma, as at December 31, 1993,
and Consolidated Statements of Income,
actual and pro forma, and Statement of
Retained Earnings, for the twelve months
ended December 31, 1993; pro forma
journal entries.
<PAGE>
<TABLE>
Financial Statements
Item 6(b) 1-A
Page 1 of 34
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1993
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 3-4) Pro Forma
<S> <C> <C> <C>
ASSETS
Investments:
Investments in subsidiaries $2 693 641 $ 241 379 $2 935 020
Other investments 3 422 - 3 422
Total investments 2 697 063 241 379 2 938 442
Current Assets:
Cash and temporary cash investments 68 (280 000) (279 932)*
Accounts receivable, net 337 - 337
Prepayments 5 - 5
Total current assets 410 (280 000) (279 590)
Total Assets $2 697 473 $ (38 621) $2 658 852
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ - $ 314 458
Capital surplus 667 683 - 667 683
Retained earnings 1 815 740 (45 121) 1 770 619
Total 2 797 881 (45 121) 2 752 760
Less: reacquired common stock, at cost 185 258 - 185 258
Total common stockholders' equity 2 612 623 (45 121) 2 567 502
Current Liabilities:
Notes payable 32 100 10 000 42 100
Accounts payable 301 - 301
Taxes accrued 5 (3 500) (3 495)
Interest accrued 104 - 104
Other 51 491 - 51 491
Total current liabilities 84 001 6 500 90 501
Deferred credits and other liabilities 849 - 849
Total Liabilities and Capital $2 697 473 $ (38 621) $2 658 852
* The pro forma balance sheet does not reflect any future cash dividends to be received by GPU
from its three electric utility Subsidiaries. The dividends would be paid from future
earnings.
The accompanying notes are an integral part of the financial statements.
<PAGE>
Financial Statements
Item 6(b) 1-A
Page 2 of 34
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 3-4) Pro Forma
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 301 591 $(38 621) $ 262 970
Other income, net 44 - 44
Total 301 635 (38 621) 263 014
Expense, Taxes and Interest:
General expenses 4 125 10 000 14 125
Income tax expense - (3 500) (3 500)
Interest expense 1 837 - 1 837
Total 5 962 6 500 12 462
Net Income $ 295 673 $(45 121) $ 250 552
Retained Earnings:
Balance at beginning of period $1 716 196 $ - $1 716 196
Add - Net income 295 673 (45 121) 250 552
Deduct - Cash dividends declared on common stock 189 150 - 189 150
Other adjustments 6 979 - 6 979
Balance at end of period $1 815 740 $(45 121) $1 770 619
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 1-A
Page 3 of 34
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(1)
Investments in subsidiaries $ 80 000
Cash and temporary cash investments $ 80 000
To record the proposed cash capital
contribution to be made by GPU to EI,
in an amount not to exceed the maximum
purchase price of $80 million under the
proposed "Stock Purchase Agreement". GPU
expects that the capital contributions will
primarily be financed from short-term bank
borrowings previously or subsequently
authorized by the Commission.
(2)
Investments in subsidiaries (EI) $ 39 135
Investments in subsidiaries (GPC) $ 39 135
To reflect on GPU's books the merger
of GPC into EI. Upon consummation of the
merger, all of the outstanding 100 shares,
without par value, of GPC common stock would
be canceled and EI would become a direct
wholly-owned subsidiary of GPU (SEC File
No. 70-8395).
(3)
Investments in subsidiaries $200 000
Cash and temporary cash investments $200 000
To record the total cash capital
contributions to be made, from time
to time during the period, beginning with
the effectiveness of the authorization
sought and ending December 31, 1996, by GPU
to its three electric operating subsidiaries,
in an amount up to $200 million. GPU expects
that the capital contributions will
primarily be financed from short-term bank
borrowings previously or subsequently
authorized by the Commission (SEC File
No. 70-7933).
<PAGE>
Financial Statements
Item 6(b) 1-A
Page 4 of 34
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(4)
Other operation & maintenance $ 10 000
Notes payable $ 10 000
To reflect the maximum exposure to GPU
under Guarantee obligations to secure EI
short-term borrowings. The total principal
amount guaranteed by GPU would not exceed
$10 million, and would be in addition to the
amount which GPU is otherwise authorized to
guarantee on behalf of EI (SEC File
No. 70-7727).
(5)
Taxes accrued $ 3 500
Income tax expense $ 3 500
To reflect the decrease in the provision
for federal income taxes attributable to the
potential expense resulting from the fulfilling
of Guarantee obligations to secure EI short-term
borrowings, not to exceed $10 million
(SEC File No. 70-7727).
(6)
Equity in earnings of subsidiaries $ 38 621
Investments in subsidiaries $ 38 621
To reflect the anticipated net income effect
from the (1) proposed "Assumption Agreements",
(2) increase in interest expense resulting from the
proposed issuance of promissory notes (3) New Letters
of Credit (SEC File No. 70-8141 and SEC File
No. 70-8323), and (4) leasing of excess fiber optic
system capacity (SEC File No. 70-7850).
