Post-Effective Amendment No. 17 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 LLP
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
Application on Form U-1, docketed in SEC File No. 70-7727, as
heretofore amended, by filing the following exhibits and
financial statements in Item 6 thereof:
(a) Exhibits:
G - Financial Data Schedule.
(b) Financial Statements:
1-A - EI Consolidated Balance Sheets, actual
and pro forma, as at June 30, 1995 and
Consolidated Statement of Operations and
Accumulated Deficit, actual and pro
forma, for the twelve months ended
June 30, 1995; pro forma journal
entries.
1-B - GPU (Corporate) Balance Sheets, actual
and pro forma, as at June 30, 1995 and
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended June 30,
1995; 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 POST-EFFECTIVE AMENDMENT TO BE SIGNED ON THEIR BEHALF
BY THE UNDERSIGNED 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 10, 1995
<PAGE>
EXHIBIT AND FINANCIAL STATEMENTS TO BE FILED BY EDGAR
Exhibit:
G - Financial Data Schedule.
Financial Statements:
1-A - EI Consolidated Balance Sheets, actual
and pro forma, as at June 30, 1995 and
Consolidated Statement of Operations and
Accumulated Deficit, actual and pro
forma, for the twelve months ended
June 30, 1995; pro forma journal
entries.
1-B - GPU (Corporate) Balance Sheets, actual
and pro forma, as at June 30, 1995 and
Consolidated Statements of Income and
Retained Earnings, actual and pro forma,
for the twelve months ended June 30,
1995; pro forma journal entries.
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000840716
<NAME> ENERGY INITIATIVES INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JUL-01-1994 JUL-01-1994
<PERIOD-END> JUN-30-1995 JUN-30-1995
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST>
116,817 116,817
<TOTAL-CURRENT-ASSETS> 7,403 7,403
<TOTAL-DEFERRED-CHARGES> 4,556 4,556
<OTHER-ASSETS> 5,495 5,495
<TOTAL-ASSETS> 134,271 134,271
<COMMON> 100 100
<CAPITAL-SURPLUS-PAID-IN> 126,580 126,580
<RETAINED-EARNINGS> (8,392) (8,392)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 118,288 118,288
0 0
0 0
<LONG-TERM-DEBT-NET> 0 0
<SHORT-TERM-NOTES> 2,500 2,500
<LONG-TERM-NOTES-PAYABLE> 150 150
<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> 13,333 13,333
<TOT-CAPITALIZATION-AND-LIAB> 134,271 134,271
<GROSS-OPERATING-REVENUE> 5,815 5,815
<INCOME-TAX-EXPENSE> (2,260) (2,260)
<OTHER-OPERATING-EXPENSES> 11,722 11,722
<TOTAL-OPERATING-EXPENSES> 9,462 9,462
<OPERATING-INCOME-LOSS> (3,647) (3,647)
<OTHER-INCOME-NET> (945) (945)
<INCOME-BEFORE-INTEREST-EXPEN> (4,592) (4,592)
<TOTAL-INTEREST-EXPENSE> 2 2
<NET-INCOME> (4,594) (4,594)
0 0
<EARNINGS-AVAILABLE-FOR-COMM> (4,594) (4,594)
<COMMON-STOCK-DIVIDENDS> 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> (5,300) (5,300)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
</FN>
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000040779
<NAME> GENERAL PUBLIC UTILITIES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S>
<C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-START> JUL-01-1994 JUL-01-1994
<PERIOD-END> JUN-30-1995 JUN-30-1995
<EXCHANGE-RATE> 1 1
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 0 0
<OTHER-PROPERTY-AND-INVEST> 2,796,268 2,793,321
<TOTAL-CURRENT-ASSETS> 11,821 64,896
<TOTAL-DEFERRED-CHARGES> 0 0
<OTHER-ASSETS> 0 0
<TOTAL-ASSETS> 2,808,089 2,858,217
<COMMON> 314,458 319,110
<CAPITAL-SURPLUS-PAID-IN> 686,272 734,745
<RETAINED-EARNINGS> 1,810,025 1,807,028
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,648,735 <F1> 2,698,863 <F1>
0 0
0 0
<LONG-TERM-DEBT-NET> 0 0
<SHORT-TERM-NOTES> 99,600 99,600
<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> 59,754 59,754
<TOT-CAPITALIZATION-AND-LIAB> 2,808,089 2,858,217
<GROSS-OPERATING-REVENUE> 0 0
<INCOME-TAX-EXPENSE> 0 0
<OTHER-OPERATING-EXPENSES> 3,399 3,399
<TOTAL-OPERATING-EXPENSES> 3,399 3,399
<OPERATING-INCOME-LOSS> (3,399) (3,399)
<OTHER-INCOME-NET> 313,204 310,207
<INCOME-BEFORE-INTEREST-EXPEN> 309,805 306,808
<TOTAL-INTEREST-EXPENSE> 7,200 7,200
<NET-INCOME> 302,605 299,608
0 0
<EARNINGS-AVAILABLE-FOR-COMM> 302,605 299,608
<COMMON-STOCK-DIVIDENDS> 212,514 212,514
<TOTAL-INTEREST-ON-BONDS> 0 0
<CASH-FLOW-OPERATIONS> (361) (361)
<EPS-PRIMARY> 2.62 2.62
<EPS-DILUTED> 2.62 2.62
<FN>
<F1> INCLUDES REACQUIRED COMMON STOCK OF $162,020.