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 5 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1993
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 8-12) Pro Forma
ASSETS
Property and equipment $ 660 $ - $ 660
Less, accumulated depreciation (215) - (215)
Net 445 - 445
Investment in partnerships 19 330 - 19 330
Current Assets:
Cash & temporary investments 5 350 20 431 25 781
Accounts receivable 2 238 - 2 238
Notes receivable 300 - 300
Deferred tax assets 112 - 112
Prepayments & deposits 31 1 32
Total 8 031 20 432 28 463
Non-current Assets:
Cash surrender value of Company
life insurance 12 - 12
Deferred income taxes - 1 113 1 113
Investment/Cogen Corp - 70 000 70 000
Investment/Selkirk 5 526 - 5 526
Investment/Polsky 2 739 - 2 739
Other investments - 3 779 3 779
Restricted investment 2 500 - 2 500
Total 10 777 74 892 85 669
Total Assets $38 583 $95 324 $133 907
The accompanying notes are an integral part of the financial statements.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 6 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1993
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 8-12) Pro Forma
LIABILITIES AND CAPITAL
Common Stock & Surplus:
Common stock $ 100 $ - $ 100
Paid in capital 47 600 83 917 131 517
Accumulated deficit (13 673) (17 171) (30 844)
Total 34 027 66 746 100 773
Current Liabilities:
Accounts payable 1 794 2 1 796
Accrued vacation 158 - 158
Accrued bonuses 161 - 161
Accrued liabilities - 40 40
Interest payable - 3 250 3 250
Notes payable - 35 000 35 000
Taxes accrued (869) (9 740) (10 609)
Deferred revenues 112 - 112
Total 1 356 28 552 29 908
Deferred Credits:
Deferred income taxes 873 - 873
Deferred credits 33 26 59
Deferred revenue 2 294 - 2 294
Total 3 200 26 3 226
Total Liabilities and Capital $38 583 $ 95 324 $133 907
The accompanying notes are an integral part of the financial statements.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 7 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
Actual Adjustments
(Unaudited) (See pages 8-12) Pro Forma
Operating Revenues $ 3 281 $ - $ 3 281
Operating Expenses:
Operation and maintenance 4 246 25 033 29 279
Depreciation 159 - 159
Total 4 405 25 033 29 438
Net Operating Income (1 124) (25 033) (26 157)
Other Income and Deductions:
Equity in losses of partnerships (914) - (914)
Interest income 403 335 738
Interest expense (4) (3 250) (3 254)
Gain on retirement of fixed assets 36 - 36
Total (479) (2 915) (3 394)
Income Before Income Taxes (1 603) (27 948) (29 551)
Income tax expense 244 (9 834) (9 590)
Net Income (Loss) $ (1 847) $(18 114) $(19 961)
Accumulated Deficit:
Balance at Beginning of Period $ (11 826) $ 943 $(10 883)
Net Income (Loss) (1 847) (18 114) (19 961)
Balance at End of Period $ (13 673) $(17 171) $(30 844)
The accompanying notes are an integral part of the financial statements.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 8 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(1)
Cash & temporary investments $ 80 000
Paid in capital $ 80 000
To reflect the proposed cash capital
contribution to be made by GPU to EI, in an
amount not to exceed the maximum purchase
price of $80 million under the proposed
"Stock Purchase Agreement".
(2)
Investment/Cogen Corp $ 80 000
Cash & temporary investments $ 80 000
To reflect the proposed purchase of all the
common stock of Cogen Corp. by December 31, 1995
for a total cash consideration not to exceed
$80 million.
(3)
Cash & temporary investments $ 10 000
Investment/Cogen Corp $ 10 000
To reflect the sale of a 50% ownership
interest in Project No. 1 for $10 million in
order to comply with the FERC's 50% limitation
on electric utility ownership under PURPA.
(4)
Cash & temporary investments $ 25 000
Notes payable $ 25 000
To reflect the proposed issuance of
promissory notes from time to time through
December 31, 1995 to one or more commercial
banks for an aggregate principal amount not
to exceed $25 million. The borrowings plus
interest payments are to be unconditionally
guaranteed by GPU.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 9 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(5)
Operation and maintenance $ 25 000
Cash & temporary investments $ 25 000
To reflect the maximum exposure to EI under
the proposed "Assumption Agreements" in which
EI could be obligated to make payments
under the Rent Guarantee, the Foundation Guarantee,
the Tax Guarantee, the Catalyst Guarantee and
the Repurchase Guarantee in an aggregate amount
not to exceed $25 million.
(6)
Interest expense $ 2 500
Interest payable $ 2 500
To reflect the annual interest expense
resulting from the proposed issuance of $25 million
of promissory notes at an assumed interest rate
not to exceed 10%.
(7)
Taxes accrued $ 9 625
Income tax expense $ 9 625
To reflect the decrease in the provision for
federal income taxes attributable to the (1) increase
in costs resulting from the proposed "Assumption
Agreements" and (2) increase in costs resulting from
interest on proposed new debt issuances.
Note: The proposed pro forma journal entries do not give effect to a
"stipulated damage amount" of up to $7 million in the event the Closing does
not occur by August 15, 1994 due to the failure of a specified condition as
set forth in the Stock Purchase Agreement.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 10 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(8)
Investment in GPC $ 5 108
Paid in capital $ 3 917
Retained earnings 1 191*
To record the merger of GPC common
equity into EI (SEC File No. 70-8395).
(9)
Cash & temporary investments $ 431
Prepayments & deposits 1
Deferred income taxes 1 113
Other investments 3 779
Accounts payable $ 2
Accrued liabilities 40
Taxes accrued 148
Deferred credits 26
Investment in GPC 5 108
To record the merger of GPC assets
and liabilities into EI (SEC File
NO. 70-8395).
(10)
Retained earnings $ 248
Operation and maintenance expense 33
Income tax expense 54
Interest income $ 335
To transfer 1993 income and expense accounts
of GPC to EI's books as part of the merger
(SEC File No. 70-8395).
* Includes $943,000 for transfer of GPC's retained earnings balance
at 12/31/92.
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 11 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(11)
Cash & temporary investments $10 000
Notes payable $10 000
To reflect the short-term borrowings from
commercial banks and other financial
institutions which are to be guaranteed by GPU.
Limited to an aggregate principal amount
outstanding at any time, together with the
aggregate amount of obligations outstanding
under Reimbursement Agreements entered into by
EI, of $10 million (SEC File No. 70-7727).
(12)
Interest expense $ 750
Interest payable $ 750
To reflect the incremental annual interest
expense resulting from the short-term borrowings
of $10 million (SEC File No. 70-7727).
(13)
Taxes accrued $ 263
Income tax expense $ 263
To reflect the decrease in the provision for
federal income taxes attributable to the increase
in interest expense from the short-term borrowings
of $10 million (SEC File 70-7727).
(14)
Investment in subsidiaries $ 1
Cash & temporary investments $ 1
To reflect the acquisition of all the
capital stock of Services Sub, a Delaware
corporation to be formed, for $1,000 (SEC
File No. 70-7727).
<PAGE>
Financial Statements
Item 6(b) 1-B
Page 12 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(15)
Investment in subsidiaries $ 1 000
Cash & temporary investments $ 1 000
To reflect the cash capital
contributions of $1 million to Services
Sub, a Delaware corporation to be formed
(SEC File No. 70-7727).
(16)
Capital stock of subsidiaries $ 1
Capital surplus of subsidiaries 1 000
Investment in subsidiaries $ 1 001
To eliminate, in consolidation, the
intercompany investments in Services Sub
(SEC File No. 70-7727).
Note: Pro forma journal entries 14, 15 and 16 are shown to illustrate the
entries that would appear only on the books of Energy Initiatives, Inc. These
entries have no effect on the consolidated financial statements of Energy
Initiatives, Inc. and Subsidiaries.
<PAGE>
Financial Statements
Item 6(b)
Page 13 of 34
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ORGANIZATION AND BUSINESS
Energy Initiatives, Inc. (EI) which commenced operations on April 1, 1985, is
a wholly-owned subsidiary of General Portfolios Corporation (GPC), a
wholly-owned subsidiary of General Public Utilities Corporation (GPU). EI
owns 100% of the common stock of the following active corporations: Elmwood
Energy Corporation (EEC), Camchino Energy Corporation (Camchino), Geddes
Cogeneration Corporation (Geddes) and Northeast Energy Corporation (NEC). In
addition, it also owns 100% of the stock of the following corporations which
are currently inactive: Hanover Energy Corporation and Armstrong Energy
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 current Federal
regulations, EI 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 GPC, to contribute additional amounts of up to $60 million to EI
through December 31, 1992. In December 1992, the SEC extended GPU's
authority, through GPC, to contribute additional amounts up to $60 million to
EI through December 31, 1994. EI intends to utilize such contributions for
investment in proposed QF projects, Exempt Wholesale Generators (EWG), as
defined in the Energy Policy Act of 1992, preliminary project development
costs, the purchase of ownership interests in existing QF's and EWG's and
other corporate purposes.
EI also owns 100% of the stock of the following Canadian corporations which
are currently inactive: EI Canada Holding Limited, EI Services Canada
Limited, and EI Brooklyn Power Limited. These corporations were formed to
purchase ownerships and to provide operations and management services to QF's
and EWG's in Canada.
1. ACQUISITIONS, INVESTMENTS AND DIVESTITURES
Northeast Cogen, Inc.