</FN>
<PAGE>
</TABLE>
<TABLE>
Financial Statements
Item M.(b) 1-A
Page 1 of 22
ENERGY INITIATIVES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT JUNE 30, 1995
(IN THOUSANDS)
<CAPTION>
Actual
(Unaudited) Adjustments Pro Forma
<S> <C> <C> <C>
ASSETS
Property and equipment $ 977 $ - $ 977
Less accumulated depreciation (473) - (473)
Property and equipment, net 504 - 504
Other Investments:
Investment in nonutility generation projects 72 437 - 72 437
Investment in securities 18 889 - 18 889
Intangible assets 24 778 - 24 778
Other 209 - 209
Total other investments 116 313 - 116 313
Current Assets:
Cash & temporary investments 635 - 635
Accounts receivable 1 874 - 1 874
Restricted cash 1 292 - 1 292
Deferred income taxes 492 - 492
Prepayment & deposits 3 110 - 3 110
Total current assets 7 403 - 7 403
Non-Current Assets:
Long term receivables 233 - 233
Deferred income taxes 4 556 - 4 556
Notes receivable from partnership 5 262 - 5 262
Total non-current assets 10 051 - 10 051
Total Assets $ 134 271 $ - $ 134 271
It is not anticipated that GPU's investments subject to the limitation of the GPU Contribution
Cap, or EI's transactions subject to the limitation of the EI Guarantee Cap, would require any
adjustments in the financial statements, but would require only footnote disclosure.
The accompanying note is an integral part of the consolidated financial statements.<PAGE>
Financial Statements
Item M.(b) 1-A
Page 2 of 22
ENERGY INITIATIVES, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ACTUAL (UNAUDITED) AND PRO FORMA
AT JUNE 30, 1995
(IN THOUSANDS)
<CAPTION>
Actual
(Unaudited) Adjustments Pro Forma
<S> <C> <C> <C>
LIABILITIES
Common Stock & Accumulated Deficit:
Common stock $ 100 - $ 100
Paid in capital 126 580 - 126 580
Appropriated retained earnings 9 821 - 9 821
Accumulated deficit (18 213) - (18 213)
Total common stock and
accumulated deficit 118 288 - 118 288
Current Liabilities:
Accounts payable 3 227 - 3 227
Notes payable 2 500 - 2 500
Accrued liabilities 763 - 763
Total current liabilities 6 490 - 6 490
Non-current Liabilities:
Notes payable 150 - 150
Deferred income taxes 7 036 - 7 036
Deferred compensation 68 - 68
Deferred revenue 2 239 - 2 239
Total non-current liabilities 9 493 - 9 493
Total Liabilities and Capital $ 134 271 $ - $ 134 271
It is not anticipated that GPU's investments subject to the limitation of the GPU Contribution
Cap, or EI's transactions subject to the limitation of the EI Guarantee Cap, would require any
adjustments in the financial statements, but would require only footnote disclosure.
The accompanying note is an integral part of the consolidated financial statements.<PAGE>
Financial Statements
Item M.(b) 1-A
Page 3 of 22
ENERGY INITIATIVES, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
ACTUAL (UNAUDITED) AND PRO FORMA
FOR THE TWELVE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
<CAPTION>
Actual
(Unaudited) Adjustments Pro Forma
<S> <C> <C> <C>
Operating Revenues $ 5 815 $ - $ 5 815
Operating Expenses:
Operation and maintenance 10 690 - 10 690
Depreciation 825 - 825
Taxes other than income 207 - 207
Total 11 722 - 11 722
Operating Loss (5 907) - (5 907)
Other Income and Deductions:
Equity in losses of partnerships (1 421) - (1 421)
Interest and dividend income 476 - 476
Interest expense (2) - (2)
Total (947) - (947)
Loss Before Income Taxes (6 854) - (6 854)
Income tax expense (benefit) (2 260) - (2 260)
Net Loss $ (4 594) $ - $ (4 594)
Accumulated Deficit:
Balance at Beginning of Period $ (13 619) $ - $ (13 619)
Net Loss (4 594) - (4 594)
Balance at End of Period $ (18 213) $ - $ (18 213)
It is not anticipated that GPU's investments subject to the limitation of the GPU Contribution
Cap, or EI's transactions subject to the limitation of the EI Guarantee Cap, would require any
adjustments in the financial statements, but would require only footnote disclosure.