In July 1989, NEC acquired all of the shares of capital stock of Northeast
Cogen Inc. (NCI), an Indiana corporation engaged in the development of a 40
Megawatt (MW) cogeneration facility in Solvay, New York (Solvay Project) for
approximately $2.4 million. NEC agreed to pay the former owners an additional
$1.4 million contingent upon the satisfaction of certain conditions set forth
in the Stock Purchase Agreement, including the closing of various transactions
(financial closing) to provide sufficient financing to construct the Solvay
Project. NEC accounted for its acquisition of NCI using the purchase method.
<PAGE>
Financial Statements
Item 6(b)
Page 14 of 34
1. ACQUISITIONS, INVESTMENTS AND DIVESTITURES (Continued)
In December 1991, the former owners of NCI exercised their option to
repurchase NCI at a purchase price of $2.9 million. The purchase price, as
specified in the Stock Purchase Agreement, was evidenced by a promissory note,
which was deemed to be uncollectible. In December 1991, the remaining NCI
investment, primarily comprised of deposits, property, plant and equipment and
intangibles was written off for a net after tax loss of $2.5 million. The
before tax write-off of approximately $3.4 million was included in operating
expenses in 1991.
In July and August 1992, NEC received payments totaling approximately $4
million from the former owners of NCI, representing payment of the promissory
note with interest, along with the reimbursement of certain deposits, which
resulted in after tax income of approximately $2.7 million.
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 5).
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
currently under construction. 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.
In addition, 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
<PAGE>
Financial Statements
Item 6(b)
Page 15 of 34
1. ACQUISITIONS, INVESTMENTS AND DIVESTITURES (Continued)
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 9.9% 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 shall be $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. The Company has accounted for this
acquisition using the purchase method. 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
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 EI for the
sale of electricity and capacity from the Marcal Project.
O.L.S. Power Limited Partnership
Through Camchino, EI 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, 1992
Camchino had a total investment in O.L.S. Power of approximately $2.2 million.
At December 31, 1993 Camchino's investment in O.L.S. was written down to zero.
<PAGE>
Financial Statements
Item 6(b)
Page 16 of 34
2. PARTNERSHIP INTERESTS (Continued)
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.
The adjusted value of goodwill for Chino and Camarillo and the carrying value
of goodwill for Berkeley as of December 31, 1993, is based on anticipated cash
flows through 2017, which is the remaining facilities lease terms including
renewals, and the expectation that the Energy Service Agreement's will
continue through 2017.
Berkeley, GECC and UCB are currently involved in negotiations regarding the
restructuring of the lease agreement and related operating agreements between
the parties. The Company anticipates that the restructuring will occur in the
first quarter of 1994. The objective of the restructuring is for Berkeley to
improve the financial results and cash flows of the project.
In October 1991, Berkeley was notified by Pacific Gas & Electric that it is
subject to utility users tax on natural gas purchases. The notification
requested payment of approximately $1,029,000 for the period July 31, 1988
through July 31, 1991. Berkeley responded that it believed that it was exempt
from paying this tax under the tax ordinance because its natural gas purchases
were used for the generation of electrical energy. In December 1991, Berkeley
received a letter of response from the City of Berkeley requesting payment of
the users tax as well as interest and penalties totalling approximately $1.5
million through December 31, 1991, of which approximately $1.2 million relates
to the period through December 31, 1990. At December 31, 1991 Berkeley
recorded the tax, including interest and penalties, in the financial
statements. In addition, Berkeley expected to recover a portion of the tax
and recorded a receivable of $863,458 from the University of California -
Berkeley (UCB) based on the cost of natural gas used by the facility to
produce steam sold to UCB, resulting in a net book expense of $721,703.
In September 1992, the city attorney for Berkeley concluded, based on a review
of the ordinance, that the Utility Users Tax ordinance does not apply to
Berkeley's purchase of gas used by the facility. The $721,703 expense
recorded in 1991 was subsequently reversed in 1992.
In 1993, the City of Berkeley amended the ordinance so as to apply to Berkeley
the imposition of the tax effective July 1993. The imposition of the tax is
not expected to have a material effect on operations.
<PAGE>
Financial Statements
Item 6(b)
Page 17 of 34
2. PARTNERSHIP INTERESTS (Continued)
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 (Note 4). In June 1992, Onondaga obtained project financing for
the construction of the Geddes Project. 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. In
addition, 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 EI, has provided a letter of credit to
support other funding requirements in the amount of $9 million, which has been
guaranteed by GPU.
On the project financing date, Geddes became the sole general partner and a
limited partner in Onondaga. The remaining limited partnership interests are
owned by an non-affiliated party who contributed $13.5 million in equity
during 1992.
On December 18, 1993, the project commenced operations.
3. LEASE
In August 1992, EI terminated its prior lease agreement and entered into a new
lease agreement for its corporate offices with an affiliated company (see Note
2) for a term of four years ending September 1, 1996. Rental Payments for
1993 and 1992, which includes a buyout of the prior lease agreement were
approximately $203,000 and $407,000, respectively. In addition to the rental
cost, EI is responsible for its proportionate share of certain operating costs
incurred by the lessor, subject to annual adjustments in accordance with the
lease agreement. Annual lease payments through 1995 will be approximately
$248,000, which includes $82,000 of operating costs. In 1996, lease payments
for the remaining 8 months will approximate $166,000, including $55,000 of
operating costs.
<PAGE>
<TABLE>
Financial Statements
Item 6(b) 2
Page 18 of 34
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1993
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 21-24) Pro Forma
<S> <C> <C> <C>
ASSETS
Utility Plant:
In Service, at original cost $8 441 335 $ - $8 441 335
Less, accumulated depreciation 2 929 278 - 2 929 278
Net utility plant in service 5 512 057 - 5 512 057
Construction work in progress 267 381 - 267 381
Other, net 214 178 - 214 178
Net utility plant 5 993 616 - 5 993 616
Current Assets:
Cash and temporary cash investments 25 843 (69 300) (43 457)
Special deposits 11 868 - 11 868
Accounts receivable:
Customers, net 253 186 - 253 186
Other 55 037 - 55 037
Unbilled revenues 113 960 - 113 960
Materials and supplies, at average cost or less:
Construction and maintenance 187 606 - 187 606
Fuel 51 676 - 51 676
Deferred income taxes 34 219 - 34 219
Prepayments 79 490 - 79 490
Total current assets 812 885 (69 300) 743 585
Deferred Debits and Other Assets:
Three Mile Island Unit 2 deferred costs 339 672 - 339 672
Unamortized property losses 113 566 - 113 566
Deferred income taxes 275 257 - 275 257
Income taxes recoverable through future rates 554 590 - 554 590
Decommissioning funds 219 178 - 219 178
Other 559 943 70 000 629 943
Total deferred debits and other assets 2 062 206 70 000 2 132 206
Total Assets $8 868 707 $ 700 $8 869 407
The accompanying notes are an integral part of the consolidated financial statements.
<PAGE>
Financial Statements
Item 6(b) 2
Page 19 of 34
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ACTUAL AND PRO FORMA
AT DECEMBER 31, 1993
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 21-24) Pro Forma
<S> <C> <C> <C>
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314 458 $ - $ 314 458
Capital surplus 667 683 - 667 683
Retained earnings 1 813 490 (45 121) 1 768 369
Total 2 795 631 (45 121) 2 750 510
Less, reacquired common stock, at cost 185 258 - 185 258
Total common stockholders' equity 2 610 373 (45 121) 2 565 252
Cumulative preferred stock:
With mandatory redemption 150 000 - 150 000
Without mandatory redemption 158 242 - 158 242
Long-term debt 2 320 384 - 2 320 384
Total capitalization 5 238 999 (45 121) 5 193 878
Current Liabilities:
Debt due within one year 133 232 - 133 232
Notes payable 216 056 70 000 286 056
Obligations under capital leases 161 744 - 161 744
Accounts payable 300 181 - 300 181
Taxes accrued 140 132 (26 679) 113 453
Deferred energy credits 20 787 - 20 787
Interest accrued 73 368 2 500 75 868
Other 174 609 - 174 609
Total current liabilities 1 220 109 45 821 1 265 930
Deferred Credits and Other Liabilities:
Deferred income taxes 1 389 241 - 1 389 241
Unamortized investment tax credits 170 108 - 170 108
Three Mile Island Unit 2 future costs 319 867 - 319 867
Other 530 383 - 530 383
Total deferred credits and other liabilities 2 409 599 - 2 409 599
Total Liabilities and Capital $8 868 707 $ 700 $8 869 407
The accompanying notes are an integral part of the consolidated financial statements.
<PAGE>
Financial Statements
Item 6(b) 2
Page 20 of 34
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See pages 21-24) Pro Forma
<S> <C> <C> <C>
Operating Revenues $3 596 090 $ 4 000 $3 600 090
Operating Expenses:
Fuel 363 643 - 363 643
Power purchased and interchanged, net 897 185 - 897 185
Deferral of energy costs, net (6 598) - (6 598)
Other operation and maintenance 909 786 48 300 958 086
Depreciation and amortization 359 898 - 359 898
Taxes, other than income taxes 344 221 - 344 221
Total operating expenses 2 868 135 48 300 2 916 435
Operating Income Before Income Taxes 727 955 (44 300) 683 655
Income taxes 200 179 (17 054) 183 125
Operating income 527 776 (27 246) 500 530
Other Income and Deductions:
Allowance for other funds used during
construction 4 831 - 4 831
Other income, net (7 579) (27 500) (35 079)
Income taxes 2 756 9 625 12 381
Total other income and deductions 8 (17 875) (17 867)
Income Before Interest Charges and
Preferred Dividends 527 784 (45 121) 482 663
Interest Charges and Preferred Dividends:
Interest on long-term debt 187 847 - 187 847
Other interest 20 612 - 20 612
Allowance for borrowed funds used during
construction (5 105) - (5 105)
Preferred stock dividends of subsidiaries 28 757 - 28 757
Total interest charges and preferred
dividends 232 111 - 232 111
Net Income $ 295 673 $(45 121) $ 250 552
Retained Earnings:
Balance at beginning of period $1 716 196 $ - $1 716 196
Add - Net income 295 673 (45 121) 250 552
Deduct - Cash dividends declared on common stock 189 150 - 189 150
Other adjustments 9 229 - 9 229
Balance at end of period $1 813 490 $(45 121) $1 768 369
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
Financial Statements
Item 6(b) 2
Page 21 of 34
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(1)
Special deposits - escrow $ 80 000
Cash & temporary cash investments $ 80 000
To reflect the proposed cash deposit of
$80 million into escrow, representing the
maximum purchase price under the proposed
"Stock Purchase Agreement". The $80 million
will be financed by GPU primarily from short-
term bank borrowings previously or subsequently
authorized by the Commission.