The accompanying note is an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
Financial Statements
Item M.(b) 1-A
Page 4 of 22
ENERGY INITIATIVES, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ORGANIZATION AND BUSINESS
In April 1994, Energy Initiatives, Inc. (EII or the Company) merged with
its parent company, General Portfolios Corporation, 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),
EI Selkirk, Inc., Camchino Energy Corporation (Camchino), Geddes Cogeneration
Corporation (Geddes) and NCP Energy, Incorporated (NCP Energy) formerly North
Canadian Power, Inc. (NCP). It also owns 100% of Armstrong Energy
Corporation, Hanover Energy Corporation, EI Services, Inc., and EI Fuels,
which are inactive corporations. 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.
EII also owns 100% of the stock of the following Canadian corporations:
EI Canada Holding Limited, EI Services Canada Limited, and EI Brooklyn Power
Limited. These corporations were formed to purchase ownership interests in
and to provide operations and management services to Exempt Wholesale
Generators (EWG'S) in Canada.
1. COMMITMENTS AND CONTINGENCIES
GPU has guaranteed payments to General Electric Capital Corporation of
amounts up to $7,026,000 to the extent Lake Cogen, Ltd. (Lake), fails to pay
rent when due under the terms of the lease or chooses not to renew the lease
after the initial 11-year term.
Onondaga and Project Orange Associates, L.P. (POA) entered into power
purchase agreements with Niagara Mohawk under which the utility agreed to
purchase the net electrical energy and capacity produced by Onondaga and POA
up to a maximum of 79.9 MW. In August 1992, Niagara Mohawk filed a petition
with the New York Public Service Commission requesting authorization to
curtail purchases from all QF's with which it had signed power purchase
agreements. Both partnerships have opposed Niagara Mohawk's petition and a
decision on the matter has been delayed to a future undetermined date. An
unfavorable ruling could materially affect the operations and cash flows of
Onondaga and POA, as well as the carrying value of EII's investments in both
Onondaga and Syracuse Orange Partners, L.P. (SOP).
<PAGE>
Financial Statements
Item M.(b) 1-A
Page 5 of 22
Niagara Mohawk has advised both Onondaga and POA that it believes their
power purchase agreements include provisions that limit the amount of
electricity deliveries for which Niagara Mohawk is required to pay contract
rates. Niagara Mohawk claims that any electricity delivered in excess of these
quantities would be purchased at market rates substantially below the contract
rates. Both Onondaga and POA have objected to Niagara Mohawk's position and
have agreed to initiate negotiations seeking mutually agreeable amendments to
their power purchase agreements. In exchange for such an agreement, Niagara
Mohawk has agreed to pay contract prices for all electricity delivered during
1993 and 1994, but indicated that they reserve the right to recover
overpayments, which they estimate to be approximately $1.2 million for
Onondaga and $3.6 million for POA, if negotiations are unsuccessful. If
Niagara Mohawk were to withhold the alleged overpayments, Onondaga and POA
believe it would be necessary to institute litigation against Niagara Mohawk.
In February 1995, Niagara Mohawk filed a petition with the FERC to
invalidate power purchase agreements entered into pursuant to Section 66-C of
the New York Public Service Law requiring Niagara Mohawk to purchase energy
and capacity from qualifying facilities at not less than 6 cents per KWH. It
is not clear whether the petition seeks relief with regard to Onondaga's and
POA's power purchase agreements or what the impact on the partnerships would
be if the FERC granted the petition.
Florida Power Corporation (FPC) has initiated legal proceedings seeking
relief on the price it pays for energy delivered from Lake and Pasco Cogen
Ltd. (Pasco), and the right to curtail purchases of electricity. In October
1994, FPC filed a petition with the Florida Public Service Commission for a
determination that its plan for curtailing purchases from QF's is consistent
with Florida statutes. Lake and Pasco are defending their positions in these
proceedings.
Since August 1994, FPC has been paying based on the as-available prices
(which were generally less than the formula price under their power purchase
agreements) in a majority of the hours during which energy is delivered. Lake
has written off approximately $1.2 million in receivables associated with
these reduced rate payments. In addition, EII has written down its investment
in Pasco for its pro rata share of approximately $1 million in reduced rate
payments.
<PAGE>
<TABLE>
Financial Statements
Item M.(b) 1-B
Page 6 of 22
GENERAL PUBLIC UTILITIES CORPORATION
BALANCE SHEETS
ACTUAL AND PRO FORMA
AT JUNE 30, 1995
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See page 8) Pro Forma
<S> <C> <C> <C>
ASSETS
Investments:
Investments in subsidiaries $2 792 210 $ (2 947) $2 789 263
Other investments 4 058 - 4 058
Total investments 2 796 268 (2 947) 2 793 321
Current Assets:
Cash and temporary cash investments 10 666 53 075 63 741
Accounts receivable, net 934 - 934
Prepayments 221 - 221
Total current assets 11 821 53 075 64 896
Total Assets $2 808 089 $ 50 128 $2 858 217
LIABILITIES AND CAPITAL
Common Stock and Surplus:
Common stock $ 314 458 $ 4 652 $ 319 110
Capital surplus 686 272 48 473 734 745
Retained earnings 1 810 025 (2 997) 1 807 028
Total 2 810 755 50 128 2 860 883
Less: reacquired common stock, at cost (162 020) - (162 020)
Total common stockholders's equity 2 648 735 50 128 2 698 863
Current Liabilities:
Notes payable 99 600 - 99 600
Accounts payable 262 - 262
Taxes accrued 4 - 4
Interest accrued 665 - 665
Other 57 700 - 57 700
Total current liabilities 158 231 - 158 231
Deferred credits and other liabilities 1 123 - 1 123
Total Liabilities and Capital $2 808 089 $ 50 128 $2 858 217
It is not anticipated that GPU's investments subject to the limitation of the GPU Contribution
Cap, or EI's transactions subject to the limitation of the EI Guarantee Cap, would require any
adjustments in the financial statements, but would require only footnote disclosure.