(2)
Investments (Other deferred debits) $ 80 000
Special deposits - escrow $ 80 000
To reflect the proposed purchase of all the
common stock of Cogen Corp. by December 31, 1995
for a total cash consideration not to exceed
$80 million.
(3)
Cash & temporary cash investments $ 10 000
Investments (Other deferred debits) $ 10 000
To reflect the sale of a 50% ownership
interest in Project No. 1 for $10 million in
order to comply with the FERC's 50% limitation
on electric utility ownership under PURPA.
(4)
Cash & temporary cash investments $ 25 000
Notes payable $ 25 000
To reflect the proposed issuance of
promissory notes from time to time through
December 31, 1995 to one or more commercial
banks for an aggregate principal amount not
to exceed $25 million. The borrowings plus
interest payments are to be unconditionally
guaranteed by GPU.
<PAGE>
Financial Statements
Item 6(b) 2
Page 22 of 34
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(5)
Other income, net $ 25 000
Cash & temporary cash investments $ 25 000
To reflect the maximum exposure to GPU under
the proposed "Assumption Agreements" in which
GPU and/or EI could be obligated to make payments
under the Rent Guarantee, the Foundation Guarantee,
the Tax Guarantee, the Catalyst Guarantee and
the Repurchase Guarantee in an aggregate amount
not to exceed $25 million.
(6)
Other income, net $ 2 500
Interest accrued $ 2 500
To reflect the annual interest expense
resulting from the proposed issuance of $25 million
of promissory notes at an assumed interest rate
not to exceed 10%.
(7)
Taxes accrued $ 9 625
Income taxes (Other income) $ 9 625
To reflect the decrease in the provision for
federal income taxes attributable to the (1) increase
in costs resulting from the proposed "Assumption
Agreements" and (2) increase in costs resulting from
interest on new debt issuances.
Note: The proposed pro forma journal entries do not give effect to a
"stipulated damage amount" of up to $7 million in the event the Closing does
not occur by August 15, 1994 due to the failure of a specified condition as
set forth in the Stock Purchase Agreement.
<PAGE>
Financial Statements
Item 6(b) 2
Page 23 of 34
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(8)
Other operation & maintenance $ 10 000
Notes payable $ 10 000
To reflect the maximum exposure to GPU
under Guarantee obligations to secure EI
short-term borrowings. The total principal
amount guaranteed by GPU would not exceed
$10 million, and would be in addition to the
amount which GPU is otherwise authorized to
guarantee on behalf of EI (SEC File
No. 70-7727).
(9)
Other operation and maintenance $ 35 000
Notes payable $ 35 000
To reflect an increase in the Company's
operation and maintenance expense for
the maximum amount of costs of potential
non-performance under New Letters of Credit
(SEC File No. 70-8141 and SEC File No. 70-8323).
(10)
Other operation and maintenance $ 3 100
Cash and temporary cash investments $ 3 100
To reflect the (1) New Letters of Credit
fees for up to $20 million at 1% annually of
face value through December 31, 2003
(SEC File No. 70-8141) and (2) New Letters of
Credit fees for up to $15 million at 1% annually
of face value through December 31, 1999 (SEC
File No. 70-8323).
(11)
Cash and temporary cash investments $ 4 000
Operating revenues $ 4 000
To reflect the anticipated annual revenues
and cash derived from the leasing of excess
fiber optic system capacity to nonaffiliates
(SEC File No. 70-7850).
<PAGE>
Financial Statements
Item 6(b) 2
Page 24 of 34
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
PRO FORMA ADJUSTMENTS
AT DECEMBER 31, 1993
(IN THOUSANDS)
(12)
Other operation and maintenance $ 200
Cash and temporary cash investments $ 200
To reflect the anticipated annual
administrative costs associated with
entering into the leasing of excess
fiber optic system capacity to
nonaffiliates (SEC File No. 70-7850).
(13)
Taxes accrued $ 17 054
Income taxes $ 17 054
To reflect the net decrease in the
provision for federal and state income
taxes attributable to the (1) potential
expense resulting from the fulfilling of
Guarantee obligations to secure EI short-
term borrowings (SEC File No. 70-7727)
(2) operating income before income taxes
derived from the leasing of excess fiber
optic system capacity (SEC File No. 70-7850)
and (3) increase in costs resulting from the
New Letters of Credit (SEC File No. 70-8141
and SEC File No. 70-8323).
<PAGE>
Financial Statements
Item 6(b)
Page 25 of 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 General Portfolios Corporation (GPC),
parent of Energy Initiatives, Inc., which 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 December 31, 1993, the
Subsidiaries' net investment in TMI-1 and Oyster Creek, including nuclear
fuel, was $670 million and $784 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 have continued to increase and become less predictable, in large part
due to changing regulatory requirements and 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 design criteria prevailing 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
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 the plants' 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 26 of 34
1. COMMITMENTS AND CONTINGENCIES (Continued)
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, 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. Approximately 2,100 of such claims are pending in the
U.S. District Court for the Middle District of Pennsylvania. Some of the
claims also seek recovery for injuries from alleged emissions of radioactivity
before and after the accident. Questions have not yet been resolved as to
whether the punitive damage claims are (a) subject to the overall limitation
of liability set by the Price-Anderson Act ($560 million at the time of the
accident) and (b) outside the primary insurance coverage provided pursuant to
that Act (remaining primary coverage of approximately $80 million as of
December 31, 1993). If punitive damages are not covered by insurance or are
not subject to the Price-Anderson liability limitation, punitive damage awards
could have a material adverse effect on the financial position of the GPU
System.
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 scheduled to begin in October 1994. In February 1994, the Court held
that the plaintiffs' claims for punitive damages are not barred by the Price-
Anderson Act to the extent that the funds to pay punitive damages do not come
out of the U.S. Treasury. The Court also denied the defendants' motion seeking
a dismissal of all cases on the grounds that the defendants complied with
applicable federal safety standards regarding permissible radiation releases
from TMI-2 and that, as a matter of law, the defendants therefore did not
breach any duty that they may have owed to the individual plaintiffs. The
Court stated that a dispute about what radiation and emissions were released
cannot be resolved on a motion for summary judgment.
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. As described in the Nuclear Fuel Disposal Fee
section of Note 2, the disposal of spent nuclear fuel is covered separately by
contracts with the U.S. Department of Energy (DOE).
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
<PAGE>
Financial Statements
Item 6(b)
Page 27 of 34
1. COMMITMENTS AND CONTINGENCIES (Continued)
regulations, the funding targets (in 1993 dollars) for TMI-1 and Oyster Creek
are $143 million and $175 million, respectively. Based on NRC studies, a
comparable funding target for TMI-2 (in 1993 dollars), which takes into
account the accident, is $228 million. The NRC is currently studying 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 $205 to $285 million and $220 to $320 million, respectively
(adjusted to 1993 dollars). In addition, the studies estimated the cost of
removal of nonradiological structures and materials for TMI-1 and Oyster Creek
at $72 million and $47 million, respectively.
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
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 nonradiological
costs. In addition, the Subsidiaries have contributed to external trusts
amounts written off for nuclear plant decommissioning in 1990 and 1991.
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, adopted in rate
orders issued in 1991 and 1993 by the New Jersey Board of Regulatory
Commissioners (NJBRC), 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 January 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.
Effective October 1993, the PaPUC approved a rate change for Penelec which
increased the collection of revenues for decommissioning costs for TMI-1 to a
<PAGE>
Financial Statements
Item 6(b)
Page 28 of 34
1. COMMITMENTS AND CONTINGENCIES (Continued)
basis equivalent to that granted Met-Ed. Collections from customers for
decommissioning 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 $29 million for
TMI-1 and $80 million for Oyster Creek at December 31, 1993.
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 $229 million as of December 31, 1993, 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 have
recorded a liability in the amount of $71 million for nonradiological cost of
removal. The above amounts for retirement costs and monitored storage are
reflected as Three Mile Island Unit 2 Future Costs on the balance sheet.
JCP&L has made a nonrecoverable contribution of $15 million to an external
decommissioning trust. Met-Ed and Penelec have made nonrecoverable
contributions of $40 million and $20 million, respectively, to external
decommissioning trusts relating to their shares of the accident-related
portion of the decommissioning liability.
The NJBRC and the PaPUC have granted JCP&L and Met-Ed, respectively,
decommissioning revenues for the remainder of the NRC funding target and
allowances for the cost of removal of nonradiological structures and
materials. 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 will begin when the amortization of the TMI-2
investment ends, at the same annual amount ($6.3 million for recovery of
radiological decommissioning and $2.0 million for nonradiological cost of
removal, net of gross receipts tax). 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 rate order. The
matter is pending before the court. If the 1993 rate order is reversed,
Met-Ed and Penelec would be required to write off a total of approximately
$170 million for retirement costs. Penelec intends to request decommissioning
revenues and an allowance for the cost of removal of nonradiological
structures and materials, equivalent to its share of the amounts granted to
Met-Ed, in its next retail base rate filing. Management intends to seek
recovery for any increases in TMI-2 retirement costs, but recognizes that
recovery cannot be assured.