The accompanying note is an integral part of the financial statements.<PAGE>
Financial Statements
Item M.(b) 1-B
Page 7 of 22
GENERAL PUBLIC UTILITIES CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
ACTUAL AND PRO FORMA
FOR THE TWELVE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)
<CAPTION>
Actual Adjustments
(Unaudited) (See page 8) Pro Forma
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiaries $ 312 178 $ (2 997) $ 309 181
Other income, net 1 026 - 1 026
Total 313 204 (2 997) 310 207
Expense, Taxes and Interest:
General expenses 3 399 - 3 399
Income tax expense - - -
Interest expense 7 200 - 7 200
Total 10 599 - 10 599
Net Income $ 302 605 $ (2 997) $ 299 608
Retained Earnings:
Balance at beginning of period $1 715 678 $ - $1 715 678
Add - Net income 302 605 (2 997) 299 608
Deduct - Cash dividends on common stock 212 514 - 212 514
Other adjustments (4 256) - (4 256)
Balance at end of period $1 810 025 $ (2 997) $1 807 028
It is not anticipated that GPU's investments subject to the limitation of the GPU Contribution
Cap, or EI's transactions subject to the limitation of the EI Guarantee Cap, would require any
adjustments in the financial statements, but would require only footnote disclosure.
The accompanying note is an integral part of the financial statements.<PAGE>
Financial Statements
Item M.(b) 1-B
Page 8 of 22
GENERAL PUBLIC UTILITIES CORPORATION
PRO FORMA ADJUSTMENTS
AT JUNE 30, 1995
(IN THOUSANDS)
<CAPTION>
(1)
<S> <C> <C>
Cash and temporary cash investments $45,906
Common Stock $ 4,027
Capital Surplus $41,879
To record the proposed issuance and sale of 1,610,752 shares (authorized
2,500,000 limit less 889,248 shares sold to date) of $2.50 par value common
stock at $28.50 per share under the Dividend Reinvestment and Stock Purchase
Plan (SEC File No. 70-7670).
(2)
Cash and temporary cash investments $ 7,219
Common Stock $ 625
Capital Surplus $ 6,594
To record the proposed issuance of 250,000 shares of $2.50 par value common
stock at $28 7/8 per share (SEC File No. 70-8695).
(3)
Equity in earnings of subsidiaries $ 2,997
Investment in subsidiaries $ 2,997
To record GPU's share of the net effect of the Subsidiary companies'
incremental rent expense, annual fees, and decrease in income taxes associated
with the proposed nuclear fuel lease (SEC File No. 70-7862).
(4)
Investment in subsidiaries $ 50
Cash and temporary cash investments $ 50
To record the acquisition of all of the common stock of GPU Generation
Corporation, a corporation to be formed for $50,000 (SEC File No. 70-8409).
</TABLE>
<PAGE>
Financial Statements
Item M.(b) 1-B
Page 9 of 22
GENERAL PUBLIC UTILITIES CORPORATION AND SUBSIDIARY COMPANIES
NOTE 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 Energy Initiatives, Inc. (EI) and EI Power, Inc., which
develop, own and operate 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 1994 Annual Report on Form 10-K. For
disclosures required by generally accepted accounting principles, see the 1994
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. 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. At June 30, 1995 and December
31, 1994, the Subsidiaries' net investment in TMI-1 and Oyster Creek,
including nuclear fuel, was as follows:
Net Investment (Millions)
TMI-1 Oyster Creek
June 30, 1995 $640 $791
December 31, 1994 $627 $817
The Subsidiaries' net investment in TMI-2 at June 30, 1995 and December
31, 1994 was $101 million and $103 million, respectively, of which JCP&L's
remaining investment was $87 million and $89 million, respectively. JCP&L is
collecting retail revenues for TMI-2 on a basis which provides for the
recovery of its remaining investment in the plant by 2008. Met-Ed and Penelec
have recovered substantially all of their investments in TMI-2.
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
<PAGE>
Financial Statements
Item M.(b) 1-B
Page 10 of 22
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 (see NUCLEAR PLANT RETIREMENT COSTS). Management intends, in general,
to seek recovery of such costs through the ratemaking process, but recognizes
that recovery is not assured (see COMPETITION AND THE CHANGING REGULATORY
ENVIRONMENT).