Upon TMI-2's entering long-term monitored storage, the Subsidiaries will
incur currently estimated incremental annual storage costs of $1 million. The
<PAGE>
Financial Statements
Item 6(b)
Page 29 of 34
1. COMMITMENTS AND CONTINGENCIES (Continued)
Subsidiaries have deferred the $20 million for the total estimated incremental
costs attributable to monitored storage. The JCP&L share of these costs has
been recognized in rates by the NJBRC. Met-Ed and Penelec believe these costs
should be recoverable through the ratemaking process.
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
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 the stations.
The Price-Anderson Act limits the GPU System's liability to third
parties for a nuclear incident at one of its sites to approximately
$9.4 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 three reactors, subject to an annual maximum payment
of $10 million per incident per reactor. In 1993, GPUN requested an exemption
from the NRC to eliminate the secondary protection requirements for TMI-2.
This matter is pending before the NRC.
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 $52 million in any one year, in addition to those payable under the
Price-Anderson Act.
<PAGE>
Financial Statements
Item 6(b)
Page 30 of 34
1. COMMITMENTS AND CONTINGENCIES (Continued)
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 of 1990, the GPU
System expects to expend up to $590 million for air pollution control
equipment by the year 2000. 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 and Energy 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 December 31, 1993,
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
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1. COMMITMENTS AND CONTINGENCIES (Continued)
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 June 1993, the NJBRC approved a mechanism for the recovery of future
manufactured gas plant remediation costs through JCP&L's Levelized Energy
Adjustment Clause (LEAC) when expenditures exceed prior collections. The
NJBRC 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 currently awaiting a final NJBRC 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.
OTHER COMMITMENTS AND CONTINGENCIES
The NJBRC 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 New Jersey Public Advocate, Division of Rate
Counsel (Rate Counsel), 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 September 1993, JCP&L and the other New Jersey electric utilities
filed motions for summary judgment with the NJBRC requesting that the NJBRC
dismiss contentions being made by Rate Counsel that adjustments for alleged
"double recovery" in prior periods are warranted. Rate Counsel 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 period would be approximately $102 million. Management
believes that the position of Rate Counsel is without merit. This matter is
pending before the NJBRC.
JCP&L's two operating nuclear units are subject to the NJBRC'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
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 NJBRC 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 which may
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1. COMMITMENTS AND CONTINGENCIES (Continued)
result in the PaPUC adopting a generic nuclear performance standard in the
future.
In December 1993, the NJBRC denied JCP&L's request to participate in the
proposed power supply and transmission facilities agreements between the
Subsidiaries and Duquesne Light Company (Duquesne). As a result of this
action and other developments, the Subsidiaries notified Duquesne that they
were exercising their rights under the agreements to withdraw from and thereby
terminate the agreements. Consequently, the Subsidiaries wrote off the $25
million they had invested in the project.
The GPU System's construction programs, for which substantial commitments
have been incurred and which extend over several years, contemplate
expenditures of $663 million during 1994. As a consequence of reliability,
licensing, environmental and other requirements, substantial additions to
utility plant may be required relatively late in their expected service lives.
If such additions are made, current depreciation allowance methodology may not
make adequate provision for the recovery of such investments during their
remaining lives. Management intends to seek recovery of any such costs
through the ratemaking process, but recognizes that recovery is not assured.
As a result of the Energy Policy Act of 1992 (Energy Act) 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.
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
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1. COMMITMENTS AND CONTINGENCIES (Continued)
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. 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 long-term contracts with nonaffiliated
mining companies for the purchase of coal for certain generating stations in
which they have ownership interests. The contracts, which expire between 1994
and the end of the expected service lives of the generating stations, require
the purchase of either fixed or minimum amounts of the stations' coal
requirements. The price of the coal is determined by formulas providing for
the recovery by the mining companies of their costs of production. The
Subsidiaries' share of the cost of coal purchased under these agreements is
expected to aggregate $89 million for 1994.
The Subsidiaries have entered into agreements with other utilities for the
purchase of capacity and energy for various periods through 1999. These
agreements provide for up to 2,130 MW in 1994, declining to 1,307 MW in 1995
and 183 MW by 1999. Payments pursuant to these agreements are estimated to
aggregate $244 million in 1994. The price of the energy purchased under these
agreements is determined by contracts providing generally for the recovery by
the sellers of their costs.
The Subsidiaries have also 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 2,452 MW of capacity and
energy to the GPU System by the mid-to-late 1990s. As of December 31, 1993,
facilities covered by these agreements having 1,193 MW of capacity were in
service, and 215 MW were scheduled to commence operation in 1994. Payments
made pursuant to these agreements were $491 million, $471 million and $343
million for 1993, 1992 and 1991, respectively, and are estimated to aggregate
$551 million for 1994. 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
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1. COMMITMENTS AND CONTINGENCIES (Continued)
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 NJBRC 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.
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.
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