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
The cleanup program was completed in 1990, and, 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 United
States 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. 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 had 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, in March 1994, the defendants in the TMI-2 litigation and
the insurers agreed that the insurers would withdraw their reservation of
rights with respect to any award of punitive damages.
In June 1993, the Court agreed to permit pre-trial discovery on the
punitive damage claims to proceed. A trial of ten allegedly representative
cases is scheduled to begin in June 1996. In February 1994, the Court held
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Financial Statements
Item M.(b) 1-B
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that the plaintiffs' claims for punitive damages are not barred by the Price-
Anderson Act to the extent that the funds to pay punitive damages do not come
out of the U.S. Treasury. The Court also denied the defendants' motion
seeking a dismissal of all cases on the grounds that the defendants complied
with applicable federal safety standards regarding permissible radiation
releases from TMI-2 and that, as a matter of law, the defendants therefore did
not breach any duty that they may have owed to the individual plaintiffs. The
Court stated that a dispute about what radiation and emissions were released
cannot be resolved on a motion for summary judgment. In July 1994, the Court
granted defendants' motions for interlocutory appeal of these orders, stating
that they raise questions of law that contain substantial grounds for
differences of opinion. The issues are now before the United States Court of
Appeals for the Third Circuit.
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 (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's 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 has been developed which takes the
accident into account (see TMI-2 Future Costs). 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 considered 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.
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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
(in 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 (in 1994 dollars). To date, no
site-specific study has been performed for TMI-2.
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. 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 amounts written off for
TMI-2 nuclear plant decommissioning in 1990 and 1991 to TMI-2's external trust
and will await resolution of the case pending before the Pennsylvania Supreme
Court before making any further contributions for amounts written off by Met-
Ed and Penelec in 1994 (see TMI-2 Future Costs). Amounts deposited in
external trusts, including the interest earned on these funds, are classified
as Nuclear Decommissioning Trusts on the balance sheet.
The Financial Accounting Standards Board (FASB) is currently reviewing
the utility industry's accounting practices for nuclear decommissioning costs.
If the FASB's tentative conclusions are adopted, Oyster Creek and TMI-1
retirement costs may have to be recorded as a liability, rather than as
accumulated depreciation, with an offsetting asset recorded for amounts
collectible through rates. Any amounts that cannot be collected through rates
may have to be charged to expense. The FASB is expected to release an
Exposure Draft on decommissioning accounting practices by the fourth quarter
of 1995.
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 of $15.3 million
for TMI-1 and $31.6 million for Oyster Creek adopted in previous rate orders
issued by the New Jersey Board of Public Utilities (NJBPU), for its share of
the cost of removal of nonradiological structures and materials. The
Pennsylvania Public Utility Commission (PaPUC) previously 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. The PaPUC also 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. Provision for the
future expenditures of these funds has been made in accumulated depreciation,
amounting to $57 million for TMI-1 and $120 million for Oyster Creek at
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June 30, 1995. Oyster Creek and TMI-1 retirement costs are 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 under the current ratemaking process.
TMI-2 Future Costs:
The Subsidiaries have recorded a liability for the radiological
decommissioning of TMI-2, reflecting the NRC funding target (in 1995 dollars).
The Subsidiaries record escalations, when applicable, in the liability based
upon changes in the NRC funding target. The Subsidiaries have also recorded a
liability for incremental costs specifically attributable to monitored
storage. In addition, the Subsidiaries have recorded a liability for the
nonradiological cost of removal consistent with the TMI-1 site-specific study
and have spent $3 million as of June 30, 1995. Estimated TMI-2 Future Costs
as of June 30, 1995 and December 31, 1994 are as follows:
June 30, 1995 December 31, 1994
(Millions) (Millions)
Radiological Decommissioning $256 $250
Nonradiological Cost of Removal 72 72
Incremental Monitored Storage 19 19
Total $347 $341
The above amounts are reflected as Three Mile Island Unit 2 Future Costs
on the balance sheet. At June 30, 1995, $112 million was in trust funds for
TMI-2 and included in Nuclear Decommissioning Trusts on the balance sheet, and
$48 million was recoverable from customers and included in Three Mile Island
Unit 2 Deferred Costs on the balance sheet.
In 1993, a PaPUC rate order for Met-Ed allowed for the future recovery
of certain TMI-2 retirement costs. The Pennsylvania Office of Consumer
Advocate requested the Commonwealth Court to set aside the PaPUC's 1993 rate
order and in 1994, the Commonwealth Court reversed the PaPUC order. In
December 1994, the Pennsylvania Supreme Court granted Met-Ed's request to
review that decision. Oral argument was held on April 27, 1995, and the
matter is pending. As a consequence of the Commonwealth Court decision,
Met-Ed recorded pre-tax charges totaling $127.6 million during 1994. Penelec,
which is also subject to PaPUC regulation, recorded pre-tax charges of
$56.3 million during 1994, for its share of such costs applicable to its
retail customers. These charges appear in the Other Income and Deductions
section of the 1994 Consolidated Statement of Income and are composed of
$121 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 will await resolution of the appeal pending
before the Pennsylvania Supreme Court before making any nonrecoverable funding
contributions to external trusts for their share of these costs. The
Pennsylvania Subsidiaries are similarly required to charge to expense their
share of future increases in the estimate of the costs of retiring TMI-2 if
the Pennsylvania Supreme Court does not reverse the Commonwealth Court's
decision. Earnings on trust fund deposits for Met-Ed and Penelec are recorded
as income. Prior to the Commonwealth Court's decision, Met-Ed and Penelec
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Item M.(b) 1-B
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contributed $40 million and $20 million respectively, to external trusts
relating to their shares of the accident-related portion of the
decommissioning liability. JCP&L also made a contribution of $15 million to
an external decommissioning trust. These contributions were not recovered
from customers and have been expensed. 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 NJBPU has granted JCP&L decommissioning revenues for 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 are incurring incremental annual storage costs of
approximately $1 million. The Subsidiaries estimate that the remaining annual
storage costs will total $19 million through 2014, the expected retirement
date of TMI-1. JCP&L's rates reflect its $5 million share of these costs.
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 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 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
$8.9 billion. Coverage for the first $200 million of such liability is
provided by private insurance. The remaining coverage, or secondary financial
protection, is provided by retrospective premiums payable by all nuclear
reactor owners. Under secondary financial 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 (TMI-2 being excluded
under an exemption received from the NRC in 1994), subject to an annual
maximum payment of $10 million per incident per reactor. In addition to the
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Financial Statements
Item M.(b) 1-B
Page 15 of 22
retrospective premiums payable under Price-Anderson, the GPU System is also
subject to retrospective premium assessments of up to $69 million in any one
year under insurance policies applicable to nuclear operations and facilities.
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 beginning at $1.8 million for Oyster Creek and $2.6 million for
TMI-1 per week for the first year, decreasing by 20 percent for years two and
three.
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
Nonutility Generation Agreements:
Pursuant to the requirements of the federal Public Utility Regulatory
Policies Act (PURPA) and state regulatory directives, the Subsidiaries have
entered into power purchase agreements with nonutility generators for the
purchase of energy and capacity for periods up to 26 years. The majority of
these agreements contain certain contract limitations and subject the
nonutility generators to penalties for nonperformance. While a few of these
facilities are dispatchable, most are must-run and generally obligate the
Subsidiaries to purchase, at the contract price, the net output up to the
contract limits. As of June 30, 1995, facilities covered by these agreements
having 1,535 MW (JCP&L 892 MW, Met-Ed 246 MW and Penelec 397 MW) of capacity
were in service and 89 MW were scheduled to commence operation later in 1995.
Estimated payments to nonutility generators from 1995 through 1999, assuming
all facilities which have existing agreements, or which have obtained orders
granting them agreements enter service, are as follows:
Payments Under Nonutility Agreements
(Millions)
Total JCP&L Met-Ed Penelec
1995 $ 694 $ 395 $ 114 $ 185
1996 918 556 170 192
1997 1,062 571 278 213
1998 1,306 587 414 305
1999 1,340 607 419 314
These agreements, in the aggregate, will provide approximately 2,589 MW
(JCP&L 1,202 MW, Met-Ed 812 MW and Penelec 575 MW) of capacity and energy to
the GPU System, at varying prices.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the System's energy supply needs which has caused
the Subsidiaries to change their supply strategy to seek shorter-term
agreements offering more flexibility. Due to the current availability of
excess capacity in the marketplace, the cost of near- to intermediate-term
(i.e., one to eight years) energy supply from existing generation facilities
is currently and expected to continue to be competitively priced at least for
the near- to intermediate-term. The projected cost of energy from new
generation supply sources has also decreased due to improvements in power
<PAGE>
Financial Statements
Item M.(b) 1-B
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plant technologies and reduced forecasted fuel prices. As a result of these
developments, the rates under virtually all of the Subsidiaries' nonutility
generation agreements are substantially in excess of current and projected
prices from alternative sources.
The Subsidiaries are seeking to reduce the above market costs of these
nonutility generation agreements by (1) attempting to convert must-run
agreements to dispatchable agreements; (2) attempting to renegotiate prices of
the agreements; (3) offering contract buy-outs while seeking to recover the
costs through their energy clauses and (4) initiating proceedings before
federal and state administrative agencies, and in the courts. In addition, the
Subsidiaries intend to avoid, to the maximum extent practicable, entering into
any new nonutility generation agreements that are not needed or not consistent
with current market pricing and are supporting legislative efforts to repeal
PURPA. These efforts may result in claims against the GPU System for
substantial damages. There can, however, be no assurance as to what extent
the Subsidiaries' efforts will be successful in whole or in part.
While the Subsidiaries thus far have been granted recovery of their
nonutility generation costs from customers by the PaPUC and NJBPU, there can
be no assurance that the Subsidiaries will continue to be able to recover
these costs throughout the term of the related agreements. The GPU System
currently estimates that in 1998, when substantially all of these nonutility
generation projects are scheduled to be in service, above market payments
(benchmarked against the expected cost of electricity produced by a new gas-
fired combined cycle facility) will range from $300 million to $450 million
annually.
Regulatory Assets and Liabilities:
As a result of the Energy Policy Act of 1992 (Energy Act) and actions of
regulatory commissions, the electric utility industry is moving toward a
combination of competition and a modified regulatory environment. In
accordance with Statement of Financial Accounting Standards No. 71 (FAS 71),
"Accounting for the Effects of Certain Types of Regulation," 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.
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Item M.(b) 1-B
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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.
In accordance with the provisions of FAS 71, the Subsidiaries have
deferred certain costs pursuant to actions of the NJBPU, PaPUC and Federal
Energy Regulatory Commission (FERC) and are recovering or expect to recover
such costs in electric rates charged to customers. Regulatory assets are
reflected in the Deferred Debits and Other Assets section of the Consolidated
Balance Sheet, and regulatory liabilities are reflected in the Deferred
Credits and Other Liabilities section of the Consolidated Balance Sheet.
Regulatory assets and liabilities, as reflected in the June 30, 1995
Consolidated Balance Sheet, were as follows:
(In thousands)
Assets Liabilities
Income taxes recoverable/refundable
through future rates $ 574,519 $102,332
TMI-2 deferred costs 149,008 -
TMI-2 tax refund - 3,786
Unamortized property losses 106,558 -
N.J. unit tax 54,185 -
Unamortized loss on reacquired debt 52,664 -
DOE enrichment facility decommissioning 42,182 -
Load and demand side management programs 44,220 -
Other postretirement benefits 50,552 -
Manufactured gas plant remediation 29,548 -
Nuclear fuel disposal fee 23,608 -
Storm damage 23,048 -
N.J. low level radwaste disposal 16,935 -
Oyster Creek deferred costs 11,430 -
Other 8,819 4,401
Total $1,187,276 $110,519
Income taxes recoverable/refundable through future rates: Represents amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes,"
in 1993.
<PAGE>
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Item M.(b) 1-B
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TMI-2 deferred costs: Primarily represents costs that are being recovered
through retail rates for the remaining JCP&L investment in the plant and fuel
core, radiological decommissioning for JCP&L's share of the NRC's funding
target and allowances for the cost of removal of nonradiological structures
and materials, and long-term monitored storage costs. For additional
information, see TMI-2 Future Costs.
TMI-2 tax refund: Represents the tax refund related to the tax abandonment of
TMI-2. This balance is being amortized by the Pennsylvania subsidiaries
concurrent with its return to customers through a base rate credit.
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River Project, which is included in rates.
N.J. unit tax: JCP&L received NJBPU approval in 1993 to recover, over a ten-
year period on an annuity basis, $71.8 million of Gross Receipts and Franchise
Tax not previously recovered from customers.
Unamortized loss on reacquired debt: Represents premiums and expenses incurred
in the redemption of long-term debt. In accordance with FERC regulations,
reacquired debt costs are amortized over the remaining original life of the
retired debt.
DOE enrichment facility decommissioning: These costs, representing payments
to the DOE over a 15-year period beginning in 1994, are currently being
collected through the Subsidiaries' energy adjustment clauses.
Load and demand side management (DSM) programs: Consists of load management
costs that are currently being recovered through JCP&L's retail base rates
pursuant to a 1993 NJBPU order, and other DSM program expenditures that are
recovered annually. Also includes provisions for lost revenues between base
rate cases and performance incentives.
Other postretirement benefits: Includes costs associated with the adoption of
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Recovery of these costs is subject to regulatory approval.
Manufactured gas plant remediation: Consists of costs associated with the
investigation and remediation of several gas manufacturing plants. For
additional information, see ENVIRONMENTAL MATTERS.
Nuclear fuel disposal fee: Represents amounts recoverable through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and
TMI-1 in accordance with the Nuclear Waste Policy Act of 1982.
Storm damage: Relates to noncapital costs associated with various storms in
the JCP&L service territory that are not recoverable through insurance. These
amounts were deferred based upon past rate recovery precedent. An annual
amount for recovery of storm damage expense is included in JCP&L's retail base
rates.
N.J. low level radwaste disposal: Represents the accrual of the estimated
assessment for disposal of low-level waste from Oyster Creek, less
amortization as allowed in JCP&L's rates.
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Item M.(b) 1-B
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Oyster Creek deferred costs: Consists of replacement power and O&M costs
deferred in accordance with orders from the NJBPU. JCP&L has been granted
recovery of these costs through rates at an annual amount until fully
amortized.
Amounts related to the decommissioning of TMI-1 and Oyster Creek, which
are not included in Regulatory Assets on the balance sheet, are separately
disclosed in NUCLEAR PLANT RETIREMENT COSTS.
The Subsidiaries continue to be subject to cost-based ratemaking
regulation. The Corporation is unable to estimate to what extent FAS 71 may no
longer be applicable to its utility assets in the future.
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, decommission or clean up waste disposal and other sites currently
or formerly used by it, including formerly owned manufactured gas plants, mine
refuse piles and generating facilities, 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.
To comply with the federal Clean Air Act Amendments (Clean Air Act) of
1990, the Subsidiaries expect to spend up to $380 million for air pollution
control equipment by the year 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 allowance market
and the use of low-sulfur fuel or retirement of facilities. In 1994, the
Ozone Transport Commission (OTC), consisting of representatives of 12
northeast states (including New Jersey and Pennsylvania) and the District of
Columbia, proposed reductions in nitrogen oxide (NOx) emissions it believes
necessary to meet ambient air quality standards for ozone and the statutory
deadlines set by the Clean Air Act. The Corporation expects that the U.S.
Environmental Protection Agency (EPA) will approve the proposal, and that as a
result, the Subsidiaries will spend an estimated $60 million, beginning in
1997, to meet the reductions set by the OTC. The OTC requires additional NOx
reductions to meet the Clean Air Act's 2005 National Ambient Air Quality
Standards for ozone. However, the specific requirements that will have to be
met at that time have not been finalized. The Subsidiaries are unable to
determine what additional costs, if any, will be incurred.
The GPU System companies have been notified by the 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 12 hazardous and/or toxic
waste sites. In addition, the Subsidiaries have been requested to voluntarily
participate in the remediation or supply information to the EPA and state
environmental authorities on several other sites for which they have not yet
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Item M.(b) 1-B
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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 Subsidiaries.
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. JCP&L has also entered into various cost-
sharing agreements with other utilities for some of the sites. As of June 30,
1995, JCP&L has an estimated environmental liability of $32 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. Since
collections currently exceed expenditures, the NJBPU decision also provided
for interest on the excess to be credited to customers until the overrecovery
is eliminated and for future costs to be amortized over seven years with
interest. A final 1994 NJBPU order indicated that interest is to be accrued
retroactive to June 1993. JCP&L is pursuing reimbursement of the remediation
costs from its insurance carriers. In 1994, JCP&L filed a complaint with the
Superior Court of New Jersey against several of its insurance carriers,
relative to these manufactured gas plant sites. JCP&L requested the Court to
order the insurance carriers to reimburse JCP&L for all amounts it has paid,
or may be required to pay, in connection with the remediation of the sites.
Pretrial discovery has begun in this case.
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.
OTHER COMMITMENTS AND CONTINGENCIES
The GPU System's construction programs, for which substantial
commitments have been incurred and which extend over several years,
contemplate expenditures of $482 million during 1995. As a consequence of
reliability, licensing, environmental and other requirements, additions to
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Item M.(b) 1-B
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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 such costs through
the ratemaking process, but recognizes that recovery is not assured.
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 1995 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 under the contracts is
based on adjustments of indexed cost components. One contract also includes a
provision for the payment of environmental and postretirement benefit costs.
The Subsidiaries' share of the cost of coal purchased under these agreements
is expected to aggregate $90 million for 1995.
The Subsidiaries have entered into agreements with other utilities to
purchase capacity and energy for various periods through 2004. These
agreements will provide for up to 1,308 MW in 1995, declining to 1,096 MW in
1997 and 696 MW by 2004. For the years 1995 through 1999, payments pursuant
to these agreements are estimated as follows:
Payments Under Other Utility Agreements
(Millions)
Total JCP&L Met-Ed
1995 $ 208 $ 202 $ 6
1996 175 175 -
1997 162 162 -
1998 145 145 -
1999 128 128 -
JCP&L has commenced construction of a 141 MW gas-fired combustion
turbine at its Gilbert generating station. The new facility, coupled with the
retirement of two older units, will result in a net capacity increase of
approximately 95 MW. This estimated $50 million project is expected to be in-
service by mid-1996. In February 1995, the NJDEP issued an air permit for the
facility based, in part, on the NJBPU's December 1994 order which found that
New Jersey's Electric Facility Need Assessment Act is not applicable to this
combustion turbine and that construction of this facility, without a market
test, is consistent with New Jersey energy policies. An industry trade group
representing nonutility generators has appealed the NJDEP's issuance of the
air permit and the NJBPU's order to the Appellate Division of the New Jersey
Superior Court. JCP&L has moved to dismiss the appeal. There can be no
assurance as to the outcome of this proceeding.
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 Division 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
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Financial Statements
Item M.(b) 1-B
Page 22 of 22
recovery of the utilities' embedded capacity costs through their base rates.
In 1994, the NJBPU ruled that the 1991 LEAC period was considered closed but
subsequent LEAC periods remain open for further investigation. This matter is
pending before a NJBPU Administrative Law Judge. JCP&L estimates that the
potential exposure from the 1992 LEAC period through February 1996, the end of
the current LEAC period, is $73 million. There can be no assurance as to the
outcome of this proceeding.
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
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 $11 million before tax. 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.
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 types of matters would have a material effect on the GPU
System's financial position or results of operations.
